AI Drafter 
TaxTMI 
TaxTMI 
2022 (9) TMI 1640
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....ritten off 2. The CIT (A) erred in confirming the taxing of recovery in respect of bad debts written off which was not allowed as deduction by erroneously relying on the decision of Karnataka High Court in the case of Pragathi Gramin Bank (91 taxmann.com 343) without appreciating that in that case the issue was on taxability of write back of excess provision for bad and doubtful debts and which was also decided in favour of assessee. Disallowance u/s 14A 3. The CIT (A) erred in confirming the disallowance by invoking clause (iii) to sub-rule (2) to Rule 8D r.w.s 14A to the extent of 0.5% of average investments even when the investments are held as stock-in-trade. Without prejudice to the above if at all any disallowance has to be made under that section, same cannot be more than the sum relating to prorate expenditure incurred by treasury department as per regular method of accounting followed and suo-moto disallowed by appellant. Disallowance of interest paid on IPDI bonds 4. The CIT (A) erred in re-characterising funds raised through issue of debt instruments as share capital and further wrongly extrapolating interest payments....
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.... Broken period interest 9,33,17,00,000 Interest income from Nonperforming assets and non-performing investments 3,86,10,180 Recovery in written off accounts 92,38,01,731 Disallowance u/s 14A 41,75,73,740 Securities in HTM category 28,31,40,572 Interest on IPDI Bonds 18,00,00,000 Gross Total Income Less Deduction u/s chapter VI-A 1,34,19,587 Taxable Income 37,47,05,83,560 4.1 On further appeal, the Ld. CIT (A) allowed partly in favour of the assessee. Aggrieved, both of the assessee and the Revenue are before the Tribunal by way of raising grounds as reproduced above. The Ld. Counsel of the assessee filed a chart of the issues involved in grounds raised in the appeal of the assessee as well as of the Revenue and submitted that most of the issues are covered by the order of the Tribunal in the case of the assessee in earlier years. 4.2 The ground No. 1 of the appeal of the assessee relates to addition of Rs. 3,86,10,180/- in respect of unrealized interest on borrower accounts classified as non-performing accounts under RBI directions. The Ld. Counsel of the assessee submitted that this is o....
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....e same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. The aforesaid decision has been affirmed by the Bombay High Court in the case of DIT vs. American Express Bank Ltd [2015] 235 Taxman 85 (Bombay). In the present case the assessee argued that there is no credit entry in the books of the account in respect of the interest on such NPAs and, accordingly, the addition made cannot be sustained. Hence according to assessee the issue stood covered by the first proposition in terms of the Bombay High Court in assessee's favour and hence, no further submissions were made on other two propositions. We noted that this issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of American Express Bank Ltd (supra), wherein it is held that there is no credit entry in the books of the account in respect of the interest on such NPAs, no addition can be made. Further, even the Mumbai Tribunal in the case of American Express Bank Ltd. (supra) has considered this issue and ....
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..... The relevant finding of the Tribunal (supra) is reproduced as under: We noted from the above arguments of both the sides and case law cited by the parties, that the issue is squarely covered by a decision of the Bangalore Bench of the Tribunal in the case of State Bank of Mysore Vs. DCIT [2009] 33 SOT 7 (Bangalore), now merged with assessee. We noted that the Tribunal in the case of State Bank of Mysore (supra) narrated the facts and the facts in the present case are exactly the same as in the case of State Bank of Mysore. In the case of State Bank of Mysore (supra), the assessee had claimed deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act. Accordingly, the Bangalore Tribunal has held that section 41(4) of the Act cannot be invoked. Sections 41(1), 41(2), 41(3) and 41(4) of the Act operate in different spheres. Each of the sub-sections to section 41 of the Act deals with different and distinct circumstances. Each of the sub-sections deals with different and distinct topics and one cannot read recoupment under one sub-section into another. We have considered the decision relied on in this regard of Supreme Court in the case of Nec....
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....above ground being identical to what has been adjudicated by the Tribunal (supra), respectfully following the same. The ground No. 2 of the appeal of the assessee is allowed and order Ld. CIT (A) is set aside on the issue-in-dispute. 8. The ground No. 3 of the appeal of the assessee relates to disallowance of Rs. 3,08,02,935/- u/s 14A of the Act read with Rule 8D(2)(iii) of Income-Tax rules, 1962 (insured the rules). The ground No. 3 of the appeal of Revenue also relates to disallowance of Rs. 38,67,70,805/- u/s 14A of the Act read with rule 8D(2)(ii) of rules. 8.1 The facts qua the issue in dispute are that during the year under consideration the assessee earned dividend income of Rs. 2,12,54,282/- from investment in shares and mutual fund. It was submitted that funds received by way of deposits from customers along with borrowings for specific purposes have been utilized for advancing money to borrowers in trading and investment in securities as part of the banking business, out of which some of the items are exempt and therefore earning of exempt income is in regular course of the business of the bank and incidental to the overall business Act....
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.... rules and computed the disallowance in para 10.2(g) as under: Expenditure Disallowable U/s 14A relating to Rule 8D (ii) 38,67,70,805 Rule 8D (iii) 3,08,02,935 Total Disallowance u/s 14A rws Rule 8D 41.75,73,740 9.2 Thus the disallowance comprised of disallowance out of interest expenses in terms of rule 8D(2)(ii) at Rs. 8,67,70,805/- and under rule 8D(2)(iii) at Rs. 3,08,02,935/-, being 0.5% of average value of investment. 10 Before the Ld. CIT (A) the assessee mainly contended that (a) exemption u/s 10 is allowable on gross basis (b) the provision of section 14A applies only when expenditure is actually incurred(c) the disallowance u/s 14A of the Act cannot exceed the exempted income(d) if the securities are held as a stock no disallowance can be made(e) investment and loans are only for business purpose to comply with SLR requirements (f) only such security should be considered which have yielded exempted income and (g) the assessee had sufficient own/interest refunds to cover the investment under consideration and in such a situation it has to be presumed that investment have been made out of own/interest free f....
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....ecurities which could yield exempted income were made out of the own/interest free funds and not out of the borrowed funds and therefore provisions of rule 8D(2)(ii) are squarely applicable in the case of the assessee. Whereas the Ld. Counsel of the assessee relied on the order of the Ld. CIT(A). We find that Ld. CIT (A) after considering the submission of the assessee and decision of the Hon'ble Bombay High Court in the case of HDFC Ltd (supra) held as under: The Ld. AO has not brought anything on record to prove that interest bearing funds have been utilized for making investments. As discussed above, the Hon'ble Bombay High Court in the case of HDFC Bank Ltd has held that once the issue is settled by it in the case of HDFC Bank Ltd, there is now no need for the assessee to establish with evidence that amounts which have been invested in the tax free securities have come out of interest free funds available with it. This is because once the assessee is possessed of interest free funds sufficient to make the investment in tax free securities; it is presumed that it has been paid for out of the interest free funds. In view of the above referred binding precede....
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....e exceeds quantum of exempted income. 12. We have heard rival submission of the parties on the issue of disallowance of Rs. 3,08,02,935/- u/s 14A of the Act read with rule 8D(2)(iii) of rules. In view of the decision of the Hon'ble Supreme Court in the case of Maxoop investment Ltd. (supra) the expenses incurred towards shares and securities held as stock in trade are also to be considered for disallowance u/s 14A of the Act real with rule 8D of rules, but those expenses has to be apportioned between the taxable income earned from sale or trading of those securities and non-taxable income earned by way of dividend. The relevant finding of the Hon'ble Supreme Court is reproduced as under: 36) There is yet another aspect which still needs to be looked into. What happens when the shares are held as stock-in-trade and not as investment, particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. 37) This Circular has already been reproduced in Para 19 above. This Circular takes note of the judgment of this Court in Nawanshahar case wherein it is held that investments made by a banking Concern are part....
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....h is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT (A) disallowed the entire deduction of expenditure. That view of the CIT (A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we ar....
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....iew that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another, (2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1. the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in PCIT vs. IL&FS Energy Development Company Ltd (supra) and Cheminvest Limited vs. Commissioner of Income Tax-VI, (2015) 378 ITR 33. 10. Accordingly, the appeal and application are dismissed. However, it is clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. IL & FS Energy Development Company Ltd (supra). 12.3 Accordingly, the issue of disal....
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....on to refund the capital provided, the interest on such capital is not deductible u/s 36(1)(iii) of the Act. Accordingly, the Ld. A.O. held that in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, said amount cannot be held as borrowing and interest on such bonds was held disallowable u/s 36(1)(iii) of the Act. 14 On further appeal, the Ld. CIT (A) also upheld disallowance of the interest paid/payable in respect of perpetual bond holding them analogous to preference shares. The relevant finding of the Ld.CIT (A) is reproduced as under: I have considered the submissions made by the appellant and have perused the materials available on record. The appellant has requested to delete the impugned disallowance of Rs. 18,00,00,000/-, being the claim of interest paid on Innovative Perpetual Debt Instrument (IPDI). The appellant has made elaborate submissions as detailed above and the same have been considered carefully. The appellant has submitted that the IPDI under considerations were issued in the year 2009-10 and since then the interest was paid by the bank consistently by debiting to the Profit and Loss account and....
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....e-tax matters" Raja Bahadur Visheshwara Singh v. CIT AIR 1961 SC 1062. Similarly, erroneous or mistaken views cannot fetter the authorities into repeating them, by application of a rule such as estoppel, for the reason that being an equitable principle, it has to yield to the mandate of law. A deeper reflection would show that blind adherence to the rule of consistency would lead to anomalous results, for the reason that it would engender the unequal application of laws, and direct the tax authorities to adopt varied interpretations, to suit individual assesses, subjective to their convenience, - a result at once debilitating and destructive of the rule of law. A previous Division Bench of this Court, in Rohitasava Chand v. CIT [2008] 306 ITR 242/ 171 Taxman 147 had held that the rule of consistency cannot be of inflexible application." 15 Before us, the Ld. Counsel of the assessee submitted that disallowance needs to be deleted on two grounds. Firstly, it was submitted that the IPD bonds under consideration were issued in the year 2009 and since then interest paid on such bond was claimed deduction and allowed by the Revenue, therefore no disallowance is to be made on account o....
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....the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perpetual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under: Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr.CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 to 160 of the paper book filed by the assessee. It is....
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....rplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non-convertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest o....
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....e present assessment year. 17 Before us the Ld. DR relied on the order of the Ld. A.O. and submitted that interest income accrued as per section 5 of the Income-Tax Act, 1961 (in short the Act) has rightly been taxed by the Ld. A.O. in the year under consideration. 18. The Ld. Counsel of the assessee on the other hand submitted that issue in dispute has been consistently allowed in favour of the assessee by the Tribunal in the case of the State Bank of India for A.Y.2000-01; 2001-02; 2003-04; 2005-06 and 2008-09. He further submitted that Hon'ble Jurisdictional Bombay High Court, on appeal filed by the Income-Tax Department against the decision of the Tribunal for A.Y.96-97, has also decided the issue in favour of the assessee by the order dated 01/08/2016. 19. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The relevant finding of the Tribunal on the issue in dispute for A.Y.2008-09 in ITA No. 3644 and 4563//2016 is reproduced under: We have heard rival contentions and gone through the facts and circumstances of the case. We noted that interest on securities is payable six-monthly on the coup....
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....e on securities held as on 31st March. The Bombay High Court held that right to receive the interest vested only on the due date mentioned in the securities and, hence, the same cannot be taxed since interest was not payable on the 31st March as per the terms of the said securities. The learned CIT DR referred to several decisions such as State Bank of Travancore Vs. CIT [1986] 158 ITR 102 (SC), U.P Chalchitra Nigam Ltd. Vs. CIT [2015] 370 ITR 379 (Allahabad) and Mahindra Telecommunication Investment P. Ltd Vs. ITO [2016] 69 taxmann.com 431 (Mumbai). He argued that the facts are not applicable to the present issue as in the said cases there was no dispute that as per the terms of contract between the parties, income had accrued but the dispute was with respect to its taxability based on the financial difficulty of the debtor parties. However, in the present case, the issue is with respect to whether the interest has become due and payable as per the terms of securities. The present is not a case wherein the right to receive the interest on securities exists and there is improbability of realization of such interest. Even in such a case, the courts have held that no real in....
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....st to the date of the sale. The purchasing bank treats the broken period interest as expenditure and the selling bank treats the broken period interest received as income. During the year the assessee has claimed broken period interest expenditure of Rs. 933,17,00,000/- which has been disallowed by the Ld. A.O.. However, the Ld. CIT (A) has deleted the addition following the finding of his predecessor. 22. Before us, both the assessee and the Revenue agreed that issue in dispute is covered by the decision of the Tribunal in the case of the state Bank of India for earlier years. The relevant finding of the Tribunal (supra) in A.Y.2008-09 is reproduced as under: We noted that BPI refers to interest on Government and other approved securities relatable to the period from last due date (upto which interest was paid) till the date of purchase or sale. Thus, when the assessee purchases a security, it pays a price which is calculated having regard to two components, viz., the market price of security plus BPI to the seller. In this case, the assessee treats the BPI paid as expenditure. Similarly, when the assessee sells a security, such interest is treated as income of th....
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....tention of the assessee was rejected by the Ld. A.O. holding that the RBI guidelines will not decide tax ability of the income. 25. The Ld. CIT(A), however following the finding of his predecessor, allowed the issue in dispute in favour of the assessee. The relevant finding of the Ld. CIT (A) is reproduced as under: I have considered the submissions of the appellant and perused the materials available on record. The appellant has requeste % to delete the impugned disallowance of Rs. 28,31,40,572/-, being loss on revaluation of investments/amortization of premium paid on securities in HTM categories. The appellant has made detailed submissions as above and the same have been considered carefully. From the records it is observed that similar issue had come up for consideration in the case of State Bank of India for AY 2014 15 and therein my Ld. Predecessor vide his above referred order dated 28.02.2018 has held as under. I have considered the appellant's submissions. This is a recurring issue and this issue was considered by CIT(A)in appellant's own case for A. Y. 2007-08 to 2011 12, by DRP in 2012-13 and by ITAT for A.Y. 1996-97 which are reproduced....
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....nt of Rs. 1036,79,45,303 being the amortized amount of the total premium in r/o investments held in HTM category is an allowable deduction. This ground of appeal is therefore allowed" The above decision of the CIT(A)/ITAT is considered. It is seen that the above facts are similar in this year also. Therefore, the above decision is followed and the claim of the appellant is allowed. This ground of appeal is allowed." Further, in the appellant's own case for AY 2014-15, my Ld. predecessor vide his above referred order dated 31.01.2018 has held as under. "The facts if this year are similar to the facts of the preceding years. Following the above orders of the CIT (A) and the case laws discussed above, the Assessing Officer is directed to delete the addition made by him on account of disallowance of deduction on account of amortization of premium on purchase of securities under the 'Held To Maturity' category. Thus, ground of appeal no. 4 is allowed." 26. Before us, both the parties agreed that issue in dispute is covered in favour of the assessee by the order of the Tribunal in the earlier years including the order dated 22/03/2022 for A.....