Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & MS. PADMAVATHY S
IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND MS. PADMAVATHY S, ACCOUNTANT MEMBER
ITA No.1834/Bang/2018
Assessment year : 2014-15
The Jt. Commissioner of Vs. Bank of Baroda (previously known as M/s Income-tax (LTU), Vijaya Bank), Head Office Bengaluru. Central Accounts Dept., 41/2, M.G Road, Bengaluru-560 001. PAN – AAACV 4791 J APPELLANT RESPONDENT
ITA No.1839/Bang/2018
Assessment year : 2014-15
Bank of Baroda (previously known as Vs. The Jt. Commissioner of M/s Vijaya Bank), Head Office Income-tax (LTU), Central Accounts Dept., 41/2, M.G Road, Bengaluru. Bengaluru-560 001. PAN – AAACV 4791 J APPELLANT RESPONDENT
Assessee by : Shri Ananthan, C.A & Smt. Lalitha Rameshwaran, C.A Revenue by : Shri Pradeep Kumar, CIT(DR)
Date of hearing : 21.02.2022 Date of Pronouncement : 11.03.2022
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 2 of 41
O R D E R Per Padmavathy S, Accountant Member
These cross appeals are directed against the order of the CIT(A)-14, Bengaluru dated 27/03/2018 for the asst. year 2014-15.
The brief facts of the case The assessee is a nationalized bank in which majority of shares are held by the Government of India. It filed its Return of Income for the Assessment Year 2014-15 on 29/09/2014 declaring total income of (-) Rs 1045,98,94,884/- and later it filed a revised return on 29/03/2016 declaring an income of(-) Rs1119,07,78,531/- under the regular computation.
Scrutiny assessment u/s 143(3) was completed on 21/12/2016 by The Joint Commissioner of Income tax, LTU, Bangalore. In the assessment made under section 143(3), the Assessing Officer, the respondent herein, made several additions and disallowances and determined the income under regular provisions at Rs.1261,89,70,977/- and raised a demand of Rs 169,44,47,405/-. In the assessment, the learned Assessing Officer made the following additions to the total income under the regular computation:
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 3 of 41
The Assessing Officer has also assessed tax payable under Section 115JB at Rs. 226,12,56,555/-. However, since the tax payable on the total income computed as above by Assessing Officer was more than 18.5% of the book profits u/s 115JB, Assessing Officer assessed the tax payable as Rs. 169,44,47,405/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), LTU, Bangalore.
The Learned Commissioner of Income Tax (Appeals) partially allowed the appeal of the assessee as under:
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 4 of 41
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.
Aggrieved by the order of the CIT(A), the Revenue and the assessee have filed these cross appeals before us.
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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 5 of 41
Disallowance of bad debts claimed u/s 36(1)(vii) (Ground 2)
The assessee had claimed Rs.282,18,79,407/- as bad debts written off in the computation. The AO rejected the claim of the assessee to the extent of Rs.279,60,53,018/- on the ground that – i) Accounting entries merely represented disclosure as per RBI guidelines. ii) Bad debts written off was not debited to P&L account iii) As the bad debt had not exceeded the credit balance of provision created in earlier years u/s 36(1)(viia), no deduction can be allowed as per the provisions of the Act.
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.
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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 6 of 41
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.
Aggrieved by the order of the CIT(A), the assessee has raised the issue before us.
The ld.AR submitted that the issue in question is covered in assessee’s own case by the order of the Tribunal in ITA No.1833/Bang/2018 vide order dated 28/12/2021 for the asst. year 2013-14. The ld.DR relied on the written submission.
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) has held that ”9.3 We heard the parties and perused the record. We notice that the co-ordinate bench has considered an identical issue in the assessee’s own case for AY 2010-11 in ITA No.1284/Bang/2016 dated 05-01-2018 and it has been decided in favour of the assessee with the following observations:- “5. Ground No.2 - Bad Debts written off u/s.36(1)(vii) 5.1 In this ground (supra), the assessee challenges the disallowance of bad debts written off by it u/s.36(1)(vii) of the Act. In the order of assessment, the Assessing Officer disallowed the assessee's claim as he was of the view that it was 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 7 of 41
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 respect of accounts written off that the assessee bank can credit the recoveries to the profit and loss account and in the case of live accounts any recovery is credited to the debtors account. Therefore, the very fact that the recoveries are credited to the profit and loss account shows 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 8 of 41
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's claim for write off of bad debts, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the assessee's own case i.e. Vijaya Bank Vs. CIT (2010) 323 ITR 166 (SC). 5.2.2 The learned Authorised Representative contended that the reliance placed by the authorities below on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (supra) is not applicable as the facts in this cited case are totally different. It is submitted that the cited decision has been noted by the Hon'ble Apex Court in the assessee's own case (supra) and after noticing the said decision, the Hon'ble Court held that the provision debited to profit and loss account and reduced from advances would amount to write off. 5.3 Per contra, the ld. CIT, DR placed reliance on the findings rendered by the authorities below on this issue. 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.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 9 of 41
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 branch level. We find that this issue of write off has been settled by the Hon'ble Apex Court in the assessee's own case reported in 2010 (323 ITR 160) (SC), wherein at paras 8 & 9 thereof it was held as under : " 8. Coming to the second question, we may reiterate that it is not in dispute that s. 36(1)(vii) of 1961 Act applies both to banking and non-banking 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 10 of 41
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 refers to the apprehensions of the AO]. In this context, it may be noted that there is no finding of the AO that the assessee had unauthorisedly claimed the benefit of deduction under s. 36(1)(vii), twice over. The order of the AO is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of s. 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the AO to call for details of individual debtor's account if the AO has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 11 of 41
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 appears to be valid, on a deeper consideration, it is not so for three reasons. Firstly, the head office accounts clearly indicate, in the present case, that, on repayment in subsequent years, the amounts are duly offered for tax. Secondly, one has to keep in mind that, under the accounting practice, 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."
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 12 of 41
5.5.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the assessee's own case reported in 323 ITR 166 (supra), we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts u/s.36(1)(vii) of the Act and we therefore reverse and delete the disallowance made by the Assessing Officer in this regard. Consequently, Ground No.2 of the assessee's appeal is allowed.” 9.4 We notice that the Ld CIT(A) has followed the decision rendered by the coordinate bench in assessee’s own case and deleted the disallowance of bad debts u/s 36(1)(vii) of the Act. Accordingly we do not find any reason to interfere with his order passed on this issue” 17. Respectfully following the decision rendered by the coordinate bench in assessee’s own case, we allow the appeal in favour of the assessee. Accordingly, this ground of the assessee is allowed and the disallowance made u/s.36(1)(vii) is deleted.
Disallowance u/s 36(1)(viii) (Ground 4)
The assessee had claimed deduction of Rs.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 Rs.117,61,72,383/- during the relevant previous year and also during the financial year 2014-15 has
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 13 of 41
transferred Rs.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 the requirements of RBI not connected to special reserve u/s 36(1)(viii).
Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld.AR reiterated the submissions made before the lower authorities and relied on the decision of the Hyderabad Tribunal in the case of Nizambad District Cooperative Central Bank Ltd (supra). The Ld AR also submitted that the coordinate bench of this Tribunal in the case of Vijaya Bank vs JCIT in ITA No.1284/Bang/2016 has held the appeal in favour of the assessee. The ld.DR relied on the written submissions.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 14 of 41
We heard both the parties and perused the materials on record. We will first look into the provisions of 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 of business or profession" (before making any deduction under its clause) carried to such reserve account"
Section 36(1)(viii) envisages a transfer to a special reserve inorder to claim deduction under the said section. The issues to be considered here are (i) Whether the amount transferred to any reserve can be considered for deduction u/s.36(1)(vii) since “special reserve” is not defined in the Act (ii) Whether the amount transferred in the subsequent year also need to be considered for the deduction u/s.36(1)(vii) since there is no time limit prescribed for the transfer to special reserve
On the issue of Whether the amount transferred to any reserve can be considered for deduction u/s.36(1)(vii) since “special reserve” is not defined in the Act we notice that a similar question is considered by the Hyderabad Bench of the ITAT in the case of Nizambad District Cooperative Central Bank Ltd., Vs. ITO where the Tribunal has held that “53. It is the contention of the assessee before us that as per the provisions of section 36(1)(viii) assessee is eligible for
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 15 of 41
deduction for an amount of 79,39,000 whereas deduction to the extent of 14,21,432 has been allowed to assessee, hence, assessee remains eligible to claim deduction u/s 36(1)(viii) to the extent of 65,17,568. On a perusal of section 36(1)(viii) of the Act. it is clear that deduction not exceeding twently percent of the 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.”
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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 16 of 41
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" We find that Delhi Bench in the case of M/s PFCL (Supra) had considered the very same issue as to whether the special reserve was required to be created in the very same year of the claim of deduction of whether it could be created in a succeeding year. In its order dated 31- 07- 2008 it was held as under at paras 18 to 24. 18. We have considered the rival contentions of both the parties, perused the records 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 longterm finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 17 of 41
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 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 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 18 of 41
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 creation of reserve required under s. 32A of the Act at p. 896 held that section prescribes no point of time by which the reserve should be created and in this regard accepted that a reserve created after the closure of the accounts of the year qualifies by observing as under: "The second question which is raised only in ITC Nos. 44 and 45 of 1986 is whether the assessee is disentitled to the investment allowance 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 DeveIopmnf rporaioriE. 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 19 of 41
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 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 co- ordinate 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)(viH) 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.”
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 20 of 41
We therefore follow the binding decision of the coordinate bench in the case of Vijaya Bank (Supra), 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. This ground is allowed for statistical purposes.
Disallowance u/s 40a(ia) (Ground 5)
The assessee has paid Rs.29,15,52,274/- towards NFS ATM charges and towards ATM switch charges to National Payment Corporation of India (NPCI). The ld.AO disallowed the entire amount u/s 40(a)(ia) on the ground that the assessee has not deducted TDS on the said amount.
Aggrieved by the order of the AO, the assessee has contended before the CIT(A) that NPCI was formed with 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) rejected the
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 21 of 41
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.
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.
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 Kotak Securities Ltd (2016)(67
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 22 of 41
taxmann.com 356). The relevant observations made by the co- ordinate bench on this issue are extracted below:-
“12. Ground No.8 (8.1 & 8.2) - Disallowance u/s.40(a)(ia) of the Act in respect of payment made to NPCI.
12.1 In these grounds (supra), the assessee assails the decision of theauthorities below in disallowing expenditure of Rs.8,05,15,596 u/s.40(a)(ia) of the Act; being payments made to NPCI. As per the details on record before us, in the year under consideration, the assessee bank had incurred expenditure of Rs.8,05,15,596; on which payments the assessee had not deducted tax at source. The Assessing Officer held that since NPCI is providing technical services to the assessee bank, the payments made in this regard are liable to TDS under Section 194J of the Act and in view of the assessee's failure to do so, disallowed the aforesaid amount under Section 40(a)(ia) of the Act. On appeal, the learned CIT (Appeals) upheld the Assessing Officer's decision in the matter.
12.2 The learned Authorised Representative of the assessee submitted thatsince it is a standard facility, the same is not covered under the purview of the provisions of Sec. 194J of the Act as technical services. In this regard, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd., reported in (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.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 23 of 41
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 heldas under :-
" 8. A reading of the very elaborate order of the Assessing Officercontaining 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 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 aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be merely in the nature
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 24 of 41
of a facility offered or available which would not be covered by the aforesaid provision of the Act.
There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellantassessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 25 of 41
expression "technical services" as appearing in Explanation 2 to Section 9(1)(vii) of the Act.
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 services” within the meaning of sec.194J of the Act. Hence there is no liability to deduct tax at source from those payments. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance.
Respectfully following the decision rendered by the coordinate bench in assessee’s own case, we allow this ground in favour of the assessee. Accordingly, this ground of the assessee is allowed. Applicability of provisions of section 115JB (Ground 6) 32. The assessee in the return of income for the relevant assessment year did not compute book profit u/s.115JB as the assessee was of the
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 26 of 41
opinion that the assessee being a public sector bank, the requirement to compute book profit is not applicable to the assessee. The AO computed the book profit during the course of the assessment and also made certail disallowances while computing the book profits. The CIT(A) confirmed the order of the AO. Aggrieved assessee is before us and has contended the computation of book profit & the additions made while computing through Ground No.6 and 7. We will first take up the issue of whether 115JB is applicable to the assessee.
The Ld AR submitted that the coordinate bench of Tribunal in assessee’s own case (supra) for the assessment year 2013-14 has restored the case back to the CIT(A) and prayed for a similar direction for the assessment year under consideration
We heard the Ld DR who relied on the written submissions and supported the decision of the lower authorities. The coordinate Bench of the Tribunal in assessee’s own has held as under
“7. The next issue contested by the assessee relates to theapplicability of sec.115JB of the Act. In the return of income, the assessee did not compute book profit, as according to the assessee the provisions of sec.115JB will not be applicable to it. The AO did not accept the said contentions and held that the provisions of sec.115JB shall apply to the assessee. Accordingly, he computed book profit u/s 115JB of the Act also. The Ld CIT(A) also confirmed the same.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 27 of 41
7.1 An identical issue was considered by this bench of Tribunal in the case of Canara Bank (ITA No.236/PAN/2018 & ITA 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 newbank”, 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 of this section are applicable in case of “every company”. It does not carve out any exception.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 28 of 41
(b) Sec. 2(17) defines the word “company”. According to this section company “means” any Indian Company. (c) Explanatory Note to Finance Act, 2012 has explained that Minimum Alternative Tax (MAT provisions u/s 115JB) shall apply to a banking company. (d) Assessee is a “company” as per the deeming provisions of sec.11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, which reads as under:-
“11. Corresponding new bank deemed to be an Indian Company:- For the purposes of the Income tax Act 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian Company and a company in which public are substantially interested.” (e) The assessee itself is filing its return of income under the status of “company”. (f) The shares of assessee bank are listed in the Stock exchange and traded. (g) The assessee is a banking company under Banking Regulations Act, since the definition of the term “banking company” in BR Act is a functional definition. The assessee is following all the rules and regulations of the BR Act which are applicable to other private banks. The assessee bank is constitutionally defined as “corresponding new bank” in BR Act. However, the BR Act does not say that ‘corresponding new bank’ is not a Banking Company. (h) It is not the case of the assessee that being a ‘corresponding new bank’ and not registered under Companies Act, 1956, the assessee is not governedby BR Act. (i) It is highly unfortunate on the part of a reputed public sector bank toresort to such unwarranted, hyper technical, hair splitting of the definitions under various Acts only to avoid the payment of due taxes. (j) Assuming that the assessee is not a Banking Company, then the provisions of sec.115JB(2)(a) will be applicable to the assessee, as it is an Indian Company as per section 11 of the Banking Companies (Acquisition andTransfer of Undertaking) Act 1980.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 29 of 41
(k) Various decisions relied upon by the assessee relate to the period prior to the amendment made by Finance Act 2012.
7.2 Before us, the Ld A.R reiterated that the provisions 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 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 is faulted one. In our view the Ld CIT(A) shouldconsidered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of “banking company”, provisions of sec.211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh.”
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 30 of 41
7.2 Since the facts relating to the issue and contention of the assessee is identical in nature, following the above said decision, we restore this issue to the file of Ld CIT(A) with similar directions.”
Respectfully following the decision rendered by the coordinate bench in assessee’s own case, we restore this issue of applicability of the provisions of section 115JB to the CIT(A) with similar direction.
Additions made to book profit (Ground 7)
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 of the Act (Ground 7) is also restored to the file of Ld CIT(A) for examining it afresh.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
ITA No 1834/Bang/2018 38. We will now take up the appeal filed by reveue. The revenue has raised 4 grounds before us. Ground no1 is general in nature which does not require separate adjudication and hence dismissed. Ground no 4 is with respect to applicability of the provisions of 115JB to the assessee. Since the CIT(A) has upheld the order of the AO interms of
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 31 of 41
applicability of 115JB to the assessee, this ground becomes in fructuous and dismissed accordingly. We will proceed to adjudicate only Ground no 2 and 3 in the ensuing paragraphs
Depreciation on HTM securities (Ground 2)
During the relevant assessment year the assessee has claimed Rs. 1521.21,40,390/- as deduction being the depreciation on the securities classified as Held To Maturity (HTM). The Assessing Officer disallowed this claim on the ground that the depreciation cannot be claimed on HTM securities for which he relied on the decision of the Hon’ble Karnataka High Court decision 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.
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 Highcourt in assessee’s own case (ITA No.687/2008) and the decision of coordinate bench of the Tribunal in assessee’s own case (Supra)
The revenue is in appeal before us against the order of CIT(A)
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 32 of 41
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.
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 –
The next issue contested by the revenue relates to the disallowance of depreciation on HTM Securities, which has been deleted by Ld CIT(A). The AO took the view that the RBI has allowed banks to claim depreciation on securities which are “Held for Trade” and “Available for sale” only. Accordingly he held that the depreciation is not available on securities “Held to Maturity”. Accordingly, he disallowed the claim of Rs.174.42 crores relating to depreciation on HTM securities.
10.1 The Ld CIT(A) noticed that the ITAT, Bangalore has decided an identical issue in AY 2003-04 in favour of the assessee. The Hon’ble Karnataka High Court upheld this decision in ITA No.687/2008 vide order dated 11.03.2013. Similarly in AY 2008-09 also, the Tribunal in ITA Nos. 578 & 653 of 2012 has decided the issue in favour of the assessee. Similarly in AY 2010-11 to 2012-13 has again decided in favour of the assessee. Accordingly, the Ld CIT(A) deleted the disallowance.
10.2 We heard the parties and perused the record. We notice that the co-ordinate bench has decided an identical issue in favour of the assessee in the assessee’s own case in ITA No.1252/Bang/2016
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 33 of 41
dated 05-01-2018 relating to AY 2010-11 with the following observations:-
“11. Ground Nos.1 & 2 - Depreciation on HTM Securities. 11.1 In these grounds (supra), Revenue assails the order of the learned CIT (Appeals) in directing the Assessing Officer to allow the assessee's claim towards depreciation on HTM Securities. The facts of the matter as emanate from the record are that the assessee bank claimed a sum ofRs.215,69,38,927 as depreciation on the HTM category of investments. The Assessing Officer disallowed the assessee's claim following the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank Vs. CIT (2012) 208Taxman 511. On appeal, the learned CIT (Appeals) allowed the assessee's claim by following the decision of the Hon'ble Karnataka High Court in the assessee's own case in ITA No.687/2008 dt.11.3.2013 and also the decisionof the co-ordinate bench of this Tribunal in the assessee's own case for A.Y.2008-09 in ITA No.578 & 653/Bang/2012 for A.Y. 2008-09.
11.2 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
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 34 of 41
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 the judicial pronouncements cited. We find that this issue has been considered and held in favour of assessee and against Revenue both by the decisions of the Hon'ble Karnataka High Court and those of the co-ordinate bench of this Tribunal in the assessee's own case. We find that a co-ordinate bench, while dismissing Revenue's ground on this issue in the assessee's own case for Assessment Year 2008-09 in its order in ITA No.578 & 653/Bang/2012 at paras 33 & 34 thereof has held as under :-
" 33. We have considered the rival submissions. Similar issue as to whether depreciation on investments held under the category "Held to Maturity" or "Available for Sale" can be allowed as deduction came up for consideration in Assessee's own case in AY 10-11 in ITA No.1310/Bang/2012 and this Tribunal upheld similar order of CIT(A). The following were the relevant observations of the Tribunal:- "21. We have considered the rival submissions. Similar issue as to whether depreciation on investments held under the category "Held to Maturity" can be allowed as deduction came up for consideration in the case of Syndicate Bank (supra) before the ITAT Bangalore Bench. The Tribunal on the issue held as follows:
"58. We have heard the submissions of the ld. DR and the ld. Counsel for the assessee. The ld. DR relied on the decision of the Hon'ble High Court of Karnataka in the case of CIT v. ING Vysya Bank Ltd. in ITANo.2886/2005 dated 06.06.2012. In the
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 35 of 41
aforesaid decision, the Hon'ble High Court of Karnataka took a view that the guidelines issued by the RBI will not be relevant while computing income under the Income-tax Act. The Hon'ble Court further took the view that every investment held by a bank cannot be considered as stock in trade. The Hon'ble High Court finally concluded that 30% of the investments can be clothed to the character of stock-in-trade and that the remaining amounts will be investments and therefore diminution in their value cannot be allowed as a deduction.
The ld. counsel for the assessee, however, submitted that in the 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 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.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 36 of 41
That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining the balancesheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-intrade (investments) because the bank was required to prepare the balancesheet in the prescribed form and it had no option to change it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case."
The Bangalore Bench of ITAT in Corporation Bank (supra) has also followed the above decision of the Hon'ble Supreme Court as also the ITAT, Mumbai and ITAT, Chennai. Following the above decisions, we are deciding this issue in favour of the assessee. This ground of appeal by the Revenue is dismissed.
Apart from the above, the ld. counsel for the assessee also submitted that the decision rendered by the Hon'ble High Court of Karnataka in the case of ING Vysya Bank (supra) is per incuriam the decision of the Hon'ble Supreme Court in the case of UCO Bank v.CIT, 240 ITR 355 (SC). He brought to our notice that the Hon'ble Supreme Court approved the practice of nationalized bank governed by Banking Regulation Act, following mercantile system of accounting both for book keeping as well for income-tax purposes. The Hon'ble Apex Court upheld the method adopted by the banks valuing stock-in-trade (investments) at cost in balance sheet in accordance with the Banking Regulation Act and valuing the same at cost or market value, whichever was lower for income-tax purposes. The Hon'ble Court took the view that all investments held by a bank are to be regarded as stock-in-trade.
The ld. counsel for the assessee further drew our attention to a very recent decision of the Hon'ble High Court of Karnataka
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 37 of 41
rendered on 11.03.2013 in the case of CIT v. Vijaya Bank, ITA No.687/2008. The Hon'ble High Court of Karnataka in the aforesaid case followed 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 stockin- 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.
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."
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."
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 impugned order is in line with the aforesaid decision of the Hon'ble Karnataka High Court and the co-ordinate bench of this Tribunal in the assessee's own case (supra). In this view of the matter, we do not find any reason to interfere with the finding of the learned CIT (Appeals) on this issue and consequently finding
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 38 of 41
no merit in grounds at S.Nos.1 & 2 (supra) raised by revenue, dismiss the same.”
10.3 We notice that the Ld CIT(A) has followed the decision rendered by the co-ordinate bench in the assessee’s own case and has deleted the disallowance of depreciation claimed on HTM securities. Accordingly, we do not find any reason to interfere with his decision rendered on this issue.
Considering the decision of the coordinate bench of the Tribunal and noting the fact that the CIT(A) has followed the decision of the coordinate bench in assessee’s own case, 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 (Ground 3)
The asessee has earned exempt income of Rs.28.62 crores during the year under consideration. The assessee has suo moto disallowed a sum of Rs.3,57,636 u/s.14A of the Act which is a proportion of the administrative cost. The contention of the assessee was that since the interest free fund is much more than the investment in tax free securities, no interest expenditure is attributable for earning exempt income and thus the disallowance is made only to the proportionate administrative cost. This contention of the assessee is not accepted by the AO who proceeded to make a disallowance
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 39 of 41
u/.14A. In the appeal preferred before the CIT(A) by the assessee the CIT(A) followed the decision rendered by the coordinate bench of the Tribunal in assessee’s own case for the assessement years 2010-11 and 2011-12 and allowed the appeal in favour of the assessee.
The revenue is in appeal before us against the order of the CIT(A).
We heard the parties on this issue and perused the record. We notice that the co-ordinate benches have decided this issue prior to rendering of decision by Hon’ble Supreme Court in the case of Maxopp Investment Ltd (2018 (3) TMI 805)(SC). However, before us, the Ld A.R relied upon certain other decisions in order to contend that no disallowance u/s 14A is called for. In view of the subsequent development of law on this issue, in our considered view, this issue requires fresh examination at the end of AO by duly considering the various decisions on the subject. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh.
In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 40 of 41
In the combined result, the appeal filed by the assessee is allowed for statistical purposes and the appeal filed by the Revenue is partly allowed for statistical purposes.
Order pronounced in court on 11th March, 2022 Sd/- Sd/- (GEORGE GEORGE K) ( PADMAVATHY S) Judicial Member Accountant Member
Bangalore, Dated, 11th March, 2022 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.
ITA Nos.1834/Bang/2018 & 1839/Bang/2018 Page 41 of 41
Date of Dictation …………………………………… 2. Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr.P.S .……………………………. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ………………….. 9. Date on which order goes for Xerox & endorsement…………………………………… 10. Date on which the file goes to the Head Clerk ……………………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. ……………………………………………..