2022 (3) TMI 1187 - AT - Income Tax

Deffered payment guarantee commission - taxation in which year? - HELD THAT - We are of the considered view that the entire deffered payment guarantee commission though received in advance by the assessee bank cannot be taxed during the year of receipt but has to be spread to the relevant years to which it belongs. We fail to understand when the issue is no longer res-integra having been decided by the Tribunal numerous times in favour of the assessee and order decided by the Tribunal has also been given effect to, then why the issue has been raised time and again only for the purpose of generating unnecessary litigation. So ground No.1 of assessee s appeal is allowed. Disallowance of depreciation on matured security on the ground that since the provision made by the assessee is not ascertained liability and it also cannot be taken that there is actual change in the market value of security. The Ld. CIT(A) upheld the disallowance made by the AO - HELD THAT - Following the consistent orders passed by the Tribunal in favour of the assessee, which have been confirmed by the Hon ble Jurisdictional High Court 2016 (8) TMI 1441 - BOMBAY HIGH COURT we are of the considered view that the Ld. CIT(A) has rightly decided this issue against the assessee, hence ground No.2 is decided against the assessee. Disallowance u/s 14A - HELD THAT - We are of the considered view that in the instant case disallowance to the extent of 1% of the exempt income under section 14A is to be made. So we accordingly direct the AO to disallow 1% of the exempt income under section 14A. Disallowance claimed by the assessee on account of depreciation on leased assets - HELD THAT - Following the order passed by the co-ordinate Bench of the Tribunal for A.Y. 2003-04 2004-05, we are of the considered view that since the issue has already been decided against the assessee of the assessee s appeal are decided against the assessee. Disallowance of deduction claimed by the assessee under section 36(1)(vii) qua write off of non rural advances - HELD THAT - By following the various decisions rendered by Hon ble Supreme Court in cases of The Catholic Syrian Bank Ltd. 2012 (2) TMI 262 - SUPREME COURT , CIT vs. Vatika Township (P.) Ltd. 2014 (9) TMI 576 - SUPREME COURT , DCIT vs. Karnataka Bank Ltd. 2013 (2) TMI 40 - SC ORDER , Hon ble High Court of Delhi in case of Punjab Sind Bank vs. ACIT 1999 (7) TMI 60 - DELHI HIGH COURT and in case of CIT vs. City Union Bank Ltd. 2007 (2) TMI 187 - MADRAS HIGH COURT , we are of the considered view that the assessee is entitled to deduction under section 36(1)(vii) of the Act on account of bad debts (other than in respect of rural advances). Addition by reducing depreciation/taxing appreciation in the value of securities held as available for sale (AFS) having been held for trading category (HFT) - HELD THAT - Since this issue has already been decided in favour of the assessee by the Tribunal in A.Y. 2004-05 A.Y. 2008-09, which has been accepted by the Revenue, we are of the considered view that the AO as well as the Ld. CIT(A) have erred in making disallowance of depreciation/reducing of depreciation on appreciation in the value of securities held as available for sale by treating the same for trading category. So ground No.6 is determined in favour of the assessee. Disallowing allowing the deduction for the education cess on income tax paid for the year - HELD THAT - As relying on Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT we are of the considered view that education cess on income tax paid by the assessee is an allowable deduction, hence AO is directed to allow the same. Payment to various schools towards reservation of seats for the children of the bank officers by including the same in staff welfare expenses - HELD THAT - When this issue is no longer res-integra having been consistently decided in favour of the assessee by the co-ordinate Bench of the Tribunal right from A.Y. 1992-93 to A.Y. 2008-09 no distinct facts have been brought on record, moreover appeal filed by the Revenue against the order passed by the Tribunal allowing this issue in favour of the assessee for A.Y. 1996-97 has also been dismissed. Nature of expenses - broken period interest paid on purchase of securities - HELD THAT - We are of the considered view that this issue has already been decided by the Tribunal in favour of the assessee in A.Y. 1991-92 to A.Y. 1994-95 and A.Y. 2003-04 to A.Y. 2004-05 2021 (10) TMI 608 - ITAT MUMBAI by relying upon the decision rendered by the Hon ble Bombay High Court in case of American Express International Banking Corporation 2002 (9) TMI 96 - BOMBAY HIGH COURT by considering the decision rendered by case of Vijaya Bank Ltd. 1990 (9) TMI 5 - SUPREME COURT No distinguishing facts have been brought on record by the Ld. D.R., hence we find no scope to interfere into the findings returned by the Ld. CIT(A). Hence, ground No.4 is also determined against the Revenue. Allowance of taxing of interest on securities on due basis - assessee bank has been following mercantile system of accounting and as such interest on securities is to be accounted for on accrual basis while arriving at the book profit - HELD THAT - As decided in assessee's own case for A.Y. 2001-02 we uphold the order of the learned CIT(A) on this issue by dismissing the ground raised by the Revenue. Security as stock in trade and loss on revaluation as revenue expenditure - HELD THAT - Issue decided in favour of the assessee by the co-ordinate Bench of the Tribunal from A.Y. 1996-97 to A.Y. 2004-05 and order passed by the Tribunal in A.Y. 1996-97 and A.Y. 1997-98 has been confirmed by the Hon ble Bombay High Court 2016 (8) TMI 1441 - BOMBAY HIGH COURT in favour of the assessee.

Issues Involved:
1. Taxation of Deferred Payment Guarantee Commission
2. Disallowance of Depreciation on Matured Securities
3. Disallowance under Section 14A
4. Depreciation on Leased Assets
5. Deduction for Bad Debts Written-Off
6. Depreciation/Appreciation in Value of Securities
7. Taxation of Recovery of Bad Debts
8. Taxation of Income from Foreign Branches
9. Deduction for Education Cess on Income Tax
10. Disallowance of Expenses on Reservation of Seats in Schools
11. Broken Period Interest
12. Taxation of Interest on Securities
13. Securities as Stock in Trade and Loss on Revaluation

Detailed Analysis:

1. Taxation of Deferred Payment Guarantee Commission:
The AO added ?58,44,167 on the ground that the entire deferred payment guarantee commission received in advance should be taxed during the year of receipt. The CIT(A) upheld the addition. However, the Tribunal, following its consistent decisions from AY 1984-85 to 2003-04, held that the commission should be spread over the relevant years to which it pertains. The Tribunal allowed the assessee's appeal on this ground.

2. Disallowance of Depreciation on Matured Securities:
The AO disallowed ?1,22,38,98,858 on the basis that the provision made by the assessee was not an "ascertained liability." The CIT(A) upheld this disallowance. The Tribunal, referencing its earlier decisions from AY 1996-97 and the Hon'ble Jurisdictional High Court's confirmation, decided this issue against the assessee, maintaining the disallowance.

3. Disallowance under Section 14A:
The AO made a disallowance of ?46,35,85,591 under Section 14A. The CIT(A) restricted the disallowance but both parties appealed. The Tribunal, citing the Supreme Court's decision in South India Bank vs. CIT and its own earlier decisions, directed the AO to disallow only 1% of the exempt income under Section 14A. This was a partial relief to the assessee and a rejection of the Revenue's appeal.

4. Depreciation on Leased Assets:
The AO disallowed ?50,71,44,257 claimed as depreciation on leased assets, which the CIT(A) upheld. The Tribunal, following its earlier decisions against the assessee for AY 2001-02 and 2002-03, decided this issue against the assessee, maintaining the disallowance.

5. Deduction for Bad Debts Written-Off:
The AO disallowed ?10,50,55,44,005 claimed under Section 36(1)(vii) for non-rural advances. The CIT(A) upheld the disallowance. The Tribunal, referencing the Supreme Court's decision in The Catholic Syrian Bank Ltd. vs. CIT and other relevant case laws, decided in favor of the assessee, allowing the deduction.

6. Depreciation/Appreciation in Value of Securities:
The AO added ?17,40,43,00,607 by reducing depreciation/taxing appreciation in the value of securities held as Available for Sale (AFS) and Held for Trading (HFT). The CIT(A) upheld this. The Tribunal, following its own earlier decisions and the Supreme Court's rulings, allowed the assessee's appeal, holding that depreciation should be allowed on a scrip-wise basis while ignoring appreciation.

7. Taxation of Recovery of Bad Debts:
The AO taxed the recovery of bad debts written off under Section 41(4) on the ground that the assessee had not claimed a deduction for such advances under Section 36(1)(vii). The CIT(A) upheld this. The Tribunal remitted the issue back to the AO for fresh consideration, following its own earlier decisions.

8. Taxation of Income from Foreign Branches:
The AO taxed the income earned by the assessee's foreign branches, upheld by the CIT(A). The Tribunal remitted the issue back to the AO for fresh consideration, following its own earlier decisions.

9. Deduction for Education Cess on Income Tax:
The AO did not allow a deduction for education cess on income tax. The Tribunal, following the Bombay High Court's decision in Sesa Goa Ltd. vs. JCIT, held that education cess is deductible and directed the AO to allow the deduction.

10. Disallowance of Expenses on Reservation of Seats in Schools:
The AO disallowed ?71,76,146 spent on reserving seats in schools for bank officers' children, treating it as a donation. The CIT(A) allowed the expense, following earlier decisions. The Tribunal upheld the CIT(A)'s decision, referencing consistent rulings in favor of the assessee from AY 1992-93 to 2008-09.

11. Broken Period Interest:
The AO disallowed ?1,08,35,95,093 claimed as broken period interest. The CIT(A) allowed the claim, following earlier decisions. The Tribunal upheld this, referencing consistent rulings in favor of the assessee from AY 1991-92 to 2004-05 and the Bombay High Court's decision in American Express International Banking Corporation vs. CIT.

12. Taxation of Interest on Securities:
The AO taxed interest on securities on an accrual basis. The CIT(A) allowed taxation on a due basis. The Tribunal upheld this, referencing consistent rulings in favor of the assessee from AY 1991-92 to 2004-05 and the Bombay High Court's confirmation.

13. Securities as Stock in Trade and Loss on Revaluation:
The AO disallowed the treatment of securities as stock in trade and the loss on revaluation as revenue expenditure. The CIT(A) allowed this. The Tribunal upheld the CIT(A)'s decision, referencing consistent rulings in favor of the assessee from AY 1996-97 to 2004-05 and the Bombay High Court's confirmation.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The decisions were largely in favor of the assessee, following consistent rulings from earlier years and higher courts.

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