TMI Blog2023 (2) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 43D - interest in respect of NPAs on receipt basis - AO observed that as per guidelines of RBI, non performing assets are recognized for a default of 3 months or more, however, as per the I.T. Rules, the period of 3 months has not been recognized anywhere - HELD THAT:- As relying on ICICI Bank Limits vs ACIT [ 2022 (8) TMI 1346 - ITAT MUMBAI] we direct the Assessing Officer to allow the claim of deduction under under section 43D r.w.r. 6EA of I.T. Rules in respect of interest on NPAs. Disallowance of Administrative expenses u/s 14A r.w.r. 8D(2)(iii) - HELD THAT:- We direct the Assessing Officer to disallow 0.5% of the average value of investment excluding strategic investments for the making of disallowance as directed in the decision of ITAT in assessee s own case 2019 (11) TMI 853 - ITAT MUMBAI for A.Y.2013-14 2014-15. This ground of the assessee is partly allowed. Disallowance under rule 8D(2)(ii) of Interest expenses - HELD THAT:- Assessee had share capital and reserves which was far in excess of the investments made by the assessee in the instruments yielding exempt income. Therefore, following the decision of HDFC Bank Ltd [ 2016 (3) TMI 755 - BOMBAY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l facts and issue involved in these appeals, therefore, all these appeals are adjudicated together by taking appeal in ITA No.3267/Mum/2019 as the lead case and its finding will be applicable to other appeals, wherever similar issues are there. 2. The facts in brief are that return of income declaring total income of Rs.1653,31,94,036/- was filed on 28.11.2014. The case was subjected to scrutiny assessment and notice under section 143(2) of the Act was issued on 04th September, 2014. The assessee bank is engaged in the business of banking and financial activities. Further facts of the case are discussed while adjudicating the appeals filed by the assessee and the Revenue as below: ITA No.3267/Mum/2019 -Assesse s Appeal Ground 2: Provision for Standard Asset qua deduction under section 36(1)(viia) 3. During the course of assessment, the Assessing Officer noted that assessee bank has claimed deduction for provisions under section 36(1)(viia) of the Act in respect of bad and doubtful debts, though is available in respect of 7.5% of the total income and 10% of the rural branches. The assessee bank has created provisions in respect of following categories of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk of India vs DCIT (supra). The relevant operating part of the decision is reproduced as under:- 71. We have noted the facts that the assessee has claimed that provision for standard assets should be taken into consideration for computing the deduction under section 36(1)(viia) of the Act. The assessee has also filed the details vide note 17 and Annexure 6 to the revised return of income on pages 8, 9 and 20 of Paper Book 1 filed by assessee. As per the provisions of section 36(1)(viia) of the Act, a bank is eligible to avail deduction in respect of provision made for bad and doubtful debts, of an amount not exceeding 7.5% of total income and 10% of the aggregate average advances made by the rural branches of the bank. The provision is created by the assessee on the basis of RBI Guidelines. The assessee is required to create provision on non-performing assets on the basis of the classification of assets into the four prescribed categories i.e. loss assets, doubtful assets, substandard assets and standard assets [refer para 5.1.2 of the RBI Guidelines]. 72. The Revenue before us emphasized that the provision for standard assets is not same as provision for bad and doubtf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT passed under section 263 of the Act, wherein it is held as under: So, however, we may also clarify that we are in principle in agreement that a provision for bad and doubtful debts cannot include that against standard assets i.e. which the bank (assessee) itself regards as good for receipt and, therefore with the decision by the tribunal in Bharat Overseas Bank Ltd. (supra) relied upon by the Revenue. A provision by definition a charge against profits, while that in respect of an asset, considered good, would be more in the nature of an appropriation of profit i.e. a reserve. This is precisely what the Tribunal in Bharat Overseas Bank Ltd. (supra) means when its states of the deduction being not in the nature of a standard allowance. No contrary judgement by the Tribunal or a higher court has even otherwise been brought to our notice. At the same time, the provision as per RBI guidelines which are contended to have been followed / adopted, provide for the minimum provision, and the bank is free to make a higher provision, i.e., than that prescribed by the RBI norms. Provisioning, it may be noted, is a management function, made reflecting its risk assessment qua differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if treated as money lending business, the write off is allowable under section 36(1)(vii) of the Act. The assessee further submitted that section 36(1)(vii) read with section 36(2) provided that any bad debt or part thereof would be allowed as deduction if the same represent money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. However, the Assessing Officer has not agreed with the submission of the assessee. He was of the view that assessee was a banking company and credit card business was different from banking business. The Assessing Officer further stated that credit card business was a payment service and not a business of banking or money lending as defined in the Banking Regulations Act, 1949. After referring to the order passed by the PCIT-2, Mumbai under section 263 in the case of ICICI Bank, the Assessing Officer has disallowed the bad debt claimed pertaining to credit card business of the assessee bank. 11. Aggrieved, assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) has dismissed the appeal of the assessee. 12. During the course of appellate proceedings before us, the Ld.Counsel submitted that ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act to allow them to offer interest in respect of NPAs on receipt basis. The guidelines of RBI also specify the non performing assets in respect of which the income cannot be recognized on accrual basis. The assessee has computed income in respect of NPAs on the basis of RBI guidelines. The Assessing Officer further stated that the advances (NPAs) in respect of which banks are at liberty to offer interest on cash basis are specified in Rule 6EA of the I.T. Rules, 1962. As per rule 6EA, interest is not to be offered for taxation with respect to advances which have become NPA for a period of 180 days or more. However, as per the guidelines of RBI, interest is not to be recognized on NPAs if they have become non performing for a period of 90 days or more. Therefore, Assessing Officer was of the view that provisions of Rule 6EA read with section 43D are very clear that irregularity of the nature referred in Rule 6EA should be noticed for a period of six months or more. The Assessing Officer also observed that as per guidelines of RBI, non performing assets are recognized for a default of 3 months or more, however, as per the I.T. Rules, the period of 3 months has not been recognize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d doubtful of recovery. The only contention of the revenue is that section 43D of the Act read with Rule 6BA of the Rules permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three months but less than six months as on 31.3.2010. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon'ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards 'Provision for NPA. We find that the same decision clearly stated that the interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI prudential norms for income recognition. This fine distinction has been duly considered in the decision of the Hon'ble Delhi High Court in the case of CIT vs Vasisth Chay Vyapar Ltd supra. When the account becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Finance Act, 1991 as per the section the category of bad and doubtful debts to be prescribed in the Income Tax Rules having regard to the guidelines issued by the RBI in relation to such debts. In 1992 the Rules 6E was framed and as per RBI guidelines the norms for categorization of advances as NPA were those advances which remained over due for more than 6 months. The RBI has revised the guideline from time to time and made changes in the period of overdue of advances for categorization of NPA. During the year under consideration the RBI has reduced the period to 90 days for categorization of interest on sticky loan as NPA, however, similar changes was not made to Rule 6EA. After considering the provisions of Sec. 43D and judicial findings as supra we consider that norms for categorization of bad and doubtful debts had to be prescribed considering the guidelines issued by the RBI. Therefore, the ld. CIT(A) is not justified in substituting the limit for recognizing of interest on account of NPA to 180 days from 90 days in view of the clear provisions of Sec. 43D(a) that in the case of public financial institutions or schedule bank or a state financial corporation or a Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g strategic and group companies. However, the Assessing Officer has not agreed with the submission of the assessee and computed the disallowance for administrative expenditure under rule 8D(2)(iii) of the I.T. Rules, 1962 @0.5% of average value of investment at Rs.4,24,89,475/-. 27. Aggrieved, assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) dismissed the ground of the assessee. 28. During the course of appellate proceedings before us, the Ld.Counsel submitted that identical issue on similar facts in the case of the assessee itself has been adjudicated by the ITAT, Mumbai Bench in ITA No.781 782/Mum/018 for the A.Ys 2013-14 2014-15 vide order dated 27/08/2019. 29. On the other hand, the Ld.DR supported the orders of lower authorities. 30. We have perused the order of the co-ordinate bench as referred above in assessee s own case. The relevant operating part of the decision is reproduced as under:- 9. We have considered the rival submissions and perused material placed before us. The Hon'ble Supreme Court in the case of Maxopp Investment Ltd (supra) held that where the shares are held as stock-in- trade, the expenditure incurred for earning business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2019 : REVENUE S APPEAL GROUND 1 : DELETION OF DISALLOWANCE UNDER RULE 8D(2)(ii) OF INTEREST EXPENSES OF RS.5494.13 CRORES 35. In the course of assessment, the Assessing Officer noticed that assessee company has made investment in shares, bonds, subsidiaries and joint ventures of Rs.1208.81 crores and has received exempt income under section 10 of the Act of Rs.7,35,14,698/-. The assessee has worked out an expense of Rs.1,23,71,727/- as inadmissible as per the provisions of section 14A of the Act. On query, the assessee explained that it had made investments from own funds and no interest disallowance is required under section 14A r.w.r. 8D(2)(ii). However, the Assessing Officer has not agreed with the submission of the assessee and computed the disallowance under section 14A r.w.r. 8D(2)(ii) on the ground that assessee has not proved that day to day investment was made out of own funds. Aggrieved, the assessee has filed appeal before the Ld.CIT(A). The Ld.CIT(A) has allowed the appeal of the assessee holding that in the case of the assessee reserves and surplus were at Rs.12275.09 crores and Rs.14141.09 crores at the beginning and at the end of the year, whereas the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, the Ld.Counsel submitted that identical issue on similar facts in the case of the assessee has been adjudicated by ITAT, Mumbai in ITAs No.781 782/Mum/2018. 41. On the other hand, the Ld.DR supported the order of the Assessing Officer. 42. The relevant paragraph of the decision of the Tribunal is as under:- 14. We have considered the submissions of the parties and perused the order of lower authorities and the various case laws relied by the Ld AR for the assessee. During the assessment the AO required the details of the broken period interest expenses. The assessee furnished such interest on broken period expenses of Rs. 88,41,69,624/-. The AO disallowed the same holding that the securities are held till the maturity which constitute the investment of the bank and cannot be considered as stock in trade. Before Id CIT(A) the assessee contended that all the investments were made in accordance with RBI guidelines. The closing balance has been shown in the balance sheet. The interest income on Government securities and the profit / loss has been offered in the return of income for the current year. Similar treatment is consistently offered by the assessee in earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. 48. We have gone through the order of ITAT. Relevant part of the order is reproduced as under:- 17. We have considered the submissions of both the partied and perused the record. We have noted the AO disallowed the ESOP as we have recorded in para 15 above. However, the Ld CIT(A) allowed relief to the assessee by following the order of his predecessor in assessee's case for AY 2009-10 dated 12.11.2015 and for AY 2012-13 dated 19.06.16.The Id CIT(A) also relied on the decision of Special Bench of Bangalore Tribunal in Biocon Ltd vs DCIT 144 ITD 21 (Bang)(SB). We have further noticed that the orders of the CIT(A) in appeal for AY 2009-10 2012-13 has been affirmed by Tribunal in ITA No. 698/Mum/2016 dated 20.12.2017 and in ITA No.2817/mum/2016 dated 28.02.2018, thus, we do not find any reason for interfering with the order of Id CIT(A), which we affirms. In the result this ground of appeal is dismissed. 49. Respectfully following the decision of the co-ordinate bench in assessee s own case we dismiss the ground of the Revenue. GROUND 5 TO 7 : DISALLOWANCE OF BAD DEBTS REGARDING CREDIT CARDS 50. This issue has already been considered and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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