2022 (4) TMI 147 - AT - Income Tax

Disallowance u/s 14A applying Rule 8D(2)(iii) - HELD THAT - The assessee is a Nationalized Bank and the issue is squarely covered in its favour by the order of the Co-ordinate Bench 2018 (12) TMI 50 - ITAT DELHI where shares were held as stock-in-trade and therefore it becomes business activity of assessee - We allow this ground raised by assessee and hold that these were not investments made by assessee in order to fall within the ambit of Rule 8D (iii) - Decided against revenue. Addition being software expenses alleging it to be capital in nature as against the claim of the assessee that the same should be allowed as revenue expenditure - HELD THAT - As decided in own case 2018 (4) TMI 1534 - DELHI HIGH COURT mere circumstance that the depreciation rate is spelt out in the Schedule to the Income-tax Act, is not conclusive as to the nature of the expenditure and whether it resulted an enduring advantage to a particular assessee - Taking these into account and that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, the question of law framed is to be answered in favour of the assessee. Disallowance u/s 36(1)(viia) on provision for bad and doubtful debts - HELD THAT - As decided in own case 2017 (11) TMI 1589 - ITAT DELHI as section 36(1)(viia) grants deduction in respect of total provision for bad and doubtful debts and the same is not confined to provision for rural branches only, we hold that the quantum of deduction has to be seen in the light of the total amount of provision consisting of both rural and nonrural branches.action taken by the Id. CIT(A) in reducing the amount of deduction to the extent of provision for bad and doubtful debts in respect of rural branches alone, becomes unsustainable. We, therefore, direct that deduction be allowed u/s 36(1)(viia) - Appeal of assessee allowed. Allowability of deduction being amortization of premium on HTM securities - HELD THAT - Issue decided in favour of assessee in own case 2017 (11) TMI 1589 - ITAT DELHI - The Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Limited 2014 (7) TMI 997 - BOMBAY HIGH COURT confirmed the ITAT Order wherein the claim of bank as deduction of amortized premium and HTM securities was allowed. Allowance of depreciation on temporary wooden structure at 100% - HELD THAT - The above ground of the department has to be dismissed as it is a covered matter in favour of the assessee by the order of the Co-ordinate Bench of ITAT in 2015 (11) TMI 861 - ITAT DELHI Deduction u/s 36(1)(vii) - HELD THAT - Deduction u/s 36(1)(vii) will be limited only in those cases where such bad debt exceeds provision u/s 36(1)(viia). That means there should be a debt against which a provision u/s 36(1)(viia) should exist and such debt is a subject matter of write off u/s 36(1)(vii). Under such circumstance only the excess will be allowed. Whereas as per the facts accepted by the AO in his order and also by the ld. CIT(A), a separate debit in the profit loss account of ₹ 315.00 crores in respect of debts which are listed by the ld. CIT(A) at page no.64 has been claimed as written off u/s 36(1)(vii) against which there has been no claim u/s 36(1)(viia). There is no double claim made by the assessee nor there are any such findings by the AO or by the ld. CIT(A). The assessee submitted that all these bad debts are relating to advances which are reduced from the loans advances and no deduction against such provisions has been claimed by the assessee in any of the assessment year u/s 36(1)(viia) of the Income Tax Act. CIT(A) for the A.Y. 2015-16 accepted factual position that the sum of ₹ 315.00 crores reduced from the loans advances and thus the principle of the Hon ble Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT for write off u/s 36(1)(vii) duly satisfied. Therefore, in assessee s case also, it is an actual write off in view of the decision of the Hon ble Supreme Court, this issue is fully covered in favor of assessee. The appeal of the assessee is hereby allowed on this ground. Tax liability as per MAT provisions - Non-applicability of section 115JB to the Banking Companies - HELD THAT - The plea of the assessee with respect to non-applicability of section 115JB to the Banking Companies was rejected in the case of Bank of India vs. ACIT Mumbai 2020 (12) TMI 862 - ITAT MUMBAI There is no jurisdictional High Court decision or for that matter any other High Court decision against the assessee. In view of the fact that two use are possible, the view that favour the assessee may kindly be considered, more so in the case of a Nationalized Bank as held by the Hon ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT - Even if it is considered that book profit provisions would apply to the assessee bank, the adjustments carried out by the AO is not possible under the book profit computation as provided under Explanation to section 115JB of the Act. Tax liability as per MAT provisions will be on the book profits, as increased by the amounts, if any, from items (a) to (j) and reduced by the items from (i) to (viii). Therefore there are specified adjustments which can only be made to the net profits as per profit loss account. Since this is a section wherein the assessee is taxed by a deeming fiction, it has to be strictly construed and no adjustments are possible other than what is mentioned in the Explanation. Owing to the provisions of the Act that amended, we hereby allow the appeal on this ground. Bad and Doubtful Debts reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to section 115JA or 115JB - HELD THAT - The assessee being a banking company; even there are specific provisions in the Income Tax Act, 1961 u/s 36(1)(viia) which allows deduction to the banks in respect of provisions made for bad and doubtful debts. The Income Tax Act has considered this peculiarity in the case of banking industry and has allowed deduction on the basis of provision whereas under normal circumstances, any provision made in the books is not allowed as deduction. The fact that the provisions of Section 115JB are now allowing the profit loss account to be prepared in accordance with the regulatory act under which the bank operates, all provisions as mandated by RBI and duly recorded in the books should be allowed. Also when in the Income Tax Act itself the deduction is allowed to the assessee, it cannot be held that the computation under book profit provisions contemplated addition of such claim under the garb of provision for diminution in the value of assets. Therefore also the addition made by the AO on this ground is directed to be deleted as it is not an adjustment contemplated u/s 115JB of the Act. Loss on amortization of investment - HELD THAT - The loss on amortization is neither a provision nor a reserve and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. The AO has wrongly considered the same as falling within the preview of Clause (i) to the Explanation 1 to Sec. 115JB(2) whereas the same is not a provision for diminution in the value of assets. It is the actual loss on amortization of investments and the same is allowed under the Income Tax Act, 1961 under normal provisions also as held by Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT elaboratly explained while dealing with the grounds on allowing the amortization of HTM investment as allowable business deduction u/s, 37(1) of the Income Tax Act. Hence, the same cannot be considered for the MAT computation. Provision for Bonus - Assessee submitted that the liability of bonus arises every year and based on the same, provision is made in the books of accounts to meet the bonus liability, therefore the same is an ascertained liability - HELD THAT - The liability is in present case though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. Therefore provision for bonus made is an ascertained liability and cannot be added in the net profit for arriving book profits. Leave Encashment, LTC Gratuity - HELD THAT - The above provisions are made on actuarial valuation basis therefore the same are in the nature of ascertained liability and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. Therefore there is no question of making any addition to the book profits. Hence, the addition made on account to be deleted - Incurring of liability is the ground for allowability of deduction quantification may not be possible. In such cases the liability is present liability to be discharged in future and cannot be considered as contingent or unascertained liability. See BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX 2000 (8) TMI 4 - SUPREME COURT - thus there is no addition can be made to the book profits. Provision for Wealth Tax - HELD THAT - As while arriving at the book profit for MAT computation u/s 115JB, inadvertently, the assessee bank has added an amount in respect of provision for Wealth Tax. The same is not covered by any of the items from (a) to (j) of the above explanation to section 115JB. Therefore the same cannot form part of book profits. Expenditure of Capital Nature and Prior Period Expenditure - HELD THAT - The Hon ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 2002 (5) TMI 5 - SUPREME COURT has held that the AO is bound to accept the profit loss account prepared in terms of the provisions of the Companies Act and can make adjustment which are mentioned in the section 115JB and not beyond. Prior period expenses do not fall under any of the category for making adjustment by way of addition to the net profit. In assessee s case the amount is debited in the Profit Loss account and the same is not covered by any clause of addition of the Explanation to section 115JB Expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profit u/s 115JB - See VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI Interest on Overdue Deposits - HELD THAT - This is the ascertained liability of the bank and has been duly accounted. Therefore the interest on overdue deposit, being an ascertained liability does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. Hence, it cannot be considered for the MAT computation.

Summary

Issues Involved:
1. Disallowance under Section 14A.
2. Software expenses as capital or revenue expenditure.
3. Disallowance under Section 36(1)(viia).
4. Amortization of premium on HTM securities.
5. Depreciation on temporary wooden structures.
6. Interest on overdue deposits.
7. Deduction under Section 36(1)(vii).
8. Applicability of MAT provisions under Section 115JB.
9. Provisions for bad and doubtful debts.
10. Provision for bonus.
11. Leave encashment, LTC, and gratuity.
12. Provision for wealth tax.
13. Expenditure of capital nature and prior period expenditure.

Detailed Analysis:

1. Disallowance under Section 14A:
The issue pertains to the disallowance of ?5.46 crores under Section 14A applying Rule 8D(2)(iii). The assessee argued that the bank had sufficient non-interest-bearing funds and all expenses were for banking business, with investments held as stock-in-trade. The AO applied Rule 8D without recording satisfaction for rejecting the assessee's claim. The CIT(A) upheld the disallowance partially. The Tribunal referenced the Supreme Court's decision in Maxopp Investment vs. CIT, confirming that such investments are part of the banking business and not subject to Rule 8D(iii). The disallowance under Section 14A was deleted.

2. Software Expenses:
The issue involves the addition of ?16,15,97,772/- as software expenses, which the AO considered capital in nature. The Tribunal referred to the Delhi High Court's decision in the assessee's case, which treated such expenses as revenue expenditure. The Tribunal upheld this view, dismissing the department's appeal.

3. Disallowance under Section 36(1)(viia):
The AO limited the deduction under Section 36(1)(viia) to ?729,44,85,300/-, while the assessee claimed ?843,95,06,510/-. The CIT(A) allowed the claim partially. The Tribunal referenced its earlier decision, allowing the full deduction claimed by the assessee, thus granting relief for the excess amount.

4. Amortization of Premium on HTM Securities:
The assessee claimed a deduction of ?30,74,50,811/- for amortization of premium on HTM securities, which the CIT(A) dismissed. The Tribunal referred to the Bombay High Court's decision in CIT vs. HDFC Bank Ltd., which allowed such deductions. The Tribunal directed the AO to consider the claim, allowing the assessee's appeal.

5. Depreciation on Temporary Wooden Structures:
The AO disallowed 100% depreciation on temporary wooden structures. The Tribunal noted that the issue was covered in favor of the assessee by earlier ITAT orders, directing the AO to allow the claim.

6. Interest on Overdue Deposits:
The issue was covered by the Delhi High Court's decision in the assessee's favor. The Tribunal dismissed the revenue's appeal on this ground.

7. Deduction under Section 36(1)(vii):
The AO disallowed the deduction claimed under Section 36(1)(vii) for bad debts of ?315 crores. The Tribunal referenced the Supreme Court's decision in Vijaya Bank vs. CIT, confirming the deduction for actual write-offs. The Tribunal allowed the assessee's appeal.

8. Applicability of MAT Provisions under Section 115JB:
The assessee contended that MAT provisions under Section 115JB do not apply to nationalized banks. The Tribunal referenced various High Court decisions, including the Bombay High Court's ruling in CIT vs. Union Bank of India, confirming that Section 115JB does not apply to banking companies. The Tribunal allowed the assessee's appeal on this ground.

9. Provisions for Bad and Doubtful Debts:
The Tribunal noted that the provisions for bad and doubtful debts were made as per RBI regulations and reduced from loans and advances. Citing the Supreme Court's decision in Vijaya Bank vs. CIT, the Tribunal held that such provisions do not fall under the adjustments specified in Section 115JB and allowed the assessee's claim.

10. Provision for Bonus:
The Tribunal held that the provision for bonus is an ascertained liability and should not be added to the book profits under Section 115JB. The Tribunal allowed the assessee's appeal on this ground.

11. Leave Encashment, LTC, and Gratuity:
The Tribunal held that provisions for leave encashment, LTC, and gratuity, made on actuarial valuation, are ascertained liabilities and should not be added to the book profits under Section 115JB. The Tribunal allowed the assessee's appeal on this ground.

12. Provision for Wealth Tax:
The assessee inadvertently added the provision for wealth tax to the book profits. The Tribunal held that it does not fall under the adjustments specified in Section 115JB and directed its exclusion from the book profits.

13. Expenditure of Capital Nature and Prior Period Expenditure:
The Tribunal held that such expenditures do not fall under the adjustments specified in Section 115JB and should not be added to the book profits. The Tribunal allowed the assessee's appeal on this ground.

Conclusion:
The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The Tribunal's decision provided comprehensive relief to the assessee on all grounds of dispute.