9911796707
TMI Blog2017 (4) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no case for the Revenue that assessee was holding these investments solely for the purpose of earning dividend. Once holding of investment was considered incidental to the business of banking to the assessee, in our opinion, Section 14A of the Act could not have been applied. Thus disallowance under Section 14A of the Act could not have been made in the assessee’s case for investments which were considered as part of stock-in-trade for tax purposes. - Decided in favour of assessee Method of calculation of Aggregate Average Rural Advances for the purpose of application of Section 36(1)(viia) not adjudicated by the Ld. CIT(Appeals) - Held that:- Irrespective of the fact whether computation made by the Assessing Officer is having an effect on the taxable income of the assessee, Ld. CIT(Appeals) ought to have decided the ground raised by the assessee on merits. We are, therefore, of the opinion that ground No.10 raised before the Ld. CIT(Appeals) needs to be adjudicated by him. We, therefore, set aside the order of the CIT(Appeals) and remit the issue back to the file of the Ld. CIT(Appeals) for consideration Disallowance of clam under Section 36(1)(viii) - Held that:- Assessee ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any case, we find Hon'ble jurisdictional High Court in the case of Kumaran Mills Ltd.(1997 (12) TMI 31 - MADRAS High Court) had held that ex-gratia payments could not be disallowed if it was found to be commercial expedient. Therefore, in our opinion, Ld. CIT(Appeals) was justified in disallowing this issue.- Decided in favour of assessee Disallowance of entertainment expenses - Held that:- It is not disputed that the claim of entertainment expenditure was in relation to customers of the assessee-bank. There is no ground for the Revenue that entertainment expenditure was incurred by the employees of the assessee for their own benefit. In the nature of business of the assessee, we cannot say that the entertainment expenditure claimed by the assessee was not required to be incurred. In any case, there is no reason why an ad-hoc disallowance of 5% was made. If the Assessing Officer was of the opinion that any expenditure was not vouched, he could have made disallowance for such expenditure. In our opinion, the CIT(Appeals) was justified in deleting 5% disallowance made by the Assessing Officer. Addition made for interest accrued on NPAs - Held that:- Only for non-viable or sticky adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve rise to such income. The Assessing Officer held that this was not acceptable. He applied Section 14A of the Act read with Rule 8D of Income-tax Rules, 1962. However, the disallowance was restricted to 2% of such income. Such disallowance came to ₹ 5,46,512/-. 5. Aggrieved, assessee moved in appeal before the CIT(Appeals). Argument of the assessee was that investments made were a part of its treasury operations. As per the assessee, the expenditure relating to Treasury Department was a necessary corollary to the banking operations. Claim of the assessee was that for the purpose of income- tax, entire portfolio of investments, including the tax-free securities, were treated as stock-in-trade. As per the assessee, since the investments were part of stock-in-trade, disallowance under Section 14A of the Act could not be made. However, Ld. CIT(Appeals) was not impressed by the above argument. According to him, assessee had received tax-free dividend of ₹ 1,66,21,733/- on shares worth ₹ 82.72 Crores and dividend of ₹ 41,07,03,886/- on mutual funds units of ₹ 573.44 Crores. As per Ld. CIT(Appeals), assessee itself had admitted using its Treasury Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him, assessee had classified the shares under the head 'Investments' and not stock-in- trade in its balance sheet prepared in accordance with Banking Regulation Act. As per Ld. D.R., assessee was claiming such investments to be a part of stock-in-trade for the purpose of income- tax only. According to him, Section 14A of the Act clearly applied and the Ld. CIT(Appeals) correctly applied Rule 8D(2)(iii). 8. We have heard the rival contentions and perused the orders. Claim of the assessee is that shares/units held by it whether classified as "investment" or "stock-in-trade" in balance sheet, that has to be considered as stock-in-trade only for tax purpose, and Section 14A of the Act had no application. Circular No.18 dated 02.11.2015 of CBDT is reproduced hereunder:- "Subject: Interest from non-SLR securities of Banks - Reg. It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, "expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income from other sources." 2. Clause (id) of sub-section (1) of Section 56 of the Act provides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sections 10(15)(iv)(h),(34) and (35). This was incidental to its business of banking. The business income on account of the assessee trading in the securities is assessable under the head "Profits and gains of business or profession". The expenditure incurred in relation to stock-in-trade arising as a result of investment in shares and debentures is deductible under sections 28 to 37." 9. Once holding of investment was considered incidental to the business of banking to the assessee, in our opinion, Section 14A of the Act could not have been applied. Para 26 of the very same judgment is also relevant and it is reproduced hereunder:- "26. What is of vital importance in the above judgment are the observations emphasized by us. Each of them expressly states that what is disallowed is expenditure incurred to "earn" exempt income. The words "in relation to" in section 14A must be construed accordingly. Thus, the words "in relation to" apply to earning exempt income. The importance of the observation is this. We have held that the securities in question constituted the assessee's stock-in-trade and the income that arises on account of the purchase and sale of the securities is its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- (a) Aggregate average rural advances during the year 18,45,11,366/- (b) Deduction allowable on aggregate rural advances [@ 10% of (b)] 1,84,51,137/- (c) 7.5% of Gross Total Income before deduction under chapter VIA 26,39,18,480/- (d) Total of (b) and (a) 28,23,69,617/- (e) Provision made for Bad and doubtful debts by the Bank 24,48,02,775/- (f) Least of (d) or (e) allowable as deduction u/s 36(1)(viia) 24,48,02,775/- 14. Aggrieved, the assessee moved in appeal before the CIT(Appeals). Ld. CIT(Appeals) was of the opinion that the actual amount of deduction computed by the assessee as well as the Assessing Officer was very same. As per the Ld. CIT(Appeals), the ground was purely academic, since, according to him, for the impugned assessment year, the Assessing Officer though he followed a different method of computation, it did not effect the taxable income of the assessee. 15. Before us, Ld. A.R. for the assessee submitted that whether or not taxable income of the assessee was disturbed, Ld. CIT(Appeals) was obliged to give a specific finding on the ground raised by the assessee. As per Ld. A.R., the issue was required to be remitted back to the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -cash expenditure. As per the assessee, it had created a special reserve of ₹ 20 Crores and was eligible for deduction of ₹ 20 Crores under Section 36(1)(viii) of the Act. Ld. CIT(Appeals) was of the opinion that the enhanced claim could not be allowed in an appellate proceeding. As per Ld. CIT(Appeals), assessee had not placed before the Assessing Officer the re-worked computation of profits from eligible business. Relying on judgment of Apex Court in the case of Jute Corporation of India v. CIT (1991) 187 ITR 688, Ld. CIT(Appeals) held that only a bonafide ground, which could not be raised earlier for good reasons, could be considered in an appellate proceeding. Relying on the judgment of Apex Court in National Thermal Power Company Ltd. v. CIT (229 ITR 383), Ld. CIT(Appeals) rejected the claim for enhanced deduction under Section 36(1)(viii) of the Act. 22. Now before us, the Ld. AR for the assessee submitted that Hon'ble Apex Court's judgment in National Thermal Power Company Ltd. (supra) actually went in favour of assessee. According to him, nothing stopped the appellate authorities from considering a fresh ground raised by the assessee, if it was within the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted by the Ld. CIT(Appeals). 29. Facts apropos are that balance sheet of the assessee for relevant previous year disclosed outstanding liability of ₹ 8,82,15,584/- towards stale draft account. The above sum represented unclaimed money on demand drafts, which were issued more than three years earlier. As per the A.O., legally, such money which remained unclaimed for more than three years could no more be claimed by the creditor, since limitation period kicked in. He treated the sum as income of the assessee, but, restricted that addition to ₹ 2,68,97,833/- being the accretion relatable to the relevant previous year. Reliance was placed on the judgment of Hon'ble Apex Court in the case of CIT v. T.V. Sundaram Iyengar & Sons (222 ITR 344). 30. Challenging the above, assessee moved in appeal before the CIT(Appeals). As per the assessee, consideration for issuing bank demand draft, etc. were recovered by the assessee from various persons. According to it, there was no time limit for claiming the money by the persons who had paid for these instruments, if it was not encashed by the beneficiary. As per the assessee, when they were not claimed by the beneficiary in whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any reason to interfere in the order of the CIT(Appeals). 34. Ground Nos. 2 to 5 of the Revenue stand dismissed. 35. Vide its ground Nos.6 to 10, grievance raised by the Revenue is that the CIT(Appeals) deleted the disallowance for ex-gratia payment made by the assessee. 36. Facts apropos are that assessee had made ex-gratia payment of ₹ 8,12,68,024/- to its employees who were not covered under Payment of Bonus Act, 1965. Ld. A.O. held that it was nothing but appropriation of profits by senior employees who had income in excess of ₹ 10,000/- per month. As per Ld. A.O., there was no co- relation between the ex-gratia payment and the quality of work of these employees. Though assessee, claimed such payments to have been made for business expediency and to ensure smooth working and better relationship with its employees, this was not accepted by the Ld. A.O. According to him, such ex-gratia payment was not allowable either under Section 36(1)(ii) or under Section 36(1)(v) of the Act. 37. Aggrieved, assessee moved in appeal before the CIT(Appeals). Argument of the assessee was that the payment of ex-gratia to employees who were not eligible for bonus under Paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such payment so as to ensure smooth and better relationship with its employees. In any case, we find Hon'ble jurisdictional High Court in the case of Kumaran Mills Ltd. (supra) had held that ex-gratia payments could not be disallowed if it was found to be commercial expedient. Therefore, in our opinion, Ld. CIT(Appeals) was justified in disallowing this issue. 41. Ground Nos. 6 to 10 are dismissed. 42. Vide its ground No.11, Revenue is aggrieved on disallowance of entertainment expenses made by the Assessing Officer being deleted by the Ld. CIT(Appeals). 43. Assessee had claimed a deduction of ₹ 56,45,550/- as entertainment expenditure. It was clarified by the assessee that the amount has been spent in supplying of tea, coffee, etc. to the customers. Contention was that it was incurred wholly and exclusively for the purpose of its business. As per the assessee, though Section 37(2) was removed from the Act, it did not mean that expenditure incurred for promoting business was required to be disallowed. However, Assessing Officer was of the opinion that the claim though allowable, the type of vouchers maintained by the assessee and the nature of expenditure did not demo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. noted that RBI had lowered the limit for recognizing an account as NPA from 180 days to 90 days. However, as per the Ld. A.O., there was no such change either in Section 43D or Rule 6EA. As per the A.O., interest was required to be offered for taxation on accrual basis on all NPAs which were more than 90 days old but were less than 180 days old as well. Ld. A.O. demarcated the additions to the list of NPAs made in the last quarter of relevant previous year since these fell under the category of accounts which were more than 90 days old but less than 180 days. He computed an accrued interest of ₹ 74,60,000/- on such accounts having balance of ₹ 59.68 Crores, applying average interest rate of 10% per annum. An addition of ₹ 74,60,000/- was made. 51. In its appeal before the CIT(Appeals), argument of the assessee was that there were various types of categories mentioned in Rule 6EA, which were to be treated as bad and doubtful debts for the purpose of Section 43D of the Act. As per the assessee, if an account falls under any one of the clauses (a) to (e) of Rule 6EA, then it had to be treated as bad and doubtful one. Further, as per the assessee, in respect of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the case of DCIT v. The Royal Bank of Scotland N.V. 2016(11) TMI 665 and it was held that interest on loans should not automatically be recognized on accrual basis and this had to be in line with RBI prudential norms for income recognition. Reliance was also placed on the judgment of Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd. (2011) 330 ITR 440. 55. We have heard rival contentions and perused the orders. A.O. had refused to consider accounts on which principal and interest were outstanding for a period of more than 90 days but less than 180 days, as sticky. According to him, interest on such advances had to be considered on the basis of accrual. Reliance was placed on Section 43D of the Act. Section 43D clause (a) and (b) are reproduced hereunder:- SPECIAL PROVISION IN CASE OF INCOME OF PUBLIC FINANCIAL INSTITUTIONS, PUBLIC COMPANIES, ETC. 43D. Notwithstanding anything to the contrary contained in any other provision of this Act,-- (a) in the case of a public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation, the income by way of interest in relation to such categories of bad or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths and more or the recovery of such bills from the borrower poses difficulties; 4. in the case of term loans, instalments which are overdue for 6 months or more; 5. unexplained delays by the borrower in submission of quarterly or half-yearly operating statements or stock statements or balance-sheets and other information required by the bank; 6. slow movement or stagnation of stocks observed during inspections; 7. low or negligible level of activity observed during inspections or suspension or closure of the business; 8. persistent delay in compliance with vital requirements like execution of documents, producing additional security when required or non-compliance with such requirements; 9. diversion of funds to sister units or acquiring capital assets not relevant to the business or large personal withdrawals by the borrowers; 10. intentional non-adherence to project schedules leading to substantial cost escalations and requirement of additional term finance; 11. the pressure on the liquidity leading to non-payment of wages to workers or statutory dues or rents of office and factory premises; 12. the current liabilities exceeding current assets; 13. any grav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances respectfully following the decisions of Hon'ble Delhi High Court in 330 ITR 440 and various other decisions referred to supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the grounds raised by the assessee are allowed." 56. Therefore, in our opinion, CIT(Appeals) was justified in deleting the addition made on interest on NPAs. We do not find any reason to interfere with the order of the CIT(Appeals). 57. Ground Nos.12 to 14 of the Revenue stands dismissed. 58. Now, we take up the appeals of the assessee and Revenue for assessment year 2011-12. 59. Ground No.2 taken by the assessee for this assessment year is similar to the ground raised by it in its appeal for assessment year 2010-11. 60. We have already held in I.T.A. No.2325/Mds/2016, at paras 8 & 9 above, that disallowance under Section 14A of the Act was not warranted in assessment year 2010-11. The factual situation being the same, we delete the disallowance made under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative submitted that the CIT(Appeals) had believed the claim of the assessee regarding actual disbursement of wage arrears without giving any opportunity to the Assessing Officer to verify the facts. 67. Per contra, the Ld. AR strongly supported the order of the CIT(Appeals). 68. We have heard the rival contentions and perused the orders. The CIT(Appeals) had allowed the claim of disbursement of ₹ 17,66,43,818/- on actual payment basis. The provision made by the assessee for such wage arrears in earlier year was disallowed. Against such disallowance, assessee has taken no grounds before this Tribunal in its appeal for assessment year 2010-11. Accordingly, the claim of the assessee that it had to be allowed on actual payment basis was, in our opinion, rightly allowed by the CIT(Appeals). However, whether the assessee had actually disbursed ₹ 17,66,43,818/- requires to be verified by the A.O. For this limited purpose, the matter is remitted back to the file of the Assessing Officer. 69. Ground No.15 of the Revenue is allowed for statistical purposes. 70. To sum up, appeals of the assessee for assessment years 2010-11 and 2011-12 are allowed pro-tanto. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
