Tribunal Upholds Reopening of Assessment Due to Excessive Depreciation

Indian Bank Versus ACIT

Indian Bank Versus ACIT - TMI Issues Involved:
1. Validity of reopening of assessment.
2. Disallowance of excess depreciation claimed on ATMs and UPS.
3. Deduction under section 36(1)(viia) of the Act.
4. Set off of brought forward unabsorbed depreciation losses.
5. Disallowance of bad debts written off.
6. Broken period interest paid on purchase of securities.
7. Disallowance of provision for market risk and non-performing investments.
8. Disallowance under Rule 8D r.w.s. 14A.
9. Applicability of book profits under section 115JB.
10. Depreciation on assets taken over from Bank of Thanjavur.
11. Inclusion of income of foreign branches.
12. Depreciation on securities.
13. Taxability of interest on securities on due basis.
14. Loss on revaluation of forward contracts.
15. Provision for wage arrears.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The Tribunal upheld the validity of reopening the assessment under section 147 of the Act. It was noted that the Assessing Officer had reasons to believe that income had escaped assessment due to the excessive depreciation claimed on ATMs and UPS. The Tribunal found no infirmity in the reassessment order as the issue of depreciation on ATMs and UPS was not examined during the original assessment.

2. Disallowance of Excess Depreciation Claimed on ATMs and UPS:
The Tribunal allowed the assessee's claim for higher depreciation at 60% on ATMs, treating them as computers, citing the decision of the Delhi Tribunal in the case of DCIT v. Global Trust Bank Limited. However, the claim for higher depreciation on UPS was also allowed, following the decision of the Chennai Tribunal in the case of Indian Overseas Bank.

3. Deduction under Section 36(1)(viia) of the Act:
The Tribunal upheld the CIT(A)'s decision allowing the deduction under section 36(1)(viia) based on the average aggregate advances made by rural branches, rejecting the Assessing Officer's view that only incremental advances should be considered.

4. Set off of Brought Forward Unabsorbed Depreciation Losses:
The Tribunal allowed the set-off of brought forward unabsorbed depreciation losses from assessment years 1994-95 to 1998-99 against the income of the current assessment year, following the decision of the Gujarat High Court in the case of General Motors India (P) Ltd.

5. Disallowance of Bad Debts Written Off:
The Tribunal directed the Assessing Officer to verify whether the requirements of section 36(2) were satisfied and to allow the deduction for bad debts written off, following the Supreme Court decision in the case of Catholic Syrian Bank Ltd. v. CIT.

6. Broken Period Interest Paid on Purchase of Securities:
The Tribunal allowed the claim for broken period interest paid on the purchase of securities as revenue expenditure, following the decision of the Mumbai High Court in the case of American Express International Banking Corporation v. CIT.

7. Disallowance of Provision for Market Risk and Non-Performing Investments:
The Tribunal upheld the disallowance of provisions made for market risk and non-performing investments, as these were contingent liabilities and not allowable under the Income Tax Act.

8. Disallowance under Rule 8D r.w.s. 14A:
The Tribunal directed the Assessing Officer to disallow only 2% of the gross dividend received towards expenditure for earning such dividend income for assessment years prior to 2008-09. For assessment years 2008-09 onwards, the disallowance was to be made as per Rule 8D.

9. Applicability of Book Profits under Section 115JB:
The Tribunal held that the provisions of section 115JB did not apply to the assessee, a banking company, as it was not required to prepare its accounts as per Schedule VI of the Companies Act, 1956.

10. Depreciation on Assets Taken Over from Bank of Thanjavur:
The assessee's ground regarding depreciation on assets taken over from Bank of Thanjavur was dismissed as not pressed.

11. Inclusion of Income of Foreign Branches:
The Tribunal held that the income of the foreign branches at Singapore and Colombo should be included in the return of income filed in India, with credit for taxes paid in the source countries, following the decision of the Mumbai Tribunal in the case of Bank of Baroda v. ACIT.

12. Depreciation on Securities:
The Tribunal upheld the allowance of depreciation on securities shifted from "Available for Sale" to "Held to Maturity" category, following the decision of the Bangalore Tribunal in the case of State Bank of Mysore v. DCIT.

13. Taxability of Interest on Securities on Due Basis:
The Tribunal upheld the CIT(A)'s decision that interest on securities should be taxed on a due basis, following the decision of the Madras High Court in the cases of Tamilnadu Mercantile Bank Limited and City Union Bank Limited.

14. Loss on Revaluation of Forward Contracts:
The Tribunal upheld the CIT(A)'s decision that losses from derivative contracts involving foreign exchange were not speculative transactions and should be treated as regular business losses, following the decision of the Special Bench in the case of DCIT v. Bank of Bahrain and Kuwait.

15. Provision for Wage Arrears:
The Tribunal upheld the CIT(A)'s decision allowing the provision for wage arrears based on a reasonable estimate, following the decision of the Tribunal in the case of Neyveli Lignite Corporation v. ACIT.