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TMI Blog2013 (12) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing assessee’s own case for AYs 2000-01 to 2004-05 - The first and primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself - The expenses are disallowed u/s 35D - Decided against assessee. Provision for bad and doubtful debts - Held that:- Following assessee's own case for earlier years - Irrespective of the debit to the profit and loss account on account of provision for bad and doubtful debts (PBDD), an Assessee is entitled to 10% of the AARA as deduction u/s.36(1)(viia) of the Act - Decided against assessee. Disallowance of unrealized interest - Held that:- Following assessee’s own case for AY 2006-07 - Income which was earlier recognised is not to be allowed in the subsequent year in case it is permissible for the assessee to write off such income in concerned assessment year when it was found that it was not recoverable - Decided in favour of assessee. Provision for leave encashment - Held that:- In view of the amendment to Section 43B by the introduction of Sub Section (f) which provides for allowing deduction on leave encashment only on the actual payment - There is nothing on record to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated ratio. The bank would have to hold requisite percentage of deposits in the form of cash, gold, government or approved securities. The government securities held for the purpose of comply with the SLR has been held to be stock in trade and therefore value of the same as on 31st March has to be made and there is any depreciation the same should be allowed as a revenue deduction. However, the RBI has issued Circular wherein they have classified the investment made to comply with SLR requirement as 'Held to maturity (HTM), 'Available for sale (AFS) and 'Held for Trade (HFT). Based on the RBI Circular lower authorities came to the conclusion that investment in Government Securities which are classified under the head HTM cannot be considered as stock in trade and therefore depreciation in value of such securities cannot be allowed as a deduction. The Apex Court in the case of UCO Bank Ltd Vs CIT reported in 240 ITR 355 has held that value of the securities at cost or market value whichever is less should be accepted for income tax even if the banks in their books do not value on that basis. Therefore, it is an accepted proportion that investment made by the bank to comply with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not alter the characteristic of the investments to comply with SLR requirement as stock in trade. 56. As held by the Supreme Court in the case of Southern technologies Ltd v JCIT (320 ITR 577), directions of the RBI are not binding for deciding the issue under the Income tax Act. Securities which are held for comply with SLR has consistently been held to be stock in trade. That being so there can be no further distinction and no part such holding will cease to be stock in trade merely because RBI has classified the same as 'held to maturity . 57. The Bombay High Court in the case of American Express International Ltd Vs CIT reported in 258 ITR 601 (Bom) = (2003-TII-85-HC-MUM-INTL) and the Madras High Court in the case of Karur Vysya Bank Ltd in TC(A) No 2139 of 2009 dated 13.07.2007 has held that the broken period interest included in the purchase price of Government securities held by the banking company to comply with SLR requirement is entitled to deduction. 58. Respectfully following the same, we direct the Assessing officer to allow a sum of Rs.5,07,02,515/- being broken period interest (net) included in the purchase value of HTM securities as revenue deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case. 15. Against the said order of CIT(A), the assessee is in appeal before us contending that the CIT(A) erred in law in stating that CIT(A) in assessment years 2000-01 to 2005-06 directing the AO to recalculate the disallowance u/s 14A of the Act in respect of disallowance on account of administrative costs/operating expenditure attributable to income exempt based on the said formula, as the CIT(A) in the said assessment years did not direct the AO to follow the above formula for computing the amount disallowable for earning tax free income but directed that only 2 months salary of officers and staff in the investment division of the bank be disallowed as incurred for earning tax free income. 16. Revenue also is in appeal before us on this issue against the order of the CIT(A). 17. The learned counsel for the assessee submitted that the issue is squarely covered by the decision of the coordinate bench in ITA No. 218/Hyd/2010 vide order dated 04/04/2013 in assessee s own case for AY 2006-07. 18. After hearing both the parties and perusing the record, we find that in AY 2006-07 in assessee s own case the coordinate bench held as follows: 69. It is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 35D of the Act. 22. The assessee in its return of income for AY 2007-08 claimed deduction of one-fifth of the expenses in connection with the public issue u/s 35 of the IT Act. From the computation of income annexed to the return, the AO noticed that the assessee had reduced a sum of Rs. 3,64,08,364/- towards claim u/s 35D stating that deduction claimed u/s 35D in respect of amortization of public issue expenses incurred in connection with the issue of the shares. The AO after anlaysing the issue by referring to the provisions of section 35D, considering the submissions of the assessee and following the decision of the CIT(A) in assessee s own case in earlier assessment years as well as the decision of the ITAT in AY 2001-02 to 2004-05 wherein the action of the AO was upheld by the authorities, disallowed the claim for deduction u/s 35D in the year under consideration. 23. On appeal, the CIT(A) following the decision of his predecessor in assessee s own case for AY 2005-06 confirmed the disallowance made by the AO. 24. Before us, the learned counsel for the assessee conceded that the issue in dispute is covered against the assessee by the decision of the coordinate bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the computation provided in the Act. Even though assessee claimed a higher deduction u/s 36(1)(viia) in the computation sheet enclosed with the return, its reflection is not seen in the total income figure reported in the revised return. Therefore, the claim of higher deduction in the computation sheet enclosed to the revised return was ignored on technical grounds by the AO. He also held that even on the merits of the case, the claim of maximum permissible deduction as per formula in section 36(1)(viia) is related to the provision made in the books of account, since without making any provision in the books of account, the assessee cannot claim the maximum permissible deduction. Therefore, the AO rejected the computation of income annexed to the revised return both on technical grounds and merits of the case. In view of the above observations, the AO disallowed Rs. 49,90,24,000/- on account of provision for standard assets u/s 36(1)(viia) by noting that the ITAT, Hyderabad upheld the action of the AO on this issue vide its order dated 22/05/2009 in respect of ATs 2001-02 to 2004-05 in assessee s own case. 29. On appeal, before the CIT(A) the assessee contended that the AO ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee for bad and doubtful debts, ultimately concluded vide paras 6.9 and 6.10 in his order as under: 6.9 If the intention of the legislature is that deduction should not be linked to the provision made in the accounts, the language of the section will not have the wording in respect of any provision for bad and doubtful debts made , instead it would have stated that the scheduled bank would be entitled to a deduction of an amount which is an aggregate of 7.5% of the total income and 10% of the aggregate average advances made by the rural branches without reference to any provision. Therefore, I am of the opinion that any provision in the section refers to any provision made in the accounts of the assessee bank and debited the amount of such debt or part of the debt in that previous year to the provision for bad and doubtful debts account made under that clause. Reliance is placed on the decision of the Hon ble High Court of P H in the case of State Bank of Patiala Vs. CIT 272 ITR 54 where it has been held that it is necessary to make a provision for bad and doubtful debts in the account books in the same previous year in which such provision is claimed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account.10% of the AARA as admitted by the Assessee as per revised census of 2001 was 352.53 crores. According to the AO even if Bad debts written off of Rs.179,21,88,992 is reduced still the balance in the PBDD account was Rs.733,35,58,177/-. Since the balance so available in PBDD account was more than 10% of AARA, the AO held that deduction on the basis of new provision of Rs.295,55,54,682/- cannot be allowed. In this regard the AO referred to the contention of the Assessee which was to the effect that in each year the Assessee can create 10% of AARA and concluded that the expression not exceeding ten percent of the aggregate average advances used in Sec.36(1)(viia)of the Act cannot mean that provision can be created each year irrespective of the available balance in the PBDD account. The AO also referred to a situation where there is no claim for bad debts in a year even then the Assessee will be entitled to claim deduction by way of PBDD which according to the AO would not be the intention of the legislature. The AO thus refused to allow the claim of the Assessee for deduction of 10% of AARA. 49. The CIT(A) deleted the addition made by the AO by following the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is allowed. 36. Respectfully following the principles laid down as above, we uphold the order of the CIT(A) and reject the assessee s ground. 37. Ground No. 4 is pertaining to disallowance of depreciation/fall in value of investments held to maturity. 38. The contention of the assessee in ground No. 4 is that the CIT(A) erred in giving directions to the AO to verify whether, i) shifting of securities to categories of AFS( Available for Sale HFT (Held for Trading) from HTM (held to Maturity) is as per the RBI Norms, ii) The assessee bank is accounting for the appreciation in the value of securities in its books and iii) the profit from redemption/sale of securities is being offered as business income, and if so allow depreciation/fall in value of HTM securities as deduction. He further contended that, when the investments held to maturity were valued as on 31/03/2007 at their market value which is lower by Rs. 293,31,88,038 compared to cost of purchase, the said amount is allowable as deduction irrespective of the category in which such investments are held by the assessee. 39. This issue has been decided by us in Revenue s appeal vide paras 2 to 6 (supra) wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A) and allow the unrealized interest claim of the assessee. Ground No. 6 is, accordingly, allowed. 47. Ground No.7 is pertaining to the disallowance of provision for leave encashment. 48. The AO noted that the assessee made a provision of Rs. 12,96,95,594/- towards leave encashment and debited to profit loss account. He further noted that as per the provisions of section 43B, the same has to be added back in computation of income, but, the assessee had not added the said amount to the income in the computation of statement, for which filed a note wherein stated as under: Amount of provision towards leave encashment debited to Profit and loss account is not considered for disallowance in view of the recent judgment given by the Hon ble High Court of Kolkata in the case of Exide Industries Ltd. Vs. Union of India wherein it was stated that leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the benefit of the employees in each financial year and is thus ascertained liability. 49. The AO noted that the Govt. of India challenged the decision of Kolkata High Court before the Hon ble Supreme Court an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of provision for leave encashment of Rs. 12,96,95,594/- and dismiss the ground raised by the assessee on this issue. 55. Ground No. 8 is pertaining to deduction u/s 36(1)(vii) in respect of debts written off by the non-rural branches of the assessee-bank. 56. The assessee admitted that this ground is not raised before the CIT(A) and raised for the first time before us. To this effect, he filed a petition seeking admission of ground No. 8 as additional ground for the reason that this ground is purely based on question of law. 57. After hearing the parties, we admit this additional ground as this is a legal issue. 58. The assessee submitted that it had written off an amount of Rs. 123,90,95,848/- as bad debts written off in respect of its non-rural branches during the assessment year, therefore, the same may be allowed as deduction following the decision of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd., Vs. CIT, 18 Taxmann.com 282 (SC). He also relied on the decision of coordinate bench in assessee s own case for AY 2006-07 in ITA No. 97/Hyd/2010. 59. After hearing the parties and perusing the record, as the facts pertaining to this issue are availa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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