BANK OF MAHARASHTRA ,PUNE vs. ASST COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE, PUNE

Grounds raised by the assessee in 1. The order of the learned CIT(A) is bad in law, arbitrary, perverse and legally unsustainable

2. In the facts and circumstances of the case and in law, the learned CIT(A) has erred in restricting the claim made by the appellant u/s 36(1)(viia) of the Act to Rs 219,31,86,200/- as against the claim of Rs.1098,43,77,672/- made by the appellant. 2.1. The learned CIT(A) erred in holding that the deduction should be restricted to the provision made in the books accounts for rural advances. 2.2. The learned CIT(A) failed to appreciate that in order to claim deduction u/s 36(1)(viia), there is no requirement u/s 36(1)(via) that the provision should relate to rural advances. 2.3. The learned CIT(A) failed to appreciate the fact the entire provision made has to be considered and not the provision relating to rural advances only be considered. 2.4. The learned CIT(A) failed to appreciate the fact that the Hon'ble Supreme Court in the case of Catholic Syrian Bank [2012] 343 ITR 270 (SC) did not lay down the law that the deduction should be allowed by only considering the provision for rural advances in the books. 2.5. The learned CIT(A) erred in not following the order of the Hon'ble ITAT in the app Bank's own case for the earlier Assessment years.

3. In the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowance of prior period expenses amounting to Rs.1,16,38,539/-. 3.1. The learned CIT(A) failed to appreciate the fact that the expenses were crystallized during the previous year relevant to the assessment year under appeal. 3.2. Without prejudice to the above, if this expenditure is not allowable during the Assessment Year 2016-17, the learned Assessing Officer be directed to allow the same as an expenditure for the Assessment Year 2015-16.

4. In the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowance of the donation paid amounting to Rs.28,08,900/-.

5. In the facts and circumstances of the case and in law, the action of the learned CIT(A) in holding that the provisions of Section 115JB are applicable to the appellant bank being bad in law, arbitrary, perverse and legally unsustainable the same may please be deleted. 5.1. The learned CIT(A) failed to appreciate the fact that the provisions of Section 115JB are not applicable to the appellant. 5.2. Without prejudice to the above, the learned CIT(A) failed to appreciate the fact that even if the provisions of section 115JB are applicable, the computation fails and as such, book profit cannot be computed as per section 115JB.

6. Without prejudice to Ground No. 5, the learned CIT(A) erred in confirming the addition of various items to the book profit which are beyond the scope of the Section 115JB. 6.1. The learned CIT(A) failed to appreciate the fact that the various items added to the book profit are not covered by the Explanation to Section 115JB.

7. The order of the learned CIT(A) is against the principles of natural justice. 7.1. The learned CIT(A) erred in not allowing hearing through VC, inspite of a specific request for the same by the Appellant. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal.

Grounds raised by the Revenue in 1. On the facts and the circumstances and in law, the ld. CIT(A) erred in allowing loss of valuation to Held to Maturity (HTM) securities, when HTM securities are capital in nature.

2. On the facts and the circumstances and in law, the ld. CIT(A) erred in not complying with the provisions of section 251(1)(a) of the Act and send the matter back to AO for verification on the issue of disallowance of write back of provision for restructured advance amounting to Rs.260,75,46,000/-. 3) On the facts and the circumstances and in law, the ld CIT(A) erred in not complying with the provisions of section 251(1)(a) of the Act and send the matter back to the AO for verification on the issue of disallowance of write back provision for standard assets amounting to Rs.31,14,41,362/-.

4) On the facts and the circumstances and in law, the ld CIT(A) erred in not appreciating the fact that the assessee had failed to submit any documentary evidence during the assessment proceedings.

ASSESSEE’S APPEAL:

8. In appeal, the Ld. CIT(A) / NFAC following his order for assessment year 2015-16 upheld the action of the Assessing Officer.

9. The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the order of the Tribunal in assessee’s own case for assessment year 2010-11 and submitted that the Tribunal has restored the issue to the file of the Assessing Officer by observing 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 and in to 1138/PN/2013 (supra). The relevant extract of the findings of Coordinate 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.”

“(12.2) The contention of the assessee duly considered but the same is not acceptable. The assessee has not explained that such expense has been incurred exclusively for the purpose of business and to earned profit which has already been offered to tax in any year. Further, the assessee also failed to prove that prior period expense is a result of mistake in the financial statement of earlier period. (12.3) Notwithstanding the above, prior period expenditure is not allowable items in view to the decision of Hon'ble Tribunal, Mumbai, in the case of M/s. Tipco Industries Ltd. Vs. ACIT (ITA No.5708/Mum/2009, AY-2004-05) order dated 03.08.2012 wherein it is held that it is settled position of the law that the deductions can be permitted in respect of only those expenses which are incurred in the relevant accounting year for the purpose of computing yearly profits and gains and held that the claim of the assessee of expenses pertaining to prior period cannot be accepted. In view of above, prior period expenses of Rs.1,16,38,539/- debited to profit and loss account, is hereby disallowed and added to the total income. Penalty proceedings u/s 271(1)(c) are initiated separately for furnishing inaccurate particulars of income.”

REVENUE’S APPEAL:

(b) The HTM securities are investment of capital nature, thus, these are not required to Mark to Market. Resultantly the loss or gain pertains to HTM category is not to be taken into consideration. The same will considered as and when these are transferred. (c) On the applicability of circulars instructions the Hon'ble Supreme Court in the case of "Catholic Syrian Bank Ltd vs CIT(supra), has held that under section 119 of the Act, the CBDT is entitled to issue Circulars to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigours of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act. Thus, it is binding upon the undersigned to follow CBDT Instruction No. 17/2008 to decide the allowability of depreciation. (d) Further, during the financial year the assessee has sold some securities, which resulted into gain, which is required to be considered for computation of total income. The contention of the assessee that profit calculated for the balance sheet purpose is not required to be taken into consideration as it is already taken into account while computing/claiming loss on securities scrip-wise in I.T. return, it not acceptable as the sale of securities is totally different from valuation of securities. The profit derived from sale of securities cannot be set off against loss on valuation securities in banking business. Furthermore, the concept of trading account has been rejected as discussed in the foregoing paragraphs. (8.6) The assessee's contention that the Hon'ble ITAT has given favorable ruling in respect of assessee has been considered and it stated here that the Department has not accepted the decision of the Hon'ble ITAT in this issue and filed appeal further appeal before the Hon'ble Bombay High Court. (8.7) In view of above discussion, an amount Rs.156,93,61,000/- (which was reduced in computation) as profits on sale of investment, being net profit on sale of investment is hereby added to the total income of the assessee. Further, since the assessee has furnished inaccurate particulars of its income thereof, penalty proceedings under section 271(1)(c) are initiated separately.”

1370/PUN/2014 order dated 11.03.2019. In the said order, vide para 5.3 and 5.4, the ITAT allowed the appeal of the bank by holding that the investments of the bank are stock in trade and the depreciation on HTM securities are allowable deduction. Further, in the latest decision the Hon'ble ITAT vide order dated 27.06.2019 in the appellant bank's own case for the assessment year 2011-12 in & for the assessment year 2012-13 in decided the issue in favour of the appellant bank.. 6.6 that this issue has been duly considered by my predecessor in the earlier years i.e. A. Y.2012-13 & 2013-14. His findings in A.Y.2013-14 are reproduced below. "I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is seen that the issue is decided in favour of the appellant by the decision of Hon, Pune Tribunal in A.Y.2005-06 in ITA No 1505 & 1618/PN/2008 dated 17/10/2014 wherein it has been held that stand of the revenue that HTM securities are not stock-in- trade is quite wrong as the appellant was entitled to adopt the method of valuation as per cost or market price whichever is lower. The Hon Tribunal also held that Income tax authorities erred in not accepting the same." As can be seen from above the issue already stands covered in favor of the appellant by the order of Hon'ble jurisdictional ITAT, Pune. Respectfully, following the above order, the AO is directed to adopt profit as per investment trading account and delete the addition of Rs.206,40,89,649/-. However, the AO shall be entitled to verify the figures while giving effect to this order Subject to the above remarks, the Ground No.3 is allowed." 7.3.1 As the issue is identical and following the above precedence, the ground of the appellant is allowed.”

“6 The grievance of the Revenue is that in terms of the RBI Guidelines which are applicable to the HTM securities of the bank has to be treated as investments. Mr. Singh fairly concedes that if it is to be held stock-in-trade then, the method of valuation of the same at cost or the market price whichever is lower, cannot be faulted.

7. We find that the challenge of the Revenue before us is not that the change sought in the method of valuation of its stock is not bona fide and that it is not regularly followed thereafter. Its only grievance is that these RBI guidelines classify the same as Investments and, therefore, for the purpose of the Act also HTM securities should be considered to be the Investments. It is well settled that merely because RBI guidelines direct a particular treatment to be given to particular asset, the same would not necessarily hold good for the purposes of income chargeable to tax under the Act. In fact, the Supreme Court in Southern Technologies Limited v. The Joint Commissioner of Income-Tax reported in (2010) 320 ITR 577 has held that the directions of the RBI have nothing to do with computation of Income under the Act. We further find that on the identical issue Karnataka High Court in Karnataka Bank Ltd. v. Assistant Commissioner of Income-Tax 2013 (356) ITR 549 has inter-alia observed as follows: "...That the order passed by the authorities holding that in view of the RBI guidelines, the assessee is estopped from treating the investment as stock- in-trade is not correct...."

“5. We have heard both the sides and perused the relevant paragraphs of the order of the Tribunal in assessee‟s own case (supra.) wherein, the Tribunal on the issue has held as follows: “2. The Revenue has assailed the findings of Assessing Officer on the single issue of allowing loss on valuation of securities Held to Maturity (HTM). 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 for the 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 and in ITA Nos. 1135 to 1138/PN/2013 decided on 17-08-2014. The issue of allowability of loss on valuation of HTM securities is recurring in assessment years after assessment years. The Co-ordinate Bench in assessee’s own case for assessment year 2010-11 in ITA No. 1370/PUN/2014 (supra) has decided this issue in favour of the assessee by placing reliance on the order of Tribunal in ITA No. 1505/PN/2008 and now the same has been upheld by the Hon’ble Bombay High Court in Income Tax Appeal No. 920 of 2015. For the sake of completeness the relevant extract of the findings of Tribunal in ITA No. 1370/PUN/2014 (supra) on this issue are reproduced here-in-below : “5.3 Both sides heard on the issue of disallowance of claim of loss in respect of securities held under HTM category. Both sides are unanimous in stating that the present issue was subject matter of appeal before the Tribunal in ITA No. 1505/PN/2008 and in ITA Nos. 1135 to 1138/PN/2013 (supra). The Co-ordinate Bench adjudicated the issue by observing as under:

“20. In the background of the aforesaid legal position, a premise which can be drawn is that for the purposes of valuation of 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 CITDR 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 assesseebank. He has furnished a statement showing net profit on sale of HTM Securities as per the Balance Sheet for the various assessment years, viz. 2006- 07 to 2009-10. On this basis, it is sought to be contended that the HTM category securities are also viewed as „stock-in- trade‟ by the assessee-bank. In our opinion, the plea of the learned CIT-DR is quite untenable primarily because the very nature of banking activities allowed as per the Banking Regulation Act, 1949 are in the sphere of business / trade activities; and, accordingly the recognition of investments in HTM category as „stock-in-trade‟ is not dependent on the frequency of their sale / purchase carried out by the assessee-bank.

21. In view of the aforesaid discussion, we, therefore, conclude by holding that in the present case the method of valuation of the closing stock adopted by the assessee i.e. cost or market value, whichever is lower is fair and proper and the income-tax authorities have erred in not accepting the same. The orders of the authorities below on this aspect are hereby reversed.” 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.” In view of the above decision, it is evident that this issue of allowability of loss in value of HTM securities was decided in favour of the assessee and against the Revenue in assessee‟ own case (supra.) by the Co-ordinate Bench of the Tribunal, Pune. Considering the settled nature of the issue, we are of the opinion that pending of the appeal before the Hon‟ble Supreme Court is not a ground for not adjudicating the issue before us. Accordingly, we find that the order of the Ld. CIT(Appeals) is fair and reasonable and same does not call for any interference. Hence, grounds raised by the Revenue in both the appeals are dismissed.”

12. The Revenue is fair enough in not pinpointing any distinction on facts or law before us. We adopt judicial consistency to uphold the CIT(A)‟s findings allowing the impugned loss on sale of “Held to Maturity (HTM)” securities to the assessee. The Revenue‟s sole substantive grievance as well as main appeal in stand rejected accordingly.”

40. After hearing both the sides, we find the Assessing Officer disallowed the claim of write back provision of restructured advance of Rs.260,75,46,000/- by observing as under: "(10.2) The assessee however did not furnish even single documentary evidence which could justify its claim of deduction of Restructured advance. The assessee has merely stated that, since, the write back of provision of Rs. 260.75 crore has already been offered to tax in earlier years; the same should not be added back and taxed again. However, the assessee did not furnish the corresponding balance sheet and computation of income. It may be noted here that the assessee bank has been claiming deduction for bad debts and also of write off of bad debts and further it claiming deduction on account of written back of restructured advance which is already a part of bad debts Since the assessee' claim of deduction towards bad debts has already been allowed again deduction on account of write back of restructured advance cannot be allowed Further the assessee was also failed to furnish documentary evidence such as details of accounts and the years for which for which provisions were made, whether the same accounts has been written off in current year or not. It is possible that Assessee may write off other accounts for which provision was not made in earlier year. The onus was on Assessee to provide all details related to claims made in ITR. But it failed to do so. Thus it is difficult for the undersigned to accept the claim without verification, therefore the claim of the assessee of write back of restructured advance of Rs. Rs.260,75,46,000/- is hereby disallowed only on the ground that the detail are not furnished. Further, since the assessee has furnished inaccurate particulars of its income, therefore penalty proceedings under section 271(1)(c) are initiated separately."

41. In appeal the Ld. CIT(A) / NFAC restored the matter back to the file of the Assessing Officer by observing as under: “7.5.2 During the appellate proceedings, the appellant furnished that all the documents are provided to the AO and these provisions are already added back accept related to bad and doubtful debts. According to the appellant as the provisions was never allowed for deduction at the time of creation so there is no question of adding it back. The AO is directed to go through the claim of the appellant, which is apparently seems correct and give affect by deleting the addition after verification. The ground is allowed for statistical purpose.”

42. Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal.

45. After hearing both the sides, we find the Assessing Officer disallowed an amount of Rs.31,14,41,362/- being disallowance of write back provision for standard assets by observing as under: "(11.3) Since, the assessee has not furnished any proof/details in respect claim, of its a show cause notice dated 09/10/2019 was issued, extending further opportunity by 15/09/2019 to furnish the details/proof of the above claim. It was further mentioned in the show cause notice, if it fails to produce the details, entire amount will be added back to the total income. However, nothing could be furnished by the assessee except the same reply as submitted in earlier submissions. Since, the assessee' claim of deduction towards bad debts has already been allowed, again deduction on account of write back provision for standard assets cannot be allowed. Further the assessee was also failed to furnish documentary evidence such as details of accounts and the years for which for which provisions were made, whether the same accounts has been written off in current year or not. It is possible that Assessee may write off other accounts for which provision was not made in earlier year. The onus was on Assessee to provide all details related to claims made in ITR. But it failed to do so. Hence in this background the addition of Rs 31/14,41,362/- is made herewith only on the ground that assessee has not furnished any documents in support of its claim. Further since the e assessee has furnished inaccurate particulars of its income, therefore penalty proceedings under section 271(1)(c) are initiated separately.”

46. In appeal the Ld. CIT(A) / NFAC restored the matter back to the file of the Assessing Officer by observing as under: “7.6.1 The appellant in his written submission has furnished that these provisions not available and already added back in the computation of the income so the allowance is irrelevant. I have gone through the claim of the appellant which seems to be correct. The Ld. AO is directed to go through the claim and delete the addition while giving a appeal effect after verification of the documents. The ground is wed for statistical purpose.”

Order pronounced in the open Court on 15th January, 2025.