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TMI Blog2014 (2) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... ne leasing of the boiler - no depreciation was allowable in case of the assessee lessor – the order of the CIT(A) upheld. Disallowance u/s 37(1) of the Act - Entertainment expenditure on estimate basis – Held that:- From assessment year 1988-89 there is no provision for disallowance of entertainment expenses - The expenses incurred by the assessee bank on employees during the official visits and in connection with clients and business visitors have to be allowed as incurred wholly and exclusively for business purposes - There is no case made out by the revenue that expenses are not properly vouched - CIT(A) had agreed that expenses were allowable but has restricted the same to 75% when there is no limit provided under the Act – order of the CIT(A) set aside and the claim of the assessee is allowed. Disallowance of loss on unmatured foreign exchange contracts – Held that:- The claim as per the method of accounting is allowed and as per FEDAI guidelines which is allowable – the order of CIT(A) set aside and the claim of the assessee allowed. Reduction of claim of bad debt u/s 36(1)(vii) of the Act – Held that:- The decision in Oman International Bank, SAOG vs. DCIT [2012 (12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had right to receive the interest for the broken period and, therefore, interest income had accrued as the assessee was following mercantile system of accounting. Accordingly he assessed the interest for the broken period. CIT(A) confirmed the view taken by the AO aggrieved by which the assessee is in appeal before the Tribunal in both the years. 2.1 Before us, the ld. AR for the assessee reiterated the submissions made before lower authorities that interest accrued only on the due dates and therefore interest could not be assessed for the broken period as the assessee had no right to receive the interest during the said period. The ld. AR further submitted that the issue was covered in favour of the assessee by the judgment dated 9.2.2012 of the Hon'ble High Court of Bombay in the case of Director (International Taxation) vs. Credit Swisse First Boston (Cyprus) Ltd. and also by the decision of the Tribunal in assessee s own case for the assessment year 2001-02 in ITA No.4343/M/05. 2.2 The CIT-DR appearing for the revenue on the other hand strongly supported the orders of authorities below. It was argued that interest on securities was assessable on due basis under specific pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nized it as revenue in the books of account but excluded it from taxable income in computation of income. It was submitted that the Hon'ble High Court of Bombay was not concerned with the situation in which the income had had been recognized by the assessee itself in the books of account. The High Court had also not considered the aspect as to whether even after the deletion of section 18, the interest on securities could still be assessed on due basis. It was accordingly submitted that the judgment of Hon'ble High Court of Bombay could not be followed and issue had to be decided in favour of the revenue. 2.3 In reply the ld. AR submitted that the judgment of Hon'ble Supreme Court in the case of Rama Bai (supra) related to interest payable under section 28 and section 34 of Land Acquisition Act, 1984 which accrued from day to day basis as there were no due dates prescribed whereas the Hon'ble High Court of Bombay in case of Credit Swisse First Boston (Cyprus) Ltd. (supra), was concerned with identical issue of interest on securities which became due on specified dates. It was also submitted that the judgment of Hon'ble Bombay High Court was not per inqurium as judgment of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the judgment of Hon'ble Jurisdictional High Court in the case of Director of (International Taxation) vs. Credit Swisse First Boston (Cyprus) Ltd. dated 9.2.2012 in which identical issue of accrual of interest on securities was decided by the Hon ble Court. 2.5 We have carefully considered the material on record and, perused the judgment of Hon'ble High Court of Bombay in case of Director (International Taxation) vs. Credit Swisse First Boston (Cyprus) Ltd. (supra). We find that identical issue of accrual of income on account of interest from securities for the broken period had been considered by the Hon'ble High Court of Bombay. In the said case, the Hon'ble High Court noted that as per terms of securities, the interest became payable to the holder of security and only on the due dates. In other words, the interest is not payable to the holder of security on a date other than the one stipulated in the instrument. The Hon'ble High Court observed that income can be said to accrue or arise only when a person had acquired the right to receive the same as held by the Hon'ble Supreme Court in the case of E.D. Sassoon Company Ltd. vs. CIT (26 ITR 27). The right to receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Hon'ble High Court of Bombay in case of Director (International Taxation) vs. Credit Swisse First Boston (Cyprus) Ltd. (supra), could not be considered per inquirium. 2.7 Ld. CIT-Departmental Representative has also distinguished the judgment of Hon'ble High Court of Bombay in the case of Director (International Taxation) vs. Credit Swisse First Boston (Cyprus) Ltd. (supra), on the ground that in the present case the assessee itself had shown the interest income as accrued in the books of account for the broken period which was not show so case of Credit Swisse First Boston (Cyprus) Ltd. (supra). This argument is also not convincing. As rightly pointed out by the ld. AR., the book keeping by itself does not result in real income as held by Hon'ble Supreme Court in the case of Shoorji Vallabhdas Co. (supra). It is a settled legal position that entry in the books of account is not conclusive regarding nature of income or accrual of income which has to be decided on the basis of provisions of law and method of accounting being followed by the assessee . We also agree with the submissions of the ld. AR that the judgment of Hon'ble Supreme Court in the case of Rotork Control I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation on leased assets in case of the assessee had been referred by the division Bench of the Tribunal to the Hon ble President, ITAT, for constitution of a Special Bench. The Special Bench has since decided the issue vide order dated 14.3.2012 in ITA No.6566/M/2002 and ITA No.606/Mum/2003 in which it has been held that it was a case of mere advancing of loan by the assessee to Indo Gulf Fertilizers Chemical Corpn. and there was no genuine leasing of the boiler. The Special Bench therefore held that no depreciation was allowable in case of the assessee lessor. Respectfully following the decision of the Special Bench, we confirm the order of CIT() disallowing depreciation in both the years. 4. The third issue which is relevant only for the assessment year 1998-99 is regarding disallowance of entertainment expenditure on estimate basis. The AO after obtaining details of entertainment expenses of Rs.25,76,498/- noted that the same included expenses incurred on employees during official visits. The assessee submitted that the expenses incurred were entirely in connection with the clients and business visitors of the bank and for business purposes and has no personal element. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with clients and business visitors has not been controverted before us. Therefore, we agree with the submission of the assessee that the expenses had been incurred wholly and exclusively for the purpose of business. Earlier there was specific provision for disallowance of entertainment of expenses under section 37(2) but the said provision has been deleted w.e.f. 1.4.88. Therefore, from assessment year 1988-89 there is no provision for disallowance of entertainment expenses. The expenses incurred by the assessee bank on employees during the official visits and in connection with clients and business visitors have to be allowed as incurred wholly and exclusively for business purposes. There is no case made out by the revenue that expenses are not properly vouched. CIT(A) in principle had agreed that expenses were allowable but has restricted the same to 75% when there is no limit provided under the Act. Therefore in our view order of CIT(A) can not be sustained and the same is set aside and the claim of the assessee is allowed. 5. The fourth dispute which is relevant only to the appeal for assessment year 1999-2000 is regarding disallowance of loss amounting to Rs.2,37,82,608/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowable. We, therefore, respectfully following the decision of the Tribunal in assessee s own case in assessment year 2000-01 (supra), set aside the order of CIT(A) on this point and allow the claim of the assessee. 6. The fifth dispute which again relates only to assessment year 1999-00 is regarding reduction of claim of bad debt under section 36(1)(vii) from Rs.44,95,22,581/- to Rs.34,76,45,118/-. The claim of bad debt is allowable under the provisions of section 36(1)(vii) as per which any bad debt or part thereof which is irrecoverable is allowable as deduction. The provisions of bad debt relating to banks are contained in clause (viia) and, in case of foreign banks, clause (viia)(b) is applicable as per which the amount not exceeding 5% of total income computed before making any deduction under this clause and Chapter VI-A is allowable as deduction. Further, the proviso to clause (vii) makes it clear that in case of banks, deduction shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provisions of bad and doubtful debts account. The assessee had claimed bad debt written off of Rs.44,95,22,581/-. From the said claim, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(vii), so far as a foreign bank is concerned, is only supplemental in nature inasmuch as it comes to the play only when, and is admissible to the extent, the provision for bad and doubtful debts allowed under s. 36(1)(viia)(b) falls short of the actual bad debts written off as irrecoverable. Learned Departmental Representative, however, contends that the expression used in sub-s. 36(1)(vii) being the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause , it is not material as to what was the actual deduction under s. 36(1)(viia) allowed by the Revenue, but as long as the bad debt is less than the total credit balance in the provision account, deduction under s. 36(1)(vii) cannot be allowed in respect of the same. This objection, in our considered view, is fallacious inasmuch as the reference is for credit balance in the provision for bad and doubtful debts account made under that cl. [36(1)(viia)] , and, therefore, only such provision can be taken into account as is admissible under s. 36(1)(viia). Clauses (vii) and (viia) are two independent clauses of s. 36(1) `and as per the scheme of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly contrary to the scheme of the Act, and is, in our humble understanding, bound to give results which fail the equation. We are, therefore, of the opinion that the CIT(A) indeed erred in upholding the action of the AO in taking into account the admissible deduction under s. 36(1)(viia)(b) for the relevant previous year, for computing shortfall for the purpose of s. 36(1) (vii) of the Act. As for the learned CIT(A) s reliance on Hon ble Punjab Haryana High Court s judgment in the case of Nandlal Sohanlal vs. CIT 1978 CTR (P H)(FB) 5 : (1977) 110 ITR 170 (P H)(FB) suffice to mention that, in our considered view, the view canvassed by the Revenue is not a correct or acceptable view of the matter. We, therefore, reject the same as an untenable view and decline to go into the controversy as to what will be the legal position in a situation in which more than one views on an issue are possible views. 7. We must, however, also deal with the judgment of Hon ble Rajasthan High Court in the case of CIT vs. Bank of Rajasthan Ltd. (2002) 174 CTR (Raj) 400: (2002) 255 ITR 599 (Raj) which has been heavily relied upon by the learned Departmental Representative. In particular, learned Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al bad debts something which is clearly contrary to the scheme of the Act and patently absurd. 9. There are two aspects to this issue. In the first place, the ad hoc deduction under s. 36(1)(viia) (b) being the last item on the computation of taxable business profits, it cannot be taken into account at the time of allowing deduction under s 36(1)(vii), and, to that extent, the actual deduction attributable to bad debts [i.e. 36(1)(vii) plus 36)(1)(vii)(b)] will indeed be more than the actual bad debts in that year However, since the provision so allowed under s 36(1)(viia)(b) is be taken into account while allowing deduction for actual bad debts in the subsequent year, the effect of excess deduction, if any, will be squared up in that subsequent year. Secondly, a view seems perfectly acceptable that the provision for bad debts allowable under s. 36(1)(viia)(b) being inherently attributable to the debts outstanding at the end of the year, provision allowable as such is against future bad debts out of debts outstanding at the year end, and, therefore, It need not he mixed up with actual bad debts incurred during the year. Viewed from these points of view, there, is no such incong ..... X X X X Extracts X X X X X X X X Extracts X X X X
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