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2024 (10) TMI 1574 - HC - Income TaxExclude interest earned from securities on accrual basis for the purpose of income tax - assessee is entitled for deduction of bad debts on the total average outstanding rural advances made by the bank at the end of the accounting year without restricting the deduction to incremental advance made during the year - non-rural bad debts written off and debited to reserve account can be claimed as deduction of bad debt u/s 36(1)(vii) - balances lying unclaimed with the bank for more than 3 years cannot be treated as income of the assessee - assessee is a banking company bound to follow mercantile system of accounting as per Income Tax Act Indian Companies Act RBI guidelines - HELD THAT - The issue was covered by the decision of this Court in the case of City Union Bank Limited 2007 (2) TMI 187 - MADRAS HIGH COURT and that of the Hon ble Supreme Court in the case of Brooke Bond India Ltd. vs. Commissioner of Income Tax 1997 (2) TMI 11 - SUPREME COURT - Substantial question of law at Sl.No.1 and 4 require no further deliberation as the substantial questions of law has already been answered by this Court in the above case. Allowance of deduction of amortization loss/expenses on Government securities classified as Held to Maturity Category - Tribunal held that share listing fees is allowable as revenue expenditure and cannot be treated as capital expenditure - HELD THAT - Hon ble Supreme Court has answered the issues arising in Brooke Bond India Ltd. 1997 (2) TMI 11 - SUPREME COURT placing reliance on its earlier decision in the case of Punjab State Industrial Development Corpn. Ltd 1996 (12) TMI 6 - SUPREME COURT held though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. Deduction u/s 36(1)(vii) and 36(1)(vii)(a) - We are inclined to remit the issue back to the Assessing Officer to re-examine the issue afresh in the light of the decision of SC in Catholic Syrian Bank Limited 2012 (2) TMI 262 - SUPREME COURT as the matter would require a proper redetermination as to whether the Respondent/Assessee had correctly computed the deduction under Section 36(1)(vii) (a) of the Income Tax Act 1961 to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (vii)(a) to Section 36. Proviso to Section 36(1)(vii) relates to cases covered under Section 36(1)(vii)(a) and has to be read with Section 36(2)(v) of the Act. Depreciation is to be allowed on on account of shifting of securities from available for sales category (AFS) to held to maturity category (HTM) - HELD THAT - This issue is covered by the decision of United Commercial Bank 1999 (9) TMI 4 - SUPREME COURT as held whether the assessee is entitled to the particular deduction or not will depend upon the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. In the present case the question is slightly different. For reasons the Central Government in exercise of the powers conferred by Section 53 of the Banking Regulation Act and on the recommendation of the RBI permitted the assessee not to disclose the market value of its investment in the balance sheet required to be maintained as per the statutory form. But as the assessee was maintaining its accounts on mercantile system he was entitled to show his real income by taking into account market value of such investments in arriving at real taxable income. On that basis therefore the Assessing Officer has taxed the assessee. Entitlement for deduction of amortization loss/expenses on Government securities classified as Held to Maturity Category - HELD THAT - The issue is answered against the revenue in terms of the decision of The Lakshmi Vilas Bank Limited Karur 2020 (11) TMI 945 - MADRAS HIGH COURT In the result Substantial Question of Law are answered against the revenue in favour of the Respondent/Assessee. However for re-examination of the benefit claim under Section 36(1)(vii) and 36(1)(vii)(a) of the Income Tax Act 1961 are concerned they are remitted back to the Assessing Officer to pass a fresh order on merits and in accordance with law.
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