TaxTMI 
TaxTMI 
2024 (8) TMI 1570
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....learned Commissioner of Income Tax (Appeals) erred in holding that provisions of Section 115JB are applicable to the bank. 5. Without prejudice to the above ground, the learned Commissioner of Income Tax (Appeals) erred in sustaining the addition of provision for restructured accounts to arrive at the book-profit which is beyond the scope of the section. Tax effect Rs.9,89,45,717/- Total Tax effect Rs.428,85,25,735/- 1.1. The revenue raised following grounds: Grounds of appeal: i. The Ld. CIT(A) has erred in law by deleting addition and thereby allowing deduction u/s 36(1)(vii). ii. The Ld. CIT(A) has not appreciated the fact that the Explanation 2 of 36(1)(vii) clarifies that for the purpose of 36(1)(viia) r.w.s 36(2)(v), there shall be only 'one' provision account with respect to bad and doubtful debts and such accounts relates to all types of advances including advances made by Rural Branches. iii. Whether deduction under section 36(1)(viia) of the Income Tax Act. 1961 r.w.r 6ABA of the Income Tax Rules, 1962 is to be allowed on the total outstanding advances including opening balances upon which the asses....
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....ount of non-rural bad debts written off Rs 975.07 Crores was not adjusted by the bank against the provision allowed u/s 36(1)(viia) account. Therefore, the Commissioner of Income Tax (Appeals) vide his letter dated 19/02/2019 asked the assessee to explain why non-rural bad debts of Rs. 975.07 Crores written off u/s 36(1)(vii) should not be first adjusted with the provision allowed u/s 36(1)(viia) in view the proviso to Section 36(1)(vii) r.w.s. 36(2)(v) r.w.s. 36(1)(viia) 3.1 The assessee bank relying on the Hon'ble Supreme Court decision that Section 36(1)(viia) is applicable only to rural advances in the case of Catholic Syrian Bank, contended that since no deduction is allowed for non-rural debts u/s 36(1)(viia), the entire non-rural debts written off should be allowed as deduction u/s 36(1)(vii) without adjusting the same against the provision allowed u/s 36(1)(viia). It contended that insertion of explanation 2 to Section 36(1)(vii) has not altered the proposition of law as it existed prior to introduction of explanation. Further it contended that since Section 36(1)(viia) applies only to rural debts, in the case of banks having rural branches, it is only rural debts wh....
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.... 4. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in assessee's own case in ITA Nos.390 & 501/Bang/2023 for the AYs 2016-17 & 201718 dated 25.10.2023, wherein the Tribunal held as under: "11. We have heard the rival submissions and perused the material on record. We notice that the from the decisions of the coordinate Bench quoted by the assessee in ITA No. 1885/Bang/2018 for AY 2014-15 (supra) in its own case, the issue has been decided in favour of the assessee as under:- "12.3 We have heard rival submissions and perused the material on record. We notice that the CIT(A) had expressed the view that provision allowed u/s 36(1)(viia) of the Act would apply to non-rural advances also. An identical issue has been examined by the Hyderabad Bench of the ITAT in the case of State Bank of Hyderabad v. DCIT in ITA No.450/Hyd/2015, ITA No.498 and 499/Hyd/2015 (order dated 14.08.2015) wherein the Tribunal had not accepted the above said view expressed by the CIT(A). The Bangalore Bench of the Tribunal in assessee's own case for assessment year 2013-2014 by following the Hyderabad Bench order of the Tribuna....
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....unt of Rs. 210.74 crore, but, in the computation of total income, the actual deduction claimed u/s 36(1)(vii) is Rs. 209.08 crore representing bad debts written off relating to nonrural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. The observations made by Hon'ble Apex Court in this regard in paras 26 & 27 of the judgment is extracted hereunder for convenience. "26. The Special Bench of the Tribunal had rejected the contention of the Revenue that proviso to s. 36(1)(vii) applies to all banks and with reference to the circulars issued by the Board....
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.... The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off However, this may result in double allowance in the sense that in respect of same rural advance the bank may get a....
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.... far as application of explanation to section 36(1)(vii) is concerned, we agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to nonrural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A)." 6.5 Following the above said decision, we hold that the view expressed by Ld CIT(A) is not legally correct. Accordingly, we set aside the order passed by Ld CIT(A) with regard to his alternative decision, i.e., the view that the proviso to sec. 36(1)(vii) wh....
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....(a) During the course of assessment proceedings the assessee Bank had reduced the claim by Rs. 7,35,24,597/- being provision pertaining to 3 branches, where the population exceeded 10,000 as per latest census. Therefore, Assessing Officer disallowed a sum of Rs.1387,81,80,315/- out of total claim of Rs.1695,59,52,309/-. The assessee bank contended before the learned Commissioner (Appeals) that there is no requirement in Section 36(1)(viia) that the provision should be in relation to rural advances. Further, it was contended that the reliance placed by the learned Assessing Officer on the decision (Supreme Court in the case of Catholic Syrian Bank Ltd (supra) is misplaced as the Hon'ble Supreme Court did not go into the manner of deduction u/s 36(1)(viia). To support its contentions, the assessee bank placed reliance on the decision of Hon'ble Bangalore Bench of the Tribunal in the case of ING Vysya Bank [(2014) 149 ITD 611] & Vijaya Bank [ITA No. 578/Bang/2012 dated 27/02/2015]. Without prejudice to the above, it was submitted that bank had created a provision of Rs. 1445,42,49,751/- and claimed deduction of Rs.1695,59,52,309/- based on the decision of Bangalore Bench of th....
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....gly not calculated MAT as it was of the opinion that the assessee bank being a public sector bank is not a company under Companies Act, 1956 as well as Banking Regulations Act, 1949 as such provisions of Section 115JB doesn't apply to them. However, the learned Commissiong. of Income Tax (Appeals) dismissed the assessee bank's appeal by concurring with the cogent reasons and justifications given by the AO. 9. After hearing both the parties, we are of the opinion that similar issue came for consideration in the case of Canara Bank in ITA Nos.391 & 392/Bang/2023 for the assessment year 2019-20. The Tribunal vide order dated 22.12.2023 held as under: "11. Ground No.4 raised by assessee is on applicability of provisions of section 115JB of the Act. The Ld.AR submitted that, the assessee does not fall within definition of banking company as defined under Companies Act, 1956 and therefore it is not covered by proviso to section 211(2) of the Companies Act. The Ld. AR thus submitted that provisions of s. 115JB are not applicable to assessee. In support of this submission, he placed reliance on decision of Hon'ble Delhi High Court in the case of CIT v Punjab Na....
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....sioner of Income-Tax, Bangalore vs B.C. Shrinivasa Setty, Vo. 128 ITR 294 = 2002-TIOL-587SC-IT-LB, had observed that in the Income Tax Act, a charging section and the computing provisions together constitute an integrated code. In a case where the computation provision cannot apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, it was held that no capital gain tax can be levied. " 53. Concluded at page 12 para 21 as under: "27. In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No. 2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the Assessing Officer becomes unimportant. Question No. 1 is therefore n....
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....n 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. " 56. Thus, the understanding of the above amendment to section 115JB is where a company which are not required u/s 211 (129) of the Companies Act to prepare their P&L account in accordance with Schedule - VI of the Companies Act, 1956 profit & loss account prepared in accordance with the provisions of their Regulatory Acts shall be taken as a basis for computing the book profit u/s 115JB. 57. The assessee's con....
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.... that decision of Hon'ble Delhi Tribunal in Oriental Bank(supra) has been upheld by Hon'ble Delhi High Court wherein Hon'ble High Court has categorically observed that the revenue in case of Punjab National Bank did not raise this issue which are identical to facts of the present assessee before us. In view of the same, Ground No.4 raised by the assessee deserves to be allowed." 9.1 In view of the above order of the Tribunal cited (supra), taking a consistent view, we allow this ground taken by the assessee. 10. Last ground No.5 of the assessee's appeal is with regard to addition of book profit u/s 115JB of the Act. 10.1 Facts of the case are that The learned Assessing Officer had made various additions to book profit u/s 115JB by holding that provisions / write offs would get covered under various clauses to Explanation 1 of Section 115JB. Relying on various decisions, the assessee bank contended before the learned Commissioner of Income Tax (Appeals) that provisions / write offs are actual write offs and not provisions and hence, they cannot be added to book profit. Accepting the contentions of the assessee bank, the learned Commissioner of Income Tax (Appeals) allowed t....
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....he decision of the Bombay High court in the case of Godrej and Boyce 328 ITR. The decision of the Hon'ble High Court of Karnataka in the case of Karnataka Bank for AY 2001-02 has not been accepted by the department and SLP has been admitted by the Hon'ble Supreme Court as seen from CA No.()05716/2015 and the same is pending (SLP against ITA No.675 and 657 of 2008 of HC of Karnataka) 14. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in case of Canara Bank Vs. DCIT in ITA Nos.390 & 501/Bang/2023 for the assessment years 2016-17 & 2017-18, the Tribunal vide order dated 25.10.2023 held as under: "6. Considering rival submissions, we note that this issue has been settled by the Hon'ble jurisdictional High Court in assessee's own case for AY 2011-12 & 2012-13 in ITA No.258/2020 dated 8.2.2021 observing as under:- " 4. Even though four substantial questions of law are raised in the appeal Memorandum cited supra, among them, substantial question of law Nos.2 & 4 are covered by the judgment and are answered by the coordinate bench of this court vide judgment dated 31..01.2020 in ITA No.481/20....
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.... expenditure is a pay out. In order to attract applicability of section 14,4 of the Act, there has to be a pay out and return of investment or a pay back is not such a debit item. [See: WALFORT SHARE AND STOCK BROKERS (P) LTD SUPRA as well as M.4XOP INVESTMENTS LTD SUPRA]. In the instant case, the assessee has admittedly not incurred any expenditure. This case pertains to income on dividend, which by no stretch of imagination can be treated to be an expenditure to attract the provisions of Section 14A of the Act. In view of aforesaid enunciation of law by the Supreme Court, the first substantial question of law framed by this court is answered in favour of the assessee and against the revenue. 10. Learned counsel for parties, have fairly admitted that in case this court frames a substantial question of law that whether provisions of Section 115JA apply to the Banking Companies are not the remaining substantial questions of lay,/ would be reduced otiose. This court has already framed a substantial question of law in this regard today. This court by an order passed on 16.01.2020 passed in ITA No.13/2014 has already held that the provisions of Section 11514 do not apply to th....
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....5.1 Facts of the case are that the CIT(A) erred in allowing the claim of provision for bad and doubtful debts relating to rural advances. The CIT(A) failed to appreciate the fact that the computation of Average Aggregate advances is erroneously worked and not in accordance with rule 6ABA of Income tax rules, 1961. The CIT(A) failed to appreciate the fact that the details of rural branches was examined and it was held that the assessee has not classified rural branches correctly as per population and also that the definition of a revenue village was incorrectly stated. The CIT(A) has erred in not appreciating the ratio of the decision of Hon'ble High Court of Kerala in the case of Lord Krishna Bank which considered the urban agglomeration and defined revenue village for the purposes of a rural branch. The CIT(A) failed to appreciate the fact that the advances made during the year are only eligible for deduction and not the advances outstanding, as it amounts to repetitive and duplicate claims during every subsequent year. 16. We have heard the rival submissions and perused the materials available on record. With regard to disallowance u/s 36(1)(vii)(a) of the Act on computation u....
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....ra 7.2 of the impugned order, the Tribunal has recorded thus, "7.2 Before us, the learned Authorised Representative for the assessee reiterated the submission that the language of Rule 6ABA is very clear and does not mandate that only incremental advances has to be considered and nothing can be read into it as has been done by the authorities below. It was submitted that this issue has been considered and decided in favour of the assessee by the co-ordinate bench of this Tribunal in the case of Canara Bank v. JCIT (2017) 60 ITR (Trib) 1 [ITAT (Bang)]" 10. It is further held that the said decision has been followed in Vijaya Bank case. The manner in which the computation has been made has been given in the case of Vijaya Bank Case. Order passed by the Tribunal in Canara Bank's case followed in Vijaya Bank case has attained finality and the Revenue has not challenged the said order. Further, the High Court of Calcutta, while considering an identical situation as recorded thus, "Mr. Khaitan, learned senior Advocate appeared on behalf of the assessee and submitted that the computation to be made as prescribed by rule 6ABA is for the purpose of fixing the ....
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....egard to classification of Rural branches in ground Nos.3.2 & 3.3 is remitted back to the file of ld. AO as discussed in above order cited (supra) in para 17.1 to the file of ld. AO for reconsideration. 17. Next ground No.4 is with regard to disallowance u/s 40(a)(ia) of the Act at Rs.28,63,76,769/-. 17.1 Facts of the case are that the CIT(A) erred in deleting the addition made on account of payment to NFS network towards ATM usage charges and payments to cash tree network towards ATM usage charges, on which no tax was deducted by the assessee. The CIT(A) erred in not considering the fact that the assessee bank pays a certain amount of fee per transaction run on National Financial Switch (NFS), through inter connectivity between banks switchers thereby enabling customers to utilize any ATM of a connected bank. This service provided by the NPCI comes under definition and explanation provided Under Section 194J and accordingly liable for TDS. The CIT(A) erred in not appreciating the fact that Section 40(a)(ia) encompasses all those payments liable for TDS Under Chapter XVII-B and failure to adhere to the TDS provisions would attract disallowance u/ s. 40(a)(ia). So when the A.O....
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....id not specify the section under which the TDS is liable to be deducted by the assessee. Accordingly he deleted the disallowance. 10.2 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has rendered his decision following the ratio of decision rendered by Hon'ble Supreme Court in the case of Kotak Securities Ltd (supra) and also the decision rendered by coordinate bench in the case of Corporation Bank (supra). Hence we do not find any reason to interfere with his order passed on this issue." 18.1 In view of the above order of Tribunal, we decide the issue in favour of the assessee. 19. Next groundNo.5 is with regard to provision of wage arrears of Rs.180 crores. 19.1 Facts of the case are that the learned CIT(A) erred in allowing claim in respect of Provision for wage arrears while computing income under regular provision which is against the decision rendered in the case of CIT V/ s Indian Overseas Bank in 151 ITR 466 (Mad). The Learned CIT(A) ought to have accepted that the decision of the Hon ITAT in the assessee's own case for the AY 2009-10 in ITA No 709 & 998/ B/ 2012 was not accepted by the department and an appeal w....
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.... could have been reasonably estimated also. Hence, the provision made by the assessee towards wage revision was allowable. Respectfully following the decision of the coordinate bench of the Tribunal in the case of "Tata Communications Ltd." (supra), this issue is accordingly decided in favour of the assessee and the AO is directed to allow the claim of the provision on account of wage revision." 6. Since it is undisputed that the facts for assessment year 2008-09 and assessment year 2009-10 are identical, following the aforesaid precedent we set aside the order's of authorities below on this issue. Hence this issue is decided in favour of the assessee and against the revenue. 20.1 In view of the above order of the Tribunal, we inclined to decide the issue in favour of the assessee. This ground of revenue is rejected. 21. Next ground No.6 is with regard to Adjustments to book profits and Computation of Income u/ s 115 JB of the Act. 21.1 Facts of the case are that the CIT(A) erred in directing other adjustments to MAT which is not in accordance the provisions of section 115JB of the Act. The learned CIT(A) erred in allowing the same to be adjusted for MAT purpo....
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.... is against the decision rendered in the case of CIT V/ s Indian Overseas Bank in 151 ITR 466 (Mad). The Learned CIT(A) ought to have considered that the decision of the Hon ITAT in the assessee's own case for the AY 2009-10 in ITA No 709 & 998/ B/ 2012 was not accepted by the department and an appeal was filed by the department before the Hon High Court of Karnataka and the appeal is pending as on date. 22. After hearing both the parties, we are of the opinion that provisions of section 115JB of the Act is not applicable so as to compute the book profit in view of the order of the Tribunal in case of Canara Bank in ITA Nos.391 & 392/Bang/2023 for the assessment years 2019-20 dated 22.12.2023 wherein the Tribunal considered the similar issue and held as under: 11. Ground No.4 raised by assessee is on applicability of provisions of section 115JB of the Act. The Ld.AR submitted that, the assessee does not fall within definition of banking company as defined under Companies Act, 1956 and therefore it is not covered by proviso to section 211(2) of the Companies Act. The Ld. AR thus submitted that provisions of s. 115JB are not applicable to assessee. In support....
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...., would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme Court in case of Commissioner of Income-Tax, Bangalore vs B.C. Shrinivasa Setty, Vo. 128 ITR 294 = 2002-TIOL-587SC-IT-LB, had observed that in the Income Tax Act, a charging section and the computing provisions together constitute an integrated code. In a case where the computation provision cannot apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, it was held that no capital gain tax can be levied. " 53. Concluded at page 12 para 21 as under: "27. In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No. 2 in favour of the assessee and against the revenue. In view of this, question of corre....
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.... and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. " 56. Thus, the understanding of the above amendment to section 115JB is where a company which are not required u/s 211 (129) of the Companies Act to prepare their P&L account in accordance with Schedule - VI of the Companies Act, 1956 profit & loss account prepared in accordance with the provisions of their....