2016 (12) TMI 1789 - AT - Income Tax

Validity of reopening of the assessment - HELD THAT - CIT(A) has not considered the assessee s own case for the earlier assessment year where the re-assessment notice was issued u/s. 148 of the Act within four years due to change of opinion and cancelled and the Ld. AR drew attention to the order of CIT(A) where there is no findings of re-opening proceedings. We also perused the orders of Assessing Officer and CIT(A) the reopening of assessment is not basic vital matter of assessment and it has to be decided before adjudicating on the issues. CIT(A) has not passed the speaking order on the validity of the re-assessment proceedings and in the assessment year 2002-03 Tribunal quashed the reassessment being within the period of four years from the date of assessment. We are of the opinion the Ld. CIT(A) order has to clarify and pass a speaking order on legal issue. We are inclined to remit disputed issue of re-opening of assessment to the file of CIT(A) to give findings on legal issue and the assessee should be provided with adequate opportunity of hearing before passing the order and then comment on merits and allow the assessee appeal for statistical purpose. Broken period interest to be allowed as Revenue expenditure Claim of amortization charges as Revenue expenditure - AO is of the opinion that the assessee included the amortization amount in the book value of HTM Securities to arrive at cost of purchase. - HELD THAT - CIT(A) observing that the issue is covered in favour of the assessee by the decision of the Hon ble Jurisdictional High Court in assessee s own case 2007 (2) TMI 187 - MADRAS HIGH COURT allowed the claim of the assessee Chargeability of interest on NPA accounts - Provision of section 43D were the interest is chargeable to tax in the year of credit as such interest in Profit and Loss Account or in the year in which interest is actually received in NPA by the bank - HELD THAT - Since the Assessing Officer has made certain observations in the Assessment Order and also CIT(A) has directed for deletion of interest and issue of estimation of interest being first time made by the Assessing Officer. We are of the opinion that the Assessing Officer has only estimated the income without giving any depth reasons on estimations. We are of the opinion that the disputed issue has to be re-examined by the Assessing Officer for limited purpose and we remit the issue to the file of the Assessing Officer and allow the ground of the Revenue for statistical purpose. Addition made on account of excess cash balance transferred in the suspense account in balance sheet as there is no claim or identity of person which belongs legally - AO found that there is unclaimed amount in the books and it was not brought to tax - HELD THAT - AO has taxed unclaimed balance shown in the Balance Sheet as income of the assessee and it relates to stale drafts pay orders and cheque which are shown as liability in the Balance Sheet and the assessee as the banker has to owe the commitments of its customers without taking shelter of time limitation and we found the Hon ble Kerala High Court in the case of Catholic Syrian Bank Ltd. Vs. ACIT 2013 (4) TMI 140 - KERALA HIGH COURT as held Excess cash received at counters of the bank represents for which there is no claimant can be considered as income of bank. We respectful following the Kerala High Court decision treat the unclaimed balance as the Revenue receipts irrespective of the fact that the bank is a custodian and set aside the orders of the CIT(A) and allow the ground of the Revenue. Additional claim of bad debts as the assessee bank has claimed deduction - HELD THAT - Deduction u/s. 36(1)(vii) of the Act was allowed and in respect of assessment year 1991-92 1993-94 1994-95 reported in CIT Vs. City Union Bank Ltd. 2007 (2) TMI 187 - MADRAS HIGH COURT and accordingly upheld the action of CIT(A) and dismiss the revenue ground. Bank s claim u/s. 36(1)(viia) of the Act on the amounts outstanding at the end of accounting year - HELD THAT - We found the decision of the Hon ble Supreme Court CATHOLIC SYRIAN BANK LTD. VERSUS COMMISSIONER OF INCOME TAX THRISSUR 2012 (2) TMI 262 - SUPREME COURT in respect of provisions of section 36(1)(vii) is restricted to rural debts and the deduction has to be allowed based on the above decision and the Assessing Officer has restricted the claim based on the incremental advance made during the year by the rural branches. Since the Co-ordinate bench of this Tribunal has considered the facts and also provisions of law in the above decision. We inclined to set aside the order of the CIT(A) and upheld the action of the Assessing Officer and allow the ground of the Revenue. Deprecation loss on shifting of securities in the middle of the year - assessee Bank has not reduced depreciation from book value on securities at the time of sale of securities - HELD THAT - As decided in CITY UNION BANK LIMITED. 2007 (2) TMI 187 - MADRAS HIGH COURT the depreciation on transfer of securities loan AFS category to HTM category are accounted at depreciated value as per RBI guidelines Interest accrued on Government Securities - HELD THAT - We find similar issue in the assessee s own case for earlier assessment year is covered by High Court decision CIT Vs. City Union Bank Ltd. 2007 (2) TMI 187 - MADRAS HIGH COURT and accordingly we upheld the order of CIT(A) and dismiss the ground of the Revenue. Addition towards Broken Period Interest - HELD THAT - We heard the submissions perused the material on record and judicial decision we find issue is covered by the decision of the co-ordinate bench of Tribunal Lakshmi Vilas Bank 2016 (4) TMI 572 - ITAT CHENNAI Karur Vysya Bank 2004 (7) TMI 52 - MADRAS HIGH COURT and National Engineering Industries Limited 1993 (7) TMI 40 - CALCUTTA HIGH COURT . Accordingly we upheld the order of CIT(A) and dismiss the Revenue ground. Addition of the stale draft pay order and cheque disclosed as liability - CIT(A) observed that Ld. AO applying the provisions of section 41(1) of the Act of cessation of liability in respect of value of the stale draft cheque and pay orders as they were not en-cashed by the customers and remained with the bank for more than three years. Deduction u/s. 37(1) of the Act in respect of donation instead of deduction u/s. 80G - AO has disallowed donation to the Government school for construction of class room and World Tamil Conference held at Coimbatore Neighbourhood Health Care Trust. The Ld. AR explained that the donation to the school is wholly and exclusively for the purpose of business - HELD THAT - We found that the expenditure incurred towards construction of school in nature of business expenditure and we upheld the decision of the CIT(A) and dismiss the appeal of the Revenue.

Summary

Issues Involved:
1. Delay in filing appeals
2. Validity of reopening of assessment
3. Disallowance under Section 40a(ia) of the Act
4. Deduction under Section 36(1)(viia) of the Act
5. Disallowance under Section 14A of the Act
6. Broken Period Interest as revenue expenditure
7. Amortization charges as revenue expenditure
8. Interest on Non-Performing Accounts (NPA)
9. Unclaimed balances as income
10. Additional claim of bad debts under Section 36(1)(vii)
11. Depreciation loss on shifting of securities
12. Interest accrued on Government Securities
13. Ex-gratia payment to employees
14. Donation as business expenditure under Section 37(1)
15. Excess cash balance as income

Detailed Analysis:

1. Delay in Filing Appeals:
The appeals filed by the assessee and the Revenue had delays of 44 days and 8 days respectively. The tribunal condoned these delays after considering the explanations provided, finding them satisfactory.

2. Validity of Reopening of Assessment:
The assessee argued that the reopening of assessments was invalid due to lack of fresh material and being based on a change of opinion. The tribunal found that the CIT(A) did not pass a speaking order on this issue and remitted the matter back to the CIT(A) for a detailed decision.

3. Disallowance under Section 40a(ia) of the Act:
The Assessing Officer disallowed payments made towards MICR charges for non-deduction of TDS. The CIT(A) deleted this addition, finding that TDS was indeed deducted and remitted. The tribunal upheld this deletion.

4. Deduction under Section 36(1)(viia) of the Act:
The CIT(A) allowed the deduction based on the assessee's own case for earlier years. The tribunal directed the CIT(A) to follow jurisdictional tribunal decisions and remitted the matter for statistical purposes.

5. Disallowance under Section 14A of the Act:
The CIT(A) restricted the disallowance under Section 14A to 2% of the exempted income. The tribunal upheld this decision.

6. Broken Period Interest as Revenue Expenditure:
The CIT(A) allowed the claim of Broken Period Interest as revenue expenditure, relying on jurisdictional High Court decisions. The tribunal upheld this decision, noting it was consistent with previous rulings in the assessee's own case.

7. Amortization Charges as Revenue Expenditure:
The CIT(A) allowed the amortization charges as revenue expenditure, following the Supreme Court decision in UCO Bank and jurisdictional High Court decisions. The tribunal upheld this decision.

8. Interest on Non-Performing Accounts (NPA):
The CIT(A) deleted the addition of estimated interest on NPAs, noting that the bank consistently followed the same accounting policy. The tribunal remitted the issue back to the Assessing Officer for re-examination.

9. Unclaimed Balances as Income:
The CIT(A) directed the Assessing Officer to follow Supreme Court and tribunal decisions. The tribunal, relying on the Kerala High Court decision, treated unclaimed balances as revenue receipts and set aside the CIT(A)'s order.

10. Additional Claim of Bad Debts under Section 36(1)(vii):
The CIT(A) allowed the additional claim of bad debts, following the Supreme Court decision in Catholic Syrian Bank Ltd. The tribunal upheld this decision.

11. Depreciation Loss on Shifting of Securities:
The CIT(A) allowed the depreciation loss on shifting of securities, relying on the assessee's own case and jurisdictional High Court decisions. The tribunal upheld this decision.

12. Interest Accrued on Government Securities:
The CIT(A) directed the Assessing Officer to verify the interest income recalculation based on jurisdictional High Court decisions. The tribunal upheld this direction.

13. Ex-gratia Payment to Employees:
The CIT(A) allowed the ex-gratia payment as business expenditure under Section 37(1), relying on various High Court and tribunal decisions. The tribunal upheld this decision.

14. Donation as Business Expenditure under Section 37(1):
The CIT(A) allowed the donation for the construction of a school as business expenditure. The tribunal upheld this decision, finding it to be for the purpose of business.

15. Excess Cash Balance as Income:
The CIT(A) directed the Assessing Officer to follow tribunal decisions. The tribunal, relying on the Kerala High Court decision, treated excess cash balances as revenue receipts and set aside the CIT(A)'s order.

Conclusion:
The tribunal's detailed analysis and decisions reflect adherence to established legal precedents and judicial consistency. The appeals were disposed of with specific directions for re-examination or upholding of CIT(A)'s orders based on the merits of each issue.