TaxTMI 
TaxTMI 
2016 (4) TMI 429
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....the learned CIT(A) is against the law and facts of the case. 2) The learned CIT(A) erred in confirming the deduction claimed u/s 36(1)(viia) after adjusting the brought forward loss to the extent of Rs. 21,54,18,149/- 3) The learned CIT(A) erred in defining the 'total income 'for working out the deduction allowable u/s 36(1)(viia) of the Income tax Act, 1961. 4) The learned CIT(A) erred in disallowing the depreciation on HTM category of Rs. 460,71,28,270/-. 5) The learned CIT(A) erred in confirming that the Bank cannot treat all investments as stock-in-trade for the purpose of Return of Income. 6) The learned CIT(A) erred in confirming that there is a change in the method of valuation in the relevant assessment year in respect of investments.. 7) The learned CIT(A) erred in confirming the disallowances of public issue expenses u/s 35D of an amount of Rs. 1,92,50,000/-. 8) The learned CIT(A) erred in confirming the write off of investments of an amount of Rs. 24,00,000/- 9) For all these and other grounds that may be urged at the time of hearing the Appellant request that its appeal be allowed. 4. Briefly, facts of the case are that the assessee-ba....
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....tted back to the file of the AO, on the same lines, the issue was remitted back to the AO for fresh adjudication. 5.3 With respect to disallowance of expenditure for earning exempt income of Rs. 16,77,57,498/-, the ld. CIT(A) following the decision of this Tribunal in assessee's own case for assessment years 2002-03 and 2003-04 in ITA Nos.310 & 311/Bang/2011 held that no expenditure can be disallowed on estimate basis and therefore deleted the total addition made under the provisions of sec.14A. 5.4 With regard to disallowance of preliminary expenses, the ld. CIT(A) confirmed the disallowance holding that the expenditure is in the nature of capital expenditure. 5.5 The ld. CIT(A) also confirmed the addition on account of depletion in the value of investments held under the category of Held To Maturity (HTM) holding that treatment in the books of account is a relevant factor. 5.6 The ld. CIT(A) also confirmed the addition on account of write off of NP investment of Rs. 24 lakhs holding that the loss is on capital account. 5.7 In respect of addition made on account of broken period interest of Rs. 45,17,75,000/-, the ld. CIT(A) deleted the addition holding that even in....
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....assessee's own case held that this deduction should be allowed before set off of brought forward loss. The AO was of the opinion that the total income as reduced by set off of brought forward loss alone should be considered for the purpose of working the deduction under the provisions of section 36(1)(viia). On appeal before the ld. CIT(A), the ld. CIT(A) concurred with the views of the AO and upheld the addition. 8.2 Before us, learned counsel for assessee-bank has reiterated the same submissions made before the lower authorities. 8.3 On the other hand, ld.CIT(DR) vehemently argued that total income means income computed under the provisions of the Act before allowing deduction under the provisions of section 36(1)(viia) as well as deductions under Chapter VIA. 8.4 We heard rival submissions and perused material on record. There is no dispute as to the eligibility of the assessee bank for deduction u/s 36(1)(viia) but the bone of contention between the assessee-bank and the revenue is only with regard to manner of computation of the amount of deduction. Therefore, it is apt to reproduce the relevant provision of section 36(1)(viia): "36(1)(viia) in respect of any provi....
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....ding the interpretation of term 'total income'. 'Total income' has been defined to mean total 'income before making any deduction under section 36(1)(viia) and Chapter VIA. 8.6 The Constitution Bench of the Apex Court, in the case of Distributors (Baroda) Pvt. Ltd vs Union Of India (155 ITR 120), in the context of interpreting the provisions of sec.80M held that deduction u/s 80M has to be calculated with reference to the amount of dividend income computed in accordance with the provisions of the Act. While coming to such conclusion, Hon'ble Apex Court taken note of its earlier decision in the case of Cambay Electric Supply Industry Co. Ltd. (113 ITR 84) wherein the Hon'ble Apex Court held that for the purpose of allowing deduction under the said provision, it was necessary to first compute total income of the assessee in accordance with other provisions of the Act i.e. in accordance with all the provisions except sec.80E. Earlier decision of the Hon'ble Apex Court in the case of Cloth Traders Pvt. Ltd. (118 ITR 243) was overruled. Further, the Hon'ble Apex Court, following its decision in the case of Distributors (Baroda) Pvt. Ltd (supra) held in the case of H.H. Sir Rama Verma....
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....his clause shall be made in respect of such excess." From a plain reading of the above, it is clear that the amount of deduction is to be calculated with reference to income computed under the head 'profits and gains of business or profession'. The provisions governing the brought forward and set off business loss are not part of the provisions governing the computation of profits under the head 'profits and gains of business'. Therefore, reliance of the learned counsel for the assessee-bank on the decisions cited above is totally misplaced. Even the decision of the co-ordinate bench in the assessee's own case in ITA No.291/Bang/1998 rests on the above decision. The co-ordinate bench had not considered the decision of Hon'ble Supreme Court cited supra. In the circumstances, the decision rendered by coordinate bench in the assessee-bank's case is per incuriam. Therefore, these decisions cannot be held to be applicable to the issue on hand. Hence, we hold that the method of calculation adopted by the AO is in accordance with the provisions of the Act and the reasoning adopted by the CIT(A) is also in consonance with the clear provisions of the Act. Hence, we confirm the addition m....
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....or the assessee-bank submitted that notwithstanding the treatment given in the books of account of investments of a banking company, should be treated as business assets and therefore, depreciation in the value of assets, if any, as on the date of balance on account of fall in values of investments should be allowed as a deduction in computing profits and gains of business of the banking company. In support of this, he relied on CBDT circular No.18/2015 dated 2/11/2015 and also on the following precedents: a. UCO Bank (240 ITR 355)(SC) b. Karnataka Bank Ltd. (356 ITR 549)(Kar.) c. CIT vs. HDFC Bank (ITA No.250/2012 (Bom.) d. Vijaya Bank (ITA No.687/2008dt.11/3/2013)(Kar.) e. Vijaya Bank (ITA Nos.660, 596 & 747/2011 (ITAT, Bang) 9.4 On the other hand, ld.CIT(DR) argued that the circular No.18/2015 of CBDT was issued only in the context of provisions of section 80P of the Act. The same cannot be applied to the commercial banks. He relied on the orders of the lower authorities. 9.5 We heard the rival submissions and perused the material on record. The short issue in this ground of appeal is whether fall in value of investments made pursuant to SLR requirements of ....
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....7(i) of the Act as interest on non- SLR securities is income from other sources". 2. Clause (id) of sub-section (1) of section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head "Income from other sources", if, the income is not chargeable to income-tax under the head "Profits and gains of business and profession". 3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Co-operative Bank Ltd. [2007] 160 Taxman 48 (SC), the apex court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and gains of business and profession". 3.2 Even though the abovementioned decision was in the context of co-operative societies/Banks claiming deduction under section 80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Acco....
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....assesseebank in changing the method of accounting cannot be doubted. Now, it is well settled that the assessee is entitled to change regular method of accounting irrespective of the fact, it results in loss to revenue. Therefore, having regard to the spirit of the circular cited supra and the fact that investments are shown as stock-in-trade in the books of account, loss/depreciation on account of fall in value of securities held by the assessee-bank should be allowed as deduction. Therefore, income arising therefrom should also be treated as business income. The provisions of section 45(2) cannot be applied to the facts of the present case, as in the earlier years, for the purpose of income-tax proceedings, the investments were treated as stock-in-trade. Thus, grounds of appeal Nos.4, 5 & 6 are disposed of. 10. Ground of appeal No.7 relating to disallowance of expenditure on public issue of Rs. 1,92,50,000/- is not pressed by the assessee-bank, hence dismissed as such. 11. Ground of appeal No.8 challenges the addition made on account of write off of investments of Rs. 24 lakhs. The assessee made a claim of Rs. 24 lakhs for deduction as write off of investments and when it wa....
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....he year of sale of such securities as supported under the said provisions of the Act. Therefore, it is only a capital loss and cannot be allowed as a deduction. We uphold the order of the ld.CIT(A) and the ground of appeal filed by the assessee is dismissed. 12. In the result, the assessee-bank's appeal is partly allowed. ITA No.530/Bang/2009 : (Appeal by the revenue for assessment year 2006-07): 13. The revenue raised the following grounds of appeal: 1) The order of the CJT(A) is opposed to law and facts of the case. 2) The CIT(A) erred in directing the Assessing Officer to allow the claim of deduction u/s 36(1)(vii) amounting, to Rs. 903,37,86,609/-, being the bad doubts written off pertaining to non rural branches relying on the decision of the ITAT in the case of the assessee for the AY 04-05 as well as the decision of the Kerala High Court in CIT V South Indian Bank in 262 ITR 579. The CIT(A) ought to have appreciated the fact that the said decision of the ITAT has not been accepted by the department and an appeal has been filed in the Honorable High Court of Karnataka. 3) The CIT(A) has erred in directing the Assessing Officer to allow the deduction of Rs. 1....
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....nsel for assessee-bank submitted that all ingredients of the provisions of sec.36(1)(vii) r.w.s.36(2) of the Act were complied with. He further submitted that reducing the provision for bad and doubtful debts from debtor's account amounts to write off as held by the Hon'ble Apex Court in the case of Vijaya Bank (323 ITR 166) and Catholic Syrian Bank (343 ITR 270) and the jurisdictional High Court in ITA No.1011/2008 in the assessee-bank's case. He further relied on the following decisions: Bank of India: (i) (27 Taxman 335)(ITAT,Mum) (ii)ITA 3422 & 3437/2013, 1498/2011- ITAT,Mum. (ii)ITA 2781 & 3534/2010 - ITAT, Mum. (iii) 5 TMI 929/2014 Indian Bank: (i)TA 470 to 472/2010 - ITAT, Chennai (ii) ITA 131, 388/2001, 984, 1082/2003 -ITAT, Chennai (iii) ITA 880/2010, 1395 to 1397/2014 - ITAT Chennai 13.6 We heard the rival submissions and perused the material on record. The assessee made a claim for deduction of bad debts, working of which is as under: PARTICULARS AMOUNT (Rs.) Bad debts written off during the year (for all branches) .. 9,93,93,02,594 Less: Bad debt of rural branches adjusted against the provision during the FY 2....
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....rashtra Apex Corporation vs. CIT (286 ITR 585) held that no notional expenditure can be attributed to exempt income and deleted the addition. Being aggrieved, revenue is in appeal before us in the present appeal. 14.3 The ld.CIT(DR) relied on the orders of the AO and submitted that no income can be earned without incurring any expenditure. 14.4 On the other hand, learned counsel for the assesseebank submitted that when no expenditure is incurred by the assessee in earning exempt, no notional expenditure can be attributed. In support of this legal proposition, he relied upon the following case-laws: a) CCI Ltd. vs. JCIT (250 CTR 291)(Kar.) b) Assessee's own case (381 & 382/2010)(ITA 1397/2006) - (Kar.) c) Corporation Bank (ITA 1310 & 1393/2012) - ITAT, Bang. d) Bank of India (3422 of 2013) ITAT, Mum. e) Bank of Maharashtra (ITA 637/2008) ITAT, Pune Learned counsel for the assessee-bank submitted before us that since interest exempt was earned from securities which was held as stock-in-trade, provisions of sec.14A have no application. In this connection, he has relied on the decision of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT (366 ....
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.... (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :............................... " 14.6 Sub-rule(1) of rule 8D extracted above states that, the AO having regard to accounts of the assessee and not being satisfied with the correctness of the claim of expenditure made by the assessee or claim that no expenditure was incurred in relation to income which does not form part of the total income can go on to determine disallowance under sub-rule (2) to rule 8D of the IT Rules. Sub-rule (2) does not come into operation until and unless specific condition in sub-rule (1) is satisfied. This position is reiterated by the Hon'ble High Court of Karnataka in the case of Maxopp Investment Ltd. vs. CIT (347 ITR 272), and Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT (328 ITR 81). The AO had not given any finding as to how the claim of the assessee-bank that no expenditure was incurred to ea....
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....her provisions of the Act. Thus the additional grounds of appeal filed by the revenue are dismissed. 17. In the result, the appeal filed by the revenue is dismissed. ITA No.530/Bang/2010 (Appeal by the assessee-bank for assessment year 2005-06): 18. The assessee-bank raised six grounds of appeal. Ground No.1 is general in nature and does not require adjudication. 19. Ground Nos. 2 to 4 relate to disallowance of depreciation on the value of investments Held To Maturity (HTM). A similar ground was raised by the assessee-bank for assessment year 2006-07 in ITA No.479/Bang/2009 and has been dealt by us in our order of even date in para.11. For the detailed reasons given in para.. above, we hold that depreciation on the value of HTM is held to be allowable. Accordingly, we allow ground Nos.2 to 4 of the assessee-bank and direct the AO to allow deduction of Rs. 553,50,00,000/- while computing income for the assessment year 2005-06. 20. Ground Nos.5 & 6 raised by the assessee-bank relate to disallowance of write off of investments of non-performing assets of an amount of Rs. 67,85,29,990/-. A similar ground has been raised by the assessee for assessment year 2006-07. Sin....
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.... appeal in ITA No.479/Bang/2009 above, we hold that depreciation on the value of HTM is held to be allowable. Accordingly, we hold that the assessee is entitled for depreciation on the value of HTM investments of Rs. 309,73,59,173/-. Accordingly, these grounds of appeal are allowed. 29. Ground No.5 challenges the disallowance of contribution made to Disability Trust as per directions of the Hon'ble Supreme Court in Interest Tax case of Devkala Consultancy Services Ltd. 29.1 Brief facts are that the Hon'ble Supreme Court while dealing with public interest litigation case in the case of Indian Banks Association vs. Devkala Consultancy Service & others (267 ITR 179) found that banks collected excess interest from borrowers on account of rounding off. This amount was found to be unconstitutional as Article 265 read with article 366(28) of the Constitution of India, nothing is realizable as tax or by way of recovery of tax or any amount akin thereto which is not permitted by law. Hon'ble Supreme Court also realized impracticability of returning excess tax recovered from borrowers and therefore, Hon'ble Apex Court gave direction for formation of a trust for benefit of disabled pers....
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....60,46,532/-. For the detailed reasons given by us in para.13, while dealing with ITA No.530/Bang/2009 filed by the revenue, we uphold the findings of the ld.CIT(A) and the ground of appeal filed by the revenue is dismissed. 33. Ground No.3 challenges the direction of the ld.CIT(A) to delete the addition of Rs. 2,09,49,856/- made under the provisions of sec.14A of the Act. For the detailed reasons given by us in para.14 in the appeal No.530/Bang/2009 filed by the revenue for the assessment year 2006-07, we hold that no disallowance u/s 14A is called for and accordingly, this ground of appeal by the revenue is dismissed. 34. Ground No.4 raised by the revenue challenges the direction of the ld.CIT(A) directing the AO to delete the addition made on account of depreciation on assets leased to M/s.Rajinder Steels and M/s.Kedia Group of Companies of Rs. 15,68,546/-. Brief facts surrounding this issue are as under: AO disallowed claim of depreciation in respect of assets leased to M/s.Rajinder Steels and M/s.Group of companies. It may be worth mentioning here that this is not first year in which the claim was disallowed. In earlier years also, the claim has been disallowed. We are in....
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....ent order and dismissed as such. ITA No.693/Bang/2012 (Assessee's appeal for assessment year 2008-09): 37. The assessee raised five grounds of appeal. Ground No.1 is general in nature and does not require any adjudication. 38. Ground Nos.2 and 3 challenge applicability of provisions of sec.115JB to the assessee-bank. It is the contention of the assessee-bank that provisions of sec.115JB are not applicable to banking company as no accounts are drawn up as per requirement of schedule VI of the Companies Act, 1956. The accounts are drawn in conformity with Banking Regulation Act, 1939. In this connection, assessee-bank had relied upon the decision of the co-ordinate bench in the assessee's own case in ITA No.305/Bang/2011, 73/Bang/2005'; Bank of Maharashtra in ITA 1505/2008 (ITAT, Pune) ; Union Bank of India, ITA 4155 to 4161/2011 & 4702 to 4706/2010 (ITAT, Mumbai) and UCO Bank in ITA No.1768/2009 (ITAT, Kolkatta). Respectfully following the decisions of the co-ordinate bench, we hold that provisions of sec.115JB are not applicable to the banking company. Hence, this ground of appeal of the assessee is allowed. 39. Ground Nos.4 and 5 relate to depreciation in the value ....