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TMI Blog2019 (11) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... estments excluding strategic investments for the making of Rule 8D(2)(iii) of I.T. Rules. As such, ground 2 of the assessee succeeds in part Disallowance of Broken period expenses - HELD THAT:- The closing balance has been shown in the balance sheet. The interest income on Government securities and the profit/ loss has been offered in the return of income for the current year. Similar treatment is consistently offered by the assessee in earlier years. The assessee also relied on the CBDT Circular No. 18/2015 dated 02.11.2015. The ld CIT(A) accepted the contention of the assessee granted relief to the assessee by relying on the CBDT circular and on the decision of Hon ble Supreme Court in CIT Vs Citi Bank NA [ 2008 (8) TMI 766 - SUPREME COURT] and in American Express International Banking Corporation Vs CIT [ 2002 (9) TMI 96 - BOMBAY HIGH COURT] . We have noted that this issue is also covered in favour of the assessee, hence, we affirms the order of the ld CIT(A) and accordingly dismissed the ground of appeal raised by the revenue. Allowability of ESOP expenses - HELD THAT:- CIT(A) allowed relief to the assessee by following the order of his predecessor in assessee s own case for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the Ld.CIT(A) erred in holding that the broken period interest is allowable on the matching principles, without realizing that the same has not been incurred for realizing the interest on securities as enunciated by the Apex court in Vijaya Bank Ltd. (57 Taxman 152) (SC)." 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to allow expenditure incurred on ESOP, after verification in accordance with the principle laid down by Hon'ble Special Bench in the case of Biocon Ltd. (368/Bang/2010) without appreciating that the same is not an ascertained liability, contingent in nature, quantum cannot be worked out precisely and is capital in nature and hence not allowable. 5. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to allow bad debts u/s 36(1)(vii) independent of the claim and balance available in the provision of bad debts u/s 36(1 )(viia)." 2. The assessee, a banking company filed its return of income for the assessment 2013-14 on 10-09-2014 declaring total income of ₹ 1653,31,94,036/-, which was revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D2(ii) with the following observations:- "6.4 I have carefully considered the facts of the case, discussion of the AO in the impugned order as well as oral contentions and written submissions of the appellant. The appellant is a banking company and carries on the banking business as provided in the Banking Regulation Act, 1949. The appellant has various subsidiaries companies, which are in the business of life insurance, stock broking, asset management, NBFC etc. Besides investment in subsidiary company, it has also made certain investments in shares of other companies, investment in venture capital funds etc. During the year under appeal, the AO has disallowed expenditure U/S.14A by invoking Rule 8D2(ii) & 8D(2)(iii) and has made the disallowance of Rs, 28, 02,45,2087- (₹ 26,01, 60,8537- and ₹ 2, 00,84,3557-). The appellant, on ;;he other hand, has disallowed Rs. Nil under rule 8D(2)(ii) and ₹ 22, 38,4267- under rule 8D(2)(iii). The appellant itself has disallowed a sum of ₹ 22, 38,4267- in the return of income u7s.14A r.w.s.8D(2)(iii). Once the AO is not satisfied with the correctness of the suo molo disallowance of the assessee, invocation of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made for earning tax free dividends, no disallowance u/s 14A is warranted. He also submitted that when the investments are made in view of having strategic interest, no disallowance could be made. The following are the decisions, the Ld.Counsel relied upon:- 1. HDFC Bank Ltd vs DCIT (2016) 383 ITR 529 (Bom) 2. CIT vs HDFC Bank Ltd (2016) 383 ITR 529 (Bom) 3. CIT vs Reliance Utilities & Power Ltd (2009) 313 ITR 340 (Bom) 4. CIT vs Bombay Oil Industries Ltd 23014) 42 Taxmann.com 440 (Bom) 5. CIT vs Reliance Industries Ltd CA No. 10 of 2010 (SLP(c) no.37/2010 6. PCIT vs Sintex Industries Ltd (2018) 255 Taxman 171 (SC) 7. PCIT vs Sintex Industries Ltd (2017) 82 taxmann.com 171 (Guj) 8. DCIT vs Bennet Coleman & Co Ltd ITA No.1951/M/2016 9. DCIT vs Ageis Logistic Ltd ITA No.1945/M/2016 10.ITO vs Sankalp Corporate Services P Ltd ITA No.1951/M/2016 11.Wartsila India Ltd vs ACIT ITA No.5002/M/2013 12.ACIT vs Godrej Agrovet Ltd ITA No.5002/M/2013 13.ACIT vs Jindal Drugs Ltd ITA No.1694/M/2017 14.Joy Beauty Care (P) Ltd vs DCIT ITA No.1694/M/2017 15.Essel Mining & Industries Ltd vs DCIT ITA No.856/Kol/2017 16.Essel Mining & Industries Ltd vs DCIT ITA No.1694/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration P Ltd ITA No.2994/M/2012 8. Garden Court Distilleries P. Ltd ITA No.5562/Mum/2016 9. Bombay Oxygen Corporation Ltd 86 Taxmann.com 88(Mum) 10. Sajjan India Ltd 89 Taxmann.com 21 (Mum) 11. Integrated Coal Mining Ltd 67 Taxmann.com 260 (Mum) 12. Joy Beauty Care (P) Ltd vs DCIT ITA No.786/Kol/20134 13. DCIT vs Skill Infrastructure Ltd 5786/Mum/2017 14. Wartsila India Ltd vs ACIT ITA No.5002/M/2013 15. Vrindavan Services Pvt Ltd v. DCIT ITA Nos 10, 11,12,15,232, 233/M/2015 9. We have considered the rival submissions and perused material placed before us. The Hon'ble Supreme Court in the case of Maxopp Investment Ltd (supra) held that where the shares are held as stock-intrade, the expenditure incurred for earning business profits will have to be apportioned and allowed as a deduction. Only that expenditure which is "in relation to"earning dividends can be disallowed u/s 14A & Rule 8D. Further, the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd (supra) has upheld the finding of the ITAT that the expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by the judgment of Hon'ble Supreme Court / Bombay High Court / Tribunal. 14. We have considered the submissions of the parties and perused the order of lower authorities and the various case laws relied by the ld AR for the assessee. During the assessment the AO required the details of the broken period interest expenses. The assessee furnished such interest on broken period expenses of ₹ 88,41,69,624/-. The AO disallowed the same holding that the securities are held till the maturity which constitute the investment of the bank and cannot be considered as stock in trade. Before ld CIT(A) the assessee contended that all the investments were made in accordance with RBI guidelines. The closing balance has been shown in the balance sheet. The interest income on Government securities and the profit/ loss has been offered in the return of income for the current year. Similar treatment is consistently offered by the assessee in earlier years. The assessee also relied on the CBDT Circular No. 18/2015 dated 02.11.2015. The ld CIT(A) accepted the contention of the assessee granted relief to the assessee by relying on the CBDT circular and on the decision of Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, the AO relied upon the decision of Ranbaxy Laboratories Ltd vs ACIT [124 TTJ 771 (2009)(Delhi Tribunal). Further, in giving its judgment, the Delhi Tribunal held that the issue of shares at below market price does not result into incurring any expenditure; rather it results into short receipt of share premium which the assessee was otherwise entitled to. The receipt of share premium is not taxable and hence any short receipt of such premium will only be a notional loss and not actual loss for which no liability is incurred and such notional losses are not allowable under the provisions of the Income Tax Act, 1961. Further, reference was made to section 37 of the IT Act which requires that there should be an expenditure incurred by the assessee; however, a benefit or income foregone cannot be considered as expenditure. The Tribunal was of the view that the assesse has not incurred any expenditure but merely received lesser amount of share premium. The assessing officer further stated that above judgment has been heavily relied on in the recent judgment pronounced by Mumbai Tribunal in the case of M/s. V1P Industries Ltd (2010 TIOL 654). The AO also stated that another judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t find any reason for interfering with the order of ld CIT(A), which we affirms. In the result this ground of appeal is dismissed. 18. Ground No. 5 pertains to disallowance of urban (non rural) bad debts. The brief facts are that the assessee had debited an amount of ₹ 7,95,88,80,461/- in the books being net provision for bad and doubtful debts / write off / recover / tax, etc. The assessee submitted the break of this amount, whereby it stated that bad debts amounting to ₹ 1,30,06,04,016/- pertained to non rural branches (urban bad debts) was allowable as deduction u/s 36(1)(vii) as per decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd vs CIT 206 Taxman 182(SC). The assessee further stated that it was entitled for deduction u/s 36(1)(vii) r.w.s. 36(2)(v) and the same was independent of provisions made in section 36(1)(vii) over and above the deduction u/s 36(1)(viia). Assessing Officer held that clause 36(1)(viia) does not provide for entire deduction pertaining to rural branches. Therefore, he concluded that bad debts of ₹ 1,30,06,04,016/- pertaining to urban advances has to be debited to the credit balance in the provision for bad and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and In the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance under rule 8D(2)(ii) ignoring the facts brought out in the assessment order that expenses of ₹ 504.53 Crores were attributable to earning of exempt income." 2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to compute the disallowance under rule 8D(2)(iii) on the insvestment excluding investment of ₹ 385.05 crores as on 31.03.2O13 and ₹ 459.19 crores as on 31.O3.2O14 and investment in Foreign company as on O1.O4.2O13 at ₹ 33,31 lakhs and as on 31.O3.2O13 at ₹ 33.31 lakhs relying on the decision of the Hon'ble ITAT in the case of Garware Wall Ropes Ltd. (65 SOT 83) without appreciating the fact that the decision of Hon'ble ITA T has not been accepted by the department and appeal has been admitted by the Hon'ble High Court." 3. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the broken period interest is allowable on the matching principles, without realizing that the same has not been incurred for realizing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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