2017 (5) TMI 838 - AT - Income Tax

Disallowance of provision for depreciation in value of government securities as per RBI guidelines - Held that - We find that the aforesaid issue is squarely covered in favour of assessee in its own case for AY 2007-08 and AY 2009-10 as held depreciation in value was allowable even if specific instructions of the board were not there. Circular and instruction of the CBDT being squarely applicable on facts of assessee s case, so CIT(A) was justified in allowing the same which needs no interference from our side. - Decided in favour of assessee. Premium amortization expenses on Government securities - Held that - The issue is squarely covered in favour of assessee by the decision of the Hon ble Gujarat High Court in case of CIT vs. Rajkot District Co-operative Bank Ltd. 2014 (3) TMI 110 - GUJARAT HIGH COURT - Decided in favour of assessee. Claim of loss towards provision of standard assets - Held that - Hon ble Apex Court in the case of Southern Technologies Ltd.(2010 (1) TMI 5 - SUPREME COURT OF INDIA ) has clearly observed that by way of special provision under s.36(1)(viia), the banks are allowed to claim deduction subject to a ceiling or a limit. As per section 36(1)(viia), the banks are entitled to claim deduction certain prescribed percentages of the average advance made by the rural branches of such banks. However, relevant facts about the advance by the rural branch requires to be verified in the light of section 36(1)(viia) read with Rule 6ABA of the Income Tax Rules, 1963. Accordingly, we consider it expedient that the issue is revisited by the AO de novo in accordance with law in the light of provisions of section 36(1)(viia) of the Act after giving proper opportunity of being heard to the assessee.

Summary

Issues:
1. Disallowance of provision for depreciation in value of government securities.
2. Disallowance of premium amortization expenses on government securities.
3. Disallowance of provision on standard assets.
4. Charging of interest under various sections of the Income Tax Act.

Issue 1: Disallowance of provision for depreciation in value of government securities:
The Tribunal upheld the Assessee's claim that depreciation in value of government securities is allowable as business expenditure under s.28 r.w.s.37 of the Income Tax Act. The Tribunal referred to previous orders in favor of the Assessee for AY 2007-08 and AY 2009-10. It was noted that banks are guided by RBI instructions in asset classification and accounting standards for investments. The CBDT instructions for banks' assessment also supported the Assessee's claim. The Tribunal emphasized that the depreciation claim on securities classified as 'Available for Sale' was valid. Citing judicial precedents, the Tribunal allowed the Assessee's appeal on this ground.

Issue 2: Disallowance of premium amortization expenses on government securities:
The Tribunal ruled in favor of the Assessee, citing a decision of the Hon'ble Gujarat High Court supporting the Assessee's position. Consequently, the Tribunal allowed the Assessee's appeal on this ground as well.

Issue 3: Disallowance of provision on standard assets:
The Assessee claimed a provision on standard assets as mandated by the RBI for bad debts components. While the provision for bad debt is not explicitly allowed under the Income Tax Act, the Assessee contended that it falls within the limits prescribed by section 36(1)(viia). The Tribunal noted conflicting views between the Assessee and the Revenue, with the Assessee relying on previous Tribunal decisions. The Tribunal referred to the Supreme Court's observation on banks' entitlement to claim deductions under s.36(1)(viia) subject to specific limits. The Tribunal directed the AO to revisit the issue in line with the Act's provisions, allowing the Assessee's appeal for statistical purposes.

Issue 4: Charging of interest under various sections:
The Tribunal did not delve into specific details related to this issue, mentioning it in passing without independent adjudication.

In conclusion, the Tribunal allowed the Assessee's appeal on all substantive issues, including the disallowance of provision for depreciation in value of government securities, premium amortization expenses on government securities, and provision on standard assets. The Tribunal provided detailed reasoning for each issue, relying on legal provisions, RBI guidelines, CBDT instructions, and judicial precedents to support its decisions.