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TMI Blog2020 (11) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2011-12. The assessee in appeal has raised single ground, the same reads as under:- "Disallowance u/s 14A 1.1 The CIT(A) ought to have allowed the claim of appellant that no disallowance u/s 14A was warranted since tax free income had been earned from stock in trade based on decisions of Jurisdictional High Court in the case of HDFC Bank Ltd (383 ITR 529} and India Advantage Securities Ltd (380 ITR 471). 1.2 The CIT (A) ought to have allowed the claim of appellant without remanding the matter back to AO." 3. The Revenue has assailed the order of CIT(A) by raising following grounds: "1 "On the facts and in circumstances of the case and in law, the ld. CIT(A) erred in restoring the issue back to the file of A.O. regarding the disallowance of Rs.31,88,11,319/-, made by the A.O. u/s 14A r.w.r. 8D of the Act, when the A.O. was not satisfied with the disallowance of mere proportionate expenses of Rs. 9,20,164 made by the assesses itself," 2. "On the facts and in circumstances of the case' and in law, the ld. CIT(A) erred in deleting the disallowance of deduction of Rs. 1032,01,00, 000/- on account of bad debt written off." 3. "On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and dividend Rs.12,14,86,269/- aggregating to Rs.37,46,42,599/-. The assessee made suo-motu made disallowance of Rs.9,20,164/- under section 14A of the Income Tax Act, 1961 ( in short 'the Act') for earning aforesaid exempt income. The ld.Authorized Representative of the assessee submitted that the bonds and the shares on which tax free income has been earned were held by the assessee as 'stock-in-trade'. The tax free income earned on bonds and shares is incidental to the banking business of the assessee. The ld.Authorized Representative of the assessee submitted that no disallowance under section 14A r.w.r 8D of the Act is warranted on tax free income earned on shares/bonds held as stock-in-trade. In scrutiny assessment proceedings the Assessing Officer made disallowance under section 14A r.w.r 8D of Rs.31,88,11,319/- over and above suo-motu disallowance made by assessee. The assessee carried the issue in appeal before the CIT(A). The CIT(A) following the order of Tribunal in assessee's own case in ITA No.2149/Mum/2014 and ITA No.1627/Mum/2014 for assessment year 2010-11 restored the issue to Assessing Officer. Against the aforesaid findings of CIT(A), both assessee and the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under section 14A of the Act is warranted as tax free income has been earned on shares/stock held as 'stock-n-trade'. In so far as contention of the assessee that shares/bonds on which tax free income has been earned are held as 'stock-in-trade', is not disputed by the Revenue. The Hon'ble Apex Court in the case of Maxopp Investment Pvt. Ltd. (supra) has observed that where shares are held as 'stock-in-trade', it becomes business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not is immaterial. It is quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the intention of the assessee is to trade in shares to earn profits. The Hon'ble Supreme Court approved the order of Hon'ble Punjab & Haryana High Court in the case of PCIT vs. State Bank of Patiala, 391 ITR 218 albiet for a different reason that provisions of section 14A would not get attracted where the shares are held in 'stock-in-trade', Following the judgment rendered in the case of Maxopp Investment P. Ltd. (supra), the Tribunal in the case of Asstt.CIT vs. UCO Bank (supra), Punjab National Bank vs. ACI (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y explained that the provision under section 36(1)(viia) is available for both rural and non-rural debts. The ld.Departmental Representative submitted that the CIT(A) has erred in deleting the addition made by assessee without appreciating the facts and the provisions of section. 11. On the other hand, ld. Authorized Representative for the assessee supported the findings of CIT(A). The ld. Authorized Representative for the assessee submitted that the CIT(A) has decided the issue by following the order of Tribunal in assessee's own case in ITA No.2142/Mum/2014 for assessment year 2010-11 decided on 08/01/2016. The ld. Authorized Representative for the assessee prayed for dismissing the ground raised by Department and upholding the findings of CIT(A) on the issues. 12. Both sides heard. The assessee has written off bad debts with regard to non-rural branches. The Assessing Officer observed that the amount claimed as written off by the assessee is in addition to the provision created under section 36(1)(viia) of the Act. In the light of proviso to clause (vii) of section 36(1), the assessee is not entitled to deduction of Bad Debts written off. We find that in assessment year 2010-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). The ground No.2 of the appeal is dismissed being without merit. Deduction u/s.36(1)(viii): 14. In ground No.3 of the appeal, the Revenue has assailed the finding of CIT(A) in restoring the issue of assessee's claim of deduction under section 36(1)(viii) of the Act , back to the file of Assessing Officer for deciding the issue in line with order of Tribunal in ITA No.1627/Mum/2014 decided on 08/01/2016 in assessee's own case. The assessee claimed the expenditure of Rs.282 crores on account of creation of special reserve under section 36(1)(viii). The Assessing Officer rejected the assessee's method of computation of deduction under section 36(1)(viii). The Assessing Officer has recomputed the deduction and allowed Rs.147.52 crores as against Rs.282 crores claimed by the assessee. 15. The ld.Authorized Representative of the assessee vehemently defended the findings of CIT(A) on this issue. The ld. Authorized Representative for the assessee submitted that CIT(A) has decided the issue by following the order of Tribunal in assessee's own case in ITA No.1627/Mum/2014(supra). The CIT(A) has restored the issue to Assessing Officer for fresh adjudication in line with the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer with directions to verify following points :- "(i) Whether the assessee -Bank has debited the amounts so recovered out of bad debts against Reserve created by virtue of section 36(1)(viia) of the Act ? (ii) Whether the amounts recovered against the bad debts have not exceeded the reserve so created? (iii) Whether the amounts recovered against the bad debts have not been charged to profit & loss account of assessee-Bank as per the provisions of section 36(1)(vii). The A.O directed to ascertain the facts from the books of account and to take appropriate action in conformity with the findings on the legal issues." The ld.Departmental Representative has not been able to controvert the findings of the CIT(A) or has placed reliance on any judgment, contrary to the one on which reliance has been placed by the CIT(A) . We find no reason to interfere with the findings of first appellate authority. Accordingly, the same are upheld and ground No.4 of the appeal by the Revenue is dismissed. 20. The ground No.5 and 6 of the appeal by Revenue are not emanating from the impugned order. The ld. Departmental Representative has also failed to point out that these grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bifurcated in two parts covered in the clauses (a) and (b). Clause (a) would cover all companies other than those referred to in clause (b). Such companies would prepare the statement of profit and loss in accordance to the provisions of schedule III of the Companies Act, 2013 (which has now replaced the old Companies Act, 1956). Clause (b) refers to a company to which second proviso to sub-section (1) of Section 129 of the Companies Act, 2013 is applicable. Such companies, for the purpose of Section 115JB, would prepare the statement of profit and loss in accordance with the provisions of the Act governing the company. Section 129 of the Companies Act, 2013 pertains to financial statement. Under sub-section (1) of Section 129 it is provided that the financial statement shall give a true and fair view of the state of affairs of the company, comply with the accounting standard notified under Section 113 and shall be in the form as may be provided for different classes of companies. Second proviso to sub-section (1) of Section 129 reads as under:- "Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule VI of the Companies Act, profit and loss account prepared in accordance with the provisions of their regulatory Act shall be taken as basis for computing book profit under Section 115 JB of the Act. 19. Before closing, we may also take note of explanation (3) below sub-section (2) of section 115 JB of the Act which reads as under :- "Explanation 3-For the -removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956(1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company." 20. This explanation starts with the expression "For the removal of doubts". It declares that for the purpose of the said section in case of an assessee-company to which second proviso to section 129 (1) of the Companies Act, 2013 is applicable, would have an option for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Revenue in its appeal has raised seven grounds. The grounds No. 1 to 4 of the appeal are identical (except for the amounts) to the grounds raised by the Revenue in appeal for assessment year 2011-12. The ground No.5 of appeal is identical to ground No.7 of the appeal for assessment year 2011-12, The grounds No.6 and 7 of the appeal are general in nature. Since the grounds raised by the Revenue in appeal are identical to the one raised in assessment year 2011-12 they are not reproduced again to avoid repetition. 28. The ld. Authorized Representative for the assessee stated at the Bar that the grounds raised by the assessee and the Revenue and the manner and reasons for making addition in assessment year 2012-13 are identical to assessment year 2011-12. Hence, the submissions made while addressing the grounds in assessment year 2011-12 would equally hold good for assessment year 2012-13. The ld. Departmental Representative endorsed the statement made by ld. Authorized Representative for the assessee. 29. Both sides heard. Orders of authorities below and the grounds raised by the rival sides in their respective appeals examined. We observe that the ground of appeal raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company:" 2. Status of appellant The appellant is established under the provisions of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 as a corresponding new bank on nationalization. Section 11 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 deems appellant to be company in which public are substantially interested, only for the purposes of Income Tax Act and accordingly appellant is assessed as a company for Income Tax Act. 3. Applicability of amendment to appellant 3.1 The appellant is not a company to which the second proviso to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB." The above para clearly specifies that the amendment is brought in to align the provisions of Income-tax Act with Companies Act, 1956 and accordingly should apply only to banks for which Companies Act is applicable. 3.4 It is further submitted that Income Tax Act itself makes a distinction between banking company and other banks which are not companies under Companies Act. In various sections of Income-tax Act where deduction is to be allowed to bank or banking companies, the Act specifically provides for deduction for both type of banks. This is evident from the provisions of section 36(1)(viia), 36(1)(viii), 43D, 194N etc.,. (a) For instance provisions of section 36(1)(viia) which allows deduction in respect of any provision made for bad and doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of specified banks as per said section included nationalized banks. Since banking companies did not include nationalized banks, it is now amended by providing a separate clause to include amalgamation of one or more nationalized banks with any other nationalized bank for the above section. If nationalized banks are already included under definition of banking companies, the need for above amendment would not have arisen since even otherwise both section 72A and 72AA provide for carry forward and set off of unabsorbed depreciation and carry forward losses in cases of amalgamation of banking company with a nationalized bank and amalgamation under section 45(7) of Banking Regulation Act, 1949. Therefore, the Act itself makes a distinction between banking company and a nationalized bank and wherever nationalized banks are to be included, the same is specifically included under the respective sections. 3.5 It is also submitted that Bombay High Court in appellant's own case in ITA 1196 of 2013 held that prior to amendment provisions of section 115JB do not apply to it. The SLP filed by department against the said decision was admitted by Supreme Court (418 ITR 9 Stat). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The ld. Departmental Representative admitted that in so far as ground No.1 to 4 are concerned no additional submissions are required to be made. As regards ground No.5 of the appeal relating to application of section 115JB on banking companies, after the amendment to section 115JB by the Finance Act, 2012 w.e.f. 01/04/2013, a perusal of clause (a) to sub-section(2) of 115JB makes it clear that there is no exclusion of banking companies. Hence, the provisions of section 115JB would also apply to assessee. 34. Both sides heard, orders of authorities below perused. In so far as the solitary ground raised by the assessee in its appeal for the preceding assessment years and corresponding issue raised in ground No.1 of the appeal by the Revenue, there has been no change in the facts or provisions of the Act. Therefore, the findings given by us while adjudicating the issue in assessment year 2011-12 would mutatis mutandis apply to assessment year 2013-14, as well. For the detailed reasons given while adjudicating the issue in assessment year 2011-12, the appeal of the assessee is allowed and Ground No.1 raised in the appeal by Revenue is dismissed. 35. The ground No.2 to 4 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15. 40. The assessee and the Revenue are in appeal against the order of CIT(A)-2, Mumbai dated 26/12/2017 for the assessment year 2014-15 The assessee in appeal has raised solitary ground assailing the disallowance under section 14A of the Act . The Revenue in its appeal has raised seven grounds identical to the one raised in assessment year 2011-12, 2012-13 and 2013-14.. 41. The ld. Authorized Representative for the assessee submitted that grounds raised by the assessee and Revenue are identical to assessment year 2011-12, therefore, the submissions made while addressing the appeal for assessment year 2011-12 to 2013-14 would equally apply to the present assessment year. 42. The ld. Authorized Representative for the assessee further submitted that the only difference in the present assessment year is that Explanation -2 has been inserted to section 36(1)(vii) by the Finance Act, 2013 w.e.f. 01/04/2014. The ld. Authorized Representative for the assessee filed written submissions on allowability of bad debts written off after the amendment by way of insertion of Explanation -2 w.e.f. 01/04/2014. The written submissions of the assessee are reproduced herein below:- 1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Revenue in appeal are identical to the one raised in preceding impugned assessment years. However, ld. Departmental Representative submitted that after insertion of Explanation -2 to section 36(1)(vii) of the Act, the assessee is not eligible for the bad debts written off as claimed in the computation of total income. 44. Both sides heard, orders of authorities below examined. Both sides have unanimously stated that the grounds raised in the cross appeals are identical to the one raised in assessment year 2011-12 to 2013-14 and the facts germane to the addition are also same except for the change in the provisions of section 36(1)(vii) of the Act by way of insertion of Explanation -2 that may have bearing on the findings of ground No.2 of the appeal by Revenue . The contention of the assessee is that assessment year 2014-15 being the first year of claim in respect of rural and nonrural advances there was no opening balance. A perusal of the assessment order shows that the Assessing Officer after considering the provisions of section after insertion of Explanation -2 to section 36(1)(vii) of the Act has not examined the fact that whether there was any opening balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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