2014 (5) TMI 1081 - AT - Income Tax

Assessee's appeals partly allowed for assessment years 2002-05; Revenue's appeal dismissed. Remanded for further verification.

Bank of Maharashtra Asstt. General Manager (F.M. & A.) Versus Dy. Commissioner of Income Tax, Circle 1 (1), Pune. & Addl. Commissioner of Income Tax, Range- 1, Pune.

The Tribunal partly allowed the assessee's appeals for the assessment years 2002-03, 2003-04, and 2004-05, and dismissed the Revenue's appeal for the ... Enhancement of income on account of incremental disallowance u/s 14A - Held that:- The stand of the assessee that no expenditure was allocable towards the earning of exempt income is a bald assertion; and, therefore the CIT(A) made no mistake in rejecting it and considering a portion of operating expenses as having been incurred towards earning of exempt income. The quantification of such expenditure done by the assessee is ₹ 3,76,53,360/-, which is the amount disallowed by the CIT(A) u/s 14A of the Act. We find no reason to discard the working which the assessee itself furnished and accordingly in so far as the disallowance of ₹ 3,76,53,360/- u/s 14A of the Act made by the CIT(A) is concerned, the same is hereby affirmed - Decided partl in favour of assessee Claim of exemption u/s 10(23G) of the Act with respect to the interest income earned by the assessee from infrastructure advances - Held that:- Since the aforesaid issue was not before the lower authorities, we deem it fit and proper to restore it to the file of the Assessing Officer, who shall consider the assessee’s claim of exemption u/s 10(23G) of the Act on its merits, having regard to the facts and circumstances of the case. Need1l1ess to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim, and only thereafter, he shall adjudicate the claim of the assessee as per law - Decided in favour of assessee for statistical purposes. Deduction u/s 36(1)(vii) in respect of debts written-off by non-rural branches - Held that:- The claim of the assessee is that the said Additional Ground is entirely in tune with the judgement of the Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. (2012 (2) TMI 262 - SUPREME COURT OF INDIA ). On this aspect also, we deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall consider the claim of the assessee in the light of the judgement of the Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). Herein also the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and only thereafter, he shall adjudicate the claim of the assessee as per law. Depreciation @ 25% in respect of electronic equipments and Safe Deposit Vaults, etc. grouping the same under the head ‘Plant & Machinery’ - Held that:- Having regard to the parity of reasoning laid down by the Hon’ble Bombay High Court in the case of Central Bank of India (1975 (6) TMI 12 - BOMBAY High Court ) as well as Punjab & Sind Bank Ltd. (2000 (5) TMI 31 - DELHI High Court). In both the judgements, it clearly emerges that in the case of a banking company, for allowing depreciation in respect of lockers, counters, steel equipment, electrical fittings, etc., their functional utility has to be evaluated. Assessing Officer is required to go into the aspect of the depreciation allowable in relation to the impugned assets afresh. Exclusion of a sum out of the total income on account of write back of Provision for non-performing investments - Held that:- In our view, the aforesaid claim could not have been foreseen by the assessee at the time of filing of the return of income as it has emerged out of the past assessments, wherein certain additions/disallowances were made by the income-tax authorities. Therefore, instead of shutting out such a claim merely because of its absence in the return of income, the income-tax authorities ought to have examined the same on its merits. As a result, we therefore deem it fit and proper to set-aside the order of the CIT(A) on this aspect and direct the Assessing Officer to consider the factual position and thereafter allow the claim of the assessee in accordance with law. Needless to mention here, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and the Assessing Officer shall thereafter adjudicate the claim of the assessee as per law. - Decided in favour of assessee for statistical purposes. Disallowance of depreciation on value of securities transferred from ‘Available for sale’ to ‘Held to Maturity’ - Held that:- Assessing Officer is directed to verify the claim of the appellant that depreciation is reduction in value of the securities held under the category 'Held to Maturity' because of reduction in market value of these securities as on 31st March 2004 which is the last day of the previous year relevant to the assessment year under consideration. If it is found that the reduction by way of depreciation is because of reduction in market value of securities as on the last day of the relevant financial year, the claim of the appellant shall be allowed as allowable deduction for the purpose of computing taxable profit during the assessment year under appeal. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Exemption under Section 10(23G) of the Income Tax Act.3. Deduction for debts written off under Section 36(1)(vii) of the Income Tax Act.4. Depreciation on electronic equipment and Safe Deposit Vaults.5. Write back of provision for non-performing investments.6. Amortization of premium on securities held under Held to Maturity (HTM) category.Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The assessee, a nationalized bank, had declared tax-free interest income on securities and disallowed interest expenditure suo motu under Section 14A. The Commissioner of Income Tax (Appeals) [CIT(A)] enhanced the disallowance by including operating expenses. The Tribunal held that the assessee's claim that investments were made from non-interest-bearing funds deserved examination. The matter was remanded to the Assessing Officer (AO) for verification. However, the Tribunal upheld the CIT(A)'s disallowance of operating expenses related to earning exempt income, as the assessee's assertion of no such expenses was found to be unsubstantiated.2. Exemption under Section 10(23G) of the Income Tax Act:The assessee claimed exemption under Section 10(23G) for interest received on infrastructure advances. The Tribunal admitted this additional ground and remanded the issue to the AO for consideration on merits, ensuring the assessee was given a reasonable opportunity to present its case.3. Deduction for debts written off under Section 36(1)(vii) of the Income Tax Act:The assessee sought deduction for debts written off by non-rural branches. The Tribunal admitted this additional ground, noting the Supreme Court's decision in Catholic Syrian Bank Ltd. v. CIT, which favored the assessee. The matter was remanded to the AO for adjudication in light of this judgment.4. Depreciation on electronic equipment and Safe Deposit Vaults:The assessee claimed depreciation at 25% for electronic equipment and Safe Deposit Vaults, which the AO allowed at 15%, treating them as furniture and fixtures. The Tribunal, referencing judgments from the Bombay and Delhi High Courts, directed the AO to re-examine the claim, considering the functional utility of the assets for the bank.5. Write back of provision for non-performing investments:The assessee sought exclusion of Rs. 4,30,01,225/- from taxable income, representing a write-back of provision for non-performing investments previously disallowed. The Tribunal found that the claim, emerging from past assessments, should be examined on its merits. The matter was remanded to the AO for verification and appropriate relief.6. Amortization of premium on securities held under HTM category:The Revenue's appeal challenged the deletion of disallowance on amortized premium for HTM securities. The Tribunal, referencing decisions from the Mumbai and Bangalore Benches, upheld the CIT(A)'s decision allowing the claim, as it was in accordance with RBI guidelines and CBDT instructions.Conclusion:The Tribunal partly allowed the assessee's appeals for the assessment years 2002-03, 2003-04, and 2004-05, and dismissed the Revenue's appeal for the assessment year 2004-05. The matters were remanded to the AO for further verification and adjudication as per the Tribunal's directions.