TMI Blog2013 (4) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to delete the addition made on this count - Decided in favour of assessee. Outstanding credits in blocked accounts - CIT(A) held that the decision to carry the amount to the capital reserve by the assessee bank is nothing but a unilateral act which cannot be treated as a cessation of liability in real sense of the term and accordingly, the same cannot be treated as income as held by the Assessing Officer, thus directed AO to delete the disallowance made on this account - Held that:- nfirmity in the order of the CIT(A) in directing the AO to delete the disallowance made on this count, as the CIT(A) decided the issue following the decision of CIT Vs. Sugauli Sugar Works Ltd. (1999 (2) TMI 5 - SUPREME Courta). The ITAT in Canara Bank Vs. CIT (2012 (6) TMI 772 - ITAT BANGALORE) held that amount received by the assessee from customers was not received as a trading receipt in the sense that the face value of the demand drafts, pay orders, etc. were the customer’s money to be paid transferred as per the direction of the customer. - Decided in favour of assessee. Disallowance of deduction u/s 35D - Held that:- Issue under consideration is decided against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced before us, it was found that similar issue was raised by the assessee before the CIT. The CIT after considering the submissions of the assessee and examining the materials found the claim of the assessee to be correct and deleted the addition by observing that the same income has been taxed twice - remit this issue to the file of the Assessing Officer, who shall consider the claim of the assessee and decide the issue after verifying all the materials and details produced by the assessee - Decided in favour of assessee for statistical purposes. Depreciation on investments classified under HTM category - Held that:- investment in HTM category cannot be treated as stock in trade as per RBI guidelines and hence no depreciation is to be provided on these investment - Held that:- The Apex Court in the case of UCO Bank Ltd Vs CIT [1999 (9) TMI 4 - SUPREME Court ] has held that value of the securities at cost or market value whichever is less should be accepted for income tax even if the banks in their books do not value on that basis. Therefore, it is an accepted proportion that investment made by the bank to comply with the SLR requirement would constitute their stock in trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture towards interest. However, the explanation submitted by the assessee was not accepted by the Assessing Officer and he allocated expenditure relating to taxable and non-taxable income on proportionate basis and accordingly disallowed a total expenditure of ₹ 19,51,21,158/- which comprised disallowance of ₹ 17,33,40,193/- from out of interest expenditure and ₹ 2,17,80,965/- from out of other operating expenditure. 4. On appeal, the CIT(A) following his decision in assessee s own case for AY 2000-01 to 2004-05, directed the Assessing Officer to follow the conclusions drawn in the said years wherein the CIT(A) had deleted disallowance made out of interest expenditure u/s 14A and restricted disallowance on account of operating expenditure to two months salary of the funds department of the assessee at Mumbai. 5. Aggrieved, the revenue is in appeal before us. 6. The learned counsel for the assessee at the outset submitted that the issue is squarely covered by the decision of the coordinate bench in assessee s own case. He submitted a copy of the order dated 04/04/2013. He also relied on the following decisions: 1. Munjal Sales Corpn. Vs. CIT, Ludhiana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest received is accounted for as income crediting the same to the P L A/c under the head interest received on sale of investments. The AO placing reliance on the decision of Hon ble Supreme Court in the case of Vijaya Bank Vs. CIT 187 ITR 541 and also Circular No. 665 issued by the CBDT observed that the assessee is only debiting the broken period interest on purchase of securities to the P L a/c but it is not adding the same to the value of the closing stock as per the accounting standards. He held that the assessee is on one hand claiming the broken period interest paid for the purchase of securities as a revenue expenditure; on the other hand, it is not claiming the cost of securities per se as a revenue expenditure, therefore, the value of the security is being capitalized by the assessee and hence it is not part of the trading account. The Assessing Officer, therefore, held that having capitalized the cost of purchase of the securities, the expenditure incurred in connection with such purchases cannot be claimed as a revenue expenditure. Accordingly, he disallowed ₹ 147,43,57,963/- stating it to be not an allowable expenditure. 11. On appeal, the CIT(A) after consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer to allow a sum of ₹ 5,07,02,515/- being broken period interest (net) included in the purchase value of HTM securities as revenue deduction. The assessee appeal on this issue is allowed. 15. Since the issue under consideration is identical to that of AY 2006-07, respectfully following the decision of the Tribunal in that year, we uphold the order of the CIT(A) in directing the Assessing Officer to delete the addition made on this count. Accordingly, this ground of appeal of the revenue is dismissed. 16. Ground No. 8 is pertaining to Outstanding credits in blocked accounts. 17. During the assessment proceedings, the Assessing Officer noticed from Schedule XVIII of the Notes of Accounts at Para 11 that an amount of ₹ 10.58 crores had been transferred to the P L a/c from the blocked account under bills payable, demand drafts and pay orders during the year and the amount had been appropriated to capital reserve account. However, the credit made for ₹ 10.58 crores had been claimed as a deduction in computation statement for income-tax purpose as allowable deduction. When asked to explain, the assessee submitted that during the course of banking bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remitted it remains as a liability for the issuing bank. He further observed that for various reasons like postal miss, debt of payee etc., the instruments are not encashed but that does not necessarily mean that the liability of the issuing bank to pay on demand extinguishes. The CIT(A) noted that it was the contention of the assessee that after a certain number of years such amounts are first carried to the P L A/c and then taken to a capital reserve by passing appropriate entry in the P L Appropriation Account and the amount that is taken to the reserve is claimed as a deduction and the amount which lies in the liability account cannot be treated as an income unless the liability ceases to exist and cessation of liability cannot be an unilateral act. 20. The CIT(A) after following the decision of the Hon ble Supreme Court in the case of CIT Vs. Sugauli Sugar Works Ltd., (supra), on which reliance was placed by the assessee, and after reproducing the Head Note of the said decision in his order at page 29, held that the decision to carry the amount to the capital reserve by the assessee bank is nothing but a unilateral act which cannot be treated as a cessation of liability in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be disallowed since it did not have the status of an industrial undertaking. In reply, the assessee submitted that it is a banking company which came into existence by virtue of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and as per section 11 of the said Act, for the purpose of Income Tax Act, 1961 the bank shall be deemed to be an Indian Company and a company in which the public are substantially interested. The assessee referred to the provisions of section 35D of the Act and relied upon few case laws in support of its case. The AO relied upon the decision of Hon ble Madrasa High Court in the case of Agro Cargo Transport Ltd. Vs. CIT, 224 ITR 90 wherein it was held that industry as per section 35D would mean only manufacturing or processing undertakings as defined in section 2(7) of the Finance Act and did not include undertaking involved in providing a service. The AO observed that similar disallowance made in earlier year was upheld by the CIT(A) in assessee s own case. Accordingly, the AO disallowed the claim made by the Assessee u/s 35D of the Act. 28. On appeal, before the CIT(A) the assessee submitted that the expression industrial un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income. Further, it was submitted that since the provision had been made in accordance with section 36(1)(viia), the AO was not justified in disallowing the same. 33. The CIT(A) following his decisions in assessee s own case for AY 2003-04 and 2004-05, confirmed the action of the AO in disallowing the claim of the assssee u/s 36(1)(viia) of the Act. 34. We have heard the parties and perused the record. We find that the issue in dispute is squarely covered by the decision of the coordinate bench in assssee s own case in ITA Nos. 618 619/Hyd/2007 (supra) vide paras 12 to 16 of the order. The relevant findings given by the coordinate bench in para 16 are as follows: 16. Coming to the facts of the case on hand, the main argument of the learned counsel is that the assessee has strictly followed RBI guidelines and hence the deduction is available. We are afraid, we cannot agree with the proposition advocated by the learned counsel. The assessee has claimed deduction u/s 36(1)(viia) of the Act. The said provision grants deduction in respect of provision for bad and doubtful debts. To put it differently, it does not grant deduction in respect of a provision for a debt whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned for arriving at net NPAs. The Act itself has given an option to the assessee to make provision for its doubtful or loss assets [first proviso to section 36(1)(viia)]. We do agree that the bank is bound to follow the RBI guidelines. But the deduction available has to be as per the provisions of the Act only. Accordingly, we uphold the order of the CIT(A) disallowing the deduction in respect of provision made for standard assets. Another provision disallowed by the revenue authorities is in respect of border line performing assets. Neither the RBI has given such classification in its guidelines nor has the Act provided for any deduction of provision in respect of such assets. The very nomenclature used by the bank suggests that the assets are still performing, that is, still generating income for the bank though there may be some signs of concern. However, unless such assets are not classified as nonperforming assets and sub-classified as sub-standard, doubtful or loss assets, no deduction can be permitted under the Act in respect of the provision for such assets. Thus, the disallowance thereof by the revenue authorities is upheld. This issue, as mentioned earlier is in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that accounts are become NPAs. The assessee has also raised additional ground, which is as follows: 1. Without prejudice to Ground No. 7 the learned CIT(A) ought to have allowed the unrealized interest of ₹ 236,00,000/- on Non-Performing Assets as deduction u/s 36(1)(vii) of the Act by treating the same as bad debts written off. 61. The Delhi High Court held that income which was earlier recognised is not to be allowed in the subsequent year in case it is permissible for the assessee to write off such income in concerned assessment year when it was found that it was not recoverable. In this connection they have also referred to the decision of the Apex Court in the case of Vijaya bank reported in 323 ITR 166 and TRF Ltd reported in 323 ITR 397. The Delhi High Court upheld the claim of the assessee for deduction of interest reversed. 62. Respectfully following the above we direct the AO to allow deduction of ₹ 2.36 crores being unrealised interest offered for tax in the earlier year now reversed by the assessee. Since the issue in dispute is identical to that of the case decided by the coordinate bench in assessee s own case (supra), respectf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect and deleted the addition by observing that the same income has been taxed twice. Therefore, considering the totality of facts and circumstances of the case, we remit this issue to the file of the Assessing Officer, who shall consider the claim of the assessee and decide the issue after verifying all the materials and details produced by the assessee in the light of the order dated 29/03/2010 passed by the CIT for the assessment year 2004-05. The grounds raised are allowed for statistical purposes. 45. Now, we deal with the following additional grounds of appeal raised by the assessee. Since the additional grounds are on legal issues and do not require consideration of any new facts, we admit the additional grounds. 46. Additional ground No. 1 is pertaining to the depreciation on investments classified under HTM category. 47. During the course of assessment proceedings, the AO noticed that the assessee had claimed an amount of ₹ 211,82,17,733/- as deduction towards depreciation on HTM category of investments considering it as stock in trade in view of the Supreme Court judgment in the case of UCO Bank. In reply to the questionnaire issued by the AO, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not acquired as capital assets of the bank. Depending on the need or funds, the bank is required to sell such investments including investments held to maturity to repay the deposits and thus the bank is trading in securities. Further, it was stated that accordingly the securities are stock in trade for the bank and applying the well recognized principle of accounting, such stock in trade is valued at cost or market price whichever is lower and accordingly, ₹ 211.82 crores which reflected the diminution of fall in value of the securities was claimed as an allowable deduction. It was also submitted that in the P L a/c the profit and loss on sale of securities is being assessed as business income/loss under the IT Act. The AO, however, did not accept the submissions of the assessee and held that the HTM category of investments cannot be treated as stock in trade and no depreciation is to be provided for on the investments under the HTM category. As regards, AFS HFT category, the AO concluded that the valuation of the same is required to be done scrip wise and thereafter deprecation/appreciation is required to be aggregated for its classification and only the net depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low the quantum of depreciation accordingly. 50. We have heard contentions of the parties and perused the materials on record. We find that identical issue in assessee s own case came up for consideration before the ITAT, Hyderabad Bench in ITA No. 97/Hyd/10 for the assessment year 2006-07. The coordinate bench in its order dated 04/04/2013 held as under: 49. The next issue on appeal is disallowance of ₹ 175,60,43,567/- being depreciation / fall in value of investment held to maturity (HTM) category on the ground that investment in HTM category cannot be treated as stock in trade as per RBI guidelines and hence no depreciation is to be provided on these investment. 50. The CIT(A) after elaborate discussions, held as follows: 14.1 Considering my above observations and also as per the guidelines provided by the CBDT in Circular No. 665 and also on the basis of the above mentioned undisputed facts, I find that the securities held by the appellant in HTM category constitute investment and not stock-in-trade. Accordingly, the appellant is not entitled to claim depreciation/fall in value of securities under HTM category. This grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usted. This issue is decided in favour of the assessee. Respectfully following the aforesaid decision of the coordinate bench, we allow the deduction claimed by the assessee. 51. 2nd additional ground raised by the assessee is in respect of deduction u/s 36(1)(vii) in respect of debts written off by the non-rural branches of the assessee bank. 52. The assessee had claimed the deduction of ₹ 57,50,32,244/- in respect of recoveries from bad debts written off from non-rural branches credited to the P L A/c as deduction. This claim was in addition to its claim u/s 36(1)(viia). When the assessee was asked to substantiate its claim, the assessee submitted that the said amount was recovered during this assessment year on account of bad debt written off in earlier year in branches other than rural branches and such write off was not allowed as deduction in those years. When again the assessee was asked to correlate the claim with the bad debts disallowed earlier in categorical and unequivocal terms, the assssee vide its letter dated 08/11/07 replied that the claim of bad debt written off in branches other than rural branches was allowed in earlier years, however, the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er years. He stated that suitable direction may be given to the AO for factual verification of the statement now furnished and allow appropriate claim of the assessee. 54. After considering the submissions of the AO, the CIT(A) observed that the disallowance has been made by the AO only because of the fact that the assessee had not been able to furnish the relevant evidence in support of its claim and has failed to correlate the recoveries made with the bad debts of relevant assessment years. He, therefore, held that since the details furnished before him were not before the AO, it is appropriate that the AO should verify the contention of the assessee and make a factual ascertainment of the claim of the assessee. He further held that since the verification requires correlation with the figures of bad debts written off of earlier assessment years, the AO is directed to verify the details furnished by the assessee and the claim of the assessee may be allowed only to the extent of such satisfactory factual verification. 55. The learned counsel for the assessee relied upon the decision of the Hon ble Supreme Court in the case of Catholic Syrian Bank Vs. CIT [2012 18 Taxman.com 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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