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2018 (1) TMI 1575 - AT - Income TaxBad Debts written off u/s.36(1)(vii) - AO disallowed the assessee s claim as he was of the view that it was only a prudential write off since the individual accounts were not squared off - CIT (Appeals) rejected the assessee s contentions that the said bad debts are written off by debit in the profit and loss account under the head Bad Debts Written Off Account under the code 163301 as he was of the view that unless the individual debts are squared off the entries in the books of account cannot be accepted as reliable - HELD THAT - The facts on record indicate that the assessee bank has debited the bad debts written off to the account Bad Debts Written Off Account (GL Code 163301) which is part of the profit and loss account and has reduced the write off from Gross Advances in the Balance Sheet. The authorities below disallowed the write off on the ground that the individual accounts are not squared off at the branch level. We find that this issue of write off has been settled by the Hon ble Apex Court in the assessee s own case 2010 (4) TMI 46 - SUPREME COURT we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts u/s.36(1)(vii) and we therefore reverse and delete the disallowance made by the Assessing Officer in this regard. Consequently Ground No.2 of the assessee s appeal is allowed. Disallowance of claim u/s.36(1)(viia) - AO was of the view that it is only the incremental advances that has to be considered for computing the AAA Aggregate Rural Advances and consequently allowed the deduction partly - HELD THAT - We find that the issue is settled in favour of the assessee by the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Canara Bank 2017 (11) TMI 1425 - ITAT BANGALORE and in view thereof we hold that the computation of the AAA made by the Assessing Officer is incorrect. AR submitted that the assessee is not disputing the classification of rural branches made by the Assessing Officer and accepts the AAA as at 31.3.2010 at Rs. 2020, 71, 42, 322 as arrived at by the Assessing Officer at page 42 of the order of assessment and in this context pleaded that the matter need not be remanded back to the Assessing Officer. In view of the aforesaid submissions of the learned Authorised Representative of the assessee we hold that the assessee is entitled to deduction by considering the AAA at Rs. 2020, 71, 42, 322 as worked out by Assessing Officer at page 42 of his order and direct the Assessing Officer to rework the deduction under Section 36(1)(viia) of the Act accordingly. Consequently the Ground No.4 of assessee s appeal is allowed for statistical purposes. Disallowance of claim of deduction u/s.36(1)(viii) - assessee bank challenges the action of the authorities below in disallowing the deduction claimed u/s.36(1)(viii) of the Act to the extent of Rs. 51, 00, 00, 000 out of Rs. 76 Crores - HELD THAT - We find that this issue was considered and held in favour of the assessee and against revenue by a co-ordinate bench of this Tribunal in the case of Corporation Bank 2015 (3) TMI 1360 - ITAT BANGALORE to hold that a reserve created in subsequent years however before finalization of grant of deduction is required to be considered while allowing assessee s claim of deduction made under s. 36(1)(viii) - We hold that reserve created even in subsequent / succeeding years; however before the finalization of grant of deduction under Section 36(1)(viii) of the Act i.e. as per date of order of assessment is required to be considered while allowing the assessee s claim for deduction under Section 36(1)(viii) of the Act. The Assessing Officer is directed to examine and allow the assessee s claim accordingly. Depreciation on HTM Securities - HELD THAT - We find that this issue has been considered and held in favour of assessee and against Revenue refering to its own decision 2013 (10) TMI 1030 - KARNATAKA HIGH COURT Disallowance u/s.14A r.w. Rule 8D - HELD THAT - As decided in own case 2015 (7) TMI 86 - ITAT BANGALORE there is no expenditure incurred directly by the bank for earning any tax free income. Since the expenditure would have been incurred by the bank even without the earning of tax free income no part of the expenditure can be related to earning the tax free income and no disallowance can be made u/s.14A. Applicability of Sec. 115JB of the Act to Banking Companies - HELD THAT - Decided in the assessee s own case for Assessment Year 2008-09 2015 (7) TMI 86 - ITAT BANGALORE that the provisions of Section 115JB of the Act are not applicable to Banking companies. Contribution to Pension Fund and Gratuity Fund - Assessing Officer had allowed the deduction only to the extent of the amount debited to the profit and loss account and disallowed the rest and the CIT (Appeals) deleted the disallowance - HELD THAT - We find that the above decision of the ITAT Hyderabad Bench in the case of Andhra Bank 2014 (7) TMI 904 - ITAT HYDERABAD is squarely applicable to the facts of the case on hand. In this factual and legal matrix of the case as discussed above we find no cause for interference with the finding of the learned CIT (Appeals) on this issue
Issues Involved:
1. Disallowance of bad debts under Section 36(1)(vii). 2. Disallowance of claims under Section 36(1)(viia). 3. Disallowance of valuation loss on HTM investments. 4. Disallowance of deduction under Section 36(1)(viii). 5. Disallowance under Section 14A. 6. Applicability of Section 115JB to banking companies. 7. Contribution to Gratuity and Pension funds. Detailed Analysis: 1. Disallowance of Bad Debts under Section 36(1)(vii): The assessee's claim for bad debts written off was disallowed by the Assessing Officer (AO) on the grounds that the individual debts were not squared off and the write-off was not debited to the profit and loss account. The CIT (Appeals) upheld this disallowance, relying on the Supreme Court decision in Southern Technologies Ltd. The Tribunal reversed this decision, citing the Supreme Court judgment in the assessee's own case (Vijaya Bank vs. CIT), which held that debiting bad debts to a 'Bad Debts Written Off Account' and reducing it from gross advances in the balance sheet suffices for claiming the deduction under Section 36(1)(vii). 2. Disallowance of Claims under Section 36(1)(viia): The AO disallowed the deduction claimed under Section 36(1)(viia) by considering only the incremental advances for computing Aggregate Average Rural Advances (AAA). The CIT (Appeals) upheld this view. The Tribunal, however, followed the co-ordinate bench decision in Canara Bank vs. JCIT, which stated that the entire outstanding advances at the end of each month should be considered for computing AAA, not just the incremental advances. The Tribunal directed the AO to rework the deduction accordingly. 3. Disallowance of Valuation Loss on HTM Investments: The AO disallowed the depreciation on HTM securities following the Karnataka High Court decision in ING Vysya Bank. The CIT (Appeals) allowed the claim based on the Karnataka High Court decision in the assessee's own case and other precedents. The Tribunal upheld the CIT (Appeals)'s decision, noting that investments of the bank are stock-in-trade and should be valued at lower of cost or market value, following the Supreme Court's decision in UCO Bank vs. CIT. 4. Disallowance of Deduction under Section 36(1)(viii): The AO disallowed part of the deduction claimed under Section 36(1)(viii) on the grounds that only Rs. 25 Crores was transferred to the Special Reserve in the relevant year, while the remaining Rs. 51 Crores was transferred in subsequent years. The CIT (Appeals) upheld this disallowance. The Tribunal, following the decision in Corporation Bank, held that a reserve created in subsequent years, before the finalization of the assessment, should be considered for the deduction. The AO was directed to allow the deduction accordingly. 5. Disallowance under Section 14A: The AO invoked Rule 8D to disallow expenses related to earning exempt income, disallowing Rs. 2,65,27,250. The CIT (Appeals) deleted this disallowance, noting that the AO did not record satisfaction with the correctness of the assessee's claim as required under Section 14A(2). The Tribunal upheld the CIT (Appeals)'s decision, citing the co-ordinate bench decision in the assessee's own case, which held that no disallowance can be made under Section 14A if the securities are stock-in-trade. 6. Applicability of Section 115JB to Banking Companies: The AO applied the provisions of Section 115JB to the assessee. The CIT (Appeals) held that Section 115JB is not applicable to banking companies, following the Tribunal's decision in the assessee's own case. The Tribunal upheld this view, noting that banking companies are exempt from preparing their accounts as per Schedule VI of the Companies Act and thus Section 115JB does not apply. 7. Contribution to Gratuity and Pension Funds: The AO disallowed the contribution to Gratuity and Pension Funds not debited to the profit and loss account. The CIT (Appeals) deleted this disallowance, following the ITAT Hyderabad decision in Andhra Bank, which held that payments made before the due date for filing returns are allowable under Section 43B, irrespective of their treatment in the profit and loss account. The Tribunal upheld the CIT (Appeals)'s decision. Summary of Judgments: - Assessment Year 2010-11: Assessee's appeal partly allowed; Revenue's appeal dismissed. - Assessment Year 2011-12: Assessee's appeal allowed; Revenue's appeal dismissed. - Assessment Year 2012-13: Assessee's appeal partly allowed; Revenue's appeal dismissed.
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