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TMI Blog2016 (3) TMI 1364X X X X Extracts X X X X X X X X Extracts X X X X ..... s as under. "1.1 The Ld CIT(A) erred in confirming the disallowance made by the AO u/s 14A for Rs. 12.20 crore and enhancing the same to Rs. 40.72 crore contrary to the provisions of the Act and facts and circumstances of the case. 1.2 The Ld CIT(A) ought to have appreciated that for the appellant bank, investments constituted stock for the purpose determination of Total Income, and hence the vires of section 14A does not contemplate any disallowance consequent to income arising from stock in trade, taxable or exempt and therefore no disallowance can be made u/s 14A. 1.3 Without prejudice to the above, even if any disallowance under rule 8D r.w.s 14A was warranted, since the formula prescribed in the said rule does not take into account value of stock in trade, no disallowance can be arrived at even by applying said formula. 4. The facts of the case are that the assessee had shown certain exempt income in the return of income on account of dividend and interest. The assessing officer invoking the provisions of section 14 A, making computation under rule 8D of the Income Tax Rules make disallowance. The assessing officer computed the disallowance under rule 8D to Rs. 40.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious benches of the tribunal were filed by the assessee relating to various arguments taken by it in the remand proceedings. The assessing officer rejected all the pleas of the assessee, relying on certain other decisions in favour of the Revenue. 7. After considering all the material on record the CIT (Appeals) held that since the fact in the relevant assessment year has gone a profound change and a particular method has been prescribed for computation of disallowance under section 14A of the Act, the order of the earlier years are not applicable in the present year. The method of disallowance has to be as per rule 8D. Further he held that the provisions of section 14A of the Act are mandatory in nature and explicitly states that expenditure incurred in relation to exempt income is to be disallowed. Relying on the order of the Madras High Court in the case of Beach Mineral Company Private Ltd versus Department of income tax, ITA No. 263/MADD/2012 dated 2.05.2013, the CIT (Appeals) enhanced the disallowance made by the Assessing Officer to Rs. 40.72 crores after giving a notice of enhancement under section 251 of the Income Tax Act to the assessee. 8. Aggrieved by this, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d vehemently argued against the stance taken by the assessee to the effect that since the securities are being held as stock in trade, no addition under section 14A of the Act can be made. Reliance was placed on the judgement of Mumbai bench of the tribunal in the case of the Damani Estates and Finance Private Limited, ITA No. 3029/MU/2012 and that of another judgement of the Mumbai ITAT in the case of American Express Bank Ltd, ITA No.5904/MUM/2000. It was argued that the judgement in the case of the Damani Estate(supra) has considered all the judgements cited by the counsel of the assessee including that of the High Court in the case of CCI Ltd(supra), therefore the said order of the Mumbai bench should be followed. 11. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. We are in total agreement with the argument of the learned D.R. that the computational provisions as provided under rule 8D are applicable in the relevant assessment year as the year is 2008-09. We are also not in agreement with the argument of the counsel of the assessee to the effect that since in the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el of the assessee filed before us a number of other orders of various benches of the tribunals whereby it has been held that where the securities etc. have been held as stock in trade the income in the form of dividend earned from the securities provisions of section 14A cannot be applied. However we see that there is only one judgement of the High Court that is of Karnataka High Court in the case of CCI Ltd (supra). In the case of American Express bank (supra) and Damani Estates finance private limited, we agree that the said issue has been decided against the assessee. However in view of the clear finding given by the Karnataka High Court in the case of CCI Ltd we found ourselves bound by the said judgement and hold that since the assessee bank is holding the securities as its stock in trade the disallowance under section 14A cannot be made. Karnataka High Court has been held in the last paragraph as under: "But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to the business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debts which are recovered during the year are revenue in nature and also the similar addition was confirmed in earlier year by the CIT (Appeals). 19. Before the CIT (Appeals), the assessee submitted that no deduction of bad debts recovered was claimed in any earlier year and that similar addition was deleted in the assessment year 2001-02. After considering the submission of the assessee the CIT (Appeals) held that since in exactly the similar circumstances in the assessment year 2007-08, the CIT (Appeals) had held that the amount of debts recovered during the year are liable to be taxed and the ITAT has also dismissed the ground of appeal for assessment year 2007-08 in its order dated 16.05.2012, the CIT (Appeals) dismissed the ground of the assessee. 20. Aggrieved by this, the assessee has come in appeal before us. The Ld. counsel of the assessee submitted that since the bad debts written off were not claimed as deduction, the recovery of such bad debts written off earlier could not be brought to tax as per the provisions of section 41 of the Act. Further our attention was invited to the order of the Hon'ble ITAT in assessee's case in the earlier year and it was submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Revised Return of Income and vide Note No.3 it was claimed as under : "Bad debts written off earlier year and recovered during the year amounting Rs. 4,52,49,329/- though credited to profit and loss account have been reduced from income as debts have been neither claimed nor allowed as deduction in the year of writing off and hence are nor covered by provision of Section 41(1) of the Act." 20. The return of income was revised to the extent of bad debts recovered totaling Rs. 4.52 Cr. The copy of revised computation of income is placed at pages 5 to 5 of PB-1. During the course of assessment proceedings, the explanation of the assessee was as under : "The assessee bank during the year under consideration recovered bad debts amounting to Rs. 4,52,49,330/- written off earlier. The amount was included in the income in the Profit & Loss Account but while preparing the return, the amount of bad debts recovered during the year has been reduced from the taxable income. The assessee has been claiming deduction u/s 36(1)(viia). As per proviso to Section 36(1)(vii) the bad debts in the case of the assessee where provisions of Section 36(1)(viia) are applicable are only allowable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred letter on 29.10.2008 and have noted its contents. In response to the same we wish to submit the following reply. The amount of Rs. 2,93,24,755.99 recovered against bad debts written-off and allowed as expenditure in earlier years u/s 36(1)(vii) of the Act is chargeable to Income Tax U/s 41(4) of the Income Tax Act, 1961................. In our Tax Audit report, in reply to Point No.20 regarding amount chargeable to tax u/s 41, we have mentioned that 8 amount recovered in respect of advances written off is Rs. 2,93,24,755.99 and is chargeable to tax /s 41 of the Income Tax Act, 1961. However, the same has been credited by the bank to its profit and loss account. In our opinion this amount is chargeable to tax u/s 41 of the Income Tax Act, 1961. 23. In the totality of the above said facts and circumstances, upholding the order of CIT(Appeals), we dismiss the Ground No.5 raised by the assessee." 8(i) Thus, this ground of appeal of the assessee is dismissed. 23. There is no denying the fact that the ITAT had dismissed the ground raised by the assessee on the basis of two facts, firstly, it was stated that there is a mention in the tax audit report t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts recoverable in any of the earlier years the disallowance should be deleted. This ground of the assessee is allowed for statistical purposes. 25. Ground No. 3 of the assessee's appeal reads as under: 3. The (A) erred in confirming the estimated disallowance of Rs. 8.03 lacs made by1 the AO as prior period expenses even when the appellant had not claimed any expenses relating to prior years in the computation of income. 26. Briefly, the facts of the case are that there were certain prior period expenses, in which regard the Assessing Officer noticed that a note was given in the tax audit report of the assessee which reads as under: "Prior period expenses or incomes are not ascertained and disclosed separately in the P & L account. As the books of the bank are closed on 31st March and provisions of expenses made on estimated basis through adjusting account, the amount paid later on, is based on amount of actual bills received/settlement or on crystallization of liability. Similarly, the incomes booked are based on actual crystallization and therefore keeping in view the volume and operation of the bank there are no material amount of expenditure/income related to prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Appellate Tribunal in the case of the appellant in previous years. 10. This issue is covered in ITA No. 451 to 455/Chd/2011 A.Y. 1996-97, 1998-99,1999-2000, 2001-02 & 2002-03 in assessee's own case dated 25.01.2012, as stated by ld. 'AR' and ld. 'DR'. 11. The relevant part of the order of the Hon'ble Tribunal is reproduced hereunder : "3. In the course of present appellate proceedings, ld. 'AR' contended that the AO has not complied with the directions of the Tribunal, as contained in para 11 of the order dated 19.06.2008 in ITA No. 785/Chd/1999 and others, for the assessment year 1996-97, in assessee's own case. He narrated the issue in question, in the appeal, as pertaining to prior period expenses. He, further, stated that since the inception of the Bank, it has been consistently following the hybrid method of accounting and items in issue regarding payment of stationery bills, misc. bills, no-departure has been made in the method of accounting followed by the assessee. Ld. 'DR' on the other hand, contended that the assessee has failed to produce requisite evidence in respect of such expenses to enable the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has not disposed of this issue on any basis. He has adopted the arbitrary procedure of allowing 50% and sustaining disallowance of remaining 50%. The deduction on account of expenses is either allowable to the assessee on the basis of the method of accounting regularly adopted or it is not so allowable. We do not find any justification for allowing deduction at 50% and disallowing the remaining 50%. Since the assessee has been following a regular system of accounting and there is no change in respect of booking of the expenditure, the disallowance made by the AO in our view, is not justified in principle. However, the AO is entitled to verify the claim of the assessee and demanding details of such expenses. We restore the issue to the file of the AO for fresh decision in accordance with law after giving reasonable opportunity of heard to the assessee." 5. A reference to the observations recorded by the AO at page 7 of the impugned assessment order is pertinent and relevant. Such observations of the AO clearly indicate that the assessee had not cooperated with the AO in the mater of furnishing the required details for proper appreciation and adjudication of the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This ground of appeal raised by assessee is allowed. 33. Ground No. 4 raised by the assessee reads as under: "4. The CIT(A) erred in confirming the addition of Rs. 5.19 lacs as income chargeable to tax being the increase in the credit balance outstanding in blocked accounts of customers (under NOSTRO balances) notwithstanding the fact that the said amount has not been written back in the profit and loss account as any remission of liability by the appellant bank.." 34. Briefly, the facts are that the assessee had shown certain unclaimed balances in NOSTRO account amounting to Rs. 15, 19, 250/-. On the basis of guidelines issued by the RBI, the Assessing Officer has held that these unclaimed deposits are liable to be added as income of the assessee. 35. Before the CIT (Appeals), the submissions made before the Assessing Officer were reiterated. The CIT (Appeals) held that the issue is covered by the decision of the CIT (Appeals) in assessee's own case for the Assessment Year 2007-08 which was upheld by the ITAT in its order dated 16.05.2012. Based on this the CIT (Appeals) confirmed the disallowance. 36. Aggrieved by this, the assessee has come in appeal before us. Ld. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on date is there in assessee's account in respect of the said amount, the said amount cannot be considered as 'income' in nature. No addition on this account can be made. In view of this we direct the Assessing Officer to delete the addition made by him. The ground of assessee is allowed. 39. The appeal of the assessee is partly allowed. ITA No.362/Chd/2015 : (Revenue's Appeal): 40. Ground Nos.1 and 2 raised by the Department relate to prior period expenses and read as under : "1. In the facts and circumstances of the case, Ld. CIT(A) has erred in restricting the addition of Rs. 76,00,000/- to Rs. 8,03,000/-made on account of prior period expenses. 2. In the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the addition on account of prior period expenses without appreciating that the AO had sought to verify the expenditure claimed on the basis of actual bills received/settlement or on crystallization of liability, in light of the comments of the tax auditors, but the assessee did not produce any voucher." 41. Since while adjudicating the ground No.3 raised by the assessee in ITA No.215/Chd/2015, we have allowed the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble ITAT, thereafter, in its order dated 16.05.2012 referred to its earlier decision in ITA no. 785/CHANDI/99 for A.Y. 1996-97 & others. The relevant part of the decision is reproduced as under:- "It is observed from the order of the CIT(A) that the issue has been restored to the file of the A.O. as per para 10.2 of the order of the CIT(A). The same is reproduced hereunder:- "I have carefully considered the rival submission and the facts of the case. During the course of the assessment proceedings, the A.O. had asked the appellant to explain these entries. The appellant filed a reply wherein they gave the figure of the un-reconciled entries dated 31.03.1995 as on 31.12.1997 and on the basis of this statement the A.O. worked out the addition of Rs. 1512.75 lacs. It is thus obvious that the entries which remained reconciled on 31.03.1995 remained 'so' even on 31.12.1997. It is, thus obvious that some of the entries may have remained un-reconciled for a much longer period. Under the limitation acts a creditor can enforce liability only upto three years and, thereafter, the right to enforce the liability cases. The A.O. is directed to reexamine this issue and restrict the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connected to computers in input or output is held to be a computer for the purpose of rate of depreciation then many equipment like mobile phones, robots, computer controlled machinery etc. which connected to computers or have embedded computers would also qualify for depreciation at the rate applicable to computers." 49. The facts are that the assessee claimed 60% depreciation on ATM, claiming the same to be computer, while the Assessing Officer allowed depreciation @ 15% holding the same to be plant & machinery. 50. The CIT (Appeals) after considering the various case laws relied on by the assessee, deleted the disallowance. 51. The learned D.R. relied on the order of the Assessing Officer, while the learned counsel for the assessee again seek support of the various judgments, which were relied on before the CIT (Appeals). 52. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The CIT (Appeals) has allowed the claim of assessee at para 9.1 of his order, which reads as under : "9.1 I have considered the submission made. As noted above the appellant has relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is allowed. 57. Ground No.2 raised by the assessee reads as under : 2. The CIT (A) erred in confirming the addition made by the AO in respect of bad debts recovered amounting to Rs. 94.60 crore ignoring the fact that when bad debts were written off in any of the precious years, no claim of deduction was made or allowed u/s 36(1)(vii). 58. It is relevant to observe here that this issue is similar to the issue in ground No.2 raised by the assessee in ITA No.215/Chd/2015 and the findings given in ITA No.215/Chd/2015 shall apply to this case also with equal force. The ground raised by the assessee is allowed for statistical purposes. 59. Ground No.3 raised by the assessee is as under : "3. The CIT (A) erred in not allowing deduction on account of reduction in blocked accounts (under NOSTRO balances) being he reduction in the credit balance outstanding in blocked accounts of customers (under NOSTRO balances) notwithstanding the fact that the increase in the said amounts in all the earlier years have been taxed by the department." 60. This ground is a fall-out of ground No.3 raised in ITA No.215/Chd/2015. It was contended by the learned counsel for the assessee that co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the Ld. CIT(A) has erred in deleting the addition on account of unreconciled inter-branch and inter-bank entries by relying on the certificate from the assessee that there wee no entries which were hit by the provision of section 22 of the Limitation Act. without allowing the AO opportunity to examine this contention of the assessee." 66. It is relevant to observe here that the issues in these grounds are similar to the issues in ground Nos.3 and 4 raised by the Revenue in ITA No.362/Chd/2015 and the findings given in ITA No.362/Chd/2015 shall apply to this case also with equal force. The grounds raised by Department are dismissed. 67. Ground Nos.6, 7 and 8 raised by the Revenue read as under : "6. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 3.,00,43,543/- made on account of disallowance of excess depreciation on ATMs. 7. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing depreciation in respect of ATMs at the rate allowable for computers without appreciating the decision in the case of the Hon'ble Karnataka High Court decision in Diebold Systems Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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