TMI Blog2022 (4) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... e into account and that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, the question of law framed is to be answered in favour of the assessee. Disallowance u/s 36(1)(viia) on provision for bad and doubtful debts - HELD THAT:- As decided in own case [ 2017 (11) TMI 1589 - ITAT DELHI] as section 36(1)(viia) grants deduction in respect of total provision for bad and doubtful debts and the same is not confined to provision for rural branches only, we hold that the quantum of deduction has to be seen in the light of the total amount of provision consisting of both rural and nonrural branches.action taken by the Id. CIT(A) in reducing the amount of deduction to the extent of provision for bad and doubtful debts in respect of rural branches alone, becomes unsustainable. We, therefore, direct that deduction be allowed u/s 36(1)(viia) - Appeal of assessee allowed. Allowability of deduction being amortization of premium on HTM securities - HELD THAT:- Issue decided in favour of assessee in own case [ 2017 (11) TMI 1589 - ITAT DELHI] - The Hon ble Bombay High Court in the case of CIT vs. HDFC Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter any other High Court decision against the assessee. In view of the fact that two use are possible, the view that favour the assessee may kindly be considered, more so in the case of a Nationalized Bank as held by the Hon ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. [ 1973 (1) TMI 1 - SUPREME COURT] - Even if it is considered that book profit provisions would apply to the assessee bank, the adjustments carried out by the AO is not possible under the book profit computation as provided under Explanation to section 115JB of the Act. Tax liability as per MAT provisions will be on the book profits, as increased by the amounts, if any, from items (a) to (j) and reduced by the items from (i) to (viii). Therefore there are specified adjustments which can only be made to the net profits as per profit loss account. Since this is a section wherein the assessee is taxed by a deeming fiction, it has to be strictly construed and no adjustments are possible other than what is mentioned in the Explanation. Owing to the provisions of the Act that amended, we hereby allow the appeal on this ground. Bad and Doubtful Debts reduced from the loans and advances or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. Therefore provision for bonus made is an ascertained liability and cannot be added in the net profit for arriving book profits. Leave Encashment, LTC Gratuity - HELD THAT:- The above provisions are made on actuarial valuation basis therefore the same are in the nature of ascertained liability and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. Therefore there is no question of making any addition to the book profits. Hence, the addition made on account to be deleted - Incurring of liability is the ground for allowability of deduction quantification may not be possible. In such cases the liability is present liability to be discharged in future and cannot be considered as contingent or unascertained liability. See BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX [ 2000 (8) TMI 4 - SUPREME COURT] - thus there is no addition can be made to the book profits. Provision for Wealth Tax - HELD THAT:- As while arriving at the book profit for MAT computation u/s 115JB, inadvertently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1) (Assessee) ITA No. 2173/Del/2017 (G.No.1) (Department) ITA No. 2174/Del/2017 (G.No.1) (Department) ITA No. 1823/Del/2017 (G.No.1) (Department) ITA No. 1812/Del/2018 (G.No.1) (Department) Disallowance u/s 14A: 2. This issue is related to disallowance of ₹ 5.46 crores u/s 14A applying Rule 8D(2)(iii). 3. According to the assessee bank has sufficient non-interest bearing funds like share capital, reserves, current account balances for making any investment in tax free securities. Further, all expenses of the bank are for carrying on the banking business. Even the investments in the case of bank are held as stock-in- trade and part of business of the bank. Thus, no expenses can be disallowed u/s 14A. 4. It was argued that the AO has applied Rule 8D without recording any satisfaction for rejecting the assessee s claim and embarking upon Rule 8D nor there is any finding of any expenses incurred for earning of any tax free income. 5. The ld. CIT(A) has given part relief by upholding the disallowance as per last limb of Rule 8D namely Rule 8D(2)(iii). 6. The assessee is a Nationalized Bank and the issue is squarely covered in its f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income. 8. The Co-ordinate Bench Delhi Tribunal in the case of Punjab Sind Bank Anr. vs. Assistant Commissioner of Income Tax Anr. In ITA No.781/Del/2018, 1208/Del/2018 Jul 12, 2021(2021) 62 CCH 0324 (Del Trib.), had taken the similar view and deleted the disallowance u/s 14A of the Income Tax Act. 9. Therefore, this ground of the assessee is hereby allowed, the Revenue s appeal is hereby dismissed and the disallowance made u/s 14A is hereby deleted. ITA No. 1581/Del/2017 [G.No.2(a) (b)] (Assessee) ITA No. 1582/Del/2017 (G.No.2) (Assessee) ITA No. 1583/Del/2017 (G.No.2) (Assessee) ITA No. 1199/Del/2018 (G.No.3) (Assessee) ITA No. 2174/Del/2017 (G.No.3) (Department) Software Expenses: 10. This issue is pertaining to addition of ₹ 16,15,97,772/- being software expenses alleging it to be capital in nature as against the claim of the assessee that the same should be allowed as revenue expenditure. 11. This issue is covered in favour of the assessee in its own case by the Hon ble De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provision for bad and doubtful debts for A.Y. 2012-13 cannot exceed ₹ 729,44,85,300/-. 16. The assessee filed appeal seeking relief for deduction of ₹ 843,95,06,510/- u/s 36(1)(viia) of the Act. The ld. CIT(A) allowed the claim of the assessee u/s 36(1)(viia) following the order for AY 2011 -12 but restricted it to the amount of ₹ 729,44,85,300/- being provision for bad and doubtful debts and disallowed ₹ 114.51 cr. on the ground that reserve for bad and doubtful debts cannot be considered as provision. Reference is invited to page 13, para 8 upto page 19, para 8.4.3. 17. This issue is covered by the order of the Co-ordinate Bench of ITAT in assessee s own case for the A.Y. 2011-12 in ITA No.644/Del/2014 and ITA No.5969/Del/2014 vide order dated 25.10.2017. The operative part of the order is reproduced as under: 12 We find that the computation made in terms of section 36(1)(viia) gives the total amount of deduction at ₹ 637,56,78,375/-, which fact has not been disputed also. However, the Id. CIT(A) restricted the addition to the tune of ₹ 488.39 crore on the ground that the total amount of provision for bad and doubtful debts in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot admitting the claim relying on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd. vs. CIT 284 ITR 373 (SC). 21. This issue is also covered in favour of the assessee by the order of the Co-ordinate Bench of ITAT in the assessee s own case for the A.Y. 2011-12 in ITA No.6443/Del/2014 and ITA No.5969/Del/2014. The relevant part of the order is reproduced as under: 15. The assessee has raised an additional ground reading as under: 1. The appellant by this additional ground is claiming relief of ₹ 30,73,30,286 being the amortized premium on HTM securities which may kindly be allowed 16. This being a legal ground taken up before the Tribunal for the first time is hereby admitted for disposal on merits. The Id. AR contended that mortised premium on HTM securities be allowed as deduction. It was fairly admitted that the amount was offered for taxation and no deduction was claimed either before the Assessing Officer or before the CIT(A). He submitted that the additional claim has been raised because of the favourable judgment of the Hon ble Bombay High Court in CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). Since this issue was not ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of the maturity was not readily available and hence, the matter be remitted to the file of the Assessing Officer for deciding it as per the above part of the Circular. No serious objection was taken by the learned Departmental representative. In view of these facts we set aside the impugned order and restore the matter to the file of the Assessing Officer for deciding this point in accordance with the above noted method. Therefore, respectfully following the order of the Tribunal we decide the issue in favour of the assessee and against the Revenue and confirm the order of the Commissioner of Income-tax (Appeals) on this issue. 23. The above judgment of the Hon ble Bombay High Court has been followed by the Hon ble Karnataka High Court in the case of CIT vs. ING Vysya Bank Limited (2020) 422 ITR 116. The Hon ble Karnataka High Court decided on two issues- one was whether the provision of section 115JB of the Income Tax Act would apply to a banking company and the second was whether the amortization of investment under HTM category done as per RBI guidelines was allowable expenditure u/s 37(1) of the Act. 24. At page 20 of the paper book is the question of law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1937/Del/11 and 1961 /Del/11 The matter was set aside to the AO for verification by the ITAT. 29. The AO after verification has allowed the claim of the assessee for the A.Y. 2008-09 and 2011-12 for the A.Y. 2009-10. 30. The ld. CIT(A) for the year under consideration has given this finding at relevant page no. 8 and 9 of his order para 5. Since the issue is covered in favour of assessee, the appeal of revenue on this ground is hereby dismissed. 31. On the same issue, the ld. CIT(A) for the AY 15-16 has disallowed the claim of depreciation on the ground that the AO has made additions by invoking provisions of Section 32 Explanation 1 and thus confirmed the disallowance. It is respectfully submitted that the facts in all the year are same namely that the additions are temporary wooden structures, internal partitions, cabin formation, flooring and ceiling wiring etc. for computer, false ceiling, glass windows, interiors etc. as noted by the AO. These are not in the nature of construction of any structures or renovation or extension or improvement to the building. 32. Therefore, this issue stands covered by earlier orders as explained above and assessee s appeal vide g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bad debt written off in respect of the amount of deduction allowable u/s 36(1)(viia) amounting to ₹ 207,09,87,602/- (₹ 695,21,49,387 plus ₹ 27,46,115 minus ₹ 488,39,07,900/- was held to be allowable u/s 36(1)(vii). Thus, the excess deduction of ₹ 488,11,61,785/- (₹ 695,21,49,387 minus ₹ 207,09,87,602/-) was disallowed. This was done by the AO considering the clarificatory amendment made by the Parliament vide Finance Act, 2013 by way of insertion of Explanation to section 37(1)(vii) of the Act which was held to have retrospective effect. The Id. CIT(A) deleted the addition by noticing that the amendment relied on by the AO was effective from the A.Y. 2014-15 and, hence, could not be retrospectively applied. 10. We have heard the rival submissions and perused the relevant material on record. The Hon ble Supreme Court in Catholic Syrian Bank vs. CIT (2012) 248 CTR 1 (SC), has observed that the provisions of section 36(1)(viia) apply only to rural advances and the provisions of section 36(1)(vii) apply on other advances. It has been held that both these provisions are distinct and independent items of deduction and operate in their r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further provision (write off) of ₹ 315 cr. The provisions u/s 36(1)((viia) are separate which has also been noted by the Id. CIT(A) in her order pages 66-67. However, the ld. CIT(A) has concluded that it is not a bad debt written off but it is still a provision for bad and doubtful debts and is not a write off. Further, the ld. CIT(A) has relied on the CBDT Circular No.314 of 2014 and the amendment to section 36(1 )(vii) wherein Explanation-2 was inserted by the Finance Act, 2013 with effect from A.Y. 2014-15 which [CIT(A) s order at page 67] is again reproduced: 11.7 In order to clarify the scope and applicability of provision of clause (vii), (via) of sub-section (1) and sub-section (2), an Explanation in clause (vii) of sub-section (1) of section 36 has been inserted stating that for the purposes of the proviso to clause (vii) of sub-section (1) of section 36 and clause (v) of sub-section (2) of section 36, only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (via) of sub-section (1) of section 36 applies, the amount of deduction in respect of the bad debts actually written off under clause (vii) of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for impugned bad debt . In the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra), a mere debit to the P L a/c was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the P L a/c but simultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/ debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in its impugned judgment. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under s. 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in its books, as indicated above. 47. Therefore, in assessee s case also, it is an actual write off in view of the decision of the Hon ble Supreme Court, this issue is fully covered in favor of assessee. The appeal of the assessee is hereby allowed on this ground. ITA No. 1581/Del/2017 (G.No.5) (Assessee) ITA No. 1582/Del/2017 (G.No.3) (Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (2) of section 115JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme Court in case of Commissioner of Income-Tax, Bangalore vs. B.C. Shrinivasa Setty, Vo. 128ITR 294, had observed that in the Income Tax Act, a charging section and the computing provisions together constitute an integrated code. In a case where the computation provision cannot apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, it was held that no capital gain tax can be levied. 53. Concluded at page 12 para 21 as under: 27. In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No. 2 in favour of the assessee and against the revenue. In view of this, question of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. 56. Thus, the understanding of the above amendment to section 115JB is where a company which are not required u/s 211 (129) of the Companies Act to prepare their P L account in accordance with Schedule - VI of the Companies Act, 1956 profit loss account prepared in accordance with the provisions of their Regulatory Acts shall be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the meaning of Book Profits are reproduced for your ready reference: Explanation [1],-For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name called ?[ other than a reserve specified under section 33AC1; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which [section 10 (other than the provisions contained in clause (38) thereof) or [****] section 11 or section 12 apply; or] (g) the amount of depreciation,] (h) the amount of deferred tax and the provision therefor; (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, net worth shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 32- of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.] 62. On a reading of the above explanation, it is clear that tax liability as per MAT provisions will be on the book profits, as increased by the amounts, if any, from items (a) to (j) and reduced by the items from (i) to (viii). Therefore there are specified adjustments which can only be made to the net profits as per profit loss account. Since this is a section wherein the assessee is taxed by a deeming fiction, it has to be strictly construed and no adjustments are possible other than what is mentioned in the Explanation. 63. The Hon ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 (SC) (copy enclosed) has on page 280 held as under: Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee has correspondingly / simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances / debtors on the asset side of the balance sheet, and, consequently at the end of the year, the figure in the loans and advances o the debtors on the asset side of the balance sheet is shown as net of provision for impugned bad debt , the assessee will be entitled to the benefit of deduction u/s 36(1)(vii), as there is an actual write off by the assessee in his books. 68. Further, Hon ble Karnataka High Court in the case of CIT vs. Yokogawa India Ltd. reported in [2012] 204 Taxman 305 has taken similar view and has held as under: In the instant case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, item (c) of the Explanation is not attracted to the facts of the case. Item (c) in section 115JA and 115JB (1) are identical. In order to att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to section 115JA or 115JB is not at all attracted. In that context even if amendment which Is made retrospective the benefit given by the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, there is not merit in this appeal. 69. The same view was taken by Co-ordinate Bench of ITAT Mumbai in the case of Bank of India Vs. ACIT in ITA No. 1767/Mum/2019 and 2048/Mum/2019 dated 11.12.2020. The relevant portion of the order is as under: 37. In the course of argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loans and advances reflected in the assets of the balance sheet, the learned CIT(A) will direct CIT(A) the AO for excluding the same in the computation of book profits. Ordered, accordingly. 70. Though in the said Mumbai ITAT case the issue was referred back to the ld. CIT(A), in assessee s case the AO as well as ld. CIT(A) has verified and accepted this factual aspect namely that provision of bad debts have been reduced from the loan and advances reflected in the asset side of the balance sheet. 71. Further, the assessee being a banking company; even there are specific provisions in the Income Tax Act, 1961 u/s 36(1)(viia) which allows deduction to the banks in respect of provisions made for bad and doubtful debts. The Income Tax Act has considered this peculiarity in the case of banking industry and has allowed deduction on the basis of provision whereas under normal circumstances, any provision made in the books is not allowed as deduction. The fact that the provisions of Section 115JB are now allowing the profit loss account to be prepared in accordance with the regulatory act under which the bank operates, all provisions as mandated by RBI and duly recorded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus arises every year and based on the same, provision is made in the books of accounts to meet the bonus liability. Therefore the same is an ascertained liability. 78. The assessee submitted that if a business liability has definitely arises in the accounting year, the deduction should be allowed to the assessee although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If the above requirements are satisfied than the above liability cannot be considered as a contingent one. 79. The liability is in present case though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. Therefore provision for bonus made is an ascertained liability and cannot be added in the net profit for arriving book profits. ITA No. 1823/Del/2017 (G.No.6) (Department) ITA No. 2173/Del/2017 (G.No.7) (Department) ITA No. 2174/Del/2017 (G.No.9) (Department) ITA No. 1812/Del/2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the ceiling on accumulation. The officers could at their option avail of the accumulated leave or in lieu of availing of the leave apply for encashment whereupon they would be paid salary for the period of leave earned but not availed of. So did the scheme extend the facility of encashment to the staff in respect of vacation leave. The assessee-company had created a fund by making a provision for meeting its liability arising on account of the accumulated earned/vacation leave. In the assessment year 1978-79, an amount of ₹ 62,25,483 was set apart in a separate account as provision for encashment of accrued leave. It was claimed as a deduction. In the opinion of the Tribunal, the assessee was entitled to such deduction. The High Court had formed a different opinion and held that the provision for accrued leave salary was a contingent liability and therefore was not a permissible deduction. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that the provision made by the assessee-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by the AO is on different facts and cannot be applied to the facts of the assessee s case. In the above case, prior period expenses were not debited to the profit loss account but shown as debit in the Profit Loss appropriation account. Therefore the court has held that since it is not debited in the profit loss account and it is not covered by any of the clause of deduction of explanation to section 115JB, therefore it cannot be reduced now. 86. The Hon ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 has held that the AO is bound to accept the profit loss account prepared in terms of the provisions of the Companies Act and can make adjustment which are mentioned in the section 115JB and not beyond. Prior period expenses do not fall under any of the category for making adjustment by way of addition to the net profit. 87. In assessee s case the amount is debited in the Profit Loss account and the same is not covered by any clause of addition of the Explanation to section 115JB. ITA No. 1582/Del/2017 (G.No.7) (Assessee) ITA No. 1583/Del/2017 (G.No.7) (Assessee) ITA No. 1823/Del/2017 (G.No.7) (Department) ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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