TMI Blog2005 (3) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... period ranging from 10 to 15 years. The RBI issued further instructions as follows : ( a )"In the beginning 70% of the securities shall be held as permanent assets. ( b )Securities classified as permanent assets shall remain so till the date of maturity. If at all any permanent asset is to be changed as current asset prior decision of the Board of Directors is necessary. ( c )Depreciation on revaluation of permanent assets need not be provided for. ( d )Permanent assets are not to be freely sold and even if it is sold and even if it is sold the gain should be taken to the capital reserve account." The action of the Assessing Officer was confirmed by the CIT(A). 3. The learned counsel for assessee submitted that to meet the SLR requirements of the RBI, investments were made in Central Government and State Government securities. As per the directions of the RBI the investments were classified into permanent investments and current investments. The permanent investments according to the classification prescribed by the RBI are securities that need to be kept by the assessee till the date of maturity, and current investments may be sold by the assessee before the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account, would be given the same treatment as is normally given to the stock-in-trade. As far as the second issue is concerned, both the interest payments and receipts must be regarded as revenue payment/receipts and only the net interest on securities shall be brought to tax as business income." [Emphasis supplied] Therefore, applying the same, we allow the ground of the assessee on this issue. 4. The next issue relates to claim of allowance of bad debts under section 36(1)( vii ) of the IT Act. The assessee had written off bad debts to the extent of Rs. 7,21,45,770. The Assessing Officer noted that there was credit balance of Rs. 2,21,14,369. Taking note of this, he was of the view that under the proviso to section 36(1)( vii ) the assessee is entitled to allowance of bad debt of amount which is in excess of credit balance in the reserve account. The Assessing Officer concluded that the assessee is entitled to deduction only to the extent of Rs. 5,24,74,740 and added the same to the total income. 5. The learned counsel for assessee, at the time of hearing, filed a copy of the order of the Assessing Officer dated 10-3-2003 giving effect to the order of the ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ceiling. ( iii )Deduction under clause ( viia ) can be computed only after total income is computed which can be computed only after deduction under clause ( vii ) is allowed, and business income is computed. The computation of business income prior to deduction under clause ( viia ) will also determine the amount of b/f losses to be set off. Thus, deduction will not be workable under clause ( viia ) if deduction under clause ( vii ) is not computed first. ( iv )The intention behind insertion of proviso to section ( vi ) is only to ensure that there is no claim for double deduction for one and only type of debt. It is also clear that deduction can be claimed independently under clause ( vii ) as well as under clause ( viia ). If on one hand, deduction is allowed under clause ( viia ) which is only for provision, and if same is taken back by restricting deduction under clause ( vi ), which is for debts actually becoming bad, such interpretation will not be in consonance with relevant provisions of Act. ( v )There is no double deduction involved. The amount of provision for bad debts claimed and allowed under clause ( viia ) will be reduced subsequently when the claim is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of earning the dividend. Similar view has been taken by the recent decision of Bombay High Court in CIT v. Central Bank of India (264 ITR 522). Even the unreported decision of Karnataka High Court in CIT v. Canara Bank (ITC No. 781/98) is to the effect that expenses cannot be estimated for the purpose of allowing relief under section 80M of the Act. In view of this, we do not see any reason to set aside the matter as canvassed for by Dr. Krishna. Accordingly, we allow the appeal of the assessee and direct the Assessing Officer to allow the deduction under section 80M in a sum of Rs. 33,85,108." Applying the same, we allow the ground raised by the assessee on this issue. 7. The next issue arises under section 37(2A). The assessee had claimed 50% of the expenses which were incurred on employees of the company. According to the learned counsel for assessee, expenses are reasonable and a similar claim by Mysore Minerals Ltd. has been approved by the Karnataka High Court in CIT v. Mysore Minerals Ltd. [1986] 162 ITR 562. While perusing the CIT(A) s order, it is seen that in fact, he was in total agreement with the assessee s case. However, he remanded the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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