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Income Tax Appellate Tribunal, DELHI BENCHES “C”: DELHI
Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “C”: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA.No.4520/Del./2016 Assessment Year 2012-2013 M/s. Gurgaon Gramin The DCIT, Circle-1(1), Bank (Now Sarva Haryana 5th Floor, HSIIDC Gramin Bank) H.O. Near vs., Building, Vanijya Nikunj, Bajrang Bhawan, Delhi Udyog Vihar, Phase-V, Road, Rohtak – 124 001. Gurgaon. Haryana. PANAAAAG5681L (Appellant) (Respondent) For Assessee : Shri Vivek Gupta, C.A. For Revenue : Ms. Rakhi Vimal, Sr. D.R. Date of Hearing : 07.10.2019 Date of Pronouncement : 10.10.2019 ORDER PER BHAVNESH SAINI, J.M.
This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-1, Gurgaon, Dated 27.06.2016, for the A.Y. 2012-2013.
We have heard the Ld. Representatives of both the Parties and perused the material on record.
2 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana.
On Ground No.1, assessee challenged the disallowance of Rs.6,86,000/- under section 14A read with Rule 18D against the exempted income of Rs.22,75,000/-. The A.O. noted that the assessee has credited receipts of dividend income of Rs.27,75000/- to the Profit & Loss Account under the Head “Other Income” and claimed the same exempt under section 10(35) of the I.T. Act. The assessee was asked to file certain details including details of expenses incurred related to dividend income, since no deduction is allowable in respect of expenditure incurred in relation to income which does not form part of total income under the provisions of section 14A of the Act. The assessee filed no detail or explanation. As per schedules of Balance Sheet assessee’s investments in shares/mutual funds has been shown at Rs.6,75,77,000/- as on 31.03.2012 as per ‘Investments’. It was further noticed that the assessee has debited interest payments of Rs.26,45,07,000/- during the year on the balances with RBI, other Inter Bank borrowings and other loans otherwise than Interest on Deposits, as per Schedule 15, of the ‘Interest Expended’, these interest
3 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. expenses have been debited to the Profit & Loss Account and claimed as business expenses. Since the assessee has offered no disallowance out of the expenses debited to the Profit & Loss Account in respect of the expenditure incurred in relation to income which does not form part of total income under the provisions of section 14 A of the Act, by invoking provisions of Rule 8D, the A.O. proceeded to determine the amount of expenditure in relation to income not taxable in accordance with provisions of sub-rule (2) of Rule 8D. The A.O. disallowed interest i.e., average of value of investment at Rs.3,48,000/-. The A.O. further disallowed Rs.3,38,000/- being one half percent of average value of investment, income from which does not form part of total income, as appearing in balance sheet ending financial year. The A.O, therefore, made total addition of Rs.6,86,000/-.
The assessee challenged the addition before the Ld. CIT(A) and it was submitted that A.O. made the addition under Rule 8D without recording any satisfaction. The assessee relied upon decision of Hon’ble Delhi High Court in the case of Maxopp Investment Ltd., vs. CIT 347 ITR 272
4 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. wherein it has been held that Rule 8D is not applicable automatically and before applying the same, A.O. has to first record his satisfaction and reject the claim of assessee with regard to extent of expenditure by having regard to the accounts of assessee and such rejection must be for disclosed cogent reasons. It is only then that the question of determination of expenditure under section 14A read with Rule 8D by the A.O. would arise. In the present case, the A.O. made disallowance without recording satisfaction. It was further submitted that Bank is having non-interest bearing funds as per audited balance-sheet for assessment year under appeal i.e., capital of Rs.1921.76, reserve and surplus Rs.57505.90, total non-interest bearing funds Rs.64728.11. The average investment was 675.77. From the above, it is evident that average investment made in earning the exempted income is of Rs.675.77 lakhs, which is much below average non-interest bearing funds of Rs.33,456.11 lakhs available with the Bank. Therefore, no cost of fund is involved in earning the aforesaid exempted income so as to attract disallowance under section 14A of the I.T. Act. It was 5 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. further submitted that during the year Bank earned total interest of Rs.44632.31 lakhs and expended total interst of Rs.23894.21 lakhs as is evident from the audited P & L A/c ending financial year. Since there is no net interest expenditure incurred during the year and there is a net interest income, therefore, no disallowance could be made. In scrutiny proceedings for earlier year, no disallowance of the similar nature have been made.
4.1. As regards the disallowance of other expenditure @ 0.5%, it was submitted that assessee does not made investment tax free from securities during the year, therefore, no much activity, except receipt of tax free income was made, for which, no expenditure have been incurred. The Ld. CIT(A), however, dismissed the appeal of assessee.
5. Learned Counsel for the Assessee reiterated the submissions made before the Ld. CIT(A) and referred to PB 1 to 6 in support of the above contention and also relied upon Order of ITAT, Kolkata Bench in the case of DCIT, Circle-6, Kolkata vs. UMIL Share & Stock Broking Services Ltd.,
6 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. [2018] 96 taxmann.com 168 (Kolkata – Trib.) in which it was held as under :
“Prior to 2-6-2016 benefit of netting of interest under rule 8D(2)(ii) could be allowed without even emphasising on need of having any inextricable link between interest earned and interest paid.”
6. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that some expenses are required to be incurred for earning exempted income, therefore, addition is wholly justified.
7. We have considered the rival submissions. The submissions made by assessee before the Ld. CIT(A) as noted above are not in dispute that assessee has sufficient capital and reserve. The assessee has non-interest bearing funds also which were more than the investments made by assessee. Thus, no cost of fund is involved in earning the exempted income. Further, in this year assessee has no net expenditure as there is a net interest income and in earlier year, no similar disallowance out of interest have been 7 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. made. The reliance of the assessee on the decision of UMIL Share & Stock Broking Services Ltd., (supra) clearly apply to the facts of the case of the assessee. In this view of the matter, there were no justification for the authorities below to disallow interest expenditure relating to exempted income of Rs.3,48,000/-. We, accordingly, set aside the Orders of the authorities below and delete the addition of Rs.3,48,000/-.
However, as regards other addition of Rs.3,38,000/- is concerned, assessee has not filed any reply before the authorities below. No details or explanation have been filed. No explanation have been given regarding the activities carried out by the assessee for earning the exempted income. Since assessee earned substantial dividend income, therefore, assessee was bound to incur certain expenditure to earn exempted income, therefore, in the absence of any explanation or any details submitted by assessee before the authorities below as well as before the Tribunal, disallowance of Rs.3,38,000/- is confirmed. Part of this ground is dismissed. Ground No.1 is partly allowed.
8 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana.
On Ground Nos. 2 and 3, assessee challenged the addition of Rs.2,56,80,000/- on account of deduction claimed under section 36(1)(viia) of the I.T. Act, 1961. The A.O. noted that assessee had debited the aforesaid amount on account of provision for standard asset under the Head “Provision for Bad & Doubtful Debt” to the P & L A/c. In view of the fact that standard assets earns interest regularly and by no stretch of imagination these assets can be called bad or doubtful. Assessee was asked to explain as to why the aforesaid amount on account of provision for standard asset should not be disallowed. The assessee did not offer any explanation. The A.O, therefore, following his Order for the A.Y. 2011-2012 disallowed the above amount. The Ld. CIT(A) confirmed the addition.
Learned Counsel for the Assessee at the outset submitted that issue is covered by the Order of ITAT, F- Bench, Delhi in the case of the same assessee for preceding A.Y. 2010-2011 vide Order dated 28.03.2019 and the Tribunal in Paras 3 to 7 held as under :
9 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. “3. We have heard both the parties on the issue in dispute. In the case, the assessee is a rural cooperative bank and entitled for deduction under section 36(1)(viia) of the Act in respect of provision for bad and doubtful debt. The said provision has specified the limit of deduction which could be allowed to the eligible assessee. Under the provisions, the deduction in respect of any provision for bad and doubtful debts made by the co- operative bank, of an amount not exceeding seven and one half percentile (7½%) of the total income and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. The Rule 6ABA of the Income Tax Rules, 1962 has provided the manner of computing the aggregate average advances as under: "[Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36. 6ABA. For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural
10 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. branches of a scheduled bank shall be computed in the following manner, namely :--
(a) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year shall be aggregated separately ;
(b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a) ;
(c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank.
Explanation : In this rule, "rural branch" and "scheduled bank" shall have the meanings assigned to them in the Explanation to clause (viia) of sub-section (1) of section 36.]"
11 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. 4. In view of the Rules, the assessee computed the amount of provision as under:
(Amount in thousands)
S.No. Particulars Balance O/s. Amount of Provision 1. Standard Advances 14751401 6891 2. Sub Standard Adv. 110097 6572 3. Doubtful Adv. 58065 11664 4. Loss Assets 10556 1647 14930119 26774
According to the Assessing Officer, the provision of standard advances of Rs.68,91,000/- was not eligible for deduction as the said asset was not in the nature of bad and doubtful date as the assessee was receiving regular interest on said assets. The Ld. CIT(A) following the decision of the coordinate bench of the Tribunal dated 28/08/2012, including the decision in the case of Bharat Overseas Bank in ITA No.1191/Mds./2012 held that provision for bad and doubtful debt on a standard advances of the bank are not permitted under section 36(1)(viia) of the Act.
12 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana.
Before us, however, the Ld. counsel of the assessee submitted that issue in dispute in the case of the assessee itself for assessment year 2011-12 has been decided in favour of the assessee by the Tribunal. We find that the Tribunal in in the case of the assessee has decided the issue in dispute following the decision of the coordinate bench of the Tribunal in the case of DCIT versus The Little Kancheepuram cooperative Urban bank limited in ITA No. 23 & 24/Mds/2013 decided on 21/03/2013 and decision of the Amritsar bench of the Tribunal in the case of DCIT Vs M/s Punjab Gramin bank in ITA No. 583 and 584 (Asr)/2015, observing as under:
“7. In view of this settled legal position, we are of the considered opinion that deduction of the provision under section 36(1)(viia) is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets and the deduction in this clause
13 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana. refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. Hence, we find that the orders of the authorities below cannot be sustained and the addition of Rs.84,70,000/- is directed to be deleted."
As the issue in dispute involved in the year under consideration is identical to the issue in the appeal of the assessee for assessment year 2011-12, thus, respectfully following the decision of the Tribunal in for assessment year 2011-12, the addition in dispute in the year under consideration is also deleted. The grounds of appeal of the assessee are allowed.”
14 ITA.No.4520/Del./2016 M/s. Gurgaon Gramin Bank, Rohtak, Haryana.
After considering the rival submissions, we are of the view that issue is covered in favour of the assessee by the aforesaid decision of the Tribunal in the case of assessee Dated 28.03.2019 (supra), in which the Order of Tribunal for the A.Y. 2011-2012 have also been considered which is the sole basis for the A.O. to make the disallowance. We, accordingly, following the Order of the Tribunal above, set aside the Orders of the authorities below and delete the entire addition. In the result, Ground Nos.2 and 3 of the appeal of Assessee are allowed.
On Ground No.4, assessee challenged interest which is consequential in nature.
In the result, appeal of Assessee partly allowed.
Order pronounced in the open Court.