Income Tax Appellate Tribunal - Mumbai
Bank Of India, Mumbai vs Assessee on 24 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'B', MUMBAI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER &
SHRI VIVEK VARMA, JUDICIAL MEMBER
I.T.A. NO. 2155/Mum/2011
Assessment Year : 2002-03
Bank of India, Vs. Dy. Commissioner of I. T. (2) 1,
8th Floor, Star House, Mumbai.
Taxation Department,
Bandra-Kurla Complex, Bandra (E),
Mumbai 400 051.
PAN: AAACB 0472 C
AND
I.T.A.NO. 2443/Mum/2011
Assessment Year : 2002-03
Dy. Commissioner of I.T. 2(1), Vs. Bank of India,
Mumbai. Mumbai.
(Appellant) (Respondent)
Appellant by : Shri Pravin Varma (CIT DR)
Respondent by : Shri C. Naresh.
Date of Hearing:24-07-2012.
Date of Pronouncement: 31-07-2012.
ORDER
Per VIVEK VARMA, JM:
The cross appeal have been filed by the assessee bank and the department against the order of CIT(A) 4, Mumbai, dated 17/02/2011. As the impugned order is the same, for the sake of convenience, we are, passing a consolidated order, covering both the appeals. ITA No. 2155/Mum/2011 (Appeal by the assessee) :
2. The assessee has filed the following grounds of appeal :
01. On the facts and circumstances of the case and in law, the learned CIT (A) had erred in determining the disallowance u/s 14A at 0.5% of average investments yielding tax free income without appreciating the fact that the appellant had not incurred any Page 1 of 11 expenditure to earn the said income. The CIT (A) should have followed the decision of ITAT Delhi in the case of Minda Investments Ltd Vs DCIT (ITA 4046/DeI/2009) wherein it was held that no disallowance can be made on estimated basis.
Without prejudice to the above contention, the CIT (A) ought to have followed the decision of Jurisdictional ITAT Mumbai in the case of Godrej Agrovat Ltd Vs ACIT (2010-TIOL-616-ITAT-Mum) wherein it had been held that the disallowance will be 2% of exempt income.
02. On the facts and circumstances of the case CIT(A) erred in disallowing a sum of Rs. 19,67,140/- as prior period expenses on the ground that evidence that these have accrued or crystallized during the year was not submitted. The CIT(A) ought to have appreciated that in the case of appellant which has branches throughout India and abroad, incurring of expenditure is a continuous process and therefore no amount can be treated as prior period expenses based on decision of Jurisdictional ITAT in the case of Toyo Engg. India Ltd Vs JCIT (100 TTJ 373) and Saurashtra Cement and Chemical Industries Ltd Vs CIT (213 ITR 623 Guj).
03. On the facts and circumstances of the case and in law, the learned CIT (A) erred in disallowing the lease premium expenses of Rs. 1,55,20,622/- on the ground that it is a capital expenditure. The CIT(A) should have noted that the said sum being amortization of premium paid on leasehold properties cannot be termed as capital expenditure. The CIT(A) ought to have allowed the entire premium of Rs. 124,43,02,761/- as held in the case of CIT Vs Ucal Fuel Systems Ltd (296 ITR 702 Mad) and against which decision the Supreme Court had dismissed the SLP filed by the department (195 Taxman 52 stat).
Without prejudice to the above contention, the CIT(A) ought to have allowed at least the proportionate amount of Rs. 1,55,20,622/- claimed by the appellant.
04. On the facts and circumstances of the case and in law, the learned CIT (A) erred in not deciding on the issue of exclusion of income from foreign branches based on the Double Taxation Avoidance Agreement entered into with the respective countries based on various judicial decisions.
05. On the facts and circumstances of the case and in law, the CIT(A) erred in not deciding on the issue of short allowance u/s 36(1)(viia) based on total income computed by AO.
3. The facts relating to the first ground of appeal is that the AO, taking the basis of addition made in respect of infrastructure lending interest @ 12%, disallowed a sum of Rs. 10,08,67,680/- of Rs. Page 2 of 11 84,05,64,006, being the aggregate figure computed, on account of disallowance to be made under section 14A. The calculations taken by the AO was the result of the following :
Interest on Infrastructure Lending 50,58,33,237 Dividend Income 22,40,38,574 Interest on tax free Bonds 11,06,92,195 Total 84,05,64,006
4. Aggrieved the assessee approached the CIT(A), before whom the assessee submitted as under (relevant portions, as extracted from the CIT(A)'s order) :
The AO ought to have noted that the appellant is having substantial own funds represented by Share Capital and Reserves and non interest bearing funds in the form of Current Account, Sundry Creditors etc. The position of "own funds" and investments in tax free bonds on 31.03.2002 are as under:
(Rs. in crores) Capital 488.08 Reserves and Surplus 2356.96 Current Account 7193.61 Other Liabilities and Provisions 3902.49 Own Funds 13,941.14 Investment in assets earning tax free income 532.22 Further since these assets are held by the bank in the course of its normal business for trading the provisions of Section 14A are not applicable.
Without prejudice to the above contention if any disallowance is to be made u/s 14A, the same cannot exceed the proportionate expenditure incurred by the treasury department. The amount relating to tax free income proportionately arrived at based on exempt income to total income amounts to Rs.8,16,657/-.Therefore,if at all any disallowance is to be made the same cannot exceed Rs. 8,16,657/-.
Without prejudice to the above contention, if at all any disallowance is warranted the same cannot exceed 2% of the tax free income. Reliance was placed for this view on the decision of Jurisdictional ITAT Mumbai in the case of Godrej Agrovet Ltd vs. ACIT (2010 TIOL 616 ITAT, Mum) and ITAT Chennai in the case of Bharat Overseas Bank Page 3 of 11 Limited in ITA No. 2622/Mds/2005 for the Assessment Year 2002-03 dated 15.09.2006.
5. The CIT(A), on consideration of the assessee's submissions held that the disallowance made by the AO at 12% of 84.05 crores, is very high, and after referring to the latest decision of Hon'ble Bombay High Court in the case of Godrej & Boyce, held that reasonable disallowance may be made and he, therefore, directed the AO to compute the disallowance at .5% of the average of investment yielding tax free income.
6. The assessee, still not satisfied, is now before the ITAT on this issue.
7. Before us the AR representing the assessee bank submitted that even on this disallowance, identical ground was raised in the preceding year in the assessee's own case in I.T.A. No. 2781/Mum/2011, wherein the coordinate Bench at Mumbai had set aside the issue to the file of the AO for computing a reasonable disallowance under section 14A (copy of the order placed before us).
8. The DR also agreed with the submissions of the Authorised Representative.
9. We have heard the arguments from both the sides and have also perused the material and case laws, placed on record and cited before us. But we have not found any working on the disallowance, and how the AR has arrived at figure of Rs. 8,16,657/- and how and why .5% of average of investment yielding tax free income was excessive. In this sense, we feel it would be appropriate to restore the Page 4 of 11 issue to the file of the AO, as done in the preceding year with a direction, that a reasonable disallowance under section 14A may be arrived at, as per law.
10. We, therefore, set aside the order of the CIT(A) on this issue and restore the issue to the file of the AO with directions as given in the above para. The ground of appeal, is thus allowed in part.
11. The next ground is against the disallowance of Rs. 19,67,140/-, held to be prior period expenses, debited to the P&L Account.
12. The facts involved in this issue are that there are claims on expenses pertaining to preceding year, where the payments made in the current year. The AO held that these are prior period expenses, the AO disallowed the same and added these to the income of the assessee.
13. Aggrieved the assessee approached the CIT(A), who sustained the disallowance, simply by observing that since the assessee has not been able to substantiate the claims made along with evidence that the expenses having accrued or crystallized in the current year.
14. Aggrieved the assessee is before the ITAT.
15. Before us the AR reiterated the submissions made before the revenue authorities and submitted, "The expenditure stated as relating to prior period. The claims in respect of all these expenses were received only during the current assessment year and hence they cannot be treated as prior period expenses. Further the liability to pay these sums arose only in the current year and therefore these are not prior period expenses. It is also Page 5 of 11 submitted that in the case of assesses like that of the appellant with branches spread across the country, incurring of expenditure is a continuous process and no part of the expenses can be cut off and treated as prior period expenses. Reliance for this view is placed on the decision of ITAT, Mumbai in the case of Toyo Engineering India Limited Vs JCIT 100 TTJ 373 wherein it was held as under:
"Even though a previous year is directly cut off on 31st March of every year, the actual carrying on of business which is a live process, cannot be cut off as exactly, especially in an organization like that of the assessee where activities are carried out through various site offices. Therefore, it is quite natural that there would be an amount of overflow of in formation after the close of the accounting year. Therefore, to certain extent, the claim of the assessee that the details of such expenditure were received only after the close of the accounting year, could be accepted. It is a continuous process to incur expenditure and to account for in the books of account. Therefore, even though they are treated technically as prior period expenses, it relates to a continuous flow of expenditure. Therefore, there is no justification in disallowing the expenditure, otherwise normally eligible for deduction. Reliance is also placed on the decision in the case of Union Bank of India in ITA no. 4720 to 4724/Mum/2010 for the assessment years 2002-03 to 2006-07 dated 30/06/2011 where under similar circumstances the claim of the appellant was allowed. Copy of the above decision is enclosed in annexure 6.
Reliance is also placed on the decision of Saurastra Cement and Chemical Industries Vs CIT 213 ITR 523 Guj)".
The AR, therefore, submitted that since the issue is settled, no disallowance should be sustained. In the preceding year as well, the issue had reached the ITAT, wherein the co-ordinate Bench had deleted the additions made, following the decision in the preceding year. Since the issue now is settled on identical grounds by the coordinate Bench, addition made by the revenue authorities on this issue has to be deleted.
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16. DR relied on the orders of the revenue authorities.
17. We have heard the arguments of both the sides and have also perused the written submissions made before us and the case laws cited. We find that coordinate Bench at Mumbai in the case of Union Bank of India Vs ACIT, Mumbai, ITA no. 4720 & 4724/Mum/2010 (appeals filed by the department), it was held, Ground No. 1 raised by the Revenue (in ITA Nos. 4702 to 4706/M/10 for A.Yrs. 2002-03 to 2006-07) is with respect to prior period expenses.
The expenditure disallowed as in the nature of rent, municipal taxes etc. where usually the amounts are paid after detailed negotiations and receipt of demand of the arrears amount from the parties. The Ld. CIT(A) taking into consideration the nature of expenditure had come to a conclusion that since the bank is a nationalized bank subjected to audit, the claim that the liability to pay the expenses arose in the relevant assessment year would not be a matter of doubt particularly considering the nature of expenditure. He therefore allowed the amount on the ground that no infallible or demonstrable proof had to be necessarily given to allow the above sum as an expenditure.
The Ld. counsel for the assessee submitted as follows:"Further in the case of assessee like that of the respondent, which has branches all over India incurring of expenditure as a continuous process and cannot be cut off at any point of time to be classified as prior expenditure and disallowed." We find that the decision of the Jurisdictional Court in the case of Engg. India Ltd. Vs JCIT 110 TTJ 373 wherein it has been held as follows: "It is quite natural that there would be an amount of overflow of information after the close of the accounting year. Therefore, to certain extent, the claim of the assessee that the details of such expenditure were received only after the close of the accounting r could be accepted. It is a continuous process to incur expenditure and to account for in the books of account. Therefore, even though they are treated technically as prior period expenses, it relates to a continuous flow of expenditure. Therefore, there is no justification in disallowing the expenditure, otherwise normally eligible for deduction." Respectfully following the above, we dismiss the ground raised by the Revenue."
Page 7 of 11 Since the issue now is settled on identical grounds by the coordinate Bench, respectfully following the decision in the case of Union Bank of India, as also our own order, where we have deleted the impugned addition, we delete the addition made by the revenue authorities on this issue, in the instant year.
We, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition of Rs. 19,76,140/-.
18. The next ground is against the disallowance of Rs. 1,55,20,622/- wherein the AO has treated the expenses to be capital in nature.
19. The AR conceded that the expenses, treated to be of capital in nature, has been decided by the Special Bench in the case of JCIT Vs Mukund Limited, reported in 106 ITD 231 (Mum SB). The AR submitted that a view may be taken by the Bench.
20. The DR relied on the orders of the revenue authorities and the decision by the Special Bench in the case of Mukund Limited.
21. We have heard both the sides. The claim of expenses made by the assessee have been treated as capital in nature and hence cannot be allowed, has been decided by the Special Bench, as conceded by the AR. Respectfully following the decision rendered by the Hon'ble Special Bench, we sustain the disallowance of Rs. 1,55,20,622/-, as made by the revenue authorities.
The ground of appeal is dismissed.
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22. Ground No. 4, as agreed by the AR does not arise from the impugned order of the CIT(A), in such a situation, we cannot adjudicate the same.
The ground, therefore, is rejected as non maintainable.
23. Ground No. 5, it has been pleaded that CIT(A) erred in not deciding on the issue of short allowance under section 36(1)(viia), based on total income computed by the AO. We, therefore, set aside the order of CIT(A) on this issue and direct the AO to decide the issue afresh, as consequential to the order in the instant appeals, after giving reasonable opportunity to the assessee.
27. In the result the appeal filed by the assessee is partly allowed. ITA No. 2443/Mum/2011 (Appeal by the department) :
28. The department has taken the following grounds of appeal :
On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below :
1. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in allowing the whole of the bad debt claimed ignoring the provision for bad debt made in the beginning of the year. The Ld. CIT(A) should have allowed only the excess of bad debts over the provision already made.
29. The solitary ground of appeal is against the allowance of whole of the bad debts claimed.
30. The facts are that the AO disallowed Rs. 522,14,44,550/- claimed as bad debts, on the ground that the assessee has not actually written off the amount in the books. According to the AO, the bad debt is allowable only if it is irrecoverable and is actually written off in the Page 9 of 11 accounts of the assessee. The AO observed that only prudential write off and not actual write off as irrecoverable cannot be allowed.
31. Aggrieved, the assessee approached the CIT(A), who, relying on the decision of assessee's own case in assessment year 2000-01 by the CIT(A) and also by following the decision of Hon'ble Supreme Court in the case of Vijaya Bank v/s CIT, reported in 323 ITR 166, wherein the Hon'ble Apex Court held, "Though a mere debit to the profit and loss account would constitute a provision for a bad and doubtful debt, yet that would not constitute actual write off. But where besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee has correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance-sheet, and, consequently at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance-sheet is shown as net of the provision for "impugned bad debt", the assessee will be entitled to the benefit of deduction under section 36(1)(vii), as there is an actual write off by the assessee in his books. Disallowance cannot be made on an apprehension that if the assessee failed to close each and every individual account of its debtor, it may result in the assessee claiming deduction twice over", allowed the appeal of the assessee, allowing the claim of bad debts. Page 10 of 11
32. The DR conceded that the issue now stands settled in favour of the assessee, even vide ITA No. 3545/Mum/2011, order dated 15.06.2012.
33. Considering the submissions, we do not find any reason to disturb the decision of the CIT(A), wherein he has followed the decision of Hon'ble Supreme Court.
The ground is dismissed.
34. In the result, the appeal filed by the department is dismissed. ITA No. 2155/Mum/2011 : Appeal by the assessee is partly allowed. ITA No. 2443/Mum/2011 : Appeal by the department is dismissed. Order pronounced in the open Court on this day of 31/07/2012.
Sd/- Sd/-
(R.S. SYAL) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai: 31/07/2012.
P/-*
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