2019 (3) TMI 1744 - AT - Income Tax

Claim u/s. 36(1)(vii) on account of write off of debts by non rural branches of assessee Bank disallowed - HELD THAT - Since the issue in present appeal is identical to the one already considered by the Co-ordinate Bench in assessee s own case 2014 (10) TMI 210 - ITAT PUNE and there has been no change in the facts we deem it appropriate to restore the issue to Assessing Officer for re-adjudication with similar directions. The ground No. 1 of the appeal is allowed for statistical purpose in the same terms. Deduction u/s. 36(1)(viia) to the extent of provision made in the books of account for bad and doubtful debts u/s. 36(1)(viia) of the Act to be allowed. Disallowance of the claim of loss as per securities trading account held under HTM category - HELD THAT - In assessee s own case 2014 (10) TMI 210 - ITAT PUNE Plea of the learned CIT-DR is quite untenable primarily because the very nature of banking activities allowed as per the Banking Regulation Act 1949 are in the sphere of business / trade activities; and accordingly the recognition of investments in HTM category as stock-in-trade is not dependent on the frequency of their sale / purchase carried out by the assessee-bank. We therefore conclude by holding that in the present case the method of valuation of the closing stock adopted by the assessee i.e. cost or market value whichever is lower is fair and proper and the income-tax authorities have erred in not accepting the same. The orders of the authorities below on this aspect are hereby reversed. As decided in BANK OF MAHARASHTRA 2018 (3) TMI 316 - BOMBAY HIGH COURT Tribunal was justified in deleting the addition in allowing loss of valuation of Held to Maturity (HTM) securities when HTM securities are capital in nature Disallowance u/s. 14A - contention of the assessee is that the investments were held by the assessee as stock in trade therefore no disallowance u/s. 14A was required to be made in respect of exempt income earned on shares held as Stock in trade - HELD THAT - The Hon ble Apex Court in the case of Maxopp Investment Ltd. Vs. Commissioner of Income Tax 2018 (3) TMI 805 - SUPREME COURT has approved the judgment rendered in the case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala 2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT Therefore in view of the law settled by the Hon ble Apex Court no disallowance u/s. 14A is warranted in respect of shares held by the assessee as stock in trade. Since the disallowance u/s. 14A has been set at naught on the ground of assessee holding the investment as stock in trade the alternate contention of assessee with regard to disallowance made under Rule 8D(2)(ii) in respect of interest expenditure has become academic. Thus in view of our above findings ground No. 6 raised in the appeal by the assessee is allowed. Disallowance of provision for wage revision - wage revision liability is not ascertained as on 31-03-2010 - HELD THAT - In the present case the authorities below have erred in coming to the conclusion that the liability has not crystallized in the assessment year under appeal as there was no quantification of payment of wages. The creation of liability and quantification of liability are two different stages. As soon as the liability is crystallized it is no more contingent. The quantification and discharge of liability is the second stage which can happen in future. Thus we find merit in the ground raised by assessee. Accordingly the claim of assessee in respect of provision for wage arrears is accepted. Eligibility for claiming deduction u/s. 36(1)(viii) - HELD THAT - The deduction has been denied to the assessee for the reason that the assessee has failed to furnish relevant documents to claim such deduction. On the contrary the contention of the assessee is that all the relevant documents were furnished before the Assessing Officer. Without further going into the merits the Assessing Officer is directed to examine the documents furnished by the assessee and thereafter decide the issue de novo after affording reasonable opportunity of hearing to the assessee in accordance with law. Thus the ground No. 8 is allowed for statistical purpose. Disallowance u/s. 40(a)(ia) - short deduction of tax at source - HELD THAT - Hon ble Calcutta High Court in the case of Commissioner of Income Tax Vs. S K Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT has held that the provision of section 40(a)(ia) are not attracted where there is short deduction of tax. The provision of section 40(a)(ia) apply where no tax has been deducted at source. Thus in view of the law laid down in the case of Commissioner of Income Tax Vs. S K Tekriwal (supra) no disallowance u/s. 40(a)(ia) is warranted. Depreciation on UPS is restricted to 60% - See M/S. SARASWAT INFOTECH LTD. 2013 (1) TMI 861 - BOMBAY HIGH COURT Disallowance of interest on NPAs - HELD THAT - The issue is no more res integra. The assessee has created a provision in the P L account on account of interest on NPAs and has claimed the same during the period relevant to the assessment year under appeal. The issue is squarely covered in favour of the assessee by the decision rendered in the case of Commissioner of Income Tax Vs. Deogiri Nagari Sahakari Bank Ltd. 2015 (1) TMI 1218 - BOMBAY HIGH COURT . The Hon ble High Court following the decision of Hon ble Apex Court in the case of UCO Bank Vs. Commissioner of Income Tax 1999 (5) TMI 3 - SUPREME COURT held that interest on sticky loans has to be allowed. Thus in view of the aforesaid decision the ground No. 11 raised in the appeal by the assessee is allowed. Applicability of MAT provisions u/s. 115 JB on assessee bank - HELD THAT - The said provisions are invoked only in respect of companies. The assessee is a Bank and is not governed by Companies Act 1956. Hence the said provisions would not apply in the case of a Bank. Assessee being a banking company does not fall within the purview of section 115JB

Summary

Issues Involved:
1. Disallowance of ?206,26,67,664/- under Section 36(1)(vii) of the Income Tax Act, 1961.
2. Restriction of claim under Section 36(1)(viia) of the Income Tax Act, 1961.
3. Disallowance of the claim of loss as per securities trading account.
4. Allowance of net depreciation on HFT & AFS securities.
5. Exclusion of profit on sale of investments from total income.
6. Disallowance under Section 14A of the Income Tax Act, 1961.
7. Disallowance of provision for wage revision.
8. Direction regarding allowance of deduction under Section 36(1)(viii) of the Income Tax Act, 1961.
9. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, for short deduction of tax.
10. Depreciation rate on UPS.
11. Taxation of accrued interest income on Non-Performing Assets (NPAs).
12. Applicability of Section 115JB of the Income Tax Act, 1961, to the appellant bank.

Issue-wise Detailed Analysis:

1. Disallowance under Section 36(1)(vii):
The assessee, a nationalized bank, claimed a deduction for bad debts written off. The CIT(A) disallowed this claim, stating that the debts were not actually written off but were prudential write-offs. The tribunal referred to previous similar cases (ITA Nos. 1505/PN/2008 and 1135 to 1138/PN/2013) and the Supreme Court's judgment in Catholic Syrian Bank Ltd. vs. CIT. The tribunal restored the issue to the Assessing Officer for re-adjudication, allowing the ground for statistical purposes.

2. Restriction of Claim under Section 36(1)(viia):
The assessee claimed a deduction under Section 36(1)(viia) which was restricted by the CIT(A) to the provision made for rural branches only. The tribunal referred to earlier cases and decided that the deduction should be allowed to the extent of the total provision made, not just for rural branches. The ground was partly allowed.

3. Disallowance of Loss as per Securities Trading Account:
The assessee treated all investments as stock in trade and claimed a loss on the valuation of securities. The Assessing Officer disallowed this, treating HTM securities as capital assets. The tribunal referred to earlier decisions and the Bombay High Court's ruling, which upheld that HTM securities could be treated as stock-in-trade. The ground was allowed.

4. Allowance of Net Depreciation on HFT & AFS Securities:
As the main claim regarding securities was allowed, the alternate claim for net depreciation became infructuous and was dismissed.

5. Exclusion of Profit on Sale of Investments:
The tribunal directed the Assessing Officer to rework the income considering the valuation method upheld in earlier cases. The ground was allowed for statistical purposes.

6. Disallowance under Section 14A:
The tribunal held that no disallowance under Section 14A is warranted for shares held as stock in trade, following the Supreme Court's decision in Maxopp Investment Ltd. vs. CIT and the Punjab and Haryana High Court's decision in the case of State Bank of Patiala. The ground was allowed.

7. Disallowance of Provision for Wage Revision:
The tribunal found that the liability for wage revision crystallized during the relevant period and was not contingent. The provision for wage arrears was allowed, following the Supreme Court's ruling in Bharat Earth Movers vs. CIT. The ground was allowed.

8. Direction Regarding Deduction under Section 36(1)(viii):
The tribunal directed the Assessing Officer to examine the documents furnished by the assessee and decide the issue de novo, after providing a reasonable opportunity of hearing. The ground was allowed for statistical purposes.

9. Disallowance under Section 40(a)(ia) for Short Deduction of Tax:
The tribunal cited the Calcutta High Court's decision in CIT vs. S K Tekriwal, which held that Section 40(a)(ia) does not apply to short deductions of tax. The disallowance was deleted, and the ground was allowed.

10. Depreciation Rate on UPS:
The tribunal referred to the Delhi High Court's decision in CIT vs. Orient Ceramics & Industries Ltd. and the Bombay High Court's decision in CIT vs. Saraswat Infotech Ltd., which allowed depreciation on UPS at 60%. The ground was partly allowed.

11. Taxation of Accrued Interest on NPAs:
The tribunal followed the jurisdictional High Court's decision in CIT vs. Deogiri Nagari Sahakari Bank Ltd., which allowed the claim for interest on NPAs. The ground was allowed.

12. Applicability of Section 115JB:
The tribunal held that Section 115JB does not apply to banks, following earlier decisions in the assessee's own case and other precedents. The ground was allowed.

General Ground:
The general ground was noted but required no adjudication.

Conclusion:
The appeal was partly allowed, with various grounds either allowed, partly allowed, or allowed for statistical purposes. The tribunal provided detailed directions for re-adjudication or verification by the Assessing Officer where necessary.