TMI Blog2011 (5) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... 08), 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. As s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor as 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than ten thousand 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.). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular rate of return. If the current market yield increases, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to the file of the AO, following the decision by the tribunal in the assessee 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. <!--[if !supportLineBreakNewLine]--> <!--[endif]--> 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the order by the tribunal in the assessee s own case for A.Y.s 2000-01 and 2001-02, restored the matter back to the file of the AO for deciding the same in light 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did the AO before him, as fully applicable. 18. The assessee has not been able to point out any infirmity in the impugned order, which discusses the issue from the stand point of the assessee, finally endorsing 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no subsisting employer-employee relationship between the assessee and its retired employees. This is what led the tribunal to seek answer/s to this basic issue, as well as the concomitant issue of commercial expediency. Even if the 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. Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s claim was not maintainable, having not been made either per the original return or the revised return of income, but only per a letter dated 19/9/2007, so that the decision by the apex court in the case of Goteze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) would 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stayed by the apex court (in SLA (Civil) CC 12060 dtd. 8/9/2008, copy on record as Annexure D to the assessee s written submissions dated 2/9/2010). The said decision being the basis on which the assessee s claim rests, there is no scope for allowance of the assessee s claim, disallowed by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue per its fifth ground for AY 2002-03 (in ITA 722/Coch/2008), and which stands adjudicated by us vide para 6 7 of this order, by remitting the matter back to the file of the AO to apply in letter and in spirit the decision by the hon ble jurisdictional high court in again the assessee s own case in CIT vs. South Indian 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f liability of the bank, and the provision of s. 41(1) did not apply. The decision by the apex court in the case of T.V. Sundaram Iyengar Sons (P.) Ltd. (supra) was on a different set of facts and, thus, not applicable. 33. We have heard the parties, whose respective cases are the same, i.e., as before the first appellate authority. The issue we find 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an incorporeal entity, a separate legal person, with perpetual existence. Under the circumstances, we cannot see as to how the unclaimed, inoperative deposit accounts could be considered as not being the bank s liability. The matter has both factual and legal dimensions to it. In a given case, it could be that there are no claims, as say, whether an individual depositor 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 ..... 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