TMI Blog2015 (3) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... e tune of ₹ 11,82,35,007/- and the said depreciation was claimed as a deduction which was disallowed by the A.O, but the assessee Bank succeeded before the CIT(A). The Tribunal confirmed the order of the CIT(A). The Revenue carried the issue before the Hon’ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon’ble High Court followed the decision of Hon’ble Supreme Court in the case of United Commercial Bank (1999 (9) TMI 4 - SUPREME Court). In the case of United Commercial Bank (1999 (9) TMI 4 - SUPREME Court), even the issue of valuation of the stock in trade of the investment was before the Hon’ble Supreme Court. In the case of the assessee, the issue is regarding allowability of the loss on the sale of the Securities. Merely because the Securities are kept under the head till the maturity, the said Security cannot be treated as a purely investment. Law is well settled that the Securities held by the Bank are in the nature of Stock-in-Trade. We may like to quote here the decision of the Hon’ble High Court of Kerala in the case of CIT Vs. Nedungadi Bank Ltd., [2002 (11) TMI 29 - KERALA High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RW Rule 8D. 3. The briefly stated facts are as under. The assessee is a Co- Operative Bank carrying on the Banking business and Banking Regulation Act, 1949 is also applicable as observed by the authorities below. It was noticed by the A.O that the assessee Bank has not considered the interest receivable on sticky advances/None Performing Assets(NPA) as income in this Assessment Year but has to be provided the said interest directly in the Balance Sheet. The assessee relied on the decision in the case of UCO Bank Vs. CIT, 237 ITR 889 (SC) and stated that interest receivable on the sticky advances/NPA is not taxable in view of the provisions of Sec. 43D of the Act and as well as on the real income theory. The said amount was to the extent of ₹ 16,13,341/-. The A.O. made the addition of the said amount while computing the total income of the assessee Bank by rejecting the explanation of the assessee that the interest on the sticky advances/NPA receivable is not taxable unless it is credited to the Profit Loss Account or actually received. 4. The assessee challenged the said addition before the Ld CIT(A) and Ld CIT(A) in his reasoned order, after considering the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed its heavy reliance on the decision of the Hon ble High Court of Delhi in the case of Vashist Chay Vyapar Ltd. [330 ITR 440 (Del.)], in which the Hon ble Delhi High Court has considered the decision in the case of Southern Technologies Ltd. [320 ITR 577 (SC)]. The Tribunal finally held that the interest income relatable to NPA advances did not accrue to the assessee. 6. An identical view has been taken by the ITAT, Ahmedabad Bench in the case of Karnavati Cooperative Bank Ltd. Vs. Dy.CIT [134 ITD 486 (Ahmedabad)]. In the case of Karnavati Cooperative Bank Ltd. (supra), the Tribunal has considered the provisions of section 43D and its application to the non-scheduled banks. The reasons given by the Tribunal in the case of Karnavati Cooperative Bank Ltd. (supra) for holding that interest on the sticky advances/NPA advances cannot be brought to tax by following the decision in the case of UCO Bank (supra), which is as under: 15.1. On careful analysis of this section our first observation is that Section 43D is in contrast with the fundamental principle of accountancy. The cardinal principle of mercantile system of accountancy is that an income is to be show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to aid proper determination of the income of money lenders and banks, the Central Board of Direct Taxes has issued a Circular dated October 6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, it need not be included in assessee s taxable income, provided the Income tax Officer is satisfied that recovery is practically improbable. The CBDT u/s.119 of the I.T.Act has power to issue Circulars in exercise of its statutory powers. If the Board consider it necessary to lay down certain Rules and then direct the sub-ordinate authorities, such directions are required to be followed and such Circular would be binding on the Department unless and until held as ultra vires by a court of law. The Board has powers to relax the severity or the strictness of law and the authorities are required to follow those instructions as held in the case of C.B. Gautam vs. Union of India 108 CTR 304 (SC) 110 CTR 179 (SC); Navnitlal C.Zaveri 56 ITR 198(SC) and K.P.Varghese 131 ITR 597 (SC). In the land-mark decision, the Hon'ble Supreme Court in the case of UCO Bank vs. CIT (1999) 237 ITR 889 (SC) has therefore held, first, that a beneficial circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that an interpretation can easily be made, then that exact meaning should be given to the language of the Section. For this legal proposition we place reliance on Keshavji Ravji and Company vs. CIT 183 ITR 01 (SC), wherein it was held as under: As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is other-wise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature. When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in subsequent legislation in the same or similar context. To say that the court could not resort to the so-called equitable construction of a taxing statute is not to say that, where a strict literal construction leads to a result not inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om did not extend the same benefit to NBFCs which has been given to scheduled banks, public financial institutions, etc. The provisions of section 43D as stood at relevant time contained an expression 'the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the Guidelines issued by the RBI in relation to such debts'. This expression continues to exist in the newly substituted section 43D applicable with effect from 1-4-2000. This shows that the RBI Guidelines in respect of scheduled banks, public financial institutions etc., were not sufficient for recognition of income on cash basis for the purposes of income-tax. The income of such assessees was determined as per circular dated 9-10-1984. Because of this reason, section 43Dwas inserted in the statute. RBI Guidelines in case of NBFC are for the purpose of control and supervision with respect to public interest and viability of the NBFC. The Guidelines never intended for taking the interest income accrued as per section 5 out of the scope of the Act. If the contention of assessee was accepted, it would amount to insertion of 'NBFC' in section 43D, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act. Therefore the distinction can easily be drawn that in the appeal before us the question is accrual of interest income on sticky loan but in this cited decision the question before he Apex court was about the admissibility of provision made in respect of doubtful debts. (vi ) Concept of real income approved in the case of banking business: Before us, the theory of real income has also been argued and in support a decision of Hon'ble Court pronounced in the case of CIT vs. Godhra Electricity Co. 225 ITR 746 (SC). In short, the view expressed was that if income does not result at all, there cannot be any tax and that if an income has not materialized, then merely an entry made about a hypothetical income by following book keeping methods, the liability to tax cannot be attracted. Now at present the situation is that the Hon'ble Madras High Court in the case of CIT vs. Elgi Finance Ltd. 293 ITR 357 (Mad.) has taken a view that the assessee is a company engaged in the business of lease, finance and hire purchase and that the principle of accrual comes into play without income was recognized and that the assessee had classified its assets on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law. The A.O has not given the working of disallowance of ₹ 2,00,834/- for earning of exempt income of ₹ 4,95,212/-. The appellant has submitted detailed working of the proposed disallowances of ₹ 25,000/- during the appellate proceedings according to Rule-8D of the Act. Keeping in view the submissions made by the appellant, the A.O. is directed to reITA calculate the disallowance according to Rule-8D of the Act and keeping in view the decision of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co.Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom.) and the provisions of law and restrict the disallowance to that extent instead of ₹ 2,00,834/-. The ground is partly allowed. 10. We find that the Ld CIT(A) has relied on the decision of Hon ble jurisdictional High Court in the case of Godrej Boyce Manufacturing Ltd. (Supra). The Hon ble High Court has held that Rule -8D is applicable from the A.Y. 2008-09 and it has no retrospective application. We find that the Ld CIT(A) has sustained disallowance at ₹ 25,000/- treating the same as a reasonable one. In our opinion, no interference is called for in the order of the Ld CIT(A) and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the parties. The Ld Counsel placed his heavy reliance on the decision of the Hon ble High Court of Bombay in the case of CIT Vs. Bank of Baroda and in the case of UCO Bank Vs. CIT, 240 ITR 355 (SC). In the case of Bank of Baroda (Supra), the issue before their Lordship was whether the assessee was entitled for deduction on account of depreciation in the value of investments. The method of valuation followed by the assessee Bank was to value investments at cost or market value whichever was lower. The assessee had claimed the depreciation to the tune of ₹ 11,82,35,007/- and the said depreciation was claimed as a deduction which was disallowed by the A.O, but the assessee Bank succeeded before the CIT(A). The Tribunal confirmed the order of the CIT(A). The Revenue carried the issue before the Hon ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon ble High Court followed the decision of Hon ble Supreme Court in the case of United Commercial Bank (Supra). 15. In the case of United Commercial Bank (Supra), even the issue of valuation of the stock in trade of the investment was b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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