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TMI Blog2012 (5) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/-. 3. That the learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of ₹ 42,00,OOO/- being 1/5 of the estimated prior period expenses of ₹ 2,10,00,000/- ignoring totally the directions and order of the Hon'ble Income Tax Appellate Tribunal in the case of the appellant in previous years. 4. That the learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of ₹ 11,89,89,OOO/- on account of outstanding balances in NOSTRO-Blocked A/c. 5. That the learned Commissioner of Income-Tax (Appeals) has erred In the holding that unreconciled inter bank and inter branch entries are covered by Article 22 of the Limitation Act, are required to be considered for addition to the income ignoring the contention of the appellant that entries cannot be considered unless written off in books of accounts by the appellant. 6. That the whole order is against the provisions of law and facts of the case and right is reserved to assail the same on such other grounds as may be advanced at the time of hearing for which the appellant requests leave to amend, vary from or add to the grounds of appeal , hereinabove appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in the said securities and proportionate overhead and administrative expenses incurred for earning the said income. The CIT(Appeals) has deleted the addition in respect of the interest component attributable to such investments and securities, on which assessee's income is exempt from tax. The CIT(Appeals) had estimated the administrative expenses to the extent of 2.5% of the total tax free income earned by the assessee. The said estimate was made keeping in view that only expenditure of the Funds Department dealing in investment of shares, bonds etc. and the branches who had advanced infrastructure loans was required to be considered. As per the working of the assessee and as noted by CIT(Appeals) in para 4.7 at page 8, the expenditure of ₹ 44,15,657/- is attributable to such income in view of the applicability of provisions of Section 14A of the Act. In view of the totality of the facts and the settled legal precedents, we find no merit in the submission of the learned AR for the assessee that no disallowance is warranted out of the exempt income on account of overhead and administrative expenses. The Delhi Bench of Tribunal in Punjab National Bank V DCIT had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de Note No.3 it was claimed as under : "Bad debts written off earlier year and recovered during the year amounting ₹ 4,52,49,329/- though credited to profit and loss account have been reduced from income as debts have been neither claimed nor allowed as deduction in the year of writing off and hence are nor covered by provision of Section 41(1) of the Act." 20. The return of income was revised to the extent of bad debts recovered totaling ₹ 4.52 Cr. The copy of revised computation of income is placed at pages 5 to 5 of PB-1. During the course of assessment proceedings, the explanation of the assessee was as under : "The assessee bank during the year under consideration recovered bad debts amounting to ₹ 4,52,49,330/- written off earlier. The amount was included in the income in the Profit & Loss Account but while preparing the return, the amount of bad debts recovered during the year has been reduced from the taxable income. The assessee has been claiming deduction u/s 36(1)(viia). As per proviso to Section 36(1)(vii) the bad debts in the case of the assessee where provisions of Section 36(1)(viia) are applicable are only allowable to the extent the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on 29.10.2008 and have noted its contents. In response to the same we wish to submit the following reply. The amount of ₹ 2,93,24,755.99 recovered against bad debts written-off and allowed as expenditure in earlier years u/s 36(1)(vii) of the Act is chargeable to Income Tax U/s 41(4) of the Income Tax Act, 1961…………….. In our Tax Audit report, in reply to Point No.20 regarding amount chargeable to tax u/s 41, we have mentioned that amount recovered in respect of advances written off is ₹ 2,93,24,755.99 and is chargeable to tax u/s 41 of the Income Tax Act, 1961. However, the same has been credited by the bank to its profit and loss account. In our opinion this amount is chargeable to tax u/s 41 of the Income Tax Act, 1961. 23. In the totality of the above said facts and circumstances, upholding the order of CIT(Appeals), we dismiss the Ground No.5 raised by the assessee." 8(i) Thus, this ground of appeal of the assessee is dismissed. 9. In Ground No.3, the assessee contended Commissioner of Income Tax (Appeals) has erred in sustaining the addition of ₹ 42,00,OOO/- being 1/5th of the estimated prior period expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;DR' were of the opinion that for the proper and judicious disposal of the issue in question, in these appeals, the case(s) may be restored to the file of the AO. 4. We have carefully perused the rival submissions, facts of the case and the relevant material on record. The grievance of the assessee is non-compliance with the directions given by the ITAT, in the above referred decision. The relevant para of the ITAT order while restoring the appeal to the AO is as under : "11. We have given our careful consideration to the rival contentions. In our considered view, the system of accounting adopted by the assessee regarding certain expenses booked on the basis of receipt of bills, has been followed by the assessee right from the inception. There is no change in the system of accounting. In our considered view, no disallowance could be made merely because the bills received in the year under appeal related to the period preceding to the year under appeal in the light of system of accounting regularly followed by the assessee. Certain expenditure such as telephone expenses electricity etc. is being booked by the assessee on the basis of receipt of actual bills. Such method ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Ground No.4, assessee contended that learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of ₹ 11,89,89,OOO/- on account of outstanding balances in NOSTRO-Blocked A/c. 13. In the course of present appellate proceedings before us, ld. 'AR' referred to pages 26-28 and 222 of the Paper Book, supporting his contention that the addition cannot be sustained, as it remains the liability of the assessee. However, ld. 'DR' supported the impugned additions made by the AO and confirmed by the CIT(A). The relevant part of the findings of the CIT(A) are reproduced hereunder : "7.2 Before me the counsel for the appellant has stated that no addition was ever made earlier on a/c of NOSTRO - Blocked accounts. The nature of entries in this account were similar to the ones under reconciled inter-branch and inter-bank entries for dealings in Indian currency and the NOSTRO - locked accounts pertained to unreconciled entries dealing in foreign currency. He stated that no addition should be made for unreconciled entries and these should be only considered for addition as and when the entries are written off. 7.3 The A.O. in his remand report n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. By lapse of time, the claim of the deposit became time-barred and the amount attained a totally different quality. It became a definite trade surplus. The assessee itself had treated the money as its own money and taken the amount to its profit and loss account. The amounts were assessable in the hands of the assessee." 16. Similarly, Hon'ble jurisdictional High Court in the case of Atlas Cycle Industries Ltd. V CIT 133 ITR 231 (P&H) held as under : "Income-Business of manufacture and sale of cycles Assessee forfeiting security deposits of suppliers/purchasers-Amount forfeited to be included in total income. Income-Amounts deposited as security by employees for serving for agreed period-Finding that part of expenditure incurred on training of personnel allowed as deduction met by forfeiture of deposits-Amounts forfeited to be included in total income." 17. Having regard to the above legal and factual discussions, we do not find any merit in the contention raised by the assessee, in respect of Ground No.4 and hence, findings of the CIT(A) are upheld. The ground of appeal raised by the assessee is dismissed. 18. In ground No.5, assessee pointed out that CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. In ground No.1, revenue contended that Ld. CIT(A) has erred in allowing a relief of ₹ 6,64,41,730/- out of the total addition of ₹ 6,81,45,964/-, made by the AO on a/c of disallowance u/s 14A, without appreciating the fact that the assessee had failed to discharge its onus of filing the details of the expenses that had been incurred in relation to the income claimed as exempt during course of the assessment proceedings. Thus, the assessee had failed to show the exclusive evidence in its knowledge about the expenditure on exempted income with the Department. 23. The ground raised by the revenue has been duly considered and adjudicated while adjudicating appeal of the assessee appellant, as is evident from para 4 to 6 of this order. These findings are applicable to the ground raised by the revenue. In view of this ground of appeal, raised by the revenue is dismissed. 24. In Ground No. 2, revenue contended Ld. CIT(A) has erred in restricting the disallowance to l/5th of the total expenses of ₹ 2,10,00,000/- claimed under the head 'prior period expenses', as against the disallowance of l/3rd made by the AO, without appreciating the fact that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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