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2016 (5) TMI 453 - ITAT KOLKATA

2016 (5) TMI 453 - ITAT KOLKATA - TMI - Taxability of dividend income received from Bank of Barhad , Malaysia - Held that:- , it could be safely be concluded that the new treaty is effective only from 1.4.2004 and hence not applicable for Asst Year 2004-05. Accordingly, for Asst Year 2004-05, the taxability of foreign dividend income would be governed only by the old treaty entered into on 25.10.1976. - Dividend received from foreign company in Malaysia by the assessee is not liable to be taxed .....

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No.121/CIT(A)-VI/06-07/C-6 dated 13-05-2008 for Asst Year 2004-05 ; Appeal No. 300/CIT(A)-VI/07-08/Cir-6 dated 30-11-2009 for Asst Year 2005- 06 ; Appeal No. 625/CIT(A)-VI/08-09/Cir-6/Kol dated 29-12-2009 for Asst Year 2006-07 ; and Appeal No. 853/CIT(A)/VI/2009-10/Cir-6/Kol dated 19-11- 2010 for Asst Year 2007-08 ; Against the respective order of assessments framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. As identical issues are involved in these years ex .....

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brief facts of this issue is that the assessee claimed deduction towards bad debts written off u/s 36(1)(vii) of the Act. The Learned AO held that the assessee being a bank is entitled for deduction towards provision for bad and doubtful advances in terms of section 36(1)(viia) of the Act and granting deduction u/s 36(1)(vii) of the Act would be overlapping and would result in double deduction. This action of the Learned AO was upheld by the Learned CITA. Aggrieved, the assessee is in appeal bef .....

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) Bad Debts Written Off (relating to rural branches) ₹ 21,25,38,302/- 3B) Bad Debts Written Off (other than rural advances) ₹ 132,66,41,596/- Asst Year 2004-05 1) Provision created in the books of accounts ₹ 335,04,07,864/- 2) Deduction allowed u/s 36(1)(viia) by Learned CIT(A) ₹ 192,27,57,403/- 3) Bad Debts Written Off (Apart from provision created for the year) 3A) Bad Debts Written Off (relating to rural branches) ₹ 46,26,28,000/- 3B) Bad Debts Written Off (other .....

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books of accounts as mandated by RBI regulations through reversal from provision account. This amounts to actual write off in its books of accouns. We find that this issue is already covered in favour of the assessee in assessee s own case by the co-ordinate bench decision of this tribunal for the Asst Years 1998-99, 1999-2000, 2001-02 & 2002-03 and also covered by the decision of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd vs CIT reported in 343 ITR 270 (SC). The Lear .....

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p; 3 in ITA No. 1329/Kol/2008 for Asst Year 2003-04 ; ground nos. 2 to 6 in ITA No. 1102/Kol/2008 for Asst Year 2004-05 and ground no. 1 in ITA No. 2286/Kol/2010 for Asst Year 2007-08 are allowed for statistical purposes. 5. DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS CLAIMED U/S 36(1)(viia) OF THE ACT IN EXCESS OF PROVISIONS CREATED IN THE BOOKS GROUND 1 - ASST YEAR 2005-06 GROUND 1 - ASST YEAR 2006-07 GROUND 2 of Assessee Appeal - ASST YEAR 2007-08 This issue pertains to claim of dedu .....

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bad and doubtful debts must be created in respect of advances given in its books of accounts. Thus, on creation of such provision, the assessee is automatically entitled to such deduction i.e aggregate of 7.5 % of total income and 10% of aggregate average advances made by the rural branches. According to Learned AR, thus, if a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entitled to a deduction which should not be restricted to the prov .....

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orders of the lower authorities. Aggrieved, the assessee is in appeal before us for the various assessment years on various grounds as listed hereinabove. 5.1. We have heard the rival submissions. We hold that there cannot be any question of considering claim for any deduction u/s 36(1)(viia) of the Act if there is no provision for bad and doubtful debts made by the assessee bank because the clause (viia) starts with the phrase In respect of any provision for bad and doubtful debts made by - . .....

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l of the above shows that the deduction allowable under the above provisions is in respect of the provision made Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to clause (vii) of section 36(1) of the Act, which reads as under: "Provided that in the case of an assessee to which clause (viia) applies, the .....

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ssee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year In the present case, the assessee has not made any provision in the books of account for the assessmen .....

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ot capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this court The appeal is, accordingly, dismissed No costs. Respectfully following the decision cited supra, the ground no.1 in ITA No. 07/Kol/2010 for Asst Year 2005-06 ; ground no.1 in ITA No. 415/Kol/2010 for Asst Year 2006-07 and ground no. 2 in ITA No. 2286/Kol/2010 for Asst Year 2007-08 are dismissed. 6. DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS .....

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is not willing to press this ground. Hence the ground no. 5 raised by the assessee in ITA No. 1329/Kol/2008 is dismissed as not pressed. 8. DISALLOWANCE U/S 14A OF THE ACT Ground No.6 for ASST. YEAR 2003-04 Ground Nos. 7 & 8 FOR ASST. YEAR 2004-05 Ground No. 2 for ASST. YEAR 2005-06 Additional Grounds 1 to 3 for ASST. YEAR 2007-08 The brief facts of this issue is that the assessee had derived dividend income from shares held as stock in trade and interest income out of tax free bonds. The as .....

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de disallowance u/s 14A of the Act which was also confirmed by the Learned CITA. Aggrieved, the assessee is in appeal before us for the various assessment years on various grounds as listed hereinabove. 8.1. We have heard the rival submissions. The Learned AR argued that the Hon ble Apex Court in assessee s own case reported in (1999) 240 ITR 355 (SC) had held that the assessee has been holding the shares held as stock in trade and has been valuing the same at cost or market value which is lower .....

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this, the Learned DR argued that the disallowance u/s 14A of the Act would be applicable to the assessee as the said section does not bifurcate between an assessee holding the shares as investments or as stock in trade. We are in complete argument with the Learned DR in this regard. We find that the dividend income whether earned from shares held as investments or as stock in trade, still retains the character of exempt income and accordingly the provisions of section 14A would have to be invok .....

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prior to Asst Year 2008-09. However, is not in dispute that the assessee had derived taxable income as well as tax free income and incurred expenditure for deriving both the incomes and hence disallowance is definitely warranted in terms of section 14A which is brought in the statute book with retrospective effect from 1.4.1962. The disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income. The Hon ble Jurisdictional .....

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ecision of the Hon ble Calcutta High Court (supra), we direct the Learned AO to disallow 1% of exempt income under this issue and accordingly, the grounds raised by the assessee are set aside to the file of Learned AO to make addition as directed above. Accordingly, the grounds raised by the assessee in this regard are allowed for statistical purposes. 9. EXCLUSION OF PROFIT ON SALE OF INVESTMENT AND INCLUSION OF PROFIT / LOSS AS PER INVESTMENT TRADING ACCOUNT - ₹ 344,84,22,513/- GROUNDS 7 .....

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o argued that the investments at the end of the year are valued at the lower of cost or market price consistently over several decades and this method of valuation and the status of the assessee holding investments as stock in trade had been approved by the Hon ble Apex Court in assessee s own case reported in 240 ITR 355 (SC) and any profit / loss arising out of the said valuation at the end of the year has been considered in the books of accounts. It was argued that however, for the purpose of .....

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s and no addition has been made on this account by the Learned AO. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 9.1. We have heard the rival submissions. We find that the Learned AO had accepted to the stand of the assessee from Asst Year 2004-05 onwards and had not made any addition with regard to the impugned issue. We find that the present issue has been considered by the Hon ble Apex Court in assessee s own case reported in 240 ITR 355 (SC). T .....

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excluded the same from the preparation of its final accounts. He held that unless a bank itself accepted the position by incorporating such loss / profit in the final accounts, it would have no right to put across such hypothetical loss for the purpose of income tax assessment. On appeal, however, the Tribunal set aside the order of the Commissioner and accepted that of the IAC. On the revenue s appeal, the High Court, rejecting the Tribunal s order, affirmed the order of the Commissioner. Held .....

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adopted by the assessee, a true picture 0f the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance sheet required to be maintained in the statutory form may not be decisive or conclusive. In such cases, it is open to the ITO as well as the assessee to point out the true and proper income while submitting the income-tax return. For reasons, the Central Government, in exercise of the powers conferred by section 53 of the .....

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he various decisions of the Supreme Court, it can be held that (1) for valuing the closing stock, it is open to the assessee to value it at cost or market value, whichever is lower; (2) in the balance sheet, if the securities and shares are valued at cost but from that no firm conclusion can he drawn, a taxpayer is free to employ for the purpose of his trade his own method of keeping accounts and, jar that purpose, to value stock-in-trade either at cost or market price; (3) a method of accountin .....

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f the situation; (6) under section 145 of the Act, in a case where accounts are correct and complete hut the method employed is such that in the opinion of the ITO the income cannot be properly deduced therefrom, the computation shall be made in such manlier and on such basis as the ITO may determine. The assessee-bank was valuing the stock-in-trade at cost for the purpose of statutory balance sheet and for the income-tax return, valuation was at cost or market value, whichever was lower. That p .....

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e statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods jar valuing its stock-in-trade (investments) because the bank was required to prepare balance sheet in the prescribed form and it had no option to change it. For the purpose of income-tax as stated earlier, what is to be taxed is the real income which is to be deduced on the has is of the accounting system regularly maintained by the assessee and that was done by t .....

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,000/- from Bank of Barhad , Malaysia and claimed exemption for the same. The Learned AO disallowed the same on the ground that the said dividend is received from foreign company and exemption u/s 10 (34) read with section 1150 of the Act is applicable only for dividend received from domestic companies. During the first appellate proceedings, the assessee argued that it is enjoying benefit of double taxation relief as per DTAA entered into between India and Malaysia and also pleaded that the sai .....

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red in Malaysia was vested in the hands of Malaysia and accordingly the same is not taxable in India. He fairly stated that as per the new treaty between India and Malaysia, dividend is taxable in both the states and also subject to claim of tax credit in terms of section 91 of the Act. He further argued that the new treaty between India and Malaysia was notified vide Notification No. GSR 667(E) dated 12.10.2004 and accordingly the same is not applicable for Asst Year 2004-05. In response to thi .....

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hereunder:- Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Malaysia Whereas the annexed Agreement between the Government of the Republic of India and the Government of Malaysia for the avoidance of double taxation and the prevention of fiscal evasion with respect to Taxes on income has come into force on the 14th August, 2003, on the notification by both the Contracting States to each other, under Article 28 of the said Agreement, of the completion of the proce .....

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the completion of the procedures required by the respective laws for the entry into force of this Agreement. 2. The Agreement shall enter into force thirty days after the receipt of the latter of the notifications referred to in paragraph 1 of this Article. 3. The provisions of this Agreement shall have effect: (a) in Malaysia : (i) in respect of Malaysian tax, other than petroleum income tax, to tax chargeable for any year of assessment beginning on or after the first day of January in the cal .....

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e Government of Malaysia and the Government of India for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on income signed at New Delhi , India on the 25th day of October, 1976 shall cease to have effect when the provisions of this Agreement become effective in accordance with the provisions of paragraph 3. From the above, it could be safely be concluded that the new treaty is effective only from 1.4.2004 and hence not applicable for Asst Year 2004-05. Acco .....

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ee in India by virtue of provisions of DTAA between India and Malaysia. Respectfully following the said judicial precedent and in view of the fact that the new treaty is not applicable for Asst year 2004-05, we hold that the dividend received from foreign company in Malaysia by the assessee is not liable to be taxed in India. Accordingly, the ground no. 9 raised by the assessee for Asst Year 2004-05 is allowed. 11. DISALLOWANCE OF LOSS ON AMORTISATION OF INVESTMENT - ₹ 107,78,30,185/- GROU .....

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ee in ITA No. 2286/Kol/2010 is dismissed as not pressed. 13. DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT U/S 43B OF THE ACT - ₹ 30,75,22,434/- GROUND NO. 5 OF ASST YEAR 2007-08 The brief facts of this issue is that the assessee made provision for leave encashment in its books of accounts and claimed the same as deduction. The Learned AO invoked the provisions of section 43B(f) of the Act and disallowed the same on the ground that the same is not paid by the assessee. This action of the .....

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(Civil) CC 12060 / 2008 dated 8.9.2008 had held as under:- The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders. Later the Hon ble Supreme Court in Special Leave to Appeal (Civil) No(s). CC 22889 / 2008 dated 8.5.2009 had held as under:- The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condo .....

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tute book but at the same time it would be entitled to make a claim in its returns. Hence from the aforesaid Supreme Court judgement, it could be inferred that the Hon ble Supreme Court had not stayed the judgement of the Calcutta High Court during Leave proceedings. Hence, we deem it fit and appropriate , in the interest of justice and fair play, to set aside this issue to the file of the Learned AO to pass orders based on the outcome of the main appeal on merits by the Hon ble Supreme Court as .....

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on to its operations in Hongkong. The Learned AO disallowed the claim on the contention that the said relief is available only for taxes paid under normal provisions of the Act and not when taxes are paid u/s 115JB of the Act. This action was not endorsed by the Learned CITA who directed the Learned AO to grant relief for the same. Aggrieved , the revenue is in appeal before us. 14.1. We have heard the rival submissions. We find that the provisions of section 91 of the Act did not distinguish be .....

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n Income tax payable. We are in agreement with the argument of the Learned AR in this regard and also on the reliance placed on the co-ordinate bench decision of Mumbai Tribunal in the case of Hindustan Construction Co Ltd vs CIT reported in 25 SOT 359 (Mum ITAT) in favour of the assessee, wherein it was held :- 6.4 In the light of the above discussion, we consider the facts of the case under consideration. There is no dispute that the assessee is entitled to relief under section 91 of the Act. .....

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s of income from sections 2!! to 430, the income i.e., 'x' + 'y' is less than the income 'z': as per calculation under section 115JB then income 'z' is to be taken. In the case under consideration 'x' + 'y' is less than 7.5 per cent so income according to section 1151B is taken which is more than income 'x ' + 'y'. On consideration of above guidelines laid down by the Apex Court in the above decisions and the ratio laid down by the .....

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nue, therefore, the CIT is not correct in invoking section 263. The order of the CIT is, thus, quashed. We also find that this issue has been accepted by the Learned AO in the assessment order framed u/s 143(3) of the Act for the Asst Year 2009-10 which is part of the records produced before us. Respectfully following the judicial precedent relied upon hereinabove, we find no infirmity in the order of the Learned CITA in this regard. Accordingly, the ground no. 3 raised by the revenue in ITA No. .....

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7.11.2015 for Asst Year 2002- 03, wherein it was held that the provisions of section 115JB of the Act are not applicable to the assessee bank and the amendment brought in section 115JB of the Act read with Explanation 3 thereon by the Finance Act 2012 is applicable only with effect from Asst Year 2013-14 onwards in line with the Notes to Clauses of Finance Act 2012. Accordingly, the additional grounds 1 to 4 raised by the assessee for Asst Years 2003-04 to 2006-07 and Ground No. 6 raised by the .....

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