HDFC BANK LTD, MUMBAI V. ASST CIT 2(3), MUMBAI

ITA 1795/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84127 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-10-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 14-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K TEJPA L
• Assessee Lawyers: YOGESH A THAR
• Keywords: Bad and doubtful debts
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.375/MUM/2012 ( / ASSESSMENT YEAR :2008-09) HDFC BANK LTD. SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013 / VS. DY. COMMISSIONER OF INCOME TAX 2(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.722/MUM/2012 ( / ASSESSMENT YEAR :2008-09) ASSTT. COMMISSIONER OF INCOME TAX 2(3), ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. M/S HDFC BANK LTD., HDFC HOUSE, SENAPATI MARG, LOWER PAREL, MUMBAI-400013 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.3465/MUM/2012 ( / ASSESSMENT YEAR :2009-10) HDFC BANK LTD. SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013 / VS. DY. COMMISSIONER OF INCOME TAX-2(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.4367/MUM/2012 ( / ASSESSMENT YEARS :2009-10) ADDL. COMMISSIONER OF INCOME TAX 2(3), ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. M/S HDFC BANK LTD., HDFC HOUSE, SENAPATI MARG, LOWER PAREL, MUMBAI-400013 ( / APPELLANT) .. ( / RESPONDENT) ITA NOS.1795/MUM/2014 AND OTHER FIVE APPEALS 2 ./I.T.A. NO.3020/MUM/2014 ( / ASSESSMENT YEAR :2010-11) DY. COMMISSIONER OF INCOME TAX 2(3), ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. M/S HDFC BANK LTD., HDFC HOUSE, SENAPATI MARG, LOWER PAREL, MUMBAI-400013 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.1795/MUM/2014 ( / ASSESSMENT YEAR :2010-2011) HDFC BANK LTD. SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013 / VS. ASSTT. COMMISSIONER OF INCOME TAX-2(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./ PAN/GIRNO.:AAACH2702H ' / ASSESSEE BY : SHRI YOGESH A THAR # ' /REVENUE BY : SHRI A K TEJPA L $ % # & ' / DATE OF HEARING : 29.10.2014 ()*+ # & ' /DATE OF PRONOUNCEMENT : 12.11.2014 / O R D E R PER BENCH: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) AND THEY RELATE TO THE ASSESSMENT YEARS 2008-09, 20 09-10 AND 2010-11. SINCE IDENTICAL ISSUES ARE URGED IN THESE APPEALS, THEY W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. 2. THE ASSESSEE IS A SCHEDULED BANK CARRYING ON BAN KING BUSINESS. IN THE APPEALS FILED BY THE ASSESSEE, THE ISSUE RELATING T O THE DISALLOWANCE MADE U/S 14A OF THE ACT IS BEING CONTESTED IN ALL THE THREE YEARS. THE LD A.R SUBMITTED THAT THE SAID DISALLOWANCE IS NOT WARRANTED SINCE T HE OWN FUNDS AVAILABLE WITH THE ITA NOS.1795/MUM/2014 AND OTHER FIVE APPEALS 3 ASSESSEE EXCEEDS THE BORROWED FUNDS. IT WAS FURTHE R SUBMITTED THAT THE IDENTICAL DISALLOWANCES MADE IN THE EARLIER YEARS HAVE BEEN D ELETED BY THE HONBLE HIGH COURT OF BOMBAY ALSO, BY CONSIDERING THE FACT THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE EXCEEDS THE BORROWED FUNDS. ON THE CO NTRARY, THE LD D.R SUBMITTED THAT THE PROVISIONS OF RULE 8D WAS INTROD UCED IN THE I.T RULES AND THEY WERE HELD TO BE APPLICABLE FROM AY 2008-09 ONWARDS AND HENCE THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT IS REQUI RED TO BE EXAMINED IN TERMS OF RULE 8D OF THE I.T RULES IN ALL THE THREE YEARS UNDER CONSIDERATION. ACCORDINGLY, THE LD D.R CONTENDED THAT THE DECISION RENDERED FOR ASSESSMENT YEAR 2007-08 AND EARLIER YEARS CANNOT BE TAKEN SUPP ORT OF BY THE ASSESSEE, SINCE THE PROVISIONS OF RULE 8D WERE NOT APPLICABLE TO THOSE YEARS. 3. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISS UE. AS PER THE DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COUR T IN THE CASE OF GODREJ BOYCE MFG. CO. LTD (328 ITR 81), THE PROVISIONS OF RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND ONWARDS. FURTHER, IT I S SETTLED PROPOSITION THAT THE ASSESSING OFFICER CAN DETERMINE THE AMOUNT OF DISAL LOWANCE IN TERMS OF RULE 8D ONLY IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THAT TOO, AFTER HAVING REGARD TO THE ACCOUNTS OF THE ASS ESSEE. IN THE INSTANT CASES, THE CONTENTION OF THE ASSESSEE IS THAT THE INVESTME NTS HAVE BEEN MADE OUT OF OWN FUNDS AND HENCE THERE IS NO REQUIREMENT OF MAKI NG DISALLOWANCE OF INTEREST COMPONENT. FURTHER, IT IS CONTENDED THAT THE SECUR ITIES ARE HELD AS STOCK IN TRADE AND HENCE THERE IS NO REQUIREMENT OF MAKING ANY DIS ALLOWANCE U/S 14A OF THE ACT. IN THE ALTERNATIVE, IT WAS CONTENDED THAT THE QUANTUM OF DISALLOWANCE SHOULD BE SCALED DOWN IN BETWEEN 2% TO 20% OF THE EXEMPT I NCOME. IT IS ALSO CONTENDED THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE, IF THE INVESTMENTS MADE ARE STRATEGIC IN NATURE. 4. WE NOTICE THAT THE ASSESSEE IS PUTTING FORTH ITS CONTENTIONS AGAINST THE IMPUGNED DISALLOWANCE FROM DIFFERENT ANGLES. ALL T HOSE CONTENTIONS CAN BE APPRECIATED ONLY IF THE RELEVANT FACTS ARE AVAILABL E BEFORE US. FURTHER, SOME OF THE CONTENTIONS ARE RAISED FOR THE FIRST TIME BEFOR E US. THE LD A.R FURTHER SUBMITTED THAT THE PRESUMPTION OF USE OF OWN FUNDS IS AVAILABLE, WHEN BOTH THE OWN FUNDS AND LOAN FUNDS ARE MIXED UP. FOR THIS PR OPOSITION, HE PLACED RELIANCE ON SOME OF THE DECISIONS RENDERED BY THE JURISDICTI ONAL HIGH COURT IN ITS OWN ITA NOS.1795/MUM/2014 AND OTHER FIVE APPEALS 4 CASE AND ALSO IN SOME OTHER CASES. EVEN THOUGH TH E ASSESSEE HAS CONTENDED THAT IT HAS USED ONLY ITS OWN FUNDS FOR MAKING THE INVESTMENTS, IN OUR VIEW, THE AVAILABILITY OF OWN FUNDS ON THE DATE OF MAKING INV ESTMENTS NEEDS TO BE VERIFIED. ADMITTEDLY, THE FACTS RELATING THERETO ARE NOT AVAI LABLE ON RECORD. SINCE FULL FACTS WHICH ARE REQUIRED TO BE CONSIDERED IN ORDER TO PRO PERLY APPRECIATE VARIOUS CONTENTIONS OF THE ASSESSEE ARE NOT AVAILABLE BEFOR E US, THE BENCH SUGGESTED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER IN ORDER TO ENABLE HIM TO EXAMINE THIS ISSUE AFRESH. BOTH THE PARTIES AGREED TO THE SAME. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CI T(A) ON THIS ISSUE IN ALL THE THREE YEARS AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN ALL THE T HREE YEARS BY DULY CONSIDERING THE VARIOUS CASE LAW RELIED UPON BY THE ASSESSEE AN D ALSO BY DULY ADDRESSING VARIOUS TYPES OF CONTENTIONS OF THE ASSESSEE AND TA KE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 5. THE COMMON GROUND AVAILABLE IN ALL THE THREE Y EARS IN THE APPEALS FILED BY THE REVENUE RELATES TO THE DISALLOWANCE OF AMORTIZA TION OF PREMIUM PAID ON HTM (HELD TO MATURITY) INVESTMENTS. FOLLOWING AMOUNTS HAVE BEEN DISALLOWED IN EACH OF THE YEARS:- ASSESSMENT YEAR 2008-09 RS.288.38 CR ORES ASSESSMENT YEAR 2009-10 RS.444.22 CRORES ASSESSMENT YEAR 2010-11 RS.440.76 CRORES. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LOSS ARISING ON AMORTIZATION OF PREMIUM ON INVESTMENTS HELD TO MATURITY HAS BE EN HELD TO BE DEDUCTIBLE IN THE ASSESSEES OWN CASE BY HONBLE JURISDICTIONAL B OMBAY HIGH COURT AND THE DECISION OF THE HIGH COURT IS REPORTED AS CIT VS. H DFC BANK LTD IN (2014)(366 ITR 505). SINCE THIS ISSUE HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT AND SINCE THE DECISION RE NDERED BY LD CIT(A) IN ALL THE THREE YEARS IS IN ACCORDANCE WITH THE DECISION OF J URISDICTIONAL HIGH COURT, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F BROKEN PERIOD INTEREST. THIS ISSUE IS AVAILABLE IN THE APPEAL FILED BY THE REVEN UE FOR AY 2009-10 AND THE APPEAL FILED BY THE ASSESSEE IN AY 2010-11. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITA NOS.1795/MUM/2014 AND OTHER FIVE APPEALS 5 HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE REPORTED IN 366 ITR 505). BY FOLLOWING THE SAID DECISION OF THE HONBL E JURISDICTIONAL HIGH COURT, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF BROKEN PERIOD INTEREST MADE IN AY 2009-10 AND 2010-11. ACCORDINGLY, THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN AY 2009-10 IS CONFIRMED AND THE ORDER PASSED BY HIM ON THIS ISSUE IN AY 2010-11 IS SET ASIDE. 7. THE ONLY REMAINING ISSUE PERTAINS TO THE DISAL LOWANCE MADE U/S 36(1)(VIIA) OF THE ACT IN AY 2010-11. BOTH THE PARTIES ARE IN APPEAL BEFORE US ON THIS ISSUE. THE FACTS RELATING TO THIS ISSUE ARE STATED IN BRIE F. THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(VIIA) IN RESPECT OF PROVISION F OR BAD AND DOUBTFUL DEBTS TO THE TUNE OF RS.351.06 CRORES IN HIS RETURN OF INCOME. IT ALSO CLAIMED DEDUCTION OF BAD DEBTS U/S 36(1)(VII) OF THE ACT TO THE EXTENT OF RS .1655.47 CRORES. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE FILED A LETTER DATED 13.8.2012, WHEREIN IT WITHDREW THE DEDUCTION CLAIMED U/S 36(1) (VIIA) AND CONSEQUENTLY SOUGHT TO ENHANCE THE DEDUCTION OF BAD DEBTS CLAIME D U/S 36(1)(VII) OF THE ACT TO RS.1923.96 CRORES. WHEN THE ASSESSING OFFICER WAS EXAMINING THE REVISED CLAIM, THE ASSESSEE WITHDREW ITS LETTER DATED 13.8.2012 R EFERRED ABOVE. 8. THE ASSESSING OFFICER EXAMINED THE CLAIM OF D EDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE U/S 36(1)(VIIA) OF THE ACT. ACCORDING TO THE SAID SECTION THE PROVISION MADE TO THE EXTENT OF 7.5% OF TOTAL I NCOME COMPUTED BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA AND U/S 36(1)( VIIA) PLUS 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES IS ALLOWABLE AS DEDUCTION. HENCE THE ASSESSING OFFICER EXAMINED THE LIST OF RU RAL BRANCHES SUBMITTED BY THE ASSESSEE AND CAME TO THE CONCLUSION THAT THE LIST S UBMITTED BY THE ASSESSEE DID NOT ANSWER THE DEFINITION OF RURAL BRANCHES AS GIVE N IN EXPLANATION UNDER SEC. 36(1) (VIIA) OF THE ACT. ACCORDINGLY, THE AO DISAL LOWED THE ENTIRE CLAIM OF RS.351.06 CRORES MADE BY THE AO U/S 36(1)(VIIA) OF THE ACT. IN RESPECT OF BAD DEBTS CLAIMED U/S 36(1)(VII) OF THE ACT, THE AO ALL OWED THE DEDUCTION TO THE EXTENT OF RS.1655.47 CRORES, I.E., THE AMOUNT CLAIMED BY T HE ASSESSEE IN ITS RETURN OF INCOME. 9. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) EX AMINED THE CLAIM OF SEC. 36(1)(VIIA) OF THE ACT. THE INFORMATION RELATING T O RURAL BRANCHES GIVEN BY THE ITA NOS.1795/MUM/2014 AND OTHER FIVE APPEALS 6 ASSESSEE WAS CRITICALLY ANALYSED BY THE LD CIT(A). THE FIRST APPELLATE AUTHORITY CLASSIFIED THE RURAL BRANCHES INTO FOUR CATEGORIES VIZ., WHERE THE- (A) POPULATION FIGURES AND DATA ON RBI LICENCE ARE AVAILABLE; (B) POPULATION FIGURES NOT AVAILABLE BUT DATA ON RB I LICENCE AVAILABLE; (C) NO DATA AT ALL AVAILABLE WITH REGARD TO POPULAT ION FIGURE & RBI LICENCE AND (D) THE RURAL BRANCHES IN RESPECT OF WHICH NO CLAIM MADE BY THE ASSESSEE. THE LD CIT(A) HELD THAT THE DEDUCTION U/S 36(1)(VII A) SHALL BE ALLOWED ONLY IN RESPECT OF THE BRANCHES FALLING IN CATEGORY (A), SI NCE THERE IS NO CONFUSION IN RESPECT OF THIS CATEGORY. ACCORDINGLY THE LD CIT( A) HELD THAT THE DEDUCTION SHALL NOT BE AVAILABLE IN RESPECT OF THE REMAINING THREE CATEGORIES. ACCORDINGLY, THE LD CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEDU CTION IN RESPECT OF CATEGORY (A) ADVANCES, WHICH WAS WORKED OUT BY HIM AT RS.17.75 C RORES. IN ADDITION TO THE ABOVE, THE LD CIT(A) ALSO DIRECTED THE ASSESSING OF FICER TO ALLOW DEDUCTION OF 7.5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING DED UCTION U/S 36(1)(VIIA) AND CHAPTER VIA OF THE ACT. 10. THOUGH THE ASSESSEE IS AGGRIEVED BY THE DECIS ION OF LD CIT(A) IN RESPECT OF THE DEDUCTION ALLOWED U/S 36(1)(VIIA) OF THE ACT , YET THE ASSESSEE COULD NOT FURNISH ANY MATERIAL TO FIND FAULT WITH THE REASONI NG GIVEN BY THE LD CIT(A). WE HAVE EARLIER NOTICED THAT THE LD CIT(A) HAS ALLOWED DEDUCTION ONLY IN RESPECT OF THOSE BRANCHES, WHERE THERE IS NO DOUBT ABOUT THEIR CLASSIFICATION AS RURAL BRANCHES. IN RESPECT OF OTHER BRANCHES, NO FRESH MATERIAL WAS PLACED TO CONTRADICT THE FINDINGS GIVEN BY LD CIT(A). 11. IN THE APPEAL FILED BY THE REVENUE, IT IS CON TENDED THAT THE ASSESSEE HAS WITHDRAWN THE CLAIM AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM. WE HAVE EARLIER NOTICED THAT THE ASSESSEE, INDEED, FILED A LETTER WITHDRAWING THE CLAIM MADE U/S 36(1)(VIIA) OF THE A CT AND MAKING ADDITIONAL CLAIM OF BAD DEBTS U/S 36(1)(VII) OF THE ACT. HOWEVER, S UBSEQUENTLY THE ASSESSEE HAS WITHDRAWN ITS EARLIER LETTER DURING THE COURSE OF A SSESSMENT PROCEEDING BEFORE FINALIZATION OF THE ASSESSMENT. HENCE, THE WITHDRA WAL LETTER GIVEN BY THE ASSESSEE, IN OUR VIEW, SHOULD NOT BE TAKEN COGNIZAN CE OF. ACCORDINGLY, WE DO NOT FIND MERIT IN THE SAID GROUND OF THE REVENUE. ITA NOS.1795/MUM/2014 AND OTHER FIVE APPEALS 7 12. IN VIEW OF THE FOREGOING DISCUSSION, WE DO N OT FIND ANY INFIRMITY IN THE DECISION RENDERED BY LD CIT(A) IN RESPECT OF THE IS SUE RELATING TO THE DEDUCTION CLAIMED U/S 36(1)(VIIA) OF THE ACT. ACCORDINGLY, W E AFFIRM HIS ORDER ON THIS ISSUE. 13. IN THE APPEAL FILED BY THE ASSESSEE FOR ASSE SSMENT YEAR 2010-11, THE GROUND NO.VI RELATING TO THE DEMAND RAISED IS NOT P RESSED BY THE LD. AR AT THE TIME OF HEARING. HENCE, THE SAME IS DISMISSED AS NO T PRESSED. 14. NO OTHER ISSUE WAS RAISED OR ARGUED BEFORE US B Y EITHER PARTY. 15. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 ARE TREATED AS ALLOWED. THE AP PEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 IS TREATED AS PARTLY AL LOWED. ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. NO ORDER AS TO COSTS. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12TH NOV, 2014 . ()*+ $ , -. / 0 12TH NOV, 2014 ) # 1% 2 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER - $ % MUMBAI: 12TH NOV,2014. . 4 . ./ SRL , SR. PS !'#$ %$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ 5& ( ) / THE CIT(A)- CONCERNED 4. $ 5& / CIT CONCERNED 5. 6. 67 1 4&489 , ' 89 + , - $ % / DR, ITAT, MUMBAI CONCERNED 1 : % / GUARD FILE. ; $ / BY ORDER, TRUE COPY < (ASSTT. REGISTRAR) ' 89 + , - $ % /ITAT, MUMBAI