2014 (3) TMI 536 - AT - Income Tax

Deduction u/s 36(1)(viia) of the Act Claim for provision for bad & doubtful debts - Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the disallowance to the extent of Rs.243,28,84,423/- claimed u/s 36(1)(viia) of the Act requires to be restored Decided in favour of Revenue. Admissibility of additional grounds Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the additional grounds sought to be raised by the Revenue cannot be admitted for adjudication - The deduction under the first proviso to sec. 36(1)(viia)(a) of the Act is in addition to what is allowed under sec. 36(1)(viia)(a) of the Act and the assessee is given the option to claim deduction under the proviso - In a nut-shell, in conformity with the findings of the earlier Bench on the issue of admissibility of identical additional grounds, the Revenue s applications for seeking permission for raising the additional grounds are rejected or in other words they cannot be admitted for adjudication Decided against Revenue. Claim of interest reversed on NPA Held that - The decision in CIT v. Industrial Finance Corporation of India Limited 2011 (7) TMI 87 - DELHI HIGH COURT followed - The un-amended section 36(1)(viii) allowed the deduction to a financial institution for an amount not exceeding 40 per cent of the total income carried to a special reserve - It is clear from the reading of the provisions of clause (viii) of sub-section (1) of s. 36 that the words and maintained were inserted only by way of amendment made w.e.f. 1.4.1998 - As per the un-amended provision which is applicable, only requirement was for creation of reserve equivalent to Rs.40 per cent of total income by debit to the profit and loss account thus, the order of the CIT(A) upheld Decided against Revenue. Claim of deduction u/s 35D of the Act - Claim being 1/5th of public issue and bond issue expenses Held that - As decided in assessee s own case for the earlier assessment year, it has been decided that, the provisions of section 35D of the Act were applicable only when the expenses are incurred after commencement of business in connection with expansion of industrial undertaking or in connection with setting up of a new industrial unit - the assessee was not an industrial under-taking - the capital raised by issue of shares is for meeting the working capital requirement or otherwise, will not be a relevant consideration thus, the CIT (A) was not justified in deleting the addition made by the AO - the claim of the assessee is allowable u/s 37(1) of the Act as expenditure wholly and necessarily incurred in connection with the business of the assessee - The assessee has claimed only 1/5th of the total expenses and has amortized the claim of expenses for the period of the bond thus, the order of the CIT (A) is upheld partly Decided against Revenue. Interest on securities on accrual basis Held that - The decision in CIT v. Tamil Nadu Mercantile Bank Ltd 2007 (1) TMI 128 - MADRAS High Court followed - the assessee has been following the method of offering interest on securities to tax on receipt basis on maturity and the same has been accepted by the Revenue in the past thus, there is no reason to interfere in findings of the CIT(A) Decided against Revenue. Loss on re-valuation of investments Trading in securities - Held that - As decided in assessee;s case for the earlier year s, the claim has been decided in favour of Assessee - thus, there is no need to interfere in the findings of the CIT(A) - Decided against Revenue. Disallowance under section 14A of the Act - Expenditure related to the earning of exempt income Held that - As decided in assessee s own case for the earlier assessment years, it has been decided that, The decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT followed the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act - The Assessing Officer can adopt a reasonable basis for effecting the apportionment - While making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case there is no infirmity in the order of CIT(A) thus, the applicability of the provisions of section 14A of the Act to the assessee s case is upheld thus, the matter is remitted back to the AO for fresh adjudication of applicability of Rule 8D Decided in favour of Assessee. Applicability of section 115JB of the Act - Banking company Held that - The decision in Krung Thai Bank PCL Versus Joint Director of Income Tax - International Taxation, Mumbai 2010 (9) TMI 18 - ITAT, MUMBAI followed - The provisions of Section 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and I II of Schedule VI to the Companies Act - The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account - In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Section 211 (2) of the Companies Act - The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of Section 115 JB cannot thus be applied to the case of a banking company thus, the provisions of section 115JB of the Act are not applicable to the assessee which is a banking company Decided in favour of Assessee.

Summary

Issues Involved:
1. Deduction for provision for bad and doubtful debts under Section 36(1)(viia).
2. Reversal of interest on Non-Performing Assets (NPA).
3. Deduction under Section 35D for public issue and bond issue expenses.
4. Accrued interest on securities offered on a cash basis.
5. Valuation of investments and trading losses.
6. Disallowance under Section 14A for expenditure related to exempt income.
7. Applicability of Section 115JB (Minimum Alternate Tax) to the assessee bank.

Detailed Analysis:

1. Deduction for Provision for Bad and Doubtful Debts under Section 36(1)(viia):
The Revenue challenged the CIT(A)'s decision allowing the assessee's claim for a deduction of Rs. 593.16 crores under Section 36(1)(viia), arguing that only Rs. 349.87 crores were debited to the P&L account. The Tribunal referred to the earlier decisions of the ITAT and the Hon'ble High Courts, concluding that the assessee is entitled to the deduction as claimed. However, the additional grounds raised by the Revenue were rejected as they were not admitted for adjudication due to their late submission and lack of relevance to the original grounds.

2. Reversal of Interest on Non-Performing Assets (NPA):
The CIT(A) allowed the assessee's claim of Rs. 12,80,483 for interest reversed on NPAs, which was disallowed by the AO as prior period expenses. The Tribunal upheld the CIT(A)'s decision, noting that the reversal of interest on NPAs is consistent with RBI guidelines and the method consistently followed by the assessee, which has been accepted in previous years.

3. Deduction under Section 35D for Public Issue and Bond Issue Expenses:
The CIT(A) allowed the assessee's claim for deduction under Section 35D, amounting to Rs. 3,33,10,139. The Tribunal, however, referred to the earlier decision in the assessee's own case and the Hon'ble Supreme Court's ruling in Brooke Bond India Ltd. v. CIT, concluding that the expenses incurred for raising share capital are capital in nature and not allowable as revenue expenditure. The Tribunal upheld the AO's disallowance of the claim for public issue expenses but allowed the deduction for bond issue expenses under Section 37(1).

4. Accrued Interest on Securities Offered on a Cash Basis:
The CIT(A) allowed the assessee's claim for offering interest on securities on a due basis, which was disallowed by the AO. The Tribunal upheld the CIT(A)'s decision, referring to the consistent method followed by the assessee and accepted by the Revenue in previous years, supported by judicial precedents from the Hon'ble Madras and Kerala High Courts.

5. Valuation of Investments and Trading Losses:
The CIT(A) allowed the assessee's claim for loss on valuation of investments, which was disallowed by the AO based on RBI guidelines. The Tribunal upheld the CIT(A)'s decision, referring to the Hon'ble Supreme Court's ruling in UCO Bank v. CIT and the consistent method followed by the assessee, supported by the jurisdictional High Court's decision in CIT v. Corporation Bank.

6. Disallowance under Section 14A for Expenditure Related to Exempt Income:
The CIT(A) upheld the AO's disallowance of Rs. 30,09,99,982 under Section 14A read with Rule 8D. The Tribunal, referring to the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd., remanded the issue back to the AO for fresh consideration, directing the AO to examine the nexus between interest-bearing funds and investments yielding exempt income. The Tribunal upheld the applicability of Rule 8D but directed the AO to compute the disallowance as per the specific provisions of Rule 8D.

7. Applicability of Section 115JB (Minimum Alternate Tax) to the Assessee Bank:
The CIT(A) upheld the applicability of Section 115JB to the assessee bank. However, the Tribunal, referring to the Mumbai Bench's decision in Krung Thai Bank and the co-ordinate bench's decision in the assessee's own case, concluded that the provisions of Section 115JB do not apply to banking companies that prepare their accounts as per the Banking Regulation Act and not as per Schedule VI of the Companies Act.

Conclusion:
Both the Revenue's and the assessee's appeals were partly allowed. The Tribunal upheld the CIT(A)'s decisions on several issues but remanded certain issues back to the AO for fresh consideration, ensuring consistency with judicial precedents and statutory provisions. The detailed analysis reflects the Tribunal's adherence to legal principles and judicial precedents in resolving the disputes.