2016 (4) TMI 1392 - AT - Income Tax

Disallowance of guest house expenses - HELD THAT - Identical issue has been decided by the Tribunal against the assessee in the earlier years. We find that while deciding the appeal for the AY 1996-97 2013 (8) TMI 520 - ITAT MUMBAI - Ground No. 1 is decided against the assessee. Interest credited to interest suspense account taxed in earlier years - HELD THAT - During the course of hearing before us, representatives of both the sides conceded that issue stands decided in favour of the assessee subject to verification by the AO with respect to the earlier years. Disallowance in respect of payment for scientific research - HELD THAT - AR agreed that assessee had not challenged the order for the year 1996-97 before the Tribunal. As the assessee had accepted the order of the FAA for the earlier year, we are of the opinion that there is no need to disturb the order of the CIT(A) for the current year as facts for both the years are identical- except that the amounts involved are different. Confirming the order of the FAA Ground No. 3 is decided against the assessee. Exemption u/s. 10(15)(iv)(h) - assessee had claimed entire interest received on tax free securities exempt u/s. 10(15)(iv)(h) - as per assessee expression income meant net income i. e. receipt minus expenditure - HELD THAT - AO had allowed expenditure to the extent of ₹ 25. 43 crores and had disallowed expenditure of ₹ 45. 51crores on proportionate basis, that the FAA directed the assessee to furnish details to prove that borrowed funds were not used for making investment yielding exempt income, that the assessee had admitted that it was not possible to co-relate the investment with own funds, the assessee had claimed that its own funds including reserves and surpluses were about ₹ 30, 000 crores for the year under consideration. The AO had applied the provisions of section 14A of the Act. In our opinion law relating to allowing expenditure with regard to exempt income has evolved since the appeal was decided by the FAA for the year under consideration. The AO/FAA did not have the benefit of the cases dealing with the provisions of section 14A, while making the assessment /deciding the appeal. Matter needs further verification/investigation. Therefore, in the interest of justice we are restoring back the issue the file of the AO for fresh adjudication. He is directed to afford reasonable opportunity of hearing to the assessee . Ground No. 4 is decided in favour of the assessee in part. Reduction u/s. 80M - HELD THAT - As decided in M/S. MODERN TERRY TOWELS LTD., 2012 (8) TMI 776 - BOMBAY HIGH COURT the provisions of section 80HHC of the Income-tax Act, 1961, are entirely different from those of sections 80M and 80AA. There is no basis for importing the provisions of section 80HHC for interpreting section 80M. That would not lead to a satisfactory computation of the net dividend under section 80M. Tribunal was justified in law in allowing special deduction under section 80M in respect of gross dividend without deducting estimated expenses therefrom. Disallowance of depreciation on leased assets - HELD THAT - In the case of bank it is not permitted under the Banking Regulation Act to engage in the business of leasing of equipments. Following the decision of Special Bench of this Tribunal in case of IndusInd Bank Ltd. 2012 (3) TMI 212 - ITAT MUMBAI we hold that the transaction in question is finance lease and not operating lease. Accordingly, we uphold the orders of the authorities below qua this issue - Decided against assessee. Un-earned interest on doubtful advances as per sec. 43D - AR stated that the amount in question had already been disallowed in the past, that there cannot be disallowance of the same amount in two years - HELD THAT - We find that the claim made by the assessee of double disallowance of the same amount has not been considered. Therefore, in the interest of justice we are reverting back the issue to the file of the AO to decide the issue afresh after affording reasonable opportunity of hearing to the aa. Gr. No. 7 stands partly allowed in favour of the assessee. Deduction for provision for bad and doubtful debts u/s. 36(1)(viia) - HELD THAT - FAA after considering the assessment order and the assessee s order held that section 36(1)(viia) prescribed upper limit for deduction in respect of provision for bad and doubtful debts, that the assessee could not allow deduction for any amt exceeding the limit even if the provision had been created as per the directions of the RBI. During the course of hearing before us, representatives of both the sided agreed that issue stand decided against the assessee by the Tribunal in own case 2013 (8) TMI 520 - ITAT MUMBAI - When the allowable claim has been accepted by the AO under the provision of section 36(1)(viia) then merely the provision made on the basis of RBI guidelines does not become allowable for deduction in contravention of the provision of section 36(1)(viia). It is pertinent to note that when the claim of deduction specifically provided u/s 36(1)(viia) then the same cannot be allowed by applying any other provision. - Decided against assessee. Contribution to SBI Retired Employees Medical Fund - Addition u/s 40A - HELD THAT - Tribunal was of the opinion that provisions of section 40A(9) should not make any harm to the expenditure incurred bonafide, that the contribution by the assessee bank was not disputed by the AO, stating that the same was not bonafide, that the funds were not controlled by the assessee banks, that the bonafide contribution made by the assessee as an employer was not hit by section 9 of section 40A of the Act. In the case under consideration, there is no doubt about genuineness of payment nor it is the case of the AO or FAA that Trust was not bonafide or the expenditure was not incurred wholly and exclusively for the employees. Considering these facts of the case and following the judgment of State Bank of Travancore 1986 (1) TMI 1 - SUPREME COURT Ground No. 9 is decided in favour of the assessee. Write off bad debts u/s. 36 (1) (iii), Recovery of bad debts written off u/s. 41(4) and Income earned from foreign branches - HELD THAT - Remitting back all the three issue to the file of the AO for fresh adjudication. AO may afford a reasonable opportunity of hearing to the assessee. Disallowance of depreciation on matured investments - HELD THAT - Identical issue has been decided by the Tribunal against the assessee in the earlier years. We find that while deciding the appeal for the AY 1996-97 2013 (8) TMI 520 - ITAT MUMBAI - Ground No. 1 is decided against the assessee. Loss on revaluation of permanent category investments - HELD THAT - A security capital is employed, it is a part of normal course of business of a bank and the money which was not lend to the borrower but was invested in the form of deposits in another bank cannot be said to have become ceased to be part of stock in trade of bank. Keeping in view the ratio of these judicial pronouncements, we hold that the investment in question very much represented stock in trade of the baking business of the assessee and the loss on the revaluation thereof is allowable as deduction. Accordingly, the impugned order of the ld. CIT(A) on this issue is set aside and the A. O. is directed to allow the deduction claimed by the assessee on account of loss on revaluation of investment.

Summary

Issues Involved:

1. Guest house expenses.
2. Interest credited to interest suspense account taxed in earlier years.
3. Disallowance of payment for scientific research.
4. Exemption under section 10(15)(iv)(h) of the Income Tax Act.
5. Deduction under section 80M of the Income Tax Act.
6. Depreciation on leased assets.
7. Unearned interest on doubtful advances as per section 43D of the Income Tax Act.
8. Deduction for provision for bad and doubtful debts under section 36(1)(viia).
9. Disallowance of contribution to SBI Retired Employees Medical Fund.
10. Write-off of bad debts under section 36(1)(iii), recovery of bad debts written off under section 41(4), and income earned from foreign branches.
11. Depreciation on matured investments.
12. Loss on revaluation of permanent category investments.
13. Interest credited to interest suspense account for the assessment year 1998-99.
14. Disallowance of payment for scientific research for the assessment year 1998-99.
15. Interest claimed exempt under various sub-sections of section 10 of the Income Tax Act for the assessment year 1998-99.
16. Exemption under section 10(33) of the Income Tax Act for the assessment year 1998-99.
17. Depreciation on leased assets for the assessment year 1998-99.
18. Disallowance of contribution towards SBI Retired Employees Medical Benefit Fund for the assessment year 1998-99.
19. Provision for bad and doubtful debts for the assessment year 1998-99.
20. Provision in respect of foreign offices for the assessment year 1998-99.
21. Write-off of bad debts under section 36(1)(iii), recovery of bad debts written off under section 41(4), and income earned from foreign branches for the assessment year 1998-99.
22. Depreciation on matured securities for the assessment year 1998-99.

Issue-wise Detailed Analysis:

1. Guest House Expenses:
The Tribunal upheld the disallowance of guest house expenses amounting to ?1.19 crores, following the Supreme Court's judgment in the case of Britannia Industries Ltd. Vs CIT, reported in 278 ITR 546 (SC). The Tribunal decided this issue against the assessee and in favor of the revenue, thereby upholding the CIT(A)'s order.

2. Interest Credited to Interest Suspense Account:
The Tribunal allowed the assessee's claim regarding interest credited to the interest suspense account, subject to verification by the AO with respect to earlier years. The Tribunal directed the AO to carry out verification and allow the claim if found correct.

3. Disallowance of Payment for Scientific Research:
The Tribunal upheld the disallowance of ?26,44,876/- in respect of payment for scientific research, as the payment was not out of the income of the year under consideration. The Tribunal confirmed the order of the CIT(A) for the current year, as the facts for both years were identical.

4. Exemption under Section 10(15)(iv)(h):
The Tribunal restored the issue of exemption under section 10(15)(iv)(h) back to the AO for fresh adjudication. The Tribunal noted that the law relating to allowing expenditure with regard to exempt income had evolved since the appeal was decided by the FAA.

5. Deduction under Section 80M:
The Tribunal decided the issue in favor of the assessee, following the judgment of the Hon'ble Bombay High Court in the case of Modern Terry Towels Ltd. (357 ITR 750), which allowed special deduction under section 80M in respect of gross dividend without deducting estimated expenses.

6. Depreciation on Leased Assets:
The Tribunal upheld the disallowance of depreciation on leased assets, following the decision of the Special Bench of the Tribunal in the case of IndusInd Bank Ltd., which characterized the lease agreement as a finance lease and not an operating lease.

7. Unearned Interest on Doubtful Advances (Section 43D):
The Tribunal remitted the issue back to the AO to decide afresh after considering the claim of double disallowance of the same amount. The Tribunal directed the AO to afford a reasonable opportunity of hearing to the assessee.

8. Deduction for Provision for Bad and Doubtful Debts (Section 36(1)(viia)):
The Tribunal upheld the disallowance of the provision for bad and doubtful debts exceeding the limit prescribed under section 36(1)(viia), following its earlier order.

9. Disallowance of Contribution to SBI Retired Employees Medical Fund:
The Tribunal decided the issue in favor of the assessee, following the judgment of the Tribunal in the case of State Bank of Travancore (306 ITR-AT128), which allowed the deduction as a welfare measure.

10. Write-off of Bad Debts (Section 36(1)(iii)), Recovery of Bad Debts Written Off (Section 41(4)), and Income Earned from Foreign Branches:
The Tribunal remitted the issues back to the AO for fresh examination and adjudication, following its order in the assessee's own case for the assessment year 1996-97.

11. Depreciation on Matured Investments:
The Tribunal upheld the disallowance of depreciation on matured investments, following its earlier decision in the assessee's own case for the assessment year 1996-97.

12. Loss on Revaluation of Permanent Category Investments:
The Tribunal decided the issue in favor of the assessee, following its earlier order in the assessee's own case for the assessment year 1995-96, which allowed the deduction for loss on revaluation of investment as part of the banking business.

13. Interest Credited to Interest Suspense Account (AY 1998-99):
The Tribunal allowed the assessee's claim regarding interest credited to the interest suspense account for the assessment year 1998-99, following its decision for the earlier assessment year.

14. Disallowance of Payment for Scientific Research (AY 1998-99):
The Tribunal upheld the disallowance of ?27.52 lakhs in respect of payment for scientific research for the assessment year 1998-99, following its order for the earlier assessment year.

15. Interest Claimed Exempt under Various Sub-sections of Section 10 (AY 1998-99):
The Tribunal restored the issue of interest claimed exempt under various sub-sections of section 10 back to the AO for fresh adjudication for the assessment year 1998-99.

16. Exemption under Section 10(33) (AY 1998-99):
The Tribunal sent the issue of exemption under section 10(33) back to the AO for fresh adjudication for the assessment year 1998-99, following its order for the earlier assessment year.

17. Depreciation on Leased Assets (AY 1998-99):
The Tribunal upheld the disallowance of depreciation on leased assets for the assessment year 1998-99, following its decision for the earlier assessment year.

18. Disallowance of Contribution towards SBI Retired Employees Medical Benefit Fund (AY 1998-99):
The Tribunal allowed the assessee's claim regarding the contribution towards SBI Retired Employees Medical Benefit Fund for the assessment year 1998-99, following its order for the earlier assessment year.

19. Provision for Bad and Doubtful Debts (AY 1998-99):
The Tribunal upheld the disallowance of the provision for bad and doubtful debts for the assessment year 1998-99, following its decision for the earlier assessment year.

20. Provision in Respect of Foreign Offices (AY 1998-99):
The Tribunal restored the issue of provision in respect of foreign offices back to the AO for fresh adjudication for the assessment year 1998-99, directing the AO to decide the case after hearing the assessee.

21. Write-off of Bad Debts (Section 36(1)(iii)), Recovery of Bad Debts Written Off (Section 41(4)), and Income Earned from Foreign Branches (AY 1998-99):
The Tribunal restored the issues back to the AO for fresh adjudication for the assessment year 1998-99, following its order for the earlier assessment year.

22. Depreciation on Matured Securities (AY 1998-99):
The Tribunal upheld the disallowance of depreciation on matured securities for the assessment year 1998-99, following its decision for the earlier assessment year.

Conclusion:
The appeals filed by the assessee for both the assessment years were partly allowed, with certain issues being decided in favor of the assessee and others against it. The Tribunal also remitted several issues back to the AO for fresh adjudication and verification.