TMI Blog2014 (5) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... we deem it fit and proper to restore it to the file of the Assessing Officer, who shall consider the assessee s claim of exemption u/s 10(23G) of the Act on its merits, having regard to the facts and circumstances of the case. Need1l1ess to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim, and only thereafter, he shall adjudicate the claim of the assessee as per law - Decided in favour of assessee for statistical purposes. Deduction u/s 36(1)(vii) in respect of debts written-off by non-rural branches - Held that:- The claim of the assessee is that the said Additional Ground is entirely in tune with the judgement of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (2012 (2) TMI 262 - SUPREME COURT OF INDIA ). On this aspect also, we deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall consider the claim of the assessee in the light of the judgement of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). Herein also the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and only thereafter, he shall adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reduction in market value of securities as on the last day of the relevant financial year, the claim of the appellant shall be allowed as allowable deduction for the purpose of computing taxable profit during the assessment year under appeal. - ITA Nos. 637 & 638/PN/2007, ITA No. 855/PN/2008, ITA No. 967/PN/2008 - - - Dated:- 30-5-2014 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER For the Appellant: Mr. S. Anardan Ms. Lalitha Rameswaran For the respondent: Mr. A. K. Modi ORDER PER G. S. PANNU, AM These are three appeals by the same assessee and one appeal by the Revenue pertaining to the different assessment years. Since some of the issues involved are common, the appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 2. Firstly, we may take-up the appeal of the assessee in ITA No.637/PN/2007 for assessment year 2002-03, which is directed against the order of the Commissioner of Income Tax (Appeals)-I, Pune dated 21.02.2007 which, in turn, has arisen from an order dated 07.03.2005 passed by the Assessing Officer u/s 143(3) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Memo of Appeal filed by the assessee is with regard to the enhancement of income made by the CIT(A) on account of incremental disallowance quantified by him of ₹ 3,76,53,360/- u/s 14A of the Act. Before we proceed further, we may also at this stage refer to the three Additional Grounds of Appeal which have been raised by the assessee before the Tribunal subsequent to filing of the Appeal Memo. Such Additional Grounds of Appeal have been reproduced by us in an earlier para of this order. Additional Ground of Appeal No.2 is with regard to an amount of ₹ 16,53,97,980/- representing expenditure on account of interest, which was added back by the assessee in its Computation of Income suo motu on account of section 14A of the Act. However, before the CIT(A), assessee pointed out that the aforesaid disallowance out of interest expenditure suo motu made by the assessee in the return of income was based on an incorrect application of section 14A of the Act. Additional Ground was raised before the CIT(A) asking for relief, which has not been entertained primarily for the reason that, according to the Comm4is sioner, his appellate jurisdiction was limited to grievances c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly, the admission of Additional Ground of Appeal No.3 relating to a claim of deduction of ₹ 60 crores on account of write-off of debts by the nonrural branches of the assessee bank is also sought to be justified. In this connection, it is pointed out that at the time of the proceedings before the lower authorities there were conflicting views inasmuch as the full bench of the Hon ble Kerala High Court in the case of CIT vs. South Indian Bank Ltd., (2010) 191 taxmann.com 272 (Kerala) had decided the issue in favour of the Department. In such a scenario, assessee did not raise such plea before the lower authorities, so however, in view of the subsequent judgement of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs. CIT, (2012) 343 ITR 270 (SC), the issue has been finally decided in favour of the assessee and in view of such finality, the aforesaid Additional Ground be admitted for adjudication. It has also been asserted that necessary facts are available on record and no fresh investigation of facts is required to adjudicate any of the Additional Grounds of Appeal. 9. At the time of hearing, in so far as the admission of the aforestated Additional G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee suo motu quantified interest expenditure of ₹ 16,53,97,980/- as relatable to the exempted income and accordingly added back the same to the total income. Before the CIT(A), assessee submitted that since the investment in the securities, which have yielded exempt income, was made in past years out of non-interest bearing funds, no interest can be said to be relatable to such investments. In the course of appellate proceedings, the CIT(A) show-caused the assessee as to why the disallowance returned by the assessee on account of section 14A of the Act be not enhanced because the assessee has not allocated any amount out of the operating expenses towards earning of the exempt income. After considering the submissions of the assessee, the CIT(A) has not only rejected assessee s plea to set-aside the disallowance of ₹ 16,53,97,980/- on account of interest allocable towards exempt income; but, enhanced the disallowance u/s 14A of the Act by holding that an amount of ₹ 3,76,53,360/- was further required to be disallowed u/s 14A of the Act on account of operating expenses relatable to the earning of the exempt income. 12. Against the aforesaid background, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest income of ₹ 8,10,00,000/- on tax-free securities, which is exempt from tax. The cost of such securities is stated to be ₹ 78.50 crores. The plea of the assessee is that no interest expenditure is relatable to the acquisition of such securities because in the years of their acquisition, assessee had enough non-interest bearing funds in the shape of cash profits and other free Reserves. In our considered opinion, the proposition sought to be advanced by the assessee is quite apt and deserves to be examined in the light of the facts of the present case. In-fact, the Hon ble Gujarat High Court in the case of UTI Bank Ltd. (supra) was considering a disallowance made by the Assessing Officer out of interest expenditure, being relatable to earning of tax free income in the context of section 14A of the Act. The Hon ble Gujarat High Court following the judgement of the H9o n ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) held that since the interest-free funds available with the assessee were in excess of the investments which yielded the exempt income; therefore, no interest could be disallowed by invoking section 14A of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed a working before the CIT(A) according to which the amount of operating expenses allocable to the exempt income was determined as 3,76,53,360/-. In our considered opinion, the stand of the assessee that no expenditure was allocable towards the earning of exempt income is a bald assertion; and, therefore the CIT(A) made no mistake in rejecting it and considering a portion of operating expenses as having been incurred towards earning of exempt income. The quantification of such expenditure done by the assessee is ₹ 3,76,53,360/-, which is the amount disallowed by the CIT(A) u/s 14A of the Act. We find no reason to discard the working which the assessee itself furnished and accordingly in so far as the disallowance of ₹ 3,76,53,360/- u/s 14A of the Act made by the CIT(A) is concerned, the same is hereby affirmed. Thus, assessee partly succeeds on Grounds of Appeal relating to the disallowance u/s 14A of the Act, as manifested by Ground of Appeal No.1 and Additional Ground of Appeal No.2. 16. The Additional Ground of Appeal No.1 relates to assessee s claim of exemption u/s 10(23G) of the Act with respect to the interest income earned by the assessee from infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act, 1961 as pertaining to Interest Income of Tax Free Bonds. 2. The A.O. CIT(A) erred in disallowing ₹ 4,41,98,263/-, out of interest paid by the Appellant u/s 14A of the Income Tax Act, 1961 pertaining to Tax Free Bond. 21. Apart thereform, appellant has raised the two Additional Grounds of Appeal, which read as under :- 1. The Learned Commissioner of Income Tax (Appeals) erred in not deleting the addition of ₹ 3,20,53,250/- being the expenses incurred during the year but debited in the books of account in the subsequent financial year. 1.1. The Learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the appellant had proved that the expenses were incurred during the current Financial Year though accounted in the subsequent Financial Year. 1.2 The Learned Commissioner of Income Tax (Appeals) erred in remitting back this matter to the learned Assessing Officer for further verification while their entire records were produced before him. 1.3 Without prejudice to the above, and as an alternate submission, it is prayed that this amount may be directed to be allowed in the assessment year 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 11,90,793/- and for the balance of ₹ 3,08,62,457/-, the matter was set-aside to the file of the Assessing Officer with certain directions to verify the claims of the assessee and thereafter allow the same as per law. Not being satisfied with the order of the CIT(A), assessee is in further appeal before us. 27. Before us, the learned counsel for the assessee submitted that there was no necessity for the CIT(A) to have remanded the issue back to the file of the Assessing Officer for verification because there was no dispute that the impugned expenditures have been incurred during the year under consideration. 28. On the other hand, the learned Departmental Representative has defended the order of the CIT(A). 29. We have carefully considered the rival submissions. Out of the total claim of the assessee of ₹ 3,20,53,250/-, the CIT(A) has sustained the addition of ₹ 11,90,793/- and for the balance of ₹ 3,08,62,457/- the same has been remanded back to the file of the Assessing Officer with certain directions as per the discussion in paras 5.3 to 5.5 of the impugned order which read as under :- 5.3 As regards the balance amount of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year under appeal, such expenditure shall not be allowed to the appellant because appellant is following mercantile system of accounting. The fact that such decision has been communicated to be braches in later year shall not make any difference in this regard. This is so because the appellant was obliged to make provision of increase in expenditure under the head 'rent' in the assessment year to which these rents related. Where this was not done, a provision was to be made in the assessment year in which decision regarding increase of rent was taken by the Head Office. If neither has been done, the appellant cannot be allowed the deduction of such expenses. The Assessing Officer shall verify the claim of the appellant and give consequential relief, if any the appellant out of the amount of ₹ 28,85,494/-. 5.5 As regards the amount of ₹ 1,40,056/-, it is the claim of the appellant that the actual payment in respect of computer charges electrical expenses were made in the next year. The Assessing Officer is directed to verify the claim of the appellant that the amount become payable during the assessment year under appeal. The Assessing Officer shall ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bited in this year s Book of Accounts. The issue is squarely covered in Pune ITAT decision in the Assessee s own case for A.Y. 2000-01 and A.Y. 1991-92. 3. The CIT (Appeals) erred in allowing depreciation of ₹ 90,00,896/- on electrical machinery, etc. @ 15% instead of @ 25%. 35. Apart thereform, appellant has raised the following Additional Grounds of Appeal, which read as under :- 1. In the facts and circumstances of the case and in law, it may please be held that the amount of ₹ 4,30,01,225.00 being write back (i.e. amount credited to Profit and Loss A/c) of provision for non performing investments is not liable to be taxed as income of the appellant and consequently the same may be directed to be deleted from the net taxable income of the appellant. 2. In the facts and circumstances of the case and in law, it ma please be held that interest of ₹ 8,48,79,501.00 received by the appellant bank qualifies for exemption u/s 10(23G) of the I.T. Act, 1961 and the said income be held as exempt from taxation. 3. The learned Asses1s7ing Officer be directed to allow a sum of ₹ 2,56,63,950/- voluntarily disallowed by the appellant while co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind the directions of the CIT(A) for assessment year 2003-04, which has been affirmed by us in Additional Ground of Appeal No.1 in the appeal of the assessee in ITA No.638/PN/2007 (supra) for assessment year 2003-04 in earlier paragraphs. Thus on this aspect, assessee succeeds for statistical purposes. 40. The Ground of Appeal No.3 raised by the assessee is with regard to depreciation of ₹ 90,00,896/-. In this regard, brief facts are that assessee had claimed depreciation @ 25% in respect of electronic equipments and Safe Deposit Vaults, etc. grouping the same under the head Plant Machinery . As per the Assessing Officer, such equipments were in the nature of furniture and fixture which was entitled to depreciation @ 15%. Accordingly, the Assessing Officer allowed depreciation on such equipment at 15%, as against 25% claimed by the assessee, and the same resulted in a disallowance of ₹ 90,10,896/-. The CIT(A) has also sustained the order of the Assessing Officer, against which assessee is in appeal before us. 41. Before us, the learned counsel for the assessee pointed out that the assets in question, namely, Safe Deposit Vaults, note counting machines, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 4,30,01,225/- out of the total income on account of write back of Provision for non-performing investments. 45. The relevant facts in this regard are that during assessment proceedings, assessee stated that out of the Provision for non-performing investments made in earlier years and disallowed, an amount of ₹ 4,30,01,225/- was recovered during the year under consideration. The assessee asserted that such amounts be reduced from the total income as the same were taxed in past. The CIT(A) has noted that the Assessing Officer rejected the plea without any discussion, because this claim was neither made in the original return of income and nor in the revised return of income. The aforesaid claim has been denied by the CIT(A) also on the ground that the same was not made in the returns of income filed before the Assessing Officer. 46. Factually speaking, the claim has been made by the assessee in the course of assessment proceedings before the Assessing Officer. The factual matrix of the claim, as noted by the CIT(A) in para 8.1 of his order shows that the assessee had written back a provision of ₹ 6,79,45,780/- by way of credit to Profit Loss Account and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s claim for deduction u/s 36(1)(vii) of the Act in respect of debts written-off of non-rural branches which stands on similar footing as additional Ground of Appeal No.3 considered in assessee s own case for2 2assessment year 2002-03 in the earlier paragraphs. Our decision in the said appeal with respect to the aforesaid issue, shall apply mutatis-mutandis in this appeal also and the Assessing Officer is accordingly directed. Thus, assessee partly succeeds on this Ground. 49. In the result, the appeal of the assessee in ITA No.967/PN/2008 for assessment year 2004-05 is partly allowed. 50. Now, we may take-up the cross-appeal of the Revenue in ITA No.855/PN/2008 for assessment year 2004-05, which is directed against the order of the Commissioner of Income Tax (Appeals)-I, Pune dated 10.03.2008 which, in turn, has arisen from an order dated 28.12.2006 passed by the Assessing Officer u/s 143(3) of the Act. 51. In this appeal, the Revenue has raised the following Ground of Appeal :- 1. On the facts and in the circumstances of the case, the CIT (Appeal) erred in directing the deletion of the addition made on account of disallowance of depreciation on value of securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before us, the learned representatives of both the sides have agreed that this issue is also squarely covered in favour of the assessee by the various orders of the Tribunal passed in assessee's own case for earlier years. Copies of the said orders are placed on record before us and a perusal of the same shows that in one of such orders dated 22nd Dec., 2010 passed in assessee's own case for assessment years 2002-03 to 2006-07, the coordinate bench of this Tribunal has directed the AO to allow the premium amortized by the assessee over the period remaining to maturity holding that the same was claimed as per the relevant RBI guidelines and even the CBDT has issued instructions to allow the same. Respectfully following the said order of the Tribunal in assessee's own case for earlier years, we uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue and dismiss ground No. 3 of the Revenue's appeal. 54. In brief, the facts are that assessee bank held certain securities under the Held to Maturity category and it considered the same at its stock-in-trade. Accordingly at the close of the year, such securities were valued a ..... 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