TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 1081
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.... short "the Act"). 3. In this appeal, the solitary issue raised in the Memo of Appeal reads as under :- "1. The CIT(Appeal) erred in enhancing the Income of the Appellant by Rs. 3,76,53,360/- by holding that this amount representing part of Operating Expenses is to be disallowed u/s 14A of the Income Tax, Act, 1961 as pertaining to Interest Income of Tax Free Bonds." 4. Apart thereform, appellant has raised three Additional Grounds of Appeal vide two separate applications, which read as under :- "1. In the facts and circumstances of the case and in law, it may please be held that interest received by the appellant bank from infrastructure advances qualifies for exemption u/s 10(23G) of the I.T. Act, 1961 and the said income be held as exempt from taxation. 2. In view of the well settled principle of law that there is no estoppel in tax proceedings, the disallowance to the extent of Rs. 16,53,97,980.00 made by the appellant bank u/s 14A of the I.T. Act, 1961 voluntarily in its return of income and as confirmed/ accepted by the learned Assessing Officer as well as the learned CIT(A) being patently illegal, bad in law, devoid of merits and being arbitrary and legally unsustainabl....
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....ssue, according to the Commissioner, assessee was in appeal against an amount which was not claimed in the return of income. On the said basis, the Commissioner refused to entertain the aforesaid Ground of Appeal raised. 7. At the time of hearing before us, the learned counsel for the assessee pointed out that assessee had earned tax-free interest income on securities amounting to Rs. 8,10,00,000/- and in the return of income assessee had added back interest expenditure of Rs. 16,53,97,980/- on the ground that it was relatable to such income and thus was disallowable in terms of section 14A of the Act. The learned counsel submitted that in the course of appellate proceeding before the CIT(A), assessee was served with an enhancement notice whereby the disallowance u/s 14A of the Act was sought to be enhanced on account of non-consideration of a portion of operating expenses towards the earning of the tax-free interest income. In response, assessee not only resisted the enhancement, but it also pleaded that the interest considered by it as relatable to the tax-free interest income was on an incorrect assumption because assessee had sufficient non-interest bearing funds to cover inve....
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....ously opposed the same. As per the Hon'ble Supreme Court in the case of National Power Thermal Corporation vs. CIT, (1998) 229 ITR 383 (SC) an Additional Ground of Appeal can be raised by the assessee at any time so long as it involves an issue which is relevant to decide the final tax liability of the assessee. As per the Hon'ble Supreme Court, if an additional/fresh claim is raised on bonafide considerations and involves a point of law, with the necess6a ry facts being on record, such a fresh claim deserves to be entertained by an appellate authority. The appellant before us is a Nationalized Bank and the Additional Grounds of Appeal now sought to be raised contain fresh claims, which were hitherto not made before the Assessing Officer. So however, it is quite clear that the fresh claims now raised are relevant to determine the ultimate tax liability in the hands of the assessee and we also do not find any material to negate the bonafide of the claims now sought to be raised. Having regard to the entire facts and circumstances, we deem it fit and proper to admit the aforestated fresh claims which are quite relevant to determine the tax liability of the assessee following the rati....
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....ave been reproduced in para 7.2 of the impugned order, wherein assessee had pointed out that the investments which have yielded exempt income were acquired in the past years and in those respective years, assessee had enough profits and free reserves which covered such investments and therefore no interest expenditure was relatable to such investments. It was again reiterated that there was no justification for allocating any interest expenditure against earning of exempt income and the disallowance made suo motu by the assessee in the return of income cannot be a ground to justify the addition. In the course of hearing before us, assessee has relied upon the following judgements : (i) Mujnal Sales Corporation vs. CIT (2008) 168 taxmann.com 43 (SC); (ii) CIT vs. Reliance Utilities & Power Ltd. (2009) 178 taxmann.com 135 (Bom); (iii) CIT vs. UTI Bank Ltd., (2013) 32 taxmann.com 370 (Gujarat); and, (iv) Pranik Shipping & Services Ltd. vs. ACIT, (2012) 19 taxmann.com 107 (Mum). In so far as the disallowance out of operating expenses are concerned, the learne8d counsel fairly pointed out that an appropriate disallowance deserves to be made on this count as incurrence of certain adminis....
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....of the assessee were in a common hotch-potch and there was no segregation of funds in relation to activity of long term investments. No separate pool of funds was maintained by the assessee for its different activities, i.e. long term investments and the normal business activities. As per the Hon'ble Bombay High Court, if there were funds available, both the interest-free and interest-bearing, then a presumption would arise that the investments are made out of interest-free funds generated or available with the assessee, provided such interest-free funds were sufficient to cover the investments. The aforesaid presumption laid down by the Hon'ble Bombay High Court has also been found applicable by the Hon'ble Gujarat High Court in the case of UTI Bank Ltd. (supra) in the context of application of section 14A of the Act. In view of the aforesaid legal position, we are inclined to affirm the plea of the assessee in-principle that if the investments which have yielded the tax-free income are out of interest-free funds generated or available with it then no part of interest expenditure can be said to have been incurred in relation to earning of such exempt income for the purposes of sec....
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....er 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. Thus, assessee succeeds on Additional Ground of Appeal No.1 for statistical purposes. 17. The Additional Ground of Appeal No.3 raised by the assessee is with regard to the deduction u/s 36(1)(vii) of the Act amounting to Rs. 60 crores in respect of debts written-off by non-rural branches. The said Additional Ground has also been admitted by us in the earlier paragraphs. 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. (supra). 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 Su....
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....on rural branches of the appellant bank." 22. In so far as the admission of the Additional Grounds of Appeal are concerned, the same deserve to be admitted in the light of our discussion in para 9, whereby Additional Grounds were admitted by us for assessment year 2002-03. 23. At the time of hearing, it was a common point between the parties that in so far as the Grounds of Appeal No.1 & 2 relating to the disallowance u/s 14A of the Act are concerned, the same are pari-materia to the Ground of Appeal No.1 and Additional Ground of Appeal No.2 decided in the appeal for the assessment year 2002-03 in earlier paragraphs. The said Grounds of Appeal are disposed of in the light of o1u3r decision in assessment year 2002-03 in earlier paragraphs. The Assessing Officer is directed to apply our decision for assessment year 2002-03 mutatis-mutandis in this year also. Thus, assessee partly succeeds in Grounds of Appeal No.1 & 2. 24. The Additional Ground of Appeal No.1 is with regard to the assessee's claim for the deduction of Rs. 3,20,53,250/- representing expenses which were incurred during the previous year relevant to the assessment year under consideration but wer....
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....evant to A.Y.2003-04, but Auditors have identified these expenses as relating to A.Y.2002-03 and therefore this amount is being claimed during the assessment year under appeal. Vide this office order sheet entry dated 13.07.2006, the appellant was required to prove that the amount of Rs. 2,78,36,907/- became payable during the assessment year under appeal. This has not been done. The appellant has requested for a direction to be issued to the Assessing Officer because according the appellant this involves voluminous details. Accordingly, the request of the appellant is acceded to and the learned Assessing Officer is directed to verify the claim of the appellant that an amount of Rs. 2,78,36,907/- represents interest accrued on deposits during the previous year relevant to A.Y.2003-04, which is the year under appeal. If this claim of the appellant is found to be correct, the appellant shall be allowed deduction of Rs. 2,78,36,907/-. If the claim of the appellant is found to be partially correct, the necessary consequences shall follow. 5.4 As regards amount of Rs. 28,85,494/-, the branch wise details of which is contained in Para 1 of the written reply dated 20.02.2007, whic....
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....er appeal." 30. After considering the objection of the appellant before us we find no reasons to interfere with the manner in which the CIT(A) has adjudicated the plea of the assessee. Ostensibly, the burden to show that the expenditure in question has actually crystallized during this year is on the assessee and requires to be substantiated. The direction of the CIT(A), in our view, primarily revolve around appreciation of the factual aspects of the matter, which are quite fair and proper. The Assessing Officer is directed to carry out the exercise, as directed by the CIT(A) after considering the material and submissions put-forth by the assessee before him. Accordingly, we hereby affirm the action of the CIT(A) and find no merit to interfere with the same. Thus, on this Ground, assessee fails. 31. The Additional Ground of Appeal No.2 relates to assessee's claim for deduction u/s 36(1)(vii) of the Act in respect of debts written-off of non-rural branches which stands on similar footing as Additional Ground of Appeal No.3 considered in assessee's own case for assessment year 2002-03 in the earlier paragraphs. Our decision in the sai1d6 appeal with respect to....
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....so far as the admission of the Additional Grounds of Appeal are concerned, the same deserve to be admitted in the light of our discussion in para 9, whereby Additional Grounds were admitted by us for assessment year 2002-03. 37. At the time of hearing, it was a common point between the parties that in so far as the Ground of Appeal No.1 and Additional Ground of Appeal No.3 relating to the disallowance u/s 14A of the Act are concerned, the same are pari-materia to the Ground of Appeal No.1 and Additional Ground of Appeal No.2 decided in the appeal for the assessment year 2002-03 in earlier paragraphs. The said Grounds of Appeal are disposed of in the light of our decision in assessment year 2002-03 in earlier paragraphs. The Assessing Officer is directed to apply our decision for assessment year 2002-03 mutatis mutandis in this year also. Thus, assessee partly succeeds in Ground of Appeal No.1 and Additional Ground of Appeal No.3. 38. The Ground of Appeal No.2 raised by the assessee is with regard to an amount of Rs. 2,57,35,946/-, which as per the assessee, represents expenditure incurred during the previous year relevant to the assessment year under consideration, though the afo....
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.... contention, reliance has been placed on the following judgements : (i) CIT vs. Union Bank of India (1976) 102 ITR 270 (Bom); (ii) CIT vs. Central Bank of India (1976) 103 ITR 196 (Bom); and, (iii) CIT vs. Punjab & Sind Bank Ltd. (2000) 111 taxmann.com 496 (Delhi). 42. On the other hand, the learned Departmental Representative has relied upon the order of the authorities below in support of the case of the Revenue. 43. In our considered opinion, the action of the Assessing Officer is quite suspect having regard to the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of Central Bank of India (supra) as well as Hon'ble Delhi High Court in the case Punjab & Sind Bank Ltd. (supra). 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. As per the Hon'ble Delhi High Court, safe deposits were liable to be treated as 'Plant' by a banking company. Considering the parity of reasoning laid down in the aforesaid judgements, in our view, the Assessing Officer is required to go into the as....
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....s a deduction out of taxable income. However, it was during the impugned assessment proceedings, assessee found that in the past year of 2001-02 deduction was not allowed in respect of such provision. Out of such disallowed provision a sum of Rs. 4,302,101,225/- was recovered, which formed a part of the excess provision of Rs. 6,79,45,780/- offered for tax in this year. Because such amount was not allowed in the past as a deduction, assessee claimed that the sum of Rs. 4,30,01,225/- be not considered as an amount exigible to income tax in this year. 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 ....
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....umbai Bench of the Tribunal in the case of DCIT vs. Bank of Rajasthan Ltd. vide ITA No.3238/Mum/2011 order dated 09.09.2011 and also the Bangalore Bench of the Tribunal in the case of Sri Subramanyeswara Cooperative Bank Ltd. vs. ACIT vide ITA No.488/Bang/2011 order dated 06.06.2012. No decision to the contrary has been brought out by the learned Departmental Representative, though he has sought to oppose the claim of the assessee. 53. After considering the rival stand2s3, we find that the Mumbai Bench of the Tribunal in the case of Bank of Rajasthan Ltd. (supra) has considered an identical issue and the relevant discussion made by the Tribunal is as under :- "9. The amortized amount of premium paid for securities held under HTM category amounting to Rs. 11.77 crores was claimed by the assessee as deduction in its computation of total income. The same, however, was disallowed by the Assessing Officer holding that the expenditure incurred on premium paid for securities held under HTM category was a capital expenditure not allowable as deduction. He held that the said securities were in the nature of investment and not stock in trade. On appeal, the learned CIT(Appeals) dele....