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2013 (8) TMI 665 - AT - Income TaxBank branch classification as Rural or Urban Classification as per RBI guidelines or Income Tax provisions - Overriding effect - Writing off bad debts under section 36(1)(viia) Held that:- The Reserve Bank sanctions branches on different classifications, like rural, urban etc. In respect of the branches disputed in this case, permission of the Reserve Bank have been obtained by the assessee bank of the status that all branches are rural branches. Therefore, it is to be seen that according to banking norms, the disputed branches are rural branches. Now, this position has to be examined in the light of the Income Tax law. Income Tax law provides that a rural branch means a branch in a place where the population is less than 10,000 - Apropos the urban branches, writing off of bad debt, the assessee is eligible to write off of bad debt u/s 36(1)(viia) A place includes a ward of a Gram Panchayat whose population is less than ten thousand and which may be a part of a panchayat whose population may be more than ten thousand as per 1990-91 census, provided the ward branch is notified as a rural branch by RBI. - the RBI Circular produced before us pertained to 3-6-2003. Ld. Counsel contends that similar panchayats have been named in licenses issued in earlier years also. - the issues are decided on principle but restored back to the file of assessing officer for verification. Deduction of Bad-debts - Loan was given to Asia Pacific Investment Trust by consortium headed by SBI and assessee contributed a part of it Held that:- The banking practice of advancing moneys to NBFC without taking any collateral security which was part of the loan policy and financing of the consortium becomes a business decision. Further, after the said trust went into liquidation and advance became irrecoverable, the RBI directed the assessee to write off the same as bad debt - A bad debt cannot be refused merely because of assessing officer's perception collateral securities should have been taken Decided in favor of Assessee. Revaluation of securities holding it to be a notional loss Held that:- Securities held by the assessee bank in all these cases are the stock-in-trade of the business of the assessee banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits of the appellant Disallowance of expenses on modification in respect of Ahmedabad branch of the Bank, the assessee took premises on rent at Ahmedabad for a period of three years and made certain modifications to suit its requirement Held that:- Structures were temporary in nature. The lease was only for a short period of three years and the structure was to be demolished thereafter. The temporary structure was created to increase the efficiency of the place and to suit to the assessee's banking needs - Expenditure incurred was qua the income generating apparatus of the assessee. In such eventuality the theory of enduring benefit also does not apply. Therefore, the expenditure is revenue in nature - Ground of the assessee is allowed Decided in favor of Assessee.
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