TaxTMI 
TaxTMI 
2009 (5) TMI 610
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....out as under : The Ld. CIT(A) erred- I. Provision for frauds - Rs. 3,25,94,000 (a)in directing the Assessing Officer to allow the loss claimed on account of provision for frauds to the extent the same is written off as irrecoverable; (b)the CIT(A) ought to have observed that the loss on account of frauds is allowable in the year in which the same is crystallized; and (c)the CIT(A) ought to have observed that writing off of the amounts is not a pre-condition for its allowability under the Act. II. Provision made on transfer of securities form Available for Sale (AFS) category to Held to Maturity (HTM) category - Rs. 127,21,17,913 (a)in upholding the decision of the Assessing Officer that the sum of Rs. 127,21,17,913 being the depreciation on account of transfer of securities from AFS to HTM category is required to be added back to the income; (b)the CIT(A) ought to have observed that the assessee-bank has transferred the AFS category investment into HTM category investment in line with the RBI Circular. The CIT(A) ought to have observed that the RBI had authorised banks as a one time measure to shift investments from AFS Category to HTM category to the extent....
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....0-11-2008 furnished by the assessee-Bank, we find that the Committee had, after considering the dispute, decided as under : (a)In respect of the first issue of Provision for frauds, it noted that the matter has been remanded back to the Assessing Officer by the CIT(A) with directions to allow loss claimed on account of frauds to the extent it is actually crystallized and written off as irrecoverable in the year previous to assessment year 2005-06. The Committee was of the view that as the issue has been remanded back to the Assessing Officer, appeal to ITAT at this stage was premature; (b)It permitted the bank to pursue the second issue - provision for depreciation on transfer of securities from the Available For Sale (AFS) category to the Held to Maturity (HTM) category - before ITAT in view of questions of facts and law involved; and (c)In respect of the third issue - recoveries from bad debts written off in earlier years - the Committee observed that since the assessee has been claiming deduction of provision for bad debts under section 361(viia)(sic ) 36(1)(viia), the amount of bad debts recovered has to be offered for tax: As only the interest portion of bad debts rec....
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.... the cost whichever is lower. The AFS in question was transferred on 2-11-2004 to HTM in accordance with RBI Guidelines. But, before such transfer, they were valued at the market rate ruling as on the date. Accordingly, their value was reduced by the expenses of Rs. 127,21,17,913 and transferred to HTM. It was argued that if only the AFS were not so converted as on 2-11-2004, they would have been valued as closing stock, in computing the total income. It was, therefore, pointed out, merely because the AFS was valued as on 2-11-2004 and then transferred to HTM, the diminution in their value of Rs. 127,21,17,913 cannot be denied to be allowed as expenses. The Assessing Officer had not questioned the method of valuation adopted, but, he had expressed his doubt as to the accuracy of the same in his order. It was clarified that the valuation of AFS was carried out as per the approved norms which was audited and approved by the Board of Directors of the assessee-Bank. It was the contention of the assessee that the method of valuation of the said AFS being integral part of the assessee's final accounts, it can be examined at any point of time and any doubts can be got clarified. The prese....
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....eing the depreciation on account of transfer of securities from AFS to HTM category is required to be added back to the income. It was further submitted that the assessee-bank has transferred the AFS category investment into HTM category investment in line with the RBI Circular. The RBI had authorised banks as a one time measure to shift investments from AFS Category to HTM category to the extent of 25 per cent of the Demand and Time Liability (DTL). The Ld. Sr. Counsel contended that the CIT(A) had grossly erred in stating that the market price of the securities transferred was lower than the purchase price. He ought to have appreciated that the depreciation claimed by the assessee is the difference between the cost and the market value as on the date of transfer. During the course of hearing, the Ld. Sr. Counsel had furnished copies of the following documents/decisions : (a)RBI Master Circular with connected further correspondences (b)Principles of statutory interpretation - Mr. Justice G.P. Singh (c)Decisions of ITAT, Bangalore Bench The Ld. AR also furnished Memo for furnishing a document dated 8-5-2009, in which she has submitted that :- "The aforesaid appeal wa....
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....preciation in the market value as compared to the market value at the opening of the year and such appreciation is also accounted for. It is not claiming depreciation only for the years, when the value has gone down. If that had been the case, the assessee would not have accounted for any appreciation in 3rd, 4th and 5th year. The method by which the assessee bank is valuing securities is in accordance with the accounting principles by treating such securities as stock-in-trade. Moreover, the revenue itself is treating the profit on maturity of such security as business income and, therefore, such securities cannot be treated as capital assets. 16. Special Bench, Delhi in the case of New India Insurance v. ACIT [2007] 18 SOT 51 = (2007-TIOL-389-ITAT-DEL-SB) had an occasion to consider the binding nature of RBI Guidelines. The Special Bench held that RBI Guidelines in respect of provision for NPA are not binding in the computation of income under the Income-tax Act. Income is to be assessed as per the provision of the Income-tax Act. The Madras High Court in the case of Tamilnadu Power & Infrastructure Development Corporation Ltd. v. CIT 286 ITR 491 - (2006-TIOL-112-HC-MAD-IT) he....
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....vestment at the time of acquisition and the decision should be recorded on the investment proposals. 2.3 Shifting among categories : (i)Banks may shift investments to/from Held to maturity category with the approval of the Board of Directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year." 7.5 In view of the clear cut guidelines of the RBI and respectfully following the findings of the Hon'ble Tribunal referred supra, the claim of the assessee towards provision of depreciation of Rs. 127,21,17,913 on account of transfer of securities from AFS Category to HTM Category is allowed. It is ordered accordingly. 8. The last effective ground has been captioned by the assessee as Recoveries from Bad debts written off in earlier years Rs. 39,38,25,234, in which the following issues have been listed: (a)in upholding the adjustment made by the Assessing Officer with respect to adding back a sum of Rs. 39,38,25,324 being recoveries from bad debts written off; (b)the CIT(A) ought to have observed that the assessee has not clai....
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....the argument of the assessee was that what was not claimed as deduction under section 36(1)(vii), if subsequently recovered, need not be offered to tax under section 41(4) of the Act. 8.6 The view of the CIT(A) was that section 41(4) provides that where a deduction of an amount has been allowed under section 36(1)(vii), if such amount recovered subsequently, subject to certain stipulations therein, is deemed profits and gains of the business or profession of the year in which it was so recovered. While analyzing the present case, the CIT(A) has observed thus :- "10.4 ......the appellant has objected to assessing of the said amount on the grounds that no claim under section 36(1)(vii) was ever made by it. But, the fact of the issue is that the appellant has been claiming deduction of provision made for bad and doubtful debts under section 36(1)(viia) out of which such bad debts would have been written off in the books. As so written off bad debts were recovered the same partakes the character of deemed income of the year of receipt in this case the period relevant to the assessment year under appeal-and, accordingly, chargeable to income-tax. Therefore, no deduction were claim....
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....uch bank computed in the prescribed manner : Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year" "41(4). Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of section 36, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in deduction has been allowed is in existence in that year or not." 9.3 It is an undisputed fact that the assessee-Bank had declared Rs. 39,38,25,324 being the amount writt....