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TMI Blog2024 (11) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, 1963. 5. Briefly stated the facts of the case are that the assessee is engaged in banking operations and related activities. During the year the assessee offered interest income from loans and advances, dividends, interest on debentures, leasing, securities, deposits and advances, commission and fee, profit on sales of investment, interest and commitment charges on loan funds including the rupee loans and foreign currency loans etc. 6. The assessee filed its original return of income on 30/11/2006, declaring total income of Rs. 19,20,02,74,940/-. The return was revised on 29/03/2008 at Rs. 16,99,85,16,660/- which included short term capital gain of Rs. 1,01,78,11,054/-. Income u/s 115JB of the Act was computed at Rs. 25,99,34,31,825/-. 6.1. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. The assessment order was framed u/s 143(3) of the Act vide order dated 26/12/2008 wherein income was assessed at Rs. 31,48,60,89,143/- and book profit u/s 115JB of the Act was computed at Rs. 2,60,62,38,140/-. 6.2. The assessment was challenged before the ld. CIT(A), who granted part relief to the assessee. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee reiterated what has been stated before the lower authorities. The ld. D/R strongly supported the findings of the AO. 10. We have given a thoughtful consideration to the orders of the authorities below. We have carefully perused the orders of the Coordinate Bench for AY 2004-05 and 2005-06 in ITA No. 5276/Mum/2013, ITA No. 3841/Mum/2013, ITA No. 6217/Mum/2013 & ITA No. 6137/Mum/2008. We find that on identical set of facts, the Co-ordinate Bench has allowed the exemption claimed u/s 10(23G) of the Act along with the disallowance u/s 14A of the Act. The relevant findings read as under:- "66. The first issue, as raised in ground no.1 by the Revenue corresponding to ground no.2 raised by the assessee relates to computation of income claimed as exempt under section 10(23G) of the Act. 67. Brief facts are, during the assessment proceedings, the Assessing Officer while examining the assessee's claim of exemption under section 10(23G) of the Act in respect of income derived from investment in infrastructure capital fund was of the view that the assessee being engaged in the business of banking is not eligible to claim exemption. Therefore, he called upon the assessee to justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming exemption under section 10(23G) of the Act. In this context, he also relied upon the decision of the Tribunal, Amritsar Bench, in Jammu & Kashmir Bank v/s ACIT, 114 TTJ 728. As far as disallowance of expenditure under section 14A of the Act for computing net exempt income under section 10(23G) of the Act, the learned Commissioner (Appeals) followed his orders in assessee's own case for preceding assessment years and directed the Assessing Officer to re-compute the disallowance under section 14A of the Act. 69. The learned Authorised Representative submitted before us, the assessee having fulfilled the conditions of infrastructure capital company is eligible for exemption under section 10(23G) of the Act. As far as the disallowance of expenditure under section 14A of the Act, the learned Authorised Representative relied upon the decisions of the Tribunal in assessee's own case for preceding assessment years. 70. Learned Departmental Representative supporting the observations of the Assessing Officer submitted that the provisions contained under section 10(23G) of the Act does not extent to commercial banks. 71. We have heard rival contentions and perused the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim under section 10(23G) of the Act by questioning its eligibility. Therefore, we uphold the order of the learned Commissioner (Appeals) on the first issue. 72. Insofar as the second issue regarding quantum of disallowance under section 14A of the Act is concerned, following our decision while deciding similar issue raised in the cross appeals for assessment year 2004-05 in the earlier part of the order vide Para-6 & 7, we restore the issue to the Assessing Officer for deciding afresh in terms of our directions given therein." 11. Proceeding further, the AO noticed that the assessee has claimed exempt income u/s 10(15) of the Act amounting to Rs. 1,90,40,373/- and u/s 10(34) and 10(35) aggregating to Rs. 3,18,29,95,827/-. The AO found that the assessee has not apportioned any expenses and administrative expenses @ 1% of the gross dividend and interest as according to the assessee the investments have been made out of cost free funds. 11.1. The contention of the assessee did not find favour with the AO who was of the opinion that the exemption available u/s 10(15), 10(23G), 10(34) and 10(35) of the Act are for the income by way of interest or dividends and not the gross interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the authorities below. The contention of the assessee that it has more than sufficient interest free funds available for making the investments, can be understood from the following chart:- Particulars Mar - 06 (Amt in Rs. ) A Own funds i) Share Capital 12,39,83,45,323 ii) Reserves & Surplus 2,13,16,15,71,726 iii) Current Account Deposits 1,65,73,48,12,887 Total 3,91,29,47,29,936 B Investment earning tax free income i) Shares (equity and preference) 20,57,85,21,723 ii) Subsidiaries and/or Joint ventures 16,69,16,97,742 iii) Others (venture cap units & mutual funds) 59,69,40,99,282 Total 96,96,43,18,747 13.1. It can be seen from the above chart that the assessee has sufficient interest free funds available with it for making the impugned investment. Therefore, the ratio laid down by the Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Mum) & HDFC Bank 366 ITR 505 (Bom), squarely apply wherein the Hon'ble Superior Courts have held that, where the assessee has common p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. Deputy Commissioner of Income Tax4, the assessee was a Scheduled Bank and the issue therein also pertained to disallowance under Section 14A. In this case, the Bombay High Court even while remanding the case back to Tribunal for adjudicating afresh observed (relying on its own previous judgment in same assessee's case for a different Assessment Year) that, if assessee possesses sufficient interest free funds as against investment in tax free securities then, there is a presumption that investment which has been made in tax free securities, has come out of interest free funds available with assessee. In such situation Section 14A of the Act would not be applicable. Similar views have been expressed by other High Courts in CIT Vs. Suzlon Energy Ltd.5, CIT Vs. Microlabs Ltd.6 and CIT Vs. Max India Ltd.7 Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have further pointed out that those judgments have attained finality. On reading of these judgments, we are of the considered opinion that the High Courts have correctly interpreted the scope of Section 14A of the Act in their decisions favouring the assessees. 20. Applying the same logic, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case has allowed the claim of depreciation for AY 1995-96 in 115 ITD 25 for A.Y. 1995-96. Following the precedents and also drawing support from the decisions of the Hon'ble Delhi High Court in the case of Cosmos Films (338 ITR 266) and further following the order of his predecessor for AY 2005-06, directed the AO to allow the depreciation on leased assets. 17. Before us, the ld. D/R strongly supported the findings of the AO but could not bring any distinguishing decisions in favour of the revenue. Per contra, the ld. Counsel for the assessee reiterated the claim and placed strong reliance on the decision of the Tribunal in assessee's own case for AY 2004-05 and 2005-06 in ITA No. 5276/Mum/2013, ITA No. 3841/Mum/2013, ITA No. 6217/Mum/2013 & ITA No. 6137/Mum/2008. 18. We have carefully considered the orders of the authorities below. We find force in the claim of the assessee. The Co-ordinate Bench in AY 2004-05 has considered a similar claim while deciding Ground No. 3 of that appeal. The relevant findings read as under:- "17. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO, who was of the opinion that u/s 41(4) of the Act, the amount of bad debts allowed in earlier years and recovered during the year are taxed and accordingly added Rs. 48,06,63,927/-. 22. The assessee challenged the addition before the ld. CIT(A) and strongly contended that the assessee has claimed that the amount of Rs. 48,06,63,927/- being amounts written back and credited to the profit and loss account but for which no cash recovery is made, should not be taxed as per the provisions of Section 41(4) of the Act. 22.1. After considering the facts and submissions, the ld. CIT(A) found that identical issue was decided by the Tribunal in assessee's own case in ITA No. 8958/Bom/90 for AY 1987-88 and also by the ld. First Appellate Authority in AYs 1995-96, 1998-99 to 2004-05. Following the precedents, the ld. CIT(A) deleted the addition. 23. Before us, the ld. D/R strongly supported the findings of the AO. The ld. Counsel for the assessee re-iterated what has been stated before the lower authorities. 24. We have carefully perused the orders of the authorities below. We find force in the contention of the ld. Counsel for the assessee. The Coordinate bench in assessee's own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar directions. In the result, ground No.3 of appeal is allowed for statistical purposes." 25. Respectfully following the decision of the Co-ordinate Bench (supra), we direct accordingly. Ground No. 7 is allowed for statistical purposes. 26. Ground Nos. 8 & 9 relate to the claim of bad debts. 27. While scrutinising the return of income, the AO found that the assessee has written off and claimed an amount of Rs. 10,10,60,00,277/- as bad and doubtful debts. This claim was revised vide letter dated 12/11/2008 to Rs. 8,79,08,01,208/- and after adjusting the credit balance of Rs. 81,16,87,940/- in the provision for bad and doubtful debts account for AY 2005-06, the assessee claimed Rs. 7,97,91,13,268/- as bad debts u/s 36(1)(vii) of the Act. The assessee was asked to file various details relevant to and in support of the claims on this account. A detailed questionnaire was served upon the assessee which comprises of nine questions. The AO observed that the assessee has not filed any information required for question nos. 1 to 5 and furnished the details in respect of the other queries. It was strongly contended that the amount of any bad debt or part thereof which is written off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once again reiterated that deduction on account of bad debts has undergone substantial change after the amendment made in 1987 and have been explained by the CBDT in Circular No. 551 dated 23/01/1990 and the assessee has only to write off the debts in its books and need not establish that the debt has become bad in the said year of write off. Strong reliance was placed on the decision of the Hon'ble Bombay High Court in the case of DIT vs. Oman International bank reported in 313 ITR 128 which has confirmed the decision of the Special Bench of the Mumbai Tribunal which has held that after amendment of Section 36(1)(vii) w.e.f. 01/04/1989, it is not obligatory on part of the assessee to prove that the debt written off is bad and if the same is written off as irrecoverable in the accounts of the assessee, it will suffice for claiming it as bad debts. 30. Before us, the ld. D/R strongly supported the findings of the AO and vehemently contended that the assessee has not furnished any details to demonstrate that the debts have actually been written off in the books of accounts. It is the say of the ld. D/R that the ratio laid down by the Hon'ble Supreme Court in the case of TRF Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble High Court that accounts of the assessee nowhere showed that the alleged advance was made in its ordinary course of business and since the assessee's claim was that amount so advanced was given to a developer for acquiring an immovable property and it was in the nature of capital expenditure and not business expenditure and, therefore, the claim was denied, whereas the facts of the case in hand show that being in the business of banking, the assessee had advanced/loaned/lent money in its ordinary course of business and this is not in dispute. Therefore, the write off in the books of accounts is sufficient for the claim. 32.1. Moreover, Section 36(2) of the Act provides as under:- (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) [no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or moneylending which is carried on by the assessee;] [ Substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of TRF Limited (supra) has been diluted by the Hon'ble Supreme Court in the case of Khyati Realtors Pvt. Ltd. (supra), is not a proper way of interpreting the judgment of the Hon'ble Supreme Court and since the ld. CIT(A) has rightly followed the decision of the Hon'ble Supreme Court (supra), we do not find any error or infirmity in the findings of the ld. CIT(A) which calls for any interference. Accordingly, Ground Nos. 8 & 9 are dismissed. 33. The next grievance relates to the claim of business loss and sales promotion expenses of Rs. 43,69,07,087/-. 33.1. The AO observed that the assessee vide revised return has claimed a business loss of Rs. 43,69,07,087/-. The assessee explained that the said loss was on account of disposal of non-banking assets, loss towards write off of discrepant notes and cash backs offered to credit card customers. Accordingly, the said loss was claimed as revenue loss. The assessee was asked to furnish supporting documentary evidence but no such evidence was furnished. The AO further observed that insofar as loss on sale of non-banking assets is concerned, it is not known how and in what manner the above properties were acquired and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. CIT(A) found that in the earlier AYs, the additions were deleted by the ld. CIT(A) following the decision of the Hon'ble Jurisdictional High Court of Bombay in the case of Otis Elevator Co. vs. CIT reported in 195 ITR 682 (Bom.) and CIT vs. Mercantile Bank reported in 237 ITR 676. Following the same, the ld. CIT(A) deleted the addition. 37.1. Before us, the ld. D/R could not bring any distinguishing decision in favour of the revenue. 38. We have carefully perused the orders of the authorities below. We find that a similar issue was considered by the Co-ordinate Bench in AY 2005-06 and 2004-05 (supra). The relevant finding read as under:- "56. We have heard rival contentions and perused the material available on record. The Hon'ble Supreme Court in United Glass Manufacturing Co. Ltd., Civil Appeal no.6649 of 2012, has held that club membership fees for employees are to be treated as business expenditure of a company under section 37 of the Act. We must also observe that in the decisions referred to by the learned Commissioner (Appeals) similar view has been expressed. That being the case, we do not find any reason to interfere with the order of the learned Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer not to have taxed the short-term capital gain from investments made in the said fund. Charging of interest under section 234B and 234D of the Act [Para 16, page 28 of the CIT(A) order] [6] The CIT(A) erred on facts and in circumstances of the case and in law in not deleting the interest levied under section 234B and 234D of the Act and treating the same as consequential in nature. GENERAL [7] The Appellant craves leave and reserves its right to vary, amend, alter and/or add to the grounds of appeal and to produce such oral and documentary evidence and file such compilation of documents as may be necessary at the time of hearing of the appeal." 44. Ground No. 1, is general in nature and needs no separate adjudication. 45. Ground Nos. 2 & 3 relate to the allocation of interest expenditure/other expenses relating to exempt income claimed u/s 10(23G)/14A/10(15)/10(34) & 10(35) of the Act. 46. The disallowance/allocation of impugned expenditure relating to impugned income/deduction has been considered by us in detail in appeal before the revenue vide Ground Nos. 1 to 4. For our detailed discussion therein, we are of the opinion that the ld. First Appellate Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X
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