2013 (4) TMI 701 - AT - Income Tax

Tribunal Decision: Appeals partly allowed, orders upheld, matters remitted for verification.

Dy. Commissioner of Income tax, Circle 1 (1), Hyderabad Versus Andhra Bank

The tribunal partly allowed both the revenue's and the assessee's appeals. The tribunal upheld the CIT(A)'s orders on various issues, such as disallowance ... Disallowance u/s 14A - Held that:- CIT(A) correctly following his decision in assessee’s own case for AY 2000-01 to 2004-05, directed the Assessing Officer to follow the conclusions drawn in the said years wherein the CIT(A) had deleted disallowance made out of interest expenditure u/s 14A and restricted disallowance on account of operating expenditure to two months salary of the funds department of the assessee at Mumbai. - Decided against revenue. Broken period interest - CIT(A) deleted the addtion - Held that:- The Bombay High Court in the case of American Express International Ltd Vs CIT reported in [2002 (9) TMI 96 - BOMBAY High Court] and Karur Vysya Bank Ltd [2009 (7) TMI 1210 - MADRAS HIGH COURT] has held that the broken period interest included in the purchase price of Government securities held by the banking company to comply with SLR requirement is entitled to deduction. Issue under consideration is identical to that of AY 2006-07, respectfully following the decision of the Tribunal in that year, we uphold the order of the CIT(A) in directing the Assessing Officer to delete the addition made on this count - Decided in favour of assessee. Outstanding credits in blocked accounts - CIT(A) held that the decision to carry the amount to the capital reserve by the assessee bank is nothing but a unilateral act which cannot be treated as a cessation of liability in real sense of the term and accordingly, the same cannot be treated as income as held by the Assessing Officer, thus directed AO to delete the disallowance made on this account - Held that:- nfirmity in the order of the CIT(A) in directing the AO to delete the disallowance made on this count, as the CIT(A) decided the issue following the decision of CIT Vs. Sugauli Sugar Works Ltd. (1999 (2) TMI 5 - SUPREME Courta). The ITAT in Canara Bank Vs. CIT (2012 (6) TMI 772 - ITAT BANGALORE) held that amount received by the assessee from customers was not received as a trading receipt in the sense that the face value of the demand drafts, pay orders, etc. were the customer’s money to be paid transferred as per the direction of the customer. - Decided in favour of assessee. Disallowance of deduction u/s 35D - Held that:- Issue under consideration is decided against the assessee and in favour of the revenue by the coordinate bench of Tribunal in assessee’s own case for AYs 2000-01 to 2004-05 as the meaning of the word depends on the company it keeps and in s. 35D, since it is used with reference to industrial undertaking, it has to be understood to be an operation connected with industrial undertaking only and nothing else. There may be certain activities prior to the commencement of actual production and income may accrue from such activities. It is to describe these activities, the word 'operation' has been in s.35D. - Decided against assessee. Disallowance provisions on standard assets and also claimed as deduction u/s 36(1)(viia) - Held that:- On being asked by the AO to explain, the assessee stated that it had made a provision for various kinds of assets as per the guidelines issued by the RBI. However, the argument of the assessee was rejected by the AO and he observed that provision on standard asset is not of the same species as the one specified u/s 36(1)(viia). Accordingly, the claim of the assessee was rejected and disallowance was made on this account by the AO. Before the CIT(A), in the statement of facts, the assessee submitted that deduction u/s 36(1)(viia) is allowable in respect of any provision for bad & doubtful debts made by the bank not exceeding 7½% of the total income and an amount not exceeding 10% of the aggregate average advances made by the rural branches of a bank in computing the total income. Further, it was submitted that since the provision had been made in accordance with section 36(1)(viia), the AO was not justified in disallowing the same. - Decided in favour of assessee. Disallowance unrealised interest on NPAs which was claimed as deduction - Held that:- Income which was earlier recognised is not to be allowed in the subsequent year in case it is permissible for the assessee to write off such income in concerned assessment year when it was found that it was not recoverable. Thus we direct the AO to allow deduction being unrealised interest offered for tax in the earlier year now reversed by the assessee. - Decided in favour of assessee. Addition of amount realized from the investments written off in the previous years which was not allowed as deduction in those years - Held that:- From the order passed u/s 264 by the CIT for the assessment year 2004-05, a copy of which was produced before us, it was found that similar issue was raised by the assessee before the CIT. The CIT after considering the submissions of the assessee and examining the materials found the claim of the assessee to be correct and deleted the addition by observing that the same income has been taxed twice - remit this issue to the file of the Assessing Officer, who shall consider the claim of the assessee and decide the issue after verifying all the materials and details produced by the assessee - Decided in favour of assessee for statistical purposes. Depreciation on investments classified under HTM category - Held that:- investment in HTM category cannot be treated as stock in trade as per RBI guidelines and hence no depreciation is to be provided on these investment - Held that:- The Apex Court in the case of UCO Bank Ltd Vs CIT [1999 (9) TMI 4 - SUPREME Court ] has held that value of the securities at cost or market value whichever is less should be accepted for income tax even if the banks in their books do not value on that basis. Therefore, it is an accepted proportion that investment made by the bank to comply with the SLR requirement would constitute their stock in trade and depreciation in value of the same is an allowable deduction. Thus we uphold the claim of the assessee and direct the AO to allow depreciation / fall in value of investment in Government Securities including those classified under HTM category. No doubt the value in opening stock in the next year would correspondingly be adjusted. - Decided in favour of assessee. Deduction u/s 36(1)(vii) - debts written off by the non-rural branches of the assessee bank - Held that:- Covered in favour of the assessee by the Cathelic Syrian Bank Vs. CIT [2012 (2) TMI 262 - SUPREME COURT OF INDIA] - Decided in favour of assessee. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Deduction of broken period interest.3. Deduction of outstanding credits in blocked accounts.4. Deduction under Section 35D of the Income Tax Act.5. Deduction of provision on standard assets under Section 36(1)(viia).6. Deduction of unrealized interest on Non-Performing Assets (NPAs).7. Addition of amounts realized from investments written off in previous years.8. Depreciation on investments classified under HTM category.9. Deduction under Section 36(1)(vii) for debts written off by non-rural branches.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The Assessing Officer (AO) disallowed Rs. 19,51,21,158/- under Section 14A, comprising Rs. 17,33,40,193/- from interest expenditure and Rs. 2,17,80,965/- from other operating expenditure. The CIT(A) followed the decision in the assessee's own case for previous years and deleted the disallowance of interest expenditure while restricting the disallowance on operating expenditure to two months' salary of the funds department. The tribunal upheld the CIT(A)'s order and directed the AO to disallow 2% expenditure relating to earning exempted income under Section 14A.2. Deduction of broken period interest:The AO disallowed Rs. 147,43,57,963/- as broken period interest, treating it as capital expenditure. The CIT(A) directed the AO to delete the addition, relying on various case laws and the ITAT's decision. The tribunal upheld the CIT(A)'s order, noting that the issue was covered by the decision in the assessee's own case for AY 1996-97.3. Deduction of outstanding credits in blocked accounts:The AO disallowed Rs. 10.58 crores transferred to the capital reserve account, treating it as income. The CIT(A) directed the AO to delete the disallowance, following the Supreme Court's decision in CIT Vs. Sugauli Sugar Works Pvt. Ltd. The tribunal upheld the CIT(A)'s order, confirming that the liability did not cease to exist unilaterally.4. Deduction under Section 35D of the Income Tax Act:The AO disallowed Rs. 1,14,45,507/- claimed under Section 35D, stating that the assessee did not have the status of an industrial undertaking. The CIT(A) confirmed the AO's action, following the ITAT Mumbai's decision in Bank of Baroda Vs. JCIT. The tribunal upheld the CIT(A)'s order, noting that the issue was decided against the assessee in earlier years.5. Deduction of provision on standard assets under Section 36(1)(viia):The AO disallowed Rs. 13,28,54,000/- for provision on standard assets, stating it was not of the same species as specified under Section 36(1)(viia). The CIT(A) confirmed the AO's action. The tribunal upheld the CIT(A)'s order, following the decision in the assessee's own case for earlier years, stating that provision for standard assets cannot be equated with provision for bad and doubtful debts.6. Deduction of unrealized interest on Non-Performing Assets (NPAs):The AO disallowed Rs. 3,63,00,000/- as unrealized interest on NPAs. The CIT(A) confirmed the AO's action. The tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction, following the decision in the assessee's own case for AY 2006-07 and the Delhi High Court's decision in CIT Vs. Industrial Finance Corpn. of India Ltd.7. Addition of amounts realized from investments written off in previous years:The CIT(A) did not entertain the ground raised by the assessee for Rs. 2,29,85,000/- realized from investments written off in earlier years, stating that the assessee's appeal was pending before the Tribunal. The tribunal remitted the issue to the AO for verification, following the CIT's order under Section 264 for AY 2004-05.8. Depreciation on investments classified under HTM category:The AO disallowed Rs. 211,82,17,733/- claimed as depreciation on HTM category investments, stating they cannot be treated as stock in trade. The CIT(A) allowed the depreciation in principle, subject to verification by the AO. The tribunal upheld the CIT(A)'s order, following the decision in the assessee's own case for AY 2006-07 and other judicial pronouncements.9. Deduction under Section 36(1)(vii) for debts written off by non-rural branches:The AO disallowed Rs. 57,50,32,244/- claimed as deduction for debts written off by non-rural branches, stating the assessee failed to substantiate its claim. The CIT(A) directed the AO to verify the details furnished by the assessee and allow the claim accordingly. The tribunal remitted the issue to the AO for verification, following the Supreme Court's decision in Catholic Syrian Bank Ltd. Vs. CIT.Conclusion:The revenue's appeal (ITA No. 1592/Hyd/08) and the assessee's appeal (ITA No. 1644/Hyd/08) were partly allowed. The tribunal upheld the CIT(A)'s orders on several issues while remitting some issues back to the AO for verification and fresh consideration.