TMI Blog2021 (11) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... t under the head outstanding liabilities cannot be treated as income of the assessee. A similar view has been taken in the case of City Union Bank Ltd. [ 2020 (3) TMI 475 - MADRAS HIGH COURT] . We are of the considered view that there is no error in the reasons given by the CIT(A) to delete addition made by the AO towards Stale Draft Account. Hence, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue. Disallowance of ex-gratia payment - AO had disallowed ex-gratia payment made by the assessee to its staff who are not covered under payment of bonus Act, on the ground that the assessee has circumvented the provisions of Bonus Act and has given bonus to employees who are not eligible for payment of bonus and thus, whatever cannot be done directly has been done indirectly by changing the nomenclature of the nature of payment - HELD THAT:- An identical issue had been considered by the Tribunal in assessee s own case for assessment year 2012-13 [ 2020 (3) TMI 713 - ITAT CHENNAI] where the Tribunal after considering relevant facts held that exgratia payment to staff is deductible u/s.37(1) - there is no error in the reasons given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bank are stock-in-trade and income received on such shares and securities must be considered to be business income. That is why, Section 14A of the Act would not be attracted to such income - Thus we direct the AO to delete addition made towards disallowance u/s.14A r.w.rule 8D - Decided in favour of assessee. Disallowance of deduction claimed u/s.36(1)(viia) of the Act, in respect of rural advances of appellant bank - HELD THAT:- We are of the considered view that for limited purpose of ascertaining correct facts with regard to date when provisional and final census data of 2011 is published, the matter is set aside to the file of the AO and we direct the AO to examine when village/panchyat level provisional census data of 2011 was released for public. In case, as claimed by the assessee, provisional and final census data is made available to public on 30-04-2013, then the AO is directed to accept classification made by the assessee for above three branches as per 2001 census for the purpose of section 36(1)(viia) of the Act. In case, provisional census data is officially published on 31-03-2011 or even before 1-4-2012, as claimed by the AO, then the case of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mistake apparent from record, which can be rectified u/s.154 of the Act. Therefore, we set aside order passed by the ld.CIT(A) u/s.154 of the Act and allow appeal filed by the assessee. - ITA No.:2762/CHNY/2017 And ITA Nos.:2765/CHNY/2017 & 332/CHNY/2018 - - - Dated:- 3-11-2021 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Revenue : Shri Clement Ramesh Kumar, CIT For the Assessee : Shri Ananthan Ms. Abarna, CAs ORDER PER G MANJUNATHA, AM: These cross appeals filed by the assessee and Revenue in ITA Nos.2762 2765/CHNY/2017 are directed against order of learned Commissioner of Income Tax (Appeals) 1, Tiruchirapalli, dated 14.09.2017 and pertains to assessment year 2013-14. The appeal filed by the assessee in ITA No.332/CHNY/2018 is directed against order of the learned Commissioner of Income Tax (Appeals) 1, Tiruchirapalli, passed u/s 154 of the Income tax Act, 1961 dated 01.11.2017 and pertains to assessment year 2013-14. Since, facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are being disposed off, by this consolidated order. 2. The Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering debts by the non-rural branches as rural advances. 4. The learned CIT(A) erred in not considering certain branches as rural branches for the purpose of allowing the deduction u/s 36(1)(viia). 5. The learned CIT(A) erred in not allowing the claim of the Appellant bank of ₹ 23,28,45,881/- u/s 36(1)(viii) of the Income Tax Act, 1961. 5.1 The order of the learned CIT(A) is based on surmises and conjunctures. 5.2 The learned CIT(A) erred in substituting the computation of income from eligible business without pointing out any defects in the method adopted by the Appellant bank. 5.3 The learned CIT(A) erred in considering the Business Income of ₹ 564,59,16,849/- for arriving at the deduction u/s 36(1)(viii). 5.4 The learned CIT(A) failed to appreciate the fact that the Business Income of the Bank comprises Income from various sources of business not related to eligible business. 5.5 The learned CIT(A) failed to appreciate the fact that the method of computation adopted by the Appellant bank is the most appropriate method. For all these and other grounds, which may be urged at the time of hearing, the appellant prays that its appeal be allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of ₹ 546,50,55,480/- and said return was subsequently revised on 27.10.2014 30.03.2015 and declared total income of ₹ 523,99,52,160/- ₹ 516,82,49,970/- respectively. The case was taken up for scrutiny and during the course of assessment proceedings, the AO after considering necessary submissions of the assessee, has completed assessment u/s.143(3) of the Income Tax Act, 1961 (hereinafter the Act ) on 30.03.2016 and determined total income of ₹ 1027,83,07,994/- by making various additions including additions towards disallowance of amount credited in stale drafts account, disallowance of ex-gratia payment to staff, disallowance of deduction claimed u/s.36(1)(vii) of the Act towards bad and doubtful debts, disallowance u/s.36(1)(viia) of the Act towards provision for bad debts in respect of rural advances and addition of interest on non-performing assets. The assessee carried the matter in appeal before the first appellate authority and the ld.CIT(A) for the reasons stated in his order dated 14.09.2017 partly allowed the appeal filed by the assessee, where he has deleted additions made by the AO towards disallowance of stale drafts, disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, has received money while issuing demand drafts / pay order to various customers. The said money was held by the bank on behalf of the drawee till he/she made claim. The assessee bank had no right over the amount which is standing unclaimed. Further, the assessee banks had to remit the amount outstanding for more than 10 years to Depositors Education Awareness Fund Scheme maintained by Reserve Bank of India. Further, as and when the drawee makes a claim, the assessee shall issue demand draft / pay order in case the amount lying with the assessee and further, if the amount is transferred to RBI account after 10 years, then the Reserve Bank settles the claim of the drawee. Therefore, under these facts and circumstances amount lying in stale draft account cannot be treated as income of the assessee. The ITAT after considering relevant facts has rightly held that amount lying in stale draft account under the head outstanding liabilities cannot be treated as income of the assessee. A similar view has been taken by the Hon ble Jurisdictional High Court of Madras in the case of City Union Bank Ltd., vs. CIT, supra. Therefore, consistent with view taken by the Co-ordinate Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No.4 challenges the disallowance of ex-gratia payment of ₹ 4,46,29,688/-. We dealt with this issue in assessee s own case in ITA No.1342/Chny/2013 for AY 2007-08 for the reasons stated vide para 6.3 of the order therein, we allow this ground of appeal in favour of the assessee bank. We direct the AO to allow the ex-gratia of ₹ 4,46,29,688/- as a deduction. Hence, this ground of appeal is allowed. 24.1 In the result, ground of appeal No.4 of the assessee is allowed. Following the co-ordinate bench decision, supra, we do not find merit in the Revenue s appeal, therefore, the corresponding grounds are dismissed. 7.2 In this view of matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that there is no error in the reasons given by the ld.CIT(A) to delete additions made towards disallowance of ex-gratia payment and thus, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the Revenue. 8. The next issue that came up for our consideration from Ground No.4 of Revenue appeal is deletion of deduction u/s.36(1)(vii) of the Act for ₹ 36,10,29,903/-. The AO has disallowed bad debts cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f provision for bad and doubtful debts more than the amount claimed as a bad debts. On appeal before the ld. CIT(A), the CIT allowed the claim considering the fact that the bad debts were written off in the books of account, the provision of s. 36(1)(vii) of the Act are different from s. 36(1)(viia) of the Act. Both the provisions are separate and distinct and the proviso to clause (7) of s. 36(1) are not applicable, inasmuch as, there was no double deduction. 13.2 Being aggrieved by this decision of the ld. CIT(A), the Revenue is in appeal before us in the present grounds of appeal. The issue in the present grounds of appeal is covered against the Revenue by decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC), vide para 4 5 of judgment, which reads as under: 4. We consider it appropriate to notice at this stage the fate of the orders passed for the previous assessment years in relation to the appellant and other banks. 5. M/s Dhanalakshmi Bank Ltd., one of the appellants before us, had also raised the same issue before the Tribunal in ITA Nos. 602- 605/Coch/1994 and 190/Coch/1995, in relation to earlier assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of ss. 36(1)(viia) and 36(2)(v) of the Act, the High Court set aside the order of the Tribunal in that case and held that the assessee was entitled to the deduction under cl. (vii) irrespective of the difference between the credit balance in the provision account made under cl. (viia) and the bad debts written off in the books of accounts in respect of bad debts relating to urban or non-rural advances. It accepted the contention of the assessee and referred the matter to the AO. This judgment of the High Court is subject-matter of Civil Appeal Nos. 1190-1193 of 2011 before us. 13.3 Even in the assessee s own case, the Hon ble Jurisdictional High Court of Madras held the issue in favour of the assessee-bank in the AY 1987-88, 1992-93 in Tax Case Nos. 43 44 of 2012 and MP No.1/12. Thus, in the light of above legal position, we do not find any merit in the grounds of appeal filed by the Revenue. 8.4 In this view of matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that there is no error in the reasons given by the ld.CIT (A) to delete additions made towards disallowance of deduction claimed u/s.36(1)(vii) of the Act and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee s own case for assessment year 2012-13 in ITA No.3197/Chny/2017, where under identical set of facts and by following the decision of Hon ble Supreme Court in the case of Vasisth Chary Vyapar Ltd., vs. CIT(supra), held that interest income cannot be said to have been accrued to the assessee on NPAs account. The relevant findings of the Tribunal are as under:- 17. The Ld. DR submitted that the Ld, CIT(A) erred in deleting disallowance on interest accrued on NPAs to the extent of ₹ 57,42,500/- quoting the RBI guidelines. In this regard, the Ld. AR supported the order of the Ld. CIT(A) and relied on this tribunal decision Per contra, the Ld. AR supported the order of the Ld. CIT(A) and relied on the SC decision in the case of Vasisth Chary Vyapar Ltd TMI 56 SC and this tribunal decisions in its case in , TMI 566- ITAT , Chennai, 72 ITR (Trib) 26 (Chennai), the relevant portion is extracted as under : 29. The next ground of appeal challenges the addition on account of interest accrued in NPAs accounts of ₹ 14,00,000/-. The AO had brought to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no disallowance u/s.14A is permissible in terms of Rule 8D where the assessee is engaged in banking business. He further submitted that in a recent decision in the case of South Indian Bank Ltd., vs. CIT, the Hon ble Supreme Court in Civil Appeal No.9606 of 2011, vide order dated 09.09.2021 held that in the case of banking companies, Section 14A is not applicable. 12.2 The ld.DR on the other hand supporting order of the CIT(A) submitted that the moment exempt income is earned, disallowance contemplated u/s.14A triggers and the AO shall compute such disallowance by invoking Rule 8D of IT Rules, 1962 and thus, there is no error in the reasons given by the authorities below to sustain addition made towards disallowance u/s.14A and their orders should be upheld. 12.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the issue is covered in favour of the assessee by the decision of ITAT in assessee s own case for assessment year 2012- 13, where under identical set of facts, the Tribunal by following certain judicial precedents including the decision of Hon ble Punjab Haryana High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not rural branches. 14.2 The ld.AR for the assessee submitted that the ld.CIT(A) has erred in confirming additions made by the AO towards disallowance of provision for bad debts u/s.36(1)(viia) of the Act, without appreciating fact that 3 branches, viz., Kelambakkam and Medavakkam in the State of TamilNadu and Manikonda in the State of Telangana are classified as rural branches by the RBI as per 2001 census. He further submitted that the assessee has considered those 3 branches as rural branches, because the population of the village / panchayat where those villages falls is less than 10,000 as per census of 2001. Therefore, he submitted that as per the provisions of section 36(1)(viia) of the Act, rural branches has been defined, as per which, rural branch means a branch of a scheduled bank situated in a place which has a population of not more than 10,000 as per the last preceding census of which the relevant figures have been published before the first day of the previous year. In this case, although the AO claims that census data for 2011 was made available, but as per the assessee information the provisional and final census data of 2011 was released on 30.04.2013, for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular branch as rural branch. Further, the ld.CIT(A) has brought out clear facts to the effect that Kelambakkam and Medavakkam branches fall within Chennai Metropolitan Area and urban conglomerate, as per which those two branches are definitely fall within the urban segment and thus, there is no reason for the assessee to classify those 2 branches as rural branches. Similarly, Manikonda branch of Telangana State was also fall within the area of Hyderabad Metropolitan Development Authority and the population of Hyderabad Metropolitan Area in the year 2008 was about 67 lakhs. Therefore, although, those 3 branches fall within a particular Municipality / Town Panchayat and population of said Municipality was less than 10,000, but because those branches are coming within the territorial distance of urban conglomerate, the same cannot be considered as rural branches. He, further submitted that even assuming for a moment, provisional census data was not officially published when the assessee made a provision as on 31.03.2013, but fact remains that when the assessee has finalized its accounts and audit was completed in 24.05.2013, the final population data for 2011 census was very much avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e go by the ratio of Hon ble Kerala High Court in the case of Lord Krishna Bank, supra, only those branches which are located in rural areas are covered in provisions of section 36(1)(viia) of the Act, but not those branches which are part of greater urban territorial limits, even though, said branches are served by Village Panchayat, whose population is less than 10,000, as per 2001 or 2011 census. 14.5 We have given our thoughtful consideration to the reasons given by the ld.CIT(A) in light of various arguments advanced by the assessee and we ourselves do not subscribe to reasons given by the CIT(A), for the simple reason that assessee had classified bank branches into rural, semi-urban and urban branches as per guidelines issued by the RBI. In the present case, for the impugned assessment year, the assessee has strictly gone by Circular issued by RBI which is based on 2001 census, as per which those 3 branches are rural branches. Admittedly, the assessee does not have any right to classify branches according to its own wish or whims because banks are covered by RBI guidelines and further, they have to strictly follow guidelines issued by RBI for all purposes including account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l public only in April, 2013, which is beyond relevant financial year. Although, the ld.DR has filed certain evidences including Google search information, and argued that provisional census data of 2011 was released on 31.03.2013, but said data is unauthenticated, not certified by any authorities. Therefore, based on said evidence, we cannot conclude that population data of 2011 was available in public domain as on 31-03-2011. 14.7 Insofar as, findings of ld.CIT (A) regarding those 3 branches fall within the territorial jurisdiction of Chennai Metropolitan Area and Hyderabad Metropolitan Development Authority, we are of the considered view that once a place is served by a separate Town Panchayat / Municipal Panchayat, the population figure of Municipal Panchayat / Town Panchayat is relevant to decide whether a particular place is rural or urban depending upon the population of said village panchayat. Further, those branches may fall within the limits of urban territorial jurisdiction of Chennai Metropolitan Area and Hyderabad Metropolitan Development Authority but those, places are served by local Municipality, which is having jurisdiction over said area. In this case, those 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts with regard to date when provisional and final census data of 2011 is published, the matter is set aside to the file of the AO and we direct the AO to examine when village/panchyat level provisional census data of 2011 was released for public. In case, as claimed by the assessee, provisional and final census data is made available to public on 30-04-2013, then the AO is directed to accept classification made by the assessee for above three branches as per 2001 census for the purpose of section 36(1)(viia) of the Act. In case, provisional census data is officially published on 31-03-2011 or even before 1-4-2012, as claimed by the AO, then the case of the assessee is covered by Hon ble Karnataka High Court in case of State Bank of Mysore vs. ACIT(Supra) and thus, the AO is directed classify those three branches as per 2011 census for the purpose of provision for bad debt u/s 36(1)(viia) of the Act. 15. The next issue that came up for our consideration from Ground No.5 of assessee appeal is disallowance u/s.36(1)(viii) of the Act for ₹ 23,28,45,881/-. The appellant bank has claimed a deduction of ₹ 47,68,45,881/- u/s.36(1)(viii) of the Act and the same was allowed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered view that this year also the issue needs to go back to the file of the AO to consider the issue in light of directions of the Tribunal for earlier years. Hence, we set aside the issue to the file of the AO and direct him to follow the directions given by the Tribunal for earlier assessment years. 16. The next issue that came up for our consideration from additional grounds of appeal filed by the assessee is deductibility of Education Cess and Secondary Higher Education Cess. 16.1 The assessee has filed a petition for admission for additional ground and argued that the issue raised in petition is purely a legal issue, which can be raised at any state of proceedings including appellate proceedings before the Tribunal. In this regard, placed his reliance on the decision of Hon ble Supreme Court in the case of National Thermal Power Company Ltd., vs. CIT, [1998] 229 ITR 383. 16.2 The ld.DR on the other hand strongly opposed petition filed by the assessee for admission of additional ground and argued that the assessee has failed to prove the fact, of all relevant materials available before the AO to admit additional ground and hence, additional grounds filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of those mistakes. The AO has brought to the notice of the ld.CIT(A) that certain branches of appellate bank should have been considered as rural branches as the population of the places where those branches were located exceeds 10,000, as per the 2011 census. It was further pointed out that few branches fall within the Metropolitan Areas / Municipalities thereby disqualifying them as rural branches. The ld.CIT(A) after considering relevant submissions of the AO and also taken note of Press Information Bureau, Government of India, Ministry of Home Affairs census data released on 31.03.2011 by the Registrar General of India in press statement opined that provisional census data of 2011 was released on 31.03.2011 and thus, for the purpose of section 36(1)(viia) of the Act, to classify a particular branch as rural branch, the data is very much available before 01.04.2012 i.e., first day of the relevant financial year. Therefore, by taking into account the census data 2011 and also by following the decision of Hon ble Karnataka High Court in the case of State Bank of Mysore vs. CIT, [2015] 231 Taxman 319, held that 15 branches of the bank as per list annexed to appellate order are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whose discovery is not dependent on argument or elaboration. From the above, it is clear that only those mistakes which are glaring and apparent on record can be rectified. Any issue which could be decided only by looking into certain extraneous records and long drawn process of investigation cannot be considered as a mistake apparent on record, which can be rectified u/s.154 of the Act. This principle is supported by the decision of Hon ble Supreme Court in the case of T.S. Balaram vs. Volkart Brothers Ors., supra. 19.5 If you go by said legal principle, one has to understand whether application of 2001 census or 2011 census for classification of a particular branch as rural branch for the purpose of making provision u/s.36(1)(viia) of the Act is definitely an issue which can be ascertained by looking into certain extraneous records and long drawn process of investigation. Further, whether census data of 2001 or census data of 2011 is to be considered itself is a debatable issue, more particularly, in the absence of clarity on date on which said data was officially made available to the general public. In this case, the AO is of the opinion that provisional census data of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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