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2009 (9) TMI 77 - AT - Income TaxDisallowance on the rights issue expenses and public issue expenses - Nature of expenditure - Capital or Revenue - CIT (A) confirmed the order of the AO in disallowing the rights issue expenses and public issue expenses - HELD THAT:- After considering the facts surrounding the issue and the rival arguments of the parties and in the light of the earlier order of the Tribunal for the assessment year 1996-97, the Tribunal found that the CIT (A) has rightly confirmed the disallowance made by the AO in respect of the expenses incurred in the rights issue and the public issue expense. Therefore, we dismiss the ground raised by the assessee bank. Disallowance on prior period expenses - CIT (A) confirmed the order of the AO in disallowing the prior period expenses - It is the case of the assessee that the CIT (A) should have noted that as the liability to pay these sums arose only during the current previous year, the same should have been allowed as a deduction for the impugned assessment year - HELD THAT:- This issue was considered by the Tribunal in its orders for the earlier assessment years 2000-01 and 2001-02 and remitted the issue back to the Assessing Officer for his reconsideration. As the fine details and particulars of these expenses are not readily available before us, we are also inclined to follow the earlier decision of the Tribunal on this point and accordingly remit the issue back to the Assessing Officer for fresh consideration, in accordance with law. While the Assessing Officer is re-examining the above issue, he is directed to follow the principles laid down in the case of Toyo Engg. India Ltd. v. Joint CIT [2005 (9) TMI 237 - ITAT BOMBAY-J], as held that the details of expenses have been received by the assessee at head office only after the close of the accounting year, though technically treated as prior period expenses, are allowable for the assessment year in which they were normally eligible for deduction. Assessing Officer has to see that whether those expenses claimed by the assessee, even though technically related to the earlier assessment years, are allowable for the reason that the particulars and quantum of expenditures were assigned only during the previous year relevant to the assessment year under appeal. Disallowance towards loss of stock-in-trade - assessee-bank had contributed towards capital of Unit Trust of India (UTI) - CIT (A) confirmed the order of the AO in disallowing the provision made towards loss of stock-in-trade - UTI (Transfer of Undertaking and Repeal) Act, 2002, the initial capital contributed by the assessee-bank along with other financial institutions and banks stood transferred - HELD THAT:- The assessee had made an investment of Rs. 3 lakhs by way of initial capital contribution to UTI. As required under the Banking Regulation Act, the assessee was disclosing the said investment in its balance-sheet at cost price, year after year. But thereafter it came to know as already stated that UTI was taken over by the Government of India for revival management and recovery of the initial contribution of Rs. 3 lakhs was doubtful at the close of the previous year relevant to the impugned assessment year under appeal. When the recovery of the initial capital was doubtful, the assessee-bank could not assign any value to the said investment of Rs. 3 lakhs. Instead of completely ignoring the value of that investment while valuing its stock in trade, the assessee-bank stated the cost value of the asset in the balance-sheet and thereafter deducted the same amount by way of diminution in the value of that investment. This particular accounting treatment was given by the assessee-bank to satisfy the requirement of the Banking Regulation Act. But it has not followed the basic principles of stock valuation. The basic principle of stock valuation is that the asset has to be valued at cost or realisable value whichever is less. In the present case there is nothing to be realised as on that date and therefore the value was nil. The assessee has correctly adopted the nil value. Whether this loss arising on valuation of stock-in-trade is deductible or not, the answer is in favour of the assessee-bank as held by the Supreme Court in the case of United Commercial Bank [1999 (9) TMI 4 - SUPREME COURT] As stated by the learned chartered accountant, at the time of hearing, that later on certain amount was realised by the assessee-bank against the initial capital contribution to UTI and the same has already been offered for assessment as income under section 41(1) of the Act. In the above scenario the full circle of the transaction is clear. The diminution in the value of the investment as it stood at the end of the relevant previous year is a business loss, which is eligible for deduction in computing the taxable income of the assessee-bank. Accordingly we direct the Assessing Officer to give deduction for the said amount of Rs. 3 lakhs. This issue is decided in favour of the assessee. Deduction of bad debts written off in respect of rural branches - case of the assessee that the CIT(Appeals) having agreed with the contention of the assessee that there was only a debit balance in the provision for bad and doubtful debts account u/s 36(1)(viia) ought to have allowed the entire bad debts written off as deduction instead of restricting it to write off in respect of non rural branches. HELD THAT:- The provision made u/s 36(1)(viia) in respect of bad and doubtful debts relating to rural branches is a credit balance and therefore the write off of bad debts pertaining to the rural branches should be set off against that provision available in the accounts. The write off can be allowed only in respect of bad debts pertaining to non-rural branches where the sufficient provision is not available in the accounts for the absorption of those bad debts. Therefore, the CIT (A) has rightly directed the AO to allow the bad debts written off relating to non-rural branches in full and confirming the disallowance relating to rural branches. This issue is decided in favour of the assessee. Disallowance u/s 14A - HELD THAT:- The assessee-bank is statutorily bound to maintain the SLR norms as directed by the RBI from time to time. Therefore, any expenditure incurred by the assessee for investing in bonds, even for tax-free, are expenses incurred for the purpose of carrying on of its business. The expenses, if at all were expenses, they were incurred not for earning tax-free income but for maintaining the required SLR. The tax-free interest is only an incidence on fulfilment of SLR requirements. Therefore, we are of the considered view that section 14A has no application in this case. The appeal filed by the Revenue is liable to be dismissed and assessee is partly successful in its appeal filed before us.
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