2024 (12) TMI 1484 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - expenditure incurred on earning exempt income - HELD THAT - Where interest free funds are in excess of investments, no disallowance u/s. 14A of the Act could be made. CIT(A) placing reliance on various decisions including the decision in the case of Hero Cycle Ltd. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT deleted the addition. It is no more res intigra that where the assessee is having mixed bag of own interest free funds and interest bearing funds and own funds of the assessee are much more then the investments made, it shall be presumed that the investments are made from assessee s own interest free funds. Thus, in light of settled legal position, we find no infirmity in findings of the CIT(A) on this issue, hence, ground no. 1 to 3 of appeal are dismissed. Amortization of Premium Paid on Securities - AO disallowed assessee s claim of amortization on securities held to maturity and made addition - HELD THAT - The issue is now well settled that amount paid towards amortization of premium on securities held to maturity is an allowable deduction. We see no infirmity in the findings of the CIT(A) deleted addition as relying on HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT and in the case of ACIT vs. The Bank of Rajasthan Ltd. 2010 (12) TMI 894 - ITAT, MUMBAI Revision for Standard Assets - HELD THAT - Revenue has not been able to controvert the statement of ld. Counsel for the assessee that in preceding and succeeding assessment years where assessments were completed u/s.143(3) of the Act, the claim of the assessee has been accepted by the AO. The rule of consistency demands that where the assessee has claimed an expenditure following the same accounting policy in preceding and succeeding assessment years and the same has been accepted, no disallowance should be made in one of intervening assessment years. Provision for Fraud - HELD THAT - In preceding assessment year, the CIT(A) decided this issue in favour of the assessee by placing reliance on various case laws and CBDT Circular no. 35DXLVII-20 dated 24.04.1965. We find no infirmity in the order of CIT(A) on this issue, hence, we see no reasons to interfere with the same. The ld. DR has anxiously raised a concern that the assessee has not explained the treatment given on subsequent recovery of the amount involved in fraud. Though, no such objection was raised by the AO during assessment proceedings, the ld. Counsel for the assessee made a statement at Bar that as and when any amount is recovered, the same is offered to tax in the year of recovery. In view of above, we find no reason to give any further direction on this issue. The ground of appeal is dismissed for the reasons stated above. Deduction u/s. 80P(2)(a)(i) - The provision of section 80P of the Act will also be applicable to Regional Rural Banks. Hence, deduction u/s. 80P(2)(a)(i) of the Act is allowable in respect of the RRB's. Disallowance of expenses claimed under Estab-PNB - assessee has claimed establishment expenses towards staff deputed from sponsor bank i.e. PNB - HELD THAT - Expenditure is claimed under the sub-heads like EPF, Medical Aid, LFC, Gratuity, etc. The AO has disallowed the claim as the assessee has failed to submit any clarification or nature of payment under the aforesaid sub-heads and no bills or vouchers were submitted before the AO to prove nature of expenditure and the genuineness of the expenditure claimed. In first appeal, the CIT(A) has allowed assessee's claim in a cryptic manner. In our considered view neither the nature of expenditure has not been properly explained by the assessee nor it is substantiated with documentary evidence, we deem it appropriate to restore this issue to the jurisdictional AO for verification. Disallowance of Establishment expenses - increase in establishment expenses is not commensurate to other expenses claimed by the assessee on account of setting up of new branches - HELD THAT - We find that the AO has made addition merely based on surmises and conjectures, without examining material available on record. The addition cannot be made merely on assumptions and suspicion. We are in agreement with the reasons given by the CIT(A) to delete the addition.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment involves several core issues that were presented and considered by the Appellate Tribunal:

- Whether the deletion of disallowance under Section 14A read with Rule 8D was justified.

- Whether the deletion of addition on account of amortization of premium on securities was appropriate.

- Whether the deletion of provisions for Standard Assets under Section 36(1)(viia) was correct.

- Whether the deletion of addition on account of fraud/dacoity was valid.

- Whether the deletion of disallowance of the claim of deduction under Section 80P was justified.

- Whether the deletion of expenditure claimed under the head 'Estab-PNB' was appropriate.

- Whether the deletion of the addition on account of disallowance of establishment expenses was correct.

2. ISSUE-WISE DETAILED ANALYSIS

Disallowance under Section 14A:

- Legal Framework: Section 14A of the Income Tax Act deals with disallowance of expenditure incurred in relation to income not includible in total income.

- Court's Interpretation: The court upheld the CIT(A)'s decision, noting that when interest-free funds exceed investments, it is presumed that investments are made from interest-free funds.

- Evidence and Findings: The assessee had sufficient interest-free funds, and the CIT(A) relied on precedents, including the case of Hero Cycle Ltd.

- Conclusion: The Tribunal found no infirmity in the CIT(A)'s findings, dismissing the Revenue's grounds.

Amortization of Premium on Securities:

- Legal Framework: The issue revolves around the treatment of amortization of premium on securities held to maturity.

- Court's Interpretation: The Tribunal agreed with the CIT(A) that amortization is an allowable deduction, relying on precedents like HDFC Bank Ltd.

- Conclusion: The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's grounds.

Provision for Standard Assets:

- Legal Framework: Section 36(1)(viia) pertains to provisions for bad and doubtful debts.

- Court's Interpretation: The Tribunal emphasized consistency, noting that similar claims were accepted in other years.

- Conclusion: The Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's grounds.

Provision for Fraud:

- Legal Framework: The issue concerns the allowance of provisions for fraud as a deductible expense.

- Court's Interpretation: The Tribunal agreed with the CIT(A) that the provision was justified, given the FIR evidence.

- Conclusion: The Tribunal dismissed the Revenue's ground, finding no reason to interfere with the CIT(A)'s order.

Deduction under Section 80P:

- Legal Framework: Section 80P provides deductions to cooperative societies.

- Court's Interpretation: The Tribunal upheld the CIT(A)'s decision, noting that Regional Rural Banks are deemed cooperative societies.

- Conclusion: The Tribunal dismissed the Revenue's grounds, affirming the CIT(A)'s findings.

Disallowance of Expenses under 'Estab-PNB':

- Legal Framework: Concerns the allowance of establishment expenses incurred.

- Court's Interpretation: The Tribunal found the CIT(A)'s allowance of expenses to be cryptic and remanded the issue for verification.

- Conclusion: The Tribunal allowed the Revenue's ground for statistical purposes.

Establishment Expenses:

- Legal Framework: Relates to the allowance of establishment expenses claimed.

- Court's Interpretation: The Tribunal agreed with the CIT(A) that the disallowance was based on assumptions.

- Conclusion: The Tribunal dismissed the Revenue's grounds, supporting the CIT(A)'s decision.

3. SIGNIFICANT HOLDINGS

- The Tribunal consistently upheld the CIT(A)'s decisions, emphasizing the presumption of investments from interest-free funds and the allowance of amortization of premium on securities.

- The Tribunal reinforced the principle of consistency, particularly regarding provisions for Standard Assets and deductions under Section 80P.

- The Tribunal remanded the issue of 'Estab-PNB' expenses for further verification, highlighting the need for substantiation.

- The final determinations largely favored the assessee, with the Tribunal dismissing most of the Revenue's grounds.

"Where interest-free funds are in excess of investments, no disallowance under Section 14A of the Act could be made."

"The rule of consistency demands that where the assessee has claimed an expenditure following the same accounting policy in preceding and succeeding assessment years and the same has been accepted, no disallowance should be made in one of intervening assessment years."

The appeals for AY 2017-18 and 2018-19 were dismissed, while the appeal for AY 2016-17 was partly allowed for statistical purposes.