TaxTMI 
TaxTMI 
2020 (1) TMI 1135
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....available on record. We find that the assessee had claimed exempt income of Rs. 23.99 Crores towards dividend received on shares / mutual funds. The ld. AO observed that assessee had incurred a sum of Rs. 13,981 Crores as interest expenses. The main business of the assessee is banking wherein lending and borrowing constitutes main activity. We find that the assessee had placed details of availability of own funds before the ld.AO and accordingly, pleaded that no disallowance of interest need to be made under second limb of rule 8D(2i) of the rules. The assessee further pleaded that since all the investments were held by it as stock in trade and that the entire income derived from such investments were offered to tax under the head 'business income' and not as 'capital gains', no expenditure per se were incurred by it towards administrative expenses also for the purpose of earning dividend income which is exempt. Assessee vehemently pleaded before the ld. AO by placing reliance on the decision of the Hon'ble Karnataka High Court in the case of CCI Ltd., reported in 206 Taxman 563 and certain tribunal decisions to drive home the point that disallowance u/s.14A of the Act would not co....
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....reme Court in the case of Maxopp Investments reported in 402 ITR 640 had also addressed the impugned issue both on technical ground as well as on merits. We find that on the aspect of technical issue i.e. non-recording of objective satisfaction by the ld. AO having regard to the accounts of the assessee, we find that the Hon'ble Supreme Court had categorically held that in the absence of said satisfaction as contemplated in Section 14A(2) / 14A(3) of the Act read with rule 8D(1) of the rules, no disallowance u/s.14A of the Act could be made by adopting the computation mechanism provided in rule 8D(2) of the rules. Moreover, on merits, in the facts of that case, the Hon'ble Apex Court in the very same decision had categorically upheld the findings recorded by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala reported in 78 Taxmann.com 3(P & H) with regard to non-applicability of provisions of Section 14A of the Act in respect of investments held as stock in trade in respect of banks. For this purpose, the Hon'ble Punjab and Haryana High Court in the case referred to supra had placed reliance on the CBDT Circular No.18/2015 dated 02/11/2015 which decision....
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....trade on the ground that the loss incurred on account of diminution in value of investment is only an notional loss, therefore, cannot be allowed as deduction. It is the contention of the assessee that the bank is following the method of accounting for treatment of investment held as stock-in- trade as per which it values its closing stock at cost or market value whichever is less and/or whatever loss incurred on account of diminution in value of investment charged off to the profit and loss account as a loss. The assessee further contended that it is following similar method of accounting for treatment of investment held as stock-in-trade for earlier years which has been accepted by the Department. Therefore, there being any change in the facts, there is no reason for the Assessing Officer to make the additions towards loss incurred on diminution in value of investment held as stock-in-trade. In this M/s. Central Bank of India regard, he relied upon the decision of the Bank of Baroda (supra) and Hon'ble Supreme Court in the case of United Commercial Bank vs. CIT [1999] 240 ITR 355 (SC). 13. We have heard both the parties and perused the materials available on record. The Ass....
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....ng Officer. The Revenue has failed to bring on record any contrary decision to support its argument. Therefore, we are of the considered view that the ld. Commissioner of Income Tax (Appeals) was right in deleting the additions towards diminution in value of investment held as stock-in-trade. We do not find any infirmity in the orders of the ld. Commissioner of Income Tax (Appeals). Hence, we are inclined to uphold the findings of the ld. Commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue." 4.2. Respectfully following the said decision, the ground No.2A raised by the assessee is allowed. Since ground No.2A is directed to be allowed as deduction hereinabove, the adjudication of ground No.2B becomes infructuous. 5. The ground No.3 of assessee appeal and ground No.8 of revenue appeal are interconnected as they pertain to disallowance made on account of shifting of securities from investments held under "Available For Sale" (AFS) to HTM category. 5.1. We have heard rival submissions and perused the materials available on record. We find that the assessee appeal is with regard to enhancement of Rs. 3,43,236/- reversing the valuation loss by the ld. ....
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....the revenue is in appeal before us vide ground No.8. We further find that the ld. CIT(A) had also sought to make an enhancement to the assessment by reversing the shifting loss partially to the tune of Rs. 3,43,236/-. For this purpose, the ld. CIT(A) had recorded the following illustration:- Illustration: Bank purchases a security for Rs. 100/- in F. Y 2010-17. On 31.03.2011, the market value of the security becomes Rs. 90/-. The book value of the share remains at Rs. 100/-. In FY 2011-12, bank shifts the security to HTM category. The market value of the security on the day of shifting was Rs. 80/-. The Bank records the cost at Rs, 80 in its book as per the RBI guidelines. On 31.03.2012, the market value of the security was Rs. 85/-. The "Computed Value" as per of the security works out to Rs. 85/-. The working is given below: Cost= Rs. 100 Market value = Rs. 85 Computed Value: = Rs. 85 As against this, the "Computed Value" works out to Rs, 80/- when the Method followed by the appellant is applied as can be seen from the working given below: Shifting loss: Rs. 100-Rs. 80 = Rs. 20 Book Value = Rs. 80 Market value = Rs. 85 Computed Value Rs. 80 Thus, the method foll....
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....e do not deem it fit to interfere in the said enhancement done by the ld. CIT(A) . However, the observations made by the ld. CIT(A) for justifying the addition is not warranted. Accordingly, the ground No.8 of the revenue is dismissed and ground no.3 of the assessee is dismissed subject to removal of remarks by the ld. CIT(A) as observed hereinabove. 7. The ground No.4 raised by the assessee is with regard to initiation of penalty proceedings u/s.271(1)(c) of the Act, it would be premature for adjudication at this stage. 8. The ground No.5 raised by the assessee is general in nature and does not require any specific adjudication. ITA No.3673/Mum/2018 (Revenue appeal) A.Y.2012-13 9. The ground No.1 raised by the revenue is as to whether the ld.CIT(A) was justified in deleting the disallowance of non-rural bad debts written off u/s.36(1)(vii) of the Act in the facts and circumstances of the case. 9.1. We have heard rival submissions and perused the materials available on record. We find that the undisputed facts are that the assessee wrote off the following amounts as bad debts - pertaining to rural branches Rs. 35,13,98,530/- - bad debts pertaining to non-rural branches R....
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...., we reproduce the operative part of the judgement as under: "41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of th....
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....ion 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under Section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actual write off under clause (vii). This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if any, of the write off over the amount standing to the credit of the account created under clause (viia). However, the Revenue disputes the position that the proviso to clause (vii) refers only to rural advances. It says that there are no such words in the proviso which indicates that the proviso apply ....
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.... raised by the revenue is with regard to deletion of addition made on account of interest accrued but not due on securities in the sum of Rs. 165,71,10,117/- in the facts and circumstances of the case. 11.1. The brief facts of this issue are that the assessee has accounted interest on securities in its books of account on accrual basis. In the tax computation, interest income of Rs. 1243,62,81,764/- which was accrued but not due as on 31st March, 2012 was reduced. In the course of the assessment proceedings the assessee submitted that : (a) the bank is governed by guidelines/instructions issued by the Reserve Bank of India and accordingly the interest income are accounted in accordance with the guidelines and instructions issued by the RBI from time to time ; (b) the interest on securities has been accounted in the books of the assessee on the accrual basis. However in the tax computation, interest income of Rs. 12,43,62,61,764/- which accrued but was not due as on 31.03.2012 was reduced. Similarly, interest accrued but not due of Rs. 10,77,91,71,647/- as on 31.03.2011 but which became due during the year has been offered to tax ; (c) The method adopted by the assessee is a ....
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....7.6 Reliance is also pleased on the Bombay High court order in the case of American Express Bank in view of the above, it is held that in a mercantile system of accounting, profit or loss at the end of the accounting year is based not on the difference between what is actually receive of the but on the difference between the right to receive and the liability to pay. 7.7 In view of the above, an amount of Rs. 165,71,10,117/-being the interest accrued but not offered added to assessee's business income." 11.3. The assessee before the ld. CIT(A) submitted that the assessee does not have any right or claim to the interest on such securities till it becomes due, i.e., on coupon date. In the event that the assessee had sold the securities prior to the due date, then the assessee would not be entitled to interest on such securities. No doubt, that this interest is received from the buyer of such securities which is included in the selling price of the securities, the same is offered to tax being included in the profit on the sale of securities. Thus, as the said right to receive interest income is not with the assessee, the income cannot be said to have accrued as contemplated by ....
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....ho after considering the submissions and on perusal of the record allowed the appeal of the assessee on this ground by observing that the the assessee has no right to receive the interest and therefore the same is not taxable. 16. The ld. AR, at the outset, submitted before us that the issue involved in this ground stands covered in favour of the assessee and against the revenue by the decision of jurisdictional High Court in the case of Director of Income tax (int.Tax. V/s Credit Suisse First Boston (Cyprus ) Ltd 2012 23 taxmann.clm 424 (Bom)(supra). Therefore, the ld. AR prayed that in view of the decision of the hon'ble jurisdictional High Court, the issue be decided in assessee's favour. 17. The ld. DR strongly opposed the submissions of the assessee by relying on the order of AO. 18. We have carefully considered the contentions of the rival parties and perused the material placed before us including the impugned orders. We find that in the instant case, the issue is with regard to the taxability of the interest relating to the broken period after due date of interest till the close of accounting year. Acceding to the assessee the same is not taxable as the assessee has n....
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....rue to the respondent on 31st March, 2001, as admittedly interest was not payable on that date as per the terms of the said securities. 20. The appellate authorities, therefore, rightly deleted the addition of Rs. 1,21,57,517/- by the Assessing Officer as interest income." We, therefore, respectfully following the ratio laid down by the hon'ble jurisdictional High Court, dismiss the ground raise by the revenue. Resultantly, the appeal of the revenue is dismissed. 11.5. Respectfully following the same, we do not find any merit in ground No.3 raised by the revenue and is accordingly dismissed. 12. The ground No.4 & 5 to be decided in this appeal is as to whether the ld. CIT(A) was justified in holding that the broken period interest paid on purchase of securities is allowable as deduction in the facts and circumstances of the case. 12.1. We have heard rival submissions and perused the material available on record. We find that the assessee claimed Rs. 669,75,70,585/- as broken period interest paid on purchase of securities during the F.Y.2011-12 relevant to A.Y.2012-13 . Since such securities are the stock in trade of the assessee, the broken period interest paid on acquisition ....
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....hat in the instant case, the issue is with regard to the taxability of the interest relating to the broken period after due date of interest till the close of accounting year. Acceding to the assessee the same is not taxable as the assessee has no right to receive the said interest though accrued on day to day basis. The ld. CIT(A) allowed the appeal of the assessee on the same reasoning. We have perused the decision of the Hon'ble Jurisdictional High Court in the case of Director of Income tax (int.Tax. V/s Credit Suisse First Boston (Cyprus )ltd (supra) and find that the identical issue has been decided by holding that the said interest is not liable to tax qua the broken period. The relevant para of the judgment is reproduced below: "18. In CIT v. Canara Bank [1992] 195 ITR 66/61 Taxman 79 another Division Bench of the Karnataka High Court followed the above judgments. The High Court construed the last sentence quoted above from the judgment of the Supreme Court emphasised by us as under :- "The last sentence conveys the idea that actually the income fructifies to the assessee only when the securities yield the interest and only in such a situation Section 18 is attracted ....
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....n by this Tribunal in assessee's own case for A.Y.2011-12 in ITA No.7485/Mum/2016 dated 19/07/2018 as under:- "13. Ground No. 3 in Revenue's appeal relates to application of Section 115JB to assessee's case. The learned A.R. submits that similar issue has come up before the Tribunal in assessee's own case for A.Y. 3639/Mum/2004 for A.Y. 2000-01 wherein the issue has been decided in favour of the assessee vide order dated 16.08.2016. On the other hand the learned DR for the Revenue relied on the order of the authorities below. 14. We have considered the rival submission of the parties and have gone through the orders of the authorities below. We have noted that almost on identical facts on identical issues the Tribunal in assessee's own case in ITA Nos. 3639/Mum/2004 for A.Y. 2000-01 and others held as under: - "3. We have heard ld AR for the assessee and ld CIT-DR for Revenue. While making the submission, Ld. AR of the assessee argued that additional Ground raised in the present appeal may be taken up first as the MAT provisions u/s. 115JA/115JB are not applicable against the Banking Companies and relied upon the following decision of ITAT Mumbai and other B....
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....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 submission of the learned counsel, ITA No. 4355/Mum/2008 M/s. Times Bank Limited, 8 according to the departmental representative, are clearly contrary to the legislative intent and plain wordings of the statute. The plea of the assessee is indeed well taken, and it meets out approval. The provisions of Section 1....