TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 1425
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..... The assessment against the said return of income was completed by the Additional Commissioner of Income-tax, LTU, (hereinafter referred to as the Assessing Officer (AO)) vide order dated November 11, 2011 passed under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") of the Income-tax Act, 1961 (hereinafter referred to as "the Act") after making the following disallowances : S No.. Nature of additions/disallowances Amount (Rs.) Amount added to income : 1. Amount received from CANFINA 35,00,00,000 Expenditure/claims disallowed : 2. Bad debts claimed under section 36(1)(vii) 543,00,00,000 3. Depreciation on leased assets (Rajinder Steels and the Kedia group) 8,82,307 4. Notional expenses attributing to exempted income under section 14A 7,09,00,000 5. Disallowance of deduction under section 36(1)(viii)-Income from long-term finance 259,81,00,000 6. Write off of miscellaneous items 37,60,646 7. Amortisation of premium on securities-HTM category 115,88,22,975 Total 9,61,24,65,928 3. Being aggrieved by the above assessment order, an appeal was preferred before the Commissioner of Incom....
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....learned Commissioner of Income-tax (Appeals) erred in not allowing the amortisation amount of Rs. 115,88,22,975 being the premium paid on investments classified as held to maturity category. 4.1. The learned Commissioner of Income-tax (Appeals) erred in sustaining the addition on surmises and conjuncture. 4.2. The learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that the appellant-bank had not agreed to the said disallowance. For the above referred grounds or any other grounds that may be prayed at the time of hearing, the appellant prays that the order of the learned Commissioner of Income-tax (Appeals) be set aside and the disallowance and the additions made by the learned Assessing Officer be deleted." 6. Ground of Appeal No. 1 is general in nature and does not require adjudication. 7. Ground of Appeal No. 2 challenges the addition of Rs. 543,00,00,000 by disallowing the claim for bad debts written off. The Assessing Officer (AO) disallowed the claim by holding that credit balance available in the provision of for bad and doubtful debts in the assessee's case is much more than the amount of bad debts actually written off and claimed under se....
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....f the judgment is extracted below (page 171 of 323 ITR) : '7. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, the learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 (Guj) was prior to the insertion of the Explanation vide Finance Act, 2001, with effect from April 1, 1989 hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in section 36(1)(vii) with effect from April 1, 1989 a mere debit of the impugned amount of bad debt to the profit and loss account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the profit and loss account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to the Finance Act, 2001, many assessees u....
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....her words, the amount of loans and advances or the debtors at the yearend in the balance- sheet is shown as net of the provisions for the impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under section 36(1)(vii) of the 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-bank might be taking the benefit of deduction under section 36(1)(vii) of the 1961 Act, twice over. (See order of the Commissioner of Income-tax (Appeals) at pages 66, 67 and 72 of the paper book), which refers to the apprehensions of the Assessing Officer). In this context, it may be noted that there is no finding of the Assessing Officer that the asses see had unauthorisedly claimed the benefit of deduction under section 36(1)(vii), twice over. The order of the Assessing Officer is based on an apprehension that, if th....
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.... Appeal No. 3 relates to the disallowance of the claim made under section 36(1)(viii) of the Act. The assessee-bank claimed deduction of Rs. 400 crores under section 36(1)(viii) of the Act in respect of profits derived from the eligible activity viz., (i) industrial or agricultural development, (ii) development of infrastructure facility in India ; and (iii) development of housing in India. The computation made by the assessee-bank in respect of the said activities is as under : "Calculation of profits earned from long-term finance under section 36(1)(viii) Income from long-term finance 5212.45 Less : Expenditure 3039.51 2172.94 Profit from long-term finance 20 per cent. of profits from long-term finance A 434.59 Reserve created in books B 400.00 Limited to twice the amount of capital and reserves Capital 410.00 General reserve 4866.59 Total 5276.59 Two times of the above C 10553.18 Amount eligible under section 36(1)(viii)" 400.00 The Assessing Officer was of the opinion that the ratio of expenditure to the income is 89.33 per cent. at the entity level. Therefore the Assessin....
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....n under section 36(1)(viii) of the Act. The only dispute is with regard to method of computation of deduction. The provisions of section 36(1)(viii) read as under : "36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-. . . (viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent. of the profits derived from eligible business computed under the head 'Prof its and gains of business or profession' (before making any deduction under this clause) carried to such reserve account : Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance under this clause shall be made in respect of such excess." There is no dispute as to the satisfaction of the conditions prescribed in the said provision. The dispute is only with regard to the method of computation of profits of the eligible business. The Assessing Officer was of the opinion ....
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....purchase of the particular security. Every year, at the year end, 1/9th of the amount (difference between the book value and the face value = premium/interest amount, V is the remaining number of years to maturity) will be debited to amortisation account and investment account will be credited. Amortisation amount will be debited to the profit and loss account. As we treat all categories of securities as stock-in-trade, the amortisation accounted in the books of account is not added to the income in the return of income. The amount of 'loss on revaluation of securities/amortisation of premium' amounting to Rs. 115.88 crores. This amount is inclusive of premium/interest paid for the securities purchased in the earlier years. If the Assessing Officer is intending to consider the amount of the interest component included at the time of purchase is Rs. 90,54,75,365. In the assessment any amount to be considered to be added, either one of the above amount can only be considered.' The assessee's submission is considered. Since the securities in the held to maturity (HTM) category are in the nature of investments, the broken period interest paid at the time of purchase ....
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..... The amount of loss on revaluation of securities/amortisation of premium' amounting to Rs. 115.88 crores. This amount is inclusive of premium/interest paid for the securities purchased in the earlier years. If the Assessing Officer is intending to consider the amount of interest component included at the time of purchase is Rs. 90,54,75,365. In the assessment any amount to be considered to be added, either one of the above amounts can only be considered." (emphasis added). Before me in appeal it was submitted that 'the premium paid does not include any broken period interest and no broken period interest is amortised'. It was also submitted that the quoted explanation given before the Assessing Officer was not correct as per the description of the HTM category investments in the books of the appellant. 9.4 The contrary claims made before the Assessing Officer and in appeal are found to be irreconcilable from the accounts of the appellant. It is also found that the appellant had agreed to the said disallowance. In view of this discussion I am not inclined to interfere with stand taken by the Assessing Officer. These grounds, therefore, fail." 9.2 We heard the rival....
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.... Infrastructure Development Corporation Ltd. v. Joint CIT [2006] 280 ITR 491 (Mad). Aggrieved, the assessee moved the matter in appeal before the first appellate authority. 05. The learned Commissioner of Income-tax (Appeals) after considering the submissions made before him and following the decision of the Madras High Court cited supra, came to the conclusion that the hon'ble Madras High Court has that merely because the RBI had directed the assessee to provide for non-performing assets, that direction cannot override the mandatory provisions of the Income-tax Act contained in section 36(1)(viia) which stipulate for deduction not exceeding 5 per cent. of the total income only in respect of the provision for bad and doubtful debts which are predominantly revenue in nature or trade related and not for provision for non-per forming assets which are of predominantly capital nature. Thus, he was of the view that the assessee was not entitled to deduction of amortisation of premium on investments under section 36(1)(vii). Aggrieved, the assessee is in second appeal before us with this issue. 06. The learned counsel for the assessee submitted that the Commissioner of Income-tax ....
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....d having regard to the Central Board of Direct Taxes Instruction No. 17 of 2008 dated November 26, 2008 as reproduced hereinabove, the premium paid on such Government securities is required to be amortised over the period remaining to maturity. . .' (iii) In the case of Corporation Bank v. Asst. CIT (I. T. A. No. 112/ Bang/2008 (Bang)) for the assessment year 2004-05, the earlier Bench had also held a similar view. In the light of the above discussion and the case law discussed supra, taking into account the totality of the facts and materials, we are of the considered view that the assessee is entitled to claim this deduction and hence we allow the grounds of the assessee relating to this issue. 11. We are of the view that in the light of the decision on the issue considered by the Tribunal, the claim made by the assessee has to be allowed. Accordingly, the Assessing Officer is directed to allow the claim of the assessee for deduction." The fact that the assessee had agreed for disallowance before the Assessing Officer is of no consequence as it is settled principle of law that there is no estoppel against law. Therefore, respectfully following the decision of the co-or....
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....bonds (exempt under section 10(15)(iv)(h) amounting to Rs. 7.94 crores and dividend income (under section 10(34) and 10(35) amounting to Rs. 37.90 crores as exempt under section 10 and no specific expenditure was incurred for earning the income. The administrative expenditure is incurred to carry out various business activities, the income from, which is subjected to tax. There is no additional expenditure involved in earning the tax-free income. The exempted income is very small portion of the total income. Even in the absence of the said exempt income, the bank would have incurred the same expenditure. 3.4 The Assessing Officers in the past have estimated and had disallowed under section 14A notional expenditure approximating to 3 to 6 per cent. of the exempted income. We have established that as no direct expenses are incurred in earning such tax-free income as such no expenditure is attributed for disallowance. However, the Commissioner of Income-tax (Appeals) has for the assessment year 1998-99 and other years estimated that 2 per cent. of the exempted income can be attributed as expenses under section 14A and accordingly directed the Assessing Officer to disallow 2 per cent....
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....ome which does not form part of the total income under this Act in accordance with such method as may be prescribed. The mechanism of determination of the amount of expenditure relatable to exempt income is prescribed in rule 8D of the Income-tax Rules, 1962 which were inserted by the fifth amendment with effect from March 24, 2008. A perusal of rule 8D will indicate that there are three sub components of such expenditure which is relatable to exempt income. The provisions of rule 8D are extracted hereunder : 'I. Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with - (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). II. The expenditure in relation to income which does not form part of the total income shall be the aggregate of the following amounts, namely : (i) the amount of expenditur....
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....ich does not form part of Rs. 91,69,320. (The assessee has stated in submission dated June 27, 2011 in paragraph 12 that 'we have not incurred any direct expenditure that can be disallowed, however, as offered in the return of income a sum of Rs. 0.92 crore can be attributed under this clause.') (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula nil (The assessee has stated in the submission dated June 27, 2011 in paragraph 12 that 'We have not incurred any interest expenditure for earning the exempted income. For this assessment year our total funds in the form of capital and reserves amounts to Rs. 12207.77 crores and the investment made for earning the interest Rs. 85 crores, dividend is Rs. 1418.10 crores (average investments). Since we have not borrowed any amount for making such investments the amount disallowable under this clause is 'nil.' (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not f....
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....t no expenditure was incurred to earn exempt income and it is only thereafter, and only if the Assessing Officer is not satisfied on this account, and after making reference to accounts, he is entitled to adopt the method prescribed under rule 8D of the Income- tax Rules. Rule 8D of the Income-tax Rules read as under : '8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely : (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case w....
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.... not in appeal, we uphold the disallowance. Accordingly, the finding of the Commissioner of Income-tax (Appeals) does not call for an interference. The ground of appeal is dismissed. 11. Ground of Appeal No. 3 relates to depreciation on the leased assets to the Kedia group of companies. This issue is only consequential in nature, as in the earlier years viz., 2008-09 and 2007-08, we allowed the claim vide order dated July 13, 2016 in Miscellaneous Petition Nos. 42 and 43/Bang/ 2016 in I. T. A. Nos. 684/Bang/2012 and 813/Bang/2011. This ground of appeal is dismissed. 12. Ground of Appeal No. 4 relates to write off of miscellaneous items disallowed by the Assessing Officer. The factual background leading to the above addition, as set out by the Assessing Officer vide paragraph 6 of the assessment order as under : "6. Write off of miscellaneous items 6.1 The assessee has written off the expenditure of Rs. 37,60,346 during the year under the narration 'miscellaneous items written off'. On this issue, the assessee has submitted in letter June 27, 2011 as under : 'The debit items under certain heads where the bank could not recover/adjust for long are written off and ....
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....This issue has come up for consideration before the co-ordinate Bench in I. T. A. No. 318/2014 wherein it was held as under : "Ground No. 4 relates to the direction of the Commissioner of Income-tax (Appeals) deleting the addition on account of sundry assets written off. The Assessing Officer disallowed the same treating it as bad debt written off. 14.1 The learned Departmental representative relied on the order of the Assessing Officer. On the other hand, the learned authorised representative of the assessee submitted that sundry debts written off represent penalties imposed in respect of accounts which are in operative for not maintaining of minimum required balance etc. The system automatically debits the customer's account with such charges wherever required. However, in some cases such charges were not recovered at all as the customers chose not to revive their accounts. Such outstanding balances/sundry assets were written off. It is submitted that whenever there was recovery the same were offered to tax. Sundry assets do not mean bad debts as bad debts pre-suppose existence of a debtor. There was no debtor and creditor relationship in these cases, as no money was lent....
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....ate Bench we hold that the assessee-bank is not liable for tax under section 115JB for the year under consideration. Therefore, we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals). This ground of appeal is dismissed. 13.2 In the result, the appeal filed by the Revenue is dismissed. Assessee's appeal in I. T. A. No. 1493/Bang/2014 for the assessment year 2010-11 : 14. The assessee raised the following grounds of appeal : "1. The order of the learned Commissioner of Income-tax (Appeals), LTU, Bangalore dated August 28, 2014 is against law and facts of the case. 2. The learned Commissioner of Income tax (Appeals), erred in law in confirming the disallowance of the bad debts claim under section 36(1)(vii) amounting to Rs. 438,00,00,000. 2.1. The learned Commissioner of Income tax (Appeals) erred in holding that the appellant bank did not write off the debts of Rs. 438,00,00,000. 2.2. The learned Commissioner of Income tax (Appeals) erred in holding that the amount of Rs. 438,00,00,000 is a provision and not a write off. 2.3. The learned Commissioner of Income tax (Appeals) erred in holding that the debts are to be written off at the br....
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....making the additions made in the assessment' for the purpose of allowing the deduction under section 36(1)(viia). 3.5. The learned Commissioner of Income tax (Appeals) erred in holding that the appellant-bank did not made any provisions for the entire amount of bad and doubtful debts of Rs. 900,00,00,000 and wrongly concluding that the judgment of the hon'ble Punjab and Haryana High Court decision is applicable to the appellant-bank's case. 3.6. The learned Commissioner of Income tax (Appeals) erred in confirming the addition on surmises and conjunctures. 3.7. The confirmation made by the learned Commissioner of Income tax (Appeals) of the computation made by the Assessing Officer is based on prejudices and against the facts and the records of the case. 4. The learned Commissioner of Income tax (Appeals) erred in law and on facts in confirming the disallowance of the depreciation amounting to Rs. 1008,20,09,971 on investments which are stock-in- trade of the bank. 4.1. The learned Commissioner of Income tax (Appeals) erred in law in disallowing the depreciation on investments considering that the entire depreciation claimed by the appellant holding that the en....
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....n respect of profit from long-term finance under section 36(1)(viii) for the special reserve created. 6.1. The learned Commissioner of Income tax (Appeals) erred in law in not appreciating the fact that the appellant-bank computed the income from long-term finance consistently in the similar manner in all the years of its claim as provided in that section. 6.2. The learned Commissioner of Income tax (Appeals) erred in law in confirming the Assessing Officer's contention of disallowing the deduction on the basis that the profit from long-term finance should be arrived by preparing separate profit and loss account in respect of the deduction under section 36(1)(viii). 6.3. The learned Commissioner of Income tax (Appeals) failed to appreciate the fact that there is no requirement in law to maintain separate books of account or the preparation of separate profit and loss account for the purpose of claiming deduction under section 36(1)(viii). 6.4. The learned Commissioner of Income tax (Appeals) failed to conclude that the appellant-bank computation is not reliable and comprehensive without giving an alternate reliable method of computation for claiming deduction under sect....
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.... appreciate the fact that the entries in the books alone cannot be the basis for taxing a receipt. 8.4. The learned Commissioner of Income tax (Appeals) ignored the consistent method adopted by the appellant-bank in offering the unrealised gains to tax over the years. 8.5. The learned Commissioner of Income tax (Appeals) failed to appreciate the fact that it is only a revenue neutral exercise and there is no loss to the Revenue over the years as the appellant-bank had offered to tax on the date of actual realisation. The fact finding authorities failed to find that the appellant-bank had offered to tax the deduction claimed in the previous assessment year. For the above mentioned grounds or any other grounds that may be pressed at the time of hearing, the appellant prays that its appeal be allowed." 15. Ground of Appeal No. 1 is general in nature and do not require adjudication. 16. The assessee challenges the disallowance on account of bad debts vide ground of Appeal No. 2. For the assessment year 2009-10, in the assessee's appeal in I. T. A. No. 979/Bang/2013, this issue was remanded back to the file of the Assessing Officer for the purpose of verification whether bad....
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....y submitted as required under rule 6ABA. The population figures considered for the purpose are of census 2001. We enclose the census certificates of rural branches collected by us/downloaded by Census Department website in support of our claim." Finally, the Assessing Officer computed deduction of Rs. 324,94,36,110 working of which is as under : From above working, it is clear that while calculating the average aggregate advances of rural branches, the Assessing Officer has considered only incremental advances alone whereas the assessee-bank calculated the average aggregate advances on the outstanding advances. Thus, variation between amount of claim made by the assessee-bank and allowed by the Assessing Officer i.e., on account of two accounts (i) branches which are urban and rural branches having population of more than 10,000 and branches for which no information was furnished by the assessee and on account of methodology of computation to arrive at the average aggregate advances of rural branches. 17.2 On appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) held as follows : "9.6 I have considered the appellant's submissions....
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....ition precedent for allowing deduction under the said section. This order was followed by the hon'ble Income-tax Appellate Tribunal Bangalore in the case of Syndicate Bank v. Deputy CIT (I. T. A. Nos. 668 and 669/ Bang/2010) [2013] 26 ITR (Trib) 501 (Bang) in order dated June 19, 2013. The hon'ble Bench had directed that the deduction under section 36(1)(viia) was to be limited to the amount of the provision claimed and could not exceed it. The appellant's matter is, therefore to be concluded in the light of this judgment. In view of the discussion as above, I find it reasonable to affirm the computation of 10 per cent. of the average aggregate advances in the five steps outlined in pages 50 and 51 of the Assessing Officer's order. The appellant's ground raised in this regard is, accordingly, dismissed." 18. Being aggrieved, the assessee is before us vide ground of Appeal Nos. 2 and 3. The learned counsel for the assessee vehemently contended that the methodology of computation of the average aggregate advances for the purpose of deduction under section 36(1)(viia) is settled by the decision of the co-ordinate Bench in the case of (i) Nizamabad District Co-oper....
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....' shall have the meanings assigned to them in the Explanation to clause (viia) of sub-section (1) of section 36." From a bare reading of the above rule it is crystal clear that the said rules prescribe three steps for computing the average aggregate advances in the following manner : "Step one-in respect of each rural branch, note down the amounts of advances outstanding at the end of the last day of each month comprised in the previous year and aggregate the amounts so noted. Step two-divide the aggregate amount arrived at in step one by the number of months for which the outstanding amounts have been taken into account for the purpose of step one. Step three-aggregate the amounts arrived at under step two in respect of all the rural branches." Thus, it is clear that the said Rules do not provide for only fresh advances made by each rural branch during each month alone is to be considered. It only prescribes that the amount of advances made by rural branch and is outstanding at the end of the last day of each month shall be aggregated. Having regard to the plain provisions of the Income-tax Rules, it cannot be construed that only fresh loans made by rural branches out ....
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....nder the proviso to section 36(1)(vii). As can be seen from the working submitted by the learned authorised representative, the provision created during the year under section 36(1)(viia) read with rule 6ABA, amounts to Rs. 16,35,55,829.00 whereas the assessee has claimed deduction of Rs. 5,16,46,976, which is well within the provision permissible under section 36(1)(viia). Therefore, there cannot be any doubt with regard to the allowability of deduction claimed by the assessee under section 36(1)(viia). Accordingly, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition of Rs. 3,88,25,673. However, as far as deduction of Rs. 18,79,704 is concerned, the same cannot be allowed under section 36(1)(vii) considering the fact such amount has not exceeded the provision for bad and doubtful debts under section 36(1)(viia). At the same time, the alternative claim of the assessee that it is to be allowed under section 37(1), in our view, is acceptable. On a perusal of the assessment order and the facts and materials available on record, it is quite evident that the amount was waived at the direction of the State Government Depa....
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....only in the computation income was depreciation on investments in India of Rs. 953,18,96,332 and depreciation on investments outside India of Rs. 55,01,13,647. It is pertinent to mention here that the other two categories viz. held for trade (HFT) and available for sale (AFS) has appreciated during the year and it is noticed the same in the annual report and the profit and loss account. 3.1 Show cause issued and reply In this connection the assessee-bank has furnished the reply in response to the notice dated June 19, 2012 vide their letter dated August 17, 2012 that 'details will be furnished shortly with explanation'. Further the practice adopted by the bank was explained in point No. 3 of the reply and it is reproduced below : 'In the books of the bank, as per the Reserve Bank of India guidelines, the investments are classified into three categories viz., 'held to maturity' (HTM), available for sale (AFS) and held for trading (HFT). However, for the purpose of computation of income for the assessment year 2005-06 and onwards we had considered the entire investment portfolio including the HTM category as 'stock-in-trade'. Accordingly the closin....
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....s it was held to mature. The main intention and purpose is to safeguard the interest of public money and the investors. The HTM securities are redeemed once it matures and the bank cannot trade on those securities. The assessee-bank cannot adopt their own method of accounting and policy overriding the Income-tax provisions as well as the RBI guidelines. In all the years the additions/disallowance was made by the Assessing Officer where the depreciation of the HTM category securities claimed only in computation of income. The addition/ disallowance made by the Assessing Officer in all the earlier assessments was confirmed by the Commissioner of Income-tax (Appeals) and the assessee-bank is in appeal before the hon'ble Income-tax Appellate Tribunal. 3.2 Relevant case law in support of the Revenue Recently, the hon'ble High Court of Karnataka in the case of CIT v. Ing Vysya Bank Ltd. [2013] 356 ITR 532 (Karn) ; [2012] 208 Taxmann 511 has upheld the Revenue's stand on a similar issue. The hon'ble High Court of Karnataka has analysed the entire issue in detail and passed a speaking order. The salient findings of the High Court are reproduced as under (page 345) : ....
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....tailed or regulated by any other external or outside compulsions other than the volition of the assessee. In the instant case we are of the view that on the findings recorded by the Assessing Officer and as confirmed by the Appellate Commissioner, the Tribunal could not and should not have upset such a finding by drawing a comparison to a situation prevailing in respect of some other bank and the view of the Tribunal in that case was based on the Board circular which had held the field at the relevant point of time. Even otherwise, we find in the facts and circumstances, this is a clear case of investment in the securities, which cannot be characterised as stock-in-trade at all, as even as per the admission of the assessee and as per the relaxation, assuming it has any relevance, given by the RBI, it can only be 30 per cent. of the investment which can be clothed with the character of stock-in-trade, as the assessee-bank had some freedom in exchanging such securities or any other form of security, it can be said that to this extent securities are available for sale but the condition is that it again should be invested in any other security, so that the requirement of investment in ....
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....conclusion As per the detailed discussion made above the assessee-bank is not entitled the claim depreciation on the HTM securities. They cannot pick and choose the law as per their choice. Further, as per the decision of the hon'ble High Court of Karnataka in the case of CIT v. Ing Vysya Bank the claim of depreciation on the HTM securities in India of Rs. 953,18,96,332 and investments of securities outside India of Rs. 55,01,13,332 totalling into Rs. 1008,20,09,979 is disallowed and added back. A separate penalty proceeding under section 271(1)(c) of the Income-tax Act was issued for furnishing inaccurate particulars and concealment of income." 20. On appeal before the Commissioner of Income-tax (Appeals), the same was confirmed. 21. Being aggrieved, the assessee is before us vide ground of Appeal Nos. 4 and 5. The learned counsel for the assessee contended that the securities held by the bank are stock-in-trade. Therefore, in view of the salutary principles governing valuation of stock-in-trade that it should be valued at cost or market price whichever is less, the fall in the value investment should be allowed as deduction. The learned counsel for the assessee placed r....
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....he owner of a capital asset into, or its treatment by him as stock-in- trade of a business carried on by him shall be chargeable to income- tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.' But here the question is, in the earlier years though investments are shown as investments in the books of account for Income-tax purposes, the same was shown as stock-in-trade. Therefore, the assessee-bank changed its method of accounting during the previous year relevant to the assessment year under consideration is not a material fact in deciding the issue in the present appeal. In the earlier years, the same was claimed as stock-in-trade and the resultant loss or gain on account of following the principle cost or market price whichever is less, is recognised for Income-tax purpose. In this context, it is apt to reproduce Circular No. 18 of 2015 : 'Circular No. 18 of 2015, dated Nov....
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....rtue of the abovesaid circular, investments made by the banking company should be treated as a business asset of the banking company or stock-in-trade. It is well settled in law that the Central Board of Direct Taxes circulars are binding upon the officers who are entrusted with the responsibility of executing the provisions of the Act. 9.6 The jurisdictional High Court, in the case of Karnataka Bank (supra), after referring to the judgment of the apex court in the case of Southern Technologies [2010] 320 ITR 577 (SC) and UCO Bank [1999] 237 ITR 889 (SC) held that the directions of the RBI are only disclosed norms and they have nothing to do with computation of taxable income. The jurisdictional High Court further upheld the claim of the assessee-bank following the principle of consistency. Even the hon'ble apex court in the case of UCO Bank (supra) only laid down the principle that where the investments are forming part of stock-in-trade, loss arising on account of fall in value of the securities should be recognised and allowed as a deduction. But the above case cited supra does not come to the rescue of the assessee-bank for the reason that the assessee-bank, even in the b....
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.... is stated that in terms of the accounting policy, revenue in the form of commission and guarantees, locker rent are accounted on receipt basis. However, in the computation of income, revenue pertaining to future period that is falling beyond the accounting year was claimed as deduction. The same was disallowed by the Assessing Officer holding that once income is credited to the profit and loss account, as per the policy of a company, same should be offered to tax. On appeal before the Commissioner of Income-tax (Appeals), the same came to be confirmed. 24. Being aggrieved, the assessee is before us vide ground No. 7. The learned counsel for the assessee vehemently contended that treatment in the books of account has no relevance for deciding the taxability or otherwise of an item of income. The fact of receipt was accounted as income in the books of account has no bearing on the taxability or otherwise of the income under the provisions of the Act. The learned counsel for the assessee further submitted that this practice is being continuously followed by the assessee-bank and having regard to the rule of consistency, no addition should be made. Reliance in this regard was placed ....
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....ddition is warranted in respect of the guarantee commission on letter of credit or locker rent received in advance. Thus, ground of Appeal No. 7 is allowed. 26. Ground No. 8 challenges the addition on account of unrealised gains on revaluation of forward contracts. The facts leading to this addition as stated by the Assessing Officer in paragraph 8 as under : "Unrealised gains on revaluation of forward contracts (Rs. 36,28.87.643) In the computation of income a sum of Rs. 36,28,87,643 was claimed as deduction on account of unrealised gains on revaluation of forward contracts. The assessee-bank was asked to substantiate their claim vide notice under section 142(1) dated June 19, 2012. In response to the notice the assessee-bank has furnished the following reply in their written submissions dated August 17, 2012. The reply is scanned and reproduced below : (16) Unrealised gains on revaluation of forward contracts Forward contract is a mechanism by which foreign currency is bought/sold from/to customer for delivery at a future date at an agreed rate of exchange (contracted rate). Conversion of currencies takes place at a future date (known as delivery date) at the contacted r....
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....T [1997] 225 ITR 746 (SC), reiterated that Income-tax is not leviable on hypothetical income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted viz., the accrual of income or its receipts but the substance of the matter is income. If the income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a 'hypothetical income' which did not materialise. In view of the above, in a situation where there is uncertainty regarding recognition of income in the books, the recognition of income as taxable on that account should be postponed and that there could be no levy of tax on any hypothetical or illusory income." The above submission of the assessee-bank has been rejected by the Assessing Officer by holding that the assessee-bank recognised income in the profit and loss account made as on March 31, 2010 and therefore the same cannot be claimed as deduction while computing the total income. 27. On appeal before the Commissioner of Income-tax (Appeals), the same was confirmed by the Commissioner of Income-tax (Appeals). 28. We heard the rival submissions and perused the material ....
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....ation claimed on leased assets given to M/s. Rajinder Steels Ltd., M/s. Kedia Castle Delton Ltd. and Kedia Distilleries. This issue is only consequential in nature for the year under consideration. We held in the Revenue's appeal bearing I. T. A. No. 1035/ Bang/2013 for the assessment year 2009-10 vide paragraph 11 that depreciation cannot be disallowed on the leased assets given to M/s. Rajinder Steels Ltd., M/s. Kedia Castle Delton Ltd. and Kedia Distilleries. For parity of reason, we hold that depreciation cannot be disallowed on the leased assets given to M/s. Rajinder Steels Ltd., M/s. Kedia Castle Delton Ltd. and Kedia Distilleries. This ground of appeal filed by the Revenue is dismissed. 32. Ground of Appeal No. 2 challenges the deletion of the addition made under section 14A by the Commissioner of Income-tax (Appeals). In the immediate preceding assessment year 2009-10 in I. T. A. No. 1035/Bang/ 2013, following the co-ordinate Bench decision in the case of the very same assessee for the earlier assessment years, we held that the provisions of section 14A cannot be applied without giving any finding as to how the claim of the assessee-bank that no expenditure was incurr....
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....te that fact that the appellant has offered to tax the 'write back' on account of recovery/upgradation of such kind of bad debts written off in the earlier years under section 41 of the Income- tax Act, 1961. 2.9. The learned Commissioner of Income-tax (Appeals)-14, LTU erred in making the addition on surmises and conjunctures. 2.10. The learned Commissioner of Income-tax (Appeals)-14, LTU failed to appreciate the fact that on the same set of facts the juris dictional Appellate Tribunal and the hon'ble High Court have allowed the deductions to various banks. 3. The learned Commissioner of Income-tax (Appeals)-14, LTU erred in law in confirming the disallowance of the provision for bad debts claimed under section 36(1)(viii) Rs. 266,28,98,973. 3.1. The learned Commissioner of Income-tax (Appeals)-14, LTU erred in law in holding that rule 6ABA prescribes only 'fresh/incremental advances' are to be considered for arriving at the aggregate average advances. 3.2. The learned Commissioner of Income-tax (Appeals)-14 erred in interpreting that as per rule 6ABA 'advances made' to be read as 'made during the month'. 3.3. The learned Commissione....
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....to Rs. 110,26,13,670 as income. 5.1 The learned Commissioner of Income-tax (Appeals)-14, LTU erred in sustaining this addition without rejecting the books of account of the appellant-bank. 5.2. The learned Commissioner of Income-tax (Appeals)-14, LTU failed to appreciate the fact that the income to that extent did not accrue to the bank. 5.3. The learned Commissioner of Income-tax (Appeals)-14, LTU ignored the consistent method adopted by the appellant-bank in not offering the commission and locker rent received in advance but offered in the year it is accrued in the subsequent years. 5.4. The learned Commissioner of Income-tax (Appeals)-14, LTU failed to appreciate the fact that on the same set of facts, in the earlier assessment years, the advance amounts received by the appellant- bank was not taxed as income. 5.5. The learned Commissioner of Income-tax (Appeals)-14, LTU failed to distinguish the facts of the judicial decision referred to by the Assessing Officer to that of the appellant-bank case and drawing conclusions without verifying the facts of the case. 5.6. The learned Commissioner of Income-tax (Appeals)-14, LTU failed to appreciate the fact that it is only....
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....ebited to the profit and loss account. If it is found so on due verification, the Assessing Officer was directed to delete the addition. Following the same reasoning, we remit this issue to the file of the Assessing Officer for the purpose of verifying the above facts. Thus this ground of appeal is partly allowed for statistical purposes. 36. Ground of Appeal No. 3 challenges the confirmation of disallowance on account of provision for bad and doubtful debts claimed under section 36(1)(viia) of the Act. In the assessee's appeal for the assessment year 2010-11 in I. T. A. No. 1493/Bang/2014, we held that for the purpose of calculating the average aggregate advances (AAA), only loan outstanding should alone be considered, not fresh advances made during the period. However, this issue was remitted back to the file of the Assessing Officer to verify and identity rural branches less than 10,000 population as per the latest census and the average aggregate advances of such rural branches alone be considered. Accordingly, even during this year also, we remit this issue back to the file of the Assessing Officer to allow the claim on the lines indicated in paragraph 18.3 in I. T. A. No....
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....issioner of Income-tax (Appeals) has not accepted this contention. Hence, the assessee-bank is before us in the present ground of appeal. 40.2 We heard the rival submissions and perused the material on record. No doubt, the assessee-bank is entitled for deduction of the amount which was disallowed in the earlier assessment proceedings for non-deduction of tax at source in the year of deducting tax at source. The onus always lies on the assessee to prove that the TDS provisions have been complied with during the year in which the claim was made. Therefore, we remit this issue to the file of the Assessing Officer with a direction that the assessee- bank shall furnish evidence in respect of compliance with the TDS provisions. 40.3 This ground of appeal is partly allowed for statistical purposes. The Revenue's appeal (I. T. A. No. 903/Bang/2016) for the assessment year 2011-12 41. The Revenue raised the following grounds of appeal : "1. The order of the Commissioner of Income-tax (Appeals) is opposed to the facts and law in so far as the below issues decided against the Revenue. 2. The Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to dele....
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....he books of account, 1/5th of the additional liability i.e., Rs. 370.5 crores was debited to the profit and loss account for the year March 31, 2011 and the balance amount was carried forward for amortisation. However, in the computation of total income, the entire liability was claimed as deduction. The Assessing Officer has restricted the deduction to the extent of the amount debited to the profit and loss account only and the balance was disallowed. The facts as set out by the Assessing Officer are as under : "6.3 . Summary 'The detailed discussion made above has revealed fact that the assessee-bank has debited only a sum of' Rs. 137,52,84,090 as provision for gratuity fund and Rs. 890,26,63,390 towards provision for pension fund. As against this a sum of Rs. 679,52,53,142 and Rs. 2369,18,89,449 was claimed as a deduction as the payment made to the gratuity fund and the payment made to the pension fund. When the bank themselves has drawn its minutes stating that the entire liability cannot be absorbed against the current year profit. It cannot be claimed as the current year expenditure in computation of income. It is pertinent to mention here that one-fifth of the ....
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....on fund can be allowed on payment basis in terms of the provisions of section 43B of the Act. He placed reliance on (i) the decision of the co-ordinate Bench of Hyderabad in the case of Andhra Bank (supra); (ii) the decision of the hon'ble Karnataka High Court in the case of CIT v. Amco Batteries [2006] 287 ITR 80 (Karn) ; [2006] 155 Taxman 167 (Karn) and (iii) the decision of the hon'ble Supreme Court in the case of Taparia Tools Ltd. v. Joint CIT [2015] 372 ITR 605 (SC). 43.6. We heard the rival submissions and perused the material on record. The only issue in this ground of appeal relates to whether the additional liability arising on account of gratuity on account of enhancement of gratuity limit and the contribution to the pension fund on account of employees reopening of the option for pension, can be allowed as a deduction though only 1/5th additional liability was debited to the profit and loss account. There is no dispute as regards the crystallisation of liability during the year under consideration. The only reason cited by the Assessing Officer for disallowance is that the assessee has not debited to the profit and loss account, the entire amount of the additio....