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2016 (11) TMI 665 - ITAT KOLKATA

2016 (11) TMI 665 - ITAT KOLKATA - TMI - Addition on account of interest income in relation to advances classified as Non-Performing Advances (NPAs) - Held that:- When the account becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of Hon’ble Delhi High Court in [2010 (11) TMI 88 - Delhi High Court ] and various other decisions .....

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0% block by the assessee in the earlier years and depreciation claimed accordingly. We find that this depreciation had been granted by the revenue all along. Going by the principle of consistency, there is no need to disturb the said stand of the revenue. But since the entire building ( including the renovated portion) was sold during the year under appeal for ₹ 9.55 crores, we find that the assessee bank had rightly allocated the sale consideration towards 5% an 10% block on the basis of .....

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ements in accordance with the provisions of section 211 and Part II and Part III of Schedule VI of the Companies Act, 1956. We place reliance on the recent decision of the co-ordinate bench of this tribunal in the case of UCO Bank vs DCIT (2015 (12) TMI 300 - ITAT KOLKATA ) wherein held that the amendment brought in by the Finance Act 2012 in section 115JB of the Act is applicable only from Asst Year 2013-14 onwards and not earlier. Respectfully following the said judicial precedent, we hold tha .....

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ich it had become due. We agree with the argument of the ld AR that the spirit of section 43B of the Act has been satisfied by the assessee in full - TDS credit - Held that:- The circumstances in which the said TDS has been remitted to the account of the Central Government and the circumstances based on which the refund of the same is claimed by the assessee is not disputed by the revenue before us. We find that the revenue is unjustly enriched by the TDS amount paid by the assessee and sinc .....

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llikarjuna, CIT, DR For the Assessee: Shri R.N.Bajoria Sr. Advocate & Shri Akhilesh Gupta, Advocate ORDER Per Shri M. Balaganesh, AM Both these cross appeals by revenue and assessee are arising out of order of Dispute Resolution Panel (DRP) Kolkata dated 29.12.2014. Assessment was framed by JDIT(Intl. Taxation), Range-1, Kolkata u/s. 143(3)/144C(1) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2010-11 vide his order dated 10.03.2014. For the sake of brevity, we dis .....

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herlands with limited liability with branches in India. In India, the assessee is registered as a scheduled bank in terms of Schedule II of the Reserve Bank of India Act, 1934. The main activities fo the assessee in India comprise of accepting deposits, giving loans, discounting /collection of bills, issue of letters of credit/ guarantees, executing forward transaction in foreign currencies for importers / exporters , money market lending / borrowings, investment in securities, etc in terms of t .....

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ceipt basis. Since there was no receipt of interest on these NPA accounts during the year, no interest income need to be recognized on accrual basis as per RBI prudential norms for income recognition. The ld AO show caused the assessee stating that unless the advances were overdue for more than 6 months as required under Rule 6EA of the IT Rules, it cannot be classified as a sticky advance or doubtful debts as stipulated in section 43D of the Act and accordingly sought to add back the interest i .....

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re there is an uncertainty about the collection of income / revenue, recognition of such income / revenue is to be postponed to the extent of uncertainty involved, which is also in accordance with the theory of taxing only the real income, which is a settled law as per various judicial precedents. The assessee argued that the application of section 43D of the Act was specifically intended to clarify the income recognition by the banks to be in sync with the RBI guidelines and was never intended .....

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ent provisions of section 43D of the Act and it is well settled that the Rules, being a subordinate legislation cannot override the express mandate of the parent statutory provision. Reliance in this regard was placed on the decision of the Hon ble Supreme Court in the case of CIT vs Sirpur Paper Mills reported in 237 ITR 41 (SC). 2.3. Without prejudice to the above, it was submitted that Rule 6EA is practically difficult to be implemented, since the categories of advances prescribed therein do .....

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rovision for NPA in the hands of a Non-Banking Finance Company (NBFC) u/s 36(1)(vii)(a) of the Act which is available only to banks. Even the said decision did not contemplate recognition of interest income in respect of NPA accounts on accrual basis. The assessee also submitted that the said accounts remained overdue for more than 180 days as on 31.3.2010 (i.e the next financial year) and hence it had become NPA even as per Rule 6EA of the Rules in the subsequent financial year and hence the sa .....

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CIT vs Excel Industries Ltd (Civil Appeal No. 125 of 2013 dated 8.10.2013) (SC) (b) American Express Bank Ltd vs ACIT reported in 55 SOT 136 (Mumb ITAT) (c) CIT vs Vasisth Chay Vyapar Ltd reported in (2011) 330 ITR 440 (Del) (d) DIT vs Brahamputra Capital Financial Services Ltd reported in(2011) 12 taxmann.com 387 (Del HC) (e) DCIT vs Bhartiya Samruddhi Finance Ltd reported in (2013) 29 taxmann.com 152 (Del Trib) (f) ACIT vs Osmanabad Janta Sah. Bank Ltd reported in (2012) 32 taxmann.com 229 (Pu .....

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e facts and in the circumstances of the case, the learned Assessing Officer ( AO ) has legally erred in proposing and the Hon ble Dispute Resolution Panel ( DRP ) further erred in confirming the proposed addition of ₹ 14,57,051 on account of interest income in relation to advances which are classified as Non Performing Advances ( NPAs ) in accordance with the Reserve Bank of India ( RBI ) guidelines issued in this regard. (b) Without prejudice to the above ground, the Appellant prays that .....

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the ld DR argued that the provisions of Rule 6EA states non-recognition of interest income only if the loan account if overdue for more than 3 months. He argued that the recognition of income as contemplated by RBI prudential norms are not binding on the provisions of the Income Tax Act and placed reliance on the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd vs CIT reported in 320 ITR 577 (SC) in support of his proposition. The assessee had not proved the factum .....

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ime only by the ld DR. He also stated that ultimately these two loan accounts were written off in the subsequent year which has been allowed deduction by the ld AO including the principal portion. Hence there is no question of recognizing any interest income on accrual basis in respect of such sticky loans. 2.6 We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed a .....

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. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards Provision for NPA . We find that the same decision clearly stated that the interest income on NPA accounts should not be recognized on accrual b .....

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40 and various other decisions referred to supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the grounds raised by the assessee are allowed. 3. The next issue to be decided in this appeal of the assessee is as to whether the ld DRP is justified in confirming the addition of ₹ 1,02,54,946/- on account of deemed short term capital gains in the facts and circumstances of the case. .....

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i.e. other than residential buildings). Such tax treatment was based on accounting classification. Total sale consideration of ₹ 9,55,00,000/- was appropriated by the Bank between 5% and 10% block of assets as ₹ 8,51,55,054/- and ₹ 1,03,44,946/- respectively. Since, the 5% block of asset ceased to exist, the resultant gains of ₹ 7,45,91,096/- was offered to tax as deemed STCG. However, as the 10% block of asset continues to exist, the aforesaid appropriated sale considera .....

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the 10% block of assets u/s 32 of the Act on the reduced WDV, after adjusting the aforesaid appropriated sale consideration since 10% block of asset continues to exist. The ld AO not convinced with the arguments computed short term capital gains (STCG) by adjusting the appropriated sale consideration against the 5% block of asset on the premise that the asset sold belongs to 5% block of asset and not 10% block.. Hence the entire consideration of ₹ 9.55 crores should have been reduced only .....

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increased and accordingly directed the ld AO to recomputed the WDV of 10% block and grant depreciation thereon. Aggrieved , the assessee is in appeal before us on the following ground:- 2. On the facts and in the circumstances of the case and in law, the learned AO has erred in proposing and the Hon ble DRP further erred in confirming the proposed action of the learned AO in making an addition of ₹ 1,02,54,946/- on account of deemed short term capital gains on sale of depreciable asset. 3 .....

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ying in 5% block as well as in 10% block and hence the appropriation of the sale consideration thereon was rightly made by the assessee bank. In response to this, the ld DR took us to the definition of block of assets as per section 2(11) ; provisions relating to allowance of depreciation u/s 32(1) ; meaning of written down value in respect of block of assets as per section 43(6)(c ) and provisions for computation of capital gains in case of depreciable assets in terms of section 50 of the Act. .....

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nd hence the same are not reiterated for the sake of brevity. It is not in dispute that the assessee had 5% block as well as 10% block for buildings in its Income Tax Depreciation schedule. It is not in dispute before us that the renovations work carried out by the assessee in the subject mentioned building (which was sold in the year under appeal and dispute before us) was added in the 10% block by the assessee in the earlier years and depreciation claimed accordingly. We find that this depreci .....

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u/s 32 of the Act for the 10% block. It is not in dispute that the 10% block continues to exist as on 31.3.2010. In these circumstances, we find lot of force in the arguments of the ld AR and accordingly allow the Ground No. 2 raised by the assessee. 4. The next issue is with regard to the applicability of provisions of section 115JB of the Act for the assessee bank. We find that this issue has been dealt in detail by several decisions of this tribunal and other tribunals wherein it had been ca .....

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2015 in this regard. In the said decision, it was also held that the amendment brought in by the Finance Act 2012 in section 115JB of the Act is applicable only from Asst Year 2013-14 onwards and not earlier. Respectfully following the said judicial precedent, we hold that the provisions of section 115JB of the Act are not applicable to the assessee bank for the year under appeal. Hence the ground no. 3 raised by the assessee is allowed. 5. The Ground No. 4 raised by the assessee regarding initi .....

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ion for gratuity amounting to ₹ 2,18,00,000/- in the facts and circumstances of the case. 8.1. The brief facts of this issue is that the ld AO observed that the assessee had debited a sum of ₹ 416,76,96,118/- towards Payment to and provision for employees which included ₹ 2,18,00,000/- towards gratuity. Such sum of gratuity was debited to the profit and loss account for the year under consideration in accordance with the actuarial valuation performed by an independent valuer. T .....

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gratuity, Bank claimed deduction of ₹ 2,18,00,000/- in AY 2010-11 under section 43B of the Act, being the year in which such sum was debited to Profit and Loss Account following mercantile system of accounting (i.e. when accrued) having regard to the Actuarial Valuation Report. The learned AO worked out the disallowance merely perusing the Annexure 9 and 12 of the submissions dated 9 September 2013 and 27 September 2013 filed with him by the Bank, without giving an opportunity of being hea .....

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l as in AY 2010-11 would result in claim of expenses going un-allowed which is not the intent of the provisions of section 43B of the Act. The assessee also placed reliance in support of its contention on the decision of the Hon ble Kerala High Court in the case of CIT vs Kerala Solvent Extractions Ltd reported in (2008) 306 ITR 54 (Ker). The ld AO however proceeded to disallow the sum of ₹ 2,18,00,000/- u/s 43B of the Act. The assessee preferred objections before the ld DRP. The ld. DRP a .....

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year? 8.2. The ld DR vehemently relied on the order of the ld AO . In any case, it is only a prior period item which is not allowable as deduction. In response to this, the ld AR vehemently relied on the order of the ld DRP and argued that the provisions of section 43B of the Act only contemplates the payment of the gratuity amount which has been duly done in the instant case in the earlier year itself. 8.3. We have heard the rival submissions. We find that assessee had actually paid the amount .....

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rt supra is well founded. In these circumstances, we do not find any infirmity in the order of the ld DRP and accordingly the ground no.1 raised by the revenue is dismissed. 9. The next ground to be de decided in this appeal is regarding adjustments to be made in the computation of book profits u/s 115JB of the Act in respect of excess provision written back. We have already held that the provisions of section 115JB of the Act are not applicable to the assessee bank for the year under appeal, th .....

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ches located outside India. Pursuant to the decision of the Hon ble Calcutta High Court in assessee s own case in ITA No. 458 of 2005 dated 23.12.2010 which was also confirmed by the Hon ble Supreme Court vide its order dated 3.8.2012, the bank was not required to deduct any tax u/s 195 of the Act on interest payments made to its Head Office / Other branches. Since the tax had already been remitted to the account of the Central Government, the assessee bank requested the ld AO to refund such tax .....

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lar envisages a scenario where the payer is a resident in India and whereas, in the present case, the Indian Branch of the Bank being a payer, is a non-resident in India. It was also submitted that without prejudice to the above, the claim of the assessee bank would not fall in any of the circumstances mentioned in the aforesaid circular. Aggrieved, the assessee preferred objections before the ld DRP. The ld DRP observed that the circular relied upon by the ld AO relates to a situation where tax .....

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certificate and allow credit accordingly. Aggrieved, the revenue is in appeal before us on the following grounds:- 3. Whether on facts and circumstances of the case, the Ld.DRP had jurisdiction to give direction to the Assessing Officer on the issue of giving TDS credit, despite the fact that the credit of TDS in no way increases or decreases the returned income or loss of the assessee and therefore, as per section 144((2) of the I.T.Act'61, the assessee was not eligible to file objection on .....

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u/s.199 of the I.T.Act'61. 6. Whether on facts and circumstances of the case, the assessee should have claimed refund from the jurisdictional TDS Officer and therefore the Ld.DRP erred in Law by directing the A.O to give credit to tax amounting to ₹ 10,19,31,487/- deducted from payment of interest to its H.Q.& other branches. 10.2. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the monies have been lying with the Income Tax Departm .....

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