2017 (11) TMI 1425 - AT - Income Tax

Tax Tribunal Rulings: Deductions for Bad Debts, Amortization, Depreciation, and Disallowances

Canara Bank Versus Joint Commissioner of Income-Tax, LTU and Vice Versa

Canara Bank Versus Joint Commissioner of Income-Tax, LTU and Vice Versa - [2017] 60 ITR (Trib) 1 Issues Involved:1. Disallowance of bad debts under section 36(1)(vii).2. Disallowance of deduction under section 36(1)(viii).3. Disallowance of amortization of premium on securities-HTM category.4. Disallowance under section 14A.5. Depreciation on leased assets.6. Write off of miscellaneous items.7. Applicability of section 115JB to a banking company.8. Disallowance of provision for bad debts under section 36(1)(viia).9. Addition of commission and locker rent received in advance.10. Taxability of unrealized gains on revaluation of forward contracts.11. Disallowance of expenditure under section 40(a)(ia).12. Payment to gratuity and pension fund.Detailed Analysis:1. Disallowance of Bad Debts under Section 36(1)(vii):The Tribunal remitted the issue back to the Assessing Officer (AO) to verify if the provision for bad debts was reduced from the sundry debtors' account in the balance sheet and debited to the profit and loss account. If these conditions are satisfied, the AO was directed to allow the deduction.2. Disallowance of Deduction under Section 36(1)(viii):The Tribunal remitted the issue to the AO to verify the methodology adopted by the assessee for computing profits derived from eligible business and to ensure it conforms with the generally accepted methods. If found in conformity, the AO was directed to allow the deduction.3. Disallowance of Amortization of Premium on Securities-HTM Category:The Tribunal directed the AO to allow the deduction for amortization of premium on HTM securities, following the decision in the case of Ing Vysya Bank Ltd. and other precedents which treated such securities as stock-in-trade.4. Disallowance under Section 14A:The Tribunal upheld the Commissioner of Income-tax (Appeals) (CIT(A))'s decision to restrict the disallowance to the amount offered by the assessee, as the AO did not provide a finding on the correctness of the assessee's claim that no expenditure was incurred to earn exempt income.5. Depreciation on Leased Assets:The Tribunal dismissed the Revenue's appeal on this issue, following its earlier decision in favor of the assessee, allowing depreciation on leased assets.6. Write Off of Miscellaneous Items:The Tribunal upheld the CIT(A)'s decision to delete the disallowance, agreeing that the write-off of miscellaneous items related to the carrying on of the banking business and were incidental to it.7. Applicability of Section 115JB to a Banking Company:The Tribunal held that section 115JB does not apply to banking companies, following its earlier decisions and the decisions of other Benches.8. Disallowance of Provision for Bad Debts under Section 36(1)(viia):The Tribunal remitted the issue back to the AO to verify the population of rural branches and compute the average aggregate advances (AAA) accordingly. The AO was directed to consider only the outstanding advances for the purpose of calculating AAA.9. Addition of Commission and Locker Rent Received in Advance:The Tribunal held that advance commission and locker rent, which had not accrued to the assessee, could not be brought to tax. The addition was deleted, following the principle of consistency and relevant judicial precedents.10. Taxability of Unrealized Gains on Revaluation of Forward Contracts:The Tribunal held that unrealized gains on revaluation of forward contracts could not be taxed as they represent hypothetical income. The addition was deleted, following the decisions of the Supreme Court and other High Courts.11. Disallowance of Expenditure under Section 40(a)(ia):The Tribunal remitted the issue back to the AO, directing the assessee to furnish evidence of compliance with TDS provisions. The AO was instructed to allow the deduction upon verification.12. Payment to Gratuity and Pension Fund:The Tribunal upheld the CIT(A)'s decision to allow the deduction for the entire additional liability towards gratuity and pension funds, noting that the treatment in the books of account has no bearing on the allowability of the expenditure. The Tribunal also noted that the payments were subject to section 43B, which permits deduction on a payment basis.