TMI Blog2015 (8) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said section are entitled to claim deduction specified in the said section. Decided in favour of the assessee. Valuation loss in respect of permanent investments allowed in favour of assessee Depreciation claim on the lease asset - Held that:- There is uncontroverted finding that for A.Y. 2002-03 and 2003-04, this issue was decided in favour of the assessee and the same has been accepted by the Department. Identically, for A.Y. 2004-05 and 2005-06, there was no change in facts, therefore, it was decided in favour of the assessee. - ITA NO.3422/Mum/2013, ITA NO.3437/Mum/2013 - - - Dated:- 28-8-2015 - Shri Joginder Singh, Judicial Member, and Shri Ashwani Taneja, Accountant Member Appellant by Shri N.P.Singh CIT-DR Respondent by Shri C. Naresh ORDER Per Joginder Singh (Judicial Member) The assessee as well as Revenue are aggrieved, therefore, preferred cross appeals, for Assessment year 2006-07, by the impugned order dated 18/02/2013 of the ld. First Appellate Authority, Mumbai. 2. First, we shall take up appeal of the assessee, wherein, first ground raised pertains to disallowing ₹ 19,16,63,276/-, being expenditure incurred, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire investment in tax free securities has come out of own fund, however, the AO was directed to disallow 0.5% of average investment yielding tax free income which is provided under Rule 8D. Since Rule 8D is not applicable for the year under consideration, therefore, the formula adopted by the CIT(A) is not justified. Alternatively the Ld. AR has submitted that the disallowance for earning the divident income may be restricted to 1% of the tax free income. In support of his contention he has relied upon the decision of this Tribunal in the case of ACIT Vs.HDFC Bank Ltd. dated 29.6.2011 in ITA No. 4529/Mum/2005. 4.3 On the other hand, the Ld. DR has submitted that this issue has been decided by the Third Member decision in the case of D.H. Securities (P.) Ltd. Vs. DCIT (146 ITD 1) and, therefore, the provisions of section 14A are applicable even the securities are held by the assessee as stock in trade. 4.4 Having considered the rival submissions as well as relevant material on record. We note that the CIT(A) has accepted the fact that the assessee has purchased the securities in question by using its own fund and, therefore, there is no interest expenditure in respect of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be dismissed. 4.5 Accordingly, we are of the considered view that 1% of the exempt income will be a reasonable disallowance on account of administrative expenses u/s 14A. 2.3. On perusal of the material available on record and uncontroverted factual finding recorded by the Tribunal, we direct the ld. Assessing Officer to follow the aforesaid order of the Tribunal holding that 1% of the exempt income will be reasonable disallowance on account of administrative expenses u/s 14A of the Act. 3. Next ground raised by the assessee pertains to disallowing ₹ 2,31,62,114/-, being lease premium paid, in respect of various lease property treating the same as capital expenditure. 3.1. At the outset, the ld. CIT-DR claimed that this issue is covered against the assessee by the decision of the Tribunal for A.Y. 2003-04(ITA No.2781/Mum/2011) order dated 15/06/2012. This assertion of the ld. CIT-DR was consented to be correct by the ld. counsel for the assessee. 3.2 In view of the above, uncontroverted admission from both sides, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 15/06/2012 19. The next ground is against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under : In respect of any special reserves created and maintained by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India. Or by a public company formed and registered in India with the main object of carrying on the business of providing long term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty percent of the profits derived from such business is providing long term finance (computed under the head Profits and Gains of Business or Profession before making any deduction under this clause) carried to such reserve account. As per explanation (a) to Section 36(1)(viii) financial corporation is defined to include a public company and a Government Company From the above it is clear that under the existing provisions of the Act, the deduction is allowable to a financial corporation which is engaged in specific activities viz., providing long term fianc for industrial or agricultural development or development of infrastructure facility etc.,. The term financial corporation was defined in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 36(1)(viii) since it is a Government Company . The Central Governmetn holds more than 51% of the share capital of the bank and hence as defined in section 617 of the Companies Act the appellant is a government company. Further the appellant is a also a Public Company since Section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 states, For the purpose of the Income Tax Act, 1961 (43 of 1961), every corresponding bank shall be deemed to be an Indian company and a company in which public are substantially interested. The appellant is engaged in the business of providing long term finance for industrial or agricultural development or development of infrastructure in India and hence is eligible to claim the said deduction. The appellant had also created the necessary reserve in accordance with the said section and hence the deduction as claimed ought to have been allowed. 9. We find that as per Explanation (a) to Sec. 36(1)(viii) financial corporation is defined to include a public company and a Government company. We are of the opinion that any entity incorporated under a statute carrying on the business of financing would com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii). For the purpose of determining the deduction available to the assessee u/s. 36(1)(viii) the issue is remitted back to the file of the AO subject to the above direction the appeal of the assessee on this issue is allowed. 4.2. We note that even the Hon ble jurisdiction High Court in CIT vs State Bank Of India (ITA No.269 of 2013) order dated 04/02/2015 for A.Y. 2006-07 on identical issue deliberated upon decision in the case of Union Bank of India vs ACIT (2011) 16 taxman.com 304 ITAT (Mumbai) and further the case of Federal Bank Ltd. vs ACIT 198 taxman 491, decided in favour of the assessee, therefore, we direct the Assessing Officer to follow the directions contained in the order of the Tribunal/High Court. 5. The next ground pertain to initiating penalty proceedings u/s 271(1)(c) of the Act. The ld. counsel for the assessee, withdrew this ground, therefore, this ground is dismissed as withdrawn. 6. The next ground pertains to applicability of the provision of section 115JB of the Act. The ld. counsel for the assessee that this issue is decided in favour of the respondent for A.Y. 2001-02 (ITA No.1498/Mum/2011) order dated 09/04/2014. This factual matrix was conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or any other companies engaged in generation and supply of electricity for which a form of profit and loss account has been specified in or under the Act governing such class of company. Even if an Insurance Company does not disclose any matter in the Balance Sheet and P L account because the same is not required to be disclosed by the Insurance Act shall not be treated un-discloser of a true and fair view of the state of affairs of the company as the said condition has been relaxed by sub.sec 5 of sec 211 of the Companies Act . 9.1 It is to be noted that in order to align the provisions of the I T Act with the Companies Act , an amendment has been brought into the statute by the Finance Act 2012 whereby sec 115JB has been amended w.e.f 2013 and therefore, prior to 1.4.2013, the provisions of sec. 115JB cannot be applied in case of Insurance, banking, electricity, generation and distribution companies and other class of companies, which are not required to prepare their accounts and particularly Balance Sheet and P L account as per part II III of Schedule VI of the Companies Act. 9.2 The Hyderabad Bench of the Tribunal in the case of State Bank of Hyderabad (supra) has co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule V of the Companies Act. The ratio of the decisions of the Hon ble Supreme Court and the ratio of the decision of the Tribunal discussed above are in support of the contentions of the assessee. We further found that the issue of applicability of sec. 115J came before the Tribunal for AY 88-89. Taking into consideration the preparation of accounts under the Electricity Act and other contentions the assessee including the decisions of the Supreme Court in the case of B.C.Srinivasa Setty (supra), the Tribunal has held that the provisions of sec. 115J are not attracted on the facts of the present case. 29 As discussed above, the assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the claim of the assessee on the ground that the assessee has not complied with the provisions of section 36(1)(vii). According to AO bad debt is alloweable if it is irrecoverable and is actually written off in the books of accounts of the assessee. 2.1 On appeal, CIT(A) held that the assessee is eligible for claim of bad debts, however, the claim of bad debt u/s 36(1)(vii) is to be restricted to over and above the provisions for bad and doubtful debts as per section 36(1)(viia). Accordingly the CIT(A) directed the AO allow the bad debts of ₹ 217,43,16,387/- by reducing a sum of ₹ 102,87,21,160/- on account of provisions for bad and doubtful debts u/s 36(1)(viia). 2.2 The Ld. AR of the assessee has submitted that the restriction as per the proviso of section 36(1)(vii) is not applicable in respect of the bad debts written off other than the rural branch. He has thus submitted that the restriction under proviso has to be applied only with respect to bad debts pertaining to rural branch and not to the urban branch. In support of his contention he has relied upon the decision of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (343 ITR 270) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that the deduction u/s 36(1)(vii) cannot be negated by reading into the limitation of section 36(1)(viia) as it would frustrate the object of granting such deductions. An identical issue has been considered by the Hyderabad Benches of This Tribunal in the case of State Band of Hyderabad Vs. DCIT (Supra) in para 9 to 11 as under:- 9. The Apex Court in the case of TRF Ltd. (supra) has held that any debt written off as irrecoverable should be allowed as deduction. In the case of Vijaya Bank Ltd. (supra), the Apex court has held that if the provision for bad debts debited to the P L is netted against the current assets the provisions is an allowable deduction even if individual accounts of the debtors are not wtitten off. In the case of Catholic Syrian bank Ltd. (supra), which was not available with the lower authorities at the time of deciding the issue, the Apex Court has held as under (i) The clear legislative intent of s. 36(1)(vii) 36(1)(viia) together with the circulars issued by the CBDT demonstrate that the deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) is distinct and independent of s. 36(1)(vii) relating to allowance of bad debts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue by following the decision of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (supra). 2.7 As regards the Introduction of Explanation 2 vide Finance Act 2013, it has been made clear in the Finance Act itself that the said Explanation will be effective w.e.f 01.04.2014 and, therefore, in our view the same is not applicable for the year under consideration. Following the decision of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT as well as the decision of Hyderabad Benches of This Tribunal in the case of State Bank of Hyderabad Vs. DCIT (supra), we decide this issue in favour of the assessee and direct the AO to allow the claim in the light of the decision of Hon ble Supreme Court. ITA No.3534/Mum/2011 29. The first ground of appeal is against the allowance of whole of the bad debts claimed. 30. The facts are that the AO disallowed ₹ 549,60,45,703/- claimed as bad debts, on the ground that the assessee has not actually written off the amount in the books. According to the AO, the bad debt is allowable only if it is irrecoverable and is actually written off in the accounts of the assessee. the AO observed that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erable in the accounts of the assessee as was held in T.R.F. Ltd. vs CIT 323 ITR 397 (SC), CIT vs Auto Meters Ltd. 292 ITR 345 (Del.), CIT vs Morgan Securities and Credits Pvt. Ltd. 162 taxman 124 (Del.), Suresh Gaggal vs ITO (2009) 180 Taxman 90 (HP), Lawlys Enterprises ltd. vs CIT 314 ITR 297 (Pat.), DIT vs Owan International Bank (2009) 184 taxman 314 (Bom.). The fact of amendment to section 36(1)(vii) read with section 36(2) is only that now for claiming deduction u/s 36(1)(vii) mere writing off debt or part thereof as irrecoverable is a substantial compliance. Our view is further supported by the decision in CIT vs Kohli Brothers Color Lab Pvt. Ltd. (2010) 186 taxman 62 (All.) and CIT vs Smt. Nilopher I. Singh 309 ITR 233 (Del.). Therefore, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals), thus, on this issue, we decide in favour of the assessee. 9. The next ground pertains to allowing deduction of ₹ 394,23,59,023/- as business loss overlooking the fact that the said loss actually represents diminution in value of investment and is of capital nature. The ld. counsel for the assessee contended that this issue is in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
