Ita/207/2019 Of The Commissioner Of Income Tax v. M/S Canara Bank

Digitally signed byYASHODHA NLocation: HighCourt Of Karnataka IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5 DAY OF DECEMBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G.SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 207 OF 2019 C/W INCOME TAX APPEAL NO. 208 OF 2019 IN I.T.A NO. 207 OF 2019 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX LTU, 7TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095. 2. THE ADDL. /JOINT COMMISSIONER OF INCOME TAX, LTU 7TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095. …APPELLANTS (BY SHRI. K.V.ARAVIND, SENIOR STANDING COUNSEL) AND: M/S CANARA BANK HEAD OFFICE, NO.112 J.C. ROAD, TOWN HALL BENGALURU-560 002. PAN: …RESPONDENT (BY SHRI. T.SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:28/09/2018 PASSED IN ITA NO.1899/BANG/2017, FOR THE ASSESSMENT YEAR 2014-2015, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC. IN I.T.A NO. 208 OF 2019 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX LTU, 7TH FLOOR BMTC BUILDING 80 FEET ROAD KORAMANGALA BENGLAURU-560 095. 2. THE ADDL./JOINT COMMISSIONER OF INCOME TAX, LTU 7TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGLAURU-560 095. …APPELLANTS (BY SHRI. K.V.ARAVIND, SENIOR STANDING COUNSEL) AND: M/S CANARA BANK HEAD OFFICE NO. 112, J.C.ROAD TOWN HALL BENGALURU-560 002. PAN-AAACC 6106G …RESPONDENT (BY SHRI. T.SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) SMT. TANMAYEE RAJKUMAR, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:28/09/2018 PASSED IN ITA NO.1900/BANG/2017, FOR THE ASSESSMENT YEAR 2013-2014 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC. THESE INCOME TAX APPEALs, COMING ON FOR FINAL HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT ITA No.207/2019 by the Revenue challenging the order dated September 28, 2018 in ITA No.1899/Bang/2017 for the A.Ys. 2014-15 and ITA No.206/2019 by the Revenue challenging the order dated September 28, 2018 in ITA No.1900/Bang/2017 for the A.Ys. 2013-14 have been admitted to consider the following questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside claim of assessee relating to unrealized gains on revaluation of forward contracts as the bank accounts were admittedly prepared on accrual basis and revenue was recognized following mercantile method except for certain items which were accounted on cash basis? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside claim of assessee relating to unrealized gains on revaluation of forward contracts when assessing authority rightly denied the same by holding that as the bank accounts were admittedly prepared on accrual basis and revenue was recognized by following mercantile method except for certain items which were accounted on cash basis? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing depreciation in value of investment in HTM Securities ignoring the fact that HTM Securities are treated as stock-in-trade by the assessee-bank and depreciation has been claimed in all the assessment years? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside claim of assessee relating to unrealized gains on revaluation of forward contracts when assessing authority rightly denied the same by holding that as the bank accounts were admittedly prepared on accrual basis and revenue was recognized by following mercantile method except for certain items which were accounted on cash basis? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing depreciation in value of investment in HTM Securities ignoring the fact that HTM Securities are treated as stock-in-trade by the assessee-bank and depreciation has been claimed in all the assessment years? 4. Whether on the facts and in the circumstances of the case the Tribunal is right in law in setting aside disallowances made under section 36(1) (viia) of the Act by the assessing authority by placing reliance on its earlier judgment in the case of Vijaya Bank even though the said judgment has not reached finality and assessing authority had rightly observed that only incremental advances has to be considered for computing ‘Agreegate Rural Advances’ as per Rule 6ABA of Income Tax Rules? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the disallowance made under section 14A of the Act by even when the conditions for invoking said provisions as fully satisfied in the case of the assessee? 6. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowances on account of AFS and HFT category of investments by relying upon the decisions which has not reached finality and even when the assessing authority rightly disallowed the depreciation on investment of Available for Sale (AFS) and held for trading (HFT) category investment and added to the taxable income?" 2. Heard Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue and Shri T.Suryanarayana, learned Senior Advocate for the assessee. 3. At the outset, Shri Suryanarayana submitted that questions No.1 and 2 have been answered in favour of the assessee and against the Revenue in ITA No.268/2018[1]; favour of the assessee and against the Revenue in ITA No.268/2018[1]; that questions No.3 and 6 have been answered in favour of the assessee and against the Revenue in ITA No.27/2017[2]; favour of the assessee and against the Revenue in ITA No.27/2017[2]; that question No.4 has been covered in favour of the assessee and against the Revenue in the decision of High Court of Calcutta in Principal Commissioner of Income Tax, Jalpaiguri Vs. Uttarabanga Kshetriya Gramin Bank[3] ; and the assessee and against the Revenue in the decision of High Court of Calcutta in Principal Commissioner of Income Tax, Jalpaiguri Vs. Uttarabanga Kshetriya Gramin Bank[3] ; and that question No.5 has been answered in favour of the assessee and against the Revenue in the decision of Supreme Court of India in South Indian Bank Ltd. vs. Commissioner of Income-Tax[4]; the assessee and against the Revenue in the decision of Supreme Court of India in South Indian Bank Ltd. vs. Commissioner of Income-Tax[4]; 1Decided on 13.09.2022 2 Decided on 30.11.2020 3 GA 291/2016 (decided on 07.05.2018) 4 [2021] 130 taxmann.com 178(SC) 4. Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue, in his usual fairness, does not dispute the submissions of learned Senior Advocate with regard to questions No.1, 2, 3, 5 and 6. 5. Accordingly, questions No.1, 2, 3, 5 and 6 are answered in favour of the assessee and against the Revenue. that question No.5 has been answered in favour of the assessee and against the Revenue in the decision of Supreme Court of India in South Indian Bank Ltd. vs. Commissioner of Income-Tax[4]; the assessee and against the Revenue in the decision of Supreme Court of India in South Indian Bank Ltd. vs. Commissioner of Income-Tax[4]; 1Decided on 13.09.2022 2 Decided on 30.11.2020 3 GA 291/2016 (decided on 07.05.2018) 4 [2021] 130 taxmann.com 178(SC) 4. Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue, in his usual fairness, does not dispute the submissions of learned Senior Advocate with regard to questions No.1, 2, 3, 5 and 6. 5. Accordingly, questions No.1, 2, 3, 5 and 6 are answered in favour of the assessee and against the Revenue. 6. In so far as question No.4 is concerned, adverting to Section 36(1)(viia) of the Income Tax Act, 1961, Shri Aravind submitted that the word used in the statute is aggregate average advances"made" by the rural branches. To quote an example, he submitted that for A.Y. is 2013-14 (F.Y. 2012-13) if the bad debt as on 31.03.2012 is considered to be as Rs.1 Crore by virtue of making provisions subsequently, the assessee will be entitled for double benefit because provisions in respect of 10% of the bad debt of provisions of Rs.1 Crore towards bad debt was already made as on 31.03.2012. Therefore, if the same amount is carried forward for the next F.Y., the assessee will be entitled for the double benefit because it would be making a provision for Rs.1 Crore in addition to the 10% to the bad debt made in the relevant F.Y. 7. Shri Suryanarayana, adverting to the Para 7 of the impugned order, submitted that in identical circumstances, in assessee's own case, the assessee had made provision in similar manner as made in A.Y. 2013-14. A co-ordinate bench of the Tribunal had accepted the provision made by the assessee benefit in Canara Bank Vs. JCIT[5]. He further submitted that the said order has been followed by the Tribunal in Vijaya Bank and Others vs. Joint Commissioner, Bangalore[6]and the said method of making provision has been approved by the Calcutta High Court in Uttarabanga Kshetriya Gramin Bank case. 8. We have carefully considered the rival contentions and perused the records. 5(2017) 60 ITR (Trib) 1 6ITA No.915 & 845/Bang/2017 dated 05.01.2018 9. In Para 7.2 of the impugned order, the Tribunal has recorded thus, "7.2 Before us, the learned Authorised Representative for the assessee reiterated the submission that the language of Rule 6ABA is very clear and does not mandate that only incremental advances has to be considered and nothing can be read into it as has been done by the authorities below. It was submitted that this issue has been considered and decided in favour of the assessee by the co-ordinate bench of this Tribunal in the case of Canara Bank Vs. JCIT (2017) 60 ITR (Trib) 1 [ITAT (Bang)]" 10. It is further held that the said decision has been followed in Vijaya Bank case. The manner in which the computation has been made has been given in the case of VijayaBank Case. Order passed by the Tribunal in Canara Bank's case followed in VijayaBank case has attained finality and the Revenue has not challenged the said order. Further, the High Court of Calcutta, while considering an identical situation as recorded thus, "Mr. Khaitan, learned senior Advocate appeared on behalf of the assessee and submitted that the computation to be made as prescribed by Rule 6ABA is for the purpose of fixing the limit of the deduction available under section 36(1)(viia). Clauses (a) and (b) in Rule 6ABA cannot be given the restricted interpretation. The amounts of advances as outstanding at the last day of 10. It is further held that the said decision has been followed in Vijaya Bank case. The manner in which the computation has been made has been given in the case of VijayaBank Case. Order passed by the Tribunal in Canara Bank's case followed in VijayaBank case has attained finality and the Revenue has not challenged the said order. Further, the High Court of Calcutta, while considering an identical situation as recorded thus, "Mr. Khaitan, learned senior Advocate appeared on behalf of the assessee and submitted that the computation to be made as prescribed by Rule 6ABA is for the purpose of fixing the limit of the deduction available under section 36(1)(viia). Clauses (a) and (b) in Rule 6ABA cannot be given the restricted interpretation. The amounts of advances as outstanding at the last day of each month would be a fluctuating figure depending on the outstanding as increased or reduced respectively by advances made and repayments received. The assessee might provided for bad and doubtful debts but the deduction would only be allowed at the percentage of aggregate average advance, computation of which is prescribed by Rule 6ABA. We find from the amended direction made by the Tribunal that such direction is in terms of Rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT(A). The Tribunal amended such direction, in our view, correctly applying the rule." 11. In view of the above, these appeals with regard to question No.4 must fail and it is also answered in favour of the assessee and against the Revenue. Appeals dismissed. No costs. Sd/- JUDGE Sd/- JUDGE