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2018 (1) TMI 1575
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....f Rs. 390,56,81,270. A revised return of income was filed on 30.3.2012 wherein the assessee's income was declared at Rs. 343,23,86,017. The case was taken up for scrutiny and the assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dt.7.2.2013 wherein the assessee's income was determined at Rs. 1337,22,61,520 in view of the following additions / disallowances :- i) Disallowance of bad debts claimed u/s.36(1)(vii) Rs. 467,58,97,863. ii) Disallowance of claim u/s.36(1)(viia) Rs. 232,01,21,818. iii) Disallowance of valuation loss of HTM Rs. 215,69,38,927. iv) Disallowance of deduction u/s.36(1)(viii) Rs. 76,00,00,000 v) Disallowance u/s.14A Rs. 2,65,27,250 2.2 Aggrieved by the order of assessment dt.7.2.2013 for A.Y. 2010-11, the assessee preferred an appeal before the CIT (Appeals) - 14, LTU, Bangalore. The learned CIT (Appeals) disposed off the assessee's appeal vide order dt.28.4.2016 allowing the assessee partial relief on the issues and to the extent indicated hereunder :- i) Disallowance of valuation of loss on HTM investments. Rs. 215,69,38,927....
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....ppellant bank is eligible for the deduction as claimed by it. 4. The learned Commissioner of Income Tax (Appeals) erred in holding that for the purpose of calculating the aggregate average rural advances as per Rule 6ABA of the Income Tax Rules 1962, it is only the incremental advance that has to be considered. 4.1. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Rule 6ABA does not prescribe that the incremental advances are to be considered for arriving at Aggregate Average Rural Advances. 5. The learned Commissioner of Income Tax (Appeals) erred in disallowing deduction u/s 36(1)(viii) of Rs. 51,00,00,000/-. 5.1. The learned Commissioner of Income Tax (Appeals) erred in disallowing the amount by holding that to the extent of Rs. 51 Cr, there was no transfer to Special Reserve during the Previous Year relevant to the Assessment year under appeal. 5.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the transfer to Special Reserve need not be made within the Previous Year. 5.3. The learned Commissioner of Income Tax (Appeals) erred in not considering the....
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....et as on 31.3.2010 of the Bank has been carried out (placed at page 135 of the Annual Report for the year under consideration). It is submitted that the net advances as shown in the Balance Sheet tallies with the statement appearing at page 32 of the paper book, thereby establishing the fact that bad debts written off are reduced from the advances at the time of preparation of the Balance Sheet. The learned Authorised Representative also drew our attention to page 25 of the paper book, which is a part of Form 3CD wherein at clause 20, it is clearly mentioned that recoveries of Rs. 91,89,44,840 made against bad debts written off have been credited to the profit and loss account and reduced form the advances in the Balance Sheet. In support of the assessee's claim for write off of bad debts, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the assessee's own case i.e. Vijaya Bank Vs. CIT (2010) 323 ITR 166 (SC). 5.2.2 The learned Authorised Representative contended that the reliance placed by the authorities below on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (supra) is not a....
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....t of loans and advances or the debtors at the year-end in the balance sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the AO 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 assesseebank to close each and every individual account of loans and advances or debtors as a precondition for claiming deduction under s. 36(1)(vii) of 1961 Act. This view has been taken by the AO because the AO apprehended that the assessee-bank might be taking the benefit of deduction under s. 36(1)(vii) of 1961 Act, twice over. [See order of CIT(A) at pp. 66, 67 and 72 of the paper book, which refers to the apprehensions of the AO]. In this context, it may be noted that there is no finding of the AO that the assessee had unauthorisedly claimed the benefit of deduction under s. 36(1)(vii), twice over. The order of the AO is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the inter....
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....hereof under s. 36(1)(vii) of 1961 Act, then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered. In the circumstances, we are of the view that the AO is sufficiently empowered to tax such subsequent repayments under s. 41(4) of 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment." 5.5.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the assessee's own case reported in 323 ITR 166 (supra), we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts u/s.36(1)(vii) of the Act and we therefore reverse and delete the disallowance made by the Assessing Officer in this regard. Consequently, Ground No.2 of the assessee's appeal is allowed. 6. Ground No.3 (3.1 to 3.3). 6.1 In the course of hearing, the learned Authorised Representative for the assessee submitted tha....
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....ra); wherein at paras 18.2 and 18.3 thereof, it has been held as under :- "18.2 We heard rival submissions and perused the material on record. The Finance Act, 1979 inserted a new clause (viia) in sub-section (1) of section 36 to provide for deduction in computation of taxable profits of schedule bank in respect of provision made for bad and doubtful debts relating to advances made by the rural branches computed in the manner prescribed under IT Rules,1962. For this purpose, 'rural branches' has been defined to mean 'branch of schedule bank situated at place with population not exceeding 10,000 according to last census'. Rule 6BA of the Incometax Rules provides the procedure for computing AAA for the purpose of provisions of section 36(1)(viia) which reads as under: "6ABA. Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36 - For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely : (a) the amounts of advances made by each rural branch as outstanding at the end ....
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....to the relevant statutory provisions. Section 36(1)(vii) provides for deduction on account of bad debts actually written off in the books of account. However, proviso to 36(1)(vii) makes an exception by providing that in case of an assessee to which clause (viia) applies the claim of bad debt shall be limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts made under clause (viia). Clause (viia) permits a cooperative bank to claim deduction of provision made for bad and doubtful debts as per the prescribed conditions. As has been correctly observed by ld. CIT(A), the only dispute between assessee and department is in respect of working out 10% of aggregate average rural advances. While assessee has made such working by considering the entire outstanding advances at the end of each month, AO has worked out by considering the aggregate average rural advances of each month and not on the entire outstanding advances. However, a perusal of the provision contained u/s 36(1)(viia) and rule 6ABA, would make it clear that the 10% of aggregate average advances has to be worked out on the entire outstanding advances and not the advances ....
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....ara Bank (supra) and in view thereof we hold that the computation of the AAA made by the Assessing Officer is incorrect. 7.4.3 Before us, the learned Authorised Representative submitted that the assessee is not disputing the classification of rural branches made by the Assessing Officer and accepts the AAA as at 31.3.2010 at Rs. 2020,71,42,322 as arrived at by the Assessing Officer at page 42 of the order of assessment and in this context pleaded that the matter need not be remanded back to the Assessing Officer. In view of the aforesaid submissions of the learned Authorised Representative of the assessee, we hold that the assessee is entitled to deduction by considering the AAA at Rs. 2020,71,42,322 as worked out by Assessing Officer at page 42 of his order and direct the Assessing Officer to rework the deduction under Section 36(1)(viia) of the Act accordingly. Consequently, the Ground No.4 of assessee's appeal is allowed for statistical purposes. 8. Ground No.5 (5.1 to 5.3) - Disallowance of claim of deduction u/s.36(1)(viii) of the Act. 8.1 In this ground, the assessee bank challenges the action of the authorities below in disallowing the deduction claimed u/s.36(1....
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....was considered and held in favour of the assessee and against revenue by a co-ordinate bench of this Tribunal in the case of Corporation Bank (supra); wherein at para 19, the Bench has held as under : "19. We have perused the orders and heard the rival contentions. Section 36(1) (viii) is reproduced hereunder; "(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 'Profits & gains of business or profession" (before making any deduction under its clause) carried to such reserve account" We find that Delhi Bench in the case of M/s PFCL (Supra) had considered the very same issue as to whether the special reserve was required to be created in the very same year of the claim of deduction of whether it could be created in a succeeding year. In its order dated 31- 07-2008 it was held as under at paras 18 to 24. 18. We have considered the rival contentions of both the parties, perused the records and carefully gone through the orders of the tax authorities below. 19. We would first like to reproduce the r....
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....s not find support from the plain language of s. 36(1)(viii) of the Act. Perhaps, the words "......... (before making any deduction under this clause) carried to such reserve account" prompt such inference by the learned Departmental Representative for the Revenue but to our mind answer to such inference drawn by the learned Departmental Representative for the Revenue is that before making any deduction does not mean before making any claim but means at the time of considering such deduction claimed by the assessee. 21. Hon'ble jurisdictional High Court of Delhi while interpreting similar wordings in the context of s. 32A of the Act in the case of CIT vs. Orient Express Co. (P) Ltd. (supra) while dealing with creation of reserve required under s. 32A of the Act at p. 896 held that section prescribes no point of time by which the reserve should be created and in this regard accepted that a reserve created after the closure of the accounts of the year qualifies by observing as under : "The second question which is raised only in ITC Nos. 44 and 45 of 1986 is whether the assessee is disentitled to the investment allowance scheme because no requisite reserve has been ....
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....tistical purposes." 8.4.2 Respectfully following the aforesaid decision of the co-ordinate bench in the case of Corporation Bank (supra), we hold that reserve created even in subsequent / succeeding years; however before the finalization of grant of deduction under Section 36(1)(viii) of the Act i.e. as per date of order of assessment is required to be considered while allowing the assessee's claim for deduction under Section 36(1)(viii) of the Act. The Assessing Officer is directed to examine and allow the assessee's claim accordingly. Consequently, this ground No.5 (5.1 to 5.3) is allowed for statistical purposes. 9. In the result, the assessee's appeal for A.Y. 2010-11 is partly allowed. Revenue's appeal in ITA No.1252/Bang/2016 for A.Y. 2010-11. 10. In its appeal, Revenue has raised the following grounds : 1. The Iearned CIT(A) erred in directing the AO to allow the claim for deduction made by the assessee towards depreciation on HTM securities on the facts of the case. 2. The learned CIT(A) erred in not appreciating the law laid down by the Hon'ble High Court of Karnataka in ING Vysya Bank Vs CI....
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....n of the Hon'ble Karnataka High Court in the assessee's own case in ITA No.687/2008 dt.11.3.2013 and also the decision of the co-ordinate bench of this Tribunal in the assessee's own case for A.Y. 2008-09 in ITA No.578 & 653/Bang/2012 for A.Y. 2008-09. 11.2 The ld. CIT DR placed strong reliance on the order of the Assessing Officer which was based on the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank (supra) which decided the issue in favour of the revenue. 11.3 Before us, the learned Authorised Representative for the assessee submitted that it was only after considering its own decision in the case of ING Vysya Bank (supra) that the Hon'ble Karnataka High Court decided the issue in favour of the assessee in the case of Karnataka Bank Vs. ACIT reported in (2013) 356 ITR 549 (Kar). Following the decision of the Hon'ble Apex Court in the case of UCO Bank Vs. CIT (1999) 237 ITR 889 (SC), the Hon'ble Karnataka High Court held that the investments of the bank are stock in trade and are to be valued at lower of cost or market value and the resultant depreciation is an allowable deduction. The learned Authorised Representative ....
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....estments can be clothed to the character of stock-in-trade and that the remaining amounts will be investments and therefore diminution in their value cannot be allowed as a deduction. 59. The ld. counsel for the assessee, however, submitted that in the assessee's own case for the A.Y. 2005-06, this Tribunal has confirmed the order of the CIT(A), deleting identical addition made by the AO. Our attention was also drawn to the order of the Tribunal in assessee's own case in ITA No.492/Bang/2009 for the A.Y. 2005-06, order dated 13.01.2012, wherein the Tribunal had to deal with identical issue as to whether the CIT(A) was correct in deleting the addition made by the AO on account of profit on sale of investments of Rs. 200,77,13,662/- and deleting the action of the AO in disallowing loss claimed on treating investments as stock-in-trade by drawing the investment trading account of Rs. 775,96,55,047. The Tribunal held "16. We have heard both sides and find that the Supreme Court in the case of UCO Bank in 240 ITR 355 has held as under : "In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-intrade at cost for the purpose ....
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....or the assessee further drew our attention to a very recent decision of the Hon'ble High Court of Karnataka rendered on 11.03.2013 in the case of CIT v. Vijaya Bank, ITA No.687/2008. The Hon'ble High Court of Karnataka in the aforesaid case followed its own decision rendered in the case of Karnataka Bank Ltd. v. CIT in ITA No.172/2009 rendered on 11.01.2013, wherein the Court took the view that depreciation claimed on investments 'held on maturity' by a bank has to be treated as stock-in-trade in accordance with RBI guidelines and CBDT Circular. It was his submission that the later decision of the Hon'ble Karnataka High Court has to be followed. 62. We have given a careful consideration to the rival submissions and are of the view that the contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in assessee's own case on an identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later decision of the Hon'ble High Court of Karnataka is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed." 2....
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....ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2008-09 in ITA Nos.578 & 673/Bang/2012 dt.27.2.2015 deleted the aforesaid disallowance made by the Assessing Officer. 12.2 The CIT, DR for Revenue placed reliance on the orders of the Assessing Officer on this issue. 12.3 The learned Authorised Representative submitted that since the Assessing Officer had not recorded satisfaction as required under Section 14A(2) of the Act, therefore no disallowance could be made by invoking Rule 8D. It was further contended that since all the securities of the assessee bank are stock in trade, the provisions of Section 14A of the Act could not be invoked. Reliance was placed on the decision of the coordinate bench in ITA Nos. 578 & 653/Bang/2012 dt. 27.2.2015 for Assessment Year 2008-09. 12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue before us is covered in favour of the assessee bank by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2008-09 in ITA Nos. 578 & 653/Bang/2012 dt. 2....
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....669/Bang/2010 order dated 19.6.2013. The relevant observations of the Tribunal in this regard are as follows: "95. At the time of hearing, it was submitted by the ld. DR that the issue can be remanded for fresh consideration as was done by the Tribunal in A.Y. 2005-06 in ITA No.504/Bang/2009, order dated 13.01.2012. The ld. counsel for the assessee, however, submitted that the Tribunal in its earlier order though noted direct judgments on the point viz., (1) Order dated 30.09.2010 in ITA No.3390/2009 passed by ITAT 'G' Bench, Mumbai in the case of Krung Thai Bank; (2) Order dated 30.06.2011 in ITA Nos.4702 to 4706/2010 passed by the ITAT, Mumbai 'F' Bench in the case of Union Bank of India; and (3) Order dated 03.08.2011 in ITA No.469/2010 passed by the ITAT 'C' Bench, Chennai in the case of Indian Bank, did not adjudicate on the applicability of section 115JB, but following an earlier order in the assessee's own case for earlier years (at which point of time the above Tribunal's decisions were not available), restored the matter to the Assessing Officer to compute book profits based on recast P & L account prepared in accordance with the Schedul....
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....s recorded for reopening the assessment are clearly wrong and insufficient . We are urged to quash the reassessment proceedings on this short ground. 6. 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, according to the departmental representative, are clearly contrary to the legislative intent and plain wordings of the statute. 7. The plea of the assessee is indeed well taken, and it meets our approval. The provisions of Section 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and I II of Schedule VI to the Companies Act . The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Section 211 (2) of ....
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....no debit to the Profit & Loss Account. 2.4. The Learned Commissioner of Income Tax (Appeals) erred in rejecting entries passed in the books of accounts. 2.5. The learned Commissioner of Income Tax (Appeals) erred in not following the decision of the Hon'ble Supreme Court in the appellant bank's own case. 2.6. The learned Commissioner of Income Tax (Appeals) erred in following the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd [2010] 320 ITR 577 the facts of which are totally different. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 244,40,27,648/- u/s 36(1)(viia). 3.1. The learned Commissioner of Income Tax (Appeals) erred in holding that for the purpose of calculating the aggregate average rural advances as per Rule 6ABA of the Income Tax Rules 1962, it is only the incremental advance that has to be considered. 3.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Rule 6ABA does not prescribe that the incremental advances are to be considered for arriving at Aggregate Average Rural Advances. 17. Gro....
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....s of section 43B of the Act. 3. The Learned CIT(A) erred in deleting the disallowance of depreciation on HTM category securities on the facts of the case against the decision of Hon'ble High Court of Karnataka in ING Vysya Bank case (2012) 208 Taxman 511 and without appreciating the fact that the issue is pending before Hon'ble Supreme Court for decision. 4. The CIT(A) erred in directing the AO to delete the addition made towards expenses attributable to exempted income u/ s 14A of the Act. 5. The CIT(A) erred in holding that the provision of section 115JB are not applicable to assessee bank in view of the issue being pending before Hon'ble Supreme Court. 22. Ground No.1 - being general in nature, no adjudication is called for. 23. Ground No.2 - Contribution to Pension Fund and Gratuity Fund. 23.1 In this ground (supra), Revenue challenges the decision of the learned CIT (Appeals) in deleting the addition of Rs. 476,45,00,000, being the contribution to Pension Fund and Gratuity Fund. From the details on record before us, it is seen that the year under consideration, the asses....
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....ssee is entitled for deduction, and disallowance in terms of S. 43B was not warranted. Even otherwise, the CIT(A) noted that the amount in question is allowable as a business expenditure under S.37 of the Act. Apart from the reasoning given by the CIT(A), applying the ratio of the decision of the coordinate bench of the Tribunal in the case of Lamstuff Plastics (supra), relied upon by the learned counsel for the assessee, which squarely applies to the facts of the present case, we hold that irrespective of the method of accounting followed by the assessee, and the fact that the assessee has not debited the payments made towards gratuity and pension fund to Profit & Loss Account, impugned disallowance made by the Assessing Officer in terms of S. 43B is not warranted. We accordingly uphold the order of the CIT(A) and reject the above ground of the Revenue on this issue." 23.2.2 We find that the above decision of the ITAT, Hyderabad Bench in the case of Andhra Bank (supra) is squarely applicable to the facts of the case on hand. In this factual and legal matrix of the case as discussed above, we find no cause for interference with the finding of the learned CIT (Appeals) on this is....
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....issioner of Income Tax (Appeals) erred in rejecting entries passed in the books of accounts. 2.5. The learned Commissioner of Income Tax (Appeals) erred in not following the decision of the Hon'ble Supreme Court in the appellant bank's own case. 2.6. The learned Commissioner of Income Tax (Appeals) erred in following the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd [2010] 320 ITR 577 the facts of which are totally different. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 245,67,41,898/- u/s 36(1)(viia). 3.1. The learned Commissioner of Income Tax (Appeals) erred in holding that for the purpose of calculating the aggregate average rural advances as per Rule 6ABA of the Income Tax Rules 1962, it is only the incremental advance that has to be considered. 3.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Rule 6ABA does not prescribe that the incremental advances are to be considered for arriving at Aggregate Average Rural Advances. 4. The learned Commissioner of Income Tax (Appeals) erred in upholding....
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....d under Section 36(1)(viii) of the Act amounting to Rs. 7,28,83,778. From the details on record, the assessee had claimed deduction under Section 36(1)(viii) of the Act amounting to Rs. 75 Crores. The Assessing Officer made the aforesaid disallowance observing that the assessee while considering the operating expenses on proportionate basis, failed to consider the expenses on account of provision for bad and doubtful debts claimed under Section 36(1)(viia) of the Act and bad debts written off under Section 36(1)(viii) of the Act. The assessee had submitted a fresh calculation of the deduction under Section 36(1)(viii) of the Act vide letter dt. 10.2.2015 which come to Rs. 67.71 Crores and it is in these circumstances that the Assessing Officer disallowed the excess claim amounting to Rs. 7,28,83,778. On appeal, the learned CIT (Appeals) upheld the aforesaid disallowance observing that it is the assessee itself that had submitted fresh calculation of deduction during the course of scrutiny assessment proceedings and the Assessing Officer had taken that into account while making the disallowance and therefore the assessee cannot dispute its own calculation. 32.2 We have heard the ....