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2018 (7) TMI 2067 - AT - Income TaxDisallowance u/s. 14A read with Rule 8D - HELD THAT - We direct the AO to restrict the disallowance under Section 14A to 2% of the exempt income. in the result the ground of appeal raised by the assessee is allowed. Disallowance on account of bad debts written off u/s 36(1)(vii) - HELD THAT - Proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaningless to invoke the said proviso where there is no threat of double deduction. In case of rural advances which are covered by the provisions of clause (viia) there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by the Circulars issued by CBDT. Thus the proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances the allowance thereof in the assessment is not affected controlled or limited in any way by the proviso to clause (vii). Accordingly the above question is answered in the affirmative i.e. in favour of the assessee(s). Disallowance made by the AO on account of broken period interest - HELD THAT - It is not disputed that in respect of the securities held by the respondent on 31st March 2001 the due date for payment of interest thereon had not arrived on 31st March 2001 and that the respondent sold some of such securities prior to the next due date for payment of interest. It is only the holder of the security on such date to whom interest can be said to have accrued. In any event interest did not accrue to the respondent on 31st March 2001 as admittedly interest was not payable on that date as per the terms of the said securities. The appellate authorities therefore rightly deleted the addition of Rs. 1, 21, 57, 517/- by the Assessing Officer as interest income. MAT applicability u/s 115JB - HELD THAT - In terms of the provisions of Section 115 JB 2) every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and III of Schedule VI to the Companies Act. Unless the profit and loss is so prepared the provisions of Section 115JB cannot come into play at all. However the assessee is a banking company and under proviso to Section 211(2) of the Act the assessee is exempted from preparing its books of accounts in terms of requirements of Schedule VI to the Companies Act and the assessee is to prepare its books of accounts in terms of the provisions of Banking Regulation Act. It is thus contended that the provisions of Section 115JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act. Since the provisions of Section 115 JB do not apply to the assessee company Valuation of securities while shifting from Available for sale to Hold to Maturity - HELD THAT - We have noted that almost on identical facts on identical question of law the Hon ble High Court in the case of CIT vs. HDFC Bank Ltd 2014 (7) TMI 724 - BOMBAY HIGH COURT held that loss incurred on account of security held under category available for sale to held to maturity was to be allowed as business loss. Therefore respectfully following the decision of jurisdictional high court this ground of appeal raised by revenue is dismissed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962. 2. Claim of bad debts under Section 36(1)(vii) of the Income Tax Act, 1961. 3. Allowability of broken period interest. 4. Applicability of Section 115JB of the Income Tax Act, 1961 to the assessee. 5. Valuation of securities while shifting from "Available for Sale" (AFS) to "Held to Maturity" (HTM). Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee contested the disallowance of Rs. 44,50,73,900 under Section 14A, which pertains to expenditure incurred in relation to income claimed exempt under Section 10. The Tribunal noted that similar disallowances in previous years (1998-99, 1999-2000, 2004-05, 2008-09, 2009-10, and 2010-11) were resolved in favor of the assessee. The Tribunal followed its earlier decisions and restricted the disallowance to 2% of the exempt income, highlighting that the Assessing Officer (AO) had not recorded any satisfaction regarding the claim of the assessee that it had earned exempt income without attributing any expenses relating thereto, which is a pre-condition for invoking Section 14A. 2. Claim of Bad Debts under Section 36(1)(vii): The Revenue challenged the deletion of disallowance of Rs. 208,57,64,535 made by the AO on account of bad debts written off. The Tribunal referred to its earlier decisions and the Supreme Court's judgment, which clarified that the provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent. The Tribunal upheld that bad debts written off in debts other than those for which provision is made under clause (viia) will be covered under the main part of Section 36(1)(vii). The Tribunal dismissed the Revenue's appeal on this ground. 3. Allowability of Broken Period Interest: The Revenue's appeal against the deletion of disallowance on account of broken period interest was also dismissed. The Tribunal noted that the issue had been consistently decided in favor of the assessee in previous years. The Tribunal referenced the jurisdictional High Court's decision in the case of Credit Suisse First Boston (Cyprus) Ltd., which held that interest for the broken period is not taxable as the assessee has no right to receive the said interest though accrued on a day-to-day basis. 4. Applicability of Section 115JB: The Tribunal addressed the issue of whether the provisions of Section 115JB, which pertains to Minimum Alternate Tax (MAT), apply to the assessee. The Tribunal followed its earlier decisions, which held that MAT provisions do not apply to banking companies as they are not required to prepare their profit and loss accounts in accordance with Part II & III of Schedule VI of the Companies Act, 1956. The Tribunal upheld that the provisions of Section 115JB do not apply to the assessee, dismissing the Revenue's appeal on this ground. 5. Valuation of Securities while Shifting from AFS to HTM: The Revenue contested the allowance of loss on account of valuation of securities while shifting from "Available for Sale" (AFS) to "Held to Maturity" (HTM). The Tribunal referred to the jurisdictional High Court's decision in the case of CIT vs. HDFC Bank Ltd., which held that the loss incurred on account of security held under the AFS category to HTM was to be allowed as a business loss. The Tribunal dismissed the Revenue's appeal based on this precedent. Conclusion: The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue. The decisions were based on consistent precedents and interpretations of relevant provisions of the Income Tax Act, 1961, and related judicial pronouncements. The order was pronounced in the open court on 19th July 2018.
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