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2013 (12) TMI 70 - AT - Income TaxDepreciation on securities held to maturity - Held that - Following assessee s own case for the A.Y. 2003-04 - Main business of the banking company being to accept deposits to advance loans to appropriate persons, money constitutes its stock in trade - The amount required to kept in India as per section 24 of the Banking Regulation Act, 1949 in the form of cash, gold and unencumbered securities is part of stock in trade of the assessee - When there is no distinction between the three categories of securities viz.,HTM, AFS and HFT. The assessee can provide for depreciation in all the securities on the same footing - Decided against Revenue. Broken period interest - Held that - Following assessee s own case for the A.Y. 2008-09 and CIT Vs. Nedungadi Bank 2002 (11) TMI 29 - KERALA High Court - The bank purchased government securities paid towards interest in respect of securities purchased for the broken period from the preceding due date for payment of interest upto the date of purchase - Broken period from the preceding due date for payment of interest upto the date of the sale. The assessee claimed the amount of interest paid for the broken period upto the date of purchase as deduction on the ground that the securities were held stock in trade - The broken period interest is an allowable deduction - Decided against Revenue. Disallowance u/s 14A - Held that - Rule 8D is applicable from A.Y. 2008-09 - After intrduction of this rule in the Income tax Rules - Disallowance of expenditure relating to earning of exempted income under section 14A of the Act, has to be determined as per the method provided under Rule 8D - The assessee itself during the proceeding before the CIT(A) has worked out the disallowance to be made in terms with Rule 8D(2) which has been accepted by the CIT(A) - Decided against assessee. Provision for bad and doubtful debts - Held that - Following assessee s own case for assessment years 2007-2008 and 2008-09 and T.R.F. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT - Any debt written off as irrecoverable should be allowed as deduction - If the provision fro bad debts debited to the P&L is netted against the current assets the provisions is an allowable deduction even if individual accounts of the debtors are not wtitten off - As per circulars issued by the CBDT - The deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) is distinct and independent of s. 36(1)(vii) relating to allowance of bad debts - The issue is restored for fresh decision.
Issues Involved:
1. Depreciation on investments Held to Maturity (HTM). 2. Addition on account of broken period interest. 3. Disallowance under Section 14A read with Rule 8D. 4. Disallowance of claim of provision for bad and doubtful debts under Section 36(1)(viia). Issue-wise Detailed Analysis: 1. Depreciation on Investments Held to Maturity (HTM): The department challenged the CIT(A)'s decision allowing the assessee's claim of depreciation on HTM securities by treating them as stock-in-trade. The assessee, a banking company, claimed depreciation on HTM securities amounting to Rs. 27,46,33,636/-. The A.O. disallowed this claim, but the CIT(A) allowed it, following the ITAT's previous orders in the assessee's own case. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's decision and multiple ITAT orders in the assessee's favor, confirming that HTM securities are part of the stock-in-trade of the assessee and eligible for depreciation. 2. Addition on Account of Broken Period Interest: The department also contested the CIT(A)'s decision to delete the addition made by the A.O. on account of broken period interest. The A.O. had disallowed the assessee's claim of Rs. 157,60,72,614/- as capital expenditure. The CIT(A), following the ITAT's decision in the assessee's case for the assessment year 2007-2008, allowed the claim. The Tribunal upheld the CIT(A)'s decision, referencing the ITAT's consistent stance in favor of the assessee for previous years and other judicial precedents, including decisions by the Mumbai Bench and the Kerala High Court, which held that broken period interest is an allowable deduction. 3. Disallowance under Section 14A read with Rule 8D: The assessee's appeal involved the disallowance of Rs. 1,79,11,875/- under Section 14A read with Rule 8D. The A.O. disallowed 79.88% of the exempt income, amounting to Rs. 3,94,23,918/-, after considering the entire bank's resources used to earn the exempt income. The CIT(A) restricted the disallowance to Rs. 1,79,11,875/-, based on the assessee's computation under Rule 8D(2). The Tribunal found no infirmity in the CIT(A)'s order, noting that post-introduction of Rule 8D, disallowance must be determined as per the method provided. The Tribunal dismissed the assessee's grounds, affirming the CIT(A)'s decision. 4. Disallowance of Claim of Provision for Bad and Doubtful Debts under Section 36(1)(viia): The assessee claimed a deduction of Rs. 361,58,27,174/- under Section 36(1)(viia), but the A.O. restricted the allowance to Rs. 134.7 crores, based on the provision made in the books of accounts. The CIT(A) upheld the disallowance of Rs. 226,81,27,174/-, following the Supreme Court's decision in Catholic Syrian Bank. The Tribunal noted that similar issues in the assessee's case for previous years were remitted back to the A.O. for fresh consideration in light of Supreme Court decisions. The Tribunal remitted the issue back to the A.O. for the impugned year as well, directing a fresh decision in accordance with the apex court's rulings and providing the assessee an opportunity to be heard. Conclusion: - The department's appeal (ITA.No.666/Hyd/2013) was dismissed. - The assessee's appeal (ITA.No.584/Hyd/2013) was partly allowed for statistical purposes, with the issue of provision for bad and doubtful debts remitted back to the A.O. for fresh consideration.
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