TaxTMI 
TaxTMI 
TaxTMI 
2024 (4) TMI 589
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....he assessee for assessment year 2014-15 is reproduced as under: "1. The order of the learned Commissioner of Income Tax (Appeals} is against law and facts of the case. 2. The learned Commissioner of Income Tax (Appeals} erred in law and on facts in confirming the disallowance of Rs. 16,79,49,238/- being provision for leave encashment. 2.1. The learned Commissioner of Income Tax (Appeals} failed to appreciate the fact that the section 43B(f) of the Income Tax Act, 1961 has been struck down by Hon'ble Calcutta High Court. 2.2. The learned Commissioner of Income Tax (Appeals} failed to appreciate the fact that the provision for leave encashment is an allowable deduction. 3. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance of Rs. 30,00,00,000/- u/s 36(1)(viii) by holding that the amount was not transferred to special reserve during the financial year. 3.1 The learned Commissioner of Income Tax (Appeals} failed to appreciate the fact that the appellant bank had created reserve in the next financial year in compliance of the provisions of Section 36(1)(viii). 3.2 The learned Commissioner of Income Tax (Appeals} fa....
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....als) failed to appreciate fact that the amount of Rs. 65,72,75,790 has been arrived at based on the amount debited to the Profit & Loss account. 6.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate that non rural debts are not covered by the proviso to Sec 36(1)(vii). 7. The learned Commissioner of Income Tax (Appeals) erred in adding a sum of Rs. 16,79,49,238/- being the provision for leave encashment while computing the book profit u/s 115JB of the Income Tax Act, 1961. 7.1. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the provision for leave encashment was an ascertained liability and as such cannot be added back while computing book profit u/s 115JB. For all these and other grounds, which may be urged at the time of hearing, the appellant pray that its appeal be allowed." 3. The brief facts of the case are that, the appellant is a private sector bank engaged in the business of providing banking services. The appellant has filed its return of income for the assessment year 2014-15 on 29.09.2014, by declaring current year loss of Rs. 182,34,28,390/- and book profit of Rs. 402,40,04,224/- u/s. 115JB of the Incom....
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....owance of excess claim of depreciation on investments, disallowance u/s. 36(1)(viia) in respect of identification of rural branches based on 2011 census, release of NPA and excess claim of bad and doubtful debts. Aggrieved by the ld. CIT(A) order, the assessee as well as the revenue are in appeal before us. 5. The first issue that came up for our consideration from ground No. 2.1 to 2.2 of assessee appeal is disallowance of the provision for leave encashment of Rs. 16,79,49,238/-. The assessee has claimed deduction of provision for leave encashment. The Assessing Officer disallowed the same on the ground that, as per Section 43B(f) of the Act, deduction for Leave Encashment is allowable only on actual payment and provision for Leave Encashment cannot be allowed as deduction. 5.1 The Ld. Counsel for the assessee, Shri. S. Anandhan, CA and R. Lalitha, CA, submitted that though the issue was debatable in the past, he fairly conceded that the issue is now settled against the assessee by the decision of the co-ordinate bench of this Tribunal in the assessee's own case in ITA No. 54/Chny/2018 - AY 2012-13 order, dated 10-01-2020. 5.2 In this view of the matter and consider....
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....hat, in order to claim deduction u/s 36(1)(viii), it is imperative that the creation of reserve should be out of the total income of the relevant previous year for which deduction is claimed. The ld. DR placed reliance on the Hon'ble Madras High Court decision in the case of CIT v Tamil Nadu Industrial Investment Corpn. Ltd [1999] 107 Taxman 16 (Mad).The ld. DR submitted that the Special Reserve has to be created in the respective Previous Year. 6.3 The Ld. Counsel for the assessee in his reply submitted that the jurisdictional Hon'ble Madras High Court in the case of Tamil Nadu Industrial Investment Corpn. Ltd (supra) laid down the principle that the Reserve should be created out of the total income of the Previous Year and it did not laid down that the reserve should be created in the previous year. He further submitted that in that case the assessee wanted to make good the deficiency in creating the reserve in the subsequent year by utilizing the excess reserve created in the earlier years. Upholding the decision of the ITAT, the Court held that the surplus reserves created in the earlier years cannot be considered for allowing the deduction in the current year. Therefo....
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....r section 36(1)(viii) of the Act, it is a fact that the assessee has not created the special reserve in the financial year 2008- 09 relevant to the assessment year 2009-10. However, the assessee has created the amount of Rs..10 crores reserve by withdrawing the same from the general reserve in the year 2010. 25. On perusal of the calculation adopted by the assessee bank as in the original claim, the 'operating profit' was total income minus total expenses (excluding provisions & contingencies). Actually, for the purpose of allowing deduction under this section, it has to be considered whether the profits derived from business of providing long-term finance computed under the head 'Profits and gains of business or profession' or not. The long-term finance is defined under clause (h) of the Explanation to section 36(1)(viii) as per which, the long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provided for repayment along with interest there on during the period of not less than five years. From the above, it is clear that profits derived from long-term finance only can be considered for the purpose of allowing deduction under secti....
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....ed by the Department. Therefore, respectfully following the decision of the co-ordinate bench of the ITAT in assessee's own case, we hold that the assessee is entitled to the deduction u/s 36(1)(viii) as the Reserve was created out of the profits for the year 2013-14 and delete the addition made by the AO. This ground of the assessee's appeal is allowed. 7. The next issue that came up for our consideration from ground nos. 4.1 to 4.5 of assessee appeal is depreciation on investments. The appellant bank is treating its security as stock in trade. For the purpose of income tax, it prepares a separate investment trading account and offers the net result of the trading account to tax. It values individual securities at lower of cost or market value. However, for the purpose of books of accounts, the bank classifies securities as per RBI norms in the following categories i.e., Held to Maturity (HTM), Available for Sale (AFS) and Held for Trading (HFT) and also value them as per RBI guidelines. The Assessing Officer did not deal with this issue while completing the assessment. In the appellate proceedings before the Ld. CIT(A), the AO moved an enhancement petition requesting the Ld. CIT....
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....t the issue of the power to enhance has been challenged separately vide Ground no 10. 7.2 The ld. DR, on the other hand supporting the order of the ld. CIT(A) submitted that, the bank has classified securities into three categories, HTM securities which are carried at acquisition cost unless the cost is more than the face value. Securities Available For Sale (AFS) are valued at quarterly or at more frequent intervals. Similarly, securities Held for Trading (HFT) will be valued at monthly or at more frequent intervals. The CIT(A), has followed RBI guidelines and instruction No. 17/2008 dated 26th Nov, 2008 and worked out disallowances. Therefore, the argument of the assessee that the issue is settled by the decision of the ITAT in the case of State Bank of India is incorrect. On the issue of the power of the CIT(A) to enhance, the ld. DR submitted that, the CIT(A) has been given powers to not only confirm, reduce, or annul the assessment, but even pass an order enhancing the income determined by the AO and the Courts have held that in terms of Sec 251 of the Act, the CIT(A) has wide powers, which includes power of enhancement of assessment. The ld. DR further submitted that t....
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....re must be something in the assessment order to show that the officer has applied his mind to a particular subject matter or the particular sources of income with a view to its taxability or to its non-taxability and not to any incidental connection. As in the present case, the Hon'ble Madras High Court has considered that the sources was not new and which was already noticed by the AO, the Hon'ble High Court has upheld the order of the first appellate authority for making enhancement but the ratio laid down by the Hon'ble Madras High Court is very clear and categorical. 7.5 We have also gone through the case law of Hon'ble Supreme Court in the case of CIT vs. Shapoorji Pallonji Mistry, [1962] 44 ITR 891 (SC), wherein the Hon'ble Supreme Court has considered this issue and held that it would not be open to the first appellate authority to introduce into assessment a new source of income as his power of enhancement is restricted only to income which was subject matter of consideration for the assessment by the AO and for this, the Hon'ble Supreme Court noted the reasoning as under:- "In our opinion, this Court must be held not to have expressed its final opinion on the point aris....
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....and specified the other intention in express words. The Income-tax Act was amended several times in the last 37 years, but no amendment of section 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible." 7.6 Further, as cited by ld. Counsel for the assessee, the Hon'ble Delhi High Court in the case of Sardari Lal& Co, supra, wherein the Hon'ble Delhi High Court has considered the case laws cited by the ld. DR and finally held that no new source of income can be introduced by CIT(A) while deciding the appeal and enhancement of income. The Hon'ble Delhi High Court has considered this issue in great detail as under:- "A similar question has been examined by the Apex Court as noted above, on several occasions. We do not think it necessary and appropriate to proliferate this judgment by making reference to all the decisions. A few of the important ones need to be noticed. One of the earliest decisions on the point was in CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC). T....
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....eferred to Shapoorji's case (supra), and drew a distinction between the power to enhance tax on discovery of a new source of income and granting a deduction on the admitted facts supported by the decision of the Apex Court. Relying on certain observations made by the Apex Court in CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), the Apex Court held that powers of the first appellate authority are coterminous with those of the assessing officer and the first appellate authority is vested with all the wide powers, which the subordinate authority may have in the matter. In Daluram's case (supra), the decisions of Kanpur Coal's case (supra) and Jute Corporation's case (supra) were also considered and it was observed by the Apex Court that the appellate powers conferred on the first appellate authority under section 251 of the Act were not confined to the matter, which had been considered by the Income Tax Officer, as the first appellate authority is vested with all the wide powers of the assessing officer may have while making the assessment, but the issue whether these wide powers also include the power to discover a new source of income was not commented upon. Con....
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.... supplied]. Looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the assessing officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfillled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, the decision in Union Tyres' case (supra) of this court expresses the correct view and does not need reconsideration. This reference is accordingly disposed of." 7.7 In view of the above case laws considered and facts of the case that the issue i.e., disallowance of depreciation on investment, was never subject matter of assessment order. Hence, we are of the view that enhancement made by CIT(A) on altogether new issue is without authority of law and accordingly, we quash the enhancement. Since we have decided the issue on technical grounds, the issue on merits is left open. 8. The next issue that came up for our considera....
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....43 ITR 270 (SC). Before the CIT(A) the AO moved an enhancement petition contending that bad debts written off should be adjusted against the provision for bad & doubtful debts account made under section 36(1)(viia) without any distinction between rural and other advances and only excess over the credit balance in the account can be claimed as deduction u/s 36(1)(vii). 9.1 The Ld. Counsel for the assessee, Shri. S. Anandhan, CA, & R Lalitha, CA, at the outset submitted that this issue has been covered in favour of the assessee by the decision of ITAT in the case of M/s. City Union Bank Ltd - ITA No. 1120/Chny/2019 - order dated 11-03-2024 for the Asst Year 2015- 16. He also submitted that the AO did not consider this issue from this point of view in the assessment order and therefore the enhancement is not tenable. He further submitted that the Bangalore Benches, in the case of Karnataka Bank Ltd vs DCIT in ITA No. 1907/Bang/2018, wherein the issue has been dealt in detail in light of provisions of section 36(1)(vii) of the Act and explanation provided thereunder and also provisions of section 36(1)(viia) r.w.s. 36(2)(v) of the Act. The Tribunal had also discussed the i....
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.... made by the Ld. CIT(A) towards disallowance of deduction claimed u/s. 36(1)(vii) of the Act should be deleted. 9.2 The ld. DR, on the other hand supporting the order of the ld. CIT(A) submitted that, after insertion of Explanation (2) to section 36(1)(vii) by Finance Act, 2013 w.e.f. 01.04.2014, there is no ambiguity in respect of deduction towards provision for bad and doubtful debts u/s. 36(1)(viia) of the Act and deduction towards write off of actual bad debts u/s. 36(1)(vii) r.w.s. 36(2)(v) of the Act, because the Explanation has been inserted to remove doubts in light of certain judicial precedents including the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank vs CIT (Supra), and thus, the arguments of the Ld. Counsel for the assessee that, even after insertion of Explanation (2), provision for bad and doubtful debts and write off of bad debts in respect of rural advances should be separately considered without any adjustment in respect of write off of non-rural debts. In this regard, he has filed a detailed submission which has been reproduced as under: "Bad debts written off claimed u/s. 36(1)(vii) This issue pertains to all the three assessment ye....
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.... be allowed to the assessee falling under 36(1)(viia), unless the assessee has debited the amount of such debt or part of debt in the previous year to the provision for bad and doubtful debts a/c made under 36(1)(viia). In the instant case, the assessee has written off bad debts in the computation of income without routing it through the accounts as prescribed by law. It has not debited the bad debts written off in the books of account nor has it debited in the provision for bad and doubtful debts as mandated by law. In this connection, the following is submitted for kind consideration: 1. The assessee has debited provision for bad and doubtful debts ("PBDD") in the books of account. This is charged as expense in the profit and loss account. The profit and loss account from the annual accounts can be perused. The said provision for bad and doubtful debts is debited under the head "provisions and contingencies". The amounts of PBDD debited to P & L a/c is shown in table below: AY Amount debited into P&L account 2014-15 189.47 2015-16 467.03 2017-18 417.30 The amounts of PBDD made by the assessee is in respect of all the advances irrespective of whether the advances....
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....essee has to make a provision for bad and doubtful debt or provision for NP A on each NP A. It is classified as provision for bad and doubtful assets, category-I or category-2, provision for loss asset etc. Such provision is depending upon the performance of NP A and the securities against each such NP A. "Loss asset" is a category of provision for NP A where 100% provision was made in the books of accounts. It is to be mentioned here that it has already passed through doubtful category- I, doubtful category-2 etc. This is also to be debited as provision for NPA only into the P&L account. If any recovery is made out of this NP A, it has to be duly offered as income u/s 41(1). 2.6 It is clear from the accounts furnished by the assessee that no bad debts have been written off in the books of account of the assessee. As the bad debts were not written off in the books, it is not eligible to claim deduction u/s. 36(1 )(vii). Further the bad debts written off were not debited to the PBDD thus not fulfilling the condition prescribed u/s 36(2)(v). 2.7 The assessee has been claiming that the debts written off are urban debts and can be claimed separately u/s 36(1)(vii) and not subject t....
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....pective of whether the advances related to rural or non-rural. W.e.f. 1-4- 1989, section 36(1)(vii) also undergone substantial change. It is clearly explained in circular 464 of 1986. Explanation 1 to section 36(1)(vii) introduced in Finance Act 2001 w.r.e.f 1.4.1989 to plug the tax payers from claiming both provisions for bad debts as well as bad debt write off as an allowable deduction simultaneously of the same bad debt, reads as under: "Explanation 1.-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the asses see shall not include any provision for bad and doubtful debts made in the accounts of the assessee. " The provision of section 36(1 )(vii) allows deduction of bad debt write off as irrecoverable in the accounts of the assessee. Section 36(l)(viia) allows deduction of any provision for bad and doubtful debt made by assessee. Some of the judicial pronouncements gave findings that section 36(l)(viia) allows deduction of bad debt of rural branch NPA and section 36(l)(vii) of the Income Tax Act allows deduction of bad debts of non-rural NP A of the respective bank. To clear the doubts, as explained earlier, Exp....
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..... Hence, the decisions in the case of Oriental Bank of Commerce (supra) are not applicable in the facts of the instant case and cannot be relied on by the assessee. b) DCIT vs ING Vysya Bank [2014] 42 taxmann.com 303 (Bang-Trib) " .... what has to be seen by the AO is as to whether provision for bad doubtful debts is created irrespective of whether it is in respect of rural or non-rural advances by debiting into P&L account." State Bank of Hyderabad vs DCIT [2015] 63 taxmann.com 322 (HydTrib.) On careful analysis of section under section 36(1)(viia) it is very much clear that assessee being a scheduled bank can claim deduction in respect of provision for bad and doubtful debts made in its books of account, which does not exceed the aggregate of amount not exceeding 7.5 per cent of the total income computed before making any deduction under section 36(1)(viia) and Chapter-VIA and an amount not exceeding 10 per cent of the aggregate average advances made by rural branches of such bank computed in terms with the prescribed rules. Thus, on reading of the aforesaid provision, it is very much clear that for claiming deduction under the said provision, assessee has to fulfil t....
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....sion for bad and doubtful debts and claimed as a deduction as per section 36(1)( viia) of the IT Act to the extent they are entitled. Whenever the appellant created the provision for NP A/provision for bad and doubtful debt, it is allowed as a deduction u/s 36(1)(viia). If they provide 100% provision over the period years on those NP A, it will be classified as loss asset. If such NP A started performing, they have to offer the same as income in the P&L account as provision no longer required It has to be charged u/s 41 ( 1) of the I T Act as reversal of provision. This principle has been established in the case of Pragathi Grameena Bank Ltd vs CIT [2018] 91 taxmann.com 343 (Kar) which has been affirmed by the Hon'ble Supreme Court. Prudential write off/ technical write off These are prudential norms prescribed as per RBI norms. When they create 100% provision of any that NP A, it will be classified as loss asset. The technical write off or prudential write off or head office write off takes place in head office. However, in books of respective branch account it remains as advance recoverable. It cannot be written off as irrecoverable. These write off are not all ....
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....149. Reliance is further placed on the decision of the Hon'ble Supreme Court in Vijaya Bank vs CIT 323 ITR 166, wherein it was held that the assessee is now required not only to debit the profit and loss account but simultaneously, also to reduce loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that at the end of the year the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. Finally, it is well settled that actual provision made by assessee on account of provision for bad and doubtful debt irrespective of the fact whether it is rural or nonrural, has to be seen while examining assessee's claim of deduction under section 36(1)(viia). If the bank does not have rural branch, it will not get deduction relating to 10 per cent of aggregate average advances made by rural branches. However, it will be eligible to claim deduction of 7.5 per cent of total income. Bifurcating the provision for bad and doubtful debt as one relating to rural advances and other advances (non-rural) does not arise for consideration. Assessee is a scheduled bank falling. Under clause (a) of....
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....ch clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee had debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause. A combined reading of sections 36(1)(vii) r.w.s. 36(2)(v) of the Act, it is abundantly clear that in order to get deduction u/s. 36(1)(vii) of the Act towards write off of irrecoverable bad debts, the assessee should first make a provision in terms of section 36(1)(viia) of the Act and deduction towards write off of actual bad debts should be in excess of credit balance in the provision for bad and doubtful debts account. There are litigations on this issue. The Hon'ble Supreme Court has dealt with this issue in the case of Catholic Syrian Bank vs CIT (Supra) and observed that, sub-clause (a) to section 36(1)(vii) of the Act applies only to rural advances. Taking a clue from the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank vs CIT (Supra), the ITAT Bangalore Bench in the case of Karnataka Bank Ltd vs DCIT (supra), has dealt the issue at length in light of provisions of section 36(1)(vii) r.w.s. 36(2)(v) of the Ac....
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....se." A combined reading of provisions of clause (vii) of sec.36(1), the proviso there under and clause (v) of sec.36(2) would show that (a) the bank should debit the actual bad debts written off by it to "PBDD a/c" (sec. 36(2)(v)) (b) the deduction u/s. 36(2)(vii) shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the PBDD made under clause (viia) of sec.36(1). 7.9 The contention of the revenue is that the Explanation 2 has expanded the scope of the proviso to sec. 36(1)(vii) and hence the bad debts relating to nonrural branches are also required to be first 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 aga....
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....applicable to a Scheduled bank (not being a bank incorporated by or under the laws of a country outside India) or non-scheduled bank or a cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The quantum of deduction is 7.50% of Total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 10% of aggregate average advances made by the rural branches of such bank. (ii) Clause (b) of sec. 36(1)(viia) shall be applicable 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 allow....
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.... 36(1) of the Act provides for deduction for bad debt actually written off as irrecoverable in the books of account of the assessee. The proviso to this clause provides that for an assessee, to which section 36(1)(viia) of the Act applies, deduction under said clause (vii) shall be limited to the amount by which the bad debt written off exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1) (viia) of the Act. The provisions of section 36(1)(vii) of the Act 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 undersection 36(1)(viia) of the Act. However, certain judicial pronouncements have created doubts abou....
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....een given for introducing Explanation - 2 in Sec. 36(1)(vii) of the Act. The above said Memorandum and the Explanatory Note issued by the Government/CBDT supports our view. 7.13 Our view is further fortified by certain observations made by Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra). We may refer to paragraph 27 of the decision now:- "27. As per this proviso to clause (vii), the deduction on account of the actual write off of bad debts would be limited 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 ....
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....es. 7.16 In the instant case, the assessee has claimed deduction towards PBDD under clause (a) to sec. 36(1)(viia) of the Act, meaning thereby, the clause (a) is applicable to rural advances only as per the decision given by Hon'ble Supreme Court in the case of Catholic Syrian Bank. Hence the bad debts relating to non-rural branches are not required to be adjusted against PBDD allowed under clause (a) of sec. 36(1)(viia) 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 nonrural 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''. 10.5 In this view of the matter and by respectfully following the decision of coordinate bench of ITAT Bangalore in the case of Karnataka Bank vs DCIT (Supra), which has been further strengthened by the decision of Hon'ble Delhi High Court in the case of Oriental Bank of Commerce vs PCIT (....
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....ld that the provision made by the respondent in the books of account towards leave encashment of employees for the relevant period was unascertained liability and, therefore, was required to be disallowed. The Appellate Tribunal, however, over turned that finding recorded by the Assessing Officer. The Appellate Tribunal accepted the plea of the respondent that the provision made by the respondent in the concerned accounting year was in respect of "ascertained and definite liability" of the respondent towards leave allowance to be paid to the employees. Consistent with that finding, the Appellate Tribunal, relying on the decision of the Apex Court in the case of Bharat Earth Movers versus Commissioner of Income Tax (2000) 245 ITR 428 allowed the appeal and was pleased to set aside the assessment order to the extent disallowing the amount towards leave allowance to be paid to the employees. The Appellate Tribunal allowed the claim of the respondent assessee. It is not open for this Court to over turn the finding of fact so recorded by the Appellate Tribunal and, more so, when the issue is already covered by the decision of the Apex Court in the case of Bharat Earth Movers. It will be....
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....ble on record and gone through orders of the authorities below. We find that this issue is squarely covered by the coordinate bench of the ITAT in the assessee's case (supra). The Tribunal held as follows: "14.6 Be that as it may. As per the provisions of section 36(1)(viia) of the Act, "rural branch" means a branch of a scheduled bank situated in a place which has a population of not more than ten thousand, according to the last preceding census of which the relevant figures have been published before the first day of the previous year". In this case, for the impugned assessment year the first day of relevant previous year is 01.04.2012. Therefore, the assessee while making provisions u/s. 36(1)(viia) of the Act, should consider population figure of that place as on first day of relevant previous year. If you go by said analogy then, whether the assessee needs to consider population data of 2001 census or 2011 census is the question. Admittedly, the assessee has followed 2001 census for the purpose of classification of those 3 branches as rural branches. The assessee has adduced reasons for classifying those branches, as per 2001 census. According to the assessee, population dat....
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....endered in this regard while deciding each issue, no separate decision is rendered for this ground. 14. In the result, appeal filed by the assessee for assessment year 2014-15 is partly allowed for statistical purposes. ITA No: 1343/CHNY/2019 for AY 2014-15: 15. The revenue has raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity grounds of appeal filed by the revenue for assessment year 2014-15 is reproduced as under: "1. The order of the learned CIT (A) is against law and in facts and circumstances of the case. 2. The CIT(A) erred in deleting the disallowance of stale Draft Accounts to the tune of Rs. 8,08,979/- quoting the "The Depositor Education and Awareness Fund scheme, 2014 of the RBI guideline. 3. The learned CIT (A) has erred in not considering the fact that during assessment, the AO has verified and found that in most of the cases the amount was not repaid and has mentioned this fact in the order while deciding the issue on stale draft account. 4. The learned CIT (A) has erred in not considering the decision of the Hon'ble Kerala High Court in the case of Catholic Syrian Bank Ltd. Vs Addl. CIT which held that th....
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.... more than 90 days but less than 180 days in view of section 43D r.w. Rule 6EA. 14. The CIT(A) has erred while deciding the issue on disallowance on account of depreciation of ATM claimed by the assessee is at the rate of 60% per annum for ATM machines (at the rate of depreciation allowed to computers) instead of 15% per annum by treating as Plant and Machinery. As in the case of DCIT vs Global Trust Bank Ltd, wherein it was held that the term "computer network" means the interconnection of one or more computer through the use of satellite, microwave, terrestrial line or other communication media and terminals or a complex consisting of two or more inter-connected computer whether or not the interconnection is continuously maintained and from this angle, LAN, WAN and ATM would undoubted form a part of computer. 15. The CIT(A) failed to see that no rural debt written off can be claimed u/s 36(1)(viia) if its value is less than the provision made u/s 36(1)(viia) and also failed to appreciate the fact that the list of debts written off filed by the assessee contains some rural debts also. 16. The CIT(A) erred in interpreting the 2nd limb of section 36(1)(viia). The CIT(A) allowe....
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....that the issue is squarely covered in favour of the assessee by the decision of ITAT in assessee's own case for assessment year 2013-14 in ITA No. 2765/Chny/2017, where under identical circumstances the Tribunal has deleted addition made by the AO by holding that amount kept under stale draft account is not income of the assessee. He further submitted that the Hon'ble High Court of Madras has considered an identical issue in case of City Union Bank Ltd., vs. CIT reported in [2020] 118 taxmann.com 96, where it has been clearly held that amount kept under stale draft account cannot be treated as income of the assessee. The AR further submitted that the disallowance by the AO on this issue was Rs. 2,46,14,514/-, but in the grounds raised by the Revenue, the same was mentioned as Rs. 8,08,979/-. 16.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the issue has been decided in the assessee's own case by the ITAT order (supra). The ITAT held as follows: "The assessee is in the banking business, has received money while issuing demand drafts / pay order to various customers. The said money was held by....
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....) of the Act. The relevant findings of the Tribunal are as under: "7.1 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. An identical issue had been considered by the Tribunal in assessee's own case for assessment year 2012-13 in ITA No. 3197/Chny/2017, where the Tribunal after considering relevant facts held that exgratia payment to staff is deductible u/s. 37(1) of the Act. The relevant findings of the Tribunal are as under: 16. The Ld. DR submitted that the Ld. CIT(A) erred in deleting the disallowance of ex-gratia payment following the decision of the CIT vs Maina Ore Transport Pvt. Ltd., 324 ITR 100 (Bom) and Kumaran Mills Ltd vs CIT (2000) 241 ITR 564 (Mad) which are distinguishable and not applicable to this case. Per contra, the Ld. AR supported the order of the Ld. CIT(A) and relied on this tribunal decision in its case in 72 ITR (Trib) 26 (Chennai), the relevant portion is extracted as under : "24. Ground No. 4 challenges the disallowance of ex-gratia payment of Rs. 4,46,29,688/-. We dealt with this issue in assessee's own case in ITA No. 1342/Chny/2013 for AY 2007-08 for the reasons stated vide p....
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....parties, perused materials available on record and gone through orders of the authorities below. An identical issue had been considered by the Tribunal in assessee's own case for assessment year 2013-14 in ITA No. 2765/Chny/2017, where the Tribunal after considering relevant facts held that no disallowance u/s 14A is warranted. The relevant findings of the Tribunal are as under: "12.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the issue is covered in favour of the assessee by the decision of ITAT in assessee's own case for assessment year 2012- 13, where under identical set of facts, the Tribunal by following certain judicial precedents including the decision of Hon'ble Punjab & Haryana High Court in the case of Pr.CIT vs. State Bank of Patiala, [2017] (2) TMI 125, held that no disallowance u/s. 14A is permissible in terms of Rule 8D, where the assessee is engaged in banking business. A similar view is taken by the Hon'ble Supreme Court in the case of South Indian Bank Ltd vs. CIT in Civil Appeal No. 9606 of 2011, and held that shares and securities held by a bank are stock-in-trade and incom....
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....ITA No. 2762/Chny/2017, where under identical set of facts and by following the decision of Hon'ble Supreme Court in the case of Vasisth Chary Vyapar Ltd., vs. CIT(supra), held that interest income cannot be said to have been accrued to the assessee on NPAs account. The relevant findings of the Tribunal are as under:- "10.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee's own case for assessment year 2012- 13 in ITA No. 3197/Chny/2017, where under identical set of facts and by following the decision of Hon'ble Supreme Court in the case of Vasisth Chary Vyapar Ltd., vs. CIT(supra), held that interest income cannot be said to have been accrued to the assessee on NPAs account. The relevant findings of the Tribunal are as under:- "17. The Ld. DR submitted that the Ld, CIT(A) erred in deleting disallowance on interest accrued on NPAs to the extent of Rs. 57,42,500/- quoting the RBI guidelines. In this regard, the Ld. AR supported the order of the Ld. CIT(A) and relied on this tribunal decision Per contra, the Ld. AR supported the or....
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....his issue is covered by the decision of the Hon'ble Karnataka High Court in the case of NCR Corporation Pvt Ltd [2020] 117 taxmann.com 252 and also the decisions of the Chennai Bench of the ITAT in the case of Indian Bank 2016 (7) TMI 728 and City Union Bank Ltd in ITA No. 636/Chny/2020 for Asst Year 2017-18. 20.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Hon'ble Karnataka High Court in the case of NCR Corporation (supra) wherein the High Court held that the ATM machines are computers and are eligible for 60% depreciation. The High Court held as under: "8. This takes us to the second substantial question of law whether ATMs are computers and are eligible for 60% depreciation. It is pertinent to note that provisions of the Karnataka Sales Tax Act, 1957 and provisions of Income Tax Act, 1961 are not parimateria provisions. The classification of goods has been provided only for the purposes of sales tax whereas, the provisions of the income tax levy tax on income. It is pertinent to mention here that Appendix 1 to Income Tax Rules,....
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....y the revenue." 20.5 Respectfully following the above decisions, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue. 21. The next issue that came up for consideration from Ground No. 15 is with regard to allowing rural debt written off. 21.1 The Ld. AR submitted that this ground is infructuous since the CT(A) did not allow any rural write off as deduction u/s 36(1)(vii). 21.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that this ground is infructuous since the CIT(A) has not allowed rural write off as deduction. The ground of the Department is therefore dismissed. 22. The next issue that came up for our consideration from Ground Nos. 16 to 17 of the Revenue appeal is towards the deduction u/s 36(1)(viia). The AO did not deal with this issue in the Assessment order. However, during the appellate proceedings before the CIT(A), he moved an enhancement petition through which, he had requested the CIT(A) to disallow the deduction claimed by the bank u/s 36(1)(viia) by computing the Aggregate Average Rural Advances by considering the incremental adva....
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....f the Hon'ble High Court are as under: "10.2 Similarly, the second issue relating to deduction of Rs. 8.53 crores u/s. 36(1)(viia) with regard to the provision for bad and doubtful debts, is covered by the decision in Principal Commissioner of Income Tax, Jalpaiguri v. UttarbangaKshetriyaGramin Bank [(2018) 94 taxmann. Com 90 (Calcutta), in favour of the assessee and the relevant passage of the same is usefully extracted below: "6. Mr. Nizamuddin,learned advocate appeared on behalf of the Revenue and submitted the amended direction made by the Tribunal on the ITO has resulted in the assessee getting double deduction which is not permissible on computation made under Rule 6ABA. He submitted a double deduction in the manner thus obtained by the assessee has not been expressly provided. He relied on a judgment of the Supreme Court in the case of Escorts Ltd. v. Union of India reported in (1993) 199 ITR 43, on the following portion in the said judgment appearing in page 64 of the report. "A double deduction cannot be a matter of inference, it must be provided for in clear and express language, regard being had to its unusual nature and its serious impact on the revenues of the St....
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....d that the assessee would not be able to give age-wise details of outstanding advances for the branches more so for the rural branches with reference to which the deduction was claimed, so as to determine whether any advance of earlier year for which provision was made is still outstanding. 5.4. In other words, the assessee is not in a position to give details of the advances with reference to which the deduction of Rs. 14.99 crores was allowed as per Annexure 2 as deduction under section 36(1)(viia) towards unknown and anticipated trading loss by virtue of mere provision made on ad-hoc basis for bad and doubtful debts and to confirm that these advances were still outstanding as at the end of the previous year relevant to this accounting year." "6.3.1. Therefore due to assessee's inability to relate the provision to any particular advance of a branch, it cannot be said whether it is a provision for rural advance or for non-rural advance so as to examine the monetary limit prescribed under section 36(1)(viia) for allowing deduction thereunder. Then such provision is only reserve for bad debts and not provision for bad and doubtful debts. Though the provisions of section 36(1....
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....wn case for earlier years, we are of the considered view, that the Assessing Officer is erred in computing deduction u/s. 36(1)(viia) of the Act, by considering only incremental advances made by rural branches of appellant bank as against the aggregate average advances made by rural branches of appellant bank as outstanding at the end of the financial year and thus, we direct the Assessing Officer to consider aggregate average advances outstanding at the end of the relevant financial year for the purpose of computing deduction u/s. 36(1)(viia) of the Act. Further, to compute correct amount of deduction, the matter has been set aside to the file of the Assessing Officer with a direction to reconsider the issue in light of our discussions given herein above and also the details that may be filed by the assessee." 22.4 Respectfully following the above decision, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue. 23. In the result, appeal filed by the Revenue for Asst Year 2014-15 is dismissed. ITA No. 678/Chny/2019 for AY 2015-16: 24. The first issue that came up for our consideration from ground No. 2.1 to 2.2 of assessee a....
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....preciation and only the net depreciation if any, can be claimed. He further observed that the assessee has claimed a depreciation of Rs. 5,75,99,181/- on the preference shares - Non performing. He also observed that the claim of the assessee is not covered by any specific provision of the Act and it also does not quality u/s 36(1)(viia). Further, he relied on the decision of the Hon'ble Supreme Court in the case of Southern Technologies in CA No. 1337/2003. He therefore, disallowed the amount of Rs. 5,75,99,181/- and added to the total income. He thus, added an amount of Rs. 9,03,55,817/- (3,27,56,636 + 5,75,99,181) being the depreciation on investment claimed by the assessee. 25.1 The Ld. Counsel for the assessee, submitted that this issue is squarely covered in favour of the assessee by the decision of the ITAT in the case of State Bank of India in ITA No. 3644 & 4563 / Mum / 2016 - order dated 03-02-2020 in which the ITAT after analysing various decisions of Hon'ble Supreme Court, held that the notional appreciation need not be adjusted against the depreciation. With regard to the valuation of preference shares - Non Performing and claiming of the depreciation on th....
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....claimed that the assessee be allowed a deduction in respect of depreciation on each securities, scrip wise, while ignoring the appreciation. 67. Further, the assessee claimed that it has consistently been following the method of valuation of lower of cost or market price in respect of securities. Accordingly, the method of valuation followed by the assessee is required to be accepted. Reliance in this regard is placed on the following decisions: * CIT vs. Bank of Baroda [2003] 262 ITR 334 (Bombay) * CIT vs. Corpn. Bank Ltd. [1988] 174 ITR 616 (Karnataka) Further, the issue was not disputed upto financial year 2003- 04 and hence, the AO is not justified in taking a different view. 68. The assessee also relied on the judgement of the Bombay High Court in the case of Union Bank of India dated 08.02.2016 in ITA 1977 of 2013. The assessee in this case for the purpose of its books was netting off the depreciation in its securities against appreciation in other securities while for tax purpose, the assessee has been claiming gross depreciation that is without netting of the appreciation in other securities held as a part of investment. The Bombay High Court has dismissed the app....
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....s is reduced. Further, the decision of the Mumbai Tribunal in the case of Deutsche Bank A.G vs. DCIT [2003] 86 ITD 431 (Mumbai), relied by the AO is in connection with valuation of foreign exchange forward contracts. In this case the assessee did not account for in the financial statement the anticipated/contingent profits from the contracts to the extent not settled as on the last day of the accounting year whereas any loss on such contracts was provided for by a charge in the profit and loss account on the best estimates. The Department brought to tax the profit on such forward exchange contracts and stated that one method for valuation of the entire stock of securities should be followed. This resulted in a situation of taxing appreciation of stock, which goes against the general and settled principle of non-taxation of notional income, as laid by the Supreme Court in the case of SanjeevWollen Mills vs. CIT [2005] 279 ITR 434 (SC) and others discussed supra. Hence, we are of the view that this disallowance of depreciation/ reducing of depreciation on appreciation in the value of securities held as available for sale and held for trading category are allowable. We direct the AO a....
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.... of the Tribunal. In the said order, the AO has examined computation submitted by the assessee and allowed deduction as per the computation of the assessee. Since, the AO had already accepted computation methodology adopted by the assessee bank for assessment years 2010-11 & 2011-12, based on directions of ITAT, we are of the considered view that this year also the issue needs to go back to the file of the AO to consider the issue in light of directions of the Tribunal for earlier years. Hence, we set aside the issue to the file of the AO and direct him to follow the directions given by the Tribunal for earlier assessment years." 26.4 Respectfully following the above decision, we set aside the issue to the file of the AO and direct him to follow the directions given by the Tribunal for earlier assessment years. This ground of the assessee is allowed for statistical purpose. 27. The next issue that came up for our consideration from ground No. 5.1 to 5.4 of assessee's appeal is deduction u/s. 36(1)(vii) of the Act, non rural bad debts written off in the books of accounts of the assessee. An identical issue has been considered by us in the Appellant own case for the Asst Year....
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.... AY 2015-16: 32. At the outset, we find that there is a delay of 11 days in appeal filed by the revenue, for which petition for condonation of delay along with reasons for delay has been filed. After considering the petition filed by the revenue and also hearing both the parties, we find that there is a reasonable cause for the revenue in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the revenue for adjudication. 33. The first issue that came up for our consideration from Ground Nos.2 to 5 of Revenue appeal is deletion of addition made towards disallowance of stale drafts. An identical has been considered by us in the Appellant's own case for the Asst Year 2014-15 in ITA No. 1343/Chny/2019. The facts are identical for the year under consideration. The reasons given by us in the preceding paragraph No. 16 to 16.4, shall mutatis mutandis applicable to this issue also. Therefore, for the similar reasons, we are inclined to uphold the findings of CIT(A) and reject the ground taken by the Revenue. 34. The next issue that came up for our consideratio....