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2014 (10) TMI 993 - AT - Income TaxDeduction u/s 36(1) (vii) - provision for bad and doubtful debts created by the assessee in relation to the advances of the rural branches - held that - The provisions of clause (vii) deal with bad debts , whereas, provisions of clause (viia) deals with provision for bad and doubtful debts . The distinction which the assessee has tried to create by dividing the provisions of clause (viia) into two parts is merely self-drawn. Both the parts of clause (viia) are joined with conjunction and . Therefore, both the limbs of clause (viia) have to be read together and not as alternate. The Hon ble Supreme Court of India in the case of Catholic Syrian Bank Ltd. vs. CIT ( 2012 (2) TMI 262 - SUPREME COURT OF INDIA has categorically held that the provisions of section 36(1)(vii) deals with general deduction available to a bank and even non-banking business. The provisions of section 36(1)(vii) operate in their own field and are not restricted by the limitation of section 36(1)(viia) of the Act. Depreciation on valuation of investment portfolio by treating the investments held by the bank as stock-in-trade - Held that - AO in the order giving effect to the order of the CIT(A) has factually found that the bad debts claimed as deduction u/s.36(1)(vii) of the Act has actually been written off in the books of accounts of the Assessee. There is, therefore, no basis for the revenue to raise the aforesaid additional grounds before the Tribunal. The additional ground sought to be raised is therefore not admitted for adjudication. In this regard, we are also of the view that decision rendered by the Tribunal in assessee s own case for the A.Y. 2010-11 on an identical additional ground, will also be applicable in the present case. The additional ground sought to be raised are therefore dismissed as not admitted for adjudication. Addition u/s 14A - Held that - Perusal of the financial statements of the Assessee for the relevant financial year shows that Investments of the assessee in tax free securities as on 31.3.2007 was ₹ 592.48 Crores and the same as on 31.3.2008 was ₹ 850.23 crores. Own interest free funds available with the Assessee 31.3.2007 was ₹ 10,542.77 Crores and the same as on 31.3.2008 was ₹ 14,734.64 Crores. Therefore, available of interest free funds for making the investments which yielded tax free income cannot be disputed by the revenue. It is clear from the statement of available own funds and balance sheet that the assessee had enough funds out of which investments yielding tax free income were made. Therefore, no disallowance of interest expenses can be made applying Rule 8D(2)(i) or (ii) of the Rules. In the present assessment year, assessee has not made any disallowance on his own u/s. 14A of the Act. Under the circumstances, it would be just and proper to sustain disallowance of 5% of the tax free income. We hold and direct accordingly. Not giving credit being additional income tax paid u/s 115(O) on the dividend received from a 100% subsidiary of the appellant - Held that - It is the claim of assessee that it had received a sum of ₹ 84,97,160 from its 100% subsidiary and that the subsidiary has paid tax u/s. 115-O on such dividend distributed. The assessee has therefore prayed that assessee should be given credit for the aforesaid sum, which was, by mistake, paid by the assessee. The ground being a legal ground which can be decided on the basis of facts available on record, we deem it appropriate to consider the claim of the Assessee notwithstanding the fact that the said ground was withdrawn before CIT(A). In tax matters there cannot be any estoppel. Tax determination and collection has to be in accordance with law and not based on any concession of legal rights by an Assessee. We are of the view that it would be just and proper to direct the AO to examine the claim of assessee and if found correct, to allow the same. Refund arising u/s 115WE(3) being the excess payment of fringe benefit tax - Held that - It would be just and appropriate to direct the AO to consider the claim of assessee for credit of a sum of ₹ 1,20,08,840 being the refund arising u/s. 115WE(3) of the Act, which his claimed by the assessee as excess payment of fringe benefit tax. If the claim of the assessee is found to be correct, then assessee should be given appropriate credit in accordance with law. We hold and direct accordingly.
Issues Involved:
1. Deduction of bad debts under Section 36(1)(vii) and Section 36(1)(viia) of the Income Tax Act. 2. Depreciation on valuation of investment portfolio. 3. Disallowance under Section 14A of the Income Tax Act. 4. Additional grounds raised by the Revenue regarding provisions for bad and doubtful debts. 5. Credit for additional income tax paid under Section 115(O) and refund of excess payment of fringe benefit tax. Issue-wise Detailed Analysis: 1. Deduction of Bad Debts: The Revenue challenged the CIT(A)'s decision allowing the Assessee's claim for deduction of bad debts under Section 36(1)(vii) of the Income Tax Act, arguing that bad debts written off should first be adjusted against the provision for bad and doubtful debts created under Section 36(1)(viia). The Tribunal referred to the Supreme Court's decision in Catholic Syrian Bank v. CIT, which clarified that deductions under Sections 36(1)(vii) and 36(1)(viia) are independent of each other. The Tribunal upheld the CIT(A)'s decision, allowing the Assessee's claim for bad debts written off under Section 36(1)(vii), confirming that the provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and cannot be intermingled. 2. Depreciation on Valuation of Investment Portfolio: The Assessee claimed depreciation on investments held under "Available for Sale" (AFS) and "Held to Maturity" (HTM) categories, treating them as stock-in-trade. The AO disallowed the claim, citing RBI guidelines and CBDT Circular No. 665. The CIT(A) allowed the Assessee's claim, following the Supreme Court's decision in UCO Bank v. CIT, which permitted banks to value investments at cost for statutory balance sheets and at cost or market value, whichever is lower, for income tax purposes. The Tribunal upheld the CIT(A)'s decision, citing consistent judicial precedents that treated such investments as stock-in-trade. 3. Disallowance under Section 14A: The AO disallowed a sum under Section 14A read with Rule 8D, attributing expenditure to earning tax-free income. The Tribunal noted that the Assessee had sufficient own funds to cover investments in tax-free securities, thus no disallowance of interest expenses was warranted under Rule 8D(2)(i) and (ii). For other expenses under Rule 8D(2)(iii), the Tribunal followed its earlier decision, restricting the disallowance to 5% of the tax-free income, considering it reasonable. 4. Additional Grounds Raised by the Revenue: The Revenue sought to introduce additional grounds regarding the provision for bad and doubtful debts, arguing that the Assessee had made excess provisions in earlier years. The Tribunal dismissed these additional grounds, stating they were not raised before the lower authorities and were factually incorrect. The Tribunal emphasized that the AO had already verified the Assessee's claims, and the additional grounds did not arise from the CIT(A)'s order. 5. Credit for Additional Income Tax Paid and Refund of Excess Payment of Fringe Benefit Tax: The Assessee claimed credit for additional income tax paid under Section 115(O) on dividends received from a 100% subsidiary and sought a refund for excess fringe benefit tax paid. The Tribunal admitted these claims, directing the AO to verify and allow them if found correct. The Tribunal emphasized the legal right of the Assessee to claim such credits and refunds, irrespective of procedural lapses in earlier stages. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the Assessee's appeals, affirming the CIT(A)'s decisions on key issues and directing the AO to verify and allow legitimate claims for tax credits and refunds.
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