AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 520
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....tful debts of non rural branches and disallowance of expenditure incurred in relation to exempt income. The assessee also challenged the additions made by the Assessing Officer towards unreconciled credit entries in the nostro mirror accounts credited to the profit and loss account for the assessment year 2010-11. The Revenue, from these grounds of appeal challenged the deletion of additions made by the Assessing Officer towards bad debts and diminution in value of investment held as stock-in-trade. 3. Brief facts of the case extracted from ITA No. 1891/Mum/2011 for the assessment year 2004-05 are that the assessee has a scheduled bank, filed its return of income for the assessment year 2004-05 on 29.10.2004, declaring total income of Rs. 3,41,92,94,640/-. The case has been selected for scrutiny and the assessment has been completed u/s. 143(3) on 23.12.2005 determining the total income at Rs. 1,15,94,66,420/- interalia making additions towards disallowance of bad debts, disallowance of expenditure incurred in relation to exempt income and accrued interest on investments. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. Commissioner of Inc....
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....or the assessee, at the time of hearing submitted that the issue is squarely covered in favour of the assessee by the decision of the ITAT, in assessee's own case for assessment year 1989-90 to 1992-93 and for assessment year 2009-10 wherein under similar circumstances, the ITAT has allowed bad debt written off in respect of non rural branches. On the other hand the ld. Departmental Representative strongly supported the order of the ld. Commissioner of Income Tax (Appeals). 6. We have heard both the parties and perused the material available on record. The issue of bad debt written off in respect of non rural branches is no longer resintegra. The ITAT, in assessee's own case for assessment year 2009-10 in ITA Nos. 1561 and 3438/Mum/2013 has considered the issue of bad debt written off in respect of non rural branches u/s. 36(1)(vii) of the Income Tax Act, 1961. The ITAT by following the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs. CIT [2012] 343 ITR 270 has held that the bad debt written off in respect of non rural branches is allowable as deduction u/s. 36(1)(vii) of the Income Tax Act, 1961. The relevant portion of the order is extracted b....
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....ng Officer and also directed to restrict the disallowance of expenditure @ 2% of exempt income. 9. Having heard both the parties and perusing the materials available on record we find that the ITAT, in assessee's own case for assessment year 2009-10 in ITA No. 1561 and 3438/Mum/2013 dated 03.10.2017 has considered the issue of disallowance of expenditure in relation to exempt income u/s. 14A of the Act. The Co-ordinate Bench after considering the relevant facts in light of section 14A has deleted the additions made by the Assessing Officer and restricted the addition to the extent of 2% of the exempt income by holding that the assessee's own interest free funds compressing its share capital and reserves are more than the investments made which yield tax free exempt income. The ITAT further observed that on perusal of the Assessing Officer's order, it is clear that the Assessing Officer has not recorded any satisfaction with regard to the claim of the assessee that it has earned exempt income without attributing any expenses relating thereto with reference to the books of accounts which is a pre-condition for invoking the provisions of the section 14A of the Act. The relevant por....
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....expenses, Ld Counsel for the assessee submitted that disallowance of a reasonable percentage of the exempt income is an accepted method of quantifying the disallowance of expenses for the AYs prior to AY 2008-2009, the year of amendment to Rule 8D of IT Rules, 1962. In this regard, Ld Counsel for the assessee filed decisions of the Tribunal in the cases of DCIT vs. HDFC Bank Ltd in ITA Nos. 4529/M/2005 and others, dated 29.6.2011 and order of the Tribunal in the case of Bank of India vs. ACIT in ITA No.1498/Mum/2011 for the AY 2001-2002, dated 9.4.2014 and submitted that disallowance @ 1% of the exempt income in the case of Banks is accepted as a „reasonable basis‟. Further, he also referred to the decision of the Tribunal in the case of M/s. Godrej Agrovet Ltd vs. ACIT in ITA No.1629/Mum/2009, dated 17.9.2010, which was subsequently ratified by the Hon‟ble jurisdictional High Court in the same case. This case is relevant for the proposition that the I.T.A. No.1525 and 364 9/Mum/2013 And I.T.A. No.1561 and 3438/Mum/2013 disallowance of 2% of the exempt income is found reasonable by the Hon‟ble High Court." Accordingly, we set aside the order of the ....
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....rred on diminution in value of investment is not allowable while computing the income from business. It is the contention of the assessee that the bank is following method of accounting as per which it values its investment held as stock-in-trade as on the end of the financial year at cost or market value whichever is less and the difference arising as a result of this valuation is treated as business loss. The assessee further contended that any fluctuation in valuation of the stock is to be treated as loss or income of the assessee for the year in question. 14. Having heard both the sides, we find merits in the arguments of the assessee for the reason that the issue has been considered by the Hon'ble Bombay High Court in the case of Bank of Baroda (supra), wherein it was held that the bank valued its investments at cost or market value whichever is less and the difference arising as a result of the valuation has to be allowed to the assessee as a loss. The Hon'ble Supreme Court in the case of United Commercial Bank (supra) has taken a similar view, wherein it was held that stock valuation is admittedly a method of accounting, the assessee-bank can claim the benefit of stoc....
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....our of the assessee by the decision of the Hon'ble Bombay High Court in the case of American Express International Banking Corpn. Vs. CIT [2002] 258 ITR 601 (Bom) and also the decision of the Hon'ble Supreme Court in the case of CIT vs. Citi Bank N. A. in Civil Appeal No. 1549 of 2006 vide order dated 12.08.2008. The ld. Authorized Representative further submitted that the issue is also covered by the decision of the Hon'ble Bombay High Court in the assessee's own case in ITA No. 137 of 1997 dated 09.10.2012. 18. Having heard both the sides, we find that the ld. Commissioner of Income Tax (Appeals) has deleted the additions made by the Assessing Officer towards broken period interest by following the decision of the Hon'ble Bombay High Court in the case of American Express International Banking Corpn. (supra) and also the decision of Hon'ble Supreme Court in the case of Citi Bank N. A. (supra). A similar view has been expressed by the Hon'ble Bombay High Court in the case of assessee's own case vide order dated 09.10.2002 (Supra). The Revenue has failed to bring on record any contrary decision to support its case. Therefore, we are of the considered view that the....
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.... Bangalore 'A' Bench in the case of M/s. Canara Bank (supra) has also considered the similar issue and after considering the provision of section 35A of the Banking Regulation Act, 1949 and Master Circular of RBI dated 30.03.2017 has held as under: 6.3 In the instant case, as mentioned earlier, the Reserve Bank of India had categorically directed that the amounts are to be kept in general reserve account though routed through the profit and loss account. It is the direction of the RBI that the assessee bank is under an obligation to meet the future claims out of General Reserve So created. The RBI had also stipulated that the amounts so transferred shall not be used in the form of distribution of dividend. In this context of the matter, it cannot be said that it is the money of the assessee bank. The RBI instructions are issued as per section 35A of the Banking Regulation Act, 1949 and the same are binding on the assessee bank. Therefore, though it is routed through the profit and loss account, it does not have income character in the hands of the assessee bank and hence, it cannot be brought to tax. Accordingly, the CITs order invoking revisionary jurisdiction under secti....
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....f Section 115JB cannot come into play at all. However, the assessee is a banking company and under proviso to Section 211(2) of the Act, the assessee is exempted from preparing its books of accounts in terms of requirements of Schedule VI to the Companies Act, and the assessee is to prepare its books of accounts in terms of the provisions of Banking Regulation Act. It is thus contended that the provisions of Section 115JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act. Since the provisions of Section 115 JB do not apply to the assessee company, the reasons recorded for re-opening the assessment are clearly wrong and insufficient. We are urged to quash the reassessment proceedings on this short ground. Learned Departmental Representative, on the other hand, vehemently relies upon the orders of the authorities below and submits that there is no specific exclusion clause for the banking companies, and in the absence of such a clause, it is not open to us to infer the same. The submissions of the learned counsel, ITA No. 4355/Mum/2008 M/s.....