2016 (1) TMI 135 - AT - Income Tax

Applicability of provisions of section 115JB on the assessee being a banking company - Held that - This issue is squarely covered by the co-ordinate bench decision of this tribunal in the case of UCO Bank vs DCIT 2015 (12) TMI 300 - ITAT KOLKATA held that the provisions of section 115JB of the Act are not applicable in the case of the assessee bank and further held that the amendment brought in section 115JB of the Act read with Explanation 3 thereon by the Finance Act 2012 is applicable only with effect from Asst Year 2013-14 onwards in line with the Notes to Clauses of Finance Act 2012 . - Decided in favour of assessee. Disallowance u/s 40(a)(ia) - non-deduction of tax at source - Held that - As AR prayed that one more opportunity be given to the assessee for proving the fact of remittance of TDS before the Learned AO during the Asst year 2009-10.we deem it fit and appropriate in the interest of justice and fair play to set aside this issue to the file of the Learned AO to decide this issue afresh in accordance with law. The assessee is directed to produce evidence of remittance of TDS on the subject mentioned expenditure to the satisfaction of the Learned AO - Decided in favour of assessee by way of remand disallowance u/s 14A - whether could be added to the book profits u/s 115JB ? - Held that - The provisions of section 115JB of the Act per se would not be applicable to the assessee bank for the Asst Year 2009-10 and hence there is no question of making any addition to the book profits u/s 115JB towards disallowance u/s 14A of the Act.- Decided in favour of assessee. Adoption of municipal value of property for the purpose of assessing rental income from property - Held that - In the instant case the Learned CIT(A) had adopted the municipal value of Rs. 20, 44, 361/- as the gross annual value and proceeded to compute the taxable income from house property on that basis. Against this the assessee is not in appeal before us. Hence we find that the revenue should not be aggrieved at all in the instant case. In any case the figures obtained from the website www.magicbricks.com cannot be treated as a reliable evidence. Hence we find no infirmity in the order of the Learned CIT-A.- Decided in favour of assessee. Expenditure incurred towards debit cards - revenue v/s capital expenditure - CIT(A) held as revenue - Held that - issuance of ATM cum Debit Cards to the customers of the assessee bank is part of the business activity of the assessee and there is no enduring benefit to the assessee out of incurring this expenditure. The Learned CIT(A) had observed that in the past the department had been accepting this expenditure as a revenue expenditure and we find no change in facts and circumstances of the case for the year under appeal with regard to the impugned issue warranting the department to take a different stand. This fact has not been controverted by the revenue before us. Though the principle of res judicata does not apply to income tax proceedings in our opinion the principle of consistency cannot be given a go bye. Reliance in this regard is placed on the decision of the Hon ble Apex Court in the case of Radhasaomi Satsang (1991 (11) TMI 2 - SUPREME Court ) . Hence we find no infirmity in the order of the Learned CIT(A).- Decided in favour of assessee. Disallowance u/s 40(a)(ia) - violation of provisions of section 194A in respect of interest on matured deposits - Held that - From the above meaning as clarified in RBI guidelines it could be safely inferred that the once a term deposit gets matured if the customer does not approach the bank for either withdrawing or renewing the matured term deposit the bank cannot suffer interest applicable to the term deposits for the faults committed by the customer / depositor. Instead the banks are instructed by RBI to pay interest at the rate applicable to savings bank deposits which is much less as compared to the term deposit interest rate. Moreover the term deposits on maturity becomes repayable by the assessee on demand and gets automatically converted into a demand deposit. The provisions of section 194A (3)(vii) are very clear that the provisions of section 194A(1) shall not apply to demand deposits and hence the assessee bank is not liable to deduct tax at source on interest provided on those demand deposits. Hence in these circumstances we find that the Learned CIT-A had rightly granted relief to the assessee bank in this regard.- Decided in favour of assessee. Disallowance u/s 14A of the Act read with Rule 8D(2)(ii) - Held that - The assessee bank has got sufficient own funds to the extent of Rs. 4532.27 crores as on 31.3.2009 which is very much available for making investment of Rs. 242.03 crores and hence it can safely be presumed that no part of borrowed funds were utilized for making investments yielding tax free income. Moreover the Learned AO had not brought on record any nexus between borrowed funds and amount invested by assessee. There are plethora of judgements in favour of the assessee on the impugned issue. Hence the addition deleted by the Learned CIT(A) in respect of Rs. 13, 10, 65, 100/- by invoking Rule 8D(2)(ii) of the Rules does not require any interference - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 115JB to a banking company.
2. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
3. Addition to book profits under Section 115JB for disallowance under Section 14A.
4. Adoption of municipal value for assessing rental income.
5. Treatment of expenditure on debit cards as revenue expenditure.
6. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest on matured deposits.
7. Disallowance under Section 14A read with Rule 8D for interest expenses.

Detailed Analysis:

1. Applicability of Section 115JB to a Banking Company:
The first issue was whether Section 115JB of the Income Tax Act applies to the assessee, a banking company, for the assessment year 2009-10. The Tribunal referenced the decision in UCO Bank vs DCIT, where it was held that Section 115JB does not apply to banking companies. The amendment to Section 115JB by the Finance Act 2012, effective from the assessment year 2013-14, was also considered. Following this precedent, the Tribunal held that Section 115JB is not applicable to the assessee for the assessment year 2009-10.

2. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:
The assessee claimed a deduction of Rs. 15,16,519/- for expenses on which TDS was paid during the assessment year 2009-10. The AO disallowed this due to lack of proof of TDS remittance. The Tribunal remanded the issue back to the AO for verification of TDS remittance, directing the assessee to provide the necessary evidence.

3. Addition to Book Profits under Section 115JB for Disallowance under Section 14A:
Since the Tribunal held that Section 115JB does not apply to the assessee, there was no basis for adding Rs. 1,21,00,000/- to the book profits under Section 115JB for disallowance under Section 14A. Thus, this ground was allowed in favor of the assessee.

4. Adoption of Municipal Value for Assessing Rental Income:
The AO had adopted the average rental rates from a website for assessing rental income, which was higher than the municipal valuation. The CIT(A) directed the AO to adopt the municipal valuation, which was higher than the actual rent received. The Tribunal upheld this decision, noting that the municipal valuation was more reliable and higher than the actual rent.

5. Treatment of Expenditure on Debit Cards as Revenue Expenditure:
The assessee incurred Rs. 69,23,167/- for issuing debit cards, which the AO treated as capital expenditure. The CIT(A) allowed it as revenue expenditure, noting that it did not result in any enduring benefit. The Tribunal upheld this, emphasizing the principle of consistency since the department had accepted this treatment in earlier years.

6. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Interest on Matured Deposits:
The AO disallowed Rs. 21,66,00,000/- for non-deduction of TDS on interest on matured term deposits. The CIT(A) deleted the disallowance, accepting the assessee's argument that matured term deposits become demand deposits, which are not subject to TDS under Section 194A. The Tribunal upheld this, referencing RBI guidelines and the provisions of Section 194A(3)(vii).

7. Disallowance under Section 14A Read with Rule 8D for Interest Expenses:
The AO made a disallowance of Rs. 13,10,65,100/- under Rule 8D(2)(ii) and Rs. 1,21,01,500/- under Rule 8D(2)(iii). The CIT(A) deleted the disallowance under Rule 8D(2)(ii), noting that the assessee had sufficient own funds. The Tribunal upheld this, citing the lack of nexus between borrowed funds and investments. The disallowance under Rule 8D(2)(iii) was upheld.

Conclusion:
- The assessee's appeal was partly allowed, and the revenue's appeal was dismissed.
- Key decisions included the non-applicability of Section 115JB to the assessee, the remand for verification of TDS remittance, and the treatment of debit card expenditure as revenue expenditure.
- The Tribunal upheld the CIT(A)'s decisions on municipal valuation for rental income, non-deduction of TDS on matured deposits, and disallowance under Rule 8D(2)(ii).