TaxTMI 
TaxTMI 
2023 (4) TMI 1169
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Income Tax (Appeals) erred in confirming the disallowance of Rs. 565,92,40,708/- u/s 36(1)(viia). 4. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance of Rs. 58,30,00,000/- u/s 36(1)(viii). 5. The learned Commissioner of Income Tax (Appeals) erred in holding that Rs. 1,38,11,847/- paid to NPCI is in the nature of technical and managerial service covered u/s 194J of the Income Tax Act. 6. The learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of Rs 5,16,000/- paid to RBI. 7. The learned Commissioner of Income Tax (Appeals) erred in holding that provisions of Section 115JB are applicable to the bank. 8. Without prejudice to the above ground, the learned Commissioner of Income Tax (Appeals) erred in adding various items to arrive at the book-profit which are beyond the scope of the section." 3. In ITA No. 528/Bang/2019 Revenue has raised the following grounds of appeal: - "1. The Order of the Ld. C1T(A), LTD, Bengaluru dated 31.12.2018 is opposed to the law and facts of the case. 2. The Ld. CIT(A) held in law in confirming the method of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the case of State Bank of Patiala reported in (2017) 78 taxmann.com 3 to hold that the test of dominant intention applied by P& H High Court are to be discarded. 5. For those and other reasons that may be adduced at the time of hearing, it is humbly pleaded that the Order of CIT(A) be set aside and that of the Assessing Officer be restored and thus render justice." 4. The brief facts of the case are that the assessee, a leading bank in Karnataka has filed its return of income on 28.09.2015 for AY 2015-16 declaring total income at 'Nil'. The assessee filed revised income by declaring total income at Nil by making additional claim of Rs.200/- crores under Section 36(1)(vii) of the Income Tax Act, 1961 (the Act). The case was selected for scrutiny under CASS and notice under Section 143(2) of the Act dated 13.04.2016 was issued and served upon the assessee. Notices under Section 142(1) were also issued on various dates along with questionnaires calling for various details to verify the claims made by the assessee in the return of income. After hearing the assessee, assessment was completed by determining total income at Rs.1750,77,68,383/-. 5. Aggrieved by the above ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....non-rural branches of the Bank which includes debts at Head Office as well as branches and the assessee further submitted that the provisions made by the assessee as well as bad debts written off are in consonance with RBI guidelines for preparation and finalisation of accounts. The assessee has also claimed deduction as per the provisions of Income Tax Act. The assessee also relied on various judgments and in assessee's own case of the jurisdictional High Court also. The AO also followed the CBDT Circular No.12/2016 dated 30.5.2016. The AO after considering the entire submissions as well as case law and provisions of the Act did not accept the claim of the assessee towards bad debts written off claimed in the computation of income of Rs.727.33 crores with the following observations:- "1. The alleged claim of bad debts written off is nothing but prudential write off by the bank as per RBI circular and disclosure norms. 2. There is no actual write off of bad debts as irrecoverable as the same is provision for NPA created as per RBI guidelines and the adjustments are taking place only in balance sheet and it was claimed in different version i.e. write off of non rur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in (2021) 130 taxmann.com 149 dated AUGUST 9, 2021 in SLP LEAVE (C) NO.7351 OF 2021, against the judgement of the Hon'ble jurisdictional High Court, therefore, the issue should be decided in favour of the revenue. 15. After going through entire material placed before us, we notice that similar issue has been decided by the coordinate bench of the Tribunal in assessee's own case for AY 2014-15 (supra) and held as under: - "11. The assessee had claimed Rs.282,18,79,407/- as bad debts written off in the computation. The AO rejected the claim of the assessee to the extent of Rs.279,60,53,018/- on the ground that - i) Accounting entries merely represented disclosure as per RBI guidelines. ii) Bad debts written off was not debited to P&L account iii) As the bad debt had not exceeded the credit balance of provision created in earlier years u/s 36(1)(viia), no deduction can be allowed as per the provisions of the Act. 12. The assessee made a detailed submissions before the CIT(A) in the appeal filed against the order of the AO contending that since sec. 36(1)(viia) applies to rural advances, it is only the rural debts which has to be adjusted again....
X X X X Extracts X X X X
X X X X Extracts X X X X
....off, the entries in the books of account cannot be accepted as reliable. In coming to this finding the learned CIT (Appeals) relied on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (2010) 320 ITR 577 (SC). 5.2.1 Before us, the learned Authorised Representative of the assessee submitted that the assessee bank has written off the debts by debiting the same to the 'Bad Debts Written Off Account' under the GL Code 163301 which is part of the profit and loss account and recoveries made in written off accounts are credited to the profit and loss account and offered to tax. According to the learned Authorised Representative, it is only in respect of accounts written off that the assessee bank can credit the recoveries to the profit and loss account and in the case of live accounts any recovery is credited to the debtors account. Therefore, the very fact that the recoveries are credited to the profit and loss account shows that the corresponding debts have been written off. It was submitted that the detailed accounting entries passed by the assessee bank with regard to the write off has been extracted at pages 31 and 32 of the orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2009- 10 in ITA No.331/Bang/2016 dt.22.7.2016. 5.5.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The facts on record indicate that the assessee bank has debited the bad debts written off to the account 'Bad Debts Written Off Account' (GL Code 163301) which is part of the profit and loss account and has reduced the write off from Gross Advances in the Balance Sheet. The authorities below disallowed the write off on the ground that the individual accounts are not squared off at the branch level. We find that this issue of write off has been settled by the Hon'ble Apex Court in the assessee's own case reported in 2010 (323 ITR 160) (SC), wherein at paras 8 & 9 thereof it was held as under : "8. Coming to the second question, we may reiterate that it is not in dispute that s. 36(1)(vii) of 1961 Act applies both to banking and nonbanking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to no....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... According to the Department, in cases where a borrower's account is written off by debiting P&L a/c and by crediting loans and advances or debtors accounts on the asset side of the balance sheet, then, as and when in the subsequent years if the borrower repays the loan, the assessee will credit the repaid amount to the loans and advances account and not to the P&L a/c which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the P&L a/c on which the assessee-bank has to pay tax. Although, prima facie, this argument of the Department appears to be valid, on a deeper consideration, it is not so for three reasons. Firstly, the head office accounts clearly indicate, in the present case, that, on repayment in subsequent years, the amounts are duly offered for tax. Secondly, one has to keep in mind that, under the accounting practice, the accounts of the rural branches have to tally with the accounts of the head office. If the repaid amount in subsequent years is not credited to the P&L a/c of the head office, which is ul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imed deduction under clause (a) of sec. 36(1)(viia) of the Act. 7.1 The assessee claimed a sum of Rs.146.28 crores bad debts, which consisted of bad debts relating to rural branches Rs.1.12 crores and the non-rural branches Rs.145.16 crores. The AO noticed that the bad debts written off was not debited to Profit and Loss account. The AO also noticed that the new provision created during the year was Rs.210.54 crores, out of which the assessee had claimed a sum of Rs.112.19 crores as deduction u/s 36(1)(viia) of the Act. Accordingly, the AO took the view that the assessee is claiming deduction both u/s 36(1)(vii) and 36(1)(viia) of the Act. The assessee submitted that the bad debts claimed by it included prudential write off of Rs.134.86 crores. The AO expressed the view that the Prudential write off is not eligible for deduction u/s 36(1)(vii) of the Act, since it is not actual write off. He then relied upon the decision rendered by Hon'ble Supreme Court in the case of Southern Technologies vs. ACIT (352 ITR 577)(SC), wherein it was held that the mere making of provision for NPA cannot be considered as write off u/s 36(1)(vii) of the Act. He also relied upon the decision r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t advances and submissions that the assessee bank has not only debited provision a/c to the extent of bad debts, it simultaneously reduced the amount of loans and advances at the year end. In other words, the amount of loans and advances at the year end in the Balance sheet is shown as net of bad debts written off. We also notice that the revenue has not filed appeal challenging the above said decision of Ld CIT(A) and hence this view of Ld CIT(A) on this issue has attained finality. 7.3 The Ld CIT(A), however, proceeded to examine this aspect from another angle, i.e., he took the view that the AO has not examined the claim of write off 'non-rural bad debts" of Rs.145.16 crores in terms of the proviso to sec. 36(1)(vii) read with 36(1)(viia) of the Act. Before Ld CIT(A), the assessee submitted that the "provision for bad and doubtful debts" (PBDD) allowed u/s 36(1)(viia) of the Act is related to rural debts only and hence, in terms of the proviso to sec. 36(1)(vii), only rural debts written off as bad should be adjusted against the PBDD allowed u/s 36(1)(viia) of the Act. However, the Ld CIT(A) expressed the view that the PBDD allowed u/s 36(1)(viia) of Act is app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll as the orders of revenue authorities. As could be seen from the finding of AO as well as ld. CIT(A), only reason for which claim of deduction for Rs. 209,07,50,831 representing actual write off of bad debts relating to non-rural advances u/s 36(1)(vii) was denied is, assessee having already availed deduction u/s 36(1)(viia), it is not eligible to claim deduction u/s 36(1)(vii) as it will amount to double deduction. In our view, both AO as well as ld. CIT(A) have committed fundamental error by mixing up provisions of sections 36(1)(vii) and 36(1)(viia). While 36(1)(vii) speaks of actual write off of bad debts in the books of account, section 36(1)(viia) even allows provision made towards bad and doubtful debts in respect of rural advances to the extent of provision made in the books of account subject to the ceiling fixed under clause (viia) of section 36(1). Proviso to section 36(1)(vii) operates only in a case where deduction is also claimed under section 36(1)(viia). In other words, proviso to section 36(1)(vii) applies to write off of bad debts relating to rural advances to the extent it exceeds the provision made u/s 36(1)(viia). If we examine the facts of the present case i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by and large protects the interests of the Revenue. In case of rural advances which are covered by cl. (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which cl. (viia) applies. Indisputably, cl. (viia)(a) applies only to rural advances." Concurring with the aforesaid majority view, Hon'ble CJI, S.H. Kapadia, as the then he was, held as under: "2. Under Section 36(1)(vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the computation or taxable profits, of the amount of any debt which is established to have become a bad debt during the previous year, subject to certain conditions. However, a mere provision for bad and doubtful debt(s) is not allowed as a deduction in the computation of taxable profits. In order to promote rural banking and in order to assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances, the Finance Act, inserted clause (viia) in subsection (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all schedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). Thus, the proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaningless to invoke the said 1 proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by the Circulars issued by CBDT. Thus, the proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii)." Thus, considered in light of principle laid down as referred to above, when the proviso to section 36(1)(vii) applies to bad debts written off relating to rural advances, the same cann....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lier years has been clarified in Explanation-2. Thus, according to Ld CIT(A) as well as by the revenue that the decision rendered by Hon'ble Supreme Court in the case of Catholic Syrian Bank (2012)( 343 ITR 270) has been undone by the Parliament by inserting Explanation-2 in sec. 36(a)(vii) of the Act by Finance Act 2013. 7.6 The Ld A.R, however, contended that Explanation-2 has not changed the legal position for claiming deduction of bad debts written off u/s 36(1)(vii) and also claiming PBBD u/s 36(1)(viia) for banks having rural branches. According to Ld A.R, the assessee has claimed deduction towards PBDD under clause (a) of sec. 36(1)(viia) and it relates to the rural advances only. Hence the proviso to sec. 36(1)(vii) shall have bearing only on PBDD relating to rural advances only. Thus, according to Ld A.R, the bad debts written off relating to nonrural advances should be allowed independently u/s 36(1)(vii) of the Act without first adjusting the same against PBDD allowed under clause (a) of sec. 36(1)(viia) of the Act. 7.7 We heard the Ld D.R and perused the record. Now the core question that arises is whether the bad debts relating to non-rural branches a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rst debited to PBDD a/c and the excess amount alone can be allowed as deduction u/s 36(1)(vii) of the Act. According to revenue, the decision rendered by Hon'ble Supreme Court in the case of Catholic Syrian Bank (2012)( 343 ITR 270). In the above said case, the Hon'ble Supreme Court has expressed the view that the provisions of sec. 36(1)(vii) and 36(1)(viia) allow separate deduction and they are independent provisions. The Supreme Court further held that the clause (viia)(a) applies only to rural advances. So the bad debts relating to non-rural advances need not be deducted against the PBDD allowed under clause (a) of sec.36(1)(viia) of the Act. The Hon'ble Supreme Court, inter alia, also observed as under:- "31 It was neither in dispute earlier nor is it disputed before us, that the assessee-bank is maintaining two separate accounts, one being a provision for bad and doubtful debts other than provision for bad debts in rural branches and another provision account for bad debts in rural branches for which separate accounts are maintained...." Referring to the above said observations, the revenue has taken the view that the Hon'ble Supreme Court has rendered its d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to a bank incorporated by or under the laws of a country outside India. The quantum of deduction is 5% of the total income (computed before making any deduction under this clause and Chapter VIA). (iii) Clause (c) is applicable to a public financial institution or a State financial corporation or a State industrial investment corporation. The quantum of deduction is 5% of total income (computed before making any deduction under this clause and Chapter VIA). (iv) Clause (d) is applicable to Non-banking financial company from AY 2017-18. The Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra) has held that the PBDD allowed under clause (a) of Sec. 36(1)(viia) refers to 'rural advances' only. In fact the expression "rural branches" finds place in clause (a) only. It can be noticed that the reference to "rural branches" is not there in clause (b) to (d). Generally, the foreign banks may not have rural branches. However, such kind of banks, financial institutions, NBFC etc. are also eligible to claim deduction towards PBDD u/s 36(1)(viia) of the Act under clauses (b) to (d). In view of the decision rendered in the case of Catholic Syrian bank, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct are subject to the provisions of section 36(2) of the Act. The clause (v) of section 36(2) of the Act provides that the assessee, to which section 36(1)(viia) of the Act applies, should debit the amount of bad debt written off to the provision for bad and doubtful debts account made under section 36(1) (viia) of the Act. Therefore, the banks or financial institutions are entitled to claim deduction for bad debt actually written off under section 36(1)(vii) of the Act only to the extent it is in excess of the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the Act. However, certain judicial pronouncements have created doubts about the scope and applicability of proviso to section 36(1)(vii) and held that the proviso to section 36(1)(vii) applies only to provision made for bad and doubtful debts relating to rural advances. Section 36(1)(viia) of the Act contains three sub-clauses, i.e. sub-clause (a), sub-clause (b) and sub-clause (c) and only one of the sub-clauses i.e. sub-clause (a) refers to rural advances whereas other sub-clauses do not refer to the rural advances. In fact, foreign banks generally do not have rura....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imited to the excess of the amount written off over the amount of the provision which had already been allowed under clause (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which are covered by clause (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia)(a) applies only to rural advances." It is pertinent to note that the Hon'ble Supreme Court has categorically held that clause (a) of sec. 36(1)(viia) applies to rural advances only. If the Parliament wanted to undo the above said interpretation given by the Hon'ble Supreme Court, it should have brought amendment in clause (a) to sec. 36(1)(viia) to make its intention clear that the clause (a) shall apply to both rural and nonrural advances. Since there is no such amendment, the interpretation given by Hon'ble Supreme Court that "clause (viia)(a) applies to rural advances only" shall remain intact. Explanation 2 inserted in sec. 36(1)(vii), in our view, does not override the above said interpretation given by Hon'ble Supreme Court. 7.14 In th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) of the Act in terms of the proviso to sec. 36(1)(vii) and sec. 36(2)(v) of the Act. 7.17 In view of the foregoing discussions, we are unable to agree with the view expressed by Ld CIT(A) on this issue. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the bad debts relating to non-rural branches u/s 36(1)(vii) of the Act without adjusting the same against the PBDD a/c, since the said PBDD a/c relates to rural advances only." 17. The ld. DR has submitted that the Hon'ble Apex court has admitted the SLP filed by the revenue but the status of the same could not be furnished by the ld. DR, accordingly, we are bound by the order of the Jurisdictional High Court till the date of passing of the final order by the Hon'ble Supreme Court. The above decisions cited by us are on the basis of the decisions of Hon'ble jurisdictional High Court, therefore, respectfully following the above decisions, we direct the AO to delete the addition made u/s. 36(1)(vii). Accordingly ground Nos. 2.1 to 2.4 are allowed. Ground No.2.5 was not pressed and hence it is dismissed as not pressed. GROUND No. 3 ( 3.1 to 3.2) 18. The appellant bank cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s transferred Rs.58.30 crores to statutory reserve and capital reserve in the FY 2014-15 and the same should be considered as transferred to special reserve. 20. The AO observed that the assessee has not transferred any amount to special reserve in terms of section 36(1)(viii) of the Act during the year. Creation and maintenance of such special reserve is mandatory condition to avail the deduction. He also observed that deduction is allowed only to some specified entities and it is not an allowance towards expenditure but it is an incentive towards promoting long term finance for industrial or agricultural development, development of infrastructure facility in India and development of housing in India. He further noted that in the earlier year the assessee had transferred into special reserve account as per section 36(1)(viii), accordingly the deduction was allowed. He further noticed that the creation and maintenance of such reserve is also essential to monitor the satisfaction of other conditions regarding aggregate of the amount carried to such reserve account from time to time not exceeding twice the amount of the paid up share capital and general reserve. Accordingly, he no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ld. CIT(A).The ld. DR also submitted that as per the computation submitted before the AO, the assessee has not transferred any amount to the special reserve. The AO has also observed that the accumulation of the special reserve account should not be twice of the share capital and general reserve. This observation of the authorities below has not been answered by the ld. AR of the assessee. Therefore he submitted that the matter may be sent back to the AO for the purpose of verification. 24. After hearing both the sides and perusing the entire material on record, we note that as per the observation of lower authorities the assessee has not transferred any amount in terms of section 36(1)(viii), however, as per the details submitted before the revenue authorities, the assessee has transferred into statutory reserve account of Rs.109.85 crores and into capital reserve account of Rs.6.54 crores and the assessee has claimed deduction u/s. 36(1)(viii) of Rs.58.30 crores which is equal to 20% of the net profit as computed above. The lower authorities have not accepted the arguments of the assessee. We note that during the course of hearing, the ld. AR submitted that similar issue has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... said that the items appearing in the miscellaneous reserve cannot be treated as special reserves as there is nothing in the provision to suggest that only statutory reserves can be treated as special reserve. In view of the above, considering the fact that assessee is eligible to claim deduction u/s 36(1)(viii)to the extent of 79,39,000 out of which an amount of 14,21,432 has already been allowed, assessee is entitled to claim deduction of the balance amount of 65,17,568. Accordingly, we direct the AO to allow deduction to assessee to that extent. This ground is allowed." 24. The next issue for our consideration is whether the amount transferred to statutory and capital reserve in the subsequent year should be considered for the purpose of allowing deduction u/s 36(1)(viii). An identical issue has been dealt with by the coordinate bench of the Tribunal in the case of Vijaya Bank Vs. JCIT (Supra), wherein it is held as under:- "8.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that this issue was considered and held in favour of the assessee and against revenue b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch was carried on by the assessee at any time during the previous year; Sec. 2(34) "Previous year means the previous year as defined in s. 3; Sec. 3 Previous year" defined 3 For the purposes of this Act, 'previous year' means the financial year immediately preceding the assessment year: Sec. 4 Charge of income-tax 4 (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with. and subject to the provisions (including provisions for the levy of additional income-tax) of. this Act in respect of the total income of the previous year of every person. 20. A plain reading of s. 36(1)(viii) does not indicate any time-limit for creation of special reserve for claiming deduction under s. 36(1)(viii) of the Act, hence, the contention of learned Departmental Representative for the Revenue that this provision does not permit the deduction in case the special reserve is created in subsequent year, has no force as it does not find support from the plain language of s. 36(1)(viii) of the Act. Perha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aling with deduction under s. 80HHC of the Act, their Lordships observed that creation of reserve after closure of the accounts was construed as complying with the requirement of granting deduction under s. 80HHC of the Act and in this case the timing of creation of reserve was while the matter was being dealt with by the apex Court. 24. Respectfully following the case law (supra) as discussed hereinabove, we hold that a reserve created in subsequent years, however, before finalization of grant of deduction, is required to be considered while allowing assessee's claim of deduction made under s. 36(1 )(viii) of the Act. Whether assessee had indeed made a further creation of special reserve in the succeeding year and also whether such reserves were created before finalization of the grant of deduction u/s 36(1)(viii) had not been verified by any of the authorities below. We therefore, set aside the orders of the authorities below and remand the issue to the file of the AO for fresh consideration in accordance with law. Ground no.4 of the assessee is allowed for statistical purposes." 8.4.2 Respectfully following the aforesaid decision of the coordinate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the recipient has filed return of income including this income, therefore by virtue of section 40(a)(ia) no disallowance can be made. 27. The ld.AO disallowed the entire amount u/s 40(a)(ia) on the ground that the assessee has not deducted TDS on the said amount. The AO examined the arrangements made with the recipient in detail and observed that Notification No.47/2016 came into effect only from the date of its publication, therefore it cannot be applied for the FY 2014-15 and accordingly he disallowed the entire amount of Rs.138,11,847 u/s. 40(a)(ia). 28. Aggrieved by the order of the AO, the assessee has contended before the CIT(A) that NPCI was formed with the objective to primary function as a hub in facilitating all electronic retail payment systems through the National financial switching network and all the transactions are carried out without any human intervention. The assessee also submitted that the assessee had sued NPCI to facilitate transaction involving ATMs of other banks by the customers of the assessee to carry out electronic transactions. The CIT(A) observed that this is a recurring issue and decided by him in the preceding AY against the assessee. Acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee bank, the payments made in this regard are liable to TDS under Section 194J of the Act and in view of the assessee's failure to do so, disallowed the aforesaid amount under Section 40(a)(ia) of the Act. On appeal, the learned CIT (Appeals) upheld the Assessing Officer's decision in the matter. 12.2 The learned Authorised Representative of the assessee submitted that since it is a standard facility, the same is not covered under the purview of the provisions of Sec. 194J of the Act as technical services. In this regard, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd., reported in (2016) 67 taxman.com 356 (SC). It was further contended that in any case, the assessee bank had submitted Form No.26A as per Rule 31ACB and as such is covered by the proviso to Sec. 40(a)(ia) and therefore no disallowance could be made. 12.3 Per contra, the learned Departmental Representative for Revenue placed reliance on the orders of the Assessing Officer on this issue. 12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; includ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nline Trading (BOLT) System] for which the charges in question had been paid by the appellant assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... penalty levied by RBI paid during the year, therefore the AO did not allow it u/s. 37(1) observing that it is a violation of any law for the time being in force. The assessee filed appeal before the CIT(A) and submitted that Rs.5.16 lakhs as penalty to RBI was paid for deficiencies in exchange of notes and coins / remittance sent to RBI / operations of currency chest etc. It is further submitted that levy of penalty by RBI is not due to any offences prohibited by law or for infringing of any statute. It is only an additional burden imposed on the bank branches to provide better customer services to members of public with regard to exchange of notes and coin, therefore it is not in the nature of penalty and hence the addition made by the AO should be deleted. 34. The ld. CITA) after examining the submissions noted that the assessee is a bank and governed by Banking Regulation Act, 1949 and it is controlled by the RBI and the assessee has to follow RBI guidelines as well as directions issued periodically. Any contravention of its provisions/directive is made punishable under the provisions of Banking Regulation Act. He also relied on the judgment of Hon'ble Supreme Court in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e has not computed tax liability on the book profits u/s. 115JB in the return of income. The assessee submitted that it was a public sector bank and not a company under proviso to section 211(2) of the Companies Act. Public sector banks are not covered under section 115JB(2)(b) of the Income Tax Act and hence book profit was not computed. The AO noted that section 115JB(2) was amended by Finance Act, 2012 applicable to banking companies and it was required to compute book profits under the Act, however P&L account could be prepared in accordance with provisions of Banking Regulation Act. The AO noted that the amendment was specifically brought to levy MAT on banking companies. 39. The assessee submitted computation of book profits u/s. 115JB without prejudice to its claim of non-applicability of MAT provision. The AO noticed that the assessee has not added back the entire amount of provisions and contingencies debited to P&L account in accordance with section 115JB. The assessee's reliance on the decision in the case of Vijaya Bank v. CIT (2010) 323 ITR 166 (SC) and CIT v. Yokogawa India Ltd. (2012) 204 Taxman 305 (Kar) was rejected. The AO observed that provision for NPA, dimin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... who relied on the written submissions and supported the decision of the lower authorities. The coordinate Bench of the Tribunal in assessee's own has held as under "7. The next issue contested by the assessee relates to the applicability of sec.115JB of the Act. In the return of income, the assessee did not compute book profit, as according to the assessee the provisions of sec. 115JB will not be applicable to it. The AO did not accept the said contentions and held that the provisions of sec.115JB shall apply to the assessee. Accordingly, he computed book profit u/s 115JB of the Act also. The Ld CIT(A) also confirmed the same. 7.1 An identical issue was considered by this bench of Tribunal in the case of Canara Bank (ITA No.236/PAN/2018 & ITA 1884/Bang/2018 dated 27-12-2021) and the matter was restored to the file of Ld CIT(A) with the following observations:- 7.1 Before Ld CIT(A) also, the assessee contended that the provisions of sec.115JB will not be applicable to it. It was submitted that the assessee falls under the category of "corresponding new bank" under BR Act. Accordingly it was contended before Ld CIT(A) by the assessee as under:- (a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny. (h) It is not the case of the assessee that being a 'corresponding new bank' and not registered under Companies Act, 1956, the assessee is not governed by BR Act. (i) It is highly unfortunate on the part of a reputed public sector bank to resort to such unwarranted, hyper technical, hair splitting of the definitions under various Acts only to avoid the payment of due taxes. (j) Assuming that the assessee is not a Banking Company, then the provisions of sec.115JB(2)(a) will be applicable to the assessee, as it is an Indian Company as per section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act 1980. (k) Various decisions relied upon by the assessee relate to the period prior to the amendment made by Finance Act 2012. 7.2 Before us, the Ld A.R reiterated that the provisions of sec.115JB will not apply to the assessee, since it is not formed under Companies Act. He placed his reliance on the decision rendered by Kolkatta bench of Tribunal in the case of Damodar Valley Corporation (2017(8) TMI 1363). On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 7.3 We heard the parties on this iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for examining it afresh. ITA No. 528/Bang/2019 (Revenue's appeal) 46. Ground Nos. 1 and 5 are general in nature, therefore do not require adjudication. 47. Ground No. 2 is with regard to disallowance under Section 36(1)(viia) of the Act. The revenue assails the methodology of computation of deduction u/s. 36(1)(viia) of the Act. As per the details on record, it is seen that the assessee bank has claimed deduction of Rs. 565.92 Crores u/s 36(1)(viia) computed on the basis of formula provided u/r 6ABA of the Income Tax Rules 1962 as under:- (Amount in Rs.) Provision made (Amount in Rs.) Claim u/s 36(1)(viia) a. 10% of 51990705021 being average aggregate advances 519,90,70,502 788,88,21,840 565,92,40,708 b. 7.50% of total income before allowing deduction u/s 36(1)(viia) (Rs.0 x 7.50%) 46,01,70,206 Total 5659240708 48. On the above calculation the AO noticed discrepancies and as per the AO only the incremental advances need to be considered for computing the Aggregated Average Advances(AAA) contrary to the approach of the assessee that advances outstanding at the end of each month is to be c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts cited. We find that the issue before us in respect of computation of the deduction u/s. 36(1)(viia) of the Act has been considered and decided by the co-ordinate bench of this Tribunal in the case of Canara Bank in ITA No. 1284/Bang/2016 for the AY 2010-11 order dated 05.01.2018 wherein at paras18.2 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 sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l in the case of Nizamabad District Cooperative Central Bank Ltd. (supra) held as follows: "8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. Before going into the issue, it is necessary to look into the relevant statutory provisions. Section 36(l)(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 avera....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... alone should be considered for the purpose of this deduct/on. Thus, these grounds of appeal are allowed for statistical purposes." 7.4.2 We find that the issue is settled in favour of the assessee by the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Canara 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n'ble Supreme Court, the claim of depreciation of Rs.161,24,64,360 on HTM securities was disallowed. 55. Aggrieved, the assessee filed appeal before the CIT(A). The CIT(A) considering detailed written submissions filed by the assessee, observed that the similar issue has been decided by the co-ordinate bench treating the investments as stock-in-trade and decided the issue in favour of the assessee. Against the CIT(A)'s order, the revenue is in appeal before the Tribunal. 56. The ld. DR relied on the order of the AO and he submitted that the assessee has not followed the instruction issued by the CBDT for the purpose of valuation of HTM securities held as stock in trade. The AO has following the RBI Circular as well as CBDT instructions cited supra rightly disallowed the depreciation claimed on HTM securities. The Hon'ble Supreme Court has also admitted the SLP. 57. The ld. AR relied on the order of the CIT(A) and submitted that similar issue has been decided in favour of the assessee and the Hon'ble Jurisdictional High Court has also decided the issue in favour of assessee. He further submitted that merely SLP admitted by Hon'ble Apex Court cannot be applied. He further su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on HTM Securities. The facts of the matter as emanate from the record are that the assessee bank claimed a sum of Rs.215,69,38,927 as depreciation on the HTM category of investments. The Assessing Officer disallowed the assessee's claim following the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank Vs. CIT (2012) 208 Taxman 511. On appeal, the learned CIT (Appeals) allowed the assessee's claim by following the decision 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 deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision of the Hon'ble High Court of Karnataka in the case of CIT v. ING Vysya Bank Ltd. In ITANo.2886/2005 dated 06.06.2012. In the aforesaid decision, the Hon'ble High Court of Karnataka took a view that the guidelines issued by the RBI will not be relevant while computing income under the Income-tax Act. The Hon'ble Court further took the view that every investment held by a bank cannot be considered as stock in trade. The Hon'ble High Court finally concluded that 30% of the investments 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 accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Banking Regulation Act, following mercantile system of accounting both for book keeping as well for income-tax purposes. The Hon'ble Apex Court upheld the method adopted by the banks valuing stock-in-trade (investments) at cost in balance sheet in accordance with the Banking Regulation Act and valuing the same at cost or market value, whichever was lower for income-tax purposes. The Hon'ble Court took the view that all investments held by a bank are to be regarded as stock-in-trade. 61. The ld. counsel for 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order of the CIT(A). The ld. Dr has submitted that the Hon'ble Apex Court has accepted the SLP filed by the revenue but the status of the same could not be furnished by the ld. DR Accordingly the ground raised by the revenue on this issue is dismissed. 60. Ground No. 4 is with regard to disallowance under Section 14A of the Act. During the assessment proceedings, the AO observed that assessee has made suo motu disallowance of RS.2,14,520 and in this regard, a note was furnished by the assessee along with the computation stating as under:- "since non-interest bearing funds as on 31.3.2014 [Rs.11168.56 Cr] is much more than total investments in tax free securities [Rs.738.09 Cr], no interest expenditure is attributable for earning tax free income. Proportionate administrative cost is however disallowed u/s 14A." 61. The AO observed that the computation of disallowance u/s. 14A was not enclosed along with computation and it was called for. Accordingly the assessee submitted written submissions which were reproduced in the assessment order. From the submissions it was observed that during the impugned AY, the assessee has received substantial amount of exempt income of....