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TMI Blog2022 (3) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... s ATM switch charges to National Payment Corporation of India (NPCI) - AO disallowed the entire amount u/s 40(a)(ia) on the ground that the assessee has not deducted TDS on the said amount - HELD THAT:- As in assessee s own case, we allow this ground in favour of the assessee. Accordingly, this ground of the assessee is allowed. MAT applicability u/s 115JB - HELD THAT:- Since the issue regarding applicability or otherwise of sec.115JB is restored to the file of Ld CIT(A), the next issue urged by the assessee relating to the addition made by the AO while computing book profit u/s 115JB is also restored to the file of Ld CIT(A) for examining it afresh. Deduction being the depreciation on the securities classified as Held To Maturity (HTM) - AO disallowed this claim on the ground that the depreciation cannot be claimed on HTM securities - HELD THAT:- We do not find any reason to interfere with the decision of the CIT(A). Accordingly the decision of CIT(A) with respect to depreciation on HTM securities is upheld and the appeal of the revenue on this issue is dismissed. Disallowance u/s.14A - HELD THAT:- We notice that the co-ordinate benches have decided this issue prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax (Appeals), LTU, Bangalore. 6. The Learned Commissioner of Income Tax (Appeals) partially allowed the appeal of the assessee as under: 7. The Learned Commissioner of Income Tax (Appeals) didn't allow the ground of the assessee that Section115JB is not applicable to the them and also the ground relating to levy of interest u/s 234D. 8. Aggrieved by the order of the CIT(A), the Revenue and the assessee have filed these cross appeals before us. 9. We shall first adjudicate the assessee s appeal :- 1839/Bang/2018 10. In this appeal, the assessee has raised 7 grounds and several sub grounds. Ground No.1 is general in nature and no specific adjudication is called for hence rejected. The assessee did not press ground No.3 and hence the same is dismissed. The rest of the grounds are decided in the following paragraphs Disallowance of bad debts claimed u/s 36(1)(vii) (Ground 2) 11. The assessee had claimed ₹ 282,18,79,407/- as bad debts written off in the computation. The AO rejected the claim of the assessee to the extent of ₹ 279,60,53,018/- on the ground that i) Accounting entries me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only a prudential write off since the individual accounts were not squared off. The Assessing Officer also observed that the write off was not debited to the assessee's profit and loss account. On appeal, the learned CIT (Appeals) rejected the assessee's contentions that the said bad debts are written off by debit in the profit and loss account under the head 'Bad Debts Written Off Account' under the code 163301, as he was of the view that unless the individual debts are squared off, the entries in the books of account cannot be accepted as reliable. In coming to this finding the learned CIT (Appeals) relied on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (2010) 320 ITR 577 (SC). 5.2.1 Before us, the learned Authorised Representative of the assessee submitted that the assessee bank has written off the debts by debiting the same to the 'Bad Debts Written Off Account' under the GL Code 163301 which is part of the profit and loss account and recoveries made in written off accounts are credited to the profit and loss account and offered to tax. According to the learned Authorised Representative, it is only in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. It was contended that since the assessee's bank had not closed the individual debtors accounts at the Branch Level, there cannot be any write off. 5.4 In rejoinder, the learned Authorised Representative for the assessee bank submitted that there is no requirement to close the individual debtors account at the branch books, as has been held by the Hon'ble Apex Court in the assessee's own case. In this regard, the learned Authorised Representative also placed reliance on the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2009- 10 in ITA No.331/Bang/2016 dt.22.7.2016. 5.5.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The facts on record indicate that the assessee bank has debited the bad debts written off to the account 'Bad Debts Written Off Account' (GL Code 163301) which is part of the profit and loss account and has reduced the write off from Gross Advances in the Balance Sheet. The authorities below disallowed the write off on the ground that the individual accounts are not squared off at the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that no amount is due and payable in which event the suit would be dismissed. 9. Before concluding, we may refer to an argument advanced on behalf of the Department. According to the Department, it is necessary to square off each individual account failing which there is likelihood of escapement of income from assessment. According to the Department, in cases where a borrower's account is written off by debiting P L a/c and by crediting loans and advances or debtors accounts on the asset side of the balance sheet, then, as and when in the subsequent years if the borrower repays the loan, the assessee will credit the repaid amount to the loans and advances account and not to the P L a/c which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the P L a/c on which the assessee-bank has to pay tax. Although, prima facie, this argument of the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound 4) 18. The assessee had claimed deduction of ₹ 179,56,01,185/- u/s 36(1)(viii) of the Act. The AO disallowed the claim on the ground that the assessee has not transferred the amount to special reserve as required by sec. 36(1)(viii). Before the CIT(A), the assessee contended that the bank had transferred to statutory reserve and capital reserve amounting to ₹ 117,61,72,383/- during the relevant previous year and also during the financial year 2014-15 has transferred ₹ 116,39,42,210/-. Relying on the decision of the Hon ble Hyderabad Tribunal in the case of Nizambad District Cooperative Central Bank Ltd., the assessee contended that as the special reserve has not been defined u/s 36(1)(viii) it cannot be said that the it cannot be said that the item appearing in the misc. reserve cannot be treated as special reserve. The assessee also contended that sec. 36(1)(viii) does not stipulate any time limit for creation of special reserve for the purpose of allowing deduction under the section. The CIT(A) however dismissed the appeal and upheld the disallowance made by the AO stating that the amount transferred to statutory reserve and capital reserve is as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits derived from eligible business can be allowed in respect of any special reserve created. The expression 'special reserve' has not been defined u/s 36(1)(viii). The only restriction imposed as per proviso to section 36(1)(viii) is aggregate of amount carried to such reserve account should not exceed twice the amount of paid up share capital and general reserve. Therefore, it cannot be said that the items appearing in the miscellaneous reserve cannot be treated as special reserves as there is nothing in the provision to suggest that only statutory reserves can be treated as special reserve. In view of the above, considering the fact that assessee is eligible to claim deduction u/s 36(1)(viii)to the extent of 79,39,000 out of which an amount of 14,21,432 has already been allowed, assessee is entitled to claim deduction of the balance amount of 65,17,568. Accordingly, we direct the AO to allow deduction to assessee to that extent. This ground is allowed. 24. The next issue for our consideration is whether the amount transferred to statutory and capital reserve in the subsequent year should be considered for the purpose of allowing deduction u/s 36(1)(viii). An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 shall be chargeable to income-tax under the head Profits and gains of business or profession ,- (I) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; Sec. 2(34) Previous year means the previous year as defined in s. 3; Sec. 3 Previous year defined 3 For the purposes of this Act, 'previous year' means the financial year immediately preceding the assessment year: Sec. 4 Charge of income-tax 4 (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with. and subject to the provisions (including provisions for the levy of additional income-tax) of. this Act in respect of the total income of the previous year of every person. 20. A plain reading of s. 36(1)(viii) does not indicate any time-limit for crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . upr is dearly eTia 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 the deduction under s. 36(1 )(viii) of the Act. 23. Similar view as taken by the apex Court in the case of Karimjee (F) Ltd. (supra) wherein while dealing with deduction under s. 80HHC of the Act, their Lordships observed that creation of reserve after closure of the accounts was construed as complying with the requirement of granting deduction under s. 80HHC of the Act and in this case the timing of creation of reserve was while the matter was being dealt with by the apex Court. 24. Respectfully following the case law (supra) as discussed hereinabove, we hold that a reserve created in subsequent years, however, before finalization of grant of deduction, is required to be considered while allowing assessee's claim of deduction made under s. 36(1 )(viii) of the Act. Whether assessee had indeed made a further creation of special reserve in the succeeding year and also whether such reserves were created before finalization of the grant of deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces before the NPCI were deducting TDS. 28. Aggrieved by the order of the CIT(A), the assessee has now raised this issue before the Tribunal. 29. The ld.AR submitted that an identical issue has been decided in favour of the assessee by the coordinate bench of the Tribunal in ITA No.1838/Bang/2018 dated 28/12/2021 in assessee s own case for the assessment year 2013-14. The ld.DR relied on the written submission. 30. We have heard the rival submissions and perused the materials on record. We noticed that the coordinate bench of this Tribunal in assessee s own case (Supra) allowed this ground of appeal by the assessee and held that - 6.1 We heard the parties and perused the record. The Ld A.R placed his reliance on the decision rendered by the co-ordinate bench on an identical issue in the case of Canara Bank vs. Addl/JCIT No.1900/Bang/2017 dated 28-09-2018) and submitted that an identical issue was decided in favour of the assessee. We notice that the co-ordinate bench has held that there is no requirement of deducting tax at source from the payments made to NPCI. In this regard, it has followed the decision rendered by the Hon ble Supreme Court in the case of Ko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. Technical services like Managerial and Consultancy service would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High Court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section194J of the Act. 12.4.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (supra), we hold that the services rendered by NPCI are not technical services and as such, are not covered by the provisions of Sec. 194J of the Act. Consequently, ground No.8 is allowed as indicated above. 6.2 Following the above said decision of co-ordinate bench rendered in the case of Canara Bank (supra), we hold that the payments made to NPCI towards NFS ATM charges cannot be considered as technical s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that the provisions of sec.115JB will not be applicable to it. It was submitted that the assessee falls under the category of corresponding new bank under BR Act. Accordingly it was contended before Ld CIT(A) by the assessee as under:- (a) banking company is defined under BR Act as a company which transacts business of banking. (b) Company is defined as a company as defined in section 3 of the Companies Act and includes a foreign company within the meaning of sec.591 of that Act. (c) Since the assessee falls under the category of Act of corresponding new bank , it was contended that it cannot fall under the definition of banking Company . (d) Clause (b) of sec.115JB(2) is applicable to a banking company, but the assessee is not a banking company as per the definition given in BR Act. Accordingly, it was contended that the assessee is not liable u/s 115JB of the Act. 7.2 The Ld CIT(A), however, did not accept the above said contentions. The view expressed by Ld CIT(A) has been summarised below:- (a) Sec. 115JB(1) is the charging section and it overrides all other provisions of the Act. It provides that the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by Kolkatta bench of Tribunal in the case of Damodar Valley Corporation (2017(8) TMI 1363). On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 7.3 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has expressed the view that the assessee would fall under clause (a) of sec.115JB(2). However the case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a banking company , i.e., it is a corresponding new bank . 7.4 We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in the case of ING Vysya Bank Ltd. Further, he also observed that the assessee did not debit the depreciation to the Profit Loss Account and as such, no deduction can be allowed without debiting the same to the Profit Loss Account. 40. The assessee filed an appeal before the CIT(A) and also made a written submission on the issue. The CIT(A) allowed the appeal in favour of the assessee following the decision of Jurisdictional High court in assessee s own case (ITA No.687/2008) and the decision of coordinate bench of the Tribunal in assessee s own case (Supra) 41. The revenue is in appeal before us against the order of CIT(A) 42. The Ld AR submitted that this issue covered by the decision of the coordinate bench of the Tribunal whereas the Ld DR relied on the written submissions. 43. We heard the rival submissions and perused the material on record. We notice that the coordinate bench of the Tribunal in assessee s own case (supra) has allowed the appeal in favour of the assessee. The Tribnal in this case has held that 10. The next issue contested by the revenue relates to the disallowance of depreciation on HTM Securities, which has been deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive for the assessee submitted that it was only after considering its own decision in the case of ING Vysya Bank (supra) that the Hon'ble Karnataka High Court decided the issue in favour of the assessee in the case of Karnataka Bank Vs. ACIT reported in (2013) 356 ITR 549 (Kar). Following the decision of the Hon'ble Apex Court in the case of UCO Bank Vs. CIT (1999) 237 ITR 889 (SC), the Hon'ble Karnataka High Court held that the investments of the bank are stock in trade and are to be valued at lower of cost or market value and the resultant depreciation is an allowable deduction. The learned Authorised Representative further submitted that the decision n the case of Karnataka Bank (supra), was followed by the Hon'ble Karnataka High Court in the assessee's own case in their order in ITA No.687/2008 which was then followed by the co-ordinate bench of this Tribunal in the assessee's case in the immediately preceding assessment year 2009-10 in order in ITA No.318/Bang/2014 dt.22.7.2016 and for A.Y. 2008-09 in ITA No.578/Bang/2012 dt.27.2.2015. 11.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 13.01.2012, wherein the Tribunal had to deal with identical issue as to whether the CIT(A) was correct in deleting the addition made by the AO on account of profit on sale of investments of ₹ 200,77,13,662/- and deleting the action of the AO in disallowing loss claimed on treating investments as stock-in-trade by drawing the investment trading account of ₹ 775,96,55,047. The Tribunal held 16. We have heard both sides and find that the Supreme Court in the case of UCO Bank in 240 ITR 355 has held as under : In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-in- trade at cost for the purpose of statutory balance-sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance-sheet in accordance with the statutory provision would not disentitle the assessee in submitting the Income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cannot be discarded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with RBI guidelines and CBDT Circular. It was his submission that the later decision of the Hon'ble Karnataka High Court has to be followed. 62. We have given a careful consideration to the rival submissions and are of the view that the contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in assessee's own case on an identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later decision of the Hon'ble High Court of Karnataka is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed. 22. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the relevant grounds of appeal of the Revenue. 34. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the relevant ground of appeal No.4 of the Revenue. 11.4.2 We find that the decision of the learned CIT (Appeals) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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