TMI Blog2016 (7) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... the co-ordinate benches, the order passed by Ld CIT(A), wherein he has directed the AO to examine this issue in the light of decision rendered by Hon’ble Supreme Court in the case of Catholic Syrian Bank (supra) is upheld. Disallowance u/s 14A - Held that:- Consistent with the view taken therein we direct the AO to restrict the disallowance to 1% of the exempt income in AY 2007-08, since the provisions of Rule 8D are not applicable to this year. In respect of AY 2008-09 the investments are held as stock in trade, interest free funds available with it are in far excess of the investments etc. The Ld D.R submitted that the claim of the assessee that it is holding all its investments as stock in trade is farfetched one, since the assessee is required to hold certain funds as pure investments. We notice that this aspect of the submissions require verification at the end of the AO. Accordingly, we set aside the orders passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh in the light of fresh explanations that may be furnished by the assessee by duly considering various case laws relied upon by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e they are being disposed of by this common order, for the sake of convenience. 2. The assessee is a public sector Bank and is engaged in the banking activities. 3. We shall take up the appeals filed by the revenue. The first common issue urged in both the appeals relates to the deduction allowed in respect of bad debts written off. The AO restricted the deduction in excess of the amount available in Provision for bad and doubtful Debts Account created u/s 36(1)(viia) of the Act. The Ld CIT(A), however, directed the AO to apply the principles laid down by Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd (343 ITR 270). 4. At the time of hearing, both the parties agreed that this issue is covered by the decision rendered by co-ordinate benches of Tribunal in the assessee s own case in ITA No.3422 3437/Mum/2013 relating to AY 2006-07. A perusal of the order passed by the co-ordinate bench of Tribunal shows that the Tribunal has followed the decision rendered by another co-ordinate bench in assessee s own case relating to AY 2001-02 passed in ITA No.1498/Mum/2011 dated 09-04- 2014 and ITA No.3534/Mum/2011 dated 15-06-2012. 5. In ITA No.1498/Mum/2011, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Rule 8D of the Act. The Ld CIT(A) took note of the binding decision rendered by Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd (328 ITR 81), wherein it was held that the provisions of Rule 8D shall apply from AY 2008-09 onwards and for earlier years, the disallowance should be worked out on a reasonable basis. Accordingly he upheld the workings for AY 2008-09. However, for AY 2007-08, the Ld CIT(A) took the view that the disallowance worked as per the provisions of Rule 8D would be reasonable disallowance. 9. Before us the Ld A.R contended that the Tribunal has restricted the disallowance to 1% of the exempt income in AY 2006-07. He further submitted that (a) the interest free funds available with the assessee is in far excess of the investments. (HDFC Bank (284 CTR 409)(Bom)) (b) All investments are held as stock in trade and hence the provisions of sec. 14A should not be applied to it. (India Advantage Securities (ITA 1131 of 2013) The Ld A.R placed his reliance on various case laws. 10. We heard Ld D.R and perused the record. We notice that the Tribunal has restricted the disallowance to 1% of the exempt income in AY 2006-07 and ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that the provisions of sec. 36(1)(viii) shall be applicable only to financial Corporations . The Tribunal has held that the banks will also be covered by the inclusive definition given for the expression financial Corporations in sec. 36(1)(viii) of the Act. Consistent with the view taken therein, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim. 15. In AY 2008-09, the assessee is contesting the disallowance of expenditure relating to issue of capital. During the relevant year, the paid share capital of the assessee has been increased from ₹ 488 crores to ₹ 525 crores by issuing new shares. The AO ascertained that the assessee has incurred a sum of ₹ 8,25,57,501/- towards increasing the share capital by way of fee for merchant bankers, legal fees, Stamp Duty, Registration charges etc. The AO took the view that this expenditure cannot be allowed under sec. 32 to 37 of the Act and further they are not in the nature of revenue expenditure. He also took the view that this expenditure cannot be amortised. Accordingly the AO disallowed the above said expenditure. The Learned.CIT(A) confirmed the disallowance by ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent, i.e., in the case before Hon ble Bombay High Court, the assessee was not in requirement of any funds, since it had a cash balance of ₹ 50.00 lakhs and borrowing capacity of ₹ 10 crores. The assessee was compelled to raise additional capital, since the Government of India put a condition for diluting its share holding in order to give its approval for continuation of a technical collaboration arrangement with its parent company. In these set of facts, the Hon ble Bombay High Court held that the expenditure incurred on raising the capital is revenue in nature. However, in the instant case, the assessee has been carrying on the business for the past several years. The Reserve Bank of India, the apex body which monitors the functioning of banks, had prescribed certain norms that should be complied by the banks. In the course of compliance of those norms, the assessee has raised capital by issuing shares. It was not the case of the assessee that it was not in need of funds. It was also possible to reach the required Capital adequacy ratio by generating profit also. In any case, the above said decision was rendered by Hon ble Bombay High Court prior to the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Madras High Court in Kisenchand Chellaram's case. This decision thus covers the question that falls for consideration in this appeal. The Counsel appearing before Hon ble Supreme Court raised alternative contention as under:- Dr. Pal has, however, submitted that this decision does not cover a case, like the present case, where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal. However, the Hon ble Supreme Court refused to acknowledge those facts, i.e., the object of raising capital was to have more working funds, since the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of capital was undertaken by the assessee in order to meet the need f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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