2020 (3) TMI 877 - AT - Income Tax

Loss of valuation of Held to Maturity (HTM) securities when HTM securities are capital in nature - HELD THAT - It is evident that this issue of allowability of loss in value of HTM securities was decided in favour of the assessee and against the Revenue in assessee‟ own case 2019 (6) TMI 1456 - ITAT PUNE by the Co-ordinate Bench of the Tribunal, Pune. Considering the settled nature of the issue, we are of the opinion that pending of the appeal before the Hon‟ble Supreme Court is not a ground for not adjudicating the issue before us. Accordingly, we find that the order of the Ld. CIT(Appeals) is fair and reasonable and same does not call for any interference. Hence, grounds raised by the Revenue in both the appeals are dismissed. Provision for bad and doubtful debts as per Section 36(1)(viia) - HELD THAT - AR has fairly admitted that the Tribunal in assessee s own case in assessment year 2010-11 has restricted deduction u/s. 36(1)(viia) to the extent of provision made. Thus, in view of the admitted position, this ground of appeal by the assessee qua the claim of deduction u/s. 36(1)(viia) is allowed to the extent of provision actually made for bad and doubtful debts in the books of account. Accordingly, the ground No. 2 of the appeal is partly allowed in favour of assessee. Disallowance u/s.14A r.w.r. 8D(2)(iii) - HELD THAT - No disallowance u/s. 14A is warranted in respect of shares held by the assessee as stock in trade. Disallowance made u/s. 40(a)(ia) on short deduction of tax - HELD THAT - Hon‟ble Calcutta High Court in the case of Commissioner of Income Tax Vs. S K Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT deleted the disallowance made u/s. 40(a)(ia) on short deduction of tax. Following the parity of reasons the disallowance made in the assessment year under appeal is deleted. Applicability of the provision u/s.115JB(2)(b) - HELD THAT - As perusing the orders of the Assessing Officer and Ld. CIT(Appeals) and also the amended Clause(b) read with proviso to Section 211(2) of the Companies Act, 1956, we find there is a requirement of verification of facts whether the assessee is a Banking Company or Corporation or otherwise. The orders of the Assessing Officer or the Ld. CIT(Appeals) are silent on the aspect of the arguments of the assessee that it is not a Banking Company. To that extent, the order of the Ld. CIT(Appeals) is not a speaking order as per Section 250(6) of the Act. Therefore, we are of the opinion that the order of the Ld. CIT(Appeals) stands erroneous so far as the interpretation of Explanation 3 of the Section 115JB of the Act. Explanation commencing on or before 01.04.2012 should be properly interpreted by the Ld. CIT(Appeals) in the remand proceedings. In view of the above facts and circumstances, we remand the issue back to the file of the Ld. CIT(Appeals) who shall pass a speaking order after hearing the submissions of the assessee on the aspect of applicability of provision 115JB

Summary

Issues Involved:
1. Allowability of depreciation on Held to Maturity (HTM) securities.
2. Restriction of the claim under Section 36(1)(viia) of the Income Tax Act, 1961.
3. Disallowance under Section 14A of the Income Tax Act, 1961.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for short deduction of tax.
5. Applicability of Section 115JB of the Income Tax Act, 1961 to the assessee.

Detailed Analysis:

1. Allowability of Depreciation on HTM Securities:
The Revenue's appeals (ITA No. 81/PUN/2018 and ITA No. 585/PUN/2018) contested the allowability of depreciation on HTM securities, arguing that HTM securities are capital in nature. The Tribunal noted that this issue had been settled in favor of the assessee in previous years, including by the Hon'ble Bombay High Court in Income Tax Appeal No. 920 of 2015. The Tribunal reiterated that HTM securities could be valued at cost or market value, whichever is lower, as they are considered stock-in-trade. Consequently, the appeals by the Revenue were dismissed.

2. Restriction of Claim under Section 36(1)(viia):
The assessee's appeals (ITA No. 114/PUN/2018 and ITA No. 780/PUN/2018) challenged the restriction of the deduction for bad and doubtful debts under Section 36(1)(viia) to the provision made for rural advances. The Tribunal referred to its earlier decision, which upheld that the deduction should be limited to the actual provision made in the books of account. The Tribunal directed the CIT(A) to comply with this precedent, allowing the assessee's appeal in part.

3. Disallowance under Section 14A:
The assessee also contested the disallowance under Section 14A read with Rule 8D(2)(iii). The Tribunal noted that the investments were held as stock-in-trade and, following the decision in the assessee's own case for the assessment year 2010-11, concluded that no disallowance under Section 14A was warranted. The Tribunal deleted the disallowance, allowing the assessee's appeal on this ground.

4. Disallowance under Section 40(a)(ia) for Short Deduction of Tax:
The assessee argued that Section 40(a)(ia) does not apply to short deductions of tax, citing several judicial precedents. The Tribunal agreed, referencing its earlier decision in the assessee's own case and the Calcutta High Court's ruling in CIT vs. S.K. Tekriwal. The disallowance was deleted, and the assessee's appeal was allowed on this ground.

5. Applicability of Section 115JB:
The assessee contended that Section 115JB, concerning Minimum Alternate Tax (MAT), did not apply to it as it was not a banking company. The Tribunal noted the need to verify whether the assessee was a banking company or a corporation and whether the amended provisions of Section 115JB applied. The Tribunal remanded the issue back to the CIT(A) for a detailed examination and a speaking order, considering the assessee's status and the relevant statutory provisions. The assessee's appeal was allowed for statistical purposes on this ground.

Conclusion:
The Revenue's appeals were dismissed, while the assessee's appeals were allowed for statistical purposes, with specific directions for remand on the applicability of Section 115JB. The Tribunal's decisions were based on precedents and judicial interpretations, ensuring adherence to established legal principles.