TaxTMI 
TaxTMI 
2024 (2) TMI 1036
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....ssessments u/s. 143(3) of the Act. The CIT(Appeals), NFAC partly allowed the appeals of the assessee. Hence the assessee and revenue are in appeal for both the years. Certain common grounds are raised in all the appeals. 3. We are taking first the assessee's appeals 4. Ground No. 1 is general in both the appeals. 5. Common ground No. 2 in both the appeals is regarding disallowance u/s. 14A of the Act. The assessee bank in AY 2016-17 had earned a tax free income of Rs. 1,83,91,995/-. It had a total investment portfolio of Rs. 16,256.65 Crores. The Tax exempt investments amounted to Rs. 120.21 Crores. The assessee bank had non-interest bearing funds of Rs. 3,690.59 Crores (page 4 of the Asst order). The non-interest bearing funds, thus, far exceeded the tax exempt investments. 6. The Assessing Officer after considering the reply of the assessee was not satisfied with the amount of disallowance made by the assessee bank. According to him, the disallowance u/s 14A had to be worked out as per Rule 8D. He therefore, invoked the provisions of Rule 8D and made the following disallowances: Rule Particulars Amount (Rs.) 8D(2)(i) Salary of Treasury Department 1,0....
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.... Considering rival submissions, we note that this issue has been settled by the Hon'ble jurisdictional High Court in assessee's own case for AY 2011-12 & 2012-13 in ITA No. 258/2020 dated 8.2.2021 observing as under:- "4. Even though four substantial questions of law are raised in the appeal Memorandum cited supra, among them, substantial question of law Nos.2 & 4 are covered by the judgment and are answered by the co-ordinate bench of this court vide judgment dated 31..01.2020 in ITA No. 481/2014. Paras 8 to 10 of the said judgment dated 31.01.2020 passed in the aforesaid case, reads as under: "8. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of Section 14A of the Act: Section 14A (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form p....
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.... the revenue. 10. Learned counsel for parties, have fairly admitted that in case this court frames a substantial question of law that whether provisions of Section 115JA apply to the Banking Companies are not the remaining substantial questions of lay,/ would be reduced otiose. This court has already framed a substantial question of law in this regard today. This court by an order passed on 16.01.2020 passed in ITA No. 13/2014 has already held that the provisions of Section 115JB do not apply to the banking companies. Therefore, the substantial questions of law Nos_3, 4 and 5 and substantial question of law framed in ITA 99/2010 are rendered academic and need not be answered. So far as substantial; question of law No. 2 in ITA No. 97/2010 is concerned, the same is squarely covered by the decision of the Supreme Court in 'CIT VS. ESSAR TELEHOLOINGS LTD.',(2018) 401 ITR 445, wherein it has been held that provisions of Section 114A read with rule 8D of the Income Tax Rules are prospective in nature and can not be applied to any assessment year prior to Assessment Year 2008-09. Accordingly, the aforesaid substantial question of law is answered against the revenue and i....
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....had claimed deduction u/s 36(1)(viia) towards Provision for bad and doubtful debts (PBDD) to the extent of Rs. 191.95 Crores as against the actual provision of Rs. 267.17 Crores made during the year. In this regard the AO asked to explain the procedure for write-off and sought for clarification and raised queries. The assessee furnished details explaining the procedures for claiming the deduction. Some parts of the submission are as under:- "2. Details in respect of bad debts claimed U/s 36(1)(vii): a. Board of Directors has the authority for sanctioning of writing off of advances which are delegated to the hierarchy. Branches to not have power to write off. They have to send proposal for write off only in cases where all other avenues for recovering the amount has exhausted and it is not worthwhile to pursue the court proceedings to recover the amount due to the cost and time involved and the chances of recovery. Apart from this, Bank also some times take decision to write off at Head Office level with the balance continue to appear in branch books which is also permitted by the regulator. Recoveries made in both the cases is offered to tax on cash basis....
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.... non-rural branches amounting to Rs. 303,86,90,303/- on two grounds:- (i) The amount was not actually written off in the loan account of the debtors. (ii) The entire write off (both rural and non rural debts) should be adjusted against the credit balance in the provision a/c u/s 36(1)(viia) and only the excess can be claimed. Since there is no excess amount, the write off is not allowable. He relied on Explanation 2 to section 36(1)(vii). 14. Before the CIT(Appeals), the assessee submitted that the provision for bad and doubtful dets u/s. 36(1)(viia) is applicable only for rural debt and accordingly the non-rural bad debts are eligible for deduction u/s. 36(1)(vii) of the act. Deduction u/s. 36(1)(viia) is not a write off of debts but it is only an allowance allowed in computing the taxable income as a percentage of average rural advances and total profit. Further, the write off against the rural loan/advances is set off against the NPA reserve and not claimed as deduction u/s. 36(1)(vii). Thus, there is no double deduction in respect of urban or rural debt written off. The assessee relied on the decision of the ITAT in its own case for AYs 2013-14 in ITA No. 1....
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....e Bangalore bench of ITAT in the Appellant Bank's own case for AYs 2013-14 & 2014-15 and in the case of Canara Bank (erstwhile Syndicate Bank) in ITA Nos. 501 & 390 Bang/2023 dated 25.10.2023. Therefore, this issue is settled in favour of the assessee. 18. The ld. DR strongly supported the orders of lower authorities. He further submitted that the Revenue has filed appeal against the order of the Hon'ble Tribunal to the jurisdictional Hon'ble High Court. 19. After hearing both the sides, we note that similar issue has been decided by the coordinate Bench of this Tribunal in assessee's own case for AY 2014-15 in ITA No. 1907/BANG/2018 & 230/PAN/2018 dated 26.5.2022 in favour of the assessee after considering Explanation 2 inserted in section 36(1)(vii) by Finance Act, 2013 (after the decision of the Supreme Court in the case of Catholic Syrian Bank) held as under:- "7.7 We heard the Ld D.R and perused the record. Now the core question that arises is whether the bad debts relating to non-rural branches are also required to be first debited to PBDD a/c and then the excess amount over and above the balance available in PBDD alone could be allowed as bad debts u/s 36(1)(v....
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....ic Syrian Bank (2012)( 343 ITR 270). In the above said case, the Hon'ble Supreme Court has expressed the view that the provisions of sec. 36(1)(vii) and 36(1)(viia) allow separate deduction and they are independent provisions. The Supreme Court further held that the clause (viia)(a) applies only to rural advances. So the bad debts relating to non-rural advances need not be deducted against the PBDD allowed under clause (a) of sec.36(1)(viia) of the Act. The Hon'ble Supreme Court, inter alia, also observed as under:- "31 It was neither in dispute earlier nor is it disputed before us, that the assessee-bank is maintaining two separate accounts, one being a provision for bad and doubtful debts other than provision for bad debts in rural branches and another provision account for bad debts in rural branches for which separate accounts are maintained...." Referring to the above said observations, the revenue has taken the view that the Hon'ble Supreme Court has rendered its decision on the assumption that the banks would be maintaining two separate PBDD a/c, viz., one for rural branches and another one for non-rural branches. 7.10 It is possible that all banks....
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....er VIA). (iii) Clause (c) is applicable to a public financial institution or a State financial corporation or a State industrial investment corporation. The quantum of deduction is 5% of total income (computed before making any deduction under this clause and Chapter VIA). (iv) Clause (d) is applicable to Non-banking financial company from AY 2017-18. The Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra) has held that the PBDD allowed under clause (a) of Sec. 36(1)(viia) refers to 'rural advances' only. In fact the expression "rural branches" finds place in clause (a) only. It can be noticed that the reference to "rural branches" is not there in clause (b) to (d). Generally, the foreign banks may not have rural branches. However, such kind of banks, financial institutions, NBFC etc. are also eligible to claim deduction towards PBDD u/s 36(1)(viia) of the Act under clauses (b) to (d). In view of the decision rendered in the case of Catholic Syrian bank, it is possible that the assessees covered by clause (b) to (d) may contend that the bad debts written off by them need not be adjusted against PBDD allowed u/s 36(1)(viia) of the Act, since ....
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....debit the amount of bad debt written off to the provision for bad and doubtful debts account made under section 36(1) (viia) of the Act. Therefore, the banks or financial institutions are entitled to claim deduction for bad debt actually written off under section 36(1)(vii) of the Act only to the extent it is in excess of the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the Act. However, certain judicial pronouncements have created doubts about the scope and applicability of proviso to section 36(1)(vii) and held that the proviso to section 36(1)(vii) applies only to provision made for bad and doubtful debts relating to rural advances. Section 36(1)(viia) of the Act contains three subclauses, i.e. sub-clause (a), sub-clause (b) and sub-clause (c) and only one of the sub-clauses i.e. sub-clause (a) refers to rural advances whereas other sub-clauses do not refer to the rural advances. In fact, foreign banks generally do not have rural branches. Therefore, the provision for bad and doubtful debts account made under clause (viia) of section 36(1) and referred to in proviso to clause (vii) of section 36(1) and section 36(2....
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....evenue. In case of rural advances which are covered by clause (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia)(a) applies only to rural advances." It is pertinent to note that the Hon'ble Supreme Court has categorically held that clause (a) of sec. 36(1)(viia) applies to rural advances only. If the Parliament wanted to undo the above said interpretation given by the Hon'ble Supreme Court, it should have brought amendment in clause (a) to sec. 36(1)(viia) to make its intention clear that the clause (a) shall apply to both rural and non-rural advances. Since there is no such amendment, the interpretation given by Hon'ble Supreme Court that "clause (viia)(a) applies to rural advances only" shall remain intact. Explanation 2 inserted in sec. 36(1)(vii), in our view, does not override the above said interpretation given by Hon'ble Supreme Court. 7.14 In the Memorandum explaining the purpose of introducing Explanation -2 in Sec. 36(1)(vii), it has been acknowledged that only the clause (a) refers to "rural branches". It has also been stated....
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....y Ld CIT(A) on this issue. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the bad debts relating to nonrural branches u/s 36(1)(vii) of the Act without adjusting the same against the PBDD a/c, since the said PBDD a/c relates to rural advances only." 20. Respectfully following the above decision, we delete the addition u/s. 36(1)(vii) of the Act for both the AYs 2016-17. This issue for AY 2017-18 is on the same facts and there is only difference in quantum and hence applying the decision for AY 2016-17 we delete the addition on this issue for this AY 2017-18 also. 21. Common ground No. 4 is alternate ground to ground No. 3 and since ground No. 3 is allowed, ground No. 4 is infructuous for both the years. 22. Next common Ground No. 5 is regarding disallowance of amount being penalty paid to RBI and ground No. 5 is with regard to disallowance of club expenses. The ld. AR submitted that considering the smallness of the amounts in both the years, these grounds are not pressed, though the assessee does not accept it on merits. Accordingly the issues raised in ground Nos.5 & 6 for both the years are left open. 23. Ground No. 7 ....
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....e actual payment in the regular computation, after adding the provision amount of Rs. 18 Cr. 7.1.3.2. The learned Assessing Officer added this provision amount of Rs. 18 Cr by observing that the same is contingent liability. The learned CIT(A) also upheld the disallowance. Our Submissions: 7.1.3.3. The amount provided by the Appellant Bank is an ascertained liability and not a contingent liability. Infact, the Appellant Bank in the regular computation claimed a sum of Rs. 22,01,47,905/- based on the actual payment, which is more than the amount provided in the books. This itself establishes the fact that this an ascertained liability. The addition made by the learned Assessing Officer is based on surmises & conjunctures, hence, liable to be deleted. 7.1.4. Provision for gratuity to HD Canvassers - Rs. 14,31,000/- 7.1.4.1. This amount was provided by the Appellant Bank based on the actuarial valuation. The learned Assessing Officer disallowed the same by observing that it is a contingent liability. 7.1.4.2. The learned CIT(A) also upheld the disallowance. Our Submissions: 7.1.4.3. The amount provided is ba....
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....urrent year, the assessee paid Rs. 1,02,78,643 which relates to previous assessment year. We remit this issue to the AO for verification and if the provision is allowed in the previous assessment year, then principle of consistency should be followed. However, if the AO finds that this is the first year for the provision of HD commission, then the actual payment made by the assessee should be allowed. 27.1 Further in respect of provision for ex gratia and bonus, gratuity to HD canvassers and provision for gratuity, the assessee has made provision on the basis of actuarial valuation. However both the authorities below have disallowed by holding that it is a contingent liability which is not correct. Since the assessee has made provision on the basis of certificate from the actuarial valuer therefore the provisions made are to be treated as ascertained liability. This view is fortified by the decision dated 22.02.2022 of the coordinate Bench of the Tribunal in the case of Jeans Knit (P) Ltd. [2022] 138 taxmann.com 480 [Bang. Trib.]. The relevant part is as under:- "The AO during the course of asst. proceedings has added back the provisions created towards gratuity, leave ....
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....amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities;" Therefore as per the provisions, if an amount is specified for provision which is for meeting with the liabilities not ascertained such provision so made shall have to be added back to the book profit of the company. In other words if such provision is made for ascertained liability, no such addition back shall be made. In assessee's case the provision for gratuity and leave encashment is done based on the actuarial valuation which fact is available on record from the Actuarial Report submitted (page 188 - 255 of the paper book). The law is fairly settled in this regard and the courts have taken a consistent view that when the provision for gratuity/leave encashment is done based on actuarial valuation the same cannot be held as an unascertained liability and cannot be added for the purpose of computing the book profits u/s.115JB. The Hon'ble Jurisdictional High Curt in the case of CIT v. Kirloskar Systems Ltd. [2013] 40 taxmann.com 124/[2014] 220 Taxman 1 (Kar.) held that- "The Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 has held that an a....
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....gs, vide letter dated 05-11-2018, the Appellant Bank submitted a revised calculation of Book Profit. In the said calculation, the Appellant Bank had not added the provision for NPA of Rs. 267,17,51,684/- and provision for investment depreciation of Rs. 13,16,10,956/-. 30. The Assessing Officer though considered the other submissions in the letter, did not consider this claim. The learned CIT(A), in para 4.9 of his order, held that the appellant failed to furnish the copy of the revised Audit Report in form 29B and hence the revised computation of Book Profit could not be accepted. 31. The ld. AR submitted that the appellant Bank had submitted the Form 29B at the time of filing the return of income. There is no provision in the Act to file a revised Form 29B. Therefore, the order of the learned CIT(A) in not admitting the revised computation is not tenable. It is prayed that the issue may be remitted to the learned CIT(A) to adjudicate the revised computation on merits. 32. After considering the rival submissions, we noted that during the course of assessment proceeding vide assessee's letter dated 5.11.2018 the assessee submitted revised calculation of book profit. In the ....
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....A at Rs. 421,49,24,680 and granted relief of Rs. 42,14,92,648 being 10% of AAA and 7.5% of the revised total income and disallowed the balance amount of Rs. 88,24,01,309 as under:- Particulars Amount 01 10% of average aggregate advances made during the year by rural branches being Rs. 421.49 crores (Rs. 607.89 crores - Rs. 186.40 crores; excluding advances pertaining to branches situated in Semi-Urban branches and Urban agglomeration and after considering the amount of advances sanctioned by rural branch during the year - incremental averages as provided by the assessee) Rs. 42,14,92,468 02 7.5% of the total income before deduction u/s 36(1)(viia) and Chapter VIA deductions Rs. 61,56,60,417 03 Deduction allowable u/s 36(1)(viia) Rs. 103,71,52,885 04 Deduction claimed u/s 36(1)(viia) Rs. 191,95,54,195 05 Disallowance made being excess claim of deduction u/s 36(1)(viia) Rs. 88,24,01,309 37. The CIT(A) after considering the detailed submissions and following the judgment of the Hon'ble jurisdictional High Court in the case of CIT, LTU v. Canara Bank [2023] 147 taxmann.com 171 (Karnataka) dated 5.12.2022 and the decision o....
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.... statute is aggregate average advances "made" by the rural branches. To quote an example, he submitted that for A.Y. is 2013-14 (F.Y. 2012-13) if the bad debt as on 31-3-2012 is considered to be as Rs. 1 Crore by virtue of making provisions subsequently, the assessee will be entitled for double benefit because provisions in respect of 10% of the bad debt of provisions of Rs. 1 Crore towards bad debt was already made as on 31-3-2012. Therefore, if the same amount is carried forward for the next F.Y., the assessee will be entitled for the double benefit because it would be making a provision for Rs. 1 Crore in addition to the 10% to the bad debt made in the relevant F.Y. 7. Shri Suryanarayana, adverting to the Para 7 of the impugned order, submitted that in identical circumstances, in assessee's own case, the assessee had made provision in similar manner as made in A.Y. 2013-14. A co-ordinate bench of the Tribunal had accepted the provision made by the assessee benefit in Canara Bank v. Jt. CIT [2018] 99 taxmann.com 357/[2017] 60 ITR (Trib.) 1 (Bengaluru - Trib.). He further submitted that the said order has been followed by the Tribunal in Vijaya Bank v. Jt. CIT [IT App....
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.... 11. In view of the above, these appeals with regard to question No. 4 must fail and it is also answered in favour of the assessee and against the Revenue." 41. Respectfully following the above judgment of the Jurisdictional High Court we hold that while calculating AAA of rural branches under section 36(1)(viia), not only fresh advances made during year, but also amount of advance outstanding are to be considered. Accordingly, the ground taken by the revenue on this issue is dismissed. 42. In ground No. 2 the revenue has raised that the ld. CIT (A) has not followed the decision of Hon'ble High Court of Kerala in the case Lord Krishna for computation of deduction u/s. 36(1)(viia) in respect of classification of rural branches. This issue has been decided by the jurisdictional High Court in the case of State Bank of Mysore v. ACIT [2015] 57 taxmann.com 253 (Karnataka) in which it has been held as under:- "The instant case is concerned with the assessment for the assessment years 2003-04 and 2004-05. The first day of the previous year for these assessment years would be 1-4-2002 and 14-2003. For the purpose of computing the deduction under section 36(viia) ....
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....ed is 'published' before the first day of previous year. If in the Census it is found that the population of a particular village has crossed 10,000, then the scheduled bank pertained to that village would not be entitled to the deduction of 10 per cent of the aggregate average advances towards bad and doubtful debts. The Census figure would be available with the Census Department. It is not possible for the common man or the bank to know what is the Census figure. Therefore, the said provision stipulates that Census figure has to be published. Therefore, it is only after publication of the Census figures that one may be able to decide whether it is a rural branch as defined under the Act or not. The last stipulated population necessarily would be with reference to particular date. That day is also prescribed as that date before first day of the previous year. Once the publication of census is made before the first day of the previous year, then the said information is in public domain. Therefore, on that basis one could find whether a branch is a rural branch or not. It is no doubt true that the Census Department initially publishes a provisional population total, probably....