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TMI Blog2013 (4) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... diture is as such that some delay is bound to happen and crystalisation of such expenditure after 31st March of the AY.under consideration is natural Applicability of section 115 JB - Held that:- appellant is not a company under Companies Act but is only deemed to be a company as per the provisions of Sec. 11 of the Banking Companies (Acquisition and Transfer of Undertaking)Act,1970.Therefore as held by the Jurisdictional ITAT in the case of Maharashtra State Electricity Board [ 2001 (8) TMI 310 - ITAT MUMBAI] the provisions of Sec. 11 5JB cannot be made applicable to the appellant. Addition u/s 36(1) - Held that:- FAA had rightly directed the AO to calculate the bad debts and provisions in a particular manner,that section 36(1) of the Act allowed writing off of bad debts as well as provisions in certain circumstances. Applicability of section 88E while computing the income of the assessee as per the provisions of section 115JB - Held that:- Analysis of section 88E of the Act proves that where the total income of any assessee includes any income chargeable under the head Profits and gains of business/profession arising from taxable securities transaction,the assessee is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bond (225 ITR 798)and Punjab State Industrial Development Corporation (225 ITR 792),he held that expenditure claimed by the assessee could not be allowed u/s. 35D of the Act.In the appellate proceedings; following the orders of his predecessors for earlier years;FAA upheld the order of the AO.When the matter travelled to the Tribunal,Authorised Representative (AR) of the assessee relied upon the judgment delivered by Hon'ble High Court of Rajasthan in the case of Neha Proteins Ltd. (171Taxman45)to contend that interest accrued on share application money lying with bank should be adjusted against public issue expenses so as to reduce the amount of public issue expenses for enabling the assessee to claim amortisation under and in accordance with the provisions of Section 35D of the Act.Departmental Representative (DR) argued before the Tribunal at the time of hearing for the AY. 1999-2000 (ITA No.5062/M/04), that issue raised by the AR was never agitated by the assessee-bank before the authorities below.Therefore,while deciding the appeal for the AY.1999-2000 (supra),Tribunal held as under: "We have observed from the assessment as well as the impugned order that there is no discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the disallowance u/s. 14A of estimated administrative expense of ₹ 1,57,36,223/-calculated at 2% of total tax exempt income of ₹ 78,68,l 1,161/-,as expenditure attributable to exempt income received by your appellant. Your appellants submit that the income claimed as exempt ought not to have been reduced by estimating administrative expense of ₹ 1,57,36,223/- as incurred for earning exempt income. c)Your appellants submit that interest expense of ₹ 53,46,38,184/- and administrative expense of Rs.l,57,36,223/- totaling to ₹ 55,03,74,407/- ought not to have been considered as expenditure incurred in relation to exempt income and ought to have been allowed as claimed. Your appellants submit that there is no direct nexus between interest earned and interest expended, further the assets from which the income is earned are business assets and hence the administrative expenses incurred by the appellants are allowable as a deduction from the business income. d)Without prejudice to the above, your appellants submit that the disallowance made u/s. 14A on account of estimated interest expenses and estimated administrative cost is excessive and ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of such disallowance has been restored. to the file of AO for making on some reasonable basis. It has further been held in this case the provisions of Rule 8D are not applicable as these are prospective. Respectfully following the precedent, we set aside the impugned order and direct the AO to compute disallowance u/s.14A in accordance with the ratio laid down by the Hon'ble jurisdictional High Court in the afore noted case of Godrej & Boyce Ltd. The ld. A.R. has contended before us that it was having sufficient interest-free funds at its disposal which were invested in securities earning exempt and hence no disallowance of interest was called for. The AO, while computing disallowance u/s.14A, will also examine this contention of the assessee as per law." In the appeals filed by the assessee for subsequent year Tribunal followed the order passed for the AY 1997-98.Respectfully following the orders of the coordinating benches we restore back the matter to the file of the AO for fresh adjudication after affording a reasonable opportunity of hearing to the assessee. Ground no.4 is allowed in part in favour of the assessee. As a result,appeal filed by the assessee-bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they should be allowed to recast the profit & loss account as per the provisions of Companies Act, 1956 and the net profit as per the recasted profit & loss account should be considered for arriving at the book profit." 6.1.Ground nos.1a) and 1b) have already been decided by us while finalising the appeals filed by the assessee for the earlier AYs.Following the same,matter is restored back to the file of the AO for fresh adjudication after affording a reasonable opportunity of hearing to the assessee. Ground no.1 is allowed in part in favour of the assessee. 7.AR did not press ground no.2 before us.Therefore,same is treated as not pressed and hence dismissed. 8.Next ground of appeal is about prior period expenses amounting to ₹ 46,33,953/-.During the assessment proceedings AO held that expenses amounting to ₹ 46.33 lacs pertained to earlier years and did not relate to the AY under consideration.He disallowed the said amount because he was of the opinion that assessee was following mercantile system of accounting and hence expenditure of earlier years could not be claimed in the year under consideration. 8.1.Assessee preferred an appeal before the FAA.After con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tipco)on 3.08.2012. 8.3.We have heard the rival submissions and perused the material on record.We find that facts of the case under consideration and that of Tipco are totally different.In the case of Tipco nothing had been brought on record to substantiate its claim neither before the lower authorities nor before the Tribunal.But,in the present case assessee had made submissions about pending rent payment and accrued interest on FDRs.As per the settled principles of taxation-jurisprudence, prior period expenses can be allowed in certain circumstances though they may not pertain to a particular AY for which return of income is filed.Crystalisation of expenses during a particular period is the deciding factor in such cases.We find that in the matter under consideration prior period expenses related to arrears of rent paid by the bank in respect of leased property and interest expenditure due to renewal of Fixed Deposits held by the FDR holders. The nature of expenditure is as such that some delay is bound to happen and crystalisation of such expenditure after 31st March of the AY.under consideration is natural.We have perused the orders passed by coordinating benches in the cases o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has submitted as follows: "The appellant further submits that the appellant is not a company under Companies Act but is only deemed to be a company as per the provisions of Sec. 11 of the Banking Companies (Acquisition and Transfer of Undertaking)Act,1970.Therefore as held by the Jurisdictional ITAT in the case of Maharashtra State Electricity Board (82 lTD 422) the provisions of Sec. 11 5JB cannot be made applicable to the appellant. Reliance is also placed on the decision of Kerala High Court in the case of Kerala State Electricity Board (329 ITR 91)." 21. We find that in the case of Kurung Thai Bank PCL) in ITA No. 3390/M/90 for A.Y. 2004-05 it has been held as follows: "In view of the above discussions, and following the view taken by a co ordinate Bench in the case of Maharashtra State Electricity Board Vs JCIT (82ITD422),which holds that provisions of MAT cannot be applied to electricity companies for mutually similar reason we uphold the plea of the assessee.The pro visions of Sec. 115JB do not apply to the assessee and, as such, the AO was in error in concluding that income had escaped assessment in the hands of the assessee The venj initiation of reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of Bad debts written off: Rural Debts written off 9,31,69,000 Non-rural Debts written off 2,64,30,51,573 Total Debts written off 2,73,62,20,573 Details of provisions u/s. 36(1)(viia) 10% of Average Rural Advances 68,81,03,934 7.5% of Total Income 32,81,13,376 Total provisions u/s. 36(1)(viia) 1,01,62,17,310 10.2.Assessee preferred an appeal before the FAA.After considering the submissions of the assessee-bank, FAA held that only the Opening Balance in the provision for bad debts could be adjusted, that provision made at the end of the FY could not be allowed, that the provision made at the end of the year had to be allowed in full, that rural and non-rural bad debts are to be considered separately that if bad debts written-off related to debts other than for which provision was made under Clause-(viia) such debts fell squarely under the main part of the Clause-(vii) of Section 36 of the Act, that in appellant's case, provision in respect of rural debt has been made by it at ₹ 68.1 Crores, that debts written-off of ₹ 264.31 Crores were other than the rural debts, that same were liable under Clause-(vii) of Section 36,that no adjustment in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess, if any, of the write off over the amount standing to the credit of the account created under clause (viia). The CBDT itself has recognized the position that a bank would be entitled to both the deductions, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. It would be meaningless to invoke the proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by circulars issued by the CBDT. Thus, the proviso is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii)." Respectfully following the principles enumerated by the Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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