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TMI Blog2013 (12) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred before the CIT(A). The CIT(A) following the order of ITAT, Hyderabad Bench in assessee's own case in ITA.No.1232/Hyd/2006 dated 28.11.2008 for A.Y. 2003-04 allowed the claim of the assessee by holding that HTM securities being in the nature of stock in trade of the assessee, it is entitled to claim depreciation on them. 5. Having considered the submissions of the parties and perused the materials on record, we are of the view that the issue is squarely covered in favour of the assessee not only by virtue of decision of the jurisdictional High Court in assessee's own case reported in 151 ITR 703 but by atleast three separate orders of the ITAT, Hyderabad Bench in assessee's own case for different assessment years. The Coordinate Bench in its latest order passed in ITA.No.847/Hyd/2012 and 1002/Hyd/2012 dated 28.03.2013 relating to assessment year 2008-2009 while deciding the issue held as under : "28. We have considered the rival submissions and perused the material on record. The Hon'ble jurisdictional High Court in assessee's own case (151 ITR 703 ) held that main business of the banking company being to accept deposits to advance loans to appropriate persons, money con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1999- 2000 and 2007-08. The Tribunal in the order for the assessment year 2007-08 in ITA No.578 and 779/Hyd/10 dated 7-9-2012 have held as under:- "The first issue in the appeal is regarding disallowance of broken period interest of Rs.58.51 Crores. The bank which have purchased government securities have paid Rs.58.51 Crores 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. The bank had also received interest of Rs.36.84 Crores in respect of securities sold by them for the 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 AO however rejected the appellant's claim holding that the appellant's contention that the securities constituted stock in trade. It has not been accepted since it was found that the securities held in the category of HTM (held to maturity) did not form part of the stock. However, the CIT(A) allowed the claim on the ground that the same was in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exempt income is the expenditure incurred by the 'Treasury and Investment Division' of the Bank, the A.O. held that it was not only the investment division but the entire resources of the Bank which would be put to use for earning the income, which will also include the exempted income. He also rejected assessee's contention that the Bank had sufficient interest free funds in the form of share capital, free resources and internal accruals by observing that banks are required to keep a contain percentage of the profits in the statutory reserves. The A.O. noticed that as per the P L account, the assessee had incurred opening expenditure of Rs.933.14 crores and interest expenditure of Rs.4242.71 crores, totaling to Rs.5175.85 crores, for earning the total income of Rs.6478.81 crores which worked out to 79.88%. He, therefore, was of the view that the assessee would have spent the same percentage of expenditure for earning the exempt income also. Accordingly, the A.O. held that 79.88% of the exempted income of Rs.5,11,26,104/- is to be disallowed. The assessee itself having disallowed an amount of Rs.14,11,575/-, the A.O. worked out the disallowance to Rs.3,94,23,918/-. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 18. The Assessing Officer. noticed that as per annual report for the year ending 31.03.2009 the assessee had debited an amount of Rs.134.77 crores as provision for bad and doubtful debts. He, therefore, relying upon the decision in the case of State Bank of Patiala vs. CIT (272 ITR 54) held that deduction under section 36(1)(viia) could be allowed only to the extent of the provision made in the books of accounts. Accordingly, the A.O. allowed deduction under section 36(1)(viia) of an amount of Rs.134.7 crores and disallowed the balance amount of Rs.226,81,27,174/-. 19. When the matter went in appeal before the CIT(A), the CIT(A) following the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank 343 ITR 270 held that since the assessee had not made provision in its books of accounts for an amount of Rs.180,26,05,249/- the same is not allowable as deduction under section 36(1)(viia) of the Act. 20. The learned A.R. at the outset submitted before us that similar issue arose in assessee's case for the assessment years 2007-08 and 2008-09 also. When the matter came in appeal before the ITAT, the ITAT remitted the matter back to the A.O. for deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions is an allowable deduction even if individual accounts of the debtors are not wtitten off. In the case of Catholic Syrian bank Ltd(supra), which was not available with the lower authorities at the time of deciding the issue, the Apex Court has held as under under: (i) The clear legislative intent of s. 36(1)(vii) 36(1)(viia) together with the circulars issued by the CBDT demonstrate that 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 legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The functioning of such banks is such that the rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of accounts of the head office. An interpretation which serves the legislative object and intent is to be preferred rather than one which subverts the same. The deduction u/s 36(1)(vii) cannot be negated by reading into it the limitations of s. 36(1)(viia) as it would frustrate the object of granting such deductions. The Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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