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TMI Blog2013 (8) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided the ward branch is notified as a rural branch by RBI. - the RBI Circular produced before us pertained to 3-6-2003. Ld. Counsel contends that similar panchayats have been named in licenses issued in earlier years also. - the issues are decided on principle but restored back to the file of assessing officer for verification. Deduction of Bad-debts - Loan was given to Asia Pacific Investment Trust by consortium headed by SBI and assessee contributed a part of it – Held that:- The banking practice of advancing moneys to NBFC without taking any collateral security which was part of the loan policy and financing of the consortium becomes a business decision. Further, after the said trust went into liquidation and advance became irrecoverable, the RBI directed the assessee to write off the same as bad debt - A bad debt cannot be refused merely because of assessing officer's perception collateral securities should have been taken – Decided in favor of Assessee. Revaluation of securities holding it to be a notional loss – Held that:- Securities held by the assessee bank in all these cases are the stock-in-trade of the business of the assessee banks and the notional loss suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for A.Y. 1998-99 is as under: That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of Rs. 74,21,922/- made by the AO on account of loan to Asia Pacific Investment Trust. Assessee's appeals: (iv) One common ground raised in assessee's appeals for all the years in question is as under: That the learned Commissioner of Income Tax (Appeals) was not justified in confirming the action of Assessing officer by adding the income of Rs. 66,93,415/- (A.Y. 1996-97); 73,83,408 (A.Y. 1997-98); and Rs. 1,60,061/- (A.Y. 1998-99) on account of claim received from Deposit Insurance Credit guarantee Corporation (DICGC). The claim received from DICGC was not on account of bad debts (loss assets) not written off. (v) Common ground in assessee's appeals for A.Y. 1996-97 and 1997-98 is as under: That the learned Commissioner of Income Tax (Appeals) was not justified in confirming the action of Assessing officer of disallowing an estimated amount of Rs. 50,000/- (AY 1996-97); and Rs. 1,00,000/- (A.Y. 1997-98) out of total traveling expenses of Rs. 26,93,238/- under Rule 6D of the Income Tax Rules, 1962. (vi) Solitary ground in assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1a) to Sec. 36(1)(viia) as ward was not a place which according to assessing officer was Panchayat. Assessee objected on the basis that as per RBI guidelines, if the population of a ward of any Gram Panchayat is less than ten thousand then the same means a place where the rural branch is situated. The word 'place' is not defined in the Income-tax Act and as the legislature intended to promote the banking in small places including wards which is a smallest unit for counting the population of Panchayat assessee was eligible for claim of bad debt @ 10% of the aggregate of rural branch advances as prescribed by Explanation (1a) to Section 36(1)(viia). Assessing officer disallowed the claim 3.3. Aggrieved, assessee preferred first appeals to the CIT(A) in all these years. CIT(A) however deleted these additions by relying on the following: (i) CIT(A)'s order for A.Y. 1995-96. (ii) Kerala High Court judgment in the case of South Indian Bank Vs. CIT (2003) 262 ITR 579 (Ker.) holding that any scheduled bank will be entitled to the deduction of the entire bad debt relating to advances made by the urban branches written off in the books and also the difference between the amount written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble ITAT., Cochin Bench in the Lord Krishna Bank Ltd. case in ITA. No. 54 (Coch)/2000 for assessment year 1994-95 dated 29th July 03 the relevant pages are from page 4, para 6 upto page 6. The conclusions of the ITAT at para 7 are as under:- "We considered this issue very carefully. It is to be seen that branches are opened by a Bank on getting sanction from the Reserve Bank of India. The Reserve Bank sanctions branches on different classifications, like rural, urban etc. In respect of the branches disputed in this case, permission of the Reserve Bank have been obtained by the assessee bank on thestatus that all branches are rural branches. Therefore, it is to be seen that according to banking norms, the disputed branches are rural branches. Now, this position has to be examined in the light of the Income tax law. Income tax law provides that a rural branch means a branch ill a place where the population IS less than 10,000. As rightly pointed out by the learned counsel, the term "place" has not been defined in the Act. Therefore, it has to be given a practical,sensible and functional meaning. The term "place" may denote a large area or province or even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Apropos urban branches, ld. DR pleads that there is a clear finding by assessing officer that in the impugned years bad debt written off was less than the amount of provision created. Thus assessee already stands to have availed the writing off and the claim in fact amounts to availing double deduction. Therefore, it has been rightly disallowed. 5. Ld. Counsel for the assessee on the other hand contends that: (i) CIT(A) has relied on Circular of the RBI which is issued under sec. 23 of the Banking Regulation Act and has statutory authority. (ii) ITAT Cochin judgment in the case of M/s Lord Krishna Bank Ltd. Vs. DCIT (ITA no. 54/Coch/2000) vide order dated 29-7-2003 has held as under: "We considered this issue very carefully. It is to be seen that branches are opened by a bank on getting sanction from the Reserve Bank of India. The Reserve Bank sanctions branches on different classifications, like rural, urban etc. In respect of the branches disputed in this case, permission of the Reserve Bank have been obtained by the assessee bank of the status that all branches are rural branches. Therefore, it is to be seen that according to banking norms, the disputed branches are ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue and perused the relevant material available on record. Apropos the urban branches, writing off of bad debt, we hold that the assessee is eligible to write off of bad debt u/s 36(1)(viia), however, we find merit in the argument of ld. DR that there is a finding of the ld. Assessing officer that the amount of bad debt written off of current year is less than the amount of provision created, creates an important question of verification since the relevant figures are not given. 7.1. Ld. Counsel for the assessee had made a statement in this behalf at the Bar that the current year's bad debt has not been claimed in the provisions as the assessee follows a different system for writing off of bad debt. Therefore, assessing officer has misunderstood the issue which has been rightly appreciated by CIT(A). In our considered view the CIT(A) has not dealt on this specific part of verification which is rightly pointed out by ld. DR. In view thereof, we are inclined to set aside the issue of writing off of urban bad debts back to the file of Assessing officer to verify the issue and examine the assessee's claim and ensure that assessee should get only one time deduction and there is no dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our considered view the issue stands settled by the Jurisdictional High Court i.e. Kerala High Court, at the relevant time, in the case of assessee bank. Besides, we see no infirmity in the order of CIT(A) holding it to be covered by Hon'ble Supreme Court in the case of United Commercial Bank (supra) also. Accordingly, revenue's ground is dismissed. 12. Apropos solitary revenue ground no (iii) in A.Y. 1998-99 i.e. loss in respect of loan given to Asia Pacific Investment Trust, facts in brief are: The assessing officer disallowed the claim of the assessee by following observations: "The bank has claimed as bad debts written off Rs. 79,74,426/-out of which Rs.74,21,922/- relates to advance to M/s. Asia Pacific Investment Trust Ltd. This advance has been made by the bank without any tangible security by way of mortgage of immovable assets. The bank has now treated the same as a loss asset since uncollectible and has treated the same as a bad debt stating that the advance was given in the normal course of banking business. This contention is unacceptable since if the advance was made in the course of banking business, it is not known what prevented the bank from insisting upon a .t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 12.2. CIT(A) allowed the claim of the assessee. Aggrieved, revenue is before us. 13. Both the parties are heard. It has not been disputed that the loan was given to Asia Pacific Investment Trust by consortium headed by SBI and assessee contributed a part of it. The banking practice of advancing moneys to NBFC without taking any collateral security which was part of the loan policy and financing of the consortium becomes a business decision. Further, after the said trust went into liquidation and advance became irrecoverable, the RBI directed the assessee to write off the same as bad debt. In view of these clear findings, facts and circumstances, we see no infirmity in the order of CIT(A). A bad debt cannot be refused merely because of assessing officer's perception collateral securities should have been taken. This ground of revenue is dismissed. 14. Reverting to assessee's appeals on first issue in respect of claim received from DICGC, the assessing officer added this amount by following observations: "9. The next claim received by the bank from the Deposit Insurance Credit Guarantee Corporation to whom guarantee fee is being paid and allowed as a deduction in the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters DICGC is informed and claim is lodged. The process takes a long time and the claim are settle to the extent 60 to 75 percent of the amount outstanding in respect of defaulting account. It has been stated that the balance is only written off and claim as bad debt by the assessee when the decision for write off is taken by the bank. I have considered the submission of the assessee and the assessment order. The AO has made addition of the DICGC claim treating the same as income to the extent that there is recovery of bad debts. Hence, after considering the submissions of the appellant, the disallowance made by the AO is upheld." 15. Ld. Counsel contends that the lower authorities have failed to appreciate the correct method of accounting followed by the assessee in this behalf. The assessee contends that apropos these debts the assessee obtains insurance from DICGC which covers the risk up to 60% in case the debts are irrecoverable. The usual practice of all the banks including assessee is to set off the insurance claim received from DICGC against the amount due from the debtor when the debt is ascertained, reduce it by DICGC claim and write off of the balance amount outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in debenture of CRB capital was loss of investment/ capital by following observations: "The bank has claimed as a bad debt investment in debenture CRB Capital not recoverable. The investment in debentures of CRB Capital made by the bank is 24,00,000 and provision for loss on investments made Rs.12, 500/- and the bank has written of Rs.24, 12, 500/- being not recoverable as a bad debt. The bank does not satisfy the conditions prescribed in section 36(1) (vii) to claim the said amount as a bad debt. Moreover this is a loss in relation to an investment made and such loss can be treated as a Capital loss alone. The claim is hence not acceded to." 20.1. Assessee before CIT(A) pleaded that that it is a business loss incurred during the course of carrying on banking business and it is allowable under section 28. Assessee had invested a sum of Rs. 24,12,500/- in CRB Capital market in the year ended 31.03.1997. Subsequently it was found that the company was a sham and the money invested was not recoverable. The RBI directed the appellants to provide for loss on the investment. The appellant wrote off the investment in the year ended 31.03.1998. The Appellant had claimed deduction for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. DR cannot be ruled out. In that eventuality it is to be verified whether the assessee has recoursed to such type of double claim i.e. reducing the value of the current assets as well as claiming the loss. In our view the assessee is to be allowed a single time loss either in value of the current asset or the claim of the loss of assets. In view thereof we are inclined to set aside this issue back to the file of assessing officer to verify these aspects and decide the issue after hearing the assessee afresh in accordance with law. 24. Apropos the remaining issue for A.Y. 1998-99 i.e. disallowance of expenses on modification in respect of Ahmedabad branch of the Bank, the assessee took premises on rent at Ahmedabad for a period of three years and made certain modifications to suit its requirement. The assessee claimed it to be revenue expenditure. Assessing officer, however, disallowed the same treating it to be capital in nature. CIT(A) rejected the assessee's claim by upholding the action of assessing officer by following observations: The appellant vide written submission dated 4-11-2009 has submitted as under: "The appellant had taken premises on rent for a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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