TMI Blog2015 (11) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) TMI 1380 - ITAT DELHI), we set aside the order passed by the ld. CIT(A) on this issue and direct the Assessing Officer to allow depreciation @ 60% to ATMs. UPS attached to the computers are part of computer systems and eligible for depreciation @ 60% Claim of deduction under section 36(1)(viia) - Held that:- Allowable deduction u/s. 36(1)(viia) of the Act is @ 10% of the 'total average aggregate advances' made by the rural branches and not on the incremental average aggregate advances, as contemplated by the Assessing Officer. See Lakshmi Vilas Bank [2010 (12) TMI 1204 - ITAT CHENNAI] Claim of brought forward unabsorbed depreciation losses to be set off against the income of current assessment year - Held that:- the unabsorbed depreciation losses carried forward to eight assessment years immediately succeeding the assessment year in which the depreciation allowance was computed is not in dispute [1994-95 to 1998-99]. However, the finding of the ld. CIT(A) that for the current year 2007-08, the brought forward unabsorbed depreciation losses is eligible is found to be incorrect since the reckoning of eight years period end by 2006-07 and therefore, for the assessment 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of "industrial units". If the assessees like banks were to fall under the definition of "Industrial units", there would not have been any necessity for amending the Act to include service sector. Since the amendment extending the benefit to service sector and made effective only from the assessment year 2009-10 and, the banks are coming under service sector, the benefit can be extended from the assessment year 2009-10 only to the extent of setting up of a new unit for five successive years. Accordingly, we set aside the order passed by the ld. CIT(A) and remit the matter back to the Assessing Officer to examine whether the assessee has set up a new unit or not and if so, he is directed to allow the benefit from 2009-10 onwards Disallowance of provision made for claims against the bank - Held that:- As the assessee has not furnished any details about the nature of expenses. If any expense is required to be allowed, it is for the assessee to prove the nature of the expenditure and its relation to its business. In the present case, the assessee has not able to prove the nature of the expenses. Therefore, we are of the opinion that the ground raised by the assessee is liable to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during June, 2010 on signing the agreement. Though the agreement was signed on a later date, there definitely existed a liability on the part of the assessee to provide for it in its books. Therefore, by following the decision of the Coordinate Bench of the Tribunal in the case of Neyveli Lignite Corporation v. ACIT [2004 (8) TMI 364 - ITAT MADRAS-B], the ld. CIT(A) has correctly directed the Assessing Officer to allow the claim of the assessee. - I.T.A. Nos. 880/Mds/2010, 1923/Mds/2011, 1871/Mds/2012, 1395, 1396, 1397/Mds/2014, 887/Mds/2010, 2025/Mds/2011, 2198/Mds/2012, 2124, 2125 and 2126/Mds/2014, Asst. Year 2005-2006 to 2010-2011 - - - Dated:- 30-11-2015 - Chandra Poojari, Accountant Member and Duvvuru R.L. Reddy, Judicial Member S. Swaminathan, C.A. for the Appellant M.N. Maurya, CIT-DR for the Respondent ORDER Duvvuru R.L. Reddy, Judicial Member:- 1. These six cross appeals are directed against the separate orders of the ld. Commissioner of Income Tax (Appeals), Chennai for the assessment years 2005-06, 2007-08 to 2010-11. Since all the appeals pertain to same assessee and heard together, are being disposed of by this common order for the sak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d there is no question of change of opinion. Further, with regard to depreciation on ATMs, he relied on the decision in the case of HDFC Bank Ltd. v. ACIT, Mumbai. 7. We have heard both sides, perused the materials on record and gone through the orders of authorities below. With regard to validity of reopening of assessment, the Assessing Officer was of the opinion that certain income had escaped assessment and accordingly initiated reassessment proceedings under section 147 of the Act by issuing notice under section 148 of the Act on 28.03.2012 by recording reasons thereon. After considering the submissions of the assessee, the Assessing Officer has completed the reassessment order under section 143(3) r.w.s. 147 of the Act on 31.03.2013. On appeal, the ld. CIT(A) has observed that as per the provisions of section 147 of the Act, if there is any income which is assessable to tax but has escaped from assessment, the Income Tax Act empowers the Assessing Officer to reopen the assessment under section 147 of the Act. Where there is an assessable income for any of the assessment years and the same was not brought to tax, it constitutes a reason for reopening the return under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave reason to believe that the amount to the extent of excess depreciation claimed by the assessee has escaped assessment. The issue of depreciation on ATMs and UPS and their allowance were never considered at the time of original assessment under section 143(3) of the Act. Only, when the Assessing Officer has taken one of the permissible views at the time of original proceedings and reopened the assessment, then it may be held that there is change of opinion. In the present case, no details were called for by the Assessing Officer or filed by the assessee on this issue, no finding either positive or negative was arrived at during the course of the original assessment proceedings, there is no question of change of opinion as contended by the assessee. Therefore, the reopening of assessment is not amounting to any change of opinion. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, we dismiss the ground raised by the assessee. 8. The next ground raised in the appeals of the assessee for the assessment year 2005-06 and 2007-08 in I.T.A. No. 1396/Mds/2014 and I.T.A. No. 1935/Mds/2014 relates to disallowance of excess depreciation cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to plant and machinery. The ld. CIT(A) has confirmed the order passed by the Assessing Officer. Before us, the ld. DR has placed reliance on the decision in the case of Venture Infotech Global (P) Ltd. v. DCIT (2008) 25 SOT 184 (Mum), wherein the Mumbai Benches of the Tribunal has held that higher rate of depreciation of @ 60% to ATM cannot be allowed., However, the ld. Counsel for the assessee, by filing copy of the order of the Delhi Benches of the Tribunal, at page 221 in the paper book, in the case of DCIT v. Global Trust Bank Limited in ITA No. 474/Del/2009 dated 20.04.2011 has strongly contended that depreciation @ 60% to ATM should be allowed. In the case of DCIT v. Global Trust Bank Limited (supra), the Tribunal has observed as under:- 5. In the present appeal, we are only concerned with the ground regarding assessee's claim of depreciation on LAN, WAN, ATM etc. at 60% as against 25% allowed by the AO. The other grounds of appeal raised by the Revenue in this appeal are not maintainable for want of COD approval, and they have also not been restored back for fresh disposal while recalling the Tribunal's earlier order dated 17.6.2009. 6. In the course of hearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputer hardware which enables for a group of computers and associated computer devices to share the data through this device. In other words, the data is stored at single computer processor or server and all the other computers are connected through local area network equipment and the single processor can be accessed by the other computers and the data stored is used by the other computers. 9. The WAN equipment is called Wide Area Network, meaning, two or more LAN would form a WAN i.e. to cover large geographical area. The computer network is done by use of Wide Area Network equipment. Thus, this is also an integral part of computer hardware. 10. In this connection, a reference is also invited to the Information Technology Act, 2000 wherein Section 2(i) defines the term computers which also includes computer network . The term computer network means the interconnection of one or more computers through the use of satellite, microwave, terrestrial line or other communication media, and terminals or a complex consisting of two or more interconnected computers whether or not the interconnection is continuously maintained. From this angle also, LAN, WAN and ATM would undoubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders of authorities below. With regard to allowability of 60% depreciation on the UPS, the Assessing Officer has held that these cannot be treated as computer restricted the claim of depreciation to 15% as against 60% claimed by the assessee. On appeal, the ld. CIT(A), by following the decision of the Chennai Benches of Tribunal in the case of Indian Overseas Bank in I.T.A. No. 99/Mds/2010 dated 19.03.2013, has held that the UPS attached to the computers are part of computer systems and eligible for depreciation @ 60% and directed the Assessing Officer to allow depreciation on UPS @ 60%. With regard to allowability of depreciation @ 60% on UPS, while considering similar issue raised in the case of Indian Overseas Bank (supra), by following the decision of the Hon'ble Delhi High Court in the case of Oriental Ceramics and Industries Ltd. 56 DTR (Del) 397, the Tribunal has observed as under:- 28. We do not agree with the submissions of the AR that the UPS is an energy saving device, therefore, depreciation @ 80% should be granted. However, we are in consonance with the decision of Hon'ble Delhi High Court in the case of Orient Ceramics and Industries Ltd. (supra) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should not be considered because some of these amounts are the brought forward amount from the earlier years, where the assessee had already claimed 10% of the amounts as deduction under section 36(1)(viia) of the Act. He further observed that only the incremental average aggregate advances made during the year are eligible for deduction under section 36(1)(viia) of the Act and accordingly he disallowed the balance amount claimed by the assessee. 25. The assessee carried the matter in appeals before the ld. CIT(A) for both the assessment years and the submissions made before the ld. CIT(A) are reproduced as under:- 4.3.2 The assessee before the undersigned submitted that the provisions of the Income Tax Act clearly provides for deduction @ 10% of average aggregate advances at the end of each month made by the rural branches. Hence, the Assessing Officer's action of restricting the deduction to the incremental average aggregate advances is not as per the law and needs to be deleted. For the this purpose, the assessee also relied on the decision of the Chennai ITAT in the case of Lakshmi Vilas Bank Ltd. vs. ACIT in ITA Nos. 551, 552 and 553/Mds/2009 dated 18.12.2009. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009, the ld. CIT(A) has allowed the ground raised by the assessee for both the assessment years. 28. Aggrieved, the Revenue is in appeal before the Tribunal for both the assessment years. The ld. DR supported the order passed by the Assessing Officer and submitted that against the decision of the Tribunal, the Department has preferred appeals and the same is pending before the Hon'ble Jurisdictional High Court. On the other hand, the ld. Counsel for the assessee strongly relied on the decision of the ld. CIT(A), wherein the ld. CIT(A), by following the decision of the Tribunal, decided the issue in favour of the assessee. 29. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The ld. CIT(A), after examining the detailed submissions of the assessee and also by following the decision of the Tribunal in the case of Lakshmi Vilas Bank Ltd. v. ACIT (supra), allowed the ground raised by the assessee by observing as under:- 4.3.3 I have considered the assessee's submissions carefully. As per the provisions of sec. 36(1)(viia), the assessee, being a scheduled bank, is eligible for deduction of not exceeding 10% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 8 as under:- We have duly consider the rival contentions and the material on record. We have perused Rule 6ABA of the Income Tax Rules, 1962. As per the said rule, the aggregate average advances made by the rural branches have to be computed by taking the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year. Thus, it is clear that there is no provision to consider only the advances made during the year under consideration. It is the finding of the Assessing Officer that the assessee has furnished the working as per Rule 6ABA. It Is not in dispute that the working is as per Rule 6ABA but the Assessing Officer seems to have interpreted the provision not warranted by law. Therefore, we uphold the order of the Commissioner of Income Tax (Appeals) allowing the deduction to the assessee. 4.1.4 By following the principle of consistency, as the issue has already been decided by the Co-ordinate Bench of this Tribunal, we decide this issue on merits in favour of the assessee and against the Revenue. 4.3.4 In view of the above discussion and respectfully following the decision of the jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the orders of authorities below. The assessee has claimed brought forward unabsorbed depreciation losses from the assessment years 1994-95 to 1998-99, amounting to 73,40,85,563/- and the Assessing Officer has disallowed since provisions of section 32(2) have been amended by the Finance Act, 2001 (w.e.f. 01.04.2002). After considering the submissions of the assessee, the ld. CIT(A) has observed as under:- 4.4.2 I have considered the assessee's submissions carefully. As per the provisions of sec. 32(2) of the Act, the unabsorbed depreciation of any assessment year will be carried forward to the following year where it has to be treated on par with the current depreciation of the said year and carried forward to the subsequent years, if there are no sufficient incomes to absorb them. In other words, the brought forward unabsorbed depreciations from the earlier assessment years will get merged with the current year's depreciation and becomes eligible for set off, as if it was the current year's depreciation. Especially, in view of this position, the unabsorbed depreciation losses can be carried forward to any number of years without any restrictions. 4.4.3 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed depreciation losses of ₹ 73,40,85,563/- from A.Ys. 1994-95 to 1998-99 and their set off against the income of current A.Y. 2007-08. The assessee's appeal on this ground is allowed. 35. In the grounds of appeal, the Revenue has relied on the decision of the Hyderabad Bench of the Tribunal in the case of Dharti Dredging and Infrastructure Ltd. v. Addl. CIT [144 ITD 120], wherein, though the ld. Counsel for the assessee relied on the judgement of Hon'ble Gujarat High Court in the case of General Motors India (P) Ltd. Special Civil Application No. 1773 of 2012 dated 23.08.2012 for the preposition of set off of unabsorbed depreciation allowance disputed before us against the profit and gains of subsequent year without any limit of period whatsoever. For the same preposition, the ld. Counsel for the assessee has relied on the judgements of the Hon'ble Madras High Court in the case of CIT v. Pioneer Asia Packing (P) Ltd. 310 ITR 198 and also in the case of CIT v. S and S Power Switchgear Ltd. 318 ITR 187. However, the Hyderabad Benches of the Tribunal, in the above case, has observed that the above judgement cannot be considered as binding precedent as it is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the grounds of appeal of the assessee as not pressed . Accordingly, the ground is dismissed as not pressed. 41. The second issue raised in the appeal of the assessee is with regard to disallowance of bad debts written off [technical Write-off] under section 36(1)(vii) amounting to 136,31,00,000/-. The Assessing Officer made disallowance on the ground that these debts were not actually written off at branch level. The Assessing Officer was of the opinion that the very fact that these debts continued to appear in the books of the branches make it clear that the assessee could not term these amounts as irrecoverable. The assessee contended before the Assessing Officer that this amounts to write off and the deduction claimed should be allowed. However, the Assessing Officer has not agreed with the plea of the assessee and made the disallowance. 42. On appeal, after considering the submissions made by the assessee, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 43. On being aggrieved, the assessee is in appeal before the Tribunal and submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s side of the balance sheet and consequently, at the end of the year, the figure of loans and advances/debtors was shown as net of the provision Therefore, assessee is entitled to benefit of deduction under s. 36(1)(vii) Contention that it is imperative for the assessee-bank to close the individual account of each debtor in its books and a mere reduction in the loans and advances account or debtors to the extent of the provision for bad and doubtful debt is not sufficient, is not sustainable Apprehension that if the assessee fails to close each and every individual account of its debtors, it may result in claiming deduction twice over is not correct It is always open to the AO to call for details of individual debtor's account if he has reasonable grounds to believe that the assessee has claimed deduction twice over Contention that where a borrower's account is written off by debiting PandL a/c and crediting loans and advances or debtors account, it would result in escapement of income from assessment if the borrower repays the loan in the subsequent years as the assessee would credit the repaid amount to loans and advances account and not to the PandL a/c has no merit In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer to determine the allowability based on the classification made. 48. We have heard the rival contentions and perused the materials on record. With regard to the claim of broken period interest paid on purchase of securities as revenue expenditure, we find that issue involved in this appeal is squarely covered by the decision of the Coordinate Bench of the Tribunal, in assessee's own case in I.T.A. Nos. 470 to 472/Mds/2010 for the assessment years 2004-05 to 2006-07 vide order dated 11.06.2012, wherein the Tribunal has observed as under:- 8. We have perused the orders of the authorities below and heard the rival contentions. Issue is regarding treatment of amount paid by assessee to transferors of securities, towards interest accrued as on the date of transfer. Hon'ble Mumbai High Court in the case of American Express International Banking Corporation vs. C.I.T. in 258 ITR 60 has clearly held that when interest received by an assessee, from transferees for broken period is included under the head 'business income', amounts paid by the assessee to the transferors for broken periods could not have been disallowed. This view was reiterated in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. Since it is a contingent in nature and contingent liabilities are not allowable, the claim made by the assessee was disallowed. The ld. CIT(A) has observed that in the absence of specific provisions under the Income Tax Act, the said amount cannot be allowed as deduction. Though, it is a fact that the assessee has made the provision in accordance with the RBI guidelines, but the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (187 Taxman 346), has held that the RBI directions and the Income Tax Act operate in different fields. Therefore, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Hence, we find no infirmity in the order passed by the ld. CIT(A), we uphold the order the order of the ld. CIT(A) and thus, the ground raised by the assessee is dismissed. 52. The fifth ground raised in the appeal of the assessee pertains to the deduction claimed in respect of provision for non performing investments amounting to 14,97,23,523/-. It was submitted before the Assessing Officer that the reduction in value of investments is recognized as the provision for non performing investments is mandated by RBI guidelines and also submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 36(1)(vii) which says that the provision for bad and doubtful debts made in the accounts of the assessee is not an allowable deduction. 55. In view of the above decision of Hon'ble Jurisdictional High Court (supra), we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed. 56. The sixth ground raised in the appeal of the assessee is with regard to confirmation of disallowance made under Rule 8D r.w.s. 14A. The assessee has claimed a sum of 3,25,31,015/- as income exempt under the provisions of the Act. The assessee has contended before the Assessing Officer that only if specific expenditure is incurred in earning exempt income, the same can be added back under section 14A of the Act. The assessee has also submitted that the disallowance under section 14A has been made by the bank as decided by the Tribunal in the earlier assessment years @ 2% of the exempt income and the same disallowance percentage shall be followed. After considering the submissions of the assessee, the Assessing Officer has observed that Rule 8D prescribes to arrive at the figure of expenditure attributable to the exempt income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer to disallow only 2% of gross dividend received towards expenditure for earning such dividend income. Thus, the ground raised by the assessee is partly allowed for statistical purposes. 59. The seventh ground raised in the appeal of the assessee relates to disallowance of bad debts written off of 51,95,64,198/- against the provisions made by the assessee. The Assessing Officer, by following earlier assessment orders on this issue, has held that the write off is deemed to have been adjusted against the provisions under section 36(1)(viia), which was already allowed and added back to the total income of the assessee and since the Department has filed SLP before the Hon'ble Supreme Court against the decision of the Hon'ble Madras High Court in the case of City Union Bank 291 ITR 144, the above disallowances were made. 60. On appeal, before the ld. CIT(A), the assessee has contended that the provisions of section 36(1)(vii) and section 36(1)(viia) are independent and unless credit balances in respect of accounts written off as bad debts is maintained in the books of the bank as per provisions under section 36(1)(viia), no disallowance can be made. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not permit a benefit of double deduction, operating with reference to rural loans, since under Section 36(1)(vii), an assessee would be entitled to general deduction upon an account becoming bad and being written off as irrecoverable in the accounts. No doubt, the requirements of Sec. 36(2) has to be satisfied. Hon'ble Apex Court had remitted the issue back to the Assessing Officer for consideration in accordance with law as enunciated in its judgement. Therefore, we are of the opinion that the issue regarding write-off of bad debts raised by assessee in its ground No. 4 for Assessment Years 2004-05 and 2006-07 and as ground No. 3 for Assessment Year 2005-06 requires reconsideration by the Assessing Officer, in the light of judgment of the Apex Court in Catholic Syrian Bank Ltd.'s case (supra). Accordingly, these grounds are allowed for statistical purposes and remitted back to the file of Assessing Officer for consideration afresh. 63. Respectfully following the above decision of the Coordinate Bench of the Tribunal in assessee's own case, we direct the Assessing Officer to verify whether the requirements of section 36(2) of the Act is satisfied or not and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o extension of the industrial undertaking is not applicable to the assessee since it is not an industrial undertaking. Before the ld. CIT(A), the assessee has submitted that the banks are classified only under service sector and in view of the amendment in the Finance Act, 2008, the benefit of deduction under section 35D should be extended to the assessee. However, the ld. CIT(A) has observed that the amendment made in the Finance Act, 2008 is effective from the assessment year 2009-10 and the same cannot be made applicable for the assessment year 2007-08. Accordingly, we dismiss the ground raised by the assessee. 68. The ninth ground raised in the appeal of the assessee is with regard to applicability of book profits to the bank. The assessee has debited an amount of 59,88,26,349/- as provisions and contingencies. The provisions of section 115JB require that in computing book profits, the provision for unascertained liability, contingent liabilities and diminution in value of assets should be added and the assessee was asked to furnish details. After considering the detailed submissions, the Assessing Officer has observed that the provision made for claims made against the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act. The starting point of computation of MAT under s. 115JB is the result shown by such a PandL a/c. In the case of banking companies, however, the provisions of Sch. VI are not applicable in view of exemption set out under proviso to s. 211(2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of s. 115JB cannot thus be applied to the case of a banking company. 8. Further, it may be noted that the authority for advance ruling in the case of The Timken Company, In re and Praxair Pacific Ltd. In re has held that MAT provisions are applicable to a foreign company that does not have a physical presence in India, as such, companies are not required to prepare its accounts as per Companies Act. Therefore, respectfully following the above cited decisions of the Tribunal, we set aside the orders of the lower authorities and allow the appeal of the assessee on the ground that the bank is not required to prepare its profit and loss account in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act and therefore, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck to compute the book profit u/s. 115JB. This ground is allowed. 75. In view of the above, both the grounds raised by the assessee are allowed. 76. With regard to grounds No. 12.1 and 12.2 in the assessment year 2007-08 i.e. applicability of 115JB to the bank, at para 68-72 of this order, by following the decision of the Coordinate Bench of the Tribunal for the assessment year 2006-07, we set aside the order passed by the ld. CIT(A) on this issue and held that the provisions of section 115JB of the Act could not be applied on the assessee. Accordingly, our findings in para 75 shall also apply to these grounds and thus, both the grounds raised by the assessee are allowed. 77. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. I.T.A. No. 1923/Mds/2011 [A.Y. 2008-09] 78. The first ground raised in the appeal of the assessee is general in nature and requires no adjudication. 79. The second ground raised in the appeal is with regard to depreciation on value of assets taken over from Bank of Thanjavur [BOT] by adopting written down value [WDV] of assets taken over from BOT ignoring the value adopted in the taken over scheme app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same cannot be overlooked. Since Rule 8D is not applicable prior to the assessment year 2007-08, the Tribunal has set aside the order passed by the ld. CIT(A) and directed the Assessing Officer to work out the disallowance @ 2%. However, since Rule 8D is applicable from the assessment year 2008-09 onwards, the disallowance should be made based on the prescribed method quantified by the Act. Since the Assessing Officer has made the disallowance under section 14A and computed under Rule 8D, we confirm the disallowance made by the Assessing Officer. Accordingly, the ground raised by the assessee is dismissed. 84. The sixth ground raised in the appeal of the assessee relates to disallowance of bad debts written off [technical write off] to the extent of 168,17,06,000/- against the provisions made. The Assessing Officer has held that inasmuch as the bad debts have been written off against the provisions, it is not allowable as deduction. Further, the Assessing Officer has also held that as the provision for bad and doubtful debts is allowable under section 36(1)(viia), no portion of the bad debts is allowable. Before the Assessing Officer, the assessee has contended that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound relates inclusion of income of foreign branches at Singapore and Colombo amounting to 38,33,66,265/- with the income chargeable to tax in India. The assessee has branches at Singapore and Colombo, outside India. In the computation of income, the assessee had deducted the following amounts, claiming that the same are taxable in the respective countries and therefore are exempt from taxation in India as per DTA agreements under section 90 of the Act. 90. The assessee has submitted before the Assessing Officer that in the Memo of income, an amount representing the net profit of 6,38,44,662/- after making provision for bad and doubtful debts and taxation in respect of branches in Singapore and Colombo has been excluded from the global income in view of the agreement entered into with those countries for avoidance of double taxation. Consequently, double income tax relief has not been worked out, which otherwise is allowable. It was also submitted that the Hon'ble Madras High Court in the case of CIT v. SRM Brothers 208 ITR 400 upholds this view. This decision has been confirmed by the Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar 267 ITR 654. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies as per DTAA. Accordingly, the assessee has claimed that income tax paid/payable on the income of such branches in the respective countries should be excluded from the return of income filed in India. This claim was made in view of the Article-7 of the respective DTAAs, wherein the income from such foreign branches is not taxable again along with the income of the assessee in India. The Assessing Officer has allowed the credit/relief for the taxes paid abroad out of the taxes payable in India from the tax payable on the income of the assessee in India. The Assessing Officer further noted that as per section 90(3), Central Government has notified that for granting relief of tax any income of a resident of India the phrase may be taxed in other country has to be interpreted as taxable in India also, as the income of the P.E. is to be included in the total income chargeable to tax in India subject to relief in accordance with the DTAA. Whereas, the assessee's submission before the learned Commissioner (Appeals) was that the income of the branches is taxable only in those countries and such an income has to be excluded from the income filed in India i.e., it is not taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment that income of the branches/P.E. shall be included in the total income of the assessee but credit of tax paid in source country would be allowed here in the resident State. The Tribunal has also analysed in detail the phrase may be taxed to come to the conclusion that it does not preclude the Resident State to tax the resident assessee on the income which has been earned by the P.E in the source country which are liable for tax in such country. 26. We have heard the rival contentions and perused the decisions relied upon by both the parties. The issue of interpretation of phrase may be taxed in other contracting States , as used in different Articles including Article-7 in the DTAA has been discussed in detail by the Tribunal in Essar Oil Ltd. (supra) after taking into consideration various decisions of the High Court, Supreme Court, affect of amendment in section 90(3) and notification dated 28th August 2008, issued by the Central Government. The conclusion arrived by the Tribunal after discussing various aspects are as under:- i) The ratio of all the judgments rendered by the Hon'ble High Courts, as discussed herein above and confirmed by the Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Supreme Court is binding on all the subordinate Courts and has to be reckoned as law of the land. However, the meaning assigned by Government of India for a phrase or term used in the agreement through notification will prevail at least from the assessment year 2004-05. Because, while interpreting the treaty, the intention of the parties to the agreement has to be given primacy and has to be understood in that manner only. Therefore, the notification is not contrary to the provisions of the Act. Consequently, the earlier judgments rendered in assessee's case prior to assessment year 2004-05, will not have binding precedence in this year or subsequent year; 27. In view of the aforesaid findings/conclusion, we hold that the income of the branches of the assessee shall also taxable in India i.e., it would be included in the return of income filed by the assessee in India and whatever taxes have been paid by the Branches in the other contracting States i.e., the source country, credit of such taxes shall be given. Accordingly, the ground No. 3, as raised by the assessee in the assessment year 2005-06 and 2006-07, is treated as dismissed, whereas, ground No. 1, as raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With a view to providing a level playing field to the services sector, it is necessary to extend to the service sector, the same benefit of amortization of specified post-commencement preliminary expenses as is available to the manufacturing sector for the extension of an undertaking or the setting up of a new unit. Therefore, it is proposed to amend section 35D accordingly. The amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to assessment year 2009-10 and subsequent assessment years (Clause 6). From the above, it is very clear that the amendment had been brought about to extend the benefit of deduction under section 35D of the Act to the service sector also. Banks cannot fall under the definition of industrial units . If the assessees like banks were to fall under the definition of Industrial units , there would not have been any necessity for amending the Act to include service sector. Since the amendment extending the benefit to service sector and made effective only from the assessment year 2009-10 and, the banks are coming under service sector, the benefit can be extended from the assessment year 2009-10 only to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses. Therefore, we are of the opinion that the ground raised by the assessee is liable to be dismissed. 101. The eighth ground raised in the appeal of the assessee relates to applicability of book profits under section 115JB of the Act. Similar ground was raised in the assessment 2007-08 and we have decided the issue in favour of the assessee from para 68 to 72 of this order. Accordingly, for the assessment year 2009-10 also, we allow the ground raised by the assessee. 102. The ninth ground raised in the appeal of the assessee relates to disallowance under section 14A in computing the book profits under section 115JB, the tenth ground raised in the appeal relates to disallowance of provision made for wage arrears in computing the book profits and eleventh ground relates to disallowance of claims made against the bank while computing book profit under 115JB of the Act. Similar grounds were raised in the assessment 2007-08 and we have decided the issue in favour of the assessee from para 73 to 75 of this order. Accordingly, for the assessment year 2009-10 also, we allow both the grounds raised by the assessee. 103. In the result, the appeal of the assessee for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the ground against the assessee at para 99 and 100 of this order. Accordingly, for the assessment year 2010-11 also, the ground raised by the assessee is dismissed. 110. The seventh ground raised in the appeal relates to applicability of book profits under section 115JB of the Act. Similar ground was raised in the assessment 2007-08 and we have decided the issue in favour of the assessee from para 68 to 72 of this order. Accordingly, for the assessment year 2010-11 also, we allow the ground raised by the assessee. 111. The eighth ground raised in the appeal of the assessee relates to disallowance made under section 14A in computing the book profits and ninth ground relates to disallowance of claims made against the bank while computing book profits under section 115JB of the Act. Similar grounds were raised in the assessment 2007-08 and we have decided the issue in favour of the assessee from para 73 to 75 of this order. Accordingly, for the assessment year 2010-11 also, we allow both the grounds raised by the assessee. 112. The tenth ground raised in the appeal of the assessee relates to disallowance of deduction claimed under section 36(1)(viia) of the Act of 197,51,47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Tribunal in the case of State Bank of Mysore v. DCIT 33 SOT 7, which was followed by the ld. CIT(A) for the assessment year 2006-07, allowed the ground raised by the assessee. 118. On being aggrieved, the Revenue is in appeal before the Tribunal and the ld. DR has submitted that the securities are treated as permanent and hence does not qualify for depreciation. On the other hand, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A). He also relied on the decision in the case of DCIT v. Andhra Bank Ltd. in I.T.A. No. 630/Hyd/2012 and vide its order dated 04.10.2013 and also in the case of ACIT v. The South India Bank Ltd. in I.T.A. No. 208/Coch/2014 vide its order dated 24.12.2014, wherein the ld. Accountant Member is the author in the above case. 119. We have heard both sides, perused the materials on record. The case of the assessee is that as per the Reserve Bank of India guidelines, the securities are valued when the asset is transferred from Held to Maturity category to Available for Sale category and therefore, the sum of 77,85,00,000/- represented such loss and claimed in accordance with RBI norms. However, the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision. Once the Revenue is accepting that profit arising on the maturity of investment is business income, then it cannot take the stand that it is not stock-in-trade. During the course of proceedings before us, the learned AR has filed the assessment order in the case of the assessee for the asst. years 2000-01 to 2002-03. The depreciation claimed in all these asst. years has not been disallowed. Thus, the revenue is consistently accepting that depreciation is allowable. This Bench in the following cases has allowed such depreciation on the valuation of the securities held by the Bank:- (1) Karnataka Bank Ltd. v. Jt. CIT ITA No. 50/BANG/97 dated 27th July, 2003. (2) ING Vysya Bank Ltd. v. Dy CIT [2006] 6 SOT 606 (Bang.) 17. Considering the above discussion, it is held that the assessee is entitled to value all the investment at cost prices or market value whichever is lower by treating such investment as stock-in-trade.... 7.3 The Hon'ble Tribunal in IT Appeal No. 112/Bang/2008, dated 3-12-2008 in the, case of Corporation Bank v. Asstt. CIT, by following the decision of the Hon'ble Tribunal in the case of Asstt. CIT v. Vijaya Bank (supra), has held that:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in respect of depreciation on HTM category through a note and therefore is not allowable expenditure as per the provisions of IT Act following CBDT Circulars, Case laws relied upon by the assessee, relevant accounting standards, RBI guidelines and Accounting Principles. 3. On appeal, the CIT(A) following his predecessor's decision in AY 2005-06, set aside the issue to the file of the AO with a direction to ascertain the facts and allow depreciation accordingly. 4. Before us, the learned counsel for the assessee has canvassed that the issue is squarely covered by the decision of the coordinate bench in assessee's own case for AY 2006-07 in ITA No. 97/Hyd/2010 vide order dated 04/04/2013. The learned DR neither controverted the submission of the learned counsel nor brought any contrary decision on record against the said order. 5. After hearing the parties and perusing the record, we find that the issue under consideration is squarely covered by the decision of the coordinate bench of ITAT, Hyderabad in assessee's own case for AY 2006-07 wherein the coordinate bench held as follows:- 50. We are of the opinion that the assessee Bank is holding various Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on securities on due basis. The assessee has offered interest on securities to tax on due basis and the interest accrued but not due was not offered to tax on the ground that the said amount accrues only on the respective fixed due dates. Before the Assessing Officer, the assessee has submitted that the bank has consistently accounts the interest on securities on accrual basis in the books and offers the interest on securities on receipt basis to tax and the Hon'ble Madras High Court has upheld this system in the cases of Tamilnadu Mercantile Bank 137 and City Union Bank 2912 ITR 144. The assessee has also relied on the decision of UCO Bank v. CIT 240 ITR 355. However, the Assessing Officer has not accepted the submissions of the assessee and made addition of 60,88,50,392/-. 122. On appeal, the ld. CIT(A), after considering the submissions of the assessee and, in view of the judicial pronouncement of the Hon'ble Supreme Court in the SLP filed by the Department against the decision of the Hon'ble Jurisdictional High Court in the case of Federal Bank 310 ITR 9 [Statute] and in the case of Tamilnadu Mercantile Bank Ltd. in CC 3043/2008 dated 07.03.2008, allowed the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit can be redeemed even before the maturity date and the depositor may get a portion of the interest accrued on the deposit till the date of surrender. In such cases, the interest is generated on accrual basis. But in the case of a Government security, it is not possible to encash it prior to the due date. A holder of the security may be able to sell it to another person; but there is no provision for premature encashment. Encashment can be made only on the due date. When the principal amount involved, in the instrument itself is redeemable only on due date, there is no reason to hold that the interest element would be generated on accrual basis. The interest, also goes along with the principal amount in the case of securities. The fall out of the above position is that in the case of a Government security, the interest could be recognized only on due date and not on accrual basis. This fundamental character of a Government instrument itself is sufficient to justify the method of interest income recognition by the assessee-bank. We find that the order of the Commissioner of Income-tax (Appeals) is just and proper in law. The appeal filed by the Revenue fails. 125. Respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue from para 116 to 120 of this order. Accordingly, for the assessment year 2008-09 also, the ground raised by the Revenue is dismissed. 132. The fifth ground raised by the Revenue relates to applicability of book profits to the bank. Similar ground was raised by the assessee in the assessment year 2007-08 in I.T.A. No. 880/Mds/2010 and we have decided the issue in favour of the assessee from para 68 to 72 of this order. Accordingly, for the assessment year 2008-09, the ground raised by the Revenue is dismissed. 133. In the result, the appeal of the Revenue for the assessment year 2008-09 is partly allowed. I.T.A. No. 2198/Mds/2012 [A.Y. 2009-10] 134. The first ground raised in the appeal of Revenue is general in nature and requires no adjudication. 135. The second ground raised in the appeal of the Revenue is with regard to allowability of write off of bad debts at Head Office against provisions [technical write-off] of bad debts of 393,76,00,000/- under section 36(1)(vii) of the Act. Since bad debts are allowable expenditure, the issue raised in the appeal of the assessee for the assessment year 2007-08 and has been considered and decided in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee strongly supported the order passed by the ld. CIT(A). 142. We have considered the rival submissions. Before the Assessing Officer, the assessee, vide its letter dated 15.12.2011, has submitted that based on its appreciation of the situation, estimated the liability and made a provision for wage arrears of 173 crores during the financial year 2008-09. Further, it was submitted before the Assessing Officer vide their letter dated 21.12.2011 that the provision for wage arrears has been made by the Bank for the services that has been already rendered. The liability to pay remuneration is an ascertained event and only the quantification of such liability is estimated. Further, vide letter dated 29.12.2011, it was submitted before the Assessing Officer that the Bipartite agreement was on wages expired on 31.10.2007 paving the way for fresh negotiations for 9th Bipartite agreement by which revised wages are to be from 01.11.2007. As payment of revised wages was certain from 01.11.2007, the bank started providing for wages as it is a certain liability to be paid. The Assessing Officer has observed that the bipartite wage pact was signed by Indian Bank associations on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. 144. In the result, the appeal of the Revenue for the assessment year 2009-10 is dismissed. I.T.A. No. 2126/Mds/2014 [A.Y. 2010-11] 145. The first ground raised in the appeal of Revenue is general in nature and requires no adjudication. 146. The second ground raised in the appeal of the Revenue is with regard to allowability of write off of bad debts at Head Office against provisions [technical write-off] of bad debts of 377,05,00,000/- under section 36(1)(vii) of the Act. Since bad debts are allowable expenditure, the issue raised in the appeal of the assessee for the assessment year 2007-08 and has been considered and decided in favour of the assessee from para 41 to 45 of this order. Accordingly, the ground raised in the assessment year 2010-11 by the Revenue is dismissed. 147. The third ground raised in the appeal of the Revenue is with regard to broken period interest amounting to 28,44,86,869/- on the purchase of securities. Similar ground was raised by the assessee in the assessment year 2007-08 in I.T.A. No. 880/Mds/2010 and we have decided the issue in favour of the assessee from para 46 to 49 of this order. Accordingly, for the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive transactions and directed the Assessing Officer to consider the losses from the derivative contracts as regular business losses and allow their set off against other business profits of the assessee. 153. Aggrieved, the Revenue is in appeal and the ld. DR has submitted that the notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income. On the other hand, the ld. Counsel for the assessee supported the order passed by the ld. CIT(A). 154. We have considered rival submissions. The point at issue before us is whether the losses from the derivative contracts amounts a speculative transaction or not? The Assessing Officer has observed that the derivative transactions are speculative transactions under section 43(5) of the Act and the resulting losses are speculative losses. On appeal, the ld. CIT(A), by reproducing relevant provisions of section 43(5) of the Act, has observed that for the purpose of sections 28 to 41 (i.e., under the head income from business or profession) means the contracts of purchases or sales of any (i) shares and stocks, and (ii) commodities periodically or ultimately settled otherwise than by the actual d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matured forward foreign exchange contract was considered by the Hon'ble Special Bench of ITAT, Mumbai in the case of DCIT v. Bank of Bahrain and Kuwait, 41 SOT 290 wherein it was held as below:- 58. In view of the above discussion, we allow the assessee's appeal for the following reasons:- (i) A binding obligation accrued against the assessee the minute it entered into forward foreign exchange contracts. (ii) A consistent method of accounting followed by assessee cannot be disregarded only on the ground that a better method could be adopted. (iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward foreign exchange contract as per the rate prevailing on March 31. (iv) A liability is said to have crystallized when a pending obligation on the balance sheet date is determinable with reasonable certainty. The considerations for accounting the income are entirely on different footing. (v) As per AS-11 when the transaction is not settled in the same accounting period as that in which it occurred the exchange difference arises over more than one accounting period. (vi) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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