DCIT, Circle-9(1), Hyd, Hyderabad V. Deccan Grameena Bank, Hyd, Hyderabad

ITA 857/HYD/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3020 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: T UMAKANTH
• Keywords: Capital asset; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 857/HYD/2015 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME TAX, CIRCLE 9(1), HYDERABAD. VS. DECCAN GRAMEENA BANK, HYDERABAD. PAN - AAAAD 3893 M (APPELLANT) (RESPONDENT) REVENUE BY : SMT. NIVEDITA BISWAS ASSESSEE BY : SHRI T. UMAKANTH DATE OF HEARING 08-02-2016 DATE OF PRONOUNCEMENT 12-02-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) V II, HYDERABAD, DATED 29.04. 2015, FOR THE AY 2007-08 WHEREIN THE R EVENUE HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS: 2. WHETHER THE LD. CIT(A) IS CORRECT AS PER LAW IN ALLOWING DEDUCTION CLAIMED U/S 36(1)(VIIA) OF THE ACT RS. 3 0,11,10,590/-. 3. WHETHER THE LD. CIT(A) IS CORRECT AS PER LAW IN HOLDING THAT THE EXPENSE OF BROKEN PERIOD INTEREST ON PURCHASE OF SECURITIES HELD AS STOCK IN TRADE RS. 74,31,415/-. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A RU RAL BANK PROMOTED BY THE STATE BANK GROUP. FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE DECLARED LOSS OF RS. 25.68 CRORES WHER EAS THE ASSESSMENT WAS COMPLETED BY DETERMINING THE INCOME AT RS. 25.73 CRORES. THEREAFTER, IT WAS NOTICED THAT THE ASSESSE E HAD SHOWN INTEREST RECEIVED FROM NABARD ACCOUNT OF RS. 3930.2 7 LAKHS UNDER 2 ITA NO. 857 /HYD/2015 DECCAN GRAMEENA BANK OTHER ASSETS IN THE BALANCE SHEET, WITHOUT OFFERI NG THE SAME AS INCOME. THEREFORE, PROCEEDINGS U/S 148 OF THE IT AC T, WERE INITIATED AND THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT, WHEREIN THE FOLLOWING ADDITIONS WERE MADE: 1. DISALLOWANCE OF EXCESS DEDUCTION CLAIMED U/S 36(1)(VIIA) RS.30,11,10,590 2. DISALLOWANCE OF BROKEN PERIOD INTEREST RS. 74,31,415 3. AT THE TIME OF HEARING, BOTH THE PARTIES ADMITTE D THAT THE ISSUES, HEREINABOVE, STANDS SQUARELY COVERED BY THE DECISIO N OF THE ITAT IN ASSESSEES OWN CASE IN ITA NO. 1742/HYD/14, VIDE OR DER DATED 25 TH MARCH, 2015. 4. THE FACTS CONCERNING THE ISSUE OF DISALLOWANCE M ADE U/S 36(1)(VIIA) ARE AS UNDER: 4.1 IN THE RETURN OF INCOME, ASSESSEE CLAIMED DEDUC TION OF RS. 53,56,58,590 U/S 36(1)(VIIA) WHICH IS EQUIVALENT TO 10% OF AVERAGE AGGREGATE OF RURAL ADVANCES PLUS 7.5% OF TOTAL INCO ME ( RS. 51,34,32,000 + RS. 2,22,26,590). THE ASSESSEE MADE A PROVISION OF BAD AND DOUBTFUL DEBTS ONLY TO THE TUNE OF RS. 23.4 5 CRORES, IN THE BOOKS OF ACCOUNT. ACCORDING TO THE AO, THE CLAIM OF DEDUCTION SHOULD BE LIMITED TO THE PROVISION MADE FOR BAD AND DOUBTF UL DEBTS. SINCE ASSESSEE CLAIMED EXCESS DEDUCTION OF RS. 30,11,10,5 90/- (RS. 53,56,58,590 RS. 23,45,48,000), THE SAME WAS DISA LLOWED BY THE AO. 5. ON AN APPEAL FILED BY THE ASSESSEE, THE LD. CIT( A) OBSERVED THAT IDENTICAL ISSUE WAS DECIDED BY THE ITAT, HYDER ABAD BENCH IN ASSESSEES OWN CASE FOR AY 2010-11 (SUPRA) AND ACCO RDINGLY DIRECTED THE AO TO ALLOW THE CLAIM OF DEDUCTION OF RS. 53.56 CRORES AS AGAINST RS. 23.45 CRORES ALLOWED BY THE AO. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE R EVENUE IS IN APPEAL BEFORE US. 3 ITA NO. 857 /HYD/2015 DECCAN GRAMEENA BANK 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE RECORD. THE CASE OF THE ASSESSEE WAS THAT THERE WAS NO NECESSITY TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS SINCE T HE PROVISIONS OF SECTION 36(1)(VIIA) PERMITS THE ASSESSEE TO MAKE A CLAIM TO THE EXTENT OF 7.5% OF THE TOTAL INCOME ADMITTED. ON THE OTHER HAND, THE CASE OF THE REVENUE IS THAT ANY PROVISION CREATED SHOULD HA VE A PURPOSE WHEREAS IN THE CASE OF THE ASSESSEE PROVISION WAS C REATED WITHOUT ANY NECESSITY AND AS SUCH CANNOT BE ALLOWED AS DEDU CTION. THE ITAT IN ASSESSEES OWN CASE FOR AY 2010-11 (SUPRA) OBSER VED THAT PROVISIONS OF SECTION 36(1)(VIIA) PERMITS BANKING C OMPANIES TO CLAIM A DEDUCTION NOT EXCEEDING 7.5% OF TOTAL INCOME COMPUT ED, TOWARDS BAD AND DOUBTFUL DEBTS AND DEDUCTIONS U/S 36(1)(VIIA) A RE ALLOWABLE INDEPENDENTLY IRRESPECTIVE OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS. THE FACTS IN THE YEAR UNDER CONSIDERATION BEING IDE NTICAL, WE RESPECTFULLY FOLLOW THE DECISION OF THE ITAT (SUPRA ) AND HOLD THAT ASSESSEES CLAIM IS IN CONFORMITY WITH THE PROVISIO NS OF SECTION 36(1)(VIIA) AND, HENCE, AO WAS NOT JUSTIFIED IN DIS ALLOWING A PORTION OF THE CLAIM. IN OTHER WORDS, THE LD. CIT(A) WAS JUSTI FIED IN DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE IN ITS ENTIRE TY. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND REJECT GROUND N O.2 OF THE REVENUE. 8. AS REGARDS THE FACTS IN GROUND NO. 3 ARE CONCERN ED THE ASSESSEE PURCHASED GOVERNMENT SECURITIES AND INTER EST FOR THE BROKEN PERIOD ON ACQUISITION OF SECURITIES WAS CLAI MED AS DEDUCTION WHEREAS THE AO WAS OF THE VIEW THAT BROKEN PERIOD I NTEREST IS NOT ALLOWABLE AS REVENUE EXPENDITURE AND RELYING UPON T HE DECISION OF APEX COURT IN THE CASE OF VIJAYA BANK VS. CIT, 187 ITR 541, HE DISALLOWED THE SAME. 9. ON AN APPEAL FILED BY THE ASSESSEE, THE LD. CIT( A) FOLLOWED THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2010-11 (SUPRA) AND DIRECTED THE AO TO ALLOW THE CLAIM OF DEDUCTION . 10. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4 ITA NO. 857 /HYD/2015 DECCAN GRAMEENA BANK 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE SECURITIES WE RE HELD AS STOCK-IN- TRADE. WHILE DEALING WITH THIS ISSUE, ITAT, A BEN CH HYDERABAD IN ASSESSEES OWN CASE FOR AY 2010-11 OBSERVED THAT AO HAS WRONGLY PLACED RELIANCE UPON A DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF VIJAYA BANK (SUPRA), OVERLOOKING THE FACT T HAT IN THE AFORE- CITED CASE INVESTMENTS AND SECURITIES WERE CONSIDER ED AS CAPITAL INVESTMENTS AND CONSEQUENTLY INTEREST ON SUCH ACQUI SITION WAS ALSO TREATED AS CAPITAL EXPENDITURE. IN OTHER WORDS, INT EREST PAID ON ACQUISITION OF A CAPITAL ASSET CANNOT BE TREATED AS REVENUE EXPENDITURE. HOWEVER, IN THE PRESENT CASE, UNDISPU TEDLY SECURITIES WERE TREATED AS STOCK-IN-TRADE, IN WHICH EVENT, THE EXPENDITURE INCURRED ON PURCHASE OF SECURITIES ARE ALLOWABLE AS REVENUE EXPENDITURE. THE FACTUAL MATRIX OF THE CASE, AS C ONSIDERED BY THE TRIBUNAL IN DETAIL IN AY 2010-11, WERE NOT CONTRADI CTED EVEN AT THIS STAGE. SINCE THE LD. CIT(A) FOLLOWED THE DECISION O F THE ITAT, ON THE SAME SET OF FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, WE REJECT GROUND NO. 3 OF THE REVENUE. 12. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, THEREF ORE, DO NOT REQUIRE INDEPENDENT CONSIDERATION. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2016. SD/- SD/- (D. MANMOHAN) (S. RIFAUR R AHMAN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 12 TH FEBRUARY, 2016 KV 5 ITA NO. 857 /HYD/2015 DECCAN GRAMEENA BANK COPY TO:- 1) DCIT, CIRCLE 9(1), ROOM NO. 245, BLOCK D, SE COND FLOOR, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 2) M/S DECCAN GRAMEENA BANK, 9-27/1, FIRST FLOOR, L ALITHA NAGAR, DILSUKHNAGAR, HYDERABAD. 3 CIT(A) - VII, HYDERABAD 4) CIT VII, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.