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2015 (11) TMI 1058 - AT - Income TaxDisallowance u/s 14A r.w.r.8D - Held that - In the instant case, the assessee has earned exempted income of ₹ 54.09 crores and it has claimed that it did not incur any expenditure in order to earn the above said exempted income. The assessee has raised many contentions, viz., the interest free funds available with the assessee are more than the investments; the securities were held as stock in trade and it has earned net interest income warranting no disallowance of interest expenditure etc. However, we notice that neither the AO nor the Ld CIT(A) did consider the above said contentions of the assessee, more particularly with referencce to the accounts of the assessee, which is a mandatory condition prescribed u/s 14A(2) of the Act. Thus, we notice that the AO has proceeded to compute the disallowance as per rule 8D of IT Rules without satisfying himself that the claim of the assessee was not correct by having regard to the accounts of the assessee. Hence, the disallowance computed by the AO and that confirmed by Ld CIT(A) was not in accordance with the mandate of law. Thus issue requires fresh examination - Decided in favour of assessee for statistical purposes. Deduction claimed u/s 36(1)(viii) - Held that - When the assessee is able to identify the long term finance given to specified purposes, it should not be difficult to cull out the actual interest income earned from such advances. Since the assessee had proceeded to ascertain the interest income on average basis and since the details furnished by the assessee was not convincing to the tax authorities, they were constrained to make their own estimates according to their respective understanding. In our view, the approach of the assessee is not appreciable. In this era of computerisation, it should not be difficult at all for the assessee to cull out the actual interest income earned by it out of eligible business. Further, there should not be any dispute that it is the responsibility of the assessee to show that the deduction claimed by it u/s 36(1)(viii) was justified. However, with regard to the cost of funds and administrative expenses, the assessee is required to allocate the expenses towards eligible business on a reasonable basis, since they are incurred from common pool of funds and also for all activities of the assessee. Hence, in our view, the workings given by the assessee, AO and Ld CIT(A) on approximate basis cannot be approved. Accordingly, in our view, this issue also requires reconsideration at the end of the assessing officer - Decided in favour of assessee for statistical purposes. Bad debts written off disallowed - CIT(A) allowed claim - Held that - The new Explanation 2, which covers both rural and non-rural advances, has been inserted under sec. 36(1)(vii) of the Act by the Finance Act, 2013 w.e.f. 1.4.2014 only and hence it cannot have retrospective effect, since it affects substantive rights of the assessees. Accordingly, we are of the view that there is no reason to interfere with the decision of Ld CIT(A) on this issue.- Decided in favour of assessee Claim of loss on revaluation of investment - Held that - Tribunal in the assessee s own case in AY 2007-08 and it has been decided in favour of the assessee by following the decision rendered by the Hon ble Supreme Court in the case of UCO Bank Vs. CIT (1999 (9) TMI 4 - SUPREME Court) and also the decision of CIT Vs. Bank of Baroda (2003 (3) TMI 80 - BOMBAY High Court ). Accordingly, we do not find any reason to interfere with the decision of Ld CIT(A) on this issue, since he has also followed the decision of Hon ble Supreme Court rendered in the case of UCO Bank (supra) in deciding this issue in favour of the assessee. Deduction claimed u/s 80LA - AO disallowed this claim for the reason that the assessee did not furnish the audit report - Held that - The filing of audit report is only directory and not mandatory. Since the assessee has filed the audit report before finalisation of assessment order, we are of the view that the Ld CIT(A) was justified in directing the AO to allow the claim.- Decided in favour of assessee
Issues Involved:
1. Disallowance made under section 14A of the Income Tax Act. 2. Restricting the deduction claimed under section 36(1)(viii). 3. Bad debts written off. 4. Loss on revaluation of investment. 5. Deduction claimed under section 80LA. 6. Deduction claimed under section 36(1)(viia). Issue-wise Detailed Analysis: 1. Disallowance made under section 14A of the Act: The assessee received tax-free income but did not disallow any expenditure related to it as required under section 14A read with Rule 8D. The AO disallowed Rs. 23.14 crores, which was confirmed by the CIT(A). The assessee contended that the investments were held as stock-in-trade, and no disallowance was necessary. The Tribunal noted that the AO did not consider the assessee's contentions regarding sufficient interest-free funds and the nature of investments. The matter was remanded back to the AO for fresh examination. 2. Restricting the deduction claimed under section 36(1)(viii): The assessee claimed a deduction of Rs. 301 crores under section 36(1)(viii), which the AO restricted to Rs. 62.90 crores. The CIT(A) reworked the deduction to Rs. 139.79 crores. The Tribunal observed that the assessee's method of calculating interest income on an average basis was inappropriate. The issue was remanded to the AO for reconsideration, directing the assessee to provide accurate data on interest income from eligible advances. 3. Bad debts written off: The AO disallowed the bad debts claim of Rs. 330.68 crores, arguing that the provision under section 36(1)(viia) covered both rural and non-rural advances. The CIT(A) allowed the claim, following the Tribunal's decision in the assessee's case for AY 2007-08. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's rulings in Catholic Syrian Bank and Karnataka Bank Ltd. 4. Loss on revaluation of investment: The CIT(A) allowed the assessee's claim for loss on revaluation of investment, following the Supreme Court's decision in UCO Bank and the Bombay High Court's decision in Bank of Baroda. The Tribunal upheld this decision, noting that identical issues were decided in favor of the assessee in AY 2007-08. 5. Deduction claimed under section 80LA: The AO disallowed the deduction under section 80LA due to the absence of the audit report with the return of income. The CIT(A) allowed the claim, noting that the audit report was submitted before the assessment's finalization, following the Delhi High Court's decision in Web Commerce India Pvt Ltd. The Tribunal upheld the CIT(A)'s decision. 6. Deduction claimed under section 36(1)(viia): The AO restricted the deduction to the amount actually provided in the books, while the CIT(A) allowed the full claim, following the Tribunal's decision for AY 2007-08. However, the Tribunal noted a later decision for AY 2005-06, which followed the Punjab & Haryana High Court's decision in State Bank of Patiala, ruling against the assessee. The Tribunal set aside the CIT(A)'s order and restored the AO's decision. Conclusion: The appeals were partly allowed for statistical purposes, with several issues remanded back to the AO for fresh consideration. The Tribunal emphasized the need for accurate data and proper examination of the assessee's contentions in accordance with the law.
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