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2024 (11) TMI 1188 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - As the exempt income earned by the assessee is out of the shares/stock held as stock-in-trade, therefore respectfully following the above decision of the Co-ordinate Bench in assessee's own case for AY 2014-15 2020 (11) TMI 1076 - ITAT MUMBAI , we direct the AO to delete the disallowance made u/s 14A r.w.r. 8D. Disallowance of interest paid on IPDI Bonds - interest is not admissible as a deduction u/s 36(1)(iii) for the reason that the bonds are of Perpetual nature, High Loss Absorption Capacity Provisions for write down of principal or conversion to equity on trigger and Discretionary pay out with existence of full coupon discretion - HELD THAT - We notice that the Co-ordinate Bench in the case of DCIT Vs. State Bank of India 2022 (9) TMI 1640 - ITAT MUMBAI has considered a similar issue and hold that the interest claimed by the assessee is allowable as deduction u/s 36(1)(iii) and the AO is directed to delete the disallowance made in this regard. Taxation of recovery of bad-debts - assessee has reduced an amount from its computation of total income on account of recovery in respect of accounts written off of Rural Branches - AO did not accept the submissions made by the assessee with regard to such adjustment held any recovery in respect of accounts written off of rural branches required to be added back in computation of income - HELD THAT - AR brought to our attention that a similar issue in assessee's own case for AY 2013-14 2024 (3) TMI 1371 - ITAT MUMBAI as clear that the AO has held the recovery to be taxable for the reason that the adjustment made to the provision is indirectly charged to P L A/c. This scenario is considered in the above decision and therefore respectfully following the same, we hold that the recovery of bad-debts which has not been claimed as a deduction u/s 36(1)(vii) in earlier years is not taxable. Accordingly, the AO is directed to delete the addition made in this regard. Applicability of provisions of section 115JB on assessee bank - HELD THAT -As in assessee's own case for AY 2015-16 2024 (9) TMI 789 - ITAT MUMBAI the question referred to Special Bench is decided in favour of the assessee banks that clause (b) to sub section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 w.e.f. 1-4-2013, that is, from assessment year 2013-14 onwards, are not applicable to the banks constituted as 'corresponding new bank' in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and therefore, the provision of Section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks. Addition towards broken period interest - assessee has treated the said amount as revenue and claimed deduction accordingly - HELD THAT - As relying on Citi Bank 2008 (8) TMI 766 - SUPREME COURT and HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT AO is not correct in making the disallowance towards broken period interest and accordingly we see no infirmity in the order of the CIT(A) in deleting the said disallowance. Amortization of premium paid on HTM Securities - as per AO specific clauses in RBI Circular with regard to accounting treatment cannot be considered for Income tax purposes and accordingly disallowed the amortized premium claimed by the assessee as a deduction - HELD THAT - We notice that in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT while considering the question of law as to whether the ITAT is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of investment and amortization of premium on investment held to maturity on the ground of mandate by RBI Guidelines thereby ignoring the decision of the Hon'ble Supreme Court in the case of Southern Technologies 2010 (1) TMI 5 - SUPREME COURT has held that identical question of law was framed and answered in favour of the Assessee by this Court in its judgement of Lord Krishna Bank Ltd. (now merged with HDFC Bank Ltd.) 2014 (7) TMI 997 - BOMBAY HIGH COURT Decided against revenue. Taxation of unrealized interest on NPA - AO noticed that the assessee has not recognized the interest income pertaining to the NPA on accrual basis and called on the assessee to furnish details and provide explanations - HELD THAT - As relying on case of ICICI Bank Ltd. 2022 (8) TMI 1346 - ITAT MUMBAI we uphold the decision of the CIT(A) in deleting the addition made towards interest on NPA. Deduction u/s 36(1)(viii) - CIT(A) remitted the issue back to the AO with a direction to recomputed the deduction based on actual interest on eligible advances after deducting cost and expenses on reasonable basis - HELD THAT - As in assessee's own case for AY 2014-15 2020 (11) TMI 1076 - ITAT MUMBAI decided Tribunal vide order 2016 (1) TMI 1427 - ITAT MUMBAI has remitted the issue back to the file of Assessing Officer to allow the deduction based on actual interest earned from eligible advances after deducting cost and expenses on reasonable basis. The CIT(A) has restored the issue to Assessing Officer to follow the directions of Tribunal. The Id. Departmental Representative has not brought before the Bench any material to controvert the findings of Tribunal in immediately preceding assessment year. Thus, we see no reason to interfere with the decision of the CIT(A). Sale of Asset to Asset Reconstruction Company (ARC) - assessee has incurred loss on sale of assets to ARC - AO disallowed the said claim rejecting the contention of the assessee that the said amount has been debited in accordance with RBI Guidelines - HELD THAT - As decided in Bank of India 2017 (11) TMI 1812 - ITAT MUMBAI following of RBI instruction by a banking company cannot be basis for denying or allowing any claim. It is said that the entries in the books of accounts are not conclusive proof of taxability of any income. What has to be seen is the substance of the transaction. Considering the fact that the assessee had suffered loss while carrying out normal business activity i.e. selling its assets. Therefore, we hold that there was no justification for disallowing the loss suffered in the transaction. We uphold the decision of the CIT(A) in deleting the disallowance made by the AO. Disallowance on payment made to RBI for not following the internal regulations laid down by the AO - CIT(A) deleted Addition during appellate proceedings - HELD THAT - It is relevant to note that the Explanation-1 to section 37 provides that any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to be incurred wholly and exclusively for the purpose of business or profession and no deduction shall be allowed in respect of such expenditure. In the above decision of IDBI Bank 2021 (2) TMI 608 - ITAT MUMBAI ratio laid down is that the penalty levied by RBI for violation of internal regulations does not fall within the purview of Explanation-1 to section 37. In the given case, the amount claimed as deduction by the assessee is with regard to the levy by the RBI for non-compliance of internal regulations with respect to maintenance of currency chest. Accordingly, in our considered view, the ratio laid down by the Co-ordinate Bench is applicable to assessee's case also and therefore we see no infirmity in the decision of the CIT(A) to delete the disallowance made by the AO. Assessee appeal allowed.
Issues Involved:
1. Disallowance under section 14A read with Rule 8D. 2. Disallowance of interest paid on IPDI Bonds. 3. Taxation of recovery of bad debts written off. 4. Applicability of provisions of section 115JB. 5. Broken period interest. 6. Amortization of premium paid on HTM Securities. 7. Taxation of unrealized rent on NPA. 8. Deduction under section 36(1)(viii). 9. Sale of Asset to Asset Restructuring Company. 10. Disallowance on payment made to RBI for not following internal regulations. Detailed Analysis: 1. Disallowance under section 14A read with Rule 8D: - The Tribunal found that the exempt income earned by the assessee was from shares/stock held as stock-in-trade. Following the precedent set in the assessee's own case for earlier assessment years, it was held that no disallowance under section 14A r.w.r. 8D is warranted in such cases. Consequently, the disallowance made by the AO was directed to be deleted. 2. Disallowance of interest paid on IPDI Bonds: - The Tribunal referred to a similar case where it was held that the interest on Innovative Perpetual Debt Instruments (IPDI) Bonds is allowable as a deduction under section 36(1)(iii). The Tribunal directed the AO to delete the disallowance made on this ground, as the facts were identical to the assessee's case. 3. Taxation of recovery of bad debts written off: - The Tribunal noted that the AO added the recovery of bad debts to the income on the basis that it was indirectly charged to the P&L account. However, it was held that if a deduction was not allowed under section 36(1)(vii) in earlier years, the recovery is not taxable. The Tribunal directed the AO to delete the addition made in this regard. 4. Applicability of provisions of section 115JB: - The Tribunal referred to the Special Bench decision in the assessee's own case for AY 2015-16, which held that section 115JB does not apply to banks constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Thus, the Tribunal concluded that section 115JB is not applicable to the assessee for the years under consideration. 5. Broken period interest: - The Tribunal upheld the CIT(A)'s decision to delete the disallowance of broken period interest, citing the binding precedent of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd., which allowed such interest as a revenue expenditure. 6. Amortization of premium paid on HTM Securities: - The Tribunal upheld the CIT(A)'s decision to allow the amortization of premium on HTM securities as a deduction, following the decision of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd., which recognized the RBI guidelines for such accounting treatment. 7. Taxation of unrealized rent on NPA: - The Tribunal agreed with the CIT(A) in deleting the addition made by the AO for unrealized interest on NPAs, noting that interest on NPAs should be taxed in accordance with RBI guidelines, as supported by the decision in the case of State Bank of India. 8. Deduction under section 36(1)(viii): - The Tribunal upheld the CIT(A)'s direction to the AO to recompute the deduction under section 36(1)(viii) based on actual interest on eligible advances after deducting costs and expenses on a reasonable basis, in line with the decision in the assessee's own case for earlier years. 9. Sale of Asset to Asset Restructuring Company: - The Tribunal upheld the CIT(A)'s decision to delete the disallowance of loss on sale of assets to ARC, following the precedent that such transactions are part of normal business activity and the loss is allowable. 10. Disallowance on payment made to RBI for not following internal regulations: - The Tribunal upheld the CIT(A)'s decision to allow the deduction for payments made to RBI for non-compliance with internal regulations, as such payments do not fall under the purview of Explanation-1 to section 37, which disallows expenses incurred for purposes that are an offence or prohibited by law. In conclusion, the appeals of the assessee for AY 2016-17 and 2017-18 were partly allowed, while the appeals of the Revenue for the same years were dismissed.
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