CANARA BANK,BANGALORE vs. JOINT COMMISSIONER OF INCOME TAX, LTU,, BANGALORE

Per Bench : These are cross appeals, by the assessee and Revenue, directed against the consolidated orders of the Commissioner of Income Tax (Appeals)-14, LTU, Bangalore dt.29.06.2017 for the Assessment Years

2 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 2013-14 & 2014-15. Since common issues are involved, these appeals were heard together and are being disposed off by way of this common order for the sake of convenience.

Assessment Year : 2013-14 2. Briefly stated, the facts of the case are as under :- 2.1 The assessee, a nationalized bank, filed its return of income for 2013-14 on 29.11.2013 declaring total income of Rs.2693,74,69,250. The case was taken up for scrutiny for the year under consideration and the assessment completed under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dt.27.12.2016, wherein the assessee's income was determined at Rs.5897,92,23,130 in view of the following additions / disallowances :-

i) Disallowance of bad debts written off Rs.1143,68,00,000 ii) Disallowance of claim of provision for bad Rs.415,26,46,585 and doubtful debts u/s.36(1)(viia) iii) Disallowance of Depreciation on AFS & Rs.279,12,50,807 HFT category of investments. iv) Disallowance of Depreciation on HTM Rs.507,15,29,634 category of investments. v) Appreciation on investments not offered Rs.366,51,41,573 to tax. vi) Unrealised gain on revaluation of forward Rs.77,91,16,260 contracts. vii) Disallowance of depreciation on leased Rs.1,67,500 assets. viii) Disallowance u/s.14A Rs.24,91,38,500

3 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 ix) Disallowance u/s.40(a)(ia) – payment Rs.8,05,15,590 made to NPCI x) Amortisation of Premium in respect of Rs.88,31,63,478 HTM category of investments. xi) Profit on sale of shares of CARE Ltd. Rs.161,89,97,600 xii) Depreciation on ATM Rs.7,24,63,522 xiii) Disallowance u/s.40(a)(ia) Rs.28,53,74,990 xiv) Interest on Income Tax Refund Rs.95,09,19,255 xv) Disallowance u/s.40(A)(ia) Rs.1,05,28,580 ‘Book Profits’ u/s.115JB of the Act was computed at Rs.6283,53,31,901.

2.2 Aggrieved by the order of assessment dt.27.12.2016 for Assessment Year 2013-14, the assessee preferred an appeal before the CIT (Appeals) – 14, LTU, Bangalore. The learned CIT (Appeals) disposed off the assessee's appeal vide order dt.31.1.2017 allowing the assessee partial relief only in respect of the issue of depreciation on leased assets of Rs.1,67,500 and it was also held that the provisions of Sec. 115JB of the Act are not applicable to the assessee bank. 3.0 Being aggrieved by the order of the CIT (Appeals) – 14, LTU, Bangalore dt.31.1.2017 for Assessment Year 2013-14, both the assessee and revenue have filed cross appeals before the Tribunal. The appeals will be disposed of in seriatum hereunder.

Assessee's appeal in ITA No.1900/Bang/2017 for A.Y.2013-14. 4.0 In its appeal, the assessee has raised the following grounds :-

4 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

2.1. The learned Commissioner of Income tax - Appeals, erred in holding that the appellant bank did not write off the debts of Rs.1143,08,00,000/-.

2.2. The learned Commissioner of Income tax - Appeals, erred in holding that the amount of Rs.1143,08,00,000/- is a mere provision and not a write off.

2.3. The learned Commissioner of Income tax - Appeals, erred in holding that the debts are to be written off at the branch level where advances are made.

2.4. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the appellant bank had submitted the individual bad debts details of the write off.

2.5. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that in order to claim deduction u/s 36(1)(vii), it is not necessary to prove that such debt has become bad.

2.6. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the amount of Rs.1143,08,00,000/- debit to Profit & Loss Account and reduced from ‘loans and advances’ in Balance sheet amounts to write off.

2.7. The learned Commissioner of Income tax - Appeals, erred in understanding the concept of write off norms as defined/explained in Reserve Bank of India guidelines.

2.8. The learned Commissioner of Income tax - Appeals, failed to appreciate that fact that the Appellant has offered to tax the ‘write back’ on account of recovery/upgradation of such kind of bad debts written off in the earlier years u/s 41 of the Income tax Act, 1961.

5 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

2.9. The learned Commissioner of Income tax - Appeals, erred in making the addition on surmises & conjunctures.

2.10. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that on the same set of facts the jurisdictional Appellate Tribunal and Hon’ble High Court have allowed the deductions to various Banks.

2.11. Without prejudice to the above, the learned Commissioner of Income tax -Appeals erred in upholding the taxing of the recovery from bad debts which were not allowed as deduction u/s Sec 36(1)(vii).

3.1. The learned Commissioner of Income tax - Appeals, erred in law in holding that Rule 6ABA prescribes only ‘fresh/incremental advances’ are to be considered for arriving at the Aggregate Average Advances.

3.2. The learned Commissioner of Income tax - Appeals erred in interpreting that as per Rule 6ABA ‘advances made’ to be read as ‘made during the month’.

3.3. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that section 36(1)(viia) being an incentive provision should be interpreted liberally.

3.4. The learned Commissioner of Income tax - Appeals, erred in confirming the addition on surmises & conjunctures.

6 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

4.1. The learned Commissioner of Income tax - Appeals, erred in law in confirming that the asseessee had not made provision for depreciation on Investments with regard to HTM Category of Investments.

4.2. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the investments of the appellant bank are stock in trade and the appellant bank is eligible to claim the loss arising out of the valuation of the stock at cost or market value whichever is lower.

4.3. The learned Commissioner of Income tax - Appeals, erred in not considering the fact that the Hon’ble Income Tax Appellate Tribunal allowed the claim of loss on valuation of Investments in assesses own case.

4.4. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that once an income is taxed under the Head Business / Profession, then the stock on hand should be considered as stock in trade and the valuation loss arising by valuing the same at lower of cost or market value is an allowable deduction.

4.5. The learned Commissioner of Income tax – Appeals, failed to appreciate the fact that the method followed for AFS and HFT category of Investments is different from the method followed in Books.

5.1. The learned Assessing Officer failed to appreciate the fact that the Assessee Bank has not claimed the depreciation as per Books in earlier years.

5.2. The learned Assessing Officer failed to appreciate the fact it is only notional income and not liable to tax.

7 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

6.1. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the unrealised gains cannot be taxed and only real income can be taxed.

6.2. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the unrealised gains did not accrue to the appellant bank.

6.3. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the entries in the books alone cannot be the basis for taxing a receipt.

6.4. The learned Commissioner of Income tax - Appeals, ignored the consistent method adopted by the appellant Bank in offering the unrealized gains to tax over the years.

6.5. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that it is only a revenue neutral exercise and there is no loss to the Revenue over the years as the Appellant Bank had offered to tax on the date of actual realization.

7.1. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact that the assessee bank has not incurred any specific expenditure to earn the exempted income.

7.2. The learned Commissioner of Income tax (Appeals) failed to appreciate the fact that the learned Assessing Officer has not recorded any finding as per Sec 14A(2) of the Act.

8 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 7.3. The learned Commissioner of Income tax (Appeals)-14, failed to appreciate the fact that the majority of the securities are in the nature of stock-in-trade.

8.1. The learned Commissioner of Income tax - Appeals, erred in law in confirming the disallowance though the entire settlement process is done by an automatic system and no manual intervention involved.

8.2. The learned Commissioner of Income tax - Appeals, erred in law in confirming the disallowance though the appellant Bank has submitted Form 26A as the provisions of Income Tax Rules.

9.1. The learned Commissioner of Income tax - Appeals, failed to appreciate the fact this was a strategic investment by the Appellant and as such is a capital asset.

9.2. The learned Commissioner of Income tax –Appeals, failed to appreciate the fact that the appellant is one of the principal share holder of the CARE Ltd.

9 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 10.1. The learned Commissioner of Income tax - Appeals, erred in treating the ATM and other computer equipments as plant & machinery instead of computer, despite various decisions of Hon’ble Tribunal and High Courts favouring the classification adopted by the Appellant.

10.2. The learned Commissioner of Income tax - Appeals, erred in treating the ATM and other computer equipments as plant & machinery instead of computer, despite various decisions of Hon’ble Tribunal and High Courts favouring the classification adopted by the Appellant.

6.1 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

10 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 that the write off was not debited to the assessee's profit and loss account. On appeal, the learned CIT (Appeals) rejected the assessee's contentions that the said bad debts are written off by debit in the profit and loss account under the head ‘Bad Debts Written Off Account’ under the Code 180101, 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). 6.2.1 Before us, the learned Authorised Representative of the assessee submitted that the assessee bank had written off the debts by debiting the same to the ‘ Bad Debts Written Off Account’ under the GL Code 180101, which is part of the profit and loss account and recoveries made in the written off account 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 accounts not written off, the recovery is credited to the loan account and it has no impact on the profit and loss account. Only in respect of the accounts written off, is there an impact on the profit and loss account both at the time of write off and also at the time of recovery. It was submitted that the amount debited to the profit and loss account and grouped under the head ‘ Provisions and Contingencies’ is extracted at page No.5 of the order of assessment. From these details, it can be ascertained that an

11 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 amount ofRs.1860.99 Crores was debited to the profit and loss account; of which the non-rural written off amounted to Rs.1143.08 Crores. This non-rural written off was debited to the profit and loss account and credited to ‘Advances Prudentially Written Off Account’ , which is ultimately reduced form the loans and advances. 6.2.2 The learned Authorised Representative submitted that the net advances as shown in the Balance Sheet is after reducing the bad debts written off. It was also submitted that a statement containing recovery made in a few accounts that were written off in earlier years, but recovered in the year under consideration could be found at page 12 of the Paper Book and the said recovery was credited to the profit and loss account and offered to tax as ‘Other Income’. The learned Authorised Representative finally concluded contending that since the write off was debited to the Profit and Loss Account and reduced from the Balance Sheet, it amounted to write off. In support of the assessee's claim for write off of bad debts, the learned Authorised Representative placed reliance on the following judgements :

(i) Decision of the co-ordinate bench of this Tribunal in the assessee's own case – Canara Bank Vs. JCIT, LTU (2017) 60 ITR (Trib) 1 (Bangalore) (ii) Vijaya Bank in ITA No.1284/Bang/2016 dt.5.1.2018 for Assessment Year 2010-11, which followed the decision of the Hon'ble Apex Court in that assessee's own case; i.e. Vijaya Bank Vs. CIT (2010) 323 ITR 166 (SC).

12 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 6.2.3 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 Ltd. (supra) is not applicable as the facts of the cited case are different. It is submitted that the aforesaid decision cited by the authorities below (supra), has been referred to by the Hon'ble Apex Court in the decision in the case of Vijaya Bank (supra) and after noticing the said decision, the Hon'ble Court held that the provision debited to the profit and loss account and reduced from advances would amount to write off.

6.3 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 bank had not closed the individual debtors accounts at the Branch Level, there cannot be any write off.

6.4.1 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 had debited the bad debts written off to the account ‘Bad Debts Written Off Account’ (GL Code 180101) 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 co- ordinate bench of this Tribunal in the assessee's own case in (2017) 60

13 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 ITR (Trib) 1 (supra). Further, we also find that in a later decision the co- ordinate bench in the case of Vijaya Bank in ITA No.1284/Bang/2016 dt.5.1.2018 has decided this very issue in favour of the assessee bank and against Revenue holding as under at paras 5.5.1 & 5.5.2 of its order :-

“ 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 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

14 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 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 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.”

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.”

15 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 6.4.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the case of Vijaya Bank reported in 323 ITR 166 (SC) and the decision of co-ordinate benches of this Tribunal in the assessee's own case (supra) and that of Vijaya Bank (supra), we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts under Section 36(1)(vii) of the Act. We, therefore, delete the disallowance made by the Assessing Officer in this regard. Consequently, ground No.2 of the assessee's appeal is allowed.

7.1 In this ground (supra), the assessee assails the methodology of computation of deduction u/s.36(1)(viia) of the Act. As per the details on record, it is seen that the assessee bank had created a provision for bad and doubtful debts amounting to Rs.667,00,00,000 in the books of account and claimed deduction of Rs.667,00,00,000 u/s.36(1)(viia) of the Act based on the Aggregate Rural Advances (AAA) computed as per Rule 6ABA of the Income Tax Rules, 1962 (‘the Rules’). The Assessing Officer, however, was of the view that it is only the incremental advances that has to be considered for computing the ‘AAA’ and consequently allowed the deduction to the extent of Rs.251,73,53,415 and thereby disallowed Rs.415,26,46,585. On appeal, the assessee submitted that the provisions of Rule 6ABA are very clear and do not mandate that only incremental advance is to be considered, but rather the advances outstanding at the end of each month is to be considered. The learned CIT (Appeals)

16 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 disregarded, both the contentions of the assessee and the judicial pronouncements cited and upheld the Assessing Officer’s view that it is only the incremental advances that has to be considered for the purpose of computing AAA.

7.2 Before us, the learned Authorised Representative for the assessee reiterated the submission that the language of Rule 6ABA is very clear and does not mandate that only incremental advances has to be considered and nothing can be read into it as has been done by the authorities below. It was submitted that this issue has been considered and decided in favour of the assessee by the co-ordinate bench of this Tribunal in the case of Canara Bank Vs. JCIT (2017) 60 ITR (Trib) 1 [ITAT (Bang)].

7.3 Per contra, the learned Departmental Representative for revenue placed reliance on the orders of the authorities below.

7.4.1 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; i.e. in respect of the computation of deduction under Section 36(1)(viia) of the Act; has been considered and decided by a co-ordinate bench of this Tribunal in the assessee's own case (supra). Further, we find that the aforesaid decision was followed by another co-ordinate bench in the case of Vijaya Bank in ITA No.915 & 845/Bang/2017 and others dt.5.1.2018, wherein at para 7.4.1 and 7.4.2 thereof it has been held as under :-

17 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 “ 7.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncement cited. We find that the issue before us; in respect of computation of the deduction under Section 36(1)(viia) of the Act; has been considered and decided by a co-ordinate bench of this Tribunal in the case of Canara Bank (supra); wherein at paras 18.2 and 18.3 thereof, it has been held as under :- “ 18.2 We heard rival submissions and perused the material on record. The Finance Act, 1979 inserted a new clause (viia) in sub-section (1) of section 36 to provide for deduction in computation of taxable profits of schedule bank in respect of provision made for bad and doubtful debts relating to advances made by the rural branches computed in the manner prescribed under IT Rules,1962. For this purpose, ‘rural branches’ has been defined to mean ‘branch of schedule bank situated at place with population not exceeding 10,000 according to last census’. Rule 6BA of the Income- tax Rules provides the procedure for computing AAA for the purpose of provisions of section 36(1)(viia) which reads as under: “6ABA. Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36 - For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely : (a) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year shall be aggregated separately ; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a) ; (c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank. Explanation : In this rule, rural branch and scheduled bank shall have the meanings assigned to them in the Explanation to clause (viia) of sub-section (1) of section 36.” From a bare reading of the above rule it is crystal clear that the said rules prescribe three steps for computing AAA in the following manner: Step One - In respect of each rural branch, note down the amounts of advances outstanding at the end of the last day of each month comprised in the previous year and aggregate the amounts so noted.

18 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 Step Two- Divide the aggregate amount arrived at in Step One by the number of months for which the outstanding amounts have been taken into account for the purpose of Step One. Step Three- Aggregate the amounts arrived at under Step Two in respect of all the rural branches. Thus, it is clear that the said Rules do not provide for only fresh advances made by each rural branch during each month alone is to be considered. It only prescribes that the amount of advances made by rural branch and is outstanding at the end of the last day of each month shall be aggregated. Having regard to the plain provisions of the IT Rules, it cannot be construed that only fresh loans made by rural branches outstanding at the end of each month should be considered for the purpose of calculating AAA. It is trite law that the condition not imposed by the statute cannot be imported while construing a particular provision of Rules or statutes. Thus, the reasoning adopted by the AO as well as the CIT(A) does not stand the test of law. Furthermore, co-ordinate bench of Hyderabad Tribunal in the case of Nizamabad District Cooperative Central Bank Ltd. (supra) held as follows: “8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. Before going into the issue, it is necessary to look into the relevant statutory provisions. Section 36(1)(vii) provides for deduction on account of bad debts actually written off in the books of account. However, proviso to 36(1)(vii) makes an exception by providing that in case of an assessee to which clause (viia) applies the claim of bad debt shall be limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts made under clause (viia). Clause (viia) permits a cooperative bank to claim deduction of provision made for bad and doubtful debts as per the prescribed conditions. As has been correctly observed by ld. CIT(A), the only dispute between assessee and department is in respect of working out 10% of aggregate average rural advances. While assessee has made such working by considering the entire outstanding advances at the end of each month, AO has worked out by considering the aggregate average rural advances of each month and not on the entire outstanding advances. However, a perusal of the provision contained u/s 36(1)(viia) and rule 6ABA, would make it clear that the 10% of aggregate average advances has to be worked out on the entire outstanding advances and not the advances of that month alone. That being the case, we agree with the view held by ld. CIT(A). 9. Now coming to the quantum of deduction claimed u/s 36(1)(vii) and 36(1) (viia), law is well settled that an assessee can claim deduction under both the clauses subject to the condition imposed under the proviso to 36(1)(vii). As can be seen from the working submitted by ld. AR, the provision created during the year u/s 36(1)(viia) read with rule 6ABA, amounts to Rs. 16,35,55,829.00 whereas assessee has claimed deduction of Rs. 5,16,46,976, which is well within the provision permissible under section 36(1)(viia). Therefore, there cannot be any doubt with regard to the allowability of deduction claimed by the assessee u/s 36(1)(viia). Accordingly, we do not find any infirmity in the order of ld. CIT(A) in deleting addition of Rs. 3,88,25,673. However, as far as deduction of Rs. 18,79,704 is concerned, the same cannot be allowed u/s 36(1)(vii) considering the fact such amount has not exceeded

19 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 the provision for bad and doubtful debts u/s 36(1)(viia). At the same time, alternative claim of the assessee that it is to be allowed u/s 37(1), in our view, is acceptable. On a perusal of the assessment order and the facts and materials available on record, it is quite evident that the amount was waived at the direction of the State Govt. Department has not controverted this fact. Therefore, in our view, the waiver of interest at the instance of the State Government, has to be allowed as business expenditure u/s 37(1). Accordingly, we uphold the order of ld. CIT(A) in deleting addition of Rs. 18,79,704 though, for a different reason. The grounds raised by the department are dismissed.” 18.3 In the light of the above, we hold that the methodology adopted by the AO for the purpose of computing AAA is against the plain provisions of rules and also against the ratio of the decision of the coordinate bench in the cases cited supra. However, remit this issue back to the file of the AO to identify rural branches less than 10,000 population as per last census and the AAA of such rural branches alone should be considered for the purpose of this deduction. Thus, these grounds of appeal are allowed for statistical purposes.”

7.4.2 We find that the issue is settled in favour of the assessee by the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Canara Bank (supra) and in view thereof we hold that the computation of the AAA made by the Assessing Officer is incorrect. “

7.4.2 We find that this issue is covered in favour of the assessee by the aforesaid decisions of the co-ordinate benches of this Tribunal in the assessee's own case (supra) and that of Vijaya Bank (supra), and respectfully following the same, we hold that the computation of the AAA made by the Assessing Officer while working out the deduction under Section 36(1)(viia) of the Act is incorrect and therefore delete the disallowance made there under. Consequently, ground NO.3 of the assessee's appeal is allowed.

20 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 8. Ground No.4 (4.1 to 4.5) – Depreciation on Investments.

8.1 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 investments. The facts of the matter as emanate from the record are that the assessee bank claimed a sum of Rs.787,20,77,758 as depreciation on investments in India. 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) 208 Taxman 511. The Assessing Officer disallowed depreciation on investments of AFS & HFT category of Rs.279,12,50,807 and HTM Category of Rs.507,15,29,634. He also added an amount ofRs.366,51,41,513 being the appreciation on investments as per books not offered to tax. On appeal, the learned CIT (Appeals) disallowed the assessee's ground.

8.2 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

21 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 learned Authorised Representative further submitted that the decision n the case of Karnataka Bank (supra), was followed by the Hon'ble Karnataka High Court in the assessee's own case of Vijaya Bank in their order in ITA No.687/2008. The learned Authorised Representative further submitted that this issue is squarely covered by the decisions of the co-ordinate bench of this Tribunal in the assessee's bank’s own case (supra) and also by the case of Vijaya Bank in ITA No.1252/Bang/2016 dt.5.1.2018 for Assessment Year 2010-11.

8.3 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. The ld. DR further submitted that the assessee did not give the reconciliation between figures as per RBI norms and figures for the purpose of Income Tax. It was also submitted that if depreciation is to be allowed then amortisaton allowed by Assessing Officer should be withdrawn.

8.4 In rejoinder, the learned Authorised Representative submitted that the Bank totally disregards the book results which are based on RBI Guidelines when filing its returns of income and offers to tax the profit as per Income Tax computation and also claims depreciation as per Income Tax Rules. It was submitted that the workings for books and for income tax purposes are totally different and as such, there is no need for any

22 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 reconciliation, since in any case, the book results are totally ignored for the purpose of Income Tax.

8.5.1 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 the assessee and against Revenue; both by the decision of the Hon'ble Karnataka High Court and those of the co-ordinate benches in the assessee's own case (supra) and that of Vijaya Bank (supra). We find that a co-ordinate bench, while dismissing Revenue’s ground raised on this issue in the case of Vijaya Bank (supra) at paras 11.4.1 & 11.4.2 thereof has held as under :-

“ 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:

23 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 “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 ITA No.2886/2005 dated 06.06.2012. In the 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. 59. 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. That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining the balance sheet 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-in-trade (investments) because the bank was required to prepare the balance-sheet 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. 60. 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

24 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 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. 61. The ld. counsel for the assessee further drew our attention to a very recent decision of the Hon’ble High Court of Karnataka 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 stock-in-trade in accordance with RBI guidelines and CBDT Circular. It was his submission that the later decision of the Hon’ble Karnataka High Court has to be followed. 62. We have given a careful consideration to the rival submissions and are of the view that the contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in assessee’s own case on an identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later decision of the Hon’ble High Court of Karnataka is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed.” 22. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the relevant grounds of appeal of the Revenue.” 34. The above decision 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 no merit in grounds at S.Nos.1 & 2 (supra) raised by revenue, dismiss the same.”

8.5.2 Respectfully following the aforesaid decision of the co-ordinate bench in the case of Vijaya Bank (supra), which is in line with the decision of the Hon'ble Karnataka High Court, we delete the disallowances /

25 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 additions made by the Assessing Officer and allow ground No.4 raised by the assessee. Since this issue is decided in favour of the assessee, the Assessing Officer is directed to withdraw the amortisation of premium allowed by the learned CIT (Appeals) at para 12.1 of the impugned order.

9.1 In these grounds (supra), the assessee assails the action of the authorities below in adding back the appreciation on investments as per Books amounting to Rs.366,51,41,572. The facts of the matter as emanate from the record are that the assessee bank has written back provision for depreciation on investments and credited the same to the profit and loss account (viz. item 11(g) in the statement of income from Business). The Assessing Officer was of the view and held that the appreciation as per books amounting to Rs.366.51 Crores has to be brought to tax. On appeal, the learned CIT (Appeals) upheld the order of the Assessing Officer.

9.2 Before us, the learned Authorised Representative for he assessee submitted that the amount written back by the assessee bank is the appreciation in the value of investments as per the books, as per RBI Guidelines. It is contended that since the assessee bank adopts different methods of valuing the investments for the purpose of Income Tax, by considering all the securities as stock-in-trade, the appreciation in the Books has to be ignored for the purpose of Income Tax where it is taken at cost OR market price, whichever is lower. The learned Authorised

26 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 Representative relied on submissions made in the earlier grounds No.4, with regard to depreciation on investments, to submit that since the valuation as per Books is to be ignored for the purposes of Income Tax, the appreciation credited to the profit and loss account, which is also as per Books based on RBI Guidelines, should be ignored. It was further submitted that this appreciation on investments was purely a notional gain and therefore not liable to tax. In support of the above proposition, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the case of Sanjeev Woolen Mills Ltd. (2005) 149 Taxman 431 (SC).

9.3 Per contra, the learned Departmental Representative for Revenue placed reliance and support on the findings rendered by the authorities below in the impugned orders on this issue.

9.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. While deciding ground No.4 (supra), we have held that the investments are to be valued at cost OR market value whichever is lower for the purposes of Income Tax. Since the valuation method to be adopted is as per the Income Tax Act for the purpose of computing taxable income, the Book results are to be ignored. Therefore, the notional appreciation in value of investments as per Books is not to be taxed and we therefore delete the addition made by the Assessing Officer. Consequently, ground No.5 of the assessee's appeal is allowed.

27 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

10.1 In this ground (supra), the assessee assails the addition made by the Assessing Officer in respect of the unrealized gains on revaluation of forward contracts amounting to Rs.77,91,16,260. The Assessing Officer held that the unrealized gains on revaluation of forward contract of approx. Rs.77.91 Crores is liable to be taxed since the same was credited to the profit and loss account. On appeal, the learned CIT (Appeals) upheld the Assessing Officer’s action.

10.2 The learned Authorised Representative for the assessee submits that this issue is squarely covered by the decision of the co-ordinate bench of this Tribunal in the assessee's own case, reported in (2017) 60 ITR (Trib) 1 (ITAT) (Bang.)

10.3 Per contra, the ld. CIT, DR placed reliance on the findings rendered by the authorities below on this issue.

10.4.1 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; i.e. treatment of unrealized foreign exchange gain, has been considered and held in favour of the assessee by the decision of a co-ordinate bench of this Tribunal in the assessee's own case in order reported in (2017) 60 ITR

28 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 (Trib) 1 [ITAT (Bang)] dt.15.9.2017; wherein at para 28 thereof it has been held as under :-

“ 28. We heard rival submissions and perused the material on record. There is no dispute that the assessee-bank has recognized as income in the profit and loss account on account of unrealized Forward exchange contracts. However, same was claimed as deduction in the computation of income. It is also undisputed fact that income is recognized only on hypothetical basis which has not accrued to the company. In the light of these facts, the issue is whether this income is liable to tax as accrued income within the meaning of section 5 of the Act. It is salutary principle that income-tax is not leviable on hypothetical income. No income can be taxed unless otherwise accrued and realized. Reliance in this regard can be placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas & Co. (46 ITR 144)(SC) and Godhra Electricity Co. Ltd vs. CIT (225 ITR 746)(SC). This issue was settled by the Hon'ble Madras High Court in the case of Indian Overseas Bank vs. CIT (183 ITR 200). In the light of these judgments, we hold that no income can be taxed on notional basis unless and otherwise income accrued to the assessee.”

10.4.2 Respectfully following the aforesaid decision of the co- ordinate bench of this Tribunal in the assessee's own case (supra), we hold that the unrealized gains on revaluation of foreign exchange contracts is not exigible to tax and therefore delete the addition made in this regard by the Assessing Officer. Consequently, Ground No.6 of the assessee's appeal is allowed.

r.w. Rule 8D.

11.1 In these grounds (supra), the assessee assails the decision of the authorities below in disallowing expenditure ofRs.24,91,38,500 under Section 14A r.w. Rule 8D of the Income Tax Rules, 1962 (in short ‘the Rules’). As per the details on record, in the year under consideration, the

29 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 assessee earned tax exempt income of Rs.78,38,01,820 as interest on tax free bonds, dividends and income from venture capital funds. In this regard, the assessee made a suo moto disallowance of Rs.1,56,76,036 under Section 14A of the Act on account of expenditure incurred to earn such income. The Assessing Officer was of the view that the suo moto disallowance made by the assessee is not as per the provisions of Sec. 14A of the Act and therefore invoking the provisions of Rule 8D of the Rules computed the disallowance thereunder at Rs.26,48,14,536 and after allowing credit for the assessee's suo moto disallowance of Rs.1,56,76,036, disallowed an amount ofRs.24,91,38,500. On appeal, the ld. CIT (Appeals) upheld the Assessing Officer’s order.

11.2 The learned Authorised Representative for the assessee submitted that since the Assessing Officer had not recorded satisfaction as required under Section 14A(2) of the Act, no disallowance could be made by invoking Rule 8D. It was further submitted that even without the earning of this tax free income, the assessee had to maintain huge investment portfolio for the purpose of SLR requirements which is a statutory requirement to carry on its business. In support of the assessee's claim, the learned Authorised Representative placed reliance on the decisions of the co-ordinate bench in the assessee's own case (supra) and also in the case of Vijaya Bank (supra).

11.3 The ld. CIT,DR for revenue placed reliance on the orders of the Assessing Officer on this issue.

30 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 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 before us is covered in favour of the assessee bank by the decision of the co-ordinate bench of this Tribunal in the assessee's own case (supra) and also in the decision in the case of Vijaya Bank (supra). At paras 12.4.1 and 12.4.2 of the decision in the case of Vijaya Bank (supra), the co-ordinate bench has held as under :-

“ 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 bank by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2008-09 in ITA Nos.578 & 653/Bang/2012 dt.27.2.2015; wherein at para 51 it has been held as under :- “ 51. We have given a very careful consideration to the rival submissions. In the present case, the claim of the Assessee before the AO that tax free income for the bank is mainly from investments held by the bank. The investment activities of the bank are carried out by the Treasury Department at Head Office. Even without earning any free income, these expenditure would have been incurred by the bank since the bank has to hold SLR securities to carry on the business and the expenditure is of fixed in nature. Therefore, there is no expenditure incurred directly by the bank for earning any tax free income. Since the expenditure would have been incurred by the bank even without the earning of tax free income, no part of the expenditure can be related to earning the tax free income. In the light of the above undisputed fact and in view of the decision of the Hon’ble Karnataka High Court in the case of CCI Ltd. (supra), we are of the view that no disallowance can be made u/s.14A of the Act. The addition made in this regard is directed to be deleted. The relevant grounds of appeal of the Assessee are allowed.” 12.4.2 Following the above decision of the co-ordinate bench of this Tribunal in assessee's own case for Assessment Year 2008-09 (supra), we uphold the order of the learned CIT (Appeals) and consequently dismiss ground Nos.3 & 4 of Revenue’s appeal.”

31 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

11.4.2 Respectfully following the aforesaid decisions of the co- ordinate bench in the case of Vijaya Bank (supra) and the assessee's own case (supra), we hold that, in the facts and circumstances of the case on hand, no disallowance can be made under Section 14A of the Act over and above the amount disallowed suo moto by the assessee. Consequently, ground No.7 of the assessee's appeal is allowed.

12.1 In these grounds (supra), the assessee assails the decision of the authorities 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 that since it is a standard facility, the same is not covered under the

32 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 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.

12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue before us is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (supra); wherein at paras 8 to 10 thereof the Hon'ble Apex Court has held as under :-

“ 8. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that 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

33 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 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 mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. 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 appellant-assessee 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 expression "technical services" as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High Court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J 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

34 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 covered by the provisions of Sec. 194J of the Act. Consequently, ground No.8 is allowed as indicated above. 13. Ground No.9 (9.1 & 9.2) - Addition of profit on sale of shares in CARE Ltd. 13.1 In these grounds (supra), the assessee assails the decision of the authorities below in taxing the profit on sale of shares of CARE Ltd., of Rs.161,89,97,600 as ‘Profits from Business’ and not treating the same as ‘Long Term Capital Gains’ (LTCG) exempt under Section 10(38) of the Act. As per the details on record before us, in the year under consideration, the assessee bank had sold shares of CARE Ltd., through Initial Public Offer (IPO) earned a profit of Rs.161,89,97,600 and claimed the same as exempt under Section 10(38) of the Act. The Assessing Officer rejected the assessee's claim holding as under at para 15.2 of the order of assessment :-

35 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 On appeal, the learned CIT (Appeals) upheld the Assessing Officer’s order on this issue.

13.2.1 On this issue, the learned Authorised Representative for the assessee made the following submissions. It was submitted that the assessee bank made a strategic investment in a rating company called CARE Ltd. (CARE) on 20.12.1993 and at that point of time CARE was an unlisted company. The assessee bank who had investment of 22.8% in the share capital of CARE and IDBI Bank which held 25.79% of shares of CARE were treated as promoters on account of the substantial share holding. Subsequently, SEBI was said to be willing to treat CARE as a professionally managed company and exempt the assessee, Canara Bank and IDBI Bank as being treated as promoters. However, both these banks were treated as principal share holders as each of them held more than 15% of the equity shares of CARE. During the F.Y.2012-13; i.e. the year under consideration, CARE decided to come out with an IPO by way of sale of stake by the existing equity share holders. The assessee bank sold part of their holdings in the IPO and also paid Securities Transaction Tax (STT) on the said sale and met a part of the IPO expenses. Since the shares were originally purchased as strategic investment and the bank treated the shares as investment and not stock-in-trade as the same were held for a period of 20 years, the LTCG arising on sale thereof were treated as exempt under Section 10(38) of the Act by the assessee bank. The learned Authorised Representative drew the attention of the Bench to pages 18 to 23 of Paper Book in support of the assessee's contention

36 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 and also to page 24 of the Paper Book, which is an extraction of the prospectus of CARE Ltd. in which the assessee is shown as a principal share holder.

13.2.2 The learned Authorised Representative contended that strategic investments of the bank are not to be treated as stock-in-trade as the assessee bank has treated the same as investments. Reliance was also placed on CBDT Circular No.6/2016 dt.29.2.2016 to drive home the point that once the assessee treats the gain arising from transfer of listed shares and securities which are held for more than 12 months, before the transfer as Capital Gains, then the same shall not be put to dispute by the Assessing Officer. The learned Authorised Representative further submitted that on account of its share holding in CARE, the assessee bank was treating CARE Ltd. as an Associate and considered as such for the purpose of preparing the consolidated Balance Sheet up to F.Y.2011- 12 where the holding was more than 20%.

13.3 Per contra, the learned Departmental Representative for Revenue submitted that the orders of the authorities below were in order and to be upheld. It was contended that the assessee bank has been treating all the securities as stock-in-trade and hence cannot give or seek different treatment for a particular security, CARE Ltd.; more so one that is an unlisted security. The learned Departmental Representative placed reliance on CBDT Circular 4 of 2007 and 6/2016. It was submitted

37 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 that the treatment has to be ascertained from the books of the assessee and mere valuation would not decide the issue.

13.4 In rejoinder, the learned Authorised Representative submitted that it is a settled principle of law that an assessee can have two sets of investment portfolio; one as stock-in-trade and another as capital asset and it is based on the intention of holding that the treatment is to be decided. To a query from the Bench as to how the investment in CARE Ltd. have been treated in the Books, the learned Authorised Representative drew our attention to Balance Sheet (placed at page 124 of the Paper Book) and submitted that the shares of CARE Ltd. have been included in Investments and to Schedule 8 on page 130 of the Annual Report to submit that the holding in CARE Ltd., is included under the item shares in Schedule 8 – Investments.

13.5.1 We have heard the rival contentions, perused and carefully considered the material on record. It is a settled principle that it is based on the intention at the time of purchase and also treatment in the books that the issue of whether in the case on hand the profits arising on sale of shares of CARE Ltd. by the assessee in the year under consideration are to be treated as business income on account of holding shares as stock-in-trade, as held by Revenue OR as Capital Gains since they are investments, as claimed by the assessee. In this regard in the light of the principles stated in CBDT Circulars on the subject (supra), the Hon'ble Gujarat High Court in the case of Prin. CIT Vs. Ramniwas

38 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 Ramjivan Kasat reported in (2017) 82 taxmann.com 458 (Guj.) has held as under at paras 6 to 8 thereof :-

“ 6. Whether to tax the income generated from the sale of shares as capital gain or business income is an issue of frequent dispute between the revenue and the assessees. The Courts in the past have had occasions to consider such issue and through judicial pronouncement various parameters have been laid down to check whether the sale of shares would lead to business income or capital gain. Despite several judicial pronouncements, the controversy did not subside. Each case would have to be considered individually leading to long drawn litigations. The CBTD therefore in order to reduce the litigations, issued the said circular dated 29.2.2016, relevant portion which reads as under:— "2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following- (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent

39 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 years; (c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 5. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities." 7. Two things emerge from this circular. One is that the CBDT desires to obviate the difficulties of the assessees and simultaneously to reduce the litigation. In paragraph 3 of the circular, certain parameters have been laid down. Clause (b) thereof in particular provides that in respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. In other words, the Revenue would not pursue this issue if the necessary ingredients are satisfied, only rider being the stand taken by the assessee in a particular year would be followed in the subsequent years also and the assessee would not be allowed to adopt a contrary stand in such subsequent years. 8. The circular applies with full force in the present case. The Tribunal therefore correctly accepted the assessee's stand.”

13.5.2 In an appraisal of the material in the case on hand, it is seen that the assessee invested in the purchase of shares of CARE Ltd.; in 1993. While there are contrasting claims of Revenue that the said shares were held as stock-in-trade and that of the assessee that the shares were all along held as investments, what is important in the treatment given to these scrips / shares in the assessee's books of accounts; which has to be verified. If the assessee bank has included the shares of CARE Ltd., as Investments in the relevant Balance Sheets, only then these investments can be treated as capital asset and the gains arising there from can be treated as LTCG. If these shares are found to be held as stock-in-trade

40 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 then the profits arising from sale thereof would have to be treated as Business Income. These facts require examination and verification by the Assessing Officer. We, therefore, remand this issue / matter to the file of the Assessing Officer for fresh examination, verification and adjudication in the light of the judicial observations / findings on the subject (supra) and our above observations after affording the assessee adequate opportunities of being heard and to file details / submissions in this regard, which shall be considered by the Assessing Officer before deciding this issue. We hold and direct accordingly. Consequently, ground No.9 of assessee's appeal is allowed for statistical purposes.

41 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 favour of revenue and against the assessee by the decision of a co- ordinate bench of this Tribunal in the case of State Bank of Mysore (supra) in which the Tribunal held that ATMs are not computers and hence depreciation thereon is to be allowed @ 15% only. Respectfully following the aforesaid decision of the co-ordinate bench (supra), we dismiss ground No.10 raised by the assessee. 15. Ground No.11 – Disallowance u/s.40(a)(ia) of the Act. 15.1 In this ground (supra), the assessee contends that the learned CIT(Appeals) erred in confirming the disallowance of expenditure amounting to Rs.28,53,74,990 u/s.40(a)(ia) of the Act. From the details on record, it is seen that the Assessing Officer made this disallowance since the assessee bank did not furnish the details called for in respect of TDS and its remittances. 15.2 We have heard the rival contentions, perused and carefully considered the material on record. It was prayed by the learned Authorised Representative of the assessee that this issue may be remanded to the file of the Assessing Officer for submission of the relevant details and examination, verification thereof. The learned Departmental Representative too submitted that the matter requires de novo examination and adjudication by the Assessing Officer as the disallowance has been made in the absence of details filed by the assessee. As submitted by the counsels of both parties and from a perusal of the order of assessment, we find that the disallowance under Section 40(a)(ia) of the Act has been made by the authorities below on

42 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 account of non-furnishing of details by the assessee. We are of the considered view that in the interest of substantial justice, the ex-parte disallowance under Section 40(a)(ia) of the Act made by the Assessing Officer is to be set aside and this issue is restored to the file of the Assessing Officer for fresh examination, verification and adjudication. Needless to add that the Assessing Officer shall afford the assessee adequate opportunity of being heard and to file details / submissions required that shall be considered by the Assessing Officer before deciding this issue. It is ordered accordingly. Consequently, ground No.11 of the assessee's appeal is allowed for statistical purposes.

43 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 17. In the result, the assessee's appeal for Assessment Year 2013-14 is partly allowed.

Revenue’s Appeal in ITA No.1882/Bang/2017 for A.Y. 2013-14. 18. In its appeal, revenue has raised the following grounds :-

“1. The order of CIT (Appeals) is opposed to the facts and law in so far as the below issues have been decided against the Revenue. 2. The CIT (Appeals) has erred in holding that the provisions of Sec. 115JB are not applicable to the assessee. 3. The CIT (Appeals) has erred in directing the Assessing Officer to delete the addition made on account of depreciation on assets leased to certain companies.”

44 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 not considering this amendment at all and mechanically followed her own decisions of earlier years prior to the amendment by Finance Act, 2012. 20.2 Per contra, the learned Authorised Representative submitted that even after the amendment by Finance Act, 2012, the provisions of Sec. 115JB of the Act are not applicable to the assessee bank. In this regard, the learned Authorised Representative relied on various provisions of the Companies Act, 1956; Banking Regulation Act, 1949 and Banking Companies (Acquisition & Transfer of Undertaking) Act, 1970.

20.3 However, both parties fairly agree that as the learned CIT(Appeals) has not considered the effect of amendment by Finance Act, 2012, this issue / matter may be remanded to the file of the CIT(Appeals) for fresh examination and adjudication on the applicability of the provisions of Sec. 115JB of the Act post amendment by Finance Act, 2012 and also the issues relating to the computation of ‘Book Profit’.

20.4 We have heard the both parties, perused and carefully considered the material on record. We find, from a perusal of the impugned order, that the learned CIT(Appeals), following her own decision on this issue for earlier assessment years, allowed the assessee's appeal on this issue. It is also evident therefrom that the learned CIT(Appeals) failed to consider the effect of the amendment by Finance Act, 2012, to the application of the provisions of Sec. 115JB of the Act to the assessee bank. We, therefore, set aside the finding of the learned

45 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 CIT(Appeals) rendered in favour of the assessee and restore this issue to the file of the learned CIT(Appeals) with a direction to decide / adjudicate the applicability of the provisions of Sec. 115JB of the Act; post amendment by Finance Act, 2012 and also the grounds relating to computation of ‘Book Profit’, if it is held that Sec. 115JB of the Act is applicable to the assessee bank. Needless to add, the learned CIT(Appeals) shall provide the assessee adequate opportunity of being heard and to file details / submissions in this regard which shall be considered before deciding this issue. We hold and direct accordingly. Consequently, ground No.2 of Revenue’s appeal is allowed for statistical purposes.

46 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 co-ordinate bench of this Tribunal in the assessee's own case for Assessment Years 2009-10 to 2011-12 dt.15.09.2017 reported in (2017) 60 ITR (Trib) 1 [ITAT (Bang)] at para 11 thereof. Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the assessee's own case (supra), we dismiss Ground No.3 of Revenue’s appeal. 22. In the result, Revenue’s appeal for Assessment Year 2013-14 is partly allowed. Assessment Year 2014-15. Assessee's Appeal in ITA No.1899/Bang/2017 for A.Y. 2014-15. 23. In this appeal, the assessee has raised the following grounds :-

2.1 The learned Commissioner of Income tax - Appeals erred in law in holding that Rule 6ABA prescribes only ‘fresh/incremental advances’ are to be considered for arriving at the Aggregate Average Advances.

2.2 The learned Commissioner of Income tax -Appeals erred in interpreting that as per Rule 6ABA ‘advances made’ to be read as ‘made during the month’.

2.3 The learned Commissioner of Income tax - Appeals failed to appreciate the fact that section 36(1)(viia) being an incentive provision should be interpreted liberally.

47 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

2.4 The learned Commissioner of Income tax - Appeals erred in confirming the addition on surmises & conjunctures

3 The learned Commissioner of Income tax - Appeals erred in law and on facts in confirming the disallowance of the depreciation amounting to Rs.3454,96,79,583/- on Investments which are stock-in-trade of the bank.

3.1 The learned Commissioner of Income tax – Appeals erred in law in confirming that the asseessee had not made provision for depreciation on Investments with regard to HTM Category of Investments.

3.2 The learned Commissioner of Income tax – Appeals failed to appreciate the fact that the investments of the appellant bank are stock in trade and the appellant bank is eligible to claim the loss arising out of the valuation of the stock at cost or market value whichever is lower.

3.3 The learned Commissioner of Income tax - Appeals erred in not considering the fact that the Hon’ble Income Tax Appellate Tribunal allowed the claim of loss on valuation of Investments in assesses own case.

3.4 The learned Commissioner of Income tax - Appeals failed to appreciate the fact that once an income is taxed under the Head Business / Profession, then the stock on hand should be considered as stock in trade and the valuation loss arising by valuing the same at lower of cost or market value is an allowable deduction.

3.5 The learned Commissioner of Income tax -Appeals failed to appreciate the fact that the method followed for AFS and HFT category of Investments is different from the method followed in Books.

48 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 4 The learned Commissioner of Income tax – Appeals erred in law in sustaining the disallowance of unrealized gains on revaluation of forward contracts in foreign exchange amounting to Rs.249,49,28,650/-.

4.1 The learned Commissioner of Income tax - Appeals failed to appreciate the fact that the unrealised gains cannot be taxed and only real income can be taxed.

4.2 The learned Commissioner of Income tax – Appeals failed to appreciate the fact that the unrealised gains did not accrue to the appellant bank.

4.3 The learned Commissioner of Income tax – Appeals failed to appreciate the fact that the entries in the books alone cannot be the basis for taxing a receipt.

4.4 The learned Commissioner of Income tax – Appeals ignored the consistent method adopted by the appellant Bank in offering the unrealized gains to tax over the years.

4.5 The learned Commissioner of Income tax - Appeals failed to appreciate the fact that it is only a revenue neutral exercise and there is no loss to the Revenue over the years as the Appellant Bank had offered to tax on the date of actual realization.

5 The learned Commissioner of Income tax – Appeals erred in law in sustaining the disallowance u/s 14A amounting to Rs.22,26,96,500/-.

5.1 The learned Commissioner of Income tax – Appeals failed to appreciate the fact that the assessee bank has not incurred any specific expenditure to earn the exempted income.

5.2 The learned Commissioner of Income tax - Appeals failed to appreciate the fact that the majority of the securities are in the nature of stock-in-trade.

49 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 6 The learned Commissioner of Income tax - Appeals erred in confirming the disallowance of Rs.10,11,94,605/- u/s 40(a)(ia) by holding that the assessee Bank has not deducted tax at source while making payment to NPCI.

6.1 The learned Commissioner of Income tax - Appeals erred in law in confirming the disallowance though the entire settlement process is done by an automatic system and no manual intervention involved.

6.2 The learned Commissioner of Income tax - Appeals erred in law in confirming the disallowance though the appellant Bank has submitted Form 26A as per the provisions of Income Tax Rules.

7 The learned Commissioner of Income tax - Appeals erred in law in confirming the addition of Rs.4,99,824/- being loss from Investment in ISARC Trust.,

7.1 The learned Commissioner of Income tax – Appeals failed to appreciate the fact that the investment made in Security Receipts of Trust allowable under Section 61 of the Income Tax Act.,

8 The learned Commissioner of Income tax - Appeals erred in law in confirming the disallowance of Rs.3,27,62,519/- being depreciation on ATM and other computer equipments by treating the same as plant & Machinery.

8.1 The learned Commissioner of Income tax – Appeals erred in treating the ATM and other computer equipments as plant & machinery instead of computer, despite various decisions of Hon’ble Tribunal and High Courts favouring the classification adopted by the Appellant.

9 The learned Commissioner of Income tax - Appeals not dealt with the ground of the appellant bank with regard to disallowance of penalty paid for infringement of RBI under FEMA guidelines amounting to Rs.3,00,10,000/-.

50 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 10 The learned Commissioner of Income tax – Appeals not dealt with the ground of the appellant bank with regard to deduction u/s 80G on donation made by the appellant Bank.

11 The learned Commissioner of Income tax - Appeals erred in law and on facts in sustaining the disallowance of expenditure u/s 40(a)(ia) of Rs.14,85,15,796/-.”

51 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 26. Ground No.3 (3.1 to 3.5) – Depreciation on Investments. 26.1 In this ground (supra), the assessee assails the orders of the authorities below in disallowing its claim of depreciation on investments which are treated as stock-in-trade amounting to Rs.3454,96,76,583. 26.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on this issue raised in this ground are similar to that raised by the assessee in ground No.4 of its appeal in ITA No.1900/Bang/2017 for Assessment Year 2013-14 (supra); wherein we have decided this issue in favour of the assessee following the decisions of co-ordinate benches of this tribunal in the case of the assessee, viz. Canara Bank Vs. JCIT (supra) and the case of Vijaya Bank (supra) for Assessment Year 2010-11. Respectfully following the aforesaid decisions (supra), in this year also, ground No.3 raised by the assessee is allowed. 27. Ground No.4 (4.1 to 4.5) – Disallowance of unrealized gain on revaluation of forward contracts in Foreign Exchange. 27.1 In this ground (supra), the assessee assails the orders of the authorities below in disallowing its claim of deduction of unrealised gains on revaluation of forward contracts in foreign exchange amounting to Rs.249,49,28650. 27.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on the issue raised in this ground are similar to those raised by the assessee in ground No.6 of its appeal in ITA

52 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 No.1900/Bang/2017 for Assessment Year 2013-14 (supra); wherein we have decided the issue in favour of the assessee following the decisions of co-ordinate bench of this Tribunal in the assessee's own case, viz. Canara Bank Vs. JCIT (supra). Respectfully following the same (supra), in this year also, ground No.4 of the assessee's appeal is allowed. 28. Ground No.5 (5.1 to 5.2) - Disallowance u/s.14A of the Act. 28.1 In this ground (supra), the assessee assails the orders of the authorities below in making a disallowance amounting to Rs.22,26,96,500 u/s.14A of the Act. 28.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on the issue raised in this ground are similar to that raised by the assessee in Ground No.7 of its appeal in ITA No.1900/Bang/2017 for Assessment Year 2013-14 (supra); wherein we have decided the issue in favour of the assessee following the decisions of co-ordinate benches of this Tribunal in the assessee's own case, viz. Canara Bank Vs. JCIT (supra) and in the case of Vijaya Bank in ITA No.1252/Bang/2016 for Assessment Year 2010-11 (Department’s appeal). Respectfully following the aforesaid decisions (supra), in this year also, ground No.5 raised by the assessee is allowed. 29. Ground No.6 (6.1 & 6.2) – Disallowance of expenditure u/s.40(a)(ia) paid to NPCI.

53 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 29.1 In this ground (supra), the assessee assails the orders of the authorities below in disallowing its claim of expenditure u/s.40(a)(ia) of the Act amounting toRs.10,11,94,605 on account of payments made to NPCI without deduction of tax at source. 29.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on the issue raised in this ground are similar to that raised by the assessee is ground No.8 of its appeal in ITA No.1900/Bang/2017 for Assessment Year 2013-14 (supra); wherein we have decided the issue in favour of the assessee following the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (2016) 67 taxmann.com 356 (SC). Respectfully following the said decision (supra), in this year also, the ground No.6 raised by the assessee is allowed. 30. Ground No.7 - Disallowance of Loss from investment in ISARC Trust. 30.1 In this ground (supra), the assessee assails the orders of the authorities below in disallowing the claim of deduction of Rs.4,99,824 arising from loss on sale of investment in ISARC Trust. 30.2 We have heard the rival contentions, perused and carefully considered the material on record. From the details on record it is seen that in the year under consideration, the assessee claimed loss of Rs.4,99,824 under Section 61 of the Act since it is holding 95% of the Security Receipts (SRs) of ISARC (India SME Asset Reconstruction Company) Trust. According to the observations made by the learned

54 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 CIT(Appeals), at para 17.2 of the impugned order, the assessee has not filed any evidence either before her on the Assessing Officer about the assets in question being transferred irrevocably and proceeded to uphold the disallowance made by the Assessing Officer. In this factual matrix of the case, we are of the view that in the interest of substantial justice, the order of authorities below are to be set aside and this issue remanded to the file of the Assessing Officer for examination, verification and adjudication after affording the assessee adequate opportunity of being heard and to file details / submissions required in this regard which shall be duly considered before deciding the issue. We hold and direct accordingly. Consequently, ground No.7 of the assessee's appeal is allowed for statistical purposes. 31. Ground No.8 - Disallowances of Depreciation on ATMs. 31.1 In this ground (supra), the assessee's assails the orders of the authorities below in disallowing its claim of being allowed depreciation on ATMs amounting to Rs.3,27,62,519 @ 60%; by not treating them as computers. 31.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on this issue raised in this ground by the assessee is similar to that raised by the assessee in ground No.10 of its appeal in ITA No.1900/Bang/2017 for Assessment Year 2013-14 (supra), wherein we have decided the issue against the assessee following the decision of the co-ordinate bench of this Tribunal in the case of State

55 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 Bank of Mysore in ITA No.1063/Bang/2014 dt.27.5.2016. Respectfully following the aforesaid decision of the co-ordinate bench (supra), in this year also, ground No.8 of the assessee's appeal is dismissed. 32. Ground No.9 : Disallowance of penalty paid to RBI under FEMA Guidelines. 32.1 According to the learned Authorised Representative for the assessee, this ground challenging the Assessing Officer’s order on disallowance of payment of penalty of Rs.3,00,10,000 imposed by RBI on the assessee under FEMA Guidelines on the ground that it is not in respect of any infraction of law, has not been adjudicated by the learned CIT(Appeals) in the impugned order, where the issue was raised by the assessee at ground of appeal No.10. It was prayed at this ground / issue be remanded to the file of the learned CIT(Appeals) for adjudication on merits. 32.2 We have heard both parties in the matter and have carefully perused both the impugned order and the grounds raised by the assessee in Form No.35. We find that this issue was raised in ground No.10 by the assessee before the learned CIT(Appeals), but the same has not been adjudicated by the learned CIT(Appeals). We, therefore, restore this issue raised as Ground No.10 and 10.1 in Form No.35, to the file of the learned CIT(Appeals) for examination and adjudication on merits, after affording the assessee adequate opportunity of being heard and to file details / submissions required which shall be considered by the learned CIT(Appeals) before deciding the issue. We hold and direct

56 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 accordingly. Consequently, ground No.9 of assessee's appeal is allowed for statistical purposes. 33. Ground No.10 – Disallowance of claim u/s.80G. 33.1 In this ground (supra), the assessee assails the order of the Assessing Officer in disallowing the assessee's claim for deduction under Section 80G of the Act amounting to Rs.31,77,250. According to the learned Authorised Representative, this issue raised by the assessee before the learned CIT(Appeals) as ground No.11 in Form No.35, has not been adjudicated by the ld. CIT(A) and therefore it was prayed that this ground / issue be remanded to the file of the learned CIT(Appeals) for adjudication. 33.2 We have heard both parties in the matter and have carefully perused both the impugned order and the grounds raised by the assessee in Form No.35. We find that this issue was raised in ground No.11 by the assessee before the learned CIT(Appeals), but the same has not been adjudicated by the learned CIT(Appeals). We, therefore, restore this issue raised as Ground No.11 in Form No.35, to the file of the learned CIT(Appeals) for examination and adjudication on merits, after affording the assessee adequate opportunity of being heard and to file details / submissions required which shall be considered by the learned CIT(Appeals) before deciding the issue. We hold and direct accordingly. Consequently, ground No.10 of assessee's appeal is allowed for statistical purposes.

57 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 34. Ground No.11 – Disallowance u/s.40(a)(ia) of the Act. 34.1 In this ground (supra), the assessee assails the orders of the authorities below in disallowing expenditure of Rs.14,85,15,796 u/s.40(a)(ia) of the Act. 34.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on the issue raised in this ground are similar to that raised by the assessee in ground No.11 of its appeal in ITA No.1900/Bang/2017 for Assessment Year 2013-14 (supra), wherein we have remanded the issue to the file of the Assessing Officer for examination and verification of the assessee's claims. Following the same in this year also, we remand this issue to the file of the assessee for examination and verification of the assessee's claim, as directed by us in the assessee's appeal for Assessment Year 2013-14 (supra). 35. In the result, the assessee's appeal for Assessment Year 2014-15 is partly allowed. Revenue’s appeal in ITA No.1881/Bang/2017 for A.Y. 2014-15. 36. In this appeal, revenue has raised the following grounds of appeal :-

“1. The order of CIT (Appeals) is opposed to the facts and law in so far as the below issues have been decided against the Revenue. 2. The CIT (Appeals) has erred in holding that the provisions of Sec. 115JB are not applicable to the assessee. 3. The CIT (Appeals) has erred in directing the Assessing Officer to delete the addition made on account of depreciation on assets leased to certain companies.”

58 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

59 ITA Nos.1881, 1882,1899 & 1900/Bang/2017 39. Ground No.3 - Depreciation on leased assets. 39.1 In this ground (supra), Revenue assails the order of the learned CIT(Appeals) in allowing depreciation on leased assets to the Kedia Group of Companies. 39.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case on the issue raised in this appeal are similar to that raised by Revenue in Ground No.3 of its appeal in ITA No.1882/Bang/2017 for Assessment Year 2013-14 (supra), wherein we have dismissed the ground raised by revenue on this issue by following the decision of a co-ordinate bench of this Tribunal in the matter (supra). Following the same, we dismiss this ground No.3 raised by Revenue. 40. In the result, Revenue’s appeal for Assessment Year 2014-15 is partly allowed for statistical purposes. 41. In the result, both the assessee's as well as Revenue’s appeals for Assessment Years 2013-14 and 2014-15 are partly allowed.

Order pronounced in the open court on the 28/09/2018.

Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt.28/09/2018.

*Reddy gp

60 ITA Nos.1881, 1882,1899 & 1900/Bang/2017

Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.