2018 (4) TMI 42 - AT - Income Tax

ITAT ruling: Unrealized pay slips deleted, premium amortization accepted, Section 14A disallowance upheld

The ITAT dismissed the revenue's appeal and partly allowed the assessee's appeal. The deletion of unrealized pay slips and unidentified deposits was ... Addition u/s 41 - addition of outstanding liability - Held that:- We find ourselves to be in agreement with the view taken by the CIT(A) that in the absence of any positive evidence being placed on record by the A.O, which would irrefutably prove that the liability to pay on account of the unrealized slips had ceased to exist in the hands of the assessee, the same merely on the basis of presumptions could not be characterized as a liability which had ceased to exist. We are of the considered view that now when the assessee bank was showing the aforesaid amount as an outstanding liability under the head “other creditors”, therefore, a very heavy onus was cast upon the revenue to disprove and dislodge the said claim of the assessee, before concluding that the said liability had ceased to exist. As the A.O had failed to place on record any positive evidence to support his view that the aforesaid outstanding liability had ceased to exist, and had only on the basis of presumptions so inferred, therefore, we are unable to persuade ourselves to be in agreement with the said view of the A.O. CIT(A) rightly appreciating the facts of the case in the backdrop of the settled position of law had vacated the addition made by the A.O in the hands of the assessee under Sec. 41(1) of the Act. We thus finding no infirmity in the order of the CIT(A), therefore, uphold the same. Amortization of premium of investments - Held that:- As the amortization of premium paid on purchase of securities classified under the “HTM” category was an ascertained and determined loss to the bank which was not expressly disallowed by any provisions of the Income Tax Act, 1961, therefore, the same were to be allowed while computing the business income of the assessee bank. We are of the considered view that the CIT(A) had on the basis of a well reasoned order concluded that as the amortization premium of investment of government securities amounting to ₹ 1,74,90,500/- was an allowable revenue expenditure, therefore, the same had wrongly been disallowed by the A.O. Nothing has been submitted before us by DR which could persuade us to conclude that the aforesaid observations of the CIT(A) suffers from any infirmity or are found to be perverse. We thus finding ourselves persuaded to be in agreement with the view taken by the CIT(A), therefore, uphold his order as regards admitting the aforesaid claim of the assessee and concluding that amortization premium of investments in government securities amounting to ₹ 1,74,90,500/-, being a revenue expenditure was allowable as a deduction. Disallowance under Sec. 14A r.w. Rule 8D - Held that:- We are of the considered view that though it remains as a matter of fact that certain expenses are related to collection of the exempt income, but however, we cannot remain oblivious of the fact that a major part of expenses viz. salary expenses, management expenses, miscellaneous expenses etc. would also be involved in management of the investment portfolio of the assessee, and taking of important decisions in respect of holding of the investments, who we find had made a substantial investment of ₹ 2,00,00,000/- in the UTI Master Value Fund. We find that the A.O had made a disallowance under Sec. 14A only under Rule 8D(2)(iii). We find no reason to dislodge the view of the CIT(A), who we find had upheld the disallowance of ₹ 1,00,000/- made by the A.O under Sec. 14A r.w. Rule 8D(2)(iii). Allowability of Investment Depreciation Reserve - Held that:- As the assessee had not raised this claim before the lower authorities, nor the facts pertaining to the same emerges from the record, therefore, in all fairness we restore this matter to the file of the A.O for fresh adjudication. The A.O is directed to readjudicate the issue after deliberating on the facts involved in the case of the assessee, in the backdrop of the aforesaid judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bank of Baroda (2003 (3) TMI 80 - BOMBAY High Court). Issues Involved:1. Deletion of disallowance of Rs. 25,29,602/- of unrealized pay slips under Section 41(1) of the Income Tax Act, 1961.2. Deletion of addition of Rs. 41,72,658/- on account of unidentified deposits under Section 41(1).3. Acceptance and adjudication on the issue of amortization of premium on investments not claimed during assessment proceedings.4. Disallowance of Rs. 1,00,000/- under Section 14A read with Rule 8D.5. Non-acceptance of the claim for investment depreciation reserve of Rs. 50,00,000/-.Issue-wise Detailed Analysis:1. Deletion of Disallowance of Rs. 25,29,602/- of Unrealized Pay Slips:The assessee, a co-operative bank, showed Rs. 25,29,602/- under 'other creditors' as unrealized pay slips. The Assessing Officer (A.O.) treated this as income under Section 41(1) of the Income Tax Act, 1961, arguing that the liability had ceased to exist. The CIT(A) disagreed, stating that the mere non-presentation of pay slips for less than six months did not mean the liability had ceased. The CIT(A) noted that the A.O.'s conclusion was based on presumption without positive evidence. This view was upheld by the ITAT, referencing similar decisions in the assessee's own case for previous years, thereby dismissing the revenue's appeal on this ground.2. Deletion of Addition of Rs. 41,72,658/- on Account of Unidentified Deposits:The A.O. added Rs. 41,72,658/- as deemed income under Section 41(1), arguing that these were unidentified deposits. The CIT(A) found these were amounts deposited with incorrect account details, making the bank a custodian liable to pay these amounts when demanded. The CIT(A) noted that the A.O.'s addition was based on presumption without evidence of cessation of liability. The ITAT upheld the CIT(A)'s decision, referencing similar cases in the assessee's favor from previous years, and dismissed the revenue's appeal on this ground as well.3. Acceptance and Adjudication on Amortization of Premium on Investments:The assessee claimed expenses for amortization of premium on investments during assessment proceedings, which the A.O. rejected as it was not filed in the original or revised return. The CIT(A) admitted this claim based on the Bombay High Court's judgment in CIT Vs. Pruthvi Broker and Share Holders Ltd, which allows appellate authorities to entertain such claims if borne from the facts on record. The CIT(A) concluded that amortization of premium on government securities was an allowable business expense, following RBI guidelines and CBDT instructions. The ITAT found no infirmity in this decision and upheld the CIT(A)'s order.4. Disallowance of Rs. 1,00,000/- under Section 14A read with Rule 8D:The A.O. disallowed Rs. 1,00,000/- under Section 14A read with Rule 8D, attributing it to expenses for earning exempt income. The CIT(A) upheld this, noting that substantial investments in exempt income-yielding shares necessitated some attributable expenses. The ITAT agreed, noting that management and other common expenses were involved in maintaining the investment portfolio. The assessee's appeal on this ground was dismissed.5. Non-Acceptance of Claim for Investment Depreciation Reserve of Rs. 50,00,000/-:The CIT(A) did not accept the assessee's claim for deduction of Rs. 50,00,000/- for investment depreciation reserve, noting it was raised for the first time on appeal without supporting details. The ITAT remanded this issue back to the A.O. for fresh adjudication, directing the A.O. to consider the claim in light of the Bombay High Court's judgment in CIT Vs. Bank of Baroda, which supports such deductions. The assessee's appeal on this ground was allowed for statistical purposes.Conclusion:The ITAT dismissed the revenue's appeal and partly allowed the assessee's appeal, providing a detailed analysis and upholding the CIT(A)'s decisions on most issues while remanding the investment depreciation reserve claim for further consideration.