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TMI Blog2021 (12) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... reon at Rs. 211.49 crores. Since the tax payable on total income under normal provisions of the Act was higher than the tax payable u/s 115JB of the Act, the AO assessed total income under normal provisions of the Act. The assessee filed appeal challenging the assessment order before Ld CIT(A) and it was partly allowed. Aggrieved by the order passed by Ld CIT(A), both the parties have filed these appeals on the issues decided against each of them. 3. The grounds urged by the assessee give rise to the following issues:- (a) Disallowance of deduction of Provision for bad and doubtful debts claimed u/s 36(1)(viia) of the Act (b) Disallowance of expenditure u/s 40(a)(ia) of the Act (c) Applicability of provisions of sec. 115JB of the Act (d) Additions made to net profit to compute book profit u/s 115JB of the Act. 4. The grounds urged by the revenue give rise to the following issues:- (a) Disallowance of bad debts written of u/s 36(1)(vii) of the Act (b) Disallowance of depreciation on HTM securities. (c) Disallowance u/s 14A of the Act 5. We shall first take up the appeal filed by the assessee. At the time of hearing the Ld A.R did not press the grounds relating to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that since it is a standard facility, the same is not covered under the purview of the provisions of Sec. 194J of the Act as technical services. In this regard, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd., reported in (2016) 67 taxman.com 356 (SC). It was further contended that in any case, the assessee bank had submitted Form No.26A as per Rule 31ACB and as such is covered by the proviso to Sec. 40(a)(ia) and therefore no disallowance could be made. 12.3 Per contra, the learned Departmental Representative for Revenue placed reliance on the orders of the Assessing Officer on this issue. 12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue before us is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (supra); wherein at paras 8 to 10 thereof the Hon'ble Apex Court has held as under :- " 8. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to "technical services" provided by the Stock Exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly it was contended before Ld CIT(A) by the assessee as under:- (a) banking company is defined under BR Act as a "company" which transacts business of banking. (b) "Company" is defined as a company as defined in section 3 of the Companies Act and includes a foreign company within the meaning of sec. 591 of that Act. (c) Since the assessee falls under the category of Act of "corresponding new bank", it was contended that it cannot fall under the definition of "banking Company". (d) Clause (b) of sec.115JB(2) is applicable to a banking company, but the assessee is not a banking company as per the definition given in BR Act. Accordingly, it was contended that the assessee is not liable u/s 115JB of the Act. 7.2 The Ld CIT(A), however, did not accept the above said contentions. The view expressed by Ld CIT(A) has been summarised below:- (a) Sec. 115JB(1) is the charging section and it overrides all other provisions of the Act. It provides that the provisions of this section are applicable in case of "every company". It does not carve out any exception. (b) Sec. 2(17) defines the word "company". According to this section company "means" any Indian Company. (c) Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the view that the assessee would fall under clause (a) of sec.115JB(2). However the case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a 'banking company", i.e., it is a "corresponding new bank". 7.4 We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to "Corresponding new bank". We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of "banking company", provisions of sec.211(2) of the Companies Act etc. Since these aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s setting off of bad debts written off first against the PBDD allowed u/s 36(1)(viia) of the Act would also apply to non-rural write off also. Accordingly, he held that the amount of bad debts written off did not exceed the credit balance available in provision created u/s 36(1)(viia) of the Act and hence bad debts claim cannot be allowed u/s 36(1)(vii) of the Act. He also expressed the view the following view:- "There is no scope in the Income tax Act to allow the provision of non-rural branches advances u/s 36(1)(vii) of the Act and in present case it was not bad debt write off of non-rural branches. The assessee bank has made false submission in this regard before the AO to mislead the revenue. It is a clear cut case of double deduction on the provision of NPA i.e, once u/s 36(1)(viia) and further u/s 36(1)(vii) of the I T Act by making incorrect submissions." Accordingly, the AO disallowed the bad debts claim of Rs. 497.69 crores. 9.2 The Ld CIT(A) noticed that an identical issue has been decided in favour of the assessee in the assessee's own case by the Tribunal in AY 2010-11 to 2012-13. Following the same, the Ld CIT(A) deleted the disallowance made by the AO u/s 36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 of the paper book in which the reconciliation of Gross Advances as per Branch Books and net advances as per Balance Sheet as on 31.3.2010 of the Bank has been carried out (placed at page 135 of the Annual Report for the year under consideration). It is submitted that the net advances as shown in the Balance Sheet tallies with the statement appearing at page 32 of the paper book, thereby establishing the fact that bad debts written off are reduced from the advances at the time of preparation of the Balance Sheet. The learned Authorised Representative also drew our attention to page 25 of the paper book, which is a part of Form 3CD wherein at clause 20, it is clearly mentioned that recoveries of Rs. 91,89,44,840 made against bad debts written off have been credited to the profit and loss account and reduced form the advances in the Balance Sheet. In support of the assessee's claim for write off of bad debts, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the assessee's own case i.e. Vijaya Bank Vs. CIT (2010) 323 ITR 166 (SC). 5.2.2 The learned Authorised Representative contended that the reliance placed by the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the AO is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee- bank to close each and every individual account of loans and advances or debtors as a precondition for claiming deduction under s. 36(1)(vii) of 1961 Act. This view has been taken by the AO because the AO apprehended that the assessee-bank might be taking the benefit of deduction under s. 36(1)(vii) of 1961 Act, twice over. [See order of CIT(A) at pp. 66, 67 and 72 of the paper book, which refers to the apprehensions of the AO]. In this context, it may be noted that there is no finding of the AO that the assessee had unauthorisedly claimed the benefit of deduction under s. 36(1)(vii), twice over. The order of the AO is based on an apprehension that, if the assessee fails to close each and every individual acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vent, s. 41(4) of 1961 Act, inter alia, lays down that, where a deduction has been allowed in respect of a bad debt or a part thereof under s. 36(1)(vii) of 1961 Act, then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered. In the circumstances, we are of the view that the AO is sufficiently empowered to tax such subsequent repayments under s. 41(4) of 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment." 5.5.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the assessee's own case reported in 323 ITR 166 (supra), we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts u/s.36(1)(vii) of the Act and we therefore reverse and delete the disallowance made by the Assessing Officer in this regard. Consequently, Ground No.2 of the assessee's appeal is allowed." 9.4 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee's own case for A.Y. 2008-09 in ITA No.578 & 653/Bang/2012 for A.Y. 2008-09. 11.2 The ld. CIT DR placed strong reliance on the order of the Assessing Officer which was based on the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank (supra) which decided the issue in favour of the revenue. 11.3 Before us, the learned Authorised Representative for the assessee submitted that it was only after considering its own decision in the case of ING Vysya Bank (supra) that the Hon'ble Karnataka High Court decided the issue in favour of the assessee in the case of Karnataka Bank Vs. ACIT reported in (2013) 356 ITR 549 (Kar). Following the decision of the Hon'ble Apex Court in the case of UCO Bank Vs. CIT (1999) 237 ITR 889 (SC), the Hon'ble Karnataka High Court held that the investments of the bank are stock in trade and are to be valued at lower of cost or market value and the resultant depreciation is an allowable deduction. The learned Authorised Representative further submitted that the decision n the case of Karnataka Bank (supra), was followed by the Hon'ble Karnataka High Court in the assessee's own case in their orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a deduction. 59. The ld. counsel for the assessee, however, submitted that in the assessee's own case for the A.Y. 2005-06, this Tribunal has confirmed the order of the CIT(A), deleting identical addition made by the AO. Our attention was also drawn to the order of the Tribunal in assessee's own case in ITA No.492/Bang/2009 for the A.Y. 2005-06, order dated 13.01.2012, wherein the Tribunal had to deal with identical issue as to whether the CIT(A) was correct in deleting the addition made by the AO on account of profit on sale of investments of Rs. 200,77,13,662/- and deleting the action of the AO in disallowing loss claimed on treating investments as stock-in-trade by drawing the investment trading account of Rs. 775,96,55,047. The Tribunal held "16. We have heard both sides and find that the Supreme Court in the case of UCO Bank in 240 ITR 355 has held as under : "In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-in- trade at cost for the purpose of statutory balance-sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 687/2008. The Hon'ble High Court of Karnataka in the aforesaid case followed its own decision rendered in the case of Karnataka Bank Ltd. v. CIT in ITA No.172/2009 rendered on 11.01.2013, wherein the Court took the view that depreciation claimed on investments 'held on maturity' by a bank has to be treated as stockin- trade in accordance with RBI guidelines and CBDT Circular. It was his submission that the later decision of the Hon'ble Karnataka High Court has to be followed. 62. We have given a careful consideration to the rival submissions and are of the view that the contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in assessee's own case on an identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later decision of the Hon'ble High Court of Karnataka is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed." 22. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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