2019 (2) TMI 1691 - AT - Income Tax

Deduction u/s 36(1)(viia) - provision made in books for bad and doubtful - HELD THAT - In view of the above findings of the Tribunal in assessee s own case in the earlier assessment years 2016 (4) TMI 753 - ITAT CHENNAI restricting claim u/s 36( 1)(viia)only for provision for rural debts and consequently disallowing claim for deduction of provision made of in accordance with the provision of sec 36( I )(viia) we find no reason to interfere with the order of the Ld. CIT(A) and reject the grounds raised by the assessee. Alternate claim raised in connection with protective disallowance made u/s 36(1 )(vii) - Direct the AO to examine these issues in the light of the Hon ble Supreme Court decisions in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT and Catholic Syrian Bank Ltd 2012 (2) TMI 262 - SUPREME COURT . The assessee shall place all the materials in support of its contentions before the AO and comply to the AO s requirements as per law. AO shall furnish adequate opportunity to the assessee and then decide these issues in accordance with law. Restriction of tax relief u/s.90 only to the extent of tax paid in foreign country - HELD THAT - As decided in own case 2017 (4) TMI 1424 - ITAT CHENNAI CIT(A) has quoted a notification No.S.O 2123(E) dated 28.8.2008, clarifying that in such a case involving a DTAA, an income has to be included in the total receipts and the necessary relief is to be granted by elimination method or as per the terms of agreement seeking to avoid double taxation. He relies upon Finance Act, 2012 inserting explanation 3 to section 90 making the notification retrospectively applicable. Denial of depreciation on goodwill - HELD THAT - Assessee did not have any goodwill in commercial terms as it has acquired more liabilities than the assets. The Ld.DR s submission that when there is no goodwill as per the terms of the agreement as well as in reality. When the assessee has not paid any amount for the goodwill, it cannot claim existence of any goodwill. When there is no existence of goodwill, it is not entitled for any depreciation. Therefore, the assessee s corresponding grounds fail. Disallowance of contribution to staff welfare fund - HELD THAT - As decided in own case 2017 (4) TMI 1424 - ITAT CHENNAI decided against assessee. Recovery of bad debts written off relating to rural branches - HELD THAT - As decided in own case 2017 (4) TMI 1424 - ITAT CHENNAI Revenue does not dispute that the assessee had raised its claim of deduction of bad debts relating to the very sums in preceding assessment years. The Assessing Officer did not allow this relief in relevant previous year, when it has recovered the aforesaid debts, the Revenue is again seeking to tax the same. There is no cogent evidence before us to dispute this factual position Moreover, the CIT(A) has cited section 41(4) of the Act whilst granting relief.The Revenue has failed to point out any legal or factual error in CIT(A) s findings Therefore, the same are affirmed. However, as a matter of caution, we observe that the assessee s claim of bad debts pertaining to those sums in preceding assessment years, if any, shall be deemed to have been dismissed Depreciation on UPS allowed at 60% instead of 80% - decided against assessee. Depreciation @ 30% on software was rightly claimed - See M/S. SARASWAT INFOTECH LTD. 2013 (1) TMI 861 - BOMBAY HIGH COURT Disallowance u/s 14A - HELD THAT - No finding in the assessment order regarding treatment of exempted income yielding assets as stock-in-trade. Hence, in our opinion, if it is treated as stock-in-trade by the assessee, then the claim of assessee is to be allowed in terms of Order of Tribunal in 2014 (9) TMI 1179 - ITAT CHENNAI . Accordingly, this issue is remitted to the file of AO for fresh consideration. Disallowance of provision made for leave salary on actuarial valuation - HELD THAT - assessee submitted that the provision for leave salary cannot be disallowed u/s. 43B for the reason that leave provision is a contractual liability and therefore, it cannot be treated at par with tax, duty, cess or fee u/s. 43B. However, in the SLP in the case of CIT ors. Vs M/s. Exide Industries Ltd ANR 2009 (5) TMI 894 - SC ORDER wherein, the Apex Court held that pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the statute Book but at the same time it would be entitled to make a claim in its returns. Addition sustained

Issues Involved:
1. Deduction under Section 36(1)(viia)
2. Deduction under Section 36(1)(vii)
3. Protective disallowance under Section 36(1)(vii)
4. Tax relief under Section 90
5. Depreciation on goodwill
6. Contribution to Staff Welfare Fund
7. Recovery of bad debts written off
8. Depreciation on UPS
9. Depreciation on ATM
10. Calculation method for deduction under Section 36(1)(viia)
11. Disallowance under Section 14A
12. Provision for leave salary under Section 43B
13. Depreciation on assets taken over from Bank of Tamilnadu
14. Applicability of Section 115JB

Issue-wise Detailed Analysis:

1. Deduction under Section 36(1)(viia):
The Tribunal upheld the CIT(A)'s decision to restrict the deduction for bad and doubtful debts to rural advances only, aligning with previous Tribunal decisions and the Supreme Court's ruling in Catholic Syrian Bank. The Tribunal confirmed that provisions made for non-rural debts are not allowable under Section 36(1)(viia).

2. Deduction under Section 36(1)(vii):
The Tribunal directed the AO to examine the alternate claim for deduction under Section 36(1)(vii) in light of the Supreme Court's decisions in Vijaya Bank and Catholic Syrian Bank. The assessee's alternate plea was based on the argument that if the provision under Section 36(1)(viia) is not allowed, then the actual write-off should be deductible.

3. Protective disallowance under Section 36(1)(vii):
The Tribunal instructed the AO to re-examine the protective disallowance under Section 36(1)(vii) following the Supreme Court's precedents, ensuring the assessee's claims are considered in accordance with the law.

4. Tax relief under Section 90:
The Tribunal upheld the CIT(A)'s decision to restrict the relief under Section 90 to the extent of tax paid in the foreign country, consistent with the Tribunal's earlier decisions in the assessee's own cases for previous assessment years.

5. Depreciation on goodwill:
The Tribunal denied the assessee's claim for depreciation on goodwill, distinguishing the facts from the Supreme Court's decision in Smifs Securities Ltd. The Tribunal noted that the transferor bank did not have goodwill in commercial terms and that no amount was paid for goodwill, thus no depreciation could be allowed.

6. Contribution to Staff Welfare Fund:
The Tribunal upheld the disallowance of the contribution to the Staff Welfare Fund, following its earlier decisions in the assessee's own cases. The Tribunal reiterated that such contributions are not deductible as they do not meet the criteria under the Income Tax Act.

7. Recovery of bad debts written off:
The Tribunal allowed the assessee's claim that recoveries of bad debts written off relating to rural branches should not be taxed, as these bad debts were never allowed as deductions in earlier years. This decision was based on the Tribunal's earlier rulings in the assessee's favor.

8. Depreciation on UPS:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on UPS at 60% instead of 80%, following its earlier rulings that UPS is not considered an energy-saving device eligible for higher depreciation.

9. Depreciation on ATM:
The Tribunal allowed the assessee's claim for depreciation on ATMs at 60%, aligning with the Bombay High Court's decision in Saraswat Infotech Ltd., which held that ATMs are integral to computer systems and thus eligible for higher depreciation.

10. Calculation method for deduction under Section 36(1)(viia):
The Tribunal dismissed the Revenue's appeal, confirming that the deduction under Section 36(1)(viia) should be calculated based on the aggregate average advances outstanding at the end of each month, not on incremental advances, consistent with its earlier decisions.

11. Disallowance under Section 14A:
The Tribunal remitted the issue back to the AO for fresh consideration, instructing the AO to determine whether the assessee held securities as stock-in-trade, in which case the provisions of Section 14A would not apply, following the Supreme Court's decision in Maxopp Investment Ltd.

12. Provision for leave salary under Section 43B:
The Tribunal sustained the addition made by the AO, subject to the conditions imposed by the Supreme Court in the case of Exide Industries Ltd., which held that leave salary provisions cannot be treated at par with tax, duty, cess, or fee under Section 43B.

13. Depreciation on assets taken over from Bank of Tamilnadu:
The Tribunal upheld the CIT(A)'s direction to the AO to verify the scheme of takeover and determine the applicability of Section 2(1B), following the Tribunal's earlier decision in the assessee's own case.

14. Applicability of Section 115JB:
The Tribunal dismissed the Revenue's appeal, confirming that the provisions of Section 115JB do not apply to banks governed by the Banking Regulation Act, 1949, following the Kolkata High Court's decision in UCO Bank and its own earlier rulings in the assessee's favor.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was also partly allowed, with specific directions issued to the AO for re-examination of certain issues in light of relevant Supreme Court decisions and Tribunal precedents. The Tribunal's decisions were largely consistent with its earlier rulings in the assessee's own cases and relevant judicial precedents.

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