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TMI Blog2016 (12) TMI 1789X X X X Extracts X X X X X X X X Extracts X X X X ..... inclined to remit disputed issue of re-opening of assessment to the file of CIT(A) to give findings on legal issue and the assessee should be provided with adequate opportunity of hearing before passing the order and then comment on merits and allow the assessee appeal for statistical purpose. Broken period interest to be allowed as Revenue expenditure Claim of amortization charges as Revenue expenditure - 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. - HELD THAT:- 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 [ 2007 (2) TMI 187 - MADRAS HIGH COURT] allowed the claim of the assessee Chargeability of interest on NPA accounts - Provision of section 43D were the interest is chargeable to tax in the year of credit as such interest in Profit and Loss Account or in the year in which interest is actually received in NPA by the bank - HELD THAT:- Since, the Assessing Officer has made certain observations in the Assessment Order and also CIT(A) has directed for deletion of interest and issue of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the Co-ordinate bench of this Tribunal has considered the facts and also provisions of law in the above decision. We inclined to set aside the order of the CIT(A) and upheld the action of the Assessing Officer and allow the ground of the Revenue. Deprecation loss on shifting of securities in the middle of the year - assessee Bank has not reduced depreciation from book value on securities at the time of sale of securities - HELD THAT:- As decided in CITY UNION BANK LIMITED. [ 2007 (2) TMI 187 - MADRAS HIGH COURT] the depreciation on transfer of securities loan AFS category to HTM category are accounted at depreciated value as per RBI guidelines Interest accrued on Government Securities - HELD THAT:- We find similar issue in the assessee s own case for earlier assessment year is covered by High Court decision CIT Vs. City Union Bank Ltd. [ 2007 (2) TMI 187 - MADRAS HIGH COURT] and accordingly we upheld the order of CIT(A) and dismiss the ground of the Revenue. Addition towards Broken Period Interest - HELD THAT:- We heard the submissions, perused the material on record and judicial decision, we find issue is covered by the decision of the co-ordinate bench of Tribunal Lakshmi Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nations in the affidavit and considered the delay and admitted the Revenue appeals. 3. The assessee has raised the following grounds: 3.1 The order of the Ld. CIT(A) is contrary to the facts and circumstances pertaining to the case of the Appellant in so far it relates to non consideration of the ground with regard to validity of reopening of the assessment. 3.2 The Ld. CIT(A) while disposing the case on merits ought to have considered that the very initiation of the proceedings to reopen the completed assessment by issue of notice u/s. 148 of the IT Act was palpably devoid of jurisdiction and conditions precedents to the reopening were absent in the present case. 3.3 The Ld. CIT(A) ought to have appreciated that the Hon'ble Tribunal in the Appellant's own case for the assessment year 2002-03 (ITA No. 740/Mds/09) has held that the reassessment made by issue of notice u/s. 148 even within a period of four years is liable to be cancelled since the reassessment was made on account of change of opinion. 4. The Brief facts of the case are the assessee is a Banking Company and Return of Income was filed on 25.10.2007 electronically and the Return of income was processed u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds before the CIT(A) on the initiation of the proceedings u/s. 148 of the Act without precedent conditions and no fresh material was available with the Assessing Officer to open the assessment which is completed u/s. 143(3) of the Act on 30.12.2009. The Ld. CIT(A) Considered the arguments on the re-assessment proceedings and provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) found that the Assessee Bank, in the assessment proceedings has produced copy of Form 16A issued to SBI, Surat and the Ld. AO has failed to appreciate that the From 16A issued for TDS, therefore provisions of section 40a(ia) of the Act are not applicable and deleted the addition. The Ld. CIT(A) discussed deduction u/s. 36(1)(viia) of the Act and on and relied on the assessee's own case for the assessment year 2013-14 in ITA No. 1485/2007 in remitting to the Assessing Officer to follow jurisdictional Tribunal decision and allowed the ground for statistical purpose. Further, the Ld. CIT(A) relied on decision of co-ordinate bench in M/s. Laskhmi Vilas Bank (LVB), in High Court decisions and restricted disallowance u/s. 14A of the Act at 2% of exempted income and directed Ld. AO to do accordingly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mds/2014 for the assessment year 2007-08 against the order of the CIT(A). Since, we have remitted the issue to the file of the CIT(A) to pass a speaking order on the legal issue. As such, the Revenue appeal cannot be survived at this stage. Hence, we dismiss the Revenue appeal as infructuous. In the result, assessee appeal ITA No. 2034/Mds/2014 is allowed for statistical purpose and Revenue appeal ITA No. 1671/Mds/2014 is dismissed. 9. We take up the appeal in ITA No. 2035/Mds/2014 filed by the assessee for the assessment year 2008-09. The assessee has filed the appeal against the order of CIT(A) in ITA No. 93/2012-13 dated 27.02.2014 passed u/s. 143(3) r.w.s. 147 of the I.T. Act. The assessee has raised the legal ground of re-assessment and filed the additional ground on disallowance under 40a(ia) of the Act. The assessee bank has raised the legal ground on validity of re-assessment proceedings as the original assessment proceeding for the assessment year 2008-09 was completed on 31.12.2010 and notice issued for reopening of assessment on 06.06.2011, Reasons being non-TDS deduction by Surat Branch on MICR payments to SBI. We have dealt on the legal issue in assessment year 2007-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the Assessing Officer and relied on the judicial decisions. Contra, the Ld. AR relied on the orders of the CIT(A) and Tribunal orders. 11.2 We heard the rival submissions, perused the material on record and judicial decisions, the Broken Period Interest issue covered by the Co-ordinate Bench decision in assessee's own case in MP No. 205 to 210/Mds/2011 in ITA No. 935, 937, 939, 940, 770 & 1507/Mds/2007 for the assessment years 2002-03 to 2007-08 dated 16.12.2011 Page 5 at para 5 read as under: "The Ld. DR Shri K.E.B. Rengarajan could not point out any reason as to why the above decision of the Hon'ble Jurisdictional High Court is not applicable on the facts of the instant case. Further, it is not in dispute that the decisions which are contrary to the decision of the Hon'ble Jurisdictional High Court are mistakes apparent from record rectifiable u/s. 254(2) of the I.T. Act, 1961. For this proposition, reliance can be placed on the decision of the Hon'ble Supreme Court in the case of ACIT Vs. Saurashtra Kutch Stock Exchange Ltd (2008) 173 Taxmann 322 (SC). We, therefore, amend the consolidated order dated 08.07.2011 of the Tribunal passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenditure without considering the facts. The Ld. AR submitted that all the government securities are treated as stock in trade and relied on the order of the CIT(A) and Jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually received. The Ld. AO found that there are NPA's in the assessee bank and has not provided any interest on NPA as per the RBI guidelines and relied on Apex Court decision the Southern Technologies where the RBI guidelines cannot over ride the provisions of the act. 13.1 The Ld. AO, considering the facts of NPA's has estimated the interest on NPA which recovered are reduced from the provision at ₹ 5 Lakhs. The Ld. CIT(A) found that the Assessing Officer has disallowed, relying on the provisions of section 43D has charged interest on NPA on Accrual Basis which are more than 90 days but not Bad and Doubtful Debts being less than 180 days under Rule 6EA r.w.s. 43D. The Ld. CIT(A) observed that the addition was only on estimated basis without appreciating the provisions of section 43D of the Act which clearly states, that the interest is chargeable to the tax in the year of credit of interest to Profit and Loss Account or in the year in which it was actually received by the bank in the case of NPA Accounts, further any disturbance in the method of accounting consistently followed by the bank may lead to complexity in the subsequent years and estimated interest on NPA. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank explained that the unclaimed balance belongs to clients and same cannot be treated as income of the bank. The Assessing Officer found that as the Agreement of the assesse bank's right to recovery of any claim is barred to limitation and there is increase in unclaimed Balance accounts lying with the bank being more than three years. Since, the bank is acting as a custodian for the money belonging to others and deduction would be allowed to the extent of the amount paid and remaining brought to tax and made additions of ₹ 12,25,142/-. Whereas, the Ld. CIT(A) relying on the assessee's own case for the assessment year 2001-02 and 2002-03 in ITA No. 739, 740/Mds/2009, directed the AO to follow the Supreme Court decision and Tribunal decision and allow the appeal for statistical purpose. 14.1 Before us, Ld. DR argued that the Ld. CIT(A) has erred in directing the Assessing Officer to follow the decision of Tribunal in assessee's own case and Apex Court decision as the unclaimed balance does not belong to the bank and is taxable, as bank is only a custodian. Contra, the Ld. AR relied on the orders of the CIT(A). We heard the rival submissions, perused the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scheduled commercial banks will continue to get the full benefit of the irrecoverable debts u/s. 36(1)(vii) of the Act in addition to the benefit of deduction for the provision for Bad and Doubtful Debts u/s. 36(1)(viia) of the Act. The Ld. CIT(A) directed the Assessing Officer to follow the decision of Supreme Court and allowed the ground for statistical purpose. The Ld. DR argued that the CIT(A) erred in directing the AO in deleting the addition and as per based on judicial decision. Contra, the Ld. AR relied on the orders of the CIT(A) and the assessee's own case. 15.1 We heard the rival submissions, perused the material on record, we found similar issue was dealt in assessee's own case by jurisdictional High Court of Madras where the deduction u/s. 36(1)(vii) of the Act was allowed and in respect of assessment year 1991-92, 1993-94 & 1994-95 reported in CIT Vs. City Union Bank Ltd., (2007), 291 ITR 144 (Mds) and accordingly upheld the action of CIT(A) and dismiss the revenue ground. 16. The sixth ground raised that the Ld. CIT(A) erred in allowing the claim of the assessee u/s. 36(1)(viia) of the Act for assessment purpose. Whereas, the deduction is available only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the material on record and judicial decisions, we found that the decision of High Court and coordinate bench of the Tribunal, squarely apply to the assessee and we set aside the order of CIT(A) on this ground and upheld the action of assessee. Relying on the decision of the Lakshmi Vilas Bank (Supra) at Para 86 to 93 which reads as: "86. The next common ground raised in the appeal of the Revenue in I.T.A. Nos. 245, 246, 247 & 248/Mds/2014 [A.Y. 2004-05, 2006-07, 2007-08 & 2008-09] is with regard to allowability of deduction under section 36(i)(viia) of the Act. In the following assessment years, the Assessing Officer has made disallowance against the claim of deduction under section 36(i)(viia) of the Act. A.Y. Claimed in the Return Allowed by the AO Disallowance made by the AO 2004-05 22,20,00,000/- 4,52,90,296/- 17,67,09,704/- 2006-07 8,22,82,529/- 5,64,78,408/- 2,58,04,121/- 2007-08 10,18,36,091/- 1,95,53,562/- 8,22,82,529/- 2008-09 17,59,91,049/- 7,43,64,614/- 10,16,26,435/- 87. The above disallowances is on account of deduction claimed every year on the outstanding balances of average advances made by the bank at the end of the accounting year, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation places where the rural branches are located with average aggregate advances outstanding balances etc. The assessee bank submitted the above details. Further it was stated that in the profit and loss account under provisions and contingencies, the provision for NPA to the tune of ₹ 22,20,00,000/- was made. After careful consideration of the furnished particulars, the issue was decided as under- In the assessment order in page no.18, in para no.2, the AO observed as under.- "The deduction mentioned in the first proviso viz, that for assets classified by RBI as doubtful assets or loss assets in accordance with the guidelines issued is to be availed of at the option of the assessee. The very word option indicates that the assessee has been allowed to choose either of the two deductions. In other words, if the assessee chooses for the option to claim a deduction in the proviso, it cannot claim a deduction as mentioned in clause 'a'. Based on the above, the assessee was asked to clarify whether it exercise option (a) i.e. whether it claims deduction on doubtful debts as classified by the RBI or (b) 7.5% of Gross Total Income and 10% of aggregate average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in respect of provision made for bad and doubtful debts. 3.2. In this context, allowing deduction under sub-clause (a) of clause (viia) of subsection (1) of section 36 in respect of both the limbs of the sub-clause (i) deduction in respect of provision made for bad and doubtful debts (ii) deduction @ 10% on the cumulative outstanding balance at the end of the accounting year (average aggregate advances) of the loan given by the rural branches, year after year on the same amount advanced, without recourse to the figure of the amount actually advanced by the rural branches of the bank during the year, would result in allowing deduction which may be more than the amount advanced by the rural branches of the bank . This is absurd and of course not the intention of Legislature. 3.3. This can be explained with a simple example. For argument sake, say the rural branches of a Bank made advances during the financial year 1989- 90, say to the extent of ₹ 10 Crores and no advances were made by the rural branches, in the following 10 years. If the interpretation of the assessee as evident from claim of deduction u/s 36(1)(vii)(a) is accepted, the assessee would claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67,53,799 (e) 7.5% of Gross Total Income before deduction under Chapter VIA 2,85,36,497 (f) Total of (d) and (e) 4,52,90,296 (g) Provision made for Bad and Doubtful Debts by the Bank 22,20,00,000 (h) Least of (f) or (g) allowable as deduction u/s 36(1)(viia) 4,52,90,296 3.6. The assessee is therefore entitled to a deduction of ₹ 4,52,90,296/- only and therefore the allowance is limited to the above extent and the excess claim of ₹ 17,67,09,704/- (22,20,00,000 - 4,52,90,296) is disallowed." 88. From the above, for the assessment year 2004-05, in the assessment order 29.12.2006, the Assessing Officer disallowed the entire claim of deduction under section 36(1)(viia) of the Act since the assessee did not provide details of provision created for bad and doubtful debts, proof of the population places where the rural branches are located, monthly average aggregate advances outstanding balances, etc. On appeal, the ld. CIT(A) deleted the addition made by the Assessing Officer based on the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT. On appeal before the Tribunal, the Tribunal vide its order dated 22.02.2013 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t balance in the provision for bad and doubtful debts account made under clause (viia)?" [para 11 of the order] 90. After examining the various Circulars issued by the Board in relation to section 36(1)(viia) and 36(1)(vii) and also the Statement of Objects and Reasons to the Finance Act 1986, the Hon'ble Supreme Court came to the conclusion that the legislative intention behind the introduction of section 36(1)(viia) was to encourage rural advances and to aid creation of the provision for bad debts in relation to such rural branches. Some of the salient findings of the Hon'ble Supreme Court are as follows: - A mere provision for bad and doubtful debts is not an allowable deduction in the computation of taxable profits. However, in the case of rural advances, in line with the policy to promote rural banking, a provision may be allowable u/s Sec.36(1)(viia), without insisting on an actual write- off. - Provisions of sections 36(1) (vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and they operate in their respective fields. - A scheduled bank may have both urban and rural branches. It may give advances from both branches with separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circulars and accounting standards. 92. The Hon'ble Supreme Court has held in the case of Catholic Syrian Bank that "Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of section 36(1)(viia) may be allowable without insisting on an actual write off …….in case of rural advances which are covered by clause (viia), there would be no double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably clause (viia) applies only to rural advances." (emphasis supplied) (para 25&27). 93. Thus, it can be seen that in the case of provision made towards nonrural debts, no deduction can be allowed as there is no specific provision in the Income Tax Act to allow the same. This indicates that the provision made towards urban debt should be added back and allowed only when bad debts are really written off. The question of double deduction being allowed does not arise therein at all, because it is allowed only on actual write off. The Hon'ble Apex Court has also held that the proviso to section 36(1)(vii) apply only in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the facts at page 12 of his order that the depreciation on transfer of securities loan AFS category to HTM category are accounted at depreciated value as per RBI guidelines and relied on Tribunal order of the assessee's own case in ITA No. 935, 937, 939, 940, 770 & 1507/Mds/2007, and Jurisdictional High Court decision of assessee's own case 291 ITR 144 (Mds) and allowed the grounds. On appeal before us, the Ld. DR argued the action of CIT(A)in deleting the claim of assessee on shifting of securities is not in accordance with RBI guidelines and same has been set aside. Contra, the Ld. AR relied on the order of the CIT(A). We heard the both the parties, perused the material on record and judicial decisions, similar issue was dealt by this coordinate bench in the assessee's own case in ITA No. 935& Others dated 08.07.2011 at Page 28 and 29 at Para 62 to 65 referred at 291 ITR 144 (Mds). Accordingly, following the above decision, we dismiss the ground of the Revenue. 18. The last ground that the Ld. CIT(A) has erred in deleting of the interest accrued on Government Securities. The Ld. AO assessed the interest ₹ 11,21,38,272/- on securities on mercantile system and rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al purpose. 21. The second ground that CIT(A) has erred in allowing the claim of the assessee on amortization charges as revenue expenditure. We have decided the similar issue at Para 12.2 and dismiss the Revenue ground. 22. The third ground that the CIT(A) erred in deleting the addition towards Broken Period Interest. This issue was dealt at Para 11.2 for the assessment year 2008-09 and the same is applicable. The ground of the Revenue appeal is dismissed. 23. The Ld. CIT(A) has deleted the addition made towards ex-gratia payment to the employees. The Assessing Officer has disallowed the Ex-gratia payment on the ground that the payment is nothing but an appropriation of profits by the assessee Bank to all the employees without distinguishing the quality of work of the employees. Whereas, the Ld. CIT(A) has found ₹ 5,60,15,000/- is business expenditure and relied on the decision of the Calcutta High Court in the case of National Engineering Industries Limited Vs. CIT 208 ITR 1002 (Kolkata), similarly, coordinate bench of the Tribunal in the case of Lakshmi Vilas Bank Limited and Karur Vysya Bank Limited, where ex-gratia payments are in the nature of Business expenditure u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1801/Mds/2014 at Para 16.1 against the assessee. Accordingly, we allow the ground of the appeal of Revenue. 31. The forth ground that the Ld. CIT(A) erred in allowing the deduction u/s. 37(1) of the Act in respect of donation instead of deduction u/s. 80G of the Act. The CIT(A) found that the Assessing Officer has disallowed donation to the Government school for construction of class room and World Tamil Conference held at Coimbatore, Neighbourhood Health Care Trust. The Ld. AR explained that the donation to the school is wholly and exclusively for the purpose of business. Whereas, the Assessing Officer has disallowed the amount. The Ld. CIT(A) observed that the donation is for the purpose of business which brings monetary advantages either today or tomorrow and directed the Assessing Officer to accept the contentions and allow such expenditure u/s. 37(1) of the Act. Aggrieved, the Ld. DR argued that CIT(A) erred in allowing the deduction. Whereas, the Ld. AR relied on the order of the CIT(A). We found that the expenditure incurred towards construction of school in nature of business expenditure and we upheld the decision of the CIT(A) and dismiss the appeal of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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