TaxTMI 
TaxTMI 
2011 (5) TMI 988
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch/2008), is in respect of the disallowance effected by the Assessing Officer (AO) under section 14A of the Income-tax Act, 1961 ('the Act' hereinafter) in respect of the expenditure estimated to have been incurred by the assessee for earning interest on tax-free bonds and dividends, both of which are exempt u/s. 10 of the Act. The ld. AR, during the course of arguments, informed the court that the assessee contests the retrospective application of section 14A(2), which prescribes the manner of computing the disallowable expenditure per Rule 8D of the Income Tax Rules, 1962 (the 'Rules' hereinafter), issued on 24.3.2008, so that it could have application only from A.Y. 2008-09 as against the finding by the ld. CIT(A) (for A.Y. 2005-06) that the same would be applicable for all the orders issued after 24.3.2008. Though the assessee's stand stands upheld by the Hon'ble Bombay High Court in the case of Godrej Boyce vs. Dy. CIT (placing a gist of the order on record), holding so, the jurisdictional high court per its recent decision in the case of CIT v. Dhanalakshmi Bank Ltd. and Others (I.T.A. No. 1324/Coch/2009 dated 21.10.2010 (copy on record/Exhibit P1) has held otherwise.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not comparable. Secondly, the yield on tax-free securities is generally lower than that would obtain in respect of regular, business investments, so that this aspect would need to be considered while adopting a reasonable formula for estimating the actual interest cost that could be considered as incurred toward the same. In fact, the hon'ble court itself clarified that the formula being suggested by it was only by way of an illustration, and that the assessee was free to establish the disallowable expenditure by suggesting any formula with reference to its accounts that would enable estimating the same more precisely, as also the AO to adopt an approach and method which would estimate the expenditure as accurately as the situation admits; that the estimation is permissible in doing so, having been affirmed by the apex court in the case of CIT v. Walfort Shares and Stockbrokers Pvt. Ltd. (2010) 326 ITR 1 (SC), even as it clarified that r. 8D would specifically apply only from a later date (when the same became applicable). In view of the foregoing, the matter for both the years is remitted back to the file of the AO to afford an opportunity to the Revenue as well as the assessee t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as per the last census report be considered as rural branches. We, accordingly, respectfully following the said decision, set aside the impugned order, and restore the matter back to the file of the AO to work out the disallowance in accordance with the guidelines stated, and the provision of law as explained by the jurisdictional high court per its said decision. We decide accordingly. 6. The fifth ground is in respect of the assessee's claim qua write off, as bad and doubtful, of debts in accounts u/s. 36(1)(vii) of the Act. The AO disallowed the entire sum claimed at Rs.1427.71 lakhs in view of the assessee being unable to show as to how the same was in accordance with law, i.e., in terms of the proviso to section 36(1)(vii) r/w s. 36(2)(v) of the Act, which prescribes the claim toward write off of debts as bad and doubtful, in case of an assessee to which the provisions of s. 36(1)(viia) apply, as the assessee, as to the extent the same exceeds the provision u/s. 36(1)(viia). The ld. CIT(A) allowed relief to the assessee following the decision by the jurisdictional high court in the case of South Indian Bank Ltd. vs. CIT, 262 ITR 579 (Ker.). 7. It was the common contention....
X X X X Extracts X X X X
X X X X Extracts X X X X
....creases, the securities are de-valued so as to reflect the obtaining yield, and vice versa, if the market yield was to decrease. The RBI is the apex body regulating the banking industry, so that any guidelines issued by it were binding on the banks. The tribunal has allowed the assessee's claim on that basis. The ld. AR during hearing relied on the decision by the jurisdictional high court in the case of CIT v. The Lord Krishna Bank Ltd. (in ITA No. 234/Coch/2009 dtd. 7/10/2010 / Ex. P2). The same, following the ratio laid down in CIT vs. Nedungadi Bank Ltd. (supra), ratifies the loss on valuation of YTM securities similarly by adoption of YTM rates put up by PDAI/FIMMDA at periodical intervals; the same being endorsed by the RBI. The same would be applicable equally for HTM securities as well. In this regard, we observe two things, both of which would need to be addressed before the matter could be adjudicated. The first is the applicability of the decision by the hon'ble court in the case of CIT v. The Lord Krishna Bank Ltd. (supra). This is for several reasons. The said decision is in respect of YTM securities/bonds which, by definition, are held to yield a particular rate of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee's own case for earlier years, i.e., A.Y. 2000-01 and 2001- 02 (in I.T.A. Nos. 1031 & 1032/Coch/2004 dated 28.9.2006). 11. The assessee has, per its written submissions, as well as we find qua its appeal for AYs 2000-01 & 2001-02, argued its case on merits. That is, that the liability for the year is as determined on actuarial basis; the scheme for pension being introduced by the assessee-bank in the financial year 1998-99, amortizing the additional liability of Rs.2276 lakhs, ascertained thus, over a period of ten years following. Book-keeping is relevant only to the extent that it recognizes a liability in books, and is not conclusive of the matter, as the deduction has, nevertheless, to be in terms of the relevant provision/s of the Act. The employer's contribution to an approved provident fund is covered u/s. 36(1)(iv) of the Act. There is no finding as to whether the deduction satisfies the test of s. 36(1)(iv), under which it is ostensibly claimed, or not, even as the assessee claims the fund to be recognized by the competent authority under the Act. In fact, a reading of the orders does not clarify if the said statement is with reference to the Rs.provident fund' or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the decision by the jurisdictional high court in the case of Nedungadi Bank Ltd. (supra). 13. We have heard the parties; like contentions being raised before us, and also perused the material on record, including the decision by the tribunal in the assessee's own case (supra). It observed that the loss on valuation of investments held as stock-in-trade, following the principle of cost or market value whichever is less, is well settled. Accordingly, it restored the matter back to the file of the AO for allowing the assessee an opportunity to prove the devaluation as a fact, finding the wrong mention of the section by the assessee, i.e., s. 36(1)(vii), as against s. 28(1), as of no consequence. We are in agreement; the jurisdictional high court having in the case of CIT v. Nedungadi Bank Ltd. (supra) clarified the investments to be a part of the assessee-bank's stock-in-trade. So however, two things are relevant and need to be emphasized. Firstly, the AO is not obliged to, on his own, travel outside the assessee's principal case, so that when the assessee changes its position before an appellate authority, which could no doubt represent a valid proposition, the AO must be given a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the AO's view. The assessee's claim that the rights shares were issued to maintain the capital adequacy ratio and, thus, not necessarily required to maintain its capital base or for expansion of business, is grossly misplaced. This for the reason that the capital raised, irrespective of the reasons leading thereto, is only toward Rs.capital'. Secondly, as the name suggests, and as also discussed by the ld. CIT(A), the same was only as the capital was deemed deficit as per the norms prescribed for the banking industry by the regulatory authority, and thus necessarily required to raise additional capital. As such, to contend that the same is not toward its capital base or toward its profit making apparatus is a contradiction in terms. We, accordingly, find no merit in the assessee's claim. 19. The next issue agitated by the assessee is in respect of the disallowance, in the sum of Rs.485.03 lakhs of the amount of pension paid directly by the assessee to its retired employees, ostensibly in pursuance to an agreement with the employee's union. The AO disallowed the same as in his view the same did not meet the requirement/s of s. 36(1)(iv), whereunder only the claim in respect of p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e agreement has been entered toward the end of the employment of an employee, the question would be as to how would the pension agreement, which is clearly toward the entire service period, possibly cover the period of service lapsed prior the agreement, which would be governed by a different employment contract. These factual issues are vital to any decision qua the admissibility of the claim. We, therefore, likewise, restore the matter back to the file of the AO to determine the issue both factually and legally. 21. The sixth ground concerns the addition in respect of excess cash found at Rs.52650/-; the assessee being unable to furnish any details in its respect. The same stood confirmed by the ld. CIT(A), observing that therefore the same could not be considered as an ascertained liability, and that the principles of Rs.ownership' as explained by the apex court in its decision in the case of Shree Digvijay Cement Mills Ltd. vs. Union of India (2002) 259 ITR 705 (SC) as met. Aggrieved, the assessee is in appeal. 22. We have heard the parties, and perused the material on record. The assessee's case is that the same does not represent it's own monies, and as and when claims are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... apply. Secondly, on merits, he found the claim as hit by the provision of s. 43B(f) of the Act; the law postulating deduction in respect of the impugned payment only on its actual payment. The ld. CIT(A), in appeal, confirmed the same on both the grounds. The return could have been revised up to 31/3/2007, while admittedly the claim was made, per a letter, only subsequently. Further, the claim was not occasioned by or to make good any inadvertent mistake or omission by the assessee, which is the very essence or the raison de'tre of revision (refer: Bharat Almunium Co. Ltd. v. CIT, 303 ITR 256 (Del.)), but in wake of the decision by the hon'ble high court in the case of Exide Industries Ltd. v. Union of India, 292 ITR 470 (Cal.). Per the same, the hon'ble court held the provision of s. 43B(f) as unconstitutional. As such, the claim could not be considered as within the parameters of a Rs.revision'. Aggrieved, the assessee is in appeal. 24. We have heard the parties, and perused the material on record. We shall consider both the objections by the Revenue to the assessee's claim. The first is the non-claim per the return of income or per the revised return u/s. 139(5). Without doub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Revenue u/s. 43B(f). We decide accordingly. 25. The eighth and last ground of the assessee's appeal relates to the levy of interest u/s. 234B of the Act, which was found to be in order by the ld. CIT(A) in view of it being mandatory, placing reliance on the decisions in the case of Anjum M. H. Ghaswala (2001) 252 ITR 1 (SC) and R.M. Chinniah v. ITO, 303 ITR (AT) 154 (Chennai). The assessee's principal case, however, is with regard to the interpretation of s. 234B(3), so that the interest under the provision would not apply where there has been no levy (of interest) u/s. 234B in the first instance, i.e., on processing u/s. 143(1), as in the instant case. The issue stands since admittedly settled by the jurisdictional high court in the assessee's own case [reported at 325 ITR 517 (Ker.)], explaining of no such exception, and that the interest would hold in all cases where the condition/s for its levy are met. Accordingly, we find no legal infirmity in the orders by the Revenue authorities; the law in the matter being well-settled, so that the levy of interest is compensatory and, accordingly, mandatory. With regard to the contention that the addition/s made to the returned income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an Bank Ltd., 326 ITR 174 (Ker) (FB), finding the said decision as fully covering the issue in appeal. We decide like-wise. 29. The next ground (# 2(ii) and 4) of the Revenue's appeal relates to the disallowance in the sum of Rs.7306.49 lakhs, of depreciation claimed in respect of HTM (hold to maturity) or permanent category investments held by the bank. The basis of the disallowance was that the same represents an investment, as against stock-in-trade, so that there is no requirement to mark it to market. The same are required to be stated at acquisition cost, except where it is in excess of the face value, in which case the excess is to be written off over the term of the security. The AO invoked a circular by the CBDT as well as the relevant instruction by the RBI (Circular No. DBOD .PB.BC.32/21.04.048/2000-01 dated 16/10/2000) for the purpose. In appeal, the assessee was able to secure a favourable verdict in view of the like decision by the tribunal in the assessee's own case for AY 2000-01 (in ITA No. 1031/Coch/2004 dated 28/9/2006). Aggrieved, the Revenue is in appeal. 30. The Revenue before us has not been able to point out any infirmity in the order of the tribunal reli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d has been a subject matter of consideration by the tribunal (Cochin Bench) in the case of CIT (Asstt.) v. Catholic Syrian Bank Ltd. (in ITA No. 66/Coch/2009 dated 11/2/2011), wherein, after examining the relevant aspects and the law in the matter, the Revenue's ground stood dismissed. The relevant findings, being squarely applicable in the instant case as well, are reproduced as under: Rs.15. We have heard the parties, and perused the material on record. The assessee' case is that there is no cessation of liability with time, so that the decision in the case of CIT vs. T.V. Sunderam Iyengar & Sons Pvt. Ltd. (supra) would not apply. Further, as sought to be emphasized by the ld. AR, inoperative deposit accounts outstanding for the past years could not be brought to tax for the current year, during which there has been an accretion of Rs.28.12 lakhs only to the unclaimed deposit account portfolio; while some claims stood satisfied, resulting in outstanding as at year-end at Rs.27892582/-. We find considerable merit in the assessee's claim. The only question to be seen is that if there has been a cessation of liability in respect of the impugned deposits or not. If they no longer c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tor dies with no known legal heirs. In such a case, subject to law of escheat, it could be said to represent the assessee-bank's money, assessable as income u/s. 28(i) or, say, where an incorporated entity becomes defunct, with the time limitation for its restoration having expired. However, even here, unless the bank can assume proprietary rights over the same, and for which the relevant provisions of the applicable laws may have to be examined, it cannot be said that it no longer represents a liability of the bank, which must, in order to be so, be satisfied on both factual and legal counts. The Revenue relevant ground(s) is dismissed.' As observed hereinbefore, we observe no change in either the facts or in law for us to revisit the order aforesaid on the said issue, so that the same would hold for the instant case as well. We decide accordingly, dismissing the Revenue's relevant grounds. 34. Ground nos. 2(v) and 6 of the Revenue's appeal are in respect of an addition (effected in the sum of Rs.63,842/-) on account of the surplus realized by the assessee-bank on the sale of jewellery pawned with it, sold in satisfaction of the debt/s due from the concerned borrower/s. The amou....