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TMI Blog2022 (3) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... majority of shares are held by Central Government. It filed its Return of Income for the A.Y 2015-16 on 28-11-2015 which was subsequently revised on 04-03- 2017. The assessee had declared a loss of Rs. 883.67 Cr in revised return under normal provisions. 4. The assessment was completed u/s 143(3) was completed on 12- 12-2017 by The Deputy Commissioner of Income tax, Circle - 2(1) (AO), Mangalore. In the assessment made under section 143(3), the learned AO made several additions and disallowances and determined the income under regular provisions at Rs. 3208,32,31,415/-. In the assessment, the learned Assessing Officer made the following additions to the total income under the regular computation: Sr. No. Particulars Amount (Rs.) 1. Disallowance u/s 14A r.w.r 8D 51,87,08,431 2. Disallowance u/s 36(1)(viia) 548,05,37,200 3. Disallowance u/s 36(1)(vii) 1619,82,46,411 4. Expenses on capital goods 4,67,22,283 5. Penalty levied by RBI 13,63,463 6. Provision for wage arrears 198,00,00,000 7. Prior period expenses 3,41,81,547 8. Expenditure on Clubs 2,63,210 9. Disallowance u/s 40(a)(ia) 2,39,64,549 10. Depreciation on ATM 3,45,32,511 Total Addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which became bad debts (NPA) for the first time during the Financial Year 2014-15 (non rural) 659,99,26,000 2. Incremental written off of debts, which became bad debts (NPA) for the first time during the Financial Year 2013-14 (non rural) 182,55,38,675 3. Prudential write off of debts (non rural) 770,56,53,655 4. Debts written off at the Branch level 8,48,64,770 Total 1621,59,83,100 Less: Amount of rural debts written off adjusted against provision u/s 36(1)(vii) 1,77,36,689 Amount claimed as deduction u/s 36(1)(vii) 1619,82,46,411 13.1. The AO disallowed the claim of the assessee on the ground that the assessee bank has not debited the amount to the P&L account and the non-rural debts written off were not adjusted with provisions allowed a/c. u/s.36(1)(viia) in view of the first provisio to section 36(1)(vii) r.e.s. 36(2)(v) 13.2. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A), who confirmed the order of the AO. The CIT(A) on the ground that the bad debts both rural and non rural written off u/s 36(1)(vii) should be debited to provisions allowed u/s 36(1)(viia) first time and only the amount which exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 allowed u/s 36(1)(viia) of the Act. During the year under consideration, the opening credit balance in the PBDD account stood at Rs. 4365.90 crores. Since it is more than the bad debts pertaining to non-rural branches of Rs. 1258.47 crores, the Ld CIT(A) held that the bad debts claim of non-rural branches is not allowable as deduction u/s 36(1)(vii) of the Act. 6.4 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has expressed the view that the provision allowed u/s 36(1)(viia) of the Act would cover bad debts pertaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deductions, one under cl. (vii) of s. 36(1) of the Act on the basis of actual write off and the other on the basis of cl. (viia) of s. 36(1) of the Act on the mere making of provision for bad debts. This, according to the Revenue, would lead to double deduction and the proviso to s. 36(1)(vii) was introduced with the intention to prevent this mischief. The contention of the Revenue, in our opinion, was rightly rejected by the Special Bench of the Tribunal and it correctly held that the Board itself had recognized the position that a bank would be entitled to both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 actual write off under clause (vii). This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if any, of the write off over the amount standing to the credit of the account created under clause (viia). However, the Revenue disputes the position that the proviso to clause (vii) refers only to rural advances. It says that there are no such words in the proviso which indicates that the proviso apply only to rural advances. We find no merit in the objection raised by the Revenue. Firstly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)." 5.2 We have heard both the parties and perused the materials on record. Following the decision rendered by the co-ordinate bench of this Tribunal in the case of M/s Canara Bank cited supra, we set aside the order passed by the ld.CIT(A) and direct the AO to delete the disallowance of Rs. 707.83 crores. 13.6. Respectfully following the decision rendered by the coordinate bench in assessee's own case, we allow the appeal in favour of the assessee. Accordingly, this ground of the assessee is allowed and the disallowance made u/s.36(1)(vii) is deleted. Depreciation on ATM (Ground No 3) 14. The assessee installed ATM machines and claimed depreciation @ 60% on ATM's by treating the same as the block relating to computer. The AO during the course of asst. restricted the depreciation claimed to 15% by treating the ATM as plant & Machiner and disallowed a depreciation to the extent of Rs. 3,45,32,511 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as so long as functions of the computers are performed with other functions and other functions are dependant on the functions of the computer, ATMs are to be treated as computers and are entitled to higher rate of depreciation. It has further been held that computer is integral part of ATM machine and on the basis of information processed by the computer in ATM machine only, the mechanical function of the dispensation of cash or deposit of cash is done. Therefore, it was held that ATMs are computers and are entitled to higher rate of depreciation. The aforesaid finding of fact has been recorded on correct analysis of the material available on record and by placing reliance on decision of the Bombay High Court." 14.6. We also notice that the decision of NCR Corporation Pvt. Ltd., (Supra) is followed in the case of State Bank of India where the Court held that "7. Admittedly, the substantial question of law Nos.2 and 3 have been answered in favour of the assessee by a division bench of this court in 'CIT VS. NCR CORPORATION (P) LTD.,(2020) 117 TAXMANN.COM 252 (KAR) and therefore, for the reasons assigned in the aforesaid judgment, the ATMs are held entitled for depreciation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act any CENVAT credit availed as per the relevant rules cannot be added to the capital cost (v) Hence 50% CENVAT credit paid is debited to P&L account and claimed as expenditure. 15.5. The ld.DR relied on the written submission. 15.6. We have heard the rival submissions and perused the materials on record. As submitted by the AR it is undisputed fact that CENVAT credit availed by the assessee is relating to capital goods. Therefore the issue to be decided here is whether the 50% of the CENVAT Credit paid is to be debited to the Profit & Loss account or should be added to the cost of the capital good. We will look into the provision of Explanation 9 to sec.43 of the Act in this regard which reads as follows:- Section 43 - Explanation - 9 "For the removal of doubts, it is hereby declared that where an asset is or has been acquired on or after the 1st day of March, 1994 by an assessee, the actual cost of asset shall be reduced by the amount of duty of excise or the additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975) in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944." 15.7. We notice th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground is dismissed. Penalty paid to RBI (Ground No. 6) 16. The assessee has paid a sum of Rs. 13,63,463/- as penalty to Reserve Bank of India for non compliance of RBI guidelines which are general guidelines. The AO disallowed the claim on the ground that it is penal in nature. The assessee preferred an appeal before the CIT(A) who upheld the order of the AO on the ground that the assessee has not filed any details with regard to the penalty to prove that the I is not for infraction of law. 16.1. Aggrieved by the order of the CIT(A) the assessee is in appeal before us. 16.2. Before us, the ld.AR submitted that the penalty paid to RBI is in the nature of fine for non-compliance of the RBI Guidelines and not for infraction of any law. Hence the Ld AR prayed that the same needs to be allowed as an expenditure. The ld.AR submitted that reliance in this regard is placed on the decision of IDBI Bank Ltd - 2021(2) TMI 608 where the ITAT Mumbai Bench has allowed the appeal in favour of the assessee for penalty imposed by RBI. 16.3. The ld.DR supported the decision of the lower authorities. 16.4. We heard rival submissions and perused the materials on record. We notice that the Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee is not having any evidence in support of its claim that the expenditure got crystallized during the relevant previous year. 17.1. Aggrieved by the order of the CIT (A) the assessee is not in appeal before the Tribunal. 17.2. The ld.AR reiterated the submissions made before the CIT(A) whereas the ld.DR supported the claim of the lower authorities. 17.3. We have heard the rival submissions and perused the materials on record. The very basis for allowing the expenditure is the crystallization of the expenditure and in the interest of justice this issue needs to be decided based on evidences and facts. The assessee has not produced and additional evidence before us to substantiate the claim that the expenditure got crystallized during the relevant asst. year. We, therefore, remit the issue back to the AO to look into the details afresh and allow the claim in the relevant asst. year based on the facts. It is needless to say that reasonable opportunity of being heard should be given to the assessee before deciding the case. In the result, the assessee's appeal is allowed for statistical purposes. Applicability of provisions of section 115JB (Ground 8) 18. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is not liable u/s 115JB of the Act. 7.2 The Ld CIT(A), however, did not accept the above said contentions. The view expressed by Ld CIT(A) has been summarised below:- (a) Sec. 115JB(1) is the charging section and it overrides all other provisions of the Act. It provides that the provisions of this section are applicable in case of "every company". It does not carve out any exception. (b) Sec. 2(17) defines the word "company". According to this section company "means" any Indian Company. (c) Explanatory Note to Finance Act, 2012 has explained that Minimum Alternative Tax (MAT provisions u/s 115JB) shall apply to a banking company. (d) Assessee is a "company" as per the deeming provisions of sec.11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, which reads as under:- "11. Corresponding new bank deemed to be an Indian Company:- For the purposes of the Income tax Act 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian Company and a company in which public are substantially interested." (e) The assessee itself is filing its return of income under the status of "company". (f) The shares of assessee bank are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of "banking company", provisions of sec.211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh." 6.4 We have heard both the parties and perused the materials on record. Following the decision rendered by the co-ordinate bench of this Tribunal in the case of M/s Canara Bank cited supra, we set aside the order passed by the Ld. CIT(A) on this issue and restore the same to his file for deciding it afresh in accordance with law. 18.4. Considering the binding decision of the coordinate bench, we set aside order of the CIT(A) and restore the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue and perused the record. A perusal of the observations made by the AO on this issue in the assessment order would show that the AO was not satisfied with the claim of the assessee, even though he has not expressly mentioned so. In our view, his dissatisfaction is discernible from the assessment order. However, the AO has not made any specific observation over the disallowance of Rs. 2.74 crores made by the assessee out of administrative expenses. Further, it is the claim of the assessee that the interest free funds available with the assessee is more than the value of investments and hence interest disallowance is not called for as per the decision rendered by the jurisdictional Hon'ble Karnataka High Court in the case of Micro Labs (383 ITR 490)(Kar). This aspect has also not been examined by the AO. Further, it has been held in the case of Vireet Investment (165 ITD 27) by Delhi Special bench that only those investments, which has yielded dividend income should be considered for computing average value of investments. Before us, the Ld A.R also relied on certain decisions in order to contend that the provisions of sec.14A itself are not applicable to banks. Thus, we n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing balances The CIT (A) also observed that this issue is covered by the various Tribual decisions including the decision of the coordinate bench of the Tribunal and deleted the addition made by the AO. 21.4. We heard the parties and perused the record. We notice that the Ld CIT(A) has rendered his decision on this issue following the decision rendered by co-ordinate bench of ITAT in the following cases on an identical issue. (i) Canara Bank vs JCIT LTU (2017) 60ITR (Trib) 1 (ITAT Beng) (ii) Vijaya Bank vs JCIT LTU in ITA No. 1252/Bang/2016 vide order dated 05.01.2018 Accordingly, we do not find any reason to interfere with the decision rendered by Ld CIT(A) on this issue. This ground raised by the revenue is dismissed for statistical purposes Inadmissible Capital Expenses (Ground No 14 to 16) 22. This ground is raised by the revenue against the decision of the CIT to delete the addition made by the AO towards the CENVAT Credit on Excise Duty and Service Tax. The Ld AR submitted that the said disallowance made by the AO is not routed through the P&L account and the same pertains to capital goods. The Ld DR relied on the written submissions 22.1. We see merit in the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Adjustment to Book Profits (Ground No 20 to 22) 24. The next ground of the revenue is with regard to specific addition made to book profit as per sec. 115JB of the Act, i.e. Disallowance u/s. 14 and amount debited under provisions & contingencies for NPA. The AO made these additions stating that these are liable to be added to net profit u/s 115JB of the Act. However the CIT(A) deleted these additions and now revenue is in appeal against the order of CIT(A). Since the issue regarding applicability or otherwise of sec.115JB is restored to the file of Ld CIT(A), this issue is also restored to the file of Ld CIT(A) for examining it afresh. The appeal of the revenue is allowed for statistical purposes Disallowance u/s.40(a)(ia) (Ground No.23 to 24) 25. The assessee has made ceratin payments to National Payments Corporation of India (NPCI) being ATM usage charges, switch fees etc. The AO disallowed the payments made for Rs. 2,39,64,549 u/s.40(a)(ia) stating that the assessee has not deducted the TDS on such payments to NPCI. The CIT(A) allowed the appeal in favour of the assessee and deleted the disallowance on the ground that the issue is covered by the decision of the coordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FITL and provision for interest sacrifice being debits in profit and loss account is not covered under any of the items mentioned in Section 115JB and, therefore, the same needs to be reduced from book profit. Disregarding the contentions of the assessee, the CIT(A) dismissed the appeal by holding that such provision would get covered under clause (i) to Explanation 1 of Section. 31.1. This ground relating to issue of specific addition to book profit is adjudicated by us in ITA No.1109/Bang/2019 for the assessment year 2015-16 for the reasons stated herein above in paragraph 24. Following the same decision this ground is restored back to the file of CIT(A) as the issue regarding applicability or otherwise of sec.115JB is restored to the file of Ld CIT(A). 32. In result the appeal of the assessee is allowed for statistical purposes ITA No.255/Bang/2010 33. We will now take Revenue appeal in ITA No.255/Bang/2010 for the asst. year 2014-15. In this appeal, the revenue has raised 16 grounds. Ground No.1 and 6 are general in nature and does not require separate adjudication, hence dismissed. Rest of the grounds are decided in the following paragraphs. Depreciation on HTM Securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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