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2022 (11) TMI 71 - AT - Income TaxAddition made on account of interest income on accrual basis instead of due basis - Tribunal was right in excluding from the total income of the Assessee Company the amount of interest which had accrued, but not fallen due or received - HELD THAT - Similar views were expressed in assessee s own case for the A.Ys. 2002-03 and 2004-05 respectively. Disallowance made on account of ESOP expenditure - HELD THAT - This issue is no longer res integra in view of the decision of this Tribunal in assessee s own case for the A.Ys. 2011-12 2012-13 2019 (2) TMI 1713 - ITAT MUMBAI Disallowance u/s 14A - HELD THAT - We hold that the ld. CIT(A) grossly erred in misinterpreting the said decision of Hon ble Supreme Court. Accordingly, we direct the ld. AO to completely delete the disallowance made u/s 14A of the Act in respect of both second and third limbs of Rule 8D(2) of the Rules. Accordingly, the Ground raised by the revenue is dismissed. Disallowance on account of broken period interest - HELD THAT - This issue is no longer res integra in view of the decision of Hon ble Jurisdictional High Court in assessee s own case 2019 (4) TMI 1488 - BOMBAY HIGH COURT assessee, however, argued that there was separate interest component payment of which was an allowable deduction. Tribunal having accepted the assessee s contention, the Revenue is in the appeal before us. This issue is no longer res integra. Division Bench of this Court in case of CIT Vs. HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT had ruled in favour of the assessee. We are informed that the appeal against such judgement of the High Court was also dismissed by the Supreme Court. In the result, the Income Tax Appeal is dismissed. Allowance of deduction u/s 36(1)(viia) restricted by reducing the amount of advances to the rural branches, population of which was more than 10000 as per census report 2011 - HELD THAT - We find from perusal of the aforesaid decision of Hon ble Apex Court, it only talks about provision made for Non-Performing Assets (NPAs) by a Non-Banking Finance Company (NBFC) in accordance with prudential norms for income recognition and asset classification prescribed by the RBI. It also addressed the fact that NPA provisions were allowable at a certain percentage of advances as deduction in the Act in respect of banks and that the said provision cannot be extended to NBFCs. As held that RBI guidelines are not binding on the revenue. In our considered opinion, the said decision is factually distinguishable with that of the facts before us. In the instant case before us, it is an admitted fact that even as per the definition of rural branch as given in Explanation to Section 36(1)(viia) the relevant figures of village wise population details were not published on or before 01/04/2013. Hence even as per the Act, the assessee could not have computed the provision as per the Census data of 2011. Hence assessee was justified in making provision based on Census data of 2001 where village wise population details were indeed available in public domain. Accordingly, we do not find any infirmity in the order of the CIT(A) granting relief to the assessee in this regard. Accordingly, Ground No. 5 raised by the revenue is dismissed. Disallowance made u/s.14A - HELD THAT - Disallowance u/s.14A of the Act could not be made in respect of investments held as stock in trade‟ by the assessee bank in view of the CBDT Circular No.18/2015 dated 02/11/2015 and in view of the decision of the Hon ble Supreme Court in the case of Maxopp Investments 2018 (3) TMI 805 - SUPREME COURT the ground raised by the assessee is hereby allowed. Recognition of interest income on non-performing assets which in the opinion of the assessee is not in accordance with RBI guidelines - HELD THAT - It is a fact that this interest income on non-performing assets had been brought to tax by the ld. AO on accrual basis ignoring the RBI prudential norms for income recognition wherein, it has been stipulated that income from non-performing assets could be recognized only on receipt basis and not on mercantile basis. The ld. AO had applied the provisions of Section 43D of the Act and sought to bring to tax the interest income of non-performing assets on accrual basis. This issue is no longer res-integra in view of the decision in the case of Vasisth Chay Vyapar Ltd. 2010 (11) TMI 88 - DELHI HIGH COURT wherein the decision of the Hon ble Delhi High Court in the same case was duly confirmed by the Hon ble Supreme Court - that the interest income onNon-Performing Assets (NPAs) could be brought to tax only on receipt basis in line with the RBI prudential norms. Disallowance on bad debts made by the AO pertaining to credit card business claimed by the assessee on the ground that credit card business was not banking business of the assessee - HELD THAT - Credit card business according to the RBI master circular is a permissible banking business activity provided under Banking Regulation Act and hence, it could be safely construed that credit card business is part and parcel of the banking business carried on by the assessee bank. We find that VISA and Master Card only act as service provider. The monies are lent by the assessee bank. The entire risk of bad debts thereon is borne by the assessee bank and not the service providers. Claim of bad debts to be routed through provision for bad and doubtful debts account would be relevant if the provision is created u/s.36(1)(viia) - assessee duly drew our attention from the computation of income that total amount of bad debts is reduced by the amount of brought forward provision for bad and doubtful debts claimed u/s.36(1)(viia) of the Act in the preceding previous year and only the balance amount was claimed as deduction as bad debts u/s.36(1)(vii) - In this regard, we have verified the computation of income of the paper book. We have also gone through the workings for bad debts written off enclosed in page 43 of the paper book. Hence, it is observed that the bad debts arising from credit card business is part and parcel of total bad debts reflected by the assessee. Hence, we have no hesitation to hold that bad debts arising from credit card business would be part and parcel of loss arising in the course of banking business and hence liable as deduction u/s.36(1)(vii) - Accordingly, the ground No.4 raised by the assessee is allowed. Alternative claim made by the assessee on without prejudice basis, that in case if the said bad debt arising from credit card business is not allowable u/s.36(1)(vii) the said loss would become allowable u/s.28 or u/s 37 of the Act. In our considered opinion, the adjudication of this alternative ground would be infructuous as we have already granted relief to the assessee for ground hereinabove.
Issues Involved:
1. Deletion of addition made on account of interest income on accrual basis. 2. Deletion of disallowance made on account of ESOP expenditure. 3. Deletion of disallowance made under Section 14A of the Income Tax Act. 4. Deletion of disallowance on account of broken period interest. 5. Deletion of allowance of deduction under Section 36(1)(viia) of the Income Tax Act. 6. Confirmation of disallowance of software expenses. 7. Recognition of interest income on non-performing assets. 8. Confirmation of disallowance of bad debts related to credit card business. 9. Alternative claim for bad debts under Section 28 or Section 37 of the Income Tax Act. 10. Delay in filing cross objections by the assessee. Issue-wise Detailed Analysis: 1. Deletion of Addition Made on Account of Interest Income on Accrual Basis: The revenue challenged the deletion of addition made on account of interest income on an accrual basis. The tribunal referred to the Hon'ble Jurisdictional High Court's decision in the assessee's own case for A.Y. 2000-01, which excluded interest that had accrued but not fallen due or received from the total income. Similar views were expressed for A.Ys. 2002-03 and 2004-05. Respectfully following these decisions, the tribunal dismissed the revenue's ground. 2. Deletion of Disallowance Made on Account of ESOP Expenditure: The revenue contested the deletion of disallowance of ESOP expenditure. The tribunal referred to its own decision in the assessee's case for A.Ys. 2011-12 and 2012-13, where it was held that ESOP expenses were allowable expenses. Following this precedent, the tribunal dismissed the revenue's ground. 3. Deletion of Disallowance Made Under Section 14A of the Income Tax Act: The revenue challenged the deletion of disallowance under Section 14A. The tribunal observed that the assessee earned exempt income and did not disallow any expenditure under Section 14A. The CIT(A) deleted the disallowance of interest made under Rule 8D(2)(ii) but upheld the disallowance under Rule 8D(2)(iii). The tribunal referred to the Supreme Court's decision in Maxopp Investments, which held that investments held as stock in trade by banks are not liable for disallowance under Section 14A. Thus, the tribunal directed the AO to delete the disallowance and dismissed the revenue's ground. 4. Deletion of Disallowance on Account of Broken Period Interest: The revenue contested the deletion of disallowance on broken period interest. The tribunal referred to the Hon'ble Jurisdictional High Court's decision in the assessee's own case, which allowed the deduction of broken period interest. Following this decision, the tribunal dismissed the revenue's ground. 5. Deletion of Allowance of Deduction Under Section 36(1)(viia) of the Income Tax Act: The revenue challenged the deletion of allowance of deduction under Section 36(1)(viia). The tribunal noted that the relevant figures of village-wise population details were not published before 01/04/2013. The CIT(A) granted relief to the assessee based on RBI guidelines, which mandated the use of final census data of 2011 only after 01/09/2016. The tribunal upheld the CIT(A)'s order, dismissing the revenue's ground. 6. Confirmation of Disallowance of Software Expenses: The assessee did not press the ground regarding the disallowance of software expenses due to the smallness of the amount. The tribunal dismissed this ground as not pressed. 7. Recognition of Interest Income on Non-Performing Assets: The assessee contested the addition of interest income on non-performing assets. The tribunal referred to the Supreme Court's decision in Vasisth Chay Vyapar Ltd., which held that interest income on NPAs should be recognized on a receipt basis in line with RBI prudential norms. Following this decision, the tribunal allowed the assessee's ground. 8. Confirmation of Disallowance of Bad Debts Related to Credit Card Business: The assessee challenged the disallowance of bad debts related to credit card business. The tribunal observed that the credit card business is part of the banking business as per RBI guidelines. Since the income from credit card business was taxed as business income, the bad debts arising from it were allowable under Section 36(1)(vii). The tribunal allowed the assessee's ground. 9. Alternative Claim for Bad Debts Under Section 28 or Section 37 of the Income Tax Act: The assessee made an alternative claim for bad debts under Section 28 or Section 37. Since the tribunal allowed the bad debts under Section 36(1)(vii), this ground became infructuous and was not adjudicated. 10. Delay in Filing Cross Objections by the Assessee: The assessee filed cross objections with a delay of 345 days, attributed to the Covid-19 pandemic. The tribunal condoned the delay and admitted the cross objections for adjudication. Conclusion: The tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals and cross objections for statistical purposes. The decisions rendered for A.Y. 2014-15 were applied mutatis mutandis for A.Y. 2015-16.
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