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TMI Blog2013 (1) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income is also nil and the average value of investment also works out at nil. The assessee furnished the working required for computation of Rule 8D and he contended that no disallowance can be made. The Assessing Officer rejected such contention and relying on various Judgements including that of ITO Vs. Daga Capital Management (P) Ltd., ITAT, Mumbai Special Bench reported (2009) 117 ITD 169 worked out the total disallowance at Rs. 12,88,06,598/- as per working given at page 9 of the assessment order. 4. Before the CIT(A), it was submitted that no expenditure has been incurred by it to earn this income and the entire income has been derived in the course of carrying on the indivisible business of banking and no expenditure can be disallowed on estimate basis. It was further submitted that the interest free funds available with the assessee far exceeds the investment made in assets earning tax free income. Reliance was placed on various decisions which have been incorporated by the CIT(A) at page 3&4 of the appellate order. The CIT(A) too, rejected the contention and upheld the action of the Assessing Officer in computing the disallowance as per Rule 8D relying upon the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that it is neither a financial corporation nor a public-company. The CIT(A) confirmed the said disallowance following the earlier year order of the CIT(A) for A.Y. 2006-07. Learned counsel for the assessee submitted that the issue has come up for consideration before the Tribunal in the earlier years in A.Y. 2004-05 to 2006-07 in ITA No. 4704 to 4706/Mum/2010, wherein the assessee's claim has been allowed. The CIT(A)-DR relied upon the findings of the authorities below. 10. After carefully going through the order of the Assessing Officer as well as the CIT(A) and Tribunal order for earlier years in the case of the assessee, we find that this issue has been dealt with in a very elaborate manner by the Tribunal and the assessee's claim u/s. 36(1)(viii) has been allowed after observing and holding as under:- "9. We find that as per Explanation (a) to Sec. 36(1)(viii) 'financial corporation' is defined to "include a public company and a Government company. We are of the opinion that any entity incorporated under a statute carrying on the business of financing would come under the definition of financial corporation. The definition is not an exhaustive definition and the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is remitted back to the file of the AO subject to the above direction the appeal of the assessee on this issue is allowed." 11. Thus, respectfully following the earlier years precedence, we remit the matter back to the file of the Assessing Officer for a limited purpose to verify and examine the deduction, which has been transferred to the special reserves subject to the prescribed percentage of profits derived from providing long-term finance for the approved purposes mentioned in section 36(1)(viii). Accordingly, this ground is treated as allowed subject to the said direction. 12. In ground No. 3 the assessee has challenged the action of the Assessing Officer in taxing the unrealized gain on revaluation of trading derivatives. 13. The Assessing Officer on perusal of computation of income found that the assessee has claimed deduction for 'notional gain on derivatives' of Rs. 3,13,30,216/-. The assessee in response to the show-cause notice, submitted that the trading derivatives held by the bank constitute its stock in trade and according to the accepted basis, valuation of closing stock it should be valued at cost or market price whichever is lower, therefore, while the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In accordance with the normally accepted principle of valuation of such stock in trade, it had valued them at cost or market price whichever is lower and claimed the loss arising on account of such revaluation. The Assessing Officer has wrongly taxed the notional unrealized gain arising on account of such valuation on the ground that in the books of account only the net loss is provided for. 16. On the other hand, learned CIT(A)-DR took us to the detailed findings of the Assessing Officer and also decisions referred and relied upon by him. He thus strongly relied upon the findings of the Assessing Officer as well as the CIT(A). 17. We have carefully considered the rival submissions and perused the findings given by the CIT(A) as well as Assessing Officer. It has not been disputed that the assessee holds derivatives as its stock-in-trade and it follows the principle of "cost or market price whichever is lower" in valuing the derivatives. When such derivatives held as stock-in-trade, the normal principle of valuation of stock-in-trade has to be applied. It is settled principle of law as laid down by Hon'ble Apex Court in the case of Chainrup Sampatram Vs. CIT (supra) that while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principle laid down by Hon'ble Apex Court in the aforesaid cases and also precedence of the earlier year by the Tribunal, we reverse the findings of the CIT(A) and hold that the assessee is entitled to claim loss on revaluation of trading derivatives. Accordingly, ground No. 3 is treated as allowed. 19. In ground No. 4, the assessee has challenged the applicability of the provisions of section 115JB in the case of the assessee. 20. Assessee's claim before the Assessing Officer as well as before the CIT(A) has been that the assessee is a banking company and its accounts are being prepared in accordance with the Schedule III of Banking Regulation Act and not in accordance with Schedule VI of the Companies Act. Both the authorities have rejected the assessee's contention on the ground that in the earlier years provisions of section 115JB has been made applicable. Learned counsel for the assessee submitted that this issue stands decided in favour of the assessee in the earlier years by the Tribunal, and drew our attention to the Tribunal order for A.Y. 2006-07 in ITA No. 4706/Mum/2010. The CIT(A)-DR on the other hand, relied upon the findings of the Assessing Officer as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. As per the observation of the Assessing Officer, the assessee has produced documents for total sum of Rs. 20,02,093/- and accordingly the balance sum of Rs. 1,98,189/- was added back. 27. Before the CIT(A), it was submitted that the expenditure mainly consisted of arrears of rent, share of expenditure in bank's ombudsman etc. Further liability to pay all these expenses arose only during the year, and hence cannot be considered as prior period expenses. The CIT(A) held that exactly similar facts were there in A.Y. 2006-07, wherein the CIT(A) has allowed the claim of the assessee. Accordingly, he allowed the assessee's ground on this score. 28. Before us, learned counsel submitted that this issue now stands covered in favour of the assessee by the Tribunal in A.Y. 2006-07, wherein prior period expenses have been allowed. 29. On the other hand, learned Departmental Representative submitted that this kind of expenses cannot be held to be covered by the earlier year. He accordingly relied upon the findings of the Assessing Officer. 30. After carefully considering the submissions of the parties, findings of the Assessing Officer as well as the CIT(A) and the Tribunal order, we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the lower authorities, we find that this issue has been decided in favour of the assessee by the Tribunal in A.Y. 2002-03 to 2006-07 following the earlier year order of the Tribunal for A.Y. 1991-92. Moreover, we find that this issue stand squarely covered by the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra), which has been reiterated and followed by Hon'ble Supreme Court in the subsequent decision in the case of Karnataka Bank Ltd. (supra), wherein it has been held that deduction on account of provision for bad and doubtful debts u/s. 36(1)(viia) is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of bad debts. The deduction permissible u/s. 36(1)(vii) should not be negated by reading into this provision, limitation of section 36(1)(viia). Thus, this ground raised by the department stands dismissed. 35. In ground No. 3 the department has challenged the allowing of the loss on revaluation of investment of Rs. 3,59,93,42,619/-. The Assessing Officer had disallowed the depreciation of revaluation of investment on the ground that the assessee had been claiming the deduction differently in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of UCO Bank (supra) and decision of Hon'ble Jurisdictional High Court in the case of Bank of Baroda (supra), wherein it has been categorically held that depreciation in value of investment held by the bank was allowable as deduction following the principle laid down by Hon'ble Supreme Court in the case of UCO Bank(supra). Thus, this ground raised by the department also stands dismissed. 39. In the 4th ground, the department has challenged allowing of deduction u/s. 36(1)(viia) being the amount of provision made for doubtful debts. 40. The Assessing Officer had restricted the deduction in respect of provision for bad and doubtful debts u/s. 36(1)(viia) to the extent of provision made in the books instead of the amount eligible for deduction at 7.5% of the total income and 10% of rural advances. Assessee's claim before the Assessing Officer as well the CIT(A) has been that the entire eligible amount as per the said section should be allowed as deduction instead of restricting it to the amount of provisions made in the books of account. The CIT(A) accepted the assessee's contention and following the decision of ITAT Bangalore in the case of Syndicate Bank Vs. DCIT repo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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