M/s. Vijaya Bank, Bangalore V. Joint Commissioner of Income Tax, LTU, Bangalore

ITA 1838/BANG/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5498 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 27-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bad and doubtful debts; TDS; Set aside
• Section: 11; 143(3); 14A; 115JB; 40(a)(ia); 208; 194J; 72; 13

Judgement Text

ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA No.1833/Bang/2018 Assessment Year : 2013-14 JCIT (LTU Bangalore Vs. M/s. Bank of Baroda (Erstwhile M/s. Vijaya Bank) Head Office Central Accounts Department 41/2, M.G. Road Trinity Circle Bangalore 560 001 PAN NO : AAACV4791J APPELLANT RESPONDENT ITA No.1838/Bang/2018 Assessment Year : 2013-14 M/s. Bank of Baroda (Previously known as M/s. Vijaya Bank) Head Office Central Accounts Department 41/2, M.G. Road Trinity Circle Bangalore 560 001 Vs. JCIT (Large Tax Payers Unit) Bangalore APPELLANT RESPONDENT Appellant by : Shri S. Ananthan, A.R. Respondent by : Shri Pradeep Kumar, D.R. Date of Hearing : 20.12.2021 Date of Pronouncement : 28.12.2021 ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 2 of 21 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: These cross appeals are directed against the order dated 27-03-2018 passed by Ld CIT(A)-14, Bangalore and they relate to the assessment year 2013-14. 2. The assessee is a public sector Bank. Earlier it was known as M/s Vijaya Bank and it has since been merged with M/s Bank of Baroda. The assessing officer completed the assessment for the year under consideration u/s 143(3) of the Income-tax Act,1961 ['the Act' for short] making various additions. The AO determined the total income at Rs.1179.50 crores and tax thereon at Rs.382.69 crores. The AO also determined book profit u/s 115JB of the Act at Rs.1109.90 crores and tax thereon at Rs.211.49 crores. Since the tax payable on total income under normal provisions of the Act was higher than the tax payable u/s 115JB of the Act, the AO assessed total income under normal provisions of the Act. The assessee filed appeal challenging the assessment order before Ld CIT(A) and it was partly allowed. Aggrieved by the order passed by Ld CIT(A), both the parties have filed these appeals on the issues decided against each of them. 3. The grounds urged by the assessee give rise to the following issues:- (a) Disallowance of deduction of Provision for bad and doubtful debts claimed u/s 36(1)(viia) of the Act (b) Disallowance of expenditure u/s 40(a)(ia) of the Act (c) Applicability of provisions of sec. 115JB of the Act ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 3 of 21 (d) Additions made to net profit to compute book profit u/s 115JB of the Act. 4. The grounds urged by the revenue give rise to the following issues:- (a) Disallowance of bad debts written of u/s 36(1)(vii) of the Act (b) Disallowance of depreciation on HTM securities. (c) Disallowance u/s 14A of the Act 5. We shall first take up the appeal filed by the assessee. At the time of hearing the Ld A.R did not press the grounds relating to disallowance of PBDD u/s 36(1)(viia) of the Act. Accordingly, these grounds are dismissed as not pressed. 6. The next issue urged by the assessee relates to the disallowance made u/s 40(a)(ia) for non-deduction of tax at source from the following payments:- NFS – ATM Charges paid - 2,82,99,690 ATM Switch charges - 92,63,005 NFS ATM Charges paid A/c - 21,97,76,663 ------------------- 25,73,39,358 ============= The AO took the view that the above said payments fall under the category of technical services liable for deduction of tax at source u/s 194J of the Act. Since the assessee did not deduct tax at source, the AO disallowed the same invoking the provisions of sec.40(a)(ia) of the Act. The Ld CIT(A) also confirmed the same. 6.1 We heard the parties and perused the record. The Ld A.R placed his reliance on the decision rendered by the co-ordinate bench on an identical issue in the case of Canara Bank vs. Addl/JCIT (ITA ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 4 of 21 No.1900/Bang/2017 dated 28-09-2018) and submitted that an identical issue was decided in favour of the assessee. We notice that the co-ordinate bench has held that there is no requirement of deducting tax at source from the payments made to NPCI. In this regard, it has followed the decision rendered by the Hon’ble Supreme Court in the case of Kotak Securities Ltd (2016)(67 taxmann.com 356). The relevant observations made by the co-ordinate bench on this issue are extracted below:- “12. Ground No.8 (8.1 & 8.2) - Disallowance u/s.40(a)(ia) of the Act in respect of payment made to NPCI. 12.1 In these grounds (supra), the assessee assails the decision of the authorities below in disallowing expenditure of Rs.8,05,15,596 u/s.40(a)(ia) of the Act; being payments made to NPCI. As per the details on record before us, in the year under consideration, the assessee bank had incurred expenditure of Rs.8,05,15,596; on which payments the assessee had not deducted tax at source. The Assessing Officer held that since NPCI is providing technical services to the assessee bank, the payments made in this regard are liable to TDS under Section 194J of the Act and in view of the assessee's failure to do so, disallowed the aforesaid amount under Section 40(a)(ia) of the Act. On appeal, the learned CIT (Appeals) upheld the Assessing Officer's decision in the matter. 12.2 The learned Authorised Representative of the assessee submitted that since it is a standard facility, the same is not covered under the purview of the provisions of Sec. 194J of the Act as technical services. In this regard, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd., reported in (2016) 67 taxman.com 356 (SC). It was further contended that in any case, the assessee bank had submitted Form No.26A as per Rule 31ACB and as such is covered by the proviso to Sec. 40(a)(ia) and therefore no disallowance could be made. 12.3 Per contra, the learned Departmental Representative for Revenue placed reliance on the orders of the Assessing Officer on this issue. 12.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue before us is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (supra); wherein at paras 8 to 10 thereof the Hon'ble Apex Court has held as under :- ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 5 of 21 " 8. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. "Technical services" like "Managerial and Consultancy service" would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant- assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 6 of 21 members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to "technical services" provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression "technical services" as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High Court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act." 12.4.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the case of Kotak Securities Ltd. (supra), we hold that the services rendered by NPCI are not technical services and as such, are not covered by the provisions of Sec. 194J of the Act. Consequently, ground No.8 is allowed as indicated above. 6.2 Following the above said decision of co-ordinate bench rendered in the case of Canara Bank (supra), we hold that the payments made to NPCI towards NFS ATM charges cannot be considered as “technical services” within the meaning of sec.194J of the Act. Hence there is no liability to deduct tax at source from those payments. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance. 7. The next issue contested by the assessee relates to the applicability of sec.115JB of the Act. In the return of income, the assessee did not compute book profit, as according to the assessee the provisions of sec.115JB will not be applicable to it. The AO did not accept the said contentions and held that the provisions of ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 7 of 21 sec.115JB shall apply to the assessee. Accordingly, he computed book profit u/s 115JB of the Act also. The Ld CIT(A) also confirmed the same. 7.1 An identical issue was considered by this bench of Tribunal in the case of Canara Bank (ITA No.236/PAN/2018 & ITA 1884/Bang/2018 dated 27-12-2021) and the matter was restored to the file of Ld CIT(A) with the following observations:- 7.1 Before Ld CIT(A) also, the assessee contended that the provisions of sec.115JB will not be applicable to it. It was submitted that the assessee falls under the category of “corresponding new bank” under BR Act. Accordingly it was contended before Ld CIT(A) by the assessee as under:- (a) banking company is defined under BR Act as a “company” which transacts business of banking. (b) “Company” is defined as a company as defined in section 3 of the Companies Act and includes a foreign company within the meaning of sec. 591 of that Act. (c) Since the assessee falls under the category of Act of “corresponding new bank”, it was contended that it cannot fall under the definition of “banking Company”. (d) Clause (b) of sec.115JB(2) is applicable to a banking company, but the assessee is not a banking company as per the definition given in BR Act. Accordingly, it was contended that the assessee is not liable u/s 115JB of the Act. 7.2 The Ld CIT(A), however, did not accept the above said contentions. The view expressed by Ld CIT(A) has been summarised below:- (a) Sec. 115JB(1) is the charging section and it overrides all other provisions of the Act. It provides that the provisions of this section are applicable in case of “every company”. It does not carve out any exception. ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 8 of 21 (b) Sec. 2(17) defines the word “company”. According to this section company “means” any Indian Company. (c) Explanatory Note to Finance Act, 2012 has explained that Minimum Alternative Tax (MAT provisions u/s 115JB) shall apply to a banking company. (d) Assessee is a “company” as per the deeming provisions of sec.11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, which reads as under:- “11. Corresponding new bank deemed to be an Indian Company:- For the purposes of the Income tax Act 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian Company and a company in which public are substantially interested.” (e) The assessee itself is filing its return of income under the status of “company”. (f) The shares of assessee bank are listed in the Stock exchange and traded. (g) The assessee is a banking company under Banking Regulations Act, since the definition of the term “banking company” in BR Act is a functional definition. The assessee is following all the rules and regulations of the BR Act which are applicable to other private banks. The assessee bank is constitutionally defined as “corresponding new bank” in BR Act. However, the BR Act does not say that ‘corresponding new bank’ is not a Banking Company. (h) It is not the case of the assessee that being a ‘corresponding new bank’ and not registered under Companies Act, 1956, the assessee is not governed by BR Act. (i) It is highly unfortunate on the part of a reputed public sector bank to resort to such unwarranted, hyper technical, hair splitting of the definitions under various Acts only to avoid the payment of due taxes. (j) Assuming that the assessee is not a Banking Company, then the provisions of sec.115JB(2)(a) will be applicable to the assessee, as it is an Indian ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 9 of 21 Company as per section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act 1980. (k) Various decisions relied upon by the assessee relate to the period prior to the amendment made by Finance Act 2012. 7.2 Before us, the Ld A.R reiterated that the provisions of sec.115JB will not apply to the assessee, since it is not formed under Companies Act. He placed his reliance on the decision rendered by Kolkatta bench of Tribunal in the case of Damodar Valley Corporation (2017(8) TMI 1363). On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 7.3 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has expressed the view that the assessee would fall under clause (a) of sec.115JB(2). However the case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a ‘banking company”, i.e., it is a “corresponding new bank”. 7.4 We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to “Corresponding new bank”. We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of “banking company”, provisions of sec.211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 10 of 21 order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh.” 7.2 Since the facts relating to the issue and contention of the assessee is identical in nature, following the above said decision, we restore this issue to the file of Ld CIT(A) with similar directions. 8. The next issue urged by the assessee relates to the addition made by the AO while computing book profit u/s 115JB of the Act. Since the issue regarding applicability or otherwise of sec.115JB is restored to the file of Ld CIT(A), this issue is also restored to the file of Ld CIT(A) for examining it afresh. 9. We shall now take up the appeal filed by the revenue. The first issue contested by the revenue relates to the disallowance of bad debts claimed u/s 36(1)(vii) of the Act. The assessee had claimed a sum of Rs.497.69 crores as bad debt u/s 36(1)(vii) of the Act. The AO noticed that the above said amount was included in “Provisions and Contingencies” account and it was computed as under:- Deduction u/s 36(1)(vii) for bad debts written off - 542.14 crores Less:- Amount written off by rural branches** - 45.45 crores ------------------- 497.69 crores ============= (** in respect of which deduction u/s 36(1)(viia) was claimed in earlier years) 9.1 The AO expressed the view that the Provisions for NPA is only a provision created towards bad and doubtful debts and it cannot be considered to be actual write off in terms of sec.36(1)(vii) of the Act. The AO also noticed that the assessee is not writing off the debts, but crediting the same to “Prudential write off account”. He then relied upon the decision rendered by Hon’ble Supreme Court in the case of ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 11 of 21 Southern Technologies vs. ACIT (352 ITR 577)(SC), wherein it was held that the mere making of provision for NPA cannot be considered as write off u/s 36(1)(vii) of the Act. Accordingly, the AO expressed the view that the bad debts claim is not allowable as deduction u/s 36(1)(vii), since it is only a prudential write off. The AO also noticed that the assessee created Provision for NPA for an amount of Rs.427.15 crores and claimed the same as deduction u/s 36(1)(viia) of the Act. He took the view that the proviso to sec.36(1)(vii) which mandates setting off of bad debts written off first against the PBDD allowed u/s 36(1)(viia) of the Act would also apply to non-rural write off also. Accordingly, he held that the amount of bad debts written off did not exceed the credit balance available in provision created u/s 36(1)(viia) of the Act and hence bad debts claim cannot be allowed u/s 36(1)(vii) of the Act. He also expressed the view the following view:- “There is no scope in the Income tax Act to allow the provision of non-rural branches advances u/s 36(1)(vii) of the Act and in present case it was not bad debt write off of non-rural branches. The assessee bank has made false submission in this regard before the AO to mislead the revenue. It is a clear cut case of double deduction on the provision of NPA i.e, once u/s 36(1)(viia) and further u/s 36(1)(vii) of the I T Act by making incorrect submissions.” Accordingly, the AO disallowed the bad debts claim of Rs.497.69 crores. 9.2 The Ld CIT(A) noticed that an identical issue has been decided in favour of the assessee in the assessee’s own case by the Tribunal in AY 2010-11 to 2012-13. Following the same, the Ld CIT(A) deleted the disallowance made by the AO u/s 36(1)(vii) of the Act. ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 12 of 21 9.3 We heard the parties and perused the record. We notice that the co-ordinate bench has considered an identical issue in the assessee’s own case for AY 2010-11 in ITA No.1284/Bang/2016 dated 05-01-2018 and it has been decided in favour of the assessee with the following observations:- “5. Ground No.2 - Bad Debts written off u/s.36(1)(vii) 5.1 In this ground (supra), the assessee challenges the disallowance of bad debts written off by it u/s.36(1)(vii) of the Act. In the order of assessment, the Assessing Officer disallowed the assessee's claim as he was of the view that it was only a prudential write off since the individual accounts were not squared off. The Assessing Officer also observed that the write off was not debited to the assessee's profit and loss account. On appeal, the learned CIT (Appeals) rejected the assessee's contentions that the said bad debts are written off by debit in the profit and loss account under the head 'Bad Debts Written Off Account' under the code 163301, as he was of the view that unless the individual debts are squared off, the entries in the books of account cannot be accepted as reliable. In coming to this finding the learned CIT (Appeals) relied on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (2010) 320 ITR 577 (SC). 5.2.1 Before us, the learned Authorised Representative of the assessee submitted that the assessee bank has written off the debts by debiting the same to the 'Bad Debts Written Off Account' under the GL Code 163301 which is part of the profit and loss account and recoveries made in written off accounts are credited to the profit and loss account and offered to tax. According to the learned Authorised Representative, it is only in respect of accounts written off that the assessee bank can credit the recoveries to the profit and loss account and in the case of live accounts any recovery is credited to the debtors account. Therefore, the very fact that the recoveries are credited to the profit and loss account shows that the corresponding debts have been written off. It was submitted that the detailed accounting entries passed by the assessee bank with regard to the write off has been extracted at pages 31 and 32 of the order of assessment. The learned Authorised Representative drew the attention of the Bench to page 32 of the paper book in which the reconciliation of Gross Advances as per Branch Books and net advances as per Balance Sheet as on 31.3.2010 of the Bank has been carried out (placed at page 135 of the Annual Report for the year under consideration). It is submitted that the net advances as shown in the Balance Sheet tallies with the statement appearing at page 32 of the paper book, thereby establishing the fact that bad debts written off are reduced from the advances at the time of preparation of the Balance Sheet. The learned Authorised Representative also drew our attention to page 25 of the paper book, which is a part of Form 3CD wherein at clause 20, it is clearly ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 13 of 21 mentioned that recoveries of Rs.91,89,44,840 made against bad debts written off have been credited to the profit and loss account and reduced form the advances in the Balance Sheet. In support of the assessee's claim for write off of bad debts, the learned Authorised Representative placed reliance on the decision of the Hon'ble Apex Court in the assessee's own case i.e. Vijaya Bank Vs. CIT (2010) 323 ITR 166 (SC). 5.2.2 The learned Authorised Representative contended that the reliance placed by the authorities below on the decision of the Hon'ble Apex Court in the case of Southern Technologies Limited (supra) is not applicable as the facts in this cited case are totally different. It is submitted that the cited decision has been noted by the Hon'ble Apex Court in the assessee's own case (supra) and after noticing the said decision, the Hon'ble Court held that the provision debited to profit and loss account and reduced from advances would amount to write off. 5.3 Per contra, the ld. CIT, DR placed reliance on the findings rendered by the authorities below on this issue. It was contended that since the assessee's bank had not closed the individual debtors accounts at the Branch Level, there cannot be any write off. 5.4 In rejoinder, the learned Authorised Representative for the assessee bank submitted that there is no requirement to close the individual debtors account at the branch books, as has been held by the Hon'ble Apex Court in the assessee's own case. In this regard, the learned Authorised Representative also placed reliance on the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2009-10 in ITA No.331/Bang/2016 dt.22.7.2016. 5.5.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The facts on record indicate that the assessee bank has debited the bad debts written off to the account 'Bad Debts Written Off Account' (GL Code 163301) which is part of the profit and loss account and has reduced the write off from Gross Advances in the Balance Sheet. The authorities below disallowed the write off on the ground that the individual accounts are not squared off at the branch level. We find that this issue of write off has been settled by the Hon'ble Apex Court in the assessee's own case reported in 2010 (323 ITR 160) (SC), wherein at paras 8 & 9 thereof it was held as under : " 8. Coming to the second question, we may reiterate that it is not in dispute that s. 36(1)(vii) of 1961 Act applies both to banking and non- banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the P&L a/c to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 14 of 21 the debtors at the year-end in the balance sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the AO is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee- bank to close each and every individual account of loans and advances or debtors as a precondition for claiming deduction under s. 36(1)(vii) of 1961 Act. This view has been taken by the AO because the AO apprehended that the assessee-bank might be taking the benefit of deduction under s. 36(1)(vii) of 1961 Act, twice over. [See order of CIT(A) at pp. 66, 67 and 72 of the paper book, which refers to the apprehensions of the AO]. In this context, it may be noted that there is no finding of the AO that the assessee had unauthorisedly claimed the benefit of deduction under s. 36(1)(vii), twice over. The order of the AO is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of s. 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the AO to call for details of individual debtor's account if the AO has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that no amount is due and payable in which event the suit would be dismissed. 9. Before concluding, we may refer to an argument advanced on behalf of the Department. According to the Department, it is necessary to square off each individual account failing which there is likelihood of escapement of income from assessment. According to the Department, in cases where a borrower's account is written off by debiting P&L a/c and by crediting loans and advances or debtors accounts on the asset side of the balance sheet, then, as and when in the subsequent years if the borrower repays the loan, the assessee will credit the repaid amount to the loans and advances account and not to the P&L a/c which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the P&L a/c on which the assessee-bank has to pay tax. Although, prima facie, this argument of the Department appears to be valid, on a deeper consideration, it is not so for three reasons. Firstly, the head office accounts clearly indicate, in the present case, that, on repayment in subsequent years, the amounts are duly offered for tax. Secondly, one has to keep in mind that, under the accounting practice, the accounts of the rural ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 15 of 21 branches have to tally with the accounts of the head office. If the repaid amount in subsequent years is not credited to the P&L a/c of the head office, which is ultimately what matters, then, there would be a mismatch between the rural branch accounts and the head office accounts. Lastly, in any event, s. 41(4) of 1961 Act, inter alia, lays down that, where a deduction has been allowed in respect of a bad debt or a part thereof under s. 36(1)(vii) of 1961 Act, then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered. In the circumstances, we are of the view that the AO is sufficiently empowered to tax such subsequent repayments under s. 41(4) of 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment." 5.5.2 Respectfully following the aforesaid decision of the Hon'ble Apex Court in the assessee's own case reported in 323 ITR 166 (supra), we hold that the assessee bank is eligible to claim and be allowed write off of the bad debts u/s.36(1)(vii) of the Act and we therefore reverse and delete the disallowance made by the Assessing Officer in this regard. Consequently, Ground No.2 of the assessee's appeal is allowed.” 9.4 We notice that the Ld CIT(A) has followed the decision rendered by the co-ordinate bench in the assessee’s own case and deleted the disallowance of bad debts claimed by the assessee u/s 36(1)(vii) of the Act. Accordingly, we do not find any reason to interfere with his order passed on this issue. 10. The next issue contested by the revenue relates to the disallowance of depreciation on HTM Securities, which has been deleted by Ld CIT(A). The AO took the view that the RBI has allowed banks to claim depreciation on securities which are “Held for Trade” and “Available for sale” only. Accordingly he held that the depreciation is not available on securities “Held to Maturity”. Accordingly, he disallowed the claim of Rs.174.42 crores relating to depreciation on HTM securities. ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 16 of 21 10.1 The Ld CIT(A) noticed that the ITAT, Bangalore has decided an identical issue in AY 2003-04 in favour of the assessee. The Hon’ble Karnataka High Court upheld this decision in ITA No.687/2008 vide order dated 11.03.2013. Similarly in AY 2008-09 also, the Tribunal in ITA Nos. 578 & 653 of 2012 has decided the issue in favour of the assessee. Similarly in AY 2010-11 to 2012-13 has again decided in favour of the assessee. Accordingly, the Ld CIT(A) deleted the disallowance. 10.2 We heard the parties and perused the record. We notice that the co-ordinate bench has decided an identical issue in favour of the assessee in the assessee’s own case in ITA No.1252/Bang/2016 dated 05-01-2018 relating to AY 2010-11 with the following observations:- “11. Ground Nos.1 & 2 - Depreciation on HTM Securities. 11.1 In these grounds (supra), Revenue assails the order of the learned CIT (Appeals) in directing the Assessing Officer to allow the assessee's claim towards depreciation on HTM Securities. The facts of the matter as emanate from the record are that the assessee bank claimed a sum ofRs.215,69,38,927 as depreciation on the HTM category of investments. The Assessing Officer disallowed the assessee's claim following the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank Vs. CIT (2012) 208 Taxman 511. On appeal, the learned CIT (Appeals) allowed the assessee's claim by following the decision of the Hon'ble Karnataka High Court in the assessee's own case in ITA No.687/2008 dt.11.3.2013 and also the decision of the co-ordinate bench of this Tribunal in the assessee's own case for A.Y. 2008-09 in ITA No.578 & 653/Bang/2012 for A.Y. 2008-09. 11.2 The ld. CIT DR placed strong reliance on the order of the Assessing Officer which was based on the decision of the Hon'ble Karnataka High Court in the case of ING Vysya Bank (supra) which decided the issue in favour of the revenue. 11.3 Before us, the learned Authorised Representative for the assessee submitted that it was only after considering its own decision in the case of ING Vysya Bank (supra) that the Hon'ble Karnataka High Court decided the issue in favour of the assessee in the case of Karnataka Bank Vs. ACIT reported in (2013) 356 ITR 549 (Kar). Following the decision of the Hon'ble ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 17 of 21 Apex Court in the case of UCO Bank Vs. CIT (1999) 237 ITR 889 (SC), the Hon'ble Karnataka High Court held that the investments of the bank are stock in trade and are to be valued at lower of cost or market value and the resultant depreciation is an allowable deduction. The learned Authorised Representative further submitted that the decision n the case of Karnataka Bank (supra), was followed by the Hon'ble Karnataka High Court in the assessee's own case in their order in ITA No.687/2008 which was then followed by the co-ordinate bench of this Tribunal in the assessee's case in the immediately preceding assessment year 2009-10 in order in ITA No.318/Bang/2014 dt.22.7.2016 and for A.Y. 2008-09 in ITA No.578/Bang/2012 dt.27.2.2015. 11.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that this issue has been considered and held in favour of assessee and against Revenue both by the decisions of the Hon'ble Karnataka High Court and those of the co-ordinate bench of this Tribunal in the assessee's own case. We find that a co-ordinate bench, while dismissing Revenue's ground on this issue in the assessee's own case for Assessment Year 2008-09 in its order in ITA No.578 & 653/Bang/2012 at paras 33 & 34 thereof has held as under :- " 33. We have considered the rival submissions. Similar issue as to whether depreciation on investments held under the category "Held to Maturity" or "Available for Sale" can be allowed as deduction came up for consideration in Assessee's own case in AY 10-11 in ITA No.1310/Bang/2012 and this Tribunal upheld similar order of CIT(A). The following were the relevant observations of the Tribunal:- "21. We have considered the rival submissions. Similar issue as to whether depreciation on investments held under the category "Held to Maturity" can be allowed as deduction came up for consideration in the case of Syndicate Bank (supra) before the ITAT Bangalore Bench. The Tribunal on the issue held as follows: "58. We have heard the submissions of the ld. DR and the ld. counsel for the assessee. The ld. DR relied on the decision of the Hon'ble High Court of Karnataka in the case of CIT v. ING Vysya Bank Ltd. in ITA No.2886/2005 dated 06.06.2012. In the aforesaid decision, the Hon'ble High Court of Karnataka took a view that the guidelines issued by the RBI will not be relevant while computing income under the Income-tax Act. The Hon'ble Court further took the view that every investment held by a bank cannot be considered as stockin- trade. The Hon'ble High Court finally concluded that 30% of the investments can be clothed to the character of stock-in-trade and that the remaining amounts will be investments and therefore diminution in their value cannot be allowed as a deduction. ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 18 of 21 59. The ld. counsel for the assessee, however, submitted that in the assessee's own case for the A.Y. 2005-06, this Tribunal has confirmed the order of the CIT(A), deleting identical addition made by the AO. Our attention was also drawn to the order of the Tribunal in assessee's own case in ITA No.492/Bang/2009 for the A.Y. 2005-06, order dated 13.01.2012, wherein the Tribunal had to deal with identical issue as to whether the CIT(A) was correct in deleting the addition made by the AO on account of profit on sale of investments of Rs.200,77,13,662/- and deleting the action of the AO in disallowing loss claimed on treating investments as stock-in-trade by drawing the investment trading account of Rs.775,96,55,047. The Tribunal held "16. We have heard both sides and find that the Supreme Court in the case of UCO Bank in 240 ITR 355 has held as under : "In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-in- trade at cost for the purpose of statutory balance-sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance-sheet in accordance with the statutory provision would not disentitle the assessee in submitting the Income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining the balancesheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-intrade (investments) because the bank was required to prepare the balance- sheet in the prescribed form and it had no option to change it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case." The Bangalore Bench of ITAT in Corporation Bank (supra) has also followed the above decision of the Hon'ble Supreme Court as also the ITAT, Mumbai and ITAT, Chennai. Following the above decisions, we are deciding this issue in favour of the assessee. This ground of appeal by the Revenue is dismissed. 60. Apart from the above, the ld. counsel for the assessee also submitted that the decision rendered by the Hon'ble High Court of Karnataka in the case of ING Vysya Bank (supra) is per incuriam the decision of the Hon'ble Supreme Court in the case of UCO Bank v. CIT, 240 ITR 355 (SC). He brought to our notice that the Hon'ble ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 19 of 21 Supreme Court approved the practice of nationalized bank governed by Banking Regulation Act, following mercantile system of accounting both for book keeping as well for income-tax purposes. The Hon'ble Apex Court upheld the method adopted by the banks valuing stock-in-trade (investments) at cost in balance sheet in accordance with the Banking Regulation Act and valuing the same at cost or market value, whichever was lower for income-tax purposes. The Hon'ble Court took the view that all investments held by a bank are to be regarded as stock-in-trade. 61. The ld. counsel for the assessee further drew our attention to a very recent decision of the Hon'ble High Court of Karnataka rendered on 11.03.2013 in the case of CIT v. Vijaya Bank, ITA No.687/2008. The Hon'ble High Court of Karnataka in the aforesaid case followed its own decision rendered in the case of Karnataka Bank Ltd. v. CIT in ITA No.172/2009 rendered on 11.01.2013, wherein the Court took the view that depreciation claimed on investments 'held on maturity' by a bank has to be treated as stock- in-trade in accordance with RBI guidelines and CBDT Circular. It was his submission that the later decision of the Hon'ble Karnataka High Court has to be followed. 62. We have given a careful consideration to the rival submissions and are of the view that the contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in assessee's own case on an identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later decision of the Hon'ble High Court of Karnataka is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed." 22. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the relevant grounds of appeal of the Revenue." 34. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the relevant ground of appeal No.4 of the Revenue." 11.4.2 We find that the decision of the learned CIT (Appeals) in the impugned order is in line with the aforesaid decision of the Hon'ble Karnataka High Court and the co-ordinate bench of this Tribunal in the assessee's own case (supra). In this view of the matter, we do not find any reason to interfere with the finding of the learned CIT (Appeals) on this issue and consequently finding no merit in grounds at S.Nos.1 & 2 (supra) raised by revenue, dismiss the same.” ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 20 of 21 10.3 We notice that the Ld CIT(A) has followed the decision rendered by the co-ordinate bench in the assessee’s own case and has deleted the disallowance of depreciation claimed on HTM securities. Accordingly, we do not find any reason to interfere with his decision rendered on this issue. 11. The next issue relates to the disallowance made u/s 14A of the Act. During the year under consideration, the assessee had earned exempt income of Rs.15.50 crores. The assessee had disallowed a sum of Rs.3,71,414/- u/s 14A of the Act. After discussions, the AO held that the disallowance has to be computed u/r 8D of I T Rules. Accordingly, he computed disallowance u/r 8D(2)(i) at Rs.3,71,414/- and u/r 8D(2)(iii) of I T Rules at Rs.3,34,76,500/- aggregating to Rs.3,38,47,914/-. After deducting the disallowance made by the assessee voluntarily, the AO made further disallowance of Rs.3,34,76,500/- u/s 14A of the Act. 11.1 The Ld CIT(A) noticed that the ITAT has decided this issue in favour of the assessee in AY 2008-09, 2010-11 & 2011-12. Following the same, the Ld CIT(A) deleted the disallowance. 11.2 We heard the parties on this issue and perused the record. We notice that the co-ordinate benches have decided this issue prior to rendering of decision by Hon’ble Supreme Court in the case of Maxopp Investment Ltd (2018 (3) TMI 805)(SC). However, before us, the Ld A.R relied upon certain other decisions in order to contend that no disallowance u/s 14A is called for. In view of the subsequent development of law on this issue, in our considered view, this issue requires fresh examination at the end of AO by duly considering the various decisions on the subject. Accordingly, we set aside the order ITA Nos.1833 & 1838/Bang/2018 M/s. Bank of Baroda, Bangalore Page 21 of 21 passed by Ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh. 12. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. The appeal filed by the revenue is treated as partly allowed for statistical purposes. Order pronounced in the open court on 28 th Dec, 2021 Sd/- (George George K.) Judicial Member Sd/- (B.R. Baskaran) Accountant Member Bangalore, Dated 28 th Dec, 2021. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.