DCIT, CHENNAI V. Indian Bank, CHENNAI

ITA 1992/CHNY/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2628 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 07-01-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 14-09-2015
• Court: TRIBUNAL
• Department Lawyers: S SWAMINATHAN
• Assessee Lawyers: DEBENDRA N KAR
• Keywords: Business income; Depreciation; Business expenditure; Rule of consistency; Permanent establishment; Advance ruling; Bad and doubtful debts; Revenue expenditure
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NO. 1877/MDS/2015 / ASSESSMENT YEAR : 2011-12 INDIAN BANK, CORPORATE OFFICE, ACCOUNTS DEPARTMENT, 254-260, AVVAI SHANMUGAM SALAI, ROYAPETTAH, CHENNAI 600 014. PAN AAACI1607G ( /APPELLANT) AND V. THE JOINT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(2), CHENNAI - 34. RESPONDENT) . /ITA NO. 1992/MDS/2015 / ASSESSMENT YEAR : 2011-12 THE JOINT COMMISSIONER OF INDIAN BANK, INCOME-TAX, V. CORPORATE OFFICE, CHENNAI 34. CHENNAI - 34. ( /APPELLANT) RESPONDENT) / APPELLANT BY : SHRI S. SWAMINATHAN, CA / RESPONDENT BY : SHRI DEBENDRA N. KAR, CIT ! / DATE OF HEARING : 07.01.2016 '# ! / DATE OF PRONOUNCEMENT : 11.03.2016 - - ITA 1877 & 1992/15 2 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS BY THE ASSESSEE AND BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME-TAX(APPEALS) DATED 1.6.2015 FOR THE ASSESSME NT YEAR 2011-12. 2. THE FIRST GROUND IN THE ASSESSEES APPEAL IS AS FOLLOWS : THE COMMISSIONER OF INCOME-TAX(APPEALS) FAILED TO APPRECIATE THAT YOUR APPELLANT IS ENTITLED TO DEDUC TION UNDER SECTION 35D IN RESPECT OF SHARE ISSUE EXPENSE S INCURRED. 3. AFTER HEARING THE PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1871/MDS/12 & OTHERS. VIDE ORDE R DATED 30.11.2015, IT WAS HELD AS UNDER : 97. AFTER HEARING BOTH SIDES, WE FIND THAT THE PROVISIONS OF SECTION 35D OF THE ACT HAVE BEEN AMENDED BY THE FINANCE ACT, 2008 WITH EFFECT FROM 01.04.2009 WHEREIN THE WORDS INDUSTRIAL UNIT AND INDUSTRIAL UNDERTAKING WERE SUBSTITUTED WITH THE WORDS UNIT AND UNDERTAKING. THE MEMORANDUM EXPLAINING THE PROVISIONS CLEARLY STATES AS UNDER: - - ITA 1877 & 1992/15 3 SECTION 35D PROVIDES FOR DEDUCTION OF CERTAIN SPECIFIED PRELIMINARY EXPENSES. THE DEDUCTION IS ALLOWED ON AN AMOUNT EQUAL TO ONE FIFTH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. THE PRELIMINARY EXPENSES RELATE EITHER TO THE PERIOD BE FORE THE COMMENCEMENT OF THE BUSINESS OR AFTER. HOWEVER, IF PRELIMINARY EXPENSES RELATE TO A PERIOD AFTER TH E COMMENCEMENT OF THE BUSINESS, SUCH EXPENSES ARE ONLY ALLOWED IF THEY ARE IN RELATION TO THE EXTENSI ON OF AN INDUSTRIAL UNDERTAKING OR THE SETTING UP OF A NE W INDUSTRIAL UNIT. WITH A VIEW TO PROVIDING A LEVEL PLAYING FIELD TO T HE SERVICES SECTOR, IT IS NECESSARY TO EXTEND TO THE S ERVICE SECTOR, THE SAME BENEFIT OF AMORTIZATION OF SPECIFI ED POST-COMMENCEMENT PRELIMINARY EXPENSES AS IS AVAILABLE TO THE MANUFACTURING SECTOR FOR THE EXTEN SION OF AN UNDERTAKING OR THE SETTING UP OF A NEW UNIT. THEREFORE, IT IS PROPOSED TO AMEND SECTION 35D ACCORDINGLY. THE AMENDMENT WILL TAKE EFFECT FROM THE 1ST DAY OF APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 2009-10 AND SUBSEQUENT ASSESSMENT YEARS (CLAUSE 6). FROM THE ABOVE, IT IS VERY CLEAR THAT THE AMENDMENT HAD BEEN BROUGHT ABOUT TO EXTEND THE BENEFIT OF DEDUCTION UNDER SECTION 35D OF THE ACT TO THE SERVI CE SECTOR ALSO. BANKS CANNOT FALL UNDER THE DEFINITION OF INDUSTRIAL UNITS. IF THE ASSESSEES LIKE BANKS WER E TO FALL UNDER THE DEFINITION OF INDUSTRIAL UNITS, TH ERE WOULD NOT HAVE BEEN ANY NECESSITY FOR AMENDING THE ACT TO INCLUDE SERVICE SECTOR. SINCE THE AMENDMENT EXTENDING THE BENEFIT TO SERVICE SECTOR AND MADE EFFECTIVE ONLY FROM THE ASSESSMENT YEAR 2009-10 AND , THE BANKS ARE COMING UNDER SERVICE SECTOR, THE BENE FIT CAN BE EXTENDED FROM THE ASSESSMENT YEAR 2009-10 ONLY TO THE EXTENT OF SETTING UP OF A NEW UNIT FOR FIVE - - ITA 1877 & 1992/15 4 SUCCESSIVE YEARS. ACCORDINGLY, WE SET ASIDE THE ORD ER PASSED BY THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO EXAMINE WHETHER THE ASSESSEE HAS SET UP A NEW UNIT OR NOT AND IF SO, HE IS DIRECTED TO ALLOW THE BENEFIT FROM 2009-10 ONWARDS. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E TRIBUNAL, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4. THE NEXT GROUND RAISED BY THE ASSESSEE IS A S UNDER: 3.(A) THE COMMISSIONER OF INCOME-TAX(APPEALS) ERRE D IN CONFIRMING THE ORDER OF THE ASSESSING AUTHORITY HOLDING THAT INCOME FROM FOREIGN BRANCHES ARE TO BE INCLUDED IN THE TOTAL INCOME AND ONLY DOUBLE TAXATI ON RELIEF S CONTEMPLATED AS PER THE AGREEMENT IS ALLOWABLE. (B) THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT T O HAVE APPRECIATED THAT IN VIEW OF THE PROVISIONS REGARDING BUSINESS PROFITS CONTAINED IN THE DOUBLE TAXATION AVOIDANCE AGREEMENTS, BUSINESS PROFITS EARNED THROUGH PERMANENT ESTABLISHMENT SITUATED IN FOREIGN COUNTRY IS NOT TO BE INCLUDED IN THE TOTAL INCOME AT ALL. 5. WE FIND THAT THIS ISSUE WAS CONSIDERED IN A SSESSEES OWN CASE BY THE TRIBUNAL IN ITA NO.1871/MDS/2012 & OTHE RS, CITED SUPRA, WHEREIN THE TRIBUNAL FOLLOWED THE DECISION O F MUMBAI - - ITA 1877 & 1992/15 5 BENCHES IN THE CASE OF BANK OF BARODA VS. ACIT IN I TA NO. 2927/MUM/2011 DATED 25.7.2014 AND OBSERVED AS UNDER : 94. IN VIEW OF THE ABOVE DECISION OF THE MUMBAI BENCHES OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT THE DECISIONS RENDERED IN ASSESSEES OWN CASE PRIOR TO ASSESSMENT YEAR 2004-05 WILL NOT HAVE BINDING PRECEDENCE IN THE ASSESSMENT YEAR 2009-10 OR SUBSEQUENT YEARS. ACCORDINGLY, WE HOLD THAT THE INCOME OF THE ASSESSEE AT SINGAPORE AND COLOMBO WOULD BE INCLUDED IN THE RETURN OF INCOME OF THE ASSESSEE IN INDIA AND WHATEVER TAXES PAID BY THE BRANCHES IN FOREIGN COUNTRIES, CREDIT OF SUCH TAXES SHALL ONLY BE GIVEN. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. IN VIEW OF THE ABOVE, WE DISMISS THIS GROUND OF APP EAL RAISED BY THE ASSESSEE. 6. THE NEXT GROUND RAISED BY THE ASSESSEE IS AS UND ER : WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT YOUR APPELLANTS ALTERNATE CONTENTION THAT THE LOSS ON SALE OF LOAN ASSETS TO ASSET RECONSTRUCTION COMPANIES ARE ALLOWABLE AS BUSINESS DEDUCTION UNDER SECTION 37, IF NOT ALLOWABLE AS BAD DEBT UNDER SECTION 36(1)(VII) OF THE ACT. 7. AT THE TIME OF HEARING, THE LD. AR DID NOT PRESS THE ABOVE GROUND AND THE SAME IS DISMISSED AS NOT PRESS ED. 8. THE NEXT GROUND IN THIS APPEAL OF THE ASSESS EE IS AS FOLLOWS: - - ITA 1877 & 1992/15 6 5.(A) THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT YOUR APPELLANT IS A BANKI NG COMPANY WHICH IS REQUIRED TO INVEST IN SECURITIES I N THE COURSE OF ITS BUSINESS AND YOUR APPELLANT HAVIN G COMPUTED THE DISALLOWANCES AT THE RATE OF 2% ON THE INCOME EARNED ON EXEMPTED INCOME, FURTHER DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS NOT WARRANTED. (B) THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE INCOME FROM SECURITIE S AND OTHER INVESTMENTS ON SALE BEING ASSESSED AS BUSINESS INCOME, SUCH INVESTMENTS COULD NOT BE CONSIDERED TO BE MADE EXCLUSIVELY FOR EARNING INTEREST-FREE INCOME. 9. WE FIND THAT THIS ISSUE WAS CONSIDERED IN ASSESSEE S OWN CASE BY THE TRIBUNAL IN ITA NO.1871/MDS/2012 & OTHE RS, WHEREIN IT WAS OBSERVED AS UNDER : 83. AFTER HEARING BOTH SIDES, WE HAVE CAREFULLY PE RUSED THE ORDERS OF AUTHORITIES BELOW. IN VIEW OF THE DECISIO N OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. V. DCIT (SUPRA) THAT RULE 8D IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09, WHEN THE ACT HAS PRESCRIBED A METHOD FOR QUANTIFYING THE DISALLOWANCE, THE SAME CANNOT BE OV ERLOOKED. SINCE RULE 8D IS NOT APPLICABLE PRIOR TO THE ASSESS MENT YEAR 2007-08, THE TRIBUNAL HAS SET ASIDE THE ORDER PASSE D BY THE LD. CIT(A) AND DIRECTED THE ASSESSING OFFICER TO WORK O UT THE DISALLOWANCE @ 2%. HOWEVER, SINCE RULE 8D IS APPLIC ABLE FROM THE ASSESSMENT YEAR 2008-09 ONWARDS, THE DISALLOWAN CE SHOULD BE MADE BASED ON THE PRESCRIBED METHOD QUANTIFIED B Y THE ACT. SINCE THE ASSESSING OFFICER HAS MADE THE DISALLOWAN CE UNDER SECTION 14A AND COMPUTED UNDER RULE 8D, WE CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ACCORDI NGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. - - ITA 1877 & 1992/15 7 IN VIEW OF THE ABOVE, WE DISMISS THIS GROUND OF APP EAL RAISED BY THE ASSESSEE. 10. THE NEXT GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE CIT(APPEALS) FAILED TO APPRECIAT E THE FACT THAT AUTOMATED TELLER MACHINES ARE SUBSTANTIALLY IN THE NATURE OF COMPUTERS AND HENCE, ARE ELIGIBLE FOR DED UCTION AT THE RATE OF 60% AND NOT AT 15% AS APPLICABLE TO OTH ER NORMAL PLANT AND MACHINERY. 11. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT THIS ISSUE WAS CONSIDERED IN ASSESSEES OWN CASE B Y THE TRIBUNAL IN ITA NO.1871/MDS/2012 & OTHERS, WHEREIN IT WAS OBSERVED AS UNDER : 98. THE SIXTH GROUND RAISED IN THE APPEAL IS WITH R EGARD THE DEPRECIATION ON ATM AND UPS. WITH REGARD TO ALLOWABILITY OF 60% DEPRECIATION ON UPS, WE HAVE CONSIDERED SIMILAR ISSUE AND DISMISSED THE GROUND R AISED BY THE REVENUE IN I.T.A. NOS. 2124 AND 2125/MDS/201 4 FOR THE ASSESSMENT YEAR 2005-06 AND 2007-08 AT PARA 17 TO 22 OF THIS ORDER. WITH REGARD TO THE ALLOWABILITY O F 60% DEPRECIATION ON ATM, WE HAVE CONSIDERED THE ISSUE A ND ALLOWED THE GROUND RAISED BY THE ASSESSEE IN ITS AP PEAL IN I.T.A. NOS.1396 & 1395/MDS/2014 FOR THE ASSESSMENT YEARS 2005-06 AND 2007-08 AT PARA 8 TO 13 OF THIS O RDER. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. - - ITA 1877 & 1992/15 8 RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNA L IN ASSESSEES OWN CASE, WE ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 12. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT THE CIT(APPEALS) OUGHT TO HAVE NOTED THAT ADVANCES OF T HE RURAL BRANCH IS THE CRITERIA FOR COMPUTATION OF ELIGIBLE DEDUCTION U/S.36(1)(VIIA) AND INDIVIDUAL NATURE OF ADVANCES C ANNOT BE THE BASIS OF COMPUTATION. 13. THE FACTS OF THE CASE ARE THAT THE ASESESSEE IN ITS RETURN OF INCOME CLAIMED A DEDUCTION OF ` 698,32,76,000/-. AS PER THE ASSESSEE, THE ALLOWABLE DEDUCTION U/S.36(1)(VIIA) I S ` 849,57,75,715/-, AS UNDER : ON GROSS TOTAL INCOME @ 7.5% - ` 184,72,24,910 ON RURAL ADVANCES @ 10% - ` 664,85,50,805 ( RURAL ADVANCES ` 6648,55,08,050) TOTAL - ` 849,57,75,715 HOWEVER, THE ASSESSEE IN ITS RETURN OF INCOME FILED , RESTRICTED THE DEDUCTION U/S.36(1)(VIIA) TO THE EXTENT OF PROVISIO NS ACTUALLY MADE OF ` 698,32,76,000/-. 13.1 THE ASSESSING OFFICER IN HIS ORDER HAS NOT ACC EPTED THE ASSESSEES CLAIMS. AS PER THE ASSESSING OFFICER, T HE TOTAL - - ITA 1877 & 1992/15 9 AVERAGE AGGREGATE ADVANCES SHOULD NOT BE CONSIDERED BECAUSE SOME OF THESE AMOUNTS ARE THE BROUGHT FORWARD AMOUN T FROM THE EARLIER YEARS, WHERE THE ASSESSEE HAD ALREADY CLAIM ED 10% OF THE AMOUNTS AS DEDUCTIONS U/S.36(1)(VIIA) OF THE AC T. THEREFORE, ACCORDING TO THE ASSESSING OFFICER, ONLY THE INCREMENTAL AVERAGE AGGREGATE ADVANCES MADE DURING THE YEAR ARE ELIGIBLE DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE TOTAL INCREMENTAL AVERAGE AGGREGATE ADVANCES MADE DURING THE YEAR (AS PER THE ANNEXURE III ENCLOSED ALONG WI TH THE ASSESSMENT ORDER) ARE RS.3420,91,21,320/-. THEREFOR E, THE ASSESSING OFFICER CALCULATED ELIGIBLE DEDUCTION ON ACCOUNT OF THE INCREMENTAL AVERAGE AGGREGATE ADVANC ES RURAL BRANCHES AT RS.342,09,12,132/- (BEING 10% OF ` 3420,91,21,320). ACCORDINGLY, THE ASSESSING OFFICER WORKED OUT THE ELIGIBLE DEDUCTION U/S.36(1)(VIIA) O F THE ACT AT ` 597,67,74,583/- AND DISALLOWED THE BALANCE OF ` 100,65,01,417/-, AS UNDER : INCREMENTAL AVERAGE AGGREGATE ADVANCES ` 3420,91,21,320 DEDUCTION U/S.36(1)(VIIA) @ 10% ` 342,09,12,132 ADD: 7.5% OF THE TOTAL INCOME ` 255,58,62,451 (OF ` 3407,81,66,014) - - ITA 1877 & 1992/15 10 TOTAL AVAILABLE DEDUCTION U/S.36(L)(VIIA) ` 597,67,74,583 . LESS: DEDUCTION CLAIMED IN THE RETURN ` 698,32,76,000 EXCESS DEDUCTION CLAIMED, NOW DISALLOWED ` 100,65,01,417 AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE TH E CIT(APPEALS). 14. THE CIT(APPEALS) OBSERVED THAT AS PER THE PROVISIONS OF SEC.36(1)(VIIA), THE ASSESSEE BEING A SCHEDULE BANK, IS ELIGIBLE FOR DEDUCTION OF NOT EXC EEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANKS COMPUTED IN THE PRESCRI BED MANNER. FURTHER, THE CIT (APPEALS) OBSERVED THAT THE STATUTES CLEARLY CONTAIN THAT THE DEDUCTION IS AVAI LABLE ON THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES, AND NOT ON THE INCREMENTAL ADVANCES ONLY. THEREFORE, ACCORDING TO THE CIT(APPEALS), THAT ASSE SSEE IS ENTITLED FOR DEDUCTION ONLY ON THE INCREMENTAL A VERAGE AGGREGATE ADVANCES OF THE RURAL BRANCHES, IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE CIT(APPEALS) RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF LAKSHMI VILAS BANK IN ITA NO.551, 552 & 553/MDS/2009 DATED 18.12.2009 AND HELD THAT THE - - ITA 1877 & 1992/15 11 ALLOWABLE DEDUCTION U/S.36(1)(VIIA) OF THE ACT IS @ 10% OF THE TOTAL AVERAGE AGGREGATE ADVANCES, AS CONTEMPLA TED BY THE ASSESSING OFFICER. ACCORDINGLY, THE CIT(APP EALS) DIRECTED THE AO TO ALLOW DEDUCTION U/S.36(1)(VIIA) OF THE ACT @ 10% OF THE TOTAL AVERAGE AGGREGATE ADVANCES MADE BY THE RURAL BRANCHES AND NOT ON THE INCREMENT AL AVERAGE AGGREGATE ADVANCES. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE LD. AR IS THAT AL L THE LOANS ADVANCED BY THE RURAL BRANCHES ARE ELIGIBLE FOR DED UCTION U/S.36(1)(VIIA) OF THE ACT, IRRESPECTIVE OF THE PUR POSE FOR WHICH THE LOANS ARE ADVANCED. ON THE OTHER HAND, THE AO OBSERVED THAT ONLY THOSE LOANS WHICH ARE ADVANCED BY THE RUR AL BRANCHES FOR THE PURPOSE OF IMPROVING THE RURAL ECONOMY, LIK E AGRICULTURAL LOANS, AGRO BASED INDUSTRIAL LOANS AND OTHER LOANS GIVEN TO THE VILLAGERS FOR THEIR NEEDS IN THE VILLAGES ETC. ARE ELIGIBLE FOR DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE CIT(APP EALS) DISCUSSED THIS ISSUE IN PARA 4.12.6 OF HIS ORDER, W HICH IS AS BELOW : - - ITA 1877 & 1992/15 12 4.12.6 THE PROVISIONS OF SECTION 36(1)((VIIA) OF THE ACT STIPULATE THAT A DEDUCTION NOT EXCEEDING 10 % OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURA L BRANCHES OF THE BANKS IS TO BE ALLOWED WHILE COMPUTING INCOME. IT MAY BE TRUE THAT THERE WAS NO APPARENT DISCRIMINATION IN THE NATURE OF LOANS ADVANCED BY THE RURAL BRANCHES, UNDER THE STATUTES. BUT WHEN THE STATUTES ARE ALLOWING A SPECIAL DEDUCT ION WITH RESPECT TO THE ADVANCES MADE BY THE RURAL BRANCHES, THE BACKGROUND OF THE PROVISIONS AND THE INTENTIONS OF THE LEGISLATURE, WHILE ENACTING THE STATUTES, HAVE TO BE LOOKED INTO. PERUSAL OF THE B UDGET OF THE FINANCE MINISTER IN 1978-79, WHILE DISPOSING THE INSERTION OF PROVISIONS OF [36(1)(VIIA)] OF THE ACT , CLEARLY SHOWED THAT THE DEDUCTION WAS EXTENDED TO THE RURAL BRANCHES OF THE SCHEDULE BANKS TO ENCOURAGE THEM TO MOVE TO THE RURAL AREAS AND EXTEND RURAL CREDIT. T HE RELEVANT PORTION OF THE BUDGET SPEECH OF THE FINAN CE MINISTER IS AS UNDER : BUDGET SPEECH OF THE FINANCE MINISTER (WHILE) PRESENTING THE BUDGET OF 1978-79: IN RECENT YEARS, COMMERCIAL BANKS, PARTICULARLY PUB LIC SECTOR BANKS, HAVE BEEN ASKED TO REACH OUT INTO THE RURAL AREAS AND THE EXPAND RURAL CREDIT. IN ORDER TO PROMOTE RURAL BANKING AND TO ASSIST THE SCHEDULED COMMERCIAL BANKS IN MAKING ADEQUATE PROVISIONS FROM THEIR CURRENT INCOME TO PROVIDE FOR RISKS IN RURAL ADVANCES, I PROPOSE TO AMEND THE INCOME-TAX ACT TO GRANT A DEDUCTION IN RESPECT OF PROVISIONS MADE FOR BAD AND DOUBTFUL DEBTS BY SCHEDULED COMMERCIAL BANKS RELATING TO ADVANCES MADE BY THEIR RURAL BRANCHES. SUCH A DEDUCTION WILL, HOWEVER, BE LIMIT ED TO 1.5 PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES. THIS MEASURE WILL RESU LT IN A REVENUE LOSS OF ` 12 CRORES DURING 1979-80 BUT IT WILL BE IN A GOOD CAUSE. - - ITA 1877 & 1992/15 13 . .. 16. WE HAVE CAREFULLY GONE THROUGH THE ABOVE FINDIN GS OF THE CIT(APPEALS). IN OUR OPINION, THE FINDING OF THE C IT(APPEALS) IS BASED ON THE BUDGET SPEECH OF THE FINANCE MINISTER BY PRESENTING THE BUDGET OF 1978-79. WE HAVE ALSO GO NE THROUGH THE INTENTION UNDER WHICH SEC.36(1)(VIIA) WAS BROUG HT TO STATUTE BOOK AND THERE IS NO INTENTION TO SUPPORT RURAL BRA NCHES AND BEING SO, ONLY ADVANCES MADE FOR IMPROVING THE RURA L ECONOMY TO BE CONSIDERED FOR ELIGIBLE DEDUCTION U/S.36(1)(V IIA) OF THE ACT. ACCORDINGLY, THE FINDING OF THE AO IS UPHELD AND TH E GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 17. THE NEXT GROUND IN THE APPEAL OF THE ASSESSEE I S THAT THE CIT(APPEALS) FAILED TO APPRECIATE THE FACT THAT IN RESPECT OF THE CLAIMS RAISED AGAINST THE BANK, IN THE NORMAL COURS E, CONSIDERING THE VARIOUS CIRCUMSTANCES PROVISION IS BEING MADE B Y THE BANK AND CONSIDERING THE BUSINESS RISK, SUCH PROVISIONS ARE ALLOWABLE DEDUCTIONS. 18. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT THIS ISSUE WAS CONSIDERED IN ASSESSEES OWN CASE B Y THE - - ITA 1877 & 1992/15 14 TRIBUNAL IN ITA NO.1871/MDS/2012 & OTHERS, WHEREIN IT WAS OBSERVED AS UNDER : 100. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE H AS REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD. CIT(A). HOWE VER, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT FURNISHED ANY DETAILS ABOUT THE NATURE OF EXPENSES. IF ANY EXPENSE IS REQ UIRED TO BE ALLOWED, IT IS FOR THE ASSESSEE TO PROVE THE NATURE OF THE EXPENDITURE AND ITS RELATION TO ITS BUSINESS. IN TH E PRESENT CASE, THE ASSESSEE HAS NOT ABLE TO PROVE THE NATURE OF TH E EXPENSES. THEREFORE, WE ARE OF THE OPINION THAT THE GROUND R AISED BY THE ASSESSEE IS LIABLE TO BE DISMISSED . IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 19. THE NEXT GROUND RAISED BY THE ASSESSEE IN ITS A PPEAL IS THAT THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PROVISIONS OF SEC.115JB OF THE I.T. ACT ARE NOT APPLICABLE TO THE ASSESSEE BANK AS IT IS NOT A COMPANY UNDER THE PROVISIONS OF COMP ANIES ACT, 1956. WITHOUT PREJUDICE TO THE ABOVE CONTENTION TH AT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE, HAV ING HELD THAT THE PROVISIONS ARE APPLICABLE, THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD (A) THAT NO AMOUNT COULD BE ADDED BACK TO BOOK PROF ITS TOWARDS EXPENSES EXIGIBLE UNDER SECTION 14A AS NO INVESTMEN TS ARE HELD EXCLUSIVELY FOR EARNING INTEREST-FREE INCOME; (B) THAT THE CLAIMS AGAINST THE BANK ARE NOT CONTIN GENT LIABILITIES AND HENCE, ARE REQUIRED TO BE DEDUCTED FROM THE COMPUTA TION OF BOOK PROFITS; - - ITA 1877 & 1992/15 15 (C) THAT BAD DEBTS WHICH ARE REQUIRED TO BE DEBITED TO THE PROVISION ACCOUNT ONLY BY THE PROVISIONS OF THE INCOME TAX AC T, 1961, IS REQUIRED TO BE DEBITED AS PROVISIONS WERE ADDED BAC K IN EARLIER YEARS. 20. THIS ISSUE CAME FOR CONSIDERATION BEFORE THE TR IBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEARS 2004-05 TO 2006-07 IN ITA NOS.470 TO 472/MDS/2010 DATED 11.6.2012, WHEREI N IT WAS HELD AS UNDER : 20. WE HAVE PERUSED THE ORDERS OF LOWER AUTHORITIE S AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE ISSUE REGARDING APPLI CABILITY OF SEC.115JB ON A BANK GOVERNED BY BANK REGULATION ACT HAD COMIN G UP BEFORE A CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2000-01. IT WAS HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER DATED 3 RD APRIL, 2011 AS UNDER:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ONLY DISPUTE RAISED BY THE ASSESSEE IS TH AT SINCE IT IS A BANK AND IS REQUIRED TO PREPARE ITS ACCOUNTS ACCORDING TO BA NKING REGULATION ACT, 1949 AND NOT ACCORDING TO SCHEDULE VI PART II AND I II OF THE COMPANIES ACT, 1956, THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO IT WHILE COMPUTING THE INCOME UNDER MAT. WE FIND THAT RECENT LY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF IN THE CASE OF KRUNG THAI BANK PCL VS. JOINT DIRECTOR OF INCOME TAX [INTERNATIONAL TAX ATION] [2010] 45 DTR 218 HAS HELD HAS UNDER: 7. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, AND IT MEETS OUR APPROVAL. THE PROVISIONS OF S. 115JB CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PREPARE ITS P&L A/C IN ACCO RDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE CO MPANIES ACT. THE STARTING POINT OF COMPUTATION OF MAT UNDER S. 115JB IS THE RESULT SHOWN BY SUCH A P&L A/C. IN THE CASE OF BANKING COMPANIES , HOWEVER, THE PROVISIONS OF SCH. VI ARE NOT APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO S. 211(2) OF THE COMPANIES ACT. TH E FINAL ACCOUNTS OF THE BANKING COMPANIES ARE REQUIRED TO BE PREPARED I N ACCORDANCE WITH THE PROVISIONS OF THE BANKING REGULATION ACT. THE P ROVISIONS OF S. 115JB CANNOT THUS BE APPLIED TO THE CASE OF A BANKING COM PANY. 8. FURTHER, IT MAY BE NOTED THAT THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF THE TIMKEN COMPANY, IN RE [2010-TII-25-ARA- INTL AND PRAXAIR - - ITA 1877 & 1992/15 16 PACIFIC LTD IN RE [2010-TII-25-ARA-INTL] HAS HELD T HAT MAT PROVISIONS ARE APPLICABLE TO A FOREIGN COMPANY THAT DOES NOT H AVE A PHYSICAL PRESENCE IN INDIA, AS SUCH, COMPANIES ARE NOT REQUI RED TO PREPARE ITS ACCOUNTS AS PER COMPANIES ACT. THEREFORE, RESPECTFU LLY FOLLOWING THE ABOVE CITED DECISIONS OF THE TRIBUNAL, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE BANK IS NOT REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCHE DULE VI TO THE COMPANIES ACT AND THEREFORE, THE PROVISIONS OF MAT IN SECTION 115JB IS NOT APPLICABLE TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH, WE HOLD THAT THE PROVISIONS OF SEC.115JB COULD NOT BE APPLI ED ON THE ASSESSEE. IN THE RESULT, THIS ISSUE STANDS DECIDED IN FAVOUR OF ASSESSEE. 21. SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL FO R THE ASST. YEAR 2007-08 IN ITA NO.880/MDS/2010 DATED 30.11.201 5. BEING SO, WE ARE OF THE OPINION THAT THE PROVISIONS OF SE C.115JB OF THE ACT CANNOT BE APPLIED TO THE BANKS. AS SUCH, OTHER GROUNDS HEREIN ABOVE DO NOT REQUIRE ADJUDICATION AND DISMIS S THE SAME AS INFRUCTUOUS. 22. NOW, WE TAKE UP THE REVENUES APPEAL. THE FIRS T GROUND IN REVENUES APPEAL IS THAT THE CIT(APPEALS) ERRED IN ALLOWING THE ASSESSEES CLAIM OF BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES. 23. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME FOR CONSIDERATION IN ASSESSEES OWN CASE FOR THE ASST. YEAR 2007-08 IN ITA NO.880/MDS/2010 & OT HERS. VIDE ORDER DATED 30.11.2015, THE TRIBUNAL HELD AS FOLLOW S : - - ITA 1877 & 1992/15 17 48. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS ON RECORD. WITH REGARD TO THE CLAIM OF BROKEN PERIOD I NTEREST PAID ON PURCHASE OF SECURITIES AS REVENUE EXPENDITURE, WE F IND THAT ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, IN ASSESSEES OWN CASE IN I.T.A. NOS. 470 TO 472/MDS/2010 FOR THE ASSESSMENT YEARS 2004-0 5 TO 2006-07 VIDE ORDER DATED 11.06.2012, WHEREIN THE TRIBUNAL HAS OB SERVED AS UNDER: 8. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES B ELOW AND HEARD THE RIVAL CONTENTIONS. ISSUE IS REGARDING TREATMENT OF AMOUNT PAID BY ASSESSEE TO TRANSFERORS OF SECURITIES, TOWARDS I NTEREST ACCRUED AS ON THE DATE OF TRANSFER. HONBLE MUMBAI HIGH COU RT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATI ON VS. C.I.T. IN 258 ITR 60 HAS CLEARLY HELD THAT WHEN INTEREST R ECEIVED BY AN ASSESSEE, FROM TRANSFEREES FOR BROKEN PERIOD IS INC LUDED UNDER THE HEAD BUSINESS INCOME, AMOUNTS PAID BY THE ASSESSE E TO THE TRANSFERORS FOR BROKEN PERIODS COULD NOT HAVE BEEN DISALLOWED. THIS VIEWWAS REITERATED IN THE CASE OF UNION BANK O F INDIA REFERRED TO SUPRA. HONBLE APEX COURT HAD DISMISSED THE SPEC IAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST SUCH JUDGE MENT OF ORDER OF MUMBAI HIGH COURT ON 27.01.2004 (SLP(C) NO.3710 OF 2004). THEREFORE, EVEN THOUGH IT WAS EARLIER DECIDED BY TH IS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1996-97 IN ITANO.1901/MDS/04 DATED 25.10.07, THAT BROKEN PERIO D INTEREST COULD NOT BE CONSIDERED AS REVENUE EXPENDITURE BUT HAD TO BE TAKEN AS CAPITAL OUTLAY WHEN PAID FOR ACQUIRING SEC URITIES, IN VIEW OF THE LATER DECISIONS OF HONBLE MUMBAI HIGH COURT MENTIONED SUPRA, SUCH BROKEN PERIOD INTEREST HAS TO BE ALLOWE D. WE WOULD PREFER TO FOLLOW THE DECISION OF THE HONBLE MUMBAI HIGH COURT, SINCE SPECIAL LEAVE PETITION FILED BY THE DEPARTMEN T AGAINST SUCH DECISION IN THE CASE OF UNION BANK OF INDIA (SUPRA) WAS DISMISSED BY HONBLE APEX COURT. THUS, THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. 49. FURTHER, WE ALSO FIND THAT THE HONBLE JURISDIC TIONAL HIGH COURT IN ASSESSEES OWN CASE IN T.C.(A) NO. 417 OF 2008 VIDE ORDER DATED 11.02.2014 DECIDED THE ABOVE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF THE C OORDINATE BENCH OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MA DE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. IN VIEW OF THIS, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 24. THE NEXT GROUND IN REVENUES APPEAL IS THAT THE CIT(APPEALS) HAS ERRED IN DIRECTING THE ASSESSING O FFICER TO - - ITA 1877 & 1992/15 18 ALLOW AN AMOUNT OF ` 49,22,32,974/- BEING THE DEPRECIATION ON SECURITIES AT THE TIME OF SHIFTING FROM AFS TO HTM. 25. SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.887/MDS/2010 & OTH ERS DATED 30.11.2015, WHEREIN IT WAS OBSERVED AS UNDER: 120. FURTHER, ON AN IDENTICAL SET OF FACT, SIMILAR GROUND WAS RAISED BEFORE THE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. ANDHRA BANK LTD. IN I.T.A. NO. 630/HYD/2012 AND VIDE ITS ORDER DATED 04.10.2013 FO R THE ASSESSMENT YEAR 2007-08, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 2. GROUND NOS. 2 & 3 ARE PERTAINING TO DEPRECIATIO N ON HTM INVESTMENTS OF RS. 293,31,88,038/-. THE AO DISALLOWED THE SAID DEPRECIATION CLAIM OF THE ASSES SEE ON THE GROUND THAT THE CLAIM WAS NOT ROUTED THROUGH P&L ACCOUNT BUT A CLAIM WAS MADE IN RESPECT OF DEPRECIATION ON HTM CATEGORY THROUGH A NOTE AND THEREFORE IS NOT ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF IT ACT FOLLOWING CBDT CIRCULARS, CASE LAWS RELIED UPON BY THE ASSESSEE, RELEVANT ACCOUNTI NG STANDARDS, RBI GUIDELINES AND ACCOUNTING PRINCIPLES . 3. ON APPEAL, THE CIT(A) FOLLOWING HIS PREDECESSOR S DECISION IN AY 2005-06, SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO ASCERTAIN THE FACTS A ND ALLOW DEPRECIATION ACCORDINGLY. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 97/HYD/2010 VIDE ORDER DATED 04/04/2013. THE LEARNED DR NEITHER CONTROVERTED THE SUBMISSION OF THE LEARNED COUNSEL - - ITA 1877 & 1992/15 19 NOR BROUGHT ANY CONTRARY DECISION ON RECORD AGAINST THE SAID ORDER. 5. AFTER HEARING THE PARTIES AND PERUSING THE RECOR D, WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUAR ELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR AY 2006- 07WHEREIN THE COORDINATE BENCH HELD AS FOLLOWS: 50. WE ARE OF THE OPINION THAT THE ASSESSEE BANK I S HOLDING VARIOUS GOVERNMENT SECURITIES IN ORDER TO COMPLY WITH THE STATUTORY LIQUIDATED RATIO. THE BAN K WOULD HAVE TO HOLD REQUISITE PERCENTAGE OF DEPOSITS IN THE FORM OF CASH, GOLD, GOVERNMENT OR APPROVED SECURITIES. THE GOVERNMENT SECURITIES HELD FOR THE PURPOSE OF COMPLY WITH THE SLR HAS BEEN HELD TO BE STOCK IN TRADE AND THEREFORE VALUE OF THE SAME AS O N 31ST MARCH HAS TO BE MADE AND THERE IS ANY DEPRECIATION THE SAME SHOULD BE ALLOWED AS A REVENUE DEDUCTION. HOWEVER, THE RBI HAS ISSUED CIRCULAR WHEREIN THEY HAVE CLASSIFIED THE INVESTMEN T MADE TO COMPLY WITH SLR REQUIREMENT AS `HELD TO MATURITY (HTM), `AVAILABLE FOR SALE (AFS) AND `HE LD FOR TRADE (HFT). BASED ON THE RBI CIRCULAR LOWER AUTHORITIES CAME TO THE CONCLUSION THAT INVESTMENT IN GOVERNMENT SECURITIES WHICH ARE CLASSIFIED UNDER THE HEAD HTM CANNOT BE CONSIDERED AS STOCK IN TRADE AND THEREFORE DEPRECIATION IN VALUE OF SUCH SECURITIES CANNOT BE ALLOWED AS A DEDUCTION. THE APEX COURT IN THE CASE OF UCO BANK LTD VS CIT REPORTED IN 240 ITR 355 HAS HELD THAT VALUE OF THE SECURITIES AT COST OR MARKET VALUE WHICHEVER IS LES S SHOULD BE ACCEPTED FOR INCOME TAX EVEN IF THE BANKS IN THEIR BOOKS DO NOT VALUE ON THAT BASIS. THEREFOR E, IT IS AN ACCEPTED PROPORTION THAT INVESTMENT MADE B Y THE BANK TO COMPLY WITH THE SLR REQUIREMENT WOULD CONSTITUTE THEIR STOCK IN TRADE AND DEPRECIATION IN VALUE OF THE SAME IS AN ALLOWABLE DEDUCTION. - - ITA 1877 & 1992/15 20 51. RESPECTFULLY FOLLOWING THE DECISIONS CITED BY T HE LEARNED COUNSEL FOR THE ASSESSEE, WE UPHOLD THE CLAIM OF THE ASSESSEE AND DIRECT THE AO TO ALLOW DEPRECIATION / FALL IN VALUE OF INVESTMENT IN GOVERNMENT SECURITIES INCLUDING THOSE CLASSIFIED UNDER HTM CATEGORY. NO DOUBT THE VALUE IN OPENING STOCK IN THE NEXT YEAR WOULD CORRESPONDINGLY BE ADJUSTED. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2006-07 IN ASSESSEES OWN CASE, RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE DIRECTIONS OF LD.CIT(A) WITH A DIRECTION TO AO TO F OLLOW THE SAME IN THIS YEAR ALSO AS PER THE ORDER OF ITAT SUPRA.. ACCORDINGLY, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. IN VIEW OF THE ABOVE DECISIONS OF THE TRIBUNAL, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AN D THE GROUND RAISED BY THE REVENUE IS DISMISSED. ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE IS D ISMISSED. 26. THE NEXT GROUND TAKEN BY THE REVENUE IN ITS APPEAL IS THAT THE CIT(APPEALS) IS ERRED IN ALLOWING THE ASSESSEE S CLAIM TOWARDS DEDUCTION OF BAD DEBTS WRITTEN OFF. 27. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASS ESSEES OWN CASE IN ITA NO.880/MDS/2010. VIDE ITS ORDER DATED 30.11.2015, THE TRIBUNAL OBSERVED AS UNDER : - - ITA 1877 & 1992/15 21 44. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE TRIBUNAL, WHILE DECIDING THE GROUP CASES OF THE ASSESSEE IN I.T.A. NOS. 470 TO 472/MDS/2010 FOR THE ASSESSMENT YEARS 2004-05 TO 2006-07 VIDE ORDER DATE D 11.06.2012, HAS FOLLOWED ITS OWN DECISION IN I.T.A. NO. 1082/MDS/2003 DATED 30.06.2011, WHEREIN, THE ISSUE STANDS SETTLED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK V. CIT 323 ITR 166 AND THE TRIBUNAL IN ITS ORDER DA TED 11.06.2012 HAS HELD AS UNDER: 11. WE HAVE PERUSED THE ORDERS OF LOWER AUTHORITIE S AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE ISSUE REGAR DING ALLOWANCE OF BAD DEBTS WRITTEN OFF ON TECHNICAL REASONS STAND DECIDED IN FAVOUR OF ASSESSEE BY THIS TRIBUNAL IN ITA NO.1082/ MDS/2003 FOR ASSESSMENT YEAR 1998-99. IT WAS HELD BY THIS TR IBUNAL AT PARA NOS. 43 & 44 OF ITS ORDER DATED 30/06/11 AS UN DER:- I.T.A. NO. 1082/MDS/2003 42. FIRST ISSUE RAISED BY THE ASSESSEE IS REGARDING DISALLOWANCE OF ITS CLAIM FOR BAD DEBT TECHNICAL WRITE OFF. 43. A.O. HAD DISALLOWED A PART OF THE CLAIM OF BAD DEBT ON A REASONING THAT THE WRITE-OFF WAS PURELY TECHNICAL, SINCE ASSESSEE HAD NOT REDUCED THE WRITTEN OFF AMOUNTS FR OM THE INDIVIDUAL DEBTORS ACCOUNT, THOUGH THE TOTAL AMOUNT OF WRITE-OFF WAS DEDUCTED FROM TOTAL OF THE ADVANCES. 44. WE FIND THIS ISSUE NOW STANDS SETTLED IN FAVOUR OF THE ASSESSEE BY HON'BLE APEX COURT, VIDE ITS DECISION I N VIJAYA BANK V. CIT (323 ITR 166). CRUX OF THIS DECISION AS APPEARING FROM THE HEAD NOTE RUNS AS UNDER:- BUSINESS EXPENDITURE BAD DEBT DEBT WRITTEN OFF IN THE BOOKS AFTER INSERTION OF EXPLANATION TO S. 36(1)(VII), AS SESSEE IS REQUIRED NOT ONLY TO DEBIT THE P&L A/C BUT SIMULTANEOUSLY AL SO- REDUCE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT AT THE END OF THE YEAR THE AMOUNT OF LOANS AND ADVANCES/DEBTOR S IS SHOWN AS NET OF PROVISION FOR IMPUGNED BAD DEBT IN THE INS TANT CASE, BESIDES DEBITING THE P&L A/C AND CREATING A PROVISI ON FOR BAD AND DOUBTFUL DEBTS, THE ASSESSEE BANK HAD SIMULTANEOUSL Y OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING TH E CORRESPONDING - - ITA 1877 & 1992/15 22 AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSET S SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT THE END OF THE Y EAR, THE FIGURE OF LOANS AND ADVANCES/DEBTORS WAS SHOWN AS NET OF T HE PROVISION THEREFORE, ASSESSEE IS ENTITLED TO BENEFIT OF DED UCTION UNDER S. 36(1)(VII) CONTENTION THAT IT IS IMPERATIVE FOR T HE ASSESSEE-BANK TO CLOSE THE INDIVIDUAL ACCOUNT OF EACH DEBTOR IN I TS BOOKS AND A MERE REDUCTION IN THE LOANS AND ADVANCES ACCOUNT OR DEBTORS TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DE BT IS NOT SUFFICIENT, IS NOT SUSTAINABLE APPREHENSION THAT IF THE ASSESSEE FAILS TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF ITS DEBTORS, IT MAY RESULT IN CLAIMING DEDUCTION TWICE OVER IS NOT CORRECT IT IS ALWAYS OPEN TO THE AO TO CALL FOR DETAILS OF INDIVI DUAL DEBTORS ACCOUNT IF HE HAS REASONABLE GROUNDS TO BELIEVE THA T THE ASSESSEE HAS CLAIMED DEDUCTION TWICE OVER CONTENTION THAT WHERE A BORROWERS ACCOUNT IS WRITTEN OFF BY DEBITING P&L A /C AND CREDITING LOANS AND ADVANCES OR DEBTORS ACCOUNT, IT WOULD RES ULT IN ESCAPEMENT OF INCOME FROM ASSESSMENT IF THE BORROWE R REPAYS THE LOAN IN THE SUBSEQUENT YEARS AS THE ASSESSEE WO ULD CREDIT THE REPAID AMOUNT TO LOANS AND ADVANCES ACCOUNT AND NOT TO THE P&L A/C HAS NO MERIT IN SUCH CIRCUMSTANCES THE AMOUNT S ARE DULY OFFERED FOR TAX AND THE AO IS SUFFICIENTLY EMPOWERE D TO TAX SUCH SUBSEQUENT REPAYMENTS UNDER S. 41(4). HENCE THIS I SSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL, WE ARE INCLINED TO ALLOW THE CLAIM OF ASS ESSEE. THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. 45. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E COORDINATE BENCH OF THE TRIBUNAL, WHEREIN THE DECISION OF THE HONBLE SUPREME COURT IS FOLLOWED, WE SET ASIDE THE ORDER O F THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO DELETE THE DISALLOWANCE MADE ON THIS ISSUE. THUS, THE GROU ND RAISED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 28. THE NEXT GROUND RAISED BY THE REVENUE IS THAT THE CIT(APPEALS) ERRED IN ALLOWING THE CLAIM OF THE ASS ESSEE U/S.36(1)(VIIA) OF THE ACT. - - ITA 1877 & 1992/15 23 29. THE LD. AR SUBMITTED THAT THE ISSUE WAS CONSIDE RED BY THE TRIBUNAL IN ITA NO.2124/MDS/2010 & OTHERS DATED 30.11.2015 FOR THE ASSESSMENT YEAR 2005-06 AND DECI DED THE SAME IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDE R: 29. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIE S BELOW. THE LD. CIT(A), AFTER EXAMINING THE DETAILED SUBMISSIONS OF THE ASSESSEE AND ALSO BY FOLLOWING T HE DECISION OF THE TRIBUNAL IN THE CASE OF LAKSHMI VIL AS BANK LTD. V. ACIT (SUPRA), ALLOWED THE GROUND RAISE D BY THE ASSESSEE BY OBSERVING AS UNDER: 4.3.3 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. AS PERTHE PROVISIONS OF SEC.36(1)(VIIA), THE ASSESSEE, BEING A SCHEDULED BANK,IS ELIGIBLE FOR DEDUCTION OF NOT EXCEEDING 10% OF THE' AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANKS COMPUTED IN THE PRESCRIBED MANNER.' THE STATUTES CLEARLY CONTAIN THAT THE DEDUCTION IS AVAILABLE ON THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES, AND NOT ON THE INCREMENTAL ADVANCES ONLY. THEREFORE, THE ASSESSING OFFICER'S INTERPRETATION, THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION ONLY ON THE INCREMENTAL AVERAGE AGGREGATE ADVANCES OF THE RURAL BRANCHES, IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. FOR THIS PURPOSE, RELIANCE I S ALSO PLACED ON THE DECISION OF THE JURISDICTIONAL I TAT IN THE CASE OF LAKSHMI VILAS BANK IN ITA NO.551,552,553/MDS/2009 DATED 18-12-2009. THE RELEVANT PORTION OF THE DECISION OF THE DECISION, I S REPRODUCED AS UNDER: 4.1 ISSUE NO.1 - REGARDING COMPUTATION OF AGGREGATE AVERAGE ADVANCES, MADE BY THE RURAL BRANCHES: - - ITA 1877 & 1992/15 24 4.1.1 WE HAVE HEARD THE LEARNED A.R. AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT RECORDS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PROVISIONS OF SECTION 36(1)(VIIA) REFERS TO THE COMPUTATION IN THE PRESCRIBED MARINER. HE HAS THEN REFERRED RULE 6ABA OF INCOME TAX RULES, 1962 AND SUBMITTED THAT THIS ISSUE WAS CONSIDERED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. CITY UNION BANK LID, VIDE ORDER DATED 30.10.2009IN I.T.A. NO.1485/MDS/2007. 4.1.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT AS PER THE SECTIO N 5 OF THE INCOME TAX ACT, THE INCOME IS COMPUTED FOR THE PREVIOUS YEAR AND, THEREFORE, ALL DEDUCTIONS AR E TO BE ALLOWED IN RESPECT TO THE PREVIOUS YEAR ONLY. EA CH ASSESSMENT YEAR IS A SEPARATE UNIT. HE HAS THUS SUBMITTED THAT IF THE OPENING BALANCE IS INCLUDED F OR THE PURPOSE OF COMPUTATION OF AGGREGATE AVERAGE ADVANCES OF THE RURAL BRANCHES FOR COMPUTATION OF DEDUCTION U/S. 36(1)(VIIA), IT WILL DE-HORS THE PROVISIONS OF SECTIONS 4 & 5 OF THE INCOME TAX ACT. HE HAS FURTHER SUBMITTED THAT THE ISSUE IN THE CASE OF CITY UNION BANK WAS NOT ON THE POINT OF CALCULATION OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES, THEREFORE THE SAID DECISION IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 4.1.3 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORDS. AT THE OUTSET, WE FIND THAT THE C O- ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF CITY UNI ON BANK LTD SUPRA CONSIDERED AND ADJUDICATED THIS ISSU E IN PARA 8 AS UNDER: WE HAVE DULY CONSIDER THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD. WE HAVE PERUSED RULE 6ABA OF THE INCOME TAX RULES, 1962. AS PER THE - - ITA 1877 & 1992/15 25 SAID RULE, THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES HAVE TO BE COMPUTED BY TAKING 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. THUS, IT IS CLEAR THAT THERE IS NO PROVISION TO CONSIDER ONLY THE ADVANCES MADE DURING THE YEAR UNDER CONSIDERATION. IT IS THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS FURNISHED THE WORKING AS PER RULE 6ABA. IT IS NOT IN DISPUTE THAT THE WORKING IS AS PER RULE 6ABA BUT THE ASSESSING OFFICER SEEMS TO HAVE INTERPRETED THE PROVISION NOT WARRANTED BY LAW. THEREFORE, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING THE DEDUCTION TO THE ASSESSEE. 4.1.4 BY FOLLOWING THE PRINCIPLE OF CONSISTENCY, AS THE ISSUE HAS ALREADY BEEN DECIDED BY THE CO-ORDINATE B ENCH OF THIS TRIBUNAL, WE DECIDE THIS ISSUE ON MERITS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 4.3.4 IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFU LLY FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT I N THE CASE OF LAKSHMI VILAS BANK IN ITA NO.551,552, 553/MDS/20 09 DATED 18-12-2009, I HOLD THAT THE ALLOWABLE DEDUCTI ON UJS.36(I)(VIIA) OF THE ACT IS @ 10% OF THE 'TOTAL A VERAGE AGGREGATE ADVANCES' MADE BY THE RURAL BRANCHES AND NOT ON THE INCREMENTAL AVERAGE AGGREGATE ADVANCES, AS CONTEMPLATED BY THE ASSESSING OFFICER. THE ASSESSEE 'S APPEALS IN THIS REGARD ARE ALLOWED. 30. THE CIT(APPEALS) HAS RIGHTLY FOLLOWED THE DECIS ION OF THE TRIBUNAL IN THE CASE OF LAKSHMI VILAS BANK (SUPRA) AND WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CI T(APPEALS). THUS, THE GROUND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. - - ITA 1877 & 1992/15 26 IN VIEW OF THE ABOVE, THE GROUND RAISED BY THE REVE NUE IS DISMISSED. 30. HOWEVER, WE ARE OF THE OPINION THAT THE CO-ORDI NATE BENCH OF THE TRIBUNAL ON RECENT DECISION IN THE CAS E OF LAKSHMI VILAS BANK LTD. IN ITA NO.1205/MDS/15 AND OTHERS DA TED 29.1.2016 CONSIDERING THE ABOVE ISSUE HELD AS UNDER : 93. THUS, IT CAN BE SEEN THAT IN THE CASE OF PROVI SION MADE TOWARDS NON RURAL DEBTS, NO DEDUCTION CAN BE ALLOWE D AS THERE IS NO SPECIFIC PROVISION IN THE INCOME TAX AC T TO ALLOW THE SAME. THIS INDICATES THAT THE PROVISION MADE TO WARDS URBAN DEBT SHOULD BE ADDED BACK AND ALLOWED ONLY WH EN BAD DEBTS ARE REALLY WRITTEN OFF. THE QUESTION OF D OUBLE DEDUCTION BEING ALLOWED DOES NOT ARISE THEREIN AT A LL, BECAUSE IT IS ALLOWED ONLY ON ACTUAL WRITE OFF. THE HONBLE APEX COURT HAS ALSO HELD THAT THE PROVISO TO SECTIO N 36(1)(VII) APPLY ONLY IN RESPECT OF RURAL DEBTS. IN VIEW OF THE ABOVE DECISION AND IN VIEW OF THE OPTION EXERCISED BY THE ASSESSEE THAT IT CAN CLAIMS DEDUCTION ON DOUBTFUL D EBTS AS PER OPTION (B) I.E. 7.5% OF GROSS TOTAL INCOME AND 10% OF AGGREGATE AVERAGE RURAL ADVANCES, THE ASSESSING OFF ICER HAS RIGHTLY WORKED OUT THE ALLOWABLE DEDUCTION, WHI CH IS LESS THAN THAT OF THE PROVISION MADE BY THE ASSESSEE AS DOUBTFUL DEBTS, ALLOWED THE DEDUCTION OF BAD DEBTS FOR ALL A SSESSMENT YEARS AND REMAINING BALANCE WAS BROUGHT TO TAX. ACCORDINGLY, WE REVERSE THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER FOR ALL THE ABOVE ASSESSMENT YEARS. THIS GROUND OF APPEAL O F THE REVENUE IS ALLOWED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E TRIBUNAL, WE DECIDE THIS GROUND IN FAVOUR OF THE REVENUE. - - ITA 1877 & 1992/15 27 31. THE NEXT GROUND IN REVENUES APPEAL IS WITH REG ARD TO SHIFTING OF SECURITIES FROM AFS TO HTM U/S.115JB OF THE ACT. 32. THIS ISSUE DOES NOT REQUIRE ADJUDICATION AS IT HAS BEEN HELD THAT THE PROVISIONS OF SEC.115JB OF THE ACT AR E NOT APPLICABLE TO THE BANKS. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 33. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WELL A S THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 11 TH OF MARCH, 2016 AT CHENNAI. SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 11 TH MARCH, 2016. MPO* ;D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H3 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.