TaxTMI 
TaxTMI 
2022 (11) TMI 71
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....Act) dated 29/12/2017 by the ld. Asst. Commissioner of Income Tax, Circle-2(3)(2), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. ITA NO. 2725/Mum/2019 - Revenue Appeal - Asst Year 2014-15 2. The Ground No.1 raised by the revenue is challenging the deletion of addition made on account of interest income on accrual basis instead of due basis. 2.1. We have heard the rival submissions and perused the materials available on record. This issue is no longer res integra in view of the decision of Hon'ble Jurisdictional High Court in assessee's own case for the A.Y. 2000-01 in Income Tax Appeal No. 1621 of 2011 dated 12/02/2013 wherein the question raised before the Hon'ble High Court is as under:- "Whether on the facts and in the circumstance of the case and in law the Tribunal was right in excluding from the total income of the Assessee Company the amount of interest of Rs 29,36,03,288/- which had accrued, but not fallen due or received ?" 2.2. The Hon'ble High Court disposed of the said question by observing as und....
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...."7.4.3 I have considered the above submissions of the appellant as well as the facts of the case. The Hon'ble Mumbai Tribunal in the appellant's own case for A.Y.2009- 10 had held as under: "9. Disallowance of expenditure on ESOP is the subject matter of Ground No.4 for the year under appeal. During the assessment proceedings the AO held that the assesses had not incurred the expenditure for issuing ESOPs, that it was an unascertainable item of expenditure, that it depended upon the option to be exercised by the employees at a future date. In the appellate proceedings the FAA upheld the order of the AO. 9.1 Before us, the AR argued that share under ESOP were issued to the employee at below market price to retain them in co., that it was a form of compensation for services rendered, that SEBI had directed the listed companies to account for the compensation cost as expenditure, that ESOP amortization cost was charged to the P&LA/c. under the matching cost and revenue principles as well as fundamental accounting concept of prudence, that both the above concepts were followed as per mandatory Accounting Standard-:,that there was no benefit of enduring nature,....
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....ere admittedly held as stock in trade, the ld. CIT(A) by placing reliance on the decision of Hon'ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640(SC) decided the same against the assessee. 4.3. We find that the Hon'ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640(SC) had categorically held that normally investments held as stock in trade would also be liable for disallowance u/s 14A of the Act. However, with respect to investments held as stock in trade by the banks, the same decision held by placing reliance on the CBDT Circular No. 18/2015 dated 02/11/2015 had held as under:- "19. In its analysis, the High Court accepted the contention of the counsel for the assessee that the assessee is engaged in the purchase and sale of shares as a trader with the object of earning profit and not with a view to earn interest or dividend. The assessee does not have an investment portfolio. The securities constitute the assessee's stock-in-trade. The Department, in fact, rightly accepted, as a matter of fact, that the dividend and interest earned was from the securities that constituted the assessee's stock-in-trade. The s....
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.... takes note of the judgment of this Court in Nawanshankar case wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshankar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but wou....
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....re cost of security would include such interest component and the same would, therefore, be in the nature of capital expenditure. The assessee, however, argued that there was separate interest component payment of which was an allowable deduction. The Tribunal having accepted the assessee's contention, the Revenue is in the appeal before us. This issue is no longer res integra. The Division Bench of this Court in case of CIT Vs. HDFC Bank Ltd (366 ITR 505) had ruled in favour of the assessee. We are informed that the appeal against such judgement of the High Court was also dismissed by the Supreme Court. In the result, the Income Tax Appeal is dismissed." 5.3. Respectfully following the aforesaid decision, the Ground No. 4 raised by the revenue is dismissed. 6. The Ground No. 5 raised by the revenue is challenging the deletion of allowance of deduction u/s 36(1)(viia) of the Act restricted by the ld. AO by reducing the amount of advances to the rural branches, population of which was more than 10000 as per census report 2011. 6.1. We have heard the rival submissions and perused the materials available on record. We find that deduction u/s 36(1)(viia) of the Act is availabl....
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....come of an assessee is concerned. Reliance in this regard was placed on the decision of Hon'ble Supreme Court in the case of Southern Technologies Ltd vs JCIT reported in 320 ITR 577 (SC) wherein it was held that RBI prudential norms for asset classification deal only with presentation of NPA provisions in the balance sheet and they have nothing to do with computation or taxability of provisions for NPA under Income Tax Act. The ld. DR vehemently argued that the RBI guidelines only prescribe the date of implementation of census published figures with village population figures from 01/09/2016, which is not binding on the revenue. 6.3. We find from the aforesaid definition of "rural branch‟ in Explanation to Section 36(1)(viia) of the Act, the relevant catch words are as under:- a) Relevant figures b) Published c) On or before 01/04/2013 In the instant case, the relevant figures of village wise population details were not published on or before 01/04/2013 in the public domain. Hence the assessee bank was justified in not implementing the same while filing its return for the purpose of working out the allowability of deduction u/s 36(1)(viia) of....
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.... combined population 85323 (16016+69307= 85323). The branches in part of Chirmiri will be shown in their respective Tehsils (Baikunthpur and Khadganva) depending on their actual position. Before, September 1, 2016, the Tehsils for all branches in centre Chirmiri used to be reported as Khadganva tehsil as population of Khadganvais more than that of Baikunthpur. B. Outgrowths (OG) in Census Data Guideline: Outgrowth is a part of a bigger centre to be considered as bigger centre only, not a separate center. Examples: 1) Jamalpore (OG) and Chovisi (OG) are the part of bigger centre Navsari in district Navsari in Gujarat. Therefore, the centre of the branches located at these OGs is Navsari. ii) Khanpur (OG) and Lamin (OG) are the part of bigger centre Pathankot in district Pathankot in Punjab. C. Cantonment Boards Cantonment Boards (CBs) near to/ surrounded by big cities (List-1) will considered as a part of that big city. Therefore, branches falling under such CBs and big cities will be classified based on the combined population of the big city and the corresponding CB.The cantonments/ CBs those are treated as separate centres are....
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....ord. In this issue, the AO has recomputed the allowance claimed u/s.36(1)(viia) by adopting the Census Data of 2011. The AO in the assessment order has mentioned that provisional census reports were released on 31.03.2011 and were widely disseminated and therefore the assessee should have used this data to categorize their branches to be urban or rural for claiming allowance u/s.36(1)(viia) of the Act. The appellant, on the other side, has stated that the data of census conducted in 2011 was not available on the first date of previous year relevant to assessment year under consideration as the same was not published. It is seen that the AO in the assessment order has nowhere mentioned as to from where he has taken the population as per the Census 2011 and how he has concluded that this data either provisional or final was available or published in the public domain as on the first day of the previous year relevant to the assessment year under consideration. The assessee has in their submission dated 11.01.2019 submitted copy of the provisional data obtained from the office of Registrar General & Census Commissioner of India at New Delhi who had provided hard copies of the provision....
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....se before us, it is an admitted fact that even as per the definition of rural branch as given in Explanation to Section 36(1)(viia) of the Act, the relevant figures of village wise population details were not published on or before 01/04/2013. Hence even as per the Act, the assessee could not have computed the provision as per the Census data of 2011. Hence assessee was justified in making provision based on Census data of 2001 where village wise population details were indeed available in public domain. Accordingly, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No. 5 raised by the revenue is dismissed. 7. In the result, the appeal of the revenue for the A.Y. 2014-15 in ITA No. 2725/Mum/2019 is dismissed. Cross Objections of the Assessee - CO No. 26/Mum/2021 - A.Y. 2014-15 8. At the outset, we find that there is a delay of 345 days in filing of these cross objections by the assessee. From the affidavit filed by the assessee dated 19/03/2021 from the Managing Director of the assessee bank, we find that the said delay had been contributed due to Covid-19 Pandamic and in view of the relaxati....
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....at disallowance u/s.14A of the Act could not be made in respect of investments held as "stock in trade‟ by the assessee bank in view of the CBDT Circular No.18/2015 dated 02/11/2015 and in view of the decision of the Hon'ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640, the ground No.1 raised by the assessee is hereby allowed. 15. The ground No.2 raised by the assessee is with regard to disallowance of software expenses was stated to be not pressed by the ld. AR at the time of hearing due to smallness of the amount. The same is reckoned as a statement made from the Bar and hence, dismissed as not pressed. 16. The ground No.3 is raised by the assessee is challenging the confirmation by the ld. CIT(A) in respect of the addition made by the ld. AO in the sum of Rs.6,66,04,219/- towards recognition of interest income on non-performing assets which in the opinion of the assessee is not in accordance with RBI guidelines. 16.1. We have heard rival submissions and perused the materials available on record. It is a fact that this interest income on non-performing assets had been brought to tax by the ld. AO on accrual basis ignoring the RBI prudenti....
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.... to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by instalments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recogniti....
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....rest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. 18. As noted above, Mr. Sabharwal, argued that the case of the assessee was to be dealt with for the purpose of taxability as per the provisions of the Act and not the RBI Act which was the accounting method that the assessee was supposed to follow. We have already held that even under the Income-tax Act, interest income had not accrued. Moreover, this submission of Mr. Sabharwal is based entirely on the judgment of the Supreme Court in the case of Southern Technologies Ltd.'s (supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr. Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and ....
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.... accrual. Hence, in each case, the assessee has to prove, as has happened in this case with regard to the sum of Rs. 20,34,605, that interest is not recognized or taken into account due to uncertainty in collection of the income. It is for the Assessing Officer to accept the claim of the assessee under the IT Act or not to accept it in which case there will be add back even under real income theory as explained hereinbelow. 38. The point to be noted is that the Income-tax Act is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. Therefore, if by Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into account the said Explanation in computation of total income under the Income-tax Act failing which one cannot ascertain the real profits. This is where the concept of "add back" comes in. In our view, a provision for NPA debited to Profit and Loss Account under the 1998 Directions is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the I....
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....nies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting Policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the Assessing Officer comes to the conclusion that such change would result in understatement of profits. However, here is the case where the Assessing Officer has to follow the RBI Directions 1998 in view of section 45Q of the RBI Act. Hence, as far as Income Recognition is concerned, section 145 of the Income-tax Act has no role to play in the present dispute." (Emphasis supplied) 19. We have also noticed the other line of cases wherein the Supreme Court itself has held that when there is a provision in other enactment which contains a non obstante clause, that would override the provisions of Income-tax Act. Custodian appointed under the Special Court Act, 1992's case (supra) is one such case apart from other cases of different High Courts. When the judgment of the Supreme Court in Southern Technologies Ltd.'s case (supra) is read in manner we have read, it becomes easy to reconcile the ratio of Sout....
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....f business or profession‟ and which has been taxed as such by the ld. AO. Hence, the income derived from credit card business has been accepted as business income by the ld. AO. The satisfaction of requirement of offering of income in terms of Section 36(2) of the Act has been done by the assessee in the instant case. Hence, if any of the debts in respect of income already offered to tax by the assessee bank had become bad, and the same is written off as bad debt by the assessee in its books of accounts, the assessee would certainly be entitled for deduction u/s.36(i)(vii) of the Act. It need not be routed through provision for bad and doubtful debts account. Moreover, we find that RBI has issued a master circular dated 01/07/2013 which provides for credit card / debit card and rupee denominated co-branded prepaid card portions of the banks. The said circular clearly establishes the fact that credit card business is part and parcel of banking business. This fact that was placed on record by the assessee before the lower authorities had been ignored by them. Further as part of the banking license granted by the RBI, the assessee is entitled to carry on the banking business eit....