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2016 (4) TMI 572 - ITAT CHENNAI

2016 (4) TMI 572 - ITAT CHENNAI - TMI - Disallowance of draft payable more than 3 years - Held that:- Respectfully following the above decision of the Hon'ble Kerala High Court in the case of Catholic Syrian Bank ltd. v. Addl. CIT (2013 (4) TMI 140 - Kerala High Court), we are of the opinion that the amount of stale drafts found in the hands of the assessee cannot be treated as liability or provision for liability and it cannot be carried on for indefinite period and it has to be treated as inco .....

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unt of donation is allowed at 50% i.e., ₹ 1,50,000/- only. He also observed that since the deduction is required to be considered under Chapter VIA separately, the entire amount of ₹ 5,51,690/- is required to be added back and ₹ 1,50,000/- to be allowed as deduction. Since the assessee bank itself has added ₹ 3,00,000/- only in the computation memo, the Assessing Officer has added back the balance amount of ₹ 2,51,690/-. On appeal, the ld. CIT(A) confirmed the addit .....

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g reply to the specific query raised by the Bench. In view of the above, we find no infirmity in the order passed by the authorities below and accordingly, the ground raised by the assessee is dismissed.

Disallowance u/s 36 - working out of allowable deduction - treatment to amount advanced by the rural branches of the bank - Held that:- Intention behind the introduction of section 36(1)(viia) was to encourage rural advances and to aid creation of the provision for bad debts in relati .....

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to section 36(1)(vii) apply only in respect of rural debts. in view of the option exercised by the assessee that it can claims deduction on doubtful debts as per option (b) i.e. 7.5% of Gross Total Income and 10% of aggregate average rural advances, the Assessing Officer has rightly worked out the allowable deduction, which is less than that of the provision made by the assessee as doubtful debts, allowed the deduction of bad debts for all assessment years and remaining balance was brought to ta .....

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a merchant banker. Registering with SEBI is only to identify the person who is dealing in securities. Therefore, in our opinion, the subscription to SEBI will not give any enduring benefit to the assessee. In our opinion, the fee paid by the assessee is only a fee paid to a regulatory authority, therefore, it is a revenue expenditure. By the payment of fee to SEBI, the assessee is not getting any capital asset. Therefore, in our opinion, the subscription made to SEBI has to be allowed as revenu .....

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nt years as stated above. Since all the appeals pertain to same assessee and heard together, are being disposed of by this common order for the sake of convenience. First we shall take up common grounds raised by the assessee in its appeal for adjudication. Validity of reopening of assessment for the assessment years 2000-01, 2001-02, 2002-03 and 2004-05 in I.T.A. Nos. 1620, 1206, 1208 and 1209/Mds/2014: 2. Brief facts of the case are that the assessee is in the business of banking and filed its .....

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e ld. CIT(A), vide its order dated 30.03.2005 remitted some of the issues for fresh consideration of the Assessing Officer in view of the specific details filed afresh by the assessee before him and same was directed the Assessing Officer to decide the matter in the light of the new facts. On further appeal before the ITAT, the Tribunal vide its order dated 13.10.2006 set aside one issue and restored to the file of the Assessing Officer for deciding the issue de novo. 3. Thereafter, the assessme .....

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the Assessing Officer passed the reassessment order under section 143(3) r.w.s. 147, 250 and 254 of the Act on 31.12.2007. 4. On appeal before the ld. CIT(A), the assessee has raised various grounds including reopening of the assessment beyond the period of 4 years. After considering the submissions of the assessee, the ld. CIT(A), some of the grounds raised by the assessee are allowed and also sustained the additions made by the Assessing Officer and partly allowed the appeal of the assessee. 5 .....

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assessment year 2000-01, 2001-02, 2002-03 and 2004-05 is dismissed as not pressed. 7. The next common ground raised in the appeals of the assessee for the assessment years 1997-98, 1998-99 and 2000-01 relates to interest paid to SIDBI and NABARD. In the assessment year, the disallowance was made for the reason that the expenditure claimed is not related to the accounting period in question and section 43B does not apply for the above reason. Under section 43B, if the assessee incurs a liability .....

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t change of figures, the facts are similar for the assessment year 1998-99 and 2000-01. 8. On appeal, the ld. CIT(A) remitted the back to the Assessing Officer and directed to verify the sanction letters, agreements with the above organizations to find out whether the assessee has incurred the liability during the accounting period in question or not and allow the same as per law. 9. Aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee has submitted that .....

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n its common order in assessee's own case for the assessment years 2004- 05, 2007-08 & 2008-09 in I.T.A. Nos. 1401, 1402 and 1403/Mds/2012 dated 22.03.2013, considered similar issues and decided as under: 17. Grounds No. 7 and 8 relate to addition made by the Assessing officer and confirmed by the CIT(A) qua interest paid by the assessee to SIDBI and NABARD. Relevant facts of these grounds are that in course of the assessment, the assessee had claimed expenditure of ₹ 5,50,329/- an .....

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ascertained and became payable before the closure of the relevant accounting period. However, in the assessment order and after placing reliance on the case law of ED Sasun & Co vs. CIT 69 ITR 237 (SC), the Assessing Officer made disallowance and held that due date of 1st May (supra) would fall after the closure of the assessment year on 31.03.2004, the amount in question could not be deducted from the income of the impugned assessment year. 19. In assessee's appeal, the CIT(A) has also .....

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at they have accrued before the due dates prescribed by the Act. Even in mercantile system, the expenses claimed only the due dates. The due date is falling after the previous year. Therefore the amount has not become due. Hence the Assessing Officer has held that the amount payable for the next year cannot be reduced from the total income from the year under consideration 2004-05. Therefore this is added back following the decision of the Supreme Court in the case of ED Sasun & Co Vs CIT 69 .....

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the interest had accrued and certain in the previous year relevant to the impugned assessment year. In the alternative, it also raises a contention that it would have no objection even if the amount is allowed for deduction in the year of actual payment. In reply, the revenue also acts very fairly before us and does not object to assessee's latter contention. 21. We have heard both parties and gone through the relevant contents of assessment order and that of the CIT(A). The fair submission .....

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e ld. DR has also fairly conceded that the issue is covered by the above decision of the Tribunal, we hold that the payment of interest payable to SIDBI and NABARD on 1st May would be allowed to be deducted in the year of actual payment. Accordingly, the ground is partly allowed for statistical purposes for all the assessment years under appeal i.e. assessment years 1997-98, 1998-99 and 2000-01. 13. The next common ground raised in the appeals of the assessee for the assessment years 2000-01, 20 .....

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approximately 10 years. The assessee has recovered the entire cost of leased asset along with interest in 6 years. The Assessing Officer has observed that the assessee has amortised the total depreciation available for the asset during its life time [10 years] over a period of six years itself under the head lease equalization charges. Before the Assessing Officer, the assessee has contended that it follows the guidance note of the Institute of Chartered Accountants of India and accordingly cla .....

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is in appeal before the Tribunal and the ld. Counsel for the assessee strongly relied on the decision in the case of CIT v. Virtual Soft Systems Ltd. 341 ITR 593 (Delhi) and also in the case of CIT v. Indian Railway Finance Corporation Ltd. 362 ITR 548 (Delhi) and submitted that the lease equalization charges should not be disallowed. 16. On the other hand, the ld. DR supported the orders of authorities below. 17. We have heard both sides, perused the materials on record and gone through the or .....

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rs itself under the head lease equalization charges and held that none of the provisions of sections 32 to 43C of the Act provides for any deduction of lease equalization charges and accordingly disallowed a sum of ₹ 20,40,000/-. The ld. CIT(A) confirmed the disallowance made by the Assessing Officer. However, we are of the opinion that while allowing the deduction of account of lease equalization charges for the purpose of computing total income under the Income Tax Act, the difference be .....

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"We have considered the rival submissions and also perused the relevant material available on record. We have also gone through the guidance note issued by ICAI explaining the concept of lease equalization with the illustration. The said guidance note is basically issued for the purpose of accounting and the concept of lease equalization, as mentioned therein, is based on the rationale of matching cost with revenue so that the periodic net income from the finance lease is determined in a t .....

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is credited to the P&L account as lease equalization. Similarly, if the depreciation claimed on the leased asset is less than the corresponding annual lease, P&L account is debited by lease equalization charges equivalent to the difference amount. Consequently, the finance charges, which is the actual income from the leased transaction, is recognized as revenue and the difference between the depreciation and annual lease charge is debited or credited to the P&L account so as to nulli .....

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es Act and if such depreciation claimed is more or less than the corresponding annual lease charge representing recovery of investment in the leased asset over the lease term, the difference is adjusted in the form of lease equalization based on the rationale of matching cost with the revenue so that the resultant income from the leasing is true and fair. The concept of lease equalization thus is basically an accounting concept and the same is followed for the purpose of revenue recognition of l .....

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tions are treated as finance lease and the assessee is allowed depreciation after having found him the owner of the leased assets, the depreciation allowed as per the rates prescribed in the Income Tax Act could be more than the depreciation claimed by the assessee in its books of account at the rate prescribed under the Companies Act. For example, the assessee may be entitled to claim depreciation at 100% on the leased assets in the first year itself under the income Tax Act whereas in the book .....

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x Act in addition to 100% depreciation already allowed, the assessee will get deduction of 120% of the value of asset in the first year itself and the very purpose of adopting the concept of lease equalization based on the rationale of matching cost with the revenue would be defeated. This will result in absurdity and give misleading results. In our opinion, it is therefore necessary that while allowing deduction on account of lease equalization charges for the purpose of computing total income .....

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ization charges based on the figures of the depreciation on the leased assets allowed as per the income Tax Act which the A.O. shall verify and allow the claim of the assessee for deduction on account of lease equalization charges based on such verification in accordance with law. In the result, appeals of the assessee are treated as allowed for statistical purpose." 18. Respectfully following the above decision of the Mumbai Benches of the Tribunal, we remit the matter back to the Assessin .....

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nses and annual general body meeting. The assessee was asked to explain as to how the expenditure is fully allowable. Vide its letter dated 26.12.2007, the assessee has submitted as under: "The bank is conducting deposits mobilization month every year at festival/harvest times to tap the additional flow of money by way of bonus/sale proceeds. During this period, in order to give more thrust for mobilization of deposits, the branches are permitted to incur expenses towards printing of pamphl .....

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nd no part thereof is in the nature of entertainment expense. The tribunal also vide its order ITA No: 1161(Mds)/95 dated 22.05.2003 for the assessment year 1991-92 has allowed these expenses stating that they are not in the nature of entertainment expenditure. Similarly in respect of Annual General Meeting expenses, the bank has incurred the expenditure for conducting the Annual General Meeting and accounted under separate sub-head under miscellaneous expenses for monitoring. No part of this ex .....

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he General Meeting expenses of ₹ 1,16,129/- are in the nature of entertainment expenses. Therefore, the Assessing Officer, after due verification of the vouchers, determined the amount of disallowance under section 37(2A) of the Act and disallowed ₹ 1,19,408/- i.e. 50% of total expenses [Rs.1,22,686 + ₹ 1,16,129 = 2,38,815]. 21. The assessee carried the matter in appeal before the ld. CIT(A) and the ld. CIT(A) confirmed the addition made by the Assessing Officer. 22. On being a .....

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d order of the Tribunal in assessee's own case for the assessment years 1990-91 & 1991-92 in I.T.A. Nos. 1161 & 1162(Mds)/95 vide order dated 22.05.2003, wherein the Tribunal had held as under: "6. For the assessment year 1991-92 the claim is with regard to disallowance of 50% of deposit mobilisation expenses treating them as entertainment in nature. This issue has been come up before the Tribunal in the case of the assessee for the assessment year 1984-85 and the Tribunal vide .....

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e decision of the Tribunal in the assessment year 1991-92 in assessee's own case, we reverse the order of the ld. CIT(A) on this issue and direct the Assessing Officer to delete the addition. Accordingly, the ground raised by the assessee is allowed. No other ground has been raised in the appeal of the assessee for the assessment year 1997-98 except additional ground raised and the same is adjudicated herein above at para No.12 along with other assessment years. 26. The next issue raised in .....

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ave, the Assessing Officer has held that it is only a contingent liability and not a certain liability and accordingly disallowed ₹ 1,46,85,272/- and added back to the income of the assessee. 27. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 28. The assessee carried the matter in appeal before the Tribunal. The ld. Counsel for the assessee has prayed that the matter may be remitted back to the Assessing Officer for fresh consideration and relied on the .....

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im the said amount and how many employees wanted to simply encash the leave, etc. In the absence of the above particulars, the Assessing Officer has considered the same as contingent liability against the claim of the assessee as certain liability. It is a fact that leave salary is payable only when a person goes on leave and during the period of leave, the salary paid to him is known as leave salary. It cannot be ascertained with any certainty whether in a particular year, the employee would go .....

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contingent liability and rightly disallowed the claim of the assessee, which was confirmed by the ld. CIT(A). 30. Before us, the ld. Counsel for the assessee has relied on the decision in the case of DCIT v. Ernst and Young P. Ltd. (supra), wherein, the assessee made provision for leave encashment on the basis of actuarial valuation and sought deduction thereof. The Kolkata Benches of the Tribunal has set aside the matter for fresh adjudication. The provisions of section 43B(f) of the Act had be .....

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ospective and it is prospective. Therefore, the case law relied on by the ld. Counsel for the assessee has no application since the present appeal pertains to assessment year 2001-02. Under the above facts and circumstances, the ground raised by the assessee is dismissed. 31. The only issue raised in the appeal of the assessee in the assessment year 2001-02 [in I.T.A. No. 1207/Mds/2014] is with regard to confirmation of disallowance of ₹ 45,09,991/- under section 14(A) of the Act. The Asse .....

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hould be some expenditure in form of travel telephone, postage, stationery and manpower must have been involved in earning income which is exempt under Income tax Act. Thus the Assessing Officer has disallowed, 2% of the exempted income under section 14A r.w. Rule 8D to meet the requirement of section 14A of the Act. Before the ld. CIT(A), the AR of the assessee argued that the entire expenditure is towards indivisible of banking and purchase and sale securities, no part of expenditure can be sa .....

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the lower authorities. Since the ld. CIT(A) has decided the above issue in view of the direction of the Coordinate Bench of the Tribunal in assessee's own case for the earlier assessment year, which was duly agreed upon by the assessee, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the assessee is dismissed. 32. No other ground has been raised in the appeal of the assessee for the assessment year 2001-02 in I.T.A. No. 1207/Mds/2014 and accordin .....

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12,795/- was added back to the income of the assessee. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer. The ld. Counsel for the assessee has not argued anything as to how the expenditure incurred towards EPABX is not capital expenditure. In view of the above, we confirm the order of the ld. CIT(A) on this issue and dismiss the ground raised by the assessee. 34. The next issue raised in the appeal of the assessee for the assessment year 2004-05 in I.T.A. No.1209/Mds/2014 i .....

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premium amount was permitted to be amortised for the period remaining to maturity. The Assessing Officer has also noticed that the since HTM category of securities are treated as capital in nature and is to be shown in the books of accounts at cost as per accepted accounting practices, there is no question of allowing deduction for the difference in the amount of cost and the face value of the securities for income tax purposes. Therefore, the claim of the assessee relating to amortization expen .....

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hearing both sides, we find that the Coordinate Bench of the Tribunal, in the case of DCIT v. City Union Bank Ltd. in I.T.A. No 935/Mds/2010 & others, has observed and held as under: "48. Brief facts of the case are that the Assessing Officer made addition towards amortization expenses observing that amortization expenses was to be treated like interest on purchase of securities. Therefore, he held that the said amount was to be capitalized and added to the income of the assessee. 49. .....

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ct wherein the market price charged from the value shown in the opening balance and at the end of the year, the same could be allowed as depreciation. Therefore, this ground of appeal of the Revenue is dismissed in all the years under consideration." 38. Respectfully following the above decision of the Coordinate Bench of the Tribunal, wherein, the decision of the Hon'ble Jurisdictional High Court has been followed, we decide the issue in favour of the assessee. Accordingly, the ground .....

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rities at the end of earlier previous year. The Assessing Officer has observed that if the difference was positive, then as per case I above (para 4, page 8 of the order), the difference was claimed as depreciation for the year and if the difference between the two figures was negative, then as per Case II, the difference was offered as income in the form of 'appreciation'. For the impugned assessment year 2004-05, cumulative depreciation worked out by the assessee as on 31.03.2004 was & .....

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has been reduced from the opening balance of cumulative depreciation as on 31.03.2003. In the absence of any details as to what investment was sold and whether it was of HTM category or of AFS & HFT category and in which assessment year and how this loss arose, the Assessing Officer has disallowed the loss claimed in the form of depreciation and added back to the income of the assessee. 40. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 41. Before us, th .....

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e third question of law raised by the Revenue is "whether the Tribunal was right in holding that the loss on sale of security incurred by the assessee bank was allowable as revenue loss ignoring the fact that loss on sale of securities categorised as 'permanent assets' 'cannot be treated as business loss". As far as this question of law is concerned, here again, the question arises in respect of the sale made by the bank in respect of Government securities and if any loss i .....

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he main question has already been decided following the Hon'ble Supreme Court decision that such securities are stock-in-trade and loss of Government security transfer would only amount to revenue expenditure and the Tribunal was right in holding the same following the decision of this Court. Hence this question of law is also answered against the Revenue." 43. Respectfully following the above decision of the Hon'ble Jurisdictional High Court (supra), we delete the disallowance made .....

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ties during the year would be capital expenditure which is not allowable from the profit earned by the assessee. On appeal, the ld. CIT(A) confirmed the findings of the Assessing Officer. Before us, the ld. Counsel for the assessee has submitted that the issue is covered in favour of the assessee by the decision in the case of CIT v. The Karur Vysya Bank Ltd. in T.C.(A) No. 2139 of 2008 order dated 13.07.2009 and prayed that the same should be followed in the present case. 45. After hearing both .....

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s capital expenditure and not as revenue expenditure". As far this question of law is concerned, the main contention raised by various parties in respect of the Government securities held by the banks are to be treated as stock-in-trade, came up for consideration before this Court and this Court in the decision reported in (2005) 273 ITR 510 (Mad) (supra), by following the decision of the Hon'ble Supreme Court reported in (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) (supra), held t .....

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diture disregarding the principle that the interest paid on charge of investments categorised as 'permanent' is to be treated as capital expenditure and not as revenue expenditure. The Department's contention that the interest paid on charges of investments cannot be treated as revenue expenditure is not now available when the very Government securities itself is treated to be stock-in-trade as per the decision of this Court. Whatever expenses incurred or interest paid therein on suc .....

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Therefore, this question is also answered against the Revenue and in favour of the assessee following the above decisions of this Court and the Hon'ble Supreme Court." 46. Respectfully following the above decision of the Hon'ble Jurisdictional High Court (supra), we delete the disallowance made by the Assessing Officer and allow the ground raised by the assessee. 47. The next issue raised in the appeal of the assessee for the assessment year 2004-05 in I.T.A. No.1209/Mds/2014 relat .....

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more than five years) for construction or purchase of houses in India for residential purposes, not exceeding 40% to such reserve, so it was eligible for deduction under clause (viii) to sub-section (1) of section 36 of the Act. Before the Assessing Officer, the assessee has claimed that it is a public company which is engaged in the business of providing long term finance for purchase of residential houses in terms of Companies Act, 1956. However, the Assessing Officer has observed that the ass .....

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anking companies have been taken out of the purview of the Indian Companies Act for regulation purposes and direction and guidelines issued by the RBI have precedence over the provisions of the Companies Act applicable to the Banking Companies. The banks are deemed to be banking companies and they may not be registered under the Companies Act. Since the clause (viii) to sub-section (1) of section 36 of the Act has been amended by Finance Act, 2006 w.e.f. 01.04.2007 and later substituted ibid w.e .....

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he ld. Counsel for the assessee has submitted that since the Assessing Officer has held that the deduction was allowable to financial corporation and not to banks, the "Financial Corporation" includes 'public company' and the assessee being a public company with the meaning of section 3 of the Companies Act, the ld. Counsel for the assessee has contended that the assessee is eligible for claiming deduction under section 36(1)(viii) of the Act. 50. Both parties have been heard. .....

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Finance Act, 2007. It is a fact that the legislature included banking company for the first time from 01.04.2008 clearly shows that prior to this enactment, the term public company did not include the banking company. In view of the above, the present appeal preferred by the assessee pertains to the assessment year 2004-05, where, the banking companies are not included as public company for the purpose of claiming any deduction on par with public companies including the claim of deduction under .....

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t as interest. Before the Assessing Officer, the AR of the assessee argued that when the pledged jewels were sold, the surplus, after adjusting the amount due to the bank from the borrowers was shown under "other liabilities". However, the Assessing Officer added this on the ground that the surplus belonged to the assessee. On appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer. Before us, the ld. Counsel for the assessee has submitted that the issue is squarely .....

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td. v. Addl. CIT (supra) has held that any surplus cannot be treated as a liability when the assessee has no case that it is payable to anybody or it is a liability due from the assessee to any person. 53. Following the same analogy, we are of the opinion that the sale of surplus towards sale of jewellery found in the hands of the assessee cannot be treated as liability or provision for liability and it cannot be carried on for indefinite period, when there is no possibility of any one claiming .....

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8,53,257/- as entertainment expenditure and claimed the same for business purpose. The Assessing Officer has observed that the assessee has not produced vouchers for the above expenses and therefore, disallowed 5% of the expenditure claimed at ₹ 92,691/-. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Before us, the ld. Counsel for the assessee has submitted that the expenditure incurred by the assessee is wholly and exclusively for the purpose of busin .....

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01, 1402 & 1403/Mds/2012 has observed and held as under: 43. Now, we come to ground No. 3 raised by the assessee. In the course of assessment proceedings for the impugned assessment year, it had claimed entertainment expenditure's deduction involving an amount of ₹ 20,93,720/- . Its clarification in support was that for the purpose of business's promotion and canvassing, the sum had been incurred for serving tea, coffee etc. to the customers, which are "wholly and exclusiv .....

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es the instant ground. 44. In the course of arguments, the assessee would reiterate the pleadings in the grounds which in turn are vehemently opposed by the Revenue. 45. We have heard both parties and perused the assessment order as well as CIT(A)'s order. Admittedly, the entertainment expenses in question @ 95% stand accepted by both authorities below. In other words, the expenses stand accepted in part and disallowed @ 5% by the Assessing Officer and CIT(A) merely on presumption (supra). I .....

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spectfully following the above decision of the Tribunal, we delete the addition made by the Assessing Officer and allow the ground raised by the assessee. 57. The first ground raised in the appeal of the assessee for the assessment year 2006-07 in I.T.A. No. 1621/Mds/2014 is with regard to validity of reopening of assessment not considered by the ld. CIT(A). The facts of the case are that the assessee has filed return of fringe benefit for the assessment year 2006-07 on 04.12.2006 offering a fri .....

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, the AR of the assessee appeared before the Assessing Officer on 25.01.2012 and submitted the details called for. After examination of the details furnished by the assessee and after duly considering the reply furnished by the bank on 28.02.2012 to the additions proposed by the Assessing Officer vide his letter dated 27.01.2012, the assessment under section 115WG r.w.s. 115WE(3) of the Act was completed on 29.02.2012 by assessing the value of fringe benefits at ₹ 6,61,93,544/-. Before the .....

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f the assessment beyond the time limit. In view of the above, we set aside the order passed by the ld. CIT(A) and remit the matter back to the ld. CIT(A) to decide first the issue of validity of reopening of assessment under section 115WE(3) beyond the time limit in accordance with law after allowing opportunity of hearing to the assessee. In view of the above, since the ld. CIT(A) is required to be adjudicated the issue of validity of reopening of assessment, the issue of addition made towards .....

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grounds of appeal relating to the applicability of section 115JB to the appellant. 2. The appellant submits that section 115JB is applicable only to the assessee company preparing the profit & loss account and balance sheet in accordance with the schedule VI of the Companies Act and that it is preparing the profit & loss account and balance sheet in accordance with Banking Companies Regulation Act and that therefore section 115JB is not be applicable to the appellant bank. 3. The appell .....

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e provisions relating to the book profits are applicable only in case of companies preparing the balance-sheet in accordance with Schedule VI of the Companies Act, 1956. However, the assessee, being a Scheduled Bank, prepares the income return as per the Banking Regulations Act and not as per Companies Act. Therefore, it was submitted that the provisions relating to book profits are not applicable to the assessee bank. We find force in the arguments of the ld. Counsel for the assessee. On carefu .....

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by the assessee is allowed for statistical purposes. 61. The next ground raised in the appeal of the assessee for the assessment year 2009-10 in I.T.A. No.1622/Mds/2014 relates to confirmation of disallowance of draft payable more than 3 years. In the assessment order, the Assessing Officer has noticed in the balance sheet of the assessee that for the assessment year 2009-10, there is an outstanding liabilities of ₹ 2,44,19,929/- towards draft payable more than 3 years, etc. This account .....

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than 3 years, the Assessing Officer, by following the decision in the case of TV Sundaram Iyengar & Sons 222 ITR 344 (SC) , the Assessing Officer has worked out the outstanding liabilities during the relevant previous year at ₹ 20,19,246/- by reducing the total outstanding liabilities of ₹ 2,44,19,929/-. Since the assessee bank could not come up with even a single case where such payment was made out of the stale draft account, the outstanding liabilities worked out at ₹ 20 .....

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order dated 08.07.2011, wherein, the Tribunal, by following its own order in assessee's own case for the assessment years 2001-02 and 2002-03, decided the issue against the Revenue only on the ground that the decision of the Tribunal was not reversed by any higher forum. However, on similar facts and circumstances, the Hon'ble Kerala High Court in the case of Catholic Syrian Bank ltd. v. Addl. CIT [2012] 349 ITR 569, has observed and held as under: "2. The next question pertains to .....

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e to any person. We do not find any question of law arising from the decision of the Tribunal on this issue wherein the finding recorded is that the amount does not represent liability and it is wrongly shown by the assessee as liability Even though the counsel for the appellant has relied on the decision of the Bombay High court in CIT v. Bank of Rajasthan Ltd. reported in [2010] 326 ITR 526 (Born) ; [2010] 40 DTR (Born) 173, what we notice is that unlike in this case cash found is not excess c .....

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view, the Tribunal rightly rejected the claim of the assessee at least in respect of the arrears carried over for several years. However, we feel that the excess found during the previous year need not be treated as income and can be treated as surplus in the suspense account for three years to meet a liability in the event of any claim being made. We, therefore, confirm the finding of the Tribunal on this issue in respect of arrears brought forward except ₹ 95,000 which is found in the pr .....

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tale drafts at any time in future, the same has to be claimed as expenditure. With this observation, we dismiss the ground taken by the assessee. 64. The next grounds raised in the appeal of the assessee for the assessment year 2009-10 in I.T.A. No. 1622/Mds/2014 is with regard to surplus on sale of jewellery and appreciation in value of securities. At the time of hearing, the ld. Counsel for the assessee has not pressed both the issues and accordingly, both the issues raised in the grounds of a .....

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as debited to the profit and loss account an amount of ₹ 5,51,690/- towards donation. The assessee bank has produced receipt to the extent of ₹ 3,00,000/- only. The Assessing Officer has observed that deduction on account of donation is allowed at 50% i.e., ₹ 1,50,000/- only. He also observed that since the deduction is required to be considered under Chapter VIA separately, the entire amount of ₹ 5,51,690/- is required to be added back and ₹ 1,50,000/- to be allowe .....

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in view of the CBDT circular. If it is so, what prevented the assessee bank to claim the same under 'advertisement charges' rather than claiming it as 'donation'. The ld. Counsel for the assessee has not able to give any convincing reply to the specific query raised by the Bench. In view of the above, we find no infirmity in the order passed by the authorities below and accordingly, the ground raised by the assessee is dismissed. Interest under section 234B of the Act [A.Y. 2000- .....

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nd 234D] is with regard to charging of interest under section 234B and 234D of the Act 68. In the assessment order, the Assessing Officer has levied interest under section 234B of the Act and the details are as under: A.Y. 2000-01 A.Y. 2001-02 A.Y. 2002-03 A.Y.2004-05 Tax payable before giving credit to Advance Tax and TDS as per assessment order 13,75,63,199 14,67,44,676 18,90,00,959 31,84,23,312 Advance tax and TDS 15,12,23,703 16,34,87,500 19,15,41,688 20,55,74,359 Refund due 1,36,60,504 1,67 .....

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low the ground raised by the assessee in the above assessment years. 70. However, for the assessment year 2004-05, though the TDS and advance tax and paid by the assessee is less than the tax payable by the assessee, while deciding the appeal of the assessee, the appeal of the assessee was partly allowed and. Accordingly, the Assessing Officer is directed to rework and levy the interest chargeable under section 234B of the Act while giving effect to the order of the Tribunal. Accordingly, the gr .....

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cer went in wrong to charge the interest under section 234C of the Act after assessing the income of the assessee instead of charging the interest on income returned. Accordingly we direct the Assessing Officer to rework the interest under section 234C of the Act on the income returned instead of charging the interest of assessed income. Thus, the ground raised by the assessee is allowed for statistical purposes. 72. With regard to charging of interest under section 234D of the Act is concerned, .....

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nt year 2001-02, the assessment under section 143(3) of the Act was completed on 30.03.2004 and thereafter, the assessment was reopened under section 147 of the Act and completed the assessment under section 143(3) r.w.s. 147 of the Act on 31.12.2007. Similarly, for the assessment year 2002-03, the assessment under section 143(3) of the Act was completed on 30.03.2004 and thereafter, the assessment was reopened under section 147 of the Act and completed the assessment under section 143(3) r.w.s. .....

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ssment has already been completed under section 143(3) of the Act and reassessment was done under section 147 of the Act , the same would not be held as regular assessment and thus the interest under section 234D of the Act could not be levied on the assessee in an assessment completed under section 143(3) r.w.s. 147 of the Act. Accordingly, keeping in view of the above decision of the Coordinate Bench of the Tribunal, we set aside the order of the ld. CIT(A) on this issue and delete the interes .....

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e Act, being consequential, the Assessing Officer is directed to rework the actual interest leviable under section 234D afresh in view of our decision in the appeal of the assessee for the assessment year 2009-10 in I.T.A. No. 1622/Mds/2014. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. 74. With regard to charging of interest under section 220 of the Act for the assessment years 2001-02 and 2002-03 in I.T.A. Nos. 1206 & 1208/Mds/2014 and is concerned .....

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the Hon'ble Supreme Court that (page 826): "It is settled principle in law that the courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act for Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process courts must adhere to the words of the statute an .....

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ction 220(2) of the Act for the period when there is no demand outstanding. In the present cases also the demand arises from the order passed under section 154/251/143(3) of the Act, whereby, various additions have been made in the reassessment order. That means the Assessing Officer has to recompute the interest under section 220(2) of the Act in terms of the above. The Assessing Officer is directed accordingly. The ground raised by the assessee for the assessment years 2001-02 and 2002-03 is a .....

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ssessment years 2004-05, 2006-07, 2007-08 and 2008-09, the ld. DR has submitted that the jurisdictional Assessing Officer was deputed to attend training at DTRTI, Chennai and was also deputed for search operation conducted by the Investigation Wing and also part of a survey operation conducted by the Department. It was, therefore, submitted that the delay in filing the appeals may be condoned and prayed that the appeals may be admitted for hearing. The ld. Counsel for the assessee has not object .....

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made by the Assessing Officer towards software expenses incurred by the assessee. In the de novo assessment, the Assessing Officer, by following the directions of the Tribunal, re-examined the issue of software expenses and concluded that there is an enduring benefit on the software acquired for the business and treated it as capital expenditure and sustained the disallowance made in the original order under section 143(3) of the act. During the course of appellate proceedings, the AR of the as .....

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ision in the case of CIT v. Southern Roadways Ltd. 304 ITR 84 (Mad), wherein, it was held that the expenditure incurred by the assessee on computer software packages were revenue expenditure; and also by following the decision of CIT v. Varinder Agro Chemicals Ltd. 309 ITR 272 (P&H), the ld. CIT(A) deleted the addition made by the Assessing Officer. 78. On being aggrieved, the Revenue is in appeal before the Tribunal and the ld. DR has relied on the order of the Assessing Officer. 79. After .....

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8 and 2008-09, the Coordinate Bench of the Tribunal, by following assessee's own case for the assessment year 2005-06 in I.T.A. No. 612/Mds/2011, held that the software expenses incurred were in the nature of revenue expenditure. By taking consistent view, we hold that the software expenses incurred are in the nature of revenue expenditure. Therefore, we find no infirmity in the order of the ld. CIT(A). Accordingly, the ground raised by the Revenue in all the above assessment years is dismis .....

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ent has been omitted by the Finance Act, 2001 w.e.f. 01.06.2001. 81. With regard to the issue of disallowance of software expenses, various Courts and Tribunal have held that the same are in the nature of revenue expenditure and for other assessment years, we have also considered the issue and decided against the Revenue at para 80 of this order. Accordingly, for the assessment year 2000-01 also, the ground raised by the Revenue is dismissed. 82. With regard to the power of ld. CIT(A) to set asi .....

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001-02 onwards. The present appeal in hand relates to the assessment year 2000-01 and the amendment made in the Finance Act, 2001 clearly indicates that it is not retrospective, but only prospective i.e., from 01.06.2001. Accordingly, the ground raised by the Revenue stands dismissed. 83. The next common ground raised in the appeal of the Revenue I.T.A. No.1364/Mds/2014 [A.Y.1997-98], I.T.A. No.1365/Mds/2014 [A.Y. 1998-99], I.T.A. No.246/Mds/2014 [A.Y. 2006-07], 247/Mds/2014 [A.Y.2007-08] & .....

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urban debts, when written-off, were allowable under section 36(1)(vii) and the provision made under section 36(1)(viia) need not be considered. It was further submitted before the ld. CIT(A) that the amount written off were only urban debts and that, rural debts were not included and therefore, the deduction was allowable. The ld. CIT(A), after considering the submissions of the AR of the assessee and keeping in view of the decision and other facts, held that the deduction claimed by the assesse .....

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e assessee(s) is eligible for deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) which limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) of Income Tax Act, 1961 ("ITA" for short)? 2. Under Section 36(1)(vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the computation of taxable profits, of the amount of any debt which is establish .....

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a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debt(s) relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubt .....

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llowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actual write off under cl .....

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in the objection raised by the Revenue. Firstly, CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account of actual write off would be limited to the exces .....

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ies only to rural advances. This has been explained by the Circulars issued by CBDT. Thus, the proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii). 3. Accordingly, the ab .....

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in the appeal of the Revenue in I.T.A. Nos. 245, 246, 247 & 248/Mds/2014 [A.Y. 2004-05, 2006-07, 2007-08 & 2008-09] is with regard to allowability of deduction under section 36(i)(viia) of the Act. In the following assessment years, the Assessing Officer has made disallowance against the claim of deduction under section 36(i)(viia) of the Act. A.Y. Claimed in the return Allowed by the AO Disallowance made by the AO 2004-05 22,20,00,000/- 4,52,90,296/- 17,67,09,704/- 2006-07 8,22,82,529/- .....

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erage advance made by the rural branch of the bank during the year. Deduction is available for the provision for bad and doubtful debt made in respect of incremental advances made by the rural branches during the year. The ld. CIT(A) has observed that the Assessing Officer has interpreted the Act and restricted the deduction under section 36(i)(viia) to the average advances made by rural branch of the bank during the year. By following the decision of the Coordinate Bench of the Tribunal in asse .....

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2004-05 in I.T.A. No. 245/Mds/2014. In the assessment order, the Assessing Officer has observed as under: 3. Allowable Deduction u/s 36(1)(viia): In the assessment order dated 29.12.2006, the AO disallowed the entire claim of deduction u/s 36(1)(viia), since the assessee did not provide details of provision created for bad and doubtful debts, proof of the population places where the rural branches are located, monthly average aggregate advances outstanding balances etc. The CIT(A) deleted the a .....

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rder after affording adequate opportunity of hearing to the assessee." As per directions of the Hon'ble ITAT the assessee was asked to furnish the details of provisions made, proof of the population places where the rural branches are located with average aggregate advances outstanding balances etc. The assessee bank submitted the above details. Further it was stated that in the profit and loss account under provisions and contingencies, the provision for NPA to the tune of ₹ 22,2 .....

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deductions. In other words, if the assessee chooses for the option to claim a deduction in the proviso, it cannot claim a deduction as mentioned in clause 'a'. Based on the above, the assessee was asked to clarify whether it exercise option (a) i.e. whether it claims deduction on doubtful debts as classified by the RBI or (b) 7.5% of Gross Total Income and 10% of aggregate average rural advances. The assessee bank stated that it claims as per option (b). 3.1 The other issue involved rel .....

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of the bank during the year. Deduction is available for the provision for bad and doubtful debt made in respect of incremental advances made by the rural branches during the year. In the assessment order, the AO in page no.18 and in para no.1 observed as under:- "……….The deductions are available only in respect of advances made by the rural branches in relevant year, as can be seen from the wording "aggregate average advances made by a rural branches' used in t .....

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as per the prudential norms prescribed by it. These norms direct banks to make provision in respect of secured advances to the extent of 20% of the amount if the debt remains doubtful for one year, this provisioning increases to 30% if the debt/advance remains doubtful for a period between 1 to 3 years and provisioning goes upto 50% if the debt is doubtful for more than 3 years. However, if the advance is not covered by realisable value of security, then provisioning can be made upto 100% of the .....

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use (i) deduction in respect of provision made for bad and doubtful debts (ii) deduction @ 10% on the cumulative outstanding balance at the end of the accounting year (average aggregate advances) of the loan given by the rural branches, year after year on the same amount advanced, without recourse to the figure of the amount actually advanced by the rural branches of the bank during the year, would result in allowing deduction which may be more than the amount advanced by the rural branches of t .....

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sion of section 36(1)(viia)(a) on the aggregate outstanding rural advances which remain same throughout @ 10% as per sub-clause (a) of clause (viia) of sub-section(l) of Section 36 for every 10 years following Asst. Year 1990-91 without making any advance in last 10 years (entire amount lent would be written off by way of provision). This interpretation is absurd. Deduction for the provision for bad and doubtful debts claimed by the assessee Bank has to be worked out in respect of advances made .....

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aggregate advances made by the rural branches which are outstanding at the end of the accounting year and at the same time allowing deduction for the provisions made for bad and doubtful debt would result in deduction which may be more than the amount lent by the rural branches of the bank. Needless to say, this was not the intention of the Legislature. The assessee has claimed deduction to the extent of ₹ 22,20,00,000/-. This has been worked out as under: On Rural advances (10% of aggrega .....

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36(1)(viia) would be as follows: (a) Aggregate average rural advances as on 31.03.2004 89,73,83,937 (b) Aggregate average rural advances as on 31.03.2003 72,98,45,944 (c) Increase in aggregate average rural advances during the year [(a)-(b)] 16,75,37,933 (d) Deduction allowable on aggregate rural advances [ @ 10% of (c)] 1,67,53,799 (e) 7.5% of Gross Total Income before deduction under Chapter VIA 2,85,36,497 (f) Total of (d) and (e) 4,52,90,296 (g) Provision made for Bad and Doubtful Debts by t .....

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on 36(1)(viia) of the Act since the assessee did not provide details of provision created for bad and doubtful debts, proof of the population places where the rural branches are located, monthly average aggregate advances outstanding balances, etc. On appeal, the ld. CIT(A) deleted the addition made by the Assessing Officer based on the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT. On appeal before the Tribunal, the Tribunal vide its order dated 22.02 .....

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ied by the RBI or (b) 7.5% of Gross Total Income and 10% of aggregate average rural advances and the assessee bank stated that it claims as per option (b). Accordingly, the Assessing Officer has restricted the same as tabulated hereinabove after reworking the aggregate average rural advances. The Assessing Officer has recomputed the aggregate average rural advances by adopting only the incremental advances made during the year by the rural branches and also by excluding branches which were situa .....

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d in reversing the finding of the earlier Division Bench that on a correct interpretation of the Proviso to clause (vii) of Section 36(1) and clause (v) to Section 36(2) is only to deny the deduction to the extent of bad debts written off in the books with respect to which provision was made under clause (viia) of the Income Tax Act? Whether the Full Bench was correct in reversing the findings of the earlier Division Bench that if the bad debt written off relate to debt other than for which the .....

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of the order] 90. After examining the various Circulars issued by the Board in relation to section 36(1)(viia) and 36(1)(vii) and also the Statement of Objects and Reasons to the Finance Act 1986, the Hon'ble Supreme Court came to the conclusion that the legislative intention behind the introduction of section 36(1)(viia) was to encourage rural advances and to aid creation of the provision for bad debts in relation to such rural branches. Some of the salient findings of the Hon'ble Supre .....

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ay have both urban and rural branches. It may give advances from both branches with separate provision accounts for each. In the normal course of its business, an assessee bank is to maintain different accounts for the rural debts and for non-rural/urban debts. Maintenance of such separate accounts would not only be a matter of mere convenience but would be the requirement of accounting standards. - The bad debts written off in debts, other than those for which the provision is made under clause .....

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of a bank to which clause (viia) applies. Indisputably, clause (viia) applies only to rural advances. - If the amount of bad debt actually written off in the accounts of the bank represents only debt arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii). - A statue is not normally construed to provide for a double benefit unless it is specifically so stipulated or is clear from the scheme of the Act .....

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Vs. CIT (323 ITR 166) and Southern Technologies Vs JCIT (320 ITR 577) are referred to therein. Accounting standard AS29 and also the effect of Board's Circular's have also been discussed at length in the order along with the subject of interpretation and construction of the relevant sections. Thus, the judgement is a comprehensive one which has considered the ratios laid down by various courts, the implications of Board's circulars and accounting standards. 92. The Hon'ble Supre .....

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use (viia) applies only to rural advances." (emphasis supplied) (para 25&27). 93. Thus, it can be seen that in the case of provision made towards nonrural debts, no deduction can be allowed as there is no specific provision in the Income Tax Act to allow the same. This indicates that the provision made towards urban debt should be added back and allowed only when bad debts are really written off. The question of double deduction being allowed does not arise therein at all, because it is .....

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assessee as doubtful debts, allowed the deduction of bad debts for all assessment years and remaining balance was brought to tax. Accordingly, we reverse the order of the ld. CIT(A) and confirm the addition made by the Assessing Officer for all the above assessment years. This ground of appeal of the Revenue is allowed. 94. The first ground raised in the appeal of the Revenue for the assessment year 1997-98 in I.T.A. No. 1364/Mds/2014 is with regard to deletion of addition made towards payment m .....

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9;s own case in I.T.A. No. 631/Mds/2000 & others dated 10.03.2006, the ld. CIT(A) directed the Assessing Officer to delete the addition made on this account. The Coordinate Bench of the Tribunal in its above order dated 10.03.2006 has observed that "...... SEBI is a regulatory authority. Therefore, registration with SEBI is mandatory for the purpose of dealing in securities and stocks. The payment made to SEBI is in the nature of fee for the purpose of enabling the assessee to carry out .....

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