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TMI Blog2023 (3) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. AYs 2014-15 and 2012-13. AO therefore, accepting the assessee s claim of deduction in the impugned year, has taken a plausible view. We hold that there was no error in the order of the AO accepting the assessee s claim of deduction under Section 36(1)(viii) of the Act and the order passed by the Ld. Pr. CIT under Section 263 of the Act is, therefore, set aside. Appeal of the assessee is allowed. - ITA No. 26/Rjt/2022 - - - Dated:- 27-2-2023 - Mrs. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri D.M. Rindani, AR For the Revenue : Shri Shramdeep Sinha, CIT-DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of learned Principal Commissioner of Income-Tax, Rajkot-1 [hereinafter referred to as Ld. Pr. CIT for short] dated 24.01.2022 passed in exercise of his revisionary jurisdiction under Section 263 of the Income-Tax Act, 1961 [hereinafter referred to as the Act for short] for Assessment Year (AY) 2017-18. 2. The assessee has raised following grounds:- 1. The learned Principal Commissioner of Income-tax-1, Rajkot erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer having not examined the issue, the assessment order allowing the assessee s claim of deduction under Section 36(1)(viii) of the Act had resulted in excess claim being allowed to the assessee to the tune of Rs.2.68 crores causing prejudice to the Revenue. Paragraph No.2 of the Ld. Pr. CIT s order brings out the above facts as under:- 2. On particular examination of the records, it was noticed on perusal computation of income of the assessee bank, that the assessee bank has claimed a deduction of Rs. 4,94,94,107/- u/s 36(1)(viii) for creation of special reserve from profit of eligible business as mentioned in the section. Further, the assessee bank vide submission dated 10.12.2019 has furnished exhibit-1 showing the calculation of segment wise computation of profit from eligible business . However, the computation furnished by assessee bank calculating the profit from eligible business is not correct on following grounds; The assessee bank in para 2.1 of its submission dated 10.12.2020 has contended that the profit from the eligible business has to be computed by applying section 28 to 43D of the Act to its business of long term finance, further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct and should have been rejected. Further, the eligible amount of deduction should have been recomputed by distributing the total profit on the basis of funds deployed in eligible business and non-eligible business as under:- Sl. No. Particulars Amount (in Rs.) Remarks 1. Total funds deployed (A)s 57719437510 As per Sl no. 1 (Total segment wise funds deployed) of exihibit-1 of submission dated 10.12.2019 2. Total funds deployed in eligible business (B) 11241401663 As per SI no. 4.1 of exihibit-1 of submission dated 10.12.2019 3. Total profit as per IT Act (C) 580222937 As per Sl. No. 3.2 of exhibit-1 of submission dated 20.12.2019 4. Eligible profit for computation of special reserve u/s 36(1)(viii) [(D)=(B)*(C) divided by (A)] 113003857 5 20% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culation as now reproduced in the Ld. Pr. CIT s order. In this regard, with respect to its contention that the issue was thoroughly examined by the Assessing Officer during assessment proceedings, our attention was drawn to the following documents:- (i) Notice under Section 142(1) issued during assessment proceedings dated 06.09.2019 specifically asking the assessee to furnish details of any other amount allowable as deduction reflected in the return of income filed by the assessee and claimed at Rs.10,59,39,149/- (Paperbook page No.39); (ii) Assessee s reply to the aforesaid notice under Section 142(1) giving the break-up of any other amount allowable as deduction including therein the deduction claimed under Section 36(1)(viii) of the Act for special reserve created amounting to Rs.4,49,94,107/-. (Paper-book page No.42); (iii) Detailed computation, being statement showing segment-wise profitability of the bank, of the deduction so claimed (paper-book Page Nos. 43 44); (iv) Show-cause notice dated 07.12.2019 issued to the assessee during assessment proceedings seeking justification of the claim of deduction under Section 36(1)(viii) of the Act of Rs.4,94,94,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. The show-cause notices only reproduce or bring out the calculation of the special reserve as per the Ld. Pr. CIT and they do not mention as to what was the infirmity/anomaly in the calculation made by the assessee. The order of the Ld. Pr. CIT though mentions the anomalies in the assessee s calculation but the same was never confronted to the assessee. The Ld.DR was unable to controvert this fact. Without confronting the assessee with the anomalies if any in its calculation of eligible profits for deduction u/s 36(1)(iii) of the Act, how could the assessee be expected to justify its calculation of creation of special reserve? The order passed by the Ld. Pr. CIT is, therefore, against the principles of natural justice. Even otherwise, we have noted that the assessee had submitted detailed explanation with regard to its calculation of deduction under Section 36(1)(viii) of the Act. For the sake of clarity, we reproduce the calculation of profits of the eligible business submitted to the Assessing Officer during assessment proceedings, as placed before us at page Nos. 43 44 of the paper-book, as under:- And, the explanation of the basis for the said allocation subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly should bear a fair share of indirect costs as well as directly identifiable costs to determine the total cost of the service rendered by the segment. As per Cost accounting Standard - CAS-3 (copy enclosed PP 21-23) issued by the Council of the Institute of Cost and Works Accountants of India on Overheads' which deals with the method of collection, allocation, apportionment and absorption of overheads , the overheads are to be apportioned to different cost centres based on following two principles: a. Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost. Apportionment of overheads based on this criterion ensures better rationality as it is guided by the relationship between cost object and cost. b. Benefits received overheads are to be apportioned to the various cost centres in proportion to the benefits received by them. We have followed the above principle of cost and income apportionment to different segment and in absence of any contrary provisions in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orked out in the attached sheet marked Exibit-1,). On perusal of the same, it will be seen that the profit from the Eligible business of providing long term finance comes to Rs. 24,74,70,533 and the deduction @ 20 % of the same comes to Rs. 4,94,94,106 as detailed below 2.5.1 Gross Income of the business of long term finance 1,35,05,47,911 2.5.2 Expenses Allocated : Interest cost allocated on Funds used basis 71,78,06,338 Other Expenses - allocated on appropriate weightage basis 31,92,85,142 Total cost Allocated to the segment 103,70,91,480 2.5.3 Adjusted profit of eligible business : A. Profit of L/T finance business- as per Ch. 1V-D of I.T. Act. 31,34,56,431 B. Total assets funds deployed in Long term Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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