2017 (1) TMI 388 - AT - Income Tax

Claim of depreciation on AFS and HFT investments - A.O observed that the depreciation of HFT and AFS securities is to be allowed to the extent provided in the books of account, and since the assessee has not made any provision for the depreciation of HFT and AFS securities in its books for the relevant A.Ys, he disallowed the claim of depreciation on these securities - Held that - Hon ble jurisdictional High Court in assessee s own case ( 1984 (7) TMI 66 - ANDHRA PRADESH High Court) held that main business of the banking company being to accept deposits to advance loans to appropriate persons, money constitutes its stock in trade. The amount required to kept in India as per section 24 of the Banking Regulation Act, 1949 in the form of cash, gold and unencumbered securities is part of stock in trade of the assessee. While identical issue of claim of depreciation on HTM securities came up before the Income-tax Appellate Tribunal in assessee s own case for the assessment year 2003-04 the Income- tax Appellate Tribunal following the ratio laid down by the jurisdictional High Court in State Bank Of Hyderabad Versus Commissioner Of Income-Tax, AP -I, Hyderabad 1984 (7) TMI 66 - ANDHRA PRADESH High Court and CIT V/s. Nedungadi Bank Ltd (2002 (11) TMI 29 - KERALA High Court ) held that when there is no distinction between the three categories of securities viz.,HTM, AFS and HFT. The assessee can provide for depreciation in all the securities on the same footing. In view of the ratio laid down by the co- ordinate bench of this Tribunal, we do not find any reason to interfere with the finding of the CIT (A) on this issue in allowing claim - Decided in favour of assessee. Disallowance of claim of broken period interest paid on purchase of securities - Held that - As decided in assessee s own case CIT(A) allowed the claim on the ground that the same was in stock in trade and hence the interest for the broken period is an allowable deduction. Issue is covered by the decision of the Mumbai Bench in the case of JCIT Vs. Dena Bank 2013 (3) TMI 326 - ITAT MUMBAI - Decided in favour of assessee. Disallowance of proportionate expenditure on exempted income u/s 14A - CIT(A) restricted the disallowance to two months salary of the treasury benches as directed by the tribunal in the assessee s own case for the earlier assessment years - Held that - We find that in the assessee s own case for the assessment year 2009-10 no infirmity in the order passed by the CIT(A) on this issue. After introduction of Rule 8D into the Income Tax Rules from A.Y. 2008-09 disallowance of expenditure relating to earning of exempted income under section 14A of the Act, has to be determined as per the method provided under Rule 8D. In fact, as can be noticed from para 7.4 of the CIT(A) Order, the assessee itself during the proceeding before the CIT(A) has worked out the disallowance to be made in terms with Rule 8D(2) which has been accepted by the CIT(A). In these circumstances, we do not find any reason to interfere with the order of the CIT(A) in this regard. - Decided against revenue Claim towards bad and doubtful debts under section 36(1)(vii) in respect of non rural branch advances and deduction under section 36(1)(viia) in respect of rural branch advances - Held that - We find that this issue is covered by the decision in the case of the State Bank of Patiala Vs CIT cited (2004 (5) TMI 12 - PUNJAB AND HARYANA High Court ), wherein it has been held that the claim u/s 36(1)(viia) can be allowed only to the extent of provision made by the assessee in its books of accounts. The formula on the limit prescribed under section 36(1)(viia) is the maximum provision which can be allowed and is not a standard deduction as claimed by the assessee. We find that the CIT(A) has therefore, restricted the claim u/s 36(1)(viia) to the extent of provision made by the assessee in its books of account. Therefore, we see no reason to interfere with the order of the CIT(A) on this issue. Further, as rightly pointed by the ld DR, the A.O has already allowed the claim of deduction u/s 36(1)(vii) of the Act, and there can be no other grievance of the assessee and therefore the ground of appeal No. 6, raised by the assessee before the CIT(A) is without any basis and the CIT(A) s observation at Page 9 of her order is also not warranted.

Summary

Issues Involved:
1. Depreciation on investments in HTM, AFS, and HFT securities.
2. Claim of broken period interest.
3. Proportionate expenditure on exempted income under section 14A.
4. Deduction for bad and doubtful debts under sections 36(1)(vii) and 36(1)(viia).

Issue-wise Detailed Analysis:

1. Depreciation on Investments in HTM, AFS, and HFT Securities:
The core issue was whether the assessee bank could claim depreciation on investments in HTM (Held to Maturity), AFS (Available for Sale), and HFT (Held for Trading) securities. The A.O. disallowed the depreciation claim on HTM securities, treating them as long-term investments not meant for trading. Similarly, the depreciation on AFS and HFT securities was disallowed as the assessee had not made any provision for depreciation in its books for the relevant A.Ys. The CIT(A) allowed the assessee’s claim, following previous tribunal decisions in the assessee’s favor. The tribunal upheld the CIT(A)’s decision, citing consistent rulings in the assessee’s favor and the jurisdictional High Court’s decision that treated such securities as stock-in-trade.

2. Claim of Broken Period Interest:
The A.O. disallowed the claim of broken period interest, treating it as a capital expenditure. The CIT(A) allowed the claim, following the tribunal's decision in the assessee’s own case for the assessment year 2009-10. The tribunal upheld the CIT(A)’s decision, referencing consistent tribunal rulings and High Court decisions that treated broken period interest as an allowable deduction.

3. Proportionate Expenditure on Exempted Income under Section 14A:
The A.O. disallowed the proportionate expenditure on exempted income under section 14A, applying Rule 8D of the I.T. Rules. The CIT(A) restricted the disallowance to two months' salary of the treasury benches, following tribunal directions in the assessee’s earlier cases. The tribunal upheld the CIT(A)’s decision, noting that the assessee had itself computed the disallowance under Rule 8D(2) and finding no reason to interfere with the CIT(A)’s order.

4. Deduction for Bad and Doubtful Debts under Sections 36(1)(vii) and 36(1)(viia):
The A.O. restricted the deduction under section 36(1)(viia) to the extent of the provision made by the assessee in its books of account, following the Punjab and Haryana High Court’s decision in State Bank of Patiala Vs CIT. The CIT(A) upheld this restriction but allowed the claim under section 36(1)(vii) independently. The tribunal confirmed the CIT(A)’s order, agreeing that the deduction under section 36(1)(viia) should be limited to the provision made in the books and that the claims under sections 36(1)(vii) and 36(1)(viia) operate independently.

Conclusion:
The tribunal dismissed the assessee’s appeals and partly allowed the revenue’s appeals, upholding the CIT(A)’s decisions on all issues except for the observation regarding the independent operation of sections 36(1)(vii) and 36(1)(viia), which was deemed unnecessary. The judgment was pronounced in the open court on 30th December 2016.