TMI Blog2016 (12) TMI 1789X X X X Extracts X X X X X X X X Extracts X X X X ..... adequate opportunity of hearing before passing the order and then comment on merits and allow the assessee appeal for statistical purpose. Broken period interest to be allowed as Revenue expenditure Claim of amortization charges as Revenue expenditure - AO is of the opinion that the assessee included the amortization amount in the book value of HTM Securities to arrive at cost of purchase. - HELD THAT:- CIT(A), observing that the issue is covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in assessee's own case [ 2007 (2) TMI 187 - MADRAS HIGH COURT] allowed the claim of the assessee Chargeability of interest on NPA accounts - Provision of section 43D were the interest is chargeable to tax in the year of credit as such interest in Profit and Loss Account or in the year in which interest is actually received in NPA by the bank - HELD THAT:- Since, the Assessing Officer has made certain observations in the Assessment Order and also CIT(A) has directed for deletion of interest and issue of estimation of interest being first time made by the Assessing Officer. We are of the opinion, that the Assessing Officer has only est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above decision. We inclined to set aside the order of the CIT(A) and upheld the action of the Assessing Officer and allow the ground of the Revenue. Deprecation loss on shifting of securities in the middle of the year - assessee Bank has not reduced depreciation from book value on securities at the time of sale of securities - HELD THAT:- As decided in CITY UNION BANK LIMITED. [ 2007 (2) TMI 187 - MADRAS HIGH COURT] the depreciation on transfer of securities loan AFS category to HTM category are accounted at depreciated value as per RBI guidelines Interest accrued on Government Securities - HELD THAT:- We find similar issue in the assessee's own case for earlier assessment year is covered by High Court decision CIT Vs. City Union Bank Ltd. [ 2007 (2) TMI 187 - MADRAS HIGH COURT] and accordingly we upheld the order of CIT(A) and dismiss the ground of the Revenue. Addition towards Broken Period Interest - HELD THAT:- We heard the submissions, perused the material on record and judicial decision, we find issue is covered by the decision of the co-ordinate bench of Tribunal Lakshmi Vilas Bank [ 2016 (4) TMI 572 - ITAT CHENNAI] , Karur Vysya Bank [ 2004 (7) TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days in filing the appeals by the Revenue, we have considered the explanations in the affidavit and considered the delay and admitted the Revenue appeals. 3. The assessee has raised the following grounds: 3.1 The order of the Ld. CIT(A) is contrary to the facts and circumstances pertaining to the case of the Appellant in so far it relates to non consideration of the ground with regard to validity of reopening of the assessment. 3.2 The Ld. CIT(A) while disposing the case on merits ought to have considered that the very initiation of the proceedings to reopen the completed assessment by issue of notice u/s. 148 of the IT Act was palpably devoid of jurisdiction and conditions precedents to the reopening were absent in the present case. 3.3 The Ld. CIT(A) ought to have appreciated that the Hon'ble Tribunal in the Appellant's own case for the assessment year 2002-03 (ITA No. 740/Mds/09) has held that the reassessment made by issue of notice u/s. 148 even within a period of four years is liable to be cancelled since the reassessment was made on account of change of opinion. 4. The Brief facts of the case are the assessee is a Banking Company and Return of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order, assessee filed an appeal with CIT(A). The Assessee Bank has raised the grounds before the CIT(A) on the initiation of the proceedings u/s. 148 of the Act without precedent conditions and no fresh material was available with the Assessing Officer to open the assessment which is completed u/s. 143(3) of the Act on 30.12.2009. The Ld. CIT(A) Considered the arguments on the re-assessment proceedings and provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) found that the Assessee Bank, in the assessment proceedings has produced copy of Form 16A issued to SBI, Surat and the Ld. AO has failed to appreciate that the From 16A issued for TDS, therefore provisions of section 40a(ia) of the Act are not applicable and deleted the addition. The Ld. CIT(A) discussed deduction u/s. 36(1)(viia) of the Act and on and relied on the assessee's own case for the assessment year 2013-14 in ITA No. 1485/2007 in remitting to the Assessing Officer to follow jurisdictional Tribunal decision and allowed the ground for statistical purpose. Further, the Ld. CIT(A) relied on decision of co-ordinate bench in M/s. Laskhmi Vilas Bank (LVB), in High Court decisions and restricted disallowance u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee appeal for statistical purpose. 8. The Revenue has filed appeal in ITA No. 1671/Mds/2014 for the assessment year 2007-08 against the order of the CIT(A). Since, we have remitted the issue to the file of the CIT(A) to pass a speaking order on the legal issue. As such, the Revenue appeal cannot be survived at this stage. Hence, we dismiss the Revenue appeal as infructuous. In the result, assessee appeal ITA No. 2034/Mds/2014 is allowed for statistical purpose and Revenue appeal ITA No. 1671/Mds/2014 is dismissed. 9. We take up the appeal in ITA No. 2035/Mds/2014 filed by the assessee for the assessment year 2008-09. The assessee has filed the appeal against the order of CIT(A) in ITA No. 93/2012-13 dated 27.02.2014 passed u/s. 143(3) r.w.s. 147 of the I.T. Act. The assessee has raised the legal ground of re-assessment and filed the additional ground on disallowance under 40a(ia) of the Act. The assessee bank has raised the legal ground on validity of re-assessment proceedings as the original assessment proceeding for the assessment year 2008-09 was completed on 31.12.2010 and notice issued for reopening of assessment on 06.06.2011, Reasons being non-TDS deduction by Sura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A) has erred in allowing the deduction treated as Revenue expenditure and not considered the findings of the Assessing Officer and relied on the judicial decisions. Contra, the Ld. AR relied on the orders of the CIT(A) and Tribunal orders. 11.2 We heard the rival submissions, perused the material on record and judicial decisions, the Broken Period Interest issue covered by the Co-ordinate Bench decision in assessee's own case in MP No. 205 to 210/Mds/2011 in ITA No. 935, 937, 939, 940, 770 1507/Mds/2007 for the assessment years 2002-03 to 2007-08 dated 16.12.2011 Page 5 at para 5 read as under: The Ld. DR Shri K.E.B. Rengarajan could not point out any reason as to why the above decision of the Hon'ble Jurisdictional High Court is not applicable on the facts of the instant case. Further, it is not in dispute that the decisions which are contrary to the decision of the Hon'ble Jurisdictional High Court are mistakes apparent from record rectifiable u/s. 254(2) of the I.T. Act, 1961. For this proposition, reliance can be placed on the decision of the Hon'ble Supreme Court in the case of ACIT Vs. Saurashtra Kutch Stock Exchange Ltd (2008) 173 Taxmann 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only depreciation loss written off in the books of accounts and is allowable expenditure and relied on the decision of Hon ble Supreme Court in the case of UCO Bank 240 ITR 355 (SC), where it was held that depreciation in investments should be allowed as revenue expenditure. Since, the securities are stock in trade and valued at cost or market value whichever is less the claim has to be allowed. The Ld. CIT(A) placed reliance on Jurisdictional High Court decision in assessee's own case in 291 ITR 144 (Mds), where it was held that the depreciation on investments is allowable claim. Similarly, co-ordinate bench of Tribunal, in assessee's own case for the assessment years 2004-05, 2006-07 and 2007-08, in ITA No. 937, 940 and 770/2010, following Jurisdictional High Court decision allowed the claim, accordingly, the Ld. CIT(A) directed the Assessing Officer to allow the deduction of Amortization expenditure and allowed the ground of the assessee for statistical purpose. 12.2 Aggrieved by the order, the Revenue has challenged the action of the CIT(A) has erred in treating capital expenditure as revenue expenditure without considering the facts. The Ld. AR submitted that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year in which it is credited by bank to its profit and loss account or in the year in which it is actually received. The Ld. AO found that there are NPA s in the assessee bank and has not provided any interest on NPA as per the RBI guidelines and relied on Apex Court decision the Southern Technologies where the RBI guidelines cannot over ride the provisions of the act. 13.1 The Ld. AO, considering the facts of NPA s has estimated the interest on NPA which recovered are reduced from the provision at ₹ 5 Lakhs. The Ld. CIT(A) found that the Assessing Officer has disallowed, relying on the provisions of section 43D has charged interest on NPA on Accrual Basis which are more than 90 days but not Bad and Doubtful Debts being less than 180 days under Rule 6EA r.w.s. 43D. The Ld. CIT(A) observed that the addition was only on estimated basis without appreciating the provisions of section 43D of the Act which clearly states, that the interest is chargeable to the tax in the year of credit of interest to Profit and Loss Account or in the year in which it was actually received by the bank in the case of NPA Accounts, further any disturbance in the method of accounting cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stors or Regulatory authority and such unclaimed amount cannot remain with the companies or the bankers. The assessee bank explained that the unclaimed balance belongs to clients and same cannot be treated as income of the bank. The Assessing Officer found that as the Agreement of the assesse bank's right to recovery of any claim is barred to limitation and there is increase in unclaimed Balance accounts lying with the bank being more than three years. Since, the bank is acting as a custodian for the money belonging to others and deduction would be allowed to the extent of the amount paid and remaining brought to tax and made additions of ₹ 12,25,142/-. Whereas, the Ld. CIT(A) relying on the assessee's own case for the assessment year 2001-02 and 2002-03 in ITA No. 739, 740/Mds/2009, directed the AO to follow the Supreme Court decision and Tribunal decision and allow the appeal for statistical purpose. 14.1 Before us, Ld. DR argued that the Ld. CIT(A) has erred in directing the Assessing Officer to follow the decision of Tribunal in assessee's own case and Apex Court decision as the unclaimed balance does not belong to the bank and is taxable, as bank is only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon ble Supreme Court in the Catholic Syrian Bank Ltd., Vs. CIT dated 17.02.2012, where it was held that the scheduled commercial banks will continue to get the full benefit of the irrecoverable debts u/s. 36(1)(vii) of the Act in addition to the benefit of deduction for the provision for Bad and Doubtful Debts u/s. 36(1)(viia) of the Act. The Ld. CIT(A) directed the Assessing Officer to follow the decision of Supreme Court and allowed the ground for statistical purpose. The Ld. DR argued that the CIT(A) erred in directing the AO in deleting the addition and as per based on judicial decision. Contra, the Ld. AR relied on the orders of the CIT(A) and the assessee's own case. 15.1 We heard the rival submissions, perused the material on record, we found similar issue was dealt in assessee's own case by jurisdictional High Court of Madras where the deduction u/s. 36(1)(vii) of the Act was allowed and in respect of assessment year 1991-92, 1993-94 1994-95 reported in CIT Vs. City Union Bank Ltd., (2007), 291 ITR 144 (Mds) and accordingly upheld the action of CIT(A) and dismiss the revenue ground. 16. The sixth ground raised that the Ld. CIT(A) erred in allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessee bank relied on the assessee's own case for the assessment year 2003-04. We heard both the parties, perused the material on record and judicial decisions, we found that the decision of High Court and coordinate bench of the Tribunal, squarely apply to the assessee and we set aside the order of CIT(A) on this ground and upheld the action of assessee. Relying on the decision of the Lakshmi Vilas Bank (Supra) at Para 86 to 93 which reads as: 86. The next common ground raised 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/- 5,64,78,408/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that the CIT(A) has ignored the decision of Hon'ble Apex Court to the extent aforesaid. Therefore, we restore the ground back to the Assessing Officer to re-decide the issue in the light of observations made herein above and pass fresh order 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 ₹ 22,20,00,000/- was made. After careful consideration of the furnished particulars, the issue was decided as under- In the assessment order in page no.18, in para no.2, the AO observed as under.- The deduction mentioned in the first proviso viz, that for assets classified by RBI as doubtful assets or loss assets in accordance with the guidelines issued is to be availed of at the option of the assessee. The very word option indicates that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 3 years. However, if the advance is not covered by realisable value of security, then provisioning can be made upto 100% of the advance given. The banks are required to make provisioning for 100% of the advance in respect of 'loss of assets'. Thus, after a gap of few years, almost the entire amount of loan which becomes bad and doubtful has to be provided for by the banks. The banks are allowed deduction in respect of provision made for bad and doubtful debts. 3.2. In this context, allowing deduction under sub-clause (a) of clause (viia) of subsection (1) of section 36 in respect of both the limbs of the sub-clause (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 the bank . This is absurd and of course not the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relevant to mention that the assessee bank has made provision for bad and doubtful debts to the extent of ₹ 22,20,00,000/- only as shown in the Schedule 17 of the Annual Report. The actual working of the allowable deduction u/s 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 the Bank 22,20,00,000 (h) Least of (f) or (g) allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whether the Full Bench of the High Court has grossly erred 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 provision is made under clause (viia), such debts will fall squarely within the main part of clause (vii) which is entitled to be deduction and in respect of that part of the debt with reference to which a provision is made under clause (viia), the proviso will operate to limit the deduction to the extent of the difference between that part of debt written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia)? [para 11 of the order] 90. After examining the various Circulars issued by the Board in relation to section 36(1)(viia) and 36(1)(vii) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Proviso to sec 36(1)(vii) would not permit benefit of double deduction, operating with reference to 'rural' loans, while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. 91. A number of cases decided by the Hon'ble High Courts and also by the Apex Court are cited / referred to in the above judgement. Cases of Vijaya Bank Vs. CIT (323 ITR 166) 2010-TIOL-31-SC-IT and Southern Technologies Vs JCIT (320 ITR 577) 2010-TIOL-01-SC-IT 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 Supreme Court has held in the case of Catholic Syrian Bank that Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee Bank has not reduced depreciation from book value on securities at the time of sale of securities. The Ld. AO found that the assessee has claimed deduction under Head shifting of securities ₹ 2,20,55,856/- and the Ld. AR explained that the RBI allow such expenditure and relates to difference in the cost price of the securities of HFT AFS category and the market price on the date of shifting of the same to HTM securities. The Ld. AO observed that the only transfer of HFT and AFS takes place in the year subsequent to year of purchase and security has already been marked to market till the end of the accounting year proceeding the year in which to transfer or shifting of securities takes place in the year of purchase. Therefore, the difference in the cost of acquisition and market price is merely a notional loss and cannot be allowed as deduction and disallowed. Aggrieved, in Appellate proceedings, the Ld. CIT(A) considered the facts at page 12 of his order that the depreciation on transfer of securities loan AFS category to HTM category are accounted at depreciated value as per RBI guidelines and relied on Tribunal order of the assessee s own case in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 40a(ia) of the Act and Ld. CIT(A) has erred in deleting the addition u/s. 36(1)(viia) of the Act, ignored the applicable provisions of the Act. We have remitted the assessee's appeal ITA No. 2035/Mds/2014 for the assessment year 2008-09 to the file of CIT(A) on legal issue of re-opening of assessment was not adjudicated by appellate authority. We found, since the disputed issue is remitted to the file of CIT(A), as referred at Para 9 of the order. As such, Revenue appeal cannot be survived at this stage and become infructuous and dismissed. 20. We take up ITA No. 1803/Mds/2014 Revenue appeal for the assessment year 2009-10. The first ground that the CIT(A) erred in relying on the judicial High Court decision and deleted addition of the accrued interest on Government Securities. We have dealt similar issue at Para 18 of the order for the assessment year 2008-09 and accordingly the ground of the Revenue is partly allowed for statistical purpose. 21. The second ground that CIT(A) has erred in allowing the claim of the assessee on amortization charges as revenue expenditure. We have decided the similar issue at Para 12.2 and dismiss the Revenue ground. 22. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Ld. AO applying the provisions of section 41(1) of the Act of cessation of liability in respect of value of the stale draft cheque and pay orders as they were not en-cashed by the customers and remained with the bank for more than three years. Similar issue we have decided in ITA No. 1801/Mds/2014 at Para 14.1 and we allow the ground of the Revenue. 28. Now, we take up Revenue appeal for the assessment year 2010-1 in ITA No. 1804/2014, the first ground raised on deletion of interest accrued on Government Securities. We have discussed similar issue in ITA No. 1801/Mds/2014 at Para 18 in favour of the assessee and dismiss the Revenue ground. 29. The second ground, that the Ld. CIT(A) erred in deletion of the deduction u/s. 36(1)(viii) as discussed in the ITA No. 1801/Mds/2014 for assessment year 2008-09 at Para 15.1 and the ground is dismissed. 30. The third ground that the CIT(A) erred in allowing the deduction u/s. 36(1)(viia), we have decided the issue in ITA No. 1801/Mds/2014 at Para 16.1 against the assessee. Accordingly, we allow the ground of the appeal of Revenue. 31. The forth ground that the Ld. CIT(A) erred in allowing the deduction u/s. 37(1) of the Act in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
