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2018 (7) TMI 2067

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..... income claimed exempt u/s. 10 of the Act by applying provisions of Rule 8D and delete the addition of Rs. 44,50,73,900 made to the total income and reduce the total income accordingly. IB Without prejudice to Ground no. 1A above, on the facts and in circumstances of the case and in law, the Appellant Bank prays that the disallowance made u/s. 14A read with Rule 8D is highly excessive and the learned DCIT be directed to make disallowance u/s. 14A on a reasonable basis and reduce the total income accordingly." Revenue, in the cross appeal, has raised the following grounds: - "1. On the facts and in the circumstances of the case and in law, the LD. CIT(A) has erred in allowing the claim of bad debts of Rs. 208,57,64,535/- without appreciating the fact that the claim of bad debts written off is allowable to the extent it exceeds the credit balance in the provision account. 1(b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that in the Finance Bill 2013, Explanation 2 has been inserted below clause (vii) of Section 36(1) to clarify that for the purposes of the proviso to clause (vii) of this sub-section and clause .....

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..... ith one self." 3. The brief facts of the case are that the assessee filed original return of income for A.Y. 2011-12 on 28.09.2011 declaring total income at Rs. 138,19,35,392/-. Assessee was selected for scrutiny assessment and assessment order was passed on 19.03.2013 under Section 143(3) of the Income Tax Act, 1961 (hereinafter "the Act"). The AO, while passing the assessment order, made various additions/disallowances, which were subject matter of first appeal before the CIT(A) wherein the assessee was given partial relief. Therefore, further aggrieved by the order on various issues both parties have filed their cross appeals raising grounds of appeal recorded above. 4. We have heard the rival contentions and perused the material on record. At the outset of hearing the learned A.R. of the assessee submits that all the grounds raised by the parties are covered in favour of the assessee. The learned A.R. filed a chart referring to various decisions in assessee's own case and decision of the Hon'ble High Court wherein similar issues are stated to be covered in favour of the assessee. On going through the chart furnished by the learned A.R., the learned D.R. submits that the .....

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..... facts in light of section 14A has deleted the additions made by the Assessing Officer and restricted the addition to the extent of 2% of the exempt income by holding that the assessee's own interest free funds compressing its share capital and reserves are more than the investments made which yield tax free exempt income. The ITAT further observed that on perusal of the Assessing Officer's order, it is clear that the Assessing Officer has not recorded any satisfaction with regard to the claim of the assessee that it has earned exempt income without attributing any expenses relating thereto with reference to the books of accounts which is a pre-condition for invoking the provisions of the section 14A of the Act. The relevant portion of the order is extracted below: 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 interest free funds comprising its own funds and other interest free funds availed with the assessee were far more than the investment made in securities which yielded tax free exempt income. Moreover, the perusal of the AO‟s order reveals that the A .....

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..... 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 is relevant for the proposition that the I.T.A. No.1525 and 364 9/Mum/2013 And I.T.A. No.1561 and 3438/Mum/2013 disallowance of 2% of the exempt income is found reasonable by the Hon'ble High Court." Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to make addition to the 2% of the exempt income. This ground of appeal is partly allowed. 10. In this view of the matter and consistent with the view taken by the Co-ordinate Bench in the assessee's own case for earlier years, we direct the Assessing Officer to restrict the disallowance worked out u/s. 14A to 2% of the exempt income." Respectfully following the decision of coordinate bench, we direct the AO to restrict the disallowance under Section 14A to 2% of the exem .....

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..... 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 the law enunciated in this judgment. I have gone through the judgment of my esteemed brother Swatanter Kumar, J. and I agree with the conclusions contained therein. However, I would like to give my own reasons. The question for our consideration is - whether on the facts and circumstances of the case, the assessee(s) is eligible for deduction of the bad and doubtful debts actually written off in view of Section .....

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..... ituation 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 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 protect the Revenue. It would be meaningless to invoke the said p .....

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..... ders. We find that in the instant case, the issue is with regard to the taxability of the interest relating to the broken period after due date of interest till the close of accounting year. Acceding to the assessee 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 the Hon'ble Jurisdictional 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 relevant para of the judgment is reproduced below: "18. In CIT v. Canara Bank [1992] 195 ITR 66/61 Taxman 79 another Division Bench of the Karnataka High Court followed the above judgments. The High Court construed the last sentence quoted above from the judgment of the Supreme Court emphasised by us as under :- "The last sentence conveys the idea that actually the income fructifies to the assessee only when the securities yield the interest and only in such a situation Secti .....

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..... on the order of the authorities below. 14. We have considered the rival submission of the parties and have gone through the orders of the authorities below. We have noted that almost on identical facts on identical issues the Tribunal in assessee's own case in ITA Nos. 3639/Mum/2004 for A.Y. 2000-01 and others held as under: - "3. We have heard ld AR for the assessee and ld CIT-DR for Revenue. While making the submission, Ld. AR of the assessee argued that additional Ground raised in the present appeal may be taken up first as the MAT provisions u/s. 115JA/115JB are not applicable against the Banking Companies and relied upon the following decision of ITAT Mumbai and other Benches of the Tribunal: (a) Krung Thai Bank PCL v. JD1T (2011)16 taxinann.com 239 (Mum), (b) The Union bank of India v. ACIT (1TA No. 4702 to 4706/Mum/10), (c) Times bank Ltd. v. ACIT (ITA No. 4355/Mum/2008), (d) State bank of Hyderabad v. DCIT (2013) 33 taxmann.com 312 (Hyd. ITAT), (e) Dena Bank v. ACIT. (ITA No. 237/M/2002), (f) UCO Bank v. DCIT (2015) 64 taxmann.com 51 (Kolkata ITAT). The Ld. AR for assessee further submitted that all the other Grounds raised in the appeals are also .....

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..... cient. We are urged to quash the reassessment proceedings on this short ground. Learned Departmental Representative, on the other hand, vehemently relies upon the orders of the authorities below and submits that there is no specific exclusion clause for the banking companies, and in the absence of such a clause, it is not open to us to infer the same. The submission of the learned counsel, 1TA No. 4355/Mum/2008 M/s. Times Bank Limited, 8 according to the departmental representative, are clearly contrary to the legislative intent and plain wordings of the statute. The plea of the assessee is indeed well taken, and it meets out approval. The provisions of Section 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax under section 115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Section 211(1) of the Companies Act. The final accounts of the ban .....

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