Oriental Bank of Commerce, Gurgaon V. Addl. CIT, New Delhi

ITA 5969/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3859 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 05-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Retrospective amendment; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6443/DEL/2014 ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-19(1), NEW DELHI. VS. ORIENTAL BANK OF COMMERCE, CENTRAL ACCOUNT OFFICE, PLOT NO.5, SECTOR 32, INSTITUTIONAL AREA, GURGAON. PAN: AAACO0191M ITA NO.5969/DEL/2014 ASSESSMENT YEAR : 2011-12 ORIENTAL BANK OF COMMERCE, CENTRAL ACCOUNT OFFICE, PLOT NO.5, SECTOR 32, INSTITUTIONAL AREA, GURGAON. PAN: AAACO0191M VS. ADDL. CIT, RANGE-13, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KVSR KRISHNA, CA & SHRI AMAN GOEL, CA DEPARTMENT BY : MS SHEFALI SWAROOP, CIT DR DATE OF HEARING : 24.10.2017 DATE OF PRONOUNCEMENT : 25.10.2017 ITA NOS.5969 &6443/DEL/2014 2 ORDER PER R.S. SYAL, VP: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 29.08.2014 IN RELATION TO THE A.Y. 2011-12. 2. FIRST GROUND OF THE REVENUES APPEAL AND FIRS T GROUND OF THE ASSESSEES APPEAL CONCERN WITH DISALLOWANCE U/S 14 A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). B RIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS.12,04,27,196/-. THE AO OBSERVED THAT NO DISALLO WANCE WAS OFFERED U/S 14A OF THE ACT. CONSIDERING THE ASSESSEES OBJE CTIONS AND AFTER RECORDING SATISFACTION, WHICH ASPECT HAS NOT BEEN D ISPUTED BY THE ASSESSEE, THE AO INVOKED THE PROVISIONS OF RULE 8D FOR MAKING DISALLOWANCE U/S 14A AMOUNTING TO RS.47.66 CRORE, C ONSISTING OF INTEREST EXPENDITURE DISALLOWABLE TO THE TUNE OF RS.43.55 CR ORE; AND RS.4.11 CRORE , BEING 0.5% OF THE AVERAGE VALUE OF INVESTME NTS IN BALANCE SHEET. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS.43.55 CRORE, BUT, ITA NOS.5969 &6443/DEL/2014 3 SUSTAINED THE DISALLOWANCE OF RS.4.11 CRORE. BOTH THE SIDES ARE IN APPEAL IN SUPPORT OF THEIR RESPECTIVE STANDS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2011-12 AND THE PROVISIONS OF RULE 8D ARE APPLICABLE. IT IS COMMON SUBMISSION THAT SIMILAR TREATMENT WAS GIV EN BY THE RESPECTIVE AUTHORITIES BELOW FOR THE A.YS. 2008-09 AND 2009-10. THE TRIBUNAL HAS UPHELD THE ACTION OF THE CIT(A) FOR SU CH YEARS, MEANING THEREBY THAT DISALLOWANCE OF INTEREST GOT DELETED A ND DISALLOWANCE @ 0.5% OF THE AVERAGE VALUE OF INVESTMENT GOT SUSTAIN ED. IN THE ABSENCE OF ANY CHANGE IN THE FACTUAL SCENARIO AND RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER. TO PUT IT SIMPLY, THE RESPECTIVE GROUNDS RAISED BY BOTH THE SIDES STAND D ISMISSED. 4. NEXT ISSUE IN THE REVENUES APPEAL IS AGAINST TH E ALLOWING OF 100% DEPRECIATION ON TEMPORARY ERECTIONS AS AGAINST 20% ALLOWED BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE CLAIMED 100% DEPRECIATION ON FIXTURES AND FITTINGS IN RENTED ITA NOS.5969 &6443/DEL/2014 4 PREMISES WHICH WAS CLAIMED AS TEMPORARY ERECTION. THE AO ALLOWED DEPRECIATION @ 20% (AND 10% FOR LESS THAN 80 DAYS). THIS RESULTED INTO THE DISALLOWANCE OF EXCESS DEPRECIATION TO THE EXTE NT OF RS.6,76,70,768/. THE LD. CIT(A) DELETED THE ADDITION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT SIMILAR ISSU E WAS RAISED IN THE ASSESSEES APPEAL FOR THE A.Y. 2007-08. VIDE ITS O RDER DATED 04.11.2015 IN ITA NO.1937/DEL/2011, THE TRIBUNAL HAS RESTORED THE MATTER TO THE FILE OF AO FOR FRESH VERIFICATION. RESPECTFULLY FOLLOWI NG THE PRECEDENT, WE ALSO SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AN D REMIT THE MATTER TO THE FILE OF AO FOR DECIDING IT IN CONFORMITY WITH T HE VIEW TAKEN BY THE TRIBUNAL FOR THE A.Y. 2007-08. 6. NEXT ISSUE IN THE REVENUES APPEAL IS AGAINST DE LETION OF ADDITION ON ACCOUNT OF DISALLOWANCE OF RS.4,00,00,000/- TOWA RDS INTEREST ON OVERDUE DEPOSITS. 7. HAVING HEARD THE RIVAL BUT COMMON SUBMISSIONS AN D PERUSED THE RELEVANT MATERIAL, IT IS NOTICED THAT SIMILAR ISSUE WAS RAISED IN APPEALS FOR ITA NOS.5969 &6443/DEL/2014 5 THE A.YS. 2008-09 AND 2009-10. RELEVANT DISCUSSION HAS BEEN MADE ON PAGES 24 AND 25 OF THE ORDER AND, EVENTUALLY, THE T RIBUNAL RESTORED THIS MATTER TO THE FILE OF AO FOR THE LIMITED PURPOSE OF VERIFYING WHETHER OR NOT ACTUAL PAYMENT OF THE PROVISION WAS MADE TO THE CUSTOMERS. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT YEAR, WE, RESPECTFULLY, FOLLOW THE PREC EDENT AND REMIT THE MATTER TO THE FILE OF AO FOR DECIDING THIS ISSUE IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE AFORENOTED ORDER FOR EARLIER YEARS. 8. NEXT ISSUE IN THE REVENUES APPEAL IS AGAINST RE DUCING DISALLOWANCE MADE BY THE AO U/S 36(1)(VIIA) FROM RS .391.82 CRORE TO RS.149.17 CRORE. BOTH THE SIDES ARE IN AGREEMENT T HAT THE FACTS AND CIRCUMSTANCES OF THIS ISSUE ARE SIMILAR TO THOSE AS RAISED IN THE APPEAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2010-11. A COPY OF THE ORDER DATED 11.09.2017 IN ITA NO.4566/DEL/2014 HAS BEEN PLACED ON RECORD IN WHICH THE ISSUE HAS BEEN DECIDED IN THE A SSESSEES FAVOUR BY UPHOLDING THE ORDER PASSED BY THE CIT(A). IN THE A BSENCE OF ANY ITA NOS.5969 &6443/DEL/2014 6 DISTINGUISHING FACTS AND RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER ON THIS SCORE. 9. THE LAST ISSUE IN THE REVENUES APPEAL IS AGAINS T ALLOWING EXCESS DEDUCTION CLAIMED U/S 36(1)(VII) OF RS.448,11,61,78 5/-. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE CLAIMED SE PARATE DEDUCTION U/S 36(1)(VII) IN RESPECT OF BAD DEBTS OF ADVANCE OF NO N-RURAL BRANCHES OF RS.695.12 CRORE WITHOUT SETTING OF BAD DEBTS AGAINS T PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) AMOUNTING TO RS. 637,56,78,375/-. ACCORDINGLY, CLAIM U/S 36(1)(VII) UP TO THE AMOUNT OF DEDUCTION ALLOWABLE U/S 36(1)(VIIA) WAS DISALLOWED AND THE BA LANCE AMOUNT OF BAD DEBT WRITTEN OFF IN RESPECT OF THE AMOUNT OF DEDUCT ION ALLOWABLE U/S 36(1)(VIIA) AMOUNTING TO RS.207,09,87,602/- (RS.695 ,21,49,387 PLUS RS.27,46,115 MINUS RS.488,39,07,900/-) WAS HELD TO BE ALLOWABLE U/S 36(1)(VII). THUS, THE EXCESS DEDUCTION OF RS.488,1 1,61,785/- (RS.695,21,49,387 MINUS RS.207,09,87,602/-) WAS DIS ALLOWED. THIS WAS DONE BY THE AO CONSIDERING THE CLARIFICATORY AMENDM ENT MADE BY THE PARLIAMENT VIDE FINANCE ACT, 2013 BY WAY OF INSERTI ON OF EXPLANATION TO ITA NOS.5969 &6443/DEL/2014 7 SECTION 37(1)(VII) OF THE ACT WHICH WAS HELD TO HAV E RETROSPECTIVE EFFECT. THE LD. CIT(A) DELETED THE ADDITION BY NOTICING THA T THE AMENDMENT RELIED ON BY THE AO WAS EFFECTIVE FROM THE A.Y. 201 4-15 AND, HENCE, COULD NOT BE RETROSPECTIVELY APPLIED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE HON'BLE SUPREME COURT IN CATHOLIC SYRIAN BANK VS. CIT (2012) 248 CTR 1 (SC) , HAS OBSERVED THAT THE PROVISIONS OF SECTION 36(1)(VIIA) APPLY ONLY TO RURAL ADVANCES AN D THE PROVISIONS OF SECTION 36(1)(VII) APPLY ON OTHER ADVANCES. IT HAS BEEN HELD THAT BOTH THESE PROVISIONS ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. IT IS RELEVANT TO NOTE THAT EXPLANATION 2 HAS BEEN INSERTED BY THE FINANCE ACT, 2013 W.E.F. 0 1.04.2014 DILUTING THE POSITION LAID DOWN IN CATHOLIC SYRIAN BANK (SUPRA). SUCH AN INSERTION HAS BEEN MADE PROSPECTIVELY AND HENCE CAN NOT BE APPLIED RETROSPECTIVELY TO THE YEAR UNDER CONSIDERATION. T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF IDBI BANK LTD. VS. CIT (ITA NO.3775/MUM/2017) VIDE ITS ORDER DATED 11.09.2017, COPY PLACED ON ITA NOS.5969 &6443/DEL/2014 8 RECORD, HAS TAKEN NOTE OF THE VIEW TAKEN BY THE MU MBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF INDIA (ITA NO.1498/ MUM/2013) AND BANK OF INDIA VS. ACIT (ITA NO.2966/MUM/2014) HOLDI NG SUCH INSERTION AS PROSPECTIVE. NO CONTRARY DECISION HAS BEEN BROUGHT ON RECORD BY THE LD. DR IN WHICH SUCH EXPLANATION HAS BEEN HELD TO BE RETROSPECTIVE. WE, THEREFORE, COUNTENANCE THE VIEW TAKEN BY THE LD. CIT(A), IN PRINCIPLE, IN ALLOWING DEDUCTION U/S 36( 1)(VII) IN ADDITION TO THE DEDUCTION U/S 36(1)(VIIA). THIS GROUND IS NOT ALLOWED. 11. THE ASSESSEE HAS ALSO RAISED A RELATED ISSUE IN ITS APPEAL, WHICH IS AGAINST THE COMPUTATION OF DEDUCTION U/S 36(1)(VII A). THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(VIIA) AMOUNTING TO RS.6 37,56,78,375/-, WHICH IS EQUAL TO 7.5% OF THE TOTAL INCOME BEFORE M AKING ANY DEDUCTION UNDER THIS CLAUSE AND 10% OF AVERAGE AGGREGATE ADVA NCES PERTAINING TO RURAL BRANCHES. THE LD. CIT(A) RESTRICTED SUCH DEDU CTION ONLY TO THE EXTENT OF RS.488,39,07,900/-, BEING THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS RURAL BRANCHES. THE ASSESSEE IS AGGRIEVED AGAINST THE LESS AMOUNT OF RELIEF ALLOWED IN THE IMPUGNED O RDER. ITA NOS.5969 &6443/DEL/2014 9 12. WE FIND THAT THE COMPUTATION MADE IN TERMS OF SECTION 36(1)(VIIA) GIVES THE TOTAL AMOUNT OF DEDUCTION AT RS.637,56,78 ,375/-, WHICH FACT HAS NOT BEEN DISPUTED ALSO. HOWEVER, THE LD. CIT(A ) RESTRICTED THE ADDITION TO THE TUNE OF RS.488.39 CRORE ON THE GROU ND THAT THE TOTAL AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN R ESPECT OF RURAL BRANCHES IS ONLY TO THIS EXTENT AND, HENCE, DEDUCTI ON CANNOT EXCEED IT. WE ARE NOT AGREEABLE WITH THE VIEW CANVASSED BY THE LD. CIT(A) IN VIEW OF THE LANGUAGE OF SECTION 36(1)(VIIA) WHICH OPENS WITH THE EXPRESSION THAT: IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY . IT IS AMPLY CLEAR FROM THE LANGUAGE OF SECTI ON 36(1)(VIIA) THAT THE DEDUCTION IS WITH RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND THE SAME IS NOT RESTRICTED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS - RURAL BRANCHES. SUCH A TOTAL PROVISION INCLUDES BOTH FOR RURAL AND NON- RURAL BRANCHES. PAGE 122 OF THE PAPER BOOK IS A COP Y OF THE ANNUAL REPORT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION, WHICH SHOWS T HE AMOUNT OF PROVISION TOWARDS NPA AT RS.934.38 CROR E. BREAK-UP OF THIS AMOUNT IS GIVEN AT PAGE 121 OF THE PAPER BOOK, WHICH COMPRISES OF PROVISION FOR BAD AND DOUBTFUL DEBTS RURAL BRANCHE S AT RS.488.39 CRORE ITA NOS.5969 &6443/DEL/2014 10 AND RESERVE FOR BAD AND DOUBTFUL DEBTS NON-RURAL BRANCHES AT RS.445,98,44,100/-. IN FACT, TOTAL PROVISION MADE BY THE ASSESSEE STANDS AT RS.934.38 CRORE. AS SECTION 36(1)(VIIA) GRANTS DEDUCTION IN RESPECT OF TOTAL PROVISION FOR BAD AND DOUBTFUL DEBTS AND THE SAME IS NOT CONFINED TO PROVISION FOR RURAL BRANCHES ONLY, WE HOLD THAT THE QUANTUM OF DEDUCTION HAS TO BE SEEN IN THE LIGHT OF THE TOTAL AMOUNT OF PROVISION CONSISTING OF BOTH RURAL AND NON-RURAL BRANCHES. VI EWED IN THIS LIGHT, THE ACTION TAKEN BY THE LD. CIT(A) IN REDUCING THE AMOU NT OF DEDUCTION TO THE EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL BRANCHES ALONE, BECOMES UNSUSTAINABLE. WE, THEREFO RE, DIRECT THAT DEDUCTION OF RS.637,56,78,375/- BE ALLOWED U/S 36(1 )(VIIA). 13. NEXT ISSUE IN THE ASSESSEES APPEAL IS AGAINST TREATING A SUM OF RS.12,29,18,367/- BEING SOFTWARE EXPENSES TO BE CAP ITAL IN NATURE. THE ASSESSEE INCURRED A SUM OF RS.13.94 CRORE ON SOFTWA RE EXPENSES AND CLAIMED THE SAME AS REVENUE. FOLLOWING THE VIEW TA KEN FOR EARLIER YEAR, THE ASSESSING OFFICER TREATED THE AMOUNT AS CAPITAL . AFTER ALLOWING DEPRECIATION OF RS.10.83 CRORE, HE MADE DISALLOWANC E OF RS.3.11 CRORE. ITA NOS.5969 &6443/DEL/2014 11 THE LD. CIT(A) NOTICED THAT A SUM OF RS.1,65,47,264 /- WAS IN THE NATURE OF AMC EXPENSES AND, HENCE, ALLOWABLE. THE REMAINI NG AMOUNT WAS HELD TO BE CAPITAL IN NATURE AND THE ASSESSING OFFI CER WAS DIRECTED TO ALLOW DEPRECIATION. 14. HAVING HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD, IT IS OBSERVED THAT SIMILAR ISSUE WAS RAISE D IN THE APPEALS FOR ASSESSMENT YEARS 2008-09 AND 2009-10. THE TRIBUNAL HAS UPHELD THE VIEW TAKEN BY THE CIT(A) FOR SUCH EARLIER YEARS. I N THE ABSENCE OF ANY DISTINGUISHING FACTS FOR THE YEAR UNDER CONSIDERATI ON AND RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORD ER. THIS GROUND IS NOT ALLOWED. 15. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND RE ADING AS UNDER:- 1. THE APPELLANT BY THIS ADDITIONAL GROUND IS CLAI MING RELIEF OF RS.30,73,30,286 BEING THE AMORTIZED PREMIUM ON HTM SECURITIES WHICH MAY KINDLY BE ALLOWED. 16. THIS BEING A LEGAL GROUND TAKEN UP BEFORE THE T RIBUNAL FOR THE FIRST TIME IS HEREBY ADMITTED FOR DISPOSAL ON MERITS. TH E LD. AR CONTENDED THAT AMORTIZED PREMIUM ON HTM SECURITIES BE ALLOWED AS DEDUCTION. IT ITA NOS.5969 &6443/DEL/2014 12 WAS FAIRLY ADMITTED THAT THE AMOUNT WAS OFFERED FOR TAXATION AND NO DEDUCTION WAS CLAIMED EITHER BEFORE THE ASSESSING O FFICER OR BEFORE THE CIT(A). HE SUBMITTED THAT THE ADDITIONAL CLAIM HAS BEEN RAISED BECAUSE OF THE FAVORABLE JUDGMENT OF THE HON'BLE BOMBAY HIG H COURT IN CIT VS. HDFC BANK LTD., (2014) 366 ITR 505 (BOM). SINCE THIS ISSUE WAS NOT RAISED BEFORE THE AUTHORITIES BELOW, WE ARE OF THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE AS SESSING OFFICER IS DIRECTED TO CONSIDER THE ASSESSEES CLAIM IN THE LI GHT OF THE JUDICIAL PRECEDENTS AVAILABLE ON THE ISSUE. NEEDLESS TO SAY , THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. 17. IN THE RESULT, BOTH THE APPEALS ARE PARTL Y ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 25.10.201 7. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 25 TH OCTOBER, 2017. DK ITA NOS.5969 &6443/DEL/2014 13 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.