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TMI Blog2018 (5) TMI 1627X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue are allowed. Addition made on provision for depreciation of investments held to maturity (HTM) as stock-in-trade - whether loss claimed on account of depreciation is only notional and not actual loss incurred by the assessee - Held that:- As decided in CIT V IG Vysya Bank Ltd.[2013 (6) TMI 43 - KARNATAKA HIGH COURT]. value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the Bank has to take into consideration the market value, of the shares. If the market value is less than the cost price, in law they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the Balance Sheet. The order passed by the authorities balding that in view of the RBI guidelines, the assessee is stopped from treating the investment as stock-in-trade is not correct. Addition on account of stale drafts and pay orders U/s. 41(1) - whether stale drafts & pay orders have not been claimed by the persons and the amounts involved remained with the assessee bank and hence taxable as per Section 28(iv) - Held that:- As decided in assessee's own case we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te ORDER PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER : ITA No. 673/Bang/2014 is an appeal by the Revenue against the order dated 26/2/2014 of Commissioner of Income-tax (Appeals), Hubli relating to the assessment year 2009-10. ITA No.684/Bang/2014 is an appeal by the assessee while ITA No.674/Bang/2014 is an appeal of the Revenue. Both these appeals are directed against the order dated 26/2/2014 of Commissioner of Income-tax (Appeals), Hubli relating to the assessment year 2010-110. Since common issues are involved in these appeals, these appeals were heard together. We deem it convenient to pass a common order. 673/Bang/2014 (Revenues Appeal for Asst. Year 2009-10) 2. Ground Nos.1, 7 and 8 raised by the Revenue are general in nature and calls no specific adjudication. 3. Ground Nos.2 to 4 raised by the revenue reads as follows:- 2. Whether on facts circumstances of the case, is the learned CIT(A) correct in allowing deduction of ₹ 177.38 crores U/s.36(1)(viia), even when the provision made in books of accounts by the assessee was only for ₹ 9.11 crores. 3. Whether QQ facts circumstances of the case, is the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be greater than the amount debited to the profit and loss account as provision. Our attention was drawn to a decision of the ITAT Bangalore in the case of Syndicate Bank Vs. DCIT (2014) 150 ITD 0103 (Bangalore), wherein the Hon ble ITAT Bangalore Bench preferred to follow the view taken by the Hon ble Punjab Haryana High Court in the case of State Bank of Patiala (supra) rather than the decision of the Syndicate Bank (supra) of the Bangalore Bench relied upon by the learned CIT(A) in giving relief to the Assessee on this issue. The ld. counsel for the assesses submitted that the decision of the Bangalore Bench of ITAT in the case of Syndicate Bank (Supra) should be followed by the Tribunal in preference to the decision of the Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra)and in this regard submitted that the decision of co-ordinate Bench of the Tribunal should be followed in preference to the decision of non jurisdictional High Court decision. In this regard, the ld counsel for the assessee placed reliance on the decision of the Hon ble Karnataka High Court in the case of Patil Vijayakumar Others Vs. Union of India 151 ITR 48 (Kar). 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts. 10. However the Bangalore Bench of ITAT in the case of Syndicate Bank (supra) 150 ITD 103 (Bang.) noticed that the ITAT Bangalore Bench in the case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 considered in the case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 considered the decision of the ITAT in the case of Syndicate Bank 78 ITD 103(Bang) and the decision of the Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra) and held that the decision rendered by the Hon ble High Court has to be followed. The above decision though of a non jurisdiction High Court was followed as the said decision of the Hon ble High Court was rendered after the decision in the case of Syndicate Bank 78 ITD 103 (Bang.). The Tribunal held that Judicial discipline demands that the Tribunal should follow the later decision which has considered both the decisions on the issue. The Tribunal following the said decision held deduction on account of Provision for Bad and Doubtful Debts u/s.36(1)(viia) of the Act has to be allowed only to the extent such provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after considering the decision rendered in the case of Syndicate Bank 78 ITD 103(Bang.) preferred to follow the decision of Hon ble Punjab Haryana High Court in the case of State Bank of Patiala (supra) though of a non jurisdictional High Court than the decision of co-ordinate Bench in the case of Syndicate Bank 78 ITD 103 (Bang.). In our view therefore the decision of the Hon ble Karnataka High Court in the case of Patil Vijayakumar (supra), does not support the plea of the assessee. We, therefore hold that the relief allowed by the CIT(A) in the matter of allowing deduction for provision for bad and doubtful debts was not in accordance with law. The addition made by the AO is, therefore, restored. The ground Nos. 2 and 4 raised by the Revenue are allowed. 12. Ground Nos. 5 and 6 raised by the Revenue in its appeal reads as follows:- 5. Whether on facts circumstances of the case, is the learned CIT(A) correct in holding that ₹ 778.48 crores as eligible for deduction U/s.36(1)(viii) of the Act. 6. Whether on facts circumstances of the case, is the learned CIT(A) correct in allowing deduction even though the following advances prima fade are not eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of providing long-term finance for the construction or purchase of houses in India for residential purposes; and ( iii) in respect of the specified entity referred to in sub-clause (vi) of clause (a), the business of providing long-term finance for development of infrastructure facility in India; ( c) banking company means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; ( d) co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; ( e) housing finance company means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes; ( f) public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); ( g) infrastructure facility means- ( i) an infrastructure facility a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains of business or profession' before deduction u/s 36(1)(viii) B 53,49,31,774.00 Percentage of eligible income under the head 'Profit and gains of business or profession', before deduction u/s 36(1 (viii) C=A*B% 7,93,11,891.50 20% thereof, being amount eligible for deduction u/s 36(1) (viii) C*20% 1,58,62,378.30 15. Before CIT(A) the Assessee submitted that the basis on which the AO arrived at a sum of ₹ 374.56 Crores as Advances given for eligible business was not correct. The Assessee pointed out to the CIT(A) that its gross loans and advances as on 31.03.2009 was ₹ 2626.29 crores ( As per schedule 9 of Balance Sheet). The loans and advances shown in the Balance Sheet as at 31.03.2009 was ₹ 2526.28 crores which was net of ₹ 100.01 crores provision for bad and debts (deducted from the gross advances). Further out of ₹ 2626.29 crores gross outstanding, advances and the loans given for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans for more than 5 years period and eligible long term loans as per section 36 (i)(viii). The eligible advances sanctioned for a period of five years and more was ₹ 778.48 crores as on 31.03.2009. The Assessee thus submitted that the learned assessing officer has erred in taking eligible advances for the purpose 20%, deduction towards special reserve u/s 36(i)(viii) and mistaken the maturity pattern of loans as on 31.03.2009 as tenure of loans for the purpose of deduction under section 36(i)(viii). The Assessee prayed that the action of the AO was unjustified and wrongful disallowance made by the assessing officer of ₹ 1,32,37,622.00 should be allowed. 17. After examining the various contentions put forth by the assessee before him, the CIT(A) allowed the relief to the assessee observing as follows:- I have gone through the facts of the case, contents of the assessment order and written submissions of the assessee. The Hon'ble jurisdictional ITAT, 'C' Bench, Bangalore in the case of Karnataka Vikas Grameena Bank Vs. ACIT, C-2(1), Hubli ITA No. 226 227/BANG/2012 (AY 2007-08 2008-09) it was held that: the rival arguments at lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Industrial Development Corp. (supra) and Andhra Pradesh State Financial Corporation (supra) relied on by the assessee that the statutory deduction under section 36(1)(viii) should be calculated on total income before the deduction under section 36(1)(viii) itself. In view of the findings that the assessee had correctly worked out the deduction under section 36(1)(viii) of the Act at ₹ 8,10,91,000 and therefore the amount of eligible advances is ₹ 1055.01 crores, and following the aforesaid two decisions of the Hon'ble Apex Court in the cases of Kerala State Industrial Development Corporation(supra) and Andhra Pradesh State Financial Corporation (supra) as regards the total income for the purpose of computing deduction under section 36(1)(viii) of the Act, we uphold the order of the learned CIT(Appeals). Respectfully following the jurisdiction of ITAT, 'C' Bench, Bangalore judgment mentioned supra the addition made by the AO was disallowed and assesses ground of appeal is allowed. 18. Aggrieved by the order of the CIT(A) Revenue has raised ground Nos. 5 and 6 before the Tribunal. 19. We have heard the rival submissions. It is not clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, the appeal by the assessee is treated as partly allowed. ITA No.674/Bang/2014 (Revenues Appeal for Asst. Year 2010-11) 23. Ground Nos. 1, 8 and 9 raised by the revenue are general in nature and calls for no specific adjudication. 24. Ground Nos.2 and 3 raised by the Revenue are similar to ground Nos. 2 to 4 raised by the assessee in its appeal for assessment year 2009-10 in ITA No.673/Bang/2014. For the reasons stated therein the disallowance made by the AO u/s 36(1)(viia) of the Act is restored and the relief allowed by the CIT(A) is held to be not correct. 25. The Ground Nos. 2 to 3 are accordingly allowed. 26. Ground Nos. 4 and 5 raised by the Revenue reads as follows:- 4. Whether on facts circumstances of the case, is the 01(A) correct in deleting addition of ₹ 2.96 crores made on provision for depreciation of investments held to maturity (HTM) as stock-in-trade. 5. Whether on facts circumstances of the case, is the CIT(A) correct in allowing deduction for depreciation of investment which is notional loss without appreciating the fact that loss claimed on account of depreciation is only notional and not actual loss incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have perused and carefully considered the material on record including the judicial, pronouncements relied on. In the case on hand, we find that there is no dispute as regards the investment made by the assessee in securities and the said investments have been treated and classified by the assessee as stock-in-trade, which have been valued at the end of the year at cost or market value, whichever is less. From this it is clear that the asses-see is treating the securities held under the category held to maturity' as stock-in-trade. This issue has been considered in detail by th Hon'ble Karnataka High Court in the case of Karnataka Bank Ltd. V CIT in its order (ITA No.172/2009 dt.22.3.2013), wherein the Hon ble Court after considering the decision in the case of CIT V IG Vysya Bank Ltd. in ITA No.2886/2005 dt.6.6.2012 hzi held at pages 23 to 25 at paras 9 10 its order as under: 9. In instant cases, the assessee has maintained the accounts in terms of the RBI Regulations and h has shown it as investment. But consistently for more than 1tqd ades it has been shown as stock-in-trade and depreciation is claimed and allowed Therefore notwithstanding that in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It was not disputed by the parties before us that identical issue was considered by the Tribunal in assessee s own case in assessment year 2008- 09. The facts in AY 2008-09 which are similar to the facts in the present AY are that the Assessing Officer noticed that in the Assesse s Balance Sheet as on 31.3.2007 an amount of ₹ 58,31,851 was shown as liability outstanding towards Drafts and Pay Orders. The Assessing officers treated these amounts as income of the assessee u/s.41(1) of the Act by relying on the ns of the Hon'ble Apex Court in the case of T.V. Sundaram lyengar Sons reported in 22 ITR 334 and of the Hon'ble Bombay High Court in the case of Batlibol Co. Pvt. Ltd. (149 ITR 604). On appeal, the learned CIT (Appeals) upheld the addition made by the Assessing Officer. The case of the assessee was that the above sums amounting to ₹ 58,31,851 do not represent income u/s.41(1) of the Act. It was submitted that for any amount to constitute income u/s.41(1) of the Act, it ought to have been treated as an allowance or deduction in an assessment year earlier to the previous year in which it is sought to be treated as income. It was submitted that the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case.' 31. The Tribunal on the above contentions held in ITA No.226/Bang/2014 order dated 28/11/2013 as follows:- 7.3.1 We have heard both parties and perused and carefully considered the material on record including the judicial decisions cited on either side. The Assessing Officer has invoked the provisions of section 41(1) of the Act to bring the amount of ₹ 58, 31,851 received for making drafts and pay orders to tax in the hands of the asses e in the period under consideration. section 41(1) of the Act, specifically deals with amour1t that were allowed as a deduction in the past assessments as trading liabilities which in later year ceases OR are remitted by the creditors If and when in a later year there is evidence to show that the liability is-remitted, it can be brought to tax. In order to invoke section 41(1) of the Act, it must be first established that the assessee had obtained some benefit -in respect of a trading liability Which was earlier allowed as a deduction. It is not enough if the assessee derives some benefit in respect of such liability, but it is essential that such benefit arises by way of 'remission' or 'ces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 684/Bang/2014 (Assessment Year 2010-11) Assessee s Appeal: 34. The Only issue that arises consideration in this appeal by the assessee is with regard to the disallowance of interest expenses made by the AO u/s 40a(ia) of the Act. In terms of Sec.40(a)(i) of the Act, if tax is deductible at source under Chapter XVII-B of the Act and where it is not so deducted at source on the amount of any interest or royalty, fees for technical services or other sum chargeable under the Act, which is payable outside India or in India to a non-resident, not being a company or to a foreign company, the same shall not be allowed as deduction while computing Income from Business . In terms of sec.40(a)(ia) of the Act, if tax is deductible at source under Chapter XVII-B of the Act and where it is not so deducted at source on the amount of any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), the same shall not be allowed as deduction while computing Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10. Of this amount ₹ 15,03,55,000/- was paid to NABARD and ₹ 68,44,000/- was paid to Reserve Bank of India . Thus the interest paid on other deposits came to ₹ 218,90,58,000/- . The assessee was asked to give further break up of the sum of ₹ 218,90,58,000/- to verify whether TDS was made on the interest paid on term deposits exceeding ₹ 10,000/-. In response the assessee submitted the following break up of interest paid : Sl. No. Head of deposits Interest paid for the FY 2009-10 1. Savings Bank Deposits 35,94,69,466 2. Recurring Deposits 1,66,60,914 3. Pigmy Deposits 4,47,07,916 4. Interest paid up to ₹ 10,000/- on Term Deposits 132,01,23,494 5. Interest above ₹ 10,000/- on Term Deposits 44,80,96,536 i Interest above ₹ 15G/H/Govt./Exempted etc. obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS, the AO disallowed the claim for deduction of the said sum for violation of provisions of Sec.40(a)(ia) of the Act. 38. On appeal by the Assessee, the CIT(A) upheld both the additions made by the AO. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. 39. Before the Tribunal, on the issue of disallowance of a sum of ₹ 28,98,43,706, the learned counsel for the Assessee submitted that once the depositors give Form No.15G/H, the law empowers the Assessee to make payment of interest without deduction of tax at source. The requirement of filing the form so obtained before the prescribed authority within the prescribed period was only a procedural requirement and it was mandatory and for failure to file the form before the prescribed authority no disallowance can be made u/s.40(a)(ia) of the Act. For the above proposition the learned counsel for the Assessee relied on the decision of the Hon ble Karnataka High Court in the case of Sri Marikamba Transport Co. 231 Taxman 484 (Karn.) wherein the Hon ble Karnataka High Court as follows: 4. The combined reading of these two provisions make it clear that if there is any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non submissions of 15G/15H before the Prescribed authority, amounts to, all together, non - deduction of TDS, where it ought to have been done, thus inviting the disallowance of the same u/s 40a (ia) of IT Act. Like so the claim of interest payment stated to be made to Government was not properly supported with the evidences thus inviting the disallowance of the same u/s 40a (ia) of IT Act. 9.4. Thus an amount the ₹ 12,98,57,409 for non-deduction of TDS on theinterest paid exceeding ₹ 10,000/- and an amount of ₹ 28,98,43,076/- where no 15G/15H forms were stated to be submitted or interest stated to be paid to Government Department, is disallowed u/s 40a (ia) of IT Act. Thus the total amount of ₹ 41,97,00,485/- disallowed and added back to the income returned by the assessee. 41. Without prejudice to his reliance on the order of the AO, the ld DR submitted that the disallowance to the extent of payment to government should be set aside to the AO and the assessee should be asked to furnish the required details. 42. We have given a careful consideration to the rival submissions. As far as disallowance of interest of a sum of ₹ 28,98,43,076/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B of the Act has been passed, no disallowance u/s 40(a)(ia) of the Act can be made. In other words, according to him any disallowance u/s 40(a)(ia) of the Act without corresponding order treating the assessee as an assessee in default u/s 201(1) of the Act is passed as Sec.40(a)(ia) in Chapter XVIIB are interlinked provisions. 44. The ld DR however, submitted that the interest in question is allowable as revenue expenditure u/s 37(1) of the Act and, therefore, the disallowance u/s 40a(ia) of the Act is applicable. It was submitted by him that commercial principles cannot be made applicable in the context of disallowance u/s 40a(ia) of the Act. It was submitted by him that the acceptance of deposits by banking company is only for the purpose of lending which is a regular business of the assessee and interest paid on such deposits will fall within the ambit of sec. 37(1) of the Act and not u/s 28 of the Act. It was also submitted by him that even sec. 40(a)(ia) of the Act makes a specific reference to any interest and, therefore all types of interest are covered within the ambit of sec. 40(a)(ia) of the Act. It was submitted by him that language of the sec. 40(a)(ia) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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