2014 (2) TMI 265 - AT - Income Tax

Deduction u/s 35D - Held that - The ground has not been raised before the CIT(A), it cannot be admitted - No facts and details have been brought on record by the assessee - Decided against assessee. Liability u/s 115JB - Held that - The assessee, being a banking company, is not exigible to tax under the MAT provisions of Chapter XVII-B - Decided in favour of assessee. Disallowance u/s 14A - Held that - Rule 8D is applicable from A.Y. 2008-09 - The issue has been restored for fresh adjudication. Book profit u/s 115JB - Held that - Section 115JB includes within its ambit the companies to which the proviso to section 211(2) of the Companies Act, 1956 is applicable - The amended section 115JB is applicable w.e.f. 01.04.2013 - Decided in favour of assessee.

Issues Involved:

1. Deduction under sections 36(1)(vii) and 36(1)(viia) of the Income Tax Act.
2. Deduction claimed under section 35D for public issue expenses.
3. Applicability of Minimum Alternate Tax (MAT) under section 115JB to banking companies.
4. Disallowance under section 14A related to tax-exempt income.
5. Adjustment to book profit under section 115JB.

Issue-Wise Detailed Analysis:

1. Deduction under sections 36(1)(vii) and 36(1)(viia) of the Income Tax Act:

The Revenue's appeal for A.Y. 2005-06 and 2007-08 concerns the allowance of deduction under sections 36(1)(vii) and 36(1)(viia). The assessee claimed Rs.275.57 crores as provision for NPAs, with Rs.53.53 crores for rural advances and Rs.222.04 crores for non-rural advances. Additionally, debts written off amounted to Rs.318.85 crores. The Assessing Officer (A.O.) allowed Rs.53.53 crores under section 36(1)(viia) and Rs.265.32 crores under section 36(1)(vii). The CIT(A) allowed the entire Rs.318.85 crores. The Tribunal noted that sections 36(1)(vii) and 36(1)(viia) are distinct, and the proviso to section 36(1)(vii) applies to rural advances. The Tribunal restored the matter to the first appellate authority for fresh adjudication, requiring verification of the provision account's opening balance and the actual write-off of debts.

2. Deduction claimed under section 35D for public issue expenses:

The assessee's appeal for A.Y. 2007-08 included a disallowance of Rs.144.24 lacs claimed under section 35D for public issue expenses. The assessee conceded that the issue was covered against it by the apex court decisions in Brooke Bond India Ltd. vs. CIT and Punjab State Industrial Development Corpn. Ltd. vs. CIT. The Tribunal dismissed the ground, noting that the expenditure was capital in nature, and the alternate claim for netting against interest income was not raised before the first appellate authority.

3. Applicability of Minimum Alternate Tax (MAT) under section 115JB to banking companies:

The assessee's appeal for A.Y. 2007-08 contested the applicability of MAT under section 115JB. The Tribunal noted that the issue was covered by previous decisions in favor of the assessee, including its own case for A.Y. 2006-07. The Tribunal reversed the CIT(A)'s direction, holding that the assessee, being a banking company, was not subject to MAT under section 115JB.

4. Disallowance under section 14A related to tax-exempt income:

The Revenue's appeal for A.Y. 2007-08 included a ground against the restriction of disallowance under section 14A. The A.O. applied Rule 8D, while the CIT(A) restricted it to 5%. The Tribunal noted that for A.Y. 2003-04, the disallowance was restricted to 2%, and for A.Y. 2006-07, it was confirmed at 5%. The Tribunal restricted the disallowance to 5% of the tax-exempt income, consistent with the preceding year, as Rule 8D was applicable only from A.Y. 2008-09.

5. Adjustment to book profit under section 115JB:

The Revenue's appeal for A.Y. 2007-08 included grounds related to adjustments to book profit under section 115JB. The Tribunal noted that these grounds would not survive in view of its decision upholding the non-applicability of section 115JB to the assessee, a banking company. The Tribunal dismissed these grounds and set aside the revision order concerning adjustments to book profit, following its consistent view that section 115JB did not apply to the assessee.

Conclusion:

- The Tribunal restored the matter of deductions under sections 36(1)(vii) and 36(1)(viia) to the first appellate authority for fresh adjudication.
- The disallowance of public issue expenses under section 35D was upheld.
- The applicability of MAT under section 115JB to the assessee was rejected.
- The disallowance under section 14A was restricted to 5% of the tax-exempt income.
- Adjustments to book profit under section 115JB were dismissed, and the revision order was set aside.

Order Summary:

- ITA No. 3821/M/2009 (A.Y. 2005-06): Allowed for statistical purposes.
- ITA No. 4112/M/2012 (A.Y. 2007-08): Partly allowed.
- ITA No. 3674/M/2012 (A.Y. 2007-08): Partly allowed.
- ITA No. 3675/M/2012 (A.Y. 2007-08): Allowed.

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