AI Insights
The case involves cross-appeals by the revenue and the assessee, ICICI Bank Ltd., against the order of the CIT(A) pertaining to the assessment year 2006-07. The primary issues revolved around the eligibility for exemption under section 10(23G), the allocation of expenses under section 14A concerning exempt income, and the claim of depreciation on leased assets. The Tribunal considered precedents and the provisions of the Income Tax Act, 1961, along with various judicial decisions, to arrive at its conclusions.
Appeal Details
Counselvise Citation
[2024] 140 COUNSELVISE.COM (IT) 472750 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 year(s) 2 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-10-2024
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
17-10-2024
Assessment Year
2006-2007
Appeal Filed On
06-08-2013
Judgement Text
" | आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI RAJ KUMAR CHAUHAN, HON’BLE JUDICIAL MEMBER I.T.A. No. 5792/Mum/2013 Assessment Year: 2006-07 DCIT, Circle - 3(1), Mumbai Vs M/s. ICICI Bank Ltd. (In respect of M/s. ICICI Ltd. merged with M/s. ICICI Bank Ltd.) ICICI Bank Towers Bandra Kurla Complex Mumbai - 400051 [PAN: AAACI1195H] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) I.T.A. No. 5396/Mum/2013 Assessment Year: 2006-07 M/s. ICICI Bank Ltd. (In respect of M/s. ICICI Ltd. merged with M/s. ICICI Bank Ltd.) ICICI Bank Towers Bandra Kurla Complex Mumbai - 400051 [PAN: AAACI1195H] Vs DCIT, Circle - 3(1), Mumbai अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Ms. Arati Vissanji, A/R Revenue by : Mr. P.C. Chhotoray, Spl. Counsel, [D/R] सुनवाई की तारीख/Date of Hearing : 17/10/2024 घोषणा की तारीख /Date of Pronouncement: 25/10/2024 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. No. 5792/Mum/2013 & I.T.A. No. 5396/Mum/2013, are cross-appeals by the revenue and the assessee preferred against the order of the ld. CIT(A) – 7, Mumbai, dated 27/05/2013, pertaining to AY 2006-07. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 2 2. Since both the appeals were heard together, they are disposed of by this common order for the sake of convenience and brevity. 3. We will first address to the revenue’s appeal in ITA No. 5792/Mum/2013. 4. Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidences/judicial decisions brought on record duly considered in light of Rule 18(6) of ITAT Rules, 1963. 5. Briefly stated the facts of the case are that the assessee is engaged in banking operations and related activities. During the year the assessee offered interest income from loans and advances, dividends, interest on debentures, leasing, securities, deposits and advances, commission and fee, profit on sales of investment, interest and commitment charges on loan funds including the rupee loans and foreign currency loans etc. 6. The assessee filed its original return of income on 30/11/2006, declaring total income of Rs.19,20,02,74,940/-. The return was revised on 29/03/2008 at Rs.16,99,85,16,660/- which included short term capital gain of Rs.1,01,78,11,054/-. Income u/s 115JB of the Act was computed at Rs.25,99,34,31,825/-. 6.1. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. The assessment order was framed u/s 143(3) of the Act vide order dated 26/12/2008 wherein income was assessed at Rs.31,48,60,89,143/- and book profit u/s 115JB of the Act was computed at Rs.2,60,62,38,140/-. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 3 6.2. The assessment was challenged before the ld. CIT(A), who granted part relief to the assessee. Therefore, both the revenue and the assessee are in appeal before us. 7. Ground Nos. 1 to 4 relate to the claim of exemption u/s 10(23G) of the Act and disallowance u/s 14 of the Act in respect of exempt income. 8. While scrutinising the return of income, the AO noticed that the assessee has claimed an amount of Rs. 1,93,95,95,907/- as exempt u/s 10(23G) of the Act. The components of the income claimed as exempt are (1) interest income at Rs.1,69,54,99,206/- and (2) Fee Income at Rs.24,40,96,701/-. The AO noticed that the assessee in the computation of income had suo moto reduced an amount of Rs.88,57,06,949/- attributable to proportionate expenses incurred towards the above income in terms of Section 14A of the Act. Accordingly, the net claim as exempt, after reducing the suo moto disallowance, works out to Rs.1,05,38,88,958/-. 8.1. The AO was of the firm belief that the exemption u/s 10(23G) of the Act, is available to any infrastructure capital fund or infrastructure capital company and since the assessee is a financial institution engaged in the business of banking, therefore, is neither an infrastructure capital company nor an infrastructure fund and also was not set up for mobilizing resources for the purpose of infrastructure development as specified in the memorandum explaining the amendment and Circular No. 762 dated 18/02/1998. Therefore, the assessee is not eligible for the claim of exemption u/s 10(23G) of the Act. The AO accordingly denied the claim of exemption. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 4 8.2. The assessee challenged the addition before the ld. CIT(A) and reiterated its claim of exemption strongly relying upon the amended provision and CBDT Circular No. 762 dated 18/02/1998 and placed strong reliance on the decision of the Coordinate Bench in the case of Jammu And Kashmir Bank Ltd. vs Assistant Commissioner Of Income Tax (2008)114TTJ(ASR)728. After considering the facts and the submissions and finding support from the decision of the Coordinate Bench (supra), the ld. CIT(A) found that identical issue was decided in AY 2005-06 wherein the decision of the ld. First Appellate Authority for AY 2004-05 was followed. Following the precedents, the ld. CIT(A) allowed the exemption. Insofar as the issue of corresponding expenses for earning exempt income was concerned, the ld. CIT(A) directed to follow the decision given in AY 2004-05. 9. Before us, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. The ld. D/R strongly supported the findings of the AO. 10. We have given a thoughtful consideration to the orders of the authorities below. We have carefully perused the orders of the Coordinate Bench for AY 2004-05 and 2005-06 in ITA No. 5276/Mum/2013, ITA No. 3841/Mum/2013, ITA No. 6217/Mum/2013 & ITA No. 6137/Mum/2008. We find that on identical set of facts, the Co-ordinate Bench has allowed the exemption claimed u/s 10(23G) of the Act along with the disallowance u/s 14A of the Act. The relevant findings read as under:- “66. The first issue, as raised in ground no.1 by the Revenue corresponding to ground no.2 raised by the assessee relates to computation of income claimed as exempt under section 10(23G) of the Act. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 5 67. Brief facts are, during the assessment proceedings, the Assessing Officer while examining the assessee's claim of exemption under section 10(23G) of the Act in respect of income derived from investment in infrastructure capital fund was of the view that the assessee being engaged in the business of banking is not eligible to claim exemption. Therefore, he called upon the assessee to justify its claim. In response, though, the assessee justified its claim of exemption under section 10(23G) of the Act, however, the Assessing ICICI Bank Ltd. Officer did not find merit in assessee's claim. Referring to CBDT circular no.762 dated 18th February 1998, the Assessing Officer concluded that the assessee not being an infrastructure capital company or infrastructure capital fund set-up for mobilizing resources for the purpose of financing infrastructure facilities is not eligible to claim exemption under section 10(23G) of the Act. Accordingly, he disallowed assessee's claim for exemption for an amount of ` 69,24,18,459. Without prejudice to his aforesaid conclusion, the Assessing Officer also held that the expenditure attributable to earning of exempt income from investment in infrastructure facilities as claimed by the assessee are also to be disallowed on account of interest cost and administrative cost. Following his methodology for preceding assessment year, the Assessing Officer applying the gross profit ratio of 15.63% shown by the assessee quantified the expenditure attributable to earning of exempt income under section 10(23G) of the Act at ` 43,75,09,156, after reducing the said amount from the exempt income claimed by the assessee under section 10(23G) of the Act at ` 69,24,18,459, the balance amount of ` 25,49,09,303, was disallowed from the claim of exemption under section 10(23G) of the Act. The assessee challenged the decision of the Assessing Officer before the first appellate authority. 68. As far as the assessee's eligibility for exemption under section 10(23G) of the Act is concerned, the learned Commissioner (Appeals) following CBDT circular no.762 dated 18th February 1998, held that the assessee is eligible to claim exemption under section 10(23G) of the Act, since, as per the said circular, a company which has made investments by financing of long term loan by way of acquiring shares or providing long term finance to an enterprise wholly engaged in the business of infrastructure development shall be treated as infrastructure capital company. The learned Commissioner (Appeals) observed, the companies in which the assessee has made investment the income from which is claimed exempt under section 10(23G), are wholly in the business of infrastructure development. Accordingly, assessee fulfills the condition for claiming exemption under section 10(23G) of the Act. In this context, he also relied upon the decision of the Tribunal, Amritsar Bench, in Jammu & Kashmir Bank v/s ACIT, 114 TTJ 728. As far as disallowance of expenditure under section 14A of the Act for computing net exempt income under section 10(23G) of the Act, the learned Commissioner (Appeals) followed his orders in assessee's own case for preceding assessment years and directed the Assessing Officer to re-compute the disallowance under section 14A of the Act. 69. The learned Authorised Representative submitted before us, the assessee having fulfilled the conditions of infrastructure capital company is eligible for exemption under section 10(23G) of the Act. As far as the disallowance of expenditure under section 14A of the Act, the learned Authorised Representative relied upon the decisions of the Tribunal in assessee's own case for preceding assessment years. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 6 70. Learned Departmental Representative supporting the observations of the Assessing Officer submitted that the provisions contained under section 10(23G) of the Act does not extent to commercial banks. 71. We have heard rival contentions and perused the material available on record. The following two issues arise for consideration before us in this ground. Firstly, whether the assessee is eligible to claim exemption under section 10(23G) of the Act and secondly, what should be the quantum of disallowance under section 14A of the Act. As far as the first issue is concerned, it is the case of the Revenue that the assessee being a banking company cannot be treated as an infrastructure company, since, it is not directly involved in development of infrastructure facility. In this context, the Assessing Officer has relied upon Para-17.2 of CBDT Circular no.762 dated 18th February 1998. However, in our opinion, Para-17.2 of the aforesaid CBDT cannot be read in isolation. In Para-17.4 of the Circular, it has been clarified that infrastructure capital company shall mean a company which has made investment by way of acquiring shares or providing long term finance to an enterprise engaged in the business of providing infrastructure facilities like roads, highway, bridges, Airport, Port, Rail system or any other public facilities of a similar nature has made notified by CBDT. Further, the expression long term finance has been explained to mean any loan or advance which is re- payable along with interest during the period not less than five years. Thus, a reading of CBDT circular no.762 dated 18th February 1998, makes it clear that even a company which is directly not carrying out development of infrastructure facilities would also be eligible for exemption if invests in shares or providing long term finance to an enterprise engaged in the business of providing infrastructure would be treated as infrastructure capital company. Undisputedly, the assessee has fulfilled the aforesaid condition as it has made investments or has advanced loans to companies engaged in the business of infrastructure development. Therefore, the assessee is eligible for claiming exemption under section 10(23G) of the Act. The decision of the Tribunal, Amritsar Bench, in case of Jammu & Kashmir Bank (supra), is also applicable to the facts of the present case. Moreover, in the preceding assessment years, the Revenue has never questioned assessee's eligibility to claim exemption under section 10(23G) of the Act. There being no material difference in fact, a departure cannot be made in the impugned assessment year for disallowing assessee's claim under section 10(23G) of the Act by questioning its eligibility. Therefore, we uphold the order of the learned Commissioner (Appeals) on the first issue. 72. Insofar as the second issue regarding quantum of disallowance under section 14A of the Act is concerned, following our decision while deciding similar issue raised in the cross appeals for assessment year 2004-05 in the earlier part of the order vide Para-6 & 7, we restore the issue to the Assessing Officer for deciding afresh in terms of our directions given therein.” 11. Proceeding further, the AO noticed that the assessee has claimed exempt income u/s 10(15) of the Act amounting to Rs. 1,90,40,373/- and u/s 10(34) and 10(35) aggregating to Rs.3,18,29,95,827/-. The AO found I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 7 that the assessee has not apportioned any expenses and administrative expenses @ 1% of the gross dividend and interest as according to the assessee the investments have been made out of cost free funds. 11.1. The contention of the assessee did not find favour with the AO who was of the opinion that the exemption available u/s 10(15), 10(23G), 10(34) and 10(35) of the Act are for the income by way of interest or dividends and not the gross interest/dividend. Therefore, direct cost of such gross receipts has to be reduced for arriving at the income. Since the assessee bank is claiming exemption of the gross interest on the gross dividend, and separately claiming expenditure, which is not acceptable as per the provisions of the law, the AO was of the opinion that the working filed by the assessee does not in any way establish nexus between the investments and its own funds and in absence of any proof, it can be presumed that the investments in tax- free bonds and securities have been made only from its own funds and not from the borrowed funds. The AO went on to compute the disallowance u/s 14A of the Act treating application of Rule 8D to be retrospective and computed expenditure at Rs. 544 Crores and came to the conclusion that the assessee is not eligible for any exemption u/s 10(15), 10(23G), 10(34) or 10(35) of the Act. 11.2. The assessee agitated the matter before the ld. CIT(A) and reiterated its contention that the investments in shares was made out of the assessee’s own share capital reserves and non-interest bearing funds. After considering the facts and the submissions, the ld. CIT(A) observed that the AO has allocated expenses without establishing any nexus between the borrowed funds and the investments in tax-free I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 8 bonds. Strong reliance was placed on the decision of the Co-ordinate Bench in the case of M/s HDFC Bank Ltd. in ITA No. 4529/Mum/2005; ITA No. 3650/Mum/2006; ITA No.3651/Mum/2006; ITA No. 4039/Mum/2007; ITA No. 991/Mum/2008. Finding support from the decision of the Tribunal (supra) and also assessee’s own case by the order of the ld. First Appellate Authority in AY 2004-05, the ld. CIT(A) directed the AO to calculate the disallowance as directed in AY 2004-05. 12. Before us, the ld. D/R strongly objected to the findings given by the ld. CIT(A) and pointed out that the Coordinate Bench in the case of HDFC Bank Ltd. (supra), has decided against the assessee. It is the say of the ld. D/R that the onus is on the assessee to demonstrate the nexus between the investment and the interest free funds and merely showing that the assessee has sufficient own funds would not suffice and since the assessee has grossly failed in showing the investments coming out of interest free own funds, the disallowance made by the AO should be upheld. 13. We have given a thoughtful consideration to the orders of the authorities below. The contention of the assessee that it has more than sufficient interest free funds available for making the investments, can be understood from the following chart:- I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 9 13.1. It can be seen from the above chart that the assessee has sufficient interest free funds available with it for making the impugned investment. Therefore, the ratio laid down by the Hon’ble Jurisdictional High Court of Bombay in the case of CIT vs Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Mum) & HDFC Bank 366 ITR 505 (Bom), squarely apply wherein the Hon’ble Superior Courts have held that, where the assessee has common pool of funds, it has to be presumed that the investment made is out of the interest free funds available with the assessee. While drawing such presumption, availability of interest free funds as on the date of balance-sheet has to be seen. This is further supported by the Hon’ble Supreme Court in the case of South Indian Bank Ltd vs CIT (CA No.9606/2011 order dated 09/09/2021 (SC). 13.2. It would be pertinent to refer to the relevant observation of the Hon’ble Supreme Court in the case of South Indian Bank Ltd vs CIT (supra), which would set at rest the controversy:- “17. In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest- bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd, where the answer was in favour of the assessee on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. 18. In the above context, it would be apposite to refer to a similar decision in Commissioner of Income I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 10 Tax (Large Tax Payer Unit) Vs. Reliance Industries Ltd3 where a Division Bench of this Court expressly held that where there is finding of fact that interest free funds available to assessee were sufficient to meet its investment it will be presumed that investments were made from such interest free funds. 19. In HDFC Bank Ltd. Vs. Deputy Commissioner of Income Tax4, the assessee was a Scheduled Bank and the issue therein also pertained to disallowance under Section 14A. In this case, the Bombay High Court even while remanding the case back to Tribunal for adjudicating afresh observed (relying on its own previous judgment in same assessee’s case for a different Assessment Year) that, if assessee possesses sufficient interest free funds as against investment in tax free securities then, there is a presumption that investment which has been made in tax free securities, has come out of interest free funds available with assessee. In such situation Section 14A of the Act would not be applicable. Similar views have been expressed by other High Courts in CIT Vs. Suzlon Energy Ltd.5, CIT Vs. Microlabs Ltd.6 and CIT Vs. Max India Ltd.7 Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have further pointed out that those judgments have attained finality. On reading of these judgments, we are of the considered opinion that the High Courts have correctly interpreted the scope of Section 14A of the Act in their decisions favouring the assessees. 20. Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessees in bonds/shares using interest free funds, under Section 14A of the Act. In other words, if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax- free securities then in such cases, disallowance under Section 14A cannot be made.” (Emphasis by us) 13.3. Thus, the Hon’ble Supreme Court has made it very clear that it will be presumed that interest free funds have been utilized for making the investments and further it is the assessee who has the right of appropriation and also the right to assert from what part of the fund a particular investment is made and, therefore, it may not be permissible for the revenue to make an estimation of a proportionate figure. 13.4. In light of the above, the contentions of the ld. D/R become redundant. 14. Considering the facts in totality, in light of the judicial decisions discussed hereinabove, we do not find any reason to interfere with the I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 11 findings of the ld. CIT(A). These grounds raised by the revenue are accordingly dismissed. 15. Ground Nos. 5 & 6 relate to the claim of depreciation on leased assets. 16. While scrutinising the return of income, the AO noticed that the assessee has claimed depreciation amounting to Rs. 3,74,51,40,333/- which comprises of depreciation on fixed assets of Rs.3,18,33,34,873/- and on leased assets Rs.56,18,05,460/-. The claim was revised vide letter dated 12/11/2008 to Rs.3,69,81,85,720/- and Rs.51,48,50,847/- respectively. 16.1. The AO questioned the claim of depreciation on lease transactions. Examining the claim threadbare, the AO disallowed the entire lease depreciation on all leased assets including assets capitalized prior to AY 1994-95 and not disallowed in the respective years amounting to Rs. 51,48,50,847/- respectively and allowing the principal component of Rs.2,76,62,60,037/-, resulting in net disallowance of Rs.2,25,14,09,190/-. 16.2. The assessee carried the matter before the ld. CIT(A). Before the ld. CIT(A), the assessee reiterated its claim of depreciation. After considering the facts and submissions, the ld. CIT(A) observed that the AO has disallowed depreciation on leased assets relying upon the view taken in earlier AYs. The ld. CIT(A) found that the Tribunal in assessee’s own case has allowed the claim of depreciation for AY 1995-96 in 115 ITD 25 for A.Y. 1995-96. Following the precedents and also drawing support from the decisions of the Hon’ble Delhi High Court in the case of Cosmos Films (338 ITR 266) and further following the order of his I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 12 predecessor for AY 2005-06, directed the AO to allow the depreciation on leased assets. 17. Before us, the ld. D/R strongly supported the findings of the AO but could not bring any distinguishing decisions in favour of the revenue. Per contra, the ld. Counsel for the assessee reiterated the claim and placed strong reliance on the decision of the Tribunal in assessee’s own case for AY 2004-05 and 2005-06 in ITA No. 5276/Mum/2013, ITA No. 3841/Mum/2013, ITA No. 6217/Mum/2013 & ITA No. 6137/Mum/2008. 18. We have carefully considered the orders of the authorities below. We find force in the claim of the assessee. The Co-ordinate Bench in AY 2004-05 has considered a similar claim while deciding Ground No. 3 of that appeal. The relevant findings read as under:- “17. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for preceding assessment year as submitted in the paper book. As could be seen from the material on record, in the impugned assessment year, there is no new lease transaction. The assessee has claimed depreciation on its own fixed assets and depreciation claimed on leased assets were continuing from past tease transactions. Notably, in assessment year 1997-98, the Tribunal while deciding the issue in ITA no.5424/Mum./2001, dated 13th July 2016, had allowed assessee's claim of depreciation, The same view was reiterated by the Tribunal while deciding the cross appeals for assessment year 2000-01 in. ITA no 4657/Mum./2004 and ITA no.4826/Mum/2004 dated 31 January 2017. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground no.3 is dismissed.” 19. Respectfully following the decision of the Co-ordinate Bench, we decline to interfere with the findings of the ld. CIT(A). Accordingly, Ground Nos. 5 & 6 are dismissed. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 13 20. Ground No. 7 relates to deletion of addition made u/s 41(4) of the Act. 21. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has written back bad debts to the tune of Rs. 2,29,36,92,454/- which comprises of cash write back of Rs.1,81,30,28,527/- and non-cash write backs amounting to Rs.48,06,63,927/-. The AO further found that in its return of income, the assessee has offered an amount of Rs.1,81,30,28,527/- being cash write- backs. The AO also found that in addition, the assessee has also received an amount of Rs.13,19,56,074/- being cash received in respect of non- cash write backs of earlier years. This amount was not credited to the profit and loss account but has been offered to tax. 21.1. When the assessee was asked to explain, it stated that u/s 41(4) of the Act, only the bad debts actually recovered in respect of bad debts allowed in earlier years have to be taxed in the current year. Strong reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. United Provinces Electric Co. {110 Taxman 134}. The assessee further pointed out that the ld. CIT(A) in AY 1995-96, 1998-99 and 1999-2000, has also held that only actual recoveries have to be taxed. 21.1.1. The reply of the assessee did not find any favour with the AO, who was of the opinion that u/s 41(4) of the Act, the amount of bad debts allowed in earlier years and recovered during the year are taxed and accordingly added Rs.48,06,63,927/-. 22. The assessee challenged the addition before the ld. CIT(A) and strongly contended that the assessee has claimed that the amount of Rs.48,06,63,927/- being amounts written back and credited to the profit I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 14 and loss account but for which no cash recovery is made, should not be taxed as per the provisions of Section 41(4) of the Act. 22.1. After considering the facts and submissions, the ld. CIT(A) found that identical issue was decided by the Tribunal in assessee’s own case in ITA No. 8958/Bom/90 for AY 1987-88 and also by the ld. First Appellate Authority in AYs 1995-96, 1998-99 to 2004-05. Following the precedents, the ld. CIT(A) deleted the addition. 23. Before us, the ld. D/R strongly supported the findings of the AO. The ld. Counsel for the assessee re-iterated what has been stated before the lower authorities. 24. We have carefully perused the orders of the authorities below. We find force in the contention of the ld. Counsel for the assessee. The Co- ordinate bench in assessee’s own case for AY 2003-04 in ITA No. 8435/Mum/2010, has considered a similar grievance vide Ground No. 3 and held as under:- “23. Both sides heard. We find that the issue relating to addition u/s. 41(4) of the Act in respect of write back is perennial. Even during the period of erstwhile identity ICICI Ltd., addition u/s. 41(4) of the Act was made by the Assessing Officer, the CIT(A) deleted the same. The Revenue carried the issue in appeal before the Tribunal. The Tribunal upheld the findings of CIT(A) in assessee's own case for Assessment Year 2004-05 and 2005-06 in ITA NO.6137/Mum/2008 and 5276/Mum/2013, respectively. The Revenue challenged the deletion of addition of non-cash back u/s. 41(4) of the Act. The Co-ordinate Bench vide order dated 03/11/2017, common for the Assessment Year 2004-05 and 2005-06 placing reliance on the earlier orders of the Tribunal in the case of ICICI Ltd. restored the issue back to the file of Assessing Officer. For the sake of completeness the relevant extract of the said order by the Co- ordinate Bench in assessee's own case is reproduced herein below\" \"21. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue is covered by the decision of the Tribunal in the preceding assessment years. Notably, in assessment year 2000-01, the Tribunal while deciding identical issue in ITA no.4657/Mum./2004 and ITA no.4826/Mum./2004, dated 31st January 2017, has restored the matter back to the file of the Assessing Officer for considering afresh. In fact, in assessment year 2002-03 also in assessee's own case, the Tribunal while deciding identical issue in ITA no.836/Mum./2008 and ITA no.392/Mum./2008 dated 7th July 2017, has restored the issue to the Assessing I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 15 Officer for considering afresh keeping in view the directions of the Tribunal in the preceding assessment year. Therefore, consistent with the view expressed by the Tribunal in the preceding assessment year as referred to above, we restore the issue to the file of the Assessing Officer for considering afresh with similar direction and only after reasonable opportunity of being heard to the assessee. Ground no.4, raised by the Revenue is allowed for statistical purposes.\" In light of above order of Tribunal, we restore this issue back to the file of Assessing Officer with similar directions. In the result, ground No.3 of appeal is allowed for statistical purposes.” 25. Respectfully following the decision of the Co-ordinate Bench (supra), we direct accordingly. Ground No. 7 is allowed for statistical purposes. 26. Ground Nos. 8 & 9 relate to the claim of bad debts. 27. While scrutinising the return of income, the AO found that the assessee has written off and claimed an amount of Rs. 10,10,60,00,277/- as bad and doubtful debts. This claim was revised vide letter dated 12/11/2008 to Rs. 8,79,08,01,208/- and after adjusting the credit balance of Rs. 81,16,87,940/- in the provision for bad and doubtful debts account for AY 2005-06, the assessee claimed Rs. 7,97,91,13,268/- as bad debts u/s 36(1)(vii) of the Act. The assessee was asked to file various details relevant to and in support of the claims on this account. A detailed questionnaire was served upon the assessee which comprises of nine questions. The AO observed that the assessee has not filed any information required for question nos. 1 to 5 and furnished the details in respect of the other queries. It was strongly contended that the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee has to be allowed as deduction. It was explained that the position regarding deduction on account of bad debts has undergone a substantial change after the amendment in 1987 and has been explained by the CBDT in Circular I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 16 No. 551 dated 23/01/1990 and after amendment of Section 36(1)(vii) of the Act w.e.f. 01/04/1989, if a debt has been written off as irrecoverable in the accounts of the assessee, it will suffice for claiming it as bad debt. The assessee has only to write off debts in its books and need not establish that the debt has become bad in the said year of write off. It was further explained that the assessee’s bad debt claims comprise of loss on sale of re-possessed assets, loss on sale of assets transferred to Arcil, Kotak and Standard Chartered Bank, bad debts written off on retail and corporate portfolio. The AO proceeded by examining the claim of the assessee and came to the conclusion that the assessee has chosen not to comply with the factual queries raised in connection with the liability of bad debts u/s 36(1)(vii) and 36(2) of the Act. The AO was of the opinion that the assessee has not furnished the basic requirements like the date of debt, original amount, subsequent additions, the nature of debt, nature of securities obtained, whether the security obtained was insufficient, whether the bad debt claimed is net of realization from securities obtained, whether it was part write off or the full write off, the steps taken for recovery, the criteria for treating the particular debt as bad debt particularly when sufficient securities with the bank and the process of recovery is going on. 28. Though the AO categorically agreed that the debts have been written off in the accounts of the assessee but the write off is without valid reasons and proper basis. The AO without understanding the implications of the amended provisions, in his wisdom, disallowed the entire claim of bad debts and disallowed Rs. 8,79,08,01,208/-. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 17 29. The additions were challenged before the ld. CIT(A) and it was strongly contended that the bad debts written off by the assessee during the year under consideration, fulfil all the conditions laid down u/s 36(2) of the Act. It was explained that these debts represent money lent in the ordinary course of business of the assessee which have turned bad and hence written off. It was once again reiterated that deduction on account of bad debts has undergone substantial change after the amendment made in 1987 and have been explained by the CBDT in Circular No. 551 dated 23/01/1990 and the assessee has only to write off the debts in its books and need not establish that the debt has become bad in the said year of write off. Strong reliance was placed on the decision of the Hon’ble Bombay High Court in the case of DIT vs. Oman International bank reported in 313 ITR 128 which has confirmed the decision of the Special Bench of the Mumbai Tribunal which has held that after amendment of Section 36(1)(vii) w.e.f. 01/04/1989, it is not obligatory on part of the assessee to prove that the debt written off is bad and if the same is written off as irrecoverable in the accounts of the assessee, it will suffice for claiming it as bad debts. 30. Before us, the ld. D/R strongly supported the findings of the AO and vehemently contended that the assessee has not furnished any details to demonstrate that the debts have actually been written off in the books of accounts. It is the say of the ld. D/R that the ratio laid down by the Hon’ble Supreme Court in the case of TRF Limited vs. CIT (supra) has been diluted by the Hon’ble Supreme Court in the case of Khyati Realtors Pvt. Ltd. reported in 447 ITR 167 (SC). The ld. D/R went on to I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 18 read the assessment order which according to him was very relevant to buttress his point. 30.1. Per contra, the ld. Counsel for the assessee referring to the order of the assessment pointed out that the AO himself has accepted that the assessee has actually written off the debts in its books of accounts. It is the say of the ld. Counsel for the assessee that the decision of the Hon’ble Supreme Court relied upon by the ld. First Appellate Authority still holds good on the facts of the case. 31. We have given a thoughtful consideration to the orders of the authorities below. It is not in dispute that the debts have been actually written off in the books of accounts. It is equally true that after 01/04/1989, all that is required is to demonstrate (1) the debt was part of the income of earlier year and (2) it has been actually written of in the books of accounts meaning thereby that the account of the debtor has been reduced to nil and if it is part write off then, the balance in the account of the debtor is reduced to that extent. Nothing further is required for the claim. The observations of the AO heavily relied upon by the ld. D/R that the amounts have been written off without valid reasons and proper basis, does not hold any water post amendment of Section 36(1)(vii) of the Act. 31.1. The ld. D/R has heavily relied upon the decision of the Hon’ble Supreme Court in the case of Khyati Realtors Pvt. Ltd. (supra) and vehemently stated that the ratio laid down by the Hon’ble Supreme Court in the case of TRF Limited vs. CIT (supra) have been diluted. 32. In our understanding of the law, the judgment has to be read in the context in which it is delivered and the facts of Khyati Realtors I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 19 (supra), show that the assessee is engaged in the business of real estate and financing, advanced certain amount to a developer for booking commercial space in an upcoming project. Since the project failed and the assessee could not recover the said amount, it wrote off the same as bad debt. The AO disallowed the claim on the ground that there was nothing on record to suggest that requirement of law, that bad debt was written off as irrecoverable in assessee’s account for previous years have been satisfied. It was noted by the Hon’ble High Court that accounts of the assessee nowhere showed that the alleged advance was made in its ordinary course of business and since the assessee’s claim was that amount so advanced was given to a developer for acquiring an immovable property and it was in the nature of capital expenditure and not business expenditure and, therefore, the claim was denied, whereas the facts of the case in hand show that being in the business of banking, the assessee had advanced/loaned/lent money in its ordinary course of business and this is not in dispute. Therefore, the write off in the books of accounts is sufficient for the claim. 32.1. Moreover, Section 36(2) of the Act provides as under:- (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i)[ no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee;] [ Substituted by Act 4 of 1988, Section 11, for Clause (i) (w.e.f. 1.4.1989).] (ii)if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 20 (iii)any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] [ Inserted by Act 4 of 1988, Section 11 (w.e.f. 1.4.1989).] but the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for \" Income- tax Officer\" (w.e.f. 1.4.1988).] had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv)where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] [ Inserted by Act 4 of 1988, Section 11 (w.e.f. 1.4.1989).] and the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for \" Income-tax Officer\" (w.e.f. 1.4.1988).] is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; (v)[ where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.] [ Substituted by Act 26 of 1997, Section 7, for Clause (v) (w.r.e.f. 1.4.1992).]” 32.2. A perusal of the above clearly shows that the claim of the assessee falls under Clause (i), wherein it has been specifically mentioned that debt represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee. In our considered opinion, the contention of the ld. D/R that the ratio laid down by the Hon’ble Supreme Court in the case of TRF Limited (supra) has been diluted by the Hon’ble Supreme Court in the case of Khyati Realtors Pvt. Ltd. (supra), is not a proper way of interpreting the judgment of the Hon’ble Supreme Court and since the ld. CIT(A) has rightly followed the decision of the Hon’ble Supreme Court (supra), we do not find any error or infirmity in the findings of the ld. CIT(A) which I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 21 calls for any interference. Accordingly, Ground Nos. 8 & 9 are dismissed. 33. The next grievance relates to the claim of business loss and sales promotion expenses of Rs. 43,69,07,087/-. 33.1. The AO observed that the assessee vide revised return has claimed a business loss of Rs. 43,69,07,087/-. The assessee explained that the said loss was on account of disposal of non-banking assets, loss towards write off of discrepant notes and cash backs offered to credit card customers. Accordingly, the said loss was claimed as revenue loss. The assessee was asked to furnish supporting documentary evidence but no such evidence was furnished. The AO further observed that insofar as loss on sale of non-banking assets is concerned, it is not known how and in what manner the above properties were acquired and sold and it is also not known whether such properties/assets ever became part of the block assets/depreciable asset. The AO further observed that the assessee has not even furnished a list of credit card customers to whom such cash bank has been given and accordingly disallowed the claim of loss. 33.2. The assessee challenged the addition before the ld. CIT(A) and explained that the assessee acquires assets in lieu of settlement of loans which are subsequently disposed off. The resultant gain/loss on disposal of the acquired non-banking assets is offered as a business gain/loss, as the case may be. It was further explained that discrepant notes not accepted by the RBI, stamp duty charges etc. on retail loans are part of the assessee’s business activities and cash back backs offered I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 22 to the credit card customers of the bank are claimed as sales promotion expenses and are allowable as revenue expenses. 33.3. After considering the facts and the submissions, the ld. CIT(A) found that identical issues was considered in AY 2005-06, wherein the claim was allowed following the decision for AY 2005-06, the ld. CIT(A) allowed the claim of loss. 34. Before us, the ld. D/R strongly supported the findings of the AO and the ld. Counsel reiterated what has been stated before the lower authorities. 35. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that the loss claimed on sale of assets was in the ordinary course of business. It is also not in dispute that the discrepant notes not accepted by the RBI has to be written off as business loss and similarly, the offers made to credit card customers cannot be said to be for non-business purposes. Considering the facts of the case in totality and on finding that in earlier AYs a similar claim was allowed by the ld. First Appellate Authority, following the rule of consistency, the claim is allowed and the findings of the ld. CIT(A) cannot be faulted with. Accordingly, Ground No. 10 is dismissed. 36. Ground No. 11 relates to club membership fees which was disallowed by the AO amounting to Rs. 31,43,756/-. 37. The addition was challenged before the ld. CIT(A) and it was explained that the club membership fees expenses are incurred by the assessee so that its executives can establish and maintain business contacts which is in the long-term interest of the assessee’s business. The ld. CIT(A) found that in the earlier AYs, the additions were deleted by I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 23 the ld. CIT(A) following the decision of the Hon’ble Jurisdictional High Court of Bombay in the case of Otis Elevator Co. vs. CIT reported in 195 ITR 682 (Bom.) and CIT vs. Mercantile Bank reported in 237 ITR 676. Following the same, the ld. CIT(A) deleted the addition. 37.1. Before us, the ld. D/R could not bring any distinguishing decision in favour of the revenue. 38. We have carefully perused the orders of the authorities below. We find that a similar issue was considered by the Co-ordinate Bench in AY 2005-06 and 2004-05 (supra). The relevant finding read as under:- “56. We have heard rival contentions and perused the material available on record. The Hon’ble Supreme Court in United Glass Manufacturing Co. Ltd., Civil Appeal no.6649 of 2012, has held that club membership fees for employees are to be treated as business expenditure of a company under section 37 of the Act. We must also observe that in the decisions referred to by the learned Commissioner (Appeals) similar view has been expressed. That being the case, we do not find any reason to interfere with the order of the learned Commissioner (Appeals) on this issue. Accordingly, we uphold the order of the learned Commissioner (Appeals) by dismissed ground no.9 raised by the Revenue.” 39. Respectfully following the findings of the Co-ordinate bench, we decline to interfere. Ground No. 11 is dismissed. 40. Other Grounds are consequential in nature and need no further adjudication. 41. Accordingly, appeal of the revenue is dismissed. 42. Now we take up the assessee’s appeal in I.T.A. No. 5396/Mum/2013. 43. The assessee has raised the following grounds of appeal:- “[1] Being aggrieved by the order bearing No. CIT(A)-7/Addl. CIT-3(1)/T- 688/09-10 dated May 27, 2013 issued by the Commissioner of Income-tax (Appeals) 7, Mumbai [hereinafter called the CIT(A)] issued under section 250 of the Income- tax Act, 1961 [hereinafter called the Act] and communicated to the Appellant on I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 24 June 7, 2013, the Appellant appeals against and on the following amongst other grounds which are without prejudice to each other. Deduction under section 10(23G) [Para 4, pages 2 to 6 of the CIT(A) Order] [2] On the facts and circumstances of the case and in law, the CIT(A) erred in not directing the Assessing Officer to restrict the disallowance to only the direct expenses viz. interest on borrowings made for infrastructure financing. Allocation of interest expenditure and other expenses under section 14A in respect of exempt income under section 10(15) 10(34) and 10(35) [Para 5, pages 6 to 9 of the CIT(A) Order] [3] On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses and managerial and administrative expenses following the orders of his predecessor of the earlier assessment years instead of Rs. 320,20,362 as declared by the Appellant. Loss on Investments made in South Asian Regional Apex Fund - Rs.22,80,364 [Para 13, pages 25 and 26 of the CIT(A) Order] [4] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the Assessing Officer's view in not allowing the loss in investments made in South Asian Regional Apex Fund made vide revised computation filed during the course of assessment proceedings as the same was not made vide a revised return as held by the Hon'ble Supreme Court in the case of Goetze India Pvt Limited (284 ITR 323). [5] Without prejudice, the CIT(A) ought to have directed the Assessing Officer not to have taxed the short-term capital gain from investments made in the said fund. Charging of interest under section 234B and 234D of the Act [Para 16, page 28 of the CIT(A) order] [6] The CIT(A) erred on facts and in circumstances of the case and in law in not deleting the interest levied under section 234B and 234D of the Act and treating the same as consequential in nature. GENERAL [7] The Appellant craves leave and reserves its right to vary, amend, alter and/or add to the grounds of appeal and to produce such oral and documentary evidence and file such compilation of documents as may be necessary at the time of hearing of the appeal.” 44. Ground No. 1, is general in nature and needs no separate adjudication. I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 25 45. Ground Nos. 2 & 3 relate to the allocation of interest expenditure/other expenses relating to exempt income claimed u/s 10(23G)/14A/10(15)/10(34) & 10(35) of the Act. 46. The disallowance/allocation of impugned expenditure relating to impugned income/deduction has been considered by us in detail in appeal before the revenue vide Ground Nos. 1 to 4. For our detailed discussion therein, we are of the opinion that the ld. First Appellate Authority following the order of the earlier years have given suitable directions which call for no interference. Moreover, before us, the ld. Counsel for the assessee also did not press the issues relating to the direction given by the ld. CIT(A). Therefore, Ground No. 2 is dismissed as not pressed and Ground No. 3 is decided as per our detailed findings given in revenue’s appeal. 47. The next Ground relates to the denial of claim of loss of Rs. 22,80,364/-. The assessee has claimed loss on investments made in South Asian Regional Apex Fund but the said loss was claimed vide revised computation of income filed during the course of assessment proceedings vide letter dated 12/11/2008. 47.1. The AO was of the firm belief that the ratio laid down by the Hon’ble Supreme Court in the case of Goetze India Pvt. Ltd. reported in 284 ITR 323 (SC), squarely apply and as the said loss was not claimed vide revised return of income, the AO denied the claim of loss. 48. When the matter was agitated before the ld. CIT(A), the ld. CIT(A) accepted the view taken by the AO without realizing the fact that the Hon’ble Supreme Court has not put any fetter on the powers of the First I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 26 Appellate Authority to consider the claim of loss through computation of income. 48.1 Therefore, in the interest of justice and fair play, we deem it fit to restore the issue to the file of the AO for examination/verification of the claim of loss as per the provisions of law and deciding the issue accordingly. Accordingly, Ground No. 4 is allowed for statistical purposes. 49. Other grounds are consequential and/or general in nature and need no adjudication. 50. In the result, appeal of the revenue in I.T.A. No. 5792/Mum/2013 is dismissed and appeal of the assessee in I.T.A. No. 5396/Mum/2013, is partly allowed for statistical purposes. Order pronounced in the Court on 25th October, 2024 at Mumbai. Sd/- Sd/- (RAJ KUMAR CHAUHAN) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 25/10/2024 *SC SrPs *SC SrPs *SC SrPs *SC SrPs I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013 27 आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "
