2014 (3) TMI 805 - AT - Income Tax

Disallowance of depreciation on investments Held that - Whether the method adopted by the assessee for valuation of investments for Income tax purposes was consistently followed by the assessee in the earlier years also has not been considered - the assessee has been claiming deduction only for income tax purposes (without making appropriate entries in the books of account), the assessee would be entitled to claim deduction of only the incremental amount of provision - the assessee has not furnished any details to show that the claim made by it represents only the incremental amount of provision for depreciation on investments - this aspect also requires verification at the end of the AO thus, the order of the CIT(A) set aside and the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee. Restriction of deduction claimed u/s 36(1)(viia) of the Act Held that - The word(s) defined under the Act should be assigned the same meaning and hence no other meaning can be ascribed to it - when the section specifically states the amount of deduction is required to be computed at a figure not exceeding 7-1/2% of the total income, the AO was not justified in computing the amount of deduction at 7-1/2% of the income generated out of the rural advances - CIT(A) was also not justified in confirming the action of the AO thus, the order of the CIT(A) set aside and the matter is remitted back to the AO for verification Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of depreciation on investments claimed by the assessee.
2. Partial disallowance of deduction claimed u/s. 36(1)(viia) of the Act.

Analysis:

Issue 1: Disallowance of Depreciation on Investments
- The assessee, a cooperative society engaged in banking, claimed deduction of Rs. 8.92 crores under "Depreciation on investments" for the assessment year 2010-11.
- The Assessing Officer disallowed the claim as the amount was not debited in the Profit and Loss account, citing RBI guidelines requiring the amount to be debited.
- The assessee argued that it consistently claimed such deductions without debiting and referred to a Supreme Court case supporting this practice.
- The ITAT found that the assessing officer did not examine if the method was consistently followed by the assessee and directed a fresh examination of the issue.

Issue 2: Partial Disallowance of Deduction u/s. 36(1)(viia) of the Act
- The assessee claimed deduction under section 36(1)(viia) for bad and doubtful debts, with two components based on rural advances and total income.
- The Assessing Officer restricted the deduction based on income from rural branches only, contrary to the provision which allows deduction based on total income.
- The ITAT held that the deduction should be computed based on total income, not just rural advances, as per the clear provision of the Act.
- The order of the Ld. CIT(A) was set aside, and the assessing officer was directed to verify and allow the claim based on total income.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing a fresh examination of the depreciation claim issue and clarifying the computation of deduction u/s. 36(1)(viia) based on total income. The judgment emphasized adherence to statutory provisions and consistent application of methods in tax matters.