TaxTMI 
TaxTMI 
2002 (7) TMI 218
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.... while disposing the above seven appeals. ITA 196/Bang/1996; Asst. yr. 1990-91 3 This is an appeal preferred by the assessee on various grounds, which we shall take up in seriatim. The first ground is in relation to the issue of bad debts written off. At the outset it was submitted by Shri A Raghavendra Rao, C.A. appearing before us at the time of hearing on behalf of the appellant-assessee, that the assessee does not intend to press this ground of appeal. The learned Departmental Representative had no objection to the prayer of the assessee. Hence, the aforesaid ground is dismissed as not pressed. 4. The second issue raised by the assessee is in relation to the disallowance under s. 37(2A) of the Act pertaining to entertainment expenditure. The AO made the disallowance in relation to reimbursement made towards the membership fees and payments to clubs. The first appellate authority allowed the claim of the assessee with respect to the expenditure incurred towards membership of the employees in the bankers' club and with respect to the balance, the addition was sustained. Presently the assessee is aggrieved by the order of the CIT(A) in restricting the allowable expenditur....
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....ime of hearing, the learned counsel also submitted arguments in relation to the merits of the computation of s. 115J made by the AO. It appears that the dispute in computing the book profit under s. 115J pertains to the adjustments in relation to the provision for bad and doubtful debts. The first appellate authority has dismissed the said ground on the plea that the computation under s. 115J has been adopted by the AO from that made in the intimation under s. 143(1)(a). 9. At the outset, we find that the computation of income under s. 115J as returned by the assessee has been tinkered with the Department initially while processing the return under s. 143(1)(a). Subsequently in the proceedings under s. 143(3), the same addition has been made. It is now well settled that the proceedings under s. 143(1)(a) and 143(3) are independent of each other. Presently, we are dealing with the appeal arising out of the order of assessment made by the AO under s. 143(3) of the Act. While it is true that the computation of income under s. 115J adopted by the AO in the impugned proceedings is akin to computation made under s. 143(1)(a) but the assessee has the right to agitate the same in the pr....
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....for the full period i.e., till the date of refund in respect of excess tax deducted at source. In this regard, the AO is directed to verify the claim of the assessee and compute the amount of interest payable to the assessee under s. 244A in accordance with law. 13. The appeal of the assessee is treated as partly allowed. ITA 197/Bang/1997; Asst. yr. 1991-92 14. The first ground taken by the assessee in this appeal is against the action of the CIT(A) in not allowing the bad debts written off. Briefly the facts are that the assessee had claimed in its return of income deduction under s. 36(1)(vii) of Rs. 9,82,625 representing bad debts written off in its books of account. Simultaneously, the assessee had also claimed deduction of Rs. 1,15,47,946 under s. 36(1)(viia) representing provision for bad and doubtful debts. The AO noticed that the assessee had claimed the deduction under s. 36(1)(vii) without adjusting it against the provision made under s. 36(1)(viia). The AO by relying on the proviso to s. 36(1)(vii) held that it is to be adjusted against the provisions made under s. 36(1)(viia) and, therefore, disallowed the same. The claim of the assessee for deduction under s.....
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....e of The Vysya Bank Ltd., which supported the stand of the Revenue. According to the learned Departmental Representative, the scheduled banks are allowed deduction from its total income in respect of such bad debts written off under s. 36(1)(vii) of such amounts as would exceed the 5 per cent provision for bad and doubtful debts made in pursuance to s. 36(1)(viia). According to the learned Departmental Representative, the former is under s. 36(1)(vii) and the latter is allowed under s. 36(1)(viia) of the IT Act. 17. We have heard the rival submissions, perused the materials on record and proceed to dispose of the issue in the following lines. As the dispute revolves around the provisions of s. 36(1)(vii) and 36(1)(viia), it would be appropriate and necessary to look into the provisions before we proceed to adjudicate on the matter. The relevant provisions read as under: Sec. 36(1)(vii).—Subject to the provisions of sub-s. (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year: Provided that in the case of a bank to which cl. (viia) applies, the amount of the deduction relating to any suc....
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....help the Revenue in disallowing the claim of the assessee. In our view, the said proviso applies to the cases of bad debts written off for which provision had also been made under s. 36(1)(viia) at any time before such write off. On the other hand, whatever is claimed by the assessee under s. 36(1)(vii) are merely the debts for which no provisions have been made and are actually written off as irrecoverable and are therefore, outside the purview of s. 36(1)(viia). The entire controversy revolves around the fact as to whether the provisions of s. 36(1)(vii) and 36(1)(viia) are overlapping or independent of each other. The rival counsel have relied upon apparently differing decisions of the Bangalore Benches of the Tribunal. However, before we go into that aspect, it shall be appropriate for us to deal with the scope and effect of the insertion of s. 36(1)(viia) by the legislature. Clause (viia) of sub-s. (1) of s. 36 was inserted by the Finance Act, 1979, with an objective to provide that a deduction shall be allowed in the cases of scheduled banks other than cooperative banks, in respect of provisions made by them for bad and doubtful debts in relation to the advances made by their....
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....he assessee for deduction for any debt which is established to have become bad and is actually written off in the books of account. In relation to assessees who are banks, it does not make any distinction between the bad debts pertaining to advances made by rural or non-rural branches. 21. Now, coming to the language of the proviso to s. 36(1)(vii) which is relied upon by the AO. The said proviso reads as under: Provided that in the case of an assessee to which cl. (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part there of exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. The true import and meaning of the said proviso can be understood by way of an example. Instances can be visualised of a particular advance made by the rural branch of a bank, which have become bad and is claimed as deduction under s. 36(1)(vii), having been actually written off in the books of account. Now the said amount may also qualify for being comprised in the amount of provision made for bad and doubtful debts pertaining to rural branches, as it is speci....
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.... registered. Briefly the facts are that the assessee had acquired immovable properties in the shape of flats for which it had paid full money and accordingly it was enjoying the possession and occupation over the flats in toto. However, till the end of the previous year relevant to the assessment year under appeal, the title of the aforesaid properties had not been registered. Therefore, the depreciation was denied to the assessee. The first appellate authority by following the decision of the Hon'ble High Court of Karnataka in CIT vs. Bharat Gold Mines Ltd. (1991) 96 CTR (Kar) 188 : (1991) 192 ITR 639 (Kar) upheld the contention of the AO. The rival counsel agreed at the time of hearing that the aforesaid issue has finally been settled by the decisions of the Hon'ble Supreme Court in the case of CIT vs. Poddar Cements (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) and Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC). Respectfully following the same, we allow this ground of appeal of the assessee. 26. The next ground preferred by the assessee is in relation to claim of interest under s. 244A of the IT Act, 1961. At the time of hearing, it w....
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....cording to the AO, as the assessee had already claimed deduction in respect of provision for bad and doubtful debts to the tune of Rs. 1,10,94,360 under s. 36(1)(viia) and keeping in mind the proviso to s. 36(1)(vii) which clearly states that only such bad debts as are in excess of the above provision can be allowed as deduction under s. 36(1)(vii), he made adjustments to the extent of disallowing the bad debts of Rs. 38,28,836 as above. Aggrieved by the order of the AO, the matter was carried in appeal before the CIT(A). The CIT(A) upheld the prima facie adjustment made in pursuance to s. 143(1)(a) r/w s. 154(1)(b) of the Act. Hence, the appeal of the assessee before us. 31. The controversy in the present appeal revolves around as to whether the impugned adjustment as narrated above would have been made as a part of the prima facie adjustments as envisaged in accordance with the first proviso to s. 143(1)(a) of the Act. The adjustments permitted to be carried out in pursuance to the provisions of the first proviso to s. 143(1)(a) are now judicially well settled. The adjustments that are envisaged under the first proviso of s. 143(1)(a) are only that which go to correct the erro....
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.... as a separate head of income and the computation therein was governed by ss. 18 to 21 of the IT Act, 1961. However, w.e.f. 1st April, 1989, the aforesaid sections have been deleted, thereby making the income from interest on securities as taxable under the head 'Profits and gains from business' in the cases of such assessees as before us. With this background, a similar issue in the assessee's own case had come up for hearing before the Tribunal in earlier years. The Tribunal in its order dt. 11th Oct., 2000, in ITA Nos. 1698 & 1722/Bang/1992 and CO.29/Bang/1993, has decided the issue in favour of the assessee. The Tribunal had concluded the issue in the following manner : It may be mentioned in this connection that even though the above cases decided by the Hon'ble High Courts were with respect to the chargeability of interest on securities under the erstwhile provisions of s. 18, the principle enunciated therein would still be applicable on the concept of accrual of income in the context of s. 145 to which reference has been made earlier. In fact, the decision of the ITAT, Jaipur Bench in the case of State Bank of Bikaner & Jaipur is directly on the issue relating to chargeab....
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....e ostensible account holders are fictitious persons, it is up to the Department to find out the real person behind the transaction and to tax the income in his hands, in case the source of the deposits remain unexplained. It is obvious that the entries in the books of account of the bank cannot be disbelieved to draw an adverse conclusion against the bank because sufficient evidence has not been brought on record to establish that these deposits represent the unaccounted income of the bank. For these reasons, and also for the detailed reasoning given by the CIT(A) in paras 6 and 7 of the impugned order, which we fully and strongly endorse, we uphold the order of the CIT(A) on this point in directing the AO to delete the addition." Following the same, the facts of this issue being identical to those before the Tribunal in the earlier assessment year, this ground of the Revenue is dismissed. 36. The third issue in this appeal relates to the disallowance of Rs. 35,10,145 under s. 43B of the IT Act, pertaining to interest payable to IDBI. Briefly the facts are that the aforesaid outstanding amount of interest payable to IDBI pertained to the periods December, 1989, and January to....
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.... other provision of this Act, a deduction otherwise allowable under this Act in respect of: (a) to (c)....... (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing; or...... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum referred to in cl. (a) or cl. (c) or cl. (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-s. (1) of s. 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: Explanation 2: For ....
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....g that the provisions of s. 43B were indeed not attracted. On the other hand, we hold that the AO had rightly invoked the provisions of s. 43B and disallowed the amount. Our aforesaid view is also fortified by a recent decision of the Hon'ble High Court of Andhra Pradesh in Gopikrishna Granites India Ltd. vs. Dy. CIT (2001) 170 CTR (AP) 603 : (2001) 251 ITR 337 (AP) as also the decision of the Hon'ble Kerala High Court in CIT vs. Sitaram Textiles Ltd. (2000) 164 CTR (Ker) 252 : (2000) 113 Taxman 241 (Ker). 39. In the end, we conclude by holding that the Revenue has to succeed on this ground. 40. The fourth ground in this appeal relates to the addition of Rs. 2,41,44,998, representing interest on sticky loans. The AO by following the decision of the Hon'ble Supreme Court in the case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC) brought such interest to tax. The first appellate authority has deleted the said addition by following his own order for the earlier assessment years of 1985-86 and 1989-90 in the assessee's own case. 41. We find that similar issue has been adjudicated upon by the Tribunal in the case of the assessee in its orde....
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....r into the merchant banking business which constituted a separate line of business. According to him, the incurring of such expenditure was a condition precedent to the continuance of assessee's business and in that light also it was to be understood as a capital expenditure. He placed reliance on the decisions of the Hon'ble Supreme Court in Punjab State Industrial Development Corporation Ltd. vs. CIT (1997) 140 CTR (SC) 594 : (1997) 225 ITR 792 (SC) and Brooke Bond India Ltd. vs. CIT (1997) 140 CTR (SC) 598 : (1997) 225 ITR 798 (SC) in support of his submissions. 46. On the other hand, Shri Raghavendra Rao, the learned counsel for the assessee, narrated the facts relating to the impugned expenditure in detail. According to him, the appellant was a bank which has been carrying out the banking activities since many decades. According to him, the Securities and Exchange Board of India (SEBI) was constituted by the Government of India in the year 1988. Thereafter the SEBI made it mandatory for all the then existing and prospective merchant bankers to register with SEBI in case they wished to carry on the business of merchant banking. This registration was required under the Rules ....
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....law that the expression capital expenditure has to be construed in a business sense while testing it with reference to the facts of each case, of course, having regard to the relevant rules of construction of statutes. There are a host of judicial pronouncements on the concept of capital expenditure. Generally speaking capital expenditure is accepted as akin to the concept of securing something, whether tangible or intangible, so that it could be of lasting or enduring benefit to the assessee. In contradistinction the revenue expenditure is akin to the concept of operational cost and is intended for the furtherance of the objects of the assessee's business. 49. If the purpose of the expenditure is the acquisition of an asset or a right which is of a permanent character, such an expenditure should rightly be held as a capital expenditure. But where the assessee has an existing right to carry on its business and in the course of carrying out of such business, it is later required under law to make an expenditure for continuing such business, it is to be understood as having been incurred on revenue account, provided of course, such expenditure does not result in the acquisition of....