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TMI Blog2015 (10) TMI 2009X X X X Extracts X X X X X X X X Extracts X X X X ..... s of PY relevant to AY 08-09. The excess reserve created in the subsequent year cannot be equated to the PBDD created in the books for the present AY. The decisions relied upon by the learned counsel for the assessee do not lay down a proposition that excess provision created in the subsequent year can supplement the inadequate created in an earlier year. The decisions relied upon by the learned counsel for the assessee lay down proposition that the assessee should be given liberty to create a reserve in the books of accounts of the relevant AY. For the reasons given above, we reject the second alternate submission made by the learned counsel for the assessee. Thus the assessee will be entitled to deduction u/s.36(1)(viia) - Decided in favour of assessee in part. Deduction u/s 36(1)(viia) - bad debts written off pertaining to non-rural branches without adjusting the same against the provisions made u/s 326(1)(viia) - Held that:- CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce-sheet in the prescribed form and it had no option to change it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case Addition u/s 36(1)(viii) - whether the assesssee is not a specified entity prior to amendment in the IT Act,w.e.f.1/4/2008 and not doing an eligible business to be entitled for deduction u/s 326(1)(viii)? - Held that:- As decided in Union Bank of India case [2012 (6) TMI 500 - ITAT MUMBAI] even otherwise the assessee is a Govt. company since the Central Government holds more than 51% of the share capital of the bank and as defined inSec.617 of the Companies Act, the assessee is a Government Company. Hence the deduction u/s 36(1)(viii) has to be allowed to the assessee as it is engaged in the business of providing long term finance for industrial, agriculture and infrastructure development in India and is a Government Company. The assessee is a financial Corporation “within themeaning of Sec.36(1)(viii) since it is a Government Company. However, the deduction available under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Central Government, while computing the taxable income the AO has also computed book profits determining the same at ₹ 185,03,00,106/-. 2.1 Aggrieved, the assessee filed appeal among other grounds before the CIT(A). The CIT(A) confirmed the order of the AO. On further appeal before us, the assessee has raised ground nos.1 to 5 as under; 1. The order of the learned CIT(A) is against the law and facts of the case. 2. The learned CIT(A) erred in not accepting the revised recasted profit loss accounts as submitted by the Bank. 3. The learned CIT(A) erred in treating that computation of AO was good even when it was accepted that the Financial Statement prepared by the bank was not accordance with the provisions of part-II and III of Companies Act, 1956 but as per Banking Regulation Act. 4. The learned CIT(A) failed to appreciate the fact that non-submissions of Form No.29B was only a technical error. 5. The learned CIT(A)-II erred in confirming the addition made for computation of MAT u/s 115JB expenditure incurred for earning tax free income as the same is allowed in regular computation . 3. However, the assessee has now raised additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Co-ordinate Bench, we set aside the orders of the lower authorities and allow the appeal of the assessee on the ground that the bank is not required to prepare its P L accounts in accordance with the provisions of part-II of schedule VI of Companies Act, 1956 and therefore, the provisions of MAT insec.115JB of the IT Act, is not applicable to the assessee. 7. In the result, the appeal of the assessee is allowed. ITA No.596(BNG)/2010 : Assessment Year : 2006-07 Dept. appeal 8. We shall take up ground no.2 in ITA No.596(B)/2010. With respect to deduction u/s 36(1)(viia) of the IT Act, 1961. 2. The CIT(A) erred in directing the AO to allow the claim of deduction u/s36(1)(viia) amounting to ₹ 143,12,69,349/- in excess of the provisions made in the accounts without appreciating that the provisions of section 36(1)(viia) provides for limiting the deduction tot eh amount of provisions made in the accounts. We find from the AY: 2008-09 in ITA No.578(Bang)/2012 dated 27-02-2015 the Co-ordinate Bench of this Tribunal has discussed the similar issue as under; 4. The AO disallowed claim for deduction of Rs. 192,57,72,764/- out of the total claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) and held that the decision rendered by the Hon ble High Court has to be followed. The above decision is the decision brought to our notice on the issue rendered after the decision in Assessee s own case. Judicial discipline demands that we follow the later decision which has considered both the decisions on the issue. We therefore respectfully following the decision of the Tribunal in the case of Canara Bank (supra), hold that claim for deduction u/s.36(1)(viia) of the Act cannot be greater than the amount debited to the profit and loss account as provision. 9. To the alternate submissions made by the respondent bank that the assessee should be allowed deduction on account of Provision for Bad Doubtful Debts (PBDD) u/s 36(1)(viia) of the IT Act, 1961 for the entire permissible limit because the provision is whatever is the shortfall between the eligible limit and the PBDD made in the books of accounts by the assessee was made excess provision in subsequent years and therefore, the entire amount should be made as deduction. It was further submitted in the alternate claim the provision made in subsequent years was much more than the eligible limits u/s 36(1)(viia) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of accounts of PY relevant to AY 08-09. The excess reserve created in the subsequent year cannot be equated to the PBDD created in the books for the present AY. The decisions relied upon by the learned counsel for the assessee do not lay down a proposition that excess provision created in the subsequent year can supplement the inadequate created in an earlier year. The decisions relied upon by the learned counsel for the assessee lay down proposition that the assessee should be given liberty to create a reserve in the books of accounts of the relevant AY. For the reasons given above, we reject the second alternate submission made by the learned counsel for the assessee. Thus the assessee will be entitled to deduction u/s.36(1)(viia) of the Act of ₹ 100,55,67,213/-Ground No.2 of the Revenue is allowed to this extent . Respectfully following the decision of the Co-ordinate Bench of this Tribunal the revenue appeal is partly allowed. 12. Ground no.3 reads as follows; 3. The CIT(A) erred in directing the AO to allow deduction of ₹ 34,45,27,639/- u/s 36(1)(viia) of the IT Act in respect of bad debts written off pertaining to non-rural branches with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if any of the write off over the amount standing to the credit of the account created under clause (vii). However, the revenue disputes the position that the proviso to clause (vii) refers only to rural advances. It says that there are no such words in the proviso which indicates that the proviso apply only to rural advances. There is no merit in the objection raised by the revenue. Firstly, the CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). Thus, the proviso to clause (vii) stood introduced in order to protect the revenue. It would be meaningless to invoke the said proviso where there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the RBI will not be relevant while computing income under the Income-tax Act. The Hon ble Court further took the view that every investment held by a bank cannot be considered as stock-in-trade. The Hon ble High Court finally concluded that 30% of the investments can be clothed to the character of stock-in-trade and that the remaining amounts will be investments and therefore diminution in their value cannot be allowed as a deduction. 59. The ld. counsel for the assessee, however, submitted that in the assessee s own case for the A.Y. 2005-06, this Tribunal has confirmed the order of the CIT(A), deleting identical addition made by the AO. Our attention was also drawn to the order of the Tribunal in assessee s own case in ITA No.492/Bang/2009 for the A.Y. 2005-06, order dated 13.01.2012, wherein the Tribunal had to deal with identical issue as to whether the CIT(A) was correct in deleting the addition made by the AO on account of profit on sale of investments of ₹ 200,77,13,662/- and deleting the action of the AO in disallowing loss claimed on treating investments as stock-in-trade by drawing the investment trading account of ₹ 775,96,55,047. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Banking Regulation Act and valuing the same at cost or market value, whichever was lower for income-tax purposes. The Hon ble Court took the view that all investments held by a bank are to be regarded as stock-in-trade. 61. The ld. counsel for the assessee further drew our attention to a very recent decision of the Hon ble High Court of Karnataka rendered on 11.03.2013 in the case of CIT v. Vijaya Bank, ITA No.687/2008. The Hon ble High Court of Karnataka in the aforesaid case followed its own decision rendered in the case of Karnataka Bank Ltd. v. CIT in ITA No.172/2009 rendered on 11.01.2013, wherein the Court took the view that depreciation claimed on investments held on maturity by a bank has to be treated as stock-in-trade in accordance with RBI guidelines and CBDT Circular. It was his submission that the later decision of the Hon ble Karnataka High Court has to be followed. 62. We have given a careful consideration to the rival submissions and are of the view that the contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in assessee s own case on an identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n deleting the disallowance made u/s 14A ₹ 3,43,28,658/- considering it is an expenditure incurred to earn exempt income u/s 14A. In the case of State Bank of Mysore, the CIT(A) has upheld disallowance of 2% of the exempt income vide order dated 22-06-2007 for AY: 2003-04 and order dated 5/9/2007 for AY: 2004-05. . 18. We find that this issue is covered by the order of ITAT, Bangalore Bench in assessee s own case in ITA No.578(B)/2012 (supra), wherein it has been held as under; We have given a very careful consideration to the rival submissions. In the present case, the claim of the assessee before the AO that tax free income for the bank is mainly from investments held by the bank. The investment activities of the bank are carried out by the Treasury Department at Head Office. Even without earning any free income, these expenditure would have been incurred by the bank since the bank has to hold SLR securities to carry on the business and the expenditure is of fixed in nature. Therefore, there is no expenditure incurred directly by the bank for earning any tax free income. Since the expenditure would have been incurred by the bank even without the earning of tax fre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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