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2015 (11) TMI 861 - AT - Income TaxEntitlement to the deduction of bad debt pertaining to non-rural branches - Held that - We set aside this ground of appeal to the file of AO for fresh examination and to grant deduction on merits to the assessee in light of decision of Hon ble Supreme Court in case of Catholic Syrian Bank Ltd. v. CIT 2012 (2) TMI 262 - SUPREME COURT OF INDIA wherein held that U/s 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, while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans. Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields Disallowance of the claim of loss on account of fall in value of investments held as stockin- trade - Held that - This issue now no longer survives in view of two decisions of Hon ble Karnataka High Court in case of Karnataka Bank Ltd. vs. Assistant Commissioner of Income Tax 2013 (7) TMI 656 - KARNATAKA HIGH COURT and CIT vs. Bank of Baroda 2003 (3) TMI 80 - BOMBAY High Court and a decision of CIT vs. HDFC Bank Ltd. reported at 2014 (7) TMI 724 - BOMBAY HIGH COURT considering decision of United commercial bank V CIT 1999 (9) TMI 4 - SUPREME Court and Southern technologies Limited V Jt CIT 2010 (1) TMI 5 - SUPREME COURT OF INDIA wherein as decided in the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown as stock-in-trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance-sheet , it is shown as investment, for the purpose of Income Tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the bank has to take into consideration the market value of the shares. If the market value is less than the cost price, in law, they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance-sheet. Thus we reverse the order of CIT (A) and delete the disallowance on account of claim of loss of transfer of security from available for sale category to held to maturity category by the appellant bank in accordance with direction/ circular of Reserve Bank of India. - Decided in favour of assessee. Disallowance sustained by CIT(A) u/s 14A - assessee has earned exempt income which is exempt under the provisions of Section 10 - Held that - no disallowances cannot be made in case of a bank where assessee s own funds and other non-interest bearing funds are more than investment in the tax free securities. However, it cannot be said without detailed examination that the assessee, which can be disallowed, has incurred no expenditure other than interest . However, Rule 8 D does not apply for the year under appeal but reasonable amount of disallowance out of other expenditure may be determined based on details of expenses incur red which are related to earning exempt income. We restore these ground back to the file of AO as relying on assessee s own case for preeding AYs to examine the issue afresh with respect to work out disallowance, if any, of other expenditure other than interest expenditure relating to exempt income. - Decided in favour of assessee for statistical purposes. Restriction on disallowance u/s 14A by CIT(A) - Held that - We confirm the order of CIT (A) in deleting interest port ion of expenditure u/s 14A in view of the excess of owned interest free funds than the investment in tax free income earning securities for the year. See Commissioner of Income Tax-2, Mumbai Versus HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT - Decided in favour of assessee . Disallowance being broken period interest - CIT(A) deleted the addition - Held that - Assesse bank has incurred broken period interest expenditure of ₹ 98.12 cr at the time of purchase of securities and claimed it as revenue expenditure. As the securities of the assessee bank are stock in trade of the bank natural corollary would be that the amount of interest paid for broken period shall also be revenue expenditure in nature and allowable to the bank. This issue has been considered by various high courts, which have been considered by CIT (A) in his orders while deciding the issue. Further, the revenue has also not contested this issue in earlier years. Hon Bombay high court in case of CIT V HDFC bank Limited in 2014 (8) TMI 119 - BOMBAY HIGH COURT has held that even after the decision of Hon. supreme court in case of CIT v Vijaya bank (1990 (9) TMI 5 - SUPREME Court) broken period interest is allowable to the assessee. - Decided in favour of assessee . Claim of depreciation of LAN and WAN equipment - CIT(A) allowed claim - Held that - As relying on CIT V BSES Yamuna Power Limited 2010 (8) TMI 58 - DELHI HIGH COURT WAN and LAN equipment are used with computers only same are also eligible for depreciation @ 60 % therefore, we confirm the order of CIT (A) in deleting the granting depreciation of disallowance made by the AO on account of excess claim of depreciation of LAN and WAN equipment. - Decided in favour of assessee . Disallowance of excess claim of depreciation on fixture and fitting - CIT(A) allowed claim - Held that - Assessee banks has shown addition of ₹ 15,73,78,019/- to the opening WDV of ₹ 15622208/- and reduction therefrom of ₹ 100163 resulting in to WDV of ₹ 99748028 and claimed depreciation thereon of ₹ 75136583/ -. Firstly, assessee has shown these items as furniture and fixtures and we do not find that Appendix I as per Income tax rules 1962 prescribed under the head furniture and fixtures any class of items, which is eligible for 100 % depreciation. As per annexure D of the tax audit report , assessee himself has classified it is temporary wooden structure. Definitely, it is apparent that it is not building which CIT (A) has considered. Therefore, from the facts it is not clear that whether it is building or furniture and fittings. Secondly, we agree with the views of the CIT (A) that AO has erred in allowing depreciation at the correct rates has amortized these expenditure over 5 years. Therefore, in absence of these facts, this ground of appeal is restored back to the file of AO for fresh verification. - Decided in favour of revenue for statistical purposes.
Issues Involved:
1. Disallowance of claim of loss on fall in value of investments held as stock-in-trade. 2. Disallowance under Section 14A of the Income Tax Act, 1961. 3. Additional ground regarding bad debts in respect of non-rural advances under Section 36(1)(vii). 4. Disallowance of broken period interest. 5. Disallowance of depreciation on LAN and WAN equipment. 6. Disallowance of depreciation on fixtures and fittings on temporary structures. Issue-wise Detailed Analysis: 1. Disallowance of Claim of Loss on Fall in Value of Investments Held as Stock-in-Trade: The assessee argued that the loss of Rs. 205.43 crores due to the transfer of securities from 'Available for Sale' (AFS) to 'Held to Maturity' (HTM) should be allowed as it was an actual loss as per RBI guidelines. The Tribunal noted that the RBI circular mandates such transfers and the resultant loss should be provided for. The Tribunal relied on precedents, including the Karnataka High Court's decision in Karnataka Bank Ltd. vs. Assistant Commissioner of Income Tax and the Bombay High Court's decision in CIT vs. HDFC Bank Ltd., which support the allowance of such losses. The Tribunal reversed the CIT(A)'s order and allowed the claim. 2. Disallowance under Section 14A of the Income Tax Act, 1961: The assessee contended that no expenditure was incurred for earning tax-free income and cited sufficient non-interest-bearing funds. The Tribunal observed that Rule 8D of the Income Tax Rules, 1962, was not applicable for AY 2007-08. Following the Bombay High Court's decision in CIT vs. HDFC Bank Ltd., which held that no disallowance can be made if the assessee's own funds exceed the investments in tax-free securities, the Tribunal confirmed the deletion of the interest portion of the disallowance. However, the Tribunal remitted the issue of other expenditure back to the AO for fresh examination. 3. Additional Ground Regarding Bad Debts in Respect of Non-Rural Advances Under Section 36(1)(vii): The assessee raised an additional ground based on the Supreme Court's decision in Catholic Syrian Bank Ltd. v. CIT, which clarified that Section 36(1)(vii) and Section 36(1)(viia) operate independently. The Tribunal admitted the additional ground, noting that the facts were on record and similar issues had been remitted back to the AO in earlier years. The Tribunal directed the AO to verify the facts and grant the deduction accordingly. 4. Disallowance of Broken Period Interest: The AO disallowed Rs. 98.12 crores on account of broken period interest. The Tribunal noted that the securities were stock-in-trade, and the interest paid for the broken period should be treated as revenue expenditure. Citing the Bombay High Court's decision in CIT vs. HDFC Bank Ltd., the Tribunal confirmed the CIT(A)'s order allowing the deduction. 5. Disallowance of Depreciation on LAN and WAN Equipment: The AO allowed depreciation at 15%, treating them as plant and machinery, while the assessee claimed 60% depreciation, treating them as computers. The Tribunal relied on the Delhi High Court's decision in CIT vs. BSES Yamuna Power Ltd., which held that computer peripherals form an integral part of the computer system and are eligible for higher depreciation. The Tribunal confirmed the CIT(A)'s order allowing 60% depreciation. 6. Disallowance of Depreciation on Fixtures and Fittings on Temporary Structures: The AO amortized the expenditure over five years, while the assessee claimed 100% depreciation. The Tribunal noted that the classification of these items was unclear and remitted the issue back to the AO for fresh verification. The Tribunal agreed that the AO erred in amortizing the expenditure and directed a re-examination of the facts. Separate Judgments Delivered: Not applicable as no separate judgments by different judges were mentioned. Conclusion: The Tribunal allowed the appeal of the assessee on most grounds, remitting some issues back to the AO for verification, and dismissed certain grounds of the revenue's appeal. The decision was pronounced on 04/11/2015.
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