TMI Blog2011 (3) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... ) For assessment year 2002-03 - Ground Nos. 1 3 b) For assessment year 2003-04 - Ground Nos. 2, 3 4 c) For assessment year 2004-05 - Ground Nos. 3 to 5 8 d) For assessment year 2005-06 - Ground Nos 1 5 to 8 e) For assessment year 2006-07- Ground Nos 1, 6 7 4. The learned AR pointed out that COD approval had been granted for the balance grounds. In the absence of COD approval, all the abovesaid grounds raised by assessee are dismissed. Accordingly, the aforesaid grounds of appeal relating to the respective assessment years as indicated above, filed by the assessee, are dismissed for technical reasons. 5. Consequently, the following grounds of appeal are left for adjudication by the Tribunal in respect of the assessment years indicated against each:- Assessment year 2002-03 Ground No.3 - That the learned Commissioner of Income-tax (Appeals) Patiala has erred in upholding the addition of ₹ 2,93,24,755/- on account of bad debts recovered during the year. Assessment year 2003-04: Ground No.1 - that the Ld. CIT(A), Patiala has erred in upholding the disallowance of ₹ 66,44,710/- u/s 14A of the Act against tax free income in spite of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts recovered during the year. 5. That the Ld. CIT(A) has erred in holding that prior period expense and prior period income as per Tax Audit Report pertains to respective previous years without following the order of the Hon'ble ITAT and, as such, retaining the addition of ₹ 41,58,174/-. 6. We proceed to take up the appeal in ITA No.136/Chd/2009 relating to A.Y. 2003-04 to dispose off the grounds of appeal, for which approval has been granted. 7. The issue in Ground No.1 raised by the assessee is against the disallowance made u/s 14A of the I.T.Act. 8. The brief facts of the case are that the assessee had filed return of income declaring net income of ₹ 543.72 Cr. Case was picked up for scrutiny in view of the Board s Circular. The assessee filed a revised return on 22.12.2004 declaring income of ₹ 538.97 Cr. The reasons for revising the return of income, as per the assessee, were (a) Revised claim of deduction u/s 10(23G); (b) Credit for TDS on account of 57 TDS certificates received late; (c) All debits written off in earlier year recovered during the year have been reduced from the income; (d) Prior period expenses not added back to the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be considered, which as per the assessee was ₹ 44,15,657/-. The CIT(Appeals) disallowed 2.5% of the total tax free income of ₹ 26,57,88,413/- on account of overhead and administrative expenses resulting in upholding of addition of ₹ 66,44,710/-. The assessee is in appeal against the said order of CIT(Appeals). 10. The learned AR for the assessee pointed out that the assessee being a banking company, its main business was acceptance of deposits and earning of income from funds received as deposits. He further pointed out that investment in securities, was incidental to the main banking business and was on account of statutory requirement of Banking Regulation Act for maintaining statutory liquidity ratio. Learned AR further submitted that only its actual expenditure could be disallowed and no disallowance on the basis of estimated expenditure could be made. Further it claimed that expenditure had been incurred for the purpose of earning business income which was exempt to a certain extent. Reliance was placed on the ratio laid down by the Kerala High Court in CIT V Catholic Syrian Bank Ltd. Ors (2011) 49 DTR 57 (Ker). 11. The Learned DR for the Revenue pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of making disallowance on pro rata basis for the purpose of Section 14A. 14. In DCIT V Tata Investment Corporation Ltd., (of which the JM is the author) the Mumbai Bench of Tribunal held that the sole activity of the assessee company was that of an investment company, and the total infrastructure is used for the purpose of attainment of its objects which include investment in group concerns and other companies. The income earned on such investments by way of dividend income was exempt under the provisions of Section 10(33) and by invoking the provisions of S.14A, such expenditure attributable to earning of dividend income was to be disallowed under the provisions of the Act. Therefore, the A.O. was directed to disallow the portion of salary expenditure incurred during the year under consideration which in turn had been incurred for the purpose of carrying out the objects of the assessee company. The assessee was directed to furnish the break up of salary expenditure incurred during the year under consideration, where services of such employees had been utilized for the purpose of carrying out the objectives of the assessee company. In case of failure on the part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the expenditure relating to earning of tax free income needs to be quantified in the hands of the assessee, keeping in view the expenditure incurred on the service of employees which had been utilized for the purpose of carrying out the objects of the assessee. In the entirety of the abovesaid ratios laid down on the subject and the facts of the present case, we are in conformity with the order of the CIT(Appeals) that in the absence of the details being maintained in respect of expenditure incurred on the exempt income and the taxable income separately, the expenditure attributable to earning of tax free income needs to be estimated. We find the CIT(Appeals) had estimated the said disallowance at 2.5% of the tax free income earned by the assessee. Upholding the same, we dismiss the Ground No.1 raised by the assessee. 17. The issue in Ground No.5 is against the addition on account of bad debts recovered during the year. The assessee, in the revised return filed had reduced ₹ 4,52,49,330/- from its income, on account of bad debts which were recovered during the year on the plea that income of bad debts was neither claimed and nor allowed as a deduction in the years i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . has rightly taxed the above amount and assessee's appeal on this ground is dismissed. 18. The assessee is in appeal against the same. During the course of hearing, the assessee was directed to furnish the details of bad debts recovered, i.e. the year when the same were written off and whether claimed as deduction or not. The learned AR failed to furnish the requisite details except to reiterate its stand before the authorities below. The learned DR placed reliance on the orders of authorities below and pointed out the same is includible in the hands of assessee. 19. We have heard the rival contentions. The assessee during the year had recovered bad debts totaling ₹ 4.52 Cr. In the original return of income, the same was included as income by the assessee. However, the assessee filed Revised Return of Income and vide Note No.3 it was claimed as under : Bad debts written off earlier year and recovered during the year amounting ₹ 4,52,49,329/- though credited to profit and loss account have been reduced from income as debts have been neither claimed nor allowed as deduction in the year of writing off and hence are nor covered by provision of Section 41(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in State Bank of Mysore Vs DCIT (2009) 33 SOT 7 (Bang) without bringing on record the factual aspects on record. In the absence of the same and in view of the report of Auditor and the assessee not discharging its onus, we are in conformity with order of CIT(Appeals) and A.O. that bad debts recovered during the year are to be included as income in the hands of the assessee in view of the provisions of Section 41(4) of the Act. 22. The Assessing Officer during the assessment proceedings carried out pursuant to notice issued u/s 148 of the Act relating to assessment year 2002-03, in respect of claim of bad debts recovered not being chargeable to tax, had issued letter dated 23.10.2008 u/s 133(6) of the Act to the auditor G.S.Goel Co. and in response it was replied as under:- We are in receipt of your above referred letter on 29.10.2008 and have noted its contents. In response to the same we wish to submit the following reply. The amount of ₹ 2,93,24,755.99 recovered against bad debts written-off and allowed as expenditure in earlier years u/s 36(1)(vii) of the Act is chargeable to Income Tax U/s 41(4) of the Income Tax Act, 1961 .. In our Tax Audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 12.6 upheld the order of Assessing Officer in view of the provisional data of population town and district wise having been leased on 10.7.2001, Census report 2001 was held to be applicable for categorization of rural branches under the provisions of section 36(1)(viia) of the Act. However, the CIT(A) directed the Assessing Officer to verify the list of branches submitted by the assessee and worked out the addition on that basis. 26. We have heard the rival contentions of the parties and perused the records. Under Section 36(1)(viia) of the Act, deduction is to be allowed in respect of any provision for bad and doubtful debts made by a scheduled bank or non scheduled bank or specified c-operative bank equal to an amount no exceeding 7 % of total income computed before allowing any deduction under this clause and Chapter VI A and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. 27. Further deductions are enshrined in the various provisos under the sub-section. However, in the present case the issue i.e. in connection with the advances made by Rural Branches . The term Rural Branch , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced at page 42 of the Paper Book in which it is clarified that provisional list is released within one month for the country and the same gives indicative figures of population and once final population is declared, the provisional is no more applicable and loses relevance. It is further stated Therefore, while classifying towns or rural areas only the Final Population Total be used not the Provisional Population totals, which in some cases may vary significantly from the population. This final population figures were released in December,2003 for use by data. Hence the final population figures were released in December, 2003. 33. Thus, for the purpose of 36(1)(viia) read in conjunction with the meaning of Rural Branches , provided vide the Explanation under the sub-section, is the branch situated in a place with population less than 10000 as per the figures of Census, which had been published before the first day of the previous year is to be considered for computing the deduction. The word used is published and same refers to final figures of population and not the provisional figures of population, which admittedly are released within one month. Vide letter dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debts recovered. The facts in the present case are identical to the facts raised in assessment year 2003-04. During the course of assessment proceedings the assessee failed to furnish the details of bad debts recovered and the years in which the same were written off. Following our order in connection with ground No.5 raised in assessment year 2003- 04, we dismiss the present ground of appeal raised in assessment year 2002-03. 40. The ground No.7 raised by the assessee is in connection with the computation of deduction u/s 36i)(viia) of the Act. The assessee had raised similar issue vide ground No.6 in assessment year 2003-04 and the same has been allowed by us in the paras hereinabove with directions. The factual aspects being identical in the year under appeal as no data was available on 1.4.2003, the Census report 1991 was applicable for determining the rural branches for allowing deduction u/s 36(1)(viia) of the Act. However,, we remit the issue back to the Assessing Officer to determine the said deduction in line with our direction vis-a-vis ground No. 6 raised in assessment year 2003-04. 41. In the result, appeal of the assessee in ITA No. 328/Chd/2009 is partly all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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