TMI Blog2014 (11) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... /10/2000 had been clarified - CIT(A) has not controverted the calculation made and claimed by the appellant that there is no net depreciation - Since the appreciation of securities in the category of Available for Sale is more than the depreciation of securities in the same category i.e. Available for Sale - the assessee had rightly claimed depreciation on transfer from securities Held for Trading category to Available for Sale category – following the decision in State Bank of Mysore Vs. DCIT [2009 (5) TMI 610 - ITAT BANGALORE] – Decided in favour of assessee. Prior paid expenses and Misc. expenses disallowed – Held that:- The period expenses were claimed by the assessee have been crystallized during the year - The assessee has number of branches in all over the India and certain expenses of previous year were claimed after the closing of books of account, which has been clarified by the auditor in audit report - The genuineness of the expenses has not been doubted by the lower authorities – the expenses were allowable in respective year to which they pertained but information of expenses with evidence received by the appellant from the various branches after closing of books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of ₹ 5,86,050/- by reducing the appellant's claim of depreciation u/s 32. 4(i) Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of prior period expenses of ₹ 34,23,944/-. He has further erred in not directing the A.O. to allow this claim in the preceding respective assessment years. (ii) Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in not allowing the relief in respect of disallowance of alleged prior period rent and other miscellaneous expense of ₹ 28,85,358/- and sending it back to A.O. for verification. Ground of ITA No. 436/JP/2009 On the facts and in the circumstances of the case and in law the learned CIT(Appeals) has erred in-deleting the addition of ₹ 4,56,60,998/- made by the A.O. taking the interest income on Government and other securities on accrual basis instead of due basis as shown by the assessee. 2. Ground No. 1 of the assessee's appeal is against confirming the disallowance U/s 14A of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer held that there is no doubt about the fact that part of the interest can certainly be attributed to the tax free income. The total interest earned by the assessee is ₹ 1573,57,13,330/- as against total interest expenditure incurred by the assessee at ₹ 857,13,41,288, thus, he calculated the ratio of total interest expenditure over total interest earned i.e. Rs. .5447. As regard the administrative expenses, he estimated 5% of tax free interest receipt as administrative expenses. Thus, he made addition of ₹ 10,18,09,800/- U/s 14A of the Act. 3. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A). The learned CIT(A) enhanced the disallowance U/s 14A of the Act by observing as under:- I have considered facts of the case and arguments taken by Sh. Jhanwar and Sh. Parwal quite carefully. How the contention of AR that no expenditure is relatable to such exempt income to be disallowed U/s 14A of I.T. Act is not acceptable has been discussed in detail by CIT(A)- II, jaipur in para 3.5 and para 3.6 of the appellate order dated 30/3/2005 for A.T. 2003-04 and since facts of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D of the Rules is incorrect. He further relied upon the following case laws: (i) CIT Vs. Walfort Share and Stock Brokers (P) Ltd. 326 ITR 1. (ii) Maxopp Investments Ltd. Ors. Vs. CIT 347 ITR 272 (Del.). (iii) DCIT Vs. Maharashtra Seamless Ltd. 52 DTR 005 (Del.)(Trib.). (iv) CIT Vs. Metalman Auto (P) Ltd. 199 Taxman 149 (P H) (Mag) (v) Bunge Agribusiness (India) (P) Ltd. Vs. DCIT 132 ITD 549 (Mum) (vi) CIT Vs. Hero Cycles Ltd. 31 DTR 301 (P H). (vii) ACIT Vs. Mohan Exports (P) Ltd. 138 ITD 108 (Del.) (viii) ACIT Vs. SIL Investment 73 DTR (Del.)(Trib.) 233. He has further drawn our attention on assessee's own case for A.Y. 2001-02 to 2003-04 and argued that by following the Hon'ble ITAT order in assessee's own case, no disallowance of interest pertaining to the investment, which has related both the exempted as well as taxable income can be made under Rule 8D has been allowed. He has also worked out total disallowance as per Rule 8D of the Rules at ₹ 7.06 crores. Therefore, he requested to set aside the order of the learned CIT(A) to recomputed the disallowance U/s 14A of the Act. 5. At the outset, the learned D.R. has supported th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment and the global method adopted was also in accordance with the accounting standard even as in this method the costing of stock was being done at cost or market value whichever is lower. In assessment year 2003-04, the difference in provision for depreciation on securities at the closing and the beginning of the year was (-)3.03 crores, which was offered by the assessee in profit and loss account and also for income tax purposes in accordance with method adopted by it in earlier year. The Assessing Officer had allowed the difference of valuation method adopted by the Assessing Officer in A.Ys. 2002- 03 and 2003-04. For assessment year 2004-05 once again, the difference in provision for depreciation on securities at the closing and the beginning of the year was (-) ₹ 4,37,57,567/- which was offered by assessee in P L account and also for income tax purposes, in accordance with method adopted by it in earlier year. Since the CIT(A) has also upheld the method of valuation of stock on the basis of category wise method correct, against which no decision is received, the above income has to be included in the income of assessee without prejudice to stand taken in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that the above accounting treatment does not take into account taxation implications and hence the banks should comply with the requirements of Income Tax Authorities in the manner prescribed by them. (e) Now, if we go on merits and facts as to what has really happened then we see that as per category wise method, on the one hand depreciation on all securities of the same category can be set off against the appreciation in the same category but in this case depreciation on securities which have come to the category available for sale to the extent of ₹ 6.98 crores is not being set off despite an appreciation of ₹ 289.72 crores. This means in this category, if the cost of securities was say for example 1,000 crores then despite composite market value of securities in this category being 1283.74 crores, the valuation of securities of this category is being done at 993.02 crores which is less than the cost (which in turn is less than the market value). This is going against basic accounting principles. (f) To further elaborate the issue and the distortions which above method can bring to the profit, we can taken an example of a security valuing ₹ 10. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per method being followed by assessee and confirmed by CIT(A), thereby resulting into an addition of ₹ 6,98,07,032/-. 8. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had confirmed the addition by observing as under:- I have considered facts of the case and arguments taken by Sh. Jhanwar and Sh. Parwal quite carefully. It is true that as per RBI guidelines the banker has provided depreciation of ₹ 6,98,07,032/-in respect of securities shifted from held for trading category to the category of available for sale . For this purpose they have relied upon master circular issued by RBI on prudential norms for classification, valuation and operation of investment port folio by bank dated 2.9.2003. Besides this following category wise valuation such depreciation as on 31.3.2003 was held at ₹ 24,18,71,884/-and as per guidelines category wise such depreciation as on 31.3.2004 has been worked out at ₹ 19,81,14,316/- and since, there was no further requirement to charge anything to the P L A/c of current year therefore, the excess sum of ₹ 4,37,57,567/- was credited to the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment. In this respect the instruction No. 17/2008 issued by CBDT vide its letter F.No.228/3/2008 - ITA -III dated 26.11.2008 which was issued after the review of assessment of bank carried out by C AG. CBDT vide aforesaid instruction has clarified that in particular deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per provisions of the I.T. Act. Thereafter, in item No. 2 (VII) of the instruction the RBI guidelines dated 16.10.2000 in respect of investment port folio classification in three different categories has been discussed and has been clarified that in the case of held for trading and available for sale categories securities forming stock in the trade of bank, the depreciation / appreciation is to be aggregated scrip wise and only net depredation if any, is required to be provided for in the accounts. In my considered view for this category as per aforesaid instruction dated 26.11.2008 there is no net deprecation since the appreciation of securities in the category of available for sale is more than the depreciation of securities in the same category i.e. available for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation of the securities originally held as Held for Trading category with the appreciation in the securities held as Available for Sale category. The basic principle behind this guideline is to retain the depreciation as per the original classification so as to regulate the act of shifting of securities from one category to other category. 2. The CBDT in its instruction No. 17/2008 dated 26/11/2008 in para (vii) with reference to allowing the depreciation on the securities has directed that the latest guidelines of RBI is to be taken into consideration for allowing any such claim. In respect of shifting of securities from one category to another, the same should be at lower of acquisition cost/book value or market value and the depreciation on such transfer should be fully provided for. Accordingly, the assessee has correctly provided for the depreciation of ₹ 6.98 crores on shifting of securities from HFT to AFT category. 3. The CIT(A) though principally accepting the above contention has wrongly inferred that the question of appreciation and depreciation in the value of securities in a particular category is to be seen only at the year end and since the appreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September, 2003 and prescribed Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks in master circular. The prudential norm classified the investment portfolio in A to F categories. These investments are to be kept by the bank under the three heads namely Held to Maturity (HTM), Held for Trading (HTF) and Available for Sale (AFS). As per this norm, the bank can shift investments to/from Held to Maturity category, Available for Sale category to Held for Trading category and from Held for Trading category to Available for Sale category for clarified these terms, the definition given in the circular as under:- (i) Held to Maturity: the Securities which are acquired with an intention to held up their maturity. (ii) Held for trading: To trade by taking advantage of shirt term price/interest rate moments will be classified under Held for Trading. (iii) Available for Sale: The security which do not fall within the above two categories will be classified under Available for Sale. On transfer of scrip from one category to another. The RBI also prescribed the valuation method of securities as per the circular under all circumstances, shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 3 of assessee's appeal is against confirming the addition of ₹ 5,86,050/- by reducing the appellant's claim of depreciation U/s 32 of the Act. As per audit report, the allowable depreciation was ₹ 36,80,29,161/-. However, the assessee had claimed depreciation of ₹ 36,86,15,211/-, the Assessing Officer gave reasonable opportunity of being heard on this issue. After considering the assessee's reply, it has been held by the Assessing Officer that depreciation was allowed only to the extent as it was computed by the auditor in A.Y. 2003-04 and the addition has been contested by the assessee before the learned CIT(A), where the appeal is still pending. On the same line, claim of depreciation is allowed at ₹ 36,80,29,161/- as against claim of ₹ 36,86,15,211/- by allowing depreciation on electric fittings at the prescribed rate of 15% instead of allowing depreciation @ 25% just because these assets were part of plant and machinery of block assets in earlier assessment year. Accordingly he made the addition of ₹ 5,86,050/-. 13. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter to the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave considered the rival contentions of both the parties and perused the material on record. The Coordinate 'B' Bench of ITAT, Jaipur decided identical issue in A.Y. 2003-04 in favour of the assessee wherein the Coordinate Bench has accepted the assessee's submission and Assessing Officer was directed to work out the depreciation without shifting the opening written down value of plant and machinery to the written down value of furniture and fixture. Accordingly, we allow the assessee's appeal on this ground. 17. Ground No. 4 in assessee's appeal is against confirming the disallowance of prior period expenses of ₹ 34,23,944/- and other Misc. expenses of ₹ 28,85,358/-. The Assessing Officer observed that as per audit report, prior period expenses of ₹ 1,23,94,487 had been debited in profit and loss account. The Assessing Officer gave reasonable opportunity of being heard on this issue, which was availed by the assessee. After considering the assessee's reply, the learned Assessing Officer partly accepted the assessee's submission but interest expenses of ₹ 34,23,944/- had been claimed as wrong calculation of earlier year i.e. fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of electricity/water/rent expenses/audit fee/taxes/business development/law charges/statutory/news paper in view of ITAT Jaipur Bench decision in the case of RIICO which has been referred by CIT(A). Now the assessee is in appeal before us. 19. The learned A.R. for the assessee has submitted that expenditure to the tune of ₹ 34,23,944/- pertaining to waiver of penal interest, realization of interest due to change of computer system, for overdraft charges received after closing of books. The expenditure to the tune of ₹ 14,68,386/- was pertained to previous year but crystallized during the year under consideration. Mostly pertained to enhancement of rent of various branches. The other expenses were booked as and when claims are made against the bank to pay the same. The accounts of the branch gets finalized within a week of any of the year and therefore, the claims for these expenses made thereafter are taken in the year of claim only. These expenses are nature of electricity/water/rent/audit fees/taxes, which has been allowed by the CIT(A) but subject to verification by the Assessing Officer. By following the decision of the Jaipur ITAT Bench decision in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r period expenses of ₹ 36,46,004/-. This ground is allowed. By respective following the Coordinate Bench decision in assessee's own case, we also have considered view that these expenses are allowable during the year under consideration. Thus, the assessee gets relief fully on this issue. 22. Ground No. 4(ii) of the assessee's appeal is against disallowance of Misc. expenses of ₹ 28,85,358/-, which has not been pressed as claimed by the appellant. The Assessing Officer himself allowed the expenses. 23. The cross appeal i.e. ITA No. 436/JP/2009 filed by the Revenue is against deleting the addition of ₹ 4,56,60,998/- by taking the interest income on government and other securities on accrual basis instead of due basis as shown by the assessee. The Assessing Officer observed that as per audit report and profit and loss account and balance sheet, the assessee had applied method of accountancy accrual basis for interest income. However, in computation of income, the interest income had been offered on due basis. The details are as under:- S. No Particulars Interest on due basis Interest on accrued basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the addition for A.Y. 1999-2000 to A.Y. 2001-02 under the same head. Accordingly, the addition of ₹ 4,56,60,998/- was made by the Assessing Officer. 24. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter to the learned CIT(A), who had allowed the appeal by observing as under:- I have considered facts of the case and arguments taken by Sh. Jhawar and Sh. Parwal quite carefully. It is a fact that right from A.Y. 1991-92 to A.Y. 2001-02 this issue has been decided by Hon'ble ITAT Jaipur Bench in favo8ur of the appellant bank. Hon'ble ITAT has upheld the view taken by the bank that it has rightly offered the interest income on due basis. Thereafter, on perusal of the minutes of the meeting of COD held on 06/12/2007 forwarded by Cabinet Secretariat vide their letter dated 26/12/2007 in which for item NO. 23 to 26 which were with reference to ITA No. 617, 618, 619 and 620/JP/2003 dated 7/11/2006 a decision has been conveyed that the dispute relates to the accounting principle to be followed for accounting for interest on government securities and debentures die not involve any loss of revenue to the department and therefore, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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