BANK OF MAHARASHTRA,,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,, PUNE

आदेश / ORDER

PER VIKAS AWASTHY, JM :

These cross appeals by the Revenue and the assessee are for the assessment years 2011-12 and 2012-13. The Revenue in ITA No. 579/PUN/2017 and the assessee in ITA No. 634/PUN/2017 have assailed the order of Commissioner of Income Tax (Appeals)-1, Pune dated 08-12-2016 for the assessment year 2011-12. ITA No. 581/PUN/2017 by the Revenue and ITA No. 635/PUN/2017 by the assessee are directed against the order of Commissioner of Income Tax (Appeals)-1, Pune dated 08-12-2016 for the assessment year 2012-13.

Since, the issues raised in all these appeals are identical, these cross appeals for two assessment years are taken up together for adjudication and are being disposed of vide this common order.

For the sake of convenience the appeals of Revenue and the assessee for assessment year 2011-12 are first taken up for adjudication.

ITA No. 579/PUN/2017 (A.Y. 2011-12)

2.1 The ld. AR submitted that this issue has been let to rest by the Hon’ble Bombay High Court in assessee’s own case in Income Tax Appeal No. 920 of 2015 decided on 27-02-2018. The ld. AR further submitted that the Tribunal in appeal by the assessee in ITA No. 1370/PUN/2014 for the

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assessment year 2010-11 decided on 11-03-2019 has also considered this issue and has decided in favour of assessee.

2.2 Mrs. Kesang Y. Sherpa representing the Department fairly admitted that the issue relating to loss on valuation of HTM securities has been considered by the Tribunal in assessee’s own case in immediately preceding assessment years.

2.3 Both sides heard. Orders of the authorities below perused. The Revenue is in appeal against the findings of Commissioner of Income Tax (Appeals) on the issue of loss on valuation of HTM securities. We find that the Commissioner of Income Tax (Appeals) has decided this issue in favour of assessee by following the order of Tribunal in assessee’s own case for assessment year 2005-06 in ITA No. 1505/PN/2008 and in ITA Nos. 1135 to 1138/PN/2013 decided on 17-08-2014. The issue of allowability of loss on valuation of HTM securities is recurring in assessment years after assessment years. The Co-ordinate Bench in assessee’s own case for assessment year 2010-11 in ITA No. 1370/PUN/2014 (supra) has decided this issue in favour of the assessee by placing reliance on the order of Tribunal in ITA No. 1505/PN/2008 and now the same has been upheld by the Hon’ble Bombay High Court in Income Tax Appeal No. 920 of 2015. For the sake of completeness the relevant extract of the findings of Tribunal in ITA No. 1370/PUN/2014 (supra) on this issue are reproduced here-in-below : “5.3 Both sides heard on the issue of disallowance of claim of loss in respect of securities held under HTM category. Both sides are unanimous in stating that the present issue was subject matter of appeal before the Tribunal in ITA No. 1505/PN/2008 and in ITA Nos. 1135 to 1138/PN/2013 (supra). The Co-ordinate Bench adjudicated the issue by observing as under:

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“20. In the background of the aforesaid legal position, a premise which can be drawn is that for the purposes of valuation of the closing stock it is permissible for the assessee to value it at the cost or market value, whichever is lower. In-fact, the Hon‟ble Supreme Court in the case of Chainrup Sampatram vs. CIT, (1953) 24 ITR 481 (SC) held that the assessee is entitled to value the closing stock either at cost price or market value, whichever is lower. In the present case, Revenue does not dispute that the method of the valuation adopted by the assessee, namely, valuing the stock either at cost price or market value whichever is lower, is a generally accepted method of valuation. No doubt, there are no statutory rules for the valuation of closing stock but the ordinarily accepted method of commercial accounting support the valuation of closing stock based on the lower of the cost or market value. Therefore, the departure from the erstwhile method of valuation of closing stock by the assessee is quite appropriate, and in fact is line with a method approved by the Hon‟ble Supreme Court in the case of Chainrup Sampatram (supra). In-fact, the only basis for the Revenue to challenge the bona-fides of the change is that the change has been effected only for the purpose of assessment of taxable income and is not incorporated in the account books. The aforesaid plea of the Revenue, in our view, is quite misplaced because it is well understood that assessee is a banking company and is statutorily mandated to maintain its books of account in terms of the RBI guidelines. On the other hand, the assessment of taxable income has to be based on the principle of law and cannot be guided merely by the treatment meted out to a particular transaction in the account books. In-fact, this aspect of the controversy has also been answered by the Hon‟ble Karnataka High Court in the case of Corporation Bank Ltd. (supra) by relying on the judgement of the Hon‟ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT, (1971) 82 ITR 363 (SC). Therefore, we do not find any merits in the above objection of the Revenue. Moreover, the plea of the learned CIT-DR that nature of HTM securities is distinct from AFS and HFT securities and thus HTM securities are not stock-in-trade, is quite wrong. It cannot be denied that the securities held by the bank are stock-in-trade. Another plea of the learned CIT-DR was to the effect that the investments in the HTM category are not tradeable and the assessee may not be selling the HTM Securities prior to their maturity. Therefore, as per the learned CIT-DR, such securities could not be considered as „stock-in-trade‟. The aforesaid plea of the Revenue has been assailed by the learned Counsel for the assessee-bank. He has furnished a statement showing net profit on sale of HTM Securities as per the Balance Sheet for the various assessment years, viz. 2006-07 to 2009-10. On this basis, it is sought to be contended that the HTM category securities are also viewed as „stock-in-trade‟ by the assessee-bank. In our opinion, the plea of the learned CIT-DR is quite untenable primarily because the very nature of banking activities allowed as per the Banking Regulation Act, 1949 are in the sphere of business / trade activities; and, accordingly the recognition of investments in HTM category as „stock-in-trade‟ is not dependent on the frequency of their sale / purchase carried out by the assessee-bank.

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5.4 The ld. AR has further drawn our attention that the decision of Tribunal has been upheld by the Hon‟ble Bombay High Court in Income Tax appeal No. 920 of 2015 (supra). The copy of the Hon‟ble High Court order dated 27-02-2018 was furnished before us. A perusal of same shows that one of the question of law before the Hon‟ble High Court for consideration was : “(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of Rs.359,24,58,508/- in allowing loss of valuation of Held to Maturity (HTM) securities, when HTM securities are capital in nature?” The aforesaid question was decided by the Hon‟ble High Court in favour of the assessee upholding the order of Tribunal. Thus, in view of the fact that the issue has now been settled by the Hon‟ble High Court in favour of the assessee, we find merit in ground No. 3 of the appeal by assessee. Consequently, ground No. 3 raised in the appeal is allowed.”

Since, the issue raised in present appeal is identical to the one already adjudicated by the Tribunal and no contrary decision/material has been placed on record by the Revenue, the ground raised by the Revenue in its appeal on the issue of disallowance of loss on valuation of securities held under HTM category is dismissed.

2.4 In the result, the appeal of Revenue is dismissed.

ITA No. 634/PUN/2017 (A.Y. 2011-12)

3.1 The first ground of appeal is :

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“1. In the facts and circumstances of the case and in law, the disallowance of Rs.258,00,00,098/- u/s 36(1)(vii) of the Income Tax Act, 1961, being bad in law, arbitrary, perverse and legally unsustainable. The said claim may please be allowed to the appellant. 1.1 The learned CIT(A) erred in holding that the appellant bank had not written off the debts. 1.2 The learned CIT(A) erred in holding that the prudential write off is not a write off. 1.3 The learned CIT(A) erred in holding that for the purpose of write off, the amount of doubtful debts has to be debited to Profit & Loss Account and not to provision account. 1.4 The learned CIT(A) failed to appreciate the fact that the learned Assessing Officer made the addition on Surmises & conjunctures. 1.5 Without prejudice to the above, the learned CITA) erred in not appreciating the fact that the write off need not be effected only by way of debit to Profit & Loss account.”

3.2 The ld. AR pointed that the ground No. 1 along with sub-grounds raised in the appeal is identical to the ground No. 1 raised in appeal by the assessee in assessment year 2010-11.

3.3 The ld. DR fairly admitted that the issue raised in ground No. 1 by the assessee has already been considered by the Tribunal in assessee’s own case in assessment year 2010-11.

3.4 We have heard the submissions made by rival sides. It is an undisputed fact that the issue raised in ground No. 1 has already been considered by the Tribunal in assessee’s own case in assessment year 2010-11. Both sides are unanimous in stating that the facts in the instant case are identical to assessment year 2010-11. We find that the assessee has claimed deduction u/s. 36(1)(vii) of the Act to the tune of

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Rs.258,00,00,098/-. The same was disallowed by the Assessing Officer. The Commissioner of Income Tax (Appeals) allowed deduction to the assessee by following the decision of Hon’ble Supreme Court of India in the case of Southern Technologies Ltd. Vs. JCIT reported as 320 ITR 577. We find that this issue had come up before the Co-ordinate Bench in assessee’s own case in assessment year 2010-11. The relevant extract of the findings of Tribunal in ITA No. 1370/PUN/2014 (supra) are as under : “3.3 Both sides heard. Orders of the authorities below perused. In ground No. 1 of appeal the assessee has assailed the findings of Commissioner of Income Tax (Appeals) in disallowing assessee‟s claim u/s. 36(1)(vii) of the Act on account of write off of debts by non rural branches of assessee Bank. We observe that identical issue had come up before the Tribunal in assessee‟s own case in ITA No. 1505/PN/2008 and in ITA Nos. 1135 to 1138/PN/2013 (supra). The relevant extract of the findings of Co-ordinate Bench on the issue are reproduced here-in-under : “28. By way of Ground of Appeal No.3, assessee has raised a claim of deduction of Rs.68,06,15,000/- u/s 36(1)(vii) of the Act on account of write off on debts by the non-rural branches of the assessee bank. The learned counsel for the assessee explained that the said claim was raised by way of an Additional Ground of Appeal before the CIT(A) vide letter dated 26.08.2008 but the same has not been inadvertently considered by the CIT(A). In this connection, a reference has been invited to a copy of the communication addressed to the CIT(A), which is placed in the Paper Book. Before us, it is sought to be canvassed that the said claim is covered by the judgement of the Hon‟ble High Court in the case of Catholic Syrian Bank Ltd. vs. CIT, (2012) 343 ITR 270 (SC) and in the case of assessee for assessment years 2002-03, 2003-04 and 2004-05 the Tribunal vide its order dated 30.05.2014 (supra) admitted such an Additional Ground but remitted the same back to the file of the Assessing Officer for adjudication in the light of the Hon‟ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). The aforesaid factual matrix has not been disputed by the learned CIT-DR appearing for the Revenue. As a result, following the precedent in the assessee‟s own case, we deem it fit and proper to direct the Assessing Officer to consider the said claim of the assessee in the light of the judgement of the Hon‟ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and only thereafter he shall proceed to adjudicate the claim of the assessee as per law. Thus, on this Ground assessee succeeds for statistical purposes.”

3.4 Since, the issue in present appeal is identical to the one already considered by the Co-ordinate Bench in assessee‟s own case and there has been no change in the facts, we deem it appropriate to restore the issue to Assessing Officer for re-adjudication with similar directions. The ground No. 1 of the appeal is allowed for statistical purpose in the same terms.”

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Thus, in view of above findings of Tribunal we find no reason to take a contrary view on identical set of facts. Hence, the ground No. 1 raised in the appeal by the assessee is allowed for statistical purpose in same terms.

4.1 The ld. AR submitted that the assessee bank claimed deduction of Rs.486.59 crores u/s. 36(1)(viia) though the provision was made under the aforesaid section to the extent of Rs.102.36 crores. The similar claimed was made by the assessee in assessment year 2010-11. The Co-ordinate Bench of Tribunal upheld the findings of Commissioner of Income Tax (Appeals) and has restricted the deduction u/s. 36(1)(viia) to the extent of provision made.

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4.2 We have heard the submissions made by ld. AR. The ld. AR has fairly admitted that the Tribunal in assessee’s own case in assessment year 2010-11 has restricted deduction u/s. 36(1)(viia) to the extent of provision made. Thus, in view of the admitted position, this ground of appeal by the assessee qua the claim of deduction u/s. 36(1)(viia) is allowed to the extent of provision actually made for bad and doubtful debts in the books of account. Accordingly, the ground No. 2 of the appeal is partly allowed in line with the findings for assessment year 2010-11.

5.1 The ld. AR submitted that the Assessing Officer made disallowance of Rs.18.79 crores u/s. 14A r.w.r. 8D(2)(ii) and (iii). The Commissioner of Income Tax (Appeals) restricted the disallowance to the extent of Rule 8D(2)(iii). The ld. AR pointed that the investments were held by the assessee as stock-in-trade. Therefore, no disallowance u/s. 14A was required to be made. The ld. AR in support of his submissions placed reliance on the decision of Tribunal in assessee’s own case for assessment year 2010-11. We find that the similar disallowance was made by the

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Assessing Officer in assessment year 2010-11. The Tribunal deleted the disallowance u/s. 14A of the Act, by observing as under : “8.3 Both sides heard. The first contention of the assessee is that the investments were held by the assessee as stock in trade, therefore, no disallowance u/s. 14A was required to be made in respect of exempt income earned on shares held as “Stock in trade”. The Hon‟ble Punjab and Haryana High Court in the case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala (supra) has decided the issue of disallowance u/s. 14A in respect of expenditure in earning exempt income from shares held as stock in trade. The Hon‟ble High Court after placing reliance on the decision of Hon‟ble Apex Court in the case of Commissioner of Income Tax Vs. Walfort Share & Stock Brokers (P) Ltd. reported as 326 ITR 1 held that that no disallowance u/s. 14A is to be made where the shares are held as stock in trade. For the sake of completeness relevant extract of the judgment is reproduced here-in-below : “26. What is of vital importance in the above judgment are the observations emphasised by us. Each of them expressly states that what is disallowed is expenditure incurred to "earn" exempt income. The words "in relation to" in section 14A must be construed accordingly. Thus, the words "in relation to" apply to earning exempt income. The importance of the observation is this. We have held that the securities in question constituted the assessee's stock-in-trade and the income that arises on account of the purchase and sale of the securities is its business income and is brought to tax as such. That income is not exempt from tax and, therefore, the expenditure incurred in relation thereto does not fall within the ambit of section 14A. Now, the dividend and interest are income. The question then is whether the assessee can be said to have incurred any expenditure at all or any part of the said expenditure in respect of the exempt income viz. dividend and interest that arose out of the securities that constituted the assessee's stock-in-trade. The answer must be in the negative. The purpose of the purchase of the said securities was not to earn income arising therefrom, namely, dividend and interest, but to earn profits from trading in i.e. purchasing and selling the same. It is axiomatic, therefore, that the entire expenditure including administrative costs was incurred for the purchase and sale of the stock-in-trade and, therefore, towards earning the business income from the trading activity of purchasing and selling the securities. Irrespective of whether the securities yielded any income arising therefrom, such as, dividend or interest, no expenditure was incurred in relation to the same.”

8.4 The Hon‟ble Apex Court in the case of Maxopp Investment Ltd. Vs. Commissioner of Income Tax (supra) has approved the judgment rendered in the case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala (supra).

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Therefore, in view of the law settled by the Hon‟ble Apex Court, no disallowance u/s. 14A is warranted in respect of shares held by the assessee as stock in trade. 8.5 Since, the disallowance u/s. 14A has been set at naught on the ground of assessee holding the investment as „stock in trade‟, the alternate contention of assessee with regard to disallowance made under Rule 8D(2)(ii) in respect of interest expenditure has become academic. Thus, in view of our above findings ground No. 6 raised in the appeal by the assessee is allowed.”

The Revenue has not brought to our notice any contrary decision. Hence, we find no reason to take a different view. Respectfully, following the decision of Co-ordinate Bench the disallowance made u/s. 14A is deleted in toto and hence, ground No. 3 of the appeal is allowed.

6.1 The ld. AR submitted that the assessee has claimed deduction of Rs.70.86 crores u/s. 36(1)(viii). The Assessing Officer disallowed the entire amount of deduction claimed on the ground that the assessee has failed to furnish necessary details as called for. The Commissioner of Income Tax (Appeals) disallowed Rs.58.86 Crores as the reserve was created in the period relevant to subsequent assessment year. The Commissioner of Income Tax (Appeals) restricted the deduction to Rs.12 crores subject to verification by Assessing Officer i.e. amount of reserve created in the period

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relevant to impugned assessment year. The ld. AR submitted that the authorities below have erred in observing that no details were furnished qua claim of deduction u/s. 36(1)(viii). The assessee had furnished all the necessary documents to show that the Reserve was created in the period relevant to the assessment year under appeal but the same were ignored by the authorities below. The ld. AR further submitted that the assessee is eligible to claim deduction in respect of reserve created in the subsequent assessment year, as well. The ld. AR in support of his contentions placed reliance on following decisions : i. Punjab State Industrial Development Corporation, 323 ITR 495 (P&H); ii. Punjab State Industrial Development Corporation, 102 ITD 1 (CHD)(SB); iii. Nizamabad District Co-Operative Bank Ltd., 2014 (12) TMI 562 – ITAT, Hyderabad; iv. Vijaya Bank Vs. JCIT in ITA No. 915/Bang/2017 for assessment year 2012-13 decided on 05-01-2018.

6.2 On the other hand ld. DR vehemently defended the action of Commissioner of Income Tax (Appeals) in restricting the disallowance u/s. 36(1)(viii) to the extent of provision made by the assessee in the relevant assessment year.

6.3 We have heard the submissions made by rival sides and have examined the findings of authorities below on this issue. Before proceeding further it would be relevant to refer to the provisions of section 36(1)(viii). The same are reproduced here-in-below :

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“36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— xxxxxxxxxx xxxxxxxxxx (viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head "Profits and gains of business or profession" (before making any deduction under this clause) carried to such reserve account: Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance under this clause shall be made in respect of such excess.”

In the present case, it is an admitted position that the assessee bank has created special reserve u/s. 36(1)(viii) to the extent of Rs.12 Crores in the period relevant to the assessment year under appeal. The assessee has created a further reserve of Rs.58.86 Crores in the Financial Year 2012-13 i.e. in the subsequent assessment year. The Commissioner of Income Tax (Appeals) has restricted the assessee’s claim to the extent of Rs.12 Crores i.e. reserve created during the financial year relevant to the assessment year under appeal. A bare perusal of provisions of section 36(1)(viii) would show that the deduction is allowable to the extent of special provision „created and maintained‟ subject to the other conditions mentioned in clause (viii) and proviso thereto. In our considered opinion the provision created in the subsequent assessment year cannot be considered for allowing deduction in the preceding assessment years.

The ld. AR in support of his contentions that the reserve created even in subsequent assessment years can be considered for allowing deduction u/s. 36(1)(viii) has placed reliance on the decision in the case of Vijaya Bank Vs. JCIT (supra). The Tribunal in the said case has in turn

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placed reliance on the decision rendered in the case of Corporation Bank in ITA No. 1352/Bang/2013 for assessment year 2011-12 decided on 11-03-2015. The Tribunal after considering the aforesaid decision concluded 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”

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.

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(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.

"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.

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"The observation made by the Hon‟ble Delhi High Court in this regard is thus clearly applicable to the instant case under consideration also. 22. We further find that the Special Bench of Tribunal (Chandigarh) in the case of Punjab State Industrial Development Corporation Ltd. (supra) also clearly held that in case of claim under s. 36(1)(viii) of the Act further reserve could be created after closure of the account and AO should offer an opportunity to the assessee to do the same for claiming the deduction under s. 36(1)(viii) of the Act. 23. Similar view as taken by the apex Court in the case of Karimjee (P) 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 assessee's 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.”

6.4 The ld. AR of the assessee further placed reliance on the decision of Hon’ble Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Punjab State Industrial Development Corporation (supra). One of the question before the Hon’ble High Court for adjudication was :

“3. Whether on facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) directing the AO to allow opportunity to the assessee for creating further reserve which falls short of admissible deduction under s. 36(1)(viii) of the IT Act ?"

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The Hon’ble High Court answered the question in affirmative by observing as under :

“6. In respect of this question, the finding of the Tribunal is as under : "17. The last effective ground is against the direction of the learned CIT(A) not to restrict the allowance under s. 36(1)(viii) upto the reserve created. The assessee is admittedly approved by the Central Government for purposes of s. 36(1)(viii) of the Act. During the year under consideration, the assessee corporation claimed deduction under the said section. The assessee created reserve on the basis of book profits. The assessee corporation was, however, entitled to a higher deduction under s. 36(1)(viii) for which the reserve already created was not sufficient. The learned CIT(A) therefore directed the AO to afford an opportunity to the assessee to create further reserve. It was further observed by him that a similar issue had been decided in favour of the assessee in the appeal for asst. yr. 1983-84." 7. Learned counsel for the Revenue has not shown that the order for the earlier assessment year which has been followed, has not attained finality nor any error has been shown in the view that reserve to the extent stipulated under s. 36(1)(viii) could be duly allowed to the assessee. Learned counsel states that she tried to seek information from the Department but has not been able to get. 8. Accordingly, this question is also answered against the Revenue and in favour of the assessee.”

A perusal of the judgment rendered by the Hon’ble High Court reveals that the Hon’ble High Court in principle has allowed the benefit of deduction u/s. 36(1)(viii) on reserve created subsequent to the assessment year in question provided the assessment order for the relevant assessment year has not attained finality. Thus, respectfully following the decisions discussed above, we hold that the reserve created in subsequent assessment year i.e. Rs.58.86 Crores qualifies for deduction u/s. 36(1)(viii) of the Act. The ground No. 4 of the appeal by the assessee is allowed, accordingly.

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7.1 The ld. AR submitted that the assessee had claimed depreciation on UPS @ 80%. The lower authorities have restricted the assessee’s claim of depreciation to 15%. The Tribunal in assessment year 2010-11 has allowed depreciation on UPS @ 60%.

7.2 Both sides heard. The assessee in appeal has claimed depreciation on UPS @ 80%. The Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. Orient Ceramics & Industries Ltd. reported as 358 ITR 49 has held that the depreicaiton on UPS has to be computed at 60%. Similar view has been taken by the Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Saraswat Infotech Ltd. reported as 2013 (1) TMI 861. Thus, in view of the settled position, we restrict assessee’s claim of depreciation on UPS to the extent of 60%. Similar view was taken by the Co-ordinate Bench in assessee’s own case in assessment year 2010-11. Thus, the ground No. 5 of the appeal is partly allowed in the terms aforesaid.

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“6. In the facts and circumstances of the case and in law, the action of the learned CIT(A) in upholding the disallowance u/s 40(a)(ia) of the I.T. Act 1961, in respect of short deduction of tax being bad in law, arbitrary, perverse and legally unsustainable the same may please be deleted. 6.1 The learned CIT(A) erred in holding that the provisions of section 40(a)(ia) is applicable even in cases of short deduction.

8.1 The ld. AR submitted that the Assessing Officer has made disallowance u/s. 40(a)(ia) for short deduction of tax. The ld. AR pointed that the C0-ordindate Bench of Tribunal in assessment year 2010-11 in assessee’s own case has deleted the disallowance u/s. 40(a)(ia) in respect of short deduction of tax at source.

8.2 We have heard the submissions made by the ld. AR. We find that disallowance u/s. 40(a)(ia) on account of short deduction of tax at source was made in assessment year 2010-11. The Tribunal following the decision rendered by the Hon’ble Calcutta High Court in the case of Commissioner of Income Tax Vs. S K Tekriwal reported as 361 ITR 432 deleted the disallowance made u/s. 40(a)(ia) on short deduction of tax. Following the parity of reasons the disallowance made in the assessment year under appeal is deleted as well. Accordingly, ground No. 6 of the appeal is allowed.

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7.1 The learned CIT(A) failed to appreciate the fact that once an account is classified as NPA as per Reserve Bank of India norms, then, no interest income can be recognized on accrual basis. 7.2 The learned CIT(A) failed in not considering the entire provisions of Rule 6EA of Income Tax Rules, 1962. 7.3 Without prejudice to the above, the learned CIT(A) failed to appreciate the fact that interest on sticky loans cannot be taxed on accrual basis.”

9.1 The ld. AR submitted that the Assessing Officer added notional interest on Non Performing Assets (NPAs). Section 43D r.w. Rule 6EA is applicable only in respect of NPAs above 180 days and not NPAs classified based on 90 days norm of RBI, this issue has been settled in favour of the assessee by the decision of Hon’ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Vasisth Chay Vyapar Ltd. reported as 410 ITR 244 and the decision of Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Deogiri Nagari Sahakari Bank Ltd. reported as 379 ITR 24. The ld. AR further contended that identical issue had come up before the Tribunal in assessee’s own case in assessment year 2010-11. The Co-ordinate Bench of Tribunal following the aforesaid decision of Hon’ble Bombay High Court has deleted the addition.

9.2 We find that identical ground of appeal was raised before the Tribunal by the assessee in appeal for the assessment year 2010-11. The Tribunal decided the issue in favour of assessee by observing as under : “13.2 Both sides heard. Orders of the authorities below perused. The issue raised in ground No. 11 of the appeal is with regard to disallowance of interest on NPAs. The issue is no more res integra. The assessee has created a provision in the P & L account on account of interest on NPAs and has claimed the same during the period relevant to the assessment year under appeal. The issue is squarely covered in favour of the assessee by the decision rendered in the case of Commissioner of Income Tax Vs. Deogiri

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Nagari Sahakari Bank Ltd. (supra). The Hon‟ble High Court following the decision of Hon‟ble Apex Court in the case of UCO Bank Vs. Commissioner of Income Tax reported as 237 ITR 889 held that interest on sticky loans has to be allowed. Thus, in view of the aforesaid decision the ground No. 11 raised in the appeal by the assessee is allowed.”

The Revenue has not disputed that the facts on issue in hand are in any manner different from one already adjudicated by the Tribunal in assessment year 2010-11. Thus, following the decision of Co-ordinate Bench of Tribunal, the ground No. 7 of appeal is allowed.

10.1 The ld. AR submitted that the Commissioner of Income Tax (Appeals) has invoked the provisions of section 115JB as are applicable to the companies. Since, the assessee is not a company, the provisions of Companies Act, 1956 does not apply. In the assessment year 2010-11 the Commissioner of Income Tax (Appeals) had invoked the provisions of section 115JB. The matter travelled to the Tribunal. The Tribunal decided the issue in favour of assessee.

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10.2 Both sides heard. Orders of authorities below perused. We find that the issue i.e. whether the provisions of section 115JB apply on Banking Company has already been considered by the Co-ordinate Bench in assessee’s own case in assessment year 2010-11. The Tribunal held that the Banking Companies are outside the purview of section 115JB of the Act. The relevant extract of findings of the Tribunal are reproduced here- in-below : “14.3 Both sides heard. The assessee has assailed the action of Commissioner of Income Tax (Appeals) in invoking MAT provisions u/s. 115 JB of the Act. The said provisions are invoked only in respect of companies. The assessee is a Bank and is not governed by Companies Act, 1956. Hence, the said provisions would not apply in the case of a Bank. The Co- ordinate Bench of Tribunal in assessee‟s own case for the earlier assessment years has decided this issue by holding as under : “35. We have carefully considered the rival submissions. Ostensibly, there is no dispute that assessee is a banking company. The Bangalore Bench of the Tribunal in the case of Canara Bank (supra) held that section 115JB of the Act is not applicable to a banking company. In coming to such conclusion, the Bangalore Bench of the Tribunal relied upon the earlier decisions of the Tribunal in the cases of Union Bank of India vs. ACIT (ITA Nos.4702 & 4706/2010 dated 30.06.2011) and Indian Bank vs. Addl. CIT (ITA No.469/Mds/2010 dated 03.08.2011). Similar is the decision of the Hyderabad Bench of the Tribunal in the case of State Bank of Hyderabad (supra). In so far as the objection of the learned CIT-Departmental Representative, based on the amendment made to section 115JB of the Act by the Finance Act, 2012 is concerned, the same is misconceived because the said amendment is applicable from assessment year 2013-14 onwards. Therefore, the aforesaid amendment does not negate the ratio of the aforesaid precedents, which hold the field so far as the assessment year before us is concerned. Therefore, following the aforesaid precedents and in the absence of any contrary decision, we hereby hold that assessee, being a banking company, does not fall within the purview of section 115JB of the Act. The Assessing Officer is hereby directed to consider the aforesaid legal position as and when he is to finally determine the total income. Thus, on this Additional Ground of Appeal No.3 assessee succeeds.” Thus, in view of the facts of the case and the decision of Co-ordinate Bench, we find merit in ground No. 12 of the appeal. Accordingly, ground No. 12 is allowed.”

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Since, the issue in hand is already adjudicated in favour of assessee in preceding assessment year, the ground No. 8 of the appeal is allowed.

ITA Nos. 581 & 635/PUN/2017 (A.Y. 2012-13)

13.1 The ld. AR submitted that the assessee has incurred expenditure on advertisement Rs.34,78,240/- by way of donation to various organizations. The expenditure was mainly incurred with an intention to gain mileage from advertisement by contributing to various organizations. The Auditors have verified that such expenditure qualifies for deduction u/s. 80G of the Act. Though, the assessee has not claimed the benefit of deduction u/s.

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80G, however, the expenditure was claimed under the provisions of section 37 of the Act.

13.2 On the other hand the ld. DR vehemently defended the findings of Commissioner of Income Tax (Appeals) in disallowing alleged expenditure on advertisement. The ld. DR submitted that the assessee has failed to demonstrate admissibility of deduction either u/s. 37 or section 80G of the Act. The assessee has not claimed deduction u/s. 80G with respect to donations to the various organizations in the return of income, hence, the claim of assessee has been rightly rejected by the authorities below.

13.3 Both sides heard. Orders of the authorities below perused. The issue in dispute is whether the advertisement expenditure incurred by the assessee by way of donation to various organizations is allowable u/s. 37, when the Auditors of the assessee bank have held that the expenditure qualifies for deduction u/s. 80G of the Act. The fact that the assessee has incurred expenditure to the tune of Rs.34,78,240/- on advertisement has not been disputed by the department. The Revenue has disallowed the expenditure on the premises that the Auditors have observed in the audit report that the amount qualifies for deduction u/s. 80G and the assessee has not claimed deduction in the return of income. The assessee has claimed expenditure in respect of donations to various organizations as advertisement expenditure. Since, no doubt has been raised by the Revenue on expenditure incurred and further it is also not in dispute the expenditure was for publicity of the assessee Bank, under the given facts, we are of considered view that the same is allowable u/s. 37 of the Act. Consequently, ground No. 7 raised in the appeal by the assessee is allowed.

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Order pronounced on Thursday, the 27th day of June, 2019.

Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 27th June, 2019. RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-I, Pune 3. 4. The Pr. Commissioner of Income Tax-1, Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, 5. ऩुणे / DR, ITAT, “B” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,

यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune