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2018 (5) TMI 2167 - AT - Income TaxDisallowance of deduction u/s 36(1)(viii) - special reserve created for income from eligible business of long term finance for industrial and agricultural development and for development of infrastructure facility for construction or purchase of residential house - HELD THAT:- As following the consistent view of the Tribunal in assessee’s own case for 2009–10. [2017 (11) TMI 1812 - ITAT MUMBAI] we allow assessee’s claim of deduction u/s 36(1)(viii), thereby, deleting the addition made as held that the banks will also be covered by the inclusive definition given for the expression “financial Corporations” in sec. 36(1)(viii) of the Act. Consistent with the view taken therein, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim. - Decided in favour of assessee. Disallowance u/s 14A r/w rule 8D - basic contention of the assessee is, since the assessee being a Bank the shares and securities are held as stock–in–trade and it constitutes a business activity, hence, no disallowance under section 14A of the Act should be made - HELD THAT:- Notably, in assessment year 2009–10 [2017 (11) TMI 1812 - ITAT MUMBAI] while considering similar dispute relating to disallowance under section 14A, the Tribunal in order has restored the issue to the Assessing Officer. It is also relevant to mention, in the meanwhile, the judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT] has been delivered. It is to be noted that in the said decision the Hon'ble Supreme Court has specifically dealt with the decision of the Hon'ble Punjab & Haryana High Court in case of State Bank of Patiala [2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT] on identical issue. Undisputedly, the aforesaid decision of the Hon'ble Supreme Court having been delivered recently, the Departmental Authorities while deciding the issue did not have the benefit of it. In view of the aforesaid, we restore the issue to the file of the Assessing Officer for deciding afresh after considering the submissions made by the assessee and applying the ratio laid down by the Hon'ble Supreme Court in case of Maxopp Investment Ltd. (supra) and specifically keeping in view the observations made in Para–39 and 40 of the said judgment. This ground is allowed for statistical purposes. Disallowance of deduction claimed u/s 36(1)(viia)in respect of provisions of bad and doubtful debts - HELD THAT:- Deduction claimed by the assessee u/s 36(1)(viia) of the Act is not as per the provisions made in the books of account. A reading of the aforesaid provision, makes it clear that the deduction allowable is in respect of the provision made for bad and doubtful debt not exceeding certain amount as provided under sub–clause (a) of the said provision. That being the case, assessee’s claim that 10% of the aggregate average advances made by the Rural Branches and 7.5% of the total income has to be allowed as deduction irrespective of the provisions made in the books of account is not acceptable in view of the ratio laid down by the Hon'ble Punjab & Haryana High Court in State Bank of Patiala [2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT] Accepting the without prejudice submissions made by assessee we hold that the deduction under section 36(1)(viia) of the Act to the extent of provision made and available in the books of account, whether made in the current previous year or in the preceding previous years, is allowable as held in Sarvodaya Sahakar Bank Ltd [2014 (5) TMI 1182 - ITAT AHMEDABAD] - AO is directed to examine the facts and compute the deduction u/s 36(1)(viia) of the Act accordingly. This ground is partly allowed for statistical purposes. Disallowance of amortization of lease premium paid in respect of various lease hold properties - HELD THAT:- As could be seen from the facts on record, this is a recurring dispute between the assessee and the Department from the preceding assessment years. While deciding identical issue arising in assessee’s own case for assessment year 2004–05 [2017 (7) TMI 1289 - ITAT MUMBAI] has sustained the disallowance by concurring with the view expressed by the Departmental Authorities. Ground raised is dismissed. Accrual of income - decision of the Departmental Authorities in including the profits of the foreign branches in the income of the assessee - HELD THAT:- As could be seen, the disputed issue relates to taxability of the income of the foreign branches in India. Notably, while deciding identical issue arising in assessee’s own case in assessment year 2009–10, [2017 (11) TMI 1812 - ITAT MUMBAI] followed its order passed in assessee’s own case for assessment year 2004–05 and held if the Assessee has permanent establishment abroad, then, the Assessee would have to produce evidence regarding payment of taxes pertaining to the income of these establishments abroad. On production of such evidence, the Assessee would be entitled to the benefit. That evidence was always available and as noted by the Commissioner of Income Tax (Appeals) and the Tribunal. In the circumstances, the authorities did nothing but follow their earlier orders based on identical facts and circumstances. The finding of fact, therefore, cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The Appeal does not raise any substantial question of law. It is devoid of merits and is, accordingly, dismissed. Disallowance of broken period interest paid - AO noticing that the assessee has claimed deduction towards payment of broken period interest on purchase of securities by treating it as revenue expenditure called upon the assessee to justify its claim - HELD THAT:- It is evident on record, assessee’s claim of broken period interest paid has been disallowed by the Assessing Officer on the reasoning that the assessee is not offering broken period interest on accrual basis. In our view, the aforesaid reasoning of the Departmental Authorities do not stand to reason. If the assessee is consistently following an accounting method as per which the broken period interest is offered as income when it is received, the broken interest paid while purchasing the securities cannot be disallowed merely on the reasoning that the assessee is not showing the broken period interest income on accrual basis. As could be seen, in case of State Bank of India [2016 (8) TMI 963 - BOMBAY HIGH COURT] after following the decision of the said Court in case of American Express International Corporation [2002 (9) TMI 96 - BOMBAY HIGH COURT] has rejected Revenue’s appeal against allowance of assessee’s claim of deduction in respect of broken period interest paid. While doing so, the Hon'ble High Court has also upheld the decision of the Tribunal in holding that the broken period interest income has to be taxed on due basis instead of accrual basis. It is evident, the aforesaid decision of the Hon'ble Jurisdictional High Court was neither referred to nor examined by the Departmental Authorities while deciding the issue. In view of the aforesaid, we restore the issue to the Assessing Officer for deciding afresh keeping in view the decisions of the Hon'ble Jurisdictional High Court referred to above and only after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Disallowance on account of loss arising out of payment made to Lehman Brothers Special Financing Inc. - HELD THAT:- Undisputedly, the assessee has entered into forward contract with its customers in respect of derivative transactions. It is also a fact on record that LBSFI was taken as a counter party in order to hedge the forward contract entered with the customer. In fact, Commissioner (Appeals) while dealing with the disputed issue has given a categorical finding that the payment made on arbitration award and incidental expenses are related to hedging agreement. Thus, once the payment made by the assessee is treated to be towards hedging agreement it cannot be termed as speculative transaction. Explanation 1 to the proviso to section 43(5) of the Act excludes the transactions relating to trading in derivatives carried on by the Banks from the ambit of speculative transactions. AR has demonstrated before us that whenever there is profit from forward contracts assessee has offered it as business income and the Department has accepted it. If that is the case, the loss from forward contract cannot be treated as speculation loss. In any case of the matter, there is no dispute to the fact that the payment by the assessee to LBSFI is in pursuance to an award passed by a International Court of Arbitration, therefore, it is allowable as business expenditure. Thus, looked at from any angle assessee’s claim is allowable. Allowing credit for TDS of foreign branches - HELD THAT:- As observed that as per section 91 of the Act if any person residing in India proves that in respect of his income which accrued or arose in the relevant previous year outside India and in respect of which he has paid tax in any country with which there is no double taxation avoidance agreement, then, such person shall be entitled to deduction from the income tax payable by him a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the same country whichever is lower or at the Indian rate of tax if both the rates are equal. He, therefore, directed the AO to decide the issue as per law. As could be seen from the observations of the learned Commissioner (Appeals), he has simply issued a direction to the Assessing Officer to decide the issue of credit of TDS keeping in view the provisions of section 199 and section 91 of the Act. We fail to understand how the Department can be aggrieved with the aforesaid directions of the learned Commissioner (Appeals). In view of the aforesaid, ground raised is dismissed.
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