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2015 (8) TMI 1269 - ITAT MUMBAI

2015 (8) TMI 1269 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- 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.

Disallowance u/s 36(1)(viii) - Held 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 ter .....

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ovt. company and Public company are entitled for above deduction. Any financial corporation which is engaged in the activities specified 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 .....

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ed, 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 relation to income claimed exemption, being dividend, from companies u/s 10(35), dividend from mutual funds u/s 10(34) and interest on tax free bonds u/s 10(15) of the Income Tax Act, 196 .....

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ot controverted by the ld. CIT-DR, Shri N.P. Singh. 2.2. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal for ready reference:- 4. Ground No. 3 is regarding disallowance u/s 14A. The assessee has earned dividend income of ₹ 17.83 crores which is exempt u/s 10(33). The assessee has also earned interest on tax free bond of ₹ 18.39 crores .....

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on in the case of Godrej & Boyce Manufacturing Co. Ltd. (328 ITR 81). 4.2 Before us, the Ld. AR of the assessee has submitted that all the securities from which tax free income has been earned constitute stock in trade and, therefore, earning of income there from is only incidental to which provisions of section 14A cannot be applied. He has relied upon the decsion of Hon ble Karnataka High Court in the case of CCI Ltd. Vs. Commissioner of Income Tax (206 Taxman 563) as well as the decision .....

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(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, th .....

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compute the disallowance at .5% of the average investment earning tax free income. It is pertinent to note that .5% of the average investment is clearly given under Rule 8D which is not applicable for the year under consideration. Further the securities are maintained by the assessee as stock in trade and the income arising from the sale and purchase of securities is taxable as business income of the assessee, therefore, the expenditure if any incurred on account of administrative expenses for .....

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In the case in hand, the CIT(A) considered the facts and pointed out that the assessee is maintaining the treasury department which looks after the day to day investment portfolio of the bank including tax free investments. Having regard to the said factual proposition, the administrative expenses relatable to the income not forming part of the total income can be attributable to the expenditure of special treasury department maintained by the assessee; but it seems the assessee has not filed th .....

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ce to 1%. Accordingly, we do not find any reason to interfere with the order of the ld CIT(A) on this issue of disallowance of administrative expenditure u/s 14A. Accordingly, the ground raised by the revenue as well as the assessee in the respective appeal and cross objection are liable to 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 avail .....

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d. 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 disallowance of ₹ 1,55,4 .....

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de by the assessee have been treated as capital in nature and hence cannot be allowed, has been decided by the Special Bench, as conceded by the AR. Respectfully following the decision rendered by the Hon ble Special Bench, we sustain the disallowance of ₹ 1,55,43,817, as made by the revenue authorities. The ground of appeal is dismissed. 3.3. We note that while coming to a particular conclusion, the Tribunal followed the decision of the Special Bench in the case of JCIT vs Mukund Ltd., 10 .....

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f 2013) and the Tribunal in the case of Union Bank of India (ITA No.4702 to 4706/Mum/2010). This factual matrix was consented to be correct by the ld. CIT-DR. 4.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the order of the Tribunal for ready reference:- 6. Ground No. 3 (in ITA Nos. 4704, 4705 &4706/M/2010- A.yrs 2004-05 to 2006-07) is with respect to deduction u/s. 36(1)( .....

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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 unde .....

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orporation was defined in an inclusive manner so as to include a Government Company and a Public Company. By very nature of this definition being an inclusive definition and not an exhaustive definition, an entity incorporated under a statute carrying on the business of financing would come under the definition of financial corporation . It shall not be presumed that only Govt. company and Public company are entitled for above deduction. Any financial corporation which is engaged in the activiti .....

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blic company or a Govt. company by overlooking the provision that it is not only these two types of companies that are eligible for deduction. Further this position has been clarified by the amendment in the Finance Act 2007 wherein the section has been restructured in an exhaustive manner to categories various entities that would come within the definition of financial corporation . Since the definition is only clarificatory in nature it is always presumed that the said entities were covered in .....

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oses of this Act, Government Company menas any company in which not less than fifty-one per cent of the paid up share capital is held by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a subsidiary of a Government company as thus defined The appellant is a financial corporation within the meaning of section 36(1)(viii) since it is a Government Company . The Central Governmetn holds more .....

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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 .....

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so been restructured to provide for different categories of entities (which now also includes cooperative banks) and their respective activities for eligibility of the deduction under the said clause. For claiming deduction under the said clause, (i) a financial corporation specified in Sec. 4A of the Companies Act or a financial corporation which is a public section company or a banking company or a co-operative bank (other than a primary agricultural credit society or a primary co-operative ag .....

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tion. 11. Since the definition is only clarificatory in nature, it can be presumed that the entity such as the assessee were covered in the definition from the inception of the section. 12. Even otherwise the assessee is a Govt. company since the Central Govt. holds more than 51% of the share capital of the bank and as defined in Sec. 617 of the Companies Act the assessee is a Govt. company. Hence the deduction u/s. 36(1)(viii) has to be allowed to the assessee as it is engaged in the business o .....

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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 f .....

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he 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 consented to be correct by the ld. DR. 6.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order dated 09/04/2014 for perusal and ready reference:- 6. Ground No. 5 is regarding applicability of .....

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2) (iii) Kerala State Electricity Board (329 ITR 91) (HC) (iv) Union Bank of India dated 30.06.2011 (ITA No. 4702/mum/2010) (v) ICICI Lombard General Insurance Vs. Department of Income Tax (ITA 4286/Mum/2009). 6.2 On the other hand, the Ld. DR has relied upon the orders of authorities below. 6.3 Having considered the rival submissions as well as relevant material on record, we note that this issue has been considered by this Tribunal in the series of decisions including the decision relied upon .....

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ant material on record. There is no quarrel on the point that the assessee, being an Insurance Company is not required to prepare its accounts as per Part II & III of Schedule VI of the Companies Act 1956. Sub. Section (2) of sec 211 are required every P&L accounts of the Companies shall be prepared as per the requirement of Part II of Schedule VI. However, the proviso to sub. Sec (2) of sec. 211 of the Companies Act creates an exemption of applicability of sub. Sec. (2) inter-alia in re .....

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ny 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, w .....

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e is required to show profit & loss account in accordance with schedule VI of companies act. As the banks are required to prepare balance sheet and profit & loss account in accordance with the Banking Regulation Act, provision of 115JB cannot be applied to the banks. In the case of Maharashtra State Electricity Board vs. )CIT (82 lTD 422) it was held that provisions of book profit cannot be applied to Electricity Companies. Banking Companies and companies engaged in generation and supply .....

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h companies. This would mean that prior to AY 2013-14, provisions of sec 115JB will not apply to companies to which proviso to sec 211(2) of the companies Act, 1956 applies. The Assessee being a company to which proviso to sec 211(2) of the Companies Act 1956 applies, will not be liable to be taxed under sec 115JB. 14. The Mumbai Tribunal in the case of Krung Thai Bank Vs. JCIT (133 TTJ 435), to which one of us is a party has held that provisions of sec 115JB cannot be applied to the banking com .....

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ccounts if followed for the preparation of Companies Act account will not disclose true and fair view and will not be in accordance with part II and III of Schedule 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 .....

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t 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 the Hon ble Supreme Court and the decision of the Tribunal for AY 88-89, we hold that provisions of sec. 115JB are not applicable on the .....

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assessee. Accordingly, this issue is decided in favour of the assessee and against the revenue . 6.4 Though , section 115 JB ha s been amended to b ring all the Companies in its ambit vide Finance Act 2012, w.e.f 1.4.2013, however, the said amendment is not applicable in the assessment year under consideration. 6.5 Following the decision of co-ordinate bench of this Tribunal we decide this issue in favour of the assessee. 7. We find that the Tribunal has already taken a view on this issue, there .....

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the ld. counsel for the assessee, defended the conclusion arrived at in the impugned order by contending that Tribunal in ITA No.1498/Mum/2011 (A.Y. 2001-02) order dated 09/04/2014 and ITA No.3534/Mum/2011 Order dated 15/06/2012, decided in favour of the assessee. This factual matrix was not controverted by the ld. DR. 8.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the afores .....

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n 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 p .....

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d Bench of this Tribunal in the case of State Bank of Hyderabad Vs. DCIT in ITA No. 578 and 579/HYD/2010. 2.3 On the other hand, the Ld. DR has submitted that the restriction provided under the proviso to section 36(1)(vii) is applicable in respect of entire bad debts written off by the assessee irrespective of rural branch or non rural branch. In support of his contention he has referred Explanation 2 inserted by the Finance Act 2013 and submitted that it has been clarified by the Explanation t .....

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elied upon the orders of authorities below. 2.4 In rebuttal the Ld. AR of the assessee has submitted that Explanation 2 is applicable only w.e.f 01.04.2014 and, therefore, it is not retrospective and would not apply in the assessment year under consideration. Even otherwise, if the provisions for bad and doubtful debts under clause (viia) is taken as one account relating to all types of advances then there would be no restriction in the case of the assessee. He has referred the details of provis .....

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n inserted to avoid the double claim in respect of the same amount and the amount of bad debts which exceeds the credit balance in the provisions for bad and doubtful debt account made under clause (viia) shall be allowable u/s 36(1)(vii). The Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (supra) has 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. A .....

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ven 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 t .....

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on u/s 36(1)(vii) cannot be negated by reading into it the limitations of s. 36(1)(viia) as it would frustrate the object of granting such deductions. The Revenue's argument that this would lead to double deduction is not correct in view of the Proviso to s. 36(1)(vii) which provides that in respect of rural advances, the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allow .....

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t of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). It follows that deduction u/s 36(1)(viia) is to be allowed only on the amount of provision made for bad and doubtful debts subject to the maximum on the basis of rural advances/ income prescribed under that section. The allowance u/s 36(1)(viia) cannot be in excess of provision for bad debts actually made in the accounts. 11. In view of the very clear princ .....

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holic 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 Hyd .....

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if it is irrecoverable and is actually written off in the accounts of the assessee. the AO observed that only prudential write off and not actual write off as irrecoverable cannot be allowed. 31. Aggrieved, the assessee approached the CIT(A), who, relying on the decision of assessee s own case in assessment year 2000-01 by the CIT(A) and also by following the decision of Hon'ble Supreme Court in the case of Vijaya Bank v/s CIT, reported in 323 ITR 166, wherein the Hon'ble Apex Court hel .....

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d of the year, the figure in the loans and advances or the debtors on the assets side of the balance-sheet is shown as net of the provision for impugned bad debt , the assessee will be entitled to the benefit of deduction under section 36(1)(vii), as there is an actual write off by the assessee in his books. Disallowance cannot be made on an apprehension that if the assessee failed to close each and every individual account of its debtor, it may result in the assessee claiming deduction twice ov .....

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ble on record, assertion made by the ld. respective counsel and factual finding/legal position discussed in the order of the Tribunal, if kept in juxtaposition and analyzed, we note that the Tribunal on the issue under hand, discussed the issue and following various decisions decided in favour of the assessee. We note that after 01/04/1989, it is not necessary for the assessee to establish that debt, in fact, has become irrecoverable, it is enough, if bad debt is written off as irrecoverable in .....

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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 overlook .....

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This factual matrix was consented to be correct by the ld. DR, though, he defended the conclusion drawn in the assessment order. 9.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 27/03/2008 for ready reference:- 2.8. Ground no. 5 is on the issue of disallowance of ₹ 37,09,35,386/- being valuation loss in respect of permanent invest .....

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ion drawn by the ld. Commissioner of Income Tax (Appeals). 10. The last ground raised by the Revenue pertains to nature of transaction of lease rentals that of finance transaction between the bank and customers and the depreciation of ₹ 2,83,10,336/-. The crux of argument on behalf of the ld. DR is that while coming to this conclusion, the ld. Commissioner of Income Tax (Appeals) ignored the fact and thus the depreciation is not allowable. On the other hand, the ld. counsel for the assesse .....

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