TMI Blog2013 (9) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields – Following decision of Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax, Thrissur [2012 (2) TMI 262 - SUPREME COURT OF INDIA] - Decided in favor of assessee. Disallowance u/s 14A - Interest on tax free bonds and debentures and dividend income - Held that:- It is an undisputed fact that the Assessee has earned Rs. 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed Rs. 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at Rs. 36.68 Crore and after setting off disallowance made by the assessee, he disallowed Rs. 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of Rs. 25.35 Crore - matter with respect to Nil disallowance under 14A be remitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee. - ITA No.152/Ahd/2006, 815/Ahd/2007 & 4387/Ahd/2007, ITA No.233/Ahd/2006 and 237/Ahd/2008 - - - Dated:- 30-8-2013 - Shri G. C. Gupta And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri Subhash Bains, CIT-DR For the Respondent : Shri Arvind Sonde ORDER Per Shri Anil Chaturvedi, A. M. These are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debts and the provisioning on the same and submitted that the provisioning has been made in terms of the guidelines of Reserve Bank of India. The total provision made by the Assessee for Standard, Doubtful, Loss and Sub-Standard asset as per RBI guideline worked out as under: Rs 1 Credit balance of provision for NPAs/Doubtful debts 59,03,00,000 2 Provision for loss assets (a) Full write off 40,54,77,000 (b) Partial write off 38,96,93,000 Total provisions made on doubtful and loss assets 138,54,70,000 8. The Assessing Officer was of the view that the working made by the Assessee for working out deduction under section 36(1)(vii) was incorrect. According to AO the Assessee is to be allowed deduction u/s 36(1)(vii) of the bad debts written off in the books of accounts. However, in cases where sub clause (viia) of sub section 36(1) is applicable, the deduction is to be restricted as per proviso to s. 36(1)(vii). The AO was of the view that for computing the figure of Rs 59.03 crores, Assessee has reduced the opening balance of Rs. 44.40 Crore which was incorrect. He was of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebt written off in the. previous year and the credit balance in the provision for bad and doubtful debts account made under cl. (viia). This decision is actually in favour of the Depti., which says that although deduction u/s. 36(1)(vii) and 36(1)(viia) are two separate deductions allowable, but as per proviso to cl 36(l)vii), provisions made under cl. (viia) of sec. 36(1) should be reduced from the deduction allowable u/s. 36(1)(vii). b) As per the decision in the case of D.C.I.T. V. Catholic Syrian Bank, Ltd., 88 ITD 185 (Cochin), the intention behind the relevant provisions in the case of banks, is like this. Normally a deduction for bad debts can be allowed only if the debt is written off in the books as debt. No deduction 'is to be allowed in respect of a mere provision for bad and doubtful debts. But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write-off. This, however, may result in double allowance in the sense in respect of the same rural advance the bank may get an allowance of the provision on the basis of cl (viia) and also on the basis of the actual write-off under cl. (vii). This sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , supra. However, the case is not applicable to the appellant's case. As per this decision, the findings of the ITAT are as under: Sec. 36(1)(vii) of IT Act, 1961 - Bad debts- A.Y. 1993-94- Whether deduction u/s. 36(1)(vii). so far as foreign bank is concerned, supplemental in nature and is admissible to extent provision for bad and doubtful debts allowed u/s. 36(1)(viia)(b) falls short of actual bad debts written off as irrecoverable - Held, yes -Whether since deduction u/s. 36(1)(viia)(b) is in nature of a 'taxable business income based deduction, it can only be quantified after computing taxable business income of an assesse, though before making any deduction. under sec. 36(1)(viia)(b) itself - Held, yes -Whether, therefore, at stage of computing admissible deduction u/s. 36(1)(vii), admissible deduction u/s. 36(l)(viia)(b) cannot be worked out and in that view of matter, admissible provision under sec. 36(1)(viia)(b) for current previous year cannot be taken into account for purpose of computing deduction under see. 36(1)(vii) - Held, yes. Hon. ITAT, Mumbai Bench has held that deduction u/s. 36(I)(vii)(b) is in the nature of taxable business income based deduction, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earlier years the Honourable Ahmedabad Bench has decided the issue for AY 2003-04 in its favour. He placed on record the copy of the aforesaid decision. He further submitted that H'ble Gujarat High Court in Assessee's own case for A.Y. 1998-99, +- 2000-01 and 2001-02 in 1077 to 1080/Ahd/2010 (for AY 1998-99, 2000-01 2001-02) has also decided the issue in favour of Assessee. He placed on record at page 28 to 40 the copy of aforesaid order of H'ble Gujarat High Court. He pointed to the relevant finding of Hon. Guj. H.C. on page 33 to 40 to P.B. He thus submitted that since the facts in the year under appeal are identical to earlier years, the issue be decided in its favour following the decision of High Court and Tribunal. 12. The learned D.R. on the other hand relied on the order of A.O. and CIT(A). 13. We have heard the rival submissions and perused the material on record. We find that the Revenue in tax appeal no. 1077 to 1080/Ahd/2010 (for AY 1998-99, 2000- 01 2001-02) had preferred appeal before High Court against the order of Tribunal and the question raised before Hon. Gujarat High Court reads as under: "whether the appellate Tribunal is right in law and on facts i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only if the assessee had debited the amount of such ||ibs to the provision for bad and doubtful debt account under section 36f3||lfl|a) of the^Act, as required by section 36(2) (v) of the Act. (ii) While considering the claim for bad debts u/s 36(1)(vii), the assessing officver should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad and doubtful debt account created u/s 36(1) (viia) of the Act. The credit balance for this purpose will be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year." 17. As already noted, in absence of such clarification by CBDT, we would have been inclined to admit the appeals. However, when such circular issued under section 119(2) of the Act clarifies-the position beyond any doubt, we have no reason to entertain the revenue's appeals. As already noted, the statutory provision is silent on the precise method of working out the deduction. It is by now well-settled that such circulars issued by the Board in exercise of its statutory powers under section 119(2) of the Act, may have the effect of relaxing the rigours of a statutory prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly categorised as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding^ the taxing authorities." 19. In the result, bearing in mind the circular issued by CBDT dated 26.11.2008 no further controversy should arise. In the result, the tax appeals are dismissed. 1. 14. Before us, the Ld.D.R. could not controvert the submissions made by the Ld.A.R. nor could bring any material on record to demonstrate that the decision of High Court has been overturned by Superior Court. Further, since the facts the year under appeal are identical to that of earlier years, we respectfully, following the decision of Hon. Gujarat High Court, in Assessee's own case allow this ground in favour of Assessee and thus this ground of Assessee is allowed. Ground no. 3.1 to 3.7 are with respect to disallowance u/s 14A. 15. During the course of assessment proceedings, AO noticed that Assessee had submitted that it had investments to the tune of Rs. 413.60 Crore on which the assessee has earned tax free income. AO also noticed that Assessee has claimed exemption of Rs. 39.65 Crore on account of interest on tax free bonds and debentures and dividend incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred for earning tax-free income is determined at Rs. 36.68 crores Disallowances u/s 14A Rs. 36.68 crores Already disallowed by assessee Rs. 6.23 crores Balance disallowable Rs. 30.45 crores 16. The disallowance worked out by the AO was Rs. 36.68 Crore but since the Assessee had already suo motu disallowed Rs. 6.23 Crore, he made disallowance of balance amount of Rs. 30.45 Crore. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee granted partial relief to the Assessee by holding as under: 6.3 After considering the submissions of the appellant and the case laws relied upon, I am of the opinion that the action of the A.O. is not correct as regards disallowing interest expenses amount after allocating it to the investments for exempted income. The appellant has filed the details before the A.O. admitting that only part of the interest bearing funds is used for investing in the investments giving tax exempted income. The interest cost is calculated at Rs. 6.23 Cr. which is offered for taxation. Hence, the A.O. is not justified in furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in view of the fact that interest free funds was far in excess of tax free investments, no disallowance u/s 14A was called for. He further submitted that the disallowance made suo motu by the Assessee of Rs. 6.23 Crore should also be reversed for the reason that on identical facts in the case of Assessee, the Hon. Tribunal had deleted the addition made u/s 14A and which was also upheld by Hon. Gujarat High Court in Tax appeal no. 118/Ahd/2013. He placed on record at page 335 to 372 the order of Tribunal for A.Y. 2003-04 and at page 373 to 378 the order of Gujarat High Court. The learned A.R. further submitted that since no amount of disallowance u/s 14A can be made in the case of the Assessee and therefore urged to delete the entire disallowance u/s 14A. He further submitted that the deletion of entire disallowance u/s 14A can be raised by the assessee for the first time before Tribunal and for which he placed reliance on the decisions in the case of National Thermal Power Company Limited vs. CIT 1998 229 383 ITR (SC), Jute Corporation of India vs. CIT (1991) 187 ITR 688 (SC). He also placed reliance on the decision in the case of Asit Kumar Ghosh vs. CIT (1953) 24 ITR 576 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far in excess of the investments. CIT (A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002- 03 and accordingly he has followed the decision of CIT (A) for AY 2002-03. These facts have not been controverted by the Ld. D.R. nor have they brought on record any facts to the contrary. Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities Power Ltd (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assessee has suo moto disallowed Rs 5.53 crore u/s 14A, respectfully following the decision of Bombay High Court, we are of the view that in the facts of the present case, no further disallowance over and above than what has been disallowed by the Assessee is called for. As far as disallowance of other administrative expenses is concerned, the undisputed fact is that the disallowance has been made by the AO without giving a finding as to how much administrative expenditure has been incurred to earn the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancier and not as a real owner. He further noticed that Wescare India Limited was required to suffer the loss arising out of the purchase of assets and all the risks attached for the purchase of assets was on account of Wescare India Ltd. The AO thus concluded that the Assessee did not assume any risk of ownership and the real intention behind the lease agreement was to hold the assets during the period of lease for the purpose of security for the loans advanced. He further noticed that the Assessee was not concerned with the operations of the equipments or loss or damage to it. He thus concluded that the transaction was not a genuine operating lease agreement but was the case of finance/hire agreement. He thereafter relying on Accounting Standard 19, issued by the Institute by Chartered Accountant of India on the lease transactions, was of the view that under the finance lease, the assets should be taken to the balance sheet of the lessee and not the lessor and the depreciation should be claimed and allowed in the hands of the lessee only and not in the hands of the lessor. He accordingly disallowed the claim of depreciation on the leased assets and made an addition of Rs. 22,50,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the capacity of financier and not real owner. The lessee and WIL is required to suffer the losses arising out of purchase of assets and they are only amenable to all risks attached to purchase of assets. v) The appellant is engaged in banking business under the Banking Regulations Act. The appellant cannot engaged in generation of electricity, as it is not permissible under the Banking Regulations Act. Hence, the appellant was not permitted to purchase Windmill for generation of power in the normal course of business in the first instant. vi) Further, the UTI was not concerned with the operational aspect of equipment or loss or damages to the equipment. Here only WIL has taken all responsibilities for that. Even the land did not belong to the UTI Bank Ltd, but belong to WIL. vii) The contention of assessee that in case of wind mills stop operation due to agitation or due to change in the wind velocity resulting in short generation of power the revenue would be drastically and critically affected is contrary to the evidence. WIL has agreed to pay for the shortage vide clause 6A(i) proviso. Non receipt of deposit from WIL and non action for the lapse is a serious breach of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine transaction or only a make believe, one intended to avoid payment of tax. Therefore, it is held that the Assessing Officer. was justified in disallowing the depreciation and the action of the Assessing Officer is hereby confirmed. 23. Aggrieved by the order of CIT(A), the Assessee is now appeal before us. 24. Before us, the learned A.R. at the outset submitted that the issue of depreciation on leased assets has now been settled and decided by Hon. Supreme Court in the case of ICDS Ltd vs. CIT Anr (2013) 350 ITR 527 (SC). He also submitted the following the aforesaid decision of Hon. Apex Court, the Mumbai Tribunal on identical facts in the case of Development Credit Bank Ltd. vs. DCIT ITA No. 300/Ahd/2001 and 4892/Ahd/2003 has decided the issue in assessee's favour. He placed on record the copy of the aforesaid decisions at page 379 to 461. The learned A.R. further submitted that the Assessee had entered into lease transaction in the normal course of business as the same was permissible by the Banking Regulation Act. He further submitted that the lease income earned by the Assessee is also disclosed in its Profit and Loss account. He pointed out to Schedule 14 of "Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24) of the Act the income derived from leasing of the trucks would be business income, or income derived in the course of business, and had been so assessed. Hence, it fulfilled the requirement of section 32 of the Act, that the asset must be used in the course of business. The assessee did use the vehicles in the course of its leasing business. The fact that the trucks themselves were not used by the assessee was irrelevant for [he purpose of the section. 26. The case of Development Credit Bank Ltd. the issue before Mumbai Tribunal was with respect to depreciation on assets given on lease. The Co-ordinate Bench of Tribunal decided the issue in favour of Assessee by holding as under: 28 We have heard the arguments of both the sides and we are of the view that cross appeals on the issue of allowance of depreciation in the current year have to be decided simultaneously. In so far as disallowance of depreciation on the assets involved in SLB transactions, the issue stands settled in favour of the assessee. From the synopsis filed by the AR, it is seen that the assessee provided the AO with all the information as was asked for, i.e. lease agreements, copies of bills for purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, the asset has been used. 34. After having examined all the transactions which have been impugned before us, we are of the opinion that the assessee is entitled to the claim of depreciation under all the three circumstances, i.e. sale lease back, genuineness of transaction and asset having being put to use. We, therefore, allow ground no. 1 the assessee's appeal and dismiss both the grounds of the department's appeal. 27. In view of the aforesaid facts, we are of the view that in view of the decision of H'ble Apex Court in the case of ICDS (supra) and the decision of Mumbai Tribunal in the case of Development Credit Bank Ltd, Assessee is eligible for depreciation and we thus delete the addition made by the Assessing Officer. Thus this ground of the Assessee is allowed. Now we take up Revenue's appeal in ITA No. 233/A/2006 The grounds reads as under: 1. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 92.68 crores made under the proviso to section 36(1)(vii) of the Act, being the credit balance as per the accounts maintained by the assessee. 2. The ld. CIT(A) has erred in law on facts in not appreciating the fact that there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be equated with writing off of investments and therefore the investments cannot be written off as bad debts. He was further of the view that profit or loss from investment have to be computed as provided under sections 45 to 55 of the Act for the computation of income or loss. For computation of income or loss there has to be transfer under Section 2 (47) which had not occurred in the present case and therefore the same cannot be allowed u/s 36. AO was therefore of the view that the instrument which the assessee had invested were in the nature of investment and not a loan for the purpose of deduction as bad debts u/s 36(1)(vii). He accordingly considered the amount written off of Rs 8.64 crore as capital loss and disallowed the claim of the assessee. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee deleted the addition by holding as under: 5.3 I have carefully considered the facts of the case and the submissions as advanced by the appellant along with the case laws relied upon. I am inclined to agree with the appellant's views. Non-convertible debentures are in the type of advancing funds to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the rival submissions and perused the material on record. Since ground no. 4 to 6 of the present Revenue's appeal are connected with ground no. 3 of Assessee's appeal in ITA No. 152/Ahd/2006 and Ground No 3 of Assessee's appeal in ITA No 152/Ahd/2006 hereinabove has been has been discussed and allowed for statistical purposes, the present ground of Revenue is also remitted to the file of AO to decide it afresh. Thus this ground of Revenue is allowed for statistical purposes. 36. In the result the appeal of the Revenue is partly allowed for statistical purpose. ITA No. 815/Ahd/2007 - (AY 2001-02) ( Assessee's appeal) 37. In this case the original assessment for A.Y. 2001-02 was completed u/s 143(3) vide order dated 30.03.2004 and the total income was determined at Rs. 60,05,29,930/- The assessment was thereafter reopened u/s 147 by issue of notice u/s 148 dated 24.08.2005 and thereafter the Assessment was framed under Section 143(3) read with section 147 of the Act vide order dated 26.07.2006 and the total revised total income was determined at Rs. 82,76,29,930/-. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us. 38. Before us, at the outset, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sustained by CIT(A). On these 2 disallowance, AO noted that in the audited accounts as well as in the return of income, the facts regarding the true nature of the fraud expenses and the payment of penalty was not duly disclosed by the Assessee. He also noted that the fact was not disclosed even in the tax audit report u/s 44AB in Form 3CD though the Assessee was statutorily required to disclose the same. He thus concluded that Assessee had camouflaged the expenses under the head "miscellaneous expenses" which escaped the scrutiny of the Statutory Auditors and therefore was satisfied that assessee has within the meaning of s. 271(1)(c) read with explanations has knowingly committed the default of furnishing inaccurate particulars of income and therefore levied penalty @300% of the tax sought to be evaded (Rs 17,21,81,835/-). 46. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) granted partial relief by reducing the penalty from 300% to 100%. Assessee is aggrieved by the order of CIT(A) because he has retained the penalty and on the other hand the Revenue is aggrieved by the action of CIT(A) in reducing penalty from 300% to 100%. 47. Before us the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars of his income or furnished inaccurate particulars of such income. It is well settled that assessment proceedings and penalty proceedings are separate and distinct and the finding in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. 50. The necessary ingredients for attracting Expln. 1 to s. 271(1)(c) are that : (i) the person fails to offer the explanation, or (ii) he offers the explanation which is found by the AO or the CIT(A) or the CIT to be false, or (iii) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same have been disclosed by him. If the case of any assessee falls in any of these three categories, then according to the deeming provision provided in Expln. 1 to s. 271(1)(c) the amount added or disallowed in computing the total income shall be considered as the income in respect of which particulars have been concealed, for the purposes of cl. (c) of s. 271(1), and the penalty follows. On the other hand, if the assessee is able to offer an explanation, which is not found by the authorities to be fals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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