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TMI Blog2019 (6) TMI 1456X X X X Extracts X X X X X X X X Extracts X X X X ..... ful debts in the books of account. Disallowance u/s 14A - HELD THAT:- No disallowance u/s. 14A is warranted in respect of shares held by the assessee as stock in trade. See MAXOPP INVESTMENT LTD. [ 2018 (3) TMI 805 - SUPREME COURT] Disallowance u/s. 36(1)(viii) - CIT (Appeals) in restricting the disallowance u/s. 36(1)(viii) to the extent of provision made by the assessee in the relevant assessment year - HELD THAT:- A bare perusal of provisions of section 36(1)(viii) would show that the deduction is allowable to the extent of special provision created and maintained‟ subject to the other conditions mentioned in clause (viii) and proviso thereto. In our considered opinion the provision created in the subsequent assessment year cannot be considered for allowing deduction in the preceding assessment years. Hon ble High Court THE PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION CHANDIGARH [ 2009 (11) TMI 37 - PUNJAB AND HARYANA HIGH COURT] in principle has allowed the benefit of deduction u/s. 36(1)(viii) on reserve created subsequent to the assessment year in question provided the assessment order for the relevant assessment year has not attained finality. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has to be allowed. Applicability of provisions of section 115JB on Banking Company - HELD THAT:- Assessee, being a banking company, does not fall within the purview of section 115JB Whether the advertisement expenditure incurred by the assessee by way of donation to various organizations is allowable u/s. 37, when the Auditors of the assessee bank have held that the expenditure qualifies for deduction u/s. 80G ? - HELD THAT:- The fact that the assessee has incurred expenditure to the tune of ₹ 34,78,240/- on advertisement has not been disputed by the department. The Revenue has disallowed the expenditure on the premises that the Auditors have observed in the audit report that the amount qualifies for deduction u/s. 80G and the assessee has not claimed deduction in the return of income. The assessee has claimed expenditure in respect of donations to various organizations as advertisement expenditure. Since, no doubt has been raised by the Revenue on expenditure incurred and further it is also not in dispute the expenditure was for publicity of the assessee Bank, under the given facts, we are of considered view that the same is allowable u/s. 37 - Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2005-06 in ITA No. 1505/PN/2008 and in ITA Nos. 1135 to 1138/PN/2013 decided on 17-08-2014. The issue of allowability of loss on valuation of HTM securities is recurring in assessment years after assessment years. The Co-ordinate Bench in assessee s own case for assessment year 2010-11 in ITA No. 1370/PUN/2014 (supra) has decided this issue in favour of the assessee by placing reliance on the order of Tribunal in ITA No. 1505/PN/2008 and now the same has been upheld by the Hon ble Bombay High Court in Income Tax Appeal No. 920 of 2015. For the sake of completeness the relevant extract of the findings of Tribunal in ITA No. 1370/PUN/2014 (supra) on this issue are reproduced here-in-below : 5.3 Both sides heard on the issue of disallowance of claim of loss in respect of securities held under HTM category. Both sides are unanimous in stating that the present issue was subject matter of appeal before the Tribunal in ITA No. 1505/PN/2008 and in ITA Nos. 1135 to 1138/PN/2013 (supra). The Co-ordinate Bench adjudicated the issue by observing as under: 20. In the background of the aforesaid legal position, a premise which can be drawn is that for the purposes of valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able and the assessee may not be selling the HTM Securities prior to their maturity. Therefore, as per the learned CIT-DR, such securities could not be considered as stock-in-trade‟. The aforesaid plea of the Revenue has been assailed by the learned Counsel for the assessee-bank. He has furnished a statement showing net profit on sale of HTM Securities as per the Balance Sheet for the various assessment years, viz. 2006-07 to 2009-10. On this basis, it is sought to be contended that the HTM category securities are also viewed as stock-in-trade‟ by the assessee-bank. In our opinion, the plea of the learned CIT-DR is quite untenable primarily because the very nature of banking activities allowed as per the Banking Regulation Act, 1949 are in the sphere of business / trade activities; and, accordingly the recognition of investments in HTM category as stock-in-trade‟ is not dependent on the frequency of their sale / purchase carried out by the assessee-bank. 21. In view of the aforesaid discussion, we, therefore, conclude by holding that in the present case the method of valuation of the closing stock adopted by the assessee i.e. cost or market value, whichever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebited to Profit Loss Account and not to provision account. 1.4 The learned CIT(A) failed to appreciate the fact that the learned Assessing Officer made the addition on Surmises conjunctures. 1.5 Without prejudice to the above, the learned CITA) erred in not appreciating the fact that the write off need not be effected only by way of debit to Profit Loss account. 3.2 The ld. AR pointed that the ground No. 1 along with sub-grounds raised in the appeal is identical to the ground No. 1 raised in appeal by the assessee in assessment year 2010-11. 3.3 The ld. DR fairly admitted that the issue raised in ground No. 1 by the assessee has already been considered by the Tribunal in assessee s own case in assessment year 2010-11. 3.4 We have heard the submissions made by rival sides. It is an undisputed fact that the issue raised in ground No. 1 has already been considered by the Tribunal in assessee s own case in assessment year 2010-11. Both sides are unanimous in stating that the facts in the instant case are identical to assessment year 2010-11. We find that the assessee has claimed deduction u/s. 36(1)(vii) of the Act to the tune of ₹ 258,00,00,098/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to consider the said claim of the assessee in the light of the judgement of the Hon‟ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and only thereafter he shall proceed to adjudicate the claim of the assessee as per law. Thus, on this Ground assessee succeeds for statistical purposes. 3.4 Since, the issue in present appeal is identical to the one already considered by the Co-ordinate Bench in assessee‟s own case and there has been no change in the facts, we deem it appropriate to restore the issue to Assessing Officer for re-adjudication with similar directions. The ground No. 1 of the appeal is allowed for statistical purpose in the same terms. Thus, in view of above findings of Tribunal we find no reason to take a contrary view on identical set of facts. Hence, the ground No. 1 raised in the appeal by the assessee is allowed for statistical purpose in same terms. 4. The ground No. 2 of the appeal is : 2. In the facts and circumstances of the case and in law, the learned CITA) has erred in restricting the claim made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure and exempt income. 3.2 The learned CIT(A) failed to appreciate the fact that hte investment of the appellant bank being stock in trade, no disallowance can be made u/s. 14A. 5.1 The ld. AR submitted that the Assessing Officer made disallowance of ₹ 18.79 crores u/s. 14A r.w.r. 8D(2)(ii) and (iii). The Commissioner of Income Tax (Appeals) restricted the disallowance to the extent of Rule 8D(2)(iii). The ld. AR pointed that the investments were held by the assessee as stock-in-trade. Therefore, no disallowance u/s. 14A was required to be made. The ld. AR in support of his submissions placed reliance on the decision of Tribunal in assessee s own case for assessment year 2010-11. We find that the similar disallowance was made by the Assessing Officer in assessment year 2010-11. The Tribunal deleted the disallowance u/s. 14A of the Act, by observing as under : 8.3 Both sides heard. The first contention of the assessee is that the investments were held by the assessee as stock in trade, therefore, no disallowance u/s. 14A was required to be made in respect of exempt income earned on shares held as Stock in trade . The Hon‟ble Punjab and Haryana High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Maxopp Investment Ltd. Vs. Commissioner of Income Tax (supra) has approved the judgment rendered in the case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala (supra). Therefore, in view of the law settled by the Hon‟ble Apex Court, no disallowance u/s. 14A is warranted in respect of shares held by the assessee as stock in trade. 8.5 Since, the disallowance u/s. 14A has been set at naught on the ground of assessee holding the investment as stock in trade‟, the alternate contention of assessee with regard to disallowance made under Rule 8D(2)(ii) in respect of interest expenditure has become academic. Thus, in view of our above findings ground No. 6 raised in the appeal by the assessee is allowed. The Revenue has not brought to our notice any contrary decision. Hence, we find no reason to take a different view. Respectfully, following the decision of Co-ordinate Bench the disallowance made u/s. 14A is deleted in toto and hence, ground No. 3 of the appeal is allowed. 6. The ground No. 4 of the appeal is : 4. In the facts and circumstances of the case and in law, the action of the learned CIT(A) in disallowing the claim of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 36(1)(viii). The same are reproduced here-in-below : 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- xxxxxxxxxx xxxxxxxxxx (viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head Profits and gains of business or profession (before making any deduction under this clause) carried to such reserve account: Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance under this clause shall be made in respect of such excess. In the present case, it is an admitted position that the assessee bank has created special reserve u/s. 36(1)(viii) to the extent of ₹ 12 Crores in the period relevant to the assessment year under appeal. The assessee has created a further reserve of ₹ 58.86 Crores in the Financial Year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and carefully gone through the orders of the tax authorities below. 19. We would first like to reproduce the relevant section referred to by both the parties in their arguments : Sec. 36(1) Other deductions 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s. 28. Sec. 36(1)(viii) in respect of any special reserve created (and maintained) by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and 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, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance computed under the head Profits and gains of business or profession (before making any deduction under this clause) carried to such reserve account : Sec. 28(1) Profits and gains of business or profession 28. The following income sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance scheme because no requisite reserve has been created by the assessee company before the close of books of the relevant previous year. On this, the finding is that the requisite reserve‟ has been created by holding a second annual general meeting of the members of the company and that the accounts had been duly amended so as to provide for the reserve before the assessment was completed. In view of the fact that the section prescribes no point of time by which the reserve should be created and in view of the various decisions also referred to by the Tribunal, we think, no question of law arises in regard to this aspect. We, therefore, decline to refer this question. The observation made by the Hon‟ble Delhi High Court in this regard is thus clearly applicable to the instant case under consideration also. 22. We further find that the Special Bench of Tribunal (Chandigarh) in the case of Punjab State Industrial Development Corporation Ltd. (supra) also clearly held that in case of claim under s. 36(1)(viii) of the Act further reserve could be created after closure of the account and AO should offer an opportunity to the assessee to do the same for claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of admissible deduction under s. 36(1)(viii) of the IT Act ? The Hon ble High Court answered the question in affirmative by observing as under : 6. In respect of this question, the finding of the Tribunal is as under : 17. The last effective ground is against the direction of the learned CIT(A) not to restrict the allowance under s. 36(1)(viii) upto the reserve created. The assessee is admittedly approved by the Central Government for purposes of s. 36(1)(viii) of the Act. During the year under consideration, the assessee corporation claimed deduction under the said section. The assessee created reserve on the basis of book profits. The assessee corporation was, however, entitled to a higher deduction under s. 36(1)(viii) for which the reserve already created was not sufficient. The learned CIT(A) therefore directed the AO to afford an opportunity to the assessee to create further reserve. It was further observed by him that a similar issue had been decided in favour of the assessee in the appeal for asst. yr. 1983-84. 7. Learned counsel for the Revenue has not shown that the order for the earlier assessment year which has been followed, has not attained fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch in assessee s own case in assessment year 2010-11. Thus, the ground No. 5 of the appeal is partly allowed in the terms aforesaid. 8. The ground No. 6 of the appeal is : 6. In the facts and circumstances of the case and in law, the action of the learned CIT(A) in upholding the disallowance u/s 40(a)(ia) of the I.T. Act 1961, in respect of short deduction of tax being bad in law, arbitrary, perverse and legally unsustainable the same may please be deleted. 6.1 The learned CIT(A) erred in holding that the provisions of section 40(a)(ia) is applicable even in cases of short deduction. 8.1 The ld. AR submitted that the Assessing Officer has made disallowance u/s. 40(a)(ia) for short deduction of tax. The ld. AR pointed that the C0-ordindate Bench of Tribunal in assessment year 2010-11 in assessee s own case has deleted the disallowance u/s. 40(a)(ia) in respect of short deduction of tax at source. 8.2 We have heard the submissions made by the ld. AR. We find that disallowance u/s. 40(a)(ia) on account of short deduction of tax at source was made in assessment year 2010-11. The Tribunal following the decision rendered by the Hon ble Calcutta High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NPAs. The issue is no more res integra. The assessee has created a provision in the P L account on account of interest on NPAs and has claimed the same during the period relevant to the assessment year under appeal. The issue is squarely covered in favour of the assessee by the decision rendered in the case of Commissioner of Income Tax Vs. Deogiri Nagari Sahakari Bank Ltd. (supra). The Hon‟ble High Court following the decision of Hon‟ble Apex Court in the case of UCO Bank Vs. Commissioner of Income Tax reported as 237 ITR 889 held that interest on sticky loans has to be allowed. Thus, in view of the aforesaid decision the ground No. 11 raised in the appeal by the assessee is allowed. The Revenue has not disputed that the facts on issue in hand are in any manner different from one already adjudicated by the Tribunal in assessment year 2010-11. Thus, following the decision of Co-ordinate Bench of Tribunal, the ground No. 7 of appeal is allowed. 10. The ground No. 8 of the appeal is : 8. In the facts and circumstances of the case and in law, the action of the learned CIT(A) in holding that the provisions of section 115JB are applicable to the appellant ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk vs. Addl. CIT (ITA No.469/Mds/2010 dated 03.08.2011). Similar is the decision of the Hyderabad Bench of the Tribunal in the case of State Bank of Hyderabad (supra). In so far as the objection of the learned CIT-Departmental Representative, based on the amendment made to section 115JB of the Act by the Finance Act, 2012 is concerned, the same is misconceived because the said amendment is applicable from assessment year 2013-14 onwards. Therefore, the aforesaid amendment does not negate the ratio of the aforesaid precedents, which hold the field so far as the assessment year before us is concerned. Therefore, following the aforesaid precedents and in the absence of any contrary decision, we hereby hold that assessee, being a banking company, does not fall within the purview of section 115JB of the Act. The Assessing Officer is hereby directed to consider the aforesaid legal position as and when he is to finally determine the total income. Thus, on this Additional Ground of Appeal No.3 assessee succeeds. Thus, in view of the facts of the case and the decision of Co-ordinate Bench, we find merit in ground No. 12 of the appeal. Accordingly, ground No. 12 is allowed. Since, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37, when the Auditors of the assessee bank have held that the expenditure qualifies for deduction u/s. 80G of the Act. The fact that the assessee has incurred expenditure to the tune of ₹ 34,78,240/- on advertisement has not been disputed by the department. The Revenue has disallowed the expenditure on the premises that the Auditors have observed in the audit report that the amount qualifies for deduction u/s. 80G and the assessee has not claimed deduction in the return of income. The assessee has claimed expenditure in respect of donations to various organizations as advertisement expenditure. Since, no doubt has been raised by the Revenue on expenditure incurred and further it is also not in dispute the expenditure was for publicity of the assessee Bank, under the given facts, we are of considered view that the same is allowable u/s. 37 of the Act. Consequently, ground No. 7 raised in the appeal by the assessee is allowed. 14. In the result, the appeal of assessee is partly allowed in the terms aforesaid. 15. To sum up, the appeals of the assessee are partly allowed and the appeals by the Revenue are dismissed. Order pronounced on Thursday, the 27th day of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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