TMI Blog2018 (7) TMI 2067X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment is not affected, controlled or limited in any way by the proviso to clause (vii). Accordingly, the above question is answered in the affirmative, i.e., in favour of the assessee(s). Disallowance made by the AO on account of broken period interest - HELD THAT:- It is not disputed that in respect of the securities held by the respondent on 31st March, 2001, the due date for payment of interest thereon had not arrived on 31st March, 2001 and that the respondent sold some of such securities prior to the next due date for payment of interest. It is only the holder of the security on such date to whom interest can be said to have accrued. In any event interest did not accrue to the respondent on 31st March, 2001, as admittedly interest was not payable on that date as per the terms of the said securities. The appellate authorities, therefore, rightly deleted the addition of ₹ 1,21,57,517/- by the Assessing Officer as interest income. MAT applicability u/s 115JB - HELD THAT:- In terms of the provisions of Section 115 JB {2), every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and III of Schedule VI to the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rule 8D. The learned DCIT be directed not to disallow any expenditure in relation to the income claimed exempt u/s. 10 of the Act by applying provisions of Rule 8D and delete the addition of ₹ 44,50,73,900 made to the total income and reduce the total income accordingly. IB Without prejudice to Ground no. 1A above, on the facts and in circumstances of the case and in law, the Appellant Bank prays that the disallowance made u/s. 14A read with Rule 8D is highly excessive and the learned DCIT be directed to make disallowance u/s. 14A on a reasonable basis and reduce the total income accordingly. Revenue, in the cross appeal, has raised the following grounds: - 1. On the facts and in the circumstances of the case and in law, the LD. CIT(A) has erred in allowing the claim of bad debts of ₹ 208,57,64,535/- without appreciating the fact that the claim of bad debts written off is allowable to the extent it exceeds the credit balance in the provision account. 1(b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the loss on account of valuation of securities while shifting from Available for sale (AP S) to Hold to maturity (HTM) without appreciating that shifting from one category to another cannot give rise to loss or profit as one cannot make profit or loss with one self. 3. The brief facts of the case are that the assessee filed original return of income for A.Y. 2011-12 on 28.09.2011 declaring total income at ₹ 138,19,35,392/-. Assessee was selected for scrutiny assessment and assessment order was passed on 19.03.2013 under Section 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). The AO, while passing the assessment order, made various additions/disallowances, which were subject matter of first appeal before the CIT(A) wherein the assessee was given partial relief. Therefore, further aggrieved by the order on various issues both parties have filed their cross appeals raising grounds of appeal recorded above. 4. We have heard the rival contentions and perused the material on record. At the outset of hearing the learned A.R. of the assessee submits that all the grounds raised by the parties are covered in favour of the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having heard both the parties and perusing the materials available on record we find that the ITAT, in assessee s own case for assessment year 2009-10 in ITA No. 1561 and 3438/Mum/2013 dated 03.10.2017 has considered the issue of disallowance of expenditure in relation to exempt income u/s. 14A of the Act. The Coordinate Bench after considering the relevant facts in light of section 14A has deleted the additions made by the Assessing Officer and restricted the addition to the extent of 2% of the exempt income by holding that the assessee s own interest free funds compressing its share capital and reserves are more than the investments made which yield tax free exempt income. The ITAT further observed that on perusal of the Assessing Officer s order, it is clear that the Assessing Officer has not recorded any satisfaction with regard to the claim of the assessee that it has earned exempt income without attributing any expenses relating thereto with reference to the books of accounts which is a pre-condition for invoking the provisions of the section 14A of the Act. The relevant portion of the order is extracted below: 9. We have carefully considered the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able percentage of the exempt income is an accepted method of quantifying the disallowance of expenses for the AYs prior to AY 2008-2009, the year of amendment to Rule 8D of IT Rules, 1962. In this regard, Ld Counsel for the assessee filed decisions of the Tribunal in the cases of DCIT vs. HDFC Bank Ltd in ITA Nos. 4529/M/2005 and others, dated 29.6.2011 and order of the Tribunal in the case of Bank of India vs. ACIT in ITA No.1498/Mum/2011 for the AY 2001-2002, dated 9.4.2014 and submitted that disallowance @ 1% of the exempt income in the case of Banks is accepted as a reasonable basis ‟ . Further, he also referred to the decision of the Tribunal in the case of M/s. Godrej Agrovet Ltd vs. ACIT in ITA No.1629/Mum/2009, dated 17.9.2010, which was subsequently ratified by the Hon'ble jurisdictional High Court in the same case. This case is relevant for the proposition that the I.T.A. No.1525 and 364 9/Mum/2013 And I.T.A. No.1561 and 3438/Mum/2013 disallowance of 2% of the exempt income is found reasonable by the Hon'ble High Court. Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to make addition to the 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2). 42. Consequently, while answering the question in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made for bad and doubtful debt(s) under Section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actual write off under clause (vii). This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if any, of the write off over the amount standing to the credit of the account created under clause (viia). However, the Revenue disputes the position that the proviso to clause (vii) refers only to rural advances. It 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly in appeal for assessment years 2008-09 and 2009-10 the Tribunal, vide its order dated 03.10.2017 in ITA Nos. 1561/M/2013 3438/M/2013, dismissed the appeal of the Revenue on this ground. On the other hand the learned DR for the revenue relied on the order of the authorities below. 12. We have considered the rival submission of the parties and have gone through the orders of the authorities below. We have noted that almost on identical facts on identical issues the Tribunal in assessee s own case in ITA Nos. 1561/M/2013 3438/M/2013 for assessment years 2008-09 2009-10 held as under: - 18. We have carefully considered the contentions of the rival parties and perused the material placed before us including the impugned orders. We find that in the instant case, the issue is with regard to the taxability of the interest relating to the broken period after due date of interest till the close of accounting year. Acceding to the assessee the same is not taxable as the assessee has no right to receive the said interest though accrued on day to day basis. The ld. CIT(A) allowed the appeal of the assessee on the same reasoning. We have perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as admittedly interest was not payable on that date as per the terms of the said securities. 20. The appellate authorities, therefore, rightly deleted the addition of ₹ 1,21,57,517/- by the Assessing Officer as interest income. We, therefore, respectfully following the ratio laid down by the Hon'ble jurisdictional High Court, dismiss the ground raise by the revenue. Resultantly, the appeal of the revenue is dismissed. Respectfully following the same we dismiss this ground of Revenue. 13. Ground No. 3 in Revenue s appeal relates to application of Section 115JB to assessee s case. The learned A.R. submits that similar issue has come up before the Tribunal in assessee s own case for A.Y. 3639/Mum/2004 for A.Y. 2000-01 wherein the issue has been decided in favour of the assessee vide order dated 16.08.2016. On the other hand the learned DR for the Revenue relied on the order of the authorities below. 14. We have considered the rival submission of the parties and have gone through the orders of the authorities below. We have noted that almost on identical facts on identical issues the Tribunal in assessee s o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the assessee prepares its profits and loss account in accordance with Schedule 17 to the Companies Act. It is pointed out that, in terms of the provisions of Section 115 JB {2), every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and III of Schedule VI to the Companies Act. Unless the profit and loss is so prepared, the provisions of Section 115JB cannot come into play at all. However, the assessee is a banking company and under proviso to Section 211(2) of the Act the assessee is exempted from preparing its books of accounts in terms of requirements of Schedule VI to the Companies Act, and the assessee is to prepare its books of accounts in terms of the provisions of Banking Regulation Act. It is thus contended that the provisions of Section 115JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act. Since the provisions of Section 115 JB do not apply to the assessee company, the reasons recorded for re-opening the assessment are clearly wrong and insufficient. We are urged to quash the reasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. Ground No. 4 in Revenue s appeal relates to valuation of securities while shifting from Available for sale to Hold to Maturity. The learned A.R. submits that the issue is covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 368 ITR 377. On the other hand the learned DR for the Revenue relied on the order of the authorities below. 16. We have considered the rival submission of the parties and have gone through the orders of the authorities below. We have noted that almost on identical facts on identical question of law the Hon'ble High Court in the case of CIT vs. HDFC Bank Ltd 368 ITR 3777 held that loss incurred on account of security held under category available for sale to held to maturity was to be allowed as business loss. Therefore, respectfully following the decision of jurisdictional high court this grpund of appeal raised by revenue is dismissed. 17. In the result the appeal of the revenue is dismissed. 18. In the result, the appeal filed by the assessee is allowed and the appeal filed by revenue is dismissed. Order p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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