TaxTMI 
TaxTMI 
2024 (3) TMI 613
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....17 & 2017-18. Since facts are identical and issues are common, for the sake of convenience these appeals were heard together and are being disposed off, by his consolidated order. ITA No: 1120/Chny/2019 for assessment year 2015-16: 2. The assessee has raised the following grounds of appeal: "1. The order of the Commissioner of Income Tax (Appeals) is bad in law & contrary to the facts & circumstances that are prevalent in the case of the Appellant. 2. The learned Commissioner (Appeals) erred in confirming the disallowance of non-rural bad debts write off of Rs. 21,58,73,485/-. 2.1. The learned Commissioner (Appeals) failed to appreciate the fact that the amount claimed was write off effected by the bank. 2.2. The Learned Commissioner (Appeals) erred in allowing the amount by considering the amount debited to Profit & Loss account. 2.3. The Learned Commissioner (Appeals) erred in the method adopted to arrive at the allowable amount of deduction under Sec 36(1)(vii). 2.4. The Learned Commissioner (Appeals) erred in relying on the Explanation 2 to Sec 36(1)(vii) which is not applicable to the facts of this case. 2.5. The Learned Commissioner (Appeals) erred in confirmi....
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....ing the first proviso to section 201 of the Income Tax Act, 1961. 7.4. The Learned Commissioner (Appeals) erred in sustaining the disallowance without appreciating the fact that the AO has passed the order without giving sufficient time as requested by the Appellant for submission of evidence. 8. The Learned Commissioner (Appeals) erred in confirming the QIP expenses of Rs. 1,75,43,308/- by holding that the same is not covered u/s. 35D. 8.1. The Learned Commissioner (Appeals) erred in holding that there was no extension of existing undertaking. 8.2. The Learned Commissioner (Appeals) failed to appreciate the fact that the proceeds of QIP is for augmentation of business by opening more branches of the Bank and hence the QIP expenses are allowable u/s. 35D. 9. The Learned Commissioner (Appeals) erred in confirming an amount of Rs. 10,61,97,071/- u/s. 36(1)(viii) of the Income Tax Act, 1961. 9.1. The Learned Commissioner (Appeals) erred in rejecting the computation of Appellant bank based on surmises and conjunctures. 9.2. The Learned Commissioner (Appeals) failed to appreciate the fact that the Appellant bank had computed the deduction u/s. 36(1)(viii) as per the provis....
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....ocial Responsibility expenses 3,53,83,891 4 Expenses on shares alloted to employees on ESOS 7,61,57,839 5 Net profit on investment 29,66,29,150 6 Disallowance u/s. 40(a)(ia) 16,59,07,839 7 1/5th of shares issues expenses under QIP mode u/s. 35D 1,75,43,306 8 Excess depreciation on ATM 7,55,27,480 9 Accrued interest on NPA 62,94,991 10 Accrued interest on government securities 12,92,76,203 11 Amount assessed/s.41(1) and 28(iv) 2,31,45,410 12 Disallowances of Sec. 36(1) (vii) 10,61,97,071 13 Disallowances of Sec. 36(1) (vi) (a) 100,11,07,15 14 Disallowance of excess claim of provision for bad and doubtful debts 43,62,86,255 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has challenged various additions made by the Assessing Officer, including excess provision made in respect of rural advances u/s. 36(2)(v) of the Act, claimed as deduction on account of non-rural bad debts written of u/s. 36(1)(vii) of the Act, disallowance of Corporate Social Responsibility expenses, addition towards net profit on investment, disallowance u/s. 40(a)(ia) of....
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.... Hon'ble Karnataka High Court in the case of CIT vs Info Technologies Ltd reported in [2014] 260 ITR 714 and also decision of Gujarat High Court in the case of Gujarat Narmada Valley Fertilizer and Chemicals Ltd reported in [2020] 422 ITR 164 (Guj). 5.2 The ld. DR, on the other hand supporting the order of the Assessing Officer and the ld. CIT(A) submitted that, Explanation (2) to section 37 of the Act, inserted by the Finance Act, 2014 w.e.f. 01.04.2015 clarified that, any expenditure incurred by the assessee on the activities relating to corporate social responsibilities referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. 5.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The CSR expenses is one which has been incurred by the assessee as per mandate of section 135 of the Companies Act, 2013. As per section 135 of the Companies Act, 2013, some specified companies require to spend specified amount of their profit for corporate social responsibilities out of their profit. In our considered view, when....
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....uction u/s. 37(1) of the Act, but said deduction should be allowed equally over the vesting period. Therefore, worked out proportionate disallowance based on allotment price, market price and claim of expenses by the assessee and accordingly, disallowed sum of Rs. 7,61,57,839/- . On appeal, the ld. CIT(A) enhanced the assessment and disallowed total expenditure claimed by the assessee amounting to Rs. 33,84,00,839/-, on the ground that in case of ESOP, the whole idea of treating differential value of shares as expenses is based on the misconception and thus, the question of allowing deduction towards difference between market price and exercise price does not arise. Aggrieved by the ld. CIT(A) order, the assessee is in appeal before us. 6.1 The Ld. Counsel for the assessee, submitted that this issue is squarely covered by the decision of Hon'ble Madras High Court in the case of ALSEC Technologies Ltd [2017] 12 TMI 1581, where the issue has been decided by the Hon'ble Madras High Court in favour of the assessee and thus, deduction claimed by the assessee should be allowed. 6.2 The ld. DR, Shri. Nilay Baran Som, CIT, on the other hand supporting the order of the Assessing Officer a....
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....ity in computation of expenditure deductible towards ESOS expenses and also said deduction has been computed in light of SEBI guidelines, the Assessing Officer is erred in re-computing allowable expenses by adopting his own formula is incorrect. Since, the appellant has deducted difference between market price and the price at which the option is exercised by the employees is deductible expenditure u/s. 37(1) of the Act, in our considered view the Assessing Officer is completely erred in re-computing the deduction without assigning proper reasons. Further, this principle is supported by the decision of Hon'ble Madras High Court in the case of CIT vs PVP Ventures Ltd [2013] 001 ITR - OL 307 (Mad), where it has been clearly held that the difference between the market price and the price at which the option is exercised by the employees is to be debited to the profit and loss account as an expenditure. A similar view has been taken by Hon'ble Madras High Court in the case of CIT vs M/s. ALSEC Technologies Ltd [2017] 12 TMI 1581, where it has been held that difference between market price and the employees stock option plan is revenue expenditure and allowable u/s. 37(1) of the Act. 6....
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.... will be valued at monthly or at more frequent intervals. The Assessing Officer, has followed RBI guidelines and instruction no. 17/2008 dated 26th Nov, 2008 and worked out disallowances. Therefore, the argument of the assessee that the issue is settled by the decision of Hon'ble High Court in appellant's own case is incorrect. 7.3 We have heard the rival parties, perused material available on record and gone through orders of the authorities below. The assessee has classified all its securities as stock in trade for the purpose of Income Tax Act, which provides a separate investment trading account and offers the net result of the trading account to tax. The stock in trade was valued at lower of cost or market value. However, for the purpose of books of accounts, the bank classifies securities as per RBI norms and also valued them as per RBI guidelines. There is a difference between value as per RBI norms and value for the purpose of Income Tax Act. The Assessing Officer, disallowed excess depreciation claimed on certain investments on the ground that, said depreciation is contrary to RBI guidelines and vide Circular no. 17/2008, dated 26th Nov, 2008. In our considered view, this....
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.... Further, wherever the interest payment excludes maximum amount not chargeable to tax for the relevant assessment year, the Assessing Officer has not accepted Form 15G & 15H furnished by the appellant bank and disallowed 30% of interest u/s. 40(a)(ia) of the Act and made additions of Rs. 16,59,07,839/-. 8.1 The Ld. Counsel for the assessee, Shri. S. Anandhan, CA, submitted that, wherever the appellant filed Form 15G & 15H in respect of trust/associates/societies, whose income is exempt u/s. 11 & 12 of the Act, then the appellant bank is not required to deduct TDS and this principle is supported by the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs Canara Bank [2016] 387 ITR 229. He, further submitted that in case of individual and HUF, the appellant has already filed Form 15G & 15H and proved that the declarants income is not liable to tax and accordingly, no TDS has been deducted in respect of payment. Although, the appellant has furnished necessary details, the Assessing Officer has disallowed 30% of interest u/s. 40(a)(ia) of the Act and thus, the matter may be set aside to the file of the Assessing Officer to verify the claim of the assessee and to decid....
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....Assessing Officer, with necessary evidences that may be filed by the appellant. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for further verification and thus, we set aside the order of the ld. CIT(A) on this issue and restore the issue back to the file of the Assessing Officer with a direction to reexamine the claim of the assessee, in light of any evidences that may be placed by the assessee before the Assessing Officer to prove their case. 9. The next issue that came up for our consideration from ground no. 8 of assessee appeal is disallowance of QIP expenses of Rs. 1,75,43,308/- . The Assessing Officer has disallowed 1/5th of the share issue expenses under QIP mode amounting to Rs. 1,75,43,308/-, on the ground that QIP expenses is not eligible for deduction u/s. 35D of the Act, as no extension of existing business is undertaken. It was the argument of the Ld. Counsel for the assessee that, it has issued share to existing shareholders under Qualified Institutional Placements (QIP) and incurred share issue expenditure. The proceeds of share issue has been utilized for the purpose of extension of existing business ....
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....in accordance with law. 10. The next issue that came up for our consideration from ground no. 2, 3, 9 & 10 of assessee's appeal is deduction u/s. 36(1)(vii) and 36(1)(viia) of the Act, in respect of provision for bad debts and bad debts actually written off in the books of accounts of the assessee. The Assessing Officer has discussed the issue in Para 1 of Page 2 to 4 and Para 12 of Pages 28 to 43 of assessment order. The facts with regard to the impugned disputed are that, the assessee is a scheduled bank and has claimed deduction u/s. 36(1)(viia) of the Act, in respect of provision for bad and doubtful debts. The assessee had also claimed deduction u/s. 36(1)(vii) of the Act, towards actual write off of bad debts in light of decision of Hon'ble Supreme Court in the case of Vijaya Bank vs CIT [2010] 323 ITR 166 SC. The assessee has claimed deduction u/s. 36(1)(vii) and sub-clause (a) in respect of rural advance @ 7.5% on total income and an amount not exceeded 10% of aggregate average advances made by the rural branches of the bank. The assessee has followed two systems for provision for bad and doubtful debts i.e., one for the purpose of books of accounts and other for the purpo....
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....olic Syrian Bank vs CIT [2012] 343 ITR 270, and held that for the purpose of deduction towards write off of non-rural debts u/s. 36(1)(vii) of the Act, there is no need to adjust credit in the account of provision for bad and doubtful debts created in terms of section 36(1)(viia) of the Act. The Ld. Counsel for the assessee, has argued the issue at length in light of the decision of Karnataka Bank Ltd vs DCIT (Supra) and held that, even after insertion of Explanation (2) to section 36(1)(vii) of the Act, the ratio laid down by the Hon'ble Supreme Court in the above case is not nullified, in so far as, deduction towards provision for bad and doubtful debts u/s. 36(1)(viia) and 36(1)(vii) of the Act, in respect of rural advance given by branches. He, further submitted that, clause (a) of section 36(1)(vii) of the Act is a beneficial provision provided to banks operating in rural areas and extending credit facilities and thus, when the bank is claiming deduction towards provision for bad and doubtful debts, on the basis of provisions credited, then if you adjust write off of non-rural debts against provision account, then the benefit given to rural banks is taken away. In other words,....
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....ed u/s. 36(1)(vii) The assessee has claimed deduction of bad debt write off (Non- rural) as irrecoverable u/s. 36(1)(vii) of the IT Act in the computation of income as under: AY Amont (Rs. In Cr) 2015-16 173.71* 2016-17 137.58 2017-18 228.49 * In the revised computation, claim was Rs. 66.19 Cr and Rs. 152.12Cr; Total being Rs. 218.32 Cr. This deduction was claimed only in the statements of Computation of Income for respective Assessment Years and not in the audited financial accounts prepared and published for those financial years. Legal Provisions: While computing the income referred in section 28 of the IT Act, actual bad debt written off is an allowable deduction and dealt with in Section 36. Section 36 of the IT Act deals with other deductions subject to certain conditions. In order to claim those deductions, the assessee has to prepare their accounts in accordance with law by charging those expenditures into the P&L a/c and net profit has to be arrived accordingly. As per section 36(1)(vii) of the IT Act, "subject to the provisions of sub-section (2), the amount of any bad debt or part there of which is written off as irrecoverable in the accounts ....
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....ssessee is a scheduled bank incorporated in India. Hence, they can claim deduction in respect of any provision for bad and doubtful debts by debiting the same in the P&L account as per clause (a) of section 36(1)(viia) of the IT Act. It will be allowed as a deduction subject to certain limits prescribed under the act. The assessee has availed the benefit provided under 36(1)(viia) of the IT Act. The assessee has further availed deduction of bad debts written off u/s. 36(1)(vii) without debiting the same into the provision created u/s. 36(1)(viia). 2. Whether the provision for bad and doubtful debt was debited into the P&L a/c was allowed as a deduction? Ans: Yes. It has debited the Provision for bad and doubtful debts under the head provisions and contingencies in the profit and loss account. The Provision for bad and doubtful debts has been added back in computation of Income and claimed deduction u/s. 36(1)(viia). As per clause (a) of section 36(1)(viia) of the IT Act, the provision for bad and doubtful debt debited into the P&L a/c was allowed as a deduction not exceeding 7.5% of total income(computed before this clause and deduction of Chapter VIA)and an amount of 10% of th....
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....aggregate average advances made by rural branches of that bank Clause (b) Bank incorporated under the laws of outside country Foreign banks Not exceeding 5% of total income Clause (c) public finance institution or State Finance Corporation or State Industrial Investment Corporation Not exceeding 5% of total income Clause (d) a non-banking financial company Not exceeding 5% of total income 8. Under which category assessee bank claimed this deduction of provision for bad and doubtful debts? Ans: Being a scheduled bank, incorporated in India, they claimed deduction as per clause(a) of section 36(1)(viia). 9. Can they claim deduction of any bad debt or part thereof, which is written off as irrecoverable as per section 36(1)(vii)? Ans: Yes. They can claim bad debt write off as irrecoverable, subject to provision of sub section (2) of section 36 of the IT Act. Provided, in case of any assessee being a scheduled bank, where they already claimed deduction of 'provision for bad and doubtful debt under clause(a) of section 36(1)(viia), to claim bad debt write off, the write off should exceed the credit balance in the "provision for bad and doubtful debt" made. Re....
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....ce Act 2001 w.r.e.f 1.4.1989 to plug the tax payers from claiming both provisions for bad debts as well as bad debt write off as an allowable deduction simultaneously of the same bad debt. Explanation 1. For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. 15. What is the significance of Explanation-2 of section 36(1)(vii)? Ans: The provision of section 36(1)(vii) allows deduction of bad debt write off as irrecoverable in the accounts of the assessee. Section 36(1)(viia) allows deduction of any provision for bad and doubtful debt made by various class of assessee from (a) to (d) discussed above. Some of the judicial pronouncements gave findings that section 36(1)(viia) allows deduction of bad debts in respect of NPAs of rural branches and section 36(1)(vii) of the IT Act allows deduction of bad debts of non- rural NPA of the respective bank. However, it is not correct. To clear the doubts, this explanation-2 was brought into the statute in Finance Act, 2013. The Memorandum to the Finance Act, 2013 is placed in p....
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....com 343(KAR)(2018) which has been affirmed by Supreme Court. 18. Where such reversal of provision for NPA can be found? Ans: It can be found in the annual report itself under the head movement of provision for NPA. The opening balance of provision, current year provision for NPA, write back of excess provision, write off of provision and closing balance etc are duly disclosed. It is as under: Movement of provision for NPA (Rs. In Cr) - as per Annual report AY Opening balance Provision made during the year Write off/write back of excess provision Closing balance 2014-15 76.41 148.50 129.14 95.77 2015-16 95.77 165.00 157.74 103.33 2016-17 103.33 205.00 121.36 186.67 2017-18 186.67 251.50 167.86 251.66 The relevant pages of the annual report are placed at P.No. 8,13,18. 19. What about prudential write off or technical write off? Ans: These are prudential norms prescribed as per RBI norms. The technical write off or prudential write off or head office write off is the amount of NPAs written off at head office level but these debts remain outstanding at the branch level. Hence in books of account of the respective branches it remai....
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....ed deduction u/s. 36(1)(vii) of the IT Act, by reducing substantial amount of bad debt write off in the computation of income after closure of audit. It is for them to prove that they have followed section 36(1) (vii) read with sub section (2) of section 36 and also section 36(1)(viia) rightly. Every assessee claiming deduction of bad debt write off as irrecoverable in the accounts have to scrupulously follow section 36(1)(vii), 36(1)(viia)and section 36(2). Legislature in its wisdom has rightly placed every provision, explanations at right place and it has to be scrupulously followed while claiming deductions. 5. Appellant relied upon the decision of Hon'ble ITAT in the case of Karnataka Bank Ltd v. DCIT in ITA No.1907/Bang/2018 dated 26.05.2022. With due respect, it is submitted that this decision has not laid down the law correctly. While reading the decision, the counsel of the appellant conveniently omitted some of the findings advanced by the DR that is recorded at para 7.1. The DR had argued that mere provision for NPA cannot be considered as write off u/s. 36(1)(vii) as held by Supreme Court in the case of Southern Technologies vs ACIT (352 ITR 577). DR also relied up....
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....satisfies the ingredients of Section 36(1)(vii) as well as section 36(2) of the Act." D. Summary and Prayer: The decision of Apex Court in the case of Southern Technologies vs JCIT (352 ITR 577) and PCIT v. Khyati Realtors (P.) Ltd [2022] reported in 141 taxmann.com 461, dated 25th August, 2022 laid down the law with clear cut analysis. Para-17 of Khyati realtors is sum and substance of bad debt write off contemplated in section 36(1)(vii) of the IT Act. The decision of SC in the case of Khyati Realtors is placed at P.No.32-43 of the paper book. Assessee is a scheduled bank falling under clause-(a) of section 36(1)(viia) of the IT Act. They are entitled for any provision for bad and doubtful debt made by them in the books of accounts, not exceeding the limits prescribed therein. It was already claimed. No other bad debt was actually written off as irrecoverable as per section 36(1)(vii) of the IT Act in the annual accounts published. Hence the claim of bad debt write off in computation of income is not true and correct. It is prayed that the grounds raised by the appellant bank may be dismissed." 10.3 We have heard both the parties, perused material available on record and g....
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....es. Taking a clue from the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank vs CIT (Supra), the ITAT Bangalore Bench in the case of Karnataka Bank Ltd vs DCIT (supra), has dealt the issue at length in light of provisions of section 36(1)(vii) r.w.s. 36(2)(v) of the Act and also provisions of section 36(1)(viia) of the Act, and held that write off of non-rural bad debts should be considered only against provision for bad and doubtful debts in respect of non-rural advances as per section 36(1)(viia) of the Act. In other words, the credit balance in provision for bad and doubtful debts in respect of rural advance only needs to be adjusted against write off of rural bad debts in terms of section 36(1)(viia) of the Act, without considering write off of non-rural debts. The relevant findings of the Tribunal are 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)(vii) of the Act. 7.8 The provisions of s....
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....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 may not be maintaining two separate accounts, as observed by the Hon'ble Supreme Court. Hence there was an apprehension i....
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....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 the bad debts relate to "non-rural debts". Accordingly, we are of the view that the Explanation 2 has been inserted in order to bring the assesses covered by clauses (b) to (d) within the a....
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....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 undersection 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. Section36(1)(viia) of the Act contains three sub-clauses, i.e. sub-clause (a), subclause (b) and sub-clause (c) and only one of the subclauses 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)(v) applies to all types of advances, whether rural or other advances. It has also been interpreted that there are separate accounts in respect of provision for bad and doubtful debt under clause (viia) for rural advances and....
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....ies 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 that the foreign banks do not have rural branches. The assesses covered by clause (b) to (d) may not be having rural branches. Hence, the memorandum explains as under with regard to the decision rendered by Hon'ble Supreme Court in the case of Catholic Syrian Bank....
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....his view of the matter and by respectfully following the decision of coordinate bench of ITAT Bangalore in the case of Karnataka Bank vs DCIT (Supra), which has been further strengthened by the decision of Hon'ble Delhi High Court in the case of Oriental Bank of Commerce vs PCIT (supra), we are of the considered view that, the bad debts written off relating to non-rural advances is not required to be adjusted against provision for bad and doubtful debts allowed u/s. 36(1)(viia) of the Act and thus, we direct the Assessing Officer to re-compute deduction in respect of write off of non:- rural debts without any adjustment to credit balance in the provision for bad and doubtful debts account in respect of rural advance. 10.6 In so far as additions of Rs. 21,58,73,485/- u/s. 36(1)(vii) r.w.s. 36(2)(v) of the Act, we find that the Assessing Officer has made additions on the ground that excess provisions made in respect of rural advances has been claimed as non-rural bad debts written off u/s. 36(1)(vii) of the Act. On the other hand, it was the argument of the Ld. Counsel for the assessee that, write off of non-rural bad debt u/s. 36(1)(vii) of the Act is exclusive for provision for ba....
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....e not clear. There is no details with us with regard to actual write off of bad debts amounting to Rs. 44,61,22,062/- to ascertain whether it is for rural debt or non-rural debt. Therefore, we are of the considered view that, this issue needs to go back to the file of the Assessing Officer for fresh verification. Thus, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to reconsider the issue in light of evidences that may be filed by the assessee and decide the issue in accordance with law in terms of our observation given herein above. 11. The next issue that came up for our consideration from ground no 9 of assessee appeal is addition made by the Assessing Officer towards deduction @20% in respect of income earned from providing long term finance to eligible business u/s. 36(1)(viii) of the Act. The assessee has claimed a deduction of Rs. 32 crores u/s. 36(1)(viii) of the Act, towards profit derived from eligible business. The assessee being a banking company provided long term finance for industrial, agricultural and development of infrastructural facilities in India (called eligible business) and claimed deduction @ 20% on profit from....
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....tation of eligible profit for the purpose of section 36(1)(viii) of the Act by the Assessing Officer and thus, the matter may be set aside to the file of the Assessing Officer for verification in light of decision of ITAT, Chennai Benches in the case of Indian Bank vs CIT 2019 (9) TMI 231 ITAT. 11.2 The ld. DR, on the other hand supporting the order of the ld. CIT(A) submitted that the law is very clear in so far as computation of deduction u/s. 36(1)(viii) of the Act and as per said provisions, eligible profit from the business should be computed in terms of provisions of section 30 to 43A of the Act and before any deduction u/s. 36(1)(viii) of the Act. The assessee has adopted a unique method and segregated its business into three divisions and apportioned various expenses, even though various activities carried out by the assessee is one business of banking. Therefore, the Assessing Officer has rightly recomputed deduction u/s. 36(1)(viii) of the Act and their order should be upheld. 11.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Provisions of section 36(1)(viii) deals with, any special reserve creat....
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....ss, total advances of the assessee's bank, total profit and gains of business and profession and computed percentage to work out deduction u/s. 36(1)(viii) of the Act. In our considered view, when the assessee has not maintained separate books of accounts for eligible business, the method followed by the Assessing Officer to work out profit from eligible business may be one of accepted method for computation of profit and gains from eligible business, because the Assessing Officer has computed percentage of advances given to eligible business out of total advances given by the assessee and also worked out profit from eligible business out of total profit of the assessee for the relevant period. The fact remains that the Ld. Counsel for the assessee claims that the method followed by the assessee has been upheld by the Jurisdictional High Court of Madras in the case of Indian Bank vs DCIT 2019 (9) TMI 231. We find that the Jurisdictional High Court of Madras has considered deduction claimed u/s. 36(1)(viii) of the Act in light of facts of that case and set aside the issue on the ground that both the sides agreed to go back to the Assessing Officer for applying correct principle of c....
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....in allowing deduction which may be more than the amount advanced by the rural branches of the bank. This is absurd and of course not the intention of the legislature. The Assessing Officer has given an example in Page 37 of their order and argued that, if you follow method adopted by the assessee, the assessee may claim deduction under the main provisions of section 36(1)(viia) of the Act on the aggregate outstanding rural advances which remains same throughout the period. Therefore, rejected method followed by the assessee and considered only incremental average rural advance given for the relevant assessment year and then applied 10% for computing eligible deduction. The assessee has computed deduction of Rs. 143,41,26,515/- originally, in the return of income but, subsequently, the claim was reduced to Rs. 95,45,45,298/-. As against this, the Assessing Officer has computed eligible deduction u/s. 36(1)(viia) of the Act at Rs. 43,30,19,357/- and after considering deduction claimed by the assessee at Rs. 143,41,26,515/- disallowed excess claim of Rs. 100,11,07,158/- u/s. 36(1)(viia) of the Act. 12.1 The Ld. Counsel for the assessee, submitted that the assessee has classified rura....
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....the end of the last day of each month should be considered, but not aggregate monthly advances taking loans and advances made only during the previous year relevant to the assessment year as computed by the Assessing Officer. But, the High Court has remitted the matter back to the file of the Assessing Officer for the purpose of re-computation after considering the fact that the Assessing Officer has not computed deduction based on the documents produced by the assessee. The relevant findings of the Hon'ble High Court are as under: "10.2 Similarly, the second issue relating to deduction of Rs. 8.53 crores u/s. 36(1)(viia) with regard to the provision for bad and doubtful debts, is covered by the decision in Principal Commissioner of Income Tax, Jalpaiguri v. Uttarbanga Kshetriya Gramin Bank [(2018) 94 taxmann. Com 90 (Calcutta), in favour of the assessee and the relevant passage of the same is usefully extracted below: "6. Mr. Nizamuddin, learned advocate appeared on behalf of the Revenue and submitted the amended direction made by the Tribunal on the ITO has resulted in the assessee getting double deduction which is not permissible on computation made under Rule 6ABA. He submi....
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....larify whether the advances which were considered to be bad and doubtful in earlier years and for which the provision was made so as to claim deduction under section 36(1)(viia) of the Act, have been recovered subsequently, it was stated that as the provision claimed was not with reference to any particular debt due to the assessee but on an overall basis, it is not possible to certify that the bad debts claimed as trading loss for deduction u/s. 36(1)(viia) was recovered or not. It was also stated that the assessee would not be able to give age-wise details of outstanding advances for the branches more so for the rural branches with reference to which the deduction was claimed, so as to determine whether any advance of earlier year for which provision was made is still outstanding. 5.4. In other words, the assessee is not in a position to give details of the advances with reference to which the deduction of Rs. 14.99 crores was allowed as per Annexure 2 as deduction under section 36(1)(viia) towards unknown and anticipated trading loss by virtue of mere provision made on ad-hoc basis for bad and doubtful debts and to confirm that these advances were still outstanding as at the e....
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....cision of ITAT, Chennai benches in the case of Karur Vysya Bank in ITA Nos. 2762/Chny/2017 & 332/Chny/2018, dated 03.11.2011, where the issue has been discussed in detail. Therefore, we direct the Assessing Officer to consider the issue in light of the decision of the ITAT, Chennai Benches in the case of Karur Vysya Bank vs CIT (Supra). 12.5 In this view of the matter and considering facts and circumstances of the case and also following the decision of Hon'ble High Court of Madras in appellant's own case for earlier years, we are of the considered view, that the Assessing Officer is erred in computing deduction u/s. 36(1)(viia) of the Act, by considering only incremental advances made by rural branches of appellant bank as against the aggregate average advances made by rural branches of appellant bank as outstanding at the end of the financial year and thus, we direct the Assessing Officer to consider aggregate average advances outstanding at the end of the relevant financial year for the purpose of computing deduction u/s. 36(1)(viia) of the Act. Further, to compute correct amount of deduction, the matter has been set aside to the file of the Assessing Officer with a direction t....
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....see u/s. 14A of the Act of Rs. 1,43,403/-. On appeal, the ld. CIT(A) deleted additions made by the Assessing Officer u/s. 14A r.w.r. 8D of I.T. Rules, 1962 by following the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs CIT [2018] 91 Taxman.com 154. 16.1 The ld. DR, Shri. Nilay Baran Som, CIT, submitted that the ld. CIT(A) erred in deleting additions made by the Assessing Officer u/s. 14A of the Act, without appreciating fact that the appellant has made adhoc disallowances u/s. 14A, without considering Rule 8D of I.T. Rules, 1962, even though the Hon'ble Supreme Court in Maxopp Investment Ltd vs CIT (Supra) has clearly held in Para 39 of their order that, moment the assessee claims exemption u/s. 10(34) of the Act, towards dividend income received from shareholder as stock in trade, the theory of apportionment of expenditure between taxable and non-taxable income comes into play and thus, depending upon facts of each case, expenditure incurred in acquiring those shares which yielded exempt income will have to be apportioned. 16.2 The ld. AR, on the other hand submitted that this issue has been squarely covered in favour of the assessee by the decision o....
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....ordinate Bench of the Tribunal in the case of Karur Vysya Bank (supra) cited by holding as under:- "Ground No. 8 challenges the addition of 13,88,882/- invoking the provision of Section 14A of the Act. It is the contention of the appellant that the appellant had not incurred any expenditure to earn exempt income. The Assessing Officer had not given any findings as to how the claim of the assessee- bank that no expenditure was incurred to earn the exempt income was incorrect. In the absence of this finding resort to the provisions of rule 8D of the Income Tax Rules cannot be made as held by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT, (2018) 402 ITR 640. Therefore this ground of appeal filed by the assessee is allowed. Accordingly, this ground of appeal stands allowed in favour of the assessee''. Similar view was taken up by the Hon'ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd, 370 ITR 338 and PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274. The Hon'ble Delhi High Court had firmly held that mere rejection of the explanation of the assessee per se cannot be accepted. This decision of Delhi ....
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....d 28(iv) of the Act, on the ground that sale drafts for more than three years becomes income of the assessee over a period. On appeal, the ld. CIT(A) deleted additions made by the Assessing Officer by following the decision of ITAT, Chennai Benches in the case of Karur Vysya Bank Ltd vs CIT in ITA NO. 2349/Chny/2016, order dated 29.03.2017. 18.1 The ld. DR, submitted that the ld. CIT(A) erred in appreciating fact that unclaimed money, Stale drafts and cheques reflected in the balance sheet for more than three years becomes income of the assessee by applying the principle of limitation and thus, the Assessing Officer has rightly made additions towards Excess cash, Stale drafts and Branch suspense account as income of the assessee u/s. 41(1) & 28(iv) of the Act and their order should be upheld. 18.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that this issue is squarely covered in favour of the assessee by the decision of Hon'ble High Court of Madras in appellant's own case reported in [2020] 118 Taxman.com 96 (Mad), where the Hon'ble High Court of Madras by following the decision of Hon'ble High Co....
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.... T. V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC), has held as follows (page 351 of 222 ITR) : "We are unable to uphold the decision of the Tribunal. The amounts were not in the nature of security deposits held by the asses see for performance of contract by its constituents. As it appears from the facts of the case, the amounts were depleted by adjustments made from time to time. The Commissioner of Income-tax (Appeals) found that the assessee wrote back the amounts to its profit and loss account because the various trading parties did not claim these amounts for a long time. The amounts represented credit balances in the name of the trading parties and was taken to its profit and loss account. The Commissioner of Income-tax (Appeals) held that these amounts were not revenue receipts but were of capital nature. The provisions of section 41(1) were not attracted in the facts of this case because the assessee's liability to pay back the amounts to its customers had not ceased. The Tribunal agreed with this view.' (under lining is by us) 19. The Tribunal adverting to the above ruling has rightly deleted the sum of Rs. 58,38,581 added by the assessing authority....
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....xpenses of Rs. 1,75,43,308/- by holding that the same is not covered u/s. 35D. 4.1. The Learned Commissioner (Appeals) erred in holding that there was no extension of existing undertaking. 4.2. The Learned Commissioner (Appeals) failed to appreciate the fact that the proceeds of QIP is for augmentation of business by opening more branches of the Bank and hence the QIP expenses are allowable u/s. 35D. 5. The Learned Commissioner (Appeals) erred in confirming the disallowance of Rs. 48,03,464/- u/s. 36(1) (viii) of the Income Tax Act, 1961. 5.1. The Learned Commissioner (Appeals) failed to consider that the issue involved is classification of advances and not computation of income for deduction under this section. 5.2. The similar addition made earlier years was allowed the Learned Commissioner (Appeals) for the AY 2012-13 & AY 2014-15. 6 The learned Commissioner (Appeals) erred in confirming disallowance of the non-rural bad debts write off of Rs. 137,58,65,624/- 6.1. The learned Commissioner (Appeals) failed to appreciate the fact that the amount claimed was write off effected by the bank. 6.2. The Learned Commissioner (Appeals) erred in allowing the amount by consi....
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....his appeal, as well. Therefore, for similar reasons, we set aside the issue to the file of the Assessing Officer to reexamine the issue in light of our discussions given hereinabove for assessment year 2015-16 and decide the issue for the impugned assessment year in accordance with law. 22. The next issue that came up for our consideration from ground no. 3 of assessee appeal is disallowance of CSR expenses amounting to Rs. 10,45,09,355/-. An identical issue has been considered by us in appellant's own case for assessment year 2015-16 in ITA No. 1120/Chny/2019. The facts are similar for this year also. The reasons given by us in preceding paragraph no. 5 to 5.4, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we are inclined to uphold the findings of the ld. CIT(A) and sustain additions made by the Assessing Officer towards disallowance of CSR expenses. Accordingly, the ground of the assessee is dismissed. 23. The next issue that came up for our consideration from ground no. 4 of assessee appeal is disallowance of QIP expenses of Rs. 1,75,43,308/-. An identical issue has been considered by us in appellant's own case for assessment year 2015-1....
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....r the impugned assessment year in light of our discussions given in earlier paragraphs. 26. The next issue that came up for our consideration from ground no. 10 of assessee appeal is deduction towards education cess and secondary and higher education cess. The Ld. Counsel for the assessee, at the time of hearing submitted that, the assessee does not want to press this ground. Thus, ground no. 10 of assessee appeal is dismissed as not pressed. 27. In the result, appeal filed by the assessee for assessment year 2016-17 is partly allowed for statistical purposes. ITA NO. 1419/CHNY/2019 AY 2016-17: 28. The revenue has raised the following grounds of appeal: "1. The order of the learned CIT(A) is bad in law and against the facts and circumstance of the case. 2. The Ld. CIT(A) failed to appreciate that the assessee had itself made adhoc disallowance u/s. 14A of the Act in the return of income and the AO rightly worked out the correct disallowance by applying Rule 8D of Income Tax Rule. 3. The Ld. CIT(A) erred to notice that the AO had rightly restricted the deductions u/s. 36(1)(vii) & 36(1)(viia) of the Act to the credit balance of the provision for bad and doubtful debts made....
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....asons for delay has been filed. After considering the petition filed by the assessee and also hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the assessee for adjudication. 33. The assessee has raised the following grounds of appeal: "1. The order of the learned Commissioner of Income Tax (Appeals) is against law and facts of the case. 2. The learned Commissioner of Income Tax (Appeals) erred in law in disallowing a sum of Rs. 278,34,98,114/- u/s. 36(1)(vii) of the Act. 2.1 The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 113,31,51,493/- being bad debts written off in relation to accounts classified as NPA for the first time. 2.1.1. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance despite holding that the claim of the appellant can be considered as write off. 2.1.2. The learned Commissioner of Income Tax (Appeals) erred in holding that write off amount has to be adjusted against the pr....
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....s worked out by learned Assessing Officer is not in conformity with the provisions of Section 36(1)(viii) of the Act. 3.4 The learned Commissioner of Income Tax (Appeals) erred in considering the income of the bank as a whole for arriving at the deduction u/s. 36(1) (viii) of the Act. 4. The learned Commissioner of Income Tax (Appeals) erred in law in disallowing an amount of Rs. 14,11,26,172/- u/s. 40(a)(ia) of the Act being 30% of the interest paid to individuals. 4.1 The learned Commissioner of Income Tax (Appeals) failed to appreciate that Individuals whose taxable income is below the threshold limit, are not required to pay tax, are outside the provisions of Section 201 of the Act. 4.2 The learned Commissioner of Income Tax (Appeals) erred in not considering the first proviso to Section 201 of the Act. 4.3 The learned Commissioner of Income Tax (Appeals) erred in sustaining the disallowance without appreciating the fact that the learned Assessing Officer had passed the order without giving sufficient time as requested by the appellant for submission of evidence. 4.4 Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) failed to appreciat....
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....8. The learned Commissioner of Income Tax (Appeals) erred in law in disallowing the QIP expenses amounting to Rs. 1,75,43,308/- by holding that QIP is not covered u/s. 35D of the Act 8.1 The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the proceeds of QIP is for augmentation of business by opening more branches of the Bank and hence the QIP expenses are allowable. 8.2 The learned Commissioner of Income Tax (Appeals) failed to appreciate that share issue expenditure incurred for QIP issue is covered under Section 35D of the Act. 9. In the facts and circumstances of the case and in law, the appellant be allowed a claim towards education cess & secondary & higher education cess amounting to Rs. 5,52,48,210/- paid by it during the previous year 2016-17 in the computation of total income. For all these and other grounds, which may be urged at the time of hearing, the appellant prays that its appeal be allowed." 34. The first issue that came up for our consideration from ground nos. 2 to 2.2 of assessee appeal is deduction u/s. 36(1)(vii) of the Act, towards write off of non-rural bad debts and disallowance of provision for bad and doubtful deb....
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....ssions given hereinabove for the assessment year 2015-16 and decide the issue for the impugned assessment year in accordance with law. 37. The next issue that came up for our consideration from ground no. 5 of assessee appeal is disallowance of ESOS expenses and enhancement on disallowance of ESOS expenses by the ld. CIT(A). An identical issue has been considered by us in appellant's own case for assessment year 2015-16 in ITA No. 1120/Chny/2019. The facts are identical for the year under consideration. The reasons given by us in preceding paragraph no. 6 to 6.4, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we direct the Assessing Officer to delete additions made towards disallowances of ESOS expenses and delete enhancement made by the ld. CIT(A). 38. The next issue that came up for our consideration from ground no. 6 of assessee appeal is disallowance of CSR expenses of Rs. 8,65,92,170/-. An identical issue has been considered by us in appellant's own case for assessment year 2015-16 in ITA No. 1120/Chny/2019. The facts are similar for this year also. The reasons given by us in preceding paragraph no. 5 to 5.3, shall mutatis mutandis appl....
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....iled by the assessee for adjudication. 44. The revenue has raised the following grounds of appeal: "1. The order of the learned Commissioner of Income tax (Appeals), Trichy is contrary to the law, facts and circumstances of the case. 2. The CIT(A) erred in deleting the addition made u/s. 14A of the Act r.w. Rule 8D of the Rules relying on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd 402 ITR 640 (SC). 3. The CIT(A) failed to appreciate that Hon'ble Supreme Court in the case of Maxopp Investment Ltd 402 ITR 640 (SC) agreed with applicability of section 14A of the Act based on theory of apportionment of expenditure between taxable and non-taxable income as held in the case of Walfort Share & Stock Brokers (P) Ltd, when shares are held as stock in trade. 4. The CIT(A) failed to appreciate the decision of ITAT, Chennai in the case of M/s City Union Bank Limited Vs ACIT dated 09/7/2019 rendered in ITA Nos. 1129 & 1130/CHNY/2018 and 1315 & 1316/CHNY/2018, wherein the ITAT 'C' Bench rejected the contention of the assessee that provisions of section 14A of the Act cannot be invoked, when the securities are held as stock-in-trade followi....
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.... NHB guidelines as when they are revised, thus every change in NHB guidelines would not lead to any corresponding automatic change in Rule 6EB. 12. The CIT(A) failed to appreciate the decision of the Supreme Court in the case of Southern Technologies Ltd Vs Jt. CIT[2010] 320 ITR 577 which held that RBI Act does not override the provisions of the Act. 13. The CIT(A) erred in deleting the addition made on account of stale draft & Cheque without appreciating the facts that the assessee has never transferred these funds to the "Depositor Education and Awareness Fund". 14. The CIT(A) failed to appreciate the decision of ITAT, Chennai in the case of City Union bank vs JCIT reported in ITA Nos. 1671, 1801,1802, 1803,1804,2034 & 2035/Mds/2014 dated 28/12/2016 wherein the ITAT treated the unclaimed balance as the Revenue receipts irrespective of the fact that the bank is a custodian and allowed the ground of revenue relying on the judgment of Hon'ble Kerala High Court in the case of Catholic Syrian Bank Ltd Vs Assistant Commissioner of Income tax, 349 ITR 0569. 15. The CIT(A) failed to appreciate the decision of Hon'ble High Court of Kerala in the case of South Indian Bank L....
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....ceding paragraph nos. 16 to 16.4, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 46. The next issue that came up for our consideration from ground no. 5 of revenue appeal is deletion of additions made u/s. 40(a)(ia) of the Act, on account of non-deduction of TDS on payment of interest from trust and institutions. An identical issue has been considered by us in appellant's own case for assessment year 2017-18 in ITA No. 672/Chny/2020, where the issue has been set aside to the file of the Assessing Officer with a direction to reexamine the issue in light of our discussions given hereinabove for the assessment year 2015- 16. Therefore, the grounds of appeal filed by the revenue has also been set aside to the file of the Assessing Officer with a direction to the Assessing Officer to reexamine the issue in light of our discussions given hereinabove for the assessment year 2015-16 and decide the issue for the impugned assessment year in accordance with law. 47. The next issue that came up for our consideration from ground nos. 7 to 9 of revenue appeal ....
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....higher depreciation @ 60%, but not depreciation @ 15% as applicable to plant and machinery and as claimed by the Assessing Officer. The ld. CIT(A) deleted additions made by the Assessing Officer towards excess depreciation by following the decision of Hon'ble Supreme Court in the case of CIT vs State Bank of Patiala (Supra), where the Hon'ble Supreme Court has dismissed SLP filed by the revenue against the decision of Hon'ble Punjab and Haryana High Court. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to delete additions made towards excess depreciation claimed on ATMs and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 48. The next issue that came up for our consideration from ground nos. 10 to 12 of revenue appeal is deletion of additions made towards interest on non-performing assets. The Assessing Officer has made additions towards interest accrued, but not due of NPA on the ground that NPA should be classified as per Rule 6EA of I.T. Rules, 1962, which says account can be treated as non-performing asset only, if the interest is overdue for more than 6 months. 48.1 ....