2018 (9) TMI 2109 - AT - Income Tax

Bad Debts Written Off u/s.36(1)(vii) - AO disallowed the assessee's claim as he was of the view that it was only a prudential write off since the individual accounts were not squared off - AO also observed that the write off was not debited to the assessee's profit and loss account - HELD THAT - The facts on record indicate that the assessee bank had debited the bad debts written off to the account Bad Debts Written Off Account (GL Code 180101) which is part of the profit and loss account and has reduced the write off from Gross Advances in the Balance Sheet. The authorities below disallowed the write off on the ground that the individual accounts are not squared off at the Branch Level. We find that this issue of write off has been settled by the coordinate bench of this Tribunal in the assessee's own case 2017 (11) TMI 1425 - ITAT BANGALORE Further, we also find that in a later decision the coordinate bench in the case of Vijaya Bank 2018 (1) TMI 1575 - ITAT BANGALORE has decided this very issue in favour of the assessee bank and against Revenue. Respectfully following the aforesaid decision of the Hon'ble Apex Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT and the decision of co-ordinate benches of this Tribunal in the assessee's own case (supra) and that of Vijaya Bank (supra), we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts under Section 36(1)(vii) of the Act. We, therefore, delete the disallowance made by the Assessing Officer in this regard. Consequently, ground No.2 of the assessee's appeal is allowed. Disallowance of Claim u/s.36(1)(viia) - assessee bank had created a provision for bad and doubtful debts in the books of account and claimed deduction u/s.36(1)(viia) based on the Aggregate Rural Advances (AAA) computed as per Rule 6ABA of the Income Tax Rules, 1962 - AO was of the view that it is only the incremental advances that has to be considered for computing the AAA and consequently allowed the deduction to that extent - HELD THAT - We find that this issue is covered in favour of the assessee by the aforesaid decisions of the co-ordinate benches of this Tribunal in the assessee's own case 2017 (11) TMI 1425 - ITAT BANGALORE and that of Vijaya Bank 2018 (1) TMI 1575 - ITAT BANGALORE and respectfully following the same, we hold that the computation of the AAA made by the Assessing Officer while working out the deduction under Section 36(1)(viia) of the Act is incorrect and therefore delete the disallowance made there under. Consequently, ground NO.3 of the assessee's appeal is allowed. Depreciation on Investments - HELD THAT - As decided in THE KARNATAKA BANK LTD case 2013 (7) TMI 656 - KARNATAKA HIGH COURT depreciation claimed on investments held on maturity by a bank has to be treated as stock-in-trade in accordance with RBI guidelines and CBDT Circular. Respectfully following the decision of the co-ordinate bench in the case of Vijaya Bank 2018 (1) TMI 1575 - ITAT BANGALORE which is in line with the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank 2013 (6) TMI 43 - KARNATAKA HIGH COURT we delete the disallowances / additions made by the Assessing Officer and allow ground No.4 raised by the assessee. Appreciation on Investments - AO was of the view and held that the appreciation as per books has to be brought to tax - HELD THAT - While deciding ground No.4 (supra), we have held that the investments are to be valued at cost OR market value whichever is lower for the purposes of Income Tax. Since the valuation method to be adopted is as per the Income Tax Act for the purpose of computing taxable income, the Book results are to be ignored. Therefore, the notional appreciation in value of investments as per Books is not to be taxed and we therefore delete the addition made by the Assessing Officer. Consequently, ground No.5 of the assessee's appeal is allowed. Unrealised Foreign Exchange Gain - AO held that the unrealized gains on revaluation of forward contract of approx. Rs.77.91 Crores is liable to be taxed since the same was credited to the profit and loss account - HELD THAT - We find that the issue before us; i.e. treatment of unrealized foreign exchange gain, has been considered and held in favour of the assessee by the decision of a co-ordinate bench of this Tribunal in the assessee's own case in order reported in 2017 (11) TMI 1425 - ITAT BANGALORE wherein held that no income can be taxed on notional basis unless and otherwise income accrued to the assessee. Thus we hold that the unrealized gains on revaluation of foreign exchange contracts is not exigible to tax and therefore delete the addition made in this regard by the Assessing Officer. Consequently, Ground No.6 of the assessee's appeal is allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Respectfully following the aforesaid decisions of the coordinate bench in the case of Vijaya Bank 2018 (1) TMI 1575 - ITAT BANGALORE and the assessee's own case 2018 (1) TMI 1575 - ITAT BANGALORE , we hold that, in the facts and circumstances of the case on hand, no disallowance can be made under Section 14A of the Act over and above the amount disallowed suo moto by the assessee. Consequently, ground No.7 of the assessee's appeal is allowed. TDS u/s 194J - Disallowance u/s.40(a)(ia) of the Act in respect of payment made to NPCI - AO held that since NPCI is providing technical services to the assessee bank, the payments made in this regard are liable to TDS - HELD THAT - We find that the issue before us is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT to hold that the services rendered by NPCI are not technical services and as such, are not covered by the provisions of Sec. 194J of the Act. Consequently, ground No.8 is allowed as indicated above. Addition of profit on sale of shares in CARE Ltd. - Profits from Business OR Long Term Capital Gains (LTCG) exempt under Section 10(38) - HELD THAT - It is a settled principle that it is based on the intention at the time of purchase and also treatment in the books that the issue of whether in the case on hand the profits arising on sale of shares of CARE Ltd. by the assessee in the year under consideration are to be treated as business income on account of holding shares as stock-in-trade, as held by Revenue OR as Capital Gains since they are investments, as claimed by the assessee. In an appraisal of the material in the case on hand, it is seen that the assessee invested in the purchase of shares of CARE Ltd.; in 1993. While there are contrasting claims of Revenue that the said shares were held as stock-in-trade and that of the assessee that the shares were all along held as investments, what is important in the treatment given to these scrips / shares in the assessee's books of accounts; which has to be verified. If the assessee bank has included the shares of CARE Ltd., as Investments in the relevant Balance Sheets, only then these investments can be treated as capital asset and the gains arising there from can be treated as LTCG. If these shares are found to be held as stock-in-trade then the profits arising from sale thereof would have to be treated as Business Income. These facts require examination and verification by the Assessing Officer. We, therefore, remand this issue / matter to the file of the Assessing Officer for fresh examination - ground No.9 of assessee's appeal is allowed for statistical purposes. Disallowance of Depreciation on ATMs - HELD THAT - We find that this issue has been held in favour of revenue and against the assessee by the decision of a coordinate bench of this Tribunal in the case of State Bank of Mysore 2016 (5) TMI 1578 - ITAT BANGALORE in which the Tribunal held that ATMs are not computers and hence depreciation thereon is to be allowed @ 15% only. Respectfully following the aforesaid decision of the co-ordinate bench (supra), we dismiss ground No.10 raised by the assessee. Disallowance u/s.40(a)(ia) - Assessing Officer made this disallowance since the assessee bank did not furnish the details called for in respect of TDS and its remittances - HELD THAT - As submitted by the counsels of both parties and from a perusal of the order of assessment, we find that the disallowance under Section 40(a)(ia) of the Act has been made by the authorities below on account of non-furnishing of details by the assessee. We are of the considered view that in the interest of substantial justice, the ex-parte disallowance under Section 40(a)(ia) of the Act made by the Assessing Officer is to be set aside and this issue is restored to the file of the Assessing Officer for fresh examination, verification and adjudication. Needless to add that the Assessing Officer shall afford the assessee adequate opportunity of being heard and to file details / submissions required that shall be considered by the Assessing Officer before deciding this issue. It is ordered accordingly. Consequently, ground No.11 of the assessee's appeal is allowed for statistical purposes. Taxing of interest on Income Tax Refunds - assessee assails the decision of the authorities below in taxing the interest of Income Tax Refunds though the same is not recognised in the assessee's books of account - HELD THAT - As contended by Revenue, this issue has considered and held against the assessee and in favour of revenue by the decision of the ITAT, Mumbai Benches in the case of Hindustan Petroleum Corpn. Ltd 2015 (7) TMI 524 - ITAT MUMBAI Respectfully following the aforesaid decision of the ITAT, Mumbai (supra), we dismiss ground No.12 raised by the assessee. Applicability of Sec.115JB of the Act to Banking Companies - HELD THAT - We find, from a perusal of the impugned order, that the learned CIT(Appeals), following her own decision on this issue for earlier assessment years, allowed the assessee's appeal on this issue. It is also evident therefrom that the learned CIT(Appeals) failed to consider the effect of the amendment by Finance Act, 2012, to the application of the provisions of Sec. 115JB of the Act to the assessee bank. We, therefore, set aside the finding of the learned CIT(Appeals) rendered in favour of the assessee and restore this issue to the file of the learned CIT(Appeals) with a direction to decide / adjudicate the applicability of the provisions of Sec. 115JB of the Act; post amendment by Finance Act, 2012 and also the grounds relating to computation of Book Profit , if it is held that Sec. 115JB of the Act is applicable to the assessee bank. Depreciation on leased assets - HELD THAT - This issue is only consequential in nature as in earlier years, a co-ordinate bench of this Tribunal in the assessee's own case 2016 (7) TMI 1388 - ITAT BANGALORE for Assessment Years 2008-09 2007-08 has allowed the assessee's claim for depreciation on leased assets to Kedia Group of companies. These orders have been referred to and followed by another co-ordinate bench of this Tribunal in the assessee's own case for Assessment Years 2009-10 to 2011-12 2017 (11) TMI 1425 - ITAT BANGALORE Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the assessee's own case (supra), we dismiss Ground No.3 of Revenue s appeal. Disallowance of Loss from investment in ISARC Trust - HELD THAT - From the details on record it is seen that in the year under consideration, the assessee claimed loss under Section 61 of the Act since it is holding 95% of the Security Receipts (SRs) of ISARC (India SME Asset Reconstruction Company) Trust. According to the observations made by CIT(Appeals), assessee has not filed any evidence either before her on the Assessing Officer about the assets in question being transferred irrevocably and proceeded to uphold the disallowance made by the Assessing Officer. In this factual matrix of the case, we are of the view that in the interest of substantial justice, the order of authorities below are to be set aside and this issue remanded to the file of the Assessing Officer for examination, verification and adjudication after affording the assessee adequate opportunity of being heard and to file details / submissions required in this regard which shall be duly considered before deciding the issue. Disallowance of penalty paid to RBI under FEMA Guidelines - AO made disallowance of payment of penalty imposed by RBI on the assessee under FEMA Guidelines on the ground that it is not in respect of any infraction of law, has not been adjudicated by the learned CIT(Appeals) in the impugned order, where the issue was raised by the assessee at ground of appeal No.10 - HELD THAT - We find that this issue was raised in ground No.10 by the assessee before the learned CIT(Appeals), but the same has not been adjudicated by the learned CIT(Appeals). We, therefore, restore this issue raised as Ground No.10 and 10.1 in Form No.35, to the file of the learned CIT(Appeals) for examination and adjudication on merits, after affording the assessee adequate opportunity of being heard and to file details / submissions required which shall be considered by the learned CIT(Appeals) before deciding the issue.

Summary

Issues Involved:
1. Disallowance of bad debts written off.
2. Disallowance of claim of provision for bad and doubtful debts u/s 36(1)(viia).
3. Disallowance of depreciation on AFS & HFT category of investments.
4. Disallowance of depreciation on HTM category of investments.
5. Appreciation on investments not offered to tax.
6. Unrealised gain on revaluation of forward contracts.
7. Disallowance of depreciation on leased assets.
8. Disallowance u/s 14A.
9. Disallowance u/s 40(a)(ia) – payment made to NPCI.
10. Amortisation of premium in respect of HTM category of investments.
11. Profit on sale of shares of CARE Ltd.
12. Depreciation on ATM.
13. Disallowance u/s 40(a)(ia).
14. Interest on Income Tax Refund.
15. Applicability of Sec. 115JB to banking companies.
16. Depreciation on leased assets to Kedia Group of companies.
17. Disallowance of loss from investment in ISARC Trust.
18. Disallowance of penalty paid to RBI under FEMA guidelines.
19. Disallowance of claim u/s 80G.

Detailed Analysis:

1. Disallowance of Bad Debts Written Off:
The Tribunal held that the assessee bank is eligible to claim and be allowed write off of the bad debts under Section 36(1)(vii) of the Act. This decision was based on the precedent set by the Hon'ble Apex Court in Vijaya Bank Vs. CIT and the Tribunal's own previous rulings in the assessee's case.

2. Disallowance of Claim of Provision for Bad and Doubtful Debts u/s 36(1)(viia):
The Tribunal found that the computation of the Aggregate Average Advances (AAA) by the Assessing Officer was incorrect. It ruled in favor of the assessee, following the Tribunal’s previous decisions in Canara Bank Vs. JCIT and Vijaya Bank.

3. Disallowance of Depreciation on AFS & HFT Category of Investments:
The Tribunal allowed the assessee's claim for depreciation on investments, following the Hon'ble Karnataka High Court’s decision in Karnataka Bank Vs. ACIT and the Tribunal’s previous rulings in the assessee's own case.

4. Disallowance of Depreciation on HTM Category of Investments:
The Tribunal ruled in favor of the assessee, stating that investments should be valued at cost or market value, whichever is lower, for income tax purposes. The book results were ignored, and the notional appreciation in the value of investments was not taxed.

5. Appreciation on Investments Not Offered to Tax:
The Tribunal held that the notional appreciation in the value of investments, as per books, is not to be taxed and deleted the addition made by the Assessing Officer.

6. Unrealised Gain on Revaluation of Forward Contracts:
The Tribunal ruled that unrealized gains on revaluation of foreign exchange contracts are not exigible to tax, following its own previous decision in the assessee's case.

7. Disallowance of Depreciation on Leased Assets:
The Tribunal upheld the decision to allow depreciation on leased assets, following the precedent set in the assessee’s own case in previous years.

8. Disallowance u/s 14A:
The Tribunal ruled that no disallowance can be made under Section 14A of the Act over and above the amount disallowed suo moto by the assessee, following its previous decisions in the assessee's case and Vijaya Bank.

9. Disallowance u/s 40(a)(ia) – Payment Made to NPCI:
The Tribunal held that the services rendered by NPCI are not technical services and, therefore, not covered by the provisions of Sec. 194J of the Act, following the Hon'ble Apex Court’s decision in Kotak Securities Ltd.

10. Amortisation of Premium in Respect of HTM Category of Investments:
Since the issue of depreciation on investments was decided in favor of the assessee, the Tribunal directed the Assessing Officer to withdraw the amortization of premium allowed.

11. Profit on Sale of Shares of CARE Ltd.:
The Tribunal remanded the issue to the Assessing Officer for fresh examination, verification, and adjudication to determine whether the shares were held as investments or stock-in-trade.

12. Depreciation on ATM:
The Tribunal dismissed the ground raised by the assessee, following the decision in State Bank of Mysore, which held that ATMs are not computers and hence depreciation thereon is to be allowed at 15%.

13. Disallowance u/s 40(a)(ia):
The Tribunal remanded the issue to the Assessing Officer for fresh examination and verification of the assessee's claims.

14. Interest on Income Tax Refund:
The Tribunal dismissed the ground raised by the assessee, following the decision of the ITAT, Mumbai Benches in Hindustan Petroleum Corpn. Ltd. Vs. ACIT.

15. Applicability of Sec. 115JB to Banking Companies:
The Tribunal remanded the issue to the CIT(Appeals) for fresh examination and adjudication on the applicability of the provisions of Sec. 115JB post amendment by Finance Act, 2012.

16. Depreciation on Leased Assets to Kedia Group of Companies:
The Tribunal dismissed the ground raised by Revenue, following the decision in the assessee’s own case for previous years.

17. Disallowance of Loss from Investment in ISARC Trust:
The Tribunal remanded the issue to the Assessing Officer for examination, verification, and adjudication after affording the assessee adequate opportunity of being heard.

18. Disallowance of Penalty Paid to RBI Under FEMA Guidelines:
The Tribunal restored the issue to the file of the CIT(Appeals) for examination and adjudication on merits.

19. Disallowance of Claim u/s 80G:
The Tribunal restored the issue to the file of the CIT(Appeals) for examination and adjudication on merits.

Conclusion:
The Tribunal allowed some grounds in favor of the assessee, remanded others for fresh examination, and dismissed a few based on existing precedents. The appeals by both the assessee and Revenue for the assessment years 2013-14 and 2014-15 were partly allowed.