2010 (12) TMI 894 - AT - Income Tax

Reopening - Revenue or capital expenditure - Validity of notice - It is not in dispute that in the case of the Assessee all investment is stock in trade which is accepting by the department since long - The interest earned in the case of the Bank on all share and security assets are stock in trade and whatever the loss/profit are not in the nature of capital - The entire interest income of securities under whatever category had been and is being assessed in all these years as business income - Since the claim of the assessee is as per RBI guidelines and CBDT has also issued directions to allow premium to be amortized remaining with the maturity therefore the Assessing Officer is directed to allow the claim of the assessee amounting to Rs.65, 51, 826 - Decided in favor of the assessee Regarding deduction u/s. 36(1)(viia) - Held that The bare reading of section 36(1)(viia) mades it clear that the advance made by the rural branches are exempt under this section irrespective of the facts that these are made to persons(s) involved in the rural activities or otherwise - this has been the Assessing Officer has misconceived the provisions that only advances which were for rural purposes has to be considered for the purpose of computing deduction u/s. 36(1)(viia) - Decided in favor of the assessee

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Allowability of amortization of premium paid on securities held under HTM (Held to Maturity) category.
3. Levy of interest under section 234D of the Income Tax Act.
4. Addition of excess cash received at cash counters.
5. Deduction claimed under section 36(1)(viia) for bad and doubtful advances.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under section 147 of the Income Tax Act:
The assessee argued that the reassessment proceedings initiated after four years from the end of the relevant assessment year were invalid as there was no failure on their part to fully and truly disclose all material facts necessary for the assessment. The CIT(A) agreed, stating that the reassessment was not valid because the assessee had made full disclosures in their balance sheet and the significant accounting policies. The Tribunal upheld this view, noting that the department had accepted the assessee's treatment of investments as stock in trade in prior years.

2. Allowability of amortization of premium paid on securities held under HTM category:
The AO disallowed the amortization of premium paid on HTM securities, considering it a capital expenditure. However, the CIT(A) allowed the deduction, relying on CBDT Circular No.17 dated 26/11/2008 and RBI guidelines, which permit the amortization of premium over the period remaining to maturity. The Tribunal confirmed this decision, emphasizing that the department had consistently treated the investments as stock in trade and allowed similar deductions in the past. The Tribunal also cited the Supreme Court's decision in UCO Bank, which supported the assessee's treatment of securities as stock in trade.

3. Levy of interest under section 234D of the Income Tax Act:
In the appeals for A.Y. 2004-05 and subsequent years, the Tribunal addressed the issue of interest under section 234D. It was clarified that section 234D applies only in the context of refunds granted under section 143(1) and not on regular assessments. Since the assessments in question were completed under section 147, the Tribunal held that the provisions of section 234D were not applicable, thereby dismissing the revenue's ground on this issue.

4. Addition of excess cash received at cash counters:
For A.Y. 2006-07, the revenue raised an issue regarding the addition of excess cash received at cash counters due to depositor errors. The Tribunal noted that similar additions had been deleted in earlier years by the ITAT and confirmed by the Bombay High Court. Following this precedent, the Tribunal dismissed the revenue's ground, upholding the CIT(A)'s decision to delete the addition.

5. Deduction claimed under section 36(1)(viia) for bad and doubtful advances:
The revenue contested the deduction claimed under section 36(1)(viia) for bad and doubtful advances, arguing that the assessee had not provided sufficient details for quantification. The Tribunal referred to its earlier decision in the assessee's case for A.Y. 2002-03, where it was held that the advances made by rural branches qualify for the deduction, regardless of whether they were made to persons involved in rural activities. The Tribunal reiterated that the deduction should be computed based on all advances made by rural branches, dismissing the revenue's ground and confirming the CIT(A)'s decision.

Conclusion:
The Tribunal dismissed all the appeals filed by the revenue, upholding the CIT(A)'s orders on all issues. The reassessment proceedings were deemed invalid, the amortization of premium on HTM securities was allowed, the levy of interest under section 234D was not applicable, the addition of excess cash was deleted, and the deduction under section 36(1)(viia) was confirmed. The order was pronounced in the open court on 22.12.2010.

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