TMI Blog2023 (11) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of law framed by this court is answered in favour of the assessee and against the revenue. Disallowance u/s. 36(1)(vii) in respect of bad debts written off by the bank - AO noted that the assessee claimed deduction of bad debts without actually writing-off the debts as irrecoverable in the individual accounts of the debtors concerned - HELD THAT:- We notice that the from the decisions of the coordinate Bench quoted by the assessee in AY 2014-15 [ 2022 (3) TMI 134 - ITAT BANGALORE] as 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 the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A) - Decided in favour of assessee. Disallowance u/s. 36(1)(viia) - calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec. 51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of banking company , provisions of sec. 211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh - Thus we remit this issue also to the file of CIT(A) for fresh consideration and decision as per law in the same terms. Allowable revenue expenses - expenditure by way of penalty for violation of RBI directions - AR submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant Bank for earning of exempt income. Under these circumstances, the addition now made is liable to be deleted. 2.3. The learned CIT(A) erred in invoking the provisions of Rule 8D without pointing out any defect in the computation of the disallowance made by the Appellant bank. 2.4. The learned CIT(A) failed to appreciate the fact that the application of Rule 8D is neither automatic nor mandatory. 2.5. The learned CIT(A) erred in holding that exempt income will always have a notional interest cost attached to it. 2.6. The learned CIT(A) erred in not appreciating the fact that no disallowance towards interest can be made on the facts of the case. 2.7. Without prejudice to the above, the learned CIT(A) failed to appreciate that with effect from AY 2016-17, no disallowance of indirect interest expense can be made. 2.8. The learned CIT(A) erred in not following the decision of the Hon ble jurisdictional High Court and the Apex Court applicable to the facts of the case. 2.9. Without prejudice to the above, the learned CIT(A) failed to appreciate the fact that the disallowance u/s 14A cannot exceed the exempt income. 3. The learned CIT(A) erred in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctures. 5. The learned CIT(A) erred in upholding the disallowance of Rs. 14,64,961/- being the loss on surrender of leased premises. 5.1. The learned Assessing Officer failed to appreciate the fact that the loss is a business loss and not a capital loss. 5.2. The learned Assessing Officer erred in holding that the lease is a capital asset of the Appellant bank. 6. The learned CIT(A) erred in disallowing a sum of Rs. 1,38,637/- being the club expenses. 6.1. The learned CIT(A) erred in holding that the club expenses are not for business purposes and he failed to appreciate the fact that the same is for business purpose. 6.2. The learned CIT(A) erred in holding that the club expenses are not for business purpose without any evidence and finding in this regard. 7. The learned CIT(A) erred in upholding the disallowance of Rs. 4,01,907/- being write off various small value items purchased. 7.1. The CIT(A) failed to appreciate the fact that the write off pertains to various small value items purchased. 8. The learned CIT(A) erred in upholding the order of learned Assessing Officer with regard to applicability of the provisions of Section 115JB of Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an adhoc disallowance of Rs. 5,44,496 in relation to income not forming part of total income under proportionate expenditure of treasury department in terms of section 14A . The assessee was asked to furnish details in this regard and under Rule 8D. The assessee submitted that securities held by the bank are stock in trade. The interest income and profit on redemption and profit on sale of investments are offered to tax under the head business income, therefore no disallowance can be made u/s. 14A in respect of investments held as stock in trade. It was also submitted that there was no additional cost incurred by the bank in earning exempt income and the bank has not incurred any direct expenses to earn tax free income. The bank has sufficient own funds in the form of share capital and reserves and non-interest bearing funds in the form of current account, sundry creditors, etc. The details of the own funds which were non-interest bearing funds totaling to Rs. 35,920.81 crores were submitted. The total value of exempt investments were only Rs. 365.47 crores. It is therefore submitted that no interest disallowance can be made. It was also submitted before the AO that the total inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the assessee for AYs 2005- 06 to 2012-13 and has observed that no disallowance u/s. 14A can be made to the assessee. The has provided the list of judgement of the Hon ble jurisdictional High Court which is placed on record. 5.2 On the other hand, the ld. DR relied on the order of lower authorities and further submitted that the CIT(A) after relying on various judgments observed that In view of the above, I am not inclined to concur with this plea of the appellant that it had held the securities as stock-in-trade, not with the intention to dividend income. The various judicial precedents relied upon by the appellant, on the above issue, are of no avail as the facts of the instant case are distinguished, as elaborated in preceding paragraphs . The ld. DR further submitted that the department has not accepted the judgment of the jurisdictional High Court and has filed appeal before the Hon ble Supreme Court and SLP for the AY 2009-10 to 2011-12 is accepted. Therefore, he requested that the issue should be decided in favour of revenue. 6. Considering rival submissions, we note that this issue has been settled by the Hon ble jurisdictional High Court in assessee s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14A of the Act have to be read in the context of the scheme of the Act and if so read, it is clear that it disallows certain expenditures incurred to earn exempt income from being deducted from other incomes which is includable in the total income for the purposes of chargeability to the Lax. It i4 equally well settled that expenditure is a pay out. In order to attract applicability of section 14,4 of the Act, there has to be a pay out and return of investment or a pay back is not such a debit item. [See: WALFORT SHARE AND STOCK BROKERS (P) LTD SUPRA as well as M.4XOP INVESTMENTS LTD SUPRA]. In the instant case, the assessee has admittedly not incurred any expenditure. This case pertains to income on dividend, which by no stretch of imagination can be treated to be an expenditure to attract the provisions of Section 14A of the Act. In view of aforesaid enunciation of law by the Supreme Court, the first substantial question of law framed by this court is answered in favour of the assessee and against the revenue. 10. Learned counsel for parties, have fairly admitted that in case this court frames a substantial question of law that whether provisions of Section 115JA apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts written off by the bank. 7.1 The AO noted that the assessee claimed deduction of bad debts u/s. 36(1)(vii) without actually writing-off the debts as irrecoverable in the individual accounts of the debtors concerned. The assessee was asked to clarify the procedure followed while writing off at H O level and branch level. The assessee submitted reply. The AO from the submissions observed, majority of the write off is Prudential Write Off (PWO) done at the Head Office level actually with a view to write create provision for NPAs in the books of accounts as per RBI guidelines. The fact of write off of bad debt has not been allowed to be communicated to the branch level, where the individual loan accounts are outstanding, which implies that the debts have actually not been written off in the individual loan accounts. Further, the amounts have been debited to P L account under the head Provisions Contingencies and claim of bad debt written off has been made only in the computation of income. Thus it indicates that the amounts have been charged to profit for creating provisions and not for actual write off of bad debts in the individual accounts. The AO further noted that the wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermission from the respective authorities. The write off carried out at the branch level is called actual write off in which case the customer account is written off and closed forever. However, the write off under taken at HO level is called Technical/Prudential write-off in which case, the customer account still appears in the branch books, though the same is written off at HO level. In both cases, (write off at branch level) as well as at HO level, the actual amount written off is reduced from the loans and advances of the bank. The working in this regard is enclosed as Annexure-C. It is also pertinent to mention that the recovery made in written off account is credited to Profit and Loss account as recovery from written off accounts and disclosed as Miscellaneous income in the audited Profit and Loss Account under Schedule No 14 Other income. The fact can be ascertained from the breakup of other income enclosed as Annexure-D. 7.3 The assessee further submitted that the issue of actual write-off of debts in the loan account of the debtors, is covered in favour of the appellant Bank in the following cases,- (i) Vijaya Bank Vs CIT (2010) (323 ITR 166) (SC) (ii) UCO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and stated that both the above issues are covered in favour of the assessee. 8.1 The CIT(A) observed that from the provisions of section 36(1)(vii), it is evident that clause (vii) of Section 36(1) allows deduction in respect of any bad debt or part thereof which is actually written off as irrecoverable in the accounts of the assessee during the year. The clause (viia) of section 36(1) allows deduction in respect of any provision for bad and doubtful debts made by certain banks and financial institutions up-to the limits specified therein. In order to prevent the possibility of double deduction, proviso to the clause (vii) was inserted by the Finance Act 1985 with effect from 1st April 1985, which provided that in case of an assessee to which clause (viia) applies, the deduction of bad debts written off would be limited to the amount by which such bad debt exceeds the provisions for bad and doubtful debts made under clause (viia). Further, clause (v) was inserted in section 36(2) which laid down that where the bad debt relates to advances made by an assessee to which clause (viia) applies, no deduction of bad debt shall be allowed unless the assessee has debited the amount of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of advances including advances made by rural branch. Thus, the amount of deduction of bad debts actually written off shall be subject to the amount by which such debts exceed the provisions for bad doubtful debts, without making any distinction between rural advances and other advances. Therefore, the banks cannot claim double deduction, one on provisioning basis and again on actual write off basis for the same amount, separately and independently. Therefore, the contentions of the assessee were rejected. 8.4 He noted that the question whether the credit balance referred in the said proviso of the Act refers to opening or closing credit balance was answered by the CBDT Instruction No.17 of 2008 dated 26.11.2008 as the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year. Therefore, as noted by the AO, in the computation submitted by the assessee, the opening credit balance of brought forward provision for bad doubtful debts is at Rs. 7265 crores which far exceeds the claim of bad debts written off at Rs. 1296 crores. Therefore the entire claim was not admissible and relied on the decision of Kerala High Court in South Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the record. We notice that the Ld CIT(A) has expressed the view that the provision allowed u/s 36(1)(viia) of the Act would cover bad debts pertaining to non-rural advances also. An identical issue has been examined by Hyderabad bench of ITAT in the case of State Bank of Hyderabad vs. DCIT (ITA No.450/Hyd/2015, ITA No.498 and 499/Hyd/2015 dated August 14, 2015), wherein the Tribunal has not accepted the above said view expressed by Ld CIT(A). The relevant observations made by the Tribunal are extracted below:- 19. We have considered the rival submissions and perused the materials on record as well as the orders of revenue authorities. As could be seen from the finding of AO as well as ld. CIT(A), only reason for which claim of deduction for Rs. 209,07,50,831 representing actual write off of bad debts relating to non-rural advances u/s 36(1)(vii) was denied is, assessee having already availed deduction u/s 36(1)(viia), it is not eligible to claim deduction u/s 36(1)(vii) as it will amount to double deduction. In our view, both AO as well as ld. CIT(A) have committed fundamental error by mixing up provisions of sections 36(1)(vii) and 36(1)(viia). While 36(1)(vii) spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rightly rejected by the Special Bench of the Tribunal and it correctly held that the Board itself had recognized the position that a bank would be entitled to both the deductions. Further, it concluded that the proviso had been introduced to protect the Revenue, but it would be meaningless to invoke the same where there was no threat of double deduction. 27. As per this proviso to cl. (vii), the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allowed under cl. (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which are covered by cl. (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which cl. (viia) applies. Indisputably, cl. (viia)(a) applies only to rural advances. Concurring with the aforesaid majority view, Hon'ble CJI, S.H. Kapadia, as the then he was, held as under: 2. Under Section 36(1)(vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the computation or taxable profits, of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... says that there are no such words in the proviso which indicates that the proviso apply only to rural advances. We find no merit in the objection raised by the Revenue. Firstly, CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). Thus, the proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaningless to invoke the said 1 proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by the Circulars i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 36(1)(vii) which requires adjustment of bad debts against provision allowed u/s 36(1)(viia) would apply to non-rural advances also) is hereby set aside. Hence, we direct the A.O. to delete the disallowance made by the CIT(A). It is ordered accordingly. 11.1 Similar issue has also been decided by the coordinate Bench of the Tribunal in the case of Bank of Baroda v. Addl. CIT, LTU, in ITA No.321/Bang/2019 dated 25.4.2023 in favour of the assessee. The ld. DR has submitted that the Hon ble Apex court has admitted the SLP filed by the revenue but the status of the same could not be furnished by the ld. DR, accordingly, we are bound by the order of the Jurisdictional High Court. Accordingly respectfully following the above decisions, we delete the addition made u/s. 36(1)(vii). This ground is allowed. 12. Ground No.4 is regarding disallowance of Rs. 1498,66,51,713 u/s. 36(1)(viia). The AO noted that the bank has claimed a sum of Rs. 1779,82,44,990 as deduction in respect of provision made for bad doubtful debts u/s. 36(1)(viia) and computed 10% of aggregate average advances (AAA) of the rural branches which comes to Rs. 1638,71,17,882/- 7.5% of the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an ten thousand as per 2011 Census. 14. The CIT(Appeals) after considering the submissions of the assessee and material facts on record, observed that clause (viia) of section 36(1) provides that any provision for bad and doubtful debts (PBDD) made by certain category of banks shall be allowed as deduction in computing business incomes, subject to the limit specified therein. The deduction of PBDD is subject to the upper limit of 7.5% of total income and 10 percent of the AAA made by the rural branches of such bank computed in the prescribed manner. The method of computation of AAA made by the rural branches of a scheduled bank has been prescribed under rule 6ABA. The moot point for adjudication is whether for computing the AAA made by the rural branches, as per Rule 6ABA, only the fresh advances made by the rural branches during the month should be considered, or the outstanding loans at the end of each month should be considered. In this context, he referred to the provision and that clause (viia) of sub-section (1) of section 36 was inserted by the Finance Act 1979, with effect from 1980. The scope and effect of the originally inserted clause (viia) has been explained in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht forward from earlier years. In such an event, the rural branch in example would continue to report the same amount of aggregate advances year after year, without having made any fresh advances all these years. Hence, this construction of the rule would clearly defeat the very purpose of enactment of clause (viia), namely to encourage rural banking, as this would enable the banks to claim deduction of provisions made for bad and doubtful debts, without making any efforts to increase their exposure to rural loans. The primary idea of permitting deduction for a provision, which is normally not admissible, in case of certain banks is to create a fiscal incentive for generating rural credit, which of course is more prone to risk and default. Therefore, the CIT(Appeals) concurred with the view of the AO that only the fresh advances made during the month by the rural branches should be considered for computing the aggregate average advances as per Rule 6ABA. He further observed that the jurisdictional High Court in the assessee s own case reported as DCIT Vs Syndicate Bank (2022) (145 taxmann.com 336) (Karnataka) has allowed the review petition filed by Revenue on the issue and held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le jurisdictional High Court of Karnataka in the case of CIT, LTU v. Canara Bank, [2023] 147 taxmann.com 171 (Karnataka)[05-12-2022] in which it has been held as under:- 6. Insofar as question No. 4 is concerned, adverting to section 36(1)(viia) of the Income-tax Act, 1961, Shri Aravind submitted that the word used in the statute is aggregate average advances made by the rural branches. To quote an example, he submitted that for A.Y. is 2013-14 (F.Y. 2012-13) if the bad debt as on 31-3-2012 is considered to be as Rs. 1 Crore by virtue of making provisions subsequently, the assessee will be entitled for double benefit because provisions in respect of 10% of the bad debt of provisions of Rs. 1 Crore towards bad debt was already made as on 31-3-2012. Therefore, if the same amount is carried forward for the next F.Y., the assessee will be entitled for the double benefit because it would be making a provision for Rs. 1 Crore in addition to the 10% to the bad debt made in the relevant F.Y. 7. Shri Suryanarayana, adverting to the Para 7 of the impugned order, submitted that in identical circumstances, in assessee's own case, the assessee had made provision in similar mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction is in terms of rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT(A). The Tribunal amended such direction, in our view, correctly applying the rule. 11. In view of the above, these appeals with regard to question No. 4 must fail and it is also answered in favour of the assessee and against the Revenue. 10. Respectfully following the above judgment of the jurisdictional High Court, we hold that while calculating average aggregate advances of rural branches under section 36(1)(viia), both advance outstanding as well as fresh advances are to be considered. Ground No.3 is allowed. 17.1 Following the above decision, we hold that the while calculating average aggregate advances of rural branches under section 36(1)(viia), both advance outstanding as well as fresh advances are to be considered. We further note that AO has reverted a clear factual finding in the assessment order that population in these 37 branches exceeded ten thousand as per Census 2011. Before that CIT (A) the assessee could not produce credible evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the higher appellate authorities. Infact, various High Courts including the jurisdictional Bombay High Court in the case of CIT vs Union Bank of India reported in [2019] 13 ITR-OL 655 (Bom) held that the provisions of section 115JB(2) are not applicable to Banks. 2.3. Dispute after 01-04-2013: There was an amendment to section 115JB(2) by the Finance Act, 2012 w.e.f. 01-04-2013. The amended section reads as follows: Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss] for the relevant previous year in accordance with the provisions of Schedule III to the the Companies Act, 2013 (18 of 2013) ; or (b) Being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,- (i) the accounting policies; (ii) the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principles of interpretation, the words defined in the said Act are to be adopted. Companies Act 2013, defines the term banking company. In section 2(9), of the Companies Act 2013, the term banking company is defined as follows: ( 9 ) ―banking company means a banking company as defined in clause ( c ) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); 2.9. Since the Companies Act 2013 refers to the definition of the term banking company as defined in the Banking Regulation Act, 1949 (BR Act), the definition contained in the said Act needs to be considered. 2.10. Section 5(c) of the BR Act defines the term banking company as follows: (c) banking company means any company which transacts the business of banking[in India]; 2.11. Section 5(d) of the BR Act defines the term Company as follows: (d) company means any company as defined in section 3 of the Companies Act 1956 (1 of 1956); and includes a foreign company within the meaning of section 591 of that Act; 2.12. From the above definition, it can be seen that a Company as per section 3 of the Companies Act 1956 and carrying on the business of banking is a banking company as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it cannot be termed as a Banking Company as per the provisions of the BR Act and as a consequence, it is not a Banking Company for the purpose of the Companies Act. Therefore, the second proviso to section 129(1) of the Companies Act 2013 is not applicable to the Bank. 2.16. It is submitted that the Bank is defined separately in the BR Act. Section 5(da) of the BR Act, defines the Bank as under: (da) corresponding new bank means a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) 2.17. It is settled principle of law that once a term is defined in an Act specifically, then, that should be adopted over the general definition. The term banking company is different from the term corresponding new bank. As submitted above, the Bank does not fall within the definition of the term banking company. However, it is squarely covered by the term corresponding new bank. Even on this count, the second proviso to section 129(1) of the Companies Act 2013 is not applicable to the Bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002] transacting the business of banking, do not fall within the meaning of banking company as defined in Section 5 (c) of the Banking Regulation Act, 1949 [BR Act]. Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [RDB Act] by invoking the Doctrine of Incorporation are not applicable to the recovery of dues by the co-operatives from their members. 2.21. Certain observations and arguments in the said decision, which are relevant to the present case are extracted herein below: Page 10 11 The Parliament has thus consistently made the meaning of 'banking company' clear beyond doubt to mean 'a company engaged in banking, and not a co-operative society engaged in banking' and in Act No. 23 of 1965, while amending the BR Act, it did not change the definition in Section 5 (c) or even in 5(d) to include co-operative banks; on the other hand, it added a separate definition of 'co-operative bank' in Section 5 (cci) and 'primary co-operative bank' in Section 5 (ccv) of Section 56 of Part V of the BR Act. Parliament while enacting the Securitisation Act created a residuary power in Section 2(c)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not cover or include a 'co- operative bank' registered under the MCS Act, 1960 or the MSCS Act, 2002. He submitted that Section 56 of the BR Act did not amend the definition of 'banking company' in terms of Section 5 (c), but for all intents and purposes Act No.23 of 1965 merely extends the application of the provisions of the BR Act to 'a cooperative bank' even though it is not a 'banking company' as defined in Section 5(c). Page 16 .He then submitted that the co-operative bank will have to be included in the definition of the term banking as defined in Section 2(d) of the RDB Act as Section 5(c) of the BR Act cannot be read in isolation ignoring Section 56 of the Act ... Page 17 In the last, the learned counsel supported the judgments and orders of the High Court of Bombay and the High Court of Andhra Pradesh holding that as the co-operative banks are transacting banking business, they are covered by the definition of banking company under Section 5(c) of the BR Act, therefore, the Tribunal constituted under Section 3 of the RDB Act has jurisdiction and power under Section 17 to decide claims of all banks including the co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be properly understood. The usual presumption is that the Legislature does not waste its words and it does not commit a mistake. It is presumed to know the law, judicial decisions and general principles of law. The elementary rule of interpretation of the Statute is that the words used in the Section must be given their plain grammatical meaning. Therefore, we cannot afford to add any words to read something into the Section, which the Legislature had not intended . Finally, it could not be said that Amendments in Chapter V, Section 56 of the RDB Act by Act No. 23 of 1965 inserting co-operative bank in Clause (cci) and primary co-operative bank in Clause (ccv) either expressly or by necessary intentment apply to the co-operative banks transacting business of banking. Page 24 Co-operative banks established under the Maharashtra Co-operative Societies Act, 1960 [MCS Act, 1960]; the Andhra Pradesh Co-operative Societies Act, 1964 [APCS Act, 1964]; and the Multi-State Co-operative Societies Act, 2002 [MSCS Act, 2002] transacting the business of banking, do not fall within the meaning of banking company as defined in Section 5 (c) of the Banking Regulation Act, 1949 [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 of the Companies Act. The Accounts are laid before the Annual General Meeting as per Section 10A of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Thus, the provisions of section 210 of the Companies Act is not applicable to the Bank. Therefore, even assuming but not admitting that, the charging section of 115JB is applicable to the Bank, the computation would fail since it would not be possible for the Bank to prepare a Profit Loss Account as per section 115JB(2). It is a settled principle of law that if the computation fails, the charge fails. In the case of Union Bank of India, the Hon ble Bombay High Court by applying this principle, held that the provisions of section 115JB are not applicable. This decision is reported in [2019] 13 ITR-OL 655 (Bom). This decision was followed by the Hon ble Karnataka High Court in the case of CIT vs ING Vysya Bank Ltd [2020] 422 ITR 116 (Kar.). The Hon ble Bombay High Court held in para 11 as under: 11. This legal dichotomy emerging from the provisions of subsection (2) of section 115JB particularly having regard to the first proviso contained therein in the case of a banking company, would convince us tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g company or not. In the said decision, the Court was also dealing with the cases of some of the assessees which are banking companies as per the provisions of the BR Act. In para 30, the Tribunal observed as follows: Interestingly, it was not even plea of the assessee, and rightly so, that section 115JB will have no application on the assessee because the assessee could not be treated as a company for the purposes of Section 115JB. The above observation is not applicable to this case. It is our submission that the Assessee is not a banking company for the purpose of 115JB. What is to be seen is whether the Assessee is a banking company or not. Whether the Assessee is a company or not is not to be seen for the purpose of section 115JB(2)(b). In para 31, the Tribunal concluded as follows: The plea of the assessee, with respect to non-applicability of section 115JB to the banking companies like the assessee before us, is, therefore, rejected. The above conclusion of the Tribunal, with due respect, is per incuriam. There is no finding in the order of the Tribunal that the Assessee Bank therein is a banking company as per the provisions of the BR Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he term banking company as per the BR Act should include co-operative banks also. This was negated by the Hon ble Supreme Court by holding that banking company and co-operative banks are defined separately in the BR Act. In this case also, the banking company and the corresponding new bank are defined separately and as such, corresponding new bank cannot be treated as a banking company. Since the bank is a corresponding new bank, it cannot be treated as a banking and as such, the provisions of section 115JB are not applicable to the Bank. 3.2. The decision of the Hon ble Tribunal is per incuriam, with due respect, to the settled principle interpretation by the Hon ble Supreme Court with respect to taxing statutes. In this regard, reliance is placed on the following observations of the Hon ble Supreme Court in the case of Shabina Abraham and others vs CCE C 2015 (10) SCC 770. The relevant observations of the Apex Court are extracted hereunder: 31. The ... Apart from this, the High Court went into morality and said that the moral principle of unlawful enrichment would also apply and since the law will not permit this, the Act needs to be interpreted accordingly. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either jurisdictional High Court or any other High Courts. In view of the same, it is submitted that the decisions in favour of the Appellant Bank may have to be followed as held by the Hon ble Supreme Court in the case of CIT vs Vegetable Products Ltd [1973] 88 ITR 192 (SC) also the Hon ble Karnataka High Court in the case of S N. Builders Developers 2021 (11) TMI 430 KARNATAKA HIGH COURT. 4. It is humbly submitted that the grounds of the Appellant Bank be allowed by holding that the provisions of section 115JB are not applicable to the Appellant Bank. 20. The ld. AR further relied on the following case laws:- 1. Greater Bombay Co-op. Bank Ltd. v. United Yarn Tex. P. Ltd. 2007 (4) TMI 679 Supreme Court 2. Larsen Toubro Ltd. Ors. 2015(8) TMI 749 Supreme Court 3. ING Vysya Bank Ltd. [2020] 422 ITR 116 (Kar) 4. Punjab National Bank (successor of Oriental Bank of Commerce) ITA No.740/Del/2020 dated 31.3.2023 AY 2016- 17 5. Dam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 115JB of the Act on the ground that it does not prepare profit and loss account as per the provisions of the Companies Act, 1956. Further, it was held by the CIT(A) that provisions of section 115JB(2)(a) of the Act will be applicable to the assessee-bank as it is an Indian Company as per Section 11 of Banking Companies (Acquisition Transfer of Undertaking) Act, 1949. 13.3 Aggrieved by the order of the CIT(A), the assessee has raised this issue before the Tribunal. The learned AR submitted that in assessee s own case for assessment year 2013-2014 an identical issue was considered and the matter was remitted back to the CIT(A). It was submitted by the ITA No.1885/Bang/2018 237/PAN/2018 M/s.Canara Bank (Erstwhile Syndicate Bank) 16 learned AR that since the facts being identical, a similar view may be taken by the Tribunal for this assessment year also. 13.4 The learned DR was duly heard. 13.5 We have heard rival submissions and perused the material on record. The Tribunal in assessee s own case for assessment year 2013- 2014 (supra) had restored the issue to the files of the CIT(A). The CIT(A) was directed to examine whether the assessee bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emitted this issue to the CIT(Appeals) in the previous years and the following the above decisions, we restore this issue to the CIT(Appeals) for fresh consideration as per law in the same terms. The ld. DR has submitted that the Hon ble Apex court has admitted the SLP filed by the revenue but the status of the same could not be furnished by the ld. DR, Accordingly, the grounds raised by the assessee is allowed for statistical purposes. 23. The assessee in Ground No.8.2 to 8.3.6 and 8.4 has contested that various additions made by AO while computing book profits u/s. 115JB are not covered by Explanation to section 115JB. Therefore, these additions are not tenable as per law. Since the issue regarding applicability of section 115JB is already restored to the CIT(A), this issue is also restored to the CIT(A) for decision as per law. We also note that in assessee s own case for AY 2014-15 (supra) at para No.14, the Tribunal has restored the issue to the CIT(A) for fresh consideration, 24. Since we have decided all the grounds raised, Ground No.9 is academic. AY 2017-18 25. The assessee has raised the following revised grounds:- 1. The order of the learned CIT(A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the fact that, as per Section 14A, for justifying a disallowance under that section, a finding on the incurring of expenditure for earning the exempt income is absolutely necessary on the part of the Assessing Officer. The learned Assessing Officer has not brought out any specific expenditure which has been incurred by the Appellant Bank for earning of exempt income. Under these circumstances, the addition now made is liable to be deleted. 4.3. The learned CIT(A) erred in invoking the provisions of Rule 8D without pointing out any defect in the computation of the disallowance made by the Appellant bank. 4.4. The learned CIT(A) failed to appreciate the fact that the application of Rule 8D is neither automatic nor mandatory. 4.5. The learned CIT(A) erred in holding that exempt income will always have a notional interest cost attached to it. 4.6. The learned CIT(A) erred in not appreciating the fact that no disallowance towards interest can be made on the facts of the case. 4.7. Without prejudice to the above, the learned CIT(A) failed to appreciate that with effect from AY 2017-18, no disallowance of indirect interest expense can be made. 4.8. The learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing through VC, which was specifically requested by the Appellant. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal. 26. Ground No.1 is general in nature. 27. Ground No.2 is regarding upholding the disallowance of Rs. 2764,48,53,742/- u/s 36(1)(vii) of the Act made by the AO on similar lines as in AY 2016-17. On appeal before the CIT(Appeals), the assessee furnished the following break-up of bad-debts written off during the year:- Sl. No. Particulars Amount (Rs.) 1. Debts written off which became bad debts (NPA) for the first time during the FY 2016-17 (non-rural) 396,70,85,881 2. Incremental write off of debts which became bad debts (NPA) for the first time during the FY 2015-16 (non-rural) 1037,29,14,905 3. Prudential Write Off of debts (non-rural) Debts written off at the Branch level (non-rural) 1330,48,02,956 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely taken a plea that the penalty was for a civil wrong and has not brought any evidence on record to suggest that any part of penalty is compensatory in nature. He held that that penalty imposed for infringement of law whether civil or criminal, is not an allowable deduction u/s. 37 and upheld the disallowance made by the AO. 33.2 The ld. AR reiterated the submissions made before the lower authorities. He further submitted that the amount paid to RBI was in the ordinary course of business and he further requested that the matter may be sent back to the CIT(A) for submitting necessary details, while the ld. DR supported their orders. After considering the rival submissions, we note that the assessee admitted that penalty was imposed by RBI for lapses on the part of the bank in adhering to KYC norms and deficiencies in internal control mechanism. The lower authorities held that penalty imposed for infraction of law is not an admissible expenditure. Accepting the prayer of the assessee, we remit this issue to the CIT(A) for fresh decision as per after giving proper opportunity to assessee. The assessee is also directed to furnish necessary documents in support of its claim. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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