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TMI Blog2019 (2) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 8D, restricted relief under section 90 to the extent of tax paid in foreign country instead of tax charged on foreign income which was included in total income, disallowed depreciation on goodwill, disallowed contribution to staff welfare fund, made disallowance of bad debts recovery during the year brought to tax as offered in profit & loss account as claimed by the assessee in income-tax computation, restricted depreciation claimed on UPS from 80% to 60%, disallowed depreciation claimed on ATMs etc. Aggrieved, the assessee filed appeal before Ld. CIT(A), who partly allowed the appeal. Aggrieved against the order of the Ld. CIT(A), the assessee filed the appeal with the following grounds:- Deduction u/s 36(1)(viia) 1.1 The ld.CIT(A) erred in confirming order of AO that restricted deduction u/s 36(1)(viia) in respect of provision made in books for bad and doubtful by adopting methods contrary to what is prescribed in the Act. 1.2 That CIT(A) restricted deduction for bad and doubtful debts only towards rural advances whereas said section allows deduction in respect all bad and doubtful advances rural or otherwise. 1.3 That CIT(A) omitted to consider provision made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the amount actually utilized from the fund as deduction since it is expended for the welfare activities of the employees of the appellant. Recovery in respect of bad & doubtful debts: 7.1 The CIT(A) ought to have directed the AO not to charge to tax the recovery in respect of bad debts written off relating to rural branches since the bad debts written off relating to rural branches were never allowed as deduction in any earlier year. 7.2 The CIT(A) ought to have appreciated that AO had consistently disallowed bad debts written off relating to rural debts which are available in the assessment records and therefore no fresh material was required to be produced before AO for allowing the claim. Depreciation on UPS 8.1 The CIT (A) erred in confirming the order of AO disallowing the claim for depreciation on UPS at 80%, overlooking the fact that UPS is an energy saving device entailing higher depreciation rate. Depreciation on ATM 9.1 The CIT (A) erred in confirming the order of AO disallowing the claim for depreciation on ATM at 60%, overlooking the fact that ATM is a computer as held by various judicial decisions including Bombay High Court in the case of Saraswat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nches. It may give advances from both branches with separate provision accounts for each. In the normal course of its business, an assessee bank is to maintain different accounts for the rural debts and for non-rural/urban debts. Maintenance of such separate accounts would not only be a matter of mere convenience but would be the requirement of accounting standards. * The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). * In case of rural advances which are covered by clause (viia), there would be no double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia) applies only to rural advances. * If the amount of bad debt actually written off in the accounts of the bank represents only debt arising out of urban ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of rural debts. In view of the above decision and in view of the option exercised by the assessee that it can claims deduction on doubtful debts as per option (b) i.e. 7.5% of Gross Total Income and 10% of aggregate average rural advances, the Assessing Officer has rightly worked out the allowable deduction, which is less than that of the provision made by the assessee as doubtful debts, allowed the deduction of bad debts for all assessment years and remaining balance was brought to tax. Accordingly, we reverse the order of the ld. CIT(A) and confirm the addition made by the Assessing Officer for all the above assessment years. This ground of appeal of the Revenue is allowed''. Considering the facts of the Co-ordinate decision where the provision has been restricted to the extent of rural branches only. We confirm the findings of the Commissioner of Income Tax on the issue of rural branches following the Catholic Syrian Bank decision and uphold the order of the Commissioner of Income Tax. Accordingly, the appeal of the assessee in ITA No. 496/Mds/2015 is dismissed. 9. Consequently, the appeal of the assessee in ITA No.497/Mds/2015 is also dismissed. 10. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could go up toRs. 6,24,44,027I-. Then of course, assessee's claim as finally allowed was well within the limits specified under Section 3(1)viia of the Act. At this juncture, a look at Section 36(1)(viia) is necessary and this is reproduced hereunder, for brevity.' 36(1)(viia,) a scheduled bank [not being a bank in corporated by or under the laws of a country outside India or a non scheduled bank for a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and one-ha/f per cent] of the total income ('computed before making any deduction under this clause and chapter VLV and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner." it is clear from the above that it is not a standard allowance which is given, but, the allowance is subject to the actual provision made by the assessee, which in no case shalt exceed 7.5% of the gross total income. Therefore, the argument of the assessee that whatever the provision it had actually made in its books, a provision of 7.5% of the gross t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set out in Section 36ft'viia of the Act. We cannot say that he had taken a view which was in accordance with law. It is not a case where the Assessing Officer had adopted one of the courses possible in law. Of course, a cryptic order of the Assessing Officer by itself may not show that there was no thought given: by him on a claim of the assessee. However, here there was io enquiry made during the course of assessment proceedings. Therefore, the order which was silent on the claIm made by the assessee, andallowing such claim, without any discussion,: will definitely render it erroneous and prejudicial to the interests of Revenue.As held by Hon'b!e Apex Court in the case of Malabar industrial Co. Ltd. v. lT (243 ITR 83, prejudicial to the interests of the Revenue" is a term of wide import and not confined to loss of tax. An order without application of mind is definitely prejudicial to the interests of the revenue. We are in agreement with Id. CIT that the order of Assessing Officer was insofar as it was prejudicial to the interests of Revenue.No interference is required. 8. In the result, appeal filed by the assessee is dismissed." In view of the aforesaid findings, this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Bench for the assessment year 2009-10/n 174 No.1949/Mds/2012 dated 18.6.2014 at pages 11 to 13 in paras 21 to 25 of the order, 77. We have perused the said order of this Tribunal and find that the issue has been decided against the assessee ho/ding as under: 21. The seventh substantive ground challenges the ClTA's order restricting relief 90% of the tax paid in foreign countries 22. Factual backdrop qua this issue is that the assessee hadraised a claim of double taxation relief in memo of income from its overseas branches in south Korea, Singapore, Thailand, SrilankaandHong Kong amounting to Rs.357,573I- Rs.21,32,37,338/-Rs.7,84,71,232,,Rs.42,94,845/- and Rs.39,80,57,968/- respectively. Its thrust was upon various Double Taxation Avoidance Agreements DTAAs between India and the said countries except Hong Kong. The Assessing Officer had restricted this relief @ 16.5% Le the prevailing tax rate in Hongkong. Thereafter, he distinguished case law PVAL. Kulandaganchettiarvs CIT, 267 ITR 654 by observing that contrary to the facts of this case, ShriChéttiar was fiscally domiciled in Malaysia and did not have any permanent establishment in India. On DTM with south Kor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 789/- has been claimed as deduction based on the decision of Supreme Court in the case of CIT vs Smift Securities Ltd (Civil Appeal No.5961 of 2012 (Arising out of SLP (c) No.35600 of 2009) dated 22.08.2012.The AO rejected this claim on the following reasons: "As held by the assessee, assessee has taken over the specific asset and liabilities of M/s.Shree Swatna Sahakari Bank Ltd as existing as on 19.05.2009 as per the approval of RBI. Accordingly it resulted in excess of liabilities over assets absorbed on account of absorption scheme of RB1. The liabilities are balance sheet entries and same will be considered as and when incurred or paid as per the provisions of IT Act. Considering such liabilities as good will is neither justifiable nor based on any prudent accounting norms/methods of due diligence. Assessee's contention is devoid of merits and support of law. * As per the definition of the goodwill as made in the provisions of IT Act the same is read as under:- From the above it is clear that the assessee merely equated excess liabilities as attributable to goodwill on account of absorption scheme In fact it is opposite to the goodwill as defined in the IT Act as abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgement of the Hon'ble Supreme Court in the case of Smifs Securities Ltd.(348 ITR 302) : "Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ["CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee- Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT, for short]. We see no reason to interfere with the factual finding" and submitted that the decision of the Supreme Court is distinguishable on facts of the assessee's case. In the reported case, the assets and liabilities of M/s. YSN Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee by the Co-ordinate Bench of Chennai Tribunal in assessee's own case for assessment year 2010-11 cited supra, wherein Tribunal held that: "67. The next issue in the appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in not allowing deduction in respect of contribution to staff welfare fund overlooking the mandatory requirement of payment as an employer. 68. At the time of hearing, counsel for the assessee submits that this issue has been decided against the assessee by the coordinate Bench for the assessment year 2008-09 in ITA No.1815/Mds/2011 dated 2.4.2013 in para 14 of the order. Respectfully following the said order of this Tribunal, we dismiss the ground of assessee on this issue." 14.1 Respectfully following the above decision of Tribunal in assessee's own case for assessment year 2010-11, we reject this ground raised by the assessee." In view of the above, respectfully following the above order of this Tribunal, we reject the corresponding grounds of appeal of the assessee. 9. The next ground raised by the assesseeiswith regard to recovery of bad debts written off relating to rural branches. The Ld. AR submitted that this issue was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs Therefore, the same are affirmed. However, as a matter of caution, we observe that theassessee's claim of bad debts pertaining to those sums inpreceding assessment years, if any, shall be deemed to have been dismissed. With these observations, the Revenue's ground is rejected." In view of the above Order of Tribunal, we dismiss the ground raised by the Revenue. Further, we make it clear that if it is allowed as bad debt in earlier years and recovered the same in the assessment year under consideration to be treated as income of assessee." 9.2 Respectfully following the above order of this Tribunal, we allow these grounds of the assessee subject to the above lines. 10. The next ground raised by the assessee iswith regard to depreciation on UPS allowed at 60% instead of 80% claimed by the assessee. The Ld. AR submitted that this issue was decided against the assesseeby this Tribunal in ITA No,77/Mds/2014 dated 3.4.2017 for the assessment year 2011-12. 15. The fourth ground in this appeal is with regard to disallowing the claim of depreciation on UPS at 80% overlooking the fact that UPS isan energy saving device entailing for higher depreciation. 16. At the time of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the help of computer and would be a part of the computer used in the banking industry. Reliance was placed by the Tribunal upon the decision of the Delhi Bench of Tribunal in the matter of DCIT v. Global Trust Bank (ITA No.474/D/09) wherein it has been held that ATM was a computer equipment and depreciation @ 60% was allowed. So far as the use of software is concerned, the Tribunal records a fact that the evidence of the use of the software on 31/3/2008 was produced before the Tribunal. Thus, the Tribunal held that depreciation @ 30% on software was rightly claimed." Respectfully following the judgement of the Hon'ble High Court in the case of Saraswat Infotech Ltd., supra, we allow this ground of the assessee. 11.1 In the result, the assessee's appeal is partly allowed. ITA No.947/Chny/2018:(REVENUE APPEAL) 12. Now, let us consider the appeal of the Revenue. The Revenue raised the following grounds:- 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2. The learned CIT(A) has failed to observe that the deduction u/s36(1)(viia) needs to be calculated based on the incremental advances for each month and not on the outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O3l/Mds./2013 for assessment year2010-11 wherein held that:- "80. At the time of hearing counsel for the assessee submits that the present issue has been decided in favour of the assessee by this Tribunal for the assessment year 2009-10/n J74 No. 1949/Mds/20.t2 dated 18.6.2014 at pages 24 to 26 in pares 55 to 59 of the order. He places reliance on the said order. Departmental Representative relies on the order of the Assessing Officer. 81. Similar issue has been raised by the Revenue in 17A No.2030/Mds/2013 for the assessment year 2007-08 and we have dealt with this issue in para 51 & 52 of this order. For the reasons mentioned therein and the decision holds good for the assessment year 2010-11, we reject the grounds raised by the Revenue on this issue." 22.1 In view of the above Order of Tribunal in the appeal of Revenue, we dismiss the ground raised by the Revenue Respectfully following the above decisions, the grounds of the Revenue are dismissed. 14. The next ground raised by the Revenue is against the disallowance under section 14A. The Ld. DR submitted on the lines of grounds of appeal. However, the Ld AR submitted that this issue was decided in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bench. Its plea challenging applicability of section 14A in case of investment held as 'stock-in- trade' appears to have neither been raisednor adjudicated. So, we treat it as a fresh plea not covered by theearlier order. Thus, the new issue that arises for our consideration isas to whether a disallowance u/s 14A can be made even in a case when the investments giving rise to an 'exempt' income are held as'stock-intrade' or not. Proceeding on the same, we find that the caselaw quoted by the assessee (supra) squarely supports its plea. The Revenue has brought to our notice a recent Third Member decision incase of D.H. Securities P. Ltd vs DCIT (2014] 31 (Trib) 381. This decision follows the judgment of the hon'ble Bombay high court (which is also the concerned jurisdictional high court) in case of Godrej & Boyce Manufacturing Co. Ltd vs A CIT, 328 ITR 81 and that of hon'ble Calcutta high court in Dhanuka & Sons vs CIT, 339 ITR 319. Not only this, the hon'ble Third Member also refers to the case law CC! Ltd.(supra) and expresses a view that the aforesaid decisions of other hon'ble high courts were not brought to the notice of the Karnataka high court. In these circumstances, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.2031/Mds/2013 dated 26.09.2014. Before us, the assessee submitted that the provision for leave salary cannot be disallowed u/s. 43B for the reason that leave provision is a contractual liability and therefore, it cannot be treated at par with tax, duty, cess or fee u/s. 43B. However, in the SLP (Civil) Nos. 22889/2008 dated 08.05.2009 in the case of CIT & ors. Vs M/s. Exide Industries Ltd & ANR, wherein, the Apex Court held that "pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the statute Book but at the same time it would be entitled to make a claim in its returns." In view of the above, subject to the conditions imposed by the Apex Court, supra, the addition made is sustained. 16. The next issue raised by the Revenue is with regard to depreciation on UPS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged against the action of the Assessing Officer in computing book profits under section II5JB contending that provisions have no application to its bank Having gone through the decision of the co-ordinate Bench in assessee's own case in ITA No. 1757/Mds/2011 dated 2.4.2013, we find that the issue has been decided in favour of the assesse. Respectfully following the said decision, we uphold the order of the commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue on this issue. Respectfully following the said decision, we reject the ground of appeal of the Revenue on this issue." Though we have to follow the above decisions, we find from the order of the Ld. CIT(A) that he has not adjudicated this issue for the reason that AO has not computed the book profit in the assessment order for the reason that since the tax payable under normal method was more than the tax payable under section 115JB. Therefore, this issue being academic, treated as an infructuous one and dismissed. 19. In the result, the Revenue's appeal is partly allowed. 20. To sum up, the assessee's appeal as well as the Revenue's are partly allowed. Order pronounced on 28th February, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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