2006 (3) TMI 284 - AT - Income Tax

Issues Involved:
1. Validity of reopening of assessment under section 147 for the assessment years 1989-90 and 1990-91.
2. Depreciation on investment for the assessment year 1994-95.
3. Disallowance of proportionate expenses for the assessment years 1994-95, 1995-96, and 1996-97.
4. Deduction under section 80M for the assessment year 1994-95.
5. Deposit mobilization expenses for the assessment year 1995-96.
6. Lease charge for the assessment years 1995-96 and 1996-97.
7. Surplus amount realized on sale of jewelry for the assessment year 1995-96.
8. Subscription made by the assessee to SEBI for the assessment years 1995-96 and 1996-97.
9. Deduction under section 36(1)(viia) for the assessment years 1994-95, 1995-96, and 1996-97.
10. Expenditure incurred by the assessee for right issues for the assessment year 1995-96.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 for the Assessment Years 1989-90 and 1990-91:
The primary issue was whether the reopening of the assessments for the years 1989-90 and 1990-91 under section 147 was valid. The CIT(A) had held the reopening as invalid, and the revenue appealed against this order. The learned Departmental Representative (D.R.) argued that the reopening was based on the Supreme Court judgment in the case of Vijaya Bank Ltd. v. Addl. CIT, which held that interest on purchasing securities should be treated as capital expenditure. The D.R. contended that this judgment constituted new information, justifying the reopening under section 147. Conversely, the assessee's representative argued that all material facts were disclosed during the original assessment, and the reopening was beyond the four-year limitation period without any failure to disclose material facts by the assessee. The Tribunal upheld the CIT(A)'s decision, stating that the reopening was invalid as there was no failure on the part of the assessee to disclose material facts, and the reopening was beyond the permissible period of four years.

2. Depreciation on Investment for the Assessment Year 1994-95:
The issue was whether depreciation on investment should be allowed. The Tribunal noted that in the assessee's own case for previous years, it had been held that depreciation is allowable based on the value of the investment at the close of the accounting period. This position was supported by the Supreme Court's judgment in the case of United Commercial Bank v. CIT. The Tribunal confirmed the CIT(A)'s order allowing the depreciation claim.

3. Disallowance of Proportionate Expenses for the Assessment Years 1994-95, 1995-96, and 1996-97:
The issue was the disallowance of proportionate expenses related to income from tax-free investments. The Tribunal noted that the lower authorities had not examined the provisions of section 14A while deciding this issue. Therefore, the Tribunal remanded the matter back to the Assessing Officer to reconsider the issue in light of section 14A and decide afresh after giving the assessee a reasonable opportunity.

4. Deduction under Section 80M for the Assessment Year 1994-95:
The issue was whether expenses should be disallowed while computing the deduction under section 80M. The Tribunal held that 2% of the total dividend income should be considered as relatable expenditure for earning the dividend income, following its consistent view in similar cases. The Tribunal directed the Assessing Officer to deduct 2% of the dividend income as expenditure and then allow the deduction under section 80M.

5. Deposit Mobilization Expenses for the Assessment Year 1995-96:
The issue was the disallowance of deposit mobilization expenses. The Tribunal noted inconsistencies in the CIT(A)'s findings regarding the disallowance amount. Therefore, the Tribunal remanded the issue back to the Assessing Officer to re-examine the nature of the expenditure and decide afresh according to the law.

6. Lease Charge for the Assessment Years 1995-96 and 1996-97:
The issue was the disallowance of lease charges on the grounds of tax avoidance. The Tribunal found that the lease and sale-back transactions were genuine and not intended for tax avoidance. The Tribunal directed the Assessing Officer to verify the lease transaction details and allow the lease charges in the respective assessment years.

7. Surplus Amount Realized on Sale of Jewelry for the Assessment Year 1995-96:
The issue was whether the surplus amount realized on the sale of pledged jewelry should be treated as trading receipt. The Tribunal held that the excess amount realized belongs to the borrower and constitutes an ascertainable liability to refund. Therefore, it cannot be treated as a trading receipt. This view was consistent with the Tribunal's earlier decision in the assessee's own case.

8. Subscription Made by the Assessee to SEBI for the Assessment Years 1995-96 and 1996-97:
The issue was whether the subscription to SEBI should be treated as revenue or capital expenditure. The Tribunal held that the payment to SEBI was a fee for regulatory purposes and did not provide any enduring benefit to the assessee. Therefore, it should be treated as revenue expenditure. The Tribunal confirmed the CIT(A)'s order for the assessment year 1996-97 and deleted the addition for the assessment year 1995-96.

9. Deduction under Section 36(1)(viia) for the Assessment Years 1994-95, 1995-96, and 1996-97:
The issue was the allowance of deduction under section 36(1)(viia). The Tribunal followed its earlier decision in the assessee's own case, which allowed the difference between the provision made and the bad debt actually written off. The Tribunal remanded the issue back to the Assessing Officer to re-examine and decide afresh in accordance with the Tribunal's earlier order.

10. Expenditure Incurred by the Assessee for Right Issues for the Assessment Year 1995-96:
The issue was whether the expenditure incurred for right issues should be allowed. The Tribunal held that this issue was covered by the Supreme Court's judgment in the case of Brooke Bond India Ltd. v. CIT, which treated such expenditure as capital expenditure. Therefore, the Tribunal confirmed the lower authority's order disallowing the expenditure.

Conclusion:
The Tribunal dismissed the appeals related to the reopening of assessments for the years 1989-90 and 1990-91 and upheld the CIT(A)'s decision. For other issues, the Tribunal either confirmed the CIT(A)'s orders or remanded the matters back to the Assessing Officer for reconsideration and fresh decision-making in accordance with the law and judicial precedents.

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