TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 1291
X X X X Extracts X X X X
X X X X Extracts X X X X
....Issues contended (i) Learned Commissioner of come Tax (Appeals) erred in deleting the addition made by the A.O. u/s 36(1)(vii) without considering the fact that assessee has been allowed deduction u/s. 36(1)(viia)(c) and assessee has credit balance in provision for bad a doubtful account allowed us. 36(1)(viia)(c) of the Act. - AY 2014-15, AY 2015-16, AY 2016-17, AY 2017-18 and AY 2018-19 (ii) Learned Commissioner of Income Tax (Appeals) erred in directing the learned Assessing Officer to restrict the disallowance u/s. 14A, relying upon the Judgement of the case pertaining to the A.Y. 2004-05, ignoring the fact that during the current A.Y provisions of Rule 8D are applicable. - AY 2014-15, AY 2015-16, AY 2016-17, AY 2017-18 and AY 2018-19 (iii) Learned Commissioner of Income Tax (Appeals) was not justified in allowing the appeal of the assessee on the issue of claim of deduction u/s. 36(1)(viii) without appreciating that deduction has been calculated after making deductions under all other clauses of section 36(1) which includes the claim of deductions u/s 36(1)(viia)(c) also. - AY 2016-17, and AY 2017-18 Assessee's Appeal - Issues contended ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Both the assessee and the revenue are in appeal against the order of the CIT(A) before the Tribunal. Disallowance of deduction under section 36(1)(vii) 5. During the year under consideration, the assessee has claimed bad-debts amounting to Rs. 175,65,10,683/- under section 36(1)(vii) r.w.s. 36(2) of the Act. The assessee also claimed an amount of Rs. 81,73,55,929/- as provision for doubtful debts under section 36(1)(viia)(c) of the Act at 5% of total income. The AO held that the claim of bad-debts under section 36(1)(vii) is subject to the restriction as per the proviso to the said section where it cannot exceed the credit balance in the provision for bad & doubtful debits under section 36(1)(viia). The AO noticed that the assessee in the AY 2015-16 has claimed a deduction of Rs. 84,46,95,341/- under section 36(1)(viia)(c) and therefore held that the said amount ought to have been carried as credit balance in the current AY i.e. AY 2016-17. The AO accordingly disallowed deduction claimed to the extent of. Rs. 84,46,95,341/- stating that the bad-debts claimed should be reduced to the extent of the credit balance as per the proviso to section 36(1)(vii). The CIT(A) deleted th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause; (viia) in respect of any provision for bad and doubtful debts made by-faj a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank, an amount not exceeding five per cent, of the total income (computed before making any deduction under this clause and Chapter (VIA) and an amount not exceeding ten per cent, of the aggregate average advances mode by the rural branches of such bank computed in the prescribed manner: From a reading of the aforesaid provisions, it would be clear that the Assessee is thus entitled to claim deduction both under Sec. 36(1)(vii) and Sec. 36(1)(viia) of the Act. The only limitation is that the amount of deduction shall not exceed the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account. In the present case there is no dispute that provisions of Sec. 36(1)(viia) applies to the Assessee and also the fact the amount of deduction relating to bad debts written off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ir rural branches. 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(1)(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks would 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not exceed the provision made towards bad and doubtful debts and the same is achieved by the proviso to section 36(1)(vii). It is relevant to notice that the restriction under the proviso is to be applied by comparing the actual bad-debts claimed under section 36(1)(vii) with the provision made and claimed under section 36(1)(viia)(c) so that there is no double deduction claimed by the assessee in an AY. In assessee's case from the perusal of the table containing details of bad debts under section 36(1)(vii) and provision for bad and doubtful debts under section 36(1)(viia)(c) claimed in various AYs including the year under consideration (refer table extracted in the earlier part of this order), we see merit in the claim of the assessee that the deduction claimed under section 36(1)(vii) is not in excess of the credit balance in the provision account. Further in assessee's case from the perusal of the table above it is clear that there is no duplication of claim between deduction under section 36(1)(vii) and section 36(1)(viia) and this fact has been consistently confirmed by the orders of the coordinate bench in assessee's case. Accordingly, we hold that there is no in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income in accordance with such method as may be prescribed, which is contained in Rule 8D of the Rules. In the present case, the Assessing Officer has applied Rule 8D(2)(iii) of the Rules to determine the amount of such administrative/overhead expenditure. However, the case set-up by the assessee is that resort to Rule 8D(2)(iii) of the Rules by the Assessing Officer is circumscribed by a caveat in Sec. 14A(2) of the Act itself. The phraseology of Sec. 14A(2) of the Act itself prescribes that resort to Rule 8D of the Rules can be made only if the Assessing Officer is not satisfied with the correctness of the claim of assessee in respect of such expenditure, having regard to the accounts of the assessee. Notably, in the present case, assessee has made a suo moto disallowance of Rs. 21,69,490/- out of proportionate establishment expenditure. Before the lower authorities as well as before us, assessee has referred to the basis of such calculation and pointed out that the proportionate cost of employees working in the Investment Department to the total number of employees of the assessee-company has formed the basis for such calculation. We find that what is contemplated u/s 14A(2) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, considered in this light, in our view, resort to Rule 8D of the Rules made by the Assessing Officer to enhance the disallowance u/s 14A of the Act is not merited in the instant case. Thus, the enhancement of disallowance made u/s 14A of the Act by the Assessing Officer by a sum of Rs. 1,80,96,335/- is not tenable and is hereby directed to be deleted." 13. The ld. AR argued that the above findings of the Co-ordinate Bench are relevant for the year under consideration also since the AO has not recorded proper satisfaction specifically with regard to the workings of suo-motu disallowance of the assessee. The ld. AR further argued that the adhoc disallowance confirmed by the CIT(A) is without any basis and there is no provision under the law to make adhoc disallowance under section 14A. 14. The ld. DR on the other hand submitted that the assessee has made the suo- motu disallowance based on estimation and therefore the AO has correctly rejected the same stating that he is not satisfied with the suo-motu disallowance. Accordingly, the ld. DR supported the order of the AO. The ld. DR further submitted that the CIT(A) has followed the order his predecessor to sustain the disal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....law. In view of this discussion, we see merit in the submission of the ld. AR that the findings of the Co-ordinate Bench in AY 2008-09 is applicable for the year under consideration also. Respectfully following the above decision of the Co-ordinate Bench, we direct the AO to restrict the disallowance under section14A to the suo- motu disallowance made by the assessee. The ground raised by the assessee is allowed and the ground raised by the revenue is dismissed. Claim of deduction under section 36(1)(viii) 18. The assessee in the computation has claimed deduction under section 36(1)(viii) to the extent of the least of 20% of profits derived from the eligible business and the amount transferred to the special reserve amounting to Rs.80,00,00,000. The AO during the course of assessment proceedings re-worked the claim of deduction under section 36(1)(viii) by the assessee for the reason that he has made changes to the claim of deduction under section 36(1)(viia) by the assessee in the computation. The AO recomputed the income of the assessee from the business of long term financing activities to arrive at the deduction under section 36(1)(viii) and while doing so the AO reduced ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 36 deals with other deductions Section 36(viia)(c) deals with in respect of any provisions for bad and doubtful debts made by (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five percent of the total income (computed before making any deduction under this clause and Chapter VI-a)." 21. Section 36 is included in Chapter - IV of the Act relating to Computing of Business Income Chapter VI-A relates to "Deductions in respect of certain Payments" Section 36 (1)(viii) is as follows:- "in respect of any special reserve created and maintained by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development of development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance (computed under the head "pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from activities other than those specified in this section. There is no justification for allowing the deduction with reference to income from other activities or from sources other than business. It is, therefore, proposed to limit the deduction of 10 per cent only to the income derived from providing long-term finance for the activities specified in Section 36(1)(viii). It will thus take outside the purview of deduction, income arising from other business activities or from source other than business." 25. The above must be given harmonious and purposive interpretation that each one of the Clauses under sub-section (1) of Section 36 is independent in its operation and each one of them does not depend upon the other for the extension of the benefit. 26. The learned counsel for the respondent relied on CIT. H.P. Housing Board [2012] 18 taxmann.com 129/205 Taxman 1/340 ITR 388 (HP). The facts in that case are as follows:- "The Assessee-housing board had floated a self financing scheme for sale of houses/flats wherein the allottees were required to deposit some amount with the assessee and construction was to be carried out of these amounts. One of the cond....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provision had been made for deduction of provisions for Bad and Doubtful debts under Section 36(1)(viia)(c) independent of Section 36(1)(viii) which provide for deduction upto 40% for special Reserve created by Assessee providing long term finance for development of infrastructure facility. The Tribunal in the present case had actually not applied its mind on this issue. They had simply reaffirmed the earlier order dated 05.09.2003 for the Assessment Year 2000-2001, and the order dated 19.01.2004 for the Assessment Year 2001-2002 and followed the same principles. However, as pointed out above, the appeals against the said orders had been allowed by a Co- ordinate Bench of this Court and the answer has been given in favour of the Assessee. If Section 36(1) is examined, it is clear that sub-section (1) gives the list of matters in respect of which deduction can be allowed while computing the income referred under Section 28. Clause (i) to (xi) of sub-section 1 of Section 36 do not imply that those deductions depend on one another. If an Assessee is entitled to the benefit under Clause (i) sub-section (1) of Section 36, the Assessee cannot be deprived of the benefit the other Clauses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purpose of deduction under section 36(1)(viii). Further we notice that the coordinate bench in assessee's own case for earlier years has held the impugned issue in favour of the assessee on that ground that the revenue has accepted the deduction and the principle of consistency should be applied. In view of these discussions and considering the judicial precedence we hold that there is no infirmity in the decision of CIT(A). The ground raised by the revenue is dismissed. Disallowance of amortized rent 22. The AO disallowed the claim of deduction towards lease premium paid to Mumbai Metropolitan Regional Development Authority (MMRDA) on proportionate basis. The CIT(A) confirmed the said disallowance. The ld. AR during the course of hearing submitted that the disallowance made in earlier years had been confirmed by the Co-ordinate Bench i.e. the issue has been decided against the assessee in the earlier years. The ld. AR further submitted that the assessee has challenged the orders passed by the Tribunal in the earlier year by filing an appeal before the Hon'ble Bombay High Court and the substantial question of law raised by the assessee has been admitted by the Hon....