2012 (5) TMI 821 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure against exempt income u/s 14A.
2. Taxability of bad debts recovered.
3. Addition of prior period expenses.
4. Addition on account of outstanding balances in NOSTRO-Blocked A/c.
5. Consideration of unreconciled inter bank and inter branch entries for addition to income.

Summary:

1. Disallowance of expenditure against exempt income u/s 14A:
The assessee contended that the CIT(A) erred in holding that 2.5% of the exempt income is disallowable as expenditure against exempt income u/s 14A of the Act. Both parties agreed that this issue is covered against the assessee in its own case for previous assessment years. The Tribunal upheld the CIT(A)'s decision to estimate the disallowance at 2.5% of the tax-free income earned by the assessee, dismissing the assessee's appeal on this ground.

2. Taxability of bad debts recovered:
The assessee argued that the CIT(A) erred in holding that bad debts recovered during the year, which were neither claimed nor allowed as a deduction u/s 36(1)(vii), were liable to tax, thereby sustaining the addition of Rs. 55,24,00,000/-. The Tribunal found that this issue was also covered against the assessee in its own case by previous Tribunal orders. The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

3. Addition of prior period expenses:
The assessee contended that the CIT(A) erred in sustaining the addition of Rs. 42,00,000/- being 1/5th of the estimated prior period expenses of Rs. 2,10,00,000/-. The Tribunal noted that this issue was covered in previous years' cases and restored the matter to the AO for fresh decision in accordance with law, directing the assessee to provide necessary evidence.

4. Addition on account of outstanding balances in NOSTRO-Blocked A/c:
The assessee argued that the CIT(A) erred in sustaining the addition of Rs. 11,89,89,000/- on account of outstanding balances in NOSTRO-Blocked A/c. The Tribunal found that the unclaimed deposits in the NOSTRO account were rightly added to the income of the assessee based on RBI guidelines and upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

5. Consideration of unreconciled inter bank and inter branch entries for addition to income:
The assessee contended that the CIT(A) erred in holding that unreconciled inter bank and inter branch entries are covered by Article 22 of the Limitation Act and should be considered for addition to income. The Tribunal restored the issue to the AO to adjudicate as per the terms mentioned in previous Tribunal decisions, directing the assessee to provide necessary cooperation.

Revenue's Cross-Appeal:
The revenue's appeal included issues of relief allowed by CIT(A) on disallowance u/s 14A and restriction of disallowance of prior period expenses. The Tribunal found that these issues were already adjudicated while considering the assessee's appeal and dismissed the revenue's appeal.

Conclusion:
The appeal of the revenue was dismissed, and the appeal of the assessee was partly allowed. The order was pronounced in the Open Court on 16th May 2012.