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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI WASEEM AHMED
आयकर अपीलीय अिधकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E-COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND Ms. MADHUMITA ROY, JUDICIAL MEMBER अपील सं./ITA No.376/Rjt/2016 िनधा�रण वष�/Asstt. Year: 2012-2013 D.C.I.T., M/s. Saurashtra Gramin Bank, Circle-3(1), Vs. Gopalnaga, Opp. Andh Mahila Rajkot. Vikas Gruh, Rajkot.
PAN: AAHAS2116H
(Applicant) (Respondent) Revenue by : Shri O.M. Prakash Singh, C.I.T.D.R Assessee by : Ms A.D. Vyas, A.R सुनवाई क� तारीख/Date of Hearing : 03/08/2021 घोषणा क� तारीख /Date of Pronouncement: 25/10/2021 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax(Appeals)-3, Rajkot, dated 08/07/2016 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-2013.
The 1st issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 1,33,59,000/- representing the interest accrued on non-performing assets. Page 1 of 14
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The assessee in the year under consideration has accounted a sum of ₹ 1,33,59,000/- as interest on the non-performing assets but the same was shown in the balance sheet instead of the profit and loss account. It was contended by the assessee during the assessment proceedings that the impugned amount of interest represents the interest accrued on the NPA which is not to be recognized as income as per the direction of the RBI until and unless it is realized. In other words, such income shall be shown in the profit and loss account in the year in which the same is realized. As per the assessee it was bound to comply with the guidelines issued by the RBI.
3.1 However the AO disagreed with the contention of the assessee on the reasoning that the assessee is following mercantile system of accounting which requires to account for the income on accrual basis. Under accrual system of accounting, the collection of the interest income is not necessary.
3.2 As per the AO the guidelines issued by the RBI is for the presentation of the financial position of the bank and it has nothing to do with the determination of taxable income of the assessee. Thus the provisions of the RBI cannot override the provisions specified under the income tax Act. In view of the above the AO treated the impugned amount of ₹ 1,33,59,000/- as income accrued and added to the total income of the assessee.
Aggrieved assessee carried the matter to the learned CIT (A).
The assessee before the learned CIT (A) reiterated the submissions as made before the AO. The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO after having reliance on the order of his predecessor for the assessment year 2007-08.
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Being aggrieved by the order of the learned CIT (A), the revenue is in appeal before us.
Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 43D of the Act provides that the income by way of interest with respect to the bad or doubtful that’s shall be recognized as income in the manner as prescribed, having regard guideline issued by RBI. Accordingly, the Rule 6EA of Income Tax Rule was formulated with respect to the recognition of income for bad and doubtful debts. The Rule 6EA of the Income Tax Rule, inter-alia, provides that the income on the bad and doubtful debts shall not be recognised as income if interest thereon is overdue for more than 6 months. The relevant extract of the provisions of Rule 6EA provides as under: [6EA. The provisions of section 43D shall apply in the case of every public financial institution, scheduled bank, State financial corporation and State industrial investment corporation where its income by way of interest pertains to the following categories of bad and doubtful debts, namely:— (a) (i) Non-viable or sticky advances, i.e., where irregularities of the nature specified in sub-clause (ii) are noticed in the accounts of the borrowers for a period of six months and more and there are no minimum prospects of regularisation of accounts, or where the accounts or information in relation to such accounts reflect usual signs of sickness, such as:
8.1 However, from the preceding discussion there is no clarity whether the impugned amount of interest was overdue for 6 months or not. The order of the authorities below is silent on this aspect. Therefore, we refrain ourselves from giving any finding thereon.
8.2 In other words, it was contended by the learned AR for the assessee that there were certain Debts which were classified as non-performing assets in pursuance to the directions of the RBI. Accordingly, the income on such debts was
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not recognised as income as directed by the RBI in its circular. The relevant extract of the circular reads as under: 3.1 Income Recognition Policy 3.1.1 The policy of income recognition has to be objective and based on the record of recovery. Internationally income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. This will apply to Government guaranteed accounts also.
8.3 The case of the AO is that the assessee is following mercantile system of accounting and therefore the interest on such NPA has accrued. Thus the same should be chargeable to tax. As per the AO circular issued by the RBI is for the presentation of the financial health of the bank and it has nothing to do with the determination of taxable income of the assessee.
8.4 Now the dispute before us revolves whether the assessee was bound to recognize the income on the assets classified as NPA under the provisions of the income tax Act after ignoring the circular issued by the RBI.
8.5 To resolve the controversy, we refer the provisions of section 45Q of the RBI Act which reads as under: *45Q. Chapter IIIB to override other laws.—The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
8.6 On perusal of the above provisions, it is revealed that the above provisions of section 45Q of the Act or the overriding provisions and therefore these should be given to the preference of the income tax Act. In other words, the assessee was bound to follow the directions issued by the RBI. Accordingly, in our considered view such income cannot be recognized in the books of accounts as alleged by the AO. At the time of hearing, the ld. DR has not brought anything on record contrary suggesting the provisions of section 45Q of the RBI Act are not applicable to the present case.
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8.7 We also note that, the Hon’ble Gujarat High Court in the case of Pr. CIT vs. Shri Mahila Sewa Sahakari Bank Ltd. reported in 72 taxmann.com 117, has held that the assessee being a Bank has to follow the guidelines issued by the RBI which has overriding effect over the provisions of Income Tax Act. The relevant finding of the Hon’ble Gujarat High Court is extracted below: 20. Section 45Q finds place in Chapter IIIB of the RBI Act. Thus, the provisions of Chapter IIIB of the RBI Act have an overriding effect qua other enactments to the extent the same are inconsistent with the provisions contained therein. In order to reflect a bank's actual financial health in its balance sheet, the Reserve Bank has introduced prudential norms for income recognition, asset classification and provisioning for advances portfolio of the co- operative banks. The guidelines provided thereunder are mandatory and it is incumbent upon all co-operative banks to follow the same. Insofar as income recognition is concerned, clause 4.1.1 of the circular provides that the policy of income recognition has to be objective and based on the record of recovery. Income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis. Thus, in view of the mandate of the RBI Guidelines the assessee cannot recognise income from non-performing assets on accrual basis but can book such income only when it is actually received. Thus, this is a case where at the threshold, the assessee, in view of the RBI Guidelines, cannot recognise income from NPA on accrual basis. This is, therefore, a case pertaining to recognition of income and not computation of the income of the assessee. 21. The Supreme Court in Southern Technologies Ltd. (supra) has held that the 1998 Directions are only disclosure norms and have nothing to do with computation of total income under the IT Act or with the accounting treatment. The 1998 Directions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. The court has referred to the deviations between the RBI Directions and the Companies Act as follows: '42. Broadly, there are three deviations: (i) in the matter of presentation of financial statements under Schedule VI to the Companies Act; (ii) in not recognising the "income" under the mercantile system of accounting and its insistence to follow cash system with respect to assets classified as NPA as per its norms; (iii) in creating a provision for all NPAs summarily as against creating a provision only when the debt is doubtful of recovery under the norms of the accounting standards issued by the Institute of Chartered Accountants of India. These deviations prevail over certain provisions of the Companies Act, 1956 to protect the depositors in the context of income recognition and presentation of the assets and provisions created against them. Thus, the P&L account prepared by NBFC in terms of the RBI Directions, 1998 does not recognise "income from NPA" and, therefore, directs a provision to be made in that regard and hence an "add back". It is important to note that "add back" is there only in the case of provisions." [Emphasis supplied] 22. Therefore, in terms of the above decision, where an assessee makes provision for NPA and seeks deduction of such amount under section 36(1)(vii) or section 37 of the Act, then in the computation of income, the RBI Guidelines would have no role to play, and hence, an add back. Insofar as income recognition is concerned, the Supreme Court has held thus: "Applicability of Section 145
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At the outset, we may state that in essence the RBI Directions, 1998 are prudential/provisioning norms issued by RBI under Chapter III-B of the RBI Act, 1934. These norms deal essentially with income recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By virtue of Section 45-Q, an overriding effect is given to the RBI Directions, 1998 vis-à- vis "income recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these RBI Directions, 1998 and the IT Act operate in different areas. These RBI Directions, 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the "permissible deductions" or "their exclusion" under the IT Act. The inconsistency between these Directions and the Companies Act is only in the matter of income recognition and presentation of financial statements. The accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the accounting policies followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the RBI Directions, 1998 in view of Section 45-Q of the RBI Act. Hence, as far as income recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute." Thus, insofar as income recognition is concerned, the court has held that even the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act and that as far as income recognition is concerned, section 145 of the Income-tax Act, has not role to play. 23. In the light of the above discussion what emerges is that while determining the tax liability of an assessee, two factors would come into play. Firstly, the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the provisions of the Income-tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income-tax Act and the accounting principles have no role to play. However, recognition of income stands on a different footing. Insofar as income recognition is concerned, it would be the RBI Directions which would prevail in view of the provisions of section 45Q of the RBI Act and section 145 would have no role to play. Hence, the Assessing Officer has to follow the RBI Directions. 24. The Delhi High Court in Vasisth Chay Vyapar Ltd., (supra), has in the context of a similar issue arising in the case of a non-banking financial company has held thus: "17. In this scenario, we have to examine the strength in the submission of learned counsel for the Revenue that whether it can still be held that income in the form of interest though not received had still accrued to the assessee under the provisions of Income-tax Act and was, therefore, exigible to tax. Our answer is in the negative and we give the following reasons in support:- (1) First of all we would discuss the matter in the light of the provisions of Income-tax Act and to examine as to whether in the given circumstances, interest income has accrued to the assessee. It is stated at the cost of repetition that admitted position is that the assessee had not received any interest on the said ICD placed with Shaw Wallace since the assessment year 1996-97 as it had become NPAs in accordance with the Prudential norms which was entered in the books of accounts as ITA 139/2008,ITA 466/2008, ITA 537/2008,ITA 408/2003 well. The assessee has further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the assessment years 2006-07. Reason was adverse financial circumstances and the financial crunch faced by Shaw Wallace. So much so, it was facing winding up petitions which were filed by many creditors. These circumstances, led to an uncertainty insofar as recovery of interest was concerned, as a result of the aforesaid precarious financial position of Shaw Wallace. What to talk of interest, even the principal amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". We are in agreement with the submission of Mr. Vohra on this count, supported Page 6 of 14
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by various decisions of different High Courts including this court which has already been referred to above. (2) In the instant case, the assessee-company being NBFC is governed by the provisions of RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI and Prudential Norms issued by the RBI in exercise of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. No doubt, in first blush, reading of the judgment gives an indication that the Court has held that RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr. Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of section 36 (1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i) (vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the Apex court centered around deductibility of provision for NPA. After analyzing the provisions of the RBI Act, their Lordships of the Apex Court observed that insofar as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefor under the Act. To that extent, it was observed that the Prudential Norms do not override the provisions of the Act. However, the Apex Court made a distinction with regard to "Income Recognition" and held that income had to be recognized in terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 145 of the Income-tax Act. It can be said, therefore, that the Apex Court approved the 'real income' theory which is engrained in the Prudential Norms for recognition of revenue by NBFC." 25. The distinction drawn by the Delhi High Court is that while the accounting policies of adopted by the NBFC cannot determine the taxable income. However, insofar as income recognition is concerned, the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act. That insofar as income recognition is concerned, section 145 of the Income-tax Act, 1961 has not role to play.
8.8 In view of the above, though the income of the assessee has accrued under the mercantile system of accounting but the same cannot be charged to tax for the reason that the RBI being regulatory authority prohibits to recognize such income in the books of accounts. Hence, we do not find any reason to interfere in the finding of the learned CIT (A). Thus the ground of appeal of the revenue is dismissed.
The second issue raised by the Revenue is that the Ld.CIT(A) erred in deleting the addition made by the AO on account of disallowance of amortization of Government Securities expenses being an expenditure of capital in nature.
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The assessee in the year under consideration has amortized the premium paid by it on acquisition of the Government Securities. As per the AO such amortization of premium expenses represent the capital expenditure. Accordingly, the AO disallowed the sum of Rs.68,31,402/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld. CIT(A), who has deleted the addition made by the AO after having reliance on the order of his predecessor for the Assessment Year 2008-09 in the own case of the assessee.
Being aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us.
Both the Ld. DR and Ld. AR before us vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the present case is a regional rural bank and engaged in the business of banking activity. Being a bank the assessee has to follow the guidelines issued by the Reserve Bank of India from time to time. Accordingly, the assessee has to make certain investments in the government securities in accordance with the guidelines of the Reserve Bank of India in order to maintain the statutory liquidity ratio. Such investments in government securities have to be held by the assessee till the maturity. In certain cases, the assessee acquires such investments at a value which is higher than the face value of the investments. Such excess value of the investments over and above the face value of the securities has to amortize by the assessee over the life period of the investments as per the RBI guideline. In other words, the assessee shall debit the amount representing over and above the face value of the investments in the profit and loss account in proportion to the period of the life of the investment/maturity. Page 8 of 14
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14.1 The fact of the case can be better understood with the help of an example as elaborated below: XYZ Bank invested in Government securities having maturity period of 5 year. The face value of each security is Rs. 100/- and bank purchase such security at Rs. 120/-. Then such excess amount Rs 20/- being premium should be amortized in through the period of 5 year in following manner: Rs. 20/5 = Rs. 4 each year.
14.2 The controversy arises before us whether such amount amortised over the lifetime of the investments/securities i.e. till maturity can be claimed as deduction in the profit and loss account. In this connection we refer to the instruction issued by the CBDT bearing Instruction No. 17/2008 dated 26th November 2008 which is reproduced as under: SECTION 143 OF THE INCOME - TAX ACT, 1961 - ASSESSMENT - GENERAL - ASSESSMENT OF BANKS - CHECKLIST FOR DEDUCTIONS INSTRUCTION NO. 17/2008, DATED 26-11-2008 In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession', deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the Income-tax Act, 1961: (vii) As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock-in-trade of the bank, the depreciation/appreciation is to be aggregated scrip-wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims.
14.3 From the above circular, it is revealed that the assessee is entitled to amortise the amount paid over and above the face value of the investments in the manner as discussed above.
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14.4 Besides the above, we also note that the Hon’ble Gujarat High Court in the case of CIT vs. Rajkot Dist. Co-op Bank Ltd in tax appeal No. 56 of 2013, reported in 43 taxmann.com 161 vide order dated 10th February 2014 has held as under: 7. The instructions clearly provide for amortisation of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value. Such amortisation would have to be for the remaining period of maturity. This precisely the Tribunal had directed in the impugned order. Though contended, no contrary instructions of CBDT are brought to our notice. The instruction in question having been issued under section 119(2) of the Income-tax Act, 1961, would bind the Revenue. No question of law, therefore, arises.
14.5 Admittedly, the facts of the case on hand are not in dispute. The AO has only disallowed the amount of amortisation of the securities which were held to maturity. In view of the above, we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the revenue is dismissed.
Third issue raised by the Revenue is that the Ld.CIT(A) erred in deleting the addition made by the AO for Rs.7,11,889/- under the provision of 14A r.w.Rule 8D of the Income Tax Rules.
The assessee in the year under consideration has earned dividend income of Rs.6,08,247/- only. It was claimed as exempted under the section 10(34) of the Act. The assessee worked out the disallowance with respect to such exempted income for Rs.1,00,000/- only being 0.5% of average investment representing administrative expenses.
16.1 However, the AO found that there was no disallowance made by the assessee on account of interest expenses accordingly the AO made the disallowances as under: Sr.No. Particulars Amount 1. Direct Expenses Nil 2. Interest Expenses Rs.12,20,136/- 3. Administrative Expenses Rs.1,00,000/- Total Rs.13,20,136/-
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16.2 However, the AO found that the assessee has only made the disallowance of Rs.6,08,247/- accordingly the AO disallowed the balance amount of Rs.7,11,889/- and added the same to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld.CIT(A), who deleted the addition made by the AO by observing as under:
5.1 During the appellate proceedings, it has been argued implicitly that disallowance u/s.!4A cannot exceed the amount of actual tax exempt income and the decisions of the Mumbai Tribunal in the case of Daga Global Chemical ITA No.5592/Mum/2012 and Delhi High Court in the case of Joint Investment P. Ltd. ITA No. 117/2015 and decision of ITAT in the case of Karnavati Petrochem Pvt. Ltd. were relied upon. Hon'ble Delhi High Court in the case of M/s. Joint Investment Pvt. Ltd. 372 ITR (2015) 0694 has categorically held that:- (Quote)"9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs.2,97,440/-as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO -an aspect is completely unnoticed by the CIT (A) and the IT AT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-By no stretch of imagination can Section 14A or Rule 3D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income" This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." (Unquote) 5.2 Respectfully following the above decision, the addition made is hereby deleted. This ground of appeal is allowed.
Being aggrieved by the order of the Ld.CIT(A) the Revenue is in appeal before us.
Both the Ld. DR and Ld. AR before us vehemently supported the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee has earned dividend income to the tune of Rs. 6,08,247/- in the year under consideration which was claimed as
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exempt income under section 10(34) of the Act. Likewise the assessee has made the disallowance of Rs. 6,08,247/- equivalent to the amount of exempted income under the provisions of section 14A read with rule 8D of Income Tax Rule.
20.1 However, the AO being dissatisfied with the working of the disallowance made by the assessee, computed the disallowance under section 14A read with Rule 8D of Income Tax Rule for Rs. 12,20,136/- towards interest expenses and Rs. 1,00,000/- towards the administrative expenses. Accordingly, the AO made the disallowance of Rs. 7,11,889/- (Rs. 12,20,136 + 1,00,000 – 6,08,247) after giving the benefit of the amount which was already disallowed by the assessee in the computation of income. In effect, the AO added a sum of Rs. 7,11,889/- to the total income of the assessee.
20.2 There is no dispute to the fact that the assessee has earned dividend income to the tune of Rs. 6,08,247/- only. However, it is also pertinent to note that the amount of disallowance under section 14A r.w.r. 8D cannot exceed the amount of exempted income as held by the Hon’ble Delhi High Court in case of P.CIT vs. Craft Builders & Construction (P.) Ltd. reported in (2019) 101 taxmann.com 167 further SPL filed by the revenue against such order was dismissed by the Hon’ble Supreme Court in 112 taxmann.com 322 where the Hon’ble High court held as under: “25. Total exempt income earned by the respondent-assessee in this year was Rs. 19 lakhs. In these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from Rs. 75.89 crores to Rs. 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. v. CI T[2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 and the earlier judgments of the Delhi High Court in Cheminvest v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118 and CIT v. Holcim (P.) Ltd. [2015] 57 taxmann.com 28 (Delhi).”
20.3 In view of the above we are of the view that no further disallowances required to be made under section 14A read with Rule 8D of Income Tax Rule as the assessee suo moto have made disallowances to the extent of exempt income. Accordingly, we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the revenue is dismissed. Page 12 of 14
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The last issue raised by the revenue in ground no.4 is that the Ld.CIT(A) erred in deleting the addition made by the AO for Rs.1,99,635/- representing the depreciation of safes and fire resistant filling cabinet.
The AO during the assessment proceedings found that the assessee has claimed depreciation on the safes and the cabinets treating them as part of plant and machinery. As per the AO the safes and cabinets are used to keep important files therefore the same are part of the assets under the head “furniture and fittings” and therefore the depreciation cannot be allowed at the rate of 15%. Thus the AO restricted depreciation to the tune of 10% and disallowed the excess amount of depreciation of Rs.1,99,635/- and added to the total income of assessee.
Aggrieved assessee preferred an appeal to the Ld.CIT(A), who confirmed the order of the AO by observing as under: 6.1 During the appellate proceedings, it has been, inter alia, argued that appellant being a bank deals with papers mainly and thus papers are its main assets and their preservation is utmost important to the bank and the instruments which are used to preserve these papers, i.e. the Safe and Cabinet are thus essential to the business of the appellant bank. I am amused at the logic of the appellant. If one follows the argument of the appellant, then locker is not us-xl to preserve the "'paper" i.e. the so called main asset of the bank, and therefore it should not be treated as "tool" of the business! But the fact is that providing locker is one of the main business item of the appellant and therefore A.O. has rightly treated the same as a tool of the appellant's business. The same cannot be said in respect of the Safe / Cabinets. Every business enterprise needs to have Safe/Cabinets to keep its documents and papers and bank is no exception to this general necessity. All papers cannot be treated as main assets of the appellant bank, only valuable papers like loan agreements, negotiable instruments etc. can be treated as important assets of the appellant. Appellant is letting it imagination run loo wide by claiming all the Safes and Cabinets as tool of the business eligible for the depreciation at higher rate available to the Plant & Machinery. Virtually all business enterprises need Safes and Cabinets, Fire Resistant or otherwise for running their business and if one go by the logic of the appellant, then all of them will be entitled to treat these basically furniture items as Plant & Machinery. I do not find any fault in AO's action. This ground of appeal is dismissed.
Being aggrieved by the order of the Ld.CIT(A), the revenue is in appeal before us.
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Both the Ld.D.R and Ld.A.R before us vehemently supported the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the AO treated the fixed assets being Safes and the Fire Resistant Filing Cabinet as furniture and fixture whereas the assessee treated the same as plant and machinery. Accordingly, the AO reduce the depreciation claimed by the assessee from 15% to 10% resulting to an addition of Rs. 1,99,635/- to the total income of the assessee. The view taken by the AO was subsequently confirmed by the learned CIT (A) as discussed above.
26.1 From the preceding discussion, there remains no ambiguity to the fact that there was no benefit extended by the learned CIT (A) to the assessee. In other words the ground of appeal raised by the assessee before him was rejected. Thus there was no grievance to the revenue against the order of the learned CIT (A). Hence, the ground of appeal filed by the revenue before us is not maintainable. Accordingly we dismiss the same. Hence the ground raised by the revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 25/10/2021 at Ahmedabad.
Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 25/10/2021 Manish
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