TMI Blog2016 (6) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is directed to be accepted Disallowance u/s 40 (a)(ia) - non-furnishing of challans for the deposits of TDS - Held that:- The limited prayer of the ld. Counsel for the assessee before us was to remand the matter to the AO to enable the Assessee to produce the balance challans to enable the assessee to claim deduction on actual payment basis. We are of the view that the request made on behalf of the assessee is reasonable and accordingly we set aside this issue to the file of AO for fresh consideration. The assessee is at liberty to file necessary challans to show that actual payment were made during the previous year and to claim deduction on such sum. Applicability of MAT provisions - Held that:- The Hon'ble ITAT, Mumbai in Maharashtra State Electricity Board vs JCIT (2001 (8) TMI 310 - ITAT MUMBAI) took the view that provisions of Sec.115JB of the Act are not applicable to electricity generation companies governed by the provisions of Electricity Act. The Hon'ble Kerala High Court in Kerala State Electricity Board vs Dy. CIT (2010 (11) TMI 127 - Kerala High Court ), has also taken the same view. Addition on account of amortisation of premium paid for purchase of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A). We are of the view that the CIT(A) as first appellate authority is entitled to allow the deduction claimed and the restriction laid down in the decision in the case of Goetze (India) Ltd., is applicable only to making claim before AO and not before the appellate authorities under the Act.- Decided against revenue Provision of section 115JB of the Act are not applicable in the nationalised bank - Decided against revenue Deduction in respect of club membership fees - Held that:- CIT(A) was justified in deleting the addition made by the AO and allowing the expenses incurred by the Assessee as revenue expenditure as the membership is a corporate membership and not in the name of any individual and that the membership is to be allowed till the persons are in job and it will shift in the name of next executive on the superannuation of the earlier executive and was paid for renewal of membership for five years and has not been paid as initial capital membership fee.- Decided against revenue - ITA No. 1199/Kol/2012, ITA No. 1282/Kol/2012 - - - Dated:- 1-6-2016 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Assessee : Shri Barun Kumar Ghosh Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : 4. The amount of deduction claimed has been worked out as below: The aggregate average advances made by the rural branches ₹ 4511,62,74,000 10% of aggregate average advances made by the rural branches 451,16,27,400 7.5% of total income (computed before making any deduction under Chapter VI-A) 93,61,98,826 544,78,26,226 There is no dispute that the above calculation done by the Assessee is correct. It is also not disputed by the Assessee that the provision for bad and doubtful debts made by the Assessee in the books of accounts was only ₹ 268,76,31,809/-. The claim of the Assessee before the AO was that although the bank made a provision for bad and doubtful debts amounting to ₹ 268,76,31,809 in the accounts, the bank is eligible for deduction for an amount of ₹ 544,78,26,226 as per calculation made under section 36(1 )(viia). The entitlement for deduction cannot be restricted to the extent of only provision created in the books subject to the upper limits laid down i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961 without bringing on record any cogent reason for disregarding and rejecting the estimate including the manner of making estimate of disallowance amounting to ₹ 46,20,484 offered by the Appellant itself in the revised return of Income filed by the Appellant. 4. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeal) - VI, Kol has erred in upholding the disallowances under section 14A by invoking Rule 8D amounting to ₹ 4,20,90,323 in total disregard of order of his Learned predecessor in the Appeal No.1 014/CIT(A)-VI/2009-10/Cir-6/Kol dated 15.11.2010 relating Assessment Year 2007-08 and orders of Jurisdictional ITAT in the case of ITO Vs B.P.S. Securities Pvt. Ltd., Kolkata (ITA No.123/KoI/2010) and Civil Engineers Enterprises (P) Ltd. Vs DCIT, Kol (ITA No.859/Kol/2010) . 9. The Assessee earned income which does not form part of the total income under Chapter-III of the Act. In accordance with the provisions of Sec.14-A of the Act which provides that any expenditure incurred in earning income which does not form part of the total income under the Act, should be excluded in arriving at the total income, the Assessee was bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st cost amounting to ₹ 4498,87,95,000, a proportionate part of interest to the extent of ₹ 50,29,36,092 was disallowed under section 14A of the Act. 12. The AO computed disallowance under Rule 8D(2)(iii) of the Rules as follows: % of the average investments of ₹ 8418,06,46,657= ₹ 4,20,90,323/-. 13. Before CIT(A), with regard to disallowance under Rule 8D(2)(ii) of the Rules, the Assessee pointed out that no part of the borrowed funds were utilized in making investment in shares, bonds and unit of mutual funds which yield the tax free income. The Assessee pointed out that it's owned funds i.e. aggregate of capital and reserve and surplus as on 31.03.2008 amounted to ₹ 5,221.04 crores. The total investment in shares, units of mutual funds and tax free bonds as on 31st March 2008 was only ₹ 885.89 crores (i.e. ₹ 376.19 crores + ₹ 224.12 crores + ₹ 285.58 crores). Thus, the investment in tax free instruments was much less than the bank's owned fund as on 31.03.2008. The Assessee pointed out that this fact was very relevant and has not been considered by the AO. Since, the investment in tax free instruments did not exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) did not agree with the submissions made by the assessee and he confirmed the order of AO. The CIT(A) firstly held in paragraphs-26 27 of his order that from AY 2008-09 Rule 8D of the rules was applicable and since the Assessee was unable to substantiate its claim of disallowance u/s.14A as claimed by it, the computation of disallowance has to be made in accordance with Rule 8D of the rules. With regard to the contention of the Assessee that there can be no disallowance of interest under rule 8D(2)(ii) of the rules because the Assessee had sufficient own funds, the CIT(A) in paragraphs 28 to 30 of his order held that the Assessee has not maintained separate accounts to prove that no borrowed funds were used for making investments that yielded tax free income. He also held that the Assessee has not proved that interest free funds were used to make investments that yielded tax free income. The CIT(A) also held that when own funds and borrowed funds are available there can be no presumption that own funds were used to make investments that yielded tax free income. Thereafter he has referred to several judicial pronouncements and finally upheld the order of the AO. 17. Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by a bank are stock in trade of business of the assesee. He drew our attention to the decision of the Hon'ble ITAT, Kolkata Bench in the case of Gulshan Investment Co. Ltd wherein this Tribunal took a view that when the shares, units of mutual funds or bonds which yield tax free income are not shown as investment they should not be considered while applying the formula under Rule 8D(2)(ii) (iii) of the Rules. The following observations of the ITAT in this regard were brought to our notice :- 6. A plain look at the above rule shows that 8D(2)(ii) and (iii) can only be applied in the situations in which shares are held as investments, and that this rule will not have any application when the shares are held as stock in trade It is so for the elementary reason that the one of the variables on the basis of which disallowance under rules 8D(2)(ii) and (iii) is to be computed is the value of Investments, income from which does not or shall not form part of total income , and, when there are no such investments, the rule cannot have any application. When no amount can be computed in the light of the formula given in rule 8 D(ii) and (iii), no disallowance can be made unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance of only direct expenses. Revenue thus derives no advantage from invoking rule 8D in such cases; on the contrary, the scope of disallowance is only minimised in such a situation. 9. So far as the case before us is concerned, as will be clearly discernible from the observations of the learned CIT(A) extracted earlier in this order, learned CIT(A) has upheld disallowance under section 14A in respect of even indirect expenditure, but he has merely held that the provisions of rule 8D do not come into play in this case as the shares are not held as 'investments'. As learned counsel rightly contends the provisions of rule 8 D can never be applied in a case where exempt income yield assets are not held as investments, and that the related assets, i.e. shares, having been held as stock in trade all along, there is no occasion to invoke rule 8 D. There is no infirmity in this approach, nor do revenue authorities stand to lose anything by this approach canvassed by the assessee. Quite to the contrary of what learned Departmental Representative perceives to be advantageous to the Assessing Officer, in case the application of rule 8 D was to be upheld, there would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been laid down that the assessee has to make a claim (including a claim that no expenditure was incurred) with regard to expenditure incurred for earning income which is not chargeable to tax. Such a claim has to be examined by the AO and only if on an objective satisfaction arrived at by the AO that the claim made by the assessee is not correct, can the AO proceed to apply the computation mode as specified in Rule 8D(2) of the Rules. 22. In the present case, the assessee has taken a stand that a particular amount has to be disallowed as expenditure incurred in earning exempt dividend income. The AO did not agree with the claim of the Assessee and he estimated the disallowance on a different basis. The question is whether it is mandatory for the AO to apply Rule 8D of the Rules, the moment he rejects the basis of disallowance as made by the AO. We are of the view that even in a case where the AO rejects the claim of the assessee that no expenses were incurred to earn the exempt income, it is not mandatory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. If Rule 8D of the Rules is blin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availability of interest free funds have to be seen before making disallowance u/s.14A of the Act read with Rule 8D(2)(ii) of the rules. (i) CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 (Bom); (ii) CIT Vs. UTI Bank (2013) 32 Taxmann.com 370 and (iii) CIT Vs. Gujarat Power Corporation 352 ITR 583 (Guj.) laying down identical proposition. In the light of the aforesaid decisions, we are of the view that the disallowance of interest expenses under rule 8D(2)(ii) of the Rules of ₹ 50,29,36,092 cannot be sustained and the same is directed to be deleted. The conclusions to the contrary by the CIT(A) are not sustainable in view of the judicial pronouncements referred to above. 25. With regard to disallowance under rule 8D(2)(iii) of the Rules is concerned, we find that neither the AO nor the CIT(A) have disputed the correctness of the claim of disallowance as computed by the Assessee but have proceeded to compute the disallowance by applying Rule 8D(2)(iii) of the Rules without objectively examining the claim made by the Assessee. The AO without doing so, disregarded the claim of the assessee and in invoked Rule 8D of the IT Rules without recording the satisfaction as req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed in earlier years u/s 40(a)(ia) of the Act for non-deposit of TDS. In the return of income the assessee bank has claimed the above deductions on actual deposit of TDS. The AO called upon the Assessee to furnish an auditor's certificate as evidence for the deposit of the TDS. The same was not produced before the assessing officer by the Assesseet. Therefore, the Assessing Officer disallowed an amount of ₹ 3,17,32,734/- on account of non-furnishing of challans for the deposits of TDS by observing in his assessment order as follows:- Disallowance of claim on deposit of TDS The assessee bank has claimed deduction of ₹ 3,17,32,734/- which was disallowed in earlier years u/s 40(a)(ia) for non-deposit of TDS In the return of income the assessee bank has claimed the above deductions on actual deposit of TDS The assessee bank was requested to furnish an auditor's certificate as an evidence for the deposit of the TDS vide this office letter dated 28.12.2010. This issue was also discussed with Mr Pijush Dey, FCA, A.R., and Mr B.Sarkar, Sr Manager (Taxation) on 21.12.2010. However, the assessee bank has failed to furnish the certificate from the audito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble ITAT, Mumbai in Maharashtra State Electricity Board vs JCIT 82 ITD 422, Krung Thai Bank PCL vs Joint DIT, International Taxation (ITA No.3390/Mum/09), Union Bank of India Vs ACIT, LTU, Mumbai (ITA No.4702 to 4706/Mum/2010 dated 30.06.2011) and Hon'ble ITAT, Chennai in the case of Indian Bank Vs. Additional CIT, Chennai (ITA No 469/Md/2010 dated 03.08.2011). 7. Without prejudice to the Appellant's claim in Ground No.6 above, the Learned Commissioner of Income Tax (Appeal)-VI, Kolkata has erred in confirming the disallowance of ₹ 4,20,90,323 instead of ₹ 46,20,484 as offered by the Appellant itself under section 14A in computation of the 'Book Profit' under section 115JB. 32. Sec.115JB(1) of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the exclusions of various sectors from the operation of MAT and the credit system. The Act has, therefore, modified the scheme of MAT. The existing section 115JA has been made inoperative w.e.f. 1-4-2001. In its place, the Act inserts a new provision, 115JB of the Income-tax Act. 43.2 The new provisions provide that all companies having book profits under the Companies Act, prepared in accordance with Part II and Part III of Schedule VI to the Companies Act, shall be liable to pay a minimum alternate tax at a lower rate of 7.5%, as against the existing effective rate of 10.5%, of the book profits. These provisions will be applicable to all corporate entities without any exception. 43.3 The new provisions further provide that for purposes of MAT, the company shall follow same accounting policies and standards as are followed for preparing its statutory account. 43.4 The amended provision discontinues the system of allowing credit for MAT in future. However, the taxes paid under the existing provisions of section 115JA shall get the credit. 43.5 The export profits under sections 10A, 10B, 80HHC, 80HHE and 80HHF are kept out of the purview of this provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Schedule VI to the Companies Act .It is pointed out that , in terms of the provisions of Section 115JB(2),every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and II I of Schedule VI to the Companies Act . Unless the profit and loss is so prepared, the provisions of Section 115 JB cannot come into play at all. However, the assessee is a banking company and under proviso to Section 211 (2) of the Act , the assessee is exempted from preparing its books of accounts in terms of requirements of Schedule VI to the Companies Act , and the assessee is to prepare its books of accounts in terms of the provisions of Banking Regulation Act . It is thus contended that the provisions of Section 115 JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act . Since the provisions of Section 115 JB do not apply to the assessee company, the reasons recorded for reopening the assessment are clearly wrong and insufficient . We are urged to quash the reassessment proceedings on this short ground. 6. Learned Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity Act. The Hon'ble Kerala High Court in Kerala State Electricity Board vs Dy. CIT (2010) 329 ITR 91 (ker), has also taken the same view. In view of the above ground No.6 raised by the assessee is allowed. In view of the decisions in ground no.6 no adjudication is required on ground no.7 raised by the assessee. 36. In the result the appeal of the assessee is partly allowed. ITA No.1282/Kol/2012 (Revenues's appeal) 37. Ground Nos. 1 and 2 raised by the revenue read as follows :- 1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition of ₹ 108,45,17,830/- being amortization of premium paid for purchase of securities without appreciating the facts of the case. 2. That on the facts and circumstances of the case, Ld. CIT(A) erred in law and on facts by placing reliance on the provisions of Section 115JB of the 1. T.Act, 1961 for deleting the disallowance of ₹ 108,45,17,830/- made while computing taxable income under normal computational provisions. 38. The Assessing Officer in his assessment order dated 30.12.2010 disallowed an amount of ₹ 108,45,17,830/- on account of amortisation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium paid on purchase of investments is amortized and claimed as a deduction separately over the life of the investments in the profit and loss account and this practice is followed by all nationalized banks. It was pointed out that it can be seen from the details of the investment trading account filed by the Assessee that the premium in respect of purchase of investments under HTM category has not been included. The Assessee also pointed out that the Ld. Commissioner of Income-tax (Appeals)-VI, Kolkata has already dealt with this issue in the assessment years 2006-07 and 2007-08 vide appeal No. 649/CIT(A)-VI/08- 09/Cir-6 dated 09-11-2009 and appeal No. 1014/CIT(A)-VI/08- 09/Cir-6 dated 15-11- 2010. The Ld. Commissioner of Income-tax (Appeals)-VI, Kolkata in appeal No. 649/CIT(A)-VI/08-09/Cir-6 dated 09-11-2009 for the assessment year 2006-07 in para 4 has observed as under:- I have gone through the submissions of the appellant and also the assessment order of the A.O. As seen from the details of the investment trading account filed by the Bank, the premium in respect of purchase of investments under HTM category has not been included. In the assessments for the earlier ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year commencing on or before the 1 st day of April, 2012, has an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company. It states as follows:- Explanation 3. - for the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to 'which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 is applicable, has, for an assessment year commencing on or before the 1 st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part Il and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company. ; (1 of 1956) 8. The appellant is a public sector bank and is governed by the provisions of the Banking Regulation Act, 1949 and it has prepared its accounts and financial statements in accordance with Third Schedule of the Banking Regulation Act, 1949 as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the face value of such investments were spread over to the life of the investments and proportionate deduction was claimed by the assessee under the head Amortization of HTM . The further claim of the Assessee was that all the securities held by the Assessee were held as stock-in- trade by the Assessee. The face value of the securities held in HTM category is alone shown in the books as cost and the premium is not claimed as cost of the securities, as the premium is claimed by way of amortization of premium over the life of the security. The revenue can have grievance only where the cost price of the investment as recorded in the investment trading account includes premium paid at the time of acquisition and also the same premium is separately claimed in the profit and loss account again as a deduction. The plea of the Assessee that there is no such double claim for same cost has been found to correct by the CIT(A). The order of the AO is silent on this aspect. The Assessing Officer disallowed the claim of the assessee on the assumption that full purchase consideration of all the securities was included in the said investment trading account and amortization amount is charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raph 11 of his order held that the deduction had been claimed by the Assessee at 100% not u/s.80G of the Act but as other expenses in the profit and loss account and therefore the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) will not apply to the case of the Assessee. The CIT(A) found that the deduction claimed was otherwise allowable and to the extent it was allowable, the AO was directed to allow the claim for deduction. In the grounds of appeal, the revenue does not dispute the fact that the deduction claimed by the Assessee is allowable as found by the CIT(A). We are of the view that the CIT(A) as first appellate authority is entitled to allow the deduction claimed and the restriction laid down in the decision in the case of Goetze (India) Ltd., is applicable only to making claim before AO and not before the appellate authorities under the Act. In view of the above conclusion, we find no merit in Ground No.3 raised by the Revenue. 46. Ground No.4 raised by the revenue reads as follows :- 4. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in reducing the addition of ₹ 54,50,26,415/- made under clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uperannuation of the earlier executive and was paid for renewal of membership for five years and has not been paid as initial capital membership fee. Taking note of these aspects, the CIT(A) allowed the claim for deduction, holding that the expenditure was revenue expenditure. 51. Aggrieved by the order of the CIT(A) the revenue has raised Ground No.5 before the Tribunal. We have heard the rival submissions. The following judicial pronouncements support the claim of the Assessee that the expenditure in question is revenue in nature. 1. COMMISSIONER OF INCOME TAX vs. INFOSYS TECHNOLOGIES LTD. 349 ITR 610 (Karn); wherein it was held that the amount paid by assessee--company towards subscription for obtaining corporate membership in club is allowable as revenue expenditure 2. CIT VS. THE SANDUR MANGANESE IRON ORES LTD. ITA NO. 13 TO 24 /2002 DATED 21.3.2005; in which the Hon'ble Karnataka High Court agreed with the view expressed by the Hon'ble Gujarat High Court in the case of Gujarat State Corporation Ltd. Vs. CIT 209 ITR 649 (Guj.) that getting membership of sports club cannot be termed as capital expenditure but is allowable as revenue expenditure. 3. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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