ACIT Vs Canara Bank (ITAT Bangalore)
Canara Bank Wins on Multiple Tax Issues; Bangalore ITAT Dismisses Revenue’s 18 Grounds of Appeal
In a significant ruling, the Bangalore ITAT dismissed the Revenue’s appeal against Canara Bank and upheld the CIT(A)’s relief on a host of recurring banking tax issues. The Tribunal followed earlier decisions in the bank’s own cases as well as binding Karnataka High Court precedents, granting relief on matters relating to section 36(1)(viia) deduction, unrealised forex gains, CSR expenditure, ATM depreciation, section 14A disallowance, depreciation on investments, special reserve deduction under section 36(1)(viii), taxation of interest on securities, and applicability of section 115JB (MAT).
The Tribunal held that deduction under section 36(1)(viia) was correctly allowed, unrealised gains on revaluation of forward contracts could not be taxed in view of Karnataka High Court decisions, and CSR expenditure incurred by the bank was allowable following earlier rulings in its own case. It also upheld depreciation at 60% on ATMs by treating them as computers in line with Karnataka High Court precedent.
On the issue of section 14A, the Tribunal accepted that where the bank’s own funds exceeded investments, interest disallowance was not warranted and directed recomputation in accordance with judicial precedents and CBDT Circular No. 18/2015. It further upheld the allowability of depreciation on securities held under HTM, AFS and HFT categories, depreciation on leased assets, and relief relating to deduction under section 36(1)(viii) for special reserves.
The Tribunal also reaffirmed the long-settled principle that interest on securities becomes taxable only on the specified due dates and not merely because it has accrued but is not due. Finally, relying on earlier decisions in Canara Bank’s own cases, it held that the provisions of section 115JB are not applicable to banking companies, thereby rejecting the Revenue’s MAT-related grounds. Consequently, the Revenue’s appeal was dismissed in its entirety.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal filed by the Asst. Commissioner of Income Tax, Circle–2(2)(1), Bangalore (the learned Assessing Officer/TPO), pertains to assessment year 2016–17 and is directed against the appellate order dated 10 January 2025 passed by the National Faceless Appeal Centre, Delhi [the learned CIT(A)]. By that order, the assessee’s appeal against the assessment order dated 18 December 2018, passed under section 143(3) by the Joint Commissioner of Income Tax, Large Taxpayer Unit, Bangalore (the learned AO), was partly allowed. Aggrieved by the deletion of several disallowances by the learned CIT(A), the learned Assessing Officer has raised 18 grounds of appeal, as discussed and decided hereinafter.
