TMI Blog2022 (3) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to c omputer - HELD THAT:- As per M/S NCR CORPORATION PVT LTD [ 2020 (6) TMI 439 - KARNATAKA HIGH COURT] we hold that the depreciation on ATM should be allowed at the high rate of 60%. The assessee s appeal on this ground is allowed. Disallowance of CENVAT Credit on capital goods - HELD THAT:- The law does not restrict the duty paid, for which no credit is allowed, as per the Central Excise Rules from being added to the cost of the asset but mandates that any credit availed should be reduced from the capitalized cost of the asset. In the given case assessee has paid an amount of ₹ 1,28,01,784 being 50% of the CENVAT credit which not eligible to claim credit as per the Rule 63B of CENVAT credit Rules 2004 (₹ 20 in our example above). Hence the amount so paid and not eligible for credit should be added to the cost of the asset. Hence, we uphold the order of the CIT(A) in restricting the disallowance to the amount debited to the P L account as said amount needs to be capitalized and not claimed as an expenditure as per the provisions of Explanation 9 to sec.43 of the Act. Penalty paid to RBI - HELD THAT:-We notice that the Mumbai Tribunal in IDBI Bank Ltd.[ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes. Deduction for Bad and doubtful debts (PBDD) - HELD THAT:- AO removed 79 branches from rural branches list on the ground that population of many of the rural branches already exceeded 10,000 and they are situated in urban agglomeration by relying of the assessment order for AY 2014-15.AO merely quoted the Lord Krishna Bank decision of Kerala High Court but not followed it up to the logical end to bring out the relvant data as to why a particular branch is not a rural branch - The list of such branches given as part of the assessment order does not have the population figures and also the specific reason why they are not rural branches.AO has not pointed out any mistakes in the classification of rural branches made by the RBI AO calculated the AAA by considering only incremental advances made during the year instead of outstanding balances The CIT (A) also observed that this issue is covered by the various Tribual decisions including the decision of the coordinate bench of the Tribunal and deleted the addition made by the AO correctly. Adjustment to Book Profits - Addition on Disallowance u/s.14A and amount debited under provisions contingencies for NPA - HEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Particulars Amount (Rs.) 1. Disallowance u/s 14A r.w.r 8D 51,87,08,431 2. Disallowance u/s 36(1)(viia) 548,05,37,200 3. Disallowance u/s 36(1)(vii) 1619,82,46,411 4. Expenses on capital goods 4,67,22,283 5. Penalty levied by RBI 13,63,463 6. Provision for wage arrears 198,00,00,000 7. Prior period expenses 3,41,81,547 8. Expenditure on Clubs 2,63,210 9. Disallowance u/s 40(a)(ia) 2,39,64,549 10. Depreciation on ATM 3,45,32,511 Total Additions 2431,85,19,605 5. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific adjudication is called for hence rejected. The assessee did not press Ground No 4 pertaining to disallowance of Club expenses and hence the same is dismissed. The rest of the Grounds are decided in the following paragraphs Disallowance u/s 36(1)(vii) (Ground No 2) 13. The assessee has claimed a deduction of ₹ 1619.82 crores u/s 36(1)(vii), in respect of non rural debts written off. The assesee has also written off debts relating to its rural branches amounting to ₹ 1.77 crores and the same was adjusted against the provision allowed u/s 36(1)(viia) and reduced the same from the deduction claimed u/s 36(1)(vii). The details of deduction claimed u/s 36(1)(vii) are as under:- Sr. No. Particulars Amount (Rs.) 1 Debts written off, which became bad debts (NPA) for the first time during the Financial Year 2014-15 (non rural) 659,99,26,000 2. Incremental written off of debts, which became bad debts (NPA) for the first time during the Financial Year 2013-14 (non rural) 182,55,38,675 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made by the Tribunal are extracted below:- 6.3 The Ld CIT(A), however, proceeded to examine this aspect from another angle, i.e., he took the view that the AO has not examined the claim of write off non-rural bad debts of ₹ 1258.47 crores in terms of the proviso to sec. 36(1)(vii) read with sec. 36(1)(viia) of the Act. Before Ld CIT(A), the assessee submitted that the provision allowed u/s 36(1)(via) of the Act is related to rural debts only and hence, only rural debts written off as bad should be adjusted against the provision allowed u/s 36(1)(via) of the Act. However, the Ld CIT(A) expressed the view that the PBDD allowed u/s 36(1)(viia) of the Act is applicable to both Rural and non-Rural debts. Accordingly, he held that the entire amount of bad debts written off (both rural and non-rural) should be first adjusted against the provision allowed u/s 36(1)(viia) of the Act and only the excess should be allowed as deduction. He expressed the view that the decision by Hon ble Supreme Court in the case of Catholic Syrian Bank (2012)(343 ITR 270)(SC) was rendered under the assumption that the banks would maintain separate PBDD a/c in respect of rural branches and non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made towards bad and doubtful debts in respect of rural advances to the extent of provision made in the books of account subject to the ceiling fixed under clause (viia) of section 36(1). Proviso to section 36(1)(vii) operates only in a case where deduction is also claimed under section 36(1)(viia). In other words, proviso to section 36(1)(vii) applies to write off of bad debts relating to rural advances to the extent it exceeds the provision made u/s 36(1)(viia). If we examine the facts of the present case in the context of aforesaid statutory provision, it will be evident that assessee, though, has written off in the books of account an amount of ₹ 210.74 crore, but, in the computation of total income, the actual deduction claimed u/s 36(1)(vii) is ₹ 209.08 crore representing bad debts written off relating to non-rural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year, subject to certain conditions. However, a mere provision for bad and doubtful debt(s) is not allowed as a deduction in the computation of taxable profits. In order to promote rural banking and in order to assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances, the Finance Act, inserted clause (viia) in subsection (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii). Thus, considered in light of principle laid down as referred to above, when the proviso to section 36(1)(vii) applies to bad debts written off relating to rural advances, the same cannot be applied for disallowing deduction claimed on account of write off of bad and doubtful debts relating to non-rural/urban advances. As far as application of explanation to section 36(1)(vii) is concerned, we agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the ATMs are eligible for deprecation at a higher rate of 60%. The ld.AR also submitted that the decision of the ITAT in the case of State Bank of India (Supra) has been reversed by the Hon ble Karnataka High Court following the decision of the NCR Corporation Pvt. Ltd., (Supra). 14.4. The ld.DR relied on the orders of the lower authorities. 14.5. We have heard rival submissions and perused the materials on record. We notice that the Jurisdictional High Court in the case of NCR Corporation Pvt. Ltd., (Supra) held that - 8. This takes us to the second substantial question of law whether ATMs are computers and are eligible for 60% depreciation. It is pertinent to note that provisions of the Karnataka Sales Tax Act, 1957 and provisions of Income-tax Act, 1961 are not pari materia provisions. The classification of goods has been provided only for the purposes of sales tax whereas, the provisions of the income tax levy tax on income. It is pertinent to mention here that Appendix 1 to Income-tax Rules, the computer has been treated as plant and machinery. Therefore, the decision relied upon by the revenue in Diebold Systems (P.) Ltd. supra has no application to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,11,18,716 Total 3,39,20,499 1,28,01,784 4,67,22,283 15.1. The AO during the course of assessment noticed an observation made in the Tax Audit Report saying that the assessee had not followed the provisions of section 145A of the Act with regard to CENVAT Credit of Servce Tax and Excise Duty on capital goods. Basis this the AO added a sum of ₹ 4,67,22,283/- towards CENVAT credit of excise duty out of capital goods Service Tax.. 15.2. Aggrieved by the order of the AO, the assessee preferred an appeal before he CIT(A) where it was submitted that section 145A of the Act with regard to CENVAT credit is not applicable to capital goods. The CIT(A) accepted this contention of the assessee and deleted the addition made by the AO to the extent of CENVAT credit of excise duty out of capital goods ₹ 2,11,19,716. However, the CIT(A) restricted the addition to ₹ 1,28,10753/- debited by the assessee to the P L account. 15.3. Aggrieved by the order of the CIT(A) the assessee has filed the appeal before the Tribunal for the addition to ₹ 1,28,107 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual cost of the assets is to be reduced in respect of any CENVAT credit made and allowed under the Central Excise Rule 1994 where the duty paid has already been included in the cost of the asset. Therefore the contention of the assessee that as per the explanation 9 to section 43, there is a restriction to add the amount paid towards CENVAT credit to the cost of the asset is not correct. We will explain this with an example where a capital asset is purchased for ₹ 100 which includes ₹ 30 towards duty leviable (Original Cost ₹ 70 and Duty amount ₹ 30). The eligible CENVAT credit of excise duty of this purchase is ₹ 10. What the explanation to 9 envisages is if the asset is capitalized for an amount of ₹ 100, the credit allowed subsequently i.e. ₹ 10 need to be reduced from the cost of the asset. The actual cost in this case is ₹ 90 (₹ 70 of original cost plus ₹ 20 of duty not eligible for credit). The law thus, does not restrict the duty paid, for which no credit is allowed, as per the Central Excise Rules from being added to the cost of the asset but mandates that any credit availed should be reduced from the capitaliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f coins and small de-nomination notes and mutilated notes. The ratio laid down in the decisions mentioned at para 12 is squarely applicable to the instant case instead of the decision in ANZ Grindlays Bank (supra) relied on by the Ld. DR. Therefore, following the decisions mentioned at para 12 above, we delete the disallowance of 15,94,200/- levied by the AO. Accordingly, the 2nd ground of appeal is allowed. 16.5. We notice that the Hon ble Mumbai Tribunal in the above case has analysed the provisions of the Banking Regulation Act to understand the nature of fine / penalty paid before coming to the conclusion that the amount claimed are routine fines or penalties and that they are compensatory' in nature not punitive. We further notice as observed by the CIT(A) in the order, the assessee has not furnished the full details of the nature of payment made to RBI. We are of the considered view that the provisions under which these payments are done need to be looked into in detail and it will not be correct to conclude without analyzing the same. We therefore remand the case back to the AO to look into the details of payments made to RBI to see if these are routine pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply to assessee as (i) it does not prepare profit loss account as per the provisions of Companies Act 1956 (ii) section 211 of the Companies Act 1956 does not apply to the assessee as they did not fall under the definition of Banking 18.2 The CIT(A) dismissed the assessee s appeal by holding that there is no option given to the company u/s 115JB to exclude it from the applicability of the provisions of sec.115JB on the above grounds. 18.3. Aggrieved by the order of the CIT(A), the ld.AR submitted that tise issue is covered by the decision of the coordinate bench in assessee s own case (Supra) where the Hon ble Tribunal has held that the provisions of sec.115JB is not applicable to the assessee. 6.3 We notice that an identical issue has been examined by the coordinate Bench of this Tribunal in the case of M/s Canara Bank in ITA No.1884/Bang/2018 dated 27/12/2021 for the asst. year 2013- 14, wherein the identical issue has been sent back to the file of Ld CIT(A) with the following observations:- 7.1 Before Ld.CIT(A) also, the assessee contended that the provisions of sec.115JB will not be applicable to it. It was submitted that the assessee falls un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponding new bank in BR Act. However, the BR Act does not say that corresponding new bank is not a Banking Company. (h) It is not the case of the assessee that being a corresponding new bank and not registered under Companies Act, 1956, the assessee is not governed by BR Act. (i) It is highly unfortunate on the part of a reputed public sector bank to resort to such unwarranted, hyper technical, hair splitting of the definitions under various Acts only to avoid the payment of due taxes. (j) Assuming that the assessee is not a Banking Company, then the provisions of sec.115JB(2)(a) will be applicable to the assessee, as it is an Indian Company as per section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act 1980. (k) Various decisions relied upon by the assessee relate to the period prior to the amendment made by Finance Act 2012. 7.3 Before us, the Ld A.R reiterated that the provisions of sec.115JB will not apply to the assessee, since it is not formed under Companies Act. He placed his reliance on the decision rendered by Kolkata bench of Tribunal in the case of Damodar Valley Corporation (2017(8) TMI 1363). On the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t requiring separate adjudication and hence dismissed. The rest of the grounds are adjudicated in the following paragraphs. Disallowance u/s.14A (Ground No 2 to 8) 20. The assessee earned tax free income of ₹ 36,59,37,026 and the assessee voluntarily disallowed an amount of ₹ 1,83,60,509 as expenditure relating to earning tax free income. The assessing office arrived at a sum of ₹ 53,70,68,940 as the amount disallowable u/s.14A r.w. rule 8D(2)(ii) 8D(2)(iii) and after adjusting the amount voluntarily disallowed arrived at the final disallowance of ₹ 51,87,08,431. The AO took the view that the assessee is not in a position to prove its claim that the own funds were used for earning the exempt income 20.1. The CIT(A) considered the submissions of the assessee and noted that this issue has been decided in favour of the assessee by the decision of co-ordinate bench of this Tribunal rendered in the assessee s own case in ITA No.1264 and 1352/Bang/2013 for the assessment year 2011-12 and ITA No.206/PAN/2016 for assessment year 2012-13. Before Ld CIT(A), the assessee contended that the AO has not recorded dissatisfaction over the disallowance m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for examining it afresh. 20.4. We respectfully follow the decision of the coordinate bench of the Tribunal, we set aside the order passed by the CIT(A) on this issue and restore the file to the AO for fresh examination. This ground is allowed in favour of the revenue for statistical purposes. Deduction u/s.36(1)(viia) (Ground No 9 to 13) 21. The assessee had made provision and claimed a deduction for Bad and doubtful debts (PBDD) of ₹ 992,48,04,092. 21.1. The AO during the course assessment contented that (i) Population of many of the rural branches had already exceeded 10,000 (ii) In several cases it was not rural branche but rather it was situated in urban agglomeration (iii) The assessee calculated Aggregate Average Advances by considering outstanding balances (including advances made in the earlier years) instead of taking incremental advances made during the year The AO therefore restricted the deduction to ₹ 444,42,67,702 and disallowed the balance claim of ₹ 548,05,37,200. 21.2. Before the CIT(A) the assessee submitted that the classification of rural branches is primarily made based on the data furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the P L account towards CENVAT credit, we held that the amount needs to added to the cost of the capital asset and upheld the addition by the AO and CIT(A) (refer Para 14.8 above). In the similar lines, the amount of CENVAT credit not routed through the P L account is to be treated as part of capital asset and the AO is not corrected in making this addition towards the same. We therefore see no reason to interfere with the decision of the CIT(A), and dismiss the ground raised by the revenue in this regard Provisions for wage arrears (Ground 17 to 19) 23. The assessee had suo moto disallowed a sum of ₹ 198 crores towards provision made for wage arrears. The AO did not disturb the assessee s computation. However before the CIT(A) the assessee raised a fresh ground with the regard to the claim of deduction of ₹ 198 crores as deduction against the provision made for wage arrears. 23.1. The CIT(A) admitted this additional ground and allowed the claim of the assessee by relying on the decision of the coordinate bench of the Tribunal in the case of Syndicate Bank for the assessment year 2009-10 (ITA No.709 998 / Bang/2012 order dated 13.06.2014). The CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2011-12. 25.1. We have heard both the parties on this issue and perused the materials on record. Since the Ld CIT(A) has rendered his decision on this issue following the decision rendered the coordinate bench of this Tribunal, we do not find any reason to interfere with the order passed by the CIT(A) on this issue. 26. In the result, the Revenue s appeal is partially allowed for statistical purposes. ITA No.1680/Bang/2018 27. In this appeal the assessee has raised 6 grounds of appeal. Ground No.1 is general in nature and does not require separate adjudication, hence dismissed. Ground No.4 relating to disallowance of club expenses is not pressed by the assessee and hence dismissed. The rest of the grounds are adjudicated in the following paragraphs. Deduction u/s 36(1)(vii) (Ground No.2) 28. This ground relating to issue of deduction u/s 36(1)(vii) is adjudicated by us in ITA No.1109/Bang/2019 for the assessment year 2015-16 for the reasons stated herein above in paragraphs 13.1 to 13.6 Since the issue in this ground is the same, we allow the ground of the assessee and the disallowance u/s 36(1)(vii) is deleted. The deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities (Ground No.2 to 4) 34. The assessee while arriving at the income deducted profit on sale of investment as per books amounting to ₹ 3,14,07,67,825.44 and added back depreciation amounting to ₹ 5,37,32,18,540 and securities amounting to ₹ 77,23,58,057.22 which were debited to P L account. The assessee claimed an investment on trading loss of ₹ 30,28,32,07,135 based on the investment trading account prepared for the purpose of Income-tax Act. This based on the fact that, for the purpose of Income-tax, the assessee treated the entire investment (other than shares, mutual funds and venture capital) as stock-in-trade and the interest income and the profit on sale of investment under the head profits and gains from business or profession . The AO relying on the Reserve Bank of India (RBI) Circular dated 02/09/2003 and also CBDT Circular held that the entire investment portfolio cannot be treated as stock-in-trade. He further held that no depreciation in the case of HTM securities be allowed and in the case of Available for sale Held that for trading only the net depreciation debited to profit and loss account can be allowed. The AO further observe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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