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TMI Blog2018 (4) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly compute the disallowance if any. Accordingly, this issue of Revenue’s appeal is dismissed and that of the assessee is allowed subject to verification as suggested by us. Disallowance of bad debts under section 36(1)(viia) - Held that:- Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (2012 (2) TMI 262 - SUPREME COURT OF INDIA) wherein it is held that the assessee is entitled for deduction under section 36(1)(vii) read with section 36(2)(v) of the Act and also this deduction is independent of provisions made in section 36(1)(viia) of the Act. Accordingly, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the same. This issue of Revenue’s appeal is also dismissed. Expenditure incurred by the assessee on Employees State Option Plan (ESOP) is to be allowed. See Biocon Ltd. Vs. DCIT [2013 (8) TMI 629 - ITAT BANGALORE] X X X X Extracts X X X X X X X X Extracts X X X X ..... for condonation of delay in making such Cross Objection." 3. When this was pointed out to the learned Sr. Departmental Representative, he objected to condonation but could not give any reason for objection. After hearing both the sides, we feel that this is a fit case for condonation because the assessee inadvertently and under bonafide belief could not file cross objection even though it had taken ground before CIT(A). Accordingly, we admit the cross objection and proceed to adjudicate the same. 4. The first common issue in this appeal of Revenue and the cross objection of the assessee is as regards to the computation of disallowance under section 14A of the Act read with Rule 8D(2). For this Revenue has raised the following ground No. 2 and 3 and assessee in its CO has raised following ground No. 1 to 3: - "Assessee: - 1. The CIT(A) erred in confirming the disallowance of Interest u/s. 14A without appreciating the fact that the Cross Objector had not incurred any interest expenditure in relation to non- strategic / non group company investments and the said investments were made out of own funds, interest free funds and internal accruals. 2. The CIT(A) ought to have appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest paid at ₹ 23,73,05,873/- under Rule 8D(2)(ii) and 0.5% of average value investments of ₹ 1,88,46,862/- under Rule 8D(2) (iii) of the Income Tax Rules. Aggrieved assessee preferred the appeal before CIT(A). The CIT(A) partly allowed the claim of assessee vide Para 4.7, 4.8 and 4.9 as under: - "4.7 As regards investment made by the appellant in subsidiaries companies, amounting to ₹ 106.44 crores, the appellant has submitted the balance sheet I trial balance on the date of making the investment to demonstrate that the appellant had substantial balance in current account which is interest-free funds from which investments were made. The AO in A.Y. 2010-11 has held that considering the balance in the current account on the date of investment, investments made during A.Y. 2010-11 should be excluded. I find no reason as to why the same principle of A.Y.2010-1 1 be not applied to investments made in A.Y. 2008-09, A.Y.2009-10 & A.Y.2011-12. The appellant had substantial balance in current account on the date of investment, far more than the amount of investment made. Accordingly, investment amounting to ₹ 106.44 crores is excluded for the purpose of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal decision in assessee's own case for AY 2008-09 to 2011-12 and he referred to ITA Nos. 1657,1929/Mum/2012 and ITA No. 3491,3592,3593,6394 and 6217/Mum/2013 order dated 18-04-2017 para 4 for the proposition that the CIT(A) has not adjudicated the issue of interest in respect of own funds or non-interest bearing funds which are more than the investments made in the instruments giving tax free income while disallowing under Rule 8D(2)(ii) of the Rules. He referred to the following Para 4 which reads as under: - "4.First ground of appeal, raised by the assessee, is about disallowance of interest of ₹ 17.30 crores u/s.14A r.w.r.8D(2)(ii)of the Act. The Authorised Representative(AR)relied upon the case of HDFC Bank Ltd. (383ITR529. The Departmental Representative(DR) supported the order of the First Appellate Authority(FAA).We find that similar issue was deliberated by the Tribunal in the cases of Premier Finance & Trading Co.Ltd.(ITA./1655/Mum/2013, AY. 2008-09 & others, dtd. 25.05.2016) and Aditya Birla Nuvo Ltd.(ITA/8427/8483/Mum/2010- dtd. 17. 09. 2014), referred to by the AR.We are reproducing the relevant portion of the order of the case of Premier Finance & Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the Hon'ble Delhi High Court in the aforesaid order dated 02/09/2015 held that where no exempt income was earned by the assessee in the relevant assessment years and since the genuineness of expenditure is not in doubt, there is no question of disallowance u/s 14A of the Act. While coming to this conclusion, the Hon'ble High Court relied upon following decisions:- i. Cheminvest Ltd. v. CIT [2009] 317 ITR (AT) 86 (Delhi) [SB] (para 15) ii. CIT v. Chugandas and Co. [1964] 55 ITR 17 (SC) (para 14) iii. CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC) (para 14) iv. CIT v. Corrtech Energy (P.) Ltd. [2015] 372 ITR 97 (Guj) (para 15) v. CIT v.Holcim India (P.) Ltd.(I.T.A.No.486 of 2014 decided on 5- 9-2014) (para 15) vi. CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H) (para 15) vii. CIT v. Lakhani Marketing Incl. [2015] 4 ITR-OL 246 (P&H) (para 15) viii. CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) (para 10) ix. CIT v.Shivam Motors (P.) Ltd. (ITA No. 88 of 2014 decided on 5-5-2014) (para 15) x. IT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P&H) (para 15) , xi. Eicher Goodearth Ltd. vs. CIT [2015] 378 ITR 28 (Delhi) (para 14) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, this issue of Revenue's appeal is dismissed and that of the assessee is allowed subject to verification as suggested by us. 8. The next issue of this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO on disallowance of bad debts under section 36(1)(viia) of the Act. For this Revenue has raised the following ground No.4: - "4. On the facts and in the circumstances of the case and in law, the Hon. CIT(A) erred in directing the AO to allow bad debts account u/s 36(1)(viia) independent of the claim and balance available in the provision of bad debts created u/s 36(1)(viia) pertains only rural advances." 9. Brief facts are that according to AO, the assessee has claimed full bad debts of ₹ 105,67,43,526/- under section 36(1)(vii) over and above the claim and deduction under section 36(1)(viia) of the Act. According to AO bad debt is allowable to the assessee is nil and hence, the entire bad debts of ₹ 105,67,43,526 added to the total income of the assessee. Aggrieved assessee preferred the appeal before CIT(A), who relied on the earlier years order of CIT(A) for assessment year 2010-11 and 2011-12 and deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia) . Thus, the proviso would not permit the benefit of double deduction, operating with reference to rural loans while under section 36(1)(vii) . XXXXX The clear legislative intent of the provisions and unambiguous language of the circulars with reference to the amendments to section 36 of the Act is that the deduction on account of provisions for bad and doubtful debts under section 36(1)(viia) is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of the bad debts. After introduction of section 36(1)(viia) by the Finance Act, 1979, with effect from April 1, 1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited as specified in the section. The circular mentions that the provisions of new clause (viia) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uble deduction under the provisions of section 36(1)(viia) and the proviso to section 36(1)(vii) ." Respectfully, following the above, we decide ground no.3 in favour of the assessee." 11. We find that the tribunal in earlier years followed the judgment of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (2012) 343 ITR 270, wherein it is held that the assessee is entitled for deduction under section 36(1)(vii) read with section 36(2)(v) of the Act and also this deduction is independent of provisions made in section 36(1)(viia) of the Act. Accordingly, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the same. This issue of Revenue's appeal is also dismissed. 12. The next issue in this appeal of Revenue is against the order of CIT(A) deleing the disallowance of expenditure incurred by the assessee on Employees State Option Plan (ESOP). For this Revenue has raised the following ground No. 5: - "5. On the facts and in the circumstances of the case and in law, the Hon. CIT(A) erred in directing the AO to allow the expenditure incurred on ESOP after verification, in accordance with the principle laid down by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT-27/2014-15 dated 12.11.2015). Since the facts in the present appeal are identical to that in A.Y.2009-10, following the reasons given therein, the AO is directed to allow the expenditure incurred on ESOP after verification, in accordance with the principle laid down by the Hon'ble Special Bench in the case of Biocon Ltd (Appeal No.368IBangI2010). Accordingly, this ground is allowed" Aggrieved, now Revenue is in appeal before Tribunal. 15. At the outset, the learned Counsel for the assessee stated that this issue also covered by Tribunal's decision in assessee's own case for AY 2009-10 reported in (2018) 89 taxmann.com 223 (Mumbai-Trib), wherein in Para 8 reads as under:- "8. We find that the A.O while framing the assessment had specifically observed that the claim of the assessee towards entitlement of discounted premium on ESOP's as an expenditure under sec. 37(1) was though found to be in accordance with the principle laid down by the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra), however, as the order of the 'Special Bench' of the Tribunal had not been accepted by the department and had been assailed before the Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; of the Tribunal in the case of Biocon Ltd. (supra). We would not hesitate to observe that it is absolutely beyond our comprehension that as to how the department could be aggrieved with the order of the Ld. CIT (A) who had set aside the observations of the A.O which were palpably found to be in serious contradiction of the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd.(supra). We may herein clarify that neither anything has been placed on record nor averred before us which could persuade us to conclude that the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra) had either been stayed or set aside by the Hon'ble High Court of Karnataka, or a view taken by the 'Special Bench' no more holds the ground on account of a contrary view taken by any other High Court. We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to accept the ground of appeal raised by the revenue before us, therefore, finding no infirmity in the well-reasoned order of the CIT (A), uphold the same." 16. Respectfully following the Tribunal's decision in assessee's own case, we confirm the order of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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