TMI Blog2017 (10) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... ade 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 the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. 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). Taxability of the interest relating to the broken period after due date of interest till the close of accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33,00,661/- as exempt income. The AO observed that the assessee has incurred a sum of ₹ 5772.47 crores as interest pay out and it is not possible that the assessee has made the investments in tax free instrument/investments without incurring the interest cost. Accordingly, the AO came to the conclusion that the provisions of section 14A r.w.r 8D are applicable to the case of 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 grossly erred in confirming the order of the assessing officer in view of the fact that the assessee s own funds and other interest free funds available were far more than the investments in the securities yielding tax free income. The ld. AR submitted that the tax free fund comprising of own funds and non interest be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action 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 assessee otherwise the provisions of section 14A can not be applied. We find merit in the plea of the ld.AR that in absence of any satisfaction recorded by the AO no disallowance could be made u/r 14A r.w.rule 8D. However, to maintain the consistency with the decision of the co-ordinate bench of the Tribunal, we think it fit and reasonable which has been an alternative prayer by the counsel during 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. 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 ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 289,19,80,059 by CIT(A) as made by the AO u/s 36(1)(vii) of the Act towards bad debts written off. During the year, the assessee claimed bad debts in the books of accounts of ₹ 329,86,21,622/- comprising 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 which worked out to ₹ 3,26,91,517/-. Thus, the bad debts to the tune of ₹ 285,92,88,542 were disallowed and added to the total income of the assessee which was arrived at by reduction of ₹ 3,26,91,517/- from the bad debts written off qua non rural branches i.e 289,19,80,059/-. The assessee preferred an appeal before the ld. CIT(A) who allowed the appeal of the assessee after considering the decision of the Hon ble Supreme Court in the case of Catholic Syrian Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (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 deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act.Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 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. 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 for computation in accordance with law, in light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in respect of a mere provision for bad and doubtful debt(s). But 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 any, of the write off over the amount standing to the credit of the account created under clause (viia). However, the Revenue disputes the position that the proviso to clause (vii) refers only to rural advances. It says that there are no such words in the proviso which indicates that the proviso apply only to rural advances. We find no merit in the objection raised by the Revenue.Firstly, CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed on the basis of accrual irrespective of date of payment as the same accrues on day to day basis and therefore rejected the contention of the assessee that the interest falling after due date till year end is not taxable. Accordingly added an amount of ₹ 86,21,931/-. Aggrieved, assessee preferred appeal before the ld.CIT(A), who after considering the submissions and on perusal of the record allowed the appeal of the assessee on this ground by observing that the the assessee 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 High Court, the issue be decided in assessee s favour. 17. The ld. DR strongly opposed the submissions of the assessee by relying on the order of AO. 18. We have carefully considered the contentions of the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the respondent on 31st March, 2001, the due date for payment of interest thereon had not arrived on 31st March, 2001 and that the respondent sold some of such securities prior to the next due date for payment of interest. It is only the holder of the security on such date to whom interest can be said to have accrued. In any event interest did not accrue to the respondent on 31st March, 2001, as admittedly interest was not payable on that date as per the terms of the said securities. 20. The appellate authorities, therefore, rightly deleted the addition of ₹ 1,21,57,517/- by the Assessing Officer as interest income. We, therefore, respectfully following the ratio laid down by the hon ble jurisdictional High Court, dismiss the ground raise by the revenue. Resultantly, the appeal of the revenue is dismissed. ITA No.3438/Mum/2013 (By revenue) and ITA No.3649/Mum/2013 (by assessee) 19. The grounds of appeal taken in these appeals by the respective parties are identical to that of ITA Nos.1561/Mum/2013 and 1525/Mum/2013. Since we have decided the issues in assessee s favour in the above mentioned appeals, the decision taken therein would , mu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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