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TMI Blog2019 (9) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of bad and doubtful debts and reduced from advance account in the Accordingly, this ground of appeal raised by the assessee is partly allowed for statistical purpose. Disallowance of loss on account of shifting of securities - as during the previous year relevant to assessment year, the assessee bank had shifted certain securities from AFS to HTM in order to comply with the RBI guidelines in preparation of accounts - AO disallowed the claim on the ground that RBI guidelines are not binding while computing taxable income and the ld. CIT(A) confirmed the findings - HELD THAT:- Assessee bank has shifted the investment from one category to another is of no relevance, in as much as, fall in value of investment is held to be allowable as deduction. Thus, ground of appeal filed by the assessee is allowed. See CANARA BANK VERSUS JOINT COMMISSIONER OF INCOME-TAX, LTU AND VICE VERSA [ 2017 (11) TMI 1425 - ITAT BANGALORE] Disallowance u/s.14A - HELD THAT:- AO had not assigned any reason whatsoever as to how the claim of the assessee is incorrect. In the similar facts, the Hon ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, [ 2018 (3) TMI 805 - SUPREME CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer had made disallowance based on the names of the borrowers without looking into purpose of the loan, deleted the addition. The ld. CIT(A) order is based on proper appreciation of the legal positions and evidence. We do not find any reason to interfere with the order of the ld. CIT(A). Accordingly, ground No.8 filed by the Revenue is dismissed. Taxability of interest on NPA - AO brought to tax interest on NPA following the decision of Southern Technology Ltd. [ 2010 (1) TMI 5 - SUPREME COURT] - HELD THAT:- This issue was dealt by the Co-ordinate Bench of the Tribunal in the case of Karur Vysya Bank . [ 2017 (4) TMI 566 - ITAT CHENNAI] wherein after referring to the decision of Hon ble Supreme Court in the case of CIT vs. Vasisth Chay Vyapar Ltd [ 2018 (3) TMI 56 - SUPREME COURT] - We further note that the decision of Hon ble Supreme Court in the case of Vasisth Chay Vyapar Ltd (supra) is subsequent to the decision in the case of Southern Technology Ltd (supra). Therefore the decision of Hon ble Supreme Court in the case of Vasisth Chay Vyapar Ltd (supra) shall prevail over the decision of Southern Technology Ltd. Therefore, we direct the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on shifting of securities ₹ 8,85,34,138 6 Deduction u/s.36(1) (viia) ₹ 64,64,78,669 7 Disallowance u/s.41(1) 28(iv) ₹ 47,58,883 ₹ 47,05,085 8 Claim of deduction u/s.36(1) (viii) ₹ 1,70,94,716 9 Excess depreciation on ATMs ₹ 2,52,39,819 10 Interest on VIP deposits disallowed u/s.40(a) (ia) of the Act ₹ 5,49,77,592 5. Being aggrieved by the order of the Assessing Officer, an appeal was preferred before the ld. CIT(A) who vide impugned order deleted the addition of ₹ ₹ 2,82,57,685/- made u/s.14A of the Act placing reliance on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted the addition made on account of stale demand drafts and cheques following the decision of Co-ordinate Bench of the Tribunal in the case of Karur Vysya Bank (supra). 11. Next issue regarding allowability of depreciation on ATM machine of the claim of ₹ 2,52,39,819/-, the learned CIT(A) following the decision of Chandigarh Bench of the Tribunal in ITA No.215/Chd/2015, dated 28.03.2016 held that ATM machine were held to be computers. Accordingly, higher depreciation was allowed. 12. Next issue relates to disallowance on interest on recurring deposits account due to alleged non deduction of tax at source. The ld. CIT(A) deleted the addition on account of interest are recurring deposits considering the fact that it is only from the assessment year 2016-2017 that there is an obligation to deduct tax at source on such deposits u/s.194A of the Act by virtue of amendment by Finance Act, 2015. 13. Thus, the appeal of the assessee came to the partly allowed by the ld. CIT(A). 14. Being aggrieved by that part of the order of the ld. CIT(A) which is against the assessee bank, the assessee is in appeal before us in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific ground. The appellant bank was of the opinion that the learned CIT(A) had allowed the deduction as claimed by the Appellant bank since he had decided the issue of deduction u/s 36(1)(vii) 36(1)(viia) together in his order and allowed the amount actually debited to the Profit Loss Account. Since the Appellant Bank had debited the provision for bad doubtful debts to the Profit Loss Account, it was under the opinion that its claim of deduction u/s 36(1)(viia) has been allowed by the learned CIT(A). However, the ARs who represent the Appellant Bank are of the opinion that it is advisable for the Appellant Bank to raise a specific ground with regard to deduction u/s 36(1) (vii a) since the learned CIT(A) has not dealt with the ground on merits. In view of the same, the additional ground, which is purely a legal ground which is raised. 4. The appellant now seeks to raise the under mentioned additional grounds of appeal. The appellant humbly prays that these Additional Grounds of Appeal may please be admitted and adjudicated upon while adjudicating the Appeal in ITA No. 1129/CHNY/2018. ADDITIONAL GROUNDS OF APPEAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. CIT(A) had rightly followed the decision of Supreme Court in the case of Vijaya Bank(supra) and held that creation of provisions for bad and doubtful debts by debiting profit and loss account reducing the same from debtor account constitutes write off. The assessee wrote off of accounts i.e. debiting the provisions for bad and doubtful debts and reducing the same from advances in the Balance Sheet. It is an admitted fact that in the year subsequent recovery, the same credited to Profit and Loss account and offered to tax. We find merit in the submissions of the assessee bank that the learned CIT(A) grossly fell in error in combining the provisions of Section 36(1) (vii) and 36 (1) (viia) of the Act ignoring the principle emanated by the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd (supra). We find that the ld. CIT(A) considered only the provisions of bad and doubtful debts debited to profit and loss account and ignored the write off of bad debts debited to provisions for bad and doubtful debts and reduced from advance from the Balance Sheet which also constitute write off as observed by us (supra). Therefore we remand this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notwithstanding treatment given in the books of account, it is undisputed fact that investments are made only to comply with the regulations of RBI governing SLR requirement. Even otherwise, the Hon'ble jurisdictional High Court in the case of Karnataka Bank (supra) held that circular issued by the RBI for treatment in the books of account is not relevant for classifying the investments whether stock-in-trade or not. In the present case, undisputedly, assessee-bank has changed its method of accounting by classifying the investments from investments to stock-in-trade. In such a situation, provisions of sec. 45(2) of the Act are attracted. The said provisions of the Act read as under: 45(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned. (Sd.)....... D. S. Chaudhry IT (A J), CBDT, New Delhi.' From the reading of the above circular, it is clear that investments held by the banking concern are treated as a part of business of the banking company and therefore, the income arising from such investments is treated as part of business income falling under the head 'profits and gains of business'. Though the circular was issued in the provisions of sec. 80P of the Act, the said principle was equally made applicable to other banks and commercial banks to which Banking Regulation Act, 1949 applies. Therefore, by virtue of the above said circular, investments made by the bankingcompany should be treated as a business asset of the banking company or stock-in-trade. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore the fact that the assessee bank has shifted the investment from one category to another is of no relevance, in as much as, fall in value of investment is held to be allowable as deduction. Thus, ground of appeal No.3 filed by the assessee is allowed. 24. In the result, the appeal filed by the assessee in ITA No.1129/CHNY/2018 for assessment year 2012-2013 is partly allowed for statistical purpose. 25. Now, we take up the cross appeal of the Revenue in ITA No.1315/CHNY/2018 for assessment year 2012-13. 26. The Revenue raised the following grounds of appeal. 1. The Ld. CIT(A) failed to appreciate that the assessee had itself made adhoc disallowance u/s 14A of the Act in the return of income and the AO rightly worked out the correct disallowance by applying Rule 8D of Income Tax Rule. 2. The Ld. CIT(A) erred to notice that when the assessee following mercantile system of accounting, any interest accrued on investments should be admitted as income. 3. The Ld. CIT(A) erred to notice that the AO had rightly restricted the deductions u/s 36(1)(vii) 36(1)(viia) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Maxopp Investment Ltd vs. CIT, (2018) 402 ITR 640. Therefore contention of the assessee that provisions of Section 14A of the Act cannot be invoked, when the securities are held as stock-in-trade, cannot be accepted. As regards to other limb of the argument of the assessee that in the absences of any finding by the Assessing Officer as to how the contention of the assessee that no expenditure was incurred is incorrect no disallowance should be made. We find from the assessment order that the assessee bank itself has offered a sum of ₹ 2,19,751/- under the provisions of Section 14A of the Act. From the perusal of the order of the Assessing Officer, it is clear that the Assessing Officer had not assigned any reason whatsoever as to how the claim of the assessee is incorrect. In the similar facts, the Hon ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, 402 ITR 640 held that in the absence of the finding of the Assessing Officer resort to provisions of Section 14A of the Act r.w.r 8D of the Rules cannot be made. This decision was followed by the Co-ordinate Bench of the Tribunal in the case of Karur Vysya Bank (supra) cited by ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment securities is accrued only on due date, hence it cannot be said that interest income has accrued to the assessee. Accordingly, the same should be offered to tax only in the year of receipt. He placed reliance on the following decisions. 1. CIT vs. Karnataka Bank, 226 Taxman 197. 2. CIT vs. City Union Bank Ltd, 291 ITR 144. 3. CIT vs. Union Overseas Bank, 249 ITR 491. 4. CIT vs. Tamilnadu Mercantile Bank, 291 ITR 131. 30. We heard the rival submissions and perused the material on record. This issue is covered in favour of the assessee in assessee s own case by the Jurisdictional High Court in 2014 (8) TMI 604, wherein it was held at para 3 as follows: 3. We find that in respect of the very same assessee, for the earlier assessment years, a Division Bench of this Court in Commissioner of Income Tax v. City Union Bank Ltd., [2007] 291 ITR 144 (Mad.) has answered both the substantial questions of law raised in this appeal in favour of the assessee and against the Revenue. The relevant portion of the said order reads as under: 4.1. With regard to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the decision of Hon ble Jurisdictional High Court in assessee s own case reported in 291 ITR 144 by the Co-ordinate Bench of the Tribunal in ITA No.1801/Mds/2014, dated 28.12.2016 for assessment year 2008- 2009, wherein it was held at paras 12 to 12.2 as follows. 12. The second ground the Revenue has challenged the action of the CIT(A) in allowing the claim of amortization charges as Revenue expenditure. The Ld. AO on perusal of annual report to the Return of Income found that the assessee bank has disclosed in other income an amount of ₹ 5,18,96,860/- amortization expenditure deducted from the current income and not credited to the Profit Loss Account and the amount pertains to deduction in respect of HTM Securities and the Ld. AO relied on the RBI guidelines and is of the opinion that the assessee is required to follow accountancy principles and the capital expenditure cannot be allowed in the Profit Loss Account unless authorized by the Act. 12.1 Further, the Ld. AO is of the opinion that the assessee included the amortization amount in the book value of HTM Securities to arrive at cost of purchase. Therefore, the assessee ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Page 28 read as: 62. Briefly stated, the facts of the case are that the Assessing Officer disallowed depreciation on securities on the ground that the bank had claimed depreciation on securities but has ignored the appreciation in value of securities. 63. The Assessing Officer further observed that the bank has claimed depreciation on securities because they are held as stock in trade and not as investment which was not agreed to by the Assessing Officer who made the addition. 64. On appeal, the Ld. CIT(A), observing that the issue is covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in assessee's own case reported in 291 ITR 144, allowed the claim of the assessee. We rely on above decision and upheld the action of order of CIT(A) and dismiss the revenue ground . Respectfully following the above decision, we dismiss the ground No.4 raised by the Revenue. 33. Ground No.5 challenges the decision of ld. CIT(A) in deleting the addition on account of stale drafts and cheques. The Assessing Officer made an addition on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Iyengar (supra) cannot be applied to the present claim. In the light of the above decision, we do not find any merit in the grounds of appeal No.8 filed by the Revenue . In the light of the above decision, no addition can be made on account of stale drafts and cheques. Accordingly, we dismiss the ground No.5 raised by the Revenue. 34. Ground No.6 challenges the decision of the ld. CIT(A) in allowing depreciation at 60% on ATM treating it as computers. The decision of the ld. CIT(A) is based on the decision of Hon ble Bombay High Court in the case of CIT vs. Saraswat Infotech Ltd, 2013 (1) TMI 861, wherein it was held at paras 5 6 as follows. 5) In second appeal, the Tribunal by its order dated 14/3/2012 held that UPS is an integral part of the computer system and regulate the flow of the power to avoid any kind of damage to the computer network due to fluctuation in power supply which could lead to loss of valuable data. The Tribunal relied upon the decision of the Delhi High Court dated 20/1/2011 in the matter of CIT vs Orient Ceramics and Industries Ltd. in which UPS was held to be the part of the computer system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue in ITA No.1315/CHNY/2018 for assessment year 2012-13 is dismissed. 38. Now, we take up the appeal of the assessee in ITA No.1130/CHNY/2018 for assessment year 2014-2015. 39. The Assessee raised the following grounds of appeal. 1. The order of the learned CIT(A) is contrary to the facts and circumstances pertaining to the case of the Appellant. 2. The learned CIT(A) erred in sustaining the disallowance of ₹ 111,60,22,736/- claimed by the Appellant bank u/s 36(1)(vii) in respect of bad debts written off. 2.1. The learned CIT(A) failed to appreciate the fact that there is no double deduction in respect of non rural debts written off by the Appellant bank. 2.2. The learned CIT(A) erred in holding that the total deduction u/s 36(1)(vii) 36(1)(viia) should be restricted to the actual amount of provision created by the Appellant in the books. 2.3. The learned CIT(A) erred in sustaining the disallowance on surmises and conjunctures. For all these and other grounds which may be urged at the time of the hearing of this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellant bank for allowing the deduction u/s 36(1 )(viia). 1.2. The learned CIT(A) failed to appreciate the fact that the learned Assessing Officer erred in not considering the total provision made by the Appellant bank for allowing deduction u/s 36(1 )(viia) . 40. The ground No.1 raised by the assessee is general in nature therefore, does not require any adjudication. 41. Ground No.2 challenges the decision of the ld. CIT(A) confirming the disallowance of ₹ 111,60,22,736/- u/s.36(1) (vii) and 36(1) (viia) of the Act. This is similar to the ground No.2 raised by the assessee for the assessment year 2012-2013 in ITA No. 1129/Mds/2018. We have already partly allowed the appeal for statistical purpose in para 20 above. Fact situation being the same, ground No.2 of the assessee for assessment year 2003-04 is also partly allowed for statistical purpose. The additional ground filed by the assessee is also party allowed for statistical purpose. 42. In the result, appeal of the assessee in ITA 1130/CHNY/2018 for assessment year 2014-2015 is party allowed for statistical purpose. 43. Now, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cancelled and the Department appeal may be allowed . 45. Ground No.1 challenges the decision of the ld. CIT(A) in deleting the addition made u/s.14A of the Act on the ground that investments held by the assessee company is stock in trade and therefore disallowance u/s.14A of the Act cannot be made in respect of expenditure incurred as stock in trade. We have already dismissed the appeal of the Revenue in para 27 above in ITA No.1315/CHNY/2018 for assessment year 2012-2013. Fact situation being the same, grounds of appeal No.1 of the Revenue for assessment year 2014-15 is also dismissed. 46. Grounds 2 to 7 raised by the Revenue were already adjudicated by us in Revenue s appeal in ITA No.1315/CHNY/2018 for assessment year 2012-2013 (supra). We have already dismissed the grounds. Fact situation being the same, grounds 2 to 7 of the Revenue for the assessment year 2014-15 are also dismissed. 47. Ground No. 8, challenges the decision of the ld. CIT(A) that interest on NPA is not taxable. The Assessing Officer brought to tax interest on NPA following the decision of Hon ble Supreme Court in the case of Southern Technology Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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