2020 (6) TMI 310 - AT - Income Tax

Disallowance of depreciation in respect of assets given on lease - assets given on lease under its equipment leasing business - HELD THAT - As relying on assessee's own case 2019 (6) TMI 1123 - ITAT MUMBAI even in cases of financial leases , the depreciation allowance contemplated under Section 32(1) of the Act is allowable to the lessor. It has not been shown by the Ld. CIT-DR that any of such precedents in assessee s own case has been altered by any higher authority. Therefore, so far as this aspect of the matter is concerned, we do not find any hesitation in directing the Assessing Officer to allow the claim of depreciation on lease of assets where it involves financial lease . - Decided in favour of assessee. Disallowing the expenditure claimed under Section 36(1)(iii) - HELD THAT - As relying on assessee's own case 2019 (6) TMI 1123 - ITAT MUMBAI IDBI General Regulations, 1994 prescribe for making investments in securities of Central and State Governments, we do not find any reason to uphold the stand of the income-tax authorities that such investments are not in the course of assessee s business. In fact, there is an apparent contradiction in the stand of the assessing authority inasmuch as the interest yielded by such investments is assessed as business income whereas the interest expenditure attributable to such investments has been sought to be treated as a non-business expenditure. Considering the aforesaid, we deem it fit and proper to set-aside the order of CIT(A) on this aspect and direct the Assessing Officer to allow the claim made by the assessee. - Decided in favour of assessee. Correct head of income - Profit on sale of shares of joint stock companies - Business income or capital gain - HELD THAT - Relying on assessee s own case 2019 (6) TMI 1123 - ITAT MUMBAI we direct the Assessing Officer to treat the profit on sale of investment as capital gains. Thus, assessee succeeds on this ground. Exemption under Section 10(23G) of the Act in respect of income from infrastructure business - HELD THAT - Relying on assessee s own case 2019 (6) TMI 1123 - ITAT MUMBAI we direct the A.O. to allow the deduction on gross basis, of cource after deducting the direct expenses attributable to earning such income. In the result, the assessee also succeeded on this ground. Disallowance of staff welfare expenses u/s. 40A(9) - HELD THAT - In the present case, we find merit in the arguments of the ld. AR that these were written back in the computation of income and actual expenses were claimed under Section 37(1) - As relying on M/S. STATE BANK OF INDIA 2019 (6) TMI 1183 - BOMBAY HIGH COURT set aside the order of CIT(A) and direct the Assessing Officer to allow the expenditure. - Decided against revenue. Claim of exemption u/s 10(33) - HELD THAT - In this case clearly the assessee s own funds are far more than the investments in shares and securities and, therefore, it can be presumed that the investments in shares and securities is made out of own and interest free funds available with the assessee. As relying on HDFC BANK LTD. 2014 (8) TMI 119 - BOMBAY HIGH COURT set aside the order of CIT(A) on this issue and direct the Assessing Officer to delete the disallowance. Since we have allowed the relief to the assessee on the plea that own funds are more than amount of investments, therefore, the other pleas raised by the assessee need not be adjudicated. Taxing the interest on sticky loans as per Section 43D - HELD THAT - In the present case, income has accrued in earlier year and, according to the assessee, since assessee was not liable for taxation in the earlier years, therefore, it was not offered to tax. Undisputedly, income has accrued in the earlier years and since the provisions of Section 43D of the Act does not have any retrospective application, hence income prior to 1.4.1991 cannot be taxed. We find merit in the contentions of the assessee on this issue. Moreover, the case of assessee is squarely covered by the decision of Hon'ble Supreme Court of India in the case of State Bank of Travancore 1986 (1) TMI 1 - SUPREME COURT accordingly we direct the Assessing Officer to delete the addition on this count by setting aside the order of CIT(A). Disallowance of of dividend income under Section 80M - HELD THAT - Respectfully following the decision of our co-ordinate bench in the assessee s own case 2019 (6) TMI 1123 - ITAT MUMBAI the Assessing Officer is directed to restrict the disallowance under Section 80M of the Act to 1% of the dividend income. Thus, assessee succeeds on this ground of appeal as stated above. Disallowance of claim of bad debt by AO u/s 36(1)(vii) - as per AO said debt has not become bad and accordingly, he added the same to the income of assessee - HELD THAT - Appellant s claim of bad debt was as per provisions of the Act, since the appellant was in the business of money lending. The appellant explained the circumstances for which the debts became unrecoverable and the debts were actually written off in the books of accounts. Moreover, whenever such written off debts were realized in future, the same were offered as income u/s. 41(4) of the Act. Therefore, the A.O was not justified in disallowing appellant s claim. Case followed TRF. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT . MAT applicability u/s 115JB - HELD THAT - Since the assessee is a banking company the provisions of section 115JB was not applicable to a banking company, hence no income is assessable u/s.115JB. Interest paid u/s 201(1A) on TDS on payment by assessee - HELD THAT - Perusing the material on record, we find that the CIT(A) has allowed the appeal of assessee following the decision of Hon'ble Karnataka High Court in the case of CIT vs. Oriental Insurance Company Ltd. 2008 (10) TMI 230 - KARNATAKA HIGH COURT wherein it has been treated as in the nature of interest and hence admissible. However, we find that the jurisdictional High Court in the case of Ferro Alloys Corporation Ltd. vs CIT 1991 (12) TMI 39 - BOMBAY HIGH COURT has decided the issue against the assessee. We, therefore, respectfully following the decision of the jurisdictional High Court in the case of Ferro Alloys Corporation Ltd. (supra), reverse the order of CIT(A). Accordingly, the ground raised by the Revenue is allowed. Deduction u/s 36(1)(viii) of the Act on account of special reserve - CIT(A) allowed the deduction - HELD THAT - After hearing both the parties and perusing the material on record, we observe that the CIT(A) has passed a very reasoned and speaking order by sending back the issue to the file of Assessing Officer with the direction to take into account the reserve of ₹ 50 crores created by the appellant as the Assessing Officer has committed mistake in this regard. Accordingly, we do n Grant deduction under Section 36(1)(viia) - HELD THAT - Issue has cropped up following the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. 2012 (2) TMI 262 - SUPREME COURT that deduction under Section 36(1)(vii) and 36(1)(viia) of the Act are independent and assessee is entitled for both of them. Accordingly, we find merit in the legal contention of the assessee that assessee should be allowed deduction under Section 36(1)(viia) of the Act and are inclined to admit the additional ground raised by the assessee. However, the facts qua the said allowance needs to be examined at the level of the Assessing Officer as the Assessing Officer has not examined this issue in the assessment proceedings. Disallowance under Section 14A r.w.r. 8D - HELD THAT - Since we have already decided this issue in para 26 of this order wherein we have held that assessee s own funds was far more than the investments in shares and securities and, therefore, the investments in shares and securities were made out of own funds available with the assessee and deleted the disallowance, our finding in the said para would apply to these three years also on the issue of disallowance under Section 14A of the Act. Accordingly, the Assessing Officer is directed to delete the addition and assessee succeeds on this ground of appeal.

Summary

Issues Involved:
1. Disallowance of depreciation on leased assets.
2. Disallowance of expenditure under Section 36(1)(iii) of the Income Tax Act.
3. Treatment of profit on sale of shares as business income.
4. Restriction of exemption under Section 10(23G) of the Income Tax Act.
5. Disallowance of staff welfare expenses under Section 40A(9).
6. Exemption under Section 10(33) of the Income Tax Act.
7. Taxation of interest on sticky loans under Section 43D.
8. Disallowance of deduction under Section 80M.
9. Disallowance of bad debts under Section 36(1)(vii).
10. Applicability of MAT provisions.
11. Allowance of interest paid under Section 201(1A) on TDS.
12. Deduction under Section 36(1)(viii) on account of special reserve.
13. Additional ground for deduction under Section 36(1)(viia).
14. Disallowance under Section 14A read with Rule 8D.

Detailed Analysis:

1. Disallowance of Depreciation on Leased Assets:
The Tribunal noted that the issue of depreciation on leased assets was already adjudicated in favor of the assessee in previous years, specifically in ITA No. 3626/Mum/2001 for AY 1997-98. The Tribunal directed the Assessing Officer to allow the claim of depreciation on lease of assets where it involves "financial lease." The Tribunal set aside the order of the CIT(A) and allowed the ground raised by the assessee for all relevant assessment years.

2. Disallowance of Expenditure under Section 36(1)(iii):
The Tribunal observed that the issue of disallowance under Section 36(1)(iii) was covered in favor of the assessee by the decision in ITA No. 3626/Mum/2001 for AY 1997-98. The Tribunal directed the Assessing Officer to allow the interest expenditure claimed by the assessee, as the investments were made in the course of business activities. The Tribunal allowed the ground raised by the assessee and dismissed the ground raised by the Revenue.

3. Treatment of Profit on Sale of Shares as Business Income:
The Tribunal noted that the issue was covered in favor of the assessee by the decision in ITA No. 3626/Mum/2001 for AY 1997-98. The Tribunal directed the Assessing Officer to treat the profit on sale of investment as capital gains, as it was consistently accepted from AY 2002-03 onwards. The Tribunal allowed the ground raised by the assessee.

4. Restriction of Exemption under Section 10(23G):
The Tribunal observed that the issue was covered by the decision in ITA No. 3626/Mum/2001 for AY 1997-98. The Tribunal directed the Assessing Officer to allow the deduction under Section 10(23G) on a gross basis, after deducting direct expenses attributable to earning such income. The Tribunal allowed the ground raised by the assessee.

5. Disallowance of Staff Welfare Expenses under Section 40A(9):
The Tribunal noted that the expenses were incurred for staff welfare and were allowable under Section 37(1) of the Act. The Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of PCIT vs State Bank of India, which allowed similar expenses. The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the expenditure. The Tribunal allowed the ground raised by the assessee and dismissed the ground raised by the Revenue.

6. Exemption under Section 10(33):
The Tribunal observed that the assessee's own funds were far more than the investments in shares and securities. The Tribunal relied on the decisions of the Hon'ble Bombay High Court in CIT vs HDFC Bank Ltd. and CIT vs Reliance Utilities & Power Ltd., which held that investments made out of own funds are not subject to disallowance. The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the disallowance. The Tribunal allowed the ground raised by the assessee.

7. Taxation of Interest on Sticky Loans under Section 43D:
The Tribunal noted that Section 43D was introduced w.e.f. 1.4.1991 and does not have retrospective application. The Tribunal relied on the decision of the Hon'ble Supreme Court in CIT vs State Bank of Travancore, which held that income accrued in earlier years cannot be taxed twice. The Tribunal directed the Assessing Officer to delete the addition. The Tribunal allowed the ground raised by the assessee.

8. Disallowance of Deduction under Section 80M:
The Tribunal observed that similar disallowances were restricted to 1% of dividend income in earlier years. The Tribunal directed the Assessing Officer to restrict the disallowance under Section 80M to 1% of the dividend income. The Tribunal allowed the ground raised by the assessee.

9. Disallowance of Bad Debts under Section 36(1)(vii):
The Tribunal noted that the assessee fulfilled the conditions for claiming bad debts under Section 36(1)(vii). The Tribunal relied on the decision of the Hon'ble Supreme Court in T.R.F Ltd. vs CIT, which held that once bad debts are written off in the books, they are allowable. The Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the Revenue.

10. Applicability of MAT Provisions:
The Tribunal observed that the provisions of Section 115JB were not applicable to banking companies for the relevant assessment years. The Tribunal relied on the decision in assessee's own case for AY 2004-05. The Tribunal set aside the order of the CIT(A) and allowed the ground raised by the assessee.

11. Allowance of Interest Paid under Section 201(1A) on TDS:
The Tribunal noted that the jurisdictional High Court in Ferro Alloys Corporation Ltd. vs CIT decided the issue against the assessee. The Tribunal reversed the order of the CIT(A) and allowed the ground raised by the Revenue.

12. Deduction under Section 36(1)(viii) on Account of Special Reserve:
The Tribunal observed that the CIT(A) directed the Assessing Officer to allow the deduction after verifying the creation of the special reserve. The Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the Revenue.

13. Additional Ground for Deduction under Section 36(1)(viia):
The Tribunal admitted the additional ground raised by the assessee following the decision of the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. vs CIT. The Tribunal restored the issue to the Assessing Officer for examination. The Tribunal allowed the additional ground for statistical purposes.

14. Disallowance under Section 14A read with Rule 8D:
The Tribunal noted that the issue was already decided in favor of the assessee in para 26 of the order, where it was held that the investments were made out of own funds. The Tribunal directed the Assessing Officer to delete the disallowance. The Tribunal allowed the ground raised by the assessee.

Conclusion:
- Appeals of the assessee for assessment years 1998-99 to 2007-08, 2009-10, and 2010-11 are allowed.
- Appeal of the assessee for assessment year 2008-09 is partly allowed for statistical purposes.
- Appeals of the Revenue for assessment years 2002-03 to 2006-07 are dismissed.
- Appeal of the Revenue for assessment year 2007-08 is partly allowed.