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2016 (4) TMI 429 - ITAT BANGALOREAddition made u/s 36(1)(viia) - manner of computation of the amount of deduction - Held that:- The amount of deduction is to be calculated with reference to income computed under the head ‘profits and gains of business or profession’. The provisions governing the brought forward and set off business loss are not part of the provisions governing the computation of profits under the head ‘profits and gains of business’. Hence, we hold that the method of calculation adopted by the AO is in accordance with the provisions of the Act and the reasoning adopted by the CIT(A) is also in consonance with the clear provisions of the Act. Hence, we confirm the addition made by the AO. - Decided against assessee Addition made on account of depreciation in the value of Held to Maturity (HTM) category of investments - Held that:- From the reading of the circular No.18/2015 it is clear that investments held by the banking concern are treated as a part of business of the banking company and therefore, the income arising from such investments is treated as part of business income falling under the head ‘profits and gains of business’. Though the circular was issued in the provisions of sec.80P of the Act, the said principle was equally made applicable to other banks and commercial banks to which Banking Regulation Act, 1949 applies. Therefore, by virtue of the above said circular, investments made by the banking company should be treated as a business asset of the banking company or stock-in-trade. It is well settled in law that CBDT circulars are binding upon the officers who are entrusted with the responsibility of executing the provisions of the Act. Having regard to the spirit of the circular cited supra and the fact that investments are shown as stock-in-trade in the books of account, loss/depreciation on account of fall in value of securities held by the assessee-bank should be allowed as deduction. Therefore, income arising therefrom should also be treated as business income. The provisions of section 45(2) cannot be applied to the facts of the present case, as in the earlier years, for the purpose of income-tax proceedings, the investments were treated as stock-in-trade. Addition made on account of write off of investments - Held that:- The submission of the learned counsel for the assesseebank that securities of M/s Pennar Aluminium Ltd., were acquired during the normal course of business of assessee-bank are not borne out of record. On the other hand, evidence on record clearly shows that these assets are shown as investments up to earlier assessment year and treated it as stock-in-trade during the previous year relevant to assessment year under consideration. Therefore, in such a situation, provisions of section 45(2) shall come into play. The fall in value of securities should be allowed as a capital loss in the year of sale of such securities as supported under the said provisions of the Act. Therefore, it is only a capital loss and cannot be allowed as a deduction. We uphold the order of the ld.CIT(A) and the ground of appeal filed by the assessee is dismissed. Deduction on account of bad debts - Held that:- Similar issue had come up before the Hon’ble Apex Court in the case of Vijaya Bank vs. CIT (2010 (4) TMI 46 - SUPREME COURT ) wherein it was held that debiting the profit and loss account by an amount of provision for bad debts, reducing provision for bad and doubtful debts from debtors account in balance-sheet amounts to write off. In the present case, it is undisputed fact that provision for bad and doubtful debts was reduced from sundry debtors account in the balance-sheet. Therefore, it satisfies the law laid down by the Hon’ble Apex Court in Vijaya Bank (supra). The same reasoning was followed in the decisions cited by the learned counsel for the assessee-bank. The ld.CIT(A) also, after considering the law and the precedents on the issue, had come to the conclusion that it amounts to write off and the claim was allowed. - Decided against revenue Disallowance u/s 14A - Held that:- The AO had not given any finding as to how the claim of the assessee-bank that no expenditure was incurred to earn exempt income was incorrect. In the absence of such finding, resort cannot be had to the provisions of sub-rule(2) of rule 8D. a. Furthermore, it is undisputed fact that exempt income is earned from securities which are held as a part of stock-in-trade. The Hon’ble Bombay High Court in the case of India Advantage Securities Ltd (2015 (6) TMI 140 - BOMBAY HIGH COURT ) held that provisions of sec.14A have no application in case assets are held as stock-in-trade. Therefore, provisions of sec.14A cannot be applied in the present case. Furthermore, in the assessee’s own case, the Hon’ble High Court of Karnataka held that no notional expenditure can be attributed to exempt income.Accordingly, we hold that no disallowance can be made u/s 14A of the Act. - Decided in favour of assessee Disallowance of contribution made to Disability Trust - Held that:- Undisputedly, impugned contribution was made by the assessee-bank pursuant to the order passed by the Hon’ble Supreme Court in the case of Devkala Consultancy Service (2004 (4) TMI 73 - SUPREME Court ). Needless to say, breach of the directions of the Hon’ble Supreme Court is not in the business interest of the assesseebank. Furthermore, what is paid in the form of contribution to the trust is only excess interest collected from borrowers and such excess interest was offered to tax in the year in which it was collected. Therefore, the AO, in all fairness, should have allowed the same as deduction.- Decided in favour of assessee Addition made on realization of assets of erstwhile Lakshmi Commercial Bank (LCB) Ltd. - Held that:- It is undisputed fact that in the year of merger of LCB with assessee-bank, excess of liabilities over assets was not allowed as deduction while computing profits and gains of business. In such an event, any subsequent realization out of assets of erstwhile LCB cannot be brought to tax. We do not find any fault with the reasoning of the ld.CIT(A) in deleting the addition.- Decided in favour of assessee MAT applicability - Held that:- Provisions of sec.115JB are not applicable to the banking company
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