2014 (2) TMI 1123 - HC - Income Tax

Broken period interest on securities Claim of Expenditure - Banking business Held that - The decision in M/s. Indian Bank Versus The Deputy Commissioner of Income-tax Special Range-I 2012 (12) TMI 418 - MADRAS HIGH COURT followed - payment of extra interest through M/s.Chandrakala & Co to various PSUs as entitled for deduction - the amount paid to the PSUs were properly accounted for disclosing before the Income Tax Authorities - the assessee was entitled to claim deduction on the expenditure incurred by way of payment of broken period interest - Decided in favour of Assessee. Validity of the reopening of assessment u/s 147 of the Act - Power of the AO to reopening of assessment u/s 147 of the Act Held that - The decision in Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA followed there was no materials placed by the Assessing Officer for assumption of jurisdiction under Section 147 proceedings - Thus, in the absence of any material, the contention of the revenue cannot be accepted that the reopening u/s 147 of the act was within the parameters thus, the order of the ITAT set aside Decided in favour of Assessee. Levy of additional tax u/s 143(1A) Held that - The levy of additional tax in respect of computation under Section 115J of the Income Tax Act is already a subject matter in an appeal filed by the assessee and that the present assessment is not concerned about computation under Section 115J of the Income Tax Act, but under the regular procedure, the question of thus adding additional tax in the regular assessment proceedings does not arise thus, the demand of additional tax under Section 143(1A) of the Income Tax Act on the regular assessment proceedings does not arise Decided in favour of Assessee.

Issues Involved:
1. Validity of reassessment beyond four years.
2. Restoration of broken period interest claim to the assessing authority.
3. Classification of securities into permanent and current.
4. Confirmation of Rs.10,60,63,910/- as undisclosed income.
5. Consideration of the appellant's contention regarding expenditure.
6. Rejection of the appellant's claim for deletion of additional tax.

Detailed Analysis:

1. Validity of Reassessment Beyond Four Years:
The reassessment notice was issued within four years. The Tribunal upheld the reassessment based on the principle that the sufficiency of materials is not to be considered at this stage, referencing the case of Raymond Woolen Mills Ltd. vs. ITO. The High Court, however, found that the reopening was based on a mere change of opinion without new tangible material, which is not permissible as per the Supreme Court's decision in Commissioner of Income Tax vs. Kelvinator of India Ltd. Thus, the reopening of the assessment was invalid.

2. Restoration of Broken Period Interest Claim to the Assessing Authority:
The Tribunal directed the assessing authority to reconsider the broken period interest claim. The High Court noted that the decision in CIT vs. M/s. Vijaya Bank was available at the time of the original assessment, and the reopening based on this decision was not justified. The High Court referenced its own judgment in T.C.(A) No.455 of 2008 and the Bombay High Court's decision in American Express Bank vs. Commissioner of Income Tax, concluding that the reassessment on this issue was invalid.

3. Classification of Securities into Permanent and Current:
The Tribunal instructed the assessing authority to classify the securities into permanent and current investments. The High Court emphasized that the securities were part of the bank's stock-in-trade and were used for maintaining statutory liquidity ratio, thus should not be classified as permanent investments. The High Court referred to the RBI's circular and its earlier judgment, supporting the assessee's claim for deduction.

4. Confirmation of Rs.10,60,63,910/- as Undisclosed Income:
The Tribunal upheld the addition of Rs.10,60,63,910/- as undisclosed income, citing that the payment of extra interest was against RBI guidelines. The High Court, however, referenced its earlier judgment in T.C.(A) No.455 of 2008, which found such payments to PSUs as properly accounted for and not contrary to RBI guidelines. Thus, the addition was not justified.

5. Consideration of the Appellant's Contention Regarding Expenditure:
The Tribunal did not consider the appellant's contention that the Commissioner erred in concluding that the expenditure was bad in law. The High Court referenced its earlier judgment and found that the assessee's claim for deduction on broken period interest was valid, thus the Tribunal's rejection was incorrect.

6. Rejection of the Appellant's Claim for Deletion of Additional Tax:
The Tribunal rejected the appellant's claim for deletion of additional tax, stating the issue did not arise from the assessment order. The High Court found that the additional tax levy was part of the assessment order and should be considered. The High Court noted that the levy of additional tax under Section 115J was already under appeal, and thus, the additional tax demand in the regular assessment proceedings was not justified.

Conclusion:
The High Court set aside the order of the Income Tax Appellate Tribunal, allowing the Tax Case Appeal and ruling in favor of the assessee on all the issues. The reassessment was deemed invalid, the broken period interest claim was restored, the classification of securities as stock-in-trade was upheld, the addition of undisclosed income was rejected, and the additional tax levy was deemed unjustified.

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