2013 (4) TMI 751 - AT - Income Tax

Depreciation on building including land disallowed as relying of assessee s own case for assessment year 1994-95 Disallowance of bad debts written off relating to rural branches - Held that - Remand the issue back to the Assessing Officer to decide it afresh in accordance with the law laid down by the Hon ble Supreme Court of India in the case of Catholic Syrian Bank Ltd 2012 (2) TMI 262 - SUPREME COURT OF INDIA Restriction of claim in respect of deduction under section 36(1)(viia) to the extent of provision made in the books - Held that - Tthis issue has already been decided against the assessee bank in the case of Bharat overseas Bank Ltd. 2012 (11) TMI 505 - ITAT CHENNAI . Disallowance under section 14A based on Rule 8D - Held that - Assessee s claim is baseless, as many of such investments were continuing from preceding years and the Tribunal has already confirmed the disallowance under section 14A as the assessee has incurred expenditure to earn the income. From the assessment year 2008-09 the provisions of Rule 8D have become applicable therefore, it is mandatory to compute disallowance under section 14A in accordance with computation provided under Rule 8D and there is no scope to make modifications as it is a deeming provision to make a fair estimate - Decided against assessee Allowablility of provision for leave encashment - Held that - he provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability - Decided in favour of assessee Depreciation on UPS @ 60% allowed. Deprecation on fixed assets taken over from Bank of Tamilnadu Ltd - Held that - In the assessment year 1996-97 Tribunal remitted the issue back to the Assessing Officer as provisions of section 2(1B) were not taken into consideration by Assessing Officer while deciding the issue. In the instant case also the Assessing Officer has failed to consider the issue in the light of the provisions of section 2(1B). Thus we remit the issue back to the Assessing Officer for deciding it afresh on the similar directions as given by the Tribunal above. Disallowance of contribution to staff welfare fund - Held that - This ground of appeal of the Revenue has already been adjudicated against the assessee for the assessment year 2002-03 wherein held that the claim of the assessee based upon the provision of section 43B has no merit. Before the provisions of section 43B can be applicable, deduction must otherwise be allowable under the Act. In view of the above discussion, we are constrained to hold that the contribution towards staff welfare fund is not allowable expenditure. Loss on revaluation of investments - Held that - As in assessee s own case for AY 1996-97 assessee is entitled to change the method of valuation of Government securities to market value from cost and claim depreciation on the difference in the diminution value. The Tribunal also rightly pointed out the above ruling and held that the securities are trading assets of the bank and the loss arising on its sale is an allowable deduction. The loss on sale of securities is a revenue loss considering that the securities are trading assets and not investments. Hence, this question of law is answered in favour of the assessee and against the revenue. Disallowance of loss on revaluation of derivative contracts - Held that Direct the Assessing Officer to allow the provision as reflecting in substance the loss arising on account of valuation of the closing stock. Recovery in respect of bad debts written off which has not been allowed as deduction in the earlier years - Held that - Commissioner of Income Tax (Appeals) has only remitted the issue back to Assessing Officer to verify whether the bad debts written off has earlier been allowed as deduction or not. If earlier, it has not been allowed as deduction at the time of write off, the same be allowed now. There is no error in the findings of Commissioner of Income Tax (Appeals). Therefore, this ground of appeal of the Revenue is dismissed. Disallowance of provision towards leave travel allowance - Held that - We are in concurrence with the findings of the CIT(A) that the expenditure on leave travel allowance to the staff is not prior period expenditure. The expenditure has been claimed on actual valuation. This ground of appeal of the Revenue is dismissed. Disallowance of the claim of debenture redemption reserve - Held that - Assessee has taken over assets and liabilities of the Bharat Overseas Bank Ltd.. In the process of amalgamation, all the reserves and provisions created by the erstwhile Bharat Overseas Bank Ltd. were also taken over by the assessee bank. As pointed out by the AR, the reserve has been created after preparation of profits already charged to tax. The assessee bank steps into the shoes of the amalgamating company. It shall be deemed that reserve has been created out of profits charged to tax, taxing the same amount would result in double taxation which would be unfair. We agree with the findings of the Commissioner of Income Tax (Appeals) on the issue and dismiss this ground of appeal of the Revenue. Grant of double taxation relief - DTAA - Held that - CIT(Appeals) hyper technically held that the only job of the Assessing Officer was to see whether there is a DTAA between India and Thailand. We are unable to understand the above conclusion made by the learned CIT(Appeals) that the job of the Assessing Officer is just to see whether there is a DTAA between India and Thailand. If there is a DTAA, the Assessing Officer has to allow the relief claimed by the assessee. That being so, in our opinion, the Tribunal need not refer it to the Assessing Officer as well just to see and pass an order. The Tribunal clearly directed the Assessing Officer to enquire into the existence of a DTAA between India and Bangkok. Enquiry means to investigate and apply the same. In our opinion, the Assessing Officer has rightly investigated and applied the same and decided the issue. We therefore hold that the finding given by the learned CIT(Appeals) is not correct. Accordingly, we reverse the order passed by the learned CIT(Appeals) on this count and uphold the order of the Assessing Officer. Applicability of provisions of section 115JB - Held that - In the appeal of the assessee for the assessment year 2005-06 held in view of amendment to the provisions of section 115JB by the Finance Act, 2012, the provisions of section 115JB are applicable to the banks as well from assessment year 2013-14

Summary

Issues Involved:
1. Depreciation on building including land
2. Disallowance of bad debts written off relating to rural branches
3. Restriction of claim in respect of deduction under section 36(1)(viia)
4. Disallowance under section 14A based on Rule 8D
5. Allowability of provision for leave encashment
6. Depreciation on UPS
7. Depreciation on fixed assets taken over from Bank of Tamilnadu Ltd.
8. Computation of deduction under section 36(1)(viia)
9. Disallowance of contribution to staff welfare fund
10. Loss on revaluation of investments
11. Disallowance of loss on revaluation of derivative contracts
12. Recovery in respect of bad debts written off
13. Disallowance of provision towards leave travel allowance
14. Disallowance of the claim of debenture redemption reserve
15. Grant of double taxation relief
16. Applicability of provisions of section 115JB

Detailed Analysis:

1. Depreciation on Building Including Land:
The Tribunal dismissed the assessee's appeal regarding depreciation on building including land, referencing a previous decision against the assessee in ITA No.2412/Mds/2003 for the assessment year 1994-95.

2. Disallowance of Bad Debts Written Off Relating to Rural Branches:
The Tribunal remanded this issue back to the Assessing Officer for fresh consideration in light of the Supreme Court's judgment in Catholic Syrian Bank Ltd. vs. CIT, which clarified the application of sections 36(1)(vii) and 36(1)(viia) regarding bad debts.

3. Restriction of Claim in Respect of Deduction under Section 36(1)(viia):
The Tribunal dismissed the assessee's appeal, affirming that the deduction under section 36(1)(viia) is subject to the actual provision made in the books and cannot exceed 7.5% of the gross total income.

4. Disallowance under Section 14A Based on Rule 8D:
The Tribunal upheld the disallowance under section 14A, emphasizing that from the assessment year 2008-09, Rule 8D mandates the computation of disallowance, even if the assessee claims no expenditure was incurred.

5. Allowability of Provision for Leave Encashment:
The Tribunal allowed the assessee's appeal, referencing the Calcutta High Court's decision in Exide Industries Ltd. and the Supreme Court's ruling in Bharat Earth Movers Ltd., which held that provisions for leave encashment are deductible.

6. Depreciation on UPS:
The Tribunal granted partial relief, allowing depreciation on UPS at 60%, treating it as part of computer hardware, in line with the Delhi High Court's decision in Orient Ceramics & Industries Ltd.

7. Depreciation on Fixed Assets Taken Over from Bank of Tamilnadu Ltd.:
The Tribunal remitted this issue back to the Assessing Officer to reconsider in light of section 2(1B), as previously directed in ITA No.843/Mds/2008.

8. Computation of Deduction under Section 36(1)(viia):
The Tribunal allowed the Revenue's appeal, consistent with its earlier decision on the same issue in the assessee's appeal.

9. Disallowance of Contribution to Staff Welfare Fund:
The Tribunal allowed the Revenue's appeal, noting that the liability was not crystallized or contributed towards an approved fund, thus not deductible under section 40A(7).

10. Loss on Revaluation of Investments:
The Tribunal dismissed the Revenue's appeal, following the Madras High Court's ruling in CIT vs. Karur Vysya Bank Ltd., which allowed depreciation on securities valued at market price.

11. Disallowance of Loss on Revaluation of Derivative Contracts:
The Tribunal dismissed the Revenue's appeal, aligning with the Mumbai Tribunal's decision in Edelweiss Capital Ltd. and the Special Bench ruling in DCIT vs. Bank of Bahrain & Kuwait, allowing the provision for anticipated loss on derivatives.

12. Recovery in Respect of Bad Debts Written Off:
The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A) that the Assessing Officer should verify if the bad debts were previously allowed as deductions.

13. Disallowance of Provision Towards Leave Travel Allowance:
The Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s finding that the provision for leave travel allowance and medical benefits, based on actual valuation, is not a prior period expense.

14. Disallowance of the Claim of Debenture Redemption Reserve:
The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A) that taxing the reserve would result in double taxation, as it was created from profits already taxed.

15. Grant of Double Taxation Relief:
The Tribunal allowed the Revenue's appeal, following its earlier decision in DCIT vs. Bharat Overseas Bank Ltd., which held that the Assessing Officer correctly applied the DTAA provisions between India and Thailand.

16. Applicability of Provisions of Section 115JB:
The Tribunal dismissed the Revenue's appeal, referencing the Hyderabad Bench's decision in State Bank of Hyderabad, which held that section 115JB does not apply to banking companies, except from the assessment year 2013-14.

Conclusion:
The appeals were partly allowed and partly dismissed, with specific issues remanded for fresh consideration by the Assessing Officer.