2016 (7) TMI 1572 - AT - Income Tax

Disallowance for provision for bad doubtful debts - deduction u/s 36(1)(viia) to be restricted to actual provision made in the books - AO disallowed the deduction as claimed by assessee over and above the provision created in assessee s books of account and added to the total income of the assessee - HELD THAT - Assessee fairly acceded that the issue is already covered in favour of Revenue. The relevant extract of the case STATE BANK OF PATIALA vs. COMMISSIONER OF INCOME TAX ANR 2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT as held for making of a provision for bad and doubtful debts equal to the amount mentioned in s. 36(1)(viia) is a must for claiming such deduction. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration - Assessee claiming deduction for bad debt under unamended s. 36(1)(viia) but after amendment enhancing the deduction in the return by making up the shortfall in the provision in the balance sheet of subsequent year, the claim to the extent of enhancement is not allowable - Decided against assessee. Disallowance invoking the Rule 8D(2)(iii) of section 14A - HELD THAT - In the instant case since the assessee is a dealer in share, therefore the rigorous provision u/s 14A r.w.s 8D of the IT Rule shall not be applied with respect to share held by way of stock-in-trade. In this connection, whether assessee is a dealer in share or not we are placing our reliance in the case of UNITED COMMERCIAL BANK 1999 (9) TMI 4 - SUPREME COURT respectfully where it has been held that the assessee is dealer in shares. Thus holding the bank as dealer in shares/ securities and consequently no disallowance is warranted on the shares/securities held as stock in trade. Accordingly we reverse the orders of Authorities Below and allow the ground raised by assessee. Disallowance of provision of leave encashment u/s. 43B - HELD THAT - Provision for leave encashment that this issue is pending before Hon ble Supreme Court in the case of Exide Industries Ltd. Vs. Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT and fairly conceded that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court. Assessee fairly stated that let Hon'ble Supreme Court decide the issue and by that time the matter can be remitted back to the file of AO for fresh adjudication in term of the decision of Hon'ble Supreme Court. On this, Ld. CIT DR has not objected to the same. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee s appeals is remitted back to the file of AO and allowed for statistical purposes. MAT applicability u/s 115JB to company established under the Companies Act, 1956 - HELD THAT - in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee's contention in fact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956, section 211(2) and proviso thereon is not applicable and therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable. Direction to AO for re-computation of the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years - AO to recompute the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years after giving effect to this appeal. Assessment disallowed on the ground that no revised return was filed - HELD THAT - Assessee is very much entitled make a legal claim without filing the revised return of income. We uphold the order of Ld. CIT(A) and this ground of Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of provision for bad and doubtful debts under Section 36(1)(viia).
2. Disallowance under Section 14A read with Rule 8D(2)(iii).
3. Disallowance of provision for leave encashment under Section 43B.
4. Applicability of Section 115JB to entities not established under the Companies Act, 1956.
5. Re-computation of set off and carry forward of unabsorbed business losses and depreciation.
6. Inclusion of profits from Singapore Branch in total income.
7. Disallowance of interest expenditure under Rule 8D(2)(ii).

Issue-Wise Detailed Analysis:

1. Disallowance of Provision for Bad and Doubtful Debts:
The assessee, a Public Sector Bank, created a provision of ?268.40 crores under Section 36(1)(viia) but claimed a deduction of ?588.57 crores. The AO disallowed the excess deduction, which was upheld by the CIT(A). The Tribunal, following the precedent set by the Punjab & Haryana High Court in the case of State Bank of Patiala, affirmed that the deduction must be restricted to the actual provision made in the books. Hence, the ground raised by the assessee was dismissed.

2. Disallowance under Section 14A read with Rule 8D(2)(iii):
The AO disallowed ?32,80,34,625/- under Section 14A, which was partly upheld by the CIT(A) to the extent of ?2,36,68,517/-. The Tribunal noted that the assessee, being a dealer in shares, should not have disallowance under Section 14A for shares held as stock-in-trade. Citing various judgments, including CCI Ltd. vs. CIT, the Tribunal reversed the disallowance and allowed the ground raised by the assessee.

3. Disallowance of Provision for Leave Encashment:
The provision for leave encashment amounting to ?27.13 crores was disallowed under Section 43B. The Tribunal noted that the issue was pending before the Supreme Court in the case of Exide Industries Ltd. The matter was remitted back to the AO for fresh adjudication based on the Supreme Court's decision.

4. Applicability of Section 115JB:
The Tribunal held that Section 115JB does not apply to the assessee, which is not a company under the Companies Act, 1956. This was based on the legislative change introduced by Explanation 3 to Section 115JB. The Tribunal followed its own decision in the assessee’s case for AY 2002-03 and allowed the ground raised by the assessee.

5. Re-computation of Set Off and Carry Forward of Unabsorbed Business Losses and Depreciation:
The Tribunal directed the AO to recompute the set off and carry forward of unabsorbed business losses and depreciation brought forward from earlier years after giving effect to the appeal.

6. Inclusion of Profits from Singapore Branch:
The AO included the profits of ?42,40,70,571/- from the Singapore Branch in the total income of the assessee. The CIT(A) deleted this addition, citing Article 7 of the DTAA between India and Singapore, which states that profits of a permanent establishment (branch) are taxable only in the country where the branch is located. The Tribunal upheld the CIT(A)’s order, following precedents from various High Courts that allow legal claims without filing a revised return.

7. Disallowance of Interest Expenditure under Rule 8D(2)(ii):
The AO disallowed proportionate interest expense under Rule 8D(2)(ii), which was deleted by the CIT(A). The Tribunal upheld the CIT(A)’s order, citing judgments that no disallowance of interest is warranted if shares are held as stock-in-trade and when own funds exceed the value of investments.

Conclusion:
The assessee’s appeal was partly allowed, and the Revenue’s appeal was dismissed. The Tribunal provided detailed reasons for each issue, relying on relevant case laws and statutory provisions.