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2020 (5) TMI 177 - AT - Income TaxBad debits - Disallowance of eligible deduction u/s 36(1)(viii) - long term loans given to individuals on the ground that they do not constitute loans for development of housing in India - HELD THAT - In view of own case 2019 (3) TMI 1261 - ITAT COCHIN we do not find any infirmity in the order of the CIT(A) in granting relief to the assessee u/s. 36(1)(viii) with regard to providing long term finance for industrial or agricultural development or development of infrastructure facility in India and the same is confirmed. Thus, this ground of appeals of both the assessee as well as the Revenue are dismissed. Doubtful debts - Deduction u/s 36(1)(viia) in respect of rural branches based on population of ward - confirming the order of the A.O. allowing the same based on population of village - HELD THAT - We find that similar issue came up for consideration before the Hon ble jurisdictional High Court in the case of CIT v. Lord Krishna Bank Limited 2010 (10) TMI 860 - KERALA HIGH COURT assessee's case that found acceptance with the Tribunal is that place referred to in the above definition clause is the ward of a panchayat or municipality, the AO took the view that place contained in the definition clause should mean a revenue village. No doubt, place as such is not defined in the definition clauses and so much so, we have to find out the scope and meaning of place referred to in the section. Standing counsel for the Department produced before us last published Census Report of 2001. Even though the previous Census Report may be the relevant one, we feel the scope of place as referred to in the Census Report produced could be adopted for the purpose of this case - we are inclined to reject the above ground of appeal raised by the assessee. Allowability of claims made during the course of assessment - HELD THAT - Tribunal relied on the judgment of the Hon ble Supreme Court in the case of Goetze (India) Ltd. v. CIT 2006 (3) TMI 75 - SUPREME COURT and remanded the issue to the file of CIT(A) for fresh consideration. In view of the above decision of the Tribunal cited supra, we are inclined to remit all the above grounds to the CIT(A) to consider afresh and decide the same in accordance with law. Addition u/s 14A - HELD THAT - As long as the exempt income was earned, the expenditure incurred as attributable to earning such exempt income had to be disallowed u/s 14A and also irrespective of the objective of investment in shares when the shares are held as stock-in-trade with a view to earn trading profits or as investment representing controlling interest and in the course if the assessee earned any exempt income, section 14A was applicable and expenses to be disallowed in respect of exempt income by apportioning the total expenditure incurred by the assessee between taxable and non-taxable income. However, the A.O. has to record the satisfaction before invoking all these provisions. Thus, it is wrong to say that in the case of Maxopp Investment Ltd. v. CIT 2018 (3) TMI 805 - SUPREME COURT the principle of apportionment is not applicable. Hon ble Supreme Court held that applying the principle of apportionment applicable in such cases and it has to be depend upon the facts of each years, the expenditure incurred to earn exempt income to be apportioned. We are of the opinion that there is decision in favour of the Revenue in assessee s own case for the preceding assessment year, which has to be applied for the present assessment year also. Accordingly, this ground of appeal by the Revenue is allowed.
Issues Involved:
1. Disallowance of eligible deduction under Section 36(1)(viii) of the Income Tax Act. 2. Deduction under Section 36(1)(viia) for rural branches based on population. 3. Allowability of claims made during the course of assessment. 4. Addition under Section 14A regarding disallowance of expenditure related to exempt income. Detailed Analysis: 1. Disallowance of eligible deduction under Section 36(1)(viii) of the Income Tax Act: The primary issue was whether the assessee was entitled to a deduction under Section 36(1)(viii) for long-term loans given to individuals for housing development. The Assessing Officer disallowed the deduction, asserting that the loans did not contribute to industrial, agricultural, or infrastructure development in India. The CIT(A) upheld the disallowance for loans given for individual houses but allowed deductions for loans for industrial and agricultural development and infrastructure. The Tribunal referenced its previous decision in the assessee’s case for the assessment year 2012-2013, concluding that the construction/purchase of individual houses does not constitute housing development. Consequently, the Tribunal upheld the disallowance of the claim for advances/loans given for individual houses under Section 36(1)(viii). 2. Deduction under Section 36(1)(viia) for rural branches based on population: The Assessing Officer disallowed ?47,56,61,323 on account of bad and doubtful debts for rural branches, basing the classification on the population of villages rather than wards. The CIT(A) confirmed this disallowance. The Tribunal referred to the jurisdictional High Court's decision in CIT v. Lord Krishna Bank Limited, which defined a rural branch based on the population of the place where the branch is located, supporting the Assessing Officer’s approach. Thus, the Tribunal rejected the assessee’s appeal on this ground. 3. Allowability of claims made during the course of assessment: The assessee raised several claims during the assessment process, including deductions under Section 36(1)(vii) for bad debts, write-offs from provisions for impaired assets, and deductions under Section 35D. The CIT(A) rejected these claims, stating they were not made in the original or revised returns but through a letter during assessment proceedings. The Tribunal, referencing the Bangalore Bench decision in Rakesh Singh v. ACIT and the Supreme Court’s judgment in Goetze (India) Ltd. v. CIT, held that appellate authorities have jurisdiction to entertain new claims and remanded the issues back to the CIT(A) for fresh consideration. 4. Addition under Section 14A regarding disallowance of expenditure related to exempt income: The Assessing Officer disallowed ?11,36,18,730 under Section 14A, arguing that the assessee could not prove that the funds used for earning exempt income were from interest-free sources. The CIT(A) deleted the addition, citing the Supreme Court’s decision in Maxopp Investment Ltd. v. CIT, which emphasized the need for apportionment of expenditure between taxable and non-taxable income. The Tribunal noted that similar issues were previously decided against the assessee by the jurisdictional High Court and upheld the disallowance under Section 14A, applying Rule 8D for the assessment year 2010-2011 onwards. Conclusion: The Tribunal dismissed the appeals related to the disallowance under Section 36(1)(viii) and the classification of rural branches under Section 36(1)(viia). It remanded the claims made during the assessment process for fresh consideration by the CIT(A). The Tribunal upheld the disallowance under Section 14A, aligning with the jurisdictional High Court’s earlier decisions. Consequently, the appeal by the Revenue was partly allowed, and the assessee’s appeal was partly allowed for statistical purposes.
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