Income Tax Appellate Tribunal - Chennai
The Karur Vysya Bank Ltd., Karur vs Acit, Trichy on 28 February, 2019
आयकर अपील य अ धकरण, 'बी' यायपीठ, चे नई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH: CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं ी इंटूर रामा राव, लेखा सद य के सम%
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
आयकर अपील सं./ITA Nos.1342, 1343 & 1344/Chny/2013
नधा&रण वष& /Assessment Years: 2007-08, 2008-09 & 1995-96
The Karur Vysya Bank Ltd., Addl. Commissioner of Income
Erode Road, Vs. Tax,
Karur - 639 001. Range I,
Thiruchirapalli.
[PAN: AAACT 3373J]
(अपीलाथ)/Appellant) (*+यथ)/Respondent)
आयकर अपील सं./ITA Nos.1393, 1394, 1497 & 1498/Chny/2013
नधा&रण वष& /Assessment Years: 1997-98, 1989-90, 2007-08 & 2008-09
Asst. Commissioner of Income Tax, The Karur Vysya Bank Ltd.,
Clrcle-I(1) , Vs. Erode Road,
Trichy. Karur - 639 002.
[PAN: AAACT 3373J]
(अपीलाथ)/Appellant) (*+यथ)/Respondent)
Cross Objection No.134/Chny/2018
(arising in ITA No.1394/Chny/2013)
नधा&रण वष& /Assessment Year:1989-90
The Karur Vysya Bank Ltd., Asst. Commissioner of Income
Erode Road, Vs. Tax,
Karur - 639 002. Clrcle-I(1),
[PAN: AAACT 3373J] Trichy.
(अपीलाथ)/Appellant) (*+यथ)/Respondent)
अपीलाथ) क, ओर से/ Assessee by : Shri S.Ananthan, CA
Ms. R. Lalitha, CA
*+यथ) क, ओर से /Revenue by : Shri Homi Raj Vansh, CIT-DR
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013
C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013
:- 2 -:
सन
ु वाई क, तार ख/Date of Hearing : 11.12.2018
घोषणा क, तार ख /Date of pronouncement : 28.02.2019
आदे श / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
ITA NOs. 1342 & 1497/Chny/2013 (Cross appeals) for Assessment Year 2007-08:
These are cross appeals filed by the Assessee as well as Revenue directed against the Order of the Learned Commissioner of Income Tax (Appeals), Tiruchirapalli (hereinafter called as 'CIT(A)') dated 25.03.2013 for the Assessment Year (AY) 2007-08.
2. The brief facts of the case are as under:
The appellant is a company incorporated under the provisions of the Companies Act, 1956 and engaged in the business of banking. The return of income for the AY 2007-08 was filed on 31.10.2007 disclosing total income of Rs. 196,10,00,010/-. Subsequently, it was revised on 27.03.2008 at a total income of Rs. 196,10,11,010/- and again it was revised on 19.06.2009 at a total income of Rs. 1,72,55,93,283/-. Against the said return of income, the assessment was completed by the Asst.
CIT, Corporate Circle-1, Thiruchirapalli (hereinafter called as 'AO') vide order dated 31.12.2009 passed u/s. 143(3) of the Income Tax Act, 1961 (in short 'the Act') at a total income of Rs. 320,83,80,764/-. While doing so, the AO has made the following disallowances:
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 3 -:
Additions
1. Depreciation on securities 59,27,74,569
2. Broken period interest 9,98,67,263
3.Brokeragepaid 28,000
4. Expenditure for earning tax free income 13,65,488
5. Ex-gratia payment 6,26,71,637
6. Right issues 22,62,934
7. Pooja expenses 8,84,725
8. Speculative loss on derivative transaction 6,43,030
9. Interest receivable but not due 22,21,14,416
10. Baddebts written off 8,24,47,532
11. Loss on sale of HTM category of securities 1,39,30,565
12. Unclaimed balance 1,12,00,000
13. Entertainment expense 1,34,000
3. Being aggrieved by the above additions, an appeal was preferred before ld. CIT(A), who vide impugned order deleted the addition on account of depreciation in the value of securities holding that the investments are in the nature of stock in trade and any fall in the value of investment should be treated as a business loss. The ld. CIT(A) also deleted the addition of Rs. 9,98,67,263/- on account of broken period interest paid on the securities holding that when the securities forming part of stock in trade, the broken period interest claimed as a revenue deduction should be allowed. The ld. CIT(A) also deleted the addition on account of brokerage of Rs. 28,000/- paid towards acquisition of HTM category of securities. As regards, the disallowance of Rs. 13,65,488/- u/s. 14A of the Act, the ld. CIT(A) upheld the disallowance as the assessee bank failed to furnish the details of income in earning the exempt income. The ld. CIT(A) held that the AO was justified in estimating the disallowance @ 2% of the gross receipts of exempt ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 4 -:
income. On the issue of disallowance ex-gratia payment of Rs. 6,26,71,637/-, the ld. CIT(A) confirmed the addition on the ground that the ex-gratia payment is in the nature of gratuity and the expenditure which is covered u/s. 32 & 36 of the Act cannot be allowed as a deduction u/s. 37(1) of the Act. The ld. CIT(A) also confirmed the disallowance of Rs. 22,62,934/- being the expenditure incurred on the right issue holding to be capital. The ld. CIT(A) also confirmed the Pooja expenditure of Rs. 8,84,725/- holding to be religious. As regards, the disallowance of speculative loss and derivative transaction, the ld. CIT(A) confirmed the addition holding to be in the nature of speculation loss. As regards, the addition on account of bad debts written off, the ld. CIT(A) deleted the addition by following the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT. On the issue of addition on disallowance of loss on HTM category securities of Rs. 1,39,30,565/-, the ld. CIT(A) confirmed the addition as the claim was made in the revised return, which was filed beyond the time prescribed under the provisions of sub s. (5) and s. 139 of the Act. The ld. CIT(A) deleted the addition on account of unclaimed balance of Rs. 1,12,00,000/-. The ld. CIT(A) also confirmed the disallowance of 5% of the entertainment expenditure holding that the expenditure is not wholly and exclusively for the purpose of business. The issue of allowance u/s. 36(i)(viia) of the Act was remitted to the file of AO for the purpose of ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 5 -:
verifying the average advances. Thus, the appeal filed by the assessee-
bank came to partly allowed by the ld. CIT(A). Being aggrieved by that part of the ld. CIT(A) order, which is against the assessee-bank, the assessee filed an appeal bearing ITA No.1342/Chny/2013 and the Revenue is in appeal in ITA No.1497/Chny/2013. Now, we shall take up the assessee's appeal in ITA No.1342/Chny/2013.
4. The assessee raised the following grounds of appeal in ITA No.1342/Chny/2013 are as under:
"1) The order of the CIT (A) in so far as it is against the assessee is contrary to law erroneous and unsustainable on the facts of the case 2% Disallowance of expenses on exempted income.
2) The CIT (A) erred in confirming 2% disallowance of expenses on exempted income.
3) The CIT(A) failed to appreciate that for the Assessee Bank, securities are stock- in-trade and Section 14A has no application to securities/shares held as stock-in- trade as per the Karnataka High Court decision in CCI Ltd vs. CIT (206 Taxman 563) (followed in Chennai Bench of ITAT in MSA securities ITA No: 1523 & 1524 order dated 17th Oct, 2012) and hence estimated disallowance of 2% of expenses was untenable in law.
4) The CIT(A) further failed to appreciate that the assessee bank is having sufficient non - interest bearing funds, and in the absence of any finding as to the incurring of expenditure, the invocation of provisions of Section 14A was unsustainable in law as well as on facts.
Ex-gratia payment
5) The CIT (A) erred in confirming the disallowance of ex-gratia payment.
6) The CIT (A) failed to appreciate that such payment was made out commercial expediency and hence ought to have allowed the same.
7) The CIT (A) ought to have followed the ITAT's decision of Lakshmi Vilas Banks's case (ITA No: 1403/2012 order dated 22nd March, 2013) to allow the assessee's claim.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 6 -:
8) The CIT (A) ought to have followed the following jurisdictional High Court decisions and allowed the same:
(i) CIT vs. Lakshmi Mills (240 ITR 81)
(ii) CIT vs. Sivanandh Mills (156 ITR 629)
(iii) Kumaran Mills vs. CIT (241 ITR 564)
(iv) National Engineering Industries Ltd (1994) 208 ITR 1002 )(CaI)
(v) CIT Vs Career Launcher India Ltd (2012) 20 taxmann.com 637 (Delhi) (Facts- No. II) Exgratia is incurred out of business necessity and it is paid from 1988 without any break.
Expenditure relating to Bonus shares
9) The CIT(A) erred in confirming the disallowance of Rs. 22,62,934 on account of expenses relating to the issue of bonus shares.
10) The CIT(A) failed to appreciate that the AC disallowed the same on the ground that it was rights issue and the CIT (A), ought to have allowed the same as the issue of Bonus shares was not relatable to the Capital field.
11) The CIT(A) further failed to appreciate that the assessee, having disallowed Rs.44,38,000 (out of Rs.6,97,00,934) relating to rights issue, ought to have allowed Rs.22,62,934 relating to Bonus shares.
12) The CIT(A), in the light of the decision of General Insurance Corporation 254 ITR 203, ought to have allowed the assessee's claims.
Disallowance of Pooja expenses
13) The CIT (A) erred in confirming the disallowance of Pooja expenses.
14) The CIT (A) failed to appreciate that it was incurred on account of welfare of the employees and the AC not having doubted the genuineness, but disallowed as it was not for the purpose of business, the CIT (A) ought to have allowed the same.
15) The CIT (A) ought to have followed the decision of the Tribunal in the assessee's own case in this regard and allowed the same. (ITA No. 930/2011 - A Y 2004-05: ITA No. 907/2010 - A Y 2005-06: ITA No. 931/2011 - A Y 2006- 07: ITA No. 905/2010 - A Y 2002-03) Additions: Speculative Loss on Derivative transactions
16) The CIT (A) erred in confirming the addition on account of "interest paid on Derivative transactions".
17) The CIT (A) failed to note that the regulator of Banks "RBI" had allowed these transactions and the RBI cannot and will not allow banks, which are dealing in public money to go in for speculative ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 7 -:
business. Further IRS (Interest Rate Swap) transactions are not of any speculative nature.
18) The CIT(A) failed to note that Mumbai ITAT had allowed IRS (Interest Rate Swap) as revenue expense in the case of J.P.Morgan Chase Bank Vs ADIT [2010-TI I-I 85-ITAT-DEL-INTL]
19) The CIT(A) failed to note that Mumbai ITAT special Bench in the case of DCIT VS Bank of Bahrain & Kuwait (132 TTJ 505) allowed the same following the above judgement.
20) The CIT(A) failed to observe that ITAT Mumbai had given a favourable decision to ABN Amro Securities India Pvt Ltd Vs ITO.
Further in the above cited cases, the loss arising on year end valuation of IRS swap was allowed.
21) In ABN Amro Securities India Pvt Ltd Vs ITO case, in Para 5 (Last 3 lines) it is stated that depending on whether the amount is receivable or payable under the interest rate swap contract, the amounts are booked as income or expenditure in the Profit and Loss account. There are no issues with regard to the income so disclosed or the expenditure so claimed for deduction.
22) The appellant Bank had not claimed any loss on revaluation of IRS. But only claimed interest received and paid. So, based on the judgements cited, the CIT (A) ought to have allowed the same.
Loss on sale of HTM Securities
23) The CIT (A) ought to have directed the correct loss of Rs.24,78,54,994 is to be allowed on the sale of securities.
24) The CIT (A) failed to appreciate that instead of claiming the correct quantum of loss of Rs.24,78,54,994 the assessee claimed only Rs. 1,39,30,565 by mistake, and the same was sought to be rectified by filing a revised return in the course of the assessment proceedings, and hence there is no justification for rejecting a rightful claim.
25) The CIT (A) further failed to appreciate by letters dated 11th November, 2009 and 24th December, 2009 in response to notice u/s 142(1) the same was clarified and instead of taking these clarifications into account, simply, rejecting the claim of the assesseee for the correct quantum of loss is unsustainable both in law as well as on the facts of the case.
26) The CIT(A) having held that securities are Stock-in-trade, ought to have directed the AC to adopt the correct quantum of loss instead of adopting incorrect loss of Rs.1,39,30,565 which otherwise amounted to adopting incorrect figure without enquiry. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 8 -:
Addition on account of entertainment expenses
27) The CIT (A) erred in confirming the addition on account on entertainment expenses.
28) The CIT (A) failed to appreciate that such expenses were incurred out of commercial expediency and hence ought to have allowed the same.
29) The CIT (A) ought to have followed the Chennai ITAT's decision in the case of Lakshmi Vilas Bank (ITA No: 1402/2012 order dated 22' March, 2013) to allow the assessee's claim.
30) For the reasons stated in the above grounds of appeal and additional grounds and arguments that may be adduced at the time of hearing, the additions/disallowances may be deleted."
5. Grounds of appeal No.1 & 13 are general in nature and do not require any adjudication. The Grounds of appeal No.2 to 4 challenges the disallowance of 2% of exempt income under the provisions of s. 14A of the Act. The AO made a disallowance of Rs. 13,60,438/- invoking the provisions of s. 14A of the Act r/w. Rule 8D of the Income Tax Rules rejecting the contention of the appellant that no expenditure was incurred to earn the exempt income as the employees, who are employed to carry out banking activity are used in the activities related to the earning of the exempt income. Further, the AO observed that the disallowance of 2% of exempt income in the case of Lakshmi Vilas Bank have been upheld by the Tribunal. Even, on appeal before ld. CIT(A), the same came to be confirmed vide para 4.3 of the ld. CIT(A) order. Being aggrieved, the appellant is before us in the present grounds of appeal contending that the provisions of s. 14A of the Act has no application to the shares and stock held as stock in trade. It is further contended that in the absence of ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 9 -:
finding by the AO as to how the contention of the appellant that no expenditure was incurred is incorrect, no disallowance should be made. Reliance in this regard was placed on the decision of Hon'ble Karnataka High Court in the case of CCI Ltd. v. CIT 206 Taxman 563 (Kar.) and the order of ITAT, Chennai Benches in ITA Nos.1523 & 1524 order dated 17.10.2012 and also in the case of Maxoop Investment Ltd [2018] 402 ITR 640 (SC), Karur Vysya Bank Ltd. [2017] (4) TMI 566 (ITAT-Chennai) & Vijaya Bank [2015] (7) TMI 86 (ITAT-Chennai). On the other hand, the ld. CIT-Departmental Representative placed reliance on the orders of lower authorities.
5.1. We heard the rival submissions and perused the material on record. It is undisputed fact that the assessee earned exempt income during the previous year relevant to the financial year under consideration. It is settled proposition of law that the provisions of r. 8D of the Rules cannot be applied for the AY 2007-08 since, the provisions were inserted only from 01.04.2008. It is the contentions of the appellant that no expenditure was incurred for earning the exempt income, which does not part of the total income. However, the AO had rejected this argument by holding that without incurring expenditure on travel, telephone, postage, stationery and manpower, it is impossible to earn dividend income, which is exempt from the tax therefore, made adhoc ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 10 -:
disallowance of 2% of the exempt income. Therefore, it cannot be said that the AO had not recorded finding as to the satisfaction reached by him about the contention of the appellant that the appellant has not incurred any expenditure. In the light of this finding by the AO, the contentions urged by the assessee-bank that resort cannot be made to the provisions of s. 14A of the Act cannot be accepted. Further, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640 (SC) vide para 40 had clearly held that whether the shares are held as stock in trade or to maintain a controlling interest in the company is irrelevant for disallowance u/s. 14A of the Act.
Therefore, the contention that the resort to provisions of s. 14A of the Act cannot be made when the shares are held as stock in trade is rejected.
The case laws relied upon in this connection by the ld. Counsel are not applicable. The approach of the AO in making a disallowance @ 2% of exempt income was also approved by the Hon'ble jurisdictional High Court in the case of Simpson & Co. Ltd. in T/C. No.2621 of 2006 dated 15.10.2012.
5.2. Since, the orders of lower authorities are in conformity law laid down by the Jurisdictional High Court, we do not find any merit in the grounds of appeal raised by the assessee-bank.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 11 -:
5.3. In the result, the ground of appeal No.2 raised by the assessee is dismissed.
6. Ground No.3 challenges the addition of ex-gratia payment of Rs.
6,26,71,637/-. The assessee-bank made a claim for deduction of ex- gratia payment of Rs. 6,26,71,637/- made to the employees excluded from the purview of the payment of bonus act, the incentives were paid to these employees on the completion of 90 years of the existence. The AO disallowed the claim placing reliance on the provisions of s. 36(1)(ii) of the Act, which lays down that any sum paid to an employee as a bonus for services rendered, where the same would not have been payable to the employee as profit or dividend, if it is not paid as a bonus or commission shall be allowed as a deduction. Further, the AO opined that the assessee-bank circumvented the provisions of Bonus Act. The AO also placed reliance on the several judicial precedents. On appeal before ld. CIT(A), confirmed the disallowance by holding that the ex-gratia payment cannot be allowed as deduction as the ex-gratia paid par takes the character of the bonus and gratuity, which are governed by provisions of s. 36(1)(ii) and s. 37(1) of the Act and the expenses which are covered by Sections 30 to 36 of the Act, cannot be allowed as a deduction u/s. 37(1) of the Act.
6.1. Being aggrieved, the appellant is in appeal before us in the present appeal.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 12 -:
6.2. The ld. Counsel submitted that the issue is squarely covered in favour of assessee in its own cases by the decision of Co-ordinate Bench of the Tribunal for the AYs 2010-11 & 2011-12. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities.
6.3. We heard the rival submissions and perused the material on record. The solitary issue in the present ground relates to whether the ex-gratia payment made to these employees on the celebrations of 90th birthday of the bank as well as to the employee, who are not covered by the payment of Bonus Act can be allowed as a deduction. There are no doubts about the genuineness of the expenditure but the AO disallowed that the ex-gratia payment holding that it is in the character of bonus and gratuity, which are specifically covered by the provisions of s. 36(1)(vii) and s. 37(1) of the Act. The view of the AO that the payment is made in lieu of the dividend or distribution of profit cannot be accepted because employees are not entitled to share in the profits as well as distribution of the dividend. The second contention of the AO that the ex-gratia payment is in the nature of bonus and gratuity also cannot be accepted for the reason that the gratuity is only paid at the time of retirement and the bonus, which is paid in excess what prescribed in the Bonus Act is also allowable as deduction as in the light of the decision of Hon'ble ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 13 -:
Jurisdictional High Court in the case of Kumaran Mills Ltd. v. CIT [2000] 241 ITR 564 (Mad.) and in the case of CIT v. Carborundum Universal Ltd. [1977] 110 ITR 621 (Mad). Inasmuch as, the Bonus Act only prescribed the minimum amount of bonus to be made there is no bar on the payment of bonus over and above prescribed under the Bonus Act.
Further, the Co-ordinate Bench of Tribunal in assessee's own case in ITA Nos.2325 & 2326 for AY 2010-11 & 2011-12 dated 29.03.2017 held as follows:
"14. Aggrieved, the assessee moved in appeal before the CIT(Appeals). Ld. CIT(Appeals) was of the opinion that the actual amount of deduction computed by the assessee as well as the Assessing Officer was very same. As per the Ld. CIT(Appeals), the ground was purely academic, since, according to him, for the impugned assessment year, the Assessing Officer though he followed a different method of computation, it did not effect the taxable income of the assessee."
6.4 In the light of the above discussion, we are of the considered opinion that the claim for deduction of ex-gratia payment of Rs. 6,26,71,637/- should be allowed, accordingly, we direct the AO to allow the same as a deduction.
6.5 In the result, Ground of appeal No.3 filed by the assessee is allowed.
7. Ground of appeal No.4 challenges the addition on disallowance of expenditure incurred on bonus shares. The AO disallowed the same holding to be a capital expenditure. The assessee had incurred a total ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 14 -:
expenditure of Rs. 6,97,00,934/- on the right issue, out of which a sum of Rs. 22,62,934/- was claimed as deduction in the current year. It is claimed that the expenditure is in the nature of registration fee, SEBI fee, which was allowed in the earlier years and on the same principle, the same should be allowed in the current year. The AO denied the deduction holding that any expenditure incurred for issue of the capital or enhancing the capital is in the nature of capital expenditure. Placing reliance on the decisions of in the cases of Laxmandas Sejram v C.I.T. (1964) 54 ITR 763, 771 (Guj), Raja Rain Kumar Bhargava v C.LT. (1963) 47 ITR 680, 693 (All), Subodlichandra Popatlal v C.I.T. (1953) 24 1TR 566, 573(Bom), Southern Agencies Ltd. v CIT. (1962) 45 ITR 602, 612 (Mad), N.M. Rayaloo Iyer & Sons v CJ.T. (1954) 26 ITR 265 (Mad), Birla Gwalior Pr. Ltd. v C.I.T. (1962) 44 ITR 847 (MP), Noshirwan & Co. P. Ltd. v C.I.T. (1970) 77 ITR 822, 827 (MP), Nathmat Bankatlal Parikh & Co. v C.I.T. (1980) 122 ITR 168, 173-4 (AP-FB), C.LT. v Carborundum Universal Ltd., (1977) 110 1TR 621 (Mad) and C.I.T. v Forbes Ewart & Figgis (P) Ltd. (1982) 138 ITR 1 (Kcr-FB). The ld. CIT(A) also confirmed the addition.
7.1 Being aggrieved, the assessee is in appeal before us in the present appeal.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 15 -:
7.2 It is contended that the expenses were incurred for increase of authorized share capital is allowable as revenue expenditure and placed reliance on the decision of Hon'ble Supreme Court in the case of CIT v.
General Insurance Corporation [2006] 286 ITR 232 (SC). On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities.
7.3. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the allowance of expenditure incurred on right issue of shares. Undoubtedly, on account of right issue shares, there would be change in the capital structure of the company. Any expenditure incurred in increasing the capital structure of the company is a capital expenditure as held by the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation v. CIT [1997] 225 ITR 792 (SC) and in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 (SC). The case laws relied upon by the ld. Counsel cannot be applied to the facts of the present case, wherein the Hon'ble Supreme Court held that the expenditure incurred on issue of bonus shares is revenue expenditure, whereas In the present case, we were concerned with the issue of right shares. Thus, this ground of appeal filed by the assessee is dismissed. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 16 -:
7.4 In the result, ground of appeal No.4 filed by the assessee is dismissed.
8. Ground No.5 challenges the disallowance of Pooja expenses. The AO disallowed a sum of Rs. 8,84,725/- by holding that the expenditure, was not incurred wholly and exclusively for business purpose. Even, the ld. CIT(A) confirmed the same.
8.1. Being aggrieved, the assessee is in appeal before us in the present appeal.
8.2 It is submitted before us that the similar expenditure was allowed in the assessee's own case in the AY 2004-05, 2005-06 and 2006-07 by this Tribunal, following the decision of Hon'ble High Court of Madras in the case of CIT v. Aruna Sugars Ltd. [1981] 132 ITR 718 (Mad.). The decision of the Tribunal was accepted by the Revenue by not filing any further appeal. These submissions of the ld. Authorized Representative of assessee were not controverted by the ld. Sr. Departmental Representative. In the circumstances, following the decision of this Tribunal in assessee's own case, we direct the AO to allow the same as a deduction.
8.3 In the result, ground of appeal No.5 of the assessee is allowed. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 17 -:
9. Ground No.6 challenges the disallowances of interest swap transactions to the extent of Rs. 200 crores. Under these transactions, one party will pay fixed interest on the contracted amount to the other party. This is nothing but the contract between two parties exchanging a steam of interest payment for notional principal amount on multiple occasions during the contract period. These contracts involved exchange of fixed rate of interest with floating rate of interest and vis-à-vis of each payment date interest is paid on the agreed fixed reporting rate for one party to another for settling the different payments. The AO had treated these transactions as a speculative and disallowed the interest paid on these transactions. Even, the ld. CIT(A) confirmed the action of AO. 9.1 Being aggrieved, the assessee is in appeal before us in the present appeal.
9.2 It is submitted that the issue in the present grounds of appeal is covered by the decision of Mumbai Special Bench of Tribunal in the case of Bank of Baharain & Kuwait [2010] 5 ITR 301 (MUM (SB). It is further submitted that for AY 2010-11, the ld. CIT(A) granted relied to the assessee-bank on the issue. The decision of ld. CIT(A) was accepted by the Department by not filing further appeal. Thus, it is prayed that the same may be allowed as a deduction. The above submissions made on behalf of the assessee-bank were not controverted by the ld. DR. In the ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 18 -:
circumstances, this ground of appeal filed by the assessee-bank is allowed.
9.3 In the result, ground of appeal No.6 of the assessee stands allowed.
10. Ground No.7 challenges the disallowance of loss on account of sale of HTM securities of Rs. 24,78,54,994/-. The brief facts relating to this claim are that the loss incurred on the sale of HTM securities was of Rs. 1,39,30,565/-. During the course of assessment proceedings, the assessee made a claim that the actual loss made on the sale of this securities was Rs. 24,78,54,994/-. This claim was made by revised return filed on 19.06.2009, which is beyond the time allowed u/s. 139(5) of the Act. The AO denied the claim on the ground that the claim was made in the revised return, which was beyond the time prescribed u/s. 139(5) of the Act. The ld. CIT(A) also confirmed the same.
10.1 Being aggrieved, the assessee is in appeal before us in the present appeal.
10.2 It is contended that in the case of banking company all the investments are treated as a trading assets. The loss arising on the sale of such securities should be allowed as a trading loss. Reliance in this regard was placed on the decision of Hon'ble Jurisdictional High Court in ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 19 -:
the case of CIT v. Karur Vysya Bank Ltd. [2005] 273 ITR 510 (Mad.) and the decision of Hon'ble Supreme Court in the case of United Commercial Bank v. CIT [1999] 273 ITR 510 (SC). Therefore, the resultant profit or loss on the sale of such securities are to be treated as a business profit / loss. In the present case, the claim was made in the original return of income, but wrong amount of Rs. 24,78,54,994/- was claimed. It is only during the course of assessment proceedings that this revised claim was made before the AO. But it is bounden duty of the AO to work out the correct profits and the income tax proceedings are not adversely proceedings and therefore, the AO should have allowed the claim. Reliance was made in this regard in the case of CIT v. McMillan & Co. [1958] 33 ITR 182 (SC), SN Namasivayam Chettiyar v. CIT [1960] 38 ITR 579 (SC) and CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) and also the decision of CIT v. Prudvi 23 Taxman 23. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities.
10.3 We heard the rival submissions and perused the material on record. the investment held by banking concern are treated as a part of the business of banking company therefore, the profit or loss arising from the such investment is treated as a part of business income in the light of decision of Hon'ble Supreme Court in the case of United Commercial Bank of India (supra) and the decision of Hon'ble Jurisdictional High ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 20 -:
Court of Madras in the case of Karur Vysya Bank Ltd. (supra). This decision was accepted by CBDT vide Circular No.18 of 2015 dated 02.11.2015. In the return of income, the claim relating the sale of securities was made but the claim was made at an amount of Rs.
1,39,30,565/- as against the correct amount of Rs. 24,78,54,994/-. The correct amount of claim was made by filing a revised return. The AO as well as ld. CIT(A) denied the claim on the ground that the claim was made by a revised return which was filed beyond the prescribed period under the statute. The approach of the AO cannot be appreciated in view of the settled principle of law that it is the bounden duty of the AO to compute the taxable income of the assessee in accordance with law and the assessment proceedings are not adverse proceedings. In fact, it is not a new claim made for the first time before the AO. It is only the variation in the amount of the claim. Therefore, we direct the AO to examine workings furnished by the assessee-bank and if, satisfied about the correctness of the working of the loss on sale of HTM securities to allow the same as a revenue loss in the light of the legal position discussed above.
10.4 In the result, ground of appeal No.7 filed by the assessee is partly allowed for statistical purpose.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 21 -:
11. Ground No.8 challenges the disallowance of entertainment expenditure of Rs. 1,34,000/-. The AO has disallowed a sum of Rs. 1,34,000/- out of the total entertainment expenditure of Rs. 26,79,874/. It is clarified that the expenditure was incurred for supplying tea, coffee etc, to the customers at the time of canvassing the business. Though the AO agreed in principle on the allowabillity of expenditure but made adhoc disallowance of 5% of the total expenditure on the ground that a certain portion of the expenditure may not be relating to the business. The ld. CIT(A) also confirmed the same.
11.1 Being aggrieved, the assessee is in appeal before us in the present appeal.
11.2 It is submitted that the issue is covered in favour of the assessee- company in its own case by the decision of this Tribunal for the AY 2010- 11 (Para 47 at page 116 of the order), wherein the Tribunal deleted the addition on the ground that there was nothing on the record to show that any expenditure was incurred for the benefit of the employees. The ld. CIT(A) had not controverted above submissions. Therefore, we allow this ground of appeal.
11.3 In the result, appeal filed by the assessee in ITA No.1342/Chny/2013 stands partly allowed.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 22 -:
Revenue Appeal in ITA No.1497/Chny/2013 for AY 2007-08:
12. The Revenue raised the following grounds in ITA No.1497/Chny/2013 for AY 2007-08:
"01.The CIT(A) failed to appreciate the fact that the ssessee is claiming the debts written off as urban debts only before CIT(A) and no remand report was called for and rule 46(1) was violated.
02.The CIT(A) failed to see that no rural debt writtn off can be claimed u/s 36(1)(vii) if its value is less than the provision made u/s 36(a)(viia) and also failed to appreciate the fact that the list of debts written off filed by the assessee contains some rural debts also.
03.The CIT(A) erred in interpreting the 2nd limb of section 36(1)(viia). The CIT(A) allowed deduction on the total average outstanding rural advances made by the bank at the end of the accounting year without restricting the deduction to the incremental advance made during the year. The CIT(A) failed to appreciate the fact that income for each year is required to be computed separately as each accounting year is a separate unit for assessment purpose and therefore deduction was available only on incremental rural advance during the year and not on total outstanding at the end of the accounting year.
04.The CIT(A) failed to see that the section 36(1)(viia) reads as 'aggregate average advances made by the rural branches of such bank' not as 'aggregate average advances outstanding in the rural branches of such bank'.
05.The CIT(A) failed to appreciate that RBI, the regulator of banks asked the banks to maintain the portfolio of the securities in three categories viz. Held to maturity(HTM), Available for sale (AFS) and Held for sale (HFS). It implies that investment in HTM category of securities is to be treated as "investment" of capital nature.
06.The CIT(A) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The CIT(A) ought to have restricted the relief for the brokerage paid in respect of HFS & AFS category of securities.
07.The CIT(A) erred in deleting the disallowance of broken period interest for the purchase of securities without appreciating that securities in the HTM category would be investment of capital nature. The CIT(A) ought to have restricted the deductin of the broken period interest in respect of HFS & AFS category of securities.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 23 -:
08.The CIT(A) erred in deleting the addition with regard to unclaimed balances. The CIT(A) failed to follow the ration of decision of Apex court in the case of T.V.Sundaram Iyengar & Sons. 222 ITR 344(SC). The balances lying unclaimed with the bank for more than 3 years ought to have been confirmed by the CIT(A) as these are to be treated as income in the light of the above referred decision."
13. At the outset, there is delay in filing the appeal by 10 days. The Revenue had prayed for condonation of delay. It is submitted that the delay in filing the appeal had occurred on account of change of incumbent and thus, it was prayed that the delay is not deliberate. It is stated that under these circumstances, the delay of 10 days may be condoned. The ld. Counsel for the assessee-bank had no serious objection for the condonation of delay. Considering the rival submission, we condone the delay of 10 days in filing the present appeal and admit the appeal.
13.1 Grounds No.1 & 2 challenges the direction of ld. CIT(A) deleting the addition made u/s. 36(1)(vii) of the Act for Rs. 8,24,47,532/-. The AO made addition by disallowing the claim for deduction u/s. 36(1)(vii) of the Act solely on the ground that the credit balance available in the account of provision for bad and doubtful debts more than the amount claimed as a bad debts. On appeal before the ld. CIT(A), the CIT allowed the claim considering the fact that the bad debts were written off in the books of account, the provision of s. 36(1)(vii) of the Act are different from s. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 24 -:
36(1)(viia) of the Act. Both the provisions are separate and distinct and the proviso to clause (7) of s. 36(1) are not applicable, inasmuch as, there was no double deduction.
13.2 Being aggrieved by this decision of the ld. CIT(A), the Revenue is in appeal before us in the present grounds of appeal. The issue in the present grounds of appeal is covered against the Revenue by decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC), vide para 4 & 5 of judgment, which reads as under:
"4. We consider it appropriate to notice at this stage the fate of the orders passed for the previous assessment years in relation to the appellant and other banks.
5. M/s Dhanalakshmi Bank Ltd., one of the appellants before us, had also raised the same issue before the Tribunal in ITA Nos. 602- 605/Coch/1994 and 190/Coch/1995, in relation to earlier assessment years. A view had been expressed that there was no distinction made by the legislature in the proviso to s. 36(1)(vii) between rural and non- rural advances and, therefore, its application cannot be limited to rural advances. Under cl. (viia) also, a bank was held to be entitled to deduction in respect of the provisions made for rural and non-rural advances, subject to limitations contained therein. Thus, the contention of the assessee in that case, for deduction of bad debts from urban branches under s. 36(1)(vii), was rejected. The earlier view taken by the Tribunal in the case of Federal Bank in ITA Nos. 505, 854/Coch/1993, 376/Coch/1995 and 284/Coch/1995 held that the proviso to cl. (vii) only bars the deduction of bad debts arising out of rural advances, the actual right to set off bad debts in respect of non-rural and urban advances cannot be controlled or restricted by application of the proviso and the same would be allowed without making adjustment vis-a-vis the provision for bad and doubtful debts. This view was obviously favourable to the assessee. Noticing these contrary views in the cases of Dhanalakshmi Bank (supra) and Federal Bank (supra),the matter in the case of the appellant-bank, for asst. yrs. 1991-92 to 1993-94 was referred to a Special Bench of the Tribunal for resolving the issue. The Special Bench, vide its judgment ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 25 -:
dt. 9th Aug., 2002 [reported as Dy. CIT vs. Catholic Syrian Bank Ltd. (2004) 82 TTJ (Coch)(SB) 181--Ed.] had answered the question of law in the affirmative, holding that debts actually written off, which do not arise out of the rural advances, are not affected by the proviso to cl. (vii) and that only those bad debts which arise out of rural advances are to be deducted under s. 36(1)(viia) in accordance with the proviso to cl. (vii). Finally, the matter, in respect of the appellant-
Bank, was ordered to be placed before the AO and with respect to other banks, before the concerned Benches of the Tribunal. The order of the Special Bench of the Tribunal was implemented by the Department and was never called in question. It may be noticed here that in relation to earlier assessments, i.e. right from 1985-86 to 1987-88 in a similar case, different banks came up for hearing in appeal before a Division Bench of the Kerala High Court in the case of South Indian Bank Ltd. (supra) wherein, as mentioned above, while discussing the scope of ss. 36(1)(viia) and 36(2)(v) of the Act, the High Court set aside the order of the Tribunal in that case and held that the assessee was entitled to the deduction under cl. (vii) irrespective of the difference between the credit balance in the provision account made under cl. (viia) and the bad debts written off in the books of accounts in respect of bad debts relating to urban or non-rural advances. It accepted the contention of the assessee and referred the matter to the AO. This judgment of the High Court is subject-matter of Civil Appeal Nos. 1190-1193 of 2011 before us." 13.3 Even in the assessee's own case, the Hon'ble Jurisdictional High Court of Madras held the issue in favour of the assessee-bank in the AY 1987-88, 1992-93 in Tax Case Nos. 43 & 44 of 2012 and MP No.1/12. Thus, in the light of above legal position, we do not find any merit in the grounds of appeal filed by the Revenue.
13.4 In the result, grounds of appeal No.1 & 2 filed by the Revenue are dismissed.
14. Grounds of appeal No.3 & 4 challenges the direction of ld. CIT(A) to delete the addition made u/s. 36(1)(viia) of the Act. The AO allowed deduction of Rs. 8,63,72,774/- as against the claim of Rs. 24,34,18,374/-. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 26 -:
The difference in the amount claimed by the assessee-bank and allowed by the AO had arisen on account of methodology adopted under Rule 6AB of the Act Rules for the purpose of working out of the average rural advances. The AO has considered only incremental advances, whereas the assessee-bank considered the outstanding advances for the purpose of calculating the average rural advances on each calendar month. The ld. CIT(A) directed the AO to follow the decision of this Tribunal in the case of City Union Bank, Lakshmi Union Bank etc. and set aside the issue for verification of the AO. This issue was discussed at length by the Co-ordinate Bench of Tribunal, Bangalore in the case of Canara Bank v. JCIT 60 ITR (Trib.) 1 (Ban.), wherein it was held vide relevant paras 18.2 & 18.3 relevant paragraphs is extracted below:
"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 f 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 :
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 27 -:
(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 Co- operative 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 ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 28 -:
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."
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 29 -:
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 co-
ordinate 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." 14.1 The reasoning of this Tribunal was approved by the Hon'ble Calcutta High Court in the case of PCIT v. Uttarbanga Kshetriya Gramina Bank [2018] 408 ITR 393 (Cal), wherein the Hon'ble Calcutta High Court upheld the interpretation of the provisions of Rule 6ABA of the Rules for the purse of s. 36(1)(viiia) of the Act that only aggregate average advance made by rural branches of a scheduled bank should be computed by aggregating separately the advances made by each rural branch as outstanding at the end of the last day of each months comprised in the previous year. The Hon'ble High Court had categorically held that the method of taking the loans and advances made during the year only is not correct.
14.2 Therefore, in view of the above legal position, we direct the AO to consider only the outstanding rural advances not the incremental advances made by the rural branches for the purpose of calculating the deduction u/s. 36(1)(viia) of the Act. The direction of the ld. CIT(A) are in consonance with the law enunciated the above. Therefore, we do not find any reason to interfere with the order of ld. CIT(A) on this issue. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 30 -:
14.3 In the result, grounds of appeal No.3 & 4 filed by the Revenue are dismissed.
15. Ground of appeal No.5 challenges the direction of ld. CIT(A) to allow the loss of fall in the value of the securities held by the bank. The AO has disallowed the claim for deduction of loss on account of HTM category of securities held by the assessee-bank on the ground that the notional profit made on account of AFS and HFT securities categories cannot be brought to tax.
15.1 Being aggrieved, an appeal was preferred before the ld. CIT(A), who vide impugned order had directed the AO to allow the deduction following the law laid down by the Hon'ble Supreme Court in the case of UCO Bank, Universal Bank Ltd. 248 ITR 355 and the order of the Chennai Tribunal in the case of Bharat Overseas Bank and Indian Bank. On the other hand, the ld. Departmental Representative placed reliance on the orders of the lower authorities.
15.2 On the other hand, the Authorized Representative of assessee Shri S.Ananthan submitted that this issue in the present grounds of appeal is covered in favour of the assessee's bank by the decision of Hon'ble Jurisdictional High Court of Madras in the assessee's own case in the case of in TMA No. 1210 and Hon'ble High Court of Madras in the ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 31 -:
assessee's own case 273 ITR 510 (Mad). This issue was also dealt by the co-ordinate Bench of the Tribunal, Bangalore in the case of Canara Bank v. JCIT (the Hon'ble AM is the author of the order) vide para 9.5 to 10:
9.5 We heard the rival submissions and perused the material on record. The short issue in this ground of appeal is whether fall in value of investments made pursuant to SLR requirements of RBI can be allowed as a deduction while computing business income of a banking company. Notwithstanding treatment given in the books of account, it is undisputed fact that investments are made only to comply with the regulations of RBI governing SLR requirement. Even otherwise, the Hon'ble jurisdictional High Court in the case of Karnataka Bank (supra) held that circular issued by the RBI for treatment in the books of account is not relevant for classifying the investments whether stock-in-trade or not. In the present case, undisputedly, assessee-bank has changed its method of accounting by classifying the investments from investments to stock-in-trade. In such a situation, provisions of sec. 45(2) of the Act are attracted. The said provisions of the Act read as under:
"45(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset."
But here the question is, in the earlier years though investments are shown as investments in the books of account, for income-tax purposes, the same was shown as stock-in-trade. Therefore, assessee-bank changed its method of accounting during the previous year relevant to assessment year under consideration is not a material fact in deciding the issue in the present appeal. In the earlier years, the same was claimed as stock-in-trade and the resultant loss or gain on account of following the principle cost or market price whichever is less, is recognized for income-tax purpose. In this context, it is apt to reproduce circular No. 18/2015:
'Circular No. 18 of 2015, dated November 02, 2015. Subject : Interest from Non-SLR securities of Banks--reg. It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, "expenses relatable to ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 32 -:
investment in non-SLR securities need to be disallowed under section 57(i) of the Act as interest on non-SLR securities is income from other sources".
2. Clause (id) of sub-section (1) of section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-
tax under the head "Income from other sources", if, the income is not chargeable to income-tax under the head "Profits and gains of business and profession".
3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Co- operative Bank Ltd. [2007] 160 Taxman 48 (SC), the apex court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and gains of business and profession". 3.2 Even though the abovementioned decision was in the context of co-operative societies/Banks claiming deduction under section 80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies.
4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.
(Sd.).................
D. S. Chaudhry IT (A&J), CBDT, New Delhi.' From the reading of the above circular, it is clear that investments held by the banking concern are treated as a part of business of the banking company and therefore, the income arising from such investments is treated as part of business income falling under the head 'profits and gains of business'. Though the circular was issued in the provisions of sec. 80P of the Act, the said principle was equally made applicable to other banks and commercial banks to which Banking Regulation Act, 1949 applies. Therefore, by virtue of the above said circular, investments made by the bankingcompany should be treated as a business asset of the banking company or stock-in-trade. It is well settled in law that CBDT circulars are binding upon the officers who are entrusted with the responsibility of executing the provisions of the Act.
9.6 The jurisdictional High Court, in the case of Karnataka Bank (supra), after referring to the judgment of the Apex Court in the case of Southern Technology Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 and UCO Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 (SC) held that the directions of the RBI are only ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 33 -:
disclosed norms and they have nothing to do with computation of taxable income. The jurisdictional High Court further upheld the claim of the assessee-bank following the principle of consistency. Even the Hon'ble Apex Court in the case of UCO Bank (supra) only laid down principle that where the investments are forming part of stock-in-trade, loss arising on account of fall in value of the securities should be recognized and allowed as a deduction. But the above case cited supra does not come to the rescue of the assessee-bank for the reason that the assessee-bank, even in the books of account, has treated the investments as stock-in-trade from the assessment year 2005-06 onwards. Therefore, the question boils down to the one issue whether the change of method of accounting is bona fide or not. It is not the case of the revenue that the assessee-bank changed for a casual period to suit its own purpose. Therefore, the bona fide of the assessee-bank in changing the method of accounting cannot be doubted. Now, it is well settled that the assessee is entitled to change regular method of accounting irrespective of the fact, it results in loss to revenue. Therefore, having regard to the spirit of the circular cited supra and the fact that investments are shown as stock-in-trade in the books of account, loss/depreciation on account of fall in value of securities held by the assessee-bank should be allowed as deduction. Therefore, income arising therefrom should also be treated as business income. The provisions of section 45(2) cannot be applied to the facts of the present case, as in the earlier years, for the purpose of income-tax proceedings, the investments were treated as stock-in- trade. Thus, grounds of appeal Nos. 4, 5 & 6 are disposed of.
10. Ground of appeal No. 7 relating to disallowance of expenditure on public issue of Rs. 1,92,50,000/- is not pressed by the assessee-bank, hence dismissed as such.
15.3 In the light of the above legal decision, we do not find any merit in the grounds of appeal filed by the Revenue. Hence, the grounds of appeal filed the Revenue are dismissed.
15.4 In the result, ground of appeal No.5 filed by the Revenue is dismissed.
16. Ground of appeal No.6 challenges the direction of ld. CIT(A) deleting the addition on account of brokerage paid to HTM securities. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 34 -:
The AO disallowed a sum of Rs. 28,000/- being the brokerage paid at the time of acquisition of HTM of securities holding to be capital in nature. On appeal before ld. CIT(A) has directed the AO to allow the same as a HTM securities are held to be as stock in trade in the case of the appellant.
16.1 Being aggrieved, the Revenue is in appeal before us in the present appeal.
16.2 It is contended that the HTM securities were constitutes investments in the case of assessee bank and therefore, the brokerage cannot be allowed. On the other hand, the ld. Authorised Representative of assessee placed reliance on the decision of Hon'ble Jurisdictional High Court in the assessee's own case in 209 Taxman 66. While dealing with the issue of allowability of loss of depreciation on the value of HTM securities, we held that the securities held by banking company are stock in trade. When the securities have been held as stock in trade the expenditure incurred for the acquisition of the same should be treated as Revenue expenditure and the same should allowed as deduction.
Therefore, we do not find any fallacy in the reasoning of ld. CIT(A). Hence, this ground of appeal by the Revenue is dismissed. 16.3 In the result, ground of appeal No.6 filed by the Revenue is dismissed.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 35 -:
17. Ground of appeal No.7 challenges the direction of the ld. CIT(A) deleting the disallowance of broken period interest for the purchase of securities. The AO is of the opinion that the interest paid for a broken period for the securities purchased during the year should be treated as a part of acquisition of HTM securities as the HTM securities were investments in the case of the assessee bank. Accordingly, the AO disallowed a sum of Rs. 9,98,67,263/- being the interest paid on broken period of the HTM securities purchases. On appeal before ld. CIT(A) he allowed the same following the reasoning that the HTM securities were stock in trade in the case of the assessee bank.
17.1 Being aggrieved, the Revenue is in appeal before us contending that the broken period should not be allowed as a deduction in respect of HTM securities as HTM securities are investments and they are capital in nature. On the other hand, the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of City Bank 2008 TMI 766 and the decision of Hon'ble Jurisdictional High Court of Madras in the case of Karur Vysya Bank in 2009 TMI 1210. The Hon'ble Supreme Court had laid down in the case of City Bank (supra) that where the securities were forming part of the stock in trade the broken period interest should be allowed as a deduction, while dealing with the issue of disallowance on account of depreciation of HTM securities, we have categorically held ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 36 -:
that the securities formed part of the stock in trade and therefore, the broken period interest paid should be allowed as a deduction. Therefore, we do find any fallacy in the reasoning of the ld. CIT(A). Hence, the ground of appeal of Revenue is dismissed.
17.2 In the result, ground of appeal No.7 filed by the Revenue is;
dismissed.
18. Ground No.8 challenges the direction of ld. CIT(A) to deal with the additions unclaimed balance of Rs. 1,12,00,000/-. 18.1 The brief facts relating to this issue as under:
The customers of the assessee-bank taking demand draft/pay order in favour of various parties but this demand drafts/payee orders are not encashed within a period of six months and they are accounted under the stale draft head. It is stated that the payee of the demand draft can encash any time/pay orders bank even after lapse of ten years subject to validation by the issued bankers and some of the SBI saving banks and current bank customers, which are not operated the bank accounts are kept under inoperative accounts and the balance is transferred to the unclaimed balance account. The amounts of stale account transferred during the year under consideration is Rs. 1,12,00,000/-. The AO is of the opinion that this amount is taxable. On appeal before us the ld. CIT(A) held that the amount cannot be brought ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 37 -:
to tax as a cessation of trading liability u/s. 41(1) of the Act, where the appellant had not written off the liability placing reliance on the decision of co-ordinate Bench of the Tribunal, Chennai in the case of City Union Bank Ltd. (supra), allowed the same.
18.2 Being aggrieved, the Revenue is in appeal before us in the present appeal. It is contended that in the light of decision of Hon'ble Supreme Court in the case of CIT v. T.V. Sundaram Iyengar [1996] 222 ITR 344 (SC), the balance lying on unclaimed balance account in the bank more than three years ought to be taxed as an income. On the other hand, the ld. Authorised Representative of assessee submitted that the issue is covered in favour of the assessee company by Karnataka High Court in the case of Karnataka Vikas Gramena Bank 2015 (12) TMI 1420 (supra), wherein the Hon'ble Karnataka High Court held that the decision of Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar (supra) cannot be applied to the present claim. In the light of the above decision, we do not find any merit in the grounds of appeal No.8 filed by the Revenue.
18.3 In the result, the appeal filed by the Revenue in ITA No.1497/Chny/2018 is dismissed.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 38 -:
ITA NOs.1343 & 1498/Chny/2013 for AY 2008-09 (Cross appeals):
19. The return of income for the AY 2008-09 was filed disclosing total income of Rs. 264,24,12,542/-. Against said return of income, the assessment was completed by Asst. CIT, Company Range-I(i/c.), Trichy vide order dated 31.12.2010 passed u/s. 143(3) of the Act. While doing so, the AO made the following additions:
Additions:
1. Appreciation in value of securities Rs. 2,66,12,12,542/-
2. (i) Provision for leave encashment 8,24,21,094/-
(ii) Provision for medical leave 9,21,95,063/-
3. Amortisation expenses 14,80,00,000/-
4. Broken period interest 27,63,14,889/-
5. Ex-gratia payment 17,93,38,338k
6. Pooja expenses 4,46,29,688/-
7. Entertainment expenses 10,29,851/-
8. Bad debts written off 2,08,211/-
9. Interest on Derivatives 7,95,04,449/-
10.Disallowance u/s l4Ar.w.r.8D 26,73,301/-
11.Brokerage for ETM 3,88,882/-
12. Interest accrued on NPAs 2,000/-
20. Being aggrieved by the above additions, an appeal was preferred before ld. CIT(A), who vide impugned order, confirmed the addition of the provision for leave encashment of Rs. 9,21,95,063/- and provision for medical leave for Rs. 14,80,00,000/- referring to the provisions of clause
(f) of s. 43B of the Act. As regards to addition on account of Amortization expenses of Rs. 27,63,14,889/-. Since, the ground of appeal was not pressed the same was dismissed as such. With regard to the addition on ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 39 -:
broken period interest of Rs. 17,93,38,338/-. The issue was not pressed before the ld. cIT(A) as the relief was allowed by the AO himself in the proceedings u/s. 154 of the Act. The addition on account of ex-gratia payment of Rs. 4,46,29,688/- was confirmed and the addition of Pooja expenses of Rs. 10,29,851/- and entertaining expenses of Rs. 2,08,211/- was confirmed by the ld. CIT(A). As regards, the addition on account of bad debts written off of Rs. 7,95,04,449/-, the ld. CIT(A) allowed the same. The ld. CIT(A) confirmed the addition on account of interest paid on derivatives. As regards to, the disallowance of Rs. 3,88,882/- u/s. 14A, the ld. CIT(A) restricted the addition to the extent of 2% of gross receipt of exempt income. The ld. CIT(A) also confirmed the addition on account interest accrued on NP accounts of ` 14,00,000/-. As regards, the allowance u/s. 36(1)(viia) of the Act, the ld. CIT(A) set aside the issue of the file of the AO to follow the decision of the Co-ordinate Bench of the Tribunal, Chennai in the case of City Union Bank. Thus, the appeal filed by the assessee before ld. CIT(A) came to be partly allowed.
21. Being aggrieved that part of the order of ld. CIT(A), which is against the assessee, the assessee-bank is in appeal before us in the present appeal in ITA No.1343/Chny/2013 and being aggrieved by that part of order of ld. CIT(A), the Revenue is appeal in ITA No.1498/Chny/2013.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 40 -:
22. Now, we shall take up the assessee's-bank appeal in ITA No.1343/Chny/2013.
23. The assessee-bank raised the following grounds of appeal:
"1) The order of Commissioner of Income Tax (A) Tiruchirapalli in so far as it is against the Appellant, is contrary to law, erroneous, and unsustainable on the facts of the case.
Provision for Leave Encashment
2) The CIT(A) erred in confirming the addition on account of provision for leave encashment.
3) The CIT(A) failed to appreciate that the said provision was created by way of implementing the mandate notified by the Government in its gazette on 27th March, 2008 (GOl GSL No:212 (E) dated 27th March, 2008) and hence there was no justification for conforming the disallowance.
4) The CIT(A) further failed to appreciate that being an ascertained liability in terms of actuarial valuation and that too by way of implementing the government notification, the claim of the assessee was sustainable in law.
5) The CIT(A) ought to have allowed the assessee's claim in the light of the decision in Exide Industries (292 ITR 470) and Panasonic Home Appliances case (323 ITR 344) (Mad) Medical Leave Encashment
6) The CIT(A) erred in confirming the addition on account of Medical leave.
7) The assessee craves leave to adopt ground nos: 3 to 5 in this regard.
Ex-gratia payment
8) The CIT(A) erred in confirming the disallowance of ex-gratia payment.
9) The CIT(A) failed to appreciate that such payment was made out commercial expediency and hence ought to have allowed the same.
10) The CIT(A) ought to have followed the ITAT's decision of Lakshmi Vilas Banks's case (ITA No: 1403/2012 order dated 22' March, 2013) to allow the assessee's claim.
11) The CIT(A) ought to have followed the following jurisdictional High Court decisions and allowed the same:
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 41 -:
(i) CIT vs. Lakshmi Mills (240 ITR 81)
(ii) CIT vs. Sivanandh Mills (156 ITR 629)
(iii) Kumaran Mills vs. CIT (241 ITR 564)
(iv) National Engineering Industries Ltd (1994) 208 ITR 1002 )(Cal)
(v) CIT Vs Career Launcher India Ltd (2012) 20 taxmann.com 637 (Delhi) (Facts- No. II) Exgratia is incurred out of business necessity and it is paid from 1988 without any break.
Disallowance of Pooia expenses
12) The CIT (A) erred in confirming the disallowance of pooja expenses.
13) The CIT (A) failed to appreciate that it was incurred on account of welfare of the employees and the AO not having doubted the genuineness, but disallowed as it was not for the purpose of business, the CIT(A) ought to have allowed the same. The CIT (A) ought to have followed the decision of the Tribunal in the assessee's own case in this regard and allowed the same. (ITA No. 930/2011 - A Y 2004-05 : ITA No.907/2010 - A Y 2005-06 : ITA No. 931/2011 - A Y 2006-07 : ITA No. 905/2010 - A Y2002-03) Disallowance of entertainment expenses
14) The CIT(A) erred in confirming the addition on account on entertainment expenses.
15) The CIT(A) failed to appreciate that such expenses were incurred out of commercial expediency and hence ought to have allowed the same.
16) The CIT(A) ought to have followed the ITAT's decision of Laksbmi Vilas Banks's case (ITA No: 1402/2012 order dated 22nd March, 2013) to allow the assessee's claim.
Additions: Speculative Loss on Derivative transactions
17) The CIT (A) erred in confirming the addition on account of "interest paid on Derivative transactions".
18) The CIT (A) failed to note that the regulator of Banks "RBI" had allowed these transactions and the RBI cannot and will not allow banks, which are dealing in public money to go in for speculative business. Further IRS (Interest Rate Swap) transactions are not of any speculative nature.
19) The CIT (A) failed to note that Mumbai ITAT had allowed IRS (Interest Rate Swap) as revenue expense in the case of J.P.Morgan Chase Bank Vs ADIT [2010-TlI-185-ITAT- DEL-INTL] ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 42 -:
20) The CIT (A) failed to note that Mumbai ITAT special Bench in the case of DCIT VS Bank of Bahrain & Kuwait (132 TTJ 505) allowed the same following the above judgement.
21) The CIT (A) failed to observe that ITAT Mumbai had given a favourable decision to ABN Amro Securities India Pvt Ltd Vs ITO.
Further in the above cited cases, the loss arising on year end valuation of IRS swap was allowed.
22) In ABN Amro Securities India Pvt Ltd Vs ITO case, in Para 5 (Last 3 lines) it is stated that depending on whether the amount is receivable or payable under the interest rate swap contract, the amounts are booked as income or expenditure in the Profit and Loss account. There are no issues with regard to the income so disclosed or the expenditure so claimed for deduction.
23) The appellant Bank had not claimed any loss on revaluation of IRS. But only claimed interest received and paid. So, based on the judgments cited, the CIT (A) ought to have allowed the same. 2% Disallowance of expenses on exempted income
24) The CIT (A) erred in confirming 2% disallowance of expenses on exempted income.
25) The CIT (A) failed to appreciate that for the Assessee Bank, securities are stock-in-trade and Section 14A has no application to securities/shares held as stock-in-trade as per the Karnataka High Court decision in CCI Ltd vs. CIT (206 Taxman 563) (followed in Chennai Bench of ITAT in MSA securities ITA No: 1523 & 1524 order dated 17th Oct, 2012) and hence estimated disallowance of 2% of expenses was untenable in law.
26) The CIT(A) further failed to appreciate that the assessee bank is having sufficient non - interest bearing funds, and in the absence of any finding as to the incurring of expenditure, the invocation of provisions of Section 1 4A was unsustainable in law as well as on facts.
Interest on Non -- performing assets
27) The CIT (A) erred in confirming the addition on account of interest on non -- performing assets.
28) The CIT (A) having found that there is no conflict between RBI guidelines and section 43D read with rule 6 EA, ought to have allowed the assessee's claim.
29) The CIT(A) failed to appreciate that the assessee is offering to tax the interest on cash basis as per section 43 D for all NPA assets and hence there was no justification for any addition in this regard. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 43 -:
30) The CIT (A) failed to note that the Section 43 D (a) emphasizes the words "having regard to the guidelines issued by the RBI in relation to such debts" and Rule 6 EA which was introduced based on the guideline issued by Reserve Bank of India also stands automatically amended by virtue of General Clause Act 1987 -
section 8 (i). So there is no necessity to estimate interest on NPA account.
31) The CIT(A) in the light of Supreme Court's decision in UCO Bank's case 237 ITR 889 and the Bank of America's case 262 ITR 504 (Bombay), ought to have allowed the assessee's claim.
32) For the reasons stated in the above grounds of appeal and additional grounds and arguments that may be adduced at the time of hearing, the additions/disallowances may be deleted." 23.1 Ground No.2 & 3 challenges the addition of provision for leave encashment and medical leave. The addition was made by the Assessing Officer invoking the provision of s. 43B of the Act. The clause
(f) to s. 43B of the Act enacts that no expenditure shall be allowed on account of any leave salary unless, the expenditure is actually paid. Thus, provision is intended to overcome the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC). Even, the decision of Hon'ble Madras High Court in the case of CIT v. Panasonic Home Appliances [2010] 323 ITR 344 (Mad.) is also before enactment of clause (f) to s. 43B of the Act. Further, the appellant has placed reliance on the order of Co-ordinate Bench of Tribunal, Chennai in the case of Indian Overseas Bank [2013] (4) TMI 751 - ITAT, Chennai, we find that this decision was rendered in relation to AY 1994- 95, which is prior to the enactment of the provision of s. 43B(f) of the Act. Therefore, the case laws relied upon by the ld. Counsel cannot come to ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 44 -:
the rescue of the assessee-bank. The decision Hon'ble High Court of Calcutta in the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 470 (Cal.) striking down the provisions of clause (f) of s. 43B of the Act on the grounds of arbitrariness is stayed by Hon'ble Supreme Court in SLP(Civil) No.CC.12060 dated 08.09.2008 therefore, the provisions of clause (f) to s. 43B of the Act are in force in the light of the stay order granted by the Hon'ble Apex Court. In this context, we can rely on the decision of Hon'ble High Court of Kerala in the case of South Indian Bank Ltd. v. CIT [2014] 45 taxmann.com 428 (Kerala), wherein it was held as follows vide para 6 of the judgment:
"6. Then coming to the second issue, it pertains to the provision made for leave encashment and the disallowance claimed was under Section 43B(f). As already stated above, the opinion of the CIT(Appeals) was set aside by the Tribunal in the light of the stay order of the judgment of the High Court of Calcutta in Excide Industries case (supra) and the SLP stated above is still pending. Therefore, the opinion of the Tribunal so far as disallowance claimed in respect of leave encashment under Section 43B(f) of the Act, as on today, the provision seems to be in force in the light of the stay order granted by the Apex Court in the SLP. Therefore, as long as Section 43B(f) is on Statute, the said disallowance is justified."
23.2 Thus, in the light of the above legal position, we do not find any merit in the grounds of appeal filed by the assessee-bank. Hence, we dismiss these grounds of appeal.
23.3 In the result, grounds of appeal No.2 & 3 filed by the assessee are dismissed.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 45 -:
24. Ground No.4 challenges the disallowance of ex-gratia payment of Rs. 4,46,29,688/-. We dealt with this issue in assessee's own case in ITA No.1342/Chny/2013 for AY 2007-08 for the reasons stated vide para 6.3 of the order therein, we allow this ground of appeal in favour of the assessee-bank. We direct the AO to allow the ex-gratia of Rs. 4,46,29,688/- as a deduction. Hence, this ground of appeal is allowed. 24.1 In the result, ground of appeal No.4 of the assessee is allowed.
25. Ground No.5 challenges the disallowance of pooja expenses of Rs. 10,29,851/-. We dealt with this issue in assessee's own case in ITA No.1342/Chny/2013 for AY 2007-08 for the reasons stated vide para 8.3 of the order therein, we allow this ground of appeal in favour of the assessee-bank. We direct the AO to allow the pooja expenses of Rs. 10,29,851/- as a deduction. Hence, this ground of appeal is allowed. 25.1 In the result, ground of appeal No.5 filed by the assessee is allowed.
26. Ground No.6 challenges the disallowance of entertainment expenditure of Rs. 2,08,211/-. This issue was also dealt with by us in the assessee's own case for the AY 2007-08 in ITA No.1342/Chny/2013 for the reasons given vide para 11.2 therein, we direct the AO to allow this ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 46 -:
entertainment expenses of ` 2,08,211/- as a deduction. Accordingly, this ground of appeal stands allowed in favour of the assessee-bank. 26.1 In the result, ground of appeal No.6 filed by the assessee is allowed.
27. Ground No.7 challenges the addition on account of loss on derivatives transactions of Rs. 26,73,301/-. This issue in this ground of appeal was decided by the Mumbai Special Bench, in the case of Bank of Baharain & Kuwait [2010] 5 ITR 301 (Mum.), wherein it was held that edging against the future losses cannot be treated as a speculative loses and the ratio of this decision was followed by Hon'ble High Court of Bombay in the case of CIT v. Badridas [2003] 261 ITR 256 and the decision of Hon'ble Gujarat High Court in the case of Jayesh Raichand Shah v. ACIT [2013] 29 taxmann.com 151 (Guj.). Therefore, respectfully following the above decisions, we hold that the loss incurred for derivative transaction is allowable as a business deduction. Accordingly, we direct the AO to allow the same as deduction.
27.1 In the result, ground of appeal No.7 filed by the assessee is allowed.
28. Ground No.8 challenges the addition of Rs. 3,88,882/- invoking the provision of s. 14A of the Act. It is the contention of the appellant that the appellant has not incurred any expenditure to earn exempt income. The ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 47 -:
AO had not given any finding as to how the claim of the assessee-bank that no expenditure was incurred to earn the exempt income was incorrect. In the absence of this finding resort to the provisions of Rule 8D of the Income Tax Rules cannot be made as held by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640 (SC). Therefore, this ground of appeal filed by the assessee is allowed. Accordingly, this ground of appeal stands allowed in favour of the assessee.
28.1 In the result, ground of appeal No.8 filed by the assessee is allowed.
29. The next ground of appeal challenges the addition on account of interest accrued in NPAs accounts of Rs. 14,00,000/-. The AO had brought to tax the interest on the NPAs accounts by holding that interest had accrued in terms of the agreement entered by the appellant with borrowers. This issue is now covered in favour of the assessee-bank by decision of Hon'ble Supreme Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2019] 410 ITR 244 (SC), wherein the Hon'ble Supreme Court had confirmed the decision of Hon'ble Delhi High Court, that the interest income cannot be said to have been accrued to the assessee on the NPA accounts. Accordingly, we direct the AO to delete the addition ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 48 -:
of Rs. 14,00,000/- made on interest on NP accounts. Accordingly, this ground of appeal stands allowed.
29.1 In the result, the appeal filed by the assessee-bank is partly allowed.
Revenue Appeal in ITA No.1498/Chny/2013 for AY 2008-09:
30. The Revenue raised the following grounds of appeal:
01. The CIT(A) failed to appreciate the fact that the assessee is claiming the debts written off as urban debts only before CIT(A) and no remand report was called for and rule 46(1) was violated.
02.The CIT(A) failed to see that no rural debt written off can be claimed u/s 36(1)(vii) if its value is less than the provision made u/s 36(a)(viia) and also failed to appreciate the fact that the list of debts written off filed by the assessee contains some rural debts also.
03.The CIT(A) erred in interpreting the 2nd limb of section 36(1)(viia).
The CIT(A) allowed deduction on the total average outstanding rural advances made by the bank at the end of the accounting year without restricting the deduction to the incremental advance made during the year. The CIT(A) failed to appreciate the fact that income for each year is required to be computed separately as each accounting year is a separate unit for assessment purpose and therefore deduction was available only on incremental rural advance during the year and not on total outstanding at the end of the accounting year.
04.The CIT(A) failed to see that the section 36(1)(viia) reads as 'aggregate average advances made by the rural branches of such bank' not as 'aggregate average advances outstanding in the rural branches of such bank'."
31. At the outset, there is delay in filing the appeal by 10 days. The Revenue had prayed for condonation of delay. It is submitted that the delay in filing the appeal had occurred on account of change of incumbent and thus, it was prayed that the delay is not deliberate. Under this circumstance, it is prayed for the condonation of delay of 10 days. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 49 -:
The ld. Counsel for the assessee-bank had no serious objection for condone the delay. Considering these circumstance, we condone the delay of 10 days in filing the present appeal and admit the appeal.
32. Grounds No.1 & 2 challenges the direction of ld. CIT(A) deleting the addition made on account of bad debts written off Rs. 7,95,04,449/-. This issue was dealt by us in Revenue's appeal in ITA No.1497/Chny/2013 for AY 2007-08 for the reasons stated vide para 13.1 of the order therein, we dismiss this ground of appeal filed by the Revenue.
32.1 In the result, grounds of appeal No.1 & 2 filed by the Revenue are dismissed.
33. Grounds No.3 & 4 challenges the direction of ld. CIT(A) remanding the issue the allowance u/s. 36(1)(viia) to the file of AO to follow the decision of the Co-ordinate Bench of Tribunal in Lakshmi Vilas Bank, Indian Bank etc. These decisions of co-ordinate bench are in consonance with well settled proposition of law and the view taken by us in assessee's own case in Revenue Appeal No.1497/Chny/2013 for AY 2007-08 therefore, we do not find any merit in the appeal filed by the Revenue.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 50 -:
33.1 In the result, grounds of appeal No.3 & 4 filed by the Revenue are dismissed.
Revenue's appeal in ITA No.1393/Chny/2013 for AY 1997-98:
34. This is an appeal filed by the Revenue directed against the common Order of the Learned Commissioner of Income Tax (Appeals), Tiruchirapalli (hereinafter called as 'CIT(A)') dated 25.03.2013 for the Assessment Year (AY) 1997-98.
35. The Revenue raised the following grounds of appeal:
"1. The order of the CIT(A) is contrary to law, facts and in the ances of the case.
2. The CIT(A) failed to see that as per sec 154 the IT authority is npowered only to amend either any order passed by it or an intimation u/s. 143(1) and not empowered to amend the return of the assessee.
3. The order of the CIT(A) is contradicting itself by accepting that the remedy of the assessee is filing a revised return u/s 139(5) and at the same time allowing appeal.
4. The CIT(A) failed to see that the earlier letter of the assessee dt 23/06/2003 seeking the same relief was not considered by the Assessing Officer in his order dt. 06/08/2004 and his subsequent application dt. 16/07/2008 is barred by the principle of limitation.
5. The CIT(A) failed to see that the application of the assessee dt. 16/07/2008 as well as the order of the Assessing Officer is barred by limitation as per section 154(7)."
36. The brief facts of the case are as under:
The appellant is a banking company. The return of income for the AY 1997-98 was filed disclosing total income of Rs. 38,14,78,560/-. Against the said return of income, the assessment was completed by the ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 51 -:
Jt. CIT, Special Range, Thiruchirapalli vide order dated 15.03.2000 passed u/s. 143(3) of the Act admitting total income of Rs. 60,95,05,620/.
While doing so, the AO has made the several disallowances with which we are not concerned. Subsequently, the appellant made a petition u/s.
154 of the Act vide letter dated 23.06.2003 requesting the AO that wrong amount of provision for depreciation as per the books of account of Rs.
5,77,05,335/- was added. The AO vide his order dated 06.08.2004 rejected the petition.
37. Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order directed the AO to verify the claim and allow the same as deduction after due verification. Being aggrieved, the Revenue is in appeal before us in the present appeal.
38. On behalf of the Revenue, it is contended that the ld. CIT(A) ought not have entertained the appeal, inasmuch as, the application filed by the assessee-bank is beyond the period of limitation u/s. 154 of the Act. He further argued that the ld. CIT(A) ought not have allowed the claim in the absence of claim in the return of income.
39. We heard the rival submissions and perused the material on record. The issue sought to be rectified by the assessee-bank is in nature of mistake apparent from the record, inasmuch as, the ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 52 -:
deprecation debited to the profit and loss account is apparent and patent. Thus, adopting wrong amount of provision for depreciation in the books of account constitutes a mistake apparent from the record. The application was made by the assessee-bank within the period of four years from the date of receipt of the assessment order as the assessment was completed on 15.03.2000 and the petition u/s. 154 of the Act was made on 23.06.2003. Thus, the contention that the petition was filed beyond the period of limitation has no legs to stand. Thus, we do not find any fallacy in the orders of ld. CIT(A) directing the AO to allow the petition filed by the assessee-bank.
40. In the result, appeal filed by the Revenue is dismissed. Assessee's appeal in ITA No.1344/Chny/2013 for AY 1995-96:
41. This is an appeal filed by the Assessee directed against the common Order of the Learned Commissioner of Income Tax (Appeals), Tiruchirapalli (hereinafter called as 'CIT(A)') dated 25.03.2013 for the Assessment Year (AY) 1995-96.
42. The assessee raised the following grounds of appeal:
"1. The order of Commissioner of Income Tax (A) Tiruchirapalli in so far as it is against the Appellant, is contrary to law, erroneous, and unsustainable on the facts of the case.
Depreciation on Leased asset - M/s Prakash Industries (Sale and Lease Back)
2. The CIT(A) overlooked the ITAT order in ITA No. 2226/Mds/98 dated 20-01-2006, its sprit and purpose.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 53 -:
The then CIT(A) had allowed the depreciation in ITA No. 123/98-99/TRY-order dated 16- 10-1998 by accepting additional documents like Engineer's valuation and Chartered Accountant's certificate, for which Rule 46 A has given him full power. The Assessing Officer never created any doubt about the genuineness of the transaction. The A.O had rejected the appellant's claim on the reason that it attracts Explanation 3 to Sec 43.
The department in its appeal before ITAT raised the issue that chartered Engineer's certificate and Chartered Accountants certificate are not sufficient and to prove that no depreciation has been claimed and allowed on these assets sold would be copy of the assessment order of the concerns for the relevant year and not the certificates by private parties.
The ITAT, Chennai had rejected this contention and simply directed the appellant Bank to produce the Chartered Engineer and Chartered Accountant certificate to the Assessing Officer and comply with Rule 46 A in its order dated 20-01-2006 cited supra It is to be noted that the appellant had submitted the PAN Number and Registered office and other details, even one week before the regular assessment on 03-03-1998 itself. It is worth mentioning about the case of CIT Vs Ranchhod Jivabhai Nakhava (2012) 121 taxmann.com 159 (Guj), here. This case relates to Sec
68. The Gujarat High Court had held as "Whether once assessee has established that he has taken money by way of account payee cheques from lenders who are all income tax assesses whose PAN have been disclosed, initial burden under section 68 is discharged and then, it is Assessing Officer's duty to ascertain from Assessing Officer of those lenders, whether in their respective returns they have shown existence of such amount of money and have further shown that those amount of money had been lent to assessee".
The ratio laid down in the above case squarely applies to the facts of this case.
The CIT(A) failed to observe that the appellant had complied with all the requirements as mentioned the jurisdictional High Court in CIT Vs Annamalai Finance Ltd (2005) 275 ITR 451 (Mad); Premier Housing & industries Enterprises Ltd (20078) 24 SOT 236 (Chennai). The CIT (A) failed to note that the account was closed on 13/03/2004. Out of Rs. 8 Crores lease, the appellant had collected Rs. 5.11 Crores, accounted and paid tax on it.
The CIT (A) had taken a wrong view that the assessment order of Prakash Industries was available and not produced. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 54 -:
The CIT(A) failed to note that the ITAT Mumbai Bench had allowed Depreciation to Development Credit Bank Ltd in ITA 3006/Mum/2001 for A V 96-97 for another part of the asset leased out by them to M/s Prakash Industries Ltd. (Order dated 20-03-2013) For the reasons stated in the grounds of appeal and arguments that may be adduced at the time hearing your appellant requests that the additions may kindly be deleted."
43. The assessment for AY 1995-96 was made u/s. 143(3) of the Act vide order dated 09.03.1998 at a total income of Rs. 53,22,98,360/-. In the said assessment, the AO disallowed the claim of depreciation @ 50% for Rs. 5,22,69,700/- on the assets of purchase and lease back of assets to M/s. Prakash Industries Ltd., Champa and Renewable Energy System Ltd. on the ground that the original user i.e., the present lessee claimed depreciation @100% in the same year. The AO invoking the Explanation 3 to s. 43 of the Act had disallowed the claim for depreciation in the hands of the appellant. On appeal before the ld. CIT(A) vide order dated 16.10.1998 had deleted the addition relying on the certificate issued by the Chartered Accountant of the said two companies. Against the order of the ld. CIT(A), the Revenue carried the matter to the Tribunal and the Tribunal vide order dated 20.01.2006 set aside the issue to the file of AO to decide the claim afresh in accordance with the law after affording due opportunity of being heard to the assessee.
44. Pursuant to the order of the Tribunal, the AO issued a notice to the appellant asking the assessee to furnish certain details, in response to the same the assessee-company had stated that M/s. Prakash Industries ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 55 -:
bought rolling Mill roll from TISCO, Jamshedpur on 31.03.1993 for a consideration of Rs. 832 lakhs and the same was sold to the assessee on 17.02.1994 for a total consideration of Rs. 800 lakhs and no depreciation was claimed by M/s. Prakash Industries. The assessee company also produced a certificate from M/s. Sunil Anil Associates Chartered Accountant Delhi certifying that no depreciation was claimed by M/s. Prakash Industries, the WDV of this asset in the books of account of Prakash Industries was Rs. 832 lakhs on 18.12.1994. Further, two certificates given by M/s. Goyal and company, Chartered Engineers dated 14.12.1994 filed certifying the total weight and value of the machinery and these two certificates were not produced during the course of original assessment proceedings but produced during the course of proceedings before ld. CIT(A). The AO denied the claim for allowance of depreciation on the ground that the issue whether M/s. Prakash Industries had claimed depreciation or not is required to be verified from the assessment record of the M/s. Prakash Industries and not by the certificate issued by the Charted Accountants and Charted Engineers. As regards to the depreciation on the assets purchases and leased back M/s. Renewal Energy Systems Ltd. he accepted the claim after examining the invoices bearing Nos. 432 & 434 dated 29.03.1995 of the solar photo voltaic power packts for rural radio telephone system and allowed the depreciation @ 50% on the value of Rs. 2,45,36,400/-. ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 56 -:
45. Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order confirmed the action of the AO. Being aggrieved, the assessee is in appeal before us in the present appeal.
46. It is contended that the AO ought to have verified the assessment record of M/s. Prakash Industries to verify whether M/s. Prakash Industries have claimed depreciation or not. The AO cannot except the assessee company to perform a duty which is impossible to be performed as the assessee had no access to the assessment records of M/s. Prakash Industries Ltd. It is further submitted that the lease rentals was offered to tax. It is further claimed that the appellant had complied with all the requirements as mentioned in the decision of Hon'ble High Court of Madras in the case of CIT v. Annamalai Finance Ltd. [2005] 275 ITR 451 (Mad.) and therefore, the assessee-bank is clearly entitled to the depreciation. He further submitted that the AO while passing impugned order had travelled beyond the direction of the Tribunal. On the other hand, the ld. CIT(A) placed reliance on the orders of the lower authorities.
47. We heard the rival submissions and perused the material on record. The only issue involved in the present appeal is regarding the allowance of depreciation claimed on the assets leased to M/s. Prakash ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 57 -:
Industries Ltd. The direction of the Tribunal to the AO is to consider the material filed before the ld. CIT(A) for the first time and decide the matter afresh in accordance with the law after affording due opportunity of hearing to the assessee. There is no conclusive finding by the Tribunal on the issue. Therefore, the submissions made on behalf of the appellant that the AO had travelled behind the direction of the Tribunal cannot be accepted. However, the reasons assigned by the AO as confirmed by the ld. CIT(A) to disallow the claim for depreciation cannot be accepted as the assessee had no control over the assessment record of M/s. Prakash Industries Ltd. It is always open to the AO to verify the assessment records of M/s. Prakash Industries Ltd. Therefore, we are of the considered opinion that the AO was not justified in disallowing the claim for depreciation on unjustified grounds. The Hon'ble High Court of Madras in the case of Annamalai Finance Ltd. (supra) has laid down certain parameters for allowance of depreciation in the case of sale and leased back of transaction.
48. Nothing is brought on record to say that the above parameters are not met by the assessee and therefore, in the light of the decision of Hon'ble High Court of Madras in the case of Annamalai Finance Ltd. (supra), we direct the AO to allow the depreciation as claimed by the appellant.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 58 -:
49. In the result, the appeal filed by the assessee is allowed. Revenue's appeal in ITA No.1394/Chny/2013 for AY 1989-90:
50. This is an appeal filed by the Revenue directed against the common Order of the Learned Commissioner of Income Tax (Appeals), Tiruchirapalli (hereinafter called as 'CIT(A)') dated 25.03.2013 for the Assessment Year (AY) 1989-90.
51. The Revenue raised the following grounds of appeal:
"1. The order of the CIT(A) is contrary to law, facts and in the circumtances of the case.
2. The CIT(A) failed to see that the statute clearly says that the section 1 15J is applicable to all companies except those which are engaged in the business of generation or distribution of electricity.
3. The order of the CIT(A) is against the ratios held by the Supreme Court in the following cases:In the case of Kesavji Raoji (183 ITR 1), the Court said that rules of interpretation would come in to play, when there is doubt regarding expressed language used therein.
In the case of Tarulatha Shyam (108 ITR 345 SC), it was held that where the language is clear it has to be strictly construed and nothing can be read in to it.
In the case of Ajmeera Housing Company (326 ITR 642), the Supreme Court held that a taxing statute is to be construed strictly. In a taxing statute one has to look merely what is said in relevant provision, there is no presumption as to tax. Nothing can be read in, nothing has to be implied. There is no room for intendment. There is no equity about tax. In interpreting the statute, the Court must look squarely at the words of the statute and interpret them. Considerations of Hardship, injustice and equity are entirely out of place in interpreting a tax statute.
These ratios implies that when there is no ambiguity in the section, it has to be applied with full force. i.e., when section 1 15J says that it is applicable to all companies except electricity companies, then it has to be made applicable to all companies and there is no discretion left to anybody.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 59 -:
4. The CIT(A) erred in relying on the decisions relating to section 1 15JA whereas the present case relates to computation u/s 1 15J. The CIT(A) failed to see that there is vast difference between liST and 115JA & 115JB, which are brought out in tabular form in page No. 8444 of 11th edition of law of income tax by Sampath Iyengar.
5. The CIT(A) erred by allowing the claim of the assessee that since, its accounts are prepared as per Banking Regulation Act and not as per Companies Act, section 1 15J is not applicable. Nothing prevents the assessee from preparing its final accounts in terms of Companies Act. In the case of NTPC(192 ITR 187), Delhi High Court said that there is no difficulty in making adjustments in accounts, when needed for the purpose of complying with the provisions of section 115J,
6. The CIT(A) failed to see that the assessee is a dividend paying company and liable to section 1 15J as per the ratio held by the Supreme Court in the case of Dynamic Orthopaedics 35 DTR 81 (SC)."
52. The facts of the case as culled out from the orders of the ld. CIT(A) are as under:
52.1 The Assessing Officer his assessment order has calculated tax u/s 115J, whereas from the beginning had adopted normal tax method u/s 143 (1), 143(3), 143 (3) r w s 147 and argued that when both tax workings were available from the original return itself, change of opinion after 19 years, and selecting tax under section 115 J through order dated 31-03-2008 is not correct. This is done in spite of the fact that MAT (Minimum Alternate Tax) is not applicable to Banking Companies. 52.2 The appellant bank filed its return of income for assessment year 1989-90 on 29.12.1989. The income returned in the normal course claiming deduction and relief was Rs. 1,55,760. The profit as per books was Rs. 1,05,03,038. The appellant bank as per the provisions of the ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 60 -:
Income tax prepared and submitted its tax liability as per 1 15J (deemed income) also. Both the income as per section 115J and the income returned in normal course were available to assessing authority while he passed an order u/s 143(3) on 31.3.92.
52.3 The assessing officer assessed the income returned under section 143(3) without allowing the deduction and relief claimed by the appellant.
The income determined was Rs. 1,77,22,160 as per order dated 31-03- 1992.
52.4 The learned assessing officer did not make a protective assessment for the deemed income u/s 115J. The appellant got relief in the appeal and from the petition filed before chief commissioner of income tax. To give effect to the above order an orders u/s 154 was passed on 28.2.94. The income determined was Rs. 4,29,040/-. Even at that time the assessing officer did not pass an order taking the deemed income. The then Commissioner of Income tax Tamilnadu- V requested the then chief commissioner to set aside the instruction given by the Chief Commissioner on 7.7.93. The then Commissioner passed an order u/s 263 on 22.3.96. To give effect to that order an order u/s 154 was passed on 24.7.96 fixing the income at Rs. 1,44,40,380. The appellant filed an appeal against the order u/s 263 and appeal was allowed by Income tax Appellate Tribunal Chennai on 21.3.2002. The order u/s 263 ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 61 -:
dated 22.3.96 was cancelled. By that, order u/s 154 dated 28.2.94, is not cancelled. To give effect to the order of the Income tax Appellate Tribunal an order u/s 154 was passed on 39.2003 and the net income determined was Rs. 11,40,449/-. The income tax officer issued a notice u/s 154 on 14.2.05 intimating his intention to pass an order u/s 115J. 52.5 The appellant's representative by their letter dated 18/02/2005 informed that 115J is not applicable to Banking Companies and failure to assess u/s 115J originally is not a mistake apparent on the record. The learned assessing officer without answering the objections proceeded to assess the deemed income (115J) u/s 154 income on 31.3.2008. 52.6 For the appellant's objection, the Assessing Officer had not given any specific reply. He had not told why he had preferred normal tax, when on day one itself, both figures were available and 30% of the deemed income was higher than normal taxable income. Taxable income under normal tax method - Rs. 1,55,761/-. 30% of the deemed income or 30% of Book profit arrived u/s 115J Rs. 45,30,911/-. The Assessing Officer had passed order on 31-03-2008 imposing tax u/s 115 J, without giving proper reply to the appellant's objections. 52.7 Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order held that the banking company is not liable to tax u/s. 115J of the Act placing reliance on the following decisions:
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 62 -:
a) Krung Thai Bank PCL Vs Joint Director of IT -
International Taxation (Mumbai ITAT - ITA No. 3390/Mum/09 Order dated 30-09-2010 for AY 2004-05).
a) Canara Bank Vs CIT (LTU) (ITAT-Bangalore in ITA No.05/Bang/201 I Order dt. 18-07-2012 for AY 2005-06).
b) Union Bank of India Vs ACIT (ITA No. 4702 & 4706/2010 dt. 30-06-2011)
c) Indian Bank Vs Addi CIT (ITA No. 469/Mds/2010 Order dt.
03-08-2011 - for A Y 2000-01).
d) Indian Bank Vs AddI CIT (ITA No. 470 to 472/Mds/2010 Order dt. 11-06-2012 - for AY 2004-05 to 2006-07) Being aggrieved, the Revenue is in appeal before us in the present appeal.
53. The only issue involved in the present appeal is whether the banking concern is liable to tax under the provisions of s. 115J of the Act. This issue is settled in favour of the assessee-bank by several judicial decisions. The recent decision of Co-ordinate Bench of Tribunal, Bangalore in the case of Canara Bank v. JCIT 60 ITR 1 vide para 13 at Page No.33 held as follows:
"13. Ground of appeal No.5 is on the applicability of the provisions of section 115JB of the Act. This issue had come up before the co- ordinate bench in the case of assessee for asst. year 2005-06 in ITA No.305/Bang/2011 dated 18/06/2012 wherein it was held as follows:
"7. We have heard rival submissions and considered the facts <and material on record. There is no dispute about the fact that the assessee is a bank and in this assessee's case, provisions of sec.H5JB have been invoked. There are at least two decisions of this Tribunal in the case of banking companies itself as listed below:
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 63 -:
(i) Union Bank of India vs. ACIT (ITA 4702 & 4706/2010 dated 30-
6-2011)
(ii) Indian Bank vs. Addl. CIT (ITA 469/Mds/2010 dt.3-8-2011 In both these decisions, the respective Benches have followed the decision of the Mumbai Bench in the case of Krung Thai Bank PCL (supra) and held that 115JB is not applicable to banking company. The decision relied on by the learned Departmental Representative in the case of HCL Comnet Systems & Services Ltd. (supra) is not applicable. In that case, the assessee is not a banking company and hence, in our considered view that decision will not help the revenue. Since there are more than one decision in favour of the assessee, following the same, we are inclined to hold that the provisions of sec.H5JB are not applicable to the assessee being a banking company. Hence, we are of the view that invoking of sec.263 is not correct and accordingly quash the action u/s 263 of sec.263 is not correct and accordingly quash the action u/s 263 of the Act." 13.1 Respectfully following decision of the co-ordinate bench we hold that the assessee-bank is not liable for tax u/s 115JB for the year under consideration. Therefore, we do not find any infirmity in the order of the CIT(A). This ground of appeal is dismissed."
54. We find that the order of the ld. CIT(A) is in consonance with the settled proposition of law and therefore, we do not find any merit in the grounds of appeal filed by the Revenue. Hence, the grounds of appeal filed by the Revenue is dismissed.
55. In the result, the appeal filed by the Revenue is dismissed. CO No.134/Chny/2018 arising in ITA No.1394/Chny/2013:
56. The CO filed by the assessee directed against the Order of the Learned Commissioner of Income Tax (Appeals), Tiruchirapalli (hereinafter called as 'CIT(A)') dated 25.03.2013 for the Assessment Year (AY) 1989-90.
ITA Nos.1342, 1343 & 1344/Chny/2013 & ITA Nos.1393, 1394, 1397 & 1398/Chny/2013 C.O No.134/Chny/2013 arising in ITA No.1394/Chny/2013 :- 64 -:
57. It is contended that the AO invoked the provisions of s. 154 of the Act for the purpose of levy of tax u/s. 115J of the Act. Since, the issue was decided in favour of the assessee company in the appeal filed by the Revenue in ITA No.1394/Chny/2013, the CO filed by the assessee-bank becomes infructuous and dismissed as such.
58. In the result, the CO filed by the assessee is dismissed.
Order pronounced on the 28th day of February, 2019 in Chennai.
Sd/- Sd/-
(एन.आर.एस. गणेशन) (इंटूर रामा राव)
(N.R.S. GANESAN) (INTURI RAMA RAO)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
चे नई/Chennai,
2दनांक/Dated: 28th February, 2019.
EDN, Sr. P.S
आदे श क, * त3ल4प अ5े4षत/Copy to:
1. अपीलाथ)/Appellant 4. आयकर आयु6त/CIT
2. *+यथ)/Respondent 5. 4वभागीय * त न ध/DR
3. आयकर आय6
ु त (अपील)/CIT(A) 6. गाड& फाईल/GF