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2018 (5) TMI 1627 - AT - Income TaxDeduction on account of Provision for Bad and Doubtful Debts u/s.36(1)(viia) - diversified decisions - whether the co-ordinate Tribunal decision has to be followed in preference to a non jurisdictional High Court decision? - Held that - Going by the hierarchical system in our country, this Tribunal in the case of Syndicate Bank (2000 (6) TMI 121 - ITAT BANGALORE) preferred to follow the decision of Hon ble Punjab & Haryana High Court in the case of State Bank of Patiala (2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT) though of a non jurisdictional High Court than the decision of co-ordinate Bench in the case of Syndicate Bank (supra). In our view therefore the decision of the Hon ble Karnataka High Court in the case of Patil Vijayakumar (1984 (8) TMI 68 - KARNATAKA HIGH COURT, does not support the plea of the assessee. Relief allowed by the CIT(A) in the matter of allowing deduction for provision for bad and doubtful debts was not in accordance with law. The addition made by the AO is, therefore, restored. The ground Nos. 2 and 4 raised by the Revenue are allowed. Addition made on provision for depreciation of investments held to maturity (HTM) as stock-in-trade - whether loss claimed on account of depreciation is only notional and not actual loss incurred by the assessee - Held that - As decided in CIT V IG Vysya Bank Ltd. 2013 (6) TMI 43 - KARNATAKA HIGH COURT . value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the Bank has to take into consideration the market value, of the shares. If the market value is less than the cost price, in law they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the Balance Sheet. The order passed by the authorities balding that in view of the RBI guidelines, the assessee is stopped from treating the investment as stock-in-trade is not correct. Addition on account of stale drafts and pay orders U/s. 41(1) - whether stale drafts & pay orders have not been claimed by the persons and the amounts involved remained with the assessee bank and hence taxable as per Section 28(iv) - Held that - As decided in assessee s own case we find merit in the arguments put forth by the learned Authorised Representative since the outstandingly liability of ₹ 58,31,851 on account of Demand Drafts and pay orders is still reflected in the books of accounts of the assessee as on 313.2007 and therefore the same stands acknowledged by the assessee and the liability subsists. In this view of the matter, we find that the authorities below have failed to establish the primary requisite for invoking the provisions of section 41(1) of the Act and hold that the provisions of section 41(1) of the Act would not le attracted in the case on hand in respect of the outstanding liability TDS u/s 194A - disallowance of interest expenses made by the AO u/s 40a(ia) - non furnishing furnished Form 15 G and Form 15 H - Held that - The requirement of filing of Form 15G and 15H with the prescribed authority viz., CIT is only procedural and that cannot result in a disallowance u/s 40a(ia) of the Act. To the extent that payment of interest relates to the Government and the exempted category of persons, the assessee is directed to furnish required details to the AO and the AO will consider the claim of the assessee after affording opportunity of being heard to the assessee. TDS liability on interest paid on term deposits and savings bank account - Held that - The argument of the learned counsel for the Assessee to treat the interest expenses as allowable u/s.28(i) on commercial principles cannot be accepted, especially in the context of Sec.40(a)(ia which are provisions which are meant for collection of taxes. Sec 40(a)(ia) is a disabling provision which and not an enabling provision. As rightly submitted by the learned DR, there is nothing in the language of Sec.40(a)(ia) to the effect that it is only when an Assessee is treated as an Assessee in default under Chapter XVII B of the Act by an order passed u/s.201(1) of the Act, can a disallowance be made u/s.40(a)(ia) of the Act of the expenses claimed in respect of which there is a default in deducting tax at source. The arguments raised by the learned counsel for the Assessee are without any merit and rejected.
Issues Involved:
1. Deduction under Section 36(1)(viia) of the Income Tax Act. 2. Deduction under Section 36(1)(viii) of the Income Tax Act. 3. Depreciation on investments held to maturity (HTM) as stock-in-trade. 4. Addition on account of stale drafts and pay orders under Section 41(1) of the Income Tax Act. 5. Disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deduction under Section 36(1)(viia): The Revenue challenged the CIT(A)'s decision allowing the assessee's deduction of ?177.38 crores under Section 36(1)(viia) despite the provision in the books being only ?9.11 crores. The Tribunal noted that the Bangalore Bench of ITAT in the case of Syndicate Bank allowed a deduction based on a percentage of total income and average advances, irrespective of the actual provision debited. However, the Tribunal preferred the decision of the Punjab & Haryana High Court in State Bank of Patiala, which limits the deduction to the actual provision made in the books. The Tribunal followed judicial discipline and restored the AO's disallowance, allowing the Revenue's appeal on this ground. 2. Deduction under Section 36(1)(viii): The Revenue contested the CIT(A)'s decision allowing a deduction of ?778.48 crores. The Tribunal found that the CIT(A) did not provide a factual basis for the relief granted. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh consideration, directing the AO to consider the assessee's contentions and provide an opportunity for a hearing. 3. Depreciation on Investments (HTM): The Revenue's appeal on this issue was dismissed. The Tribunal upheld the CIT(A)'s decision, which followed the Karnataka High Court's ruling in Karnataka Bank Ltd. v. CIT, allowing depreciation on investments held to maturity (HTM) as stock-in-trade. The Tribunal noted that the investments were consistently treated as stock-in-trade and valued at cost or market value, whichever was lower. 4. Addition on Stale Drafts and Pay Orders under Section 41(1): The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition made by the AO under Section 41(1). The Tribunal referenced its previous decision in the assessee's case for AY 2008-09, where it was held that amounts collected for drafts and pay orders, held in trust, do not constitute income under Section 41(1) as there was no cessation or remission of liability. 5. Disallowance of Interest Expenses under Section 40(a)(ia): The Tribunal addressed two components: - Interest with Form 15G/H: The Tribunal, following the Karnataka High Court's decision in Sri Marikamba Transport Co., held that non-filing of Form 15G/H with the prescribed authority is a procedural lapse and does not warrant disallowance under Section 40(a)(ia). The Tribunal directed the AO to verify the details and allow the deduction if forms were obtained. - Interest without TDS: The Tribunal rejected the assessee's argument that interest on deposits is not covered under Sections 30 to 38 and must be allowed under Section 28. The Tribunal upheld the disallowance of ?12.98 crores, confirming that the interest paid without TDS is disallowable under Section 40(a)(ia). Conclusion: The Tribunal's order resulted in partial allowance of the appeals, with specific issues being remanded for further consideration and others being decided in favor of the Revenue or the assessee based on established legal precedents.
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