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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & MS. KAVITHA RAJAGOPAL
आदेश / O R D E R
PER AMARJIT SINGH, AM:
Both the appeals of the assessee and the revenue are adjudicated together as they are pertained to similar assessment year based on similar facts and identical issue.
The revenue has raised the following grounds before us:
“1. On the facts and in the circumstances of the case and in law the Id.CIT(A) has erred in deleting an addition of Rs.11.49,35,029/- made u/s 14A of the I.T Act without appreciating that the provisions of Rule 8D are mandatory.
2. On the facts and in the circumstances of the case and in law the Id. CIT(A) has erred in treating the amount of Rs.7,14,67,252/- as short term capital gain as against the business income assessed by the AO.
3. On the facts and in the circumstances of the case and in law, the Id CIT(A) erred in deleting Rs.9,79,68,016/- being bad debt written off in the profit and loss account without appreciating that the same are liable to be set off against the provisions of bad debt made by the company.
4. On the facts and in the circumstances of the case and in law, the Id CIT(A) erred in deleting the addition of Rs.12,52,771/- being entrance fees paid to club without appreciating that the same is capital expenditure.
The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
Fact in brief is that return of income declaring total income of Rs.2,80,53,68,266/- was filed on 31.10.2007. The case was subject to scrutiny assessment. Assessment u/s 143(3) of the Act was finalized on 26.03.2009 and total income was assessed at Rs.3,02,91,91,100/- the relevant facts are discussed while adjudicating the ground of appeal of the revenue as under:
1st Ground: Deleting addition of Rs.11,49,35,029/-:
3. During the course of assessment the A.O noticed that assessee has earned exempt income being dividend Rs.14,70,60,560/- from investments made in various mutual funds and stock in trade. The assessee was asked to explain why addition u/s 14A r.w.rule 8D should not be made to the total income. The assessee company explained that it has already disallowed 1% of the total amount of dividend received u/s 14A amounting to Rs.14,06,056/- and such disallowance has been consistently upheld by the ld. CIT(A) for last several years. It was also explained that no specific amount including any administrative expenses were incurred for earning the aforesaid dividend income. The A.O did not agree with the submission of the assessee and he was of the view that making investment was a most scientific and research oriented activity for which most experienced staff and highly technological infrastructure was required to carry out investment activity. The A.O stated that the disallowance of expenditure incurred towards earning exempt income was required to be determined in accordance with rule 8D and stated that amendment to Sec. 14A was retrospective. Accordingly, the assessing officer had worked out disallowance u/s 14A r.w.Rule 8D to the amount of Rs.11,49,35,029/- and added to the total income of the assessee.
The assessee had filed appeal before the ld. CIT(A). The ld.CIT(A) had deleted the addition.
5. Heard both the side and perused the material on record. The ld. CIT(A) held that sub-section 2 and sub-section 3 of the Section 14A made applicable w.e.f 1st April introduced by Finance Act, 2006 and Rules of Section 14A came into existence vide notification dated 24th March, 2008. Regarding the applicability of Rule 8D the ld. CIT(A) held that Rules of Section 14A came into existence vide notification dated 24.03.2008 and the same were not applicable to assessment year 2007- 08 for the year under consideration. The ld. CIT(A) stated that asessee has made investment in subsidiary/joint venture company which did not require any expenses of day to day basis, therefore, directed the assessing officer to restrict the disallowance @ 0.5% on average investment, other than strategic investment and accordingly, arrived at disallowance to the amount of Rs.10,53,875/-. Since the assessee has made suo motto disallowance at Rs.14,70,606/-, therefore, disallowance was restricted to Rs.14,70,606/-. We consider that it has been held in various pronouncements that Sec. 14A r.w.rule 8D is not applicable to the assessment year 2007-08. The Hon’ble jurisdictional High Court of Bombay in the case of Godrej & Boyce Hsg. Co. Ltd. 94 taxman 203 held that Rule 8D shall apply with effect from A.Y.2008-09. The Hon’ble Supreme Court in the case of CIT Vs. Essar Tech. Ltd. held that rule 8D is prospective in operation and cannot be applied to any assessment year prior to assessment year 2008-09. Therefore, we don’t find any error in the finding of ld. CIT(A). Accordingly, this ground of appeal of the revenue stand dismissed.
2nd Ground: Treating the amount of Rs.7,14,67,252/- as Short Term Capital Gain as against business income assessed by the A.O:
During the course of assessment the A.O noticed that assessee has shown short term capital gain of Rs.7,14,67,252/- and paid taxes u/s 111A of the Act. The assessee was asked to explain why such capital gain should not be considered as business income. The assessee explained that during the year it had invested in many IPO’s which came during the year and earned a short term capital gain of Rs.7.14 cores and same was fully offered to tax u/s 111A of the Act. It was also explained that the assessee had clearly demarcated shares which were held as stock in trade and shares which were held as investment. The assessing officer has not agreed with the submission of the assessee he was of the view that activity of investment in IPO was a business activity and share allotted on IPO were treated as business asset and not capital asset, therefore, profit of Rs. 7,14,67,252/- was taxed as business income and benefit of Sec. 111A was not allowed to the assessee.
The assessee filed the appeal before the ld. CIT(A) the ld. CIT(A) has allowed the appeal of the assessee.
Heard both the sides and after perusal of the material on record it is observed that assessee is in the business of banking and as per the investment policy it has made an elaborate investment in various instrument such as investment in government securities, treasury bills, CD’s, CP’s, Tier-III Bonds, Debentures IPO’s, Equity Shares etc,. The CBDT Circular No. 4 of 2007 dated 15.06.2007 provide that assessee can have two portfolio i.e Investment port folio comprising of securities which were to be treated as capital asset and trading port folio comprising of stock in trade which were to be treated as trading assets. The ld. CIT(A) has also discussed that some of the shares subscribed by the assessee in the IPO’s were held for duration up to 340 days, therefore, observation of the assessing officer that all the shares were sold immediately after allotment of shares was factually incorrect. Considering the facts and findings elaborated in the decision of ld. CIT(A) that the investment made in shares in various IPO’s cannot be considered as trading activity, we don’t find any infirmity in his decision, therefore, this ground of appeal of the revenue stand dismissed.
3rd Ground: Deleting to Rs.9,79,68,016/- being bad debt written off:
During the course of assessment the A.O noticed that in the computation of total income the assessee has disallowed the bad debt of Rs.24,14,97,278/- u/s 36(2)(v) on the ground that the bad debt related to advances to which Section 36(1)(viia) of the Act applicable and the bad debt have to be necessarily debited to the provisions for bad and doubtful debt. The assessee explained that since the bad debt of Rs.24,14,97,278/- was more than the amount of provision allowed as per Section 36(1)(viia) which was Rs.14,35,29,262/-, therefore, the difference of Rs.9,79,68,016/- has been claimed as bad debt u/s 36(1)(vii) r.w.s 36(2) of the Act. The A.O has not agreed with the submission of the assessee and stated that as per proviso to Section 36(1)(vii) in case of an assessee to which clause (viia) applies, the amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt exceed the credit balance in the provision for bad and doubtful debt account made under that clause. The assessing officer stated that bad debt of Rs.24,14,97,278/- was less than Rs.38,89,50,401/-, therefore, the claim of the assessee of bad debt of Rs.9,79,68,016/- was disallowed. In the appeal the ld. CIT(A) has allowed the appeal of the assessee.
Heard both the side and perused the material on record. The assessee being a banking company is entitled to bad debt @ 7.5% of gross total income as deduction u/s 36(1)(viia). In addition to this the assessee is also entitled to bad debt on the basis of actually written off bad debt and this deduction was allowable u/s 36(1)(vii) of the Act. During the year under consideration the assessee had claimed deduction of provision based at Rs.9,79,68,016/-. In addition the total amount of bad debt actually written off were Rs.24,14,97,278/-, therefore, the allowability of provision was in accordance with Section 36(1)(viia) at 7.5% of gross total income. We consider that the bad debt actually written off was at Rs.24,14,97,278/- against opening balance in the provision of amount at Rs.14,35,29,262/-, therefore, the difference of Rs.9,79,68,016/- is allowable as deduction. Therefore, we don’t find any error in the decision of ld. CIT(A), accordingly, this ground of appeal stand dismissed.
4th Ground: Deleting the addition of Rs.12,52,771/- being entrance fee paid to club:
During the course of assessment the A.O noticed that assessee has claimed entrance fees paid to various clubs of Rs.12,52,771/- the A.O was of the view that such fees paid to clubs for using club facility provide advantage to the assessee of an enduring nature which was capital in nature, therefore, same was added to the total income of the assessee.
In the appeal ld. CIT(A) has deleted the disallowance made by the A.O.
Heard both the side and perused the material on record. The ld. CIT(A) has placed reliance on the decision of ITAT, Mumbai, in the case of Bombay Burmah Trading Corporation Ltd. reported at 82 ITD 531 and Hon’ble jurisdictional High Court in the case of Otis Elevator reported in 195 ITR 682 wherein it has been held that even entrance fees paid to club is allowable as deduction. After taking into consideration the decision of Hon’ble Jurisdictional High Court and coordinate bench of ITAT as referred above we don’t find any infirmity in the decision of the order of the ld. CIT(A), therefore, this ground of appeal of the revenue stand dismissed.
ITA No.4971/Mum/2009 (Assessee’s Appeal)
“GROUND NO.- I: Depreciation on the premises given on lease
1. The Commissioner of Income Tax (Appeals)- III, Mumbai [CIT(A)] erred in disallowing depreciation, on an adhoc basis, amounting to Rs.14,54,391 on the ground that the respective premises have not been used entirely for the Appellant's business.
2. He failed to appreciate ought to have held that:
a. The Appellant had used these premises for the purpose of its business in the earlier years and depreciation thereon had been allowed in those years. b. The provisions of section 38(2) have no application in cases where the individual assets loose their individual identity once they form past of the block of assets.
The Appellant prays that the AO be directed to delete the entire disallowance made, on an adhoc basis, out of depreciation on block of premises amounting to Rs.14,54,391.
4. Without prejudice, the Appellant prays that such disallowance the AO be directed to substantially reduce the disallowance of depreciation. GROUND NO. II - Depreciation on lease asset
Consequent upon the recharacterisation of various lease transactions in earlier years as Hire Purchase / Financing transactions, the AO erred in disallowing the depreciation on such assets put to lease and excluded the capital component embedded in lease rentals while arriving at taxable income of the Appellant.
2. The Appellant prays that in the event if such transactions are ultimately held as lease transactions, the AO be directed to grant depreciation on such impugned assets put on lease.
The appellant craves leave to add to, amend, alter the above Grounds of appeal.”
Ground of appeal No. 1 is not pressed by the assessee therefore same stand dismissed.
Ground No. II
At the outset the ld. Counsel of the assessee has brought to our notice that identical issue on similar fact has been adjudicated by the coordinate benches of the ITAT in the case of assessee itself in the preceding assessment year. The ld. Counsel has also placed copies of various order of ITAT pertaining to assessment year.
Heard both side and perused the material on record. It is noticed that similar issue on identical facts have been adjudicated by the ITAT in the appeal of the assessee pertaining to assessment year 1995-96 to 2003-04 as per copies of order placed in the asesssee’s paper book wherein the issue was set aside to the A.O for adjudicating the same in accordance with law and in the light of the order passed in the earlier years. Accordingly, we restore this matter to the file of the A.O to examine the claim of the assessee in accordance with law as per the direction of the ITAT given in the earlier years. Therefore, this ground of appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 29.03.2022