TaxTMI 
TaxTMI 
2025 (2) TMI 1861
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.... assessee was selected for scrutiny and after considering the details/submissions filed by the assessee, the Assessing Officer ("AO") vide order dated 27.03.2018 passed u/s 143(3) of the Act assessed the total income of the assessee at Rs. 6266,18,55,642/- under the normal provisions of the Act and computed the book profit of the assessee at Rs. 7479,30,27,395/- u/s 115JB of the Act. The Ld. CIT(A), vide impugned order dated granted partial relief to the assessee. Being aggrieved, the assessee and the Revenue are in appeal before us. ITA No. 1649/Mum/2019 Assessee's Appeal - A.Y.2016-17 3. In this appeal, the assessee has raised the following grounds: - "1. The Ld. CIT(A) failed to note that since appellant was holding all securities as stock in trade the expenditure incurred was only for buying and selling the securities and not for earning tax free income and that in the absence of any expenditure incurred in relation to earning tax free income no disallowance u/s 14A is warranted. 1.1 The CIT(A) ought to have followed the decision of hon'ble Supreme Court in the case of State Bank of Patiala (402 ITR 640) and allowed the claim of appellant that no ....
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....1321.42 crores and interest on borrowed funds. Since the investment yielding the exempt income was quite sizable, and it was unreasonable to assume that the assessee could not have invested any part of the borrowed capital in tax-free investments, during the assessment proceedings, the assessee was asked to explain why the provisions of section 14A r.w.r. 8D of the Income-tax Rules, 1962 ("the Rules") be not applied in its case. In response, the assessee submitted that it holds all its securities as stock in trade, and the tax-free bonds and dividends have been received from such securities which are held as stock in trade. It was further submitted that the assessee has not retained any of the above securities with the intention of earning tax-free income and, therefore, the income earned was only incidental to the sale of such securities. Thus, the assessee submitted that disallowing proportionate expenditure by invoking provisions of section 14A of the Act is not warranted in its case. Without prejudice to the above contentions, the assessee submitted that if at all any disallowance is to be made as per section 14A of the Act, the same cannot exceed the proportionate expenses inc....
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....ich is exempt u/s 10(15)(iv)(c) & (f) of the Act. The assessee also holds certain securities as stock in trade. The assessee pleaded that its own funds available by way of share capital was Rs. 365.52 Crores, reserves and surplus of Rs. 12514.19 Crores and demand deposits of Rs. 14451.22 Crores on which no interest was paid The assessee pleaded that these interest free funds were sufficient enough to explain the investments made by the assessee which had yielded exempt income. Accordingly, the assessee placed reliance on the decisions of the Hon'ble Jurisdictional High Court in the case of HDFC Bank Limited 366 1TR 505 and 383 ITR 629 to drive home the point that interest free funds available with the assessee were sufficient enough to cover the investments that had yielded exempt income. 3.1. We find that the Id. AO disregarded the aforesaid contentions of the assessee and proceeded to disallow Rs. 85,90,80,262/- u/s 144A of the Act row Rule 8D(2) of the Rules. We find that assessee had voluntarily disallowed the sum of Rs. 7,94,39,436/- under Rule 8D(2) (ii) of the Rules considering the investments which had yielded exempt income. We find that the Id CIT(A) on apprec....
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....urther placed reliance on the CBDT Circular No 18/2015 dated 02/11/2015. Hence, by respectfully following the said decision, we hold that there was absolutely no error in the action of the Id. CIT(A) in holding that provisions of Section 14A of the Act could not be made applicable in respect of investments in shares held as stock in trade in the case of assessee bank Accordingly, the ground No.2 raised by the Revenue is dismissed. At this juncture, I could not resist from observing that the judgment delivered by the Tribunal was very much binding on the Assessing Officer. The Assessing Officer was bound to follow the judgments in its true letter and spirit. It was necessary for the judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgment of the Tribunal. The Assessing Officer being inferior officer vis-a-vis the Tribunal, was bound by the judgment of the Tribunal and the Assessing Officer should not have tried to distinguish the same 14A issue on untenable grounds. The observation of the AO in the assessment order at para 3 4 that the submissions of the assessee have been considered but not found tenable because of the f....
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....ade by the AO u/s 14A r.w.r. 8D of the Rules is hereby deleted. Thus, ground no. 1, raised in assessee's appeal is allowed. 9. The issue arising in ground No. 2, raised in assessee's appeal, pertains to the exclusion of income of foreign branches situated in countries with whom India has entered into the Double Taxation Avoidance Agreement. 10. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee has excluded the income from the branches located in Fiji, Seychelles, Nassau (OBU), Hongkong, Bahrain, Thailand, Australia, Mumbai (OBU), Mauritius, U.A.E, Oman, Belgium, South Africa, U.K., U.S.A., Mauritius, (OBU), China, Singapore (OBU), and Malaysia on the basis of Double Taxation Avoidance Agreement entered into by India with these countries. Vide assessment order passed u/s 143(3) of the Act, the AO by referring to the provisions of section 90(3) of the Act and notification dated 28.08.2008 issued by the Central Government held that the claim of the assessee to exclude the business profit/income of foreign/overseas branches from its total income for the purpose of the Act, is not allowable an....
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....st earned on NPA when the amount of interest is due for 90 days as per the RBI guidelines. The AO, vide assessment order passed u/s 143(3) of the Act, noted that Rule 6EA of the Rules provides for six months time for doubtful debts whose income will be taxed on a receipt basis. Thus, it was concluded that the time limit for bad and doubtful debts for interest to be taxed on a receipt basis if six months have elapsed or overdrawn for more than six months. Since the assessee has not provided interest on sticky loans of Rs. 255.37 crores, accordingly, the said amount was added to the total income of the assessee. 16. The Ld. CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and held that for the purpose of application of the provisions of section 43D of the Act, the time limit as provided in Rule 6EA, of the Rules should be applicable instead of the RBI guidelines. Being aggrieved, the assessee is in appeal before us. 17. We have considered the submissions of both sides and perused the material available on record. The issue which arises for our consideration is whether for the purpose of recognition of income as per section 43D of the Act, t....
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....s permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three months but less than six months as on 31.3.2010. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon'ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards 'Provision for NPA. We find that the same decision clearly stated that the interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI prudential norms for income recognition. This fine distinction has been duly considered in the decision of the Hon'ble Delhi High Court in the case of CIT us Vasisth Chay Vyapar Ltd supra. When the account becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of ....
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....cribed in the Income Tax Rules having regard to the guidelines issued by the RBI in relation to such debts. In 1992 the Rules 6E was framed and as per RBI guidelines the norms for categorization of advances as NPA were those advances which remained over due for more than 6 months. The RBI has revised the guideline from time to time and made changes in the period of overdue of advances for categorization of NPA. During the year under consideration the RBI has reduced the period to 90 days for categorization of interest on sticky loan as NPA, however, similar changes was not made to Rule 6EA. After considering the provisions of Sec. 43D and judicial findings as supra we consider that norms for categorization of bad and doubtful debts had to be prescribed considering the guidelines issued by the RBI. Therefore, the Id. CIT(A) is not justified in substituting the limit for recognizing of interest on account of NPA to 180 days from 90 days in view of the clear provisions of Sec. 43D(a) that in the case of public financial institutions or schedule bank or a state financial corporation or a State Industrial Investment Corporation, the income by way of interest in relation to such categori....
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....appeal: - "1. Deduction in respect of Education Cess and Higher and Secondary Education Cess: The amount of Education Cess and higher and secondary education cess not being in the nature of tax is not covered by the provisions of section 40(a)(ii) and accordingly ought to be allowed as deduction in computing income from business or profession as held by Hon'ble Jurisdictional Bombay High Court in case of Sesa Goa Ltd (423 ITR 426) and other decisions. 2. Taxability of Income of foreign branches Without prejudice to the contention that income of foreign branches is to be excluded in computing total income as per Section 90 of Income-tax Act, even if the income is to be taxed it will only be the income computed in accordance with Income-tax laws of respective countries and not foreign income computed as per provisions of Indian Income-tax Act." 24. Since the issues raised by way of additional grounds are legal issues, which can be decided on the basis of material available on record, therefore, the same are admitted in view of the ratio laid down by the Hon'ble Supreme Court in NTPC v. CIT, (1998) 229 ITR 383 (SC). 25. The additional grou....
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....nsidered the said notification referred by the Ld. Counsel of the assessee. We may carefully refer to the contents of the said notification as under; "In exercise of the powers conferred by sub-section (3) of section 90 of the Income-Tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief to tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-Tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement." 25. We find that after taking into account the aforesaid notification the Tribunal in the aforesaid order has concluded as under. "In view of the aforesaid findings/conclusion, we hold that the income of the branches of the assessee shall also taxable in India i.e., it would be included in the return of i....
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.... and in law, the Ld. CIT(A) has erred in relying on the ratio of the Apex Court in the case of American Express International banking Corporation Vs CIF reported in 258 ITR 601 (Bom) and Citi Bank (Civil appeal No. 1549 of 2006) where the income from securities were treated as business income which was not the same in the present case? 2. "On the facts & circumstances of the case and in law, the Ld. CIT(A) is correct deleting the addition on account of interest accrued but not due to the assessee following the decision of Hon'ble Bombay High Court in the case of Credit Suisse First Boston (Cyprus) Ltd.(351 ITR 323) without appreciating the Assessing Officer's contention that deducting interest accrued but not due would tantamount to cash basis of accounting which is not permitted as per the provisions of section 145 of the IT Act, 1961. 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding that the Perpetual Bonds cannot be compared to the equity/ share capital of the banks without considering as per settled legal position in 130 ITR 18 ( P & H) of Hon'ble Punjab & Haryana High Court in the case of Peps....
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....ars 2014-15 and 2015-16, cited supra, observed as follows: - "13. One common issue raised relates to broken period interest. 14. On this issue consequent upon Assessing Officer's disallowance, learned CIT(A) has decided the issue in favour of the assessee by referring to earlier years appellate order in assessee's own case where Hon'ble Supreme Court decision in the case of Citibank and Hon'ble Bombay High Court decision in the case of American Express were followed. 15. Now Revenue is in appeal before us. 16. We have heard both the counsel and perused the records. We find that identical issue has been decided in favour of the assessee by Hon'ble Supreme Court in the case of Citibank (Civil Appeal No. 1549 of 2006) and Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (366 ITR 505) following these decisions ITAT in assessee's own case for A.Y. 2011-12 (in ITA no. 4355/Mum/2016) allowed the claim of the assessee and dismissed the Departmental appeal vide para 6 to 8 of the said order. 17. Accordingly, respectfully following the precedent as above, we uphold the order of learned CIT(A) and dismiss the grou....
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.... the submission of both sides and perused the material available on record, we find that a similar issue also came up for consideration before the Hon'ble Jurisdictional High Court in CIT v. State Bank of India in ITA No. 254 of 2014. Following the earlier decision in M/s. Credit Suisse First Boston (Cyprus) Ltd. (supra), the Hon'ble Jurisdictional High Court vide its order dated 01.08.2016 decided a similar issue in favour of the taxpayer. Therefore, since the Ld. CT(A) has followed the decision of the Hon'ble Jurisdictional High Court while deciding the issue under consideration before us in favour of the assessee, we find no infirmity in the impugned order on this issue. Accordingly, the same is upheld. As a result, ground no.2 raised in Revenue's appeal is dismissed. 41. The issue arising in ground no. 3, raised in Revenue's appeal, pertains to the deletion of disallowance on account of interest on perpetual bonds. 42. The brief facts of the case pertaining to this issue, as emanating from the record are: During the assessment proceedings, the assessee was asked to show cause why the perpetual bonds should not be treated as equity in nature and consequently, the interest ....
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...."Interest Expenditure". It was further clarified that A.O was not correct in stating that the lender had no authority to claim the refunds. According to the Appellant, these bonds were listed in Stock Exchange and the lender had choice to exit at any point of time by selling them through Stock market. The Appellant emphasized that in case of share capital, the assessee company had an option to declare or not to declare dividends depending upon the financial requirement of the company, whereas, a fixed interest liability has to be paid by the Appellant on such bonds annually without any failure. The Appellant further contended that on share capital, dividend is paid out of the reserves which is purely discretionary whether to pay dividend in a particular year or not. On the other hand, according to the Appellant, on these bonds fixed interest has to be paid whether there is any profit or not. It was also argued that on share capital, dividend is paid out of reserve and surplus which is exempted from tax for the recipient, because tax has been already paid by the company on such reserves and surplus, whereas interest on such bonds is taxable in the hands of the recipient. In view of ....
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....is profit during the any financial year and on approval of the proposal of the Board of Directors by the shareholders in the annual general meeting. Whereas in the case of the IPD, it is mandatory to pay interest irrespective of the availability of the profit and no approval of the Board of Directors or shareholders was required. In view of the above discussion, we concur with the contention of the assessee that ratio in the case of Pepsu Road transport Corporation Ltd (supra) cannot be applied or 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)....
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....ated from the detailed submission and copies of documents placed in the paper book that assessing officer has made detailed inquiry/verification during the course of assessment proceedings that assessee has borrowed funds for business use by issue of debentures. The borrowed fund were payable on call option exercising by company after the 10th year or any at the end of every year thereafter. It was also explained that the lenders were not entitled to share any surplus 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 ....
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.... instruments was paid before computing profit of the assessee bank. We have also perused the detail of the redemption of perpetual debt instrument made by the assessee placed in the paper book reproduced as under: Sr. No. Series Allotment date Date of redemption Principle amount Interest for the period FY. 2009-10 1 DAG06RRB 09.08.2006 09.08.2016 Rs. 233,00,00,000 23,53,30,000 2 DSP06RRB 13.09.2006 13.09.2016 RS. 550,00,00,000 54,89,00,000 3. DJA07RB1 15.01.2007 30.04.2017 Rs. 18,00,00,000 1,79,63,998 4 DJA08RB1 10.01.2008 30.04.2018 Rs. 500,00,00,000 50,75,00,000 5 BHSTN7.25% 24.06.2006 31.10.2016 USD 34,00,00,000 1,16,68,81,013 2,47,65,45,011 It is further noticed that the assessee had demonstrated from the submission that these debt instruments were also redeemed. We also find that facts of the case of Pepsu Road Transport Corporation Vs. CIT 130 ITR 18 (P & H) relied upon by the ld. D.R. are distinguishable from the case of the assessee. In that case the capital was not borrowed but the same was provided by the....