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2016 (2) TMI 1236 - AT - Income TaxAddition made towards entertainment expenses - assessee has claimed deduction under this head is allowable expenditure or not after deletion of section 37(2) - HELD THAT - Assessee has submitted that the expenditure was incurred through its 238 branches, Central Office and Division Offices for the whole year and requested to delete the disallowance made by the Assessing Officer. After considering the submissions of the assessee, CIT(A) has observed that the Assessing Officer has reasonably estimated the expenditure to the tune of 5% only as not utilized wholly and exclusively for the purposes of business and confirmed disallowance - no infirmity in the order of the authorities below, which calls for our interference. Addition made towards Fringe Benefit Tax - contribution made to superannuation Fund - HELD THAT - The assessee company has made a provision for contribution to superannuation fund and the same was paid in the next Financial year. There is no dispute about the provision and the payment and there is no escapement of value and same was subject to fringe benefit tax. Similar issue was considered by the Co-ordinate Bench in the case of M/s. Bharat Overseas Bank 2013 (2) TMI 881 - ITAT CHENNAI wherein held that provision of contribution to the approved superannuation fund was not subject to charging of FBT. Accordingly, we direct the Assessing Officer to delete the addition. - Decided in favour of assessee. Disallowance u/s 14 r.w.s. Rule 8D - HELD THAT - In the present case, the assessee has not admitted any expenditure to earn the exempt income. Further, it was the submission of the assessee that the assessee bank has enormous own funds as well as interest free funds for purchasing tax exempt securities shares and mutual funds . Be as it may, but some expenditure in the form of travel, telephone, postage, stationery and manpower might have been involved in earning the exempt income. Moreover, we are of the opinion that the investments would have definitely involved certain administrative and establishment works have to be undertaken which entails definite costs. Hence, the contention of the assessee that no expenses have been incurred to earn the exempt income is not acceptable. In view of the notification of Rule 8D and applicable from the assessment year 2008-09, the AO should have worked out the expenses under Rule 8D(2)(iii) instead of disallowing 2% of exempt income. Accordingly, we set aside the orders of authorities below and direct the Assessing Officer to work out the disallowance under section 14A r.w. Rule 8D. Thus, the ground raised by the assessee is partly allowed for statistical purposes. Addition on account of interest on non-performing assets - AO observed that in view of the RBI guidelines, the interest need to be offered for tax on accrual basis by the banks in respect of non-performing assets, which are more than 90 days old NPAs, but have not become sticky account under Rule 6EA r.w.s. 43D - HELD THAT - On second round of litigation, the ld. CIT(A) by following the decision in the case of United Commercial Bank Ltd. v. CIT 1999 (5) TMI 3 - Supreme Court as held that interest to a suspense account should not be taxed on accrual basis , deleted the addition in respect of interest on NPAs. Against the above order of the CIT(A), though the Revenue has preferred appeals for the assessment years 2007-08 and 2008-09, the Revenue, while raising other grounds, has not raised the ground with regard to the deletion of addition in respect of interest on NPAs by the ld. CIT(A). Under the above facts and circumstances, we delete the addition made on account of interest on non-performing assets. Thus, the ground raised by the assessee is allowed. Disallowance of deduction under section 36(1)(viii) - AO has not accepted the revised claim - HELD THAT - Profits derived from long-term finance only can be considered for the purpose of allowing deduction under section 36(1)(viii) of the Act and hence these receipts as interest on deposits, lease rentals, consultancy and other professional charges, legal fees, guarantee commission, appraisal fees, financial changes, interest on guarantee commission and miscellaneous income, etc., are not in the nature of income from long-term finance and hence these receipts cannot be included in total income for the purpose of computing deduction allowable to the assessee under section 36(1)(viii) - These receipts can be attributed to the income of business of providing long-term finance but it cannot be said that these are income derived from the business of providing long-term finance because the business of providing long-term finances, can be carried out even without these activities such as consultancy, legal service, appraisal, etc., in leasing there is no finance and hence lease rental is not income from providing long-term finance. Other interests and financial charges are not shown to be out of providing long-term finance and hence not eligible for deduction under section 36(1)(viii). We set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to decide the issue afresh - Ground raised by the assessee is allowed for statistical purposes.
Issues Involved:
1. Confirmation of addition towards entertainment expenses. 2. Reopening of assessment. 3. Addition towards Fringe Benefit Tax (FBT) on contribution to the superannuation fund. 4. Disallowance under section 14A read with Rule 8D. 5. Addition on account of interest on non-performing assets (NPAs). 6. Disallowance of deduction under section 36(1)(viii). 7. Powers of the Commissioner of Income Tax (Appeals) [CIT(A)] to remit issues back to the Assessing Officer (AO). Issue-wise Detailed Analysis: 1. Confirmation of Addition Towards Entertainment Expenses: The assessee claimed a deduction of Rs. 17,02,645 under the head Entertainment Expenditure, which was incurred for supplying tea, coffee, etc., to customers. The AO disallowed 5% of the expenditure, amounting to Rs. 85,132, on the basis that it was not wholly and exclusively for business purposes. The CIT(A) confirmed this disallowance. The Tribunal found no infirmity in the lower authorities' decisions and dismissed the assessee's appeal. 2. Reopening of Assessment: For the assessment year 2006-07, the assessee initially contested the reopening of the assessment but later did not press this ground. Consequently, the Tribunal dismissed this ground as "not pressed." 3. Addition Towards Fringe Benefit Tax on Contribution to Superannuation Fund: The AO added Rs. 8.27 crores to the value of the contribution made to the superannuation fund, treating it as actual payment rather than a provision. The CIT(A) confirmed this addition. The Tribunal referred to the Coordinate Bench's decision in ACIT v. Bharat Overseas Bank Ltd., which held that the provision for contribution to the approved superannuation fund was not subject to FBT. Thus, the Tribunal deleted the addition and allowed the assessee's appeal on this ground. 4. Disallowance Under Section 14A Read with Rule 8D: The AO disallowed Rs. 3,42,654 as expenditure incurred on earning tax-free dividend income. The CIT(A) confirmed this disallowance. The Tribunal noted that even though the assessee held securities as stock-in-trade, section 14A applies. The AO had incorrectly applied a 2% disallowance instead of using the prescribed method under Rule 8D. The Tribunal directed the AO to recompute the disallowance as per Rule 8D and partly allowed the assessee's appeal for statistical purposes. 5. Addition on Account of Interest on Non-Performing Assets (NPAs): The AO added Rs. 41,81,667 as accrued interest on NPAs more than 90 days old but less than 180 days old, based on RBI guidelines. The CIT(A) confirmed this addition. The Tribunal referred to the Supreme Court's decision in United Commercial Bank Ltd. v. CIT, which held that interest in a suspense account should not be taxed on an accrual basis. Consequently, the Tribunal deleted the addition and allowed the assessee's appeal on this ground. 6. Disallowance of Deduction Under Section 36(1)(viii): The assessee claimed a deduction of Rs. 9,17,03,880 under section 36(1)(viii), later revised to Rs. 9,99,93,927. The AO disallowed the claim because the special reserve was not created in the financial year 2008-09. The CIT(A) confirmed this disallowance. The Tribunal noted that the special reserve was created in 2010 by withdrawing from the general reserve. The Tribunal directed the AO to decide the issue afresh, considering the Bangalore Bench's decision in ACIT v. Corporation Bank, and allowed the appeal for statistical purposes. 7. Powers of CIT(A) to Remit Issues Back to AO: The Revenue contended that the CIT(A) could not remit issues back to the AO after the amendment effective from 01.06.2001. Both parties agreed that the CIT(A) should redecide the issues remitted to the AO. The Tribunal set aside the CIT(A)'s order to the extent it remitted matters to the AO and directed the CIT(A) to decide the issues afresh. Conclusion: The Tribunal dismissed the assessee's appeal in I.T.A. No. 1638/Mds/2014, partly allowed I.T.A. No. 1639/Mds/2014, and partly allowed I.T.A. No. 1640/Mds/2014 for statistical purposes. All the appeals filed by the Revenue were allowed for statistical purposes.
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