2018 (7) TMI 815 - AT - Income Tax

Addition towards Bad and Doubtful Debts written back - deduction made by the assessee bank in the computation under the normal provisions of the Act as well as in the computation of book profits u/s 115JB - Held that - CIT-A not bothered to examine the details with the relevant evidences and records and the relief was granted on the ground that the AO had not made proper verification of the same and non-application of mind on the part of the AO. Hence it is clear that both the authorities below had not given any finding on facts of the issue in their respective orders - we give one more chance to the ld AO to examine the veracity of the claims made by the assessee. If it is found that in the year of making provisions the assessee had duly disallowed the same in the computation of income both under normal provisions as well as u/s 115JB of the Act then in the year of writing back of those provisions i.e the years under consideration the same should not be taxed again. This aspect requires factual verification by the ld AO. Disallowance of Prior Period Expenditure - Held that - We find that the assessee had given proper explanation that the bills payable to Deloitte together with its quantum got settled and crystallized only during the year under appeal and accordingly the same becomes the expenditure of the year for the purpose of income tax. It is not the case of the revenue that the assessee had also made a claim of this expenditure in the earlier year. It is not in dispute that the said payment of 94.26 lakhs is wholly and exclusively incurred by the assessee for the purpose of its business. In these circumstances the subject mentioned expenditure though categorized as prior period expenditure to be in consonance with Accounting Standard 5 issued by ICAI cannot be deprived of the deduction from its total income - CITA had rightly deleted the disallowance Disallowance u/s 14A of the Act read with Rule 8D of the Rules - Held that - Hon ble Supreme Court in the case of Maxopp Investment Ltd vs CIT (2018 (3) TMI 805 - SUPREME COURT OF INDIA) had held that provisions of section 14A of the Act are applicable even for investments held as stock in trade. Hence this issue is now settled and provisions of section 14A of the Act are to be applied in the instant case. We find that this tribunal in the case of REI Agro Ltd 2013 (9) TMI 156 - ITAT KOLKATA had held that only those investments which had yielded dividend income need to be considered while working out the disallowance under third limb of Rule 8D(2) of the Rules. Hence we direct the ld AO to rework the disallowance accordingly for Asst Years 2010-11 and 2011-12 under normal provisions of the Act. With regard to disallowance u/s 14A of the Act while computing the book profits u/s 115JB of the Act we find that the same is squarely covered by the decision of Hon ble Calcutta High Court in the case of CIT vs Jayshree Tea & Industries Ltd 2014 (11) TMI 1169 - CALCUTTA HIGH COURT held computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 u/s 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal.

Summary

Issues Involved:
1. Condonation of Delay in Filing Appeals
2. Addition towards Bad and Doubtful Debts Written Back
3. Disallowance of Prior Period Expenditure
4. Disallowance under Section 14A of the Act read with Rule 8D of the Rules

Detailed Analysis:

1. Condonation of Delay in Filing Appeals
At the outset, the Tribunal noted a delay of 16 days in filing the appeals by the Revenue for the Assessment Years 2010-11 and 2011-12. Upon reviewing the reasons provided in the condonation petition and considering the concession given by the respondent's counsel, the Tribunal decided to condone the delay and admit the appeals for adjudication.

2. Addition towards Bad and Doubtful Debts Written Back
Ground Nos. 1 & 2 for AY 2012-13, Ground No. 2 for AY 2011-12, Ground No. 2 for AY 2010-11

The assessee, engaged in project financing and investment in the capital market, claimed a deduction of ?151,82,11,000/- for writing back provisions not allowed in earlier years. The Assessing Officer (AO) disallowed this claim, stating that the assessee did not provide satisfactory evidence. The CIT(A) deleted the addition, noting that the AO failed to properly verify the documents submitted by the assessee and that similar claims had been allowed in previous years.

The Tribunal observed that both the AO and CIT(A) did not adequately verify the facts. Therefore, it remanded the case back to the AO to verify whether the provisions were disallowed in the computation of income in earlier years. If so, the write-back should not be taxed again. The grounds raised by the Revenue for AYs 2012-13, 2010-11, and 2011-12 were allowed for statistical purposes.

3. Disallowance of Prior Period Expenditure
Ground No. 3 for AY 2012-13

The AO disallowed ?1,04,40,000/- debited as exceptional items, stating they were prior period expenses. The CIT(A) deleted the disallowance, noting that the expenses related to fees paid to Deloitte for financial advice, which were crystallized and paid in the year under appeal.

The Tribunal upheld the CIT(A)'s decision, stating that the expenses, though categorized as prior period expenses, were incurred wholly and exclusively for business purposes and crystallized during the year under appeal. Therefore, they were deductible. The Tribunal cited several judicial precedents to support its decision and dismissed the Revenue's ground.

4. Disallowance under Section 14A of the Act read with Rule 8D of the Rules
Ground No. 1 for AY 2011-12, Ground No. 1 for AY 2010-11

The AO made disallowances under Section 14A for dividend income, applying Rule 8D(2). The CIT(A) deleted these disallowances, stating that the assessee, being a government financial institution, had investments as part of its normal business activities.

The Tribunal referred to the Supreme Court's decision in Maxopp Investment Ltd vs CIT, which held that Section 14A applies even to investments held as stock-in-trade. It directed the AO to rework the disallowance, considering only those investments which yielded dividend income, as per the REI Agro Ltd case.

For disallowance under Section 14A while computing book profits under Section 115JB, the Tribunal referred to the Calcutta High Court's decision in CIT vs Jayshree Tea & Industries Ltd and the Special Bench decision in ACIT vs Vireet Investment (P) Ltd. It remanded the matter to the AO to calculate the book profit independently, without applying Rule 8D.

The grounds raised by the Revenue for AYs 2010-11 and 2011-12 were partly allowed for statistical purposes.

Conclusion:
The appeals by the Revenue were partly allowed for statistical purposes, with directions for further verification and recalculations by the AO as per the Tribunal's instructions. The Tribunal emphasized proper verification of facts and adherence to judicial precedents in its detailed analysis.