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TMI Blog2015 (11) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields Disallowance of the claim of loss on account of fall in value of investments held as stockin- trade - Held that:- This issue now no longer survives in view of two decisions of Hon’ble Karnataka High Court in case of Karnataka Bank Ltd. vs. Assistant Commissioner of Income Tax [2013 (7) TMI 656 - KARNATAKA HIGH COURT] and CIT vs. Bank of Baroda [2003 (3) TMI 80 - BOMBAY High Court] and a decision of CIT vs. HDFC Bank Ltd. reported at [2014 (7) TMI 724 - BOMBAY HIGH COURT] considering decision of United commercial bank V CIT [1999 (9) TMI 4 - SUPREME Court] and Southern technologies Limited V Jt CIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA ] wherein as decided in the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown as stock-in-trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance-sheet , it is shown as investment, for the purpose of Income Tax Act, it is shown as sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the securities of the assessee bank are stock in trade of the bank natural corollary would be that the amount of interest paid for broken period shall also be revenue expenditure in nature and allowable to the bank. This issue has been considered by various high courts, which have been considered by CIT (A) in his orders while deciding the issue. Further, the revenue has also not contested this issue in earlier years. Hon Bombay high court in case of CIT V HDFC bank Limited in [2014 (8) TMI 119 - BOMBAY HIGH COURT] has held that even after the decision of Hon. supreme court in case of CIT v Vijaya bank (1990 (9) TMI 5 - SUPREME Court) broken period interest is allowable to the assessee. - Decided in favour of assessee . Claim of depreciation of LAN and WAN equipment - CIT(A) allowed claim - Held that:- As relying on CIT V BSES Yamuna Power Limited [2010 (8) TMI 58 - DELHI HIGH COURT] WAN and LAN equipment are used with computers only same are also eligible for depreciation @ 60 % therefore, we confirm the order of CIT (A) in deleting the granting depreciation of disallowance made by the AO on account of excess claim of depreciation of LAN and WAN equipment. - Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant contends that the principle of valuation of investments held as stock in trade on the basis of cost or market value whichever is lower, has been accepted in the earlier years and the consequential fall in value has been allowed as business loss. Therefore, applying the same principle the fall in value of investments of ₹ 205.43 crores at the time of shifting the securities from AFS to HTM should be allowed. 4. The Ld. CIT (A) has erred in law and on the facts and circumstances of the case in not accepting the plea of the assessee that there is no expenditure incurred by the assessee bank for earning tax-free income and hence no disallowance should be made u/s 14A of the Income Tax Act , 1961. 5. The appellant contends that no expenditure is incurred for earning tax free income because a) expenditure incurred is for banking business of the assessee, b) assessee has sufficient non-interest bearing own funds to invest c) the investments made by the bank are to meet RBI norms like CRR, SLR ratios etc. d) the investments in the bank are made to realize gains or losses and earning dividend is only incidental e) neither the Assessing Officer nor the CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 688. Ld. AR further submitted that the facts relating to the additional ground are available at page no. 11 and 12 of the paper book wherein a query letter dated 18.9.2009 a query has been raised for the deduction u/s 36(1)(vii) and 36(1) (viia) vide point no. 1, 2 and 3 of that notice. Ld. AR further stated that vide letter dated 13.10.2009 assessee has submitted the details of deduction u/s 36(1) (viia) and 36(1) (vii) . In the letter it was submit ted that the claim of bad debt u/s 36(1) (vi i ) has been made by the assessee after considering the provisions for bad and doubtful debts u/s 36(1) (viia). Ld. AR of the assessee submitted that identical issue has been decided in case of assessee for AY 2006-07 in ITA no. 22/Del /2011 dated 15 March 2013 and ITAT has admitted additional ground, accepted the contention of the assessee and remitted matter back to AO with direct ion to make verification and grant deduction. Therefore, he contended that this ground may be admitted and adjudicated upon. 05. Ld. DR did not object to the raising of additional ground but submitted that as this ground requires verification of the facts same may be set aside to the file of AO. Ld. DR has su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA no. 22/Del /2011 dated 15 March, 2013 wherein ITAT has admitted these additional grounds, accepted the content ion of the assessee and has remitted back to file of AO with direction to make verification and grant deduction. 08. We have carefully considered the rival submission. The breakup of the bad and doubtful debts shows that the banks has total bad debts of ₹ 4,49,05,86,446/- out of which bad debts claimed in computation of total income is ₹ 1,74,40,55,501/- leaving a balance of ₹ 2,74,65,30,945/- . Out of the above sum amount has been written of f comprising bad debts in respect of rural branches of ₹ 32,53,000/ - and balance amount of 2,74,32,77,945/- relates to claim of deduction on account of bad debt u/s 36(1) (vi i ) with respect to non- rural branches. The facts and workings relating to the same are at page no. 11 and 12 of the paper book wherein a query letter dated 18.9.2009 a query has been raised for the deduction u/s 36(1) (vii) and 36(1) (viia) vide point no. 1, 2 and 3 of that not ice and assessee replied on 13.10.2009 . In the letter it was submitted that the claim of bad debt u/s 36(1) (vi i ) has been made by the assessee after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of RBI the bank has transfer red SLR securities aggregating to 1664.32 crores from Available for sale category to Held to Maturity category during the year . Due to this, mark to market devaluation of ₹ 205.43 crores has been debited to the P L Account . Further deduction of ₹ 205.10 crores was also claimed being fall in value of investments as on 31 March 2007, which is allowed as deduction. During the course of assessment proceedings, AO disallowed the deduction claimed of ₹ 205.43 crores for the reason that it is loss arising out of provisions in the books and therefore it is notionalloss and not real . Assessee carried the matter before CIT (A) who in turn concur ring with the views of assessing officer confirmed the disallowance. Therefore, assessee has raised this ground before us. 11. Before us ld. AR submitted that RBI circular provides for transfer of securities from available for sale category to held to maturity category once in a year. The Board of the Directors of the Bank authorizes such transfer and such loss is charged to profit and loss account of the bank. He submitted that loss arising therefrom is not a notionalloss but reallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial bank V CIT 240 ITR 355 and Southern technologies Limited V Jt CIT 320 ITR 577, wherein Hon ble High Court has held as under: - 9. In the present case, we find that the facts and issues that are covered by the aforesaid judgment squarely apply to the facts and issues raised in the present Appeal. Not only are we in full agreement with the judgment of this Court in the case of Bank of Baroda (supra) but we are bound by the same. We therefore respectfully follow the ratio laid down in the said judgment. 10. We find that even the judgment of the Karnataka High Court in the case of Karnataka Bank Ltd. (supra), reliance on which was placed by Mr Mistry, squarely covers the issue raised in this Appeal. The facts in the case before the Karnataka High Court were that the Assessee was holding securities in different categories as mandated by the RBI Master Circular dated 1st September 2003. The Assessee treated such securities as stock-in-trade and claimed depreciation on the book value after valuing the securities at cost or market value whichever was lower. The Revenue refused to accept the Assessee's plea for the deduction and disallowed the same and added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance-sheet is required to be maintained in the statutory form may not be decisive or conclusive. It is open to the Income Tax Officer as well as the assessee to point out true and proper income while submitting the income tax returns. Even if the assessee under some misrepresentation or mistake fails to make an entry in the books of account, although under law, a deduction must be allowed by the Income Tax Officer, the assessee will not lose any right on claiming or will be debarred from being allowed the deduction. Therefore, the approach of the authorities in this regard is contrary to the well settled legal position as declared by the apex court. In the instant case, the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown as stock-in-trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance-sheet , it is shown as investment, for the purpose of Income Tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re at 5% of exempt income earned u/s 14A. Against this disallowance, assessee is in appeal before us. 16. The ld. AR of the appellant submit ted that CIT (A) has deleted the addition though on account of interest expenditure but has confirmed the disallowance to the expenditure of 5% of exempt income. He submitted that the assessee has not incur red any expenditure to earn that income. He further relied upon the decision of Hon ble Mumbai High Court in case of CIT vs. HDFC Bank Ltd. Income Tax Appeal No. 330 of 2012 that no disallowance can be made in case of banking company on account of interest while applying Sect ion 14A. Regarding disallowance of % of the exempt income, Ld. Counsel further submit ted that for AY 2006-07 the Hon ble ITAT in assessee s own case in ITA no. 22/Del /2011 has considered this issue and in view of decision of Hon ble Delhi High Court in case of Maxopp Investment Ltd. Ors. Vs. CIT 247 CTR 162 set aside the issue back to the file of AO. 17. Ld. DR relied on the orders of lower authorities and submitted that the disallowance has rightly been made of interest expenditure as well as other expenditure by AO. 18. We have carefully considered ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO on account of excess claim of depreciation of LAN and WAN equipments. 4. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the disallowance of ₹ 6,01,09,266/ - made by the A.O. on account of excess claim of depreciation on fixture and fiting on temporary structure. 5. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in directing the AO to allow deduction u/s 36(1) (viia) as per law. 6. The Hon ble Apex Court in the case of the Electronics Corporation of India vs. UOI (full bench decision) [Civil Appeal No. 1883 of 2011 arising out of SLP (c) No. 2538 of 2009 dated 17.02.2011] , has recalled the law relating to approval of COD. Therefore, earlier COD decision to grounds at Sl . No. 2,3 and 5 above for not filing appeals on these points no longer exists. 21. The ground no. 1 is regarding restricting the disallowance u/s 14A of the IT Act to ₹ 1,19,80,033/- from ₹ 39,23,61,000/ - by CIT (A). Brief facts are already discussed in deciding ground no. 4 to 6 of the assessee s appeal however, to state the facts succinctly that assessee has earned tax free in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the order of the CIT (Appeals) dated 28th March 2005 as well as the impugned order, we do not find that the CIT (Appeals) or the ITAT erred in holding in favour of the Assessee. In this regard, the submission of Mr Mistry, the learned Senior Counsel appearing on behalf of the Assessee, that this issue is squarely covered by a judgment of this Court in the case of Commissioner of Income Tax v/s Reliance Utilities and Power Ltd., reported in (2009) 313 ITR 340 (Bom) is well founded. The facts of that case were that the Assessee viz. M/s Reliance Utilities and Power Ltd. Had invested certain amounts in Reliance Gas Ltd. and Reliance Strategic Investments Ltd. It was the case of the Assessee that they themselves were in the business of generation of power and they had earned regular business income therefrom. The investments made by the Assessee in M/s Reliance Gas Ltd. And M/s Reliance Strategic Investments Ltd. were done out of their own funds and were in the regular course of business and therefore no part of the interest could be disallowed. It was also pointed out that the Assessee had borrowed ₹ 43.62 crores by way of issue of debentures and the said amount was utilise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there were funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. (emphasis supplied) 5. We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd. (supra). The finding of fact given by the ITAT in the present case is that the Assessee's ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue. Further, the revenue has also not contested this issue in earlier years. Hon Bombay high court in case of CIT V HDFC bank Limited in 366 ITR 505 has held that even after the decision of Hon. supreme court in case of CIT v Vijaya bank (187 ITR 541) broken period interest is allowable to the assesse. The issue raised before Honourable High court was (B) Whether the ITAT was correct in law in holding that the broken period interest is allowable as a deduction, inspite of the Hon'ble Supreme Court's decision in the case of CIT v. Vijay Bank (187 ITR 541) and the Rajasthan High Court's decision in the case of Bank of Rajasthan (316 ITR 391) ? Honourable high court answered this quest ion as under- 6. Even as far as question (B) is concerned, we find no infirmity in the orders passed by the CIT (Appeals) or the ITAT. In deciding this issue, CIT (Appeals) and the ITAT have merely followed the judgment of this Court in the case of American Express International Banking Corpn. v. CIT [2002] 258 ITR 601/125 Taxman 488. On going through the said judgment, we find that question (B) reproduced above and projected as substantial by Mr Suresh Kumar is squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in deleting the disallowance of ₹ 6,01,09,266/- made by the A.O. on account of excess claim of depreciation on fixture and fitting. 34. Brief facts of the case is that during the year assessee has claimed depreciation on temporary structures @ 100% on furniture and fixtures in rented premises and claimed as temporary structure. Before AO, it was submitted that assessee has included under temporary wooden structure, internal portion, cabin formation, flooring concealed wiring etc. for the computers were constructed and on that depreciation @ 100 % is claimed. AO amortized these expenditure over 5 years and granted only 20 % of the total expenditure of ₹ 7,51,36,583/- .CIT (A) has deleted the addition and allowed 100 % depreciation holding that depreciation on temporary structure is allowable @ 100 % under income Tax Rules 1962. Therefore, revenue is in appeal . 35. Before us, Ld. AR relied on the order of CIT (A) and ld. DR Relied on the order of AO. 36. We have carefully considered the rival submissions. Assessee banks has shown addition of ₹ 15,73,78,019/- to the opening WDV of ₹ 15622208/- and reduction therefrom of ₹ 100163 resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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