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2023 (11) TMI 1146 - AT - Income TaxDisallowance u/s. 14A r.w.s. Rule 8D being expenditure incurred towards earning exempt income - AO noted that the assessee has claimed exemption u/s. 10(34) towards dividend and interest on tax free bonds u/s. 10 - assessee made an adhoc disallowance in relation to income not forming part of total income under proportionate expenditure of treasury department in terms of section 14A - HELD THAT - This issue has been settled by the Hon ble jurisdictional High Court in assessee s own case for AY 2011-12 2012-13 2021 (2) TMI 1366 - KARNATAKA HIGH COURT as held assessee has admittedly not incurred any expenditure. This case pertains to income on dividend, which by no stretch of imagination can be treated to be an expenditure to attract the provisions of Section 14A of the Act. In view of aforesaid enunciation of law by WALFORT SHARE AND STOCK BROKERS (P) LTD 2010 (7) TMI 15 - SUPREME COURT substantial question of law framed by this court is answered in favour of the assessee and against the revenue. Disallowance u/s. 36(1)(vii) in respect of bad debts written off by the bank - AO noted that the assessee claimed deduction of bad debts without actually writing-off the debts as irrecoverable in the individual accounts of the debtors concerned - HELD THAT - We notice that the from the decisions of the coordinate Bench quoted by the assessee in AY 2014-15 2022 (3) TMI 134 - ITAT BANGALORE as careful reading of 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 of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/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) - Decided in favour of assessee. Disallowance u/s. 36(1)(viia) - calculating average aggregate advances of rural branches - AO noted that the bank has claimed a sum as deduction in respect of provision made for bad doubtful debts u/s. 36(1)(viia) and computed 10% of aggregate average advances (AAA) of the rural branches 7.5% of the total income before 36(1)(viia) provisions created in the books - AO held that only fresh advances made during the month by the rural branches should be considered for computing the AAA as per Rule 6ABA and observed certain discrepancies in the classification of rural branches by the assessee bank that 37 branches could not be classified as rural branches, as the population as per Census 2011 exceeds 10,000 in those areas, and accordingly held that incremental advances made by non-rural branches shall be excluded for computation the AAA. - HELD THAT - We find that this issue was considered by this Tribunal in the latest judgement in assessee s own case for AYs 2014-15 2015-16 in 2023 (11) TMI 1022 - ITAT BANGALORE to hold that the while calculating average aggregate advances of rural branches under section 36(1)(viia), both advance outstanding as well as fresh advances are to be considered. We further note that AO has reverted a clear factual finding in the assessment order that population in these 37 branches exceeded ten thousand as per Census 2011. Before that CIT (A) the assessee could not produce credible evidence. Considering the totality of facts, we remit this issue to the CIT(A) for verification of population of 2011 Census of 37 branches and the assessee is directed to produce the documentary evidence in support of its claim. Accordingly this ground is partly allowed for statistical purpose. Applicability of provisions of section 115JB of the Act to the assessee bank - corresponding new bank - case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a banking company , i.e., it is a corresponding new bank - HELD THAT - This issue also considered by this Tribunal in the latest judgement in assessee s own case for AYs 2014-15 2015-16 2023 (11) TMI 1022 - ITAT BANGALORE as held the issue has been decided as stating provisions of sec. 51 of the Act specifically states that only certain provisions of BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec. 51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of banking company , provisions of sec. 211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh - Thus we remit this issue also to the file of CIT(A) for fresh consideration and decision as per law in the same terms. Allowable revenue expenses - expenditure by way of penalty for violation of RBI directions - AR submitted that the amount paid to RBI was in the ordinary course of business and he further requested that the matter may be sent back to the CIT(A) for submitting necessary details, while the ld. DR supported their orders - HELD THAT - After considering the rival submissions, we note that the assessee admitted that penalty was imposed by RBI for lapses on the part of the bank in adhering to KYC norms and deficiencies in internal control mechanism. The lower authorities held that penalty imposed for infraction of law is not an admissible expenditure. Accepting the prayer of the assessee, we remit this issue to the CIT(A) for fresh decision as per after giving proper opportunity to assessee. The assessee is also directed to furnish necessary documents in support of its claim.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D for AY 2016-17 and AY 2017-18. 2. Disallowance under Section 36(1)(vii) for AY 2016-17 and AY 2017-18. 3. Disallowance under Section 36(1)(viia) for AY 2016-17 and AY 2017-18. 4. Disallowance of loss on surrender of leased premises. 5. Disallowance of club expenses. 6. Disallowance of write-off of small value items. 7. Applicability of Section 115JB (Minimum Alternate Tax) to the assessee bank for AY 2016-17 and AY 2017-18. 8. Disallowance of penalty paid to RBI for AY 2017-18. Summary: 1. Disallowance under Section 14A read with Rule 8D: - AY 2016-17: The AO disallowed Rs. 45,95,01,000 under Section 14A read with Rule 8D, noting that the assessee had claimed exemption on dividend and interest from tax-free bonds. The assessee argued that its investments were stock-in-trade and no additional expenditure was incurred to earn exempt income. The Tribunal, following jurisdictional High Court decisions, ruled in favor of the assessee, stating no disallowance under Section 14A can be made. - AY 2017-18: The AO disallowed Rs. 16,69,17,498 under Section 14A read with Rule 8D. The Tribunal followed the decision for AY 2016-17 and ruled in favor of the assessee. 2. Disallowance under Section 36(1)(vii): - AY 2016-17: The AO disallowed Rs. 1296,71,17,882, stating the assessee did not write off bad debts in individual accounts and did not charge the amount to the provision for bad and doubtful debts. The Tribunal, following earlier decisions, ruled in favor of the assessee, directing the AO to delete the disallowance. - AY 2017-18: The AO disallowed Rs. 2764,48,53,742 on similar grounds as AY 2016-17. The Tribunal followed the decision for AY 2016-17 and ruled in favor of the assessee. 3. Disallowance under Section 36(1)(viia): - AY 2016-17: The AO disallowed Rs. 1498,66,51,713, considering only incremental advances for computing Aggregate Average Advances (AAA). The Tribunal ruled that both outstanding and fresh advances should be considered and remitted the issue to the CIT(A) for verification. - AY 2017-18: The AO disallowed Rs. 1602,41,43,074 on similar grounds as AY 2016-17. The Tribunal followed the decision for AY 2016-17 and ruled in favor of the assessee. 4. Disallowance of Loss on Surrender of Leased Premises: - AY 2016-17: The AO disallowed Rs. 14,64,961, treating the lease as a capital asset. The Tribunal did not specifically address this issue in the provided text. 5. Disallowance of Club Expenses: - AY 2016-17: The AO disallowed Rs. 1,38,637, stating the expenses were not for business purposes. The Tribunal did not specifically address this issue in the provided text. - AY 2017-18: The AO disallowed Rs. 1,05,495 on similar grounds. The Tribunal dismissed this ground as not pressed by the assessee. 6. Disallowance of Write-off of Small Value Items: - AY 2016-17: The AO disallowed Rs. 4,01,907, stating the write-off pertained to small value items. The Tribunal did not specifically address this issue in the provided text. 7. Applicability of Section 115JB (Minimum Alternate Tax): - AY 2016-17: The AO applied Section 115JB, which the assessee contested, arguing it was not a company under the Companies Act. The Tribunal remitted the issue to the CIT(A) for fresh consideration. - AY 2017-18: The AO applied Section 115JB on similar grounds as AY 2016-17. The Tribunal followed the decision for AY 2016-17 and remitted the issue to the CIT(A). 8. Disallowance of Penalty Paid to RBI: - AY 2017-18: The AO disallowed Rs. 3,00,00,000 paid to RBI for non-compliance with KYC norms. The Tribunal remitted the issue to the CIT(A) for fresh decision after giving the assessee an opportunity to furnish necessary documents. Conclusion: The Tribunal ruled in favor of the assessee on several grounds, particularly disallowances under Sections 14A, 36(1)(vii), and 36(1)(viia), and remitted issues regarding Section 115JB and penalty paid to RBI for further consideration by the CIT(A). The disallowance of club expenses for AY 2017-18 was dismissed as not pressed.
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