2022 (3) TMI 1131 - AT - Income Tax

Disallowance u/s 36(1)(vii) in respect of non rural debts written off - assessee has also written off debts relating to its rural branches and the same was adjusted against the provision allowed u/s 36(1)(viia) and reduced the same from the deduction claimed u/s 36(1)(vii) - HELD THAT - As decided in own case 2022 (1) TMI 1220 - ITAT BANGALORE explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount representing actual write off in the books of account of bad debts relating to non-rural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A). Depreciation @ 60% on ATM s by treating the same as the block relating to c omputer - HELD THAT - As per M/S NCR CORPORATION PVT LTD 2020 (6) TMI 439 - KARNATAKA HIGH COURT we hold that the depreciation on ATM should be allowed at the high rate of 60%. The assessee s appeal on this ground is allowed. Disallowance of CENVAT Credit on capital goods - HELD THAT - The law does not restrict the duty paid, for which no credit is allowed, as per the Central Excise Rules from being added to the cost of the asset but mandates that any credit availed should be reduced from the capitalized cost of the asset. In the given case assessee has paid an amount of ₹ 1,28,01,784 being 50% of the CENVAT credit which not eligible to claim credit as per the Rule 63B of CENVAT credit Rules 2004 (₹ 20 in our example above). Hence the amount so paid and not eligible for credit should be added to the cost of the asset. Hence, we uphold the order of the CIT(A) in restricting the disallowance to the amount debited to the P L account as said amount needs to be capitalized and not claimed as an expenditure as per the provisions of Explanation 9 to sec.43 of the Act. Penalty paid to RBI - HELD THAT -We notice that the Mumbai Tribunal in IDBI Bank Ltd. 2021 (2) TMI 608 - ITAT MUMBAI while considering a similar penalty payment to RBI has held that the amount paid by the assessee is not in the nature of penalty - As observed by the CIT(A) in the order, the assessee has not furnished the full details of the nature of payment made to RBI. We are of the considered view that the provisions under which these payments are done need to be looked into in detail and it will not be correct to conclude without analyzing the same. We therefore remand the case back to the AO to look into the details of payments made to RBI to see if these are routine payments for a procedural non-compliance or whether they are punitive. We allow the appeal of the assessee for statistical purposes. Prior Period Expenditure - AO disallowed the claim on the ground that no income relating to such transaction was offered to tax during the current asst. year - HELD THAT - The very basis for allowing the expenditure is the crystallization of the expenditure and in the interest of justice this issue needs to be decided based on evidences and facts. The assessee has not produced and additional evidence before us to substantiate the claim that the expenditure got crystallized during the relevant asst. year. We, therefore, remit the issue back to the AO to look into the details afresh and allow the claim in the relevant asst. year based on the facts. It is needless to say that reasonable opportunity of being heard should be given to the assessee before deciding the case. In the result, the assessee s appeal is allowed for statistical purposes. Applicability of provisions of section 115JB - HELD THAT - As relying on assessee own case 2022 (1) TMI 1220 - ITAT BANGALORE we set aside order of the CIT(A) and restore the same to his file for deciding the case afresh in accordance with law. Disallowance u/s 14A r.w.r. 8D - HELD THAT - As decided in own case it is mandatory for the AO to record dissatisfaction over the claim of the assessee before invoking the provisions of Rule 8D. Accordingly, the Ld CIT(A) deleted the disallowance holding that the AO has not recorded dissatisfaction.We respectfully follow the decision of the coordinate bench of the Tribunal, we set aside the order passed by the CIT(A) on this issue and restore the file to the AO for fresh examination. This ground is allowed in favour of the revenue for statistical purposes. Deduction for Bad and doubtful debts (PBDD) - HELD THAT - AO removed 79 branches from rural branches list on the ground that population of many of the rural branches already exceeded 10,000 and they are situated in urban agglomeration by relying of the assessment order for AY 2014-15.AO merely quoted the Lord Krishna Bank decision of Kerala High Court but not followed it up to the logical end to bring out the relvant data as to why a particular branch is not a rural branch - The list of such branches given as part of the assessment order does not have the population figures and also the specific reason why they are not rural branches.AO has not pointed out any mistakes in the classification of rural branches made by the RBI AO calculated the AAA by considering only incremental advances made during the year instead of outstanding balances The CIT (A) also observed that this issue is covered by the various Tribual decisions including the decision of the coordinate bench of the Tribunal and deleted the addition made by the AO correctly. Adjustment to Book Profits - Addition on Disallowance u/s.14A and amount debited under provisions contingencies for NPA - HELD THAT - Since the issue regarding applicability or otherwise of sec.115JB is restored to the file of Ld CIT(A), this issue is also restored to the file of Ld CIT(A) for examining it afresh. The appeal of the revenue is allowed for statistical purposes. Depreciation on HTM Securities - HELD THAT - As relying on case of Vijaya Bank 2018 (1) TMI 1575 - ITAT BANGALORE CIT(A) has allowed the appeal in favour of the assessee following the decisions of jurisdictional High Court and the decision of coordinate bench of the Tribunal, we see no reason to interfere with the decision of the CIT(A) and hence the ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance under Section 36(1)(vii)
2. Depreciation on ATM
3. Disallowance of CENVAT Credit on Capital Goods
4. Penalty paid to RBI
5. Prior Period Expenditure
6. Applicability of Provisions of Section 115JB
7. Disallowance under Section 14A
8. Deduction under Section 36(1)(viia)
9. Adjustment to Book Profits
10. Disallowance under Section 40(a)(ia)

Detailed Analysis:

Disallowance under Section 36(1)(vii):
The assessee claimed a deduction of ?1619.82 crores under Section 36(1)(vii) for non-rural debts written off. The AO disallowed this claim, stating that the bad debts were not debited to the P&L account and were not adjusted against provisions allowed under Section 36(1)(viia). The CIT(A) upheld this view. However, the Tribunal referred to previous decisions, including the Supreme Court's ruling in Catholic Syrian Bank, and concluded that the disallowance was incorrect. The Tribunal allowed the deduction, stating that non-rural bad debts do not require adjustment against provisions under Section 36(1)(viia).

Depreciation on ATM:
The assessee claimed 60% depreciation on ATMs, treating them as computers. The AO restricted this to 15%, treating ATMs as plant and machinery. The CIT(A) upheld the AO’s decision. The Tribunal, referring to the Karnataka High Court's decision in NCR Corporation Ltd., ruled that ATMs are eligible for 60% depreciation as they are integral to computer systems.

Disallowance of CENVAT Credit on Capital Goods:
The AO added ?4,67,22,283 towards CENVAT credit on excise duty and service tax on capital goods, citing non-compliance with Section 145A. The CIT(A) deleted part of this addition but upheld the disallowance of ?1,28,01,783 debited to the P&L account. The Tribunal upheld the CIT(A)’s decision, stating that the amount should be added to the cost of the asset, not claimed as expenditure.

Penalty paid to RBI:
The AO disallowed ?13,63,463 paid as a penalty to RBI, considering it penal in nature. The CIT(A) upheld this disallowance. The Tribunal remanded the case back to the AO to determine if the penalty was for procedural non-compliance or punitive, following the Mumbai Tribunal's decision in IDBI Bank Ltd.

Prior Period Expenditure:
The AO disallowed ?3,41,81,547 as prior period expenses, stating no related income was offered to tax. The CIT(A) upheld this disallowance. The Tribunal remanded the issue back to the AO to verify if the expenditure crystallized during the relevant assessment year.

Applicability of Provisions of Section 115JB:
The AO applied Section 115JB to compute the assessee's income, which the CIT(A) upheld. The Tribunal, referring to a previous decision in the assessee’s own case, remanded the issue back to the CIT(A) for fresh examination, considering the specific provisions applicable to public sector banks.

Disallowance under Section 14A:
The AO disallowed ?51,87,08,431 under Section 14A, stating the assessee couldn't prove the use of own funds for earning exempt income. The CIT(A) deleted this disallowance, citing lack of AO’s dissatisfaction record. The Tribunal remanded the issue back to the AO for fresh examination, following the Supreme Court's guidelines in Godrej & Boyce Manufacturing Co. Ltd.

Deduction under Section 36(1)(viia):
The AO restricted the deduction for bad and doubtful debts to ?444,42,67,702, disallowing ?548,05,37,200. The CIT(A) deleted the disallowance, noting the AO's failure to provide specific reasons for reclassifying rural branches. The Tribunal upheld the CIT(A)’s decision, citing consistent rulings in similar cases.

Adjustment to Book Profits:
The AO made specific additions to book profits under Section 115JB, which the CIT(A) deleted. The Tribunal remanded the issue back to the CIT(A) for fresh examination in line with the decision on the applicability of Section 115JB.

Disallowance under Section 40(a)(ia):
The AO disallowed ?2,39,64,549 for non-deduction of TDS on payments to NPCI. The CIT(A) deleted this disallowance, following the Tribunal's decision in the assessee’s own case. The Tribunal upheld the CIT(A)’s decision.

Conclusion:
The Tribunal provided a detailed and issue-wise analysis, addressing each ground raised by both the assessee and the revenue. Several issues were remanded back to the AO or CIT(A) for fresh examination, ensuring a thorough reconsideration in light of relevant judicial precedents. The Tribunal's decisions reflect adherence to legal principles and precedents, ensuring fair adjudication of the disputed matters.