TMI Blog2019 (2) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... ate opportunity to the assessee and then decide these issues in accordance with law. Restriction of tax relief u/s.90 only to the extent of tax paid in foreign country - HELD THAT:- As decided in own case [ 2017 (4) TMI 1424 - ITAT CHENNAI] CIT(A) has quoted a notification No.S.O 2123(E) dated 28.8.2008, clarifying that in such a case involving a DTAA, an income has to be included in the total receipts and the necessary relief is to be granted by elimination method or as per the terms of agreement seeking to avoid double taxation. He relies upon Finance Act, 2012 inserting explanation 3 to section 90 making the notification retrospectively applicable. Denial of depreciation on goodwill - HELD THAT:- Assessee did not have any goodwill in commercial terms as it has acquired more liabilities than the assets. The Ld.DR s submission that when there is no goodwill as per the terms of the agreement as well as in reality. When the assessee has not paid any amount for the goodwill, it cannot claim existence of any goodwill. When there is no existence of goodwill, it is not entitled for any depreciation. Therefore, the assessee s corresponding grounds fail. Disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the statute Book but at the same time it would be entitled to make a claim in its returns. Addition sustained - I.T.A. No. 776/Chny/2018, I.T.A. No. 947/Chny/2018 - - - Dated:- 28-2-2019 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For the Appellant : Mr. C. Naresh, C.A For the Respondent : Mr. M. Srinivasa Rao, CIT ORDER Per S. JAYARAMAN, AM: The Assessee as well as the Revenue filed the seappeals against the order of Commissioner of Income Tax (Appeals)-5, Chennai, in ITA No. 102/CIT(A)-5/16-17 dated 29.12.2017 for assessment year 2013-14. 2. M/s. Indian Overseas Bank, the assessee, is a scheduled Bank and is assessed as a company for the purpose of income tax. While making the assessment for the assessment year 2013-14, the Assessing Officer, inter-alia, made disallowance under section 36(1)(viia), restricted provision made under section 36(1)(viia),made disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternate plea is unreasonable and contrary to the provisions of the Act. Protective disallowance u/s 36(1 )(vii) 3.1 The Id CIT(A) failed to appreciate that disallowance made by AO in respect of claim u/s36(1) (vii) was only on a protective basis, the AO should not have treated same as a part of substantive assessed income and hence he ought to have directed the AO not to include the same as part of assessed income. Tax relief u/s 90: 4.1 The Ld CIT (A) erred in restricting the relief u/s 90 only to the extent of tax paid in the foreign country whereas the correct relief to be allowed is tax charged on the foreign income which is included in Total Income. Depreciation on goodwill 5.1 The Ld CIT(A) erred in denying depreciation on goodwill based on earlier year where the same was disallowed on the contention that the same was internally generated, overlooking the fact that the same was acquired in a scheme of take over and following the decision of Apex Court in the case of Smifs Securities Ltd (348 ITR 302) same is allowable. Contribution to Staff Welfare Fund 6.1 The Ld CIT (A) erred in not allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve intention of decision of Catholic Syrian Bank was to protect the rural farmers and also benefit given without actual write off in the actual Books of Accounts though the principle was considered in the earlier years and the Department has accepted and passed the order. On the decision of the allowability of Sec.36(1)(viia) we relied on the Co-ordinate decision of Lakshmi Vilas Bank in ITA Nos.1205 to 1209/Mds/2014 dated 29.01.2016, where it has been held in detail at para 90 to 93 in page no. 60 to 63 90. After examining the various Circulars issued by the Board in relation to section 36(1)(viia) and 36(1)(vii) and also the Statement of Objects and Reasons to the Finance Act 1986, the Hon'ble Supreme Court came to the conclusion that the legislative intention behind the introduction of section 36(1)(viia) was to encourage rural advances and to aid creation of the provision for bad debts in relation to such rural branches. Some of the salient findings of the Hon'ble Supreme Court are as follows: A mere provision for bad and doubtful debts is not an allowable deduction in the computation of taxable profits. However, in the case of rural advances, in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (323 ITR 166) and Southern Technologies Vs JCIT (320 ITR 577) are referred to therein. Accounting standard AS29 and also the effect of Board's Circular's have also been discussed at length in the order along with the subject of interpretation and construction of the relevant sections. Thus, the judgement is a comprehensive one which has considered the ratios laid down by various courts, the implications of Board's circulars and accounting standards. 92. The Hon'ble Supreme Court has held in the case of Catholic Syrian Bank that Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of section 36(1)(viia) may be allowable without insisting on an actual write off .in case of rural advances which are covered by clause (viia), there would be no double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably clause (viia) applies only to rural advances. (emphasis supplied) (para 25 27). 93. Thus, it can be seen that in the case of provision made towards non-rural debts, no deduction can be allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deduction under section 36(1)(viia) to the extent of provision made in the books. The Aft. for the assessee has conceded that this issue has already been decided against the assessee bank in the case of Bharat overseas Bank Ltd. in ITA No. 1191/Mds/2012. This issue had also come up before the Tribunal in ITA No.818/Mds/2OlO relevant to the assessment year 2007-08. The findings of the Tribunal are reproduced herein below: 7. We have perused the orders and heard the rival submissions. The original claim, which was allowed by the Assessing Officer under Section 36(1)(viia) of the Act, was as follows: Thereafter, assessee had moved in appeal against some of the additions made by the Assessing Officer on other issues and pursuant to the relief granted in such appeal, the gross total income which earlier stood at ₹76,54,31,493/- came down to ₹ 35,38,65,546/-. As a result of the reduction in gross total income, deduction under Section 36(1)(viia) was also scaled down from Rs, 74,07,362/- to ₹ 2,65,39,916/-. This sum when aggregated with 10% of rural advances coming to, 72,65,099/-, resulted in the sum of 5,38,05,015/- being eventually allowed as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l debts, May be, the RB! has made a for 10% provision for standard assets also a norm. This can however be considered as ameasure prescribed in abundant caution, to deal with a situation where banks are not to suffer shock of sudden delinquency that could happen in future, There is always a possibility that an asset, which is fully recoverable may not be so at future date. Nevertheless, possibility of happening of such a contingency cannot be a sufficient reason to consider a provision made on standard assets also as a provision forbad and doubtful debts, Therefore, claim of the assessee that provision for standard assets also has to be considered for applying the condition sat out under Section 36(1)(viia) is not in accordance with law. If the provision for standard assets is not considered as provision for bad and doubtful debts, the actual provision for bad and doubtful debts made by the assessee in its books₹4,01,44,027/- fall much below the sum of ₹5,38,05,015/- allowed by the Assessing Officer. in any case, a look into the original assessment order clearly show that but for the deduction allowed to the assessee as claimed by it in its return, there was no discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,supra, the Ld. AR submitted that this issue was decided by the Hon ble Supreme Court in favour of the assessee in the cases of Vijaya Bank (323 ITR 166) and catholic Syrian Bank Ltd 348 ITR 270, respectively. We heard the rival submissions and direct the AO to examine these issues in the light of the Hon ble Supreme Court decisions in the case of Vijaya Bank (323 ITR 166) and catholic Syrian Bank Ltd 348 ITR 270, respectively. The assessee shall place all the materials in support of its contentions before the AO and comply to the AO s requirements as per law. The A O shall furnish adequate opportunity to the assessee and then decide these issues in accordance with law. 6. The nextissue raised by the assessee is with regard to restriction of tax relief u/s.90 only to the extent of tax paid in foreign country. In this regard, the Ld. AR submitted that this issue was decided against the assessee by this Tribunal in its own case in ITA No.77/Mds/2014 for the assessment year 2011-12. 6.1 On hearing rival contentions, we find that this issue was decided against the assessee in its own case for the assessment year 2011-12 in ITA No.77/Mds/2014 vide order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer held that on furnishing detailson assessee s part; the claim would be allowed in its favour. This resulted in disallowance/addition of 55, 65,44,48/-. 24.in lower appellate order, the CIT(A) has quoted a notification No. SO 2123(E) dated 28.8.2008 reported as 304 ITR(St )63, clarifying that in such a case involving a DTAA, an income has to be included in the total receipts and the necessary relief is to be granted by elimination method or as per the terms of agreement seeking to avoid double taxation. He relies upon Finance Act, 2012 inserting explanation 3 to section 90 making the notification retrospectively applicable. In this manner, the CIT(A) has directed the Assessing Officer to allow relief to the assessee as per the aforesaid notification. 25. We have heard both parties and gone through the relevant findings in the orders of Assessing Officer as well as the ClT A,) The parties are unanimous before us that this vary issue stands decided in the Revenue s favour by the tribunal supra) in preceding assessment year. So, we also follow suitand reject the assessee s relevant grounds. 78 Respectfully following the said deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to its absorption Hence assessees notional working of goodwill based on excess liabilities is not allowable as intangible asset qualified under good will. Any absorption scheme surplus of asset over liabilities has to be taken to reserves account of balance sheet. Subsequent to absorption as held by Hon ble ITAT in the case of Spencer and Company Ltd of ITAT vide ITR No.440 of 2011. On similar analogy the surplus of liabilities over assets has to be taken to the balance sheet and same has no bearing on Profit and Loss account of assessee as it tantamount to skewed representation of profits on the year of absorption so as to avoid genuine taxes due to exchequer. 7.1 TheLd. AR invited our attention to the copy of Memorandum of Understanding for the proposed transferor dated 17.02.2009 and to the Schedule to the MoU and submitted that as per the MoU, liabilities to be taken over as on 31.12.2008 was valued at ₹1,078.13 crores and the assets to be taken over as on 31.12.2008 was valued at ₹870.58 crores and the resultant deficit of ₹207.55 crores was notionally treated as purchase consideration and argued that on this amount the assessee cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by Income Tax Appellate Tribunal. However, in the assessee s case, there is a deficit or loss of ₹207.55 crores in the purchase consideration. Further, as per transfer agreement extracted, supra, itself it is clear that the transferor bank does not enjoy any goodwill in commercial terms and hence, there is no goodwill. When there is no goodwill and the assessee has also not paid any amount for goodwill it is not entitled to claim any goodwill, consequently no depreciation can be allowed. 7.3 We heard rival submissions and gone through relevant material. It is clear from the above that the assessee did not have any goodwill in commercial terms as it has acquired more liabilities than the assets. The Ld.DR s submission that when there is no goodwill as per the terms of the agreement as well as in reality. When the assessee has not paid any amount for the goodwill, it cannot claim existence of any goodwill. When there is no existence of goodwill, it is not entitled for any depreciation. Therefore, the assessee s corresponding grounds fail. 8. The next ground raised by the assessee is with Regard to disallowance of contribution to staff welfare fund. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. The Fifth ground is with regard to addition towards bad debts recovered. 27.1 After hearing both the parties, the same issue came for consideration before this Tribunal in ITA No.1949/Mds./2012 vide order dated 18.06.2014 in assesse s own case wherein the Tribunal held that: 52. Relevant facts qua this ground are that in Rs memo of income, the assessee is stated to have claimed deduction towards bad debts recovered. It explained before the Assessing Officer that this amount pertained to rural advances written off but not allowed in various preceding assessment years. It stressed the fact that when bad debts itself had been disallowed as deduction, recovery thereof could not have been taxed in the Impugned assessment year. The Assessing Officer held that theassessee had ordinarily claimed the above bad debts written off as expenditure. Further, he observed that it had a/so fifed appeals before the tribunal and the issue was yet to attain finality. Accordingly, he disallowed the aforesaid amount. 53. In lower appellate order, the CIT(A) holds that the recovery made in respect of bad debts could be taxed only if the bad debts themselves are allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties and perused the material on record. As rightly pointed out by the Id.A.R, this issue was decided against the assessee by the Co ordinate Bench of Chennai Tribunal in assesse s own case for assessment year 2010-11 cited supra, wherein Tribunal held that: 69. The next issue in the grounds of appeal of the assesseeis that Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer disallowing the claim of depreciation on UPS at 80% overlooking the fact that UPS is an energy saving device entailing for higher depreciation. 70. Counsel for the assessee submits that this issue has been decided against the assessee by the co-ordinate Bench for the assessment year 2009-10 in ITA No.1949/Mds/2012 dated 18.6.2014 at pages 10 11 in para 16 to 18 of the order. Respectfully following the said decision, we dismiss the grounds raised by the assessee on this issue. Respectfully following the above decision of Tribunal in assessee s own case for assessment year 2010-11, we reject this ground raised by the assessee. In view of the above reasoning of this Tribunal, we reject this issue raised by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are applicable in the case of the assessee as the assets yielding exempt income are held by the assessee as stock and trade and not as investment. 4. The learned CIT(A) has erred in allowing the claim of deduction for provision made for leave encashment without making actual payment which is contrary to the provisions of sec. 43B. 5. The learned CIT(A) has erred in allowing the depreciation @ 60% on UPS holding it as part of computer as against 15% allowed by the Assessing officer holding it as part of electrical appliance. 6. The learned CIT(A) has failed to give any finding in the order with regard to the excess claim of depreciation on assets which were taken from the Bank of Tamilnadu Limited at the time of amalgamation. 7. The learned CIT(A) has failed to observe that the provisions of sec.115JB are applicable even in respect of banks which are governed by Banking Regulatory Act, 1949. 8. The learned CIT(A) has erred in not adjudicating on the additions made to Book Profit u/s 115JB erroneously observing that the provisions of sec.115JB are not applicable in respect of banks which are governed by Banking Regulatory Act, 1949. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of Maxopp Investment Ltd (402 ITR 640) and this Tribunal in ITA No.77/Mds/2014 vide order dated 03/04/2017 decided partly in the assessee s favour in its own case. The relevant portion of the order of this Tribunal dated 03.04.2017 is extracted as under:- 8. The second ground is with regard to disallowance u/s.14Ar.w.Rules 8D of the Income Tax Rules, 1962. 9. At the outset, the Id.A.R submitted that this issue came for consideration before this Tribunal in assessee s own case in IT.A.No.2126/Mds/20 13(supra) wherein the Tribunal held that:p63. Counsel for the assessee submits that assessee bank is holding securities as stock-in-trade, when once securities are held as stock-in-trade, no disallowance under section 14A is warranted. The counsel submits that co-ordinate Bench of this Tribunal decided similar issue for the assessment year 2009-10 in ITA No.1949/Mds/2012 dated 18.6.2014. Referring to the said order, counsel submits that In principle, the Tribunal decided the issue in favour of the assessee holding that provisions of section 14A have no application when the securities are held as stock-in-trade. However, the Tribunal remitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, the picture that emerges is that various high courts have expressed divergent opinions on this legal issue. That being the case, we apply the decision of CIT vs Vegetable Products Ltd 88 ITR 192 and in the view favour able to the assessee is followed. So, in principle, we hold that the authorities below have wrongly invoked section 14A in case of investments held as stock-in trade wherein the exempt income by way of dividends is only incidental. It is also made clear that since there is no verification of the factual position of investments held as stock-in-trade , we accept the assessee s contentions in principle only and remit the issue back to the Assessing Officer to determine the true factual position. The assessee s alternative plea carries only an academic significance. The relevant ground is accepted for statistical purposes. 66. Since the facts and circumstances are identical, following the said decision of this Tribunal, we allow the ground raised by the assessee. 10. On the other hand, the ld. D.R relied on the orders of the lower authorities in invoking the provisions of the section 14A r.w. Rule 8D He further submitted for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue raised by the Revenue is with regard to depreciation on UPS at 60% instead of 15%. Similar issue was raised by the assessee in its appeal No.776/Chny/2018 herein above. For the same reasoning, we uphold the order of the Ld. CIT(A) and reject the ground raised by the Revenue. 17. The next issue raised by the Revenue is with regard to depreciation on assets taken over by Bank of Tamilnadu. We heard the rival submissions. Since the Ld CIT(A) has directed the AO to follow the directions of this tribunal decision in the assessee s own case in ITA No.1815/Chy/2011 dated 02.04.2014 wherein, the ITAT had remitted the matter back to the AO to verify the scheme of take over and to determine whether the provisions of section 2(1B) were applicable, we do not find any error in the order of the Ld. CIT(A). 18. The next ground raised by the Revenue is with regard to applicability of section 115JB. The Ld. DR submitted that this issue was decided in favourof the assessee by the Hon ble Kolkata High Court in the case of UCO Bank (2015) 64 taxman.com 51. This Tribunal also in Revenue s appeal in ITA No.35/Mds/2014 dated 3.4.2017 has decided this issue against the Revenue. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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