2012 (5) TMI 437 - AT - Income Tax

Deduction u/s 10(23G) - assessee is a public sector scheduled bank and earned income of Rs.146,33,70,763/- by way of interest from infrastructure bonds - It was noted by the Assessing Officer that the total interest was to the extent of Rs.146,33,70,763/-. The notification granting the approval by the CBDT in respect of the other projects which involved the interest of Rs.109,56,32,636/- was not produced before the Assessing Officer Hence, the Assessing Officer made the addition - Held that Learned CIT(A), in our view, has rightly directed the granting of exemption under Section 10(23G) of the Act in respect of interest on such bonds whose certificate of exemption was filed before him - However no assessee produced the remaining certificates - matter remanded back to AO - If the assessee, for any reason, is not able to produce such certificates when the Assessing Officer is giving effect to, the Assessing Officer is free to confirm the addition to that extent - Appeal is allowed for statistical purpose. Remission of liability - Deemed income u/s 41(1) - amount transferred from inter branch transaction blocked accounts to reserves through the medium of profit and loss account. - held that - the disputed amounts were part of inter branch transactions and there was a mismatch of the transactions between different branches of the same bank and it was not reconciled and these are all carried forward from so many years from the bank and its branches. - None of these transactions, as we see from the records presented before us and the information available with us, show that the involved transactions have revenue implications by nature which could spring the income subject to assessment under the Income-tax Act. Transaction between the head office of the assessee and its branch in India was a transaction between the principal and principal. In law, there cannot be a valid transaction of sale between the branch and its head office. As it is ultimately based on a proposition that no person can enter into contract with one self. Debiting or crediting one s account cannot alter the legal position. 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. - Decided in favor of assessee.

Issues Involved:
1. Deduction under Section 10(23G) of the Income-tax Act, 1961.
2. Treatment of difference between sale price and cost price of securities held in HTM category.
3. Deduction in respect of expenditure on account of wage revision.
4. Verification of TDS certificates.
5. Addition of amount transferred from inter-branch transaction blocked accounts to reserves.
6. Disallowance of prior period expenses.
7. Disallowance under Section 14A of the Income-tax Act.
8. Disallowance of depreciation on investment.
9. Addition on account of interest accrued but not due.

Issue-wise Detailed Analysis:

1. Deduction under Section 10(23G) of the Income-tax Act, 1961:
The assessee, a public sector scheduled bank, claimed a deduction of Rs.93,31,76,485/- being income from infrastructure projects under Section 10(23G). The Assessing Officer disallowed the deduction as the required CBDT notifications for some projects were not produced. The CIT(A) granted partial relief based on new notifications filed. The Tribunal set aside the issue to the Assessing Officer for reconsideration based on certificates that the assessee may now produce.

2. Treatment of difference between sale price and cost price of securities held in HTM category:
The assessee did not press this issue before the CIT(A), and thus, the CIT(A)'s order treating the difference of Rs.97,50,61,903/- as business income was confirmed.

3. Deduction in respect of expenditure on account of wage revision:
The assessee did not press this issue before the CIT(A), and thus, the CIT(A)'s order confirming the disallowance of Rs.302,75,00,000/- was upheld.

4. Verification of TDS certificates:
The assessee did not press this issue before the CIT(A), and thus, the CIT(A)'s order directing the Assessing Officer to verify TDS certificates amounting to Rs.66,47,244/- was confirmed.

5. Addition of amount transferred from inter-branch transaction blocked accounts to reserves:
The Assessing Officer added Rs.387,07,00,000/- transferred from inter-branch transaction blocked accounts to reserves, treating it as income. The CIT(A) upheld the addition, stating that the amount was treated as income in the profit and loss account and appropriated to general reserves. The Tribunal, however, concluded that such inter-branch transactions do not constitute income as they are internal transactions within the bank and directed the deletion of the addition.

6. Disallowance of prior period expenses:
The Assessing Officer disallowed prior period expenses of Rs.74,90,249/-. The CIT(A) deleted the disallowance, considering the principle of materiality and consistency. The Tribunal upheld the CIT(A)'s order, emphasizing the insignificant nature of the claims and the need for consistency.

7. Disallowance under Section 14A of the Income-tax Act:
The Assessing Officer disallowed Rs.111.34 crores under Section 14A. The CIT(A) directed the Assessing Officer to verify the expenditure in light of the Tribunal's order for AY 1999-2000. The Tribunal upheld the CIT(A)'s directions.

8. Disallowance of depreciation on investment:
The Assessing Officer disallowed depreciation on investment of Rs.48,82,82,014/-. The CIT(A) allowed the claim, following the Supreme Court's decision in the case of UCO Bank. The Tribunal upheld the CIT(A)'s order.

9. Addition on account of interest accrued but not due:
The Assessing Officer added Rs.102.83 crores on account of interest accrued but not due. The CIT(A) deleted the addition, following the decisions of the Bombay High Court and the Supreme Court. The Tribunal upheld the CIT(A)'s order.

Conclusion:
The Tribunal's decision resulted in partial relief for the assessee by setting aside the issue of deduction under Section 10(23G) for reconsideration and directing the deletion of the addition related to inter-branch transactions. The Tribunal confirmed the CIT(A)'s orders on other issues, including the disallowance of prior period expenses, Section 14A disallowance, depreciation on investment, and interest accrued but not due.

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