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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ramlal Negi (JM)
O R D E R Per Bench:- These cross appeals, filed by both the parties, relate to A.Ys. 1999-2000 to 2002-03. Since identical issues are agitated in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
The assessee is a banking company. We shall first take up the appeal filed by the assessee for A.Y. 1999-2000. At the time of hearing learned AR did not press ground No. (D) and hence the same is dismissed as not pressed.
First issue urged by the assessee relates to disallowance of claim of bad debts. The Tax authorities held that bad debts written off by the assessee should be set off against the closing balance of “Provisions for bad and doubtful debts” created u/s. 36(1)(viia) of the Act available as at the year end and the excess write off, if any, available shall be allowed as deduction u/s. 36(1)(vii) of the Act. The Learned A.R submitted that bad debts claimed by the assessee should be set off against the opening balance available in the “Provision for bad and doubtful debts” account created u/s. 36(1)(viia) of the Act and the balance shall be allowable as deduction u/s 36(1)(vii) of the Act. The Ld A.R submitted that the claim of the assessee is supported by the Instruction No. 17 of 2008 dated 26.11.2008 issued by CBDT. The Learned AR also submitted that this issue has been decided in favour of the assessee by Hon'ble Gujarat High Court in the case of CIT Vs. UTI Bank Ltd. (212 Taxamn 296).
We have heard the counsels of both the parties and perused the record. Since the claim of the assessee is supported by the Circular issued by the CBDT (supra) as well as decision rendered by Hon'ble Gujarat High Court in the case of UTI Bank Ltd. (supra), we set aside the order of learned CIT(A) on this issue and direct the Assessing Officer to allow the claim of the assessee in accordance with Instruction No. 17 of 2008 issued by CBDT (referred supra).
The next issue relates to the disallowance of interest expenditure relating to tax free income, apparently u/s 14A of the Act.
At the time of hearing learned AR placed reliance on the decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd.(313 ITR 340)(Bom) and DCIT Vs. HDFC Bank Ltd. (366 ITR 505) and submitted that interest free funds available with the assessee is more than the investment made by it and hence disallowance of interest is not called for. Learned AR also placed reliance on the decision dated 1.1.2016 rendered by the Coordinate Bench of the Mumbai ITAT in the case of Yes Bank Ltd. Vs. Add.CIT (ITA No. 3357/Mum/2013) and submitted that the Tribunal has followed the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra) to decide an identical issue in favour of the assessee.
We have heard both the parties and perused the record. We find that in the case of Yes Bank Ltd (supra), the Tribunal has restored an identical issue to the file of the Assessing Officer with the direction to examine the funds position of the assessee and decide the issue in accordance with the decision rendered by Hon'ble Jurisdictional Bombay High Court in the case of HDFC Bank Ltd. (supra). In the instant case also, the claim of the assessee with regard to availability of interest free funds requires examination at the end of the Assessing Officer. Accordingly we set aside the order of learned CIT(A) on this issue and direct the Assessing Officer to examine this issue afresh by considering the funds position of the assessee and take appropriate decision by following the ratio laid down by Hon'ble Jurisdictional Bombay High Court in the case of HDFC Bank Ltd. (supra).
The next issue urged by the assessee relates to the disallowance of depreciation on leased assets. The Ld A.R submitted that an identical issue has been decided in favour of the assessee by the Coordinate Bench of the Tribunal in assessee’s own case for A.Y. 1995-96 to 1998-1999. She further submitted that the order passed by the Tribunal for AY 1996-97 and 1997-98 has been reported in 40 CCH 175. The Ld A.R also submitted that an identical issue has been decided in favour of the assessee by Hon'ble Supreme Court in the case of ICDS vs. CIT (350 ITR 527).
In view of the above, by following the decision rendered by Hon'ble Supreme Court as well as Coordinate Benches of the Tribunal in assessee’s own case, we set aside the order of learned CIT(A) on this issue and direct the Assessing Officer to allow the claim of depreciation on leased assets. The ld D.R submitted that the Learned CIT(A), while confirming the disallowance of depreciation claimed on leased assets, had directed the Assessing Officer to exclude capital component of leased rental amounting to Rs. 7.75 crores. The ld D.R submitted that the said direction of the Ld CIT(A) shall not survive, if this issue is decided by the Tribunal in favour of the assessee. We find merit in the said submissions of Ld D.R. Since we have directed the Assessing Officer to allow depreciation on leased assets, this direction of learned CIT(A) shall not survive and accordingly, we set aside the same.
We shall now take up the appeal filed by the Revenue for A.Y. 1999- 2000. The first issue urged by the revenue relates to the disallowance made u/s. 14A of the Act. It may be noticed that the assessee had also agitated this issue in its appeal and while considering the same, we have restored this matter to the file of the Assessing Officer. Hence we direct the AO to take into account the grievance of the revenue while examining the issue of disallowance u/s 14A of the Act.
The next issue urged by the revenue relates to deletion of the disallowance relating to broken period interest. The Ld A.R submitted that an identical issue has been decided in favour of the assessee by the Coordinate Bench of the Tribunal in assessee’s own case relating to A.Y. 1995-96 to 1998- 99. She further submitted that the decision rendered by the Tribunal for AY 1996-97 and 1998-99 has been reported in 40 CCH 175. Since the decision rendered by learned CIT(A) on this issue is in accordance with the decision rendered by the Tribunal, we do not find any reason to interfere with his order passed on this issue.
The next issue relates to the disallowance of bad debts claimed by the assessee in respect of assets leased to a customer named M/s. Rajendra Steels Ltd. The assessee had claimed depreciation on the assets leased to the abaove said customer and the same was rejected by the AO. Since depreciation claim was disallowed, the assessee put forth an alternative claim to allow balance due from M/s. Rajendra Steels Ltd. as bad debts. However the Assessing Officer did not accept the claim, but learned CIT(A) entertained the claim and directed the Assessing Officer to allow bad debts, since he had confirmed the disallowance of claim of depreciation on leased assets. In the earlier paragraph, we have directed the Assessing Officer to allow depreciation claimed on leased assets and hence alternative claim put forth by the assessee may not survive. However we provide an opportunity to the assessee to put forth this claim before the Assessing Officer, if it is still found necessary.
We shall now take up the appeal filed by the assessee for assessment year 2000-01. In this year also, the assessee did not press the ground no.D relating to charging of interest u/s 234B. Accordingly, the same is dismissed as not pressed. The other three issues urged by the assessee relate to (a) Disallowance of interest expenditure relating to tax free income. (b) Disallowance of bad debts by considering the provisions of sec. 36(1)(viia) of the Act. (c) Diallowance of depreciation on leased assets. Identical issues have been considered by us while dealing with the appeal of the assessee for AY 1999-2000. Consistent with the view taken in that year, we set aside the first issue to the file of the AO with similar directions. With regard to the second issue, we direct the AO to compute the disallowance, if any, in accordance with the Instruction No. 17 of 2008 issued by CBDT (referred supra). With regard to the third issue relating to depreciation on leased assets, we direct the AO to allow the claim of the assessee, since it is in accordance with the decision rendered by the co-ordinate benches in the assessee’s own case for earlier years and also by the Hon’ble Supreme Court in the case of ICDS Ltd (supra). The direction of the Ld CIT(A) with regard to the exclusion of capital component of leased income stands set aside.
We shall now take up the appeal filed by the revenue for AY 2000-01 wherein following issues are agitated:- (a) Disallowance u/s 14A of the Act. (b) Disallowance of broken period interest. (c) Bad debts claimed in respect of leased assets. Identical issues have been considered by us while dealing with the appeal of the revenue for AY 1999-2000. Consistent with the view taken in that year, we set aside the first issue to the file of the AO. We direct the AO to allow the claim of the assessee in respect of the second issue, since the same is decided in favour of the assessee by the Tribunal in the earlier years. With regard to the third issue, we have set aside this matter to the file of the AO in AY 1999- 2000. Accordingly, we set aside this issue to the file of the AO with similar directions.
We shall now take up the appeal filed by the assessee for assessment year 2001-02 and 2002-03. In these years also, the assessee did not press the ground no.B relating to charging of interest u/s 234B. Accordingly, the same is dismissed as not pressed. The only other issue urged by the assessee relates to the disallowance of interest expenditure u/s 14A relating to the tax free income. While dealing with an identical issue in AY 1999-2000, we have set aside this issue to the file of the AO with certain directions. Consistent with the view taken therein, we set aside this issue also to the file of the AO with similar directions.
We shall now take up the appeal filed by the revenue for assessment year 2001-02 and 2002-03, wherein the following issues are agitated:-
(a) Disallowance u/s 14A of the Act. (b) Disallowance of bad debts. (c) Disallowance of depreciation on leased assets.
The first issue is being set aside to the file of the AO in both the years, since we have set aside an identical issue to the file of the AO while adjudicating the appeal filed by the assessee for AY 1999-2000. With regard to the disallowance of administrative expenses, we direct the AO to examine the same afresh after considering the explanations of the assessee. The second issue is covered in favour of the assessee by the Instruction No.17/2008 dated 26.11.2008 and accordingly we direct the AO to allow the claim of the assessee in accordance with the Circular of the CBDT referred above. The third issue has been decided in favour of the assessee by the decision rendered by the Tribunal in the assessee’s own case for earlier years and also by the decision of Hon’ble Supreme Court rendered in the case of ICDS Vs. CIT (supra). Accordingly, we uphold the order of Ld CIT(A) on this issue.
The orders passed by Ld CIT(A) in all the years considered here shall stand modified in accordance with our decision discussed above.
In the result, the appeals of the assessee are treated as partly allowed and the appeals of the revenue are dismissed.