TMI Blog2022 (11) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of broken period interest - HELD THAT:- This issue is no longer res integra in view of the decision of Hon ble Jurisdictional High Court in assessee s own case [ 2019 (4) TMI 1488 - BOMBAY HIGH COURT] assessee, however, argued that there was separate interest component payment of which was an allowable deduction. Tribunal having accepted the assessee s contention, the Revenue is in the appeal before us. This issue is no longer res integra. Division Bench of this Court in case of CIT Vs. HDFC Bank Ltd [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] had ruled in favour of the assessee. We are informed that the appeal against such judgement of the High Court was also dismissed by the Supreme Court. In the result, the Income Tax Appeal is dismissed. Allowance of deduction u/s 36(1)(viia) restricted by reducing the amount of advances to the rural branches, population of which was more than 10000 as per census report 2011 - HELD THAT:- We find from perusal of the aforesaid decision of Hon ble Apex Court, it only talks about provision made for Non-Performing Assets (NPAs) by a Non-Banking Finance Company (NBFC) in accordance with prudential norms for income recognition and asset clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest income onNon-Performing Assets (NPAs) could be brought to tax only on receipt basis in line with the RBI prudential norms. Disallowance on bad debts made by the AO pertaining to credit card business claimed by the assessee on the ground that credit card business was not banking business of the assessee - HELD THAT:- Credit card business according to the RBI master circular is a permissible banking business activity provided under Banking Regulation Act and hence, it could be safely construed that credit card business is part and parcel of the banking business carried on by the assessee bank. We find that VISA and Master Card only act as service provider. The monies are lent by the assessee bank. The entire risk of bad debts thereon is borne by the assessee bank and not the service providers. Claim of bad debts to be routed through provision for bad and doubtful debts account would be relevant if the provision is created u/s.36(1)(viia) - assessee duly drew our attention from the computation of income that total amount of bad debts is reduced by the amount of brought forward provision for bad and doubtful debts claimed u/s.36(1)(viia) of the Act in the preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is challenging the deletion of addition made on account of interest income on accrual basis instead of due basis. 2.1. We have heard the rival submissions and perused the materials available on record. This issue is no longer res integra in view of the decision of Hon ble Jurisdictional High Court in assessee s own case for the A.Y. 2000-01 in Income Tax Appeal No. 1621 of 2011 dated 12/02/2013 wherein the question raised before the Hon ble High Court is as under:- Whether on the facts and in the circumstance of the case and in law the Tribunal was right in excluding from the total income of the Assessee Company the amount of interest of Rs 29,36,03,288/- which had accrued, but not fallen due or received ? 2.2. The Hon ble High Court disposed of the said question by observing as under:- 2. The Counsel for the parties state that the question raised in this Appeal is covered against the Revenue and in favour of the Respondent-Assessee by the decision of this Court in the matter of The Director of Income Tax (International Taxation) v/s Bank of Bahrain Kuwait, BSC in Income Tax Appeal No. 1738 of 2011 rendered on 5th February, 2013. 3. In view of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was an unascertainable item of expenditure, that it depended upon the option to be exercised by the employees at a future date. In the appellate proceedings the FAA upheld the order of the AO. 9.1 Before us, the AR argued that share under ESOP were issued to the employee at below market price to retain them in co., that it was a form of compensation for services rendered, that SEBI had directed the listed companies to account for the compensation cost as expenditure, that ESOP amortization cost was charged to the P LA/c. under the matching cost and revenue principles as well as fundamental accounting concept of prudence, that both the above concepts were followed as per mandatory Accounting Standard-:,that there was no benefit of enduring nature, that it was clearly a revenue expenditure being employee compensation cost, that it was an ascertained liability that was created during the year and quantified during the date of grant, that in the hands of employees ESOP benefits was taxed as perquisite. DR supported the order of FAA. 9.2 We have heard the rival submissions. We are of the opinion that the issue needs further verification about the terms and conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally held that normally investments held as stock in trade would also be liable for disallowance u/s 14A of the Act. However, with respect to investments held as stock in trade by the banks, the same decision held by placing reliance on the CBDT Circular No. 18/2015 dated 02/11/2015 had held as under:- 19. In its analysis, the High Court accepted the contention of the counsel for the assessee that the assessee is engaged in the purchase and sale of shares as a trader with the object of earning profit and not with a view to earn interest or dividend. The assessee does not have an investment portfolio. The securities constitute the assessee's stock-in-trade. The Department, in fact, rightly accepted, as a matter of fact, that the dividend and interest earned was from the securities that constituted the assessee's stock-in-trade. The same is, in any event, established. The assessee carried on the business of sale and purchase of securities. It was supported by Circular No.18, dated November 02, 2015, issued by the CBDT, which reads as under:- 'Subject: Interest from Non-SLR securities of Banks Reg. It has been brought to the notice of the Board that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshankar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench of this Court in case of CIT Vs. HDFC Bank Ltd (366 ITR 505) had ruled in favour of the assessee. We are informed that the appeal against such judgement of the High Court was also dismissed by the Supreme Court. In the result, the Income Tax Appeal is dismissed. 5.3. Respectfully following the aforesaid decision, the Ground No. 4 raised by the revenue is dismissed. 6. The Ground No. 5 raised by the revenue is challenging the deletion of allowance of deduction u/s 36(1)(viia) of the Act restricted by the ld. AO by reducing the amount of advances to the rural branches, population of which was more than 10000 as per census report 2011. 6.1. We have heard the rival submissions and perused the materials available on record. We find that deduction u/s 36(1)(viia) of the Act is available to the assessee bank in respect of advances given in rural branches of the bank. For this purpose, the expression rural branch is defined in Explanation to Section 36(1)(viia) of the Act as a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provisions for NPA under Income Tax Act. The ld. DR vehemently argued that the RBI guidelines only prescribe the date of implementation of census published figures with village population figures from 01/09/2016, which is not binding on the revenue. 6.3. We find from the aforesaid definition of rural branch‟ in Explanation to Section 36(1)(viia) of the Act, the relevant catch words are as under:- a) Relevant figures b) Published c) On or before 01/04/2013 In the instant case, the relevant figures of village wise population details were not published on or before 01/04/2013 in the public domain. Hence the assessee bank was justified in not implementing the same while filing its return for the purpose of working out the allowability of deduction u/s 36(1)(viia) of the Act. The RBI guidelines issued for identifying Census Centres were placed on record by the ld. AR vide pages 239 to 247 of the Paper Book. The relevant operative portion of the said guidelines is reproduced below:- Special Cases for Computing of Correct Population for Classifying a Centro in to Appropriate Population Group from Census Database A. Centre spanning across two or more dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owth is a part of a bigger centre to be considered as bigger centre only, not a separate center. Examples: 1) Jamalpore (OG) and Chovisi (OG) are the part of bigger centre Navsari in district Navsari in Gujarat. Therefore, the centre of the branches located at these OGs is Navsari. ii) Khanpur (OG) and Lamin (OG) are the part of bigger centre Pathankot in district Pathankot in Punjab. C. Cantonment Boards Cantonment Boards (CBs) near to/ surrounded by big cities (List-1) will considered as a part of that big city. Therefore, branches falling under such CBs and big cities will be classified based on the combined population of the big city and the corresponding CB.The cantonments/ CBs those are treated as separate centres are given in List-2. D. Delhi as a single centre As per administrative map of Census 2011, there were two Municipal Corporations viz. Delhi Municipal Corporation (DMC)' (subsequently. trifurcated) New Delhi Municipal Corporation (NDMC) and one cantonment board viz., Delhi Cantonment Board, are considered as separate centres in Delhi. However, for reporting of data to the RBI, all these centres will continued to be classified as si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t available on the first date of previous year relevant to assessment year under consideration as the same was not published. It is seen that the AO in the assessment order has nowhere mentioned as to from where he has taken the population as per the Census 2011 and how he has concluded that this data either provisional or final was available or published in the public domain as on the first day of the previous year relevant to the assessment year under consideration. The assessee has in their submission dated 11.01.2019 submitted copy of the provisional data obtained from the office of Registrar General Census Commissioner of India at New Delhi who had provided hard copies of the provisional census data of 2011. It was seen that such data contained state-wise population census under various categories like sex, child, adult etc. The relevant provisional data do not provide population of rural areas which could have been useful for the purposes of section 36(1)(viia) of the Act. Accordingly, in the facts and circumstances, it is arrived at that though the AO has mentioned that the provisional census reports were released on 31.03.2011 and were widely disseminated but the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic domain. Accordingly, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No. 5 raised by the revenue is dismissed. 7. In the result, the appeal of the revenue for the A.Y. 2014-15 in ITA No. 2725/Mum/2019 is dismissed. Cross Objections of the Assessee CO No. 26/Mum/2021 - A.Y. 2014-15 8. At the outset, we find that there is a delay of 345 days in filing of these cross objections by the assessee. From the affidavit filed by the assessee dated 19/03/2021 from the Managing Director of the assessee bank, we find that the said delay had been contributed due to Covid-19 Pandamic and in view of the relaxation issued by the Hon ble Supreme Court, the delay in filing of these cross objections is hereby condoned and cross objections of the assessee is hereby admitted for adjudication. 9. The ground No.1 raised in these cross objections becomes infructuous, in view of the dismissal of the ground No.4 of the Revenue for A.Y.2014-15. Hence, the ground No.1 raised by the assessee in its cross objection is dismissed. 10. The ground No.2 3 raised by the assessee in its cross objections become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. AR at the time of hearing due to smallness of the amount. The same is reckoned as a statement made from the Bar and hence, dismissed as not pressed. 16. The ground No.3 is raised by the assessee is challenging the confirmation by the ld. CIT(A) in respect of the addition made by the ld. AO in the sum of Rs.6,66,04,219/- towards recognition of interest income on non-performing assets which in the opinion of the assessee is not in accordance with RBI guidelines. 16.1. We have heard rival submissions and perused the materials available on record. It is a fact that this interest income on non-performing assets had been brought to tax by the ld. AO on accrual basis ignoring the RBI prudential norms for income recognition wherein, it has been stipulated that income from non-performing assets could be recognized only on receipt basis and not on mercantile basis. The ld. AO had applied the provisions of Section 43D of the Act and sought to bring to tax the interest income of non-performing assets on accrual basis. This issue is no longer res-integra in view of the decision of Hon ble Supreme Court in the case of CIV vs. Vasisth Chay Vyapar Ltd., reported in 410 ITR 244 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of sale or rendering of service even though payments are made by instalments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized. 17. In this scenario, we have to examine the strength in the submission of learned counsel for the Revenue that whether it can still be held that income in the form of interest though not received had still accrued to the assessee under the provisions of Income-tax Act and was, therefore, exigible to tax. Our answer is in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the judgment of the Supreme Court in the case of Southern Technologies Ltd.'s (supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr. Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of section 36(1)(vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(1)(vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered around deductibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial principles subject to the provisions of the Income-tax Act. Therefore, if by Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into account the said Explanation in computation of total income under the Income-tax Act failing which one cannot ascertain the real profits. This is where the concept of add back comes in. In our view, a provision for NPA debited to Profit and Loss Account under the 1998 Directions is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the IT Act. 39. One of the contentions raised on behalf of NBFC before us was that in this case there is no scope for add back of the Provision against NPA to the taxable income of the assessee. We find no merit in this contention. Under the IT Act, the charge is on Profits and Gains, not on gross receipts (which, however, has Profits embedded in it). Therefore, subject to the requirements of the Income-tax Act, profits to be assessed under the Income-tax Act have got to be Real Profits which have to be computed on ordinary principles of commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 of the Income-tax Act has no role to play in the present dispute. (Emphasis supplied) 19. We have also noticed the other line of cases wherein the Supreme Court itself has held that when there is a provision in other enactment which contains a non obstante clause, that would override the provisions of Income-tax Act. Custodian appointed under the Special Court Act, 1992's case (supra) is one such case apart from other cases of different High Courts. When the judgment of the Supreme Court in Southern Technologies Ltd.'s case (supra) is read in manner we have read, it becomes easy to reconcile the ratio of Southern Technologies Ltd. (supra) with Custodian appointed under the Special Court Act, 1992 (supra). 20. Thus viewed from any angle, the decision of the Tribunal appears to be correct in law. The question of law is thus decided against the revenue and in favour of the assessee. As a result, all these appeals are dismissed. 16.2. Respectfully following the same, the ground No.3 raised by the assessee is allowed. 17. The ground No.4 raised by the assessee is challenging the confirmation of disallowance on bad debts of Rs.8,33,73,611/- made by the ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.36(i)(vii) of the Act. It need not be routed through provision for bad and doubtful debts account. Moreover, we find that RBI has issued a master circular dated 01/07/2013 which provides for credit card / debit card and rupee denominated co-branded prepaid card portions of the banks. The said circular clearly establishes the fact that credit card business is part and parcel of banking business. This fact that was placed on record by the assessee before the lower authorities had been ignored by them. Further as part of the banking license granted by the RBI, the assessee is entitled to carry on the banking business either departmentally or through a company set up for this purpose. We find that credit card could be issued by the assessee bank only to its customers. Hence, the observation made by the ld. PCIT in the case of ICICI Bank for the A.Y.2013-14 that a person need not be a customer of the bank to obtain credit card is fundamentally incorrect. Credit card business according to the RBI master circular is a permissible banking business activity provided under Banking Regulation Act and hence, it could be safely construed that credit card business is part and parcel of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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