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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
November, 14th 2014
                    ,                  ""          
      IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE HON'BLE 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.                  /            Dy. Commissioner of Income Tax
  Senapati Bapat Marg,            Vs.          2(3),
  Lower Parel,                                 Aayakar Bhavan,
  Mumbai-400013                                M K Road,
                                               Mumbai-400020
        ( /Appellant)                 ..       (     / Respondent)

                 ./I.T.A. No.722/Mum/2012
               (   / Assessment Year :2008-09)

   Asstt. Commissioner of        /         M/s HDFC Bank Ltd.,
   Income Tax 2(3),              Vs.       HDFC House,
   Room No.552, 5th floor,                 Senapati Marg,
   Aayakar Bhavan,                         Lower Parel,
   M K Road,                               Mumbai-400013
   Mumbai-400020
        ( /Appellant)            ..        (        / Respondent)

                ./I.T.A. No.3465/Mum/2012
               (   / Assessment Year :2009-10)

   HDFC Bank Ltd.                /         Dy. Commissioner of Income
   Senapati Bapat Marg,          Vs.       Tax-2(3),
   Lower Parel,                            Aayakar Bhavan,
   Mumbai-400013                           M K Road,
                                           Mumbai-400020
        ( /Appellant)            ..        (        / Respondent)

                  ./I.T.A. No.4367/Mum/2012
                (   / Assessment Years :2009-10)

  Addl. Commissioner of Income    /            M/s HDFC Bank Ltd.,
  Tax 2(3),                       Vs.          HDFC House,
  Room No.552, 5th floor,                      Senapati Marg,
  Aayakar Bhavan,                              Lower Parel,
  M K Road,                                    Mumbai-400013
  Mumbai-400020
        ( /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         /             M/s HDFC Bank Ltd.,
 Tax 2(3),                          Vs.           HDFC House,
 Room No.552, 5th floor,                          Senapati Marg,
 Aayakar Bhavan,                                  Lower Parel,
 M K Road,                                        Mumbai-400013
 Mumbai-400020
        ( /Appellant)                ..           (     / Respondent)

                  ./I.T.A. No.1795/Mum/2014
               (   / Assessment Year :2010-2011)

     HDFC Bank Ltd.                 /              Asstt. Commissioner of Income
     Senapati Bapat Marg,           Vs.            Tax-2(3),
     Lower Parel,                                  Aayakar Bhavan,
     Mumbai-400013                                 M K Road,
                                                   Mumbai-400020
         ( /Appellant)               ..            (    / Respondent)

                . /   . / PAN/GIRNo. :AAACH2702H

            / Assessee by                 :       Shri Yogesh A Thar
              /Revenue by :                       Shri A K Tejpal


              / 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, 2009-10 and 2010-11. Since
identical issues are urged in these appeals, they were heard together and are
being disposed of by this common order, for the sake of convenience.

2.     The assessee is a Scheduled bank carrying on banking business. In the
appeals filed by the assessee, the issue relating to 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 the own funds available with the
                                             ITA Nos.1795/Mum/2014 and other five   appeals
                                        3


assessee exceeds the borrowed funds. It was further submitted that the identical
disallowances made in the earlier years have been deleted by the Hon'ble High
Court of Bombay also, by considering the fact that the own funds available with
the assessee exceeds the borrowed funds.           On the contrary, the Ld D.R
submitted that the provisions of Rule 8D was introduced 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 required 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 support of by the assessee,
since the provisions of Rule 8D were not applicable to those years.

3.     We have heard rival contentions on this issue.           As per the decision
rendered by Hon'ble jurisdictional Bombay High Court 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 is settled proposition that the
assessing officer can determine the amount of disallowance 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 assessee. In the instant cases,
the contention of the assessee is that the investments have been made out of
own funds and hence there is no requirement of making disallowance of interest
component. Further, it is contended that the securities are held as stock in trade
and hence there is no requirement of making any disallowance 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 income.                     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 those contentions can be
appreciated only if the relevant facts are available before us. Further, some of
the contentions are raised for the first time before 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 proposition, he placed reliance
on some of the decisions rendered by the jurisdictional High Court in its own
                                               ITA Nos.1795/Mum/2014 and other five   appeals
                                          4


case and also in some other cases.      Even though the 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 investments needs to be verified.
Admittedly, the facts relating thereto are not available on record. Since full facts
which are required to be considered in order to properly appreciate various
contentions of the assessee are not available before 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 CIT(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 three years by duly considering
the various case law relied upon by the assessee and also by duly addressing
various types of contentions of the assessee and take appropriate decision in
accordance with the law.

5.     The common ground available in all the three years in the appeals filed by
the revenue relates to the disallowance of amortization 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 crores
       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 been held to be deductible in
the assessee's own case by Hon'ble jurisdictional Bombay High Court and the
decision of the High Court is reported as CIT Vs. HDFC Bank Ltd in (2014)(366
ITR 505). Since this issue has been decided in favour of the assessee by the
jurisdictional High Court and since the decision rendered by Ld CIT(A) in all the
three years is in accordance with the decision of jurisdictional High Court, we do
not find any reason to interfere with his order on this issue.

6.     The next issue relates to the disallowance of broken period interest. This
issue is available in the appeal filed by the revenue 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


Hon'ble jurisdictional High Court in the assessee's own case reported in 366 ITR
505). By following the said decision of the Hon'ble 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 disallowance 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 brief.       The assessee claimed
deduction u/s 36(1)(viia) in respect of Provision for 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 claimed 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 referred above.

8.    The assessing officer examined the claim of deduction 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 income 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 rural branches submitted by the
assessee and came to the conclusion that the list submitted by the assessee did
not answer the definition of rural branches as given in Explanation under sec.
36(1) (viia) of the Act.   Accordingly, the AO disallowed 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 allowed the deduction to the extent
of Rs.1655.47 crores, i.e., the amount claimed by the assessee in its return of
income.

9.    In the appellate proceedings, the Ld CIT(A) examined the claim of sec.
36(1)(viia) of the Act. The information relating to "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 RBI licence available;
         (c) No data at all available with regard to population 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)(viia) shall be allowed only in
respect of the branches falling in category (a), since 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 deduction in respect of category (a)
advances, which was worked out by him at Rs.17.75 crores. In addition to the
above, the Ld CIT(A) also directed the assessing officer to allow deduction of
7.5% of the total income computed before making deduction u/s 36(1)(viia) and
Chapter VIA of the Act.


10.      Though the assessee is aggrieved by the decision 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 reasoning 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 contended 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 Act and making additional claim
of bad debts u/s 36(1)(vii) of the Act. However, subsequently the assessee has
withdrawn its earlier letter during the course of assessment proceeding before
finalization of the assessment.       Hence, the withdrawal letter given by the
assessee, in our view, should not be taken cognizance 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 not find any infirmity in the
decision rendered by Ld CIT(A) in respect of the issue relating to the deduction
claimed u/s 36(1)(viia) of the Act. Accordingly, we affirm his order on this issue.




13.    In the appeal filed by the assessee for assessment year 2010-11, the
Ground No.VI relating to the demand raised is not pressed by the ld. AR at the
time of hearing. Hence, the same is dismissed as not pressed.

14.    No other issue was raised or argued before us by either party.

15.    In the result, the appeals filed by the assessee for Assessment Years
2008-09 and 2009-10 are treated as allowed. The appeal filed by the assessee
for assessment year 2010-11 is treated as partly allowed. 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.

            12th                             Nov, 2014    


  Sd                                               sd
(.. / H.L. KARWA)                             (..  ,/ B.R. BASKARAN)
  / PRESIDENT                                   /Accountant Member
  Mumbai: 12th Nov,2014.

. ../ SRL , Sr. PS

        /Copy of the Order forwarded to :
1.  / The Appellant
2.  / The Respondent.
3.      () / The CIT(A)- concerned
4.       / CIT concerned
5.       ,     ,                   /
      DR, ITAT, Mumbai concerned
6.      / Guard file.


                                                                  / BY ORDER,
              True copy

                                                        (Asstt. Registrar)
                                         ,  /ITAT, Mumbai

 
 
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