2019 (11) TMI 853 - AT - Income Tax

Addition u/s 14A - interest disallowance under Rule 8D(2)(ii) - HELD THAT - We find that the issue is squarely covered in favour of the assessee by the decision of the Tribunal cited supra in assessee s own case for AYs 2008-09 to 2011-12. The Tribunal, by following the decisions of the Tribunal in the cases of Premier Finance Leasing Co. Ltd 2016 (5) TMI 1218 - ITAT MUMBAI and Aditya Birla Nuvo Ltd 2014 (10) TMI 154 - ITAT MUMBAI decided the issue in favour of the assessee. Working of suo moto disallowance - HELD THAT - We find from records that the ITAT, for AYs 2008-09 to 2011-12, after considering a plethora of judgements, has directed the assessing officer to make disallowance u/r 8D(2)(iii) @0.5% of the average value of investments after excluding strategic investments. Considering the decision of Special Bench of Delhi Tribunal in Vireet Investment (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI we direct the assessing officer to disallow 0.5% of the average value of investments excluding strategic investments for the making of Rule 8D(2)(iii) of I.T. Rules. As such, ground 2 of the assessee succeeds in part Disallowance of Broken period expenses - HELD THAT - The closing balance has been shown in the balance sheet. The interest income on Government securities and the profit/ loss has been offered in the return of income for the current year. Similar treatment is consistently offered by the assessee in earlier years. The assessee also relied on the CBDT Circular No. 18/2015 dated 02.11.2015. The ld CIT(A) accepted the contention of the assessee granted relief to the assessee by relying on the CBDT circular and on the decision of Hon ble Supreme Court in CIT Vs Citi Bank NA 2008 (8) TMI 766 - SUPREME COURT and in American Express International Banking Corporation Vs CIT 2002 (9) TMI 96 - BOMBAY HIGH COURT . We have noted that this issue is also covered in favour of the assessee, hence, we affirms the order of the ld CIT(A) and accordingly dismissed the ground of appeal raised by the revenue. Allowability of ESOP expenses - HELD THAT - CIT(A) allowed relief to the assessee by following the order of his predecessor in assessee s own case for AY 2009-10 as relying on M/S. BIOCON LIMITED AND OTHERS VERSUS THE DY. COMMISSIONER OF INCOME-TAX (LTU) AND OTHERS 2013 (8) TMI 629 - ITAT BANGALORE Disallowance of urban (non rural) bad debt s - HELD THAT - The Tribunal while confirming the order of ld CIT(A) followed the decisions of Hon ble Supreme Court in Catholic Syrian Bank Ltd vs CIT 2012 (2) TMI 262 - SUPREME COURT and in CIT vs. Karnataka Bank Ltd 2013 (2) TMI 40 - SC ORDER . Hence, we do not find any infirmity in the order passed by ld CIT(A), which we affirms. In the result this ground of appeal is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance under Rule 8D(2)(ii) regarding expenses attributable to earning exempt income.
2. Computation of disallowance under Rule 8D(2)(iii) excluding certain investments.
3. Allowability of broken period interest expenses.
4. Allowability of expenditure incurred on ESOP.
5. Allowability of bad debts under Section 36(1)(vii).

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Rule 8D(2)(ii):
The Assessing Officer (AO) disallowed ?27,80,06,782 under Rule 8D(2)(ii) and Rule 8D(2)(iii) for the assessment year (AY) 2013-14, attributing expenses to earning exempt income. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, noting that the assessee had sufficient own funds exceeding the investment generating exempt income, referencing the Bombay High Court decision in HDFC Bank Ltd. The Tribunal upheld CIT(A)'s decision, citing consistency with prior Tribunal decisions in the assessee's case for AYs 2008-09 to 2011-12, and other relevant judgments.

2. Computation of Disallowance under Rule 8D(2)(iii):
The AO computed disallowance under Rule 8D(2)(iii) without excluding strategic investments. The CIT(A) directed the AO to exclude strategic investments when computing disallowance, following the Special Bench decision in Vireet Investment (P) Ltd. The Tribunal upheld CIT(A)'s direction, emphasizing the necessity of excluding strategic investments from the disallowance computation.

3. Allowability of Broken Period Interest Expenses:
The AO disallowed broken period interest expenses of ?88,41,69,624, considering securities held till maturity as investments, not stock-in-trade. The CIT(A) deleted the disallowance, relying on the Bombay High Court judgment in American Express International Banking Corporation vs CIT and CBDT Circular No. 18/2015. The Tribunal affirmed CIT(A)'s decision, noting consistent treatment of such expenses in earlier years and alignment with judicial precedents.

4. Allowability of Expenditure Incurred on ESOP:
The AO disallowed ?89,51,07,154 of ESOP expenses, viewing them as capital in nature and not an ascertained liability. The CIT(A) allowed the expenditure, following the Special Bench decision in Biocon Ltd. The Tribunal upheld CIT(A)'s decision, noting that the Tribunal had affirmed similar decisions in the assessee's case for AYs 2009-10 and 2012-13.

5. Allowability of Bad Debts under Section 36(1)(vii):
The AO disallowed ?1,30,06,04,016 of urban bad debts, arguing they should be debited to the provision for bad and doubtful debts. The CIT(A) deleted the disallowance, referencing the Supreme Court decision in Catholic Syrian Bank Ltd vs CIT. The Tribunal upheld CIT(A)'s decision, aligning with prior Tribunal decisions in the assessee's case and Supreme Court judgments.

Conclusion:
The Tribunal dismissed the revenue's appeals for both AY 2013-14 and AY 2014-15, affirming CIT(A)'s decisions on all grounds. The judgments were consistent with prior Tribunal decisions in the assessee's case and relevant judicial precedents.