2022 (10) TMI 1265 - AT - Income Tax

Validity of order u/s 250(6) passed in the name of the non-existence assessee - CIT (A) has passed the order in the name of Haryana Gramin Bank (now Sarva Haryana Gramin Bank) which is no longer in existence - HELD THAT - We find that there is no grievance of the assessee regarding the name in which assessment order has been passed. The same has been duly passed under M/s. Sarva Haryana Gramin Bank. It is the cause title of CIT (A) s order wherein it is mentioned Haryana Gramin Bank (now Sarva Haryana Gramin Bank). In our considered opinion, in these circumstances, CIT (A) s appellate order is not liable to be quashed as void ab initio. This is a clerical mistake which does not make the ld. CIT (A) s order void ab initio. Accordingly, ground no.1 stands dismissed. Disallowance u/s 14A - assessee has made investment in tax free bonds/debentures, mutual funds, shares etc. which yielded tax free dividend and tax free interest and exempted long term capital gain - HELD THAT - Assessee reiterated that assessee has sufficient interest free funds to make investment in tax free bonds/debentures/mutual funds/shares etc. and bank has not incurred any interest expenditure. Thus conclude that the proportionate disallowance of interest is not warranted, u/s 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. Amortization of securities premium - HELD THAT - As decided in CHANASMA NAGRIK SAHAKARI BANK LTD. AND VICE-VERSA 2017 (10) TMI 478 - ITAT AHMEDABAD as notice that the aforesaid amount represents the excess of acquisition cost over the face value of Government securities taken under HTM category. We find that the issue is squarely covered in favour of assessee by the decision of Rajkot Dist. Co-op Bank Ltd. 2014 (3) TMI 110 - GUJARAT HIGH COURT placed reliance upon the CBDT Circular No. 17 of 2008 and held that loss on account of premium paid on the face value of the security is required to be amortized for the remaining period of maturity. Disallowance of loss on sale of obsolete stationery and other petty items - HELD THAT - We note that the documentary evidences that assessee is now submitting before us, were not filed before the authorities below, so these are documents submitted before us for the first time. We deem it proper to remit this issue to the file of AO. AO shall consider the same in the light of the fresh evidences being the note for loss of obsolete stationery, approval of Chairman of the Bank for disposal of sale of stationery items, etc. After examining these documents, AO shall decide the issue as per law. Needless to add, assessee should be provided an opportunity of being heard.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the order passed by the CIT (A) in the name of a non-existent entity is void ab initio.
• Whether the disallowance of expenses under Section 14A read with Rule 8D was justified.
• Whether the disallowance of amortization of premium paid on securities was appropriate.
• Whether the disallowance of the loss on the sale of obsolete stationery and other petty items was correct.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Order in the Name of a Non-Existent Entity

• Relevant legal framework and precedents: The issue revolves around the validity of an order passed in the name of a non-existent entity, which is typically considered void ab initio.
• Court's interpretation and reasoning: The court found that the order was not void ab initio as it was merely a clerical error in the cause title, and the assessment was correctly made under the new entity name.
• Key evidence and findings: The appellate order mentioned the old entity name but clarified the new entity name.
• Application of law to facts: The court applied the principle that clerical errors do not invalidate an order.
• Treatment of competing arguments: The court dismissed the argument that the order was void due to the name error.
• Conclusions: The ground was dismissed, and the order was upheld.

Issue 2: Disallowance under Section 14A

• Relevant legal framework and precedents: Section 14A of the Income-tax Act and Rule 8D of the Income-tax Rules deal with disallowance of expenses related to exempt income.
• Court's interpretation and reasoning: The court noted previous ITAT decisions in the assessee's favor, emphasizing that interest-free funds were available, negating the need for disallowance.
• Key evidence and findings: The assessee had sufficient interest-free funds, and the ITAT had previously ruled favorably for the assessee on similar grounds.
• Application of law to facts: The court applied the precedent set by the ITAT and the Supreme Court's decision in South Indian Bank Ltd. vs. CIT.
• Treatment of competing arguments: The court favored the assessee's argument over the revenue's reliance on Rule 8D.
• Conclusions: The court directed the deletion of the addition, allowing the ground.

Issue 3: Disallowance of Amortization of Premium on Securities

• Relevant legal framework and precedents: The issue involves the treatment of premium paid on securities held to maturity, which is typically amortized over the holding period.
• Court's interpretation and reasoning: The court followed ITAT's earlier decision that such amortization is a revenue expenditure.
• Key evidence and findings: The practice of amortization was consistently followed and accepted in earlier years.
• Application of law to facts: The court relied on judicial precedents and CBDT Circular No. 17/2008.
• Treatment of competing arguments: The court dismissed the revenue's argument that the expense was capital in nature.
• Conclusions: The court deleted the addition, allowing the ground.

Issue 4: Disallowance of Loss on Sale of Obsolete Stationery

• Relevant legal framework and precedents: The issue pertains to whether the loss on sale of obsolete items is a capital or revenue expense.
• Court's interpretation and reasoning: The court noted the lack of documentary evidence presented to the authorities below.
• Key evidence and findings: The assessee provided new evidence regarding the obsolescence and sale of stationery.
• Application of law to facts: The court remitted the issue to the AO for reconsideration with the new evidence.
• Treatment of competing arguments: The court allowed the assessee to present new evidence for a fair reassessment.
• Conclusions: The issue was remitted for fresh consideration, allowing the ground for statistical purposes.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax-free bonds/securities which yield tax-free dividend and interest to Assessee Banks in those situations where, interest-free own funds available with the Assessee, exceeded their investments."
• Core principles established: Clerical errors in entity names do not void orders; sufficient interest-free funds negate the need for disallowance under Section 14A; amortization of premium on securities is a revenue expense; and loss on obsolete items requires proper documentation.
• Final determinations on each issue: The order in the name of a non-existent entity was upheld; disallowance under Section 14A was deleted; amortization disallowance was deleted; and the loss on obsolete items was remitted for reconsideration.