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Income Tax Appellate Tribunal, MUMBAI BENCH “F ”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI G.MANJUNATHA
आदेश/ ORDER
PER BENCH:
These four sets of cross appeals by the assessee and Revenue for assessment years 2011-12 to 2014-15. Since the issue raised by the assessee and the Revenue in their respective appeals for the impugned assessment years are identical, these appeals are taken up together for adjudication and are disposed of by this common order. However, for the sake of convenience the cross appeals are decided assessment year wise starting with the appeals for assessment year 2011-12.
ITA NO.1804/MUM/2018 AND 2227/MUM/2018 –A.Y. 2011-12
The assessee in ITA No.1804/Mum/2018 and the Revenue in ITA No.2227/Mum/2018 have assailed the order of Commissioner of Income Tax
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(Appeals)-2, Mumbai (in short ‘the CIT(A)’) dated 26/12/2017 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.”
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,"
"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."
"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restoring the issue back to the file of Assessing Officer regarding the restriction of deduction u/s 36(1)(viii) at Rs.147,52,00,000/- as against the claim of the assessee of Rs.282,00,00,000”
"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restoring the issue back to the file of Assessing Officer, relying upon the decision of Hon'ble ITAT, Bangalore in the case o/State Bank of Maysore (33 SOT 7), ignoring the fact that the bad debt, written off of Rs.1,45,08,289/- of rural branches, recovered by the assessee are included in the provision of doubtful debts claimed by the assessee u/s. 36(1)(viia) of theAct” 5. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in restoring the issue back to the file of Assessing Officer by following the consolidated order of ITAT in ITA No's 6921/M/2013 for A.Y. 2007-08, ITA No.'s 6980/M/2013 & 6922/M/2013 for A.Y. 2009-10 and ignoring the order of Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala v/s. CIT."
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"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in remanding the issue, of deduction u/s 36(1)(viia) of the Act, back to the file of the AO by relying on the decision of Hon'ble Ahmadabad Bench of ITAT dated 30.05.2014 in ITA No. 779/Ahd./2011 ignoring the later decision of the Hon'ble Co-ordinate Bench in assessee's own case for A. Y. 2005-06 in ITA No. 6920/Mum/2013 dated 31.07.2015 wherein the Hon'ble ITAT had decided the issue against the assessee?" 7. "On the facts and in the circumstances of the case and in law, the ld. CTT(A) erred in holding that the provisions of section 115JB is not applicable to the assessee company, without appreciating the facts of the case." 8. The appellant prays that the order of the Id. CIT(A) on the above ground be set aside and that of the Assessing Officer restored.
The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
Disallowance u/s.14A r.w.r 8D
Shri C. Naresh, appearing on behalf of the assessee submitted that the assessee is a Nationalised Bank. During the period relevant to assessment year under appeal, the assessee earned exempt income from tax free bonds Rs.25,31,56,330/- 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
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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 Revenue are in appeal. The ld. Authorized Representative of the assessee submitted that the Tribunal while adjudicating the appeal for 2010-11 has not considered the decisions of Hon’ble High Court in the case of CIT vs. India Advantage Securities Ltd., 380 ITR 471, wherein it was held that no disallowance under section 14A is to be made where the shares are held as ‘stock-in-trade’. The ld.Authorized Representative of the assessee placed reliance on the following decisions to further buttress his contentions: (1) Maxopp Investments Ltd. Vs. CIT,402 ITR 640 (SC) (2) India Advantage Securities Ltd., 380 ITR 471 (3) PCIT vs. Punjab & Sind Bank in Income Tax Appeal No.904/2019 decided on 16/10/2019 by Delhi High Court. (4) Asstt. CIT vs. UCO Bank, ITA No.1615/Kol/2016 decided on 21/08/2018. (5) Punjab National Bank vs. ACIT, ITA No.5481/Del/2014 decided on 03/01/2019 (6) IDBI Bank Ltd. Vs. CIT, ITA No.3424/Mum/2018 decided on 03/09/2019.
Per contra, Shri Sushil Kumar Poddar, representing the Department vehemently defended the findings of Assessing Officer in making disallowance under section 14A r.w.r 8D of the Act. The ld.Departmental Representative submitted that the Assessing Officer after being satisfied that suo-motu
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disallowance made by the assessee was not in accordance with the provisions of section 14A r.w.r.8D of the Act, recomputed the disallowance. The ld. Departmental Representative pointed that the Department in ground No.1 of the appeal has assailed the findings of CIT(A) in restoring the issue of disallowance under section 14A r.w.r. 8D of the Act back to Assessing Officer. The ld.Departmental Representative prayed for sustaining the findings of Assessing Officer.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee in appeal has raised solitary ground against the disallowance under section 14A r.w.r. 8D of the Act . The Revenue in ground No.1 of the appeal has impugned the finding of CIT(A) in restoring the issue of disallowance under section 14A r.w.r. 8D of the Act to Assessing Officer. Undisputedly, the assessee has earned tax free income from Bonds and dividend income on shares held as ‘stock-in-trade’. The assessee has made suo-moto disallowance of Rs.9,20,164/- under section 14A for earning tax free income. The assessee in appeal has contended that no disallowance 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
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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) and IDBI Bank Ltd. Vs. DCIT(supra) has held that disallowance under section 14A r.w.r. 8D of the Act in case of assessee engaged in Banking business and holding shares as ‘stock-in-trade’ is not warranted.
The CIT(A) has restored the issue of disallowance under section 14A r.w.r. 8D of the Act to Assessing Officer to decide the issue in line with the order of Tribunal in assessee’s own case for assessment year 2010-11. We observe that the Co-ordinate Bench while adjudicating the issue of disallowance under section 14A r.w.r. 8D of the Act for assessment year 2010- 11 in appeal by the assessee ITA No.1627/Mum/2014 has in turn followed the order of Tribunal in assessee’s own case for assessment year 2008-09, wherein the issue was restored to Assessing Officer with a direction to examine the same afresh. The Tribunal while deciding the appeal of assessee for assessment year 2010-11 was not having the benefit of judgment rendered in the case of Maxopp Investment P. Ltd. (supra). The Tribunal passed the order on 08/01/2016 and the judgment in the case of Maxopp was delivered in February 2018. Even the judgment in the case of Pr.CIT vs. State Bank of Patiala (supra) and Pr.CIT vs. Punjab and Sind Bank (supra) are subsequent to the order of Tribunal.
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Thus, in the light of the decisions discussed above, we hold that no disallowance under section 14A r.w.r. 8D of the Act is warranted where the assessee has earned exempt income on shares/stocks held as ‘stock-in-trade’. Consequently, the sole ground raised in appeal by the assessee is allowed and corresponding ground No.1 raised in the appeal by the Revenue is dismissed.
In the result, appeal of the assessee is allowed.
Bad Debt Written off:
The ground No.2 in the appeal of Revenue is against CIT(A)’s finding in allowing assessee’s claim of deduction of bad debts written off. The assessee has claimed bad debts written off with regard to non-rural branches. The Assessing Officer after examining assessee’s claim concluded that as per provisions of section 36(1)(viia), the deduction is available only to the extent of 10% of aggregate average advances made by rural branches and an amount not exceeding 7.5% of the gross total income. The ld. Departmental Representative pointed that the Assessing Officer in assessment order has referred to Board Circular No.464 dated 18/07/1986, wherein it has been clearly 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.
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
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Representative for the assessee prayed for dismissing the ground raised by Department and upholding the findings of CIT(A) on the issues.
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 2010-11, the Assessing Officer had rejected assessee’s claim of Bad Debts written off for similar reasons. The issue travelled to the Tribunal in appeal by the Revenue in ITA No.2142/Mum/2014(supra).
The Tribunal in turn following the order in assessee’s own case for assessment year 2007-08 in ITA No.4842/Mum/2013 decided the issue in favour of assessee. The relevant extract of the findings of Co-ordinate Bench are reproduced herein below:
“The first ground/issue is relating to allowing deduction on account of Bad-debts [written off, the AR of the assessee has argued that in assessee's own case in AY- 2007-08 the similar issue was raised by the revenue and the same was decided by this Tribunal against the revenue, hence, this ground is squarely covered by the finding given in para 17 of the Tribunal order in ITA No. 4842/Mum/2013, wherein it is observed:
"We notice that the Tribunal has allowed identical claim in the assessee's own case in AY 2007-08, vide its order dated 18.1.2003 passed in ITA Nos.6631/Mum/2010 & 6349/Mum/2010. We notice that the Tribunal has followed the decision rendered by the Hon'ble Supreme Court in the case of Catholic Syrian Bank (343 ITR 270) and also in the case of CIT Vs. Karnataka Bank Ltd (2012)(349 ITR 705). We also notice that the new Explanation 2, which covers both rural and non-rural advances, has been inserted under sec. 36(1)(vii) of the Act by the Finance Act, 2013 w.e.f. 1.4.2014 only and hence it cannot have retrospective effect, since it affects substantive rights of the
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assessees. Accordingly, we are of the view that there is no reason to interfere with the decision of Ld CIT(A) on this issue ". 13.Hence, we are of the opinion that the similar ratio are applicable for this order and the same is squarely covered by the finding of ITA 4842/M/13 further keeping in view the principle of consistency, this issue is decided in favour of assessee and against the revenue.”
The ld. Departmental Representative has not been able to controvert the findings of Tribunal in assessee’s own case for immediately preceding assessment year. No contrary judgment/order or any material distinguishing the facts was placed before the Bench. The CIT(A) by following the decision of Co-ordinate Bench in assessee’s own case on same set of facts has allowed the claim of assessee. We find no reason to interfere with the order of CIT(A). The ground No.2 of the appeal is dismissed being without merit.
Deduction u/s.36(1)(viii):
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.
The ld.Authorized Representative of the assessee vehemently defended the findings of CIT(A) on this issue. The ld. Authorized Representative for the
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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 directions of the order of Tribunal.
Both sides heard and orders of authorities below examined on this issue. We find that the issue with respect to computation of deduction under section 36(1)(viii) had come up before the Tribunal in ITA NO.1627/Mum/2014(supra). The Tribunal vide order dated 08/01/2016 has remitted the issue back to the file of Assessing Officer to allow the deduction based on actual interest earned from eligible advances after deducting cost and expenses on reasonable basis. The CIT(A) has restored the issue to Assessing Officer to follow the directions of Tribunal. The ld. Departmental Representative has not brought before the Bench any material to controvert the findings of Tribunal in immediately preceding assessment year . We see no infirmity in the findings of CIT(A), hence, the same are upheld. The ground No.3 of appeal by the revenue is dismissed.
Deduction u/s.36(1)(viia):
In ground No.4 of appeal the Revenue has assailed the findings of CIT(A) in restoring the issue of recovery of amounts written off of rural branches, back to the Assessing Officer for denovo adjudication in line with the directions of Tribunal. In computation of total income the assessee had reduced Rs.1,45,08,289/- on account of recovery of amount written off of rural branches. In scrutiny assessment the Assessing Officer added the aforesaid amount to the total income of the assessee. The CIT(A) following the decision in the case of State Bank of Mysore reported as 33 SOT 7, remitted
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the issue back to the Assessing Officer with certain directions. The ld. Departmental Representative submitted that CIT(A) has erred in not considering the fact that bad debts written off in respect of rural branches subsequently recovered by the assessee are included in the provisions of doubtful debt claimed under section 36(1)(viia) of the Act.
Per contra the ld.Authorized Representative of the assessee submitted that CIT(A) has decided this issue in accordance with the order of Tribunal and has restored this issue to the Assessing Officer with specific directions.
Both sides heard, orders of authorities below examined. We find that the CIT(A) after examining the findings of Assessing Officer and the submissions of the assessee held that the issue is covered by the decision of Tribunal in the case of State Bank of Mysore (supra). The CIT(A) restored the issue to the 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.
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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 are related to any issue discussed by CIT(A) in the impugned order. Thus, in view of our above observation the ground No.5 and 6 of the appeal are dismissed.
Applicability of provisions of section 115JB of the Act:
In ground No.7 of appeal, the Revenue has assailed the finding of CIT(A) in holding that the provisions of section 115JB of the Act does not apply to the assessee. The ld.Departmental Representative submitted that the provisions of section 115JB of the Act apply to all companies irrespective of the nature of business. There is no exception provided under the section for exclusion of Banking companies. The ld.Departmental Representative vehemently supported the findings of Assessing Officer and prayed for reversing the order of CIT(A) on this issue.
Per contra, the ld.Authorized Representative of the assessee supported the finding of CIT(A) in holding that the provisions of section 115JB of the Act does not apply on Banking company. The ld.Authorized Representative of the assessee submitted that the Tribunal in assessee’s own case for assessment year 2007-08 and 2010-11 has held that MAT provisions does not apply on the assessee. The ld.Authorized Representative of the assessee pointed that the Hon’ble Bombay High Court in the case of CIT vs. Union Bank of India in Income Tax Appeal No.1196 of 2013 decided on 16/04/2019, has upheld the findings of the Tribunal for assessment year 2005-06 wherein it was held that the provisions of section 115JB are not applicable to the assessee- Bank.
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Both sides heard. We find that applicability of provision of section 115JB of the Act on banking company was considered by the Tribunal in assessee’s own case in appeal for assessment year 2005-06. The Tribunal held that MAT provisions are not applicable on banking company. The Revenue carried the issue before the Hon'ble Bombay High Court. One of the question of law for consideration before the Hon’ble High Court was:-
“(ii) Whether on the facts and in the circumstances of the case and in law the ITAT is correct in holding that the provision of Section 115JB are not applicable to the assessee –Bank?” The Hon’ble High Court answered the question in affirmative , upholding the order of Tribunal on this issue. The relevant extract of the judgment reads as under:-
“16. It can be seen that sub-section (2) of Section 115JB of the Act has now been 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 the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:
This proviso thus refers any insurance or banking companies or companies engaged in the generation or supply of electricity or to any other class of company in which form of financial statement has been specified in or under the Act governing such class of company. Combined reading of this proviso to sub-section (1) of Section 129 of the Act, 2013 and clause (b) of subsection (2) of Section 115JB of the Act would show that in case
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of insurance or banking companies or companies engaged in generation or supply of electricity or class of companies for whom financial statement has been specified under the Act governing such company, the requirement of preparing the statement of accounts in terms of provisions of the Companies Act, is not made. Clause (b) of sub- section (2) provides that in case of such companies for the purpose of Section 115JB the preparation of statement of profit and loss account would be in accordance with the provisions of the Act governing such companies. This legislative change thus aliens class of companies who under the governing Acts were required to prepare profit and loss accounts not in accordance with the Companies Act, but in accordance with the provisions contained in such governing Act. The earlier dichotomy of such companies also, if we accept the revenue's contention, having the obligation of preparing accounts as per the provisions of the Companies Act has been removed.
These amendments in section 115JB are neither declaratory nor classificatory but make substantive and significant legislative changes which are admittedly applied prospectively. The memorandum explaining the provision of the Finance Bill, 2012 while explaining the amendments under Section 115 JB of the Act notes that in case of certain companies such as insurance, banking and electricity companies, they are allowed to prepare the profit and loss account in accordance with the sections specified in their regulatory Acts. To align the Income Tax Act with the Companies Act, 1956 it was decided to amend Section 115JB to provide that the companies which, are not required under Section 211 of the Companies Act, to prepare profit and loss account in accordance with Schedule 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.
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 the assessment year commencing on or before 1st April, 2012 to prepare its statement of profit and loss either in accordance with the provisions of schedule III to the Companies Act, 2013 or in accordance with the provisions of the Act governing such company. To our mind, this is some what curious provision. In the original form, sub-section (2) of section 115JB of the Act did not offer any such option to a banking company, insurance company or electricity company to prepare its profit and loss account at its choice either in terms of its
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governing Act or as per terms of Section 115JB of the Act. Secondly, by virtue of this explanation if an anomaly which we have noticed is sought to be removed, we do not think that the legislature has achieved such purpose. In plain terms, this is not a case of retrospective legislative amendment. It is stated to be clarificatory amendment for removal of doubts. When the plain language of sub-section (2) of Section 115JB did not permit any ambiguity, we do not think the legislature by introducing a clarificatory or declaratory amendment cure a defect without resorting to retrospective amendment, which in the present case has admittedly not been done.
In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No.2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the Assessing Officer becomes unimportant. Question No.1 is therefore not answered. All the appeals are dismissed.” Thus, in the light of above judgment of Hon’ble High Court rendered in assessee’s own case the ground No.7 of the appeal by the Revenue is dismissed.
The Ground No.8 and 9 of the appeal are general in nature and hence, require no adjudication.
In the result, appeal of the Revenue is dismissed.
To sum up, the appeal of assessee is allowed and the appeal by Revenue is dismissed.
ITA NO.1805/MUM/2018 -(ASSESSEE’s APPEAL)- A.Y. 2012-13 & ITA NO.2229/MUM/2018 -(REVENUE’S APPEAL)- A.Y. 2012-13
The assessee and the Revenue are in appeal against the order of CIT(A)-2, Mumbai dated 26/12/2017 for the assessment year 2012-13. 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. 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
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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.
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.
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 the assessee in its appeal and the grounds of appeal by the Revenue are identical to the one we have adjudicated in cross appeals for assessment year 2011-12. Since, the facts germane to these grounds and the reasons for making addition by the Assessing Officer are identical, the CIT(A) has decided the appeal of assessee in similar manner as was done in assessment year 2011-12. As the facts and grounds are pari-materia, the detailed findings given by us while adjudicating the cross appeals by the assessee and the Revenue for assessment year 2011-12 would mutatis mutandis apply to the present cross appeals as well. As a result, the appeal of the assessee is allowed and the appeal by the Revenue is dismissed.
ITA NO.1806/MUM/2018 -(ASSESSEE’s APPEAL)- A.Y. 2013-14 ITA NO.2230/MUM/2018 -(REVENUE’S APPEAL)- A.Y. 2013-14
The assessee and the Revenue are in appeal against the order of CIT(A)-2, Mumbai dated 26/12/2017 for the assessment year 2013-14. The assessee in appeal has raised solitary ground assailing the disallowance under section 14A of the Act .
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The Revenue in its appeal has raised seven grounds identical to the appeal for assessment year 2012-13.
The ld. Authorized Representative for the assessee submitted at the Bar that the solitary ground raised by the assessee in its appear is against disallowance under section 14A of the Act i.e. identical to the one raised in assessment year 2011-12 and 2012-13. The Revenue in its appeal has raised 7 grounds that are similar to the grounds raised in assessment year 2011-12 and 2012-13.
The ld. Authorized Representative for the assessee submitted that in respect of applicability of provisions of section 115JB of the Act, there was an amendment to sub-section(2) to section 115JB of the Act by the Finance Act, 2012 w.e.f. 01/04/2013. The stand of Revenue is that by way of amendment the banking companies were brought into the fold of MAT provisions. The ld. Authorized Representative for the assessee has filed a detailed written note on applicability of amendment to provisions of section 115JB of the Act to Nationalised Banks. The same is reproduced as under:-
“1. Amendment to section 115JB Section 115JB was amended w.e.f AY 2013-14 to include any banking company, insurance company or electricity company for the purposes of the said section. The said amendment reads as under: “2) Every assessee,— (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
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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 sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable. The amendment applies to only banks which are established as companies under Companies Act as evident from reference to section 129(1) of companies Act 2013/ proviso to section 211(2) of Companies Act 1956. The said section 129/ 211(2) refers to banking company and the said term is defined to mean a banking company as defined under section 5(c) of Banking Regulation Act, 1949. Section 5 (c) of Banking Regulation Act 1949 defines a banking company as under: “(c) "banking company" means any company which transacts the business of banking in India; (d) "company" means any company as defined in section 3 of the Companies Act, 1956 (1 of 1956); and includes a foreign company within the meaning of section 591 of that Act;)” Section 3 of Companies Act 1956, defines a company as a company established under this Companies Act or old Companies Act. Section 2(20) of Companies Act 2013 defines company as company means a company incorporated under this Act or under any previous company law. As stated earlier, appellant is established under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 as a corresponding new bankand hence is not a company under Companies Act. Accordingly, it is submitted that amendment does not apply to appellant. 3.2 Further as clarified by Hon’ble ITAT Kolkatta in case of UCO Bank, the amendment only fortifies the stand that provisions of section 115JB are not applicable to appellant. As clearly held in the said decision, the purpose of amendment was to charge to tax u/s 115JB banking companies which are established under Companies Act such as ICICI Bank Ltd., Kotak Mahindra Bank Ltd., etc., and not assesses like appellant who are not companies under Companies Act. 3.3 This is also clear from the memorandum explaining provisions of Finance Act 2002 wherethe amendment was introduced. The memorandum states as under: “As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with
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the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with 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 debts applies to a Scheduled Bank. Scheduled Bank is defined in Explanation (ii) to mean State Bank of India, a corresponding new bank constituted under section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or under section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, or any other bank being a bank included in the Second Schedule to the Reserve bank of India Act.
(b) Under section 43D also reference is made to a Scheduled Bank as defined in section 36(1)(viia).
(c ) Similarly, 36(1)(viii) which provide for deduction on profits from eligible advances for specified entities provides specified entities to mean banking companies and defines banking company as under: (c) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;” Section 51 of Banking Regulation Act, 1949, covers State Bank of India, Corresponding new banks and Regional Rural banks. If banking company includes all these banks the need for defining banking company under the said section would not arise. In other words if banking company include nationalized banks, the need for defining the term to include nationalized banks would not arise. (d) Section 194N also refers to a banking company including any bank or banking institution referred to in section 51 of Banking Regulation Act.
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(e) Section 72A and 72AA which provide for carry forward and set off of accumulated losses and unabsorbed depreciation in case of amalgamation also clearly make a distinction between a banking company and other banks like that of appellant. The said section provides for such set off where there is a amalgamation between banking company which are a separate entity with specified banks or banking institutions which are defined to include nationalized banks. Therefore, this section also carves out a distinction between the two types of banks. Further, the recent amendment in section 72AA by Finance Act 2020also fortifies the above distinction. The section has been amended to provide for set off of losses where amalgamation has taken place between nationalized banks which are not companies. The section already provided for set off of unabsorbed depreciation and losses on amalgamation of banking companies with specified banks. The 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). The Hon’ble High Court in arriving at the conclusion held that machinery provisions provided in section 115JB(2) which requires the banks to maintain the same parameters in relation to accounting policies, accounting standards and method and rate of depreciation as adopted for preparing accounts which would ultimately be laid before Annual General Meeting u/s 129 would fail in case of appellant. This is for the reason that accounts of banks are prepared as per Schedule III of Banking Regulation Act and not as per Schedule VI of Companies Act. Even if it is prepared as per Schedule VI in the absence of placing the said accounts prepared under Schedule VI in AGM, the machinery provisions would fail. In such a situation as held by Hon’ble Supreme Court in case of Srinivasa Setty (128 ITR 294), the charging section would also fail. The same situation continues post amendment also since the Act requires same accounting policies, accounting standards and method and rates of depreciation
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as adopted for preparing accounts to belaid before its annual general meeting u/s 129 of Companies Act, 2013/ 210 of Companies Act 1956. The provisions of said section 129/210 of Companies Act, are not applicable to nationalized banks. The Accounts are prepared as per section 10 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and AGM is held as per section 10A of the said Act. Hence, as required in section 115JB, following of same accounting policy, accounting standard and method and rate of depreciation as adopted for preparing accounts which would be laid before AGM under section 129/210 of Companies Act would also fail in case of appellant.Accordingly, the machinery provisions post amendment wouldalso fail which would result in non-applicability of provisions of charging section. Hence, in the absence of any specific amendment in section 115JB to include nationalized banks it is submitted that the provisions of said section cannot be made applicable to appellant. 3.6 This issue is also covered in favour of appellant by decision of Hon’ble ITAT Kolkatta in case of Damodhar Valley Corporation for AY 2013-14 in ITA 438/Kol/2017.” 33. The ld. Departmental Representative submitted that the ground raised by the assessee in its appeal and the grounds raised by the Revenue in its appeal are identical to the one raised in assessment year 2011-12 and 2012-13.
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.
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
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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.
The ground No.2 to 4 in the appeal by the Revenue are identical (except for the amounts) to the issues raised in ground No.2 to 4 of the appeal in assessment year 2011-12.
Both sides are unanimous in stating that the issue raised in ground No.2 to 4 are identical and the reasons for making addition by Assessing Officer are also identical. Therefore, the findings given by us while adjudicating ground No.2 to 4 of the appeal for assessment year 2011-12 would mutatis mutandis apply in assessment year 2013-14. Consequently, ground No.2 to 4 of the appeal by the Revenue are dismissed.
The ground No.5 of the appeal by the Revenue though identical to ground No.7 raised in assessment year 2011-12, however due to amendment in provisions of section 115JB of the Act by the Finance Act, 2012 w.e.f. 01/04/2013, the contention of the Revenue is that the banking companies have been brought within the fold of section 115JB of the Act. The assessee has filed a detailed written submissions high- lighting that even after amendment, the provisions of section 115JB would not be applicable to Nationalised Banks.
We find that the Hon'ble Bombay High Court in the case of CIT vs. Union Bank of India (supra) while adjudicating the appeal of Revenue for assessment year 2005-06 has also considered the amendment to section 115JB sub-section (2) by the Finance Act, 2012. The Hon’ble High Court after considering the
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amended provisions concluded that there would be absolutely no change in the position as regards applicability of provisions of section 115JB on banking companies post amendment. The relevant extract of the judgment rendered by the Hon’ble High Court has already been reproduced in para -23 above. The Revenue has not placed before the Bench any decision contrary to the one referred above. Thus, in the light of the judgment by Honb’ble Jurisdictional High Court in assessee’s own case we hold that the provisions of section 115JB of the Act does not get attracted in the case, of Nationalised Banks, assessee being the one. The ground No.5 raised by the Revenue is dismissed accordingly.
Ground No.6 and 7 of the appeal by the Revenue are general in nature, hence, require no adjudication.
In the result, appeal of assessee is allowed and the appeal by Revenue is dismissed.
ITA NO.1807/MUM/2018 -(ASSESSEE’s APPEAL)- A.Y. 2014-15 ITA NO.2228/MUM/2018 -(REVENUE’S APPEAL)- A.Y. 2014-15 .
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..
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.
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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:-
The appellant is a nationalised bank carrying on banking business. The appellant is entitled to deduction u/s 36(1)(viia) in respect of any provision made for bad and doubtful debts. Accordingly, the deduction u/s 36(1)(vii) in respect of bad debts written off in such cases is restricted to the amount which is in excess of the credit balance in provision for bad and doubtful debts allowed u/s 36(1)(viia).
The hon’ble Supreme Court in case of Catholic Syrian Bank Ltd (343 ITR 270) held that the restriction that bad debts written off will be allowed only if it exceeds the credit balance in provision for bad and doubtful debts u/s 36(1)(viia) will apply only in respect of bad debts written off relating to rural advances and bad debts written off in respect of non-rural advances will not be covered under the proviso which restricts the deduction u/s 36(1)(vii).
The Income-tax Act was amended by insertion ofExplanation-2 w.e.f 01.04.2014 which runs as under:
“Explanation 2.—For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub- section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;”
From the above amendment which is applicable from AY 2014-15, it is clear that the credit balance in provision for bad and doubtful debts account u/s 36(1)(viia) has to be seen for both rural and non-rural advances.
The appellant did not claim any bad debts written off relating to rural advances till assessment year 2013-14. The bad debts written off of only non- rural branches was claimed based on decision of Hon’ble Supreme Court in case of Catholic Syrian Bank (343 ITR 270). Hence the construction of provision account u/s 36(1)(viia) in earlier years did not arise. Since this is the first year of
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claim in respect of rural and non-rural advances, the opening balance will only be nil and accordingly, in the first year entire bad debts written off has to be allowed as deduction u/s 36(1)(vii).
In view of above, it is respectfully submitted that the matter need not be remitted back to AO as desired by ld. CIT(DR). 43. The ld. Departmental Representative fairly admitted that the ground raised 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.
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 non- rural 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 rural and non-rural advances. In first appellate proceedings the CIT(A) while considering this issue has not taken into consideration the amended provisions. Therefore, in our considered view this issue needs revisit to the file of Assessing Officer for fresh adjudication after considering the facts in the light of amended provisions. Accordingly, ground No.2 of the appeal by the Revenue is allowed for statistical purposes.
The other grounds i.e. ground No.1, 3 to 5 of the appeal by the Revenue have already been considered by us while adjudicating the appeals for assessment
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year 2011-12 to 2013-14. The detailed findings given by us while adjudicating the aforesaid ground would mutatis mutandis apply to the present assessment year as well. Consequently, ground No.1, 3 to 5 of the appeal by the Revenue are dismissed.
The grounds No.6 and 7 are general in nature, hence, require no adjudication.
In the result, appeal of the assessee is allowed and the appeal by the Revenue is partly allowed for statistical purposes.
To sum up:
(1) ITA Nos.1804 to 1807/Mum/2018 for A.Ys. 2011-12 to 2014-15 Respectively by the Assessee are allowed. (2) ITA Nos.2227, 2229 & 2230/Mum/2018 for A.Ys 2011-12 to 2013-14 By the Revenue are dismissed. (3) ITA No.2228/Mum/2018 for A.Y. 2014-15 by the Revenue is partly allowed for statistical purposes.
Order pronounced on Friday the 27th day of November 2020.
Sd/- Sd/- (G.MANJUNATHA) (VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
मुंबई/ Mumbai, �दनांक/Dated 27/11/2020 Vm, Sr. PS(O/S)
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��त�ल�प अ�े�षतCopy of the Order forwarded to :
अपीलाथ�/The Appellant , 2. ��तवाद�/ The Respondent. 3. आयकर आयु�त(अ)/ The CIT(A)- 4. आयकर आयु�त CIT 5. �वभागीय ��त�न�ध, आय.अपी.अ�ध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai