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TMI Blog2017 (4) TMI 1337X X X X Extracts X X X X X X X X Extracts X X X X ..... ral loans. Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields – Decided in favor of assessee. Bad debts written off computation - whether to be computed not only with opening balance but also with the closing balance? - Held that:- Direct the Assessing Officer to allow deduction under section 36(1)(vi), without taking into account the admissible deduction under section 36(1)(viia)(b) for the relevant previous year, which, in our considered view, can only be taken into account for computing deduction under section 36(1)(vi) for subsequent year(s). See Oman International Bank SAOG [2013 (2) TMI 757 - BOMBAY HIGH COURT] Deduction @7.5%,u/s.36(1)(vii)on the assessed Gross Total Income (GTI) - Held that:- We find that the assessee had moved an application under section 154 of the Act, in that regard. On a query by the bench, it was stated that the AO had not passed the recognition order. The AO is directed to dispose off the application, filed by the assessee, as per the orders of the FAA within a period of one month from the date of receipt of our order. Not able to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75.09 crores 04.02.2013 2010-11 29.09.2010 869.04 crores 26.03.2012 917.48 crores 04.02.2013 2011-12 29.11.2012 997.80 crores 14.032013 1154.06 crores 20.08.2013 1657/Mum/2012(AY.2008-09): 3. Effective Ground of Appeal,raised by the AO,deals with disallowance of bad debts,,amounting to ₹ 22.77crores.It was brought to our notice,that while deciding the appeals for the AY.s. 2003 -04 to2006-07,(ITA/8523/Mum/2011 others,dtd.16.03.2017),the Tribunal has deliberated upon the issue in length.We are reproducing the relevant portion of the said order and it reads as under: 3. First Ground of Appeal deals with disallowance of bad debts.While completing the assessment u/s. 143(3) r.w.s.147/263 of the Act,the AO reduced the bad debts, amounting to ₹ 2. 84 crores from the provision of bad debts of ₹ 7.12 crores and accordingly allowed no bad debts.He held that bad debts were allowable to the extent they were in excess of provision f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same reads as under :- 14. From the above statutory provisions, it can be seenthat in addition to the deduction available to an assessee under section 36(1)(vii) for bad debts, in case of special class of banks mentioned in clause (viia), deductions subject to fulfilment of certain conditions is available in respect of any provision for bad and doubtful debts. One of the restrictions is of limiting such deduction to a maximum of a specified percentage of total income of the assessee computed before making any deduction under this clause and not exceeding prescribed percentage of aggregate average advance made by the rural branches of such bank. From the decision of the Apex Court in the case of Catholic Syrian Bank Ltd. (supra), it can be gathered that under clause (vii) of sub-section (1) of section 36, deduction is made available in computation of taxable profits of all scheduled commercial banks in respect of provisions made by them for bad and doubtful debts relating to advances made by them in the rural branches. Such deduction is limited to a specified percentage of the aggregate average advances made by the rural branches. The Apex Court held that the deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the I.T. Act, 1961. ( i) Under section 36(1)(vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debs to the provision for bad and doubtful debt account under section 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. ( ii) While considering the claim for bad debts u/s 36(1)(vii), the assessing officer should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad doubtful debt account created u/s 36(1)(viia) of the Act. The credit balance for this purpose will be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year. 17. As already noted, in absence of such clarification byCBDT, we would have been inclined to admit the appeals. However, when such circular issued under section 119(2) of the Act clarifies the position beyond any doubt, we have no reason to entertain the revenue's appeals. As already noted, the statutory provision is silent on the precise me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorised as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities. Respectfully following the above judgment and the other judgments referred to by the AR,we hold that there is no legal or actual infirmity in the order of the FAA.Therefore, confirming his order,we decide Ground No.1 against the AO. Considering the above,effective ground of appeal,raised by the AO,stands dismissed. 1929/Mum/2012(AY.2008-09): 4. First ground of appal,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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on behalf of the assessee is that no income was earned by the assessee and merely hypothetical disallowance has been made. Reliance was placed 378 ITR 33 (Del.) order dated 02/09/2015. Considering the totality of facts and the arguments from both sides, we find 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. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee had received dividend income of ₹ 16,54,11,716/-, that out of the said amount ₹ 11.02 Crores pertained to the dividend received from mutual funds, that the balance amount of ₹ 5.51 Crores was received from shares from the total investment of ₹ 41.62 Crores which was group companies. Invoking the provisions of section 14A r.w. Rule 8D of the Income-tax Rules,1962 (Rules),the AO made a disallowance of ₹ 5.9386 Crores. 2.1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submission of the assessee and the assessment order, FAA held that his predecessor,in the AY.s.2004-05 and 2005-06,had held that 0.5% of average investment only in non-strategic investment had to be disallowed.On the basis of that,he restricted the disallowance to ₹ 85.47 Lakhs and partly allowed the appeal filed by the assessee. 2.2. Before us, AR stated that similar issue had arisen in the earlier years and was decided in favour of the assessee,that the assessee itself had made a disallowance of ₹ 31.11 Lakhs u/s 14A of the Act.Departmental Representative (DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. 32.4.The Ld. Sr. Counsel for the assessee fairly conceded to the findings of the Ld. CIT(A). 32.5.We have carefully perused the orders of the authorities below. We find that the major investment of the assessee is in its group companies. After considering this facts, the Ld. CIT(A) has restricted the disallowance to ₹ 1.87 lakhs. We do not find any reason to interfere with the findings of the Ld. CIT(A). Ground No. 2 is accordingly dismissed. Respectfully, following the order for the year 2002-03,ground no.3 is decided against the AO. Respectfully,following the order for the earlier years,ground no. 1 is decided in favour of the assessee. Considering the above,we direct the AO to restrict the disallowance under rule 8D(2)(iii)of the Rules @ of 0.05% of the average investment.But,strategic investment should not be considered for computing the disallowance.Second ground is allowed in favour of the assessee,in part. 6. Disallowance of bad debts of ₹ 45.74 crores is the subject matter of ground no.3.During the course of hearing the AR stated that the issue stands finally decided by the order of the Hon ble Apex Court,delivered in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the provision for bad and doubtful debts under section 36(1)(viia) . The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The court would give an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert them. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. The deductions permissible under section 36(1)(vii) should not be negated by reading into this provision, limitations of section 36(1)(viia) on the reasoning that it will form a check against double deduction. The language of section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It gives a benefit to all banks, commercial or rural, scheduled or unscheduled, to claim a deduction of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to section 36(2) of the Act. The proviso to section 36(1)(vii) does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;;s plea is to be upheld, the assessee will get undue benefit in the first year of operations, because, on one hand, the assessee will be entitled to an ad hoc claim on the basis of taxable business income and, on the other hand, such an ad hoc claim will not be set off in deduction for actual bad debts. According to the learned Departmental Representative, this incongruity will end up in a situation that the assessee will get deduction for more than actual 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 section 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 section 36(1)(vii), and, to that extent, the actual deduction attributable to bad debts [i.e. section 36(1)(vii) plus section 36(1)(viia)(b)] will indeed be more than the actual bad debts in that year. However, since the provision so allowed under section 36(1)(viia)(b) is to be taken into account while allowing deduction for actual bad debts in the subsequent year, the effect of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal are about allowing bad debt claim of ₹ 106.28 crores u/s.36(1)(vi) r.w.s.36(1)(vii)of the Act. Following our order for the AY.2008-09,we decide both the grounds of appeal against the AO. 15. Third ground of appeal is identical to the effective ground of appeal,raised by the AO,for the AY.2009-10.Respectfully,following the order of the Tribunal in the case of Oman International Bank SAOG(supra),we decide last ground against the AO. ITA/3593/Mum/2013(AY.2010-11): 16. First two ground of appeal are about disallowance made by the AO u/s.14A r.w.r.8D(2)(ii) and(iii)of the Rules.Following our orders,for earlier year ground no.1 is allowed and ground no.2 is allowed,in part.AO would follow our directions with regard to GOA 2. 17 .Third ground stands dismissed,as not pressed. 18. Last ground is consequential in nature. AO is directed to follow the directions of the Tribunal passed with regard to depreciation of various assets,while adjudicating the issue under considera -tion,for the earlier years. ITA/6394/Mum/2013(AY.2011-12): 19. Both the grounds raised by the AO are identical to the ground raised by him in the earlier year i.e.bad de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng sufficient time and opportunity to the assessee,that the assessee had requested for time to reconcile the difference, that part of the data in the AIR had been successfully reconcile by the assessee, that it was possible that the transactions were reported in earlier/subsequent assessment years, that it was also possible that transactions in question remain to be reported by the assessee in its books of accounts, that it had failed to reconcile the said discrepancy, that on reconcile transactions were required to be explained by the assessee mainly because the authenticity and the reliability and validity of the data had not been discredited by the assessee, that no material/evidence was filed before the AO or him to prove that the data. Finally,he directed the AO to re-examine the AIR data and decide the issue accordingly. 24.2. Before us,the AR stated that the amount in question was very meagre as computer the total turnover,that assessee had reconcile all the discrepancies except for ₹ 1.40 lakhs, that no addition should have been made on the basis of the AIR data. The DR contended that FAA had asked the AO to verify the claim of the assessee and to make addition on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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