2014 (11) TMI 264 - AT - Income Tax

Tribunal recalculates disallowance under Section 14A and upholds depreciation on securities

State Bank of Bikaner & Jaipur Versus The ACIT., Circle-6, Jaipur

State Bank of Bikaner & Jaipur Versus The ACIT., Circle-6, Jaipur - TMI Issues Involved:1. Applicability and quantification of disallowance under Section 14A.2. Disallowance of depreciation on investment in securities shifted from 'Held for Trading' to 'Available for Sale' category.3. Reduction in depreciation claim under Section 32.4. Disallowance of prior period expenses and miscellaneous expenses.5. Deletion of addition by taking interest income on government and other securities on an accrual basis instead of a due basis.Issue-wise Detailed Analysis:1. Applicability and Quantification of Disallowance under Section 14A:The assessee challenged the disallowance of Rs. 11,21,00,000 under Section 14A, arguing that Rule 8D, introduced on 24/03/2008, should not apply retrospectively to the assessment year 2004-05. The Tribunal noted the Hon'ble Bombay High Court's ruling in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT, which held that Rule 8D is applicable prospectively from A.Y. 2008-09. Thus, the Tribunal set aside the issue to the Assessing Officer to recompute the disallowance under Section 14A on a reasonable basis, providing the assessee a reasonable opportunity of being heard.2. Disallowance of Depreciation on Investment in Securities Shifted from 'Held for Trading' to 'Available for Sale' Category:The Assessing Officer disallowed Rs. 6,98,07,032 as depreciation on securities shifted from 'Held for Trading' to 'Available for Sale,' arguing that the depreciation should be set off against the appreciation in the same category. The Tribunal upheld the assessee's method, which followed RBI guidelines, stating that the depreciation should be fully provided for at the time of shifting categories and that the appreciation should be ignored as per RBI's prudential norms. The Tribunal allowed the assessee's appeal on this ground, referencing the ITAT Bangalore Bench's decision in State Bank of Mysore Vs. DCIT.3. Reduction in Depreciation Claim under Section 32:The Assessing Officer reduced the depreciation claim by Rs. 5,86,050, aligning it with the auditor's report. The Tribunal referenced its own decision in the assessee's case for A.Y. 2003-04, which held that the opening WDV should not be altered due to changes in depreciation rates. The Tribunal directed the Assessing Officer to work out the depreciation without shifting the opening WDV of plant and machinery to the WDV of furniture and fixtures, thus allowing the assessee's appeal on this ground.4. Disallowance of Prior Period Expenses and Miscellaneous Expenses:The Assessing Officer disallowed Rs. 34,23,944 as prior period expenses and Rs. 28,85,358 as miscellaneous expenses. The Tribunal noted that these expenses crystallized during the year under consideration and were claimed after the closing of books of account. The Tribunal, following its decision in the assessee's case for A.Y. 2003-04, allowed these expenses, noting that the genuineness of the expenses was not doubted by the lower authorities.5. Deletion of Addition by Taking Interest Income on Government and Other Securities on an Accrual Basis:The Assessing Officer added Rs. 4,56,60,998 by taking interest income on an accrual basis, while the assessee had offered it on a due basis. The Tribunal referenced its consistent rulings in the assessee's favor from A.Y. 1991-92 to 2001-02 and noted the Committee on Disputes' decision that there was no loss of revenue to the department. The Tribunal upheld the CIT(A)'s deletion of the addition, dismissing the Revenue's appeal.Conclusion:The Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to recompute disallowance under Section 14A reasonably and to work out depreciation without altering the opening WDV. The Tribunal allowed the depreciation on securities shifted categories and prior period expenses, while dismissing the Revenue's appeal regarding interest income on an accrual basis.