TaxTMI 
TaxTMI 
2024 (4) TMI 589
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....he sake of brevity grounds of appeal filed by the 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 pro....
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....on facts in disallowing claim of Rs. 65,72,75,190/- by holding that the appellant had made excess claim of bad & doubtful debts. 6.1. The learned Commissioner of Income Tax (Appeals) 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 s....
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....e of depreciation on ATM. However, sustained additions made towards disallowance for provision for leave encashment and disallowance u/s 36(1)(viii) of the Act. The ld. CIT(A), had also enhanced the assessment and directed the Assessing Officer to make additions towards disallowance 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....
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....on the ITAT decision in the case of Nizamabad District Cooperative Central Bank Ltd v Income tax Officer 2014 (12) TMI 562- Hon'ble ITAT Hyderabad. 6.2 The ld. DR, Shri. Nilay Baran Som, CIT, on the other hand supporting the order of the Assessing Officer and ld. CIT(A) submitted that, 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 ....
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....8-09 relevant to the assessment year 2009-10, the deduction claimed by the assessee under section 36(1)(viii) of the Act was disallowed and the ld. CIT(A) confirmed the disallowance made on this account. Admittedly, though the assessee has for the first made a claim for the benefit of deduction under 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 ad....
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....s. 30 Cr to Special Reserve from the Revenue & Other Reserves. In the assessment order also, this fact has been noted by the AO. The only reason for disallowing the claim of the assessee is that the Reserve was not created during the Financial Year 2013-14 and the ITAT order for the earlier year has not been accepted 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.....
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....ite conditions are fulfilled but it is inconceivable that in presence of such specific provisions a similar power is available to the first appellate authority u/s. 251 of the Act. He also relied on various decisions including that of the Hon'ble Supreme Court. The ld. Counsel for the assessee further submitted that 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 CI....
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....authority has in the matter. It was held by Hon'ble High Court that an item of income noticed by the officer, but not examined by him from the point of view of its taxability or non-taxability, cannot be said to have been considered by him. Consideration does not mean incidental or collateral examination of any matter by the officer in the process of assessment. There 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 a....
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....n 34 and 33b which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commission to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 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 ....
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....this submission in the background of what had been stated by the Apex Court in Jute Corporation's case (supra) and Daluram's case (supra). In Jute Corporation's case (supra), the Apex Court while considering the question whether the Appellate Assistant Commissioner has the jurisdiction to allow the assessed to raise an additional ground in assailing the order of assessment before it, referred 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 t....
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....computed if the true total income had been found. The court observed that there was no doubt that this view was also possible, but having regard to the provisions of sections 34 and 33B, which made provision for assessment of escaped income from new sources, the interpretation suggested on behalf of the revenue would be against the view which had held the field for nearly 37 years...." (p.692) [Emphasis, 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 fac....
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....d debts totaling to Rs. 189,21,11,268 of which Rs. 189,13,82,084 pertains to non rural advances and Rs. 7,29,184 pertains to rural advances. The Assessing Officer, however disallowed the bad debts write off pertaining to rural branches, as per provisions of section 36(1)(vii) of the Act and Explanation (2), and following the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd vs CIT [2012] 343 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 asse....
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....TAT in respect of deduction towards provision for bad and doubtful debts u/s. 36(1)(viia) and write off of bad debts u/s. 36(1)(vii) of the Act, pertains to rural advances should be considered separately without any adjustment in respect of write off of bad debts pertains to nonrural debts. Therefore, he submitted that the ld. CIT(A) erred in not considering relevant facts while deciding the issue and thus, the enhancement 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....
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....rable u/s. 36(1)(vii), subject to the provision of sub section (2) of section 36 of the Income Tax Act. Provided, assessee being a scheduled bank, where they already claimed deduction of 'provision for bad and doubtful debt' under clause (a) of section 36(1 )(viia), to claim bad debt write off, the write off should exceed the credit balance in the "provision for bad and doubtful debt" made. Sub clause (v) of section 36(2) categorically prescribes that no such deduction (bad debt write off) shall 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....
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....not allowable to the assessee as it has not debited the write off of bad debts to the profit and loss account and correspondingly closed the debtor account. Further the assessee has to satisfy the conditions mentioned in section 36(2)(v). Sub clause (v) of section 36(2) categorically prescribes that no such deduction (bad debt write off) u/s 36(1)(vii) shall 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). 2.5 As per RBI guidelines-prudential norms, assessee 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....
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....y which such bad debts exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) without any distinction between rural advances and other advances " Hence, it is clear that the explanation applies to a bank as a whole and not for any specific type of advances. The assessee claims that section 36(1)(viia) is applicable only to rural bad debts write off and not for urban bad debts write off which can be claimed u/s 36(1)(vii). The section 36(1)(viia) was inserted by Finance Act 1979 w.e.f. 01.04.1980. The section starts as "in respect of any provision for bad and doubtful debts made by". It includes NPAs irrespective 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 ....
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.... (supra) which stated that there must be PBDD debit to the P&L along with reduction of Loans & Advances. The relevant portion of the decision in Vijaya Bank (supra) has been reproduced above. In the facts of the case of Oriental Bank of Commerce, the assessee had reduced the PBDD from Loans & Advances as recorded in the order of the Hon'ble Delhi Tribunal. Hence, the Hon'ble Courts relied on Vijaya Bank (supra) and decided the matter in favour of the assessee. However, in the instant cases, the assessee has not reduced the PBDD from the Advances in the Balance Sheet (reference is drawn to Schedule 9 -Advances of the Balance Sheet of the assessee for the respective assessment years. Relevant pages of the financials have been enclosed). 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 de....
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.... provision. On the other hand, the view expressed by Commissioner (Appeals) while allowing assessee's claim of deduction is as per the statutory provision. Accordingly, there is no infirmity in the order of Commissioner (Appeals) in allowing assessee's claim of deduction for Rs. 616.55 crores u/s 36(1)(viia). [Para 3] Alternate claim regarding taxability u/s. 41(4) Now, whether the alternative claim that if the bad debt write off is disallowed by the AO, recovery of the bad debt write off u/s. 41(4) of the Income Tax Act was also not to be charged was right? It is an incorrect claim. Prima facie, for the assessee, section 36(l)(vii) and section 41(4) is not be applicable as they have not written off any bad debt as irrecoverable in their accounts (Profit & Loss accounts). Only they created provision 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 ....
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.... the ordinary course of the business of banking or money-lending which is carried on by the assessee; (iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of Section 36(1)(vii) as well as section 36(2) of the Act." Summary: It is submitted that mere provision for NP A cannot be considered as write off u/s. 36(1 )(vii) as held by Supreme Court in the case of Southern Technologies vs ACJT 352 ITR 577. Reliance is also placed on the decision rendered by Hon'ble Kerala High Court in the case of CIT vs Hotel Ambassador [2002] 253 ITR 430, wherein it was held that the deduction u/s. 36(l)(vii) of the Act is allowable only if the assessee debits the same into the accounts as irrecoverable. Exactly, on similar facts and grounds, the Hon'ble Supreme Court has admitted the SLP in the case of Commissioner of Income-tax, LTU vsVijaya Bank [2021] in 130 taxmann.com 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 red....
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....iia) of the Act and deduction towards actual write off of bad debts u/s. 36(1)(vii) r.w.s. 36(2)(v) of the Act, has to be understood in the context of rural advance and non-rural advance given by the banks. 10.4 The provisions of section 36(1)(vii) deals with deduction toward bad debts or part thereof which is written off as irrecoverable in the accounts of the assessee subject to the provision of sub-section (2) to section 36 of the Act. As per said provision in the case of assessee, to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. Sub-section (2) to section 36 prescribed conditions for making any deduction for bad debts or part thereof and as per subsection (v) to section 36(2), where debts or part thereof relates to advances made by an assessee to which 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 do....
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.... balance in the provision for bad and doubtful debts account under that clause. ........... Explanation 2 - For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (via) and such account shall relate to all types of advances, including advances made by rural branches;" The provisions of sec. 36(2)(v) are relevant here and it reads as under:- "(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply-- -- ....... (v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has 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 provisions of clause (vii) of sec.36(1), the proviso there under and clause (v) of sec.36(2)....
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....and may possibly contend that (i) the provision allowed u/s. 36(1)(viia) shall apply only to Rural branches. (ii) since it does not maintain two separate PBDD a/c for rural and non-rural advances, the bad debts relating nonrural branches need not be reduced from the PBDD a/c allowed u/s. 36(1)(viia) in terms of sec. 36(2)(v) and the proviso to sec. 36(1)(vii) of the Act. However, the Ld A.R submitted before us that the Explanation 2 has been inserted in sec. 36(1)(vii) by Finance Act, 2013 (after the decision of Catholic Syrian Bank) to debar certain assessees to avail the interpretation given by Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra). 7.11 We have considered the arguments advanced by Ld A.R on this point. According to Ld A.R, if we closely analyse the provisions of sec. 36(1)(viia) of the Act, the intention of the Parliament in inserting Explanation -2 shall become clear. Accordingly, we analysed the provisions of sec.36(1)(viia) and notice that the said section allows deduction of PBDD to various types of assessees, viz., (i) Clause (a) of sec. 36(1)(viia) shall be applicable to a Scheduled bank (not being a ....
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....fer to the "MEMORANDUM EXPLAINING FINANCE BILL 2013", which brings out the intention of the Parliament in inserting Explanation-2 in sec. 36(1)(vii) of the Act. It is extracted below:- "Clarification for amount to be eligible for deduction as bad debts in case of banks:- Under the existing provisions of section 36(1)(viia) of the Income-tax Act, in computing the business income of certain banks and financial institutions, deduction is allowable in respect of any provision for bad and doubtful debts made by such entities subject to certain limits specified therein. The limit specified under section 36(1)(viia)(a) of the Act restrict the claim of deduction for provision for bad and doubtful debts for certain banks (not incorporated outside India) and certain cooperative banks to 7.5% of gross total income (before deduction under this clause) of such banks and 10% of the aggregate average advance made by the rural branches of such banks. This limit is 5% of gross total income (before deduction under this clause) under sections 36(1)(viia)(b) and 36(1)(viia)(c) for a bank incorporated outside India and certain financial institutions. Provisions of clause (vii....
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.... the scope and applicability of provision of clause (vii), (viia) of sub-section (1) and subsection (2), it is proposed to insert an Explanation in clause (vii) of section 36(1) stating that for the purposes of the proviso to section 36(1)(vii) and section 36(2)(v), only one account as referred to therein is made in respect of provision for bad and doubtful debts under section 36(1)(viia) and such account relates to all types of advances, including advances made by rural branches. Therefore, for an assessee to which clause (viia) of section 36(1) applies, the amount of deduction in respect of the bad debts actually written off under section 36(1)(vii) shall be limited to the amount by which such bad debts exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) without any distinction between rural advances and other advances. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. The CBDT has issued an Explanatory note to the Provisions of Finance Act, 2013 on 24.01.2014 in F No. 142/24/2013 - TPC, wherein also the ver....
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....made for bad and doubtful debts relating to rural advances." Because of the interpretation so given by Hon'ble Supreme Court, as discussed earlier, there arose a necessity for the Parliament to clarify that the PBDD allowed u/s. 36(1)(viia) shall apply to all types of advances including advances made by rural branches. However, as stated earlier, the clause (a) to sec.36(1)(viia) has been held to be applicable to rural advances only and this interpretation has not been overridden by any amendment. 7.15 As noticed earlier, the assessees covered by clauses (b) to (d) may not be having rural branches, but they would be getting the benefit of deduction of PBDD u/s. 36(1)(viia) of the Act. Hence, in order to bring those assessees within the ambit of the proviso to sec. 36(1)(vii) and sec. 36(2)(v), it was imperative for the Parliament to clarify the legal position and accordingly Explanation-2 has been inserted in sec. 36(1)(vii) of the Act. Accordingly, on the analysis of the provisions discussed above, we are of the view that the above said Explanation-2 shall operate (a) in respect of clause (a) of sec. 36(1)(viia) of the Act only to rural advances and ....
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.... appeal is against the addition made by the Assessing Officer in computing the book profit u/s 115JB towards provision for leave encashment. The assessee had made provision for leave encashment in the books based on actuarial valuation and claimed the same as deduction while computing book-profit by observing the same an unascertained liability. 10.1 The Ld. Counsel for the assessee, submitted that this issue is squarely covered in favour of the assessee by the decisions of Hon'ble Himachal Pradesh High Court in the case of HP. Tourism Development Corporation Ltd 2013 (6) TMI 97- HIMACHAL PRADESH HIGH COURT and of ITAT in TVS Infotech Limited 2019 (6) TMI 1287- ITAT CHENNAI. 10.2 The Ld. DR relied on the orders of the lower authorities. 10.3 We have heard the rival parties, perused material available on record and gone through orders of the authorities below. We find that this issue is squarely covered Hon'ble Himachal Pradesh High Court in the case of HP. Tourism Development Corporation Ltd (supra). While allowing the claim of the assessee and dismissing the appeal of the department the held as follows: "In both these appeals, the Assessing Officer, relyi....
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.... Bharat Earth Movers (supra). Hence, dismissed." 10.4 Since the facts of both the cases are same, respectfully following the above decision, we hold that the provision for leave encashment is an ascertained liability and cannot be added to book profit, allowing the ground of assessee's appeal by directing the AO to delete the addition. 11. The next issue that came up for our consideration from ground no 8 of assessee appeal is the enhancement ordered by the CIT(A) to rework the deduction u/s. 36(1)(viia) of the Act by reclassifying some of the banks as non rural based on the census data of the year 2011. 11.1 The Ld. Counsel for the assessee, submitted that as per the section the census data as available before the first day of the previous year can alone be considered. It was submitted that the Census data of 2011 was published only on 30.04.2013 and as such would be applicable only from the A.Y 2015-16. He further submitted that the issue is squarely covered the decision of the ITAT in the assessee's case in ITA no 2765/Chny/ 2017 order dt 3-11-2021 for the A.Y 2013-14. He also submitted that this is new issue considered by the CIT(A) and as such the power of enhancement....
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....ly in April, 2013, which is beyond relevant financial year. Although, the ld.DR has filed certain evidences including Google search information, and argued that provisional census data of 2011 was released on 31.03.2013, but said data is unauthenticated, not certified by any authorities. Therefore, based on said evidence, we cannot conclude that population data of 2011 was available in public domain as on 31-03-2011." 11.4 Following the above decision of the ITAT in the assessee's own case we hold that the branches cannot classified considering the population as per 2011 census and therefore set aside the order of the CIT(A) on this issue and allow the ground of appeal of the assessee. Since the issue is decided on merits the technical ground raised by the appellant is left open. 12. The next issue that came up for our consideration from ground No. 9 of assessee appeal is deduction towards education cess and secondary and higher education cess. The Ld. Counsel for the assessee, at the time of hearing submitted that the assessee does not want to press this ground and thus, ground No. 9 of assessee appeal is dismissed as not pressed. 13. The next issue that came ....
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.... expenditure which is in the nature covered u/s. 30 to 36 and Bonus is covered u/s. 36 (1)(ii). 9. The learned CIT (A) has erred in not considering the fact that payment in contravention of any other act (Bonus Act in this case) is not an allowable deduction while deciding Exgratia payment issue. 10. The learned CIT (A) has erred in not considering the Hon'ble Apex Court's decision in the case of Southern Technologies Ltd vs JCIT [320 ITR 577 (SC)] which held that Sec.37 applies only to items which do not fall under Sections 30 to 36 while deciding Ex-gratia payment issue. 11. The learned CIT(A) has erred in deleting the disallowance under 14A to the tune of Rs. 1,00,70,278/-, following the decision in favour of assessee in Supreme Court case law of Maxopp Investment Ltd 402 ITR 640 (SC) which is not applicable to this issue. As per the Hon'ble Supreme Court in the case of CIT vs Walfort Stock Brokers Pvt. Ltd and Godrey& Boyce Manufacturing Co. Ltd vs DCIT, has categorically held that application of the provision of section 14A are absolute. 12. The Hon'ble CIT(A) has erred while deciding the issue on interest accrued on NPAs by ....
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....CIT(A) has erred in not considering the fact that only the provisions of Act and Rules existing as on date is applicable for deciding any issue. 19. For these and other reasons that may be adduced at the time of hearing, the order of the CIT(A) may be modified to the extent suggested above." 16. 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. The facts with regard to the impugned dispute are that the assessee is in the business of banking, has issued demand drafts to various persons and further any unclaimed demand drafts was kept in stale draft account under the head 'outstanding liabilities'. During the course of assessment proceedings, the AO noticed that an amount of Rs. 2,46,14,514/- was shown under the head outstanding liabilities towards stale draft and treated the same as income of the assessee and added to total income. On appeal before the ld. CIT(A), the CIT(A) has deleted addition made by the AO by following the decision of ITAT in assessee's own case for earlier years. 16.1 The ld. DR submitted that the ld. CIT(A) has erred in deleting the disal....
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....ssee. A similar view has been taken by the Hon'ble Jurisdictional High Court of Madras in the case of City Union Bank Ltd., vs. CIT, supra. Therefore, consistent with view taken by the Co-ordinate Bench, we are of the considered view that there is no error in the reasons given by the CIT(A) to delete addition made by the AO towards Stale Draft Account. Hence, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue." 16.4 Respectfully following the above decision, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue. 17. The next issue that came up for our consideration from Ground Nos. 6 to 10 of Revenue appeal is deletion of disallowance of ex-gratia payment of Rs. 26,05,79,311/-. The AO had disallowed ex-gratia payment made by the assessee to its staff by observing that the Revenue has filed appeals before the Hon'ble High Court against the orders of the ITAT and in order to keep the issue alive, the claim made by the assessee was disallowed. On appeal, the Ld. CIT(A) following the earlier orders of the ITAT, allowed the appeal of the assessee. 17.1 We have heard both the parties, perused ....
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...., we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue. 18. The next issue that came up for our consideration from Ground No. 11 of the Revenue appeal is deletion of disallowance of expenditure relatable to exempt income u/s. 14A of the Act. The assessee has earned dividend income of Rs. 1,19,14,795/-, however no disallowance as required u/s. 14A of the Act had been made by the assessee. Therefore, the AO invoked the provisions of Rule 8D and disallowed Rs. 79,95,384/-. On appeal, the Ld. CIT(A) deleted the disallowance. 18.1 The ld. DR supporting order of the AO submitted that the moment exempt income is earned, disallowance contemplated u/s. 14A triggers and the AO shall compute such disallowance by invoking Rule 8D of IT Rules, 1962 and thus, there is no error in the reasons given by the AO towards disallowance u/s. 14A and the order of the AO should be upheld. 18.2 The ld.AR for the assessee at the time of hearing submitted that this issue is 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 it has been held that no disallowance u....
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....O has made addition of Rs. 93,92,500/- towards interest on nonperforming assets (NPAs) by holding that interest on loans needs to be offered to tax on accrual basis in respect of NPAs, which are more than 90 days old but less than 180 days. According to him, Rule 6EA of the Income Tax Rules, 1962 applies only in respect of NPAs which are more than 180 days old. The ld. CIT(A) deleted addition made by the AO by following the decision of ITAT in the case of Lakshmi Vilas Bank and also the decision of the Hon'ble Supreme Court in the case of Vasisth Chaay Vyapar in Civil Appeal No. 5811 of 2012. 19.1 The ld. DR submitted that the ld. CIT(A) has erred in deleting disallowance of interest accrued on NPAs by following the guidelines issued by RBI ignoring the fact that Rule 6EA of the Income Tax Rules, 1962 deals with taxation of interest on NPAs, as per which NPAs which are less than 180 days are covered under Rule 6EA of Income Tax Rules, 1962, as per which the assessee shall recognize interest on accrual basis. 19.2 The ld.AR for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT in assessee's own case for assessmen....
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....e Delhi High Court, that the interest income cannot be said to have been accrued to the assessee on the NPA accounts. Accordingly, we direct the AO to delete the addition of Rs. 14,00,000/- made on interest on NP accounts. Accordingly, this ground of appeal stands allowed. 29.1 In the result, the appeal filed by the assessee-bank is partly allowed." Following the co-ordinate bench decision, supra, we do not find merit in the Revenue's appeal, therefore, the corresponding grounds are dismissed." 10.4 In this view of matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that there is no error in the reasons given by the ld.CIT(A) to delete additions made towards interest on NPAs and thus, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the Revenue." 19.4 Respectfully following the above decision, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue. 20. The next issue that came up for our consideration from Ground No. 14 of Revenue appeal is deletion of disallowance of depreciation on ATMs. The assessee has claimed depreciation o....
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....echanical function of the dispensation of cash or deposit of cash is done. Therefore, it was held that ATMs are computers and are entitled to higher rate of depreciation. The aforesaid finding of fact has been recorded on correct analysis of the material available on record and by placing reliance on decision of the Bombay High Court." 20.4 Further, we also find that this issue is covered in favour of the assessee in the case of City Union Bank (supra). The relevant extract of the decision is as follows: "47.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The issue of depreciation @60% on ATMs is no longer res-integra. The coordinate bench of ITAT, in appellant's own case for assessment year 2012-13 & 2013-14 has considered an identical issue and after considering relevant facts held that ATMs are akin to computer and computer software and are eligible for higher depreciation @ 60%, but not depreciation @ 15% as applicable to plant and machinery and as claimed by the Assessing Officer. The ld. CIT(A) deleted additions made by the Assessing Officer towards excess depreciation by following ....
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.... set of facts has decided the issue in favour of the assessee. 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. As per Rules 6ABA of I.T. Rules, 1962, for the purpose of clause (viia) of sub-section (1) of section 36, an aggregate average advance made by the rural branches of a scheduled bank shall be computed by taking into account the amount of advances made by each rural branch as outstanding at the end of the last day of each month comprised within the previous year. If you go by Rule 6ABA of I.T. Rules, 1962, it talks about the aggregate average advances made by the rural branches as outstanding at the end of the last day of each month, but it does not speak about only advances given by rural branches during the relevant financial year. Further, the Hon'ble Madras High Court in appellant's own case has considered an identical issue and by following the decision of Hon'ble Kolkata High Court in the case of PCIT vsUttarbangakshetriya Gramin Bank [2018] 94 Taxman.com 90 Kolkata, held that aggregate average advances made by rural branches as ou....
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....verage advance, computation of which is prescribed by Rule 6ABA. 8. We find from the amended direction made by the Tribunal that such direction is in terms of Rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT (A). The Tribunal amended such direction, in our view, correctly applying the rule. 9. For the reasons aforesaid we do not find the questions suggested to be substantial questions of law involved in the case. As such the application and appeal are dismissed. " 11. This court has no disagreement with the legal proposition laid down in the aforesaid decisions. However, in the present case, though there was no double deduction, as alleged by the appellant / Revenue, there was no clear vision about the advances made by the rural and non-rural branches of the bank and the quantum of deduction was not properly determined by the assessing officer based on the materials furnished by the respondent / assessee. In this context, the relevant paragraphs of the assessment order dated 31.03.2006 passed by the assessing office....
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....ction arrived at by the assessing officer was not based on the documents produced by the respondent / assessee. The CIT(A) as well as the Tribunal also, did not look into those aspect, while allowing the deduction claimed by the respondent / assessee. Therefore, this court is of the opinion that for that limited purpose, the matter has to be re-examined by the assessing officer and the same has also been agreed upon by the learned counsel appearing for both sides. 12. In such view of the matter, the order of the Tribunal, which is impugned herein, is set aside and the matter is remitted to the assessing officer for quantification of the deduction allowable to the respondent. The assessing officer shall complete the said exercise, after providing due opportunity to the respondent for submission of both oral and documentary evidence, if any, and pass appropriate orders, on merits and in accordance with law, within a period of three months from the date of receipt of a copy of this judgment. 12.4 In so far as deciding a particular branch is rural branch or not, the population of 2011 census should be considered because said data was officially available with the bank....
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....ed to the total income. 24.1. The Ld Counsel for the assessee submitted that this issue is squarely covered by the Hon'ble Madras High Court decision in the assessee's own case for the Asst Year 2003-04 reported in [2020] 16 ITR-OL 374 in which the jurisdictional Hon'ble Madras High Court reversed the decision of the ITAT relied on by the AO. 24.2. The ld. DR relied on the orders of the authorities of below. 24.3. We have heard the rival parties, perused material available on record and gone through orders of the authorities below. We find that this issue is squarely covered by the Hon'ble Madras High Court decision in the assessee's case (supra) in which it allowed the appeal of the assessee and reversed the decisions of the lower authorities. Since the decision of the ITAT based on which the AO made the addition has been reversed by the Hon'ble Madras High Court, respectfully following the same, we delete the addition made by the AO and allow the assessee's ground of appeal. 25. The next issue that came up for our consideration from ground nos. 3.1 to 3.4 of assessee appeal is depreciation on investments. The appellant bank is treating its security as ....
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....on in the case of Canara Bank [2023] 147 taxmann.com 171. 25.2 The ld. DR, adopted the submissions made on this issue for the Asst Year 2014-15 and also relied on the orders of the lower authorities. 25.3 We have heard the rival parties, perused material available on record and gone through orders of the authorities below. We find that this issue is squarely covered by the ITAT in the case of State Bank of India (supra) with regard to addition of notional appreciation. In the said decision, the ITAT after analysing various decisions of the Hon'ble Supreme Court held that notional appreciation cannot be taxed. In this regard, ITAT held as follows: "66. In context of netting off depreciation against appreciation, the Madras High Court in the case of CIT vs. Chari & Ram [1949] 17 ITR 1 (Madras) has held that there would be no assurance that there would be a market for the entire stock of articles of which the market value is higher and therefore, it would be hazardous to assume that the entire stock could be sold at the prevailing market rate and necessarily bring in a profit. The High Court also held that there is no provision of law or principle according to which the....
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....f valuing stock in the year under consideration, whereas in the assessee's case, there is no change in the method of valuation. Also, in that case, sugar was valued differently by bifurcating the stock into 'levy sugar' and 'free sugar'. The Court's conclusion is based on the fact that there was no justification for bifurcation of sugar between free and levy sugar. The Mumbai Tribunal in the case of DCIT vs. Majestic Holdings And Finvest (P.) Ltd. [2010] 2 ITR(T) 407 (Mumbai) has noted that the reliance of the Departmental Representative on the judgement of the Bombay High Court in the case of Hari nagar Sugar Mills Ltd. is misconceived inasmuch as in that case there was nothing to show the bifurcation of the closing stick of sugar into levy sugar and free sugar and hence, the assessee was obligated to value the entire stock at one value. In the assessee's case as well, each scrip is different and therefore requires independent valuation. The CIT DR placed reliance on the decision of the Mumbai Tribunal in the case of JCIT vs. Dena Bank [2012] 20 taxmann.com 278 (Mumbai). In the aforementioned case, the security was purchased in year 1 at Rs. 100 and the market pric....
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....preciation need not be offered to tax and the depreciation on the Preference shares is allowable and we delete the addition made by the AO and allow the assessee's ground of appeal. 26. The next issue that came up for our consideration from Ground Nos.5.1 to 5.3 of assessee appeal is disallowance u/s. 36(1)(viii) of the Act for Rs. 15,33,68,165/-. The appellant bank has claimed a deduction of Rs. 30,00,00,000/- u/s. 36(1)(viii) of the Act and the same was restricted to Rs. 14,66,31,835 by the AO by substituting his own method of calculation. On appeal, the ld.CIT(A) upheld the disallowance. 26.1 The ld.AR for the assessee submitted that this issue is squarely covered by the of the ITAT vide its order dated 03- 11-2021 in assessee's own case in ITA No. 2765/CHNY/2017 for assessment year 2013-14. 26.2 The ld. DR on the other hand strongly supported order of the lower authorities. 26.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to eligibility of assessee for claiming deduction u/s. 36(1)(viii) of the Act. The only dispute is with regard to the manner in which such d....
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.... 6.1 to 6.2 of assessee's appeal is with respect to classification of 8 branches as non rural by the AO. 28.1 The Ld. AR of the assessee submitted that though specific ground was raised in this regard before the CIT(A) challenging the classification adopted by the AO, the same was not adjudicated by the CIT(A). He therefore, prayed that this ground may be sent back to CIT(A) with a direction to decide the issue raised before him. 28.2 The Ld. DR did not object to the same. 28.3 We have heard both the parties perused materials available on record and gone through orders of the authorities below. We find that vide ground No. 8.3 before the CIT(A), the assessee has specifically challenged the classification of some of the branches as not rural. However, we find that the CIT(A) has not adjudicated this ground. Hence, in the interest of justice, we remit the issue back to the CIT(A) with a direction to adjudicate the same. This ground of the assessee is allowed for statistical purpose. 29. The next issue that came up for our consideration from ground No. 7 of assessee appeal is deduction towards education cess and secondary and higher education cess. The Ld.....
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....d to uphold the findings of CIT(A) and reject the ground taken by the Revenue. 35. The next issue that came up for our consideration from Ground No. 11 of Revenue appeal is deletion of addition made u/s 14A of Rs. 1,00,70,278/-. 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. 18 to 18.4, 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. 36. The next issue that came up for our consideration from Ground No. 12 of Revenue appeal is deletion of addition made towards interest accrued but not due on Government securities of Rs. 29,26,79,551/-. The AO made this addition by holding that income has accrued on the Government securities for the period from December 2014 to May 2015 and the same should be offered to tax for the Asst Year 2015-16. On appeal, the CIT(A) by following the decision of the Hon'ble Madras High Court in TC No. 2144 o....