Bank of Baroda Vs ACIT (ITAT Bangalore)
ITAT Bangalore held that bad debts relating to non-rural branches are allowable under section 36(1)(vii) of the Income Tax Act.
Facts- The assessee, a leading bank in Karnataka has filed its return of income on 28.09.2015 for AY 2015-16 declaring total income at ‘Nil’. The assessee filed revised income by declaring total income at Nil by making additional claim of 200/- crores under Section 36(1)(vii) of the Income Tax Act, 1961 (the Act). The case was selected for scrutiny under CASS and notice under Section 143(2) of the Act dated 13.04.2016 was issued and served upon the assessee. Notices under Section 142(1) were also issued on various dates along with questionnaires calling for various details to verify the claims made by the assessee in the return of income. After hearing the assessee, assessment was completed by determining total income at Rs.1750,77,68,383/-.
Aggrieved by the above order, the assessee filed appeal before the CIT(A). The CIT(A) granted partial relief to the assessee vide order dated 3 1.12.2018.
Aggrieved by the above order of the CIT(A) both assessee and Revenue are in appeal before the Tribunal
Conclusion- In the case of Karnataka Bank Ltd., the coordinate bench held it will be evident that assessee, though, has written off in the books of account an amount of Rs. 210.74 crore, but, in the computation of total income, the actual deduction claimed under section 36(1)(vii) is Rs. 209.08 crore representing bad debts written off relating to non-rural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created under section 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon’ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the bad debts relating to non-rural branches u/s 36(1)(vii) of the Act without adjusting the same against the PBDD a/c, since the said PBDD a/c relates to rural advances only.
Held that respectfully following the above decisions, we direct the AO to delete the addition made u/s. 36(1)(vii).
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These are cross appeals filed by the assessee and Revenue against the order of the CIT(A)- 14, Bengaluru dated 31.12.2018 for AY 2015-16.
2. In ITA No. 321/Bang/2019 the assessee has raised the following grounds of appeal: –
“1. The order of the learned Commissioner of Income Tax (Appeals) is bad in law and against the facts of the case.
2. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 912,36,87,935/- u/s 36(1)(vii) being the non-rural write off by the bank.
3. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 565,92,40,708/- u/s 36(1)(viia).
4. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance of Rs. 58,30,00,000/- u/s 36(1)(viii).
5. The learned Commissioner of Income Tax (Appeals) erred in holding that Rs. 1,38,11,847/- paid to NPCI is in the nature of technical and managerial service covered u/s 194J of the Income Tax Act.
6. The learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of Rs 5,16,000/- paid to RBI.
7. The learned Commissioner of Income Tax (Appeals) erred in holding that provisions of Section 115JB are applicable to the bank.
8. Without prejudice to the above ground, the learned Commissioner of Income Tax (Appeals) erred in adding various items to arrive at the book-profit which are beyond the scope of the section.”
3. In ITA No. 528/Bang/2019 Revenue has raised the following grounds of appeal: –
“1.The Order of the Ld. C1T(A), LTD, Bengaluru dated 31.12.2018 is opposed to the law and facts of the case.
2. The Ld. CIT(A) held in law in confirming the method of calculation adopted by the assessee in computing the eligible quantum of provision for bad debts u/s 36(l)(viia) relating to rural advances.
2.1 The Ld. CIT(A) erred in failing to appreciate that the phrase in Rule 6ABA(a)- ‘the amounts of advances made by each rural branch as outstanding at the end of the last day of each month’ signifies that the eligible quantum should necessarily relate to ‘fresh / incremental advances’ of rural branches.
2.2 The Ld. CIT(A) erred in failing to read the words ‘advances made’ and ‘outstanding at the end of the last day of each month’ in conjunction.
2.3 The Ld. CIT(A) failed to appreciate that by accepting the computation of the assessee, the same sums of rural advances, finding a place in the opening value at the start of the year or repeatedly considered for deduction u/s 36(l)(viia).
3. The Ld. CIT(A) erred in law in confirming that the assessee is eligible for provision for depreciation on investments with regard to HTM Category.
3.1 The Ld. CIT(A) failed to appreciate that directive provided by the CBDT Instruction No. 17 dated 26.11.2008 (F No. 228/3/2008-ITA -lll) which held that ‘investment classified under HTM category need not be marked to mark and are to be carried at acquisition cost’.
3.2 The Ld. CIT(A) failed to appreciate the guidelines issued by RBI which holds that diminution of value of investment in HTM Category cannot be allowed.
4. The Ld. CIT(A) erred in law in failing to uphold the disallowance u/s 14A r.w.r Rule 8D.
4.1 The Ld. CIT(A) erred in law to accept the computation of disallowance adopted by the assessee, which is redundant consequent to the insertion of Rule 8D from A. Y. 2008-09 onwards.
4.2 The Ld. CIT(A) failed to appreciate the latest decision of the Hon ‘ble Supreme Court in the case of Maxopp Investment Ltd. reported in (2018) 91 taxmann.com 1 54 (SC), wherein it was held that even in case of stock-in-trade, tax free income should result in disallowance u/s 14A to the extent attributable and proportionate to the quantum of tax-free income.
4.3 The Ld. CIT(A) erred in failing to take cognizance of the essential finding of the Hon ‘ble Supreme Court in the case of Maxopp Investments Ltd (supra) which overruled the decision of the Punjab & Haryana High Court in the case of State Bank of Patiala reported in (2017) 78 taxmann.com 3 to hold that the test of dominant intention applied by P& H High Court are to be discarded.
5. For those and other reasons that may be adduced at the time of hearing, it is humbly pleaded that the Order of CIT(A) be set aside and that of the Assessing Officer be restored and thus render justice.”
4. The brief facts of the case are that the assessee, a leading bank in Karnataka has filed its return of income on 28.09.2015 for AY 2015-16 declaring total income at ‘Nil’. The assessee filed revised income by declaring total income at Nil by making additional claim of 200/- crores under Section 36(1)(vii) of the Income Tax Act, 1961 (the Act). The case was selected for scrutiny under CASS and notice under Section 143(2) of the Act dated 13.04.2016 was issued and served upon the assessee. Notices under Section 142(1) were also issued on various dates along with questionnaires calling for various details to verify the claims made by the assessee in the return of income. After hearing the assessee, assessment was completed by determining total income at Rs.1750,77,68,383/-.
5. Aggrieved by the above order, the assessee filed appeal before the CIT(A). The CIT(A) granted partial relief to the assessee vide order dated 3 1.12.2018.
6. Aggrieved by the above order of the CIT(A) both assessee and Revenue are in appeal before the Tribunal on the above mentioned
7. We have heard the rival contentions and perused the material on We first take up the assessee’s appeal.
8.Ground No. 1 is general in nature and requires no adjudication.
9. Ground No. 2 relates to disallowance of bad debts written off under Section 36(1)(vii) of the Act. The facts are that the assessee has claimed a sum of Rs.14.96 crores as bad debts written off in the computation of income u/s. 36(1)(vii) of the Act. It was noticed from the P&L account that nowhere the bad debt was debited. As per the P&L account the assessee bank has debited a sum of Rs.819.62 crores as provisions and contingencies which included provision for NPA of Rs.800.22 crores. The entire provisions and contingencies were added back while computing the income. In the computation of income, the assessee has claimed bad debts written off of a sum of Rs.712,36,87,935 and claimed as deduction u/s. 36(1)(vii) as under:-
