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2015 (11) TMI 1058 - ITAT MUMBAI

2015 (11) TMI 1058 - ITAT MUMBAI - TMI - Disallowance u/s 14A r.w.r.8D - Held that:- In the instant case, the assessee has earned exempted income of ₹ 54.09 crores and it has claimed that it did not incur any expenditure in order to earn the above said exempted income. The assessee has raised many contentions, viz., the interest free funds available with the assessee are more than the investments; the securities were held as stock in trade and it has earned net interest income warranting n .....

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assessee. Hence, the disallowance computed by the AO and that confirmed by Ld CIT(A) was not in accordance with the mandate of law. Thus issue requires fresh examination - Decided in favour of assessee for statistical purposes.

Deduction claimed u/s 36(1)(viii) - Held that:- When the assessee is able to identify the long term finance given to specified purposes, it should not be difficult to cull out the actual interest income earned from such advances. Since the assessee had proceed .....

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te that it is the responsibility of the assessee to show that the deduction claimed by it u/s 36(1)(viii) was justified. However, with regard to the cost of funds and administrative expenses, the assessee is required to allocate the expenses towards eligible business on a reasonable basis, since they are incurred from common pool of funds and also for all activities of the assessee. Hence, in our view, the workings given by the assessee, AO and Ld CIT(A) on approximate basis cannot be approved. .....

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assessees. Accordingly, we are of the view that there is no reason to interfere with the decision of Ld CIT(A) on this issue.- Decided in favour of assessee

Claim of loss on revaluation of investment - Held that:- Tribunal in the assessee’s own case in AY 2007-08 and it has been decided in favour of the assessee by following the decision rendered by the Hon’ble Supreme Court in the case of UCO Bank Vs. CIT (1999 (9) TMI 4 - SUPREME Court) and also the decision of CIT Vs. Bank of Barod .....

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ory. Since the assessee has filed the audit report before finalisation of assessment order, we are of the view that the Ld CIT(A) was justified in directing the AO to allow the claim.- Decided in favour of assessee - I.T.A. No. 4678/Mum/2013, I.T.A. No. 4842/Mum/2013 - Dated:- 18-11-2015 - Shri B. R. Baskaran, AM And Amarjit Singh, JM For the Petitioner : Shri C Naresh For the Respondent : Shri G M Doss ORDER Per B R Baskaran, AM These cross appeals are directed against the order dated 25.3.2013 .....

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ssessee is a Public Sector Bank and the assessment for the year under consideration was completed by the AO by making various additions. In the appeal filed by the assessee before the ld. CIT(A), the First Appellate Authority granted partial relief to the assessee. Aggrieved by the order passed by the ld.CIT(A), both the parties are in appeal before us in respect of issues decided against each of them. 5. We shall first take up the appeal filed by the assessee. The first issue relates to disallo .....

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ntended before the AO that no part of interest income is required to be disallowed since investments were held as trade stock and further it had earned net interest income in excess of interest expenditure. The AO, however, did not accept the contentions of the assessee and accordingly, computed the disallowance in terms of Rule 8D of the Rules. Accordingly, the AO disallowed a sum of ₹ 23.14 crores u/s 14A of the Act. The ld. CIT(A) also confirmed the same. 6. The ld. Counsel appearing fo .....

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ssee does not hold any investments and hence the question of making disallowance u/s 14A of the Act does not arise. In support of his submissions, the ld A.R placed his reliance on the following case law: a) DCIT V/s M/s India Advantage Securities Ltd -ITA No.6711/Mum/2011 order dated-14.09.2012 b) DCIT V/s Gulshan Investment Co.Ltd -ITA No.666/Kol/2012 dated 11.3.2013 c) CCI Ltd Vs. JCIT (206 Taxman 563)(Kar) The Ld A.R submitted that the decision rendered by the Tribunal in the case of India A .....

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Investments in the books of account, yet profit or loss arising on their sale was assessed under the head Income from business only for income tax purposes. He further submitted that all the securities are valued at cost or market value whichever is less at the year end and the said valuation methodology also fortifies the fact that the investments are held as trade stock only. 8. The Ld D.R, on the contrary, submitted that the provisions of Rule 8D shall be applicable from AY 2008-09 as held by .....

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r submitted that the claim of the assessee that it was having sufficient interest free funds and also the claim that the securities are held as stock in trade have not been examined by the AO/CIT(A). 9. We have heard rival contentions and perused the record. The assessment year under consideration being AY 2008-09, the provisions of Rule 8D are applicable as per the decision of Hon ble Bombay High Court rendered in the case of Godre Boyce Mfg. Co. Ltd (supra). However, a careful perusal of the p .....

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mpted income. The assessee has raised many contentions, viz., the interest free funds available with the assessee are more than the investments; the securities were held as stock in trade and it has earned net interest income warranting no disallowance of interest expenditure etc. However, we notice that neither the AO nor the Ld CIT(A) did consider the above said contentions of the assessee, more particularly with referencce to the accounts of the assessee, which is a mandatory condition prescr .....

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rdingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh. The assessee is free to urge all the contentions, which it may deem it necessary before the AO in respect of this issue. After affording necessary opportunity of being heard, the AO may take appropriate decision in accordance with the law. 12. The next issue urged by the assessee relates to the deduction claimed u/s 36(1)(viii) of the Act. Section .....

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t thereof during a period of not less than five years. 13. The assessee worked out the deduction u/s 36(1)(viii) as under:- Average advances 41937.41 Yield on advances 10.12% Cost of funds 5.76% Interest income 4.36% 1828.47 Less Operation expenses 15% 274.27 Profit earned 1554.20 Deduction u/s 36(1)(viii) 20% 301 The AO did not accept the above said workings. He noticed that the average advances worked out by the assessee did not tally with the figures of term loans reported in the Balance Shee .....

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igures cited above, i.e., ₹ 370 crores was the net yield on advances. After allowing deduction of 15% for expenses, the profit derived from the eligible business was worked out at ₹ 314.50 crores. Accordingly the AO restricted the deduction u/s 36(1)(viii) at 20% of ₹ 314.50, viz., ₹ 62.90 crores. It may be noticed that the assessee had claimed a deduction of ₹ 301 crores. 14. The Ld CIT(A), however, worked out the deduction in a different manner. According to Ld CI .....

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e AO noticed that the total interest earned by the assessee during the year gave an yield of 9% of the aggregate advances outstanding as at the year end. Accordingly, he worked out the interest from eligible business at 9% of the term loans reported in the Balance Sheet. In the similar manner, the Ld CIT(A) worked out the percentage of expenses on the total advances. After setting off the expenses estimated by him against the interest income estimated by him, the Ld CIT(A) arrived at the profit .....

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tual interest income earned from such advances. Since the assessee had proceeded to ascertain the interest income on average basis and since the details furnished by the assessee was not convincing to the tax authorities, they were constrained to make their own estimates according to their respective understanding. In our view, the approach of the assessee is not appreciable. In this era of computerisation, it should not be difficult at all for the assessee to cull out the actual interest income .....

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en by the assessee, AO and Ld CIT(A) on approximate basis cannot be approved. Accordingly, in our view, this issue also requires reconsideration at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore this matter to the file of the AO for his reconsideration. The assessee is directed to cull out the interest income actually earned from out of eligible advances. From the gross interest income so culled out, the assessee is directed to deduct .....

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ke up the appeal filed by the revenue. The first issue relates to the bad debts written off. The assessee claimed deduction of bad debts of ₹ 330.68 crores in respect of non-rural debts. The bad debts relating to rural debts was set off against the provision made u/s 36(1)(viia) of the Act. The AO took the view that the provision created u/s 36(1)(viia) covers both rural and non-rural advances. Since the deduction of ₹ 330.68 crores claimed by the assessee was less than the credit ba .....

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e that the Tribunal has followed the decision rendered by the Hon ble Supreme Court in the case of Catholic Syrian Bank (343 ITR 270) and also in the case of CIT Vs. Karnataka Bank Ltd (2012)(349 ITR 705). We also notice that the new Explanation 2, which covers both rural and non-rural advances, has been inserted under sec. 36(1)(vii) of the Act by the Finance Act, 2013 w.e.f. 1.4.2014 only and hence it cannot have retrospective effect, since it affects substantive rights of the assessees. Accor .....

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red in the case of CIT Vs. Bank of Baroda (262 ITR 334). Accordingly, we do not find any reason to interfere with the decision of Ld CIT(A) on this issue, since he has also followed the decision of Hon ble Supreme Court rendered in the case of UCO Bank (supra) in deciding this issue in favour of the assessee. 19. The next issue relates to the deduction claimed u/s 80LA of the Act. The AO disallowed this claim for the reason that the assessee did not furnish the audit report prescribed u/s 80LA o .....

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eport before finalisation of assessment order, we are of the view that the Ld CIT(A) was justified in directing the AO to allow the claim. 20. The next issue relates to the deduction claimed u/s 36(1)(viii) of the Act. This issue has been restored back to the file of the AO in the earlier paragraphs while considering the appeal filed by the assessee. 21. The last issue relates to the deduction claimed u/s 36(1)(viia) of the Act. The AO allowed the deduction under this section to the extent of th .....

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