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TMI Blog2018 (9) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... ospects of the business wherein the said credit would not be utilized in full, the assessee chose to write off the same in part during the year under consideration based on some rationale and proper workings, which in our considered opinion, is in order and cannot be questioned by the revenue. Accordingly, we direct the ld AO to grant deduction for the same Deduction of provision for bad and doubtful debts u/s 36(1)(viia)(b) - Held that:- while computing the statutory deduction under Clause (viia) of Sub- section 1 of Section 36 of the Income Tax Act, 1961, the total income would be the business income of the assessee before deducting the deduction under this Clause and deductions under Chapter 6A of the Income Tax Act, 1961. Therefore, the brought forward losses would not be deducted while computing the total income for the purpose of Section 36(1)(viia). Since the deduction is available only for computing the business income under the clause, therefore the total income also refers the income of the assessee from profit and gain from a business and shall not include the income other than the business income - final order of the ld AO granting relief to the assessee does not call f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 . Accordingly, the Ground Nos. 1 (a) to 1(d) raised by the assessee are dismissed. 3. ADDITION TOWARDS INTEREST INCOME ON NPA Ground Nos. 2(a) to 2(d) of Assessee Appeal The issue to be decided in the appeal of the assessee is as to whether the ld DRP was justified in upholding the addition of ₹ 39,78,079/- on account of interest income in relation to advances classified as Non-Performing Advances (NPA) in the facts and circumstances of the case. 3.1. The brief facts of this issue are that the assessee is a bank incorporated in Netherlands with limited liability with branches in India. In India, the assessee is registered as a scheduled bank in terms of Schedule II of the Reserve Bank of India Act, 1934. The main activities of the assessee in India comprise of accepting deposits, giving loans, discounting / collection of bills, issue of letters of credit / guarantees, executing forward transaction in foreign currencies for importers / exporters , money market lending / borrowings, investment in securities , etc in terms of the prevailing rules and regulations governing such transactions. The ld AO observed that assessee bank had not recognized the interest income in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well settled that the Rules, being a subordinate legislation cannot override the express mandate of the parent statutory provision. Reliance in this regard was placed on the decision of the Hon'ble Supreme Court in the case of CIT vs Sirpur Paper Mills reported in 237 ITR 41 (SC). 3.3. Without prejudice to the above, it was submitted that Rule 6EA is practically difficult to be implemented, since the categories of advances prescribed therein do not exist anymore as the classification of advances have changed and RBI now follows the international norm of classification (viz./ standard, sub-standard, doubtful and loss assets). The ld AO relied on the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd vs CIT reported in (2010) 320 ITR 577 (SC). The assessee stated that the said decision is distinguishable from the facts of the assessee bank in as much as the same pertained to claim of deduction in respect of 'Provision for NPA' in the hands of a Non-Banking Finance Company (NBFC) u/s 36(1)(vii)(a) of the Act which is available only to banks. Even the said decision did not contemplate recognition of interest income in respect of NPA accounts on accrual b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asisth Chay Vyapar Ltd ( 330 ITR 440 -Del HC) was also considered and decision held in favour of the revenue. He further stated that against the tribunal order passed for the earlier year, the Hon'ble Calcutta High Court had admitted the appeal of the revenue and hence the matter had not attained finality. In defence, the ld AR argued that the fact of uncertainty of collection of these dues from the parties were never in dispute and the same is raised for the first time only by the ld DR. Hence there is no question of recognizing any interest income on accrual basis in respect of such sticky loans. 3.6 We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute before the lower authorities that the loan accounts had become sticky and doubtful of recovery. The only contention of the revenue is that section 43D of the Act read with Rule 6EA of the Rules permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is to be made in the hands of the assessee payer. The ld AO in his final assessment order pursuant to the directions of ld DRP, sough to verify M/s Leaseplan India Limited as to whether they had offered the subject mentioned lease income to tax in their income tax returns, for which purpose, he issued notice u/s 133(6) of the Act , which returned unserved. Accordingly, the ld AO proceeded to disallow the lease rent u/s 40(a)(ia) of the Act. Aggrieved, the assessee is in appeal before us. 4.1. We have heard the rival submissions. We find that the assessee had furnished the certificate from a chartered accountant in the prescribed form as mandated in first proviso to section 201(1) of the Act to prove that the payee had included the subject mentioned receipt as its income and had paid taxes thereon. Hence by application of second proviso to section 40(a)(ia) and 201(1) of the Act, which has been held to be retrospective in operation by the Hon'ble Jurisidictional High Court in the case of Principal CIT vs Tirupati Construction - GA No. 2146 of 2016 with ITAT No. 287 of 2016 dated 23.8.2016 , we hold that no disallowance u/s 40(a)(ia) of the Act in the hands of the payer asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In this regard, the asseessee relied on the following decisions: • CIT v. High Land Produce Co. Ltd. [1986] 158ITR 419 (SC) • Liberty Cinema V. Commissioner of Income-tax [1964] 52 ITR 153, 161 / (Cal.), • Decom Marketing (P.) Ltd. v. CIT (164 CTR 230). • RDB Industries Ltd vs DCIT 120 ITJ 107 (Kol). • CIT v. Punjab FinanciaL Corpomtion Ltd.. [2007] 295 ITR 510 (Punj. & Har.) • Khimji Visram & Sons (Gujrat) (P.) Ltd. v. CIT [1995] 79 Taxman 112 (Guj) • CIT v. Akkem Labomtories (P.) Ltd.. [2009] 314 ITR 329 (Pat) • CIT vs Hindustan Motors Ltd 175 ITR 411 (Cal); • CIT vs. Karamchand Premchand Pvt. Ltd. 200 ITR 281 (Gui), • CIT v Punjab Financial Corporation Ltd., 295 ITR 510 (P&H); • Decom Marketing Pvt. Ltd vs CIT 251 ITR 398 (Guj); • CIT vs Chhotabhai Jethabhai Patel Tobacco Products Co. Ltd. 128 ITR 70 (Guj), and • Mylan Laboratories Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata High Court has not taken into consideration the decision of the Supreme Court in the case of High Land Produce and the decision of the jurisdictional High Court in the case of Liberty Cinema. In light of the above, we submit that the decision in the case of Brooke Bonde is not applicable to the Bank case and the Bank has righty claimed the deduction of the unfunded pension under section 37 of the Act. Given the above, the Bank submits that the payment of ₹ 4.09 crores towards unfunded pension should be allowed in full." 5.1. The ld AO in the draft assessment order placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Brooke Bond India Ltd vs JCIT & Anr. reported in 337 ITR 482 (Cal) and observed that the said decision would be applicable to the facts of the instant case. Moreover, the assessee in the instant case had not provided the details in respect of the classes of employees eligible to avail it. When certain details were furnished by the assessee before the ld DRP, the matter was remanded to the ld AO. The ld AO in his remand report commented as under:- "The list does not indicate the class of employees, their place in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees in turn had paid taxes for the same by offering it to tax in their returns, wherever applicable. Hence it is effectively a payment made as a welfare measure for the benefit of the employees of the assessee bank, which is squarely allowable as deduction u/s 37 of the Act. It is well settled that nomenclature or the form of a transaction should have to be ignored for the purpose of allowability of the same as deduction for income tax purposes and substance of the transaction is to be looked into. The real substance is that payment has been made as a welfare measure to employees of the assessee bank which makes it eligible for deduction u/s 37 of the Act. The payments were made to employees pursuant to Employer - Employee Relationship. Even the TDS obligations associated with the said payments have been duly complied with by the assessee, which is not disputed by the revenue before us. Even the sample Form No. 16 were duly submitted by the assessee before the ld AO which are enclosed in page 246 of the paper book. It was specifically submitted before the ld AO that the payment made under this particular scheme covered all eligible employees ranking from clerical staff, assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice tax component is recognized as CENVAT credit in the balance sheet in accordance with the service tax laws. In other words, the bank follows 'Exclusive Approach' for treatment of service tax. A set off principle is prescribed under the CENVAT credit rules, wherein such CENVAT credit can be set off only against payment of output service tax liabilities. No mechanism of refund has been prescribed in case of CENVAT credit balances is in excess of the output tax liabilities. As the quantum of output tax liabilities is purely driven by business considerations, event of set-off is totally dependent on future business prospects. 6.1. The assessee explained the rationale for write off of CENVAT credit as under:- • As on 31st March, 2011, the Consumer Business Division of the Bank had an unutilized CENVAT credit of ₹ 510.9 million available with its books. Pursuant to an internal review of the Bank's future business prospects in line with RBS Group Global Strategy, the Bank revisited the utilized CENVAT credit relating to Consumer Business Division. It was observed that the reduced business consumer Business Division would adversely impact the taxable fee income generated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding the right to carry forward such excess credit in the Excise Rules, the non-useable excess credit should be adjusted in the accounts." 6.3. The assessee submitted that the said write off was in accordance with the Accounting Standard prescribed and notified by Central Board of Direct Taxes as under:- • As per the provisions of Section 145 of the Act, Accounting Standards prescribed by the CBDT are to be followed in computing the business income of an assessee. Accounting Standard-1 prescribed by the CBDT vide notification No. SO 69 (E) dated 25th January, 1996 provides that accounting policies adopted by an assessee should be such that it represents a true and fair view of the state of affairs of the business in the financial statements prepared and presented on the basis of such accounting policies. As per the principles of prudence, the assessee is required to recognize all known liabilities and losses immediately in its financial statement. • Accordingly, in light of the Bank's future business prospects and having regard to the principle of prudence, the bank had written off CENVAT credit amounting to ₹ 460 million during the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NVAT credit need not always be on account of closure of the business but the write off could also trigger inter alia on account of expected reduction in the output service tax liability (against which the input service tax credit would have been adjusted) which may be on account of various reasons inter alia including reduction or downsizing in the business of the assessee due to market conditions, economic conditions, Government Policies, etc. Further, putting a restrictive interpretation on the event triggering the write off for the purposes of allowing deduction under the Act (i.e. deduction of write off only in the year of actual closure of business) is not justified and would be against the Guidance note issued by the ICAI on Accounting Treatment for MODVAT/CENVAT, which permits assessee to carry out such a write off." 6.5. The assessee also placed reliance on the following decisions in support of its contentions:- • "CIT vs Samtel India Limited (ITA No. 130 of 2000) (Date of Order 26th September, 2013) (Delhi High Court) • Girdhar Fibers Pvt. Ltd. vs. ACIT (ITA No. 2027/Ahd/2009) (Ahmedabad Tribunal) • NCS Distilleries Pvt. Ltd. vs. ITO (ITA No. 699/Hyd/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort Credit of Advance Tax of ₹ 92 Crores Ground Nos. 6(a) and 6(b) of Assessee Appeal This is a matter of verification of tax paid challans. Hence we direct the ld AO to kindly grant credit for the advance tax paid of ₹ 92 crores after verification of the same. Accordingly, the Grounds 6(a) and 6(b) raised by the assessee are allowed for statistical purposes. 8. The Ground No. 7 raised by the assessee is with regard to initiation of penalty u/s 271(1)(c ) of the Act which would be prematured to be adjudicated at this stage in view of the decision rendered for various grounds stated hereinabove. Hence the said ground does not require any specific adjudication at this stage. 9. The Ground No. 8 raised by the assessee is general in nature and does not require any specific adjudication. 10. DEDUCTION UNDER SECTION 36(1)(vii)(b) OF THE ACT Ground No. (ii) of Revenue Appeal The brief facts of this issue are that the assessee claimed provision for bad and doubtful debts u/s 36(1)(viia)(b) of the Act before setting off the brought forward losses. During the year under consideration, the bank has claimed deduction of provision for bad and doubtful debts u/s 36(1)(viia)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid adjustment is merely a timing difference, as the aforesaid adjustment, if made by your goodself would result in a consequential adjustment to the income of the Bank in the next assessment year i.e. A.Y. 2012-13. Given that the aforesaid adjustment, merely results in a timing difference, the Assessee humbly submits that the impugned litigation is not warranted. The facts have been considered by the panel. The adjustment has to be as per Law and for the relevant period. The provisioning for bad debts is a prerogative of the assessee and it is a settled proposition in multiple jurisprudence. It cannot be removed just because there is a consequential adjustment in the following period. The adjustment in the current year shall result in increase in claim of the deduction by the assessee in the next year. Ostensibly the accounts have been finalized for the next year and the action of AO is revenue neutral on the face of it. Therefore, the AO shall take a view in the next period as per law when the stage arises. Accordingly, on the facts as prescribed, this objection is upheld. 10.2.ii) Conclusion In view of the upholding of the assessee's objection by the Hon'ble DRP, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find that the issue involved in this appeal had come for consideration before this Tribunal 'E' Bench in I.T.A. No.1207/1994 wherein this Tribunal vide its order dated 18.08.1996 had held that the accounting of interest on non-performing assets is to be accounted. for on receipt basis. The similar issue had also come before this Tribunal in the assessee's appeal for the assessment year 1995 - 1996 wherein this Tribunal having followed its earlier order allowed the assessee's appeal. Respectfully following the decision of the Tribunal in the assessee's own case, we do not find any merit in the order passed by the learned Commissioner of Income Tax u/s.263 of the Act with regard to the direction to assess the interest income on accrued basis. Further, with regard to the point for allowing deduction ujs.36(1)(viia) on account of provision for doubtful debts, we find no substance in the Commissioner of Income Tax's order in directing the Assessing Officer to allow deduction ujs.36(1)(viia) after setting off of brought forward business losses in as much as the set off of brought forward business losses are the matter of Chapter - VI consisting of sections 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- "4. The next issue is with regard to the applicability of provisions of Section 115JB of the Act for the assessee bank. We find that this issue has been dealt in detail by several decisions of this Tribunal and other tribunals wherein it had been categorically held that the provisions of section 115JB of the Act are not applicable to an assessee unless it is registered as a company under the Companies Act, 1956 and prepares its financial stated in accordance with the provisions of Section 211 and Part II and Part III of Schedule VI of the Companies Act, 1956. We place reliance on the recent decision of the Co-ordinate Bench of this Tribunal in the case of UCO Bank vs. DCIT reported in (2015) 64 taxmann.com 51 (Kolkata Trib.) dated 27.11.2015 in this regard. In the said decision, it was also held that the amendment brought in by the Finance Act 2012 in section 115JB of the Act is applicable only from assessment year 2013-14 onwards and not earlier. Respectfully following the said judicial precedent, we hold that the provisions of section 115JB of the act are not applicable to the assessee bank for the year under appeal. Hence the ground no. 3 raised by the assessee is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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