TMI Blog2011 (6) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier years. Therefore, we do not find any error or illegibility in the order of the CIT(A), qua, the issue of disallowance of interest u/s 14A. disallowance of administrative expenditure u/s 014A - that the assessee is maintaining the treasury department which looks after the day to day investment portfolio of the bank including tax free investments. Having regard to the said factual proposition, the administrative expenses relatable to the income not forming part of the total income can be attributable to the expenditure of special treasury department maintained by the assessee; but it seems the assessee has not filed the exact detail of the operating expenses. Therefore, the CIT(A) is justified in restricting the said disallowance to 1%. Accordingly, the ground raised by the revenue as well as the assessee in the respective appeal and cross objection are liable to be dismissed. deleting the disallowance of the claim for payment of broken period interest - this issue is covered in favour of the assessee and against the revenue by the decision of the Jurisdiction High Court in the case of American Express International Banking Corpn Ltd vs CIT [ 2002 (9) TMI 96 - BOMBAY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has paid interest on the borrowed funds and the borrowed funds and assessee's own funds are not separately identified. The investments in the government securities has been made by the assessee bank from the common pool of funds. As per the provisions of sec. 14A, no deduction shall be allowed in respect of the expenditure incurred by the assessee against the income claimed as exempt from the tax. Apportionment of the expenditure is inherent part of sec. 14A. In the absence of direct nexus between the assessee's own funds and investment, the investment will be treated from common pool of account having both borrowed as well as own funds of the assessee. Therefore, proportionate disallowance of interest is justified. He relied on the order of the Assessing Officer . 3.1 The ld AR of the assessee has submitted that the assessee's capital, profit reserves and surplus and current account deposit is higher than the investment in the tax free deposits; therefore, the investment in tax free securities should be regarded to be made from its own funds. He has referred the balance sheets of the respective years and submitted that the assessee's own funds and curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in the earlier years has been carried forward as it is evident from the particulars where the balance at the end of the year shows that the investment is appearing in all the earlier years. Therefore, we do not find any error or illegibility in the order of the CIT(A), qua, the issue of disallowance of interest u/s 14A. 5 The second common issue in the appeals of the revenue for the Assessment Year 2001-02, 04-05 and 05-06 is whether in the facts and circumstances of the case, the CIT(A) is justified in restricting disallowance of administrative expenses u/s 14A to 1% as against 2% disallowed by the AO. 5.1 The assessee has also raised a ground of disallowance of administrative expenses in the Cross Appeal and appeal for AY 2005-06. Therefore, this common issue has been taken up together for adjudication. 6 We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. The Assessing Officer disallowed operating/administrative expenses u/s 14A to the extent of 2% of the total tax free income and accordingly worked out the expenditure related to the earning of tax free income at ₹ 1,26,78,080/-. The estimation of 2% b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the decision of the Jurisdiction High Court in the case of American Express International Banking Corpn Ltd vs CIT reported in 258 ITR 601 (Bom). 9.1 The ld DR, on the other hand, relied upon the decision of the Hon'ble Rajasthan High Court in the case of CIT vs The Bank of Rajasthan Ltd, reported in 316 ITR 391. 10 Though, the Hon'ble Rajasthan High Court has decided the issue against the assessee after considering the decision of the jurisdictional High Court in the case of American Express International Banking Corpn Ltd vs CIT reported in 258 ITR 601 (Bom); however, we are bound by the decision of the jurisdictional High Court. The CIT(A) has decided the issue by following the decision of the jurisdictional High Court in the case of American Express International Banking Corpn Ltd (supra) as under: 6. I have considered the rival submissions and the findings of the Assessing Officer. Respectfully following the judgment of the Hon'ble Bombay High Court in the case of American Express International Banking Corporation (supra), in principle I agree with the contention of the appellant. The Hon'ble Court affirming the decision of the Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is valuing stock in trade (investments) 'at cost' in balance sheet in accordance with Banking Regulation Act and valuing very same investments 'at cost' or 'market value' whichever was lower for income tax purposes. Method followed consistently was valid and could not be rejected. In the present case the facts being similar to the facts reported in UCO Bank, the Assessing Officer is directed to allow the revaluation of securities. However, for the computation of depreciation allowable, the Assessing Officer is also directed to revalue the securities in the same manner in the beginning of the year also. 11.1 We find the Tribunal in the case of Lord Krishna Bank Ltd (supra) has considered and adjudicated the issue in para 3 4 as under: 3. We have heard the rival submissions and perused the relevant material on record. The learned A.R. has relied on Circular DBOD.No.BP.BC.29/21.04.048/98 dated 11th April, 1998 issued by the Reserve Bank of India prescribing the method to be followed for valuation of Government and other securities. The learned A.R. invited our attention towards page 4 of the paper book, which is the method suggested by the RBI to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Hon'ble Supreme Court in the case Alom Extrusions Ltd (supra), no disallowance is called for. Accordingly, we do not find any error or illegality in the order of the CIT(A),qua this issue. 14 Next issue raised by the revenue for the AY 2005-06 whether in the facts and circumstances of the case, the CIT(A) is justified in deleting the disallowance of claim of the assessee for deduction of loss of revaluation of the current investments. 15 We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. The CIT(A) has recorded in the impugned order that this issue has been consistently deciding in favour of the assessee for the AYs 2001-02 to 2004-05 and accordingly, decided the issue in favour of the assessee. The relevant portion of the order of the ld CIT(A) reads as under: 8 I have carefully considered the submissions, gone through the material placed on record and also perused the order of the AO. I find that the issue relating to this ground of appeal had consistently been decided by my learned predecessors in the appellant's own case of the Assessment Years 2001-02 to 2004-5 in favour of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of securities. However, for the computation of depreciation allowable, the Assessing Officer is directed to revalue the securities in the same manner as in the beginning of the year also. 15.1 Further, we find that this issue is identical to the issue raised by the revenue for AY 2001-02. In the subsequent year, the revenue has not challenged the order of the CIT(A) on this issue. Therefore, we do not find any merit in the ground raised by the revenue on this issue. Accordingly, the ground of the revenue is dismissed. CROSS OBJECTIONS (By (By The Assssee) 16 The common issue raised by the assessee in its CO for the Assessment Year 2001-02 and 2002-03 whether in the facts and circumstances of the case, the CIT(A) is justified in upholding the disallowance of deduction claimed u/s 36(1)(viia) of the I T Act. 16.1 The Assessing Officer disallowed the deduction claimed by the assessee u/s 36(1)(viia) on the ground that deduction under the proviso to this section is optional and in lieu of deduction available under sub. clause (a) of clause (viia) of sec. 36(1) of the I T Act. The CIT(A) confirmed the action of the Assessing Officer and also noted that identic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income under the head Profits and gains of business or profession. 17.1 From the sub-clause (a) of clause (viia) of sub-section (1) of section 36 and proviso to said clause, it is clear that under sub-clause (a), while computing the business income of a Scheduled Bank (not being a foreign bank) or a non Scheduled Bank, deduction is allowable in respect of any provision for bad and doubtful debts to the extent of an aggregate amount not exceeding 7.5% of the total income and 10% of the aggregate average advances made by its rural branches. In order to provide flexibility in the fiscal incentive, an option is given to such banks by inserting the first proviso for claiming deduction, for a period of 5 years for any provisions made by it in respect of doubtful or loss assets, in accordance with the guidelines issued by the Reserve Bank of India not exceeding 5% of such loss or doubtful asset. Thus, the proviso provides only an option to the bank to exercise an alternative to the deduction for provision for bad and doubtful debts not exceeding 5% of total income and 10% of aggregate average of advances by the rural branches. Thus, the option under the proviso is only an alternative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh accruals c) all the receipts, including sale proceeds of investments and borrowings, both for capital expenditure and for working capital were deposited in the same account and from this account the payments, both for working capital expenditure and revenue expenditure has been affected. 4. The appellant prays that the disallowance of ₹ 152.34 crores be deleted. Ground no.2 1 In the facts and circumstances of the case and in law, the CIT(A) erred in restricting the disallowance u/s 14A at 1% of the gross exempt income instead of deleting the entire disallowance being alleged expenses attributed for earning tax free income. 2 He failed to appreciate and ought to have held that where no expenditure has been actually incurred, no estimation can be made to disallow expenditure for earning exempt income. 3 The appellant therefore prays that the disallowance of alleged expanses attributed at 1% of the gross exempt income be deleted. Ground no.III 1. In the facts and circumstances of the case and in law, the CIT(A) erred in upholding a disallowance of ₹ 28,153/- u/s 40(a) (ia) being interest paid in the state of Sikkim on which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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