2018 (7) TMI 2192 - AT - Income Tax

Disallowance made on account of Special Long Term Finance Fund expenses claimed u/s. 36(1)(vii) - as per AO it is not clear whether the amount set aside by it constitute 20% of the profit derived from the eligible business computed under the head Profit Gains of Business and Profession carried to such reserve account - HELD THAT - As decided in own case 2013 (8) TMI 1117 - ITAT AHMEDABAD AOP has wrongly concluded that the appellant did not prove that whatever the amount set aside by it, constitutes 20% of profits derived from the eligible business. All the relevant details are present in the P L account only and AO himself could have computed the 20% of profit derived from the eligible business. The appellant has again furnished all the required details and worked out the profit 20% of profit thereof. Amount credited to special reserve which is 20% of the income from housing loans and SSI long term loans. This working has not been challenge by AO. It is therefore, held that the appellant has claimed expenses under this head as per provisions of section 36(1)(viii) which are allowable to him. In the result, appeal on this ground is allowed. Addition made on account of Reclassification of capital gain as business income - HELD THAT - Since, the facts on the issue are identical as that of A.Y. 2009-10, therefore, this issue is set aside to the file of the learned CIT(A) for fresh adjudication in light of decision of S.C. in the case of Sardar Indra Singh 1953 (9) TMI 3 - SUPREME COURT . This ground of revenue is allowed for statistical purpose.

Summary

Issues involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of expenses claimed under section 36(1)(vii) of the Income Tax Act.
3. Reclassification of capital gain as business income.

Condonation of delay in filing the appeal:
The appeal filed by the Revenue was directed against the order of the Commissioner of Income Tax (Appeals) for the A.Y. 2010-11. The delay of 31 days in filing the appeal was attributed to the Assessing Officer being occupied with time-barring assessment. The Appellant had no objection to condoning the delay. The Tribunal, citing legal precedent, noted that quasi-judicial bodies have the authority to condone delays if sufficient reasons are provided. As there was no malafide intention on the part of the Assessing Officer, the Tribunal decided to condone the delay and proceed with the appeal on its merits.

Disallowance of expenses claimed under section 36(1)(vii) of the Income Tax Act:
The dispute revolved around the disallowance of expenses amounting to ?49,09,774 claimed under section 36(1)(vii) by the assessee. The Assessing Officer raised concerns regarding the clarity of the amount set aside by the assessee for the Special Long Term Finance Fund. The CIT(A) noted that a similar issue had been resolved in the appellant's favor for the A.Y. 2009-10. The Tribunal upheld the CIT(A)'s decision, emphasizing that the appellant had provided all necessary details to support the claim under section 36(1)(vii). Since the facts were identical to the previous case, the Tribunal dismissed the Revenue's appeal on this ground.

Reclassification of capital gain as business income:
The Assessing Officer treated the short term capital gain of ?3,59,301 earned by the assessee on the sale of securities as business income, citing the obligation to maintain the statutory liquidity ratio (SLR) as per RBI guidelines. The CIT(A) disagreed, stating that the securities were maintained for the bank's business operations and any income derived from them should be considered business income. The Tribunal referred to a similar issue from A.Y. 2009-10 and decided to set aside the matter to the CIT(A) for fresh adjudication in light of a Supreme Court decision. Consequently, the Revenue's appeal was partly allowed for statistical purposes.

In conclusion, the judgment addressed the issues of delay condonation, disallowance of expenses under section 36(1)(vii), and reclassification of capital gain as business income, providing detailed analysis and legal reasoning for each matter.