TMI Blog2018 (6) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... - thus appeal filed by assessee is allowed and cross objection of revenue is dismissed. Disallowance of broken period interest - Held that:- CIT has deleted the additions made by AO following the judgement in case of American Express International Banking Corpn. Vs. CIT [2002 (9) TMI 96 - BOMBAY HIGH COURT]. Additions towards unreconciled credit entries in the nostro mirror accounts credited to P&L a/c - Held that:- where amount in question had remained with assessee-bank owing to fact that payees or holders of draft/pay orders had not encashed them, section 41(1) could not be invoked - thus unreconciled credit entries cannot be treated as income of the assessee - AO is directed to delete the addition. - I.T.A. No.1891/Mum/2011 & 3958/Mum/2014, CO. No.200/Mum/2013, ITA No. 1431/Mum/2011 & 3757/Mum/2014 - - - Dated:- 8-6-2018 - Shri Mahavir Singh, JM And Shri G. Manjunatha, AM Revenue by : Shri H. N. Singh Assessee by : Shri Rajnikant V. Chaniyari ORDER Per G. Manjunatha, A. M. These cross appeals filed by the assessee, as well as Revenue and cross objections by the assessee are directed against separate, but identical orders of the ld. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also challenged the additions made by the Assessing Officer in respect of disallowance expenditure incurred in relation to exempt income u/s. 14A of the Act, on the ground that the assessee s investments are covered out of its own interest free funds, therefore, there is no reason for the Assessing Officer to disallow the interest and other expenditure u/s. 14A of the Act. As regards disallowance of dimimution in value of investment held as stock-in-trade, the assessee submitted that it is following similar method of accounting for earlier years which has been accepted by the Department and, hence, without any changes in facts, the Assessing Officer was erred in making the additions towards dimimution in value of investment. The ld. Commissioner of Income Tax (Appeals) after considering the submissions of the assessee and also relied upon certain judicial precedence, partly allowed the appeal filed by the assessee wherein he has confirmed the additions made by the Assessing Officer towards disallowance of bad debt written off in respect of non rural branches and disallowance of expenditure incurred in relation to exempt income. However, deleted the additions made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that very Court in the case of South Indian Bank Ltd. (supra), it did not notice any of the contentions before and principles stated by the Special Bench of the ITAT in its impugned judgment. As already noticed, the question raised in the present appeal go to the very root of the matter and are questions of law in relation to interpretation of Sections 36(1)(vii) and 36(1)(viia) read with Section 36(2) of the Act. Thus, without any hesitation, we reject the contention of the appellant banks that the findings recorded in the earlier assessment years 1991-1992 to 1993-1994 would be binding on the Department for subsequent years as well. 7. In this view of the matter and consistent with the view taken by the co-ordinate Bench of the Tribunal in assessee s own case for assessment year 2009-10, we direct the Assessing Officer to allow deductions towards bad debt written off in respect of non rural branches. 8. The next issue that came up for our consideration in the assessee s appeal for assessment year 2004-05 is disallowance of expenditure incurred in relation to exempt income u/s. 14A of the Income Tax Act, 1961. The Assessing Officer has disallowed a sum of ₹ 1,28,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts which is a pre-condition for invoking the provisions of the section 14A r.w.r 8D as has been decided by the Hon‟ble Apex Court in the case of Godrej Boyce Manufacturing Co. Ltd. V/s DCIT (2017) 81 taxmann.com 111(SC), wherein it has been held that the AO has to record the satisfaction that the assessee has incurred any expenditure in relation of the earning of earning income after examining the records and books of accounts maintained by the assessee and thus the AO has to be record his satisfaction I.T.A. No.1525 and 364 9/Mum/2013 And I.T.A. No.1561 and 3438/Mum/2013 with regard to the correctness of the claim of the assessee otherwise the provisions of section 14A can not be applied. We find merit in the plea of the ld.AR that in absence of any satisfaction recorded by the AO no disallowance could be made u/r 14A r.w.rule 8D. However, to maintain the consistency with the decision of the co-ordinate bench of the Tribunal, we think it fit and reasonable which has been an alternative prayer by the counsel during the course of hearing that the disallowance of 2% be made as has been made by the Tribunal in the assessment year 1998-99 and 1999- 2000. The ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inution in value of investment held as stock-in-trade on the ground that the loss incurred on account of diminution in value of investment is only an notional loss, therefore, cannot be allowed as deduction. It is the contention of the assessee that the bank is following the method of accounting for treatment of investment held as stock-in- trade as per which it values its closing stock at cost or market value whichever is less and/or whatever loss incurred on account of diminution in value of investment charged off to the profit and loss account as a loss. The assessee further contended that it is following similar method of accounting for treatment of investment held as stock-in-trade for earlier years which has been accepted by the Department. Therefore, there being any change in the facts, there is no reason for the Assessing Officer to make the additions towards loss incurred on diminution in value of investment held as stock-in-trade. In this regard, he relied upon the decision of the Bank of Baroda (supra) and Hon ble Supreme Court in the case of United Commercial Bank vs. CIT [1999] 240 ITR 355 (SC). 13. We have heard both the parties and perused the materials available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer. The Revenue has failed to bring on record any contrary decision to support its argument. Therefore, we are of the considered view that the ld. Commissioner of Income Tax (Appeals) was right in deleting the additions towards diminution in value of investment held as stock-in-trade. We do not find any infirmity in the orders of the ld. Commissioner of Income Tax (Appeals). Hence, we are inclined to uphold the findings of the ld. Commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue. 15. In the result, the appeal filed by the assessee in ITA No. 1431/Mum/2011 for the assessment year 2004-05 is allowed and the appeal filed by the Revenue in I.T.A. No.1891/Mum/2011 for assessment year 2004-05 and cross objection filed by the assessee in CO No. 200/Mum/2013 for assessment year 2004-05 are dismissed. ITA No. 3757/Mum/2014 (Assessee s appeal) and 3958/Mum/2014 (Revenue s appeal) (A.Y. 2010-11) 16. The first issue that came up for our consideration in Revenue s appeal for assessment year 2010-11 is disallowance of bad debt written off u/s. 36(1)(vii) of the Act. We have considered the similar issue in ITA No. 1431/Mum/2011, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this appeal. Therefore, for similar reasons, we direct the Assessing Officer to restrict the disallowances to 2% of exempt income. 20. The next issue that came up from assessee s appeal is the additions towards unreconciled credit entries in the nostro mirror accounts credited to the profit and loss account. The ld. Authorized Representative for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon ble High Court of Karnataka in the case of CIT vs. Karnataka Vikas Grameen Bank [2016] 282 CTR 517 (Kar). The ld. Authorized Representative further submitted that the ITAT Bangalore A Bench in the case of M/s. Canara Bank vs. CIT in ITA No. 390/Bang/2011 dated 08.06.2012 has considered a similar issue in light of the provisions of section 35A of the Banking Regulation Act, 1949 and also in light of the Master Circular issued by the Reserve Bank of India dated 30.03.2007, wherein it was held that though the unreconciled entries in the nostro mirror accounts is routed through profit and loss account, it does not have character at income charged in the hands of the assessee bank and hence, it cannot be brought to tax. 21. Having heard bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... next issue that came up from assessee s appeal is non applicability of provisions of section 115JB of the Income Tax Act, 1961 to banking companies. 24. The ld. Authorized Representative for the assessee, at the time of hearing submitted that the issue is squarely covered in favour of the assessee by the ITAT C Bench in the assessee s own case for assessment year 2006-07 in ITA No. 1528/Mum/2011 dated 12.08.2016, wherein under similar set of facts the ITAT had held that the provisions of section 115JB is not applicable to the banking companies. The relevant portion to the order is extracted below: 4. We have considered the rival contentions of the parties and perused the various decisions cited by ld. AR of the assessee. In the case of Krung Thai Bank (supra), the identical Grounds of appeal was considered by the Co- ordinate Bench of this Tribunal i.e. the applicability of provisions of Section 115JB and after considering the applicability with regard to section 115JB, the Co-ordinate Bench held as under: Learned Counsel for he assessee, however, contends that the provisions of MAT do not apply to the assessee, and, for this reason, very foundation of impugned re-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of exemption set out under proviso to Section 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 Section 115 JB cannot thus be applied to the case of a banking company. In view of the above discussions, and following the view taken by a coordinate bench in the case of Maharashtra State Electricity Board Vs. JCIT (82 ITD 422), which holds that provisions of MAT cannot be applied to electricity companies for mutually similar reason we uphold the plea of the assessee. The provisions of Section 115 JB do not apply to the assessee, and, as such, the Assessing Officer was in error in concluding that income had escaped assessment in the hands of the assessee. The very initiation of reassessment proceedings was bad in law, and we quash the same . 5. The similar view was approved by the Co-ordinate Bench in case(s) of Union Bank of India, Times Bank Ltd., State Bank of Hyderabad, Dena Bank and UCO Bank (Supra) by Mumbai Tribunal, and in case of UCO Bank(supra) by Co-ordinate Bench of Kolkata Tribunal, thus the Ground of appeal raised by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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