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2014 (6) TMI 1052 - AT - Income TaxDisallowance of Provision for Bad Doubtful Debts claimed to the extent eligible u/s 36(1) (vii a) - HELD THAT - As decided in assessee's own case 2015 (4) TMI 727 - ITAT BANGALORE Assessee s method of computation of 10% of the Aggregate Average Advances made by its rural branches computed in the prescribed manner viz., as per Rule 6ABA of the IT Rules, 1962 had not been doubted by the AO and hence the additional grounds raised were held to be not admissible. Tribunal held Sec.36(1)(viia)(a) of the Act, clearly lays down that deduction of 7.5% of the total income has to be allowed as deduction. The plea of the learned DR to restrict the allowance to 7.5% of the total income of the rural branches is contrary to the provisions of the Act. The said additional ground was therefore held to be unsustainable on merits and does not even require an admission for adjudication as it does not arise out of the order of the AO or CIT(A). Thus all the additional grounds sought to be raised by the Revenue were not admitted for adjudication. We hold that the Assessee in the present AY 09-10 is not entitled to deduction u/s.36(1)(viia)(a) of the Act on an amount greater than the amount debited to the profit and loss account as provision as laid down by the Hon ble Punjab and Haryana High Court in the case of State Bank of Patial 2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT . The disallowance made by the AO in this regard is restored and order of CIT(A) reversed on this aspect. Gr.No.2 raised by the Revenue is accordingly allowed. Interest on Securities on accrual basis - HELD THAT - It is not in dispute before us that identical decision has also been rendered by the Hon ble High Court of Kerala in the case of CIT v. Federal Bank, 2008 (1) TMI 195 - KERALA HIGH COURT In the present case, the assessee has been following the method of offering interest on securities to tax on receipt basis on maturity and the same has been accepted by the revenue in the past. In view of the aforesaid decision, we are of the view that the order of the CIT(A) does not call for any interference. Consequently, ground No.3 raised by the revenue is dismissed. Loss on Valuation of Investments - HELD THAT - The facts and circumstances in the present year being identical to the earlier assessment year i.e., AY 06-07 2015 (4) TMI 727 - ITAT BANGALORE we are of the view that the order of the CIT(A) is just and proper and calls for no interference. Respectfully following the decision of the Tribunal for AY 06-07 referred to above, we dismiss, Gr.No.4 raised by the Revenue Disallowance of expenses made invoking the provisions of Sec.14A while computing income under the normal provisions of the Act and adding the sum so disallowed to the profits as per Profit Loss Account for the purpose of computing book profits u/s.115JB - HELD THAT - It is not in dispute before us that identical issue was considered by this Tribunal in assessee s own case for the A.Y. 2006-07 2015 (4) TMI 727 - ITAT BANGALORE and this Tribunal remanded the issue for fresh consideration by the AO in the light of the decision of the Hon ble Bombay High court in the case of Godrej Boyce Mfg. Co. Ltd., 2015 (4) TMI 727 - ITAT BANGALORE - Following the aforesaid decision, we remand the issue to the AO for fresh consideration to be decided on the lines indicated by the Tribunal. Deduction on account of provision made for payment of wage arrears on the ground that the same was unascertained liability which was contingent upon the finality of the wage agreement between the management and the employees - HELD THAT - In this year the provision for wage arrears made by the Assessee was at 8% of the wages prevailing while the ultimate settlement with the workers was at 12%. Thus the estimate made by the Assessee was conservative and well below the ultimate increase that the Assessee conceded to workers in the settlements. As laid down in the case of BEML 2000 (8) TMI 4 - SUPREME COURT the criteria for allowing deduction on account of a provision is that the liability to incur the expenditure which is claimed by way of a provision should be certain and secondly the quantification of such liability should be scientific/reasonable. In the present case, the assessee was legally bound to pay the ultimate revision of wages to be settled. In our view going by the past history, the basis on which the provision was made was reasonable. The liability of the assessee to pay increased wages is certain but what was pending was only quantification. The revenue has not disputed the basis of quantification of such liability. In such circumstances, we are of the view that in the light of the principles laid down by the Hon ble Supreme Court in the case of BEML (supra), the claim for deduction should be allowed. We accordingly direct the AO to allow the claim of the assessee in this regard. MAT applicability - HELD THAT - Provisions of Sec.115JB of the Act are not applicable to the Assessee which is a banking company. Taxing unclaimed monies in NOSTRO Accounts as income of the Assessee taxable u/s.41 - whether similar sums which are credited to the Profit Loss A/C. after due permission of RBI after conditions imposed by RBI similar to the one imposed in the case of the Assessee? - HELD THAT - The Reserve Bank of India, while giving permission to close these accounts has clearly stipulated that the amount so transferred shall not be treated as available for distribution of dividends, meaning thereby the Reserve Bank of India has not permitted the bank to treat it as an income once and for all and it has always stipulated certain conditions and prescribed certain procedures and formalities to safeguard the interest of the bank as a whole but that does not take away the basic nature of the amounts. It cannot in any way convert the transactions of this nature as revenue transactions of the bank necessitating the same to be treated as income on the revenue account. At least, the Reserve Bank of India which was ceased of the issue when it was posed to it did not accept the claims of the assessee that this should be treated as miscellaneous income, meaning thereby, these amounts in question, even by efflux of time, cannot be treated as income for the obligations on the part of the bank is not extinguished and Reserve Bank of India has made it very clear that the assessee bank will be under obligation to discharge all the obligations arising therefrom. In the light of the aforesaid decisions of the tribunal on identical facts as that of the case of the Assessee in the present appeal, we are of the view that the action of the revenue authorities in treating a sumbeing write back of credit balances in NOSTRO Accounts credited to profit and loss account cannot be treated as income of the Assessee and brought to tax.
Issues Involved:
1. Deduction for Provision for Bad & Doubtful Debts under Section 36(1)(viia). 2. Interest on Securities on Accrual Basis. 3. Loss on Valuation of Investments. 4. Disallowance of Expenses under Section 14A. 5. Provision for Wage Arrears. 6. Applicability of Section 115JB (Minimum Alternate Tax) to Banking Companies. 7. Taxability of Unclaimed Monies in NOSTRO Accounts under Section 41. Issue-wise Detailed Analysis: 1. Deduction for Provision for Bad & Doubtful Debts under Section 36(1)(viia): The Revenue's appeal contested the allowance of the assessee's claim for provision for bad and doubtful debts. The Assessee claimed a deduction of Rs. 674.35 crores, but the AO restricted it to Rs. 446.93 crores based on the decision of the Punjab and Haryana High Court in the case of State Bank of Patiala vs. CIT, which held that the deduction cannot exceed the amount debited to the profit and loss account. The CIT(A) allowed the full claim based on the ITAT's earlier decision in the assessee's own case. However, the Tribunal, following its decision in the assessee's case for AY 06-07 and the Canara Bank case, held that the deduction cannot exceed the amount debited to the profit and loss account and restored the AO's disallowance. 2. Interest on Securities on Accrual Basis: The AO added Rs. 31.20 crores to the income, arguing that the assessee, following the mercantile system, should have offered interest on securities on an accrual basis. The CIT(A) deleted the addition, noting that the assessee consistently offered interest on securities on a cash basis, which was accepted by the department in earlier years. The Tribunal upheld the CIT(A)'s decision, referencing the Madras High Court's ruling in Tamil Nadu Mercantile Bank Ltd. and other similar cases, which support the assessee's method. 3. Loss on Valuation of Investments: The AO disallowed Rs. 209.62 crores claimed by the assessee as a loss on revaluation of investments, arguing that not all investments could be considered stock-in-trade. The CIT(A) deleted the disallowance, citing various judicial pronouncements supporting the treatment of investments as stock-in-trade. The Tribunal, following its decision in the assessee's case for AY 06-07 and the Karnataka High Court's ruling in the case of Vijaya Bank, upheld the CIT(A)'s decision. 4. Disallowance of Expenses under Section 14A: The AO disallowed certain expenses under Section 14A while computing income under normal provisions and for book profits under Section 115JB. The Tribunal remanded the issue for fresh consideration by the AO in light of the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd., directing the AO to consider the assessee's argument regarding the availability of interest-free funds. 5. Provision for Wage Arrears: The AO disallowed the assessee's claim for a provision made for wage arrears, considering it an unascertained liability. The CIT(A) upheld the AO's decision. The Tribunal, however, allowed the assessee's claim, noting that the provision was made on a reasonable basis and the liability was certain, referencing the Supreme Court's decision in BEML v. CIT. 6. Applicability of Section 115JB (Minimum Alternate Tax) to Banking Companies: The CIT(A) held that Section 115JB applies to the assessee. The Tribunal, following its decision in the assessee's case for AY 06-07 and the Mumbai Tribunal's ruling in Krung Thai Bank, held that Section 115JB does not apply to banking companies, as they are not required to prepare their profit and loss account as per Schedule VI of the Companies Act. 7. Taxability of Unclaimed Monies in NOSTRO Accounts under Section 41: The AO taxed Rs. 4.98 crores credited to the profit and loss account from NOSTRO accounts as income under Section 41. The CIT(A) upheld the AO's decision. The Tribunal, referencing its decisions in Vijaya Bank and Canara Bank, held that such amounts, subject to RBI conditions, do not constitute income and cannot be taxed under Section 41, and thus allowed the assessee's claim. Conclusion: The Tribunal's detailed analysis covered multiple issues, resulting in partial allowances for both the Revenue and the Assessee. The key takeaways include the restriction on the deduction for bad debts to the amount debited to the profit and loss account, the affirmation of the cash basis for interest on securities, the allowance of loss on investment valuation, the remand for fresh consideration of Section 14A disallowances, the acceptance of wage arrears provision, the non-applicability of Section 115JB to banking companies, and the exclusion of unclaimed NOSTRO account balances from taxable income.
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