TMI Blog2013 (3) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly. In view of these reasons, we are satisfied that depreciation on account of fall in value of securities held by the assessee as stock in trade, was liable to be considered at the market value, being less than its cost price, as reflected by the assessee. - Decided ini favor of revenue. Entertainment expenses - Held that:- According to the Tribunal “it would be reasonable to estimate 40 percent of the total expenses as not in the nature of entertainment expenses”. Nothing has been brought to our notice to demonstrate that the said order has been modified or set aside by the Hon’ble High Court. Respectfully following the precedent, we hold that 40% of total expenses be considered as not in the nature of entertainment expenses. The AO is directed to work out the amount of disallowance accordingly. Similar view has been taken in all the appeals. Set off and carry forward of losses - Disallowance of provision for loss on forward exchange contract where the assessee booked a loss on forward foreign exchange contracts which were unmatured on the date of balance-sheet - held that:- matter restored to the file of AO for deciding it afresh on the touchstone of the presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anthan Mrs Lalitha Rameswaran ORDER Per: Bench: This batch of six appeals - one by the Revenue for Asstt. year 1996- 97 and the other five by the assessee for Asstt. years 1997-98, 1998-99, 1999-2000, 2000-01 and 2003-04 involve some common issues. We are, therefore, proceeding to dispose them of by this consolidated order for the sake of convenience. A.Y. 1996-97: 2. The first issue in this appeal is against allowing of deduction towards provision for bad debts. Briefly stated facts of the case are that the assessee debited a sum of Rs.52,30,30,064/- towards specific provision on account of non-performing assets. These assets included sub-standard assets, doubtful assets and loss assets. According to the AO, the classification was done by the assessee as per the guidelines issued by the RBI. The AO noted, during the course of assessment proceedings, that a sum of Rs.42,81,94,064/- represented bad debts written off during the year, which were adjusted against similar specific provision for an earlier year. According to the AO, the entire provision created by the assessee was not deductible. He splitted this provision into two parts, viz., provision for rural debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Vijaya Bank (supra), deduction for bad debts is allowable provided it is firstly debited to the P L a/c. and then it is reduced from the figure of debtors in the balance-sheet. We have perused the Annual report of the assessee bank for the year under consideration. It is noticed that the assessee has reduced the ultimate amount of provision for bad debts from the figure of debtors in the balance-sheet and it is only after reducing the amount of provision from the gross figure of debtors that the net figure is reflected. Such a computation can be seen from pages 24, 29 and 47 of the paper book. In so far as the figure of provision for non-performing assets at the year ending is concerned, the calculation can be seen at page 51 of the paper book, from where it is discernible that the amount of provision for NPA made during the year is added to the amount of opening balance of the provision and after reducing the amount of bad debts written off/provision written back during the year, the net amount is reflected by way of reduction from the amount of debtors in the balance sheet. It is, therefore, vivid that the assessee has complied with the requirements of sec. 36(1)(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total amount as income. To put it in different words, suppose, a security was purchased on 1st September for Rs.110/- and the interest for the period 1st July to 31st August is Rs.10/- (with the presumption that interest is payable on 30th June and 31st December), the assessee was accounting for securities at Rs.100/- and claiming deduction for Rs.10/-. When it was receiving interest on 31st December for the period 1st July to 31st December, the entire amount, say, Rs.30/- (including Rs.10/- for the period 1st July to 31st August) was offered for taxation. The same treatment was given in respect of securities sold inasmuch as the interest for the broken period was accounted for as income at the time of sale of securities itself because such interest was to be ultimately received by the purchaser on the cut off dates. When such securities are admittedly held as stock in trade, we fail to understand as to how the interest for the broken period, which is income/expenditure from such security, should not be considered as revenue item. The AO has albeit granted deduction in respect of broken period interest in respect of securities which were purchased and sold during the year but ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroverted submission made by the ld. A.R., the assessee was following the method of valuing such securities at cost of market price whichever is less . There is no dispute on the valuation aspect. The view of the AO was that such deduction was not allowable. To exemplify the issue, if some securities are purchased at Rs.100/-, the market price of which as at the end of the year one is Rs.90/-, the assessee will value such stock at Rs.90/- (being market price of Rs.90/- which is less than the cost price of Rs.100/-). Suppose, in the second year, the market price of such securities which were purchased by the assessee in year one at Rs.100/- and valued at Rs.90/- at that year end, went up to Rs.95/-, there would be net income of Rs.5/- in the second year (Rs.95/- minus Rs.90/-) and there would be automatic loss of Rs.10/- in the first year because the cost price on the debit side shall stand reflected at Rs.100/- and the closing stock at Rs.90/- resulting into loss of Rs.10/-. When the method of cost or market price, whichever is less is followed by any assessee for valuing its stock, the effect has to be given accordingly. In other words, if the value of stock has come below its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is an appeal by the assessee against the order of the CIT(A) dated 19-11-2001. The first ground is against the sustenance of addition on account of provision of bad debts u/s.36(1)(vii). As against the ld. CIT(A) deciding such issue in assessee s favour in asst. year 1996-97, the ld. first appellate authority in the instant year, took opposite view and sustained the disallowance. Both the sides are in agreement that the facts and circumstances of this ground are mutatis mutandis similar to those the preceding year. Following the view taken hereinabove, we order for the deletion of this addition. This ground is allowed. 12. Ground no. 2 is against confirmation of disallowance of broken period interest. In this year also, again, the ld. CIT(A) took contrary view from the one taken in Asstt. year 1996-97. As the facts are admittedly similar, following our order taken in the immediately preceding year, we allow this ground of appeal. 13. Ground no. 3 is against disallowance of provision for loss on forward exchange contract. The assessee booked a loss on forward foreign exchange contracts which were unmatured on the date of balance-sheet for an amount of Rs.17,84,97,527/-. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowed in the first appeal. 18. After considering the rival submissions and perusing the relevant material on record, it is noticed that the AO made disallowance by reducing proportionate expenses from the interest receipt by determining the correct amount of income which was exempt u/s.10(15). In other words, he applied the prescription of sec. 14A. We find that this issue is no more res integra in view of the judgment of the Hon ble jurisdictional High Court in Godrej Boyce Mfg. Ltd. vs. DCIT (2010) 328 ITR 81 (Bom) in which it has been held that disallowance is called for u/s.14A in such circumstances. However, the manner of computation of such disallowance has been restored to the file of AO for making on some reasonable basis. It has further been held in this case the provisions of Rule 8D are not applicable as these are prospective. Respectfully following the precedent, we set aside the impugned order and direct the AO to compute disallowance u/s.14A in accordance with the ratio laid down by the Hon ble jurisdictional High Court in the aforenoted case of Godrej Boyce Ltd. The ld. A.R. has contended before us that it was having sufficient interest-free funds at its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrent investments. It was claimed that the Bank was treating the whole of its investments as stock in trade. Considering the fact that in earlier years the Department did not allow any deduction towards appreciation in the value of such securities as stock in trade, the AO held that the Bank should be allowed a deduction of the amount of appreciation. Since the assessee did not accept the decision of the Department on such issue in earlier years and preferred appeal to the CIT(A), this income was taxed by the AO on protective basis. 25. After considering the rival submissions and perusing the relevant material on record, it is noticed that similar issue raised by the assessee in earlier years for grant of deduction on account of depreciation in the value of securities, held as stock in trade, has been decided in assessee s favour by holding that depreciation in the value of securities is allowable as deduction. In that view of the matter and applying the same analogy, the appreciation in the value of such securities in the instant year at Rs.27.35 crores is liable to be taxed on substantive basis rather than protective basis as done by the AO. This ground is, therefore, not allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch tax. Treating a person as assessee in default is subject matter of provisions u/s. 201(1), which aspect is decided by the AO (TDS).The AO, while framing assessment u/s.143(3) of the Act, cannot charge interest u/s.201(1A). We, therefore, allow this ground of appeal. 31. The last ground about confirmation of disallowance of set off of unabsorbed depreciation/carried forward loss is stated to be consequential. This ground is accordingly disposed of. 32. In the result, this appeal is partly allowed. A.Y. 1999-2000 : 33. The first ground of the assessee s appeal is against confirmation of disallowance of provision of bad debts u/s.36(1)(vii). As the facts of this ground are admittedly similar to those decided by us for the earlier year 1998-99, following the view taken hereinabove, we allow this ground of appeal. 34. Ground no. 2 is for not taxing appreciation in the value of securities. This ground has been dealt with by us in asstt. year 1998-99 holding that such appreciation in the value of securities is liable to be taxed. This ground is not allowed. 35. Ground no.3 is against confirmation of disallowance of provision for loss on forward exchange contract. Similar i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the rival submissions and perusing the relevant material on record, it is noticed that the AO made disallowance by reducing proportionate expenses from the interest receipt by determining the correct amount of income which was exempt u/s.10(15). This is also a recurring issue, which has been dealt with by us in an earlier year supra. Following the same view, we set aside the impugned order and direct the AO to decide this issue afresh in accordance with our view expressed above. 40. In the result, this appeal is partly allowed. A.Y. 2000-01 : 41. The first ground is against allowing of deduction towards provision for bad debts. This is a recurring issue, which has been decided by us in the years dealt with above. In the absence of the ld. DR, pointing out any distinguishing feature in the facts of this year vis- -vis those of the earlier year, we allow this ground of appeal. 42. The second ground is against disallowance of provision for loss on forward exchange contract. It is again noticed that this issue has also been dealt with by us in earlier years. Following the same view taken supra, we remit this matter to the file of AO for deciding it afresh in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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