9911796707
TMI Blog2019 (9) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the business of banking. The return of income for the AY 2012-13 was filed on 29.09.2012 disclosing total income of Rs. 169,83,76,140/- and the same was revised on 08.09.2013 at total income of Rs. 159,55,89,950/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Circle 1, Kumbakonam, (hereinafter called "AO") vide order dated 30.03.2015 passed u/s. 143(3) of the Income Tax Act, 1961 (in short 'the Act') at total income of Rs. 330,47,65,965/-. While doing so, the Assessing Officer made the following additions. 1 Disallowance u/s.14A Rs. 2,82,57,685 2 Bad debts written off Rs. 51,44,46,907 3 Interest on securities disallowed Rs. 25,21,72,886 4 Profit on sale of investments Rs. 7,25,09,632 5 Loss on shifting of securities Rs. 8,85,34,138 6 Deduction u/s.36(1) (viia) Rs. 64,64,78,669 7 Disallowance u/s.41(1) & 28(iv) Rs. 47,58,883 Rs. 47,05,085 8 Claim of deduction u/s.36(1) (viii) Rs. 1,70,94,716 9 Excess depreciation on ATMs Rs. 2,52,39,819 10 Interest on VIP deposits disallowed u/s.40(a) (ia) of the Act Rs. 5,49,77,592 5. Being aggrieved by the order of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of stale drafts of Rs. 94,63,968/-. The ld. CIT(A) deleted 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 Rs. 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 ITA No.1129 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1. The learned CIT(A) erred in not deciding the issue of deduction u/s 36(1)(viia) by a speaking order. 1.1. The learned CIT(A) failed to appreciate the fact that the learned Assessing Officer erred in considering only the rural provision made by the Appellant bank for allowing the deduction u/s 36(1 )(viia). 1.2. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent 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 back to the file of the Assessing Officer for limited purpose of verifying the amount of write off debited to provisions of bad and doubtful debts and reduced from advance account in the balance sheet and allow the same as deduction to the extent of write off. Accordingly, this ground of appeal raised by the assessee is partly allowed for statistical purpose. 20. In the light of the above findings given by us in grounds of appeal equally hold good in respect of additional gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset." But here the question is, in the earlier years though investments are shown as investments in the books of account, for income-tax purposes, the same was shown as stock-in-trade. Therefore, assessee-bank changed its method of accounting during the previous year relevant to assessment year under consideration is not a material fact in deciding the issue in the present appeal. In the earlier years, the same was claimed as stock-in-trade and the resultant loss or gain on account of following the principle c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 well settled in law that CBDT circulars are binding upon the officers who are entrusted with the responsibility of executing the provisions of the Act. 9.6 The jurisdictional High Court, in the case of Karnataka Bank (supra), after referring to the judgment of the Apex Court in the case of Southern Technology Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 and UCO Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 (SC) held that the directions of the RBI are only disclosed norms and they have nothing to do with computation of taxable income. The jurisdictional High Court further upheld the claim of the assessee-bank following the principle of consistency. Even the Hon'ble Apex Court in the case of UCO Bank (supra) only laid down principle that where the investments are forming part of stock-in-trade, loss arising on account of fall in value of the securities should be recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 Act to the credit balance of the provision for bad and doubtful debts made for rural branches as against the credit balance of provision for bad and doubtful debts made for all branches. 4. The Ld. CIT(A) erred to notice that the AO has rightly disallowed the excess cost of securities over the face value amortized, while working out the profit / loss on trading of securities. 5. The Ld. CIT(A) erred to notice that the Assessing Officer has rightly invoked the provisions of sec 41(1) and 28(iv) of the Act with regard to unclaimed money, stale drafts and cheques reflected in the balance sheet for more than three year by applying the principle of limitation and the notification of RBI was issued on 24/05/2014 only, mandating the banks to transfer such unclaimed amount to "Depositor Education and Awareness Fund Scheme" and this instruction is prospective only. 6. The Ld. CIT(A) failed to notice that the higher depreciation at 60% for ATMs could not be given on par with the computers, since the functions of both ATM and compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- ''Ground No. 8 challenges the addition of Rs. 3,88,882/- invoking the provision of Section 14A of the Act. It is the contention of the appellant that the appellant had not incurred any expenditure to earn exempt income. The Assessing Officer had not given any findings as to how the claim of the assessee- bank that no expenditure was incurred to earn the exempt income was incorrect. In the absence of this finding resort to the provisions of rule 8D of the Income Tax Rules cannot be made as held by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT, (2018) 402 ITR 640. Therefore this ground of appeal filed by the assessee is allowed. Accordingly, this ground of appeal stands allowed in favour of the assessee''. Similar view was taken up by the Hon'ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd, 370 ITR 338 and PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274. The Hon'ble Delhi High Court had firmly held that mere rejection of the explanation of the assessee per se cannot be accepted. This decision of Delhi High Court in the case of Moonstar Securities Trading and Finance Co. (P) Ltd, was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 23.1.2007 made in T.C.(A) Nos.15 and 24 of 2003 (Commissioner of Income Tax, Madurai v. Tamilnadu Mercantile Bank Ltd., Tuticorin), after referring to the decisions in Commissioner of Income-tax v. Canara Bank [1992] 195 ITR 66, CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, H.M.Kashiparekh and Co. Ltd. v. CIT [1960] 39 ITR 706, Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, Morvi Industries Ltd. v. CIT, [1971] 82 ITR 835, State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC), Godhra Electricity Co. Ltd., v. Commissioner of Income-tax, [1997] 225 ITR 746 held that the assessee is taxable for interest on securities only on specified dates when it becomes due for payment, in view of third proviso to Section 145(1) of the Act, which was in force during the relevant assessment years. 4.2. In view of the ratio laid down in the decisions referred supra, the first substantial question of law raised in T.C.(A) No.22 of 2004 and the first substantial question of law raised in T.C.(A) No.466 of 2004 is answered in favour of the assessee and against the revenue''.. Respectfully, following the above decision of Hon'ble Jurisdictional High Court, we decide the issue in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eand the submissions on the amortization expenses that it represents only depreciation loss written off in the books of accounts and is allowable expenditure and relied on the decision of Hon'ble Supreme Court in the case of UCO Bank 240 ITR 355 (SC), where it was held that depreciation in investments should be allowed as revenue expenditure. Since, the securities are stock in trade and valued at cost or market value whichever is less the claim has to be allowed. The Ld. CIT(A) placed reliance on Jurisdictional High Court decision in assessee's own case in 291 ITR 144 (Mds), where it was held that the depreciation on investments is allowable claim. Similarly, co-ordinate bench of Tribunal, in assessee's own case for the assessment years 2004-05, 2006-07 and 2007-08, in ITA No. 937, 940 and 770/2010, following Jurisdictional High Court decision allowed the claim, accordingly, the Ld. CIT(A) directed the Assessing Officer to allow the deduction of Amortization expenditure and allowed the ground of the assessee for statistical purpose. 12.2 Aggrieved by the order, the Revenue has challenged the action of the CIT(A) has erred in treating capital expenditure as revenue expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The brief facts relating to this issue as under: The customers of the assessee-bank taking demand draft/pay order in favour of various parties but this demand drafts/payee orders are not encashed within a period of six months and they are accounted under the stale draft head. It is stated that the payee of the demand draft can encash any time/pay orders bank even after lapse of ten years subject to validation by the issued bankers and some of the SBI saving banks and current bank customers, which are not operated the bank accounts are kept under inoperative accounts and the balance is transferred to the unclaimed balance account. The amounts of stale account transferred during the year under consideration is Rs. 1,12,00,000/-. The AO is of the opinion that this amount is taxable. On appeal before us the ld. CIT(A) held that the amount cannot be brought to tax as a cessation of trading liability u/s. 41(1) of the Act, where the appellant had not written off the liability placing reliance on the decision of co-ordinate Bench of the Tribunal, Chennai in the case of City Union Bank Ltd. (supra), allowed the same. 18.2 Being aggrieved, the Revenue is in appeal before us in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Tribunal. Thus, the Tribunal held that depreciation @ 30% on software was rightly claimed. 6) We note that the Tribunal has arrived at a finding of fact on all the three questions. The revenue has not been able to show that the above finding of fact is perverse. Thus, we do not see any reason to entertain question (i), (ii) and (iii) above''. Respectfully following the above decision, we dismiss the ground No.6 filed by the Revenue. 35. Ground No.7, challenges the decision of the ld. CIT(A) that interest in respect of recurring deposit cannot be disallowed for non deduction of TDS thereon. The ld. CIT (A) had referred to the relevant provisions of Section 194A of the Act and amendment made by Finance Act, 2015. The decision of the ld. CIT(A) is based on proper appreciation of the legal position. Accordingly, we do not find any merits in the ground No.7 raised by the Revenue. Ground No.7 of the Revenue is dismissed. 36. Ground No.8 challenges the decision of the ld. CIT(A) in deleting an addition on account of Section 36(1) (viii) of the Act. The Assessing Officer had disallowed a sum of Rs. 1,70,94,716/- on the ground that the assessee had not made advance to eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 1130/CHNY/2018. ADDITIONAL GROUNDS OF APPEAL 1. The learned CIT(A) erred in not deciding the issue of deduction u/s 36(1)(viia) by a speaking order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the notification of RBI was issued on 24/05/2014 only, mandating the banks to transfer such unclaimed amount to "Depositor Education and Awareness Fund Scheme" and this instruction is prospective only. 5. The Ld. CIT(A) failed to notice that the higher depreciation at 60% for ATMs could not be given on par with the computers, since the functions of both ATM and computer are not comparable. 6. The Ld. CIT(A) failed to notice that the VIP deposits are in the nature of time deposits only, hence the provisions u/s 40(a)(ia) of the Act are rightly invoked by the AO. 7. The Ld. CIT(A) failed to notice that the Assessing Officer had actually verified the nature of advances given and correctly made disallowance u/s 36(1)(viii) of the Act in respect of advances made to ineligible business activities. 8. The CIT(A) failed to notice that the accrued interest on NPA is taxable as per the decision of Hon'ble SC in the case of Southern Technology Ltd. For the above grounds and other grounds that may be adduced during the time of hearing the order of the CIT(A) may be cancelled and the Department appeal may be allowed''. 45. Ground No.1 challenges the decision of the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
