2018 (3) TMI 1895 - AT - Income Tax

Correct head of income - profit on sale of held to maturity category securities - business income or capital gains - CIT-A hold that the profit arising on sale of investment held under HTM category should be treated as Business Income and accordingly there is no reason to interfere with the view of the AO - HELD THAT - As assessee could not controvert the finding of the learned CIT(A). He could not point out any specific error in the order of the learned CIT(A). Further it is observed that the assessee has treated these securities as stock-in-trade and claimed deduction of loss arising out of the valuation of securities at the year end on the basis of cost or market price whichever is lower basis from the business income. Hence we find no good reasons to interfere with the order of the learned CIT(A). It is confirmed. The ground of appeal of the assessee is dismissed. Disallowance of business loss on conversion of capital asset into stock in trade - as per CIT-A appellant has failed to produce any evidence either before the AO during assessment proceedings or before me during appellate proceedings that the appellant has suffered actual loss thus do not find any infirmity in the action of the AO in disallowing the business loss claimed on account of conversion of securities into stock-in-trade - HELD THAT - We find that the Assessing Officer as well as the learned CIT(A) has disallowed the deduction for the loss on the ground that the assessee failed to substantiate the claim and has not furnished the details of cost of acquisition and the selling price either in the return or during the assessment proceedings. Before us also these details have not been furnished. We therefore find no good reasons to interfere with the order of the learned CIT(A). It is confirmed. The ground of appeal of the assessee is dismissed. Addition in respect of amount transferred from Inter Branch Transaction Blocked Accounts to Reserves routed through Profit Loss account - HELD THAT - The issue at hand was covered by the decision of this Bench of the Tribunal in the case of assessee itself for AY 2005-06 2012 (5) TMI 437 - ITAT NEW DELHI As regards the applicability of Section 41(1) we may again state that such provisions of Section 41(1) cannot be invoked to bring these amounts in question to be taxed as a part of the receipt in the aforesaid provision. The Revenue has to first establish that the sum in question which is now being b-ought to tax has once been allowed in the past as a deduction while computing the income of the bank. It is not the case of the Revenue or atleast the Revenue has not drought any material to show that the sum in question forming part of the so-called inter branch transactions were once allowed by the Revenue as a deduction in the computation of profits and gains of business. When that primary requirement is absent the question of bringing the- sums in question to tax under Section 41(1) may not be legally permissible to the Revenue. In the light of the discussions above we do not agree with the stand of the Department that the amounts in question which are part of the inter branch transactions requires to be brought to tax as income of the assessee in the year in question - Decided in favour of assessee. Disallowance of depreciation - addition on account of disallowance of losses on revaluation of investment claimed by the assessee - CIT-A deleted the addition - HELD THAT - The issue is fully covered by the earlier years orders right from AY 2001-01 to 2004-05. The learned CIT(A) has only followed the principle laid down by the Apex Court in the case of UCO Bank 1999 (9) TMI 4 - SUPREME COURT . In the light of the aforesaid binding decision of the Apex Court we do not find any infirmity in the order of CIT(A). Addition on account of recovery in Written off account - CIT(A) deleted the addition - HELD THAT - Recovery relating to provision which were made in earlier years and not allowed as business deduction to the assessee is not taxable. However the recovery made in excess of that amount i.e. relating to those provisions which were allowed as deduction to the assessee are to be treated as taxable income of the assessee. We find that neither of the lower authorities have examined the issue from this angle therefore in our considered view it will be just and fair to restore the matter back to the file of the AO to re-adjudicate the issue afresh in light of the observation made hereinabove after allowing reasonable and proper opportunity of hearing to the assessee. Thus this ground of appeal of the Revenue is allowed for statistical purposes. Addition on account of contribution of PNB Employees Pension Fund Trust - CIT(A) deleted the disallowance stating Pension Fund Trust of the assessee Bank is an approved fund. The assessee Bank had already remitted the amount to the Trust which is covered by the provisions of section 43B - The amount of contribution has increased rapidly due to implementation of mandatory Accounting Standard 15 upward revision of salaries promotion of employees to higher cadre etc. - HELD THAT - DR could not point out any specific error in the order of the learned CIT(A) by bringing any cogent positive material on record. Therefore we find that no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed. Addition on capital expenditure debited to revenue which has been pointed out in the Tax Audit Report - CIT- A deleted the addition by observing that he agreed with the submission of the assessee that the amount is revenue nature - HELD THAT - DR could not point out any specific error in the order of the learned CIT(A) by bringing any material on record therefore we find that no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed. Disallowance of depreciation on Goodwill - HELD THAT - We find that depreciation has allowed in the earlier assessment years 2003-04 and AY 2004-05 and the allowance of the same in the present year is consequential. The DR could not bring any material on record to show that the order of the learned CIT(A) for AY 2003-04 and AY 2004-05 was varied in appeal before any higher authorities. Hence we find that no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed. Addition made on extra depreciation claimed on goodwill - depreciation claimed is over and above the depreciation chart as shown in the return of income and hence is not allowable - CIT- A deleted the addition - HELD THAT - DR could not point out any specific error in the order of the learned CIT(A) by bringing any material on record therefore we find that no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed. Addition on account of set off of loss from venture capital funds - AO observed that since long term capital gain on venture capital fund with securities transaction tax is claimed as exempt any loss arising out of such venture capital fund is also exempt and not allowed to be set off against the other heads of income - as per CIT-A amount of loss from VCF was determined as per Form 64 received from various Venture Capital Funds which is in accordance with law of the land - HELD THAT - DR could not point out any specific error in the order of the learned CIT(A) by bringing any material on record therefore we find that no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deduction of ?121.30 crore incurred on account of contribution to the pension fund.
2. Verification of disallowances under section 14A as per Rule 8D.
3. Treatment of profit on sale of held-to-maturity (HTM) category securities as business income or capital gains.
4. Disallowance of business loss on conversion of capital assets into stock-in-trade.
5. Addition of ?49,78,53,535/- transferred from Inter Branch Transaction Blocked Accounts to Reserves.
6. Disallowance of depreciation on investments and losses on revaluation of investments.
7. Taxability of recovery in written-off accounts.
8. Disallowance of contribution to PNB Employees Pension Fund Trust.
9. Addition of capital expenditure debited to revenue.
10. Disallowance of depreciation on goodwill.
11. Disallowance of extra depreciation claimed on goodwill.
12. Set off of loss from venture capital funds.

Detailed Analysis:

1. Deduction of ?121.30 crore incurred on account of contribution to the pension fund:
The assessee did not press these grounds of appeal, and they were dismissed for want of prosecution.

2. Verification of disallowances under section 14A as per Rule 8D:
The assessee did not press these grounds of appeal, and they were dismissed for want of prosecution.

3. Treatment of profit on sale of HTM category securities as business income or capital gains:
The assessee claimed deduction of ?27,27,44,102/- from business income on account of profit on sale of HTM securities, treating them as capital gains. The AO treated the profit as business income due to frequent trading and the nature of transactions. The CIT(A) upheld the AO's decision, noting frequent trading in these securities. The Tribunal confirmed the CIT(A)'s order, finding no specific error.

4. Disallowance of business loss on conversion of capital assets into stock-in-trade:
The AO disallowed the business loss of ?10,06,04,870/- due to lack of details on cost of acquisition and selling price. The CIT(A) upheld the disallowance, emphasizing the need for actual evidence of loss. The Tribunal confirmed the CIT(A)'s decision, noting the absence of detailed evidence.

5. Addition of ?49,78,53,535/- transferred from Inter Branch Transaction Blocked Accounts to Reserves:
The AO treated the amount as real income based on the Supreme Court's decision in T.V. Sundaram Iyengar & Sons Ltd. The CIT(A) upheld the AO's decision. The Tribunal, referencing its own earlier decision, found the issue covered in favor of the assessee, setting aside the CIT(A)'s order.

6. Disallowance of depreciation on investments and losses on revaluation of investments:
The AO disallowed depreciation on investments and losses on revaluation, considering them notional. The CIT(A) allowed the claims, referencing the Supreme Court's decision in UCO Bank vs. CIT. The Tribunal confirmed the CIT(A)'s order, noting the consistency with earlier years and the Supreme Court's ruling.

7. Taxability of recovery in written-off accounts:
The AO added the recovery amount to income, treating it as taxable under section 41(4). The CIT(A) deleted the addition, noting the AO's consistent treatment in earlier years. The Tribunal restored the issue to the AO for re-adjudication, emphasizing the need to distinguish between recoveries of previously allowed deductions and others.

8. Disallowance of contribution to PNB Employees Pension Fund Trust:
The AO disallowed the contribution, questioning its nature and compliance with section 36(1)(iv). The CIT(A) deleted the disallowance, noting the fund's approval and compliance with section 43B. The Tribunal confirmed the CIT(A)'s order, finding no specific error.

9. Addition of capital expenditure debited to revenue:
The AO added back the difference of ?71,510/- as capital expenditure. The CIT(A) deleted the addition, agreeing with the assessee's classification of the amount as revenue expenditure. The Tribunal confirmed the CIT(A)'s order, finding no specific error.

10. Disallowance of depreciation on goodwill:
The AO disallowed depreciation on goodwill, referencing earlier years' decisions. The CIT(A) allowed the depreciation, noting its allowance in earlier years. The Tribunal confirmed the CIT(A)'s order, finding the allowance consequential and consistent with earlier years.

11. Disallowance of extra depreciation claimed on goodwill:
The AO disallowed the extra depreciation claimed. The CIT(A) allowed the claim, noting the consistency with earlier years. The Tribunal confirmed the CIT(A)'s order, finding no specific error.

12. Set off of loss from venture capital funds:
The AO disallowed the set-off, treating the loss as exempt. The CIT(A) allowed the set-off, noting compliance with section 115U and the submission of Form 64. The Tribunal confirmed the CIT(A)'s order, finding no specific error.

Conclusion:
The Tribunal partly allowed the assessee's appeal and partly allowed the Revenue's appeal for statistical purposes, confirming most of the CIT(A)'s decisions and providing detailed reasoning for each issue.