TMI Blog2014 (4) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka State Cooperative Apex Bank [2001 (8) TMI 9 - SUPREME Court], no bifurcation was attempted between “permanent” and “current” category for valuation - Differentiation attempted by CIT(Appeals) between “permanent” and “current” categories of investments was not warranted - Its investments can be valued at cost or market value whichever is lower and depreciation arising can be deducted from its profit before arriving at its total income - Similarly, if such valuation results in appreciation, profits would also go to increase its total income - Issue regarding depreciation on securities is decided in favour of assessee. Validity of decision taken by the committee of disputes (COD) prior to decision of Apex Court - Held that:- Once a decision has been taken by the COD, during its period of utility, after exercising its mind, that certain issues need not be taken up in appeals, it cannot be given a go-bye. Decision of Hon'ble Apex Court in Electronics Corporation of India’s case [2011 (2) TMI 3 - Supreme Court] cannot be so interpreted to render nugatory decisions already taken by COD. In other words, net effect of the Apex Court decision, in our opinion, is that all applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues are to be considered based on the order of recall. First issue is regarding reopening of assessment, second issue is regarding treatment of depreciation on securities and third issue is regarding treatment of appreciation on securities. 4. On the issue of reopening of assessment, submission of the learned A.R. was that ld. CIT(Appeals) had not considered this ground at all, though it was specifically raised before him. It was argued by the learned A.R. that the reopening was resorted to after four years from the end of relevant assessment year even when the original assessments were completed under Section 143(3) of the Income-tax Act, 1961 (in short the Act ). According to learned A.R., there was no failure on the part of the assessee to disclose material facts relating to assessment and the reopening was resorted so as to apply the decision of Hon'ble Apex Court in the case of Vijaya Bank v. ACIT (187 ITR 541). Therefore, according to him, such a reopening based on a subsequent decision of Apex Court could not be considered as a proper reason for such reopening. 5. Per contra, learned D.R. submitted that ld. CIT(Appeals) had not adjudicated the grounds relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adjudicated by the CIT(Appeals) and if the Tribunal straightaway deals with this issue, it would be loosing the view point of the ld. CIT(Appeals), who was duty-bound to adjudicate on each and every ground raised before him. Hence, we are of the opinion that the matter has to go back to the file of ld. CIT(Appeals) and he has to adjudicate the ground raised by the assessee regarding the jurisdiction of A.O. to reopen the assessments. This issue is, therefore, decided in favour of assessee for statistical purposes. 7. Next issue raised is regarding depreciation on securities. Assessee was valuing its investments adopting cost or market value, whichever was lower and the difference on account of valuation on the respective valuation dates, viz. the end of the respective previous years, was considered either as a loss deductible against its income or as an addition to its income. However, the A.O. was of the opinion that the assessee, being a bank, there was no trading account maintained by it for securities and therefore, it could not be considered that assessee was holding any stock of investments for trading. Therefore, as per the A.O., the loss arising on such valuation was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bank Ltd. (291 ITR 144). Learned A.R. also relied on the decision of Co-ordinate Bench of this Tribunal in the case of Bharat Overseas Bank Ltd. v. JCIT in I.T.A. Nos. 231 to 237/Mds/2001, etc. dated 7th January, 2005, for buttressing his contention that a distinction between permanent and temporary securities cannot be considered for the purpose of valuation. 10. Per contra, learned D.R. submitted that RBI, vide its Circular dated 27.4.1992, had clearly bifurcated the investment portfolio of a bank, to permanent and current . As per learned D.R., investments falling under permanent category made for maintaining SLR could be considered only as investments and not as a stock. In any case, as per learned D.R., no bank could hold any stock, but only investments and the question of valuation at cost or market value whichever was lower would arise only for stock. As per learned D.R., assessee had not filed any material to show that securities were held as stock-in-trade. Learned D.R. pointed out that ld. CIT(Appeals) had bifurcated the securities to permanent and current categories for various years and such demarcation clearly evidenced that the classification based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Bharat Overseas Bank Ltd. (supra). On the same issue, after considering arguments of both parties, the Tribunal at para 11 held as under:- 11. After considering the rival submissions and relevant material on record, we find force in the contentions of the learned authorized representative of the assessee. The Hon'ble Supreme Court in the case of United Commercial Bank v. CIT supra, had clearly held that even if the securities are valued at cost in the Balance Sheet in accordance with the statutory provision, this action would not disentitle the assessee by submitting the income-tax returns on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. The Court further approved that if securities were valued on cost or market value whichever is lower, the same should be accepted by the Assessing authorities if the same method has been consistently followed. Before us the Revenue has not disputed that the assessee has not adopted the same method of accounting consistently. We find that even the RBI had allowed discretion to the banks to value even the permanent category of securities on the cost or mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regarding depreciation on securities. 18. This issue has already been raised by the assessee in its appeal in I.T.A. No. 984/Mds/2003. We have already held that such loss has to be allowed in para 11 above. Ordered accordingly for impugned assessment year also. 19. Third issue raised by the assessee is regarding disallowance under Section 80M of the Act. Assessing authority had disallowed a sum of Rs. 4,89,091/- from the gross dividend while granting assessee deduction under Section 80M of the Act. The said sum represented 10% of gross dividend and as per the Assessing Officer, this would be the expenditure incurred in earning the dividend income and hence, vide Section 14A of the Act, such expenditure had to be disallowed. Claim of the assessee was that no expenditure was incurred for earning the dividend income but this was rejected by the Assessing Officer. 20. Assessee assailed this before ld. CIT(Appeals) who confirmed the decision made by the A.O. but limited the disallowance to 5% of the gross dividend. In other words, he sustained disallowance to the extent of 5%. 21. Now before us, learned A.R. submitted that though the Committee On Disputes had denied it pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve mentioned cases of ONGC (supra), the Tribunals all over India were not admitting any issues or appeal on which COD permission was not there. Now, these appeals before us, as already mentioned, are recalled matters, recalled by virtue of an order of this Tribunal in M.P. Nos. 307 to 329/Mds/2007 dated 31st March, 2010. The order of this Tribunal is clear in that the recall was limited to issues earlier not adjudicated and the issues where COD approval was received subsequent to its earlier decision. In fact, our jurisdiction thus, is now limited to issues specified by the Tribunal in its M.P. No. 307 to 329 mentioned supra, and the Corrigendum thereto dated 3.8.2010. The remitted issues do not allow us to adjudicate on any items on which COD approval has not been obtained. Thus, we cannot adjudicate those issues which stood not remitted by the order of the Tribunal in M.P. No. 307 to 309/Mds/2007. Of course, Hon'ble Apex Court in the case of Electronics Corporation of India (supra) does mention that the COD mechanism had not achieved the results for which it was constituted and it had outlived its utility in the changed scenario. In our opinion, such changed scenario mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts relating to such foreign branches had to be deleted. As per the assessee, when foreign income was not includible, there is no question of any addition of provision for bad debts relating to foreign branches. Assessing authority and ld. CIT(Appeals) were of the opinion that foreign income being subjected to tax, provision for bad debts relating to foreign branches was to be added back in the total income and subjected to tax. 26. Before us, learned D.R. accepted the contention of the assessee that the CIT(Appeals) had allowed the claim of assessee for exclusion of income of foreign branches from its total income taxable in India. Therefore, both the parties agreed that the issue regarding addition made on account of bad debts needed to be remitted back to the file of Assessing Officer for correct exclusion thereof after verification. 27. We have perused the orders and heard the rival contentions. There is no dispute that income from foreign branches was not included in the total income of the assessee taxable in India. Therefore, there is no relevance for any addition for provision of bad debts made of such foreign branches in their accounts. Since in the accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 32. First issue raised by the assessee is against reopening of assessment. Learned A.R. submitted that the reopening was resorted for disallowing claim on loss on account of depreciation on investments. As per learned A.R., assessee had given full details regarding such claim along with its computation. Learned A.R. submitted that the reason shown for reopening was decision of Hon'ble Calcutta High Court in the case of CIT v. UCO Bank (200 ITR 68) which had held that valuation of stock of securities considering cost or market price whichever was lower could not be accepted for banks. As per the learned A.R., this decision of Hon'ble Calcutta High Court was subsequently reversed by the Hon'ble Apex Court in 240 ITR 355 and hence, the reason itself had disappeared. Learned A.R. pointed out that ld. CIT(Appeals) had while upholding the reopening of assessment relied on certain other issues which were not recorded by the Assessing Officer, like classification of securities as permanent and current . Learned A.R. pointed out that nothing stopped the assessee to treat securities as investments akin to stockin- trade and value it at cost or market price whichever was less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no question of the reassessment proceedings being valid. According to him, depreciation on investment was an allowable claim and the reopening based on the decision of Hon'ble Calcutta High Court in the case of UCO Bank (supra) could not be held as good in law since the said decision was reversed by the Hon'ble Apex Court on appeal by the assessee concerned. 35. We have perused the orders and heard the rival contentions. As per the assessee, it had given full details for claiming depreciation on securities in its computation statement filed along with return of income. There is no dispute that the Assessing Officer in the original assessment proceedings had not mentioned anything regarding the claim of assessee in this regard. Nevertheless, if we look at the reasons recorded for reopening of assessment, as placed by learned D.R., it went as under- The assessee bank has claimed notional loss on account of depreciation on investments to the extent of Rs.26,10,16,274/-. The assessee has been valuing the closing stock on the basis of cost in its books of account whereas it has valued the stock of investment on the basis of market value or cost price whichever is less. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1986-87 in I.T.A. No. 984/Mds/2003. Hence, assessee is to succeed on this ground also. 37. In the result, appeal of the assessee in I.T.A. No. 1654/Mds/2004 to the extent it has been recalled stands allowed. I.T.A. No. 1655/Mds/2004 38. Two issues raised by the assessee are (i) reopening of assessment and (ii) its claim for depreciation on securities. Both are similar to the issues raised by it in its appeal in I.T.A. No. 1654/Mds/2004 for assessment year 1991-92. For the reasons mentioned at paras 35 and 36, we are of the opinion that assessee has to succeed in the grounds taken by it in this regard. 39. Appeal of the assessee in I.T.A. No. 1655/Mds/2004 to the extent it has been recalled stands allowed. I.T.A. Nos. 131/Mds/2001, 1900/Mds/2004, 1901/Mds/2004, 682/Mds/2006, 683/Mds/2006 684/Mds/2006 40. In all these appeals, the recalled issue is regarding depreciation on securities which has been denied to the assessee. The same is the issue in its appeal in I.T.A. No. 984/Mds/2003. We have already held at para 11 above that such loss on account of depreciation in valuation in securities has to be allowed to the assessee. Ordered accordingly. 41. Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrower s account is written off by debiting P L a/c and crediting loans and advances or debtors account, it would result in escapement of income from assessment if the borrower repays the loan in the subsequent years as the assessee would credit the repaid amount to loans and advances account and not to the P L a/c has no merit In such circumstances the amounts are duly offered for tax and the AO is sufficiently empowered to tax such subsequent repayments under s. 41(4). Hence this issue stands decided in favour of the assessee. 45. Next issue is on disallowance of expenditure under Section 14A of the Act. Learned D.R. pointed out that assessee has been denied permission by the COD for pursuing this issue before this Tribunal. As held by us at para 23 in assessee s appeal for assessment year 1989-90 in I.T.A. No. 985/Mds/2003, we are of the opinion that the issues on which there has been specific refusal by the COD for pursuing the matter before this Tribunal, there cannot be an appeal before us, specifically so, since the order in Miscellaneous Petition recalled the appeals only to the extent where COD approval were granted. 43. In the result, appeal of the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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