TMI Blog2018 (6) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... account of bad debts written off - Held that:- In the present case facts relating to this issue have not been brought out by the Assessing Officer. Therefore we remand this issue back to the file of the Assessing Officer for the limited purpose of verifying that the amount of claim under section 36(1)(vii) should be limited to the amount written off in the books of account i.e. provision for bad debts debited to P and L account and reduced from sundry advances account. It may not be out of place to mention here that the provisions of section 36(1)(vii) and 36(1)(viia) are independent of each other and the assessee is entitled to deduction u/s 36(1)(vii) in addition to the amount of deduction for provision for bad and doubtful debts u/s 36(1)(viia) of the Act. Appeal filed by the revenue is partly allowed for statistical purposes Non deduction of tds - whether the assessee is liable for tax deduction at source on the charges paid to National Financial Switch and Cash Tree Consortium for use of ATM of other banks by its customers - disallowance u/s 40(a)(ia) - Held that:- Hon'ble Supreme Court in the case of Kotak Securities [2016 (3) TMI 1026 - SUPREME COURT] held that consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act 1961 (hereinafter referred to as the Act for short)at total income of ₹ 295,82,61,679/-. While doing so, the Assessing Office made the following disallowances: Add : Disallowances and additions as discussed in the order Rs. 1. Expenses related to the exempted income 2,97,38,902 2. Broken period interest on Government securities 14,51,83,335 3. Bad debts written off under section 36(1)(vii) 31,81,22,183 4. Provision for depreciation on investment 5,91,39,314 5. Capital expenditure debited to the profit and loss account 36,72,389 6. Contribution to pension fund disallowed under section 43B 5,70,00,000 4. Being aggrieved, an appeal was preferred before the ld.CIT(A) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax (Appeals) has not taken into cognizance the fact that the deductions under section 36(1)(vii) are subject to the provisions of section 36(2)(v) which is overriding in nature. 2.8 The learned Commissioner of Income-tax (Appeals) erred in not considering the accounting principle that bad debts actually written off under section 36(1)(vii) has to be first adjusted against the provision for bad and doubtful debts created under section 36(1)(viia) and the balance or unabsorbed bad debts only can be written off. 2.9 The learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that the assessee-bank has followed the Reserve Bank of India guidelines for valuation of investment portfolio for the purpose of books but has treated the entire investments as stock-in- trade and valued the same as per the least of cost or market value, values for Income-tax purpose only thereby making a claim for a notional loss. Only real profit/loss can be recognised under the Income-tax Act and not the notional loss arrived at by the valuing investment portfolio as per the LCM values. 2.10 The Central Board of Direct Taxes Circular No. 665* directs the Assessing Officers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation on investments, if the same is valued as per the Reserve Bank of India Guidelines. At the same time, any surplus provision has to be reversed in the profit and loss account. In the instant case, the asses see-bank has taken a dual stand to their advantage as could be seen from their letter dated November 26, 2010. The assessee-bank has made a claim of ₹ 20,56,25,224 being depreciation on securities shifted from available for sale category to held to maturity category. This shifting of investment has been done as per the Reserve Bank of India Guidelines and the resultant depreciation has been claimed. But for valuing investment for Income-tax purpose, the bank is treating the entire investments as stock-in-trade. This dual stand adopted by the assessee-bank gives an undue advantage as far as taxable income is concerned. Accordingly, the surplus provision worked out by the assessee-bank for depreciation on investments in accordance with the Reserve Bank of India Guidelines of ₹ 5,91,39,314 is disallowed. 4.4. The issue of valuation of investment portfolio is in dispute before various appellate authorities for the earlier assessment years. 7.1 On appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank changed its method of accounting during the previous year relevant to assessment year under consideration is not a material fact in deciding the issue in the present appeal. In the earlier years, the same was claimed as stock-in-trade and the resultant loss or gain on account of following the principle cost or market price whichever is less, is recognized for income-tax purpose. In this context, it is apt to reproduce circular No. 18/2015: 'Circular No. 18 of 2015, dated November 02, 2015. Subject : Interest from Non-SLR securities of Banks-reg. It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, expenses relatable to investment in non-SLR securities need to be disallowed under section 57(i) of the Act as interest on non-SLR securities is income from other sources . 2. Clause (id) of sub-section (1) of section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head Income from other sources , if, the income is not chargeable to income-tax under the head Profits and gains of business and profession . 3. The matter has been examined in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court further upheld the claim of the assesseebank following the principle of consistency. Even the Hon'ble Apex Court in the case of UCO Bank (supra) only laid down principle that where the investments are forming part of stock-in-trade, loss arising on account of fall in value of the securities should be recognized and allowed as a deduction. But the above case cited supra does not come to the rescue of the assessee-bank for the reason that the assesseebank, even in the books of account, has treated the investments as stock-in-trade from the assessment year 2005-06 onwards. Therefore, the question boils down to the one issue whether the change of method of accounting is bona fide or not. It is not the case of the revenue that the assessee-bank changed for a casual period to suit its own purpose. Therefore, the bona fide of the assessee-bank in changing the method of accounting cannot be doubted. Now, it is well settled that the assessee is entitled to change regular method of accounting irrespective of the fact, it results in loss to revenue. Therefore, having regard to the spirit of the circular cited supra and the fact that investments are shown as stock-in-trade in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the related expenditures attributed to it. The bank's contention that it has invested cost free funds on the tax-free investments is not acceptable, as these investments will always have notional interest cost attached to it. It is pertinent to mention that in the case of Corporation Bank, the hon'ble Income-tax Appellate Tribunal has upheld the disallowance made on this issue in the earlier assessment years. The proposal to disallow expenses on exempt income under section 14A is in line with the decision of the hon'ble Income-tax Appellate Tribunal. The expenditure incurred with respect to exempt income as specified in section 14A(2) read with rule 8D(2) is worked out as under : Rs. (i) Amount of expenditure directly relating to income which does not form part of total income Nil (ii)A Amount of expenditure by way of interest 1101,70,85,000 (ii)B Average value of investment as on the first day and last day of previous year (Rs. 161,12,95,000 + 132,34,84,000/2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income. The provisions of sec. 14A of the Act state that no deduction shall be allowed in respect of an expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under the provisions of sub-sec. (2) of 14A of the Act, the AO is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, AO can determine the amount of expenditure which should be disallowed in accordance with methods prescribed i.e. rule 8D of the IT Rules. Therefore, at the first instance, himself examine the claim of the assessee that no expenditure was incurred to earn exempt income and it is only thereafter, and only if the AO is not satisfied on this account, and after making reference to accounts, he is entitled to adopt the method prescribed under rule 8D of the IT Rules. Rule 8D of the IT Rules read as under:- METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME 8D(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s own case, the Hon'ble High Court of Karnataka held that no notional expenditure can be attributed to exempt income in the case cited supra. Accordingly, we hold that no disallowance can be made u/s 14A of the Act. The ground of appeal of revenue is dismissed. 8.4 The facts in the present case are identical to the facts in the case of Canara Bank (supra). Respectfully following the decision of the coordinate bench in the case of Canara Bank (supra) we hold that no disallowance under section 14A is warranted. Hence, the ground of appeal No.2.2 raised by the revenue is dismissed. 9. Ground No.2.3 challenges the finding of the CIT(A) granting relief on account of addition made on broken period interest. The facts set out by the Assessing Officer on the above addition are as under: 2. Broken period interest received on Government securities : 2.1 In the profit and loss account for the year ending March 31, 2008, the assessee-bank has credited an amount of ₹ 431,25,25,137 being interest on securities. As per the schedule A to the return of income, wherein the business income for the year has been worked out, an amount of ₹ 416,73,41,802 is said to be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh or mercantile system of accounting regularly employed by the assessee-bank. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessee-bank or in respect of any class of income . . . 2.5 According to these provisions, it is explicitly known that the assessee-bank cannot follow the dual method of accounting i.e. one method to arrive at the book profits and the other method to arrive at the taxable income in the return of income. After the substitution of section 145(1) and the deletion of the head of income 'Interest on securities', the assessee-bank should have offered the income from interest on securities on accrual basis only as that is the method of accounting consistently followed by it. Considering the above discus sions and careful reading of the section 145, it is concluded that the assessee-bank has understated its taxable income to the extent of interest due but not realised for this assessment year. So, the differ ence between the amount offered for taxation and the amount shown in the profit and loss account, i.e. interest on securities including interest accrued but not due is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest, which has not become due and payable. 17. In fact, we find not inconsistency between amended provisions of sections 145 and 5 of the IT Act. It may be that the amended provisions of section 145 now insists mercantile system of accounting where on the income accrued the tax can be levied whether or not received unlike in cash system. Merely because in the books of accounts the interest income, which is not due and payable is shown in the account of the assessee, that itself will not give right to A.O to tax unless it has become due and payable as per provisions of section 5 of the IT Act. In that view, the questions of law are answered against the revenue. Insofar as the factual situation is concerned, the AO has to redo the assessment regarding interest on the Government securities in light of the observations made above. Accordingly, the appeals are disposed of. The Assessing Authority while re-doing, shall give opportunity to the assessee by issuance of notice and giving opportunity of hearing. The decision of the ld.CIT(A) is in consonance with the law laid down by with the Hon'ble jurisdictional High Court in the case of the assessee, therefore, we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computing the income referred to in section 28-. . . (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee-bank for the previous year : Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubt ful debts account made under that clause ; Explanation.-For the purpose of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the asses see shall not include any provision for bad and doubtful debts made in the accounts of the assessee.' 3.5 As seen from the computation of income, the provision for bad and doubtful debts made in the books and claimed under section 36(1)(viia) is ₹ 54 crores and bad debts written off claimed under section 36(1)(vii) is ₹ 31,81,22,183. From the above, it is clear that the amount of bad debts written off and claimed under section 36(1)(vii) is subsumed in the provision for b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches adjusted against the provision during the FY 2005-06 . . 90,55,15,985 9,03,37,86,609 13.7 Provisions of section 36(1)(vii) grants deduction for amount of bad debts or part thereof written off by the assessee as irrecoverable in the accounts subject to provisions of sec.36(2) of the Act. The case of the AO is that the assessee-bank had not written off bad debts in the books of account as it is only a mere provision and therefore, disallowed the claim. Then the question as to what is meant by write off. Similar issue had come up before the Hon'ble Apex Court in the case of Vijaya Bank (supra) wherein it was held that debiting the profit and loss account by an amount of provision for bad debts, reducing provision for bad and doubtful debts from debtors account in balance-sheet amounts to write off. In the present case, it is undisputed fact that provision for bad and doubtful debts was reduced from sundry debtors account in the balance-sheet. Therefore, it satisfies the law laid down by the Hon'ble Apex Court in Vijaya Bank (supra). The same reasoning was followed in the decisions cited by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) vide order dated 09/03/2011 at total income of 535903 3110 stop while doing so the assessing officer made the following additions: i) Disallowance u/s 14A of ₹ 341,48,169/- ii) An addition on account of broken period interest of ₹ 6,45,73,400/- iii) Bad debts written off of ₹ 7,72,64,647/- iv) Disallowance u/s 40(a)(ia) on ATM charges of other banks - ₹ 6,44,93,357/-. 15.1 Being aggrieved by the assessment order, an appeal was preferred by the ld.CIT(A), who vide impugned order, granted relief on account of broken period interest and also on account of bad debts written off. However, the ld.CIT(A) confirmed the addition on account of disallowance u/s 14A of the Act and also u/s 40(a)(ia) of the Act. 15.2 Being aggrieved by this order both the assessee as well as the revenue is in appeal before us. 30. The assessee raised the following grounds of appeal in ITA No.1334/Bang/2012: Alleged estimated expenditure ₹ 3,41,48,167 1. The learned Assessing Officer and the Commissioner of Income- tax (Appeals) is not justified in adopting rule 8D for disallowance under section 14A of the Income-tax Act which gives an unrealistic resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, a banking company may engage in any one or more of the following forms of business namely:- (a) the borrowing, raising, or taking up of money ; the lending or advancing of money either upon or without security ; the drawing, making, accepting ; discounting, buying, selling collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates. scripts and other instruments, and securities whether transferable or negotiable or not ; the granting and issuing of letters of credit, traveller's cheques and circular notes ; the buying, selling and dealing in bullion and specie ; the buying and selling of foreign exchange including foreign bank notes ; the acquiring, holding, issuing on commission, under writing and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds ; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances ; the receiving of all kinds of bonds, scrips or valuables on deposits or for safe custody or otherwise ; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining to the business activity of holding investment to comply the twin statutory requirements i.e. SLR coupled with carrying on dealing in the same. 11.The appellate authority and the Assessing Officer has not considered the decision of the Karnataka High Court in CCI Ltd. v. Joint CIT [2012] 71 DTR 141 (Karn) which is on all fours with the facts of the instant case. In the said case the hon'ble High Court has held as follows : 'When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63 per cent. of the shares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37 per cent. of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which, the assessee has not incurred any payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer set out the facts in paragraph 1 of the assessment order as under: 1. Expenses related to exempt income : 1.1. On verification of the return of income filed by the assessee- bank, it is noticed that the bank has claimed the following as income exempt from taxation : 1. Interest on tax-free bonds under section 10(15) ₹ 1,13,06,711 2. Dividend received under section 10(34) ₹ 2,28,41,458 1.2 The assessee-bank has not debited any expenditure incurred towards earning such income. The same was pointed out to the assessee-bank vide this office letter dated February 11, 2010. It is a known fact that there are certain expenses for earning these exempted income. The actual income which qualifies for exemption can be ascertained only after considering the expenses related to it and such expenses are disallowable under the provisions of section 14A of the Income-tax Act. Therefore, it was proposed to disallow the expenditure incurred with respect to exempt income in accordance with section 14A(2) read with rule 8D of the Income-tax Rules, 1962. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41,48,169 as income exempt from tax. Since section 14A(2) is a presumptive in nature, the disallowance of expenditure in relation to exempt income is restricted to the income claimed to be exempt for taxation, i.e. ₹ 3,41,48,169. Thus, the addition under this head is ₹ 3,41,48,169 We heard rival submissions and perused the material on record. It is undisputed fact that facts of the present case are identical to the facts in the assessment year 2008-09 in ITA No.753/Bang/2011. Therefore, for parity of reasons given therein, the grounds of appeal 1 to 12 filed by the assessee are allowed. 17. Ground Nos.13 to 15 challenge the finding of the ld.CIT(A) confirming addition under section 40(a)(ia)of the Act. The facts as set out by the Assessing Officer in paragraph 4 of the assessment order are as under: 4. Disallowance under section 40(a)(ia) 4.1 The assessee-bank has claimed an amount of ₹ 21,22,73,406 as other expenses. The details of such expenses along with the details of TDS compliance, were requested for vide this office letter dated February 24, 2011. In response, the assessee-bank has furnished the details vide its letter wherein it is seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ED BY NOTIFICATION NO. SO 2143(E) (NO.47/2016 (F.NO.275/53/2012-IT(B), DATED 17-6-2016] In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely:- (i) bank guarantee commission; (ii) cash management service charges; (iii) depository charges on maintenance of DEMAT accounts; (iv) charges for warehousing services for commodities; (v) underwriting service charges; (vi) clearing charges (MICR charges); (vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank. 2. This notification shall come into force from the Ist day of January, 2013. Furthermore, the Hon'ble Supreme Court in the case of Kotak Securities (supra) held that consultancy managerial services involving services rendered by human efforts where services are made ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome under section 115JB of Income Tax Act,1961 [hereinafter referred to as the Act ]. Subsequently, this return was revised declaring Nil income under the provisions of section 115-JB of the Act. Against the said return of income, the assessment was completed by the Assessing Officer under section 143(3) vide order dated 09/02/2012 at total income of ₹ 123,81,35,120/-. While doing so, the assessing officer made the following disallowances: i. Addition on account of disallowance u/s 14A -Rs.2,13,44,978/- ii. Addition on account of Broken period interest on Government securities - ₹ 17,73,56,324/- iii. Addition on account of bad debts written off -Rs.41,85,00,000/- iv. Depreciation on investments- ₹ 96,12,04,010/-. 25. Being aggrieved by the above order, an appeal was preferred before the ld.CIT(A) who, vide order dated 29/05/2012, confirmed(i) liability to tax under section 115 JB of the Act and (ii) addition on account of 40 (a)(ia) of the Act. However, the ld.CIT(A) deleted the addition on account of (i) Broken period interest (ii) addition on account of bad debts written off and (iii) depreciation in the value of investments. 26. Being aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess being bank ing 'shall maintain in India in unencumbered approved securities valued at a price not exceeding the current market price, an amount which shall not at the close of business on any day be less than 20 per cent. of the total of its demand and time liabilities in India (such approved securities shall also include securities lodged with another institution for an advance or any other credit arrangement to the extent to which securities have not been drawn against or availed of.)' Note : The percentage for the appeal year is 25 per cent. This clearly indicates the main purpose of holding of investments in securities is a very essential requirement to be in banking business under the Banking Regulation Act, 1949 Second purpose of holding securities-Business-Section 24 7. The banking business under the Banking Regulation Act is defined under section 5 as follows : '(b) banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand, or otherwise, and withdrawable by cheque, draft, order or otherwise ; (c) banking company means any company which transacts the business of bonki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incidental tax-free income received because of the investment unsold as on the declaration of the other income of ₹ 311.26 crores. 9. The Assessing Officer has failed to note that the dealing in investments are taking place with an intention of making profit in such dealings and not with the main object of earning income which is incidental to the trade. 10. The Assessing Officer also has failed to note that any expend iture direct or indirect incurred in acquisition of the investment is a charge against the income earned in dealing in such investments. 11. The twin objects of holding the securities is to comply with the statutory liquidity ratio required under section 24 of the Banking Regulation Act and as part of banking business in accordance with section 5(b), (c) and 6(a) of the Banking Regulation Act. The shares are held and dealt in accordance with the mandatory statutory requirements of banking business. The income earned in dealing in shares is significant portion of the overall banking income. In the overall activity the bank earns incidentally the exempted income the interest and dividend. 12. The very purpose of holding investment is not to earn the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be covered under section 40(a)(ia) as it is an expenditure recovered by NFS network managed by the IDRBT, Hyderabad set by the Reserve Bank of India and cash tree set up by a consortium of banks led by Bank of India to share their ATMs among themselves. This expenditure was incurred and paid/recovered by the assessee in the course of business during the year and it is not unpaid or outstanding expenditure on year end date. Hence this is not exigible for disallowance under section 40(a)(ia). 16. The Commissioner of Income-tax (Appeals) and the Assessing Officer have failed to note that this expenditure is not one unpaid for which provision is made in account but one which is incurred and paid during the year. Section 40(a)(ia) is exigible only in case where as per section itself the amount of expenditure is payable as on the year end date and not already paid before the accounting year end. 17. The Assessing Officer and the Commissioner of Income-tax (Appeals) also have failed to consider the decisions in the following decisions which is applicable to the instant case : (i) Karnavathi Co-operative Bank Ltd. v. Deputy CIT [2012] 134 ITD 486 (Ahd) (ii) Meriline Shippi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. Ground Nos. 3 to 14 challenge the finding of the ld.CIT(A) confirming the addition of ₹ 2,13,44,978/- under section 14A read with rule 8D of the Act. This issue is decided in favour of the assessee for assessment year 2008-09 in ITA No.753/Bang/2011. For the reasons stated therein, grounds of appeal No.3 to 14 filed by the assessee are allowed. 30. Ground Nos.15 and 16 challenge the finding of the ld.CIT( A) confirming the addition under section 40(a)(ia) of the Act on the payments made to NFS for use of ATM of other banks by its customers, This issue was also decided in favour of the assessee bank in assessment year 2009-10 in ITA No.1334/Bang/2012. For the reasons stated therein, the grounds of appeal filed by the assessee are allowed. 31. In the result, the appeal filed by the assessee is allowed. 32. The revenue raised the following grounds of appeal in No.1397/Bang/2012: 1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case. 2. The learned Commissioner of Income-tax (Appeals) erred in allowing relief to the assessee on the issue of the broken period of interest, accrued, on Government securities. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2011 12. 38. Brief facts of the case of are that the assessee-bank filed return of income for the assessment year 2011-12 declaring total income of ₹ 21,02,59,270/- on 26/09/2011. The said return was revised on 09/03/2012 declaring income of ₹ 21,52,90,550/-. Against the said return of income, the assessment was completed by the assessing officer vide order dated 19/02/2013 under section 143(3) at total income of ₹ 146,04,21,978/- and also computed liability under section 115JB of ₹ 72,71,14,332/-. While doing so, the assessing officer made the following disallowances: i. Addition under section 14A ₹ 2,66,30,863/-; ii. Addition on account of Broken period interest - ₹ 3,79,90,970/- iii. Provision for bad and doubtful debts - ₹ 58,53,14,051/-; iv. Disallowance under section 40(a)(ia) - ₹ 12,69,81,187/- and v. (v) depreciation on investment ₹ 32,68,90,162/-. 39. Being aggrieved, an appeal was preferred before the ld.CIT(A) who vide impugned order, confirmed (i) liability under section 115JB (ii) addition on account of provision for bad and doubtful debts, and (iii) addition u/s 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income ; (while the exempted/incidental total income from dividend and interest on tax-free securities is only ₹ 2.66 crores earned because the securities remained unsold on the due date). Incidental/accidental/windfall income 5.1 The appellate authority also has erred in ignoring the fact that the exempted income is only incidental/accidental/windfall-without any cost-as the stock was in stock pending sale, resulting in such incidental income as approved and held by the Karnataka High Court in several cases. Cost free funds 6.1 The appellate authority also has failed to note the usual presumption-as held by various courts-when large amount of cost free funds are available as in the instant case, such tax-free invest ments are made out of such cost free funds. 6.2 The Assessing Officer has failed to note the accepted judicial precedent that 'if there were funds available, both interest-free and interest-bearing, then a presumption would arise that interest-free funds have been generated for tax-free investments-No disallowance could be made under section 14A' Re : Bunge Agrebusiness (India) (P.) Ltd. v. Deputy CIT [2011] 142 TTJ 817 (Mumbai) (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 36(1)(viia) ignoring in toto the law and facts of the instant case. The balance provision available is only surplus after the bad debts written off and which is available for a set off against the provision under section 36(1)(viia). Disallowance under section 40(a)(ia) : ₹ 6,44,93,357 Expenditure not specified 10.1 The Assessing Officer and the appellate authority has failed to note that the items disallowed under section 40(a)(ia) is not exigible under the said section for disallowance as the same does not fall in any of the specified expenditure to be disallowed. 10.2 The authorities have erred in rejecting a Special Bench order of the Income-tax Appellate Tribunal pronouncing that section 40(a)(ia) is applicable only to such payments payable/outstanding as on the year end date and not to expenditure paid during the year as in the instant case. 10.3 In the instant case the share of expenditure of the members is directly debited to the member's account in the Reserve Bank of India and not directly paid. 10.4 Also the said payment does not fall under Chapter XVII of the Income-tax Act for TDS. Section 25 company 10.5 The appellate authority ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirming disallowance under section 40(a)(ia) for non-deduction of tax at source on the payments made to NFM for use of ATM of other banks by its customers. This issue was decided in favour of the assessee-bank in the assessee's appeals in ITA No.1334/Bang/2012 and ITA No.1335/Bang/2012 for assessment years 2009-10 and 2010-11 respectively. For the reasons stated therein, we allow this ground of appeal. 47. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. 48. Now we shall take up the revenue's appeal in ITA No.1265/Bang/2013 for the assessment year 2011-12. The revenue raised the following grounds of appeal: 1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case. 2 The learned Commissioner of Income-tax (Appeals) erred in allowing relief to the assessee on the issue of the broken period of interest, accrued, on Government securities. 3. The learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that there is no ambiguity in respect of the date of accrual of the interest on Government securities and accordingly the bank should have offered this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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