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2014 (5) TMI 929 - AT - Income TaxDisallowance of bad debts written off u/s 36(1)(vii) of the Act - Held that - The proviso to section 36(1)(vii) has been inserted to avoid the double claim in respect of the same amount and the amount of bad debts which exceeds the credit balance in the provisions for bad and doubtful debt account made under clause (viia) shall be allowable u/s 36(1)(vii) Relying upon Catholic Syrian Bank Ltd. v. CIT 2012 (2) TMI 262 - SUPREME COURT OF INDIA - the deduction u/s 36(1)(vii) cannot be negated by reading into the limitation of section 36(1)(viia) as it would frustrate the object of granting such deductions as regards the Introduction of Explanation 2 vide Finance Act 2013, it has been made clear in the Finance Act itself that the Explanation will be effective w.e.f 01.04.2014 it cannot applicable for the year under consideration - the AO is directed to allow the claim Decided in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act - Fees paid to Master Card International Held that - it has been decided in the case of the assessee for the earlier assessment year, that the CIT(A) has directed the AO to verify the claim of the assessee regarding taxes paid in the year in respect of earlier years and allow them as per law - there is no question to verify and deduction should be allowed in assessment year itself Decided against Assessee. Disallowance of expenses u/s 14A of the Act - Expenses incurred in relation to exempt income Estimation on ad hoc basis Held that - The CIT(A) has accepted the fact that the assessee has purchased the securities by using its own fund - there is no interest expenditure in respect of these securities for disallowance of administrative expenses u/s 14A, CIT(A) has directed the AO to compute the disallowance at 0.5% of the average investment earning tax free income - 0.5% of the average investment is clearly given under Rule 8D which is not applicable for the year under consideration - the securities are maintained by the assessee as stock in trade and the income arising from the sale and purchase of securities is taxable as business income of the assessee - the expenditure if any incurred on account of administrative expenses for maintaining these securities the whole of the said expenditure cannot be attributed to the dividend income when the income arising from the sale and purchase of the securities is taxable - only a reasonable estimate has to be made for disallowance of expenditure u/s 14A in respect of earning of dividend income and tax free interest - 1% of the exempt income will be a reasonable disallowance on account of administrative expenses u/s 14A Decided partly in favour of Assessee. Disallowance of liquidated damages - Delay in delivery of equipment Held that - The liquidated damage was received on account of delay in delivery of equipment but it was not the case of purchase of new plant so as to sterilization of profit earning source due to delay - the damage was received on account of delay in supply of equipments, it is not revenue receipt but it should be reduced from the costs of the asset for the purpose of depreciation thus, the order of the CIT(A) is set aside and the AO is directed to reduce the amount of liquidated damages from the cost of asset for the purpose of depreciation Decided in favour of Assessee. Applicability of section 115JB of the Act Minimum Alternate Tax Held that - Following ICICI Lombard General Insurance Vs. Department of Income Tax 2014 (5) TMI 729 - ITAT MUMBAI - an amendment has been brought into the statute by the Finance Act 2012 whereby sec 115JB has been amended w.e.f 2013 - prior to 1.4.2013, the provisions of sec. 115JB cannot be applied in case of Insurance, banking, electricity, generation and distribution companies and other class of companies, which are not required to prepare their accounts and particularly Balance Sheet and P&L account as per part II & III of Schedule VI of the Companies Act - section 115JB has been amended to bring all the Companies in its ambit vide Finance Act 2012, w.e.f 1.4.2013, however, the amendment is not applicable in the assessment year under consideration Decided in favour of Assessee.
Issues Involved:
1. Disallowance of bad debts written off. 2. Disallowance of fees paid to Master Card International. 3. Disallowance of expenses under section 14A. 4. Taxation of liquidated damages received. 5. Applicability of Minimum Alternate Tax (MAT) under section 115JB. Detailed Analysis: 1. Disallowance of Bad Debts Written Off: The assessee claimed bad debts under section 36(1)(vii) amounting to Rs. 217,43,16,387. The AO disallowed the claim, stating non-compliance with section 36(1)(vii). The CIT(A) allowed the claim but restricted it by reducing Rs. 102,87,21,160 based on section 36(1)(viia). The assessee argued that the restriction should apply only to rural branches, citing the Supreme Court decision in Catholic Syrian Bank Ltd. v. CIT. The Tribunal agreed, noting that the proviso to section 36(1)(vii) aims to prevent double claims and should not negate deductions under section 36(1)(vii). The Tribunal directed the AO to allow the claim following the Supreme Court's decision. 2. Disallowance of Fees Paid to Master Card International: The assessee's claim for fees paid to Master Card International was disallowed under section 40(a)(ia) for non-deduction of tax at source. The Tribunal referenced its earlier decision in the assessee's case for A.Y. 2000-01, upholding the disallowance. The CIT(A) had directed the AO to verify the taxes paid and allow the claim as per law. The Tribunal followed the earlier decision, deciding the issue against the assessee. 3. Disallowance of Expenses Under Section 14A: The AO disallowed Rs. 7.51 crore under section 14A, estimating 12% of the exempt income. The CIT(A) reduced this to 0.5% of average investments, applying the decision in Godrej & Boyce Manufacturing Co. Ltd. The assessee argued that the investments were stock-in-trade, and section 14A should not apply. The Tribunal noted that Rule 8D was not applicable for the year in question and considered 1% of the exempt income as a reasonable disallowance, following the decision in DCIT Vs. HDFC Bank Ltd. 4. Taxation of Liquidated Damages Received: The AO treated Rs. 2,98,746 received as liquidated damages for delayed equipment delivery as revenue receipts. The assessee claimed it was a capital receipt, citing the Supreme Court decision in CIT. vs. Saurashtra Cement Limited. The Tribunal agreed that the damages were not revenue receipts but should be reduced from the asset's cost for depreciation purposes. 5. Applicability of Minimum Alternate Tax (MAT) Under Section 115JB: The assessee argued that section 115JB does not apply to banking companies, as their accounts are prepared under the Banking Regulation Act, not Schedule VI of the Companies Act. The Tribunal referenced several decisions, including ICICI Lombard General Insurance Vs. Department of Income Tax, and held that section 115JB was not applicable to the assessee for the assessment year in question, as the amendment bringing all companies under section 115JB was effective from 1.4.2013. Conclusion: The appeal was partly allowed, with the Tribunal directing the AO to follow the Supreme Court's decision on bad debts, upholding the disallowance of fees paid to Master Card International, reducing the disallowance under section 14A to 1% of exempt income, treating liquidated damages as a reduction in asset cost, and ruling that MAT provisions under section 115JB were not applicable to the assessee for the assessment year in question.
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