2009 (8) TMI 858 - AT - Income Tax

Expenditure incurred in relation to exempt income Provident fund contributions towards recognized - Business expenditure

Issues Involved:
1. Disallowance of the amount paid as contribution to pension fund.
2. Disallowance of lease equalisation charges.
3. Disallowance of loss on revaluation of unquoted shares.
4. Disallowance of payment of pension to retired employees under section 37.
5. Amortisation of premium on purchase of Government securities.
6. Allowance of payment of gratuity.
7. Chargeability of interest under sections 234C and 234D.
8. Deletion of disallowance under the head 'bad debts' under section 36(1)(vii).
9. Deletion of addition on account of appreciation and disallowance of depreciation in respect of current category of investments.
10. Deletion of disallowance of payment of pension otherwise than from the Pension Fund.
11. Disallowance of expenses incurred for earning Tax Free Bonds under section 14A.
12. Valuation of investments in accordance with prudential norms issued by the RBI.

Detailed Analysis:

1. Disallowance of the amount paid as contribution to pension fund:
The Tribunal allowed the deduction for the contribution paid to the recognized pension fund scheme within the time limit, following the decisions of the Hon'ble Supreme Court in Allied Motors (P.) Ltd. v. CIT and CIT v. Vinay Cement Ltd. The orders of the authorities below were set aside, and the claim of the assessee was allowed.

2. Disallowance of lease equalisation charges:
The Tribunal allowed the claim of the assessee for lease equalisation charges, following the earlier Tribunal order and the decisions of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. and the Hon'ble Uttaranchal High Court in CIT v. Nainital Bank Ltd. The orders of the authorities below were set aside.

3. Disallowance of loss on revaluation of unquoted shares:
The Tribunal upheld the disallowance of the loss on revaluation of unquoted shares, following its earlier decision against the assessee and in favor of the Revenue. The order of the CIT(A) was set aside, and the disallowance by the Assessing Officer was confirmed.

4. Disallowance of payment of pension to retired employees under section 37:
The Tribunal agreed with the claim of the assessee in principle but remitted the issue back to the Assessing Officer for quantification, following the earlier Tribunal order. The Assessing Officer was directed to afford an opportunity of being heard to the assessee.

5. Amortisation of premium on purchase of Government securities:
The Tribunal allowed the claim for amortisation of premium on Government securities, following the earlier Tribunal decision in the case of South Indian Bank Ltd. and considering the consistent and regular method of accounting followed by the assessee-bank.

6. Allowance of payment of gratuity:
The Tribunal confirmed the order of the CIT(A) allowing the deduction for the provision towards payment of gratuity fund, following the decisions of the Hon'ble Supreme Court in Allied Motors Ltd. and Vinay Cements Ltd.

7. Chargeability of interest under sections 234C and 234D:
The Tribunal found that the assessee had paid sufficient advance tax to meet the tax liabilities and upheld the cancellation of interest under section 234C by the CIT(A). The issue of chargeability of sections 234C and 234D interest was remitted back to the file of the CIT(A) for proper adjudication on merits.

8. Deletion of disallowance under the head 'bad debts' under section 36(1)(vii):
The Tribunal upheld the deletion of disallowance under the head 'bad debts', following the decision of the Hon'ble Jurisdictional High Court in South Indian Bank Ltd. v. CIT.

9. Deletion of addition on account of appreciation and disallowance of depreciation in respect of current category of investments:
The Tribunal upheld the deletion of addition on account of appreciation and allowed the deduction for depreciation in respect of current category of investments, following the decision of the Hon'ble Supreme Court in United Commercial Bank and considering the consistent method of accounting followed by the assessee.

10. Deletion of disallowance of payment of pension otherwise than from the Pension Fund:
The Tribunal upheld the deletion of disallowance for the payment of pension directly to retired employees, considering it an allowable business expenditure under section 37, and following the decision of the Hon'ble Supreme Court in T. Stanes & Co. Ltd. v. CIT.

11. Disallowance of expenses incurred for earning Tax Free Bonds under section 14A:
The Tribunal reversed the findings of the CIT(A) and confirmed the order of the Assessing Officer, following the decision of the Special Bench of ITAT, Mumbai in ITO v. Daga Capital Management (P.) Ltd.

12. Valuation of investments in accordance with prudential norms issued by the RBI:
The Tribunal upheld the valuation of investments following the prudential norms issued by the RBI and the consistent method of accounting followed by the assessee. The broken period interest was considered an allowable deduction, following the decision of the Hon'ble Kerala High Court in CIT v. South Indian Bank Ltd.

Conclusion:
The Tribunal delivered a comprehensive judgment addressing various issues related to disallowances, deductions, and interest chargeability, with several issues being remitted back to the Assessing Officer or CIT(A) for further verification and quantification. The judgment extensively relied on precedents from the Hon'ble Supreme Court, High Courts, and earlier Tribunal decisions to reach its conclusions.

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