DCIT, NEW DELHI vs. M/S. ORIENTAL BANK OF COMMERCE, GURGAON

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER

ITA No.6443/Del/2014 Assessment Year : 2011-12

DCIT, Vs. Oriental Bank of Commerce, Circle-19(1), Central Account Office, Plot No.5, New Delhi. Sector 32, Institutional Area, Gurgaon. PAN: AAACO0191M ITA No.5969/Del/2014 Assessment Year : 2011-12 Oriental Bank of Commerce, Vs. Addl. CIT, Central Account Office, Plot Range-13, No.5, New Delhi. Sector 32, Institutional Area, Gurgaon. PAN: AAACO0191M (Appellant) (Respondent)

Assessee By : Shri KVSR Krishna, CA & Shri Aman Goel, CA Department By : Ms Shefali Swaroop, CIT DR Date of Hearing : 24.10.2017 Date of Pronouncement : 25.10.2017

ITA Nos.5969 &6443/Del/2014

ORDER PER R.S. SYAL, VP: These two cross appeals – one by the assessee and the other by the

Revenue arise out of the order passed by the CIT(A) on 29.08.2014 in

relation to the A.Y. 2011-12.

assessee’s appeal concern with disallowance u/s 14A of the Income-tax

Act, 1961 (hereinafter also called `the Act’). Briefly stated, the facts of

the case are that the assessee earned exempt income of

Rs.12,04,27,196/-. The AO observed that no disallowance was offered

u/s 14A of the Act. Considering the assessee’s objections and after

recording satisfaction, which aspect has not been disputed by the

assessee, the AO invoked the provisions of Rule 8D for making

disallowance u/s 14A amounting to Rs.47.66 crore, consisting of interest

expenditure disallowable to the tune of Rs.43.55 crore; and Rs.4.11

crore , being 0.5% of the average value of investments in balance sheet.

The ld. CIT(A) deleted the disallowance of Rs.43.55 crore, but,

ITA Nos.5969 &6443/Del/2014

sustained the disallowance of Rs.4.11 crore. Both the sides are in appeal

in support of their respective stands.

material on record. It is seen that the assessment year under

consideration is 2011-12 and the provisions of rule 8D are applicable. It

is common submission that similar treatment was given by the

respective authorities below for the A.Ys. 2008-09 and 2009-10. The

Tribunal has upheld the action of the CIT(A) for such years, meaning

thereby that disallowance of interest got deleted and disallowance @

0.5% of the average value of investment got sustained. In the absence of

any change in the factual scenario and respectfully following the

precedent, we uphold the impugned order. To put it simply, the

respective grounds raised by both the sides stand dismissed.

depreciation on temporary erections as against 20% allowed by the AO.

During the course of assessment proceedings, it was observed that the

assessee claimed 100% depreciation on Fixtures and fittings in rented

ITA Nos.5969 &6443/Del/2014

premises which was claimed as temporary erection. The AO allowed

depreciation @ 20% (and 10% for less than 80 days). This resulted into

the disallowance of excess depreciation to the extent of Rs.6,76,70,768/.

The ld. CIT(A) deleted the addition.

material on record, it is noticed that similar issue was raised in the

assessee’s appeal for the A.Y. 2007-08. Vide its order dated 04.11.2015

in ITA No.1937/Del/2011, the Tribunal has restored the matter to the file

of AO for fresh verification. Respectfully following the precedent, we

also set aside the impugned order to this extent and remit the matter to

the file of AO for deciding it in conformity with the view taken by the

Tribunal for the A.Y. 2007-08.

on account of disallowance of Rs.4,00,00,000/- towards interest on

overdue deposits.

relevant material, it is noticed that similar issue was raised in appeals for

ITA Nos.5969 &6443/Del/2014

the A.Ys. 2008-09 and 2009-10. Relevant discussion has been made on

pages 24 and 25 of the order and, eventually, the Tribunal restored this

matter to the file of AO for the limited purpose of verifying whether or

not actual payment of the provision was made to the customers. In the

absence of any distinguishing feature in the facts and circumstances of

the instant year, we, respectfully, follow the precedent and remit the

matter to the file of AO for deciding this issue in accordance with the

directions given by the Tribunal in the aforenoted order for earlier years.

disallowance made by the AO u/s 36(1)(viia) from Rs.391.82 crore to

Rs.149.17 crore. Both the sides are in agreement that the facts and

circumstances of this issue are similar to those as raised in the appeal for

the immediately preceding assessment year 2010-11. A copy of the

order dated 11.09.2017 in ITA No.4566/Del/2014 has been placed on

record in which the issue has been decided in the assessee’s favour by

upholding the order passed by the CIT(A). In the absence of any

ITA Nos.5969 &6443/Del/2014

distinguishing facts and respectfully following the precedent, we uphold

the impugned order on this score.

deduction claimed u/s 36(1)(vii) of Rs.448,11,61,785/-. The facts

apropos this issue are that the assessee claimed separate deduction u/s

36(1)(vii) in respect of bad debts of advance of non-rural branches of

Rs.695.12 crore without setting of bad debts against provision for bad

and doubtful debts u/s 36(1)(viia) amounting to Rs.637,56,78,375/-.

Accordingly, claim u/s 36(1)(vii) up to the amount of deduction

allowable u/s 36(1)(viia) was disallowed and the balance amount of bad

debt written off in respect of the amount of deduction allowable u/s

36(1)(viia) amounting to Rs.207,09,87,602/- (Rs.695,21,49,387 plus

Rs.27,46,115 minus Rs.488,39,07,900/-) was held to be allowable u/s

36(1)(vii). Thus, the excess deduction of Rs.488,11,61,785/-

(Rs.695,21,49,387 minus Rs.207,09,87,602/-) was disallowed. This was

done by the AO considering the clarificatory amendment made by the

Parliament vide Finance Act, 2013 by way of insertion of Explanation to

ITA Nos.5969 &6443/Del/2014

section 37(1)(vii) of the Act which was held to have retrospective effect.

The ld. CIT(A) deleted the addition by noticing that the amendment

relied on by the AO was effective from the A.Y. 2014-15 and, hence,

could not be retrospectively applied.

material on record. The Hon'ble Supreme Court in Catholic Syrian

Bank vs. CIT (2012) 248 CTR 1 (SC), has observed that the provisions of

section 36(1)(viia) apply only to rural advances and the provisions of

section 36(1)(vii) apply on other advances. It has been held that both

these provisions are distinct and independent items of deduction and

operate in their respective fields. It is relevant to note that Explanation 2

has been inserted by the Finance Act, 2013 w.e.f. 01.04.2014 diluting

the position laid down in Catholic Syrian Bank (supra). Such an

insertion has been made prospectively and hence cannot be applied

retrospectively to the year under consideration. The Mumbai Bench of

the Tribunal in the case of IDBI Bank Ltd. vs. CIT (ITA

No.3775/Mum/2017) vide its order dated 11.09.2017, copy placed on

ITA Nos.5969 &6443/Del/2014

record, has taken note of the view taken by the Mumbai Bench of the

Tribunal in the case of Bank of India (ITA No.1498/Mum/2013) and

Bank of India vs. ACIT (ITA No.2966/Mum/2014) holding such

insertion as prospective. No contrary decision has been brought on

record by the ld. DR in which such Explanation has been held to be

retrospective. We, therefore, countenance the view taken by the ld.

CIT(A), in principle, in allowing deduction u/s 36(1)(vii) in addition to

the deduction u/s 36(1)(viia). This ground is not allowed.

against the computation of deduction u/s 36(1)(viia). The assessee

claimed deduction u/s 36(1)(viia) amounting to Rs.637,56,78,375/-,

which is equal to 7.5% of the total income before making any deduction

under this clause and 10% of average aggregate advances pertaining to

rural branches. The ld. CIT(A) restricted such deduction only to the

extent of Rs.488,39,07,900/-, being the amount of ‘Provision for bad

and doubtful debts – rural branches.’ The assessee is aggrieved against

the less amount of relief allowed in the impugned order.

ITA Nos.5969 &6443/Del/2014

gives the total amount of deduction at Rs.637,56,78,375/-, which fact

has not been disputed also. However, the ld. CIT(A) restricted the

addition to the tune of Rs.488.39 crore on the ground that the total

amount of provision for bad and doubtful debts in respect of rural

branches is only to this extent and, hence, deduction cannot exceed it.

We are not agreeable with the view canvassed by the ld. CIT(A) in view

of the language of section 36(1)(viia) which opens with the expression

that: “in respect of any provision for bad and doubtful debts made by

……….” It is amply clear from the language of section 36(1)(viia) that

the deduction is with respect of ‘Provision for bad and doubtful debts’

and the same is not restricted to the provision for bad and doubtful debts

- Rural branches. Such a total provision includes both for rural and non-

rural branches. Page 122 of the paper book is a copy of the Annual

report of the assessee for the year under consideration, which shows t he

amount of ‘Provision towards NPA’ at Rs.934.38 crore. Break-up of

this amount is given at page 121 of the paper book, which comprises of

‘Provision for bad and doubtful debts rural branches ’ at Rs.488.39 crore 9

ITA Nos.5969 &6443/Del/2014

and Reserve for bad and doubtful debts – non-rural branches at

Rs.445,98,44,100/-. In fact, total provision made by the assessee stands

at Rs.934.38 crore. As section 36(1)(viia) grants deduction in respect of

total provision for bad and doubtful debts and the same is not confined

to provision for rural branches only, we hold that the quantum of

deduction has to be seen in the light of the total amount of provision

consisting of both rural and non-rural branches. Viewed in this light, the

action taken by the ld. CIT(A) in reducing the amount of deduction to

the extent of provision for bad and doubtful debts in respect of rural

branches alone, becomes unsustainable. We, therefore, direct that

deduction of Rs.637,56,78,375/- be allowed u/s 36(1)(viia).

Rs.12,29,18,367/- being software expenses to be capital in nature. The

assessee incurred a sum of Rs.13.94 crore on software expenses and

claimed the same as revenue. Following the view taken for earlier year,

the Assessing Officer treated the amount as capital. After allowing

depreciation of Rs.10.83 crore, he made disallowance of Rs.3.11 crore.

ITA Nos.5969 &6443/Del/2014

The ld. CIT(A) noticed that a sum of Rs.1,65,47,264/- was in the nature

of AMC expenses and, hence, allowable. The remaining amount was

held to be capital in nature and the Assessing Officer was directed to

allow depreciation.

record, it is observed that similar issue was raised in the appeals for

assessment years 2008-09 and 2009-10. The Tribunal has upheld the

view taken by the CIT(A) for such earlier years. In the absence of any

distinguishing facts for the year under consideration and respectfully

following the precedent, we uphold the impugned order. This ground is

not allowed.

“1. The appellant by this additional ground is claiming relief of Rs.30,73,30,286 being the amortized premium on HTM securities which may kindly be allowed.”

time is hereby admitted for disposal on merits. The ld. AR contended

that amortized premium on HTM securities be allowed as deduction. It 11

ITA Nos.5969 &6443/Del/2014

was fairly admitted that the amount was offered for taxation and no

deduction was claimed either before the Assessing Officer or before the

CIT(A). He submitted that the additional claim has been raised because

of the favorable judgment of the Hon'ble Bombay High Court in CIT vs.

HDFC Bank Ltd., (2014) 366 ITR 505 (Bom). Since this issue was not

raised before the authorities below, we are of the considered opinion that

the ends of justice would meet adequately if the Assessing Officer is

directed to consider the assessee’s claim in the light of the judicial

precedents available on the issue. Needless to say, the assessee will be

allowed a reasonable opportunity of being heard in the matter.

The order pronounced in the open court on 25.10.2017.

Sd/- Sd/-

[KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT Dated, 25th October, 2017. dk

ITA Nos.5969 &6443/Del/2014