2017 (11) TMI 1425 - ITAT BANGALORE

Disallowing the claim for bad debts written off - Held that:- The provisions of section 36(1)(vii) and 36(1)(viii) operate in different fields. Both are independent provisions as held by the hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT [2012 (2) TMI 262 - SUPREME COURT OF INDIA] . Therefore, reliance placed by the Assessing Officer on the decision in the case of the Full Bench decision of the hon'ble Kerala High Court in the case of South Indian Bank Ltd. (2009 (12) TMI 394 - KERALA HIGH COURT) which is reversed by the hon'ble apex court in the case of Catholic Syrian Bank Ltd. (supra) therefore, is misplaced and had no relevance to the facts of the case. Therefore, this issue requires remand to the Assessing Officer for examining whether the provision for bad debts is actually reduced from sundry debtors account in the balance-sheet and the provision for bad debts is debited to the profit and loss account. If these conditions are satisfied, we direct the Assessing Officer to allow the same as deduction.

Disallowance of the claim made under section 36(1)(viii) - method of computation of profits of the eligible business - Held that:- It is the contention of the assessee-bank that the expenses which are directly attributed to the assessee's business have been allocated to the eligible business and common expenses and general overheads are allocated or apportioned among the eligible business and non-eligible business in proportion to the turnover of the respective businesses. The methodology adopted by the assessee-bank is in conformity with the well-accepted method. However, we remit this issue to the file of the Assessing Officer to verify the methodology adopted by the assessee is in accordance with the stated method or not. If so, to accept the same.

Disallowance of premium paid which is amortised on HTM securities - Held that:- Securities of HTM category form part of stock-in-trade. It is settled proposition of law that stock-in-trade should be valued at cost or market price whichever is less. Where the assessee had paid premium at the time of acquisition of securities which are held as stock-in-trade, the same should be allowed as deduction while computing income. See Ing Vysya Bank Ltd. v. Asst. CIT [2015 (2) TMI 892 - ITAT BANGALORE]

Disallowance under section 14A to 2 per cent. of the exempt income - Held that:- No disallowance under section 14A can be made in the absence of finding as to the correctness or otherwise of the computation made by the assessee. In the present year, the assessee-bank itself has offered to tax a sum of ₹ 91,69,320 which was upheld by the Commissioner of Income-tax (Appeals). Since the assessee is not in appeal, we uphold the disallowance. Accordingly, the finding of the Commissioner of Income-tax (Appeals) does not call for an interference. The ground of appeal is dismissed.

Miscellaneous items disallowed - Held that:- As decided in previous AY, amounts written off represent services charges. It is undisputed fact that in the year of recovery the same were offered to tax. Therefore, we do not find any fault with the reasoning adopted by the Commissioner of Income-tax (Appeals) in allowing the same as the conditions prescribed under section 36(1)(vii) are not applicable to the present case. Therefore, this ground of appeal is also dismissed

Applicability of the provisions of section 115JB - Held that:- The assessee-bank is not liable for tax under section 115JB for the year under consideration. Therefore, we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals). This ground of appeal is dismissed.

Methodology of computation of deduction in respect of profits of rural branches as provided under section 36(1)(viia) - Held that:- The methodology adopted by the Assessing Officer for the purpose of computing the average aggregate advances is against the plain provisions of rules and also against the ratio of the decision of the co-ordinate Bench in the cases cited supra. However, we remit this issue back to the file of the Assessing Officer to identify the rural branches less than 10,000 population as per the last census and the average aggregate advances of such rural branches alone should be considered for the purpose of this deduction. Thus, these grounds of appeal are allowed for statistical purposes.

Direct the Assessing Officer to allow fall in value of investments as a revenue loss.

Accrual of income - Addition made on account of commission on locker rent received in advance - Held that:- though the amount was shown as receipt and credited to the profit and loss account, the assessee was entitled to offer income by following different method of recognition of income. No doubt, the assessee was only following the mercantile system of accounting. The only issue to be decided is whether income accrued to the assessee. As held in case of Bank of Tokyo Ltd. (1993 (5) TMI 172 - CALCUTTA HIGH COURT) that even though the assessee-bank received the entire commission for the guarantee commission no debt is actually created in favour of the assessee- bank for the entire amount. A right always remains vested in the customers to recall payment in the unexpired period in the case of earlier redemption of guarantee. Similarly even in respect of the locker rent also, the same reasoning can be applied. Therefore, having regard to the decision cited supra and also the principle of consistency, we hold that no addition is warranted in respect of the guarantee commission on letter of credit or locker rent received in advance

Unrealised gains on revaluation of forward contracts - Held that:- Income is recognised only on hypothetical basis which has not accrued to the company. In the light of these facts, the issue is whether this income is liable to tax as accrued income within the meaning of section 5 of the Act. It is salutary principle that Income-tax is not leviable on hypothetical income. No income can be taxed unless otherwise accrued and realised. This issue was settled by the hon'ble Madras High Court in the case of Indian Overseas Bank v. CIT [1990 (2) TMI 43 - MADRAS High Court]. In the light of these judgments, we hold that no income can be taxed on notional basis unless and otherwise income accrued to the assessee.

Depreciation cannot be disallowed on the leased assets

Addition u/s 14A - Held that:- Provisions of section 14A cannot be applied without giving any finding as to how the claim of the assessee-bank that no expenditure was incurred to earn exempt income, was incorrect.

Disallowance under section 40(a)(ia) - non-compliance with the TDS provisions - Held that:- No doubt, the assessee-bank is entitled for deduction of the amount which was disallowed in the earlier assessment proceedings for non-deduction of tax at source in the year of deducting tax at source. The onus always lies on the assessee to prove that the TDS provisions have been complied with during the year in which the claim was made. Therefore, we remit this issue to the file of the Assessing Officer with a direction that the assessee- bank shall furnish evidence in respect of compliance with the TDS provisions.

Addition made on account of payment of gratuity and pension fund - Held that:- There is no dispute as regards the crystallisation of liability during the year under consideration. The only reason cited by the Assessing Officer for disallowance is that the assessee has not debited to the profit and loss account, the entire amount of the additional liability. Now, it is settled law that the absence of entries in the books of account or treatment in the books of account has no bearing on the allowability of actual expenditure, once it is established that the liability had crystallised and which is in the revenue in nature. This proposition of law has been reiterated in a plethora of decisions subsequently by various High Courts as well as the hon'ble apex court. Therefore, the reasoning of the Assessing Officer does not hold water. Even otherwise, these payments were subject to the provisions of section 43B. Section 43B permits deduction only in the year of payment.