TaxTMI 
TaxTMI 
2024 (2) TMI 389
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....3 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 and prejudicial to the interest of the revenue: (a) Irregular a....
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.... 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 bad debts written off during the year instead of Rs. 1855,76,37,766. 3.2. The Pr. CIT erred in not appreciating the Appellant's reply that Schedule 18(38) under....
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....his 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 census 2011. 6.2. The Pr. CIT failed to appreciate the Appellant's submission that it had during the course of assessment proceedings re-worked the deduction under section 36(1)(viia) of the IT Act by following the 2011 C....
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....ing 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. On the facts and circumstances of the case and in law, the Pr. CIT ought to have appreciated that the deduction under section 36(1)(viia) being a deduction linked to the total income computed is subject to revision each time the total income changes. In the present case, the balanc....
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....me 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 of Rajasthan and Anagram Finance Limited of Rs. 254,51,40,318/- on consideration of 5th proviso to Section 32(1) of the Act. ix. Addition of Rs. 39,97,71,317/- of broken period interest paid on purchase of securities held under maturity category holding that such interest is to be included in the purchase cost of such securities. x. Disallowance of ....
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....uction. 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 26th 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.A. No.: AAACI1195H March 26, 2021 Please refer to the show cause notice dated March 11, 2021 issued under section 263 of the Income-tax Act (the Act) received by us on March 20, 2021 for the above mentioned assessment year. As per the said notice, your goodself proposes to revise the assessment order passed by the Assistant Commissioner of Income-tax 2(3)(2), Mumbai (Assessing Officer) under section 143(3) read with section 144C(3) dated Febr....
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....equent 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, the share capital was redeemed by USD 7,50,00,000 in a scheme of buy back. The sale consideration of the buyback was determined at USD 1 per equity share. This scheme of buyback is an extinguishment, which has resulted in capital loss to the Bank of Rs. 442,61,60,143. 1.3.b. As per the valuation report of Anil Ashok and Associates, Chartered Accountants an independent third party valuer, the valuer had valued the shares at USD 0.85 by taking into account the average value of 4 methods viz. Net Asset Method, Future Maintainable profit method, Market Multipl....
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....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 submit that the Assessing Officer has examined the Bank's claim as can be seen in para 6 on pages 2 and 3 and para 21, page 61 of the assessment order wherein adjustment to arm's length price to buy back of shares of ICICI Bank UK Plc. has been made and carried forward loss to the subsequent year reduced by Rs. 65,62,50,000. Since the Assessing Officer after examining has taken a particular view on the said issue, there is no justification to revise the assessment on a presumption that the same is erroneous and prejudicial to the interests of the revenue. 1.6. With respect to your goodself'....
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....stment 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 correctly computed by the Bank and accordingly allowed in assessment. 2. Excess bad debts allowed of Rs. 312,69,37,766 2.1 As per your goodself's observation, provision utilised for write off as per Schedule 18(18) on page 149 is only Rs. 1543,07,00,000 as against Rs. 1855,76,37,766 claimed by the Bank thus resulting in an excess claim of Rs. 312,69,37,766. 2.2 Schedule 18(18) shows the movement of Provision of NPA on year to year basis. It starts with opening provision, provision created during the year, provision utilized out of opening balance for write off and closing balance. 2.3 We submit that Bad debts of ....
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....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 assessment year, the Bank had debited an amount of Rs. 297,92,33,446 as provision for depreciation on investments. This figure comprises of provision made in respect of securities held as stock in trade as well as those held as investments, break-up which is given below: Particulars Amount Rs. Provision for investments (A) 297,92,33,446 Less: Reversal of Provision for securities held as stock in trade (B) (44,26,64,750) Less: Book Loss in respect of securities held as stock in trade (C) 46,19,11,355 Provision for securities held as investments (A-B-C) 207,46,57,341 3.2 Investments are accounted for in accordance with the RBI guidelines on investment classification and valuation. As per RBI guidelines, Investment held by the Bank are class....
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....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 tax whichever method is adopted by the assessee a true picture of the profits and gains, the real income is to be disclosed and for determining the real income entries in a balance sheet required to be maintained in the statutory form may not be decisive or conclusive. The view of the Supreme Court has been followed by the Bombay High Court in CIT V. Bank of Baroda (262 ITR 334) and the Kerala High Court in CIT V. Nedungadi Bank (264 ITR 545). 3.8 In Bank's merged entity-Erstwhile Bank of Madura, Mumbai Tribunal in ITA 677 & 678/M/2014 dated December 12, 2019 for AY 2000-01 and 2001- 02 has following the order of earlier years held that depreciation claimed by assessee on securities held as stock in trade is allowable. 3.9 Thus, the Bank has correctly disallowed the amount of Rs. 207,46,57,341 b....
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....de 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 Assessing Officer in that case does not make the assessment order passed in the case of ICICI Bank erroneous and prejudicial to the interest of the Revenue. 5. Excess grant of deduction under section 36(1)(viia) Rs. 12.23 crores 5.1 Your goodself in the show cause notice has made an observation that in the deduction claimed under section 36(1)(viia), Bank has classified some branches as rural branches which are not rural branches as per census 2011. You have identified 36 such branches whose average advances amount to Rs. 1223.01 resulting in access claim of Rs. 12.23 crore (10% of Rs. 1223.01) 5.2 The Bank in its revised return of income had claimed deduction under section 36(1)(viia) of the IT Act of Rs. 1312,95,39,888. In order to compute the deduction under section 36(1)(viia) of the Act, the Bank had worked out 10% of the rural advances as per....
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.... 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 of Special Reserve created and maintained by the Bank an amount not exceeding 20% of the profits derived from eligible business computed under the head "Profits & Gains from Business or Profession is to be allowed as a deduction from the total income. The said deduction is restricted to the amount transferred during the year by the assessee to the Special reserve account. 6.3 In the assessment order passed under section 143(3) read with section 144(C)(3) dated February 12, 2019, deduction under section 36(1) (viii) has been allowed at Rs. 1100,00,00,000 being the amount appropriated by the assessee Bank to the Special Reserve A/c. This increase in deduction as compared to the claim made by the assessee in revised return of income was due to increase in the business income to Rs. 18453,17,42,829 on account of disallowances/additions made to the tune of Rs. 2360,38,21,139 to the returned income. 6.4 With respect to your goodself's observation that the additional clairn u/s 36(....
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.... 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 subsidiaries in Indian currency hence indexation shall be allowed in Indian rupees as per explanation 1 to section 48 of the Act. 7.3 Proviso 1 to Section 48 reads as follows: "Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company 7.4 ....
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....e order giving effect of AY 2014-15 may be taken as the opening balance under section 36(1)(viia) to be reduced from the gross bad debts of Rs. 1855,76,37,766 of the aforesaid assessment year. We submit that the change in the opening balance of section 36(1) (vila) may be done vide an order under section 154 of the Act and is not a subject matter of review under section 263 of the Act. 9. We further submit that in order to invoke provisions of section 263 the order sought to be revised should be both erroneous and prejudicial to the interest of the revenue. It has been held by Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax (243 ITR 83 (SC), CIT v Max India 295 ITR 282, CIT v Amitabh Bachhan 384 ITR 200 at 216, Para 21] that if one of the conditions is absent, recourse cannot be had to section 263(1) of the Act. According to the Court the provisions of 263 cannot be invoked to correct each and every type of mistake or error. 10. We further submit that all the above mentioned issues given in above mentioned paras 1 to 8 have been examined by the Assessing Officer during assessment proceedings and a possible view has been taken. The assessment order ....
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....66/-, He held that provision for non performing advance in books of accounts of the assessee was Rs. 3,023 crores, whereas in computation of total income assessee has shown Rs. 3,741 crores. He further noted that assessee has not made any real bad debts write off in this book of accounts. According to him, assessee has not debited any bad debts towards the claim of Rs. 1,855 crores but only utilized Rs. 1543 crores and therefore, the bad debts of Rs. 312 crores were allowed by the assessee without examination. iii. With respect to the provision for depreciation of investment of Rs. 46,19,11,355/-, he noted that assessee has debited provision for depreciation of investment of Rs. 297 crores and claimed the same as deduction, whereas assessee has added back provision of Rs. 207 crores. Sum of Rs. 46.19 crores has been claimed by the assessee as realized loss on investment and reduced from the book loss of investment. Thus, assessee has treated the same as realized loss against the sale of stock and claimed the same as expenses in the profit and loss account. Therefore, according to him, the above loss is actual loss, which is required to be added back to the total income, as it is ....
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....ing Officer on sale of securities of ICICI bank Eurasia, UK and Canada. Those shares were sold at cost and assessee has claimed indexation of the foreign currency and claimed the same as capital loss. The assessee has made investment in those subsidiary companies in Indian currency and therefore, indexation should have been allowed on Indian rupee only. This has resulted in actual long-term capital loss allowable only to the extent of Rs. 256,51,95,860/- resulting into above excess allowance. The learned Assessing Officer did not examine the same. viii. Excess allowance of deduction of Rs. 250,03,69,520/-, He held that out of provision for bad debts written off of Rs. 1,855/- crores earlier provision for bad debts allowed for A.Y. 2014-15 of Rs. 1,313 crores allowable bad debt written off to the assessee is only Rs. 542,07,79,550/-. Against this, the learned Assessing Officer after considering the opening bad debts provision of Rs. 1,855 crores reduced the earlier years provision for bad debts by Rs. 1,063 crores and ultimately allowed bad debts of Rs. 792,11,49,070/-, which has resulted in excess allowances of deduction of Rs. 250,03,69,520/- under Section 36(1)(vii) of the Act.....
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....e of securities if taken according to the computation of the learned CIT (A) also the business income remain the same and therefore, it is not prejudicial to the interest of the Revenue. iv. With respect to excess deduction of Rs. 159.28 crores under Section 36(1) (viiia) of the Act, it was submitted that quantum of deduction is linked to total income and enhancement in total income has resulted on account of various additions and disallowances which has resulted into enhanced quantum of deduction. It is allowed accordingly and therefore there is no error in the order of the LD AO. v. With respect to excess deduction of Rs. 12.23 crores on advances on rural branches, she referred to letter dated 17th October 2018, submitted to the learned Assessing Officer. She referred to paragraph no.2 and submitted that rural advances computed based on census. vi. With respect to higher deduction of Rs. 138.52 crores, under Section 36(1) (vii) of the Act, it was submitted that such deduction is allowable at the rate of 20% of profits derived from eligible business subject to the amount appropriated to the reserve. As the income is assessed at higher sum, the higher deduction is allowable s....
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....equate opportunity of hearing. 012. Ground number 1 of the appeal is general in nature wherein the assessee has challenged the setting aside of the order under section 263 of the income tax act by the learned principal Commissioner of income tax and dismissing the detailed submission made by the assessee holding that the assessment order is erroneous so far as it is prejudicial to the interest of revenue. As each of the issues are separately dealt with in different grounds, this ground of appeal is general in nature and therefore same is dismissed. 013. The learned principal Commissioner of income tax has held assessment order to be erroneous and prejudicial to the interest of revenue under section 263 of the income tax act on following counts. i. Irregular allowance of long-term capital loss of Rs. 99,675.31 lakhs wherein it has been held that the assessee has applied the cost of inflation index on foreign currency while computing the capital gain on the assets acquired out of foreign currency. Connected issue is with respect to capital gain computed on sale of shares of subsidiaries where PCIT is of the view that excess capital loss of Rs 502.62 Cr is claimed. This claim of t....
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.... in INR was converted in to FC and sale in foreign currency was received in INR. The learned PCIT has given a reason that the order of the learned assessing officer is not in accordance with the concept of cost inflation index. In fact, assessee has not invested in foreign currency but in INR. Even other second proviso to section 48 is only with respect to Nonresident Assessee. By computing long term capital gain by incorrect method assessee has got the benefit of Foreign Exchange Fluctuation as well as cost inflation index both which is not in accordance with Income tax Act. In view of this, to this extent, on this issue we find that the jurisdiction assumed by the learned PCIT holding that there is an irregular allowance of long- term capital loss of Rs. 99,675.31 lakhs and higher capital loss of Rs 502.62 Cr is justified. Therefore, on this issue the order under section 263 of the income tax act passed by the learned PCIT is sustained. Accordingly ground number 2 and 8 of the appeal are dismissed. ii. Coming to the second issue of the excess bad debts allowed OF Rs. 3,126,937,766/-by holding that the assessee has written off only Rs. 15,430,700,000 as against the claim of the ....
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....ngly, ground number 3 of the appeal is allowed to the extent indicated above. iii. The next ground of revision is with respect to the provision for depreciation of investment of Rs. 461,911,355/-. The fact shows that the bank has debited an amount of Rs. 2,979,233,446/- as provision for depreciation on investment comprising of the securities held as stock in trade as well as those held as investment. From above provision, assessee has reduced sum of Rs. 461,911,355 pertaining to the book loss in respect of securities held as stock in trade. The provision for securities held as investment of Rs. 2,074,657,341/- was added to the total income of the assessee. The learned PCIT found that the book loss claimed by the assessee of Rs. 461,911,355 have been claimed by the assessee as realized loss on investment and reduced from the book loss of investment. Therefore, he was of the view that the amount is being actual loss and not a provision for depreciation of investments so it was required to be disallowed and added to the total income of the assessee. The AO has not verified this amount. During hearing before us, nothing was shown to us that this issue was examined by the learned asse....
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....71/- as 10% on the aggregate rural advances amounting to Rs. 16,083,788,710/- from the rural branches and Rs. 11,521,161,017 being 8% of the gross total income. During the assessment proceedings, the list of rural branches was produced before the assessing officer. However, it was noticed by PCIT that huge advance are shown against few branches and claimed it as rural branch eligible for deduction. The categories of the branch was test checked from the press release of reserve bank of India dated 1 November 2011 and wherein it was found that some of the branches are semi urban branches whereas those branches have been considered by the assessee as rural branches. On examination, the PCIT held that an amount of advances aggregating to Rs. 122.3 crores are advances of semi urban branches, which are not qualified for deduction under this section. Therefore, it was found that the excess deduction of Rs. 12.23 crores being 10% of the total advances of Rs. 122.3 crores of semi urban branches are allowed by the assessing officer without examination. It is the claim of the assessee that letter dated 17/10/2018 submitted during the original assessment proceedings the above explanation was g....
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....hen claimed in the original return of income by the assessee by Rs. 1,592,224,604/-. Fact also shows that assessee has claimed in its original return of income claiming deduction under this section of Rs. 13,129,539,888 which was subsequently revised to Rs. 12,982,134,851/- by filing a revised return during assessment proceedings as per letter dated December 26, 2018. Admittedly, no revised return was filed by the assessee on this account. The only claim of the assessee is that the quantum of deduction is linked to the total income and therefore the enhancement in the income returned due to additions/disallowances which has impacted the quantum of deduction. The learned PCIT has held that in view of the decision of the honourable Supreme Court in 284 ITR 323 the allowance of claim higher than the amount claimed in the return of income without revising the return of income makes the order of the learned assessing officer is erroneous and prejudicial to the interest of revenue. We do not find any infirmity in the order of the learned principal Commissioner of income tax on this account is not following the decision of the honourable Supreme Court makes the order of the learned assess....