DCIT Vs Yes Bank Ltd (ITAT Mumbai)
ITAT Mumbai held that deduction u/s 36(1)(viia) of the Income Tax Act towards Provision for bad and doubtful debts allowable irrespective of rural advance and non-rural advances.
Facts- The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 were issued and complied with. The assessment u/s 143(3) of the Act was completed on 30.03.2016, assessing total income at Rs.2,710,009,76,971/-. On further appeal, the Ld. CIT(A) allowed part relief. Aggrieved, both the assessee and Revenue are before the Income-tax Appellate Tribunal (ITAT).
Conclusion- Tribunal in identical issue held that for deductions u/s.36(1)(viia) of the Act, the actual provision made in the books by the Assessee on account of Provision for bad and doubtful debts (PBDD) (irrespective of whether it is rural or non-rural) has to be seen. To the extent PBDD is so created, then subject to the permissible upper limits referred to above, the deduction has to be allowed to the Assessee. The question of bifurcating the PBDD as one relating to rural advances and other advances (Non-rural advances) does not arise for consideration.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals by the assessee and Revenue are directed against order dated 31.01.2018 passed by the Ld. Commissioner of Income-tax (Appeals)-5, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014 -15. The grounds raised by the assessee are reproduced as under:
GROUND NO. I: SETTING ASIDE THE GROUND TO THE FILE OF THE AO
1. On the facts and circumstances of the case and in law, Hon’ble CIT(A) erred in effectively setting aside Grounds of appeal no. III, VIlI and X to the file of the AO for re-examination/ re-verification, which is beyond the powers conferred under section 251 of the Act.
2. The Appellant prays that it be held that the order of the CIT(A) is void ab -initio and/or otherwise bad-in-
GROUND NO. II: DISREGARDING THE DIRECTION OF THE TRIBUNAL WITH RESPECT TO DISALLOWANCE U/S 14A OF THE ACT:
On the facts and circumstances of the case and in law, Hon’ble CIT(A) erred in going beyond the order of the Hon’ble ITAT in the Appellant’s own case for an earlier year and directing the AO to re -examine the entire claim made by the Appellant.
WITHOUT PREJUDICE TO GROUND NOS. I AND II,
GROUND NO. III: DISALLOWANCE UNDER SECTION 14A OF THE ACT:
1. On the facts and circumstances of the case and in law, Hon’ble CIT(A) erred in directing the AO to disallow proportionate interest expense u/s. 14A of the Act
2. He further erred in rejecting the plea of the Appellant that when the securities are held as stock-in-trade, no disallowance can be made us. 14A of the Act
3. The Appellant prays that the disallowance us. 14A of the Act, including the suo -moto disallowance of Rs. 2,09,42,284/ – made by the Appellant, be deleted.
GROUND NO. IV: ORDER MADE ON THE BASIS OF SURMISES AND ASSUMPTIONS:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the disallowance of deduction w/s. 35D of the Act on the assumption that the shares may have been allotted only to selected Qualified Institutional Buyers (“‘QIBs”).
2. The Appellant prays that an order made on surmises and presumptions is bad-in-law and void-ab initio.
WITHOUT PREJUDICE TO GROUND IV:
GROUND NO. V: DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 35D ON EXPENSES INCURRED IN CONNECTION WITH THE QUALIFIED INSTITUTIONAL PLACEMENT (“QIP”):
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the disallowance of deduction of Rs. 2,82,80,291/ – claimed u/s 35D in respect of expenses incurred in connection with the QIP on the alleged ground that the issue of shares to OIP does not tantamount to public subscription and such capital expenses are not eligible for deduction us. 35D of the Act.
2. The Appellant prays that the AO be directed to allow Rs. 2,82,80,291/ – as a deduction u/s. 35D of the
WITHOUT PRETUDICE TO GROUND NOS. IV AND V:
GROUND NO. VI: DISALLOWANCE OF QIP EXPENSES BY INVOKING SECTION40(a)(i)/(ia) OF THE ACT:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in disallowing the expenses in connection with QIP on the ground that the expense may not be allowable in view of section 40(a)(i)(ia) of the Act.
2. The Appellant prays that the A be directed to allow the expenses in connection with
GROUND NO. VII: SETTING ASIDE TO THE AO THE ISSUE OF ALLOWANCE OF BROKERAGE PAID ON HIM SECURITIES:
On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in directing the AO to verify the bifurcation of securities under different categories when all the details were available on record and no further verification was required.
WITHOUT PREJUDICE TO GROUND NOS. I AND VII
GROUND NO. VILI DISALLOWANCE OF BROKERAGE PAID ON ACOUISITION OF HIM INVESTMENTS:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in partly confirming the action of the A of disallowing the brokerage paid on HTM securities even though all the securities are held by the Appellant as stock-in-trade.
2. The Appellant prays that the disallowance of brokerage paid on HTM securities be deleted.
GROUND NO. IX: SETTING ASIDE TO THE AO THE GROUND ON SECTION 36(1)(viia) OF THE ACT:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in directing the AO to verify whether the Appellant had rural branches within the meaning of section 36(1) (via) when all the relevant details were available on record.
2. The Appellant prays that the claim for deduction u/s. 36(1) (via) of the Act be allowed without sending it back to the AO for re-verification.
WITHOUT PREJUDICE TO GROUND NOS. I AND IX
GROUND NO. X: NON ALLOWABILITY OF DEDUCTION CLAIMED U/S 36(1) (via)
OF THE ACT:
On the facts and in the circumstances of the case, it be held that the Appellant is eligible for deduction u/s 36(1) (via) as it was not a provision for standard assets as alleged by the AO.
WITHOUT PREJUDICE TO GROUND NOS IX AND X
GROUND NO. XI: IGNORING THE AMENDMENT IN SECTION 36(1)(vi) OF THEАСТ:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in ignoring the amendment in section 36(1) (vii) as per which there is no requirement to maintain separate accounts for rural and urban advances.
2. The Appellant prays that the AO be directed to allow the deduction u/s. 36(1)(via) of the Act amounting to Rs. 135,21,64,723/ – as claimed by the Appellant.
WITHOUT PREIUDICE OF GROUND NOS, X AND XI GROUND NO. XII: DEDUCTION U/S. 36(1) (vii) OF THE ACT:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in directing the AO to verify the claim w/s. 36(1) (vit) of the Act, based on the accounting entries and provisions made in the books, when all the details were available on record.
2. The Appellant prays that the claim for deduction W/$. 36(1)(vil) of the Act be allowed.
WITHOUT PREJUDICE TO GROUND NOS. X, XI AND XI:
GROUND NO. XIII: ALTERNATIVE PLEA ON DEDUCTION U/S 36(1) (vii) SET ASIDE
1. On the facts and in the circumstances of the case and in law, Hon’ble CIT(A) erred in setting aside to the AO the alternative plea that since the Appellant was not allowed deduction u/s 36(1) (via) in A.Y. 2013 -14 bad debts written off in the current financial year ought to be allowed without adjusting the opening balance of provision of bad and doubtful debts u/s. 36(1)(via).
2. The Appellant prays that the AO be directed to allow bad debts written off u/s 36(1)(vi) consistent with his own stand that the provision for bad debts was for non-rural branches.
WITHOUT PREJUDICE TO GROUND NOS. X, XI AND XII:
GROUND NO. XIV: ALTERNATIVE PLEA ON HIGHER DEDUCTION U/S 36(1)(vi) IN SUBSEQUENT YEAR SET ASIDE
1. On the facts and in the circumstances of the case and in law, Hon’ble CIT(A) erred in setting aside to the AO the alternative plea that the bad debts in A.Y. 2015-16 be correspondingly allowed on a higher side by reducing the opening balance of provision for bad and doubtful debts for Y. 2015-16.
2. The Appellant prays that the AO be directed to allow bad debts in A.Y. 2015-16 on a higher side by reducing the opening balance of provision for bad and doubtful debts forA.Y. 2015-16.
GROUND NO. XV: NON ADMISSION OF ADDITIONAL GROUND OF APPEAL:
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in rejecting the Additional ground raised by the Appellant, in respect of discount on issue of shares under the employee stock option plan (“ESOP”), without appreciating the fact that the appellate authorities can admit and adjudicate the additional claim raised by the assessee during the course of Appellate proceeding.
2. The Appellant prays that the claim for deduction in respect of discount on issue of shares under the ESOP be allowed.
WITHOUT PEJUDICE TO GROUND NO. XV
GROUND NO. XVI: DEDUCTION OF DISCOUNT ON ISSUE OF SHARES UNDER THE EMPLOYEE STOCK OPTION PLAN (“ESOP”):
1. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in not allowing the claim for deduction in respect of discount on issue of shares under the ESOP amounting to Rs. 53,27,10,069/ -.
2. On the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in not giving any findings on the additional evidence filed by the Appellant
3. The Appellant prays that the claim for deduction in respect of discount on issue of shares under ESOP be allowed.
2. The grounds raised by the Revenue are reproduced as under:
1. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to delete the disallowances made Us 14A of the ITAct without appreciating the fact that the disallowance us 14A has to be mandatorily calculated as per rule 8D of IT Rules and no discretion is available with the A.O for estimated disallowances?”
2. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT was right in directing to delete the disallowance of brokerage paid on acquisition of investments without appreciating the fact that such expenditure is in the nature of capital expenditure and forms a part of cost of assets?”
3. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to allow deduction us 36(1)(viia) after verificationhence not entitled for the said deduction claimed?”
4. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to allow deduction u/s 36(1)(via) after verification without appreciating the fact that the assessee has not created any provisions on account of rural branches and hence not entitled for the said deduction claimed?”
5. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was right in directing to allow deduction u/s 36(1)(vi) after verification of provisions for bad and doubtful debt accounts of the earlier assessment years and examine claim of allow ability of deduction us 36(1)(vi) of the IT Act without appreciating the fact that the proviso to section 36(I)(vii) comes into operation only when the case of the assessee squarely falls u/s 36(1)(viia) of theIT Act and since the assessee’s case does not fall us 36(1)(viia) of the IT Act, hence not entitled for the said deduction claimed?”
6. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to allow deduction u/ s 36(1)(vii) after verification of provisions for bad and doubtful debt accounts of the earlier assessment years and examine claim of allow ability of deduction us 36(1)(vi) of the IT Act without appreciating the fact that the assessee has not actually written off the bad debts as irrecoverable as also the requirement of section 36(2) of the IT Act not satisfied and hence not entitled for the said deduction claimed?”
7. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to delete BPI without appreciating the fact that theHTM category of Securities are long term securities held till maturity and forming a part of investment and not a stock in trade hence BPI on HTMSecurities is a capital outlay and hence not an allowable deduction?”
8. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to delete BPI without considering the decision of honorable supreme court in the case of Vijaya Bank Ltd. v/s Addl. CIT (1 991)187 IT 547(S.C.) wherein it is held that BPI is a part of capital outlay for acquisition of securities and hence not an allowable deduction?”
9. “Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to delete premium amortized without appreciating the fact that the HTM category of Securities are held as investment i.e. acapital asset and hence amortization of premium paid on such securities will form part of cost of acquisition of HTM securities and hence not an allowable deduction?”
3. Briefly stated, facts of the case are that the assessee company filed its return of income for the year under consideration on 29.11.2014, which was subsequently revised on 30.03.2016 declaring total income of Rs.22,75,02, 02,660/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. The assessment u/s 143(3) of the Act was completed on 30.03.2016, assessing total income at Rs.2,710,009,76,971/ -. On further appeal, the Ld. CIT(A) allowed part relief. Aggrieved, both the assessee and Revenue are before the Income-tax Appellate Tribunal (ITAT) raising the grounds as reproduced above.
4. Before us, the Ld. Counsel of the assessee filed a Paper Book containing pages 1 to 234.
5. The ground Nos. 1 to 3 of the appeal of the assessee and ground No. 1 of the appeal of the Revenue are connected with the issue of disallowance u/s 14A of the Act r. w. Rule 8D of the Income-tax Rules,1962 (in short ‘the Rules’).
6. The brief facts qua the issue in dispute are that the assessee reported tax free exempted income from two sources. Firstly, dividend income of Rs.2,87,07,418/ – from investment in equity and preference shares of Rs.93,24,79,690/-. Secondly, tax free interest income amounting to Rs.29,42,88,665/ – was shown from investment in tax free interest bond of Rs.544.20 crores and Rs.188,56,84,686/- from investment in pass through certificates (PTC) of Rs.4869.00 crores . Against the tax-free exempted income, the assessee made suo motu disallowance of Rs.2,09,42,284/ – out of the proportionate administrative expenses related to treasury and industrial finance department and claimed that those expenses were directly and indirectly relatable to the earning of the tax free dividend and tax free interest income through the year. Regarding the investments in shares i.e. equity and preference share, s it was submitted by the assessee that same were part of the corporate debt restructuring (CDR) of the borrowers under the direction of the Reserve Bank of India and as a part of rehabilitation package under which part of the outstanding loan was converted into equity or preference shares. Regarding the pass throughcertificates (PTC), it was claimed that the assessee invested in securitization trust and the interest received was accordingly exempted in the hands of the assessee. Regarding the breakup of suo moto disallowance, the assessee submitted a detailed working of direct and indirect expenses related to the treasury division/department and also worked out the expenses incurred pass through certificates. The relevant computation of disallowance reproduced by the Assessing Officer on page 16 to 18 of the assessment order is extracted as under:
“In this connection, Yes Bank submits that it has identified certain expenses actually incurred in connection with the activity of buying and selling of securities/equities/tax free instruments/ servicing of pass through certificates issued by securitisation trust and has offered the same for disallowance u/s. 14A of the Act. The details of such expenses are as under:
Certain direct expenditure which are incurred solely for the purpose of earning exempt income are fully disallowed. Such expenditure is fully disallowed us 14A of the Act. Details of such expenditure is as below.
