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TMI Blog2020 (1) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to the introduction of clause (i) to the Explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems Services Ltd. [ 2008 (9) TMI 18 - SUPREME COURT] , the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) to the Explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the Explanation to section 115JB. Considering the decision of Guj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the line' items since the same are expressively disallowed under section 40(a)(v), the same do not constitute Income Tax for the assessee in terms of Explanation-2. Therefore, without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to Section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s. 115JB. In our view the ratio of the decision is squarely applicable on the facts of the present case. Disallowance under section 40(a)(i) - assessee has made provision for expenses on which no tax was deducted - HELD THAT:- CIT(A) after appreciating the submissions of the assessee concluded that the expenses were relatable to the previous year and therefore, to be provided under mercantile system of accounting on due basis, which is the requirement of this system of accounting to take in to account of expenses which has become due but could not be paid by reasons of non receipt of bills. It was further concluded that the TDS provisions are applicable to the payees who are clearly identifiable by the assessee. The TDS made has to be linked with PAN of the payee s. Further the payer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice was issued on the ground that the amount of ₹ 603.65 Crore debited to the profit and loss account as provisions and contingences are unascertained liabilities not allowable as per Explanation 1(c) to Section 115JB (2). The learned AR of the assessee submits that the reasons for reopening itself is not correct, the above amounts represents provision made for bad and doubtful debts, loss on revaluation of investments and other assets etc.,. The said amount was provided in respect of assets and not for any liability much less an unascertained liability. The issue whether a provision made for assets will be covered under Explanation 1(c) was decided by Hon ble Apex Court in case of HCL Comnet System and Services Limited (305 ITR 409 SC) on 23 September 2008. The ld. AR assessee, therefore, submits that reopening based on an issue which has already been settled by Hon ble Supreme Court, was without jurisdiction. The learned AR further submits that when no addition was made in the reassessment order passed under section 147/143(3), on the basis of reasons given in notice under section 148, the entire reopening fails. In support of his submission the learned AR of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso covered by the decision of Hon ble Gujarat High Court in CIT Vs Vodafone Essar (Gujarat) Ltd (supra) wherein it is held that prior to the introduction of clause (i) to the Explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems Services Ltd. (305 ITR 409 SC), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) to the Explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D brought by the Finance Act, 2008 extending the provision of section 35D of the Act, 1961 to the service sector and also ignoring the fact that sectors like bank also implies increased business activity in the form of increase in advance and to deposits, apart from the physical extension of Branch network etc. (3) Provision for diminution in value of investment-direction for relief subject to verification: 3.1 Having accepted that provision for diminution in value of investment is a requirement as per RBI direction, the investments are the stock in trade of the bank, the profit/loss on sale thereof is accounted for as business income and accordingly the disallowance is not called for, the learned CIT(A) was not justified to direct investigation to be carried out before granting relief in the case of the bank, whose accounts are audited a different levels including by the Statutory Auditors to ensure that the RBI directions have been complied with. 3.2 The investigation is to be carried out as directed by learned CIT(A) are not directly relevant to the issue of allowability of the provision and concern the profit/loss when these securities are sold. The learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) ignored the decision of Special Bench of ITAT Delhi in case of ACIT versus Vireet investment Private Limited ITA No. 502/Delhi/2012 and CO No. 68/Delhi/2014 wherein Hon ble Tribunal follow the decision of Delhi High Court in CIT Vs Bhusan Steel Limited (IT No. 593 and 494 of 2015) holding that computation under MAT provisions is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. The learned CIT(A) also failed to consider the decision of the jurisdictional High Court in CIT Versus JSW Engineering Ltd (60 taxmann.com 303) in deciding the issue. (7) Initiation of penalty proceedings under section 271 of the Act 1961 as mandatory provision which is likely to give a wrong message on finalization of penalty proceedings. 10. At the outset of hearing the learned AR of the assessee submits that all grounds of appeal raised by assessee are covered in favour of assessee by the decisions of various High Courts or by tribunal, either in assessee s own case or cases of other assessee s / banks. The learned AR of the assessee furnished the details chart are showing the narrations of grounds of appeal and the submission in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked to furnish the details of dividend income earned and expenses incurred as per Rule 8D. The assessee furnished its reply dated 9th of December 2013. The assessee in its reply stated that the own funds of the assessee are in far excess for making investment for earning exempt income, no borrowing are attributed to exempt income, section 14A and Rule 8D are not applicable in case of assessee. The submission of assessee was not accepted by assessing officer. The assessing officer after invoking the provisions of section 14A read with Rule8D made a disallowance of ₹ 102,44,25,790/- and enhanced the total income computed under the normal provisions as well as income computed under section 115JB. The assessing officer worked out disallowance under Rule 8D(2)(i) and computed disallowance of ₹ 95,46,039/- @ 1% of exempt income, Rule 8D(2)(ii) of ₹ 94,44,95,944/-, and Rule 8D(2(iii) ₹ 7,99,29,846/-. On appeal before CIT(A) the disallowance under Rule 8D(2)(i) was deleted, however, other disallowance under Rule 8D(2)(ii) (iii) was sustained. 15. The Hon ble Supreme Court in Maxopp Investment P Ltd (supra) in para 36 of its decision observed that there is yet a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6). 12. We also find merit in the assessee's alternate contention that no disallowance out of interest paid was warranted because after netting off interest paid against interest received, the assessee had made net interest gain of ₹ 3902.10 crores. The Hon'ble Gujarat High Court in its recent judgment in the case of Pr. CIT Vs Nirma Credit Capital Pvt Ltd (supra) has held that the expression used in Rule 8D(2)(ii) is interest expenditure and not interest paid and accordingly the expenditure in this context must mean interest paid minus taxable interest earned. Applying the ratio laid down in this judgment to the facts of the present case, we find no infirmity in the order of the Ld. CIT(Appeals) deleting the interest disallowance made under Rule 8D(2)(ii). 13. In so far as disallowance of ₹ 2,90,37,490/- under Rule 8D(2)(iii) is concerned, we find that before the lower authorities the assessee had raised the plea that no disallowance u/s 14A was warranted since the assessee was a dealer in shares although in its Balance Sheet, shares were disclosed under the head Investments . We find that the Hon'ble Supreme Court in its recent judgment dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO to delete the disallowance of ₹ 2,90,37,490/- made under Rule 8D(2)(iii). 17. In view of the aforesaid discussion we are of the view that no disallowance under 14A is permissible in terms of Rule 8D in case of assessee is engaged in banking business. Therefore, respectfully following the judgment of the Supreme Court in case of Maxopp investment Ltd we direct the Ld. AO to delete the disallowance of Rule 8D(2)(iii). Similarly, no disallowance under rule 8D((2)(ii) is permissible as the reserve and surplus of assessee which is a banking company, is more than the investment made for earning exempt income. Therefore, the assessing officer is also directed to delete the disallowance of Rule 8D(ii). 18. In the result ground No. 1 of the appeal is allowed. 19. Ground No. 2 relates to expenses incurred for increase in capital allowable under section 35D. The learned AR of the assessee submits that claim of assessee was not allowable the reasons that assessee had not established that there was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no extension of undertaking or setting up a new unit which is necessary condition for amortization of such expenses. An alternative and without prejudice claim of assessing under section 35D, the assessing officer concluded that there must be extension of undertaking or setting up of a new unit. The assessee has not furnished supported documentary evidence to show that increase in paid a share capital were for extension of undertaking or setting up of new units. Before learned CIT(A) the assessee furnished the details of setting up of new units with factual data. The assessee also stated that they have added 107 new branches, 169 ATMs and 9 Retail Asset Centers. The learned CIT(A) confirmed the action of assessing officer holding that to avail the benefit of amortization, the assessee has to substantiate with the factual data that new units were established, cost incurred towards that and if the infused share capital have been diverted for such setting up of new units. The assessee has not brought out any such information either at the time of assessment or during the hearing before him. Before us the learned AR of the assessee vehemently submitted that all the expenses incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed its reply dated 6th February 2014. In the reply the assessee stated that for the purpose of income tax, consistently the bank has been treating investment in equity and preference shares as capital assets and other investments as business assets . The account from sale of equity and preferential shares has been offered to tax under the head capital gains . Similarly, income from sales of other investments has been offered to tax under the head profit and gains of business and profession . This has been accepted in the assessment of the bank. In the return of income the assessee claimed deduction in respect of diminution in value of business assets of ₹ 190,39,69,106/-. The assessee also furnished the details of breakups. The assessee claimed that diminution had arised in on account of marking to market the closing balance of business assets. The income from sale of these business assets has been offered to tax as business income . Accordingly, diminution of value of business assets of ₹ 190,39,69,106/- recognised in the books of account be allowed as business expenditure. The reply of assessee was not accepted by the assessing officer. The assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which would have been reflected at lower value if normal system of accounting of the stock at market price in the profit and loss account for the guidelines issued by Reserve Bank of India under Banking Regulation Act. The learned CIT(A) after accepting legal position concluded that basic information provided by assessee required thorough examination of fact and directed the assessing officer to examine the assessee s claim on merit. 27. The Hon ble Bombay High Court in CIT Vs Bank of Baroda (supra) while relying on the decision of Supreme Court in case of UCO Bank v. CIT [1999] 240 ITR 355/106 Taxman 601, held that where the market value of shares and securities had fallen below the cost before the date of valuation and where on the date of valuation, the market value is less than the actual cost, then the assessee was entitled to value the articles at market price and the assessee was entitled to claim the loss which the assessee would probably incur at the time of sale of shares and securities. That, whichever method the assessee adopts, it should disclose the true picture of profits and gains. That, for determining the real income, the entries in the balance sheet was requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is also similar, therefore considering the principle of consistency all the grounds of appeal raised by assessee for the year under consideration are also allowed with similar direction. ITA No. 3426/Mum/2018 by assessee for AY 2013-14 36. We have noted that the ground No. 1 and 2 of the appeal for this year is identical to the ground No.1 2 as raised in appeal for AY 2011-12 and 2012-13, which we have allowed, therefore following the principle of consistency on same set of fact these grounds of appeal are allowed with similar directions. 37. Ground No. 3 relates to addition to book profit of tax on non-monetary perquisites. The learned AR of the assessee submits that the assessing officer and the learned CIT-A consider the amount of tax paid on behalf of employees on non-monetary perquisites as amount of income tax paid or payable and provision therefore following under Explanation 1(a) to section 115 JB(2) without appreciating the it is a part of employee cost for the assessee and cannot be treated as falling under the above Explanation. In support of his submission the learned AR of the assessee relied upon the decision of Mumbai tribunal in case of Rashtriya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an employer. The alternative action under section 10(10 CC) was also upheld. 40. The learned AR of the assessee vehemently relied upon the decision of coordinate bench of tribunal in Rashtriya Chemical and Fertilizers Ltd. (supra) wherein on similar ground of appeal the coordinate bench held the taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not 'below the line' items since the same are expressively disallowed under section 40(a)(v), the same do not constitute Income Tax for the assessee in terms of Explanation-2. Therefore, without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to Section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s. 115JB. In our view the ratio of the decision is squarely applicable on the facts of the present case. 41. In the result this ground of appeal is allowed. 42. Ground No. 5 relates to addition to book profits the disallowance made under section 14A. We are noted that this ground of appeal is identical to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Pr. CIT Vs State Bank of Patiala (supra), wherein it was held that no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessee is engaged in banking business. Similar view was taken by the coordinate bench of the Kolkata Tribunal in UCO Bank (supra). Therefore in view of aforesaid legal discussion, we do not find any merit in the ground of appeal raised by revenue. 47. In the result the appeal of the revenue is dismissed. ITA No. 4042/Mum/2018 by revenue for AY 2012-13. 48. The revenue has raised identical ground of appeal as raised in appeal for assessment year 2011-12, which we are dismissed. No various in the facts for the year under consideration are brought to our notice. Therefore, following the principle of consistency the grounds of appeal raised by revenue in the year under consideration are also dismissed with similar directions. ITA No. 4043/Mum/2018 by revenue for AY 2013-14. 49. The revenue has raised following grounds of appeal: (1) Deleting the suo moto disallowance under section 14A and further restricting the disallowance under section 14A r.w. Rule 8D to the extent of exempt income. (2) Deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provision of the Act, and as such said tax is not deducted or after deduction not paid, no deduction can be allowed for such expenses. 54. Before, ld CIT(A) the assessee made similar submissions as made before us and also furnished the submissions in writing. The ld CIT(A) after appreciating the submissions of the assessee concluded that the expenses were relatable to the previous year and therefore, to be provided under mercantile system of accounting on due basis, which is the requirement of this system of accounting to take in to account of expenses which has become due but could not be paid by reasons of non receipt of bills. It was further concluded that the TDS provisions are applicable to the payees who are clearly identifiable by the assessee. The TDS made has to be linked with PAN of the payee s. Further the payer has to issue a certificate to that effect. The payee s were not identifiable at that time. No contrary material that the assessee made such liability not on adhoc basis but a realistic evaluation based on the pending past liability. It was further concluded that outstanding expenses were reversed in the subsequent year upon receipt of bill and deducted tax w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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