2014 (4) TMI 70 - AT - Income Tax

Reopening of Assessment Whether reopening of assessment of assessee u/s 147 justified when CIT (Appeals) had not adjudicated grounds relating to reopening - Held that - CIT(Appeals) was duty-bound to adjudicate on each and every ground raised by assessee unless assessee had given in writing that he was not pressing grounds - When there is a non-disposal of ground by CIT(Appeals) level of adjudication is lost - If Tribunal proceeds to adjudicate issue straightaway it is loosing wisdom of an intermediary level of adjudication - Issue regarding reopening of assessment was never adjudicated by CIT(Appeals) - Matter has to go back to file of CIT(Appeals) and he has to adjudicate ground raised by assessee regarding jurisdiction of A.O. to reopen assessments Decided in favour of assessee. Depreciation on Securities Investments - Whether differentiation attempted by CIT(Appeals) between permanent and current categories of investments warranted interference - Held that - in case of Nedungadi Bank Ltd. and CIT v. Karnataka State Cooperative Apex Bank 2001 (8) TMI 9 - SUPREME Court no bifurcation was attempted between permanent and current category for valuation - Differentiation attempted by CIT(Appeals) between permanent and current categories of investments was not warranted - Its investments can be valued at cost or market value whichever is lower and depreciation arising can be deducted from its profit before arriving at its total income - Similarly if such valuation results in appreciation profits would also go to increase its total income - Issue regarding depreciation on securities is decided in favour of assessee. Validity of decision taken by the committee of disputes (COD) prior to decision of Apex Court - Held that - Once a decision has been taken by the COD during its period of utility after exercising its mind that certain issues need not be taken up in appeals it cannot be given a go-bye. Decision of Hon ble Apex Court in Electronics Corporation of India s case 2011 (2) TMI 3 - Supreme Court cannot be so interpreted to render nugatory decisions already taken by COD. In other words net effect of the Apex Court decision in our opinion is that all applications pending before COD as on 17th February 2011 shall abate all permissions already granted and all denial of permission already communicated will have to be taken cognizance and effect given. - the ground relating to disallowance under Section 80M of the Act stands dismissed. Provisions for Bad debts relating to foreign branch - Held that - There is no dispute that income from foreign branches was not included in the total income of the assessee taxable in India. Therefore there is no relevance for any addition for provision of bad debts made of such foreign branches in their accounts. - This issue need verification by AO - matter remanded back.

Issues Involved:
1. Reopening of assessment
2. Depreciation on securities
3. Appreciation on securities
4. Disallowance under Section 80M of the Income-tax Act
5. Provision for bad and doubtful debts for foreign branches
6. Donations by foreign branches
7. Disallowance of foreign branches entertainment expenditure
8. Disallowance of expenditure under Section 14A of the Income-tax Act
9. Additions/disallowances under Section 115J of the Income-tax Act

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The Tribunal addressed the reopening of assessments in several appeals. The primary contention was that the reopening was initiated after four years from the end of the relevant assessment year, and the original assessments were completed under Section 143(3) of the Income-tax Act. The Tribunal noted that the CIT(Appeals) did not adjudicate on the grounds raised by the assessee regarding the reopening. The Tribunal emphasized that the CIT(Appeals) was duty-bound to adjudicate every ground unless expressly waived by the assessee. Consequently, the matter was remitted back to the CIT(Appeals) for adjudication on the jurisdiction of the A.O. to reopen the assessments.

2. Depreciation on Securities:
The assessee valued its investments at cost or market value, whichever was lower, and claimed the difference as a loss or gain. The A.O. disallowed the claim, considering it notional. The CIT(Appeals) bifurcated the securities into "permanent" and "current" categories, treating only the "current" securities as stock-in-trade. The Tribunal, relying on the Supreme Court's decision in UCO Bank v. CIT and other High Court decisions, held that the method of accounting consistently followed by the assessee should be accepted. The Tribunal directed that the investments could be valued at cost or market value, whichever was lower, allowing the depreciation on securities.

3. Appreciation on Securities:
The Tribunal held that since the depreciation on securities was allowed, any appreciation in their value would automatically increase the assessee's profit. Therefore, the addition made on the appreciation of securities was upheld, deciding the issue against the assessee.

4. Disallowance under Section 80M of the Income-tax Act:
The assessee challenged the disallowance of a portion of the dividend income under Section 80M. The Tribunal noted that the Committee on Disputes (COD) had denied permission to pursue this issue. Despite the Supreme Court's decision in Electronics Corporation of India Ltd. v. UOI, which rendered COD approvals unnecessary, the Tribunal held that prior COD decisions remained valid. Consequently, the Tribunal dismissed the ground relating to the Section 80M disallowance.

5. Provision for Bad and Doubtful Debts for Foreign Branches:
The Tribunal addressed the addition made for the provision for bad debts related to foreign branches. Since the income from foreign branches was not included in the total income taxable in India, the Tribunal directed the A.O. to verify and exclude the provision for bad debts related to foreign branches from the total income.

6. Donations by Foreign Branches:
Similar to the provision for bad debts, the Tribunal directed the A.O. to verify and exclude the donations made by foreign branches from the total income, as the income from foreign branches was not taxable in India.

7. Disallowance of Foreign Branches Entertainment Expenditure:
The Tribunal noted that the COD had denied permission to pursue this issue. Following the same reasoning as for the Section 80M disallowance, the Tribunal dismissed the ground related to the disallowance of foreign branches entertainment expenditure.

8. Disallowance of Expenditure under Section 14A of the Income-tax Act:
The Tribunal reiterated that the COD had denied permission to pursue this issue. Consequently, the Tribunal upheld the disallowance under Section 14A.

9. Additions/Disallowances under Section 115J of the Income-tax Act:
The Tribunal addressed various additions and disallowances under Section 115J, including provision for bad and doubtful debts, transfer from investment reserve, and transfer from contingency reserve. The Tribunal noted the COD's denial of permission to pursue these issues and dismissed the related grounds.

Conclusion:
The Tribunal partly allowed or fully allowed the appeals based on the specific issues addressed. The Tribunal emphasized the need for adjudication by the CIT(Appeals) on certain grounds and upheld the consistent method of accounting followed by the assessee for valuing securities. The Tribunal also adhered to the COD's decisions on certain disallowances and dismissed the related grounds. The appeals were summarized with specific results for each appeal, indicating whether they were allowed, partly allowed, or allowed for statistical purposes.

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