2018 (6) TMI 144 - AT - Income Tax

Addition of depreciation on valuation of investments - whether fall in value of investment of securities shown as investments in the books of account can be allowed as deduction? - Held that - An identical issue was dealt with by us threadbare in the case of Canara Bank vs. JCIT 2016 (4) TMI 429 - ITAT BANGALORE we hold that the CIT(A) was correct in law in allowing fall in value of investment as business loss. Addition u/s 14A - Held that - An identical issue was decided by us in the case of Canara Bank 2014 (1) TMI 1586 - KARNATAKA HIGH COURT wherein it was held that resort to disallowance under section 14A can be made only in case where the Assessing Officer recorded satisfaction as to how the claim of the assessee that no expenditure was incurred to earn exempt income is incorrect. Addition made on broken period interest - Held that - This issue is no longer res integra as following THE COMMISSIONER OF INCOME TAX VERSUS THE BANK OF RAJASTHAN LTD., 2010 (4) TMI 217 - BOMBAY HIGH COURT Addition made on account of bad debts written off - Held that - In the present case facts relating to this issue have not been brought out by the Assessing Officer. Therefore we remand this issue back to the file of the Assessing Officer for the limited purpose of verifying that the amount of claim under section 36(1)(vii) should be limited to the amount written off in the books of account i.e. provision for bad debts debited to P and L account and reduced from sundry advances account. It may not be out of place to mention here that the provisions of section 36(1)(vii) and 36(1)(viia) are independent of each other and the assessee is entitled to deduction u/s 36(1)(vii) in addition to the amount of deduction for provision for bad and doubtful debts u/s 36(1)(viia) of the Act. Appeal filed by the revenue is partly allowed for statistical purposes Non deduction of tds - whether the assessee is liable for tax deduction at source on the charges paid to National Financial Switch and Cash Tree Consortium for use of ATM of other banks by its customers - disallowance u/s 40(a)(ia) - Held that - Hon ble Supreme Court in the case of Kotak Securities 2016 (3) TMI 1026 - SUPREME COURT held that consultancy managerial services involving services rendered by human efforts where services are made available to all customers and there is nothing special, exclusive or customer service charges, it does not par take character of managerial or Technical Services. In the light of this decision we hold that the assessee bank is not liable for tax deduction at source on these payments. We direct the Assessing Officer to delete addition on account of technical service. MAT - Assessee-bank is not liable for tax under section 115JB for the year under consideration. Provisions of section 36(1)(vii) and 36(1)(viia) are independent of each other. We remit this issue back to the file of the Assessing Officer to compute the amount of allowance in accordance with the provisions of section 36(1)(viia) after affording a reasonable opportunity of being hard to the assessee.

Issues Involved:
1. Depreciation on valuation of investments.
2. Disallowance under Section 14A related to exempt income.
3. Addition on account of broken period interest on Government securities.
4. Deduction for bad debts written off under Section 36(1)(vii).
5. Disallowance under Section 40(a)(ia) for non-deduction of tax at source.
6. Applicability of Section 115JB to banking companies.
7. Provision for bad and doubtful debts under Section 36(1)(viia).

Detailed Analysis:

1. Depreciation on Valuation of Investments:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on the valuation of investments, treating the investments held by the bank as stock-in-trade. The Tribunal referenced the case of Canara Bank vs. JCIT, where it was established that investments made to comply with RBI's SLR requirements should be treated as stock-in-trade. The Tribunal emphasized that the CBDT Circular No. 18/2015 supports this treatment, recognizing the investments as part of the banking business and thus eligible for depreciation.

2. Disallowance under Section 14A Related to Exempt Income:
The Tribunal dismissed the revenue's appeal concerning the deletion of disallowance under Section 14A. The Tribunal reiterated that disallowance under Section 14A can only be made if the Assessing Officer records satisfaction that the assessee's claim of no expenditure incurred to earn exempt income is incorrect. Referencing the jurisdictional High Court's decisions, the Tribunal held that no disallowance under Section 14A is warranted if the investments are part of stock-in-trade.

3. Addition on Account of Broken Period Interest on Government Securities:
The Tribunal upheld the CIT(A)'s decision to delete the addition related to broken period interest. The Tribunal referenced the jurisdictional High Court's decision in the assessee's own case, which clarified that interest on Government securities should be taxed only when it becomes due and payable, not merely on an accrual basis. The Tribunal emphasized that the accounting treatment in the books does not determine taxability unless the income has legally accrued.

4. Deduction for Bad Debts Written Off under Section 36(1)(vii):
The Tribunal remanded the issue back to the Assessing Officer to verify that the amount claimed under Section 36(1)(vii) is limited to the amount written off in the books of account. The Tribunal clarified that provisions under Sections 36(1)(vii) and 36(1)(viia) are independent, allowing the assessee to claim deductions under both sections. The Tribunal referenced the Supreme Court's decision in Vijaya Bank, which supports the write-off treatment for bad debts.

5. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source:
The Tribunal ruled in favor of the assessee, holding that charges paid to National Financial Switch and Cash Tree Consortium for ATM usage do not attract TDS provisions. The Tribunal referenced CBDT Circular No. 56 of 2012, which exempts such payments from TDS. Additionally, the Tribunal cited the Supreme Court's decision in Kotak Securities, which clarified that services not involving human effort and provided to all customers do not qualify as technical services requiring TDS.

6. Applicability of Section 115JB to Banking Companies:
The Tribunal held that Section 115JB is not applicable to banking companies for the assessment years under consideration. The Tribunal referenced its own previous decisions and those of other benches, which consistently held that the provisions of Section 115JB do not apply to banking companies. The Tribunal noted that the Finance Act, 2012, extended the applicability of Section 115JB to banking companies only from the assessment year 2013-14.

7. Provision for Bad and Doubtful Debts under Section 36(1)(viia):
The Tribunal remanded this issue back to the Assessing Officer to compute the allowable deduction under Section 36(1)(viia) in accordance with the provisions of the Act. The Tribunal referenced the Supreme Court's decision in Catholic Syrian Bank, which clarified that the provisions of Sections 36(1)(vii) and 36(1)(viia) are independent, allowing deductions under both sections.

Conclusion:
The Tribunal's decisions largely favored the assessee, upholding the CIT(A)'s relief on various issues while remanding some for further verification. The Tribunal emphasized consistency with previous judicial decisions and CBDT circulars, ensuring that the tax treatment aligns with established legal principles and regulatory guidelines.

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