TaxTMI 
TaxTMI 
TaxTMI 
2013 (4) TMI 701
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....from tax is not allowable as per the provisions of the Act. In response to the show cause notice issued by the Assessing Officer, the assessee submitted that no amount for disallowance u/s 14A was considered because the entire amount of investment in the bonds/investments/term loan aggregating to Rs. 1021.73 crores was utilized out of the share capital, internal accruals, current deposit account balances of the depositors on which no interest is payable. The assessee submitted that the share capital, reserves and surplus and current deposits amounted to Rs. 4369.72 crores. It was also submitted that the investment in various securities on which tax-free income was earned did not involve any expenditure towards interest. However, the explanation submitted by the assessee was not accepted by the Assessing Officer and he allocated expenditure relating to taxable and non-taxable income on proportionate basis and accordingly disallowed a total expenditure of Rs. 19,51,21,158/- which comprised disallowance of Rs. 17,33,40,193/- from out of interest expenditure and Rs. 2,17,80,965/- from out of other operating expenditure. 4. On appeal, the CIT(A) following his decision in assessee's own....
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.... grounds of the revenue are partly allowed. 9. Ground Nos. 4, 5 & 6 are pertaining to broken period interest. 10. In the assessment order, the Assessing Officer observed that the assessee bank had been paying broken period interest on purchase of securities and was claiming the same as a deduction from the interest income earned. In response to the show cause notice issued by the Assessing Officer, the assessee had filed a statement showing that the broken period interest paid to seller in respect of investments purchased by the bank was treated as the item of expenditure and debited to the P&L A/c as interest paid on purchase of securities. In the case of sale of security by the bank, the broken period interest received is accounted for as income crediting the same to the P&L A/c under the head interest received on sale of investments. The AO placing reliance on the decision of Hon'ble Supreme Court in the case of Vijaya Bank Vs. CIT 187 ITR 541 and also Circular No. 665 issued by the CBDT observed that the assessee is only debiting the broken period interest on purchase of securities to the P&L a/c but it is not adding the same to the value of the closing stock as per the accou....
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....Income tax Act. Securities which are held for comply with SLR has consistently been held to be stock in trade. That being so there can be no further distinction and no part such holding will cease to be stock in trade merely because RBI has classified the same as `held to maturity'. 57. The Bombay High Court in the case of American Express International Ltd Vs CIT reported in 258 ITR 601 (Bom) and the Madras High Court in the case of Karur Vysya Bank Ltd in TC(A) No 2139 of 2009 dated 13.07.2007 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." 58. Respectfully following the same, we direct the Assessing officer to allow a sum of Rs. 5,07,02,515/- being broken period interest (net) included in the purchase value of HTM securities as revenue deduction. The assessee appeal on this issue is allowed." 15. Since the 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. A....
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....on'ble Supreme Court in the case of CIT Vs. Sugauli Sugar Works Pvt. Ltd., 236 ITR 518. 19. After considering the submissions of the assessee, the CIT(A) observed that it is a fact that banks issue instruments like demand drafts, pay orders to their clients upon receipt of cash or its equivalent as these instruments are subsequently encashed by the clients and the amount originally received by the issuing bank is remitted as per the normal banking practice through the clearing house. The CIT(A) further observed that the amount that is received by the issuing bank does not become its income since the same amount is to be finally remitted to the payee through the drawee branch and, thus, till the time, it is remitted it remains as a liability for the issuing bank. He further observed that for various reasons like postal miss, debt of payee etc., the instruments are not encashed but that does not necessarily mean that the liability of the issuing bank to pay on demand extinguishes. The CIT(A) noted that it was the contention of the assessee that after a certain number of years such amounts are first carried to the P&L A/c and then taken to a capital reserve by passing appropriate ent....
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....mer. In aforesaid view of the matter, we confirm the order of the CIT(A) and dismiss the ground of appeal of the revenue. 24. In the result, appeal of the revenue being ITA No. 1592/Hyd/08 is partly allowed. ITA NO. 1644/H/2008 - appeal by the assessee 25. Ground No. 1 is general in nature. 26. Ground No. 2.a) & b) is directed against the action of the CIT(A) in confirming the disallowance of deduction of Rs. 1,14,45,507/- made by the AO u/s 35D of the IT Act. 27. The assessee claimed deduction of Rs. 1,14,45,507/- u/s 35D of the Act. The AO asked the assessee to substantiate its claim for the above deduction claimed u/s 35D and to clarify as to why the claim should not be disallowed since it did not have the status of an industrial undertaking. In reply, the assessee submitted that it is a banking company which came into existence by virtue of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and as per section 11 of the said Act, for the purpose of Income Tax Act, 1961 the bank shall be deemed to be an Indian Company and a company in which the public are substantially interested. The assessee referred to the provisions of section 35D of the Act and reli....
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....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 of Rs. 13,28,54,000/- was made on this account by the AO. 32. 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. 33. The CIT(A) following his decisions in assessee's own case for AY 2003-04 and 2004-05, confirmed the action of the AO in disallowing the claim of the assssee u/s 36(1)(viia) of the Act. 34. We have heard the parties and perused the record. We find that the issue in dispute is squarely covered by the decision of the coordinate bench in assssee's own case in ....
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....uture. But certainly, the provision for standard asset cannot be equated with a provision for a bad and doubtful debt. That is why, it is prescribed by the RBI that the provision for standard assets need not be netted out from gross advances but should be shown separately as 'contingent provisions against standard assets'. The heading itself is indicating of the fact that this provision is contingent in nature whereas the provision for non-performing assets is to guard against a loss which is looming large on the bank or for the loss which has already taken place. Therefore, the RBI further prescribes that provision on standard assets should not be reckoned for arriving at net NPAs. The Act itself has given an option to the assessee to make provision for its doubtful or loss assets [first proviso to section 36(1)(viia)]. We do agree that the bank is bound to follow the RBI guidelines. But the deduction available has to be as per the provisions of the Act only. Accordingly, we uphold the order of the CIT(A) disallowing the deduction in respect of provision made for standard assets. Another provision disallowed by the revenue authorities is in respect of border line performing assets....
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....elied upon the decision in the case of SBH Vs. JCIT, [2005] 94 ITD 219 (Hyd). 39. We have heard the parties and perused the record. The coordinate bench in assessee's own case in ITA No. 97/Hyd/10 (supra) following the decision of the Hon'ble Delhi High Court in case of CIT Vs. Industrial Finance Corpn. Of India Ltd., held in the following manner: "60. The assessee submits that these issue is covered by the decision of the Delhi High Court in the case of CIT Vs Industrial Finance Corporation reported in 201 Taxmann 75. In that case also the assessee reversed the income offered to it for tax in the earlier years on the ground that accounts are become NPAs. The assessee has also raised additional ground, which is as follows: "1. Without prejudice to Ground No. 7 the learned CIT(A) ought to have allowed the unrealized interest of Rs. 236,00,000/- on Non-Performing Assets as deduction u/s 36(1)(vii) of the Act by treating the same as bad debts written off. 61. The Delhi High Court held that income which was earlier recognised is not to be allowed in the subsequent year in case it is permissible for the assess....
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.... directed the Assessing Officer to delete the addition. He, therefore, requested for remitting the matter back to the Assessing Officer for verifying assessee's claim. 43. The learned DR submitted that the matter can be verified by the Assessing Officer. 44. We have heard submissions of the parties and perused the record. From the order dt. 29/03/2010 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. Therefore, considering the totality of facts and circumstances of the case, we 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 in the light of the order dated 29/03/2010 passed by the CIT for the assessment year 2004-05. The grounds raised are allowed for statistical purposes. 45. Now, we deal with the followi....
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....method of valuation for income-tax purpose and for the purpose for finalisation of its accounts. In reply, the assessee stated that the securities are held by the bank as stock in trade even though they are classified under various categories as per the directions of the RBI and as on 31/03/2005 the bank is holding investments to the extent of Rs. 672.12 crores under the HTM category. It was further stated since there is a fall in the market value of such securities, the fall in the value has been claimed as a depreciation while computing the taxable income and investments are made by the bank in the normal course of business but are not acquired as capital assets of the bank. Depending on the need or funds, the bank is required to sell such investments including investments held to maturity to repay the deposits and thus the bank is trading in securities. Further, it was stated that accordingly the securities are stock in trade for the bank and applying the well recognized principle of accounting, such stock in trade is valued at cost or market price whichever is lower and accordingly, Rs. 211.82 crores which reflected the diminution of fall in value of the securities was claimed ....
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....f the considered view that the appellant shall be entitled in principle to the depreciation on the securities of the category Held to Maturity provided that i) the same has been shifted to the other categories of AFS &HFT as permitted by the RBI and following the norms prescribed for such shifting; ii) the appellant bank is accounting for the appreciation in the value of securities in its books in terms of the decision of ITAT in the case of Vijaya Bank referred to above and iii) the profit from redemption/sale of securities is being offered as business income as held by the ITAT in the case of Vijaya Bank. The AO may verify and ascertain the above factual and allow the quantum of depreciation accordingly." 50. We have heard contentions of the parties and perused the materials on record. We find that identical issue in assessee's own case came up for consideration before the ITAT, Hyderabad Bench in ITA No. 97/Hyd/10 for the assessment year 2006-07. The coordinate bench in its order dated 04/04/2013 held as under: "49. The next issue on appeal is disallowance of Rs. 175,60,43,567/- being depreci....
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....d Vs CIT reported in 240 ITR 355 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. 51. Respectfully following the decisions cited by the learned counsel for the assessee, 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. This issue is decided in favour of the assessee." Respectfully following the aforesaid decision of the coordinate bench, we allow the deduction claimed by the assessee. 51. 2nd additional ground raised by the assessee is in respect of deduction u/s 36(1)(vii) in respect of debts written off by the non-rural branches of the assessee bank. 52. The assessee had claimed the deduction of Rs. 57,50,32,244/- in respect of recov....
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.... a computerized statements consisting of 385 sheets in order to prove its contention. In the first page of the statements, the assssee had tabulated the amount recovered and the amounts written off in the earlier periods etc. As per the same, the total amount recovered was Rs. 57,50,32,344.07. The assessee also stated that the recovery in excess of write off amount was Rs. 26,47,75,449/- and the final eligible deduction was Rs. 49,51,88,892/-. The assessee had also enclosed the detail breakup of the amounts recovered. The AR of the assessee also admitted that this detail information had not been furnished before the AO for correlating the bad debt recovery with the write off amount claimed/not claimed during the earlier years. He stated that suitable direction may be given to the AO for factual verification of the statement now furnished and allow appropriate claim of the assessee. 54. After considering the submissions of the AO, the CIT(A) observed that the disallowance has been made by the AO only because of the fact that the assessee had not been able to furnish the relevant evidence in support of its claim and has failed to correlate the recoveries made with the bad debts of r....