2016 (3) TMI 1361 - AT - Income Tax

Deduction u/s 35D in respect of share issue expenses incurred - industrial units - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI amendment had been brought about to extend the benefit of deduction u/s 35D to the service sector also. Banks cannot fall under the definition of industrial units . If the assessees like banks were to fall under the definition of Industrial units , there would not have been any necessity for amending the Act to include service sector. Since the amendment extending the benefit to service sector and made effective only from the assessment year 2009-10 and, the banks are coming under service sector, the benefit can be extended from the assessment year 2009-10 only to the extent of setting up of a new unit for five successive years. Accordingly, we set aside the order passed by the CIT(A) and remit the matter back to the Assessing Officer to examine whether the assessee has set up a new unit or not and if so, he is directed to allow the benefit from 2009-10 onwards. Accordingly, the ground raised by the assessee is allowed for statistical purposes. Income from foreign branches - whether to be included in the total income and only double taxation relief s contemplated as per the agreement is allowable ? - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI income of the assessee at Singapore and Colombo would be included in the return of income of the assessee in India and whatever taxes paid by the branches in foreign countries, credit of such taxes shall only be given. Accordingly, the ground raised by the assessee is dismissed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI in view of the decision of Godrej Boyce Mfg. Co. Ltd. v. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT that Rule 8D is applicable from the assessment year 2008-09, when the Act has prescribed a method for quantifying the disallowance, the same cannot be overlooked. Since Rule 8D is not applicable prior to the assessment year 2007-08, the Tribunal has set aside the order passed by the ld. CIT(A) and directed the AO to work out the disallowance @ 2%. However, since Rule 8D is applicable from the assessment year 2008-09 onwards, the disallowance should be made based on the prescribed method quantified by the Act. Since the Assessing Officer has made the disallowance under section 14A and computed under Rule 8D, we confirm the disallowance made by the Assessing Officer. Rate of depreciation on computers - whether Automated Teller Machines are substantially in the nature of computers and hence, are eligible for deduction at the rate of 60% and not at 15% as applicable to other normal plant and machinery? - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI we set aside the order passed by the ld. CIT(A) on this issue and direct the Assessing Officer to allow depreciation @ 60% to ATMs. UPS attached to the computers are part of computer systems and eligible for depreciation @ 60%. Advances of the Rural Branch is the criteria for computation of eligible deduction u/s.36(1)(viia) and individual nature of advances cannot be the basis of computation - HELD THAT - CIT(Appeals) is based on the Budget Speech of the Finance Minister by presenting the budget of 1978-79. We have also gone through the intention under which sec.36(1)(viia) was brought to statute book and there is no intention to support rural branches and being so, only advances made for improving the rural economy to be considered for eligible deduction u/s.36(1)(viia) of the Act. Accordingly, the finding of the AO is upheld and the ground of appeal of the assessee is dismissed. Allowable revenue expenditure - Claims raised against the bank, in the normal course, considering the various circumstances provision is being made by the bank and considering the business risk, such provisions are allowable deductions - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI If any expense is required to be allowed, it is for the assessee to prove the nature of the expenditure and its relation to its business. In the present case, the assessee has not able to prove the nature of the expenses. Therefore, we are of the opinion that the ground raised by the assessee is liable to be dismissed. MAT u/s 115JB applicability - HELD THAT - Provisions of sec.115JB of the I.T. Act are not applicable to the assessee bank as it is not a company under the provisions of Companies Act, 1956 Claim of broken period interest paid on purchase of securities - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI interest received by an assessee, from transferees for broken period is included under the head business income , amounts paid by the assessee to the transferors for broken periods could not have been disallowed. Depreciation on securities at the time of shifting from AFS to HTM - HELD THAT - As decided in own case 2015 (11) TMI 1519 - ITAT CHENNAI we uphold the claim of the assessee and direct the AO to allow depreciation / fall in value of investment in Government Securities including those classified under HTM category. No doubt the value in opening stock in the next year would correspondingly be adjusted. This issue is decided in favour of the assessee Claim towards deduction of bad debts written off - HELD THAT - In the instant case, besides debiting the P L a/c and creating a provision for bad and doubtful debts, the assessee bank had simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure of loans and advances/debtors was shown as net of the provision - Therefore, assessee is entitled to benefit of deduction u/s 36(1)(vii) - Contention that it is imperative for the assessee-bank to close the individual account of each debtor in its books and a mere reduction in the loans and advances account or debtors to the extent of the provision for bad and doubtful debt is not sufficient, is not sustainable - Apprehension that if the assessee fails to close each and every individual account of its debtors, it may result in claiming deduction twice over is not correct - It is always open to the AO to call for details of individual debtor s account if he has reasonable grounds to believe that the assessee has claimed deduction twice over Deduction u/s. 36(1)(viia) - HELD THAT - Allowable deduction u/s.36(I)(viia) of the Act is @ 10% of the 'total average aggregate advances' made by the rural branches and not on the incremental average aggregate advances, as contemplated by the Assessing Officer. The assessee's appeals in this regard are allowed Deduction of bad debts - HELD THAT - Option exercised by the assessee that it can claims deduction on doubtful debts as per option (b) i.e. 7.5% of Gross Total Income and 10% of aggregate average rural advances, the Assessing Officer has rightly worked out the allowable deduction, which is less than that of the provision made by the assessee as doubtful debts, allowed the deduction of bad debts for all assessment years and remaining balance was brought to tax. Accordingly, we reverse the order of the ld. CIT(A) and confirm the addition made by the AO for all the above assessment years.

Summary

Issues Involved:
1. Deduction under Section 35D for share issue expenses.
2. Inclusion of income from foreign branches in total income.
3. Allowability of loss on sale of loan assets to Asset Reconstruction Companies.
4. Disallowance under Section 14A read with Rule 8D.
5. Depreciation rate on Automated Teller Machines (ATMs).
6. Computation of eligible deduction under Section 36(1)(viia) for rural advances.
7. Deduction for provisions made for claims against the bank.
8. Applicability of Section 115JB to banking companies.
9. Deduction of broken period interest paid on purchase of securities.
10. Depreciation on securities shifted from AFS to HTM.
11. Allowability of bad debts written off.
12. Deduction under Section 36(1)(viia) for non-rural debts.
13. Applicability of Section 115JB for shifting of securities from AFS to HTM.

Detailed Analysis:

1. Deduction under Section 35D for Share Issue Expenses:
The Tribunal noted that Section 35D was amended by the Finance Act, 2008, extending the benefit of amortization to the service sector. Banks, being part of the service sector, could claim this deduction from the assessment year 2009-10 onwards for setting up new units. The matter was remitted to the Assessing Officer to verify if a new unit was set up by the assessee.

2. Inclusion of Income from Foreign Branches in Total Income:
The Tribunal held that income from foreign branches must be included in the total income of the assessee, and only double taxation relief as per the agreement is allowable. This was based on the decision in the case of Bank of Baroda vs. ACIT.

3. Allowability of Loss on Sale of Loan Assets to Asset Reconstruction Companies:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

4. Disallowance under Section 14A read with Rule 8D:
The Tribunal confirmed the disallowance made by the Assessing Officer under Section 14A read with Rule 8D, stating that the prescribed method for quantifying the disallowance cannot be overlooked.

5. Depreciation Rate on Automated Teller Machines (ATMs):
The Tribunal allowed the assessee's claim for a higher depreciation rate of 60% on ATMs, following its own previous decisions in the assessee's case.

6. Computation of Eligible Deduction under Section 36(1)(viia) for Rural Advances:
The Tribunal upheld the CIT(A)'s decision that the deduction should be based on the "aggregate average advances" made by rural branches, not just the incremental advances. The intention behind Section 36(1)(viia) was to support rural banking and extend rural credit.

7. Deduction for Provisions Made for Claims Against the Bank:
The Tribunal dismissed the assessee's ground, noting that the nature of the expenses and their relation to the business were not proven.

8. Applicability of Section 115JB to Banking Companies:
The Tribunal held that Section 115JB does not apply to banks, as they are not required to prepare their accounts as per Schedule VI of the Companies Act. This was based on previous decisions in the assessee's own case and other similar cases.

9. Deduction of Broken Period Interest Paid on Purchase of Securities:
The Tribunal allowed the assessee's claim for broken period interest paid on the purchase of securities as revenue expenditure, following the decision of the Hon'ble Jurisdictional High Court and previous Tribunal decisions.

10. Depreciation on Securities Shifted from AFS to HTM:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on securities at the time of shifting from AFS to HTM, following previous Tribunal decisions in the assessee's own case and other similar cases.

11. Allowability of Bad Debts Written Off:
The Tribunal allowed the assessee's claim for bad debts written off, following the decision of the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT and previous Tribunal decisions.

12. Deduction under Section 36(1)(viia) for Non-Rural Debts:
The Tribunal reversed the CIT(A)'s order, holding that only rural debts are eligible for deduction under Section 36(1)(viia), following the decision in the case of Lakshmi Vilas Bank Ltd.

13. Applicability of Section 115JB for Shifting of Securities from AFS to HTM:
The Tribunal dismissed this ground, as it had already held that Section 115JB does not apply to banks.

Conclusion:
The appeals were partly allowed, with specific directions and remittals to the Assessing Officer for further examination on certain issues. The Tribunal's decisions were largely based on previous rulings in the assessee's own case and other similar cases, ensuring consistency in the application of legal principles.