TaxTMI 
TaxTMI 
2024 (2) TMI 389
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....f enquiry as per explanation 2 to Section 263 of the Act. He set aside it and the learned Assessing Officer is directed to conduct the requisite enquiries to arrive at the correct conclusion and reframe the order of assessment denovo, after giving an opportunity to the assessee of being heard. 02. Assessee has raised following grounds of appeal. "Being aggrieved by the order No. ITBA/REV/F/REV5/2020-21/1032095047(1) dated March 31, 2021 issued by the Pr. Commissioner of Income-tax 2, Mumbai (hereinafter called the Pr.CIT] under section 263 of the Income-tax Act, 1961 (hereinafter called The Act) and communicated to the Appellant on the same day, the Appellant appeals against and on the following amongst other grounds which are without prejudice to each other. 1. Setting aside of order under section 263 of the Act 1.1. On the facts and circumstances of the case and in law, the Pr. CIT erred in passing an order under section 263 setting aside the assessment order dated February 12, 2019 passed under section 143(3) r.w.s. 144C(3) of the Act on the ground that the Assessing Officer in not examining the following issues has rendered the order as erroneous a....
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....Rules to compute capital gain/loss. 3. Bad debts allowed of Rs. 312,69,37,766 3.1. On the facts and circumstances of the case and in law, the Pr. CIT erred in holding that Appellant had not made and written off any bad debts during the year for the following reasons: (a) the provision for NPA shown in Books of Accounts is Rs. 3023,25,00,000 [Note 1 to Schedule 18(38), page 167] contradicts the provision for NPAS shown in statement No.15 of the return of income amounting to Rs. 3141,26,87,071, Hence, in view of differential amounts and the notes to the amount [as per Schedule 18.18, Page 167] and since the Appellant has debited only the provisions for NPAs and other provisions, the bad debts claim of Rs. 1855,76,37,766/- under section 36(1)(vii) of the Act was required to be disallowed and added back to total income of the assessee, which is not done by the Assessing Officer. (b) As observed from the Schedule 18.18, Non-Performing Assets, Page No.149 the Appellant has shown provision utilized for write off of Rs. 1543,07,00,000/- during the year from the Provision of NPA in the Balance Sheet and thus the said amount should have been considered as ....
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....iia) as per which in respect of provisions for bad and doubtful debts created in the books. a deduction is to be given at an amount not exceeding 7.5% of the total income computed before making any deduction under this clause and Chapter VIA and an amount not exceeding 10% of the aggregate average advances made by the rural branches. Thus the deduction under section 36(1)(viia) being a deduction linked to the total income computed it is subject to revision each time the total income changes viz. increases /decreases subject to the provision created in the books of accounts and that the higher deduction granted under section 36(1)(viia) is on account of the increase in business income due to additions/disallowances made in the assessment order. 6. Grant of deduction under section 36(1)(viia) Rs. 12,23,01,710 6.1. On the facts and circumstances of the case and in law, the Pr. CIT erred in holding that the Assessing Officer in the assessment order had allowed excess deduction under section 36(1) (viia) of Rs. 12,23,01,710 by taking into account certain branches identified by the Appellant as rural branches in its return of income but which were not rural as per RBI c....
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....as been restricted to the said amount in the order. 8. Allowance of Long term Capital loss to Rs. 502,62,44,256 the extent of 8.1. On the facts and circumstances of the case and in law, the Pr. CIT erred in holding that the Appellant whilst working the long term capital loss of Rs. 759,14,40,116 on reduction/redemption of investments of its subsidiaries ICICI Bank Canada and ICICI Bank UK Plc, applied the cost inflation index to the cost in foreign currency which has which has resulted in an alleged excess allowance of Rs. 502,62,44,256. 8.2. The Pr. CIT failed to appreciate that investment in shares was made by the Appellant in foreign currency and the sales proceeds were also received in foreign currency. Therefore, pursuant to section 48 read with Rule 115 the resultant capital gain/loss is computed by reducing indexed cost of acquisition of shares (in foreign currency) from sales proceeds (in foreign currency) received and the resultant gain/loss would be converted to INR by applying provisions of Rule 115 of the Rules to compute capital gain/loss. 9. Excess allowance of deduction under section 36(1) (vii) of Rs. 250,03,69,520 9.1. O....
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....allowance under Section 14A of the Act as per Rule 8D by computing the total disallowance of Rs. 1,182,24,87,180/- and further rejecting suo moto disallowance offered by the assessee of Rs. 21,89,85,725/- resulting into net disallowance of Rs. 1,160,35,01,455/- in the normal computation of total income and further same was also added to the computation of book profit under Section 115JB of the Act. iii. Disallowance of depreciation on leased assets of Rs. 27,31,73,482/- was allowed instead of depreciation claimed by the assessee of Rs. 7,74,20,633/-. iv. Disallowance of club membership expenditure of Rs. 64,19,440/- holding that such expenditure is capital expenditure, as it is paid for entrance fee. v. Disallowance of Non performing advances provision u/s 43D of Rs 47,05,01481/- vi. Disallowance of provision of expenditure of Rs. 89,92,67,946/-, holding that it is contingent and unascertained liability. vii. Disallowance of mark to market (MTM) losses of Rs. 134,21,00,000/- holding that it is contingent liability. viii. Disallowance of claim of depreciation on goodwill arising in the books of assessee because of merger of Bank ....
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....reme Court in Goetz India Limited [284 ITR 323]. v. Excess grant of deduction under Section 36(1) (vii) of Rs. 12.23 crores as he failed to disallow the deduction to 10% of rural advances of Rs. 122.30 crores which were not rural branches vi. Excess deduction allowed under Section 36(1)(viii) of the Act of Rs. 138,52,06,494/- which should have been restricted to Rs. 961,47,93,509/- being 20% of allowable deduction. vii. Excess allowances of long-term capital loss on sale of shares of foreign entity of Rs 502,62,44,256/- without examining the fact of application of cost inflation index on foreign currency in computation of capital gain. viii. Excess allowances of deduction of Rs. 250,03,69,520/- under Section 36 (1) (vii) of the Act, where the assessee is eligible for deduction to the extent of only Rs. 542,07,79,550/- but in the assessment order same was allowed to the extent of Rs. 792,11,49,070/-. 06. This show cause notice was replied by the assessee by letter dated 26^th March, 2021, wherein the assessee submitted as under:- "Reply to Show Cause Notice issued under section 263 of the Income-tax Act, 1961 Assessment Year: 2015-16 P....
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....ok and Associates, Chartered Accountants. Of the total amount repatriated by ICICI Bank Canada amounting to CAD 8,00,00,000, CAD 19,68,000 is apportioned towards deemed dividend as per provisions of section 2(22)(d) of the Act and CAD 7,80,32,000 being in excess of its accumulated profits is offered to tax under the head "Capital Gains". Accordingly, the Bank has offered to tax deemed dividend under section 1158BD of Rs. 9,64,71,360 and has incurred long term capital loss of Rs. 316,52,79,976 on the balance which the Bank has carried forward to the subsequent assessment year 2016-17. The relevant statements are a part of the return of income and also submitted during the course of assessment proceedings vide letter dated December 26, 2018 on pages 8 and 11 respectively. Copy of the resolution passed dated February 27, 2015 and copy of the valuation report of Anil Ashok and Associates, Chartered Accountants was submitted as documentary evidence in support of the said transaction vide letter dated December 26, 2018 on pages 42 and 43 to 56 respectively. 1.3.a. The Bank had invested in equity shares of ICICI Bank UK PIc (wholly owned subsidiary of the Bank). During the year, ....
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....combank for a consideration of Roubles 122,49,51,818. This sale has resulted in capital loss to the Bank of Rs. 237,60,91,268. Top 1.4.b The total cost for acquiring the shares in IBEL was Roubles 183,12,16,035 (indexed cost Roubles359,13,68,448) as can be seen from the statement enclosed on page 9 also attached in statement No.27 filed with the revised return of income. The total capital loss as per the said statement works out to Roubles236,64,16,630 which has been converted to Indian rupees by applying the applicable conversion rate and a loss of Rs. 237,60,91,268 has been worked out in aforesaid assessment year which the Bank has carried forward to the subsequent assessment year 2016-17. Copies of the term sheet dated May 5, 2014 and the agreement for sale entered between the Bank and Sovcombank on March 17, 2015 were submitted as documentary evidence in support of the said transaction vide letter dated December 26, 2018 on pages 12 and 13 to 22 respectively. Thus the allegation in the show cause notice that the status of ICICI Bank Eurasia is not readily available on records is incorrect. 1.5. With respect to the above-mentioned capital loss, we subm....
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.... of capital gains viz. difference between sale proceeds and cost of acquisition is laid down in section 48 of the Income- tax Act, 1961 ("the Act"). Further, Rule 115 of the Income-tax Rules ("the Rules") prescribes, in case of investment made in foreign assets, capital gains are to be converted to INR using exchange rate of the last day of the previous month in which capital asset is transferred. Thus, combined reading specifies that, capital gain in respect of capital asset acquired in foreign currency is required to be first computed in foreign currency and thereafter converted into INR for tax purposes. b. Investment in shares was made by the Bank and its offshore subsidiaries in foreign currency. Sales proceeds were also received in foreign currency. Therefore, pursuant to section 48 read with Rule 115 the resultant capital gain/loss is computed by reducing indexed cost of acquisition of shares (in foreign currency) from sales proceeds (in foreign currency) received. Resultant gain/loss would be converted to INR applying provisions of Rule 115 of the Rules to compute capital gain/loss. 1.8. Hence the long-term capital loss has of Rs. 99,675.31 lakhs have been....
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....ck of Bad Debts (168,48,61,113) Total as per Sch. 18(38) 3602,06,30,493 2.8 With respect to your goodself's contention that the provision for NPA shown in Books of Accounts is Rs. 3023,25,00,000 [Note 1 to Schedule 18(38), page 167] contradicts the provision for NPAs shown in statement No.15 of the return of income amounting to Rs. 3141,26,87,071, we respectfully submit that the figure in statement No. 15 provides the breakup as given in para 2.7 above. The Note 1 to Schedule 18(38) on page 167 clearly specifies that Amount of Rs. 3023,25,00,000 is part Rs. 3141,26,87,071. 2.9 We reiterate that presentation of figures of provision for bad debts, write off of bad debts etc, in the books of accounts are done in accordance with the RBI guidelines and the Banking Regulation Act, 1949 but the claim made by the Bank in its return of income is as per provisions of section 36(1)(vii) the Income-tax Act. Thus, since bad debts is debited to profit and loss account under schedule 16A, the same is an allowable expenditure under section 36(1)(viia) of the Act. 3. Provision for Depreciation of investments of Rs. 46,19,11,355 3.1 In the aforesaid a....
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....t of securities held as stock in trade has been claimed. The provision on securities held as investments of Rs. 207,46,57,341 has been disallowed by the Bank in its computation of income. This accounting practice has been followed by the Bank consistently and has been accepted by the Department. The losses/gains on revaluation on securities held as stock in trade by the Bank have been consistently claimed as a deduction/offered to tax and allowed in all the preceding assessment years. 3.6 It has been held by the Bombay High Court in American Express International Banking v. CIT (258 ITR 61) that the choice of the method of accounting lies with the assessee and the valid method followed by the assessee can be disregarded only if the same does not disclose the true and proper income over the period, 3.7 The Supreme Court in the case of United Commercial Bank v. CIT (240 ITR 355) has held that it is open to the assessee to value the investments at cost or market whichever is lower and the method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities. The Apex Court has also held that for purpose of income ....
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.... has not made any additional claim in respect of deduction claimed under section 36(1)(viiia) and therefore the question of Supreme Court decision in the case of Goetze India Limited vs. CIT is not applicable. The higher deduction granted under section 36(1)(viiia) is on account of the increase in business income due to additions/disallowances made in the assessment order. Hence the deduction u/s 36(viiia) has been correctly allowed to the Bank. 4.5 With respect to your goodself's observation that the deduction should be restricted to provision actually created in the books, we have to submit that the since the deduction under section 36(1) (viia) allowed at Rs. 1472,17,64,492 is less than the provision created in the books of accounts the same is admissible as per provisions of the Act. 4.6 Your goodself in the show cause notice has made an observation that in case of Kotak Mahindra Bank, the Assessing Officer had restricted the deduction under section 36(1)(viia) to the extent of claimed made by the assessee in their return of income. We respectfully submit that we are unaware of the facts of the case of Kotak Mahindra Bank and state that a view taken by the....
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....ing assessment proceedings as per census of 2011. The other 2 branches mentioned in the show cause notice actually belongs to another state and the said branch is classified as Rural as per 2011 census. The correct details of the said 2 branch are as follows: Sr. No. State District Branch Population group as per 2011 census 1. Himachal Pradesh Shimla Rampur Rural 30. Madhya Pradesh Indore Rajpura Rural 5.6 In the assessment order dated February 12, 2019 passed under section 143(3) r.w.s 1440(3), the figure of rural branches has been taken at Rs. 1460,96,93,335 (page 63 of assessment order). 5.7 Thus, the deduction u/s. 36(1)(viia) on rural advances has been correctly allowed to the assessee as per 2011 census. 6. Excess deduction under section 36(1)(viii) Rs. 138,52,06,494 6.1 According to your goodself the deduction under section 36(1)(viii) of the IT Act should be restricted to Rs. 961,47,93,509 as against Rs. 1057,29,83,056 as claimed by Bank in its revised return resulting is access deduction of Rs. 138,52,06,494. 6.2 As per provision of Section 36(1)(viii) of the Income Tax Act in respect....
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....ied to the special reserve account in the said year. In the aforesaid assessment year, since the business income on account of additions/disallowances has increased to Rs. 18453,17,42,829, the deduction under special reserve also increases to Rs. 1155,50,27,607 (sr. no.6 page 44 of the assessment order). However, since the assessee Bank has appropriated Rs. 1100,00,00,000 to the special reserve account during the said year, the deduction has been restricted to the said amount in the order. Hence the deduction u/s 36(viii) has been correctly allowed to the Bank. 7. Excess allowance of Long term Capital loss to the extent of Rs. 502,62,44,256 7.1 During the year Bank has claimed long term capital loss on investment in subsidiaries of ICICI Bank Canada and ICICI Bank UK Plc of Rs. 759,14,40,116. As per your observation the said loss should be computed at Rs. 256,51,95,860 which has resulted in excess allowance of Rs. 502,62,44,256. 7.2 In respect of long term capital loss of Rs. 759,14,40,116 claimed by the Bank in respect of reduction in capital of the said companies, your goodself's observation that since the Bank had made investment in its subsidiarie....
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....Hence we state that the order passed is neither erroneous nor prejudicial to the interests of the revenue. 8. Excess allowance of deduction of Rs. 250,03,69,520 8.1 The Bank has claimed deduction of bad debts u/s 36(1) (vii) of Rs. 792,11,49,070 after reducing the balance as on April 1, 2014 u/s 36(1)(viia) amounting to Rs. 1063,64,88,695. This balance was taken by the Bank as the amount claimed by it in the revised return filed for the AY 2014-15. 8.2 As per your goodself the balance under section 36(1)(viia) to be reduced ought to be Rs. 1313,68,58,216 as per assessment order dated February 21, 2018 passed under section 143(3) r.w.s 144C(3) of the Act for AY 2014-15, thus resulting in excess allowance of Rs. 250,03,69,520. 8.3 The deduction u/s 36(1)(viia) being a deduction linked to the total income computed and is subject to revision each time the total income changes. The order giving effect to the to the order of the Commissioner of Income tax(Appeals) 56, Mumbai [CIT(A)] for AY 2014-15 is pending. We submit that the figure worked out as per the order giving effect of AY 2014-15 may be taken as the opening balance under section 36(1)(viia) ....
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....ssessee contrary to the decision of Honourable Supreme court, contrary to the law and therefore, the order passed in the case is erroneous so far as prejudicial to the interest of the Revenue. 08. The learned PCIT held so on following issues:- i. With respect to irregular long-term capital loss allowed of Rs. 99,675 lacs., He noted that while applying the cost inflation index on foreign currency was irregular as indexation of cost is allowed only when capital assets is purchased in Indian currency. He was further of the view that cost of inflation index is with reference to Indian economy and only applies when the assets are purchased in Indian currency and not in foreign currency. The correct method to compute the capital gain in case of such transfer was to convert the cost price in Indian currency and then used the cost of inflation indexed on such costs and compares the same with sale price in Indian currency. The learned Assessing Officer should have computed the capital gain accordingly. This aspect was not at all examined by the dl AO. ii. With respect to excess bad debts allowed of Rs. 312,69,37,766/-, He held that provision for non performing advance i....
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....of the sum of Rs. 12.23 crores was allowed in excess. Thus, LD AO failed to examine the advances or Rural Branches and allowed it without examination. vi. With respect to deduction under Section 36(1)(viii) of the Act of Rs. 138,52,06,494/-, he found that in the return of income, the assessee has claimed deduction of only Rs. 1057,29,83,056/-, whereas the learned Assessing Officer has allowed excess deduction of Rs. 42,17,16,944/-. The learned Assessing Officer has allowed the deduction of Rs. 1155,50,27,607/- though deduction is ultimately restricted to the extent of Rs. 11,000 crores as per reserve credited the books of account. He further computed on an addition wherein there is wide difference between the amount claimed in the return of income and amount allowed by the assessee. He computed that in all excess deduction allowed is Rs. 138,52,06,491/-. vii. The learned CIT also noted that the claim of long term capital loss was allowed excess to the extent of Rs. 502,62,44,256/-. He noted that assessee has claimed long term capital loss of Rs. 1,358 crores in the computation on sale of unquoted shares which was allowed by the learned Assessing Officer on sale of....
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.... gain was converted in to Indian currency and claimed loss. She said that it is in accordance with law. ii. With respect to excess of bad debt allowed of Rs. 312 crores she submitted that letter dated 24^th December, 2018, submitted to the learned Assessing Officer placed at page no. 83 of the Paper Book clearly shows that a reconciliation of bad debts claimed was provided to the learned Assessing Officer and therefore, after considering the explanation of the assessee the learned Assessing Officer has allowed the claim. It was further stated that the learned Assessing Officer disallowed bad debts relating to credit card, which is in appeal before the learned Commissioner of Income tax (Appeals). iii. With respect to actual loss of Rs. 46.19 crores, on sale of investments, it was submitted that this was reduced from the provisions for investment and the balance sum of Rs. 207 crores has been added back to the computation of total income. She further submitted that above loss has been adjusted against the profit on sale of investments and net amount of Rs. 39.44 crores is offered for capital gain. She further referred to page no.96 of the Paper Book to show that pr....
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....of Rs 1385206491 u/s 36(1) (viii) of the Act. xi. She also relied up on the decision of Honourable Supreme court in case of Malabar industrial co Ltd 243 ITR 83 to submit that where the ld AO on examination of information has not raised further query and in fact accepted it does not make order erroneous. It was further submitted that explanation 2 to 263 of the act does not confer unfettered power on CIT and scope of inquiry of the ld AO relying on decision of coordinate bench in JRD Tata Trust V DCIT 85 ITR (T) 431. 011. We have carefully considered the rival contention and perused the orders of the learned assessing officer as well as the learned principal Commissioner of income tax. By the revisionary order dated 31/3/2021 passed under section 263 of the income tax act, 1961 the learned principal Commissioner of income tax, has held that the assessment order passed by the learned assessing officer on 12/2/2019 under section 143 (3) read with section 144C (3) of the act as erroneous and prejudicial to the interest of the revenue and therefore same is set-aside to the file of the learned assessing officer with a direction to pass the assessment order de Novo keeping in....
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....81; 359,13,68,448/-. Assessee worked out capital loss of Russian ruble ₽ 236,64,16,630/- which has been converted to Indian rupees by applying the applicable conversion rate and determined the loss of Rs. 2,376,091,268/-. Further, the assessee has also invested in equity shares of ICICI bank UK plc, which is a wholly owned subsidiary of the bank. The shares of the subsidiary were bought back at US dollar one per equity share. The sale proceeds were determined at US$ 75,000,000. The cost of acquisition of the shares were indexed to US dollar 14,58,18,562 which resulted into the loss of US dollars 7,08,18,562 which has been converted to Indian rupees by applying the applicable conversion rate and a loss of Rs. 4,426,160,143/- was worked out. On the transfer pricing adjustment, such loss was reduced to Rs. 3,769,910,143 /- which resulted in the adjustment of reduction in capital loss to the tune of Rs. 656,250000. The assessee has also invested in ICICI bank Canada which is also wholly owned subsidiary, share capital of which has been reduced during the year by Rs. 3,922,600,063/-. Undisputedly, all these acquisitions have been made by the assessee in Indian currency and sold an....
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....ssue. However, assessee submitted that this issue was explained by letter dated 24/12/2018 and assessee has given the complete breakup of the reconciliation of the bad debts claim with the accounts. The Para number 1.5 of that letter clearly shows that the total bad debts claim by the assessee in the return of income is Rs. 18,557,637,766. In paragraph number 1.3 it is specifically stated that the bad debts claim by the bank has been written off during the year in its annual accounts, which is reflected in schedule 18.38 under the head provisions and contingencies. The breakup of the same was also given which show that the amount of Rs. 36,020,630,493 are the total bad debts written off. In view of this, the assessing officer has verified the same. The order of the learned PCIT does not show that what is the error in allowing the claim of the assessee wherein the amount is debited to the profit and loss account as write off .therefore, on this issue we do not find that there is any error in the order of the learned assessing officer in allowing the claim of the assessee which is after calling for the explanation and correctly allowed. Therefore, on the same issue of the bad debts a....
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....ancement made in the income returned to additions/disallowances impact the quantum of deduction. However, we find that it cannot be the case that the amount of deduction is allowable to the assessee higher than what is not claimed in the return of income without there being a revised return before the LD AO. Therefore, it is in clear violation of the decision of the honourable Supreme Court in 284 ITR 323 in case of Goetz India limited versus CIT. Therefore, we uphold the action of the learned PCIT in holding that claim allowed by the assessing officer higher than that claimed in the return of income without assessee filing any revised return is definitely erroneous and prejudicial to the interest of the revenue. Therefore, to that extent on this issue the action of the learned PCIT is upheld in holding that assessee has been allowed excess deduction of Rs. 1,592,224,604/- under section 36 (1) (viia) of the act. Accordingly, ground number 5 of the appeal is dismissed. v. The fifth issues with respect to the excess grant of deduction under section 36 (1) (vii) of the act with respect to the aggregate rural advances. The fact shows that assessee has claimed deduction of Rs. ....
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....ction under this section on the advances. Thus, non-examination of the details clearly makes the order of the learned assessing officer erroneous and prejudicial to the interest of revenue. Further, it is the claim of the assessee that this is based on the audit objection raised by the Director-General of Audit, Mumbai. We do not find any infirmity in the order of the learned PCIT because even if there is an audit objection, he has applied his mind independently and held that order of the AO is erroneous to that extent. In the result on this issue, we hold that the learned PCIT has correctly assumed the jurisdiction and correctly held that the order of the learned AO is erroneous and prejudicial to the interest of revenue. To that extent, the order of the learned PCIT is sustainable on this issue. Accordingly, ground number 6 of the appeal is dismissed. vi. Ground number 7 of the appeal is with respect to the excess deduction under section 36 (1) (viii) of the act of Rs. 1,385,206,494/- which is against the order of the learned PCIT holding that the assessee has claimed the deduction of Rs. 13,129,539,888/- against which the deduction is allowed by the learned assessing of....