2012 (8) TMI 235 - AT - Income Tax

Deduction u/s 36(1)(viii) - banking company - CIT, invoking his jurisdiction u/s 263, denied deduction on ground that assessee did not satisfy this initial condition of being a financial corporation - validity of revisionary proceedings - Held that - In case of Union Bank of India vs ACIT (2012 (6) TMI 500 - ITAT MUMBAI ) it has been held that government company are financial corporation within the meaning of proviso to section 36(1)(viii) and thus entitled the bank to deduction u/s 36(1)(viii) even in the years up to 2006-2007. Hence, when one of the possible views has been taken by the Assessing Officer, the CIT cannot exercise his jurisdiction u/s 263 on that aspect of the matter. However, revisionary order is upheld in respect of erroneous deduction provided by AO in case for provision for bad and doubtful debts. Matter is restored back to file of AO for the purpose of computation of deduction u/s 36(1)(viii) - Appeal partly allowed. since more than 51% shares of the assessee-bank were held by the Central Government, it was a government company as defined u/s 617 of the Companies Act and as such it became financial corporation within the meaning of proviso to section 36(1)(viii). On the contrary, the ratio in the case before the Cochin Bench of the Tribunal is not attracted because there the assessee was a foreign bank, namely, Federal Bank Limited, which obviously is not a Government company as per the Companies Act, 1956.

Summary

Issues:
1. Validity of revisional power on deduction u/s 36(1)(viii).
2. Applicability of deduction u/s 36(1)(viii) to the assessee.
3. Computation of deduction u/s 36(1)(viii).

Analysis:

Issue 1: Validity of revisional power on deduction u/s 36(1)(viii)
The appeal arose from the Commissioner's order under section 263 concerning the assessment year 2006-2007. The Commissioner observed that the assessee did not meet the initial condition of being a financial corporation to claim deduction u/s 36(1)(viii). The Commissioner also held that the correct deduction amount should be Rs.117.03 crore instead of Rs.230.45 crore. Furthermore, the Commissioner found the assessment order erroneous and prejudicial to the revenue regarding bad and doubtful debts provisions. The Tribunal upheld the Commissioner's order citing non-application of mind by the Assessing Officer, following a precedent from a previous year.

Issue 2: Applicability of deduction u/s 36(1)(viii) to the assessee
The Tribunal deliberated on whether the revisional power exercised by the Commissioner was valid regarding the deduction u/s 36(1)(viii). The Tribunal considered a precedent where a Government bank was granted deduction u/s 36(1)(viii) for years before 2007-08. It was argued that as the assessee was a bank with over 51% shares held by the Central Government, it qualified as a financial corporation. The Tribunal differentiated this case from another involving a foreign bank. The Tribunal concluded that the Assessing Officer's view aligning the assessee as a financial corporation for deduction u/s 36(1)(viii) was supported by the precedent and hence, the Commissioner's jurisdiction under section 263 was deemed inappropriate.

Issue 3: Computation of deduction u/s 36(1)(viii)
Regarding the computation of the deduction u/s 36(1)(viii), the assessee claimed Rs.230.45 crore, while the Commissioner calculated it at Rs.117.03 crore. The Tribunal decided to remit this part to the Assessing Officer for a fresh decision due to the complexity involved in appreciating the records. The Tribunal allowed the appeal partly, upholding the impugned order on the erroneous nature of the assessment but sending back the computation part for reassessment by the Assessing Officer.

In conclusion, the Tribunal's judgment addressed the validity of revisional power, the applicability of deduction u/s 36(1)(viii) to the assessee, and the computation of the deduction amount, providing detailed reasoning and decisions on each issue.