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TMI Blog2022 (1) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 115JB of the Act, the AO assessed total income under normal provisions of the Act. The assessee filed appeal challenging the assessment order by filing appeal before Ld CIT(A) and it was partly allowed. Aggrieved by the order passed by Ld CIT(A), both the parties have filed these appeals on the issues decided against each of them. 3. The assessee has filed additional ground of appeal besides original ground. In the additional ground, the assessee is seeking deduction of education cess and secondary & higher education cess as allowable expenditure. It is stated that it is a pure legal issue and all facts relating thereto are available on record. Accordingly, we admit the additional ground. The grounds and additional ground urged by the assessee give rise to the following issues:- (a) Disallowance of bad debts claimed u/s 36(1)(vii) of the Act. (b) Disallowance of payments made to VISA International u/s 40(a)(ia) of the Act. (c) Additions made while computing book profit u/s 115JB of the Act. (d) Plea for deduction of Education cess and Secondary & Higher education cess as allowable expenditure. 4. The grounds urged by the revenue give rise to the following issues:- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aya Bank vs. CIT (2010)(320 ITR 166 (SC)) to reiterate that it is entitled for deduction u/s 36(1)(vii) of the Act. The AO expressed the view that the issue considered by Hon'ble Supreme Court in the case of Vijaya Bank (supra) related to category of "Loss Assets" , which is required to be provided @ 100% of the outstanding amount. He further expressed the view that the Hon'ble Supreme Court did not consider the question viz., Whether the provision for non-performing assets created by the assessee bank by debiting P & L a/c and crediting the provision account amounts to bad debts written off as per sec. 36(1)(vii) of the Income tax Act? Accordingly, the AO held that the assessee cannot place reliance on the decision rendered by Hon'ble Supreme Court in the case of Vijaya Bank (supra). Accordingly the AO held that the amount of Rs. 192.02 crores was mere prudential write off and hence not allowable as deduction. He also held that it is a clear case of double deduction, i.e., once u/s 36(1)(viia) and again u/s 36(1)(vii) of the Act. Accordingly he disallowed the claim of Rs. 192.02 crores. It is pertinent to note that the above said claim was related to non-rural advances. 5.1 Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, he held that the entire amount of bad debts written off (both rural and non-rural) should be first adjusted against the provision allowed u/s 36(1)(viia) of the Act and only the excess should be allowed as deduction. He expressed the view that the decision by Hon'ble Supreme Court in the case of Catholic Syrian Bank (2012)(343 ITR 270)(SC) was rendered under the assumption that the banks would maintain separate PBDD a/c in respect of rural branches and nonrural branches and therefore it is possible to distinguish PBDD as one in respect of rural branches and non-rural branches. The Ld CIT(A) expressed the view that the claim of the bank that the provisions of sec. 36(1)(viia) are distinct and independent of sec. 36(1)(vii) is based on the old circular no. 258 dated 14.6.1979 issued in connection with old law. Accordingly the Ld CIT(A) held that the provision allowed u/s 36(1)(viia) of the Act is for single account since introduction in 1985 for all types of advances including rural advances. Accordingly, the Ld CIT(A) held that the bad debts pertaining to non-rural advances should also be first adjusted against PBDD u/s 36(1)(viia) of the Act. Accordingly, the Ld CIT(A) asked t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of total income, the actual deduction claimed u/s 36(1)(vii) is Rs. 209.08 crore representing bad debts written off relating to non-rural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. The observations made by Hon'ble Apex Court in this regard in paras 26 & 27 of the judgment is extracted hereunder for convenience. "26. The Special Bench of the Tribunal had rejected the contention of the Revenue that proviso to s. 36(1)(vii) applies to all banks and with reference to the circulars issued by the Board, held that a bank would be entitled to both de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/ urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A)." 5.4 Following the above said decision, we hold that the view expressed by Ld CIT(A) is not legally correct. Accordingly, we set aside the order passed by Ld CIT(A) with regard to his alternative decision, i.e., the view that the proviso to sec. 36(1)(vii) which requires adjustment of bad debts against provision allowed u/s 36(1)(viia) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) deleted the disallowance of payments made NPCI and Cash Tree network by following the decision rendered by Hon'ble Supreme Court in the case of CIT vs. Kotak Securities Ltd (2016)(285 CTR (SC) 63) and also the decision rendered in the assessee's own case by ITAT in ITA No.1264 & 1352 (B)/2013 for AY 2011-12. The Ld CIT(A), however, confirmed the addition of VISA charges of Rs. 15,01,663/-. Hence both the parties are in appeal before us. 6.3 We notice that identical issues have been considered by the coordinate bench in the assessee's own case in ITA No.89/PAN/2017 & CO No.07/PAN/2017 relating to AY 2012-13 and the Tribunal, vide its order dated 06.02.2020 has decided the issue as under:- "13. The next issue relates to disallowance made u/s 40(a)(ia) of the Act. The AO noticed that the assessee has claimed a sum of Rs. 75.46 crores as other expenses details of which are given below:- i) ISC for provision of ATMs (Rs. 18,14,31,425/-) ii) Payment to NFS Network towards ATM usage charges (Rs. 15,04,34,326/- iii) Payment to Cash Tree Network towards ATM usage charges (Rs. 99,87,801/-) iv) VISA fees paid to VISA International (Rs. 96,87,529/-) 14. The AO asked the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. S. 0. .3069(E) [No. 56/2012 (F. No. 275/53/2012- ff(B)], dated December 31, 2012' [Superseded by Notification No. S. 0. 2143(E) (No. 47/2016 (F. No. 275/53/2012-11(B), dated June 17, 2016] In exercise of the powers conferred by sub-section (iF) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter X1711 of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely (1) bank guarantee commission; (ii) cash management service charges (iii) depository charges on maintenance of demat accounts (iv) charges for warehousing services for commodities (v) underwriting service charges (vi) clearing charges (MICR charges) (vii) credit card or debit card commission for transaction ben-: the merchant establishment and the acquirer bank. 2. This notification shall come into force from the 1st day of- January, 2013. Furthermore, the Hon'ble Supreme Coup in the case of Kotak Securities Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Chambal Fertilisers and Chemicals Ltd (ITA No.52/2018 dated 31.7.2017). The Ld A.R also submitted that the Hon'ble Bombay High Court has expressed the view in the case of Sesa Goa Ltd that the education cess, secondary and higher education cess is allowable as deduction. 8.1. Accordingly, following the above said decision, we restore this issue to the file of AO to examine the claim of the assessee in accordance with the decision rendered in the cases cited supra. 9. We shall now take up the appeal filed by the revenue. The first issue contested by the revenue relates to the disallowance made u/s 14A of the Act. The assessee had earned exempt income of Rs. 3,41,60,914/- and did not make any disallowance u/s 14A of the Act. The AO computed disallowance as per Rule 8D at Rs. 49,98,92,324/- and added the same to the total income. The Ld CIT(A) deleted the disallowance by holding that the AO has not recorded dissatisfaction on the claim made by the assessee. 9.1 We heard the parties on this issue and perused the record. We notice that an identical issue was examined by the co-ordinate bench in the assessee's own case in ITA 89/PAN/2017 dated 06-02-2020 relating to AY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order and accordingly deleted the disallowance made u/s 14A of the Act. 6. The ld DR submitted that the AO has made the disallowance u/s 14A of the Act after due application of mind and after recording satisfaction. He further submitted that the assessee has not disallowed any expenditure u/s 14A of the Act, even though it has earned exempt income. 7. On the contrary, the ld AR submitted that this issue has been decided in favour of the assessee by the co-ordinate bench in the assessee's own case for asst. year 2008-09 wherein the Tribunal had deleted the disallowance by following the decision rendered in the case of Canara Bank (2015) 228 Taxmann.com 212. 8. We have heard the parties on this issue and perused the record. We have noticed that the assessee has not disallowed any expenditure u/s 14A of the Act, even though it has earned exempt income. From the asst. order we noticed that the AO has made following observations with regard to the claim of the assessee. "It is a known fact that there are certain expenses for earning these exempted income. The actual income which qualifies for exemption can be ascertained only after considering the expenses relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act only on the reasoning that the AO has not recorded dissatisfaction. However, in the instant year, we are of the view that the assessing officer has recorded dissatisfaction. Accordingly, the decision rendered by the co-ordinate bench for asst. year 2008-09 is distinguishable. 10. The Hon'ble Supreme Court has settled the issue relating to disallowance to be made u/s 14A of the Act in the case of Maxopp Investments Ltd., Vs. CIT (Civil Appeal No.104-109 of 2015 dated 12/2/2018). The following observations made by the Hon'ble Supreme Court in para 39 of the order are relevant here. "39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits there from. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax.This trigge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 8D(2)(ii). It is the submission of the assessee that the interest free funds available with it is more than the value of investments. Hence, as per the decision rendered by Hon'ble jurisdictional high court in the case of Micro Labs Ltd. (Supra), interest disallowance is not called for. However, this contention of the assessee requires verification at the end of the AO. Since the assessee has earned dividend income, the disallowance u/s 14A is, in any way, called for. In view of the foregoing discussions, we are of the view that this issue requires fresh examination at the end of AO. Accordingly, we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh." Following the above said decision of the co-ordinate bench, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO with similar directions. Before us, the Ld A.R placed his reliance on the decisions rendered by Hon'ble Supreme Court to contend that no disallowance u/s 14A is called for in the case of the assessee. The Ld AO should consider those decision and should take appropriate decision in accordance with law. 10. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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