AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 1188
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....round No. 1.2 Ground No. 1.2 Disallowance u/s 14A r.w.r. 8D(ii) Ground No. 1.3 Ground No. 1.3 Disallowance of interest paid on IPDI Bonds Ground No.2 Ground No.2 Taxation of recovery of baddebts written off Ground No.3 Ground No.3 Applicability of provisions of section 115JB Ground No. 4 Ground No. 4 Addition of provisions made for doubtful debts, fraud, suspense, depreciation on investment and derivatives to book profit u/s 115JB Ground No.5 Exclusion of income of foreign branches in completing book profit u/s 115JB Ground No.6 Revenue's Appeal Issue contended AY2016-17 AY2017-18 Broken period interest Ground No.1 Ground No.1 Amortization of premium paid on HTM Securities Ground No.2 Ground No.2 Taxation of unrealized rent on NPA Ground No.3 Ground No.3 Deduction u/s 36(1)(viii) Ground No. 4 Ground No. 4 Sale of Asset to Asset Restructuring company Ground No.5 Disallowance on payment made to RBI for not following internal regulations laid down Ground No.5 Disallowance u/s 14A in computing book profits Ground No.6 ....
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....ent Pvt. Ltd. (supra) has observed that where shares are held as 'stock-in-trade', it becomes business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not is immaterial. It is quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the intention of the assessee is to trade in shares to earn profits. The Hon'ble Supreme Court approved the order of Hon'ble Punjab & Haryana High Court in the case of PCIT vs. State Bank of Patiala, 391 ITR 218 albiet for a different reason that provisions of section 14A would not get attracted where the shares are held in 'stock-in-trade', Following the judgment rendered in the case of Maxopp Investment P. Ltd. (supra), the Tribunal in the case of Asstt.CIT vs. UCO Bank (supra), Punjab National Bank vs. ACI (supra) and IDBI Bank Ltd. Vs. DCIT(supra) has held that disallowance under section 14A r.w.r. 8D of the Act in case of assessee engaged in Banking business and holding shares as 'stock-in-trade' is not warranted. 7. The CIT(A) has restored the issue of disallowance under section 14A r.w.r.....
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....bsorption Capacity - Provisions for write down of principal or conversion to equity on trigger (c) Discretionary pay out with existence of full coupon discretion 8. We heard the parties and perused the material on record. We notice that the Co-ordinate Bench in the case of DCIT Vs. State Bank of India (ITA Nos. 3033 & 2873/Mum/2019 dated 29.09.2022) has considered a similar issue where it has been held that "16 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as argument of rule of consistency is concerned, the Ld. CIT(A) has rejected the contention of the assessee following the decision of the Hon'ble Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra). The said finding being based on the precedent, we concur with the finding of the Ld. CIT(A). 16.1 The assessee has distinguished the decision of Hon'ble Punjab Haryana High Court in the case of Pepsu Road transport Corporation (supra) on the ground that in said case capital was provided by the Union of India under a statutory obligation which had no provision of repayment. Further in the event of the liquidatio....
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....see. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 stating that it has issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities is payable @ 11.40% per annum. The assessee has also specifically explained in line with accounting standard, the aforesaid interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of Rs. 142.03 crores for F.Y. 2010-11. But the same was charged to Rs. 113.61 crores after netting off taxes [142.03 - 28.42]. The amount of tax impact of Rs. 28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs. 18.63 crores on issue of 10.75% debenture of Rs. 1500 crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also ....
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....der that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee. 16.3 Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Ld. A.O. to delete the disallowance of interest amounting to Rs. 18,00,00,000/-, which was made u/s 36(1)(iii) of the Act. The ground No. 4 of the appeal of the assessee is accordingly allowed. 9. The facts pertaining to the issue in assessee's case is identical to the above and therefore in our considered view the decision of the Co-ordinate Bench the above case is applicable to assessee also. Accordingly, we hold that the interest claimed by the assessee is allowable as deduction u/s 36(1)(iii) and the AO is directed to delete the disallowance made in this regard. Taxation of recovery of bad-debts 10. During the year under consideration the assessee has reduced an amount of Rs. 9,49,46,665/- from its computation of total income on account of recovery in respect of accounts written off of Rural Branches. The AO did not accept the submissions made by the assessee with r....
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....erefore, Let us understand this transaction with an example, if a provision of say Rs..1000 is made in the books as per RBI norms, a deduction of say Rs..500 is allowed based on formula (an amount not exceeding 8.5% of the total income and an amount not exceeding 10% of the aggregate average advances by the rural branches) under section 36(1)(viia). However, if no provision is made in the books, no deduction is allowed under section 36(1)(viia) as per section 36(2)(v) of the Act. 14. Accordingly, for the purpose of determining taxable income, the provision made of Rs..1000 is added back and offered to tax, the deduction of Rs..500 is claimed u/s 36(1)(viia) in the tax computation. Therefore, the actual bad debts written off is charged to the provision account, which the assessee ultimately reverses in the tax computation and allowed only the statutory deduction u/s 36(1)(viia) of the Act, in the books it never crossed the amount allowed under section 36(1)(viia) of the Act. 15. If there is a reversal of provision which is credited to P&L account, the same will be offered to tax and no deduction is allowed under section 36(1)(viia) of the Act. Therefore, the provis....
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.... III, if the provision is not created in the books of account, then no deduction is allowed under section 36(1)(viia) of the Act and only option available to the assessee is to claim u/s 36(1)(vii) of the Act. 19. Therefore, it is clear that where a deduction has not been allowed in respect of bad debts written off under the 2nd stream, the question of charging the recovery effected out of such bad debts written off to tax will not arise. In the third situation discussed in the chart, when the assessee does not make any provision as per RBI Guidelines, then it cannot claim any deductions under section 36(1)(viia) of the Act and it can only claim deduction under section 36(1)(vii) of the Act, if there is any recovery, it can be charged to tax under section 41(4) of the Act. Therefore, the proposed addition of recovery of bad debts by the Assessing Officer is not proper and observation of Ld.CIT(A) is also not correct, the revenue has to appreciate the actual claim of deductions made by the assessee under various provisions exclusively enacted for the purpose of banking companies has to be read along with the tax computation submitted by the assessee and not express their op....
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....nal High Court that provision of Section 115JB has no application to its case. Now after the amendment w.e.f. A.Y.2013- 14, Subsection (2) has been amended to bring into the ambit of Section 115JB, those companies to which second proviso to subsection (1) of Section 129 of the Companies Act is applicable, who are required to prepare its statement of profit and loss account in accordance with provisions of the Act governing such company. For the sake of ready reference the amended subsection (2) of Section 115JB is again reproduced hereunder:- (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to subsection (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: ....
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....ssee by the Hon'ble Jurisdictional High Court in the case of the assessee (cited supra). 42. Now for Clause (b), following conditions need to be satisfied for applying section 115JB in the case of a company:- i. it applies to a company to which the second proviso to subsection (1) of section 129 of the Companies Act, 2013 is applicable; ii. once this condition is fulfilled, it requires such assessee for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company. 43. Since 115JB is applicable to the company to which second proviso to Section 129(1) applies, therefore, it would be relevant to quote Section 129 of the Companies Act which reads as under:- "129. Financial statement-(1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III: Provided that the items contained in such financial statements shall be in accordance with t....
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....Companies Act. Section 2(9) of the Companies Act, 2013, a banking company has been defined to mean a banking company as defined in section 5(c) of the BR Act). Section 5(c) of the BR Act defines a "banking company" as under: "(c) "banking company" means any company which transacts the business of banking in India" Therefore, for an entity to qualify as a banking company it should first of all, be a company' and secondly the said company should transact the business of banking in India. 46. The expression "company" has been defined in section 5(d) of the BR Act as under: "(d) "company" means any company as defined in section 3 of the Companies Act, 1956 (1 of 1956); and includes a foreign company within the meaning of section 591 of that Act;" 47. Therefore, in so far as is relevant, the entity has to be a company as defined in section 3 of the Companies Act, 1956 (Now 2013) to be regarded as a banking company. Section 3(1)(i) of the Companies Act, defines a 'company' as under: "(i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii)" 48. Therefore, ....
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....ome into existence by the "Acquisition Act" and Section 11 thereof states that for the purpose of Income Tax Act, every corresponding new bank shall be deemed to be an "Indian company" and the company in which the public are "substantially interested' and since in Section 2(17) of the Income Tax Act, the "company" has been defined as any Indian company therefore, the provisions of the Income Tax Act would apply because Section 2(26) of the Act defines "Indian company" means the company formed and registered under the Companies Act and therefore, it is deemed to be a company under the Companies Act. 52. Section 11 of the Acquisition Act states that "For the purposes of Income-tax Act, 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested". Therefore, the said deeming fiction is created only for the purposes of the Income-tax Act. Further, for the purposes of the said Act, it treats every corresponding new bank to be an Indian company and also a company in which the public are substantially interested. 53. First of all, deeming an entity to be an Indian Company or a ....
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....ly undertaking was acquired for the banking companies acquisition and transfer of invoking ordinance which was promulgated on 19/06/1969, which culminated into the Act of Banking Companies (Acquisition and Transfer of Undertaking) Act,1970. Thus, assessee cannot be treated as a company under the Companies Act, because it was never registered under the Companies Act. Ergo, the deeming fiction by way of Section 11 of the Acquisition Act has to be read purely in the context for the purpose of Income Tax Act where the corresponding new bank have been deemed to be an Indian Company and a company in which public are substantially interested. This deeming section cannot be extended to a company registered under the Companies Act to which alone Section 115JB is applicable. 56. Thus, we hold that Section 11 of the Acquisition Act which deals a corresponding new bank treated as Indian company for the purpose of Income Tax, however, Clause (b) in Sub-Section 2 to Section 115JB does not permit treatment of such bank as a company for the purpose of the said clause, because it should be company to which second proviso to sub-section (1) to Section 129 of the Companies Act is applicable.....
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....0 [1970] [Reported in 75 ITR (Stat) 106] which reads as under:- Income-tax Act, 1961: Notification under sec. 194A(3)(iii)(f) Notification No. S. O. 710, dated February 16, 1970. (1) In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify with effect from the 19th July, 1969, the following banks for the purposes of the said sub-clause:- 1. Indian Overseas Bank, 151, Mount Road, Madras- 2. Indian Bank, Indian Chamber Building, Madras-1. 3. Allahabad Bank, 14, India Exchange Place, Calcutta-1. 4. Dena Bank, Devkaran Nanjee Building, 17, Horniman Circle, Fort, Bombay-1. 5. Canara Bank, 112, Jayachamarajendra Road, Bangalore-1. 6. Union Bank of India, 66/80, Apollo Street, Fort, Bombay-1. 7. United Commercial Bank, 10, Brabourne Road, Calcutta-1. 8. Bank of Baroda, 3, Walchand Hirachand Marg, Bombay-1. 9. Punjab National Bank, Parliament Street, New Delhi-1. 10. Bank of India, 70/80 Mahatma Gandhi Road, Bombay-1. 11. Central Bank of India, Mahatma Gandhi Road....
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....ted the disallowance by placing reliance on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. (2014) 49 taxmann.com 335 (Bom.). 17. The ld. DR submitted that the Hon'ble Rajasthan High Court in the case of CIT Vs. Bank of Rajasthan Ltd. (2009) 316 ITR 391 (Raj.) has held a contrary view which has been followed by the AO while making the disallowance. Accordingly, the ld. DR supported the order of the AO. 18. The ld. AR on the other hand submitted that the Hon'ble Bombay High Court in the case of HDFC Bank (supra) has distinguished the decision of the Hon'ble Rajasthan High Court and the decision of Jurisdictional High Court is binding. The ld. AR drew our attention to the relevant observations of the Hon'ble Bombay High Court as extracted below: "(B) Whether the ITAT was correct in law in holding that the broken period interest is allowable as a deduction, inspite of the Hon'ble Supreme Court's decision in the case of CIT v. Vijay Bank (187 ITR 541) and the Rajasthan High Court's decision in the case of Bank of Rajasthan (316 ITR 391)? ***** "6. Even as far as question (B) is concerne....
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.... parties and perused the material on record. We notice that the Hon'ble Bomby High Court in the case of HDFC Bank Ltd. (supra) while considering the question of law as to "whether the ITAT is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of investment and amortization of premium on investment held to maturity on the ground of mandate by RBI Guidelines thereby ignoring the decision of the Hon'ble Supreme Court in the case of Southern Technologies Vs. CIT (320 ITR 575)?" has held that "7. As far as question (C) is concerned, we find that an identical question of law was framed and answered in favour of the Assessee by this Court in its judgement dated 4-7-2014 in Income Tax Appeal No. 1079 of 2012, CIT-2 v. Lord Krishna Bank Ltd. (now merged with HDFC Bank Ltd.). Mr Suresh Kumar fairly stated that question (C) reproduced above is covered by the said order. In view thereof, we are of the view that even question (C) does not raise any substantial question of law that requires an answer from us." 23. Considering the above decision, we see no reason to interfere with the decision of CIT(A). Taxation of u....
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.... the relevant material on record. The Ld. A.O. held that since the assessee is maintaining its books of accounts on accrual basis, the income in respect of bad and doubtful debt was required to be taxed on accrual basis except for the exceptions provided under rule 6EA of Income-Tax rules, 1962 read with Section 43D of the Act. The Ld. A.O. rejected the claim of the assessee that exceptions should be provided as per RBI guidelines and accordingly he added the amount of Rs. 3,86,10,180/-being the interest on NPA/NPI not recognized by the assessee as income in view of RBI guidelines ignoring the provision of section 43D read with rule 6 EA of rules. The Ld. CIT(A) following the decision of his predecessor in the case of the assessee for A.Y.2014-15 confirmed the addition. 5.1 We find that identical issue has been adjudicated by the Tribunal(supra) in the case of the assessee for A.Y. 2008-09, observing as under: We have gone through the case law in American Express Bank Ltd. vs. Addl. CIT [2012] 25 taxmann.com 572 (Mumbai), wherein the Mumbai Tribunal was considering a case where the loans on which interest/principal remained unpaid for 90 days were classified as no....
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....idence by which the said interest could be charged to tax. Hence, we delete the addition of interest income and allow this issue of assessee's appeal. 5.2 Since the issue-in-dispute before us of taxability of interest on Non-peforming assets/Account is exactly identical to what has been decided by the Tribunal (supra). Therefore, respectfully following the finding of the Tribunal, being a binding precedent, the finding of the Ld. CIT(A) on the issue-in-dispute is set aside and the Ld. A.O. is directed to delete the addition-in-dispute. The ground No. 1 of the appeal of the assessee is accordingly allowed". 26. We also notice that as similar view has been expressed by the Co-ordinate Bench in the case of ICICI Bank Ltd. Vs. ACIT (ITA No. 3215/Mum/2019 dated 22.08.2022). The facts in assessee's case on this issue is identical and therefore respectfully following the decisions of the Co-ordinate Bench, we uphold the decision of the CIT(A) in deleting the addition made towards interest on NPA. Deduction u/s 36(1)(viii) 27. During the year under consideration the assessee has claimed deduction of Rs. 192 crores u/s 36(1)(viii). The AO recomputed the deduction a....
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.... the appellant did not claim loss in the profit and loss account and the claim was made in the return of income and computation of income. In this regard, in the decision of the Hon'ble ITAT in the case of DCIT vs Bank of India in ITA No.2833/Mum/2015 for AY 2009-10 on similar facts, it was held that....considering the fact that the assessee had suffered loss while carrying out normal business activity i.e. selling its assets Therefore, we hold that there was no justification for disallowing the loss suffered in the transaction." 6.8.2 Respectfully following the decision of Hon'ble ITAT mentioned supra, this appellate authority is of the considered opinion that the disallowance made by the Assessing Officer on this ground cannot be sustained and needs to be deleted. Thus, Ground No.8 raised by the appellant is allowed." 31. We notice that the Co-ordinate Bench in the case of Bank of India Vs. DCIT (ITA No.3082 and 2833/Mum/2015 dated 08.11.2017) has considered a similar issue and held that "13.3. We have heard the rival submissions and perused the material before us. We find the assessee had sold NPA.s to ARCIL, that as per the RBI instructions....
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...., our decision with regard to ground no. 1 to 4 and ground no.6 of AY 2016-17 is mutatis mutandis applicable to AY 2017-18 also. Ground No. 1 to 4 and ground no.6 raised for AY 2017-18 are decided accordingly. 36. Ground No.5 of the Revenue is with regard to the disallowance on payment made to RBI for not following the internal regulations laid down by the AO which the CIT(A) deleted during appellate proceedings. The AO noticed from the P&L A/c of the assessee that an amount of Rs. 8,43,401/- on account of penalty is debited. The AO disallowed the said amount for the reason that the assessee has not furnished any details pertaining to the same. The assessee submitted before the CIT(A) that the impugned amount is not an expenditure incurred for any purchase which is an offence or which is prohibited by law. The assessee further submitted that it was paid to RBI for deficiencies found in the working of currency chest on various parameters i.e. soiled and mutilated notes, cut notes, fake notes. The assessee also submitted that the charges for non-compliance of internal guidelines and not for violation of any law or offence. Accordingly, the assessee submitted before the CIT(A) that....
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....iminal liability or prosecution is provided, a levy is penal in nature. Section 46 r.w.s. 47A(1)(b) of the Banking Regulation law does not stipulate any such criminal liability. We follow the aforestated case law in these facts and direct the assessing authority to allow the assessee's claim of Rs. 5 lacs as revenue expenditure." In Mangal Keshav Securities Ltd. (supra), the assessee was engaged in the business of share/stock broking. It paid a sum of fine/penalty to stock exchange for non-maintenance of KYC forms etc. Said penalty was disallowed by the AO by invoking Explanation 1 to section 37. The Tribunal held that : "The assessee-company is engaged into stock broking activities and also in financial services which involves substantial compliance requirements with various regulatory authorities, e.g., BSE, NSE, CDSL, NSDL and SEBI, etc. In the regular course of the business of the assessee-company, certain procedural non-compliance are not unusual, for which the assessee is required to pay some fines or penalties. These routine fines or penalties are 'compensatory' in nature; they are not punitive. These fines are generally levied to ensure procedural ....