TaxTMI 
TaxTMI 
2014 (6) TMI 1052
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.... 2.a. The learned CIT(A) erred in allowing in full the assessee's claim for Provision for Bad & Doubtful Debts amounting to Rs. 797,42,08,202/- being 10% of average Rural Advances even though the assessee has debited only Rs. 508,42,15,401/- to the P & L A/c. 2.b. The learned CIT(A) erred in not considering the fact that to claim deduction towards Provision for Bad & Doubtful Debts, necessary debit has to be made to the P & L A/c, and is admissible only to the extent provision has been debited. 2.c. The learned CIT(A) erred in not considering the fact that the orders of Hon'ble ITAT in assessee's own case, for the asst. year 1987-88, has not been accepted by the Department and direct appeal to Hon'ble High Court has been filed. 2.d. The learned CIT(A) erred in not considering the decision of Hon'ble High Court of Punjab and Haryana in the case of State Bank of Patiala vs. CIT (2005) 272 ITR 54 - wherein it is held that "making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction and that proviso to clause (vii) of Sec. 36 (1) also shows that making of provision equal to the amou....
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....is allowable for making provision for rural advances only, assessee's claim of deduction u/s.36(1)(viia)(a) of Rs. 674,35,40.590/- is not in accordance with the provisions under the Act, and hence not allowable to that extent? (2) Since (a) non-rural bad and doubtful debts may be written off and allowable u/s.36(1)(vii) independently, (b) deduction under section 36(1)(viia)(a) is allowable for making provision for rural advances only, and (c) only rural debts written off can be set off/debited against the provisions made u/s.36(1)(viia)(a) in previous years, and/or to be made during the year, amount of deduction u/s.36(1)(viia)(a) should be computed only to the extent provision for rural advances debited to the P & L Account. 5. The revenue has sought to raise further additional ground vide letter dated 24.09.2013 and the additional ground is connected to Ground No.2. The ground so sought to be raised reads as follows: "(i) The Ld. CIT(A) ought to have noted that assessee's claim of 10% of average rural advances u/s 36(1)(viia) is based on categorization of places as made by RBI and not in accordance with Expln.(ia) below section 36(1)(viia). Reliance is placed....
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..... 48,39,44,486 Total Rs. 674,35,40,590 11. The AO noticed that the provision for bad and doubtful debts in respect of rural advances created by debit to profit and loss account was only a sum of Rs. 446,93,94,737 whereas the claim for deduction actually made u/s.36(1)(viia) of the Act was a sum of Rs. 674,35,40,590/-. The AO was of the view that as laid down by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), claim for deduction u/s.36(1)(viia) of the Act cannot be greater than the amount debited to the profit and loss account as provision. The AO therefore proposed to disallow a sum of Rs. 227,41,45,853 (Difference between Rs. 674,35,40,590 and Rs. 446,93,94,737). 12. With regard to the proposal of the AO to restrict deduction u/s.36(1)(viia) of the Act to the extent of provision created by debit to profit and loss account of only a sum of Rs. 446,93,94,737 based on decision of Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra), the Assessee submitted that its claim is based on the decision of the ITAT, Bangalore in Assessee's own case reported in 78 ITD 103 wherein it was held th....
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....for bad and doubtful debts. The CIT(A) accordingly held that the assessing officer was not justified in disallowing the amount claimed under section 36(1)(viia) in part and deleted the disallowance. 16. Aggrieved by the order of the CIT(A), the revenue has raised grounds No.2 and additional grounds referred to in the earlier part of this order. 17. At the time of hearing it was brought to our notice that identical issue had come for consideration in Assessee's own case in A.Y.06-07 & 07-08 in ITA No.708 & 709/Bang/2010 order dated 19.6.2013 and this Tribunal held in favour of the Revenue by allowing the main ground raised by the Revenue. With regard to the admissibility of the additional grounds for adjudication that are sought to be raised vide AO's letter dated 11.7.2012, 27.3.2013 and 24.9.2013, the Tribunal referred to the provisions of Sec.36(1)(viia)(a) of the Act which allows deduction in respect of any provision for bad and doubtful debts made by a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricult....
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.... Vs. CIT 272 ITR 53 (P & H), claim for deduction u/s.36(1)(viia) of the Act cannot be greater than the amount debited to the profit and loss account as provision. The AO therefore proposed to disallow a sum of Rs. 207,93,45,318 (Difference between Rs. 503,49,00,000 and Rs. 295,55,54,682). b) Apart from the above the AO also disallowed the sum of Rs. 295,55,54,682 out of Rs. 503,49,00,000 claimed as deduction u/s.36(1)(viia) of the Act. The reasons given for disallowing claim for deduction of Rs. 295,55,54,682/- u/s.36(1)(viia) of the Act by the AO was that there was already credit balance in the PBDD as on 1.04.2005 Balance B/F was Rs. 912,57,47,169. According to the AO 10% of AARA can be created as provision each year provided there is no brought forward balance as on the first day of the previous year in the PBDD account. 10% of the AARA as admitted by the Assessee as per revised census of 2001 was 352.53 crores. According to the AO even if Bad debts written off of Rs. 179,21,88,992 is reduced still the balance in the PBDD account was Rs. 733,35,58,177/-. Since the balance so available in PBDD account was more than 10% of AARA, the AO held that deduction on the basis of ....
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....in the case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006. In the aforesaid decision this Bench considered the decision of the ITAT in the case of Syndicate Bank 78 ITD 103(Bang) and the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra) and held that the decision rendered by the Hon'ble High Court has to be followed. The above decision is the decision brought to our notice on the issue rendered after the decision in Assessee's own case. Judicial discipline demands that we follow the later decision which has considered both the decisions on the issue. We therefore respectfully following the decision of the Tribunal in the case of Canara Bank (supra), allow Gr.No.3 raised by the Revenue and hold that disallowance to the extent of Rs. 207,83,45,338/- be restored. Thus Gr.No.3 raised by the revenue is allowed." 19. Respectfully following the decision of the Tribunal referred to above on identical facts and circumstances, we hold that the Assessee in the present AY 09-10 is not entitled to deduction u/s.36(1)(viia)(a) of the Act on an amount greater than the amount debited to the profit and loss account as provision as la....
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.... noted that the appellant had not offered to tax an amount of Rs. 31,20,45,192 representing interest income credited to profit and loss account but not offered to tax. Since the bank's accounting policy was to recognise revenue and expenses on accrual basis and broken period interest was to be treated as revenue as per Reserve Bank of India (RBI) guidelines, he sought the bank's explanation as to why this amount should not be brought to tax in the current assessment year. The bank replied that, though it was following the mercantile system of accounting, it had consistently offered to tax interest on securities on cash basis and this was accepted by the Commissioner (Appeals) in assessment year 2005-06. The assessing officer rejected this contention on the ground that the department had not accepted the Commissioner (Appeals)'s decision in assessment year 2005-06 and the same issue was in various levels of appeals in the case of other banks also, for earlier assessment years. He was of the view that according to section 145, the assessee could not follow dual method of accounting and should have offered to tax interest on securities on accrual basis only, as that was the regular me....
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.... in respect of accrued interest, it is not income under section 5 of the Act. Interest on securities is receivable and taxable only on due basis, as the holder of the securities does not get a right to receive the interest before the due date. Section 145(1), as amended by the Finance Act, 1995, with effect from 01.04.1997, provides that the income chargeable under the head 'profits and gains of business or profession' or 'income from other sources' shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assesses. So far as the system of accounting is concerned, he was of the view that the assessee bank has been following the same system in returning interest on Government securities since last several years and there is no change in the method of accounting. The bank has been consistently and regularly following the mercantile system of accounting only and not a hybrid system. The CIT(Appeals) further observed that a right to receive income does not constitute accrual and the assessee bank is entitled to recognize the revenue from interest on Government securities at the point of accrual or actual receipt, according to its own ....
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....id not accrue on day-to-day basis. The Assessing Officer, however, disallowed the claims of the assessee, holding that after the omission of section 18 of the Act, i.e., after July 8, 1988, interest is to be assessed under the head "Business" or "Other Sources" as the case may be, and therefore, the interest which accrued up to the end of the accounting year became taxable as the income of the previous year. The Commissioner of Income-tax (Appeals) held that the Assessing Officer was not justified in holding that the interest accrued up to the last day of the accounting year should be subjected to tax. This was upheld by the Tribunal." On appeal to the High Court: Held, dismissing the appeal that even though section 18 of the Act was deleted, the assessee was taxable for interest on securities only on specified dates when it became due for payment, in view of the third proviso to section 145(1) of the Act, which was in force during the relevant assessment years." 26. It is not in dispute before us that identical decision has also been rendered by the Hon'ble High Court of Kerala in the case of CIT v. Federal Bank, 301 ITR 188 (Ker). In the present case, the as....
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..... 209,62,90,162. While arriving at the business income for the purpose of income tax, the assessee deducted profit on sale of investments amounting to Rs. 233,45,84,809 and added back depreciation on investment amounting to Rs. 105,91,26,516 and amortization amounting to Rs. 47,82,51,829. The assessee claimed loss on trading of investments amounting to Rs. 209,62,90,162 by filing an investment trading account. 29. According to the assessee, it has been consistently treating income from investments other than shares as 'income from business' and offering to tax such income under the head 'income from business'. The assessee pointed out that the revenue has accepted the claim of the assessee in the past. The assessee therefore submitted that the stock of investments have to be treated as stock-in-trade and the diminution in the value of the stock-in-trade as on the last day of the previous year has to be allowed as a deduction. In this regard, the assessee also pointed out that as per the RBI guidelines, the assessee has to classify investments in India into three categories viz., (a) held to maturity, (b) available for sale, and (c) held for trading. The assessee pointed out that....
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....ents in the books of account based on RBI guidelines had no bearing on the bank's income-tax assessment. The assessing officer was not justified in following RBI classification and ignoring the LCMV method as per international banking practice. With regard to the action of the assessing officer in adding the profit on sale of investments it was submitted that the AO had failed to appreciate that the profit credited to P & L account had been reworked by the assessee by preparing a separate investment trading account. The said account took into consideration the actual profit on sale of investments which were offered for income-tax purposes and the loss arising on account of valuing all its investments which were held as stock-in-trade (other than shares) at LCMV, in accordance with the generally accepted accounting practice, which had been upheld in a number of judicial decisions. It was highlighted that the classification made in the books as HTM was purely temporary since banks had a right to reclassify the investments into other categories once in a year with the permission of its Board of Directors. Further, as per the said RBI circulars, there was no prohibition on banks sellin....
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....me Court has held that preparation of the balance sheet in accordance with statutory provisions will not disentitle the assessee from submitting the income-tax return on its real taxable income in accordance with the method of accounting it adopts consistently and regularly. For the purpose of income-tax, what is to be taxed is real income, which is to be deduced on the basis of the accounting system regularly maintained by the assessee. The method by which the assessee bank is valuing securities by treating them as stock-in-trade is in accordance with the accounting principles and the revenue itself is treating the profit on maturity of such securities as business income. Therefore, such securities cannot be treated as capital assets. 8.6. Following the above decision of the Hon'ble Supreme Court, and in line with its decision dated 24.01.2008 in ITA No. 253/Bang/2007 in the case of ACIT (LTU) Vs. Vijaya Bank, the Hon'ble ITAT has held that the assessee bank is entitled to value all investments at LCMV by treating such investments as stock-in-trade, and has deleted the disallowance made on loss on valuation. The Hon'ble High Court of Karnataka has, in the case of CIT Vs. ....
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....e, consistently for 30 years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance-sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance-sheet in accordance with the statutory provision would not disentitle the assessee in submitting the Income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining the balancesheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments) because the bank was required to prepare the balance-sheet in the prescribed form and it had no option to change it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assess....
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....ssue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed." 33. The facts and circumstances in the present year being identical to the earlier assessment year i.e., AY 06-07, we are of the view that the order of the CIT(A) is just and proper and calls for no interference. Respectfully following the decision of the Tribunal for AY 06-07 referred to above, we dismiss, Gr.No.4 raised by the Revenue. 34. In the result, the appeal by the Revenue is partly allowed. ITA No.709/Bang/12 (Assessee's appeal for AY 09-10) 35. Gr.No.1.1, 2.1 to 2.7 raised by the Assessee raised by the Assessee in its grounds of appeal revolve around the disallowance of expenses made by the AO by invoking the provisions of Sec.14A of the Act while computing income under the normal provisions of the Act and adding the sum so disallowed to the profits as per Profit & Loss Account for the purpose of computing book profits u/s.115JB of the Act. 36. It is not in dispute before us that identical issue was considered by this Tribunal in assessee's own case for the A.Y. 2006-07 in ITA No.708/Bang/12 order dated 19.6.2013 and this Tribunal remanded the issue for ....
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....is issue is allowed for statistical purpose." 37. Following the aforesaid decision, we remand the issue to the AO for fresh consideration to be decided on the lines indicated by the Tribunal in the order for the A.Y. 2006-07. The learned counsel for the Assessee however submitted that the AO in the order of assessment has accepted the fact that the Assessee has own capital to the tune of Rs. 521.97 Crores and free reserves to the tune of Rs. 4488.05 Crores and non-interest bearing current account balances of Rs. 10525.68 Crores and these funds exceed the average value of investments of Rs. 377.21 Crores and therefore no disallowance whatsoever under rule 8D(2)(ii) of the Rules read with Sec.14A of the Act is called for. Reference in this regard was made to the following decisions for the proposition that overall availability of interest free funds have to be seen before making disallowance u/s.14A of the Act read with Rule 8D(2)(ii) of the rules. (i) CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 (Bom); (ii) CIT Vs. UTI Bank (2013) 32 Taxmann.com 370 and (iii) CIT Vs. Gujarat Power Corporation 352 ITR 583 (Guj.). We are of the view that it would be appropriate to direct t....
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....d the claim for deduction. In AY 2010-11 also the provision made was allowed as a deduction by the AO. The learned counsel in this regard drew out attention to a chart of settlement claims in the past and the provision made in the accounts and submitted that the provision made was always less than the actual liability and therefore the revenue cannot have any grievance. As for AY 09-10 is concerned, the learned counsel pointed out that the settlement with the employees were reached in June, 2010 and the Assessee had to make payment of around Rs. 312.87 crores. Our attention was also drawn to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. BHEL 352 ITR 88 (Del) and ITAT Hyderabad in the case of NMDC LTD. Vs. JCIT 282 ITR (AT) 135 (Hyd.). The learned DR relied on the order of the CIT(A). 40. We have considered the rival submissions. From a perusal of the chart of the 8th and 9th Bipartite Settlement for the period from Nov.2002 to May 2005 and from Nov.2007 to May 2011 respectively, it is seen that right from AY 03-04 to 11-12, the Assessee has been making a claim for deduction on account of wage arrears to be paid and the revenue has allowed the claim excep....
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....the Companies Act .It is pointed out that , in terms of the provisions of Section 115JB(2),every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and II I of Schedule VI to the Companies Act . Unless the profit and loss is so prepared, the provisions of Section 115 JB cannot come into play at al l. 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 115 JB 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 reopening the assessment are clearly wrong and insufficient. We are urged to quash the reassessment proceedings on this short ground. Learned Departmental Representati....
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....ang/2012 (AY 2010-11) 45. ITA No.955/Bang/2012 is an appeal by the Revenue while ITA No.998/Bang/2012 is an appeal by the Assessee. Both these appeals are directed against the order dated 31.5.2012 of CIT(A), Mysore, relating to AY 2010-11. ITA No.955/Bang/2012 - appeal by the Revenue for AY 2010-11. 46. The effective grounds raised by the Revenue in their appeal are Gr.No.2 and 3 which are identical to Gr.No.2 and Gr.No.4 respectively raised by the Revenue in AY 2009-10. While dealing with those grounds we have already held on Gr.No.2 following the decision of the Tribunal in Assessee's own case for AY 06-07 on identical facts and circumstances, that the Assessee is not entitled to deduction u/s.36(1)(viia)(a) of the Act o an amount greater than the amount debited to the profit and loss account as provision as laid down by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), claim for deduction u/s.36(1)(viia) of the Act. The disallowance made by the AO in this regard is restored and order of CIT(A) reversed on this aspect. Gr.No.2 raised by the Revenue in this AY 2010-11 is accordingly allowed. The additional g....
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..... should be appropriated to the general reserve and will not be available for declaration of dividend; (ii) Appropriate disclosures should be made in Notes to accounts including the impact on the profit and Loss A/c. (iii) any future claim in respect of these entries should be honoured. The Assessee in the computation of income from business excluded the aforesaid sum and contended that the same does not represent income of the Assessee as the Assessee has not title to the amounts in question. The AO however was of the view that the amount represented a trading liability ceased to exist and the same had to be taxed u/s.41 of the Act. He was also of the view that the amount when received was not income but that does not mean that the amount could not under any circumstances be treated as income. In coming to the above conclusion, the AO placed reliance on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Modern Farm Services 159 Taxman 96 wherein similar view as canvassed by the AO has been expressed. The AO accordingly brought to tax the sum of Rs. 4,98,01,767/- as income of the Assessee. 51. On appeal by the Assessee, the CIT(A) confirmed the order ....
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....o.2047/Del/2007 order dated 25.10.2011 wherein on similar facts the tribunal held that the receipts did not represent income of the Assessee and cannot be brought to tax. The learned counsel for the Assessee placed strong reliance on the aforesaid decisions and submitted that the addition sustained by the CIT(A) should be deleted. The learned DR relied on the order of the CIT(A). 53. We have carefully considered the rival submissions, the facts of the present case with reference to the cases cited. In our view the decisions cited by the learned counsel for the Assessee are squarely applicable to the facts of the present case. The nature of the sums credited to profit and loss account and the conditions imposed by the RBI for credit to the profit and loss account of the sums in question are identical in the case of the Assessee and the cases decided by the Tribunal on which reliance was placed by the learned counsel for the Assessee. The sum and substance of the decisions referred to by the learned counsel for the Assessee is that unclaimed amounts should not be automatically be treated as income of the bank arising in the course of its business activity. The Reserve Bank of Indi....