VIJAYA BANK ,BANGALORE vs. JOINT COMMISSIONER OF INCOME TAX LARGE TAX PAYER UNIT , BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘ C ’

BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER

Sl.No. ITA No. & Appellant Respondent Asst. Year 1. 915/Bang/2017 Vijaya Bank Joint Commissioner 2012-13 Head Office, of Income Tax, LTU, Central Accounts Bangalore. Dept., 41/2, M G Road, Bangalore-1 2. 845/Bang/2017 Joint Commissioner Vijaya Bank, M.G. 2012-13 of Income Tax, LTU, Road, Bangalore. Bangalore. 3. 1647/Bang/2016 Vijaya Bank, M.G. Joint Commissioner 2011-12 Road, Bangalore. of Income Tax, LTU, Bangalore. 4. 1651/Bang/2016 Joint Commissioner Vijaya Bank, M.G. 2011-12 of Income Tax, LTU, Road, Bangalore. Bangalore. 5. 1284/Bang/2016 Vijaya Bank, M.G. Joint Commissioner 2010-11 Road, Bangalore. of Income Tax, LTU, Bangalore. 6. 1252/Bang/2016 Joint Commissioner Vijaya Bank, M.G. 2010-11 of Income Tax, LTU, Road, Bangalore. Bangalore.

Assessee By : Shri S. Ananthan, C.A. Revenue By : Shri Pramod Kumar Singh, JCIT (D.R)

Date of Hearing : 27.11.2017. Date of Pronouncement : 05.01.2018.

2 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 O R D E R Per Bench : These are cross appeals, by the assessee and revenue, directed against the separate orders of Commissioner of Income Tax (Appeals)-14, LTU, Bangalore dt.28.04.2016 for the Assessment Year 2010-11; dt.15.7.2016 for the Assessment Year 2011-12 and dt.30.01.2017 for the Assessment Year 2012-13. Since common issues are involved, these appeals were heard together and are being disposed off by way of this common order in seriatum. Assessment Year 2010-11 Assessee's appeal in ITA No.1284/Bang/2016 for A.Y. 2010-11. 2. Briefly stated, the facts of the case are as under :- 2.1 The assessee, a naitonalised bank, filed its return of income for Assessment Year 2010-11 on 30.09.2010 declaring total income of Rs.390,56,81,270. A revised return of income was filed on 30.3.2012 wherein the assessee's income was declared at Rs.343,23,86,017. The case was taken up for scrutiny and the assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dt.7.2.2013 wherein the assessee's income was determined at Rs.1337,22,61,520 in view of the following additions / disallowances :- i) Disallowance of bad debts Rs.467,58,97,863. claimed u/s.36(1)(vii) ii) Disallowance of claim u/s.36(1)(viia) Rs.232,01,21,818. iii) Disallowance of valuation loss of HTM Rs.215,69,38,927. iv) Disallowance of deduction u/s.36(1)(viii) Rs76,00,00,000 v) Disallowance u/s.14A Rs.2,65,27,250

3 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

2.2 Aggrieved by the order of assessment dt.7.2.2013 for A.Y. 2010-11, 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.28.4.2016 allowing the assessee partial relief on the issues and to the extent indicated hereunder :- i) Disallowance of valuation of loss Rs.215,69,38,927. on HTM investments. ii) Disallowance of deduction Rs.25,00,00,000. u/s.36(1)(vii) iii) Disallowance u/s.14A Rs.2,65,27,520.

4 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

2.5. The learned Commissioner of Income Tax (Appeals) erred in notfollowing the decision of the Hon'ble Supreme Court in the appellant bank’s own case. 2.6. The learned Commissioner of Income Tax (Appeals) erred in following the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd [2010] 320 ITR 577 the facts of which are totally different. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance ofRs. 232,01,21,818/- u/s 36(1)(viia). 3.1. The Learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the appellant bank is entitled to deduction u/s 36(1)(viia) to the extent of amount calculated under the section and not with reference to the provision made in the books of accounts. 3.2. 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. 3.3. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the short fall in provision has been made good by the appellant bank and as such, the appellant bank is eligible for the deduction as claimed by it. 4. The learned Commissioner of Income Tax (Appeals) erred in holding that for the purpose of calculating the aggregate average rural advances as per Rule 6ABA of the Income Tax Rules 1962, it is only the incremental advance that has to be considered. 4.1. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Rule 6ABA does not prescribe that the incremental advances are to be considered for arriving at Aggregate Average Rural Advances. 5. The learned Commissioner of Income Tax (Appeals) erred in disallowing deduction u/s 36(1)(viii) of Rs. 51,00,00,000/-. 5.1. The learned Commissioner of Income Tax (Appeals) erred in disallowing the amount by holding that to the extent of Rs. 51 Cr, there was no transfer to Special Reserve during the Previous Year relevant to the Assessment year under appeal. 5.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the transfer to Special Reserve need not be made within the Previous Year. 5.3. The learned Commissioner of Income Tax (Appeals) erred in not considering the amount transferred to the Special Reserve in the subsequent year before the completion of the Assessment.”

5 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 4. Ground No.1 (supra) being general in nature, no adjudication is called for thereon.

5.1 In this ground (supra), the assessee challenges the disallowance of bad debts written off by it u/s.36(1)(vii) of the Act. In the order of assessment, the Assessing Officer disallowed the assessee's claim as he was of the view that it was only a prudential write off since the individual accounts were not squared off. The Assessing Officer also observed that the write off was not debited to the assessee's profit and loss account. On appeal, the learned CIT (Appeals) rejected the assessee's contentions that the said bad debts are written off by debit in the profit and loss account under the head ‘Bad Debts Written Off Account’ under the code 163301, as he was of the view that unless the individual debts are squared off, the entries in the books of account cannot be accepted as reliable. In coming to this finding the learned CIT (Appeals) relied on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (2010) 320 ITR 577 (SC).

5.2.1 Before us, the learned Authorised Representative of the assessee submitted that the assessee bank has written off the debts by debiting the same to the ‘Bad Debts Written Off Account’ under the GL Code 163301 which is part of the profit and loss account and recoveries made in written off accounts are credited to the profit and loss account and offered to tax. According to the learned Authorised Representative, it is

6 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 only in respect of accounts written off that the assessee bank can credit the recoveries to the profit and loss account and in the case of live accounts any recovery is credited to the debtors account. Therefore, the very fact that the recoveries are credited to the profit and loss account shows that the corresponding debts have been written off. It was submitted that the detailed accounting entries passed by the assessee bank with regard to the write off has been extracted at pages 31 and 32 of the order of assessment. The learned Authorised Representative drew the attention of the Bench to page 32 of the paper book in which the reconciliation of Gross Advances as per Branch Books and net advances as per Balance Sheet as on 31.3.2010 of the Bank has been carried out (placed at page 135 of the Annual Report for the year under consideration). It is submitted that the net advances as shown in the Balance Sheet tallies with the statement appearing at page 32 of the paper book, thereby establishing the fact that bad debts written off are reduced from the advances at the time of preparation of the Balance Sheet. The learned Authorised Representative also drew our attention to page 25 of the paper book, which is a part of Form 3CD wherein at clause 20, it is clearly mentioned that recoveries of Rs.91,89,44,840 made against bad debts written off have been credited to the profit and loss account and reduced form the advances in the Balance Sheet. In support of the assessee's claim for write off of bad debts, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court

7 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 in the assessee's own case i.e. Vijaya Bank Vs. CIT (2010) 323 ITR 166 (SC).

5.2.2 The learned Authorised Representative contended that the reliance placed by the authorities below on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (supra) is not applicable as the facts in this cited case are totally different. It is submitted that the cited decision has been noted by the Hon'ble Apex Court in the assessee's own case (supra) and after noticing the said decision, the Hon'ble Court held that the provision debited to profit and loss account and reduced from advances would amount to write off.

5.3 Per contra, the ld. CIT, DR placed reliance on the findings rendered by the authorities below on this issue. It was contended that since the assessee's bank had not closed the individual debtors accounts at the Branch Level, there cannot be any write off.

5.4 In rejoinder, the learned Authorised Representative for the assessee bank submitted that there is no requirement to close the individual debtors account at the branch books, as has been held by the Hon'ble Apex Court in the assessee's own case. In this regard, the learned Authorised Representative also placed reliance on the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2009-10 in ITA No.331/Bang/2016 dt.22.7.2016.

5.5.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial

8 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

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 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 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 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.

10 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 6. Ground No.3 (3.1 to 3.3).

6.1 In the course of hearing, the learned Authorised Representative for the assessee submitted that this ground (supra) is infructuous and is withdrawn. In this view of the matter, this ground is dismissed as withdrawn.

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.475,23,01,271 in the books of account and claimed deduction of Rs.286,25,28,361 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.54,24,06,543 and thereby disallowed Rs.232,01,21,818. 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) disregarded, both the contentions of the assessee and the judicial pronouncements cited and upheld the Assessing Officer’s view that it is

11 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 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 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

12 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 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. 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:

13 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 “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 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

14 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 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.

7.4.3 Before us, the learned Authorised Representative submitted that the assessee is not disputing the classification of rural branches made by the Assessing Officer and accepts the AAA as at 31.3.2010 at Rs.2020,71,42,322 as arrived at by the Assessing Officer at page 42 of the order of assessment and in this context pleaded that the matter need not be remanded back to the Assessing Officer. In view of the aforesaid submissions of the learned Authorised Representative of the assessee, we hold that the assessee is entitled to deduction by considering the AAA at Rs.2020,71,42,322 as worked out by Assessing Officer at page 42 of his order and direct the Assessing Officer to rework the deduction under Section 36(1)(viia) of the Act accordingly. Consequently, the Ground No.4 of assessee's appeal is allowed for statistical purposes.

u/s.36(1)(viii) of the Act.

8.1 In this ground, the assessee bank challenges the action of the authorities below in disallowing the deduction claimed u/s.36(1)(viii) of the Act to the extent of Rs.51,00,00,000 out of Rs. 76 Crores. The facts

15 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 on record indicate that the assessee had transferred an amount of Rs.25 Crores to the Special Reserve in the year under consideration and a further sum of Rs.51 Crores in the F.Y. 2011-12 before the order of assessment for this year was passed. The Assessing Officer disallowed the entire claim on the ground that the computation adopted by the assessee was not prescribed by the Act and the assessee bank ought to have drawn up a profit and loss account of the eligible business and provide actual profit earned therefrom. On appeal, the learned CIT (Appeals) held that the assessee is eligible for deduction only to the extent of Rs.25 Crores since during the year under consideration only Rs.25 Crores was transferred to Special Reserve.

8.2.1 The learned Authorised Representative for the assessee bank submitted that the assessee had transferred Rs.25 Crores on 31.3.2010 and Rs.51 Crores on 31.3.2012 to the Special Reserve; which facts have been noted by the learned CIT (Appeals) in the impugned order. It is the contention of the learned Authorised Representative that there is no stipulation in the Act that the transfer to Special Reserve has to be made in the same financial year. It is submitted that this issue has been settled in favour of the assessee by the following judicial pronouncements :-

i. Punjab State Industrial Development Corporation (2010) 323 ITR 495 (P & H) ii. Punjab State Industrial Development Corporation (2006) 102 ITD 1 (VHD) (SB)

16 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 iii. Corporation Bank in ITA No.1352/Bang/2013 dt.11.3.2015 for Assessment Year 2011-12.

8.2.2 The learned Authorised Representative further submitted that for Assessment Year 2011-12 on the same issue, the learned CIT (Appeals) had upheld the assessee's claim following the decision of the co-ordinate bench of this Tribunal in the case of Corporation Bank (supra) and Revenue has apparently accepted the decision of the learned CIT (Appeals) since no appeal on this issue has been filed before the Tribunal.

8.3 Per contra, the learned Departmental Representative placed reliance on the orders of the learned CIT (Appeals).

8.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that this issue was considered and held in favour of the assessee and against revenue by a co-ordinate bench of this Tribunal in the case of Corporation Bank (supra); wherein at para 19, the Bench has held as under :

“ 19. We have perused the orders and heard the rival contentions. Section 36(1) (viii) is reproduced hereunder; “(viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head ‘Profits & gains of business or profession” (before making any deduction under its clause) carried to such reserve account” We find that Delhi Bench in the case of M/s PFCL (Supra) had considered the very same issue as to whether the special reserve was required to be created in the very same year of the claim of deduction of whether it could be created in a succeeding year. In its order dated 31- 07-2008 it was held as under at paras 18 to 24.

17 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

18 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

8.4.2 Respectfully following the aforesaid decision of the co-ordinate bench in the case of Corporation Bank (supra), we hold that reserve

19 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 created even in subsequent / succeeding years; however before the finalization of grant of deduction under Section 36(1)(viii) of the Act i.e. as per date of order of assessment is required to be considered while allowing the assessee's claim for deduction under Section 36(1)(viii) of the Act. The Assessing Officer is directed to examine and allow the assessee's claim accordingly. Consequently, this ground No.5 (5.1 to 5.3) is allowed for statistical purposes.

Revenue’s appeal in ITA No.1252/Bang/2016 for A.Y. 2010-11.

20 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

11.1 In these grounds (supra), Revenue assails the order of the learned CIT (Appeals) in directing the Assessing Officer to allow the assessee's claim towards depreciation on HTM Securities. The facts of the matter as emanate from the record are that the assessee bank claimed a sum ofRs.215,69,38,927 as depreciation on the HTM category of investments. The Assessing Officer disallowed the assessee's claim following the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank Vs. CIT (2012) 208 Taxman 511. On appeal, the learned CIT (Appeals) allowed the assessee's claim by following the decision of the Hon'ble Karnataka High Court in the assessee's own case in ITA No.687/2008 dt.11.3.2013 and also the decision of the co-ordinate bench of this Tribunal in the assessee's own case for A.Y. 2008-09 in ITA No.578 & 653/Bang/2012 for A.Y. 2008-09.

21 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 11.2 The ld. CIT DR placed strong reliance on the order of the Assessing Officer which was based on the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank (supra) which decided the issue in favour of the revenue.

11.3 Before us, the learned Authorised Representative for the assessee submitted that it was only after considering its own decision in the case of ING Vysya Bank (supra) that the Hon'ble Karnataka High Court decided the issue in favour of the assessee in the case of Karnataka Bank Vs. ACIT reported in (2013) 356 ITR 549 (Kar). Following the decision of the Hon'ble Apex Court in the case of UCO Bank Vs. CIT (1999) 237 ITR 889 (SC), the Hon'ble Karnataka High Court held that the investments of the bank are stock in trade and are to be valued at lower of cost or market value and the resultant depreciation is an allowable deduction. The learned Authorised Representative further submitted that the decision n the case of Karnataka Bank (supra), was followed by the Hon'ble Karnataka High Court in the assessee's own case in their order in ITA No.687/2008 which was then followed by the co-ordinate bench of this Tribunal in the assessee's case in the immediately preceding assessment year 2009-10 in order in ITA No.318/Bang/2014 dt.22.7.2016 and for A.Y. 2008-09 in ITA No.578/Bang/2012 dt.27.2.2015.

11.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that this issue has been considered and

22 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

held in favour of assessee and against Revenue both by the decisions of the Hon'ble Karnataka High Court and those of the co-ordinate bench of this Tribunal in the assessee's own case. We find that a co-ordinate bench, while dismissing Revenue’s ground on this issue in the assessee's own case for Assessment Year 2008-09 in its order in ITA No.578 & 653/Bang/2012 at paras 33 & 34 thereof has held as under :-

“ 33. We have considered the rival submissions. Similar issue as to whether depreciation on investments held under the category “Held to Maturity” or “Available for Sale” can be allowed as deduction came up for consideration in Assessee’s own case in AY 10-11 in ITA No.1310/Bang/2012 and this Tribunal upheld similar order of CIT(A). The following were the relevant observations of the Tribunal:- “21. We have considered the rival submissions. Similar issue as to whether depreciation on investments held under the category “Held to Maturity” can be allowed as deduction came up for consideration in the case of Syndicate Bank (supra) before the ITAT Bangalore Bench. The Tribunal on the issue held as follows: “58. We have heard the submissions of the ld. DR and the ld. counsel for the assessee. The ld. DR relied on the decision of the Hon’ble High Court of Karnataka in the case of CIT v. ING Vysya Bank Ltd. in 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 stockin-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

23 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

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 balancesheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-intrade (investments) because the bank was required to prepare the 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 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.”

24 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 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.

12.1 In these grounds (supra), Revenue assails the decision of the learned CIT (Appeals) in deleting the disallowance of Rs.2,65,27,250 made by the Assessing Officer u/s.14A r. w. Rule 8D. As per the details on record before us, in the year under consideration, the assessee earned tax exempt income of Rs.3,19,10,479 as interest on tax free bonds and dividend of Rs.8,09,65,535. The assessee had made a suo moto disallowance of Rs.3,89,646 u/s.14A of the Act on account of expenditure incurred to earn such exempt income. The Assessing Officer was of the view that the suo moto disallowance made by the assessee is not as per the provisions of Section 14A of the Act and therefore invoking the provisions of Rule 8D computed the disallowance thereunder at Rs.2,69,16,896 and after allowing credit for the assessee's suo moto disallowance of Rs.3,89,646, disallowed an amount of Rs.2,65,27,250.

25 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 On appeal, the learned CIT (Appeals) at para 6.7 of the impugned order observed that the Assessing Officer had invoked Rule 8D for computing the disallowance without recording any finding as to why he was not satisfied with the correctness of the assessee's claim in relation to exempt income and further observed that since this mandatory requirement of Section 14A(2) of the Act was not satisfied, the consequential invocation of Rule 8D is not in order. The learned CIT (Appeals) following 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 & 673/Bang/2012 dt.27.2.2015 deleted the aforesaid disallowance made by the Assessing Officer.

12.2 The CIT, DR for Revenue placed reliance on the orders of the Assessing Officer on this issue.

12.3 The learned Authorised Representative submitted that since the Assessing Officer had not recorded satisfaction as required under Section 14A(2) of the Act, therefore no disallowance could be made by invoking Rule 8D. It was further contended that since all the securities of the assessee bank are stock in trade, the provisions of Section 14A of the Act could not be invoked. Reliance was placed on the decision of the co- ordinate bench in ITA Nos.578 & 653/Bang/2012 dt.27.2.2015 for Assessment Year 2008-09.

12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial

26 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

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.

Banking Companies.

13.1 In this ground (supra), Revenue assails the order of the learned CIT (Appeals) for holding that the provisions of Section 115JB of the Act are not applicable to Banking companies.

27 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

13.2.1 We have heard the rival contentions, perused and carefully considered the material on record. We find that the learned CIT (Appeals), following 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 held that the provisions of Section 115JB of the Act are not applicable to Banking companies. At paras 53 and 54 thereof, the co-ordinate bench held as under :-

“ 53. We have heard the parties on the above issues. The provisions of Sec.115JB of the Act are not applicable to banking companies as held by this Tribunal in the case of Syndicate Bank ITA No.668 & 669/Bang/2010 order dated 19.6.2013. The relevant observations of the Tribunal in this regard are as follows:

“95. At the time of hearing, it was submitted by the ld. DR that the issue can be remanded for fresh consideration as was done by the Tribunal in A.Y. 2005-06 in ITA No.504/Bang/2009, order dated 13.01.2012. The ld. counsel for the assessee, however, submitted that the Tribunal in its earlier order though noted direct judgments on the point viz., (1) Order dated 30.09.2010 in ITA No.3390/2009 passed by ITAT ‘G’ Bench, Mumbai in the case of Krung Thai Bank; (2) Order dated 30.06.2011 in ITA Nos.4702 to 4706/2010 passed by the ITAT, Mumbai ‘F’ Bench in the case of Union Bank of India; and (3) Order dated 03.08.2011 in ITA No.469/2010 passed by the ITAT ‘C’ Bench, Chennai in the case of Indian Bank, did not adjudicate on the applicability of section 115JB, but following an earlier order in the assessee’s own case for earlier years (at which point of time the above Tribunal’s decisions were not available), restored the matter to the Assessing Officer to compute book profits based on recast P & L account prepared in accordance with the Schedule-VI of the Companies Act. 96. The learned counsel for the Assessee also submitted that the provisions of Sec.115JB of the Act were amended with effect from 01.04.2013 making it obligatory, inter alia, for banks to prepare P & L account in accordance with the Banking Regulation Act is clearly indicative of legislative understanding that upto and including A.Y. 2012-13, section 115JB had no application to banks and insurance companies. It was so held by ITAT, Hyderabad in the case of State Bank of Hyderabad dated 07.09.2013 in ITA No. 578/Hyd/2010 and ITAT Mumbai in the case of ICICI Lombard General Insurance Co. Ltd. dated 10.10.2012 in ITA No.2398/Mum/2009. 97. The learned DR relied on the order of the CIT(A). 98. We have considered the rival submissions of the ld. counsel for the assessee. We find that this issue was considered by the Mumbai Bench of the Tribunal in the case of Krung Thai Bank (supra) and on the above issue held as follows:-

28 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

“5. Learned counsel for the assessee, however, contends that the provisions of MAT do not apply to the assessee, and , for this reason, very foundation of impugned reassessment proceedings is devoid of legally sustainable merits. His line of reasoning is this. The provisions of MAT can come into play only when the assessee prepares its profit and loss account in accordance with Schedule VI to the Companies Act .It is pointed out that , in terms of the provisions of Section 115JB(2),every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and II I of Schedule VI to the Companies Act . Unless the profit and loss is so prepared, the provisions of Section 115 JB cannot come into play at al l. However, the assessee is a banking company and under proviso to Section 211 (2) of the Act , the assessee is exempted from preparing its books of accounts in terms of requirements of Schedule VI to the Companies Act , and the assessee is to prepare its books of accounts in terms of the provisions of Banking Regulation Act . It is thus contended that the provisions of Section 115 JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act . Since the provisions of Section 115 JB do not apply to the assessee company, the reasons recorded for reopening the assessment are clearly wrong and insufficient . We are urged to quash the reassessment proceedings on this short ground. 6. Learned Departmental Representative, on the other hand, vehemently relies upon the orders of the authorities below and submits that there is no specific exclusion clause for the banking companies, and in the absence of such a clause, it is not open to us to infer the same. The submissions of the learned counsel, according to the departmental representative, are clearly contrary to the legislative intent and plain wordings of the statute. 7. The plea of the assessee is indeed well taken, and it meets our approval. The provisions of Section 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and I II of Schedule VI to the Companies Act . The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Section 211 (2) of the Companies Act . The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act . The provisions of Section 115 JB cannot thus be applied to the case of a banking company.” 99. We are of the view that in the light of the decision of the Mumbai Bench of the Tribunal, we have to necessarily hold that provisions of section 115JB of the Act are not applicable to the assessee which is a banking company. The decisions relied upon by the ld. counsel for the assessee, clearly support the plea of the assessee in this regard. Consequently, ground No.3 raised by the assessee is also allowed.”

29 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 13.2.2 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2008-09 (supra), we do not find any reason to interfere with or deviate from the finding rendered by the learned CIT (Appeals) on this issue. Consequently, Ground No.5 of Revenue’s appeal is dismissed.

Assessment Year 2011-12

Assessee's appeal in ITA No.1647/Bang/2016 for A.Y. 2011-12

2.1. The Learned Commissioner of Income Tax (Appeals) erred in holding that the bad debts were not written off by the appellant bank.

2.2. The order of the Learned Commissioner of Income Tax (Appeals) is based on surmises & conjunctures.

2.3. The learned Commissioner of Income Tax (Appeals) erred in holding that the bad debts were not written off since there was no debitto the Profit & Loss Account.

2.4. The Learned Commissioner of Income Tax (Appeals) erred in rejecting entries passed in the books of accounts.

30 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 2.5. The learned Commissioner of Income Tax (Appeals) erred in notfollowing the decision of the Hon'ble Supreme Court in the appellant bank’s own case.

2.6. The learned Commissioner of Income Tax (Appeals) erred in following the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd [2010] 320 ITR 577 the facts of which are totally different.

3.1. The learned Commissioner of Income Tax (Appeals) erred in holding that for the purpose of calculating the aggregate average rural advances as per Rule 6ABA of the Income Tax Rules 1962, it is only the incremental advance that has to be considered.

3.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Rule 6ABA does not prescribe that the incremental advances are to be considered for arriving at Aggregate Average Rural Advances.

18.1 In this ground, the assessee challenges the action of the authorities below in disallowing its claim for bad debts written off amounting to Rs.308,39,04,931.

18.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case raised in this ground is similar to that raised by the assessee in Ground No.2 in its appeal in ITA No.1284/Bang/2016 for A.Y. 2010-11 (supra); wherein we have decided the issue in favour of the assessee following the decision of the Hon'ble Apex Court in the

31 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 assessee's own case reported in (2010) 323 ITR 166 (SC). Respectfully following the same, in this year also, the Ground No.2 raised by the assessee is allowed.

under Section 36(1)(viia) of the Act.

19.1 In this ground (supra), the assessee assails the orders of the authorities below in disallowing its claim of deduction under Section 36(1)(viia) of the Act amounting to Rs.244,40,27,648.

19.2 We have heard the rival contentions, perused and carefully considered the material on record. We find that the facts and circumstances of the case raised in this ground are similar to that raised by the assessee in Ground No.4 of its appeal in ITA No.1284/Bang/2016 for A.Y. 2010-11 (supra); wherein we have decided the issue in favour of the assessee following the decision of the co-ordinate bench of this Tribunal in the case of Canara Bank Vs. JCIT (2017) 60 ITR (Trib) 1 [ITAT, Bang]. Respectfully following the same, in this year also, the Ground No.3 raised by the assessee is allowed.

Revenue’s appeal in ITA No.1651/Bang/2016 for A.Y. 2011-12.

32 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016

23.1 In this ground (supra), Revenue challenges the decision of the learned CIT (Appeals) in deleting the addition of Rs.476,45,00,000, being the contribution to Pension Fund and Gratuity Fund. From the details on record before us, it is seen that the year under consideration, the assessee had made payments by way of contribution to Gratuity Fund and Superannuation Fund; debiting 1/5 th of the said payment to the profit and loss account as expenditure. However, while computing the

33 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 total income under the provisions of the Act, it claimed the entire amount paid as a deduction in view of the provisions of Section 43B of the Act. The Assessing Officer, however, was of the view that only the amount of Rs.462,73,00,000 debited to the profit and loss account was allowable as expenditure and disallowed a sum of Rs.476,45,00,000. On appeal, the learned CIT (Appeals) following the decision of the ITAT, Hyderabad Bench in the case of Andhra Bank reported in 2014 (7) TMI 904 – (ITAT, Hyd.) deleted the aforesaid addition made by the Assessing Officer. Revenue is in appeal before us challenging the order of the learned CIT (Appeals) on this issue.

23.2.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncement cited. We find that this issue is covered by the decision of the case of Andhra Bank (supra). In that case also, on similar facts as in the case on hand; the Assessing Officer had allowed the deduction only to the extent of the amount debited to the profit and loss account and disallowed the rest and the CIT (Appeals) deleted the disallowance; the ITAT, Hyderabad Bench dismissed Revenue’s appeal on this issue holding as under at para 10 thereof -

“ 10. We heard both sides and perused the impugned orders of the Revenue authorities and other material available on record. It is on the ground that part of the payments to pension and gratuity have not been routed through the Profit & Loss Account that the Assessing Officer has made the impugned disallowance in terms of S.43B of the Act. It is an undisputed fact that the payment relating to impugned disallowance has also been made before the due date for the filing of the return under S.139(1) of the Act. The CIT(A) was of the view that the purpose of S.43B is to ensure that the employer does not retain the amount with himself, after making certain statutory deductions in connection with the welfare of the employees. It

34 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 is to plug such delayed/non-payment of such deducted amount, S.43B was introduced. In the instant case, since the assessee has made the payment before the due date for the filing of the return, assessee is entitled for deduction, and disallowance in terms of S.43B was not warranted. Even otherwise, the CIT(A) noted that the amount in question is allowable as a business expenditure under S.37 of the Act. Apart from the reasoning given by the CIT(A), applying the ratio of the decision of the coordinate bench of the Tribunal in the case of Lamstuff Plastics (supra), relied upon by the learned counsel for the assessee, which squarely applies to the facts of the present case, we hold that irrespective of the method of accounting followed by the assessee, and the fact that the assessee has not debited the payments made towards gratuity and pension fund to Profit & Loss Account, impugned disallowance made by the Assessing Officer in terms of S.43B is not warranted. We accordingly uphold the order of the CIT(A) and reject the above ground of the Revenue on this issue.”

23.2.2 We find that the above decision of the ITAT, Hyderabad Bench in the case of Andhra Bank (supra) is squarely applicable to the facts of the case on hand. In this factual and legal matrix of the case as discussed above, we find no cause for interference with the finding of the learned CIT (Appeals) on this issue and consequently dismiss Ground No.2 raised by Revenue.

In this ground (supra), Revenue assails the order of the learned CIT (Appeals) in deleting the addition made under Section 14A r.w. Rule 8D. On a perusal of the record before us, we find that the facts and circumstances on this issue / ground are similar to those in Ground Nos.3 & 4 raised by Revenue in its appeal in ITA No.1252/Bang/2016 for A.Y. 2010-11. In that appeal (supra), we have decided this issue in favour of the assessee and against revenue. Respectfully following the same, in this year also, we uphold the view of the learned CIT (Appeals) and consequently dismiss ground No.4 raised by Revenue.

35 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 26. Ground No.5 – Applicability of provisions of Sec.115JB of the Act.

In this ground (supra), Revenue assails the order of the learned CIT (Appeals) in holding that the provision of Sec. 115JB of the Act are not applicable to Banking companies. On a perusal of the record before us, we find that the facts and circumstances on this issue / ground are similar to those in Ground No.5 raised by Revenue in its appeal in ITA No.1252/Bang/2016 for A.Y. 2010-11. In that appeal (supra), we have decided this issue in favour of the assessee and against revenue. Respectfully following the same, in this year also, we uphold the view of the learned CIT (Appeals) and consequently dismiss Ground No.5 raised by Revenue. 27. In the result, Revenue’s appeal for A.Y. 2011-12 is dismissed.

Assessment Year 2012-13

Assessee's appeal in ITA No.915/Bang/2017 for A.Y. 2012-13.

2.1. The Learned Commissioner of Income Tax (Appeals) erred in holding that the bad debts were not written off by the appellant bank.

2.2. The order of the Learned Commissioner of Income Tax (Appeals) is based on surmises & conjunctures.

36 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 2.3. The learned Commissioner of Income Tax (Appeals) erred in holding that the bad debts were not written off since there was no debitto the Profit & Loss Account.

2.4. The Learned Commissioner of Income Tax (Appeals) erred in rejecting entries passed in the books of accounts.

2.5. The learned Commissioner of Income Tax (Appeals) erred in notfollowing the decision of the Hon'ble Supreme Court in the appellant bank’s own case.

2.6. The learned Commissioner of Income Tax (Appeals) erred in following the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd [2010] 320 ITR 577 the facts of which are totally different.

3.1. The learned Commissioner of Income Tax (Appeals) erred in holding that for the purpose of calculating the aggregate average rural advances as per Rule 6ABA of the Income Tax Rules 1962, it is only the incremental advance that has to be considered.

3.2. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Rule 6ABA does not prescribe that the incremental advances are to be considered for arriving at Aggregate Average Rural Advances.

4.1. The learned Commissioner of Income Tax (Appeals) erred in law in not appreciating the fact that appellant bank computed the income from long term finance as provided in that Section.

4.2. The learned Commissioner of Income Tax (Appeals) erred in considering the provision for bad doubtful debts and bad debts written off while calculating the profit from the eligible business.

37 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 The learned Commissioner of Income Tax (Appeals) erred in disallowing gratuity and pension amounting to Rs.119,11,25,000 being 1/5th of the amount paid in FY 2010- 11” 29. Ground No.1 is general in nature and therefore no adjudication is called for.

In this ground (supra), the assessee assails the learned CIT (Appeals) decision in upholding the disallowance of bad debts written off amounting to Rs.183,55,58,987. On a perusal of the record before us, we find that the facts and circumstances of this issue / ground are similar to Ground No.2 raised by the assessee in its appeal in ITA No.1284/Bang/2016 for A.Y. 2010-11. In that appeal (supra), we have decided this issue in favour of the assessee and against revenue. Following the same, in this year also, we reverse the decision of the learned CIT (Appeals) on this issue and consequently allow the ground No.2 raised by the assessee.

under Section 36(1)(viia).

31.1 In this ground (supra), the assessee challenges the learned CIT (Appeals) order in upholding the disallowance u/s.36(1)(viia) of the Act amounting to Rs.245,67,41,898. On a perusal of the record before us, we find that the facts and circumstances of this issue / ground are similar to Ground No.2 raised by the assessee in its appeal in ITA No.

38 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 1284/Bang/2016 for A.Y. 2010-11. In that appeal (supra), we have decided this issue in favour of the assessee and against revenue. Following the same, in this year also, we reverse the decision of the learned CIT (Appeals) on this issue and consequently allow the ground No.3 raised by the assessee.

under Section 36(1)(viii)

32.1 In this ground, the assessee assails the decision of the learned CIT (Appeals) in upholding the disallowance of deduction claimed under Section 36(1)(viii) of the Act amounting to Rs.7,28,83,778. From the details on record, the assessee had claimed deduction under Section 36(1)(viii) of the Act amounting to Rs.75 Crores. The Assessing Officer made the aforesaid disallowance observing that the assessee while considering the operating expenses on proportionate basis, failed to consider the expenses on account of provision for bad and doubtful debts claimed under Section 36(1)(viia) of the Act and bad debts written off under Section 36(1)(viii) of the Act. The assessee had submitted a fresh calculation of the deduction under Section 36(1)(viii) of the Act vide letter dt.10.2.2015 which come to Rs.67.71 Crores and it is in these circumstances that the Assessing Officer disallowed the excess claim amounting to Rs.7,28,83,778. On appeal, the learned CIT (Appeals) upheld the aforesaid disallowance observing that it is the assessee itself that had submitted fresh calculation of deduction during the course of

39 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 scrutiny assessment proceedings and the Assessing Officer had taken that into account while making the disallowance and therefore the assessee cannot dispute its own calculation.

32.2 We have heard the rival contentions, perused and carefully considered the material on record. In the light of the facts on record before us, we concur with the view of the learned CIT (Appeals) that since the assessee itself had revised the calculation of its deduction claimed under Section 36(1)(viii) of the Act before the Assessing Officer in the course of assessment proceedings, the assessee cannot take a different stand subsequently and that too without controverting its own calculation in the matter. In this view of the matter, we find no merit in this ground No.4 raised by the assessee and accordingly dismiss the same.

This Ground (supra) is a protective ground and alternate to Ground No.2 of Revenue’s appeal in ITA No.1651/Bang/2016 for A.Y. 2011-12. Since we have dismissed that ground in Revenue’s appeal (supra), this ground raised by the assessee does not survive for consideration, thereby rendered infrutuous and accordingly dismissed.

40 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 Revenue’s appeal in ITA No.845/Bang/2017 for A.Y. 2012-13.

“ 1. The learned CIT (Appeals) erred in directing the Assessing Officer to allow the claim for deduction made by the assessee towards depreciation on HTM securities on the facts of the case. 2. The learned CIT (Appeals) erred in not appreciating the law laid down by the Hon'ble High Court of Karnataka in ING Vysya Bank Vs. CIT (2012) 208 Taxmann 511 and pendency of the issue of depreciation on HTM category securities before the Hon'ble Supreme Court. 3. The CIT (Appeals) has erred in holding that the Sec. 115JB of the Act are not applicable to banking companies. 4. Any other ground urged at the time of appeal.”

In these grounds, Revenue assails the order of the learned CIT (Appeals) in directing the Assessing Officer to allow the assessee's claim for deduction of Rs.380,06,33,654 towards depreciation on HTM Securities. From a perusal of the record before us, we find that the facts and circumstances on this issue / ground are similar to that of Ground Nos.1 & 2 raised by Revenue in its appeal for Assessment Year 2010-11 in ITA No.1252/Bang/2016. In that appeal (supra), we have decided this issue in favour of the assessee and against Revenue. Respectfully, following the same, in this year also, we uphold the order of the learned

41 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 CIT (Appeals) and consequently dismiss the ground Nos.1 & 2 raised by revenue.

In this ground (supra), Revenue assails the order of the learned CIT (Appeals) in holding that the provision of Sec. 115JB of the Act are not applicable to Banking companies. On a perusal of the record before us, we find that the facts and circumstances on this issue / ground are similar to those in Ground No.5 raised by Revenue in its appeal in ITA No.1252/Bang/2016 for A.Y. 2010-11. In that appeal (supra), we have decided this issue in favour of the assessee and against revenue. Respectfully following the same, in this year also, we uphold the view of the learned CIT (Appeals) and consequently dismiss Ground No.3 raised by Revenue.

i) For Assessment Year 2010-11, assessee's appeal is partly allowed and Revenue’s cross appeal is dismissed.

42 ITA Nos.915 & 845/Bang/2017 & 1647, 1651, 1284 & 1252/Bang/2016 ii) For Assessment Year 2011-12, assessee's appeal is allowed and Revenue’s cross appeal is dismissed. iii) For Assessment Year 2012-13, assessee's appeal is partly allowed and Revenue’s cross appeal is dismissed. Order pronounced in the open court on the 5th day of Jan., 2018.

Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) Accountant Member Judicial Member Bangalore, Dt.05.01.2018.

*Reddy gp

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.