State Bank of Hyderabad v. Dy. CIT

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The Tax Publishers2013 TaxPub(DT) 2036 (Hyd-Trib) : (2013) 053 (II) ITCL 0070 : (2013) 058 SOT 0278 Income Tax Act, 1961 --Disallowance under section 14A--Expenditure against exempt income Applicability of Rule 8D--Assessing officer disallowed proportionate expenditure on exempted income under section 14A. Commissioner (Appeals) directed assessing officer to work out the disallowance under section 14A in terms of rule 8D. *Held :* Not rightly so, as the assessment year in appeal was 2007-08 and hence, the provisions of Rule 8D would not be applicable as held by Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT 2010 TaxPub(DT) 2182 (Bom-HC) : (2010) 328 ITR 81 (Mum). Therefore, the issue of disallowance of income under section 14A was set aside to the files of assessing officer to make reasonable estimate of expenditure which were attributable to earning of exempt income and disallow the same under section 14A. Income Tax Act, 1961, Section 14A Income Tax Rules, 1962, Rule 8D Income Tax Act, 1961 --Business deduction under section 36(1)(viia)--Bad debts Whether allowance could be in excess of provision for bad debts actually made in the accounts--Assessee had claimed 10 per cent of the aggregate average rural branches advance amounting to Rs. 226.20 crores and it had also claimed sum of Rs. 50.18 crores being provision for bad and doubtful debts @ 7.5 per cent of the total income, under section 36(1)(viia). Assessing officer restricted the claim of Rs. 276.39 crores (Rs. 226.20 + Rs. 50.18 crores) made under section 36(1)(viia) to Rs. 46 crores since he found that the provision actually made by the assessee was to the extent of Rs. 46 crores only. *Held :* Was justified. To prevent double deduction, proviso to clause (vii) of section 36 was inserted which says that in respect of bad debts arising out of rural advances the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). It follows that deduction under section 36(1)(viia) is to be allowed only on the amount of provision made for bad and doubtful debts, subject to the maximum on the basis of rural advances/income prescribed under that section. The allowance under section 36(1)(viia) could not be in excess of provision for bad debts actually made in the accounts. Income Tax Act, 1961, Section 36(1)(viia) read with section 36(1)(vii) Income Tax Act, 1961 --MAT--Applicability of section 115JB Assessee, a banking company--Assessee contended that it being a bank, the provisions of Companies Act would not apply to the assessee as the banks were required to prepare Balance Sheet and Profit & Loss Account in accordance with the Banking Regulation Act, provision of section 115JB could not be applied to the banks and as such, would not apply to the assessee and hence, the assessee would not be liable to be taxed under section 115JB. *Held :* By the Finance Act, 2012, with effect from 1-4-2013, even companies to which proviso to section 211(2) applies (the banking Companies and companies engaged in generating and distribution of electricity), should prepare their P&L and Balance Sheet in accordance with the provisions of the Act governing such companies. This would mean that prior to assessment year 2013-14, provisions of section 115JB will not apply to companies to which proviso to section 211(2) of the Companies Act, 1956 applies. Assessee, being a company to which proviso to section 211(2) of the Companies Act, 1956 applies, would not be liable to be taxed under section 115JB. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2036 (Hyd-Trib) : (2013) 053 (II) ITCL 0070 : (2013) 058 SOT 0278

Income Tax Act, 1961

--Disallowance under section 14A--Expenditure against exempt income Applicability of Rule 8D--Assessing officer disallowed proportionate expenditure on exempted income under section 14A. Commissioner (Appeals) directed assessing officer to work out the disallowance under section 14A in terms of rule 8D. Held : Not rightly so, as the assessment year in appeal was 2007-08 and hence, the provisions of Rule 8D would not be applicable as held by Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT 2010 TaxPub(DT) 2182 (Bom-HC) : (2010) 328 ITR 81 (Mum). Therefore, the issue of disallowance of income under section 14A was set aside to the files of assessing officer to make reasonable estimate of expenditure which were attributable to earning of exempt income and disallow the same under section 14A.

Income Tax Act, 1961, Section 14A

Income Tax Rules, 1962, Rule 8D

Income Tax Act, 1961

--Business deduction under section 36(1)(viia)--Bad debts Whether allowance could be in excess of provision for bad debts actually made in the accounts--Assessee had claimed 10 per cent of the aggregate average rural branches advance amounting to Rs. 226.20 crores and it had also claimed sum of Rs. 50.18 crores being provision for bad and doubtful debts @ 7.5 per cent of the total income, under section 36(1)(viia). Assessing officer restricted the claim of Rs. 276.39 crores (Rs. 226.20 + Rs. 50.18 crores) made under section 36(1)(viia) to Rs. 46 crores since he found that the provision actually made by the assessee was to the extent of Rs. 46 crores only. Held : Was justified. To prevent double deduction, proviso to clause (vii) of section 36 was inserted which says that in respect of bad debts arising out of rural advances the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). It follows that deduction under section 36(1)(viia) is to be allowed only on the amount of provision made for bad and doubtful debts, subject to the maximum on the basis of rural advances/income prescribed under that section. The allowance under section 36(1)(viia) could not be in excess of provision for bad debts actually made in the accounts.

Income Tax Act, 1961, Section 36(1)(viia) read with section 36(1)(vii)

Income Tax Act, 1961

--MAT--Applicability of section 115JB Assessee, a banking company--Assessee contended that it being a bank, the provisions of Companies Act would not apply to the assessee as the banks were required to prepare Balance Sheet and Profit & Loss Account in accordance with the Banking Regulation Act, provision of section 115JB could not be applied to the banks and as such, would not apply to the assessee and hence, the assessee would not be liable to be taxed under section 115JB. Held : By the Finance Act, 2012, with effect from 1-4-2013, even companies to which proviso to section 211(2) applies (the banking Companies and companies engaged in generating and distribution of electricity), should prepare their P&L and Balance Sheet in accordance with the provisions of the Act governing such companies. This would mean that prior to assessment year 2013-14, provisions of section 115JB will not apply to companies to which proviso to section 211(2) of the Companies Act, 1956 applies. Assessee, being a company to which proviso to section 211(2) of the Companies Act, 1956 applies, would not be liable to be taxed under section 115JB.