2016 (8) TMI 1441 - HC - Income Tax

Court limits deductions under Income Tax Act, rules on bad debts & depreciation, sets precedent.

State Bank of India Versus The Deputy Commissioner of Income Tax Range 2 (2), Mumbai & Anr.

The court did not entertain the appellant's challenge regarding the deductibility of interest paid under specific sections of the Income Tax Act, citing ... Computation of income - Whether the Tribunal erred in holding that interest paid by the appellant u/s 234B, 220(2) and 215 cannot be allowed as deduction in computing its total income? - HELD THAT:-The issue raised herein stands concluded against the applicant assessee and in favour of the Revenue by the decision of the Apex Court in Bharat Commerce and Industries Ltd. Vs. Commissioner of Income Tax [1998 (3) TMI 2 - SUPREME COURT] . The Apex Court has held that interest payable for delayed payment of Income Tax cannot be allowed as deduction in computing the total income. Depreciation on matured investments - real income theory - appellant assessee treated these securities as non performing assets and sought depreciation in their value by making provision in its accounts in terms of Reserve Bank of India guidelines - AO held that securities were due for redemption and the amount payable is already determined also confirmed by CIT-A and ITAT - HELD THAT:- Tribunal has approved the observations of the CIT(A) that the real income theory cannot be so extended so as to negate accrual of an amount which is receivable by the appellant assessee. In support, reliance is placed upon the decision of this Court in Navin R Kamani Vs. Commissioner of Income Tax [1990 (3) TMI 40 - BOMBAY HIGH COURT]. The concept of real income theory cannot be read so as to defeat the provisions of the Act. Further, the fall in value of security is not an ascertained liability and such adhoc deduction cannot be allowed. The impugned order places reliance upon the decisions of the Apex Court in Indian Molasis Company Pvt. Ltd. Vs. Commissioner of Income Tax [1959 (5) TMI 5 - SUPREME COURT] and of this Court in Standard Mills Company Vs. Commissioner of Income Tax [1997 (3) TMI 64 - BOMBAY HIGH COURT] - no substantial question of law arises The appeal is Admitted on question nos. (b) and (c). (b) Whether the Tribunal ought to have held that interest of ₹ 425,42,37,785 paid by the appellant under Sections 234B, 220(2) and 215 of the Act should be set off against the interest received by it on income tax refund and only the interest paid in excess of the interest received could be disallowed? (c) Whether the Tribunal erred in holding that the appellant is not entitled to depreciation of ₹ 312,50,000 on assets purchased by it from KRCL ? Issues involved:1. Deductibility of interest paid under Sections 234B, 220(2), and 215 of the Income Tax Act.2. Allowance of depreciation on assets purchased from KRCL.3. Granting deduction under section 36(1)(viia) of the Act.4. Claim for deduction of depreciation on matured investments.Analysis:Issue 1: Deductibility of interest paid under Sections 234B, 220(2), and 215 of the Income Tax Act:The appellant challenged the Tribunal's decision disallowing the deduction of interest paid under the mentioned sections. However, the appellant's counsel acknowledged that the issue was settled by the Apex Court's decision in Bharat Commerce and Industries Ltd. Vs. Commissioner of Income Tax, where it was held that such interest is not deductible in computing total income. Consequently, the court did not entertain this question.Issue 2: Allowance of depreciation on assets purchased from KRCL:The appellant contended that depreciation on assets purchased from KRCL should be allowed. The Tribunal's order had restored the issue to the Assessing Officer, who subsequently allowed the claim for bad debts under Section 36(1)(vii) of the Act. As the appellant succeeded on an alternative claim, the deduction under Section 36(1)(viia) was not pressed, and hence, this question was not entertained.Issue 3: Granting deduction under section 36(1)(viia) of the Act:The appellant sought a deduction under Section 36(1)(viia) of the Act for a specific amount. The Tribunal upheld the Assessing Officer's decision to restrict the deduction to a lower amount. However, as the appellant succeeded on an alternative claim for bad debts, the deduction under Section 36(1)(viia) was not pressed, and therefore, this question was not entertained.Issue 4: Claim for deduction of depreciation on matured investments:The appellant claimed depreciation on securities due for redemption, arguing that the Reserve Bank of India guidelines justified the depreciation. However, the Assessing Officer disallowed the claim, stating that the securities were due for redemption and the amount payable was determined. The appellant's appeal to the CIT(A) and subsequently to the Tribunal did not alter the decision. The court held that the real income theory cannot override the accrual of income, and adhoc deduction for diminution in asset value was not permissible. Citing relevant precedents, the court concluded that no substantial question of law arose, and hence, this question was not entertained.The appeal was admitted on questions (b) and (c), while the questions (a) and (e) were not entertained due to settled legal positions and lack of substantial legal issues. The Registry was directed to communicate the order to the Tribunal for further proceedings.