TaxTMI 
TaxTMI 
2024 (3) TMI 613
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....ertains to assessment years 2015-16, 2016- 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 applicab....
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....7.2. The Learned Commissioner (Appeals) failed in not considering that the interest paid has been reflected in the Form 26AS of the Depositors. 7.3. The Learned Commissioner (Appeals) failed in not considering 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....
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....he Act and determined total income of Rs. 575,49,22,469/- by making the following additions: 1 Excess provision made in respect of rural advances u/s. 36(2)(v) claimed as deduction on account of Non rural bad debts written off u/s. 36(1) (vii) 21,58,73,485 2 Disallowance of u/s. 14A 2,05,86,520 3 Corporate Social 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 asses....
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....to comply with the provisions of section 135 of the Companies Act, 2013 and which have no connection with the business of the assessee is only disallowable as per the Explanation (2) to section 37 of the Act. The CSR expenses incurred by the assessee by voluntarily in the business is not covered by the Explanation and hence, allowable. In this regard, he relied upon the decision of 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 ....
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....sallowed part of the expenses of Rs. 7,61,57,839/-, mainly on account of lapsed options which have not been exercised by the employees. The Assessing Officer has discussed the issue at length in light of decision of ITAT Special Bench in the case of Biocon Ltd vs DCIT [2013] 25 ITR (Trib) 602 (Bang), and held that differential between the market price and exercise price is allowable as deduction 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 ....
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.... board meeting and this principle is explained by Special Bench of ITAT in the case of Biocon vs DCIT (supra). Although, the Assessing Officer in principle accepted ESOS expenses is deductible u/s. 37(1) of the Act and also followed the decision of Biocon Ltd vs DCIT (Supra), in computing disallowance, but arrived at difference amount of deduction. In our considered view, when there is no ambiguity 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 whi....
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.... 7.2 The ld. DR, on the other hand supporting the order of the Assessing Officer and ld. CIT(A) submitted that, the bank has classified securities into three categories, HTM securities which are carried at acquisition cost unless the cost is more than the face value. Securities Available For Sale (AFS) are valued at quarterly or at more frequent intervals. Similarly, securities Held for Trading (HFT) 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 classif....
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....ed. The Assessing Officer, discussed the issue at length in light of provisions of section 197A(1A), 197A(1B) & 197A(1C) of the Act, in light of Form 15G & 15H submitted by the depositors and held that, wherever the appellant has furnished no deduction certification in respect of trust/societies, the Assessing Officer has accepted the claim of the assessee and excluded interest amount of Rs. 14,51,95,445/-. 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 ....
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....nsel for the assessee and also necessary evidences that may be placed before the Assessing Officer to prove its claim. Similarly, in respect of remaining interest disallowance of Rs. 3,72,35,522/-, it is the claim of the appellant's bank that in most of the cases, the deductees have already filed return of income and paid income tax on interest payment made by the bank. This fact also needs to be verified by the 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 th....
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....ssing Officer to verify the claim of the assessee, in light of amount spent towards extension of existing business like setting up new branches, ATMs etc. In case, the appellant is able to prove its argument that the QIP proceeds has been utilized for extension of existing business, then expenditure incurred for QIP is allowable as deduction. The Assessing Officer is directed to verify the claim and decide the issue 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....
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....d vs DCIT in ITA No. 1907/Bang/2018, where the issue has been dealt in detail in light of provisions of section 36(1)(vii) of the Act and explanation provided thereunder and also provisions of section 36(1)(viia) r.w.s. 36(2)(v) of the Act. The Tribunal had also discussed the issue in light of explanation (2) inserted by Finance Act, 2013 w.e.f. 01.04.2014 in light of decision of Hon'ble Supreme Court in the case of Catholic 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....
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...., the arguments of the Ld. Counsel for the assessee that, even after insertion of Explanation (2), provision for bad and doubtful debts and write off of bad debts in respect of rural advances should be separately considered without any adjustment in respect of write off of non-rural debts. In this regard, he has filed a detailed submission which has been reproduced as under: Written submission on bad debt write off claimed 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 Sect....
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....tful debts(PBD) account and only the amount which is in excess of credit balance of PBD account only will be allowed to be claimed u/s. 36(1)(vii) as per first proviso to section 36(1)(vii). A. Revenue's contention: The appellant claimed both provision for bad and doubtful debts u/s. 36(1) (viia) and bad debt write off as irrecoverable u/s. 36(1)(vii) of the IT Act as deduction while computing the total income. The arguments are advanced in the form of question and answers for ease of understanding. 1. What happened in the case of assessee? Ans: Assessee 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 doubtfu....
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....ed u/s. 36(1)(viia) 2015-16 165.00 165.00 143.41 2016-17 205.00 205.00 181.08 2016-17 251.50 251.50 126.78 *In the revised computation, this claim was Rs. 98.45 crore 7. Whether any other person can claim provision for bad and doubtful debt debited into P&La/c as per section 36(1)(viia)? Ans: Yes. Section 36(1)(viia) allows deduction to various categories of the assessee engaged in banking or financing. It is as under; Categories Class of assessee Limit Clause (a) Scheduled bank incorporated in India, non-scheduled bank, co-operative bank other than primary agri. Credit society Not exceeding 7.5% of total income AND 10% of 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....
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.... It includes both rural and non-rural NPA. The section has been amended w.e.f. 1-4-1989, and the changes are clearly explained in circular 464 of 1986 and it is placed at P.No.64. The circular makes it clear that the assessee can claim benefit of deduction u/s. 36(1)(viia) irrespective of whether the bad debts are rural or urban. The deduction is applicable to both urban and rural debts and not only to rural debts as claimed by the assessee. This claim by the assessee is not supported by the law. 13. Whether appellant claimed bad debt written off in the profit and loss account? Ans: No such bad debt write off was charged into P&L account or annual reports prepared and published by the bank. 14. What is the significance of Explanation-1 to section 36(1)(vii)? Ans: It was introduced in Finance 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 provis....
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....laim. Prima facie, for the appellant, section 36(1)(vii) and section 41(4) is not be applicable as they have not written off any bad debt write off irrecoverable in their accounts (P&L accounts). Only they created provision for bad and doubtful debts and claimed as a deduction as per section 36(1)(viia) of the IT Act to the extent they are entitled. ➤ Whenever the appellant created the provision for NPA/provision for bad and doubtful debt, it is allowed as a deduction u/s. 36(1)(viia). ➤ If they provide 100% provision over the period years on those NPA, it will be classified as loss asset. ➤ If such NPA started performing, they have to offer the same as income in the P&L account as provision no longer required ➤It has to be charged u/s. 41(1) of the IT Act as reversal of provision. This principle has been established in the case of Pragathi Grameena Bank Ltd vs CIT 91 taxmann.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 o....
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.... at all an acceptable argument. The legislature in its wisdom has placed those provisions rightly in the IT Act. Only the appellant read the provisions of IT Act in reverse. Harmonious reading of section 36(1)(vii) subject to section 36(2) will explain how any bad debt can be written off as irrecoverable. 3. The appellant placed his reliance heavily on the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank v. CIT[2012] reported in 343 ITR 270. It is seen from the decision that Hon'ble Supreme court has under the impression that the assessee maintained two separate accounts i.e one for rural NPA and other for Non-rural NPA and proceeded accordingly. That is not the case in present appeal. To remove the doubts, Explanation -2 was brought into stature in Finance Act 2013. 4. The counsel argued that if at all the legislature intended to clear the doubt, they ought to have provided Explanation-2 to section 36(1)(viia) and not to section 36(1)(vii). This understanding of the appellant is not correct. It is the appellant who claimed deduction u/s. 36(1)(vii) of the IT Act, by reducing substantial amount of bad debt write off in the computation ....
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....13. At paragraph-13, the Apex Court explained the scope of section 36(1)(vii) after 1.4.1989. It has also analysed various other decisions of the Supreme Court on the subject of bad debt write off, contemplated u/s. 36(1)(vii) and gave salient finding in point no.17 as under: "17. It is evident from the above rulings of this court, that: (i) The amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year: (ii) Such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision for bad and doubtful debts made in the accounts of the assessee; (iii) No deduction is allowable unless the debt or part of it "has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year", or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee; (iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of Section 36(1)(vii....
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....ful debts account made under that clause. Sub-section (2) to section 36 prescribed conditions for making any deduction for bad debts or part thereof and as per sub-section (v) to section 36(2), where debts or part thereof relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee had debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause. A combined reading of sections 36(1)(vii) r.w.s. 36(2)(v) of the Act, it is abundantly clear that in order to get deduction u/s. 36(1)(vii) of the Act towards write off of irrecoverable bad debts, the assessee should first make a provision in terms of section 36(1)(viia) of the Act and deduction towards write off of actual bad debts should be in excess of credit balance in the provision for bad and doubtful debts account. There are litigations on this issue. The Hon'ble Supreme Court has dealt with this issue in the case of Catholic Syrian Bank vs CIT (Supra) and observed that, sub-clause (a) to section 36(1)(vii) of the Act applies only to rural advances. Taking a clue fro....
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....) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the 'provision for bad and doubtful debts' account made under that clause." A combined reading of provisions of clause (vii) of sec.36(1), the proviso there under and clause (v) of sec.36(2) would show that (a) the bank should debit the actual bad debts written off by it to "PBDD a/c" (sec. 36(2)(v)) (b) the deduction u/s. 36(2)(vii) shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the PBDD made under clause (viia) of sec.36(1). 7.9 The contention of the revenue is that the Explanation 2 has expanded the scope of the proviso to sec. 36(1)(vii) and hence the bad debts relating to non-rural branches are also required to be first debited to PBDD a/c and the excess amount alone can be allowed as deduction u/s. 36(1)(vii) of the Act. According to revenue, the decision rendered by Hon'ble Supreme Court in the case of Catholic Syrian Bank (2012)( 343 ITR ....
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....s advanced by Ld A.R on this point. According to Ld A.R, if we closely analyse the provisions of sec. 36(1)(viia) of the Act, the intention of the Parliament in inserting Explanation -2 shall become clear. Accordingly, we analysed the provisions of sec.36(1)(viia) and notice that the said section allows deduction of PBDD to various types of assessees, viz., (i) Clause (a) of sec. 36(1)(viia) shall be applicable to a Scheduled bank (not being a bank incorporated by or under the laws of a country outside India) or non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The quantum of deduction is 7.50% of Total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 10% of aggregate average advances made by the rural branches of such bank. (ii) Clause (b) of sec. 36(1)(viia) shall be applicable to a bank incorporated by or under the laws of a country outside India. The quantum of deduction is 5% of the total income (computed before making any deduction under this clause and Chapter VIA). (iii) Clause (c) is....
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....ot incorporated outside India) and certain cooperative banks to 7.5% of gross total income (before deduction under this clause) of such banks and 10% of the aggregate average advance made by the rural branches of such banks. This limit is 5% of gross total income (before deduction under this clause) under sections 36(1)(viia)(b) and 36(1)(viia)(c) for a bank incorporated outside India and certain financial institutions. Provisions of clause (vii) of section 36(1) of the Act provides for deduction for bad debt actually written off as irrecoverable in the books of account of the assessee. The proviso to this clause provides that for an assessee, to which section 36(1)(viia) of the Act applies, deduction under said clause (vii) shall be limited to the amount by which the bad debt written off exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1) (viia) of the Act. The provisions of section 36(1)(vii) of the Act are subject to the provisions of section 36(2) of the Act. The clause (v) of section 36(2) of the Act provides that the assessee, to which section 36(1)(viia) of the Act applies, should debit the amount of bad debt writt....
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....n the provision for bad and doubtful debts account made under section 36(1)(viia) without any distinction between rural advances and other advances. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. The CBDT has issued an Explanatory note to the Provisions of Finance Act, 2013 on 24.01.2014 in F No.142/24/2013 - TPC, wherein also the very same explanations have been given for introducing Explanation - 2 in Sec. 36(1)(vii) of the Act. The above said Memorandum and the Explanatory Note issued by the Government/CBDT supports our view. 7.13 Our view is further fortified by certain observations made by Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra). We may refer to paragraph 27 of the decision now:- "27. As per this proviso to clause (vii), the deduction on account of the actual write off of bad debts would be limited to the excess of the amount written off over the amount of the provision which had already been allowed under clause (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which ....
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....within the ambit of the proviso to sec. 36(1)(vii) and sec. 36(2)(v), it was imperative for the Parliament to clarify the legal position and accordingly Explanation-2 has been inserted in sec. 36(1)(vii) of the Act. Accordingly, on the analysis of the provisions discussed above, we are of the view that the above said Explanation-2 shall operate (a) in respect of clause (a) of sec. 36(1)(viia) of the Act only to rural advances and (b) in respect of clauses (b) to (d), for advances given by both rural and non-rural branches. 7.16 In the instant case, the assessee has claimed deduction towards PBDD under clause (a) to sec. 36(1)(viia) of the Act, meaning thereby, the clause (a) is applicable to rural advances only as per the decision given by Hon'ble Supreme Court in the case of Catholic Syrian Bank. Hence the bad debts relating to non-rural branches are not required to be adjusted against PBDD allowed under clause (a) of sec. 36(1)(viia) of the Act in terms of the proviso to sec. 36(1)(vii) and sec. 36(2)(v) of the Act. 7.17 In view of the foregoing discussions, we are unable to agree with the view expressed by Ld CIT(A) on this issue. Accordingly,....
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....icer found that what was claimed as deduction is pertains to write off of non-rural debts, then the same should be allowed as deduction without adjusting against credit balance in provision for bad and doubtful debts account created u/s. 36(1)(viia) of the Act. Thus, this issue has been set aside to the file of the Assessing Officer, with a direction to reconsider the issue in light of our discussions given hereinabove. 10.7. The assessee has also filed an additional ground in respect of deduction u/s. 36(1)(vii) of the Act towards write off of non-rural debts amounting to Rs. 44,61,22,062/- and argued that said issue has not been dealt by lower authorities. We find that the issue of deduction towards write off of non-rural debts u/s. 36(1)(vii) of the Act has been dealt by us in previous paragraphs and held that actual write off of non-rural debts should be allowed as deduction u/s. 36(1)(vii) of the Act without any adjustment to credit balance in provision for bad and doubtful debts account created u/s. 36(1)(viia) of the Act towards rural debts. This ground also pertains to deduction towards actual write off of non-rural debts as claimed by the assessee. If the claim of the a....
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....Hon'ble Supreme Court has specified the method and manner of computing deduction u/s. 36(1)(viii) of the Act and as per the observations of the Hon'ble Supreme Court, such deduction should be computed on profits and gains of business or profession, in accordance with provisions of section 30 to 43A, except section 36(1)(viii) of the Act. The Assessing Officer, further observed that the assessee has classified its business into three separate businesses, one for mobilization of deposits, another for extending of loans and third one for investment in various securities and accordingly, apportioned various expenses towards these activities to arrive at profit from eligible business and said method is not in accordance with provisions of the Act. Therefore, rejected the method followed by the assessee for computing eligible deduction u/s. 36(1)(viii) of the Act, and recomputed profit by taking into account advances given to eligible business, total advances and profit from the total business in terms of percentage. 11.1 The Ld. Counsel for the assessee, submitted that the assessee has adopted a scientific method right from the beginning to arrive at profit from eligible business and....
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....sits, lending of money and making investments in securities. Therefore, to this extent, we are in full agreement with the Assessing Officer and his findings that the assessee cannot segregate its business into various segments for the purpose of computing profit and gains of business and profession and also the income from profit and gains of business or profession should be computed in terms of section 30 to 43D of the Act. Although, the appellant claims that there is no prescribed method provided for computing profit and gains of business and profession and accordingly, it has adopted its own scientific method to arrive at a profit and gains of business and profession, in our considered view, when the law is clear in respect of computing profit and gains of business and profession, the assessee should compute the income of the business in accordance with said provisions, but it cannot adopt its own method which is contrary to the provisions of the Act. Therefore, we reject arguments of the assessee and upheld findings of the Assessing Officer. 11.4 Having said so, let us come back to deduction worked out by the assessee and deduction worked out by the Assessing Officer. The as....
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....he method followed by the Assessing Officer should be accepted. Since, facts are not clear, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for fresh consideration. Thus, we set aside the issue to the file of the Assessing Officer with a direction to reconsider the issue in light of our observations given herein above and allow deduction u/s. 36(1)(viii) of the Act in accordance with law. 12. The next issue that came up for our consideration from ground no 10 of assessee appeal is addition of Rs. 100,11,07,158/- u/s. 36(1)(viia) of the Act in respect of deduction claimed u/s. 36(1)(viia) of the Act. The assessee bank had made a provision for bad and doubtful debts u/s. 36(1)(viia) of the Act and while computing the deduction has considered total aggregate average advance made by rural branches in terms of Rule 6ABA of I.T. Rules, 1962. The Assessing Officer, has recomputed deduction u/s. 36(1)(viia) of the Act, by considering only incremental average rural advance on the ground that, considering total aggregate average rural advance for the purpose of deduction gives distorted figure. According to the Assessing Officer, deducti....
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....ate average advances at the end of the financial year is considered, then the deduction claimed by the assessee may be in excess of loan advanced by the assessee. The Assessing Officer, has rightly considered incremental average advances of the relevant assessment year and computed deduction and said computation is in accordance with law. Therefore, the order of the Assessing Officer should be upheld. 12.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As per Rules 6ABA of I.T. Rules, 1962, for the purpose of clause (viia) of sub-section (1) of section 36, an aggregate average advance made by the rural branches of a scheduled bank shall be computed by taking into account the amount of advances made by each rural branch as outstanding at the end of the last day of each month comprised within the previous year. If you go by Rule 6ABA of I.T. Rules, 1962, it talks about the aggregate average advances made by the rural branches as outstanding at the end of the last day of each month, but it does not speak about only advances given by rural branches during the relevant financial year. Further, the Hon'ble Madras....
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....ast day of each month would be a fluctuating figure depending on the outstanding as increased or reduced respectively by advances made and repayments received. The assessee might provide for bad and doubtful doubts but the deduction would only be allowed at the percentage of aggregate average advance, computation of which is prescribed by Rule 6ABA. 8. We find from the amended direction made by the Tribunal that such direction is in terms of Rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT (A). The Tribunal amended such direction, in our view, correctly applying the rule. 9. For the reasons aforesaid we do not find the questions suggested to be substantial questions of law involved in the case. As such the application and appeal are dismissed. " 11. This court has no disagreement with the legal proposition laid down in the aforesaid decisions. However, in the present case, though there was no double deduction, as alleged by the appellant / Revenue, there was no clear vision about the advances made by the rural and n....
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....or determining the deduction admissible in the matter of write off bad and doubtful debts of rural or non-rural advance u/s. 36(1)(v) read with the proviso thereunder and section 36(2)(v) of the Act would fail." Thus, it is evident from the above extract that the quantum of deduction arrived at by the assessing officer was not based on the documents produced by the respondent / assessee. The CIT(A) as well as the Tribunal also, did not look into those aspect, while allowing the deduction claimed by the respondent / assessee. Therefore, this court is of the opinion that for that limited purpose, the matter has to be re-examined by the assessing officer and the same has also been agreed upon by the learned counsel appearing for both sides. 12. In such view of the matter, the order of the Tribunal, which is impugned herein, is set aside and the matter is remitted to the assessing officer for quantification of the deduction allowable to the respondent. The assessing officer shall complete the said exercise, after providing due opportunity to the respondent for submission of both oral and documentary evidence, if any, and pass appropriate orders, on merits and in accor....
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....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 for rural branches as against the credit balance of provision for bad and doubtful debts made for all branches. 4. The Ld. CIT(A) erred to notice that the Assessing Officer has rightly invoked the provisions of sec 41(1) and 28(iv) of the Act with regard to unclaimed money, stale drafts and cheques reflected in the balance sheet for more than three year by applying the principle of limitation and the notification of RBI was issued on 24/05/2014 only, mandating the banks to transfer such unclaimed amount to "Depositor Education and Awareness Fund Scheme" and this instruction is prospective only. For the above grounds and other grounds that may be adduced during the time of hearing the order of the CIT(A) may be cancell....
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....IT(A) in deleting the addition made u/s. 14A of the Act on the ground that investments held by the assessee company is stock in trade and therefore resort to provisions u/s. 14A of the Act cannot be made. The Assessing Officer made a disallowance of 12,82,57,685/- u/s. 14A r.w.r. 8D. On appeal before the ld. CIT(A), the ld. CIT(A) held that the provisions of Section 14A of the Act cannot be applied in case of exempt income earned from investment held in stock in trade. Reasoning of the ld. CIT(A) has been overturned by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT, (2018) 402 ITR 640. Therefore contention of the assessee that provisions of Section 14A of the Act cannot be invoked, when the securities are held as stock-in-trade, cannot be accepted. As regards to other limb of the argument of the assessee that in the absences of any finding by the Assessing Officer as to how the contention of the assessee that no expenditure was incurred is incorrect no disallowance should be made. We find from the assessment order that the assessee bank itself has offered a sum of 12,19,751/- under the provisions of Section 14A of the Act. From the perusal of the order of th....
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....of the matter and by following the decision of coordinate bench of ITAT, Chennai Benches in appellant's own case for earlier assessment years, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 17. The next issue that came up for our consideration from ground no. 3 of revenue appeal is deduction u/s. 36(1)(vii) and 36(1)(viia) of the Act. We have dealt with this issue in assessee's appeal for assessment year 2015-16 in ITA No. 1120/Chny/2019 in preceding paragraph nos. 10 to 10.7 in detail and held that deduction u/s. 36(1)(vii) of the Act towards actual write off of bad debts of non-rural debts should be allowed as deduction, without any set off against credit balance in provision for bad and doubtful debts account created in terms of section 36(1)(viia) of the Act for rural debts. Further, other issues with regard to computation of deduction have been set aside to the file of the Assessing Officer for verification. Therefore, the ground taken by the revenue on this issue becomes infructuous and thus, the same is dismissed as not maintainable. 18. The next issue that came up for our consideration from ground no 4 of revenue appea....
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....KOTHARI, J. was a party), in which the Division Bench of the Karnataka High Court has held as under: "4. The learned counsel at bar submitted before the court that this controversy is no longer res integra and the Division Bench of this court in CIT v. Karnataka Vikas Grameen Bank in I. T. A. No. 100014 of 2014 and connected case, decided on December 14, 2015, has held, following the decision of the hon'ble Supreme Court in the case of CIT v. T. V. Sundaram Iyengar and Sons Ltd. reported in [1996] 222 ITR 344 (SC), that such an addition cannot be made under section 41(1) of the Act, since the liability of the assessee-bank to pay back the amounts to the customers in respect of such stale demand drafts and pay orders does not cease in law. The relevant extract from the judgment of the Division Bench of the court as contained in para 18 thereof including the extract from the decision of the hon'ble Supreme Court is quoted below for ready reference : "18. A careful perusal of the above provision leads us to infer that section 41(1) can be pressed into service when an allowance or deduction is sought to be made in respect of loss, expenditure or trad ing liabi....
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....he decision of Hon'ble High Court of Madras, in appellant's own case, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 19. In the result, appeal filed by the revenue for assessment year 2015-16 is dismissed. ITA NO: 1121/CHNY/2019 ASSESSMENT YEAR 2016-17: 20. 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 an amount of Rs. 5,36,74,409- (being 30% on Rs. 17,89,14,696/- ) on interest paid to individual & HUF, u/s. 40(a)(ia) of the Income Tax Act, 1961. 2.1. The Learned Commissioner (Appeals) failed in not considering the first proviso to section 201 of the Income Tax Act, 1961. 2.2. The Learned Commissioner (Appeals) erred in not considering the fact that the interest paid has been reflected in the Form 26AS of the depositors. 2.3. The Learned Commissioner (Appeals) erred in sustaining the disallowance without appreciating the fact that the AO has passed the o....
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....mmissioner (Appeals) erred in not considering the claim of Rs. 82,59,27,392/- made u/s. 36(1)(vii) by way Additional Grounds Appeal. 8. Without prejudice to Ground Nos 6 & 7 and as an alternate ground, the Learned Assessing Officer be directed not to tax the recovery from the written off accounts if the deduction is not allowed under Sec 36(1)(vii). 9. The Learned Commissioner (Appeals) erred in confirming a sum of Rs. 111,62,07,815/- claimed by the appellant bank u/s. 36(1)(viia). 9.1. The Learned Commissioner (Appeals) erred in holding that only the incremental advance made during the Financial Year has to be considered for computing the Average Rural Advances as per Rule 6ABA of Income Tax Rules, 1962. 9.2. The Learned Commissioner (Appeals) failed to appreciate the fact that there is no such requirement in Rule 6ABA so as to consider only the incremental advances. 9.3. The Learned Commissioner (Appeals) erred in holding that some of the branches are not rural branches as per the definition of Sec 36(1)(viia). 9.4. The learned Commissioner (Appeals) relied the latest decision of the ITAT ignoring the earlier decision of the I....
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.... towards eligible profit from providing long term finances to eligible business. 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. 10 to 10.7, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to reconsider the issue, in light of our discussions given hereinabove for the assessment year 2015-16 on this issue and decide the issue for the impugned assessment year in light of our discussions. 25. The next issue that came up for our consideration from ground no. 6 to 9 of assessee appeal is deduction u/s. 36(1)(vii) and disallowance u/s. 36(1)(viia) of the Act towards actual write off of non-rural bad debts and deductions towards provision for bad and doubtful debts u/s. 36(1)(viia) of the Act. 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....
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....was issued on 24/05/2014 only, mandating the banks to transfer such unclaimed amount to "Depositor Education and Awareness Fund Scheme" and this instruction is prospective only. For the above grounds and other grounds that may be adduced during the time of hearing the order of the CIT(A) may be cancelled and the Department appeal may be allowed." 29. The first issue that came up for our consideration from ground no 2 of revenue appeal is deletion of additions made towards disallowance of expenses relatable to exempt income u/s. 14A r.w.r. 8D of I.T. Rules, 1962. An identical issue has been considered by us in appellant's own case for assessment year 2015-16 in ITA No. 1418/Chny/2019. The facts are identical for the year under consideration. The reasons given by us in preceding paragraph no. 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. 30. The next issue that came up for our consideration from ground no 3 of revenue appeal is deduction u/s. 36(1)(vii) and 36(1)(viia) of the Act towards actual write off of bad debts perta....
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....ed Commissioner of Income Tax (Appeals) failed to appreciate the fact that no deduction was claimed in respect of these accounts u/s. 36(1)(viia). 2.1.5. The learned Commissioner of Income Tax (Appeals) erred in not considering the decision of Apex Court applicable to the facts of the case. 2.1.6. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the opening balance in the account under Section 36(1) (viia) as on 01/04/2013 is for rural advances and therefore only the rural branch write off needs to be adjusted against the opening balance. 2.1.7. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) ought to have allowed the recovery of first time NPA written off of Rs 49,85,96,672/- offered to tax by the appellant, as the write off claim was not allowed in the appeal. 2.2 The learned Commissioner of Income Tax (Appeals) erred in disallowing Rs. 165,03,46,621/- being bad debts written off by non- rural branches of the appellant bank. 2.2.1. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance holding that technica....
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....sioner of Income Tax (Appeals) failed to appreciate that disallowance was made on the lapsed options for which the bank has not made any claim. 5.2 The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the bank claimed ESOS expenses only on the actual shares exercised by employee at the time of exercise. 5.3 The learned Commissioner of Income Tax (Appeals) failed to appreciate that the main objective of issuing ESOS is not to raise the share capital but to expect an uninterrupted service from the employee which will be used in revenue generation and hence, the same cannot be equated with issue of share capital against acquisition of asset so as to fall into the brackets of capital expenditure. 5.4 The learned Commissioner of Income Tax (Appeals) erred in relying on the decision of the Hon'ble Supreme Court not applicable to the facts of the case. 6. The learned Commissioner of Income Tax (Appeals) erred in law in disallowing CSR expenses amounting to Rs. 8,65,92,170/- u/s. 37 of the Act. 6.1 The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the expenses have resulted in ....
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....16 in ITA No. 1120/Chny/2019. The facts are identical for the year under consideration. Therefore, for similar reasons, we direct the Assessing Officer to allow deductions towards write off of non-rural debts u/s. 36(1)(vii) of the Act, without any adjustment to credit balance in provision for bad and doubtful debts account created in terms of section 36(1)(viia) of the Act. The other issues like computation of deduction has been set aside to the file of the Assessing Officer for fresh verification. The Assessing Officer is directed to verify the claim of the assessee in light of our discussions given hereinabove for assessment year 2015-16 on this issue and decide the issue for the impugned assessment year in light of our discussions given hereinabove. 35. The next issue that came up for our consideration from ground no 3 of assessee appeal is disallowance u/s. 36(1)(viii) of the Act, towards provision created for reserve for deduction of eligible profit from eligible business. 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 ....
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....d sustained additions made by the Assessing Officer towards disallowance of CSR expenses. Accordingly, the ground of the assessee is dismissed. 39. The next issue that came up for our consideration from ground no. 7 of assessee appeal is depreciation on investments. 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. 7 to 7.2, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we direct the Assessing Officer to delete additions made towards disallowance of depreciation on investments. 40. The next issue that came up for our consideration from ground no. 8 of assessee appeal is disallowance of QIP expenses amounting to Rs. 1,75,43,308/-. 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. 9 to 9.1, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we d....
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....t Ltd vs Commissioner of Income tax [2018] 402 ITR 640 (SC). 5. The CIT(A) erred in deleting the addition made u/s. 40(a)(ia) of the Act on account of non-deduction of TDS on payment of interest to Trust and Institutions. 6. The CIT(A) failed to note that sub-section (1B) of section 197A restricts filing of declaration in Form 15G whose income exceed the maximum amount which is not chargeable to income tax. 7. The CIT(A) erred in allowing the higher depreciation at 60% on ATMs following decision of Hon'ble Supreme Court in the case of CIT V State Bank of Patiala {2016} 70 taxmann.com36 (SC), without considering the facts that the Hon'ble Supreme Court in the above case dismissed the revenue's appeal due to finding of non-justifiable reason to condone delay of 234 days in filing SLP against the order of High Court. 8. The CIT(A) failed to appreciate the decision of Mumbai bench of the ITAT in the case of Venture Infotek Global (P.) Ltd Vs. DCIT [2008] 25 SOT 184 Wherein it was held that the POS terminals and ATMs are neither data processing devices nor a composite system output of which is data processing, they are not eligible for dep....
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....Ltd v CIT, Trichur reported in 279 CTR 179 (Kerala), where the Hon'ble High Court held that excess cash in branches of assessee-bank that was to be refunded only if any customer would claim, is to be added to income under section 41(1) of the Act. 16. The CIT(A) erred in allowing the claim of the assessee towards provision of bad and doubtful debts u/s. 36(1)(viia) of the Act. 17. The CIT(A) failed to appreciate that the concept of considering the incremental Average rural advance was upheld by the Hon'ble ITAT 'A' Bench Chennai vide order its 1548,1620,1206,1207,1208,1209,27,1621 in & ITA Nos. 1622/Mds/2014 1205, dated 29/01/2016 in the case of M/s Lakshmi Vilas Bank Vs Assistant Commissioner of Income tax. Further, the Hon'ble ITAT 'D' Bench Chennai Vide its order in ITA Nos. 496 & 497/Mds/2014 dated 23/02/2016 in the case of M/s Indian Overseas Bank Vs. Deputy Commissioner of Income tax and Also Vide its order in ITA Nos. 1671, 1801,1802,1803 & 1804/Mds/2014 dated 28/12/2016 in the case of M/s City Union Bank Limited vs. Joint Commissioner of Income tax had upheld the method of considering only the incremental average rural advances ....
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....ound nos. 7 to 9 of revenue appeal is deletion of depreciation @ 60% on ATMs. The assessee has claimed 60% depreciation on ATMs, on the ground that ATMs is akin to computer and computer software. The Assessing Officer, has disallowed excess depreciation on the ground that ATMs comes under normal depreciation of 15% as applicable to plant and machinery. On appeal, the ld. CIT(A) deleted additions made by the Assessing Officer by following the decision of Hon'ble Supreme Court in the case of CIT vs State Bank of Patiala [2016] 70 Taxmann.com 36 (SC). 47.1 The ld. DR, submitted that the ld. CIT(A) erred in deleting excess depreciation disallowed on ATMs by following the decision of Hon'ble Supreme Court in the case of CIT vs State Bank of Patiala (Supra), without considering the fact that the Hon'ble Supreme Court in the above case dismissed the revenue appeal, due to findings of non-justifiable reasons to condone delay. The ld. DR, further submitted that the Hon'ble Karnataka High Court in the case of Diebold System Pvt Ltd vs Commissioner of Commercial Taxes 144 STC 4 Kar, held that ATMs is not a computer by itself and can be used independently, and thus, it cannot be considered ....
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....t is overdue for more than 6 months. 48.1 The ld. DR, submitted that, the assessee has claimed NPA as per RBI guidelines, which is contrary to Income-tax Rules and thus, the Assessing Officer has rightly made additions towards interest on NPA and their order should be upheld. 48.2 The Ld. Counsel for the assessee, supporting the order of the ld. CIT(A) submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT, Chennai Benches in appellant's own case for assessment year 2012-13 & 2014-15 reported in [2019] 74 ITR 644, where the Tribunal by following the decision of ITAT, Chennai Benches in the case of Karur Vysya Bank Ltd vs CIT (Supra) deleted additions made towards interest on NPA. 48.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The issue of addition towards interest on NPA is no longer res-integra. The coordinate bench of ITAT, Chennai Benches, in appellant's own case for assessment year 2012-13 & 2014-15, reported in City Union Bank vs ACIT (Supra), has considered an identical issue and dealt as under: 48. We heard the rival submissions and perused the m....