TMI Blog2019 (3) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... , the contention that the resort to provisions of s. 14A of the Act cannot be made when the shares are held as stock in trade is rejected. The approach of the AO in making a disallowance @ 2% of exempt income was also approved - Decided against assessee Addition of ex-gratia payment - assessee-bank made a claim for deduction of exgratia payment made to the employees excluded from the purview of the payment of bonus act, the incentives were paid to these employees on the completion of 90 years of the existence - AO disallowed the claim placing reliance on the provisions of s. 36(1)(ii) which lays down that any sum paid to an employee as a bonus for services rendered, where the same would not have been payable to the employee as profit or dividend, if it is not paid as a bonus or commission shall be allowed as a deduction - HELD THAT:- There are no doubts about the genuineness of the expenditure but the AO disallowed that the ex-gratia payment holding that it is in the character of bonus and gratuity, which are specifically covered by the provisions of s. 36(1)(vii) and s. 37(1) of the Act. The view of the AO that the payment is made in lieu of the dividend or distribution of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Tribunal was accepted by the Revenue by not filing any further appeal. These submissions of the ld. Authorized Representative of assessee were not controverted by the ld. Sr. Departmental Representative. In the circumstances, following the decision of this Tribunal in assessee s own case, we direct the AO to allow the same as a deduction. Disallowances of interest swap transactions - HELD THAT:- The issue in the present grounds of appeal is covered by the decision of Mumbai Special Bench of Tribunal in the case of Bank of Baharain Kuwait [2010 (8) TMI 578 - ITAT, MUMBAI]. It is further submitted that for AY 2010-11, the ld. CIT(A) granted relied to the assessee-bank on the issue. The decision of ld. CIT(A) was accepted by the Department by not filing further appeal. Thus, it is prayed that the same may be allowed as a deduction. The above submissions made on behalf of the assessee-bank were not controverted by the ld. DR. In the circumstances, this ground of appeal filed by the assessee-bank is allowed. Disallowance of loss on account of sale of HTM securities - AO denied the claim on the ground that the claim was made in the revised return, which was beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of PCIT v. Uttarbanga Kshetriya Gramina Bank [2018 (5) TMI 903 - CALCUTTA HIGH COURT] upheld the interpretation of the provisions of Rule 6ABA of the Rules for the purse of s. 36(1)(viiia) that only aggregate average advance made by rural branches of a scheduled bank should be computed by aggregating separately the advances made by each rural branch as outstanding at the end of the last day of each months comprised in the previous year. The Hon ble High Court had categorically held that the method of taking the loans and advances made during the year only is not correct. Therefore, we direct the AO to consider only the outstanding rural advances not the incremental advances made by the rural branches for the purpose of calculating the deduction u/s. 36(1)(viia) of the Act Deduction of loss on account of HTM category of securities held by the assessee-bank - addition on ground that the notional profit made on account of AFS and HFT securities categories cannot be brought to tax - bona fide of the assessee-bank in changing the method of accounting - HELD THAT:- As decided in assessee's own case [2004 (7) TMI 52 - MADRAS HIGH COURT] Notwithstanding treatment given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition of provision for leave encashment and medical leave u/s 43B - HELD THAT:- The clause (f) to s. 43B of the Act enacts that no expenditure shall be allowed on account of any leave salary unless, the expenditure is actually paid. Thus, provision is intended to overcome the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000 (8) TMI 4 - SUPREME COURT]. The case laws relied upon by the ld. Counsel cannot come to the rescue of the assessee-bank. Thus as long as Section 43B(f) is on Statute, the said disallowance is justified. Addition on account of loss on derivatives transactions - HELD THAT:- Mumbai Special Bench, in the case of Bank of Baharain Kuwait [2010 (8) TMI 578 - ITAT, MUMBAI], wherein it was held that edging against the future losses cannot be treated as a speculative loses. Loss incurred for derivative transaction is allowable as a business deduction. Accordingly, we direct the AO to allow the same as deduction. Addition u/s 14A - contention of the appellant that the appellant has not incurred any expenditure to earn exempt income - HELD THAT:- AO had not given any finding as to how the claim of the assessee-bank that no ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not justified in disallowing the claim for depreciation on unjustified grounds. In the case of Annamalai Finance Ltd. [2004 (10) TMI 51 - MADRAS HIGH COURT] has laid down certain parameters for allowance of depreciation in the case of sale and leased back of transaction. Nothing is brought on record to say that the above parameters are not met by the assessee and therefore we direct the AO to allow the depreciation as claimed by the appellant. MAT provision application u/s 115J to banking companies - HELD THAT:- This issue is settled in favour of the assessee-bank by several judicial decisions. The recent decision of Co-ordinate Bench of Tribunal, Bangalore in the case of Canara Bank v. JCIT [2017 (11) TMI 1425 - ITAT BANGALORE] held that the assessee-bank is not liable for tax u/s 115JB for the year under consideration. - ITA Nos.1342, 1343 & 1344/Chny/2013, 1393, 1394, 1497 & 1498/Chny/2013, Cross Objection No.134/Chny/2018 - - - Dated:- 28-2-2019 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER And SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER Assessee by: Shri S.Ananthan, CA, Ms. R. Lalitha, CA Revenue by: Shri Homi Raj Vansh, CIT-DR ORDER PER INTURI RAMA RAO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,34,000 3. Being aggrieved by the above additions, an appeal was preferred before ld. CIT(A), who vide impugned order deleted the addition on account of depreciation in the value of securities holding that the investments are in the nature of stock in trade and any fall in the value of investment should be treated as a business loss. The ld. CIT(A) also deleted the addition of ₹ 9,98,67,263/- on account of broken period interest paid on the securities holding that when the securities forming part of stock in trade, the broken period interest claimed as a revenue deduction should be allowed. The ld. CIT(A) also deleted the addition on account of brokerage of ₹ 28,000/- paid towards acquisition of HTM category of securities. As regards, the disallowance of ₹ 13,65,488/- u/s. 14A of the Act, the ld. CIT(A) upheld the disallowance as the assessee bank failed to furnish the details of income in earning the exempt income. The ld. CIT(A) held that the AO was justified in estimating the disallowance @ 2% of the gross receipts of exempt income. On the issue of disallowance ex-gratia payment of ₹ 6,26,71,637/-, the ld. CIT(A) confirmed the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-in- trade as per the Karnataka High Court decision in CCI Ltd vs. CIT (206 Taxman 563) (followed in Chennai Bench of ITAT in MSA securities ITA No: 1523 1524 order dated 17th Oct, 2012) and hence estimated disallowance of 2% of expenses was untenable in law. 4) The CIT(A) further failed to appreciate that the assessee bank is having sufficient non - interest bearing funds, and in the absence of any finding as to the incurring of expenditure, the invocation of provisions of Section 14A was unsustainable in law as well as on facts. Ex-gratia payment 5) The CIT (A) erred in confirming the disallowance of ex-gratia payment. 6) The CIT (A) failed to appreciate that such payment was made out commercial expediency and hence ought to have allowed the same. 7) The CIT (A) ought to have followed the ITAT s decision of Lakshmi Vilas Banks s case (ITA No: 1403/2012 order dated 22nd March, 2013) to allow the assessee s claim. 8) The CIT (A) ought to have followed the following jurisdictional High Court decisions and allowed the same: (i) CIT vs. Lakshmi Mills (240 ITR 81) (ii) CIT vs. Sivanandh Mills (156 ITR 629) (iii) Kumaran Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to note that Mumbai ITAT special Bench in the case of DCIT VS Bank of Bahrain Kuwait (132 TTJ 505) allowed the same following the above judgement. 20) The CIT(A) failed to observe that ITAT Mumbai had given a favourable decision to ABN Amro Securities India Pvt Ltd Vs ITO. Further in the above cited cases, the loss arising on year end valuation of IRS swap was allowed. 21) In ABN Amro Securities India Pvt Ltd Vs ITO case, in Para 5 (Last 3 lines) it is stated that depending on whether the amount is receivable or payable under the interest rate swap contract, the amounts are booked as income or expenditure in the Profit and Loss account. There are no issues with regard to the income so disclosed or the expenditure so claimed for deduction. 22) The appellant Bank had not claimed any loss on revaluation of IRS. But only claimed interest received and paid. So, based on the judgements cited, the CIT (A) ought to have allowed the same. Loss on sale of HTM Securities 23) The CIT (A) ought to have directed the correct loss of ₹ 24,78,54,994 is to be allowed on the sale of securities. 24) The CIT (A) failed to appreciate that inste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med vide para 4.3 of the ld. CIT(A) order. Being aggrieved, the appellant is before us in the present grounds of appeal contending that the provisions of s. 14A of the Act has no application to the shares and stock held as stock in trade. It is further contended that in the absence of finding by the AO as to how the contention of the appellant that no expenditure was incurred is incorrect, no disallowance should be made. Reliance in this regard was placed on the decision of Hon'ble Karnataka High Court in the case of CCI Ltd. v. CIT 206 Taxman 563 (Kar.) and the order of ITAT, Chennai Benches in ITA Nos.1523 1524 order dated 17.10.2012 and also in the case of Maxoop Investment Ltd [2018] 402 ITR 640 (SC), Karur Vysya Bank Ltd. [2017] (4) TMI 566 (ITAT-Chennai) Vijaya Bank [2015] (7) TMI 86 (ITAT-Chennai). On the other hand, the ld. CIT-Departmental Representative placed reliance on the orders of lower authorities. 5.1. We heard the rival submissions and perused the material on record. It is undisputed fact that the assessee earned exempt income during the previous year relevant to the financial year under consideration. It is settled proposition of law that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee as a bonus for services rendered, where the same would not have been payable to the employee as profit or dividend, if it is not paid as a bonus or commission shall be allowed as a deduction. Further, the AO opined that the assessee-bank circumvented the provisions of Bonus Act. The AO also placed reliance on the several judicial precedents. On appeal before ld. CIT(A), confirmed the disallowance by holding that the ex-gratia payment cannot be allowed as deduction as the ex-gratia paid par takes the character of the bonus and gratuity, which are governed by provisions of s. 36(1)(ii) and s. 37(1) of the Act and the expenses which are covered by Sections 30 to 36 of the Act, cannot be allowed as a deduction u/s. 37(1) of the Act. 6.1. Being aggrieved, the appellant is in appeal before us in the present appeal. 6.2. The ld. Counsel submitted that the issue is squarely covered in favour of assessee in its own cases by the decision of Co-ordinate Bench of the Tribunal for the AYs 2010-11 2011-12. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities. 6.3. We heard the rival submissions and perused the material on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition on disallowance of expenditure incurred on bonus shares. The AO disallowed the same holding to be a capital expenditure. The assessee had incurred a total expenditure of ₹ 6,97,00,934/- on the right issue, out of which a sum of ₹ 22,62,934/- was claimed as deduction in the current year. It is claimed that the expenditure is in the nature of registration fee, SEBI fee, which was allowed in the earlier years and on the same principle, the same should be allowed in the current year. The AO denied the deduction holding that any expenditure incurred for issue of the capital or enhancing the capital is in the nature of capital expenditure. Placing reliance on the decisions of in the cases of Laxmandas Sejram v C.I.T. (1964) 54 ITR 763, 771 (Guj), Raja Rain Kumar Bhargava v C.LT. (1963) 47 ITR 680, 693 (All), Subodlichandra Popatlal v C.I.T. (1953) 24 1TR 566, 573(Bom), Southern Agencies Ltd. v CIT. (1962) 45 ITR 602, 612 (Mad), N.M. Rayaloo Iyer Sons v CJ.T. (1954) 26 ITR 265 (Mad), Birla Gwalior Pr. Ltd. v C.I.T. (1962) 44 ITR 847 (MP), Noshirwan Co. P. Ltd. v C.I.T. (1970) 77 ITR 822, 827 (MP), Nathmat Bankatlal Parikh Co. v C.I.T. (1980) 122 ITR 168, 173 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal. These submissions of the ld. Authorized Representative of assessee were not controverted by the ld. Sr. Departmental Representative. In the circumstances, following the decision of this Tribunal in assessee s own case, we direct the AO to allow the same as a deduction. 8.3 In the result, ground of appeal No.5 of the assessee is allowed. 9. Ground No.6 challenges the disallowances of interest swap transactions to the extent of ₹ 200 crores. Under these transactions, one party will pay fixed interest on the contracted amount to the other party. This is nothing but the contract between two parties exchanging a steam of interest payment for notional principal amount on multiple occasions during the contract period. These contracts involved exchange of fixed rate of interest with floating rate of interest and vis- -vis of each payment date interest is paid on the agreed fixed reporting rate for one party to another for settling the different payments. The AO had treated these transactions as a speculative and disallowed the interest paid on these transactions. Even, the ld. CIT(A) confirmed the action of AO. 9.1 Being aggrieved, the assessee is in appeal before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the correct profits and the income tax proceedings are not adversely proceedings and therefore, the AO should have allowed the claim. Reliance was made in this regard in the case of CIT v. McMillan Co. [1958] 33 ITR 182 (SC), SN Namasivayam Chettiyar v. CIT [1960] 38 ITR 579 (SC) and CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) and also the decision of CIT v. Prudvi 23 Taxman 23. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities. 10.3 We heard the rival submissions and perused the material on record. the investment held by banking concern are treated as a part of the business of banking company therefore, the profit or loss arising from the such investment is treated as a part of business income in the light of decision of Hon'ble Supreme Court in the case of United Commercial Bank of India (supra) and the decision of Hon ble Jurisdictional High Court of Madras in the case of Karur Vysya Bank Ltd. (supra). This decision was accepted by CBDT vide Circular No.18 of 2015 dated 02.11.2015. In the return of income, the claim relating the sale of securities was made but the claim was made at an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the following grounds in ITA No.1497/Chny/2013 for AY 2007-08: 01.The CIT(A) failed to appreciate the fact that the ssessee is claiming the debts written off as urban debts only before CIT(A) and no remand report was called for and rule 46(1) was violated. 02.The CIT(A) failed to see that no rural debt writtn off can be claimed u/s 36(1)(vii) if its value is less than the provision made u/s 36(a)(viia) and also failed to appreciate the fact that the list of debts written off filed by the assessee contains some rural debts also. 03.The CIT(A) erred in interpreting the 2nd limb of section 36(1)(viia). The CIT(A) allowed deduction on the total average outstanding rural advances made by the bank at the end of the accounting year without restricting the deduction to the incremental advance made during the year. The CIT(A) failed to appreciate the fact that income for each year is required to be computed separately as each accounting year is a separate unit for assessment purpose and therefore deduction was available only on incremental rural advance during the year and not on total outstanding at the end of the accounting year. 04.The CIT(A) failed to see that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the account of provision for bad and doubtful debts more than the amount claimed as a bad debts. On appeal before the ld. CIT(A), the CIT allowed the claim considering the fact that the bad debts were written off in the books of account, the provision of s. 36(1)(vii) of the Act are different from s. 36(1)(viia) of the Act. Both the provisions are separate and distinct and the proviso to clause (7) of s. 36(1) are not applicable, inasmuch as, there was no double deduction. 13.2 Being aggrieved by this decision of the ld. CIT(A), the Revenue is in appeal before us in the present grounds of appeal. The issue in the present grounds of appeal is covered against the Revenue by decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC), vide para 4 5 of judgment, which reads as under: 4. We consider it appropriate to notice at this stage the fate of the orders passed for the previous assessment years in relation to the appellant and other banks. 5. M/s Dhanalakshmi Bank Ltd., one of the appellants before us, had also raised the same issue before the Tribunal in ITA Nos. 602- 605/Coch/1994 and 190/Coch/1995, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, while discussing the scope of ss. 36(1)(viia) and 36(2)(v) of the Act, the High Court set aside the order of the Tribunal in that case and held that the assessee was entitled to the deduction under cl. (vii) irrespective of the difference between the credit balance in the provision account made under cl. (viia) and the bad debts written off in the books of accounts in respect of bad debts relating to urban or non-rural advances. It accepted the contention of the assessee and referred the matter to the AO. This judgment of the High Court is subject-matter of Civil Appeal Nos. 1190-1193 of 2011 before us. 13.3 Even in the assessee s own case, the Hon ble Jurisdictional High Court of Madras held the issue in favour of the assessee-bank in the AY 1987-88, 1992-93 in Tax Case Nos. 43 44 of 2012 and MP No.1/12. Thus, in the light of above legal position, we do not find any merit in the grounds of appeal filed by the Revenue. 13.4 In the result, grounds of appeal No.1 2 filed by the Revenue are dismissed. 14. Grounds of appeal No.3 4 challenges the direction of ld. CIT(A) to delete the addition made u/s. 36(1)(viia) of the Act. The AO allowed deduction of ₹ 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural branches shall be the aggregate average advances made by the rural branches of the scheduled bank. Explanation : In this rule, rural branch and scheduled bank shall have the meanings assigned to them in the Explanation to clause (viia) of sub-section (1) of section 36. From a bare reading of the above rule it is crystal clear that the said rules prescribe three steps for computing AAA in the following manner: Step One - In respect of each rural branch, note down the amounts of advances outstanding at the end of the last day of each month comprised in the previous year and aggregate the amounts so noted. Step Two- Divide the aggregate amount arrived at in Step One by the number of months for which the outstanding amounts have been taken into account for the purpose of Step One. Step Three- Aggregate the amounts arrived at under Step Two in respect of all the rural branches. Thus, it is clear that the said Rules do not provide for only fresh advances made by each rural branch during each month alone is to be considered. It only prescribes that the amount of advances made by rural branch and is outstanding at the end of the last day of each mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision created during the year u/s 36(1)(viia) read with rule 6ABA, amounts to ₹ 16,35,55,829.00 whereas assessee has claimed deduction of ₹ 5,16,46,976, which is well within the provision permissible under section 36(1)(viia). Therefore, there cannot be any doubt with regard to the allowability of deduction claimed by the assessee u/s 36(1)(viia). Accordingly, we do not find any infirmity in the order of ld. CIT(A) in deleting addition of ₹ 3,88,25,673. However, as far as deduction of ₹ 18,79,704 is concerned, the same cannot be allowed u/s 36(1)(vii) considering the fact such amount has not exceeded the provision for bad and doubtful debts u/s 36(1)(viia). At the same time, alternative claim of the assessee that it is to be allowed u/s 37(1), in our view, is acceptable. On a perusal of the assessment order and the facts and materials available on record, it is quite evident that the amount was waived at the direction of the State Govt. Department has not controverted this fact. Therefore, in our view, the waiver of interest at the instance of the State Government, has to be allowed as business expenditure u/s 37(1). Accordingly, we uphold the order of ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the AO to allow the deduction following the law laid down by the Hon'ble Supreme Court in the case of UCO Bank, Universal Bank Ltd. 248 ITR 355 and the order of the Chennai Tribunal in the case of Bharat Overseas Bank and Indian Bank. On the other hand, the ld. Departmental Representative placed reliance on the orders of the lower authorities. 15.2 On the other hand, the Authorized Representative of assessee Shri S.Ananthan submitted that this issue in the present grounds of appeal is covered in favour of the assessee s bank by the decision of Hon ble Jurisdictional High Court of Madras in the assessee s own case in the case of in TMA No. 1210 and Hon ble High Court of Madras in the assessee s own case 273 ITR 510 (Mad). This issue was also dealt by the co-ordinate Bench of the Tribunal, Bangalore in the case of Canara Bank v. JCIT (the Hon'ble AM is the author of the order) vide para 9.5 to 10: 9.5 We heard the rival submissions and perused the material on record. The short issue in this ground of appeal is whether fall in value of investments made pursuant to SLR requirements of RBI can be allowed as a deduction while computing business income of a banki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources . 2. Clause (id) of sub-section (1) of section 56 of the Act provides that income by way of interest on securities shall be chargeable to incometax under the head Income from other sources , if, the income is not chargeable to income-tax under the head Profits and gains of business and profession . 3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Cooperative Bank Ltd. [2007] 160 Taxman 48 (SC), the apex court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head Profits and gains of business and profession . 3.2 Even though the abovementioned decision was in the context of co-operative societies/Banks claiming deduction under section 80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose. Therefore, the bona fide of the assessee-bank in changing the method of accounting cannot be doubted. Now, it is well settled that the assessee is entitled to change regular method of accounting irrespective of the fact, it results in loss to revenue. Therefore, having regard to the spirit of the circular cited supra and the fact that investments are shown as stock-in-trade in the books of account, loss/depreciation on account of fall in value of securities held by the assessee-bank should be allowed as deduction. Therefore, income arising therefrom should also be treated as business income. The provisions of section 45(2) cannot be applied to the facts of the present case, as in the earlier years, for the purpose of income-tax proceedings, the investments were treated as stock-intrade. Thus, grounds of appeal Nos. 4, 5 6 are disposed of. 10. Ground of appeal No. 7 relating to disallowance of expenditure on public issue of ₹ 1,92,50,000/- is not pressed by the assessee-bank, hence dismissed as such. 15.3 In the light of the above legal decision, we do not find any merit in the grounds of appeal filed by the Revenue. Hence, the grounds of appeal filed the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments and they are capital in nature. On the other hand, the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of City Bank 2008 TMI 766 and the decision of Hon ble Jurisdictional High Court of Madras in the case of Karur Vysya Bank in 2009 TMI 1210. The Hon'ble Supreme Court had laid down in the case of City Bank (supra) that where the securities were forming part of the stock in trade the broken period interest should be allowed as a deduction, while dealing with the issue of disallowance on account of depreciation of HTM securities, we have categorically held that the securities formed part of the stock in trade and therefore, the broken period interest paid should be allowed as a deduction. Therefore, we do find any fallacy in the reasoning of the ld. CIT(A). Hence, the ground of appeal of Revenue is dismissed. 17.2 In the result, ground of appeal No.7 filed by the Revenue is; dismissed. 18. Ground No.8 challenges the direction of ld. CIT(A) to deal with the additions unclaimed balance of ₹ 1,12,00,000/-. 18.1 The brief facts relating to this issue as under: The customers of the assessee-bank taking demand draft/pay ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Additions: 1. Appreciation in value of securities ₹ 2,66,12,12,542/- 2. (i) Provision for leave encashment 8,24,21,094/- (ii) Provision for medical leave 9,21,95,063/- 3. Amortisation expenses 14,80,00,000/- 4. Broken period interest 27,63,14,889/- 5. Ex-gratia payment 17,93,38,338k 6. Pooja expenses 4,46,29,688/- 7. Entertainment expenses 10,29,851/- 8. Bad debts written off 2,08,211/- 9. Interest on Derivatives 7,95,04,449/- 10.Disallowance u/s l4Ar.w.r.8D 26,73,301/- 11.Brokerage for ETM 3,88,882/- 12. Interest accrued on NPAs 2,000/- 20. Being aggrieved by the above additions, an appeal was preferred before ld. CIT(A), who vide impugned order, confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f implementing the mandate notified by the Government in its gazette on 27th March, 2008 (GOl GSL No:212 (E) dated 27th March, 2008) and hence there was no justification for conforming the disallowance. 4) The CIT(A) further failed to appreciate that being an ascertained liability in terms of actuarial valuation and that too by way of implementing the government notification, the claim of the assessee was sustainable in law. 5) The CIT(A) ought to have allowed the assessee s claim in the light of the decision in Exide Industries (292 ITR 470) and Panasonic Home Appliances case (323 ITR 344) (Mad) Medical Leave Encashment 6) The CIT(A) erred in confirming the addition on account of Medical leave. 7) The assessee craves leave to adopt ground nos: 3 to 5 in this regard. Ex-gratia payment 8) The CIT(A) erred in confirming the disallowance of ex-gratia payment. 9) The CIT(A) failed to appreciate that such payment was made out commercial expediency and hence ought to have allowed the same. 10) The CIT(A) ought to have followed the ITAT s decision of Lakshmi Vilas Banks s case (ITA No: 1403/2012 order dated 22 March, 2013) to allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (132 TTJ 505) allowed the same following the above judgement. 21) The CIT (A) failed to observe that ITAT Mumbai had given a favourable decision to ABN Amro Securities India Pvt Ltd Vs ITO. Further in the above cited cases, the loss arising on year end valuation of IRS swap was allowed. 22) In ABN Amro Securities India Pvt Ltd Vs ITO case, in Para 5 (Last 3 lines) it is stated that depending on whether the amount is receivable or payable under the interest rate swap contract, the amounts are booked as income or expenditure in the Profit and Loss account. There are no issues with regard to the income so disclosed or the expenditure so claimed for deduction. 23) The appellant Bank had not claimed any loss on revaluation of IRS. But only claimed interest received and paid. So, based on the judgments cited, the CIT (A) ought to have allowed the same. 2% Disallowance of expenses on exempted income 24) The CIT (A) erred in confirming 2% disallowance of expenses on exempted income. 25) The CIT (A) failed to appreciate that for the Assessee Bank, securities are stock-in-trade and Section 14A has no application to securities/shares held as stock-in-trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Panasonic Home Appliances [2010] 323 ITR 344 (Mad.) is also before enactment of clause (f) to s. 43B of the Act. Further, the appellant has placed reliance on the order of Co-ordinate Bench of Tribunal, Chennai in the case of Indian Overseas Bank [2013] (4) TMI 751 ITAT, Chennai, we find that this decision was rendered in relation to AY 1994- 95, which is prior to the enactment of the provision of s. 43B(f) of the Act. Therefore, the case laws relied upon by the ld. Counsel cannot come to the rescue of the assessee-bank. The decision Hon ble High Court of Calcutta in the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 470 (Cal.) striking down the provisions of clause (f) of s. 43B of the Act on the grounds of arbitrariness is stayed by Hon ble Supreme Court in SLP(Civil) No.CC.12060 dated 08.09.2008 therefore, the provisions of clause (f) to s. 43B of the Act are in force in the light of the stay order granted by the Hon ble Apex Court. In this context, we can rely on the decision of Hon ble High Court of Kerala in the case of South Indian Bank Ltd. v. CIT [2014] 45 taxmann.com 428 (Kerala), wherein it was held as follows vide para 6 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee-bank. 26.1 In the result, ground of appeal No.6 filed by the assessee is allowed. 27. Ground No.7 challenges the addition on account of loss on derivatives transactions of ₹ 26,73,301/-. This issue in this ground of appeal was decided by the Mumbai Special Bench, in the case of Bank of Baharain Kuwait [2010] 5 ITR 301 (Mum.), wherein it was held that edging against the future losses cannot be treated as a speculative loses and the ratio of this decision was followed by Hon ble High Court of Bombay in the case of CIT v. Badridas [2003] 261 ITR 256 and the decision of Hon ble Gujarat High Court in the case of Jayesh Raichand Shah v. ACIT [2013] 29 taxmann.com 151 (Guj.). Therefore, respectfully following the above decisions, we hold that the loss incurred for derivative transaction is allowable as a business deduction. Accordingly, we direct the AO to allow the same as deduction. 27.1 In the result, ground of appeal No.7 filed by the assessee is allowed. 28. Ground No.8 challenges the addition of ₹ 3,88,882/- invoking the provision of s. 14A of the Act. It is the contention of the appellant that the appellant has not incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance made during the year. The CIT(A) failed to appreciate the fact that income for each year is required to be computed separately as each accounting year is a separate unit for assessment purpose and therefore deduction was available only on incremental rural advance during the year and not on total outstanding at the end of the accounting year. 04.The CIT(A) failed to see that the section 36(1)(viia) reads as aggregate average advances made by the rural branches of such bank not as aggregate average advances outstanding in the rural branches of such bank . 31. At the outset, there is delay in filing the appeal by 10 days. The Revenue had prayed for condonation of delay. It is submitted that the delay in filing the appeal had occurred on account of change of incumbent and thus, it was prayed that the delay is not deliberate. Under this circumstance, it is prayed for the condonation of delay of 10 days. The ld. Counsel for the assessee-bank had no serious objection for condone the delay. Considering these circumstance, we condone the delay of 10 days in filing the present appeal and admit the appeal. 32. Grounds No.1 2 challenges the direction of ld. CIT(A) de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 38,14,78,560/-. Against the said return of income, the assessment was completed by the Jt. CIT, Special Range, Thiruchirapalli vide order dated 15.03.2000 passed u/s. 143(3) of the Act admitting total income of ₹ 60,95,05,620/. While doing so, the AO has made the several disallowances with which we are not concerned. Subsequently, the appellant made a petition u/s. 154 of the Act vide letter dated 23.06.2003 requesting the AO that wrong amount of provision for depreciation as per the books of account of ₹ 5,77,05,335/- was added. The AO vide his order dated 06.08.2004 rejected the petition. 37. Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order directed the AO to verify the claim and allow the same as deduction after due verification. Being aggrieved, the Revenue is in appeal before us in the present appeal. 38. On behalf of the Revenue, it is contended that the ld. CIT(A) ought not have entertained the appeal, inasmuch as, the application filed by the assessee-bank is beyond the period of limitation u/s. 154 of the Act. He further argued that the ld. CIT(A) ought not have allowed the claim in the absence of claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order of the concerns for the relevant year and not the certificates by private parties. The ITAT, Chennai had rejected this contention and simply directed the appellant Bank to produce the Chartered Engineer and Chartered Accountant certificate to the Assessing Officer and comply with Rule 46 A in its order dated 20-01-2006 cited supra It is to be noted that the appellant had submitted the PAN Number and Registered office and other details, even one week before the regular assessment on 03-03-1998 itself. It is worth mentioning about the case of CIT Vs Ranchhod Jivabhai Nakhava (2012) 121 taxmann.com 159 (Guj), here. This case relates to Sec 68. The Gujarat High Court had held as Whether once assessee has established that he has taken money by way of account payee cheques from lenders who are all income tax assesses whose PAN have been disclosed, initial burden under section 68 is discharged and then, it is Assessing Officer s duty to ascertain from Assessing Officer of those lenders, whether in their respective returns they have shown existence of such amount of money and have further shown that those amount of money had been lent to assessee . The ratio l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31.03.1993 for a consideration of ₹ 832 lakhs and the same was sold to the assessee on 17.02.1994 for a total consideration of ₹ 800 lakhs and no depreciation was claimed by M/s. Prakash Industries. The assessee company also produced a certificate from M/s. Sunil Anil Associates Chartered Accountant Delhi certifying that no depreciation was claimed by M/s. Prakash Industries, the WDV of this asset in the books of account of Prakash Industries was ₹ 832 lakhs on 18.12.1994. Further, two certificates given by M/s. Goyal and company, Chartered Engineers dated 14.12.1994 filed certifying the total weight and value of the machinery and these two certificates were not produced during the course of original assessment proceedings but produced during the course of proceedings before ld. CIT(A). The AO denied the claim for allowance of depreciation on the ground that the issue whether M/s. Prakash Industries had claimed depreciation or not is required to be verified from the assessment record of the M/s. Prakash Industries and not by the certificate issued by the Charted Accountants and Charted Engineers. As regards to the depreciation on the assets purchases and leased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered opinion that the AO was not justified in disallowing the claim for depreciation on unjustified grounds. The Hon ble High Court of Madras in the case of Annamalai Finance Ltd. (supra) has laid down certain parameters for allowance of depreciation in the case of sale and leased back of transaction. 48. Nothing is brought on record to say that the above parameters are not met by the assessee and therefore, in the light of the decision of Hon ble High Court of Madras in the case of Annamalai Finance Ltd. (supra), we direct the AO to allow the depreciation as claimed by the appellant. 49. In the result, the appeal filed by the assessee is allowed. Revenue s appeal in ITA No.1394/Chny/2013 for AY 1989-90: 50. This is an appeal filed by the Revenue directed against the common Order of the Learned Commissioner of Income Tax (Appeals), Tiruchirapalli (hereinafter called as CIT(A) ) dated 25.03.2013 for the Assessment Year (AY) 1989-90. 51. The Revenue raised the following grounds of appeal: 1. The order of the CIT(A) is contrary to law, facts and in the circumtances of the case. 2. The CIT(A) failed to see that the statute clearly says that the section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io held by the Supreme Court in the case of Dynamic Orthopaedics 35 DTR 81 (SC). 52. The facts of the case as culled out from the orders of the ld. CIT(A) are as under: 52.1 The Assessing Officer his assessment order has calculated tax u/s 115J, whereas from the beginning had adopted normal tax method u/s 143 (1), 143(3), 143 (3) r w s 147 and argued that when both tax workings were available from the original return itself, change of opinion after 19 years, and selecting tax under section 115 J through order dated 31-03-2008 is not correct. This is done in spite of the fact that MAT (Minimum Alternate Tax) is not applicable to Banking Companies. 52.2 The appellant bank filed its return of income for assessment year 1989-90 on 29.12.1989. The income returned in the normal course claiming deduction and relief was ₹ 1,55,760. The profit as per books was ₹ 1,05,03,038. The appellant bank as per the provisions of the Income tax prepared and submitted its tax liability as per 1 15J (deemed income) also. Both the income as per section 115J and the income returned in normal course were available to assessing authority while he passed an order u/s 143(3) on 31.3.92. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved, an appeal was preferred before ld. CIT(A), who vide impugned order held that the banking company is not liable to tax u/s. 115J of the Act placing reliance on the following decisions: a) Krung Thai Bank PCL Vs Joint Director of IT - International Taxation (Mumbai ITAT - ITA No. 3390/Mum/09 Order dated 30-09-2010 for AY 2004-05). a) Canara Bank Vs CIT (LTU) (ITAT-Bangalore in ITA No.05/Bang/201 I Order dt. 18-07-2012 for AY 2005-06). b) Union Bank of India Vs ACIT (ITA No. 4702 4706/2010 dt. 30-06-2011) c) Indian Bank Vs Addi CIT (ITA No. 469/Mds/2010 Order dt. 03-08-2011 - for A Y 2000-01). d) Indian Bank Vs AddI CIT (ITA No. 470 to 472/Mds/2010 Order dt. 11-06-2012 - for AY 2004-05 to 2006-07) Being aggrieved, the Revenue is in appeal before us in the present appeal. 53. The only issue involved in the present appeal is whether the banking concern is liable to tax under the provisions of s. 115J of the Act. This issue is settled in favour of the assessee-bank by several judicial decisions. The recent decision of Co-ordinate Bench of Tribunal, Bangalore in the case of Canara Bank v. JCIT 60 ITR 1 vide para 13 at Page No.33 held as follows: 13. Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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