TMI Blog2017 (11) TMI 1839X X X X Extracts X X X X X X X X Extracts X X X X ..... this stage, we must observe, though, the learned Departmental Representative had submitted before us that the issue relating to part disallowance of administrative expenditure was not considered earlier by the Commissioner (Appeals) and the Tribunal, however, we do not agree with the same. We have noted that in the preceding assessment year, the assessee itself has disallowed 1% out of the administrative expenditure while computing net exempt income under section 10(23G) of the Act. Accordingly, ground no.1 raised by the Revenue corresponding to ground no.2 raised by the assessee are allowed for statistical purposes. Allocation of interest and other expenditure for earning tax free interest income under section 10(15) - HELD THAT:- As per facts and material on record, surplus interest free funds available with the assessee far exceeds the investment made in tax free interest income yielding assets, therefore, no disallowance of interest expenditure can be made in view of the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd., 2009 (1) TMI 4 - BOMBAY HIGH COURT] and CIT v/s HDFC Bank Ltd., [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] . As far as managerial / administrative expenditure are concerned, we have noted, in the assessment year 1997 98, the assessee had furnished a working of disallowance of expenditure to be made for earning exempt income wherein, it has quantified the disallowance for administrative expenditure at 1% of the gross exempt income. Notably, in assessment year 2000 01, the Tribunal while deciding identical issue has restored the matter back to the file of the Assessing Officer Addition on account of bad debt written off - addition u/s 36(1) - HELD THAT:- We find merit in the submissions of the learned Authorised Representative that after amendment to section 36(1)(vii) from 1st April 1989, once the assessee writes off the bad debt as irrecoverable in its accounts it will satisfy the condition of the said provisions and the assessee is no more required to establish that the debt has actually become irrecoverable. Hon'ble Supreme Court in TRF Ltd. v/s CIT, [ 2010 (2) TMI 211 - SUPREME COURT] has expressed this view. Further, in case of Vijaya Bank Ltd. v/s CIT, [ 2010 (4) TMI 46 - SUPREME COURT] held that mere debit to the Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate office, there is no reason why such expenditure incurred for branches should be disallowed. Addition on account of club membership fees - allowable revenue expenditure u/s 37 - HELD THAT:- Hon'ble Supreme Court in United Glass Manufacturing Co. ltd., [2012 (9) TMI 914 - Supreme Court] has held that club membership fees for employees are to be treated as business expenditure of a company under section 37 of the Act. We must also observe that in the decisions referred to by Commissioner (Appeals) similar view has been expressed. That being the case, we do not find any reason to interfere with the order of the learned Commissioner (Appeals) on this issue. Allowance of claim of deduction u/s 36(1)(viia) - HELD THAT:- Assessee is a Scheduled Bank and its accounts are maintained in conformity with the Generally Accepted Accounting Principle (GAAP) in India and the guidelines issued by the RBI from time to time. Further, it is evident from the annual report of the assessee that acquisition of assets including performing and non performing asset are as per the prescribed guidelines of RBI. That being the case, there is no reason for the Assessing Officer to presum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears, the Revenue has never questioned assessee s eligibility to claim exemption under section 10(23G) of the Act. There being no material difference in fact, a departure cannot be made in the impugned assessment year for disallowing assessee s claim under section 10(23G) of the Act by questioning its eligibility. - ITA No. 5276/Mum/2013, ITA No. 3841/Mum/2013, ITA No. 6217/Mum/2008, ITA No. 6137/Mum/2008 - - - Dated:- 3-11-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For the Assessee : Ms. Aarti Vissanji For the Revenue : Shri B. Pruseth ORDER PER BENCH These are the two sets of cross appeals against two separate orders passed by the learned Commissioner (Appeals), Mumbai, pertaining to assessment years 2004 05 and 2005 06. Since the appeals relate to the same assessee and the issues raised are more or less common, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. ITA no.6137/Mum./2008 Revenue s Appeal A.Y. 2004 05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out the deduction claimed under section 10(23G) to ₹ 45,92,32,087, as against assessee s claim of ₹ 110,62,15,674. Thus, the differential amount of ₹ 64,69,83,587 was added back to the income of the assessee. 4. The learned Commissioner (Appeals) after considering the submissions of the assessee in the light of facts and material on record, held that the Assessing Officer should first work out the ratio of borrowed funds to the total funds. He observed, no interest expenditure would be allocable to infrastructure income to the extent it was out of investment made from own funds. Only to the income derived out of borrowed funds interest expenditure can be allocated. He observed, the sum of net infrastructure income out of borrowed funds would constitute total income exempt under section 10(23G). While coming to such conclusion, learned Commissioner (Appeals) followed his order in assessee s case for assessment year 2001 02. Accordingly, he directed the Assessing Officer to compute exemption under section 10(23G). 5. Learned Authorised Representative submitted, before the learned Commissioner (Appeals) the assessee has filed a revised compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the mater back to the file of the AO for fresh consideration. The only differential fact in the present case is that the assessee itself has disallowed direct expenses of ₹ 174,37,66,592/- by way of interest expenses for earning of income uls 10(23G) of the Act, which has been offered for disallowance. We also agree that only those expenses which are relatable to earning of exempt income can be claimed as deduction for computing net income uls 10(23G) of the Act. In term of the above and in term of the direction of the Coordinate Bench of the Tribunal in assessment year 1997-98 in assessee's own case in ITA No.5424/Mum/2001, the AO will decide the issue. Accordingly, this issue of assessee's appeal is allowed for statistical purposes and the issue of Revenue's appeal is dismissed. 7. We have further noted that the learned Commissioner (Appeals) while issuing fresh direction to the Assessing Officer regarding computation of net exempt income under section 10(23G) of the Act has followed his order in assessee s own case for assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 10(15)(iv)(h) to find out the component of tax free income out of own funds and non interest bearing funds; (b) Thus, the A.O. will also arrive at the tax free income out of interest bearing borrowed funds; (c) The A.O. will work out ratio of allocable expenses after considering interest and administrative expenses and after reducing expenses clearly not relatable to earning of tax free income; (d) The ratio arrived at in (c) will be applied to (b) to determine interest expenses allocable to (b); (e) The difference of (b) and (d) will give net tax free income out of interest bearing borrowed funds; (f) The A.O. will add (a) to (e) will give net tax free income exempt u/s 10(15)(iv)(h) of the Act. The relief admissible u/s 10(15)(iv)(h) to arrive at total income exempt u/s 10(15)(iv)(h) of the Act. 11. Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, no disallowance under section 14A of the Act can be made in respect of interest expenditure as the entire investment giving rise to exempt interest income was made out of own funds and no borrowed fund was u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue in Revenue s appeal being ITA no.393/Mum./2008, dated 2nd March 2016, has restored the issue to the Assessing Officer for considering afresh. In view of the aforesaid, we are inclined to restore the issue to the file of the Assessing Officer for deciding afresh keeping in view the directions of the Tribunal in the preceding assessment year. Thus, ground no.2, raised by the Revenue corresponding to ground no.3, raised by the assessee are allowed for statistical purposes. 14. Ground no.3 of Revenue s appeal is on allowability of assessee s claim of depreciation on leased assets. 15. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee claimed depreciation of ₹ 161,40,27,978 on leased assets. Therefore, he called upon the assessee to justify the claim. In response, it was submitted by the assessee that it had entered into lease transaction with HSBC Electronic Data Processing India Pvt. Ltd. and Millennium Realtors Ltd. under which the assessee has taken on lease some equipments. It was submitted, depreciation was claimed on these assets. The Assessing Officer after perusing the details found that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile deciding the cross appeals for assessment year 2000 01 in ITA no.4657/Mum./2004 and ITA no.4826/Mum./2004 dated 31st January 2017. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground no.3 is dismissed. 18. In ground no.4, Revenue has challenged the deletion of addition of non cash right back made by the Assessing Officer under section 41(4) of the Act. 19. Brief facts are, during the assessment proceedings, the Assessing Officer found that the assessee has written back bad debt amounting to ₹ 118,02,98,492. After calling for necessary details and explanation of the assessee to justify the claim, the Assessing Officer observed that this is a disputed issue between the Department and the assessee from the past years. Therefore, following the observations of the Assessing Officer in the preceding assessment year, the Assessing Officer added back the amount of ₹ 42,84,51,666, being the difference between cash right back credited to Profit Loss account and total bad debts written back in the accounts. The assessee challenged the addition before the learned Commissioner (Appeals). 20. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it. He was of the view that since the assessee has paid interest on borrowed funds proportionately, expenditure attributable to earning of dividend income has to be disallowed in terms of section 14A of the Act. Accordingly, he worked out disallowable interest expenditure at ₹ 209,44,84,989. Further, the Assessing Officer also disallowed 1% of the administrative expenditure amounting to ₹ 2,23,49,793. Thus, total expenditure of ₹ 2,11,68,34,691, was deducted from exempt dividend income of ₹ 223,49,79,266 and on the balance amount of ₹ 11,81,44,575, the Assessing Officer allowed exemption under section 10(34) and 10(35) of the Act. Being aggrieved of the reduction of exemption income made by the Assessing Officer assessee preferred appeal before the learned Commissioner (Appeals). 24. The learned Commissioner (Appeals) following his order in assessee s own case for assessment year 2001 01, directed the Assessing Officer to compute exemption under section 10(34) and 10(35) of the Act, by working out the ratio of borrowed funds to the total funds thereby segregating gross exempt income arising from own funds. Thereafter, he directed the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly confirmed the disallowance of interest expenses at ₹ 134,37,32,781/- and managerial and administrative expenses at 1%. The assessee before us now claimed that no interest expenses to be allocated as the investment is made out of assessee s own funds. For this, the learned Counsel for the assessee relied upon the decision of the Hon ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. 366 ITR 505 (Bom.) and also in the case of CIT Vs. Reliance Utilities Power Ltd. 313 ITR 314 (Bom.). It was contended by the learned Counsel for the assessee that the entire interest expenses are to be allowed as expenses and no interest expenses to be allocated as the investment is made out of assessee s own funds. She referred to the Tribunal s decision in assessee s own case in assessment year 1997-98 in ITA No.5424/Mum/2001 wherein the issue is decided vide Para 10.3 by observing as under:- 10.3 It is noted that in earlier years, this issue has been decided in favour of the assessee, after considering the judgment of Hon ble Bombay High Court in the case of Emerald Co. Ltd. (supra). It is noted that in assessment year 1995-96 (order dt. 09.09.2015), the Tribunal decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the same. He observed that the Assessing Officer without establishing the fact whether debts have actually become bad has written off. He observed, the assessee has not proved the fact that debts are not recoverable. Further, the Assessing Officer observed, even after the amendment to section 36(1)(viii) w.e.f. 1st April 1989, the assessee s claim of deduction on account of write off of bad debt cannot be allowed, since, the assessee has advanced the loans to reputed Indian companies who have acknowledged the debts and have not refused to re pay the loan interest and other money. Accordingly, he disallowed the claim of bad debt and added back the amount claimed as deduction by the assessee. Aggrieved, the assessee filed appeal before the first appellate authority. 31. The learned Commissioner (Appeals) after considering the submissions of the assessee held that after amendment to the provisions of section 36(1)(vii), once the assessee write s off the debt in its books of account as irrecoverable, it will be sufficient compliance of the statutory provisions. There is no further need for the assessee to establish that the debts have actually become bad. Relying upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v/s CIT, [2010] 230 ITR 14 (SC), has expressed this view. Further, in case of Vijaya Bank Ltd. v/s CIT, [2010] 323 ITR 166 (SC), the Hon'ble Apex Court held that mere debit to the Profit Loss account is not sufficient to claim write off as the assessee has to simultaneously reduce the amount from loans and advances or debtors on assets side of the Balance Sheet to claim right off. The Hon'ble Supreme Court observed, closing down individual account of each debtor in the books of account is not necessary. However, the Hon'ble Supreme Court taking note of Explanation 1 to section 36(1)(vii) of the Act observed that mere provisions for bad debt will not entitle for deduction under section 36(1)(vii) of the Act. On a careful perusal of the assessment order, we have noted that in case of some of the debtors the Assessing Officer has alleged that they are in the nature of mere provisions, which requires examination. In view of the aforesaid, we direct the Assessing Officer to allow assessee s claim in respect of debts which are actually written off by applying the principle laid down in the decisions referred to above. Further, the Assessing Officer is also required to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2002 03 and deleted the addition made by the Assessing Officer to the annual letting value. 38. We have heard rival contentions and perused the material available on record. Undisputedly, the addition made to the annual letting value towards interest chargeable on security deposit is purely on notional basis. Notably, while deciding identical issue in assessee s own case for assessment year 2002 03, in ITA no.836/Mum./2008 and ITA no.392/Mum./2008 dated 7th July 2017, we have upheld the order of the learned Commissioner (Appeals) with the following observations: 48. We have heard the rival contentions and perused the material on record. As far as the issue relating to the proper head under which the income derived from letting out the house property is concerned, the same has to be treated as income from house property as the assessee has not challenged the decision of the learned Commissioner (Appeals) on this issue. Having said so, the only issue arising for consideration before us is, whether the notional interest charged on interest free security deposit can be considered to be a part of the fair rent. On a plain reading of section 23(1)(b), which is appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate office, whereas, he disallowed similar expenditure of ₹ 226,33,999 incurred for branches. The claim of the assessee that such expenditure incurred for branches are towards maintenance of software and not for acquiring any new software remains uncontroverted. Moreover, when the Assessing Officer has allowed similar expenditure incurred for corporate office, there is no reason why such expenditure incurred for branches should be disallowed. Therefore, we uphold the order of the learned Commissioner (Appeals) by dismissing ground no.8 raised by the Revenue. 53. In ground no.9, the Revenue has challenged deletion of addition of ₹ 19,11,850, on account of club membership fees. 54. Brief facts are, the Assessing Officer during the assessment proceedings noticing that the assessee has debited an amount of ₹ 19,11,850 towards club membership fees called upon the assessee to furnish necessary details. The Assessing Officer having found that such expenditure was incurred for acquiring corporate membership for directors / senior management officers of the assessee disallowed the expenditure by treating it as capital in nature. The assessee challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viia) of the Act would indicate that the assessee at its own option can be allowed deduction in respect of any provisions made by it for any assets classified by RBI as doubtful asset or loss assets in terms of the first proviso to section 36(1)(viia) of the Act. It is to be noted that the assessee is a Scheduled Bank and its accounts are maintained in conformity with the Generally Accepted Accounting Principle (GAAP) in India and the guidelines issued by the RBI from time to time. Further, it is evident from the annual report of the assessee that acquisition of assets including performing and non performing asset are as per the prescribed guidelines of RBI. That being the case, there is no reason for the Assessing Officer to presume that the assessee is not qualified to exercise option under the first proviso. Further, as per the second proviso to section 36(1)(viia) of the Act for the assessment year commencing on/or after 1st April 2003 and ending before 1st April 2005, the deduction allowable in terms of proviso 1 to section 36(1)(viia) of the Act is 10% instead of 5%. In view of the above, we do not find any infirmity in the order of the learned Commissioner (Appeals) on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of law. 65. In the result, Revenue s Appeal in ITA no.6137/Mum./2008 and assessee s appeal in ITA no.6217/Mum./2008 are partly allowed for statistical purposes. ITA no.3841/Mum./2013 Assessee s Appeal A.Y. 2005 06 ITA no.5276/Mum./2013 Revenue s Appeal 66. The first issue, as raised in ground no.1 by the Revenue corresponding to ground no.2 raised by the assessee relates to computation of income claimed as exempt under section 10(23G) of the Act. 67. Brief facts are, during the assessment proceedings, the Assessing Officer while examining the assessee s claim of exemption under section 10(23G) of the Act in respect of income derived from investment in infrastructure capital fund was of the view that the assessee being engaged in the business of banking is not eligible to claim exemption. Therefore, he called upon the assessee to justify its claim. In response, though, the assessee justified its claim of exemption under section 10(23G) of the Act, however, the Assessing Officer did not find merit in assessee s claim. Referring to CBDT circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture under section 14A of the Act for computing net exempt income under section 10(23G) of the Act, the learned Commissioner (Appeals) followed his orders in assessee s own case for preceding assessment years and directed the Assessing Officer to re compute the disallowance under section 14A of the Act. 69. The learned Authorised Representative submitted before us, the assessee having fulfilled the conditions of infrastructure capital company is eligible for exemption under section 10(23G) of the Act. As far as the disallowance of expenditure under section 14A of the Act, the learned Authorised Representative relied upon the decisions of the Tribunal in assessee s own case for preceding assessment years. 70. Learned Departmental Representative supporting the observations of the Assessing Officer submitted that the provisions contained under section 10(23G) of the Act does not extent to commercial banks. 71. We have heard rival contentions and perused the material available on record. The following two issues arise for consideration before us in this ground. Firstly, whether the assessee is eligible to claim exemption under section 10(23G) of the Act and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum of disallowance under section 14A of the Act is concerned, following our decision while deciding similar issue raised in the cross appeals for assessment year 2004 05 in the earlier part of the order vide Para 6 7, we restore the issue to the Assessing Officer for deciding afresh in terms of our directions given therein. 73. Ground no.3, raised by the Revenue corresponding to ground no.3, raised by the assessee are on the common issue of disallowance of expenditure under section 14A of the Act in respect of exempt income earned under section 10(15) of the Act. 74. This issue is identical to the issue raised in ground no.2, in Revenue s appeal and ground no.3, in assessee s appeal for assessment year 2004 05. Following our decision in Para 13 of this order, we restore the issue to the file of the Assessing Officer for deciding afresh keeping in view our directions therein. 75. Grounds no.4 and 5 of Revenue s appeal are on the issue of allowance of assessee s claim of depreciation on leased assets. 76. This issue is identical to the issue raised in ground no.3 of Revenue s appeal for assessment year 2004 05. Following our decision in Para ..... X X X X Extracts X X X X X X X X Extracts X X X X
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