2025 (1) TMI 903 - AT - Income Tax

Disallowance of deduction claimed u/s 36(1)(viia) - HELD THAT - As in assessee s own case for assessment years 2010-11 and 2015-16 and the issue has been restored to the file of the AO with certain directions, therefore, in absence of any contrary material brought to our notice, we deem it proper to restore the issue to the file of the AO with similar directions to consider the said claim of the assessee in the light of the judgement of Catholic Syrian Bank Ltd 2012 (2) TMI 262 - SUPREME COURT Disallowance of prior period expenses - HELD THAT Respectfully following the decision of the Tribunal in assessee s own case 2022 (12) TMI 242 - ITAT PUNE assessment year 2015-16 and in absence of any contrary material brought to our notice, this issue is restored to the file of the AO with similar directions wherein held no force in the Revenue s supportive arguments as there is no material in principle which has been rejected by the Assessing Officer while dealing with the assessee s crystallization plea. That being the case, we allow the assessee s impugned claim in principle and direct the Assessing Officer to examine its supportive evidence of crystallization of the corresponding expenditure items in the relevant previous year by quoting CIT Vs. Indian Petrochemicals Corporation Ltd. 2016 (9) TMI 110 - GUJARAT HIGH COURT and Adani Enterprises Ltd. 2016 (7) TMI 1250 - GUJARAT HIGH COURT as holds that such prior period expenditure items ought not to be disallowed where the taxpayer concerned is assessed at the same rate all along. Disallowance of donations - HELD THAT - As admitted fact that due to non submission of the details of AO made disallowance which has been confirmed by the Ld. CIT(A)/ NFAC and as submitted if assessee given an opportunity, the assessee is in a position to substantiate its case by filing the requisite details. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore this issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate its case by filing the requisite details. MAT/section 115JB applicability to the assessee bank - HELD THAT - We find the Special Bench of the Tribunal in the case of Union Bank of India 2024 (9) TMI 789 - ITAT MUMBAI allow the ground raised by the assessee on this issue by holding that provisions of section 115JB are not applicable to the assessee bank. Allowance of loss of valuation to Held to Maturity (HTM) securities, when HTM securities are capital in nature - CIT(A) allowed claim - HELD THAT - Respectfully following the decision of the Tribunal and the Hon ble High Court in assessee s own case, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC in allowing the loss of valuation to Held to Maturity (HTM) Securities. Disallowance of write back of provision for restructured advance - CIT(A) / NFAC restoring the matter to the file of the AO for verification on the issue of - HELD THAT - Although the CIT(A)/ NFAC has no power to set aside the matter to the file of the AO, the Tribunal has the power to restore the issue to the file of the AO. We, therefore, restore the issue to the file of the Assessing Officer for due verification and decide the issue afresh in accordance with law. Needless to say, the AO shall afford reasonable opportunity of being heard to the assessee and decide the issue as per fact and law. Ground of appeal No.2 raised by the Revenue is accordingly allowed for statistical purposes. Disallowance of write back provision for standard assets - CIT(A) / NFAC in restoring the issue of disallowance - HELD THAT - Although the Ld. CIT(A)/ NFAC has no power to set aside the matter to the file of the AO Tribunal has the power to restore the issue to the file of the AO. We, therefore, restore the issue to the file of the AO for due verification and decide the issue afresh in accordance with law.

1. ISSUES PRESENTED and CONSIDERED

The judgment from the Appellate Tribunal ITAT Pune involves several core legal issues:

Whether the disallowance of the deduction claimed under section 36(1)(viia) of the Income Tax Act was justified.
Whether the disallowance of prior period expenses was appropriate.
Whether the disallowance of donations was correct.
Applicability of Section 115JB to the appellant bank.
Whether the loss on valuation of Held to Maturity (HTM) securities should be allowed.
Whether the disallowance of write-back provisions for restructured advances and standard assets was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of Deduction under Section 36(1)(viia)

Legal Framework and Precedents: The relevant section of the Income Tax Act allows for deductions on account of bad and doubtful debts. The Supreme Court's decision in Catholic Syrian Bank was referenced.
Court's Interpretation and Reasoning: The Tribunal noted that the issue had been previously remanded to the Assessing Officer for reconsideration in light of the Supreme Court's ruling.
Key Evidence and Findings: The Tribunal found that the CIT(A) had erred in restricting the deduction to rural advances only.
Application of Law to Facts: The Tribunal restored the issue to the Assessing Officer for fresh adjudication.
Treatment of Competing Arguments: The Tribunal considered the appellant's argument that the entire provision should be considered, not just rural advances.
Conclusions: The issue was restored to the Assessing Officer for reconsideration.

Issue 2: Disallowance of Prior Period Expenses

Legal Framework and Precedents: Prior period expenses are generally not allowable unless they crystallized in the relevant assessment year.
Court's Interpretation and Reasoning: The Tribunal restored the issue to the Assessing Officer for verification of whether the expenses crystallized in the relevant year.
Key Evidence and Findings: The Tribunal noted that the appellant failed to explain the nature and timing of the expenses.
Application of Law to Facts: The Tribunal directed the Assessing Officer to verify the appellant's claim.
Treatment of Competing Arguments: The Tribunal considered the appellant's argument that the expenses crystallized in the relevant year.
Conclusions: The issue was restored to the Assessing Officer for verification.

Issue 3: Disallowance of Donations

Legal Framework and Precedents: Donations are eligible for deduction under section 80G, subject to certain conditions.
Court's Interpretation and Reasoning: The Tribunal restored the issue to the Assessing Officer for verification of the appellant's claim.
Key Evidence and Findings: The appellant failed to provide details of the donations.
Application of Law to Facts: The Tribunal directed the Assessing Officer to verify the details of the donations.
Treatment of Competing Arguments: The Tribunal considered the appellant's argument that they could substantiate the claim if given an opportunity.
Conclusions: The issue was restored to the Assessing Officer for verification.

Issue 4: Applicability of Section 115JB

Legal Framework and Precedents: Section 115JB pertains to Minimum Alternate Tax (MAT) and its applicability to banking companies.
Court's Interpretation and Reasoning: The Tribunal followed the Special Bench decision that section 115JB does not apply to banks constituted under the Banking Companies Act.
Key Evidence and Findings: The Tribunal found that the CIT(A) erred in applying section 115JB to the appellant bank.
Application of Law to Facts: The Tribunal held that section 115JB does not apply to the appellant bank.
Treatment of Competing Arguments: The Tribunal considered the appellant's argument that section 115JB is not applicable.
Conclusions: The Tribunal ruled in favor of the appellant, holding that section 115JB does not apply.

Issue 5: Loss on Valuation of HTM Securities

Legal Framework and Precedents: The classification of HTM securities as stock-in-trade or capital assets affects their valuation for tax purposes.
Court's Interpretation and Reasoning: The Tribunal followed the precedent that HTM securities can be treated as stock-in-trade for valuation purposes.
Key Evidence and Findings: The Tribunal noted that the issue had been previously decided in favor of the appellant in their own case.
Application of Law to Facts: The Tribunal upheld the CIT(A)'s decision to allow the loss on valuation of HTM securities.
Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that HTM securities are capital in nature.
Conclusions: The Tribunal upheld the allowance of the loss on valuation of HTM securities.

Issue 6: Disallowance of Write-Back Provisions

Legal Framework and Precedents: Provisions for restructured advances and standard assets must be justified with documentary evidence.
Court's Interpretation and Reasoning: The Tribunal restored the issues to the Assessing Officer for verification of the appellant's claims.
Key Evidence and Findings: The appellant failed to provide sufficient documentation to support their claims.
Application of Law to Facts: The Tribunal directed the Assessing Officer to verify the appellant's claims.
Treatment of Competing Arguments: The Tribunal considered the appellant's argument that the provisions were not previously allowed.
Conclusions: The issues were restored to the Assessing Officer for verification.

3. SIGNIFICANT HOLDINGS

The Tribunal restored several issues to the Assessing Officer for verification, emphasizing the need for documentary evidence to support claims.
The Tribunal held that section 115JB does not apply to the appellant bank, following the Special Bench decision.
The Tribunal upheld the allowance of the loss on valuation of HTM securities, following precedents in the appellant's own case.

Verbatim Quotes of Crucial Legal Reasoning:

"...the method of valuation of the closing stock adopted by the assessee i.e. cost or market value, whichever is lower is fair and proper and the income-tax authorities have erred in not accepting the same."
"...the provision of Section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks."

The judgment reflects a detailed examination of the appellant's claims and the application of relevant legal principles, with several issues being remanded for further verification by the Assessing Officer.

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