TMI Blog2013 (4) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D have become applicable therefore, it is mandatory to compute disallowance under section 14A in accordance with computation provided under Rule 8D and there is no scope to make modifications as it is a deeming provision to make a fair estimate - Decided against assessee Allowablility of provision for leave encashment - Held that:- he provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability - Decided in favour of assessee Depreciation on UPS @ 60% allowed. Deprecation on fixed assets taken over from Bank of Tamilnadu Ltd - Held that:- In the assessment year 1996-97 Tribunal remitted the issue back to the Assessing Officer as provisions of section 2(1B) were not taken into consideration by Assessing Officer while deciding the issue. In the instant case also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The expenditure has been claimed on actual valuation. This ground of appeal of the Revenue is dismissed. Disallowance of the claim of debenture redemption reserve - Held that:- Assessee has taken over assets and liabilities of the Bharat Overseas Bank Ltd.. In the process of amalgamation, all the reserves and provisions created by the erstwhile Bharat Overseas Bank Ltd. were also taken over by the assessee bank. As pointed out by the AR, the reserve has been created after preparation of profits already charged to tax. The assessee bank steps into the shoes of the amalgamating company. It shall be deemed that reserve has been created out of profits charged to tax, taxing the same amount would result in double taxation which would be unfair. We agree with the findings of the Commissioner of Income Tax (Appeals) on the issue and dismiss this ground of appeal of the Revenue. Grant of double taxation relief - DTAA - Held that:- CIT(Appeals) hyper technically held that the only job of the Assessing Officer was to see whether there is a DTAA between India and Thailand. We are unable to understand the above conclusion made by the learned CIT(Appeals) that the job of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998-99 in the appeal of the assessee, wherein the matter has been remitted back to the Assessing Officer for deciding it afresh after taking into consideration the judgement of the Hon ble Supreme Court of India in the case of Catholic Syrian Bank Ltd. Vs. CIT reported as 343 ITR 270(SC). The relevant extract of the findings of the Tribunal is reproduced herein below:- The representatives of both the sides have stated that the present issue has been adjudicated by the Hon ble Supreme Court of India in the case of Catholic Syrian Bank Ltd. (supra). The Hon ble Apex Court while dealing with this issue has concluded as under:- To conclude, we hold that the provisions of sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). For the above reasons, I agree that the appeals filed by the assessees stand allowed and the appeals filed by the Revenue stand dismissed with no order as to costs. 22. In view of the above, we deem it appropriate to remand the issue back to the Assessing Officer to decide it afresh in accordance with the law laid down by the Hon ble Supreme Court of India in the case of Catholic Syrian Bank Ltd. (supra). Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. 4. The third ground of appeal of the assessee is regarding restriction of claim in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank], an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. It is clear from the above that it is not a standard allowance which is given, but, the allowance is subject to the actual provision made by the assessee, which in no case shall exceed 7.5% of the gross total income. Therefore, the argument of the assessee that whatever the provision it had actually made in its books, a provision of 7.5% of the gross total income had to be allowed, is not in accordance with law. Now considering the second aspect, whether provision for standard assets could be considered as provision for bad and doubtful debts, admittedly a provision on standard assets is not against any debts which had become doubtful. Standard assets are always considered recoverable, in the sense, bank has no doubt of recoverability. When the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here there was no enquiry made during the course of assessment proceedings. Therefore, the order which was silent on the claim made by the assessee, and allowing such claim, without any discussion, will definitely render it erroneous and prejudicial to the interests of Revenue. As held by Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), prejudicial to the interests of the Revenue is a term of wide import and not confined to loss of tax. An order without application of mind is definitely prejudicial to the interests of the revenue. We are in agreement with ld. CIT that the order of Assessing Officer was erroneous insofar as it was prejudicial to the interests of Revenue. No interference is required. 8. In the result, appeal filed by the assessee is dismissed. In view of the aforesaid findings, this ground of appeal of the assessee is dismissed. 5. The fourth ground of appeal of the assessee relates to disallowance under section 14A based on Rule 8D. The AR for the assessee submitted that the assessee has not incurred any expenditure on the income earned therefore, no expenditure can be estimated as having been incurred on the earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequence stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned CA. We find that the case of the assessee is covered by the order of the Tribunal in the case of Lakshmi Ring Travellers (supra). Accordingly, this ground of appeal of the assessee is dismissed. 6. The fifth ground of appeal relates to allowablility of provision for leave encashment. The issue has already been adjudicated by the Tribunal in ITA No.818/Mds/2010 relevant to the Assessing Officer 2007-08 in the case of the assessee, wherein the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the Supreme Court decision. The Hon ble High Court further held that section 43B(f) was liable to be struck down as arbitrary and inconsistent and de hors the decision of Hon ble Supreme Court of India in the case of Bharat Earth Movers Ltd. (supra). 22. In the present case, the assessee has created provisions for leave encashment of ₹ 27.68 crores. The learned AR has relied on the judgement of the Hon ble Calcutta High Court in the case of Exide Industries Ltd. (supra) wherein the Hon ble Court has struck down the provisions of sub-clause (f) of section 43B. The Hon ble Supreme Court of India in the case of Bharat Earth Movers Ltd. Vs. CIT reported as 245 ITR 428 answering to the question : whether, on the facts and in the circumstances of the case, the provision for meeting the liability for encashment of earned leave by the employee is admissible deduction? held as under:- A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under: (i) For an assessee maintainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is set aside. The question referred by the Tribunal to the High Court is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The Hon ble Madras High Court following the judgement of the Hon ble Supreme Court of India, dismissed the appeal of the Revenue in the case of CIT Vs. Panasonic Home Appliances reported as 323 ITR 344 wherein similar question was involved. In view of the ratio laid down in the above judgements, this ground of appeal of the assessee is allowed. In view of the aforesaid findings, we allow this ground of appeal of the assessee. 7. The last ground of appeal of the assessee relates to depreciation on UPS. The AR for the assessee submitted that UPS is a part of the computer and energy saving device and therefore, depreciation should be allowed @ 80%. On the other hand, the DR submitted that the UPS is neither power saving device nor part of a computer and the CIT(A) has rightly followed the decision of the Tribunal in the case of Nestle India Ltd. Vs. DCIT., reported as 111 TTJ 498. 8. We find that this issue has already been adjudicated by us in ITA No.818/Mds/2010 relevant to the assessment year 2007-08. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue. In the instant case also the Assessing Officer has failed to consider the issue in the light of the provisions of section 2(1B). The learned AR agreed with the submissions of DR and further stated that the Tribunal in ITA No.1566/Mds/2008 for the assessment year 2004-05 decided on 5.3.2013 has also remitted the issue to Assessing Officer for same reasons. In view of the statements of learned DR and AR of the assessee, we remit the issue back to the Assessing Officer for deciding it afresh on the similar directions as given by the Tribunal vide order dated 2.6.2008. This ground of appeal of the Revenue is allowed for statistical purposes. 12. The third ground of the Revenue is with regard to computation of deduction under section 36(1)(viia). This issue has already been decided in the appeal of the assessee in para 4 hereinabove. For the detailed reasons recorded in para 4 above, we allow this ground of appeal of the Revenue. 13. The fourth ground of appeal relates to disallowance under section 14A in respect of investments on which tax free income received. This issue has been adjudicated in the appeal of the assessee in para 5 hereinabove. For the reasons recorded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon'ble Madras High Court in the case of CIT vs Karur Vysya Bank Ltd in TCA No.2139 of 2008, order dated 13.7.2009. The DR also agreed with the same. 37. We find that the Hon'ble Madras High Court in the above quoted case has held as under: 2. In so far as the first question of law raised by the revenue is whether the Tribunal is right in holding that the diminution in the value of the securities held by the bank should be allowed as deduction disregarding the method prescribed in the Reserve Bank of India as per which permanent investments had to be valued only at cost and only current investments were to be valued at market price at the close of the accounting year . The very same issue came up for consideration before this Court in the decision reported in 273 ITR 510 @ 571, which was rendered by relying upon the decision of the Supreme Court reported in 1999 240 ITR 355. In that case, the Hon'ble Supreme Court categorically formulated the principles as under: 1. That for valuing the closing stock, it is open to the assessee to value it at the cost or market value whichever is lower; 2. In the balance-sheet, if the securities and shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accepted method of valuation of stock-in-trade. The learned AR further submitted that the issue in hand is squarely covered by the order of Mumbai Bench of the Tribunal in the case of Edelweiss Capital Ltd. Vs. ITO in ITA No.5324/Mum/2007 decided on 10th November, 2010 as well as the Special Bench decision of the Tribunal in the case of DCIT Vs. Bank of Bahrain Kuwait reported as 5 ITR (Trib) 301 (Mum) (SB). The Tribunal in the case of Edelweiss Capital Ltd. (supra) has held as under:- 7. We have considered the facts and the rival contentions. In the Schedule annexed to and forming part of the Balance Sheet and Profit Loss Account for the year under appeal (page 13 of the Paper Book), the assessee has made the following Note: - H. Equity Futures - Index I Stock (a) Initial Margin Equity Derivative Instruments , representing initial margin paid, and Margin Deposits , representing additional margin over and above initial margin, for entering into contracts for Equity Index I Stock Futures, which are released on final settlement / squaring-up of underlying contracts, are disclosed under Loans and Advances. (b) Equity Index / Stock Futures are marked-to-market on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is what the Supreme Court held in the case of Chainrup Sampatram vs. Commissioner of Income Tax, West Bengal (1953) 24 ITR 481 (SC), speaking through Hon'ble Justice Patanjali Sastri, the then Chief Justice of India (page 485 - 486 of the Report). At page 486 the Supreme Court further observed that loss due to a fall in price below cost is allowed even if such loss has not been actually realized . Quoting from the case of Whimster Co. vs. Commissioners of Inland Revenue (1926) 12 Tax Cases 813, the Supreme Court observed that the profits that are chargeable to tax are those realized in the year and that an exception is recognized where a trader purchased and still holds goods which are fallen in value in which case though no loss has been realized nor it has occurred, nevertheless at the close of the year he is permitted to treat these goods as of their market value. This decision of the Supreme Court governs the facts of the present case. It is to the assessee's strength that the Institute of Chartered Accountants of India in its guidelines have also approved of the rule of prudence which really means that while anticipated losses can be taken note of while valuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the revised Accounting Standard 15 became applicable in the current assessment year i.e. assessment year 2008-09. The expenditure has been determined on actual valuation. The CIT(A) held that the provision made for leave travel concession and medical benefit to staff have to be allowed as a deduction as it is neither prior period expenses nor contingent liability. The learned DR submitted that the liability is not debited to profit and loss account nor it is quantified by actuarial valuation. These are prior period expenses. In order to support his contentions, the DR relied on the judgement of the Hon ble Madras High Court in the case of CIT Vs. Southern Cable and Engineering works reported as 289 ITR 67 and in the case of Madras Fertilizers Ltd. Vs. CIT reported as 209 ITR 174(Mad). On the other hand, the A.R. submitted that the amounts were provided in Accounting Standard-15 which came into force in the current assessment year. The said amounts were provided based on the contractual agreement with the employees which is a legal and statutory liability which has accrued during the relevant assessment year. By no stretch of imagination, it can be termed as prior period expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentatives of both sides and perusing the orders of the authorities below, we find that the assessee has taken over assets and liabilities of the Bharat Overseas Bank Ltd. . In the process of amalgamation, all the reserves and provisions created by the erstwhile Bharat Overseas Bank Ltd. were also taken over by the assessee bank. As pointed out by the AR, the reserve has been created after preparation of profits already charged to tax. The assessee bank steps into the shoes of the amalgamating company. It shall be deemed that reserve has been created out of profits charged to tax, taxing the same amount would result in double taxation which would be unfair. We agree with the findings of the Commissioner of Income Tax (Appeals) on the issue and dismiss this ground of appeal of the Revenue. 21. The eleventh ground of appeal of the Revenue relates to grant of double taxation relief. This issue has been adjudicated by the Tribunal in the appeal of the Revenue in ITA No.1566/Mds/2008 for the assessment year 2004-05. The relevant extract of the order of the Tribunal on the issue is reproduced herein below:- 14. The third ground of appeal of the Revenue is with respect to the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and apply the same. In our opinion, the Assessing Officer has rightly investigated and applied the same and decided the issue. We therefore hold that the finding given by the learned CIT(Appeals) is not correct. Accordingly, we reverse the order passed by the learned CIT(Appeals) on this count and uphold the order of the Assessing Officer. The learned AR of the bank fairly conceded that the issue has been decided against the bank. Respectfully following the decision of the Tribunal in the aforesaid case, we set aside the order of the CIT(A) on this issue and allow this ground of appeal of the Revenue. In view of the above findings, we allow this ground of appeal of the Revenue. 22. The last ground of appeal of the Revenue relates to applicability of provisions of section 115JB. We find that this issue has also been adjudicated by the Tribunal in ITA No.2306/Mds/2008 in the appeal of the assessee for the assessment year 2005-06. The relevant extract of the findings of the Tribunal are reproduced herein below:- We have heard the submissions made by both the sides and have perused the orders of the authorities below. We have also examined the judgements/orders referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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