2018 (1) TMI 1600 - AT - Income Tax

Deferred Payment Guarantee Commission - Accrual of income - HELD THAT - As in assessee s own case for AY 1984-85 to 19989-90 1996-97 2016 (4) TMI 1392 - ITAT MUMBAI this ground of appeal is allowed in favour of assessee. Disallowance of Depreciation on Matured Investments - HELD THAT - As in assessee s own case for AY 1984-85 to 19989-90 1996-97, 2016 (4) TMI 1392 - ITAT MUMBAI this ground of appeal is decided against the assessee. Disallowance in respect of payments for Scientific Research - HELD THAT - AR agreed that assessee had not challenged the order for the year 1996-97 2016 (4) TMI 1392 - ITAT MUMBAI 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 is decided against assessee. Disallowance of expenses for earning exempt income u/s. 10(15)(iv)(c) (f), 10(15)(iv)(h), 10(23G) and 10(33) by applying the provisions of section 14A r.w.r. 8D - HELD THAT - Various propositions which have been raised by the assessee in the context of the disallowance under section 14A of the Act which require specific determination by the AO. Therefore, following the earlier precedent, the matter relating to section 14A is remanded back to the file of AO, with the directions to allow the assessee an opportunity to make submissions, and the AO shall pass a speaking order giving determination on each of the propositions as per law. Thus, with these directions, the matter is restored back to the file of AO to adjudicate afresh as per law. Hence, this ground of appeal is allowed for statistical purpose. Disallowance of depreciation on leased assets - HELD THAT - In assessee s own case for AY 1996-97 wherein similar ground of appeal was decided against the assessee. Unearned interest on doubtful advances as per section 43D not allowed as a deduction - HELD THAT - This ground of appeal is restored to the file of AO with similar direction as per order . 2016 (4) TMI 1392 - ITAT MUMBAI TDS u/s 195 - disallowance of expenses incurred in connection with issue of Resurgent India Bonds u/s. 40(a)(i) on account of non-deduction of tax at source - HELD THAT - expenditure has been paid towards the services in connection with the issue of RIBs and are in the nature of advertisements, collecting bank commission etc. Broadly speaking the payments are in the nature of commission paid to non-residents for services of mobilizing deposits, etc. showing that the services have been rendered abroad. It is also not the case of the AO that any of the non-residents in question have any business operation in India. Therefore, in the said background, the ratio of the judgment of Hon ble Supreme Court in case of CIT vs. Toshoku Ltd. 1980 (8) TMI 2 - SUPREME COURT is clearly attracted which lays down that commission earned by non-resident for services rendered abroad could not be construed as incomes accrued or arisen in India. Thus, on this point itself, we are inclined to uphold the stand of the assessee and accordingly the disallowance made by lower authorities by invoking section 40(a)(i) of the Act is hereby set-aside. On this ground assessee succeeds. Hence, this ground of appeal is allowed. Disallowance of contribution to SBI Retired Employees Medical Benefit Fund - Addition u/s 40A - HELD 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 decided in favour of the assessee. Provision for bad and doubtful debts to be allowed u/s. 36(1)(viia) - HELD THAT - There is no dispute regarding the claim allowed by the AO is proper as per the provisions of section 36(1)(viia). 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. Accordingly, we do not find any merit or substance in the claim of the assessee. Hence dismissed. Disallowance of provision in respect of foreign offices - HELD THAT - Considering the decision of Tribunal in assessee s own case for AY 1998-99, wherein similar ground of appeal has been restored to the file of AO, hence, this ground of appeal is also restored to file of AO to decide it afresh in accordance with law. Staff Welfare expenses on account of payments made to educational institution for reservation of seat to the children of employees - Allowable revenue expenditure - HELD THAT - We find that both the revenue sources have treated this expenditure as opposed to the public policy, however, in our view the same cannot be a valid reason for disallowing the expenditure because this aspect does not come within the provision of IT Act 1961. We are further of the opinion that it is a matter of corporate policy where policies of this type are framed after due consultation with employees/officers Association, hence, it cannot be treated as arbitrary. Further, the officers of the bank to not get any bonus whereas the employees get bonus which can also be treated as arbitrary in the similar manner, if the contention of the revenue are accepted. As far as incurrence of this expenditure for business purpose is concerned, that is not doubted. In this background, we hold that the expenditure incurred by the assessee is allowable as revenue expenditure. Thus, this ground of the assessee stands accepted. Exchange Gain on repatriation GDR issue proceeds - AO disallowed exchange Gain on repatriation GDR holding that gain of the amount arise from the money raised against the equity capital, had been realized in the normal course of business and was utilized as circulating capital in banking - HELD THAT - The exchange gain has arisen on account of holding of GDR proceed and their subsequent repatriation to India. Accordingly, the exchange gain is capital in nature and not liable to tax. Moreover, the assessing officer has not disputed those facts that the money raised by way of GDR was raised against capital equity. Thus, we find that the ld CIT (A) allowed the ground of appeal after considering the fact that GDR proceeds are part of capital receipt. Hence, do not find any illegality or infirmity in the order passed by CIT (A). In the result this ground of appeal is dismissed. Disallowance of interest on securities - HELD THAT - Section 145 of the Act could not override the provisions of Section 5 and, therefore, no person could be assessed unless the income accrued to him and in the cases of Securities, interest accrued to the assessee on specified dates and not on day today basis as the assessee has no right to receive the income before fixed date, hence, interest was taxable on the due basis only. In this view of the matter, we accept this ground of the assessee.

Summary

Issues Involved:
1. Deferred Payment Guarantee Commission
2. Depreciation on Matured Investments
3. Payments for Scientific Research
4. Disallowance of Expenses for Earning Exempt Income under Section 14A
5. Depreciation on Leased Assets
6. Unearned Interest on Doubtful Advances under Section 43D
7. Expenses Incurred in Connection with Resurgent India Bonds under Section 40(a)(i)
8. Contribution to SBI Retired Employees Medical Benefit Fund
9. Provision for Bad and Doubtful Debts under Section 36(1)(viia)
10. Provision in Respect of Foreign Offices
11. Write-off of Bad Debts under Section 36(1)(vii)
12. Recovery of Bad Debts Written Off under Section 41(4)
13. Income Earned from Foreign Branches
14. Staff Welfare Expenses
15. Exchange Gain on Repatriation of GDR Issue Proceeds
16. Interest on Securities on Accrual Basis

Detailed Analysis:

1. Deferred Payment Guarantee Commission:
The Tribunal noted that this issue was previously decided in favor of the assessee in earlier assessment years (AY 1984-85 to 1996-97). The Tribunal followed the precedent and allowed the appeal, stating that the system of accounting followed by the assessee was bona fide, and the income from the deferred guarantee commission did not accrue in the relevant assessment year.

2. Depreciation on Matured Investments:
The Tribunal dismissed the appeal, holding that similar grounds were previously decided against the assessee in AY 1996-97 to 1998-99. The Tribunal reiterated that the concept of real income should not defeat the provisions of the Act, and the entire amount of redemption money becomes due under the mercantile system of accounting.

3. Payments for Scientific Research:
The Tribunal dismissed this ground, noting that it was previously decided against the assessee in AY 1997-98 and 1998-99. The payments were made out of a fund established by the assessee for scientific research assistance, which was not out of the income of the year under consideration.

4. Disallowance of Expenses for Earning Exempt Income under Section 14A:
The Tribunal restored the matter to the file of the AO for fresh adjudication, noting that the jurisprudence on the implication of section 14A had developed significantly. The AO was directed to pass a speaking order giving determination on each of the propositions as per law.

5. Depreciation on Leased Assets:
The Tribunal dismissed the appeal, following the precedent set in AY 1996-97 to 1998-99. It was held that the transactions were finance leases and not operating leases, and the assessee could not claim depreciation on leased assets.

6. Unearned Interest on Doubtful Advances under Section 43D:
The Tribunal restored the matter to the file of the AO for fresh adjudication, following the precedent set in AY 1997-98. The AO was directed to decide the issue afresh after affording reasonable opportunity of hearing to the assessee.

7. Expenses Incurred in Connection with Resurgent India Bonds under Section 40(a)(i):
The Tribunal allowed the appeal, holding that the payments made to non-residents for services rendered abroad were not liable to tax in India. The disallowance made by lower authorities was set aside.

8. Contribution to SBI Retired Employees Medical Benefit Fund:
The Tribunal allowed the appeal, following the precedent set in AY 1997-98 and 1998-99. It was held that the contribution was a welfare measure and not hit by section 40A(9) of the Act.

9. Provision for Bad and Doubtful Debts under Section 36(1)(viia):
The Tribunal dismissed the appeal, following the precedent set in AY 1996-97 to 1998-99. It was held that the entire amount could not be allowed as a deduction merely on the basis of RBI guidelines.

10. Provision in Respect of Foreign Offices:
The Tribunal restored the matter to the file of the AO for fresh adjudication, following the precedent set in AY 1998-99. The AO was directed to decide the issue after hearing the assessee.

11. Write-off of Bad Debts under Section 36(1)(vii):
The Tribunal restored the matter to the file of the AO for fresh examination and adjudication, following the precedent set in AY 1996-97.

12. Recovery of Bad Debts Written Off under Section 41(4):
The Tribunal restored the matter to the file of the AO for fresh examination and adjudication, following the precedent set in AY 1996-97.

13. Income Earned from Foreign Branches:
The Tribunal restored the matter to the file of the AO for fresh examination and adjudication, following the precedent set in AY 1996-97.

14. Staff Welfare Expenses:
The Tribunal dismissed the appeal, following the precedent set in AY 1992-93 to 1996-97. It was held that the expenditure incurred by the assessee was allowable as revenue expenditure.

15. Exchange Gain on Repatriation of GDR Issue Proceeds:
The Tribunal dismissed the appeal, holding that the exchange gain on repatriation of GDR issue proceeds was capital in nature and not liable to tax.

16. Interest on Securities on Accrual Basis:
The Tribunal dismissed the appeal, following the precedent set in AY 1991-92 to 1996-97. It was held that the interest on securities was taxable on a due basis and not on an accrual basis.