TaxTMI 
TaxTMI 
2013 (3) TMI 326
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.... Rs.42,81,94,064/- represented bad debts written off during the year, which were adjusted against similar specific provision for an earlier year. According to the AO, the entire provision created by the assessee was not deductible. He splitted this provision into two parts, viz., provision for rural debts amounting to Rs.11.05 crores and the remaining provision towards non-rural debts. In his opinion, the provision for rural debs was allowable u/s.36(1)(viia). As regards the other provision, he held that only the actual amount of bad debts written was deductible u/s.36(1)(vii).This amount was determined at Rs.31,76,36,641/-. The excess provision of Rs.9,48,36,000/- was disallowed. The ld. CIT(A) overturned the impugned order on this issue and deleted the said addition. 3. We have heard the rival submissions and perused the relevant material on record. Sec. 36(1)(vii) grants deduction for any amount of bad debt or part thereof written off by the assessee as irrecoverable in the accounts subject to the provisions of sec. 36(2) of the Act. Sec. 36(1)(viia) deals with the granting of deduction in respect of provision for any bad or doubtful debts made by a scheduled bank, etc. The cas....
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....of the provision and after reducing the amount of bad debts written off/provision written back during the year, the net amount is reflected by way of reduction from the amount of debtors in the balance sheet. It is, therefore, vivid that the assessee has complied with the requirements of sec. 36(1)(viia) as interpreted by the Hon'ble Supreme Court in the case of Vijaya Bank (supra). Thus the impugned order on this score is upheld and ground nos. 1 & 2 are not allowed. 4. The second issue in this appeal is against the deletion of disallowance of Rs.81,21,716/- being the broken period interest. The facts apropos this ground are that the assessee received broken period interest of Rs.4,78,73,191/- on securities in its opening stock which were sold during the year. It also paid an amount of Rs.5,50,74,387/- as broken period interest on securities purchased and sold during the year. Further, the assessee paid a sum of Rs.2,95,13,008/- as broken period interest on securities purchased during the year as reflected in the closing stock. On being called upon to justify the deduction of interest for broken period, the assessee stated that similar practice was followed by it in the past trea....
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....to understand as to how the interest for the broken period, which is income/expenditure from such security, should not be considered as revenue item. The AO has albeit granted deduction in respect of broken period interest in respect of securities which were purchased and sold during the year but made addition in respect of broken period interest paid on the securities in the closing stock. The assessee was regularly following this method of accounting. If the AO was not satisfied with such treatment, he was obliged to correspondingly increase the value of opening stock of securities by way of such broken period interest for the last year. Be that as it may, since the securities are current assets of the assessee, the broken period interest expenditure or income has to be allowed as deduction. Recently, Special Bench of the Tribunal in DCIT vs. Bank of Bahrain & Kuwait (2010) 132 TTJ (Mumbai) (SB) 505 has decided this issue in favour of the assessee by holding that there cannot be any disallowance on account of broken period interest paid by the assessee. In reaching its conclusion, the Tribunal relied on the judgement of the Hon'ble jurisdictional High Court in American Express In....
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....eflected at Rs.100/- and the closing stock at Rs.90/- resulting into loss of Rs.10/-. When the method of 'cost or market price, whichever is less' is followed by any assessee for valuing its stock, the effect has to be given accordingly. In other words, if the value of stock has come below its purchase price, it is only the market price which would stand reflected as closing stock at the end of the year. If, however, the market price exceeds the cost price, then the stock would continue to be valued at the cost price only, because of the method of valuing the closing stock at 'cost or market price whichever is less'. Continuing with the same example, suppose, in the third year the market value of the security rises to Rs.120/-, in such a situation, it shall be valued at Rs.100/- (being its purchase price) and there would be an income of Rs.5/- (Rs.100/- minus Rs.95/-). The excess over the cost price would not be considered for valuing the closing stock. It is only when such security is sold that the profit would stand reflected accordingly. In view of these reasons, we are satisfied that depreciation on account of fall in value of securities held by the assessee as stock in trade, ....
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....g year, we allow this ground of appeal. 13. Ground no. 3 is against disallowance of provision for loss on forward exchange contract. The assessee booked a loss on forward foreign exchange contracts which were unmatured on the date of balance-sheet for an amount of Rs.17,84,97,527/-. The AO, while making disallowance for this amount also reduced such disallowance by a sum of Rs.5.96 crores which was disallowed by him in Asstt. year 1996-97. The ld. CIT(A) upheld the assessment order on this issue. 14. Having heard both the sides and perused the relevant material on record, we find that the Special Bench of Tribunal in DCIT vs. Bank of Bahrain & Kuwait (supra) has disposed of this issue by holding that where a forward contract is entered into by the assessee to buy or sell the foreign currency at an agreed price at a future date falling beyond the last date of the accounting period, the loss incurred by the assessee on account of evaluation of the contract on the last date of the relevant accounting period, i.e., before the date of maturity of the forward contract, is allowable as deduction. A detailed discussion has been made in the said order. In our considered opinion, it would ....
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....d order and direct the AO to compute disallowance u/s.14A in accordance with the ratio laid down by the Hon'ble jurisdictional High Court in the aforenoted case of Godrej & Boyce Ltd. The ld. A.R. has contended before us that it was having sufficient interest-free funds at its disposal which were invested in securities earning exempt income and hence no disallowance of interest was called for. The AO, while computing disallowance u/s.14A, will also examine this contention of the assessee as per law. 19. The last ground is against restricting the deduction u/s.80M. The assessee claimed that gross dividend received by it as eligible for deduction u/s.80M. The AO came to hold that deduction should be allowed u/s.80M at 60% of the income from dividend, presumably considering 40% towards expenses. The ld. CIT(A) upheld the assessment order on this issue. 20. We have heard the rival submissions and perused the relevant material on record. The ld. A.R. has relied on the judgment of the Hon'ble Bombay High Court in CIT vs. Central Bank of India (2003) 130 Taxman 116 (Bom.) in which it has been held that the department was not entitled to import the rule of proportionate expenditure and i....
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....at view of the matter and applying the same analogy, the appreciation in the value of such securities in the instant year at Rs.27.35 crores is liable to be taxed on substantive basis rather than protective basis as done by the AO. This ground is, therefore, not allowed. 26. Ground no. 4 is against loss on forward exchange contract. Similar issue has been discussed by us in an earlier year restoring the matter to the file of AO for taking a fresh decision in accordance with the Special Bench order in the case of Bank of Bahrain & Kuwait (supra). Following the view taken hereinabove, we set aside the impugned order on this issue and remit the matter to the file of AO for taking a fresh decision accordingly. 27. Ground no. 5 is against confirmation of disallowance u/s.35D. COD has not granted approval to the assessee Bank for prosecuting this ground. As such, this ground is dismissed. 28. Ground no.6 is against disallowance of exemption u/s.10. Following the view taken in earlier years, the AO reduced the exempt income by proportionate expenditure. This issue has been dealt with us in the immediately preceding year by which the matter has been restored to the file of AO for a fres....
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.... by us in asstt. year 1998-99 holding that such appreciation in the value of securities is liable to be taxed. This ground is not allowed. 35. Ground no.3 is against confirmation of disallowance of provision for loss on forward exchange contract. Similar issue has been discussed by us in an earlier year restoring the matter to the file of AO for taking a fresh decision in accordance with the Special Bench order in the case of Bank of Bahrain & Kuwait (supra). Following the view taken hereinabove, we set aside the impugned order on this issue and remit the matter to the file of AO for taking a fresh decision accordingly. 36. Ground no. 4 is against confirmation of disallowance u/s.35D for the expenses on public issue of equity shares. The facts of this ground are that in an earlier year the Bank issued to the public certain shares. Total expenditure on this public issue amounted to Rs.9.36 crores. The assessee claimed deduction at 1/10th of the issue expenses u/s.35D amounting o Rs.93.62 lakhs. The AO, following the judgment of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. CIT (1997) 225 ITR 798 and another judgment of the Hon'ble Supreme Court in Punjab Stat....