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TMI Blog2015 (11) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... ,[2014 (8) TMI 119 - BOMBAY HIGH COURT]. Thus, respectfully following above we hold that deduction for the interest cost incurred was to be taken only in relation to earmarked borrowings utilized by the assessee for the purpose of granting loans to the enterprises, interest income whereof is exempt u/s 10(23G) of the Act for the purpose of computing net interest income eligible for deduction u/s 10(23G) of the Act. Decided in favour of assessee. Exemption u/s 10(34) granted on the amount of gross dividend income - Held that:- assessee's own funds exceed the investment made and therefore no disallowance could have been made by the assessing officer in the given facts and circumstances of the case and therefore, respectfully following judgments of Hon'ble Tribunal in assessee's own case and jurisdictional High Court, we decide these grounds in favour of the assessee Taxability of penal interest and interest received during the year on non performing assets - selection of year of assessment - Held that:- It has been held by the Tribunal in assessee's own case for A.Y. 1999-2000 that income of the assessee earned upto 31.03.1999 is clearly exempt because of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent : Smt Neena Singh Pandey (DR) ORDER Per Ashwani Taneja ( Accountant Member ) The present appeals have been filed by the Assessee as well as Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-XXVII, Mumbai (hereinafter called as Ld CIT(A)) dated 15.10.2007 for the assessment year 2005-06. The grounds raised by the Assessee in the appeal memo are reproduced hereunder: 1(a)(i) 2(a)(i) The Learned Commissioner of Income Tax (Appeals)ought to have held that exemption of interest income under section 10 (23G) of the Income Tax Act, 1961 (the Act) is to be granted without deducting interest cost, i.e. actual as well as notional. 1(a)(ii) 2(a)(ii) Without prejudice to the above and in the alternate: The Learned Commissioner of Income Tax (Appeals) ought to have held that exemption of interest income under section 10(23G) of the Act is to be granted without deducting notional interest cost. 1(b) 2(b) The Learned Commissioner of Income Tax (Appeals) ought to have held that exemption under section 10(34) of the Act against dividend income is to be granted without deducting notional interest cost. 1(c) 2(C) The Learned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter before the Ld. Commissioner of Income Tax (Appeals) {hereinafter called as Ld. CIT(A)} There also, submissions of the Assessee were not accepted. 3.3. Still aggrieved, the Assessee filed the appeal before the Tribunal against the order of Ld CIT(A). During the course of hearing before the Tribunal, Ld counsel of the assessee has submitted that the ground with regard to claim of exemption u/s 10(23G) at gross interest income is not pressed but assessee was still aggrieved for non acceptance of its alternate prayer that deduction for the interest cost incurred is to be taken only in relation to earmarked borrowings utilized by the Assessee for the purpose of granting loans to the enterprises, interest income whereof is exempt u/s 10(23G) of the Act. In support of this alternative prayer, he has placed copy of the judgment of Hon'ble ITAT in own case of the Assessee vide order dated 14th 2013 for A.Ys. 2000-01 to 2002-03. Reliance has been placed upon the judgments of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 366 ITR 505 (Bom) and CIT vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom). Copies of Balance Sheet and Charts were submitted showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by the revenue authorities. But the issue is with regard to restriction of the exemption at a lower figure, which is basically the interest expenses on rupee advances. 17. On the basis of these arguments, the AR pleaded that the assessee was eligible for exemption under section 10(23G) and also on the amount on which it has been claimed, which the assessee took as an alternative plea. 18. The DR on the other hand submitted that the revenue authorities were very reasonable in their orders, wherein, they have allowed the exemption, but have taken only the net qualifying amount, instead of the gross figures, which the assessee has taken. 19. We have heard the rival contentions and the short issue before us is whether the exemption is to be allowed at ₹ 8,58,00,484/- or ₹ 6,70,94,603/-, as restricted by the AO. 20. From the details reproduced by the AO, we find that the impugned figures are expense of interest on loan given to Gujarat Pipavo Port Ltd. at ₹ 1,21,86,219/- and to Information Tech. Part at ₹ 65,19,660/-, being other then foreign currency borrowings. 21. Assessee is neither a company registered under the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is a public financial institution and not a bank. Further, on going through the details, as filed, it is noted that the assessee has substantial own funds, which are employed by it in bonds/securities, and thus, the case of the assessee is found to be covered with the judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom). It is further seen by us that working sheets submitted before us by the Ld counsel depict similarity in facts in this year also, in as much as, the own funds of the assessee are consistently far in excess of the amount of impugned loans granted and investment made in shares and securities, out of mixed funds, since last many years. From the perusal of these working sheets, with the assistance of Ld counsel, it is seen that the own funds of the assessee are to the tune of ₹ 2512.49/- crores whereas total of all the amounts of loans in INR granted and investment in shares and securities out of mixed funds are to the tune of ₹ 236.02 crores only, which happens to be merely 9.39 % of the aggregate amount of the own funds of the Assessee. Under these circumstances, investments in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Reliance Utilities Power Ltd. (supra) and HDFC Bank Ltd. (supra). 4.4. On the other hand, Ld DR relied upon the orders of the lower authorities and requested for upholding the same. 4.5. We have gone through the orders of the lower. It is observed by us that this issue came up before the Hon'ble Tribunal in assessee's own case in assessment years 2000-01 to 2002-03 in ITA No.7361 to 7363/Mum/2005. The relevant portion of this order is reproduced below: 34. We have heard the arguments of both the sides and we find the assessee had substantial free funds coming from preceding years, which were pure income, as there was no liability of tax up to the current year. Basically moving on the same analogy, as in the earlier ground of appeal and decision taken therein, this ground, also deserves to be allowed in favour of the assessee. 35. The ground of appeal, is therefore, allowed. 4.6 We have heard both the parties and gone through the entire material. It is seen by us that the facts of the impugned year are similar to that as were discussed in the earlier years' orders. Detailed discussion has already been by us in this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3 Subsequently, aforesaid section 37 was omitted by the Finance Act of 1998, w.e.f 01.04.1999. With omission of section 37 of Export Import Bank of India Act, 1981, the assessee became liable to tax regime w.e.f. 01.04.1999. As a result thereof, the first financial year of the assessee was between 01.04.1999 to 31.03.2000, being assessment year 2000-01. Since then, as informed, the Assessee has been filing its return of income regularly. 5.4. The Assessing Officer in his assessment order has observed that in the statement of income submitted during the year under reference, the assessee has deducted ₹ 21.60,34,746/- and ₹ 49,27,388/-, representing the penal interest received during the year on loans classified as Non Performing Assets for the Financial year ended 31-3-1999 and penal interest received during the year pertaining to the period up to 31 -3-1999, respectively. Its justification was given by way of Note no.6 in Annexure-I, forming part of the statement of income. The assessee was requested by the AO to justify the basis on which this income should not be considered as forming part of taxable income of the assessee bank. The assessee explained to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of scc.43D arc applicable in the case of the assessee or not. The appellant has received the interest and penal interest on non performing assets during the year and the appellant is following system of accounting to recognize such interest on receipt basis, therefore the same is applicable as per P L account of the assessee itself. It is immaterial that the interest is related to the NPA prior to 31-03-1998 when the income of the appellant was exempt from income tax or not. This issue has been discussed in detail by my predecessor in Asstt Year 1999-2000 vide order dated 5-1-2005 and held that the interest and penal interest on NPA is taxable in the hands of the appellant. In Asstt Year 2004-05 also the issue was decided against the assessee. In view of this fact, the addition on account of interest and penal interest amounting to ₹ 22,09,62,134/- towards the income of the assessee is justified and confirmed. This ground of appeal is decided against the appellant. 5.7. Before us, Ld counsel submitted that assessing officer has wrongly taxed the income for the period prior to 01.04.1999, when the income of the assessee was exempt in view of section 37 of Expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above Act of the Parliament was notwithstanding anything contained in Income tax Act, 1961, Companies Act 1956 or any other enactment relating to income or profits and gains. In other words, the exemption was absolute and overriding the provisions of the Incometax Act. Clause 117 of the Finance (No.2) Act, 1998, whih had effect on omission of section 37 of Export Import Bank of India Act 1981 reads as under: 117. Omission of section 37 of Act 28 of 1981 - In the Export-Import Bank of India Act, 1981, section 37 shall be omitted with effect from the 1st day of April, 1999. There is no ambiguity that the omission of section 37 of Export Import Bank of India Act 1981 is w.e.f 0l.04.l999. It technically amends the provisions of section 37 of the Export Import Bank of India Act 1981 that were in force upto to 3l.03.l999. In other words, income accrued upto 31st March 1999 are clearly exempt under the said Export Import Bank of India Act 1981. Further, with effect from 01.04.1999 the aforesaid provisions of section 37 of the Export Import Bank of India Act 1981 were to be taken as not in the statute book. In other words, the income earned after 01.04.1999 are clearly liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was not eligible to file its return, though it was maintaining its books (as admitted by the AR). When the books are maintained, all expenses and incomes get embedded in the results, meaning whereby, that interest and penal interest pertaining to the preceding years, would have got embedded in the years which they related to. On this observation, in our opinion, the interest and penal interest upto 31.03.1999 cannot be brought to tax in the current year, as claimed by the AO/DR. We must also mention that the provisions of section 43D shall not be applicable in the case of the assessee. The AO/DR, relying on the minority decision in the case of State Bank of Travancore vs CIT, reported in 158 ITR 102, held that interest of stick loans was rightly treated as income, which had accrued to the assessee. This, in our opinion, cannot be accepted, because, what the revenue authorities are attempting to do is, to tax interest and penal interest on NPA upto 31.03.1999, which, period was non- existent, so far as tax provisions were concerned. In any case, Hon'ble Supreme Court in the case of UCO Bank vs CIT, reported in 237 ITR 889, has covered circular dated 09.10.1984. This circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y ground or add a new ground which may be necessary. 8. The Revenue has challenged the action of Ld CIT(A) in allowing depreciation of ₹ 6,82,99,443/- by adopting WDV of assessment year 1999-00. During the course of hearing, Ld DR has relied upon the order of Assessing Officer whereas Ld. Counsel has relied upon the order of Ld CIT(A), on this issue. 8.1 AO has discussed this issue in para 11 to 11.4 of the assessment order. 8.2 On the other hand, Ld CIT(A) has discussed this issue in para 8 and 9 of the appellate order. 8.3. The brief facts are that the AO computed depreciation allowance at ₹ 5,62,95,949/-, as against the claim of the assessee for ₹ 6,82,99,443/-(revised), by adopting WDV on the basis of the A.Y. 1999-00. The AO held that method and basis adopted by the assessee in this regard cannot be accepted in view of the very basic stand of the assessee that its income was not chargeable to income tax upto Financial year ended 31.3.1999, was not accepted by the department as in the opinion of the department, the income of the assessee was chargeable to income tax for the financial year ended upto 31.3.1999. Accordingly, assessment was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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