Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI- BENCH “D”
Before: SH. BR BASKARAN & SH PAWAN SINGH
PER PAWAN SINGH, JUDICIAL MEMBER 1. These four appeals out of which three appeals filed by Revenue and one by assessee-bank. Two appeals filed by revenue for assessment years 2006 -07. And for AY- 2009 –10, revenue as well as assessee both filed cross appeals. As the facts of the cases are common and the grounds of appeal in all appeals are interconnected, thus, all appeal were heard together and are being decided by common order. First, we shall take up appeals ITANo.6644 and 6645/M/2013, filed by revenue for assessment year 2006 -07, against the two different order of Commissioner of income tax appeals dated 30 August 2013. The revenue has raised following identical grounds of appeal in both the appeals.
On the facts and in the circumstances of the case and in law, the Learned CIT appeals erred in holding that provision of section 115 JB of I. T. Act 1961 were not applicable to the assessee bank relying on the decision of honourable itat in ITA number 1600/M/2012. In the assessee’s own case for current assessment year and in case of Union Bank of India in 49 SOT 32 (Mumbai), 2011, which has not been accepted by the Department and appeal on the issue, has been filed before the honourable Bombay High Court lodging No. 1570, 1591 of 2013 and ITA No. 546 of 2012 respectively. 2. On the facts and in the circumstances of the case and in law, the Learned Commissioner of income tax appeal erred accepting the claim of the assessee that provisions of section 115 JB of the act were not applicable to the assessee bank. Whereas, the assessee itself in the return of income accepted applicability of tax liability of MAT under section 115 JB of I. T. Act. 3. For these and other grounds that may be urged at the time of hearing, the decision of the Commissioner of income tax appeals may be set aside and that of the AO be restored.
Brief facts of the case for the relevant assessment year are that assessment under section 143(3) was completed on 15 December 2008, determining the total income of the assessee is nil under normal provisions of the act, and book profit under section 115JB at Rs.1,81,23,65,310/-. The order of assessment was rectified under section 154 of the Act; on the application of assessee vide order dated 29th March 2010. The order rectified by AO was revised by ld Commissioner of Income Tax, vide order dated 12 Jan 2012. After passing the order under section 263 of the Act by ld Commissioner of Income Tax, the AO passed order giving effect dated 29th Feb 2012 under section 143(3) read with section 263/253/154 of the Act. Aggrieved by the order of AO the assessee filed appeal before Commissioner of Income Tax (Appeals) and the same was allowed vide order impugned in the present appeal No. ITA6645/M/2013. The AO also passed a rectification order dated 19/10/2012 u/s 154 of the Act. The appeal filed
Dena Bank -ITA N0.6644&45M/2013 for AY 2006-07 ITA N0.3505&3696/M/2013 for AY 2009-10
against rectification order was allowed by Ld. CIT(A). Hence the revenue has filed appeal against the same that appeal is ITANo. 6644/M/2013.
We have heard ld DR for revenue and ld AR for assessee and perused the material available on record. At the outset ld AR for assessee submitted that both the appeal emanates from the order passed by AO u/s 143(3) r.w.s. 263 of the Act. He submitted that the assessee filed appeal against the order of Commissioner of Income Tax, passed under section 263, vide order dated 29 March 2010, and the same was allowed by Tribunal in ITA No. 1600/M/2012, dated 10 April 2013. Accordingly he submitted that the assessment order passed u/s 143(3) r.w.s 263 is non-est in the eyes of law and hence both the appeals of the revenue shall become infructuous. 4. We have perused the order of Tribunal in ITA No. 1600/M/2012, dated 10 April 2013 wherein considering the appeal of the assessee against the order of CIT under section 263 of the act and the applicability of mat provision in the case of assessee, the tribunal held as under:
“9.2. We find that the issue of applicability of section 115 JB has been discussed by the ‘B’ bench of Mumbai tribunal in case of Union Bank of India(supra) in favour of assessee. In that matter tribunal has held as under:
“18. Ground No. 5(in ITA number 4706/10-AY 2006 – 07) relates to applicability of the provision of section 115 JB. 19. This issue is covered by the decision of the jurisdictional High Court in case of Kurung Thai Bank PCL ITA No. 3390/M/90 dated 30 September 2010. The Learned CIT(A however, followed the decision of the ITAT in assessee’s own case for the assessment year 2001 – 02 in ITA No. 9061/M/0420. The landed AR of assessee has submitted as follows: “The appellant further submits that the appellant is not a company under companies act, but is only deemed to be a company as per the provisions of section 11 of the banking companies (acquisition and transfer of undertakings) act, 1970. Therefore, as held by the jurisdictional ITAT in case of Maharashtra state arrested board (82 ITD 422) the provisions of section 115 JB cannot be made applicable to the appellant. Reliance is also placed on the decision of Kerala High Court in case of trailer stated laxity board (329 ITR 91)”
We find that in case of Kurang Thai Bank PCL in ITA 339, 0/M/90 for AY 2004-05, it has been held as follows: “ in view of the above discussion, and following the view taken by a coordinate bench in the case of Maharashtra state relaxed the board versus ACIT (82 ITD 422), which holds that provisions of mat cannot be applied to the laxity companies for a mutually similar reason be uphold the plea of assessee. The provisions of section 115 JB do not apply to assessee and, as such, the AO was an error in concluding that income had escaped assessment. In the hands of assessee. The venj initiation of reassessment proceeding was bad in law and we quest the same.
Dena Bank -ITA N0.6644&45M/2013 for AY 2006-07 ITA N0.3505&3696/M/2013 for AY 2009-10
On the decision of Learned Commissioner of income tax appeal is reversed and we hold that provisions of section 115 JB cannot made applicable to the assessee. This ground of assessee is dismissed”
9.3. We have pursued the other orders cited by AR of assessee bank. We find that issue is decided in favour of assessee. Therefore, respectfully following the order of coordinate bench is of ITAT, we decide the issue in favour of assessee.” 5. As the revision order passed by Ld CIT u/s 263 of the Act has been set-aside by ITAT (supra) the consequent assessment order shall remain non-est in the eyes of law. Accordingly both these appeals, which arise out of the said assessment order, shall become infructuous. Accordingly we dismiss both the appeal of the revenue in limine. 6. Appeal ITA No. 3504/M/2013 is filed by revenue and ITA No. 3996/M2013 is filed by assessee for AY 2009-10. In ITA number 3504/M/2013. The revenue has raised following grounds of appeal. 1. “On the facts and circumstances of the case and in law the Learned CIT appeals erred in deleting the disallowance made under section 14A, read with rule 8D(2)(ii) overlooking the fact that the assessee could not establish the nexus between its own funds and the utilisation for investments made for earning of taxable income” 2. On facts and circumstances of the case and in law the Learned Commissioner of income tax appeal erred in directing that stock in trade shown in the balance-sheet be excluded while computing the average of value of investment overlooking the fact that share held as stock in trade mage yield dividend which is exempt from tax and therefore, the assessing officer has correctly included it while computing the average value of investment as per rule 8D (2) (ii) and rule 8D (2) (iii).” 3. For these and other grounds that may be urged at the time of hearing, the decision of CIT appeals may be set aside and that of the AO restored. In ITA number 3996/M/2013. The assessee has raised following grounds of appeal. 1. Disallowance under section 14 A. a. The Learned Commissioner of income tax appeals erred in not accepting the disallowance under section 14 a read with rule 8D (2)(iii) made by the appellant at rupees 11, 00, 000/-. The Learned Commissioner of income tax appeals erred in directing the assessing officer to work out the disallowance under section 14 A, by excluding stock in trade from ‘average value of investment’ which is per appellant’s working, without prejudice, comes to Rs. 1.30 crore. Your appellant submit that the additional disallowance (in excess of Rs. 11 crore) ought to be deleted. b. The Learned Commissioner of income tax appeals erred in holding that the action of assessing officer in invoking rule 8D, is valid. c. The Learned Commissioner of income appeals tax failed to appreciate the fact that assessing officer failed to establish that the appellant had incurred expenditure to earn tax-free income. d. Without prejudice to the above, your appellant submit that the disallowance is excessive and ought to be reduced substantially.
Dena Bank -ITA N0.6644&45M/2013 for AY 2006-07 ITA N0.3505&3696/M/2013 for AY 2009-10
Calculation of book profit under section 115 JB. a). The Learned Commissioner of income tax appeals erred in confirming the action of AO in computing the income of your appellant under section 115 JB of the income tax act 1961. Your appellant submit that the provisions of said section do not apply to them and deny their liability to be assessed under section 115 JD. Your appellant submit that provisions of section 115 JB ought not to have been applied by the AO to your appellant’s and income ought to be computed only under the normal provision of the act. Without prejudice to the above, if provision of section 115 JB are held to be applicable to your appellant’s, then they ought to be granted the opportunity to prepare their profit and loss account, in accordance with the provisions of art II and III of schedule VI of the companies act 1956 and the net profit so computed be considered for the purpose of calculation of book profits under section 115 JB. b) without prejudice to the above, if the provisions of section 115 JB are held to be applicable to the appellant’s, then, in any event, the landed Commissioner of income tax appeal is erred in confirming the action of AO in adding the following item while calculating book profits:- i. Adding disallowance under section 14 A: Your appellants submits that disallowance is artificially deemed and estimated under section 14 a read with rule 8D, as expenditure relatable to earning of exempt income. Your appellant submit that the same cannot be added for computing book profit under section 115 JB. ii. addition of Rs 1994409916/-on account of provision for non-performing assets(NPA). Your appellant submit that the provision for NPA is a tight of and not a provision. Hence the same should not be added to the book profit computed under MAT provisions. Without prejudice to the above, in case provisions of NPA is added to the book profits, then actual pet dabs written off during the year ought to be allowed as a deduction from the book profits computed under MAT provisions. Considering the same as a good trouble from creatures under the explanation 1(i) of section 115 JB. 7. Brief facts of the case are that assessee filed return of income for relevant assessment year on 25th September 2009 declaring total income of Rs.807,73,63,300/- under the normal provisions of the Act, and Rs.799,56,34,431/- under section 115 JB of the Act. Subsequently assessee revised vide its return of income filed on 31 March 2011, declaring it revised income of Rs. 614,81,79,430/-under the normal provisions of the Act and book profit nil under section 115 JB of the act. The return of income was selected for scrutiny and while framing assessment the AO besides other additions/disallowance, disallowed a sum of Rs. 15,50,37,000/-under section 14 A of the act and further made a calculation of MAT under section 115 JB of Rs. 815,06,71,431/-in the assessment order dated 28 December 2011. Aggrieved by the order of AO, the assessee filed appeal before the Commissioner of income tax
Dena Bank -ITA N0.6644&45M/2013 for AY 2006-07 ITA N0.3505&3696/M/2013 for AY 2009-10
appeals. The Learned Commissioner of Income Tax Appeal granted partial relief for disallowance under section 14A and deleted the addition of interest expenses under rule 8D (2) (ii) of the act, holding that the assessee has not utilized borrowed fund for the purpose of investment for earning tax-free income. However, the calculation of book profit under section 115 JB of the act was confirmed. Thus the revenue is aggrieved by the order of deleting interest expenses out of total disallowance of section 14 A, and the assessee is aggrieved by sustaining the other expenses under rule 8D (2)(iii), and for sustaining the calculation of book profit under section 115 JB of the act.
The disallowance u/s 14A is being contested by both the parties. We have heard ld DR for revenue and ld AR for assessee and perused the material available on record. Landed DR for revenue argued that assessee failed to prove before AO that assessee utilized own fund for investment for earning tax-free income. Ld DR supported the order of AO and prayed that the order of Learned CIT appeals may be set aside and that of the order of AO may be restored. On the other hand Ld AR for assessee argued that assessee was having sufficient interest free funds available with him in the form of Share Capital, Reserves & Surplus, interest free current deposits etc. The assessee earned exempt income of Rs.166,79,922/- and voluntarily disallowed Rs. 11 lakh under section 14A of the Act. Before making disallowance, the assessing officer failed to record his dissatisfaction about the computation provided by the assessee for the purpose of disallowance under section 14A of the Act. The assessee has share capital of Rs.286.82/- crore, reserve and surplus fund of Rs 1883.67/- crore. The total investment of assessee is Rs.12,538.32 crores, out of which the investment in the government and other approved securities is Rs.12,393.89/- crores and they have been classified as stock in trade and which yield taxable income and the investment leading to exempt income is at Rs. 144.43/- crores only. Ld AR of assessee relied upon the decision of Bangalore Tribunal in Vijay Bank versus JCIT in ITA No. 653/Bang/2012, dated 27thFeb,2015, and Corporation Bank versus JCIT in ITA No. 1310/Bang /2012, dated 19 September 2014.
Dena Bank -ITA N0.6644&45M/2013 for AY 2006-07 ITA N0.3505&3696/M/2013 for AY 2009-10
We have considered the rival contention of the parties and perused the various decisions cited by ld AR of assessee. The Bangalore Tribunal had held in the case of Vijaya bank (supra) that the investment activities of the bank are carried out by the Treasury Department at head office. Even without earning any free (tax) income, this expenditure would have been incurred by the bank. Since the bank has to hold SLR securities to carry out business and the expenditure are of fixed in nature. Therefore, there is no expenditure incurred directly by the bank for earning tax-free income. It was further held that the expenditure have been incurred by the bank even without the earning of taxable income, no part of the expenditure can be related to earning the tax free income, and relying upon the decision of Karnataka High Court in CCI Ltd versus JCIT(2012) 20 taxmann.com 196 (Kar) deleted the disallowance made under section 14A of the Act. However, the coordinate bench of this tribunal while considering the identical ground for assessment year 2008-09 in ITA No. 3676/M/12 held as under:
“7. We have considered the respective submission of learned representative of the parties. We may observed that the honourable Bombay High Court in case of CIT versus Reliance Utilities and Power Ltd(supra), has observed that if there are funds available with the assessee, both interest free and overdraft/loan taken, then presumption would arise that investment would be out of interest free funds generated or available with the assessee. The Learned CIT appeals from the balance-sheet of the assessee observed that own funds of the assessee were sufficient for making investments yielding exempt income and as such, circumstances, no disallowance under section 14A read with rule 8D2(ii) was called for. In view of the above discussion of the matter, we do not find any infirmity in the order of CIT appeals in this ground.
So far the contention of the learned AR that even no disallowance is warranted under rule 8D(2)(iii) on the ground that section 14A applies to direct expenditure incurred for earning exempt income and not to indirect expenditure is concerned, we do not find any merit in the same.. The disallowance under rule 8D(2)(iii) is in fact related to indirect expenditure incurred for earning of exempt income. In view of the above, we do not find any infirmity in the order of Commissioner of income Tax Appeal in relation to the above issue and as such the confirmation of disallowance under rule 8D (2)(iii) is hereby upheld.”
Dena Bank -ITA N0.6644&45M/2013 for AY 2006-07 ITA N0.3505&3696/M/2013 for AY 2009-10
Hence, keeping in view the principle of consistency, we hold that the disallowance under Rule 8D (2)(ii) is not called for and the disallowance made u/s Rule 8D(2)(iii) is hereby confirmed.
Second ground raised in the present appeal with regard to calculation of book profit under section 115 JB of the Act. Second ground consists of two reliefs. First relief claimed (ground) is related with calculation of book profit u/s115JB of the Act. Ld AR for assessee argued that first part of ground is covered in favor of assessee by the decision of Mumbai Tribunal in assessee’s own case for AY 2005-06 in ITA No. 4296/M/2010, judgment of Apex Court in Vijaya Bank Vs CIT & others (2010) 323 ITR 166(SC) and the decision of Karnataka High Court. Ld Sr DR for revenue not disputed the ration cited and relied by Ld AR for assessee. Thus keeping in view of the aforesaid decision of Tribunal and Hon’ble Superior Courts this part of ground of appeal is allowed.
Second relief claimed in this ground is with regard to adding of disallowance u/s 14A of the Act. This part of ground of appeal become infractuous as we have already granted relief to the assessee on the basis of decision of various superior court wherein it is hold that provision section 115JB are not applicable for Banking Companies.
In the result appeal ITA No.6654 &6655/M/2013 for AY 2006-07 and ITA No.3504/M/2013 are dismissed and appeal no. 3696/M/2013 is allowed. Order pronounced in the open court on this 29th July, 2016 Sd/- Sd/- (B.R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 29/07/2016 S.K.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.e Copy/ By ORDER, (Asstt.Registrar) ITAT, Mumbai