2011 (12) TMI 496 - AT - Income Tax

Addition u/s 14A - claim under section 35D - disallowance of the claim for pension u/s. 37(1) - addition on account of valuation of investments - disallowance of the assessee s claim in respect of write off of bad debts relating to its non-rural branches - loss on amortization of the premium paid on the purchase of government securities - addition on account of unclaimed balance in the deposit accounts - levy of interest u/s. 234B - addition in respect of the value of investments, i.e., by considering the appreciation in their value - claim for bad debts written off u/s. 36(1)(vii) - provision for leave encashment liability, disallowed - surplus arising on the sale of pawned jewellery, i.e., belonging to the delinquent customers, i.e., as determined after ascertaining/adjusting their liability to the assessee-bank

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance under Section 35D of the Income Tax Act.
3. Disallowance of pension claims under Section 37(1) of the Income Tax Act.
4. Valuation of investments.
5. Write-off of bad debts.
6. Amortization of premium on government securities.
7. Unclaimed balance in deposit accounts.
8. Levy of interest under Section 234B of the Income Tax Act.
9. Provision for leave encashment liability.
10. Surplus on the sale of pawned jewelry.

Detailed Analysis:

Assessee's Appeal for AY 2005-06:

1. Disallowance under Section 14A:
The first issue pertains to the disallowance of Rs. 59,22,784 by applying Section 14A, which includes the purchase cost of interest-free securities and administrative expenses. The tribunal had previously decided in favor of the assessee, and the matter has attained finality by the jurisdictional high court's decision. The tribunal directed that the matter be restored to the assessing authority to apply the high court's decision after hearing the assessee.

2. Disallowance under Section 35D:
The second issue involves the disallowance of Rs. 16,67,332 claimed under Section 35D. The AO disallowed the claim, stating the assessee-bank does not qualify as an industrial undertaking and that the expenses towards the public issue of shares are capital expenditures, as held in Brooke Bond (India) Ltd. vs. CIT. The tribunal upheld this disallowance, conforming to well-settled law.

3. Disallowance of Pension Claims under Section 37(1):
The third issue concerns the disallowance of Rs. 1,66,96,636 claimed for pension payments. The CIT(A) did not render a decision as the matter was already before the AO for previous years. The tribunal directed the matter to be restored to the AO for fresh adjudication in accordance with law, referencing relevant higher court decisions and tribunal orders.

Result:
The assessee's appeal for AY 2005-06 is partly allowed for statistical purposes.

Revenue's Appeal for AY 2005-06:

4. Valuation of Investments:
The first issue relates to the addition of Rs. 1,86,23,010 on account of valuation of investments. The tribunal confirmed the deletion of the addition by the CIT(A), following consistent tribunal views and high court judgments.

5. Write-off of Bad Debts:
The second issue concerns the disallowance of Rs. 1,57,56,437 for bad debts. The tribunal noted the full bench decision of the jurisdictional high court, which overruled previous decisions, and held that the assessee is entitled to deduction under Section 36(1)(vii) only when the write-off exceeds the credit balance in the provision account.

6. Amortization of Premium on Government Securities:
The third issue involves the disallowance of Rs. 403.29 lakhs for amortization of the premium on government securities. The tribunal upheld the CIT(A)'s deletion of the disallowance, referencing consistent tribunal decisions in the assessee's favor.

7. Unclaimed Balance in Deposit Accounts:
The fourth issue pertains to the addition of Rs. 78,68,000 for unclaimed balances. The tribunal confirmed the deletion by the CIT(A), following consistent tribunal views and decisions in similar cases.

Result:
The Revenue's appeal for AY 2005-06 is partly allowed.

Assessee's Appeal for AY 2006-07:

8. Disallowance under Section 14A:
The first issue involves the disallowance of Rs. 47,05,420. The tribunal applied its decision from AY 2005-06, restoring the matter to the assessing authority for fresh adjudication.

9. Disallowance of Pension Claims:
The second issue concerns the disallowance of Rs. 2,09,17,554 for pension payments. The tribunal applied its decision from AY 2005-06, restoring the matter to the AO for fresh adjudication.

10. Levy of Interest under Section 234B:
The third issue involves the levy of interest of Rs. 1,11,27,840. The tribunal found no merit in the assessee's objection, affirming that interest under Section 234B is compensatory and mandatory.

Result:
The assessee's appeal for AY 2006-07 is partly allowed for statistical purposes.

Revenue's Appeal for AY 2006-07:

11. Valuation of Investments:
The first issue involves the addition of Rs. 1,11,71,762 for the valuation of investments. The tribunal applied its decision from AY 2005-06, confirming the deletion by the CIT(A).

12. Write-off of Bad Debts:
The second issue concerns the disallowance of Rs. 4,91,42,629 for bad debts. The tribunal applied its decision from AY 2005-06, confirming the disallowance by the AO.

13. Amortization of Premium on Government Securities:
The third issue involves the disallowance of Rs. 7,37,21,374 for amortization of the premium on government securities. The tribunal applied its decision from AY 2005-06, confirming the deletion by the CIT(A).

14. Provision for Leave Encashment Liability:
The fourth issue pertains to the disallowance of Rs. 1,27,74,500 for leave encashment liability. The tribunal confirmed the disallowance, referencing the tribunal's decision in a similar case.

15. Surplus on Sale of Pawned Jewelry:
The fifth issue involves the addition of the surplus from the sale of pawned jewelry. The tribunal confirmed the addition, following consistent tribunal decisions in similar cases.

Result:
The Revenue's appeal for AY 2006-07 is partly allowed.

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