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TMI Blog2023 (4) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be considered while allowing the assessees claim for deduction under Section 36(1)(viii) of the Act. As in the case of Vijaya Bank [ 2022 (3) TMI 669 - ITAT BANGALORE] and hold that reserve credit in the subsequent or succeeding years before the initiation of grant of deduction u/s 36(1)(viii) of the Act is required to be considered while allowing the assessee s claim for the deduction under the said section. We, therefore direct the AO to examine and allow the assessee s claim accordingly. TDS u/s 194J - Disallowance of expenditure u/s 40(a)(ia) - expenditure for ATM switch charges to National Payment Corporation of India (NPCI) and debited under the head other expenses - assessee stated that no TDS was made on the NFS ATM charges and that ATM Switching facility provided by NPCI does not involve any human intervention and is a seamless transaction as the same is based on settlement reports - HELD THAT:- As decided in assessee own case [ 2022 (3) TMI 669 - ITAT BANGALORE] following the said decision of Canara Bank [ 2018 (9) TMI 2109 - ITAT BANGALORE] payments made to NPCI towards NFS ATM charges cannot be considered as technical services within the meaning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer and accepts the AAA [Aggregate Rural Advances] as arrived at by the Assessing Officer of the order of assessment and in this context pleaded that the matter need not be remanded back to the Assessing Officer. In view of the aforesaid submissions of the learned Authorised Representative of the assessee, we hold that the assessee is entitled to deduction by considering the AAA as worked out by Assessing Officer and direct the Assessing Officer to rework the deduction under Section 36(1)(viia) - Decided against revenue. Depreciation on various categories of securities as per classification of the RBI in its computation of income - HELD THAT:- Similar issue has been decided by the coordinate Bench in [ 2022 (3) TMI 669 - ITAT BANGALORE] wherein 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 under Section 14A - assessee made suo-moto addition - HELD THAT:- As decided by the coordinate Bench of the Tribunal in assessee s own case for the AY 2014-15 [ 2022 (3) TMI 669 - ITAT BANGALORE] A.R relied upon certain other decisions in order to contend that no disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 is opposed to the law and facts of the case. 2. The Ld. CIT(A) held in law in confirming the method of calculation adopted by the assessee in computing the eligible quantum of provision for bad debts u/s 36(l)(viia) relating to rural advances. 2.1 The Ld. CIT(A) erred in failing to appreciate that the phrase in Rule 6ABA(a)-'the amounts of advances made by each rural branch as outstanding at the end of the last day of each month' signifies that the eligible quantum should necessarily relate to 'fresh / incremental advances' of rural branches. 2.2 The Ld. CIT(A) erred in failing to read the words 'advances made' and 'outstanding at the end of the last day of each month' in conjunction. 2.3 The Ld. CIT(A) failed to appreciate that by accepting the computation of the assessee, the same sums of rural advances, finding a place in the opening value at the start of the year or repeatedly considered for deduction u/s 36(l)(viia). 3. The Ld. CIT(A) erred in law in confirming that the assessee is eligible for provision for depreciation on investments with regard to HTM Category. 3.1 The Ld. CIT(A) failed to appreciate that direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income at Rs.1750,77,68,383/-. 5. Aggrieved by the above order, the assessee filed appeal before the CIT(A). The CIT(A) granted partial relief to the assessee vide order dated 31.12.2018. 6. Aggrieved by the above order of the CIT(A) both assessee and Revenue are in appeal before the Tribunal on the above mentioned grounds. 7. We have heard the rival contentions and perused the material on record. We first take up the assessee s appeal. ITA No. 321/Bang/2019(Assessee s appeal) 8. Ground No. 1 is general in nature and requires no adjudication. 9. Ground No. 2 relates to disallowance of bad debts written off under Section 36(1)(vii) of the Act. The facts are that the assessee has claimed a sum of Rs.14.96 crores as bad debts written off in the computation of income u/s. 36(1)(vii) of the Act. It was noticed from the P L account that nowhere the bad debt was debited. As per the P L account the assessee bank has debited a sum of Rs.819.62 crores as provisions and contingencies which included provision for NPA of Rs.800.22 crores. The entire provisions and contingencies were added back while computing the income. In the computation of income, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank as per RBI circular and disclosure norms. 2. There is no actual write off of bad debts as irrecoverable as the same is provision for NPA created as per RBI guidelines and the adjustments are taking place only in balance sheet and it was claimed in different version i.e. write off of non rural provisions / prudential write off /head office write off etc. 3. Prudential write off is not allowable u/s 36(1)(vii) as per the findings of Hon'ble Apex court in the case of Southern Technologies Ltd. 4. The alleged bad debt written off of Rs. 727,32,96,587/- was not debited into the P L account, as 'bad debts written off' except for an amount of Rs. 14,96,08,652/-, and rather it was the adjustment taken place at balance sheet. It was prudential write off. 5. The alleged bad debt has not exceeded the credit balance of provision created in earlier year u/s 36(1)(viia) of the IT Act and it is evident from the movement of provision of NPA (Asset quality). On the prudential write off, the provision u/s 36(1)(viia) was separately claimed and allowed in earlier years. This aspect has been made clear with the insertion of explanation 2 to section 36(1)(vii) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act. 12. The assessee made a detailed submissions before the CIT(A) in the appeal filed against the order of the AO contending that since sec. 36(1)(viia) applies to rural advances, it is only the rural debts which has to be adjusted against the provision allowed. The assessee further submitted that insertion of Explanation 2 to sec. 37(1)(vii) has not been changed the legal position in this case. 13. The CIT(A) dismissed the claim of the assessee and upheld the order of the AO on the basis that (i) Provisions for bad and doubtful debts made u/s 36(1)(viia) and referred to in sec. 36(1)(vii) and sec. 36(2)(v) applies to all advances, whether rural or other advances. (ii) deduction in respect of bad debt actually written off u/s 36(1)(vii) shall be limited to the amount by which such bad debts exceeds the credit balance in the provision for bad and doubtful debts again made u/s 36(1)(viia) without any distinction between rural advances other advances. 14. Aggrieved by the order of the CIT(A), the assessee has raised the issue before us. 15. The ld.AR submitted that the issue in question is covered in assessee s own case by the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that the corresponding debts have been written off. It was submitted that the detailed accounting entries passed by the assessee bank with regard to the write off has been extracted at pages 31 and 32 of the order of assessment. The learned Authorised Representative drew the attention of the Bench to page 32 of the paper book in which the reconciliation of Gross Advances as per Branch Books and net advances as per Balance Sheet as on 31.3.2010 of the Bank has been carried out (placed at page 135 of the Annual Report for the year under consideration). It is submitted that the net advances as shown in the Balance Sheet tallies with the statement appearing at page 32 of the paper book, thereby establishing the fact that bad debts written off are reduced from the advances at the time of preparation of the Balance Sheet. The learned Authorised Representative also drew our attention to page 25 of the paper book, which is a part of Form 3CD wherein at clause 20, it is clearly mentioned that recoveries of Rs.91,89,44,840 made against bad debts written off have been credited to the profit and loss account and reduced form the advances in the Balance Sheet. In support of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute that s. 36(1)(vii) of 1961 Act applies both to banking and nonbanking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the P L a/c to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the AO is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee- bank to close each and every individual account of loans and advances or debtors as a precondition for claiming deduction under s. 36(1)(vii) of 1961 Act. This view has been taken by the AO because the AO apprehended that the assessee-bank might be taking the benefit of deduction under s. 36(1)(vii) of 1961 Act, twice over. [See order of CIT(A) at pp. 66, 67 and 72 of the paper book, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the accounts of the rural branches have to tally with the accounts of the head office. If the repaid amount in subsequent years is not credited to the P L a/c of the head office, which is ultimately what matters, then, there would be a mismatch between the rural branch accounts and the head office accounts. Lastly, in any event, s. 41(4) of 1961 Act, inter alia, lays down that, where a deduction has been allowed in respect of a bad debt or a part thereof under s. 36(1)(vii) of 1961 Act, then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered. In the circumstances, we are of the view that the AO is sufficiently empowered to tax such subsequent repayments under s. 41(4) of 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment. 5.5.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the assessee's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 ITR 577)(SC), wherein it was held that the mere making of provision for NPA cannot be considered as write off u/s 36(1)(vii) of the Act. He also relied upon the decision rendered by Hon ble Kerala High Court in the case of CIT vs. Hotel Ambassador (2002)(253 ITR 430)(Ker), wherein it was held that the deduction u/s 36(1)(vii) of the Act only if the assessee debits the same into the accounts as irrecoverable. Accordingly, the AO took the view that the amount of bad debts claimed by the assessee was mere provision and not actual write off. Before the AO, the assessee had placed reliance on the decision rendered by Hon ble Supreme Court in the case of Vijaya Bank vs. CIT (2010)(320 ITR 166 (SC)) to reiterate that it is entitled for deduction u/s 36(1)(vii) of the Act. The AO expressed the view that the issue considered by Hon ble Supreme Court in the case of Vijaya Bank (supra) related to category of Loss Assets , which is required to be provided @ 100% of the outstanding amount. He further expressed the view that the Hon ble Supreme Court did not consider the question viz., Whether the provision for non-performing assets created by the assessee bank by debiting P L a/c and credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the PBDD allowed u/s 36(1)(viia) of the Act. However, the Ld CIT(A) expressed the view that the PBDD allowed u/s 36(1)(viia) of Act is applicable to both Rural and non-Rural debts. Accordingly, he held that the entire amount of bad debts written off (both rural and nonrural) should be first adjusted against the PBDD a/c allowed u/s 36(1)(viia) of the Act and only the excess should be allowed as deduction. He expressed the view that the decision rendered by Hon ble Supreme Court in the case of Catholic Syrian Bank (2012)(343 ITR 270)(SC) was rendered under the assumption that the banks would maintain separate PBDD a/c in respect of rural branches and non-rural branches and therefore it is possible to distinguish PBDD as one in respect of rural branches and non-rural branches. The Ld CIT(A) expressed the view that the claim of the bank that the provisions of sec. 36(1)(viia) are distinct and independent of sec. 36(1)(vii) is based on the old circular no. 258 dated 14.6.1979 issued in connection with old law. Accordingly the Ld CIT(A) held that the PBDD allowed u/s 36(1)(viia) of the Act is for single account since its introduction in 1985 and it is for all types of advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debts relating to rural advances to the extent it exceeds the provision made u/s 36(1)(viia). If we examine the facts of the present case in the context of aforesaid statutory provision, it will be evident that assessee, though, has written off in the books of account an amount of Rs. 210.74 crore, but, in the computation of total income, the actual deduction claimed u/s 36(1)(vii) is Rs. 209.08 crore representing bad debts written off relating to non-rural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. The observations made by Hon'ble Apex Court in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (viia) in subsection (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debts 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(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, when the proviso to section 36(1)(vii) applies to bad debts written off relating to rural advances, the same cannot be applied for disallowing deduction claimed on account of write off of bad and doubtful debts relating to non-rural/urban advances. As far as application of explanation to section 36(1)(vii) is concerned, we agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to nonrural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to non-rural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A). 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. Now the core question that arises is whether the bad debts relating to non-rural branches are also required to be first debited to PBDD a/c and then the excess amount over and above the balance available in PBDD alone could be allowed as bad debts u/s 36(1)(vii) of the Act. 7.8 The provisions of sec. 36(1)(vii) allows deduction as under:- 36(1)(vii) Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account under that clause. .. Explanation 2 For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (via) and such account sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has rendered its decision on the assumption that the banks would be maintaining two separate PBDD a/c, viz., one for rural branches and another one for non-rural branches. 7.10 It is possible that all banks may not be maintaining two separate accounts, as observed by the Hon ble Supreme Court. Hence there was an apprehension in the minds of revenue with regard to the effect of the decision rendered by Hon ble Supreme Court. For instance, if a particular bank is maintaining only a single PBDD a/c for the provision created u/s 36(1)(viia) of the Act and even if that bank is not having any rural branches, then it may try to avail the benefit of decision rendered by Hon ble Supreme Court and may possibly contend that (i) the provision allowed u/s 36(1)(viia) shall apply only to rural branches. (ii) since it does not maintain two separate PBDD a/c for rural and non-rural advances, the bad debts relating non-rural branches need not be reduced from the PBDD a/c allowed u/s 36(1)(viia) in terms of sec. 36(2)(v) and the proviso to sec. 36(1)(vii) of the Act. However, the Ld A.R submitted before us that the Explanation 2 has been inserted in sec. 36(1)(vii) by Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessees covered by clause (b) to (d) may contend that the bad debts written off by them need not be adjusted against PBDD allowed u/s 36(1)(viia) of the Act, since the bad debts relate to non-rural debts . Accordingly, we are of the view that the Explanation 2 has been inserted in order to bring the assesses covered by clauses (b) to (d) within the ambit of the proviso to sec. 36(1)(vii) and sec. 36(2)(v) of the Act. Hence, in our view, advances given by rural and non-rural branches mentioned in Explanation 2 shall apply to the assesses covered by clause (b) to (d) of sec. 36(1)(viia) of the Act. 7.12 At this juncture, we may gainfully refer to the MEMORANDUM EXPLAINING FINANCE BILL 2013 , which brings out the intention of the Parliament in inserting Explanation-2 in sec. 36(1)(vii) of the Act. It is extracted below:- Clarification for amount to be eligible for deduction as bad debts in case of banks:- Under the existing provisions of section 36(1)(viia) of the Income-tax Act, in computing the business income of certain banks and financial institutions, deduction is allowable in respect of any provision for bad and doubtful debts made by such entities su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for bad and doubtful debts account made under clause (viia) of section 36(1) and referred to in proviso to clause (vii) of section 36(1) and section 36(2)(v) applies to all types of advances, whether rural or other advances. It has also been interpreted that there are separate accounts in respect of provision for bad and doubtful debt under clause (viia) for rural advances and urban advances and if the actual write off of debt relates to urban advances, then, it should not be set off against provision for bad and doubtful debts made for rural advances. There is no such distinction made in clause (viia) of section 36(1). In order to clarify the scope and applicability of provision of clause (vii), (viia) of sub-section (1) and sub-section (2), it is proposed to insert an Explanation in clause (vii) of section 36(1) stating that for the purposes of the proviso to section 36(1)(vii) and section 36(2)(v), only one account as referred to therein is made in respect of provision for bad and doubtful debts under section 36(1)(viia) and such account relates to all types of advances, including advances made by rural branches. Therefore, for an assessee to which clause (viia) of section 36( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation -2 in Sec. 36(1)(vii), it has been acknowledged that only the clause (a) refers to rural branches . It has also been stated that the foreign banks do not have rural branches. The assesses covered by clause (b) to (d) may not be having rural branches. Hence, the memorandum explains as under with regard to the decision rendered by Hon ble Supreme Court in the case of Catholic Syrian Bank (supra):- However, certain judicial pronouncements have created doubts about the scope and applicability of proviso to section 36(1)(vii) and held that the proviso to section 36(1)(vii) applies only to provision made for bad and doubtful debts relating to rural advances. Because of the interpretation so given by Hon ble Supreme Court, as discussed earlier, there arose a necessity for the Parliament to clarify that the PBDD allowed u/s 36(1)(viia) shall apply to all types of advances including advances made by rural branches. However, as stated earlier, the clause (a) to sec.36(1)(viia) has been held to be applicable to rural advances only and this interpretation has not been overridden by any amendment. 7.15 As noticed earlier, the assessees covered by clauses (b) to (d) may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked to substantiate and furnish the working of the deduction claimed. The assessee furnished the details of the working of the deduction claimed u/s. 36(1)(viii) as under:- Calculation of Claim for deduction u/s 36(1)(viii) for the year ended 31.03.2015 Interest earned from advances made to industrial, agricultural and infrastructure 3242,94,10,480 Less: Interest expenses (Average Advances in the eligible activities* cost of fund) 2246,36,50,954 Net Interest Income 1045,58,86,092 Less: Operating expenses (Total Operating Expenses* Average advances in the eligible business/Total deposits, advances and investment) 754,07,18,267 Net Profit 291,51,67,825 20% of the above 58,30,33,565 Amount Transferred to Special Reserve 0 2015 2014 Average Advances in the eligible busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentive towards promoting long term finance for industrial or agricultural development, development of infrastructure facility in India and development of housing in India. He further noted that in the earlier year the assessee had transferred into special reserve account as per section 36(1)(viii), accordingly the deduction was allowed. He further noticed that the creation and maintenance of such reserve is also essential to monitor the satisfaction of other conditions regarding aggregate of the amount carried to such reserve account from time to time not exceeding twice the amount of the paid up share capital and general reserve. Accordingly, he noted that assessee has not transferred any amount into the special reserve account for claiming deduction u/s. 36(1)(viii). The AO also having gone through the case law relied by the ld. AR, but did not accept the same and made addition to the total income of the assessee. 21. On appeal before the CIT(A), the assessee reiterated the submissions made before the AO and relied on the judgment of coordinate Bench of ITAT Hyderabad in the case of Nizamabad District Central Co-op. Bank Ltd. v ITO. The ld. CIT(A) examined the issue in detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire material on record, we note that as per the observation of lower authorities the assessee has not transferred any amount in terms of section 36(1)(viii), however, as per the details submitted before the revenue authorities, the assessee has transferred into statutory reserve account of Rs.109.85 crores and into capital reserve account of Rs.6.54 crores and the assessee has claimed deduction u/s. 36(1)(viii) of Rs.58.30 crores which is equal to 20% of the net profit as computed above. The lower authorities have not accepted the arguments of the assessee. We note that during the course of hearing, the ld. AR submitted that similar issue has been decided by the coordinate Bench of Tribunal in assessee s own case for AY 2014-15, for the sake of convenience, we reproduce the relevant part on this issue:- 21. We heard both the parties and perused the materials on record. We will first look into the provisions of sec.36(1)(viii) which reads as follows (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 gains o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 identical issue has been dealt with by the coordinate bench of the Tribunal in the case of Vijaya Bank Vs. JCIT (Supra), wherein it is held as under:- 8.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that this issue was considered and held in favour of the assessee and against revenue by a co-ordinate bench of this Tribunal in the case of Corporation Bank (supra); wherein at para 19, the Bench has held as under 19. We have perused the orders and heard the rival contentions. Section 36(1) (viii) is reproduced hereunder,' (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 gains of business or profession (before making any deduction under its clause) carried to such reserve account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 creation of special reserve for claiming deduction under s. 36(1)(viii) of the Act, hence, the contention of learned Departmental Representative for the Revenue that this provision does not permit the deduction in case the special reserve is created in subsequent year, has no force as it does not find support from the plain language of s. 36(1)(viii) of the Act. Perhaps, the words ...(before making any deduction under this clause) carried to such reserve account prompt such inference by the learned Departmental Representative for the Revenue but to our mind answer to such inference drawn by the learned Departmental Representative for the Revenue is that before making any deduction does not mean before making any claim but means at the time of considering such deduction claimed by the assessee. 21. Hon'ble jurisdictional High Court of Delhi while interpreting similar wordings in the context of s. 32A of the Act in the case of CIT vs. Orient Express Co. (P) Ltd. (supra) while dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 36(1)(viii) had not been verified by any of the authorities below. We therefore, set aside the orders of the authorities below and remand the issue to the file of the AO for fresh consideration in accordance with law. Ground no.4 of the assessee is allowed for statistical purposes. 8.4.2 Respectfully following the aforesaid decision of the coordinate bench in the case of Corporation Bank (supra), we hold that reserve created even in subsequent / succeeding years; however before the finalization of grant of deduction under Section 36(1)(viii) of the Act i.e. as per date of order of assessment is required to be considered while allowing the assessees claim for deduction under Section 36(1)(viii) of the Act. The Assessing Officer is directed to examine and allow the assessee's claim accordingly. Consequently, this ground No.5 (5.1 to 5.3) is allowed for statistical purposes. 25. We therefore follow the binding decision of the coordinate bench in the case of Vijaya Bank (Supra), and hold that reserve credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the objective to primary function as a hub in facilitating all electronic retail payment systems through the National financial switching network and all the transactions are carried out without any human intervention. The assessee also submitted that the assessee had sued NPCI to facilitate transaction involving ATMs of other banks by the customers of the assessee to carry out electronic transactions. The CIT(A) observed that this is a recurring issue and decided by him in the preceding AY against the assessee. Accordingly after considering detailed submissions of the assessee, he rejected the claim of the assessee and observed that the TDS recovery mechanism displayed in NPCI s website and that all banks who were receiving the services before the NPCI were deducting TDS. 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.1834/Bang/2018 dated 11/03/2022 in assessee s own case for the assessment year 2014-15. 30. The ld.DR relied on the order of lower authorities. 31. We have heard the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2016) 67 taxman.com 356 (SC). It was further contended that in any case, the assessee bank had submitted Form No.26A as per Rule 31ACB and as such is covered by the proviso to Sec. 40(a)(ia) and therefore no disallowance could be made. 12.3 Per contra, the learned Departmental Representative for Revenue placed reliance on the orders of the Assessing Officer on this issue. 12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue before us is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (supra); wherein at paras 8 to 10 thereof the Hon'ble Apex Court has held as under :- 8. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart 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 wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to technical services provided by the Stock Exchange, not being services specifically sought for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by the AO should be deleted. 34. The ld. CITA) after examining the submissions noted that the assessee is a bank and governed by Banking Regulation Act, 1949 and it is controlled by the RBI and the assessee has to follow RBI guidelines as well as directions issued periodically. Any contravention of its provisions/directive is made punishable under the provisions of Banking Regulation Act. He also relied on the judgment of Hon ble Supreme Court in the case of Bank of India Finance Ltd. v. Custodian (1997) 10 SCC 488 in which it has been held that directions of RBI are binding on the branch; such violations are punishable under the provisions of Banking Regulation Act, hence, any payment in violation of the RBI directions is not allowable as deduction u/s. 37(1) read with Explanation. He also relied on the judgment of Hon ble Karnataka High Court in the case of Syndicate Bank 261 ITR 528 in which penalty has been confirmed for violation of section 24(4)(a) and 24(4)(b) of the Banking Regulation Act and the penalty paid by the assessee bank for violation of above section was not allowed. 35. The ld. AR reiterated the submissions made before the CIT(A) to which we have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok profits u/s. 115JB without prejudice to its claim of non-applicability of MAT provision. The AO noticed that the assessee has not added back the entire amount of provisions and contingencies debited to P L account in accordance with section 115JB. The assessee s reliance on the decision in the case of Vijaya Bank v. CIT (2010) 323 ITR 166 (SC) and CIT v. Yokogawa India Ltd. (2012) 204 Taxman 305 (Kar) was rejected. The AO observed that provision for NPA, diminution in value of investments, provision for restructured accounts etc. debited to P L account need to be added back to the book profit as per clause (i) of Explanation to section 115JB and relied on following decisions:- (i) CIT v. Mysore Breweries Ltd. [2009] 227 CTR 569 (ii) CIT v. Yashaswi Leasing Finance Ltd. 204 Taxman 602 (iii) CIT v. Steriplate (P) Ltd. (2011) 338 ITR 547. 40. The AO accordingly computed book profits of the assessee for an amount of Rs.93,89,26,067. The CIT(A) confirmed the order of the AO. Aggrieved, the assessee is in appeal before the Tribunal. 41. The Ld. AR reiterated the submissions made before the lower authorities. He submitted that similar issue has been decided by the coor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1884/Bang/2018 dated 27-12-2021) and the matter was restored to the file of Ld CIT(A) with the following observations:- 7.1 Before Ld CIT(A) also, the assessee contended 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec.115JB will not apply to the assessee, since it is not formed under Companies Act. He placed his reliance on the decision 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 state 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. 7.50% of total income before allowing deduction u/s 36(1)(viia) (Rs.0 x 7.50%) 46,01,70,206 Total 5659240708 48. On the above calculation the AO noticed discrepancies and as per the AO only the incremental advances need to be considered for computing the Aggregated Average Advances(AAA) contrary to the approach of the assessee that advances outstanding at the end of each month is to be considered. He also noted that the word used made by in the section clearly means that only advances made during the month has to be considered and not running advances. He also relied on the judgment of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs CIT Trissur, decided on 17.02.2012 , in which it has been held that the legislative intent was to encourage the rural advances and making of provisions for bad debts in relation to such rural advances. The AO after considering the submissions made by the assessee and applying the prescribed rule 6ABA for computation of deduction computed deduction under this section at Rs. NIL an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances made by the rural branches computed in the manner prescribed under IT Rules, 1962. For this purpose, 'rural branches' has been defined to mean 'branch of schedule bank situated at place with population not exceeding 10,000 according to last census'. Rule 6BA of the Incometax Rules provides the procedure for computing AAA for the purpose of provisions of section 36(1)(viia) which reads as under: 6ABA. Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36 - For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely : (a) the amounts of advances made by each rural branch as outstanding at the end of the fast day of each month comprised in the previous year shall be aggregated separately; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a) ; (c) the aggregate of the sums so arrived at in respect of each of the rur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubtful debts made under clause (viia). Clause (viia) permits a cooperative bank to claim deduction of provision made for bad and doubtful debts as per the prescribed conditions. As has been correctly observed by ld. CIT(A), the only dispute between assessee and department is in respect of working out 10% of aggregate average rural advances. While assessee has made such working by considering the entire outstanding advances at the end of each month, AO has worked out by considering the aggregate average rural advances of each month and not on the entire outstanding advances. However, a perusal of the provision contained u/s 36(1)(viia) and rule 6ABA, would make it clear that the 10% of aggregate average advances has to be worked out on the entire outstanding advances and not the advances of that month alone. That being the case, we agree with the view held by ld. CIT(A). 9. Now coming to the quantum of deduction claimed u/s 36(1)(vii) and 36(1) (viia), law is well settled that an assesses can claim deduction under both the clauses subject to the condition imposed under the proviso to 36(1)(vii). As can be seen from the working submitted by ld. AR, the provision created during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment and in this context pleaded that the matter need not be remanded back to the Assessing Officer. In view of the aforesaid submissions of the learned Authorised Representative of the assessee, we hold that the assessee is entitled to deduction by considering the AAA at Rs.2020,71,42,322 as worked out by Assessing Officer at page 42 of his order and direct the Assessing Officer to rework the deduction under Section 36(1)(viia) of the Act accordingly. Consequently, the Ground No.4 of assessee's appeal is allowed for statistical purposes. 53. Since the issue has been settled in favour of the assessee by the above decision, accordingly we uphold the order of the CIT(A). This ground of the revenue is dismissed. 54. Ground No. 3: During the course of assessment proceedings, the AO noted that assessee has claimed depreciation on various categories of securities as per classification of the RBI in its computation of income. The assessee has classified 3 categories of its securities i.e., Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). As per RBI guidelines, the securities held under the category of AFS and HFT are subject to market valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI Circular as well as CBDT instructions cited supra rightly disallowed the depreciation claimed on HTM securities. The Hon ble Supreme Court has also admitted the SLP. 57. The ld. AR relied on the order of the CIT(A) and submitted that similar issue has been decided in favour of the assessee and the Hon ble Jurisdictional High Court has also decided the issue in favour of assessee. He further submitted that merely SLP admitted by Hon ble Apex Court cannot be applied. He further submitted that on the one hand, the AO has treated the profit on sale of investments as business income and on the other hand, he has not allowed the diminution in the value of HTM securities which is contradictory opinion . He also relied on the Karnataka High Court judgment in the case of CIT v. Karnataka Vikas Grameen Bank 2015 (12) TMI 1420 Karnataka High Court. 58. Considering the rival submissions and perusing the entire material available before us, we note that similar issue has been decided by the coordinate Bench in ITA No.1834/Bang/2018 for the AY 2014-15 order dated 11.3.2022 wherein it was held as follows: - 43. We heard the rival submissions and perused the material on record. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. CIT DR placed strong reliance on the order of the Assessing Officer which was based on the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank (supra) which decided the issue in favour of the revenue. 11.3 Before us, the learned Authorised Representative 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's own case for the A.Y. 2005-06, this Tribunal has confirmed the order of the CIT(A), deleting identical addition made by the AO. Our attention was also drawn to the order of the Tribunal in assessee's own case in ITA No.492/Bang/2009 for the A.Y. 2005-06, order 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 Rs.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 Rs.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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed its own decision rendered in the case of Karnataka Bank Ltd. v. CIT in ITA No.172/2009 rendered on 11.01.2013, wherein the Court took the view that depreciation claimed on investments 'held on maturity' by a bank has to be treated as stock-in-trade in 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 squa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver disallowed u/s 14A. 61. The AO observed that the computation of disallowance u/s. 14A was not enclosed along with computation and it was called for. Accordingly the assessee submitted written submissions which were reproduced in the assessment order. From the submissions it was observed that during the impugned AY, the assessee has received substantial amount of exempt income of Rs.28.62 crores during the year and the average tax free investments were of Rs.733.94 crores. Accordingly the AO observed that for managing such huge investments, incurring of certain expenditure is very essential. He relying on certain judgments computed the disallowance as per Rule 8D r.w.s. 14A to the extent of Rs.3,86,85,500 and added back to the total income of the assessee. The ld. CIT(A) after considering the detailed submissions and decision of the coordinate Bench in the assessee s own case for AY 2010-11, 2011-12 2008-09 allowed the appeal of the assessee on this issue. Aggrieved, the revenue is in appeal before the Tribunal. 62. The ld. DR relied on the order of AO. 63. The ld. A R relied on the order of CIT(A) and also submitted that in the assessee s own case for AY 2014-15 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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