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TMI Blog2020 (1) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... ock in trade in respect of banks as placed reliance on the CBDT Circular No.18/2015 dated 02/11/2015 which decision had been accepted by the Hon ble Apex Court to that limited extent though the predominant purpose theory of making investments was rejected by the Hon ble Supreme Court. Hence, by respectfully following the aforesaid decision of Hon ble Supreme Court, we hold that the disallowance made u/s.14A of the Act in the instant case deserves to be deleted both on technical ground as well as on merits. Claim of loss on value of securities held as stock in trade in Held For Maturity category - HELD THAT:- As decided in own case [ 2018 (6) TMI 520 - ITAT MUMBAI] bank valued its investments at cost or market value whichever is less and the difference arising as a result of the valuation has to be allowed to the assessee as a loss. - Decided in favour of assessee. Disallowance made on account of shifting of securities from investments held under Available For Sale (AFS) to HTM category - HELD THAT:- We find that as per the RBI Circular dated 01/07/2011, shifting loss incurred at the time of shifting of securities from AFS to HTM category should be debited to profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual basis - HELD THAT:- As decided in own case [ 2017 (10) TMI 583 - ITAT MUMBAI] the said interest is not liable to tax qua the broken period. The right to receive interest on the Government securities vested in the respondent only on the due date mentioned in the securities. Consequently, interest accrued on the securities only on the due dates and cannot be said to have accrued to the respondent on any date other than the date stipulated therein. The contention that interest accrues for broken periods between two consecutive dates stipulated in the agreement/instrument for payment of interest is without any basis in law. If the respondent held the security upto 31st March, 2001 and sold the same thereafter, but before the date on which interest was payable as stipulated in the security, interest cannot be said to have accrued to the respondent. It is not disputed that in respect of the securities held by the respondent on 31st March, 2001, the due date for payment of interest thereon had not arrived on 31st March, 2001 and that the respondent sold some of such securities prior to the next due date for payment of interest. It is only the holder of the security on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that assessee had incurred a sum of ₹ 13,981 Crores as interest expenses. The main business of the assessee is banking wherein lending and borrowing constitutes main activity. We find that the assessee had placed details of availability of own funds before the ld.AO and accordingly, pleaded that no disallowance of interest need to be made under second limb of rule 8D(2i) of the rules. The assessee further pleaded that since all the investments were held by it as stock in trade and that the entire income derived from such investments were offered to tax under the head business income and not as capital gains , no expenditure per se were incurred by it towards administrative expenses also for the purpose of earning dividend income which is exempt. Assessee vehemently pleaded before the ld. AO by placing reliance on the decision of the Hon ble Karnataka High Court in the case of CCI Ltd., reported in 206 Taxman 563 and certain tribunal decisions to drive home the point that disallowance u/s.14A of the Act would not come into operation in respect of investments held as stock in trade especially in respect of banks. The ld. AO however, disregarded the contentions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as on merits. We find that on the aspect of technical issue i.e. non-recording of objective satisfaction by the ld. AO having regard to the accounts of the assessee, we find that the Hon ble Supreme Court had categorically held that in the absence of said satisfaction as contemplated in Section 14A(2) / 14A(3) of the Act read with rule 8D(1) of the rules, no disallowance u/s.14A of the Act could be made by adopting the computation mechanism provided in rule 8D(2) of the rules. Moreover, on merits, in the facts of that case, the Hon ble Apex Court in the very same decision had categorically upheld the findings recorded by the Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala reported in 78 Taxmann.com 3(P H) with regard to non-applicability of provisions of Section 14A of the Act in respect of investments held as stock in trade in respect of banks. For this purpose, the Hon ble Punjab and Haryana High Court in the case referred to supra had placed reliance on the CBDT Circular No.18/2015 dated 02/11/2015 which decision had been accepted by the Hon ble Apex Court to that limited extent though the predominant purpose theory of making investments was rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional loss, therefore, cannot be allowed as deduction. It is the contention of the assessee that the bank is following the method of accounting for treatment of investment held as stock-in- trade as per which it values its closing stock at cost or market value whichever is less and/or whatever loss incurred on account of diminution in value of investment charged off to the profit and loss account as a loss. The assessee further contended that it is following similar method of accounting for treatment of investment held as stock-in-trade for earlier years which has been accepted by the Department. Therefore, there being any change in the facts, there is no reason for the Assessing Officer to make the additions towards loss incurred on diminution in value of investment held as stock-in-trade. In this M/s. Central Bank of India regard, he relied upon the decision of the Bank of Baroda (supra) and Hon'ble Supreme Court in the case of United Commercial Bank vs. CIT [1999] 240 ITR 355 (SC). 13. We have heard both the parties and perused the materials available on record. The Assessing Officer has disallowed diminution in value of investment held as stock-in-trade on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Therefore, we are of the considered view that the ld. Commissioner of Income Tax (Appeals) was right in deleting the additions towards diminution in value of investment held as stock-in-trade. We do not find any infirmity in the orders of the ld. Commissioner of Income Tax (Appeals). Hence, we are inclined to uphold the findings of the ld. Commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue. 4.2. Respectfully following the said decision, the ground No.2A raised by the assessee is allowed. Since ground No.2A is directed to be allowed as deduction hereinabove, the adjudication of ground No.2B becomes infructuous. 5. The ground No.3 of assessee appeal and ground No.8 of revenue appeal are interconnected as they pertain to disallowance made on account of shifting of securities from investments held under Available For Sale (AFS) to HTM category. 5.1. We have heard rival submissions and perused the materials available on record. We find that the assessee appeal is with regard to enhancement of ₹ 3,43,236/- reversing the valuation loss by the ld. CIT(A). We find that the revenue appeal is with regard to regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We further find that the ld. CIT(A) had also sought to make an enhancement to the assessment by reversing the shifting loss partially to the tune of ₹ 3,43,236/-. For this purpose, the ld. CIT(A) had recorded the following illustration:- Illustration: Bank purchases a security for ₹ 100/- in F. Y 2010-17. On 31.03.2011, the market value of the security becomes ₹ 90/-. The book value of the share remains at ₹ 100/-. In FY 2011-12, bank shifts the security to HTM category. The market value of the security on the day of shifting was ₹ 80/-. The Bank records the cost at Rs, 80 in its book as per the RBI guidelines. On 31.03.2012, the market value of the security was ₹ 85/-. The Computed Value as per of the security works out to ₹ 85/-. The working is given below: Cost= ₹ 100 Market value = ₹ 85 Computed Value: = ₹ 85 As against this, the Computed Value works out to Rs, 80/- when the Method followed by the appellant is applied as can be seen from the working given below: Shifting loss: ₹ 100-₹ 80 = ₹ 20 Book Value = ₹ 80 Market value = ₹ 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expenditure in consonance with RBI Circular dated 01/07/2011 referred to supra. The said shifting loss is squarely allowable as deduction. But the assessee had provided the revised workings of the said loss before the ld. CIT(A) which resulted in an enhancement of ₹ 3,42,336/-. We find that the assessee had not provided any evidence before us to counter the said workings given before the ld. CIT(A) and hence we do not deem it fit to interfere in the said enhancement done by the ld. CIT(A) . However, the observations made by the ld. CIT(A) for justifying the addition is not warranted. Accordingly, the ground No.8 of the revenue is dismissed and ground no.3 of the assessee is dismissed subject to removal of remarks by the ld. CIT(A) as observed hereinabove. 7. The ground No.4 raised by the assessee is with regard to initiation of penalty proceedings u/s.271(1)(c) of the Act, it would be premature for adjudication at this stage. 8. The ground No.5 raised by the assessee is general in nature and does not require any specific adjudication. ITA No.3673/Mum/2018 (Revenue appeal) A.Y.2012-13 9. The ground No.1 raised by the revenue is as to whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have noted that almost on identical facts on identical issues the Tribunal in assessee's own case in ITA Nos. 1561/M/2013 3438/M/2013 for assessment years 2008-09 2009-10 held as under: - 13. We have heard the rival contentions and perused the material placed before us including the orders relied upon by the parties and impugned orders. We find from the record the co-ordinate Bench of the Tribunal that an identical issue has been decided in assessees case in the earlier years by following the decision of the Hon ble Supreme Court in (2012) 343 ITR 270 (SC). For the sake of convenience, we reproduce the operative part of the judgement as under: 41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d doubtful debt(s) relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962.Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under Section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed with no order as to costs. We, respectfully following the decision of the co-ordinate bench of the Tribunal uphold the order of the ld.CIT(A) and dismiss the ground taken by the revenue. 10. Respectfully, following the same we dismiss the ground raised by Revenue on this issue. 9.4. Respectfully following the same, we find no merit in the ground No.1 raised by the revenue and same is accordingly dismissed. 10. The ground No.2 is with regard to deletion of disallowance made u/s.14A of the Act which has already been adjudicated by us while adjudicating the assessee appeal hereinabove on the connected issue. 11. The ground No.3 raised by the revenue is with regard to deletion of addition made on account of interest accrued but not due on securities in the sum of ₹ 165,71,10,117/- in the facts and circumstances of the case. 11.1. The brief facts of this issue are that the assessee has accounted interest on securities in its books of account on accrual basis. In the tax computation, interest income of ₹ 1243,62,81,764/- which was accrued but not due as on 31st March, 2012 was reduced. In the course of the assessment proceedings the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. If the securities have been sold on 31.03.2011 the assessee could have received and their amount of accrued interest along with the sale consideration. There, since the amount to receive such interest vested with the assessee, it is clear that such interest is accrued to the assessee. 7.5 reference is made in this regard to Supreme Court decisions in the case of E. D. Sasoon Co. 26 ITR 27 and Shri Govardhan Ltd. 69 ITR 675. It has further been held by the Supreme Court in the case of Morvi Inds 82 ITR 835 that once the income is accrued, it is chargeable to tax even if subsequently the same is not actually receive or is forgone. It is thus, clear that the matter is not settled in favour of the assessee. 7.6 Reliance is also pleased on the Bombay High court order in the case of American Express Bank in view of the above, it is held that in a mercantile system of accounting, profit or loss at the end of the accounting year is based not on the difference between what is actually receive of the but on the difference between the right to receive and the liability to pay. 7.7 In view of the above, an amount of ₹ 165,71,10,117/-being the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting whether or not it is fall due. 15. The facts of the case are that the assessee held the securities on which the interest was accrued on fixed days normally twice in an year on which the interest due dates were different from the year end and therefore, the interest after due date till the year end was accounted on the accrual system of accounting but not offered to tax. The AO was of the view that the interest has to be taxed on the basis of accrual irrespective of date of payment as the same accrues on day to day basis and therefore rejected the contention of the assessee that the interest falling after due date till year end is not taxable. Accordingly added an amount of ₹ 86,21,931/-. Aggrieved, assessee preferred appeal before the ld.CIT(A), who after considering the submissions and on perusal of the record allowed the appeal of the assessee on this ground by observing that the the assessee has no right to receive the interest and therefore the same is not taxable. 16. The ld. AR, at the outset, submitted before us that the issue involved in this ground stands covered in favour of the assessee and against the revenue by the decision of jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contention that interest accrues for broken periods between two consecutive dates stipulated in the agreement/instrument for payment of interest is without any basis in law. If the respondent held the security upto 31st March, 2001 and sold the same thereafter, but before the date on which interest was payable as stipulated in the security, interest cannot be said to have accrued to the respondent. It is not disputed that in respect of the securities held by the respondent on 31st March, 2001, the due date for payment of interest thereon had not arrived on 31st March, 2001 and that the respondent sold some of such securities prior to the next due date for payment of interest. It is only the holder of the security on such date to whom interest can be said to have accrued. In any event interest did not accrue to the respondent on 31st March, 2001, as admittedly interest was not payable on that date as per the terms of the said securities. 20. The appellate authorities, therefore, rightly deleted the addition of ₹ 1,21,57,517/- by the Assessing Officer as interest income. We, therefore, respectfully following the ratio laid down by the hon ble jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2008-09, 2009-10 and 2010-11. In all cases the Tribunal granted relief to the assessee. The learned A.R. further submits that recently in appeal for assessment years 2008-09 and 2009-10 the Tribunal, vide its order dated 03.10.2017 in ITA Nos. 1561/M/2013 3438/M/2013, dismissed the appeal of the Revenue on this ground. On the other hand the learned DR for the revenue relied on the order of the authorities below. 12. We have considered the rival submission of the parties and have gone through the orders of the authorities below. We have noted that almost on identical facts on identical issues the Tribunal in assessee's own case in ITA Nos. 1561/M/2013 3438/M/2013 for assessment years 2008-09 2009-10 held as under: - 18. We have carefully considered the contentions of the rival parties and perused the material placed before us including the impugned orders. We find that in the instant case, the issue is with regard to the taxability of the interest relating to the broken period after due date of interest till the close of accounting year. Acceding to the assessee the same is not taxable as the assessee has no right to receive the said interest though accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 2001, as admittedly interest was not payable on that date as per the terms of the said securities. 20. The appellate authorities, therefore, rightly deleted the addition of ₹ 1,21,57,517/- by the Assessing Officer as interest income. We, therefore, respectfully following the ratio laid down by the Hon'ble jurisdictional High Court, dismiss the ground raise by the revenue. Resultantly, the appeal of the revenue is dismissed. Respectfully following the same we dismiss this ground of Revenue. 12.3. Respectfully following the aforesaid judicial precedents, the ground Nos. 4 5 raised by the revenue are dismissed. 13. The ground No.6 7 raised by the revenue are with regard to applicability of provisions of Section 115JB of the Act to the assessee bank. 13.1. We have heard rival submissions and perused the materials available on record. We find that this issue was subject matter of adjudication by this Tribunal in assessee s own case for A.Y.2011-12 in ITA No.7485/Mum/2016 dated 19/07/2018 as under:- 13. Ground No. 3 in Revenue's appeal relates to application of Section 115JB to assessee's case. The learned A.R. submits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with regard to section 115JB, the Co-ordinate Bench held as under: Learned Counsel for the assessee, however, contends that the provisions of MAT do not apply to the assessee, and, for this reason, very foundation of impugned re-assessment proceedings is devoid of legally sustainable merits. His line of reasoning is this. The provisions of MAT can come into play only when the assessee prepares its profits and loss account in accordance with Schedule 17 to the Companies Act. It is pointed out that, in terms of the provisions of Section 115 JB {2), every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and III of Schedule VI to the Companies Act. Unless the profit and loss is so prepared, the provisions of Section 115JB cannot come into play at all. However, the assessee is a banking company and under proviso to Section 211(2) of the Act the assessee is exempted from preparing its books of accounts in terms of requirements of Schedule VI to the Companies Act, and the assessee is to prepare its books of accounts in terms of the provisions of Banking Regulation Act. It is thus contended that the provisions of Section 115JB do n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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