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Central Bank of India Versus Asstt. Commissioner of Income Tax –Circle 2 (1) , Mumbai

2017 (10) TMI 583 - ITAT MUMBAI

Addition u/s 14A - expenses attributable to earning income on account of dividend and interest which does not from part of the total income - Held that:- In the case of "Godrej & Boyce Manufacturing Co. Ltd. V/s DCIT (2017 (5) TMI 403 - SUPREME COURT OF INDIA) wherein it has been held that the AO has to record the satisfaction that the assessee has incurred any expenditure in relation of the earning of earning income after examining the records and books of accounts maintained by the assessee an .....

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the course of hearing that the disallowance of 2% be made as has been made by the Tribunal in the assessment year 1998-99 and 1999-2000 - Bad debts disallowance u/s 36(1)(vii) - Held that:- As decided in u/s Catholic Syrian Bank Ltd. Versus CIT [ 2012 (2) TMI 262 - SUPREME COURT OF INDIA ] 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year, while th .....

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bt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii). - Taxability of the interest relating to the broken period after due date of interest till the close of accounting year - Held that:- As perused the decision in the case of Director of Income tax (int.Tax. V/s Credit Suisse First Boston (Cyprus)ltd (2012 (8) TMI 17 - BOMBAY HIGH COURT) and find that the identical issue has been decide .....

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are arising out of the assessment orders framed u/s 143(3) of the Act for these these two respective years.. Since, the appeals pertain to the same assessee, for the sake of convenience, these appeals were clubbed together, heard together and are being dispose off by this common order. 2. First we shall take up the appeal filed by the assessee for the assessment year 2008-09. 3. Grounds of appeal taken by the assessee are as under : 1. The CIT(A) has erred in upholding the action of the AO in d .....

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ome. 5. The facts in brief are that the assessee , a Schedule Bank, filed return of income on 29.9.20008 declaring a total income of ₹ 819,38,47,782/-/- which was revised on 2.12.2008 declaring the same income. Thereafter the case was selected for scrutiny and the assessment was framed vide order dated 30.3.2010 passed under section 143(3) by making various additions assessing the total income of the assessee at ₹ 12,46,54,02,894/- as has been mentioned in para 7 of the assessment or .....

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f the assessee and accordingly after issuing show cause notice calculated the disallowance of ₹ 49,87,83,936/-. In the appellate proceedings, the FAA after considering the arguments of the assessee dismissed the appeal upholding the order of the AO that the provisions of section 14A r.w.r 8D were applicable for the year under consideration. Aggrieved by the order of the FAA, the assessee is in appeal before this Tribunal. 7. The ld. AR submitted before the bench that the ld.CIT(A) has gros .....

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free funds available with the assessee. The ld. AR in corroboration of his arguments took us through the balance sheet. The ld. AR argued that no disallowance is called for under u/s 8D(2)(ii) of the Rules. So far as the disallowance u/r 8D(2)(iii) is concerned the ld. AR submitted before the Bench that the AO has not pointed out his dissatisfaction with regard to the claim of the assessee as to how the said claim was wrong vis-à-vis the tax free income earned by the assessee which is a p .....

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/Mum/2003 For AYs 1998-99 and 1999-2000 dated 24.9.2010. 8. The ld. DR reiterated the same submissions as made before the lower authorities and also submitted that the provisions of section 14A r.w.rule 8D are effective from assessment year 2008-09 and therefore prayed that order of ld. CIT(A) should be confirmed on this issue. 9. We have carefully considered the submissions of rival parties and perused the orders of lower authorities. The undisputed facts of the case are the assessee s own inte .....

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n 14A r.w.r 8D as has been decided by the Hon ble Apex Court in the case of Godrej & Boyce Manufacturing Co. Ltd. V/s DCIT (2017) 81 taxmann.com 111(SC), wherein it has been held that the AO has to record the satisfaction that the assessee has incurred any expenditure in relation of the earning of earning income after examining the records and books of accounts maintained by the assessee and thus the AO has to be record his satisfaction with regard to the correctness of the claim of the asse .....

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sment year 1998-99 and 1999-2000. The operative part of ITA No 4449/Mum/2003 AY 1998-99 is reproduced as under (para 5):- 5. Before us, Ld Counsel for the assessee demonstrated that assessee has sufficient funds and therefore, no disallowance is called for on account of interest vide Rule 8D(2)(ii) of IT Rules, 1962. In this regard, he relied on various decisions including that of the judgment of the Hon ble jurisdictional High Court in the case of Reliance Utilities & Power Ltd [2009] 313 I .....

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d 29.6.2011 and order of the Tribunal in the case of Bank of India vs. ACIT in ITA No.1498/Mum/2011 for the AY 2001-2002, dated 9.4.2014 and submitted that disallowance @ 1% of the exempt income in the case of Banks is accepted as a reasonable basis . Further, he also referred to the decision of the Tribunal in the case of M/s. Godrej Agrovet Ltd vs. ACIT in ITA No.1629/Mum/2009, dated 17.9.2010, which was subsequently ratified by the Hon ble jurisdictional High Court in the same case. This case .....

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tent impugned in the grounds enumerated below:. 1. The order of the C!T(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that as per the provision to section 36(1)(vii), bad debts is allowed to be written off to the extent of the amounts in excess over the credit balance in provision account . 3. On the facts and in the circumstances of the case and in law, the Ld. C!T(A) has failed to appreciate .....

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ng of ₹ 289,19,80,059 regarding non-rural branches and ₹ 40,66,41,563/- towards bad debts pertaining to rural branches. According to the AO, the bad debts were to be allowed to the extent of excess of total bad debts written off during the year over the opening credit balances in the provisions for bad and doubtful u/s 36(1)(viia) of the Act of rural advances covered by proviso to section 36(1)(vii) as determined by the assessment order framed u/s 143(3) of the Act for AY 2007-08 whi .....

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0 (SC) by observing and holding as under : 4.1 Therefore, in view of the decision of Hon'ble Supreme Court as reproduced above, which has also been followed by Hon'ble ITAT in assessee's own case for A.Y. 96-97 in ITA No. 7677/M/2010 vide order dated 7/11112, assessee is allowed deduction on account of bad debts written off u/s. 36(1)(vii) independent of its claim and balance available for the purpose of section 36(1)(viia). There is no provision for bad debts available or claimed ag .....

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ssee is allowed. 11. Before us the ld. AR pointed out at the outset that the issue raised in this ground stands covered by the decision of the co-ordinate Bench of the Tribunal in assessee s own case for the assessment years 1989-90 to 1992-93 and 1994-95 to 1999-2000 and therefore following the order of coordinate benches , the order of First Appellate Authority should be upheld by dismissing the appeal of the revenue on this issue. 12. The ld. DR strongly objected to the contentions of the ass .....

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sake of convenience, we reproduce the operative part of the judgement as under: 41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit ded .....

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itled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2). 42. Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessees and dismiss the appeals preferred by the Revenue. Further, we direct that all matters be remanded to the assessing officer f .....

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ion allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) of Income Tax Act, 1961 ( ITA for short) 2. Under Section 36(1)(vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the computation of taxable profits, of the amount of any debt which is established to have become a bad debt during the previous year, subject to certain conditions. However, a mere provision for bad and doubtful debt(s) is not allowed .....

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lating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962.Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of the bad debt(s). In other words, the scheduled comme .....

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t in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off.However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actual write off under clause (vii). This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if a .....

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(vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account 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). Thus, the proviso to clause (vii) stood introduced in order to protec .....

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ebt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii). 3. Accordingly, the above question is answered in the affirmative, i.e., in favour of the assessee(s). For the above reasons, I agree that the appeals filed by the assessees stand a .....

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crued up to the year end has to be taxed according to the mercantile system of accounting whether or not it is fall due. 15. The facts of the case are that the assessee held the securities on which the interest was accrued on fixed days normally twice in an year on which the interest due dates were different from the year end and therefore, the interest after due date till the year end was accounted on the accrual system of accounting but not offered to tax. The AO was of the view that the inter .....

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see has no right to receive the interest and therefore the same is not taxable. 16. The ld. AR, at the outset, submitted before us that the issue involved in this ground stands covered in favour of the assessee and against the revenue by the decision of jurisdictional High Court in the case of Director of Income tax (int.Tax. V/s Credit Suisse First Boston (Cyprus ) Ltd 2012 23 taxmann.clm 424 (Bom)(supra). Therefore, the ld. AR prayed that in view of the decision of the hon ble jurisdictional H .....

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e the same is not taxable as the assessee has no right to receive the said interest though accrued on day to day basis. The ld.CIT(A) allowed the appeal of the assessee on the same reasoning. We have perused the decision of he Hon ble Jurisidicitonal High Court in the case of Director of Income tax (int.Tax. V/s Credit Suisse First Boston (Cyprus )ltd (supra) and find that the identical issue has been decided by holding that the said interest is not liable to tax qua the broken period. The relev .....

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the securities do not yield any income during the broken period of any year. We are in respectful agreement with this interpretation of the judgment of the Supreme Court. It logically follows from the fact that the Supreme Court upheld the judgment of the High Court in Vijaya Bank Ltd. ( supra). 19. The right to receive interest on the Government securities vested in the respondent only on the due date mentioned in the securities. Consequently, interest accrued on the securities only on the due .....

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