2015 (1) TMI 61 - AT - Income Tax

Deletion of addition of investment whether the notional loss said to be suffered by the taxpayer on revaluation of the securities is allowable as deduction or not - Held that - As decided in assessee s own case for the earlier assessment year, wherein the decision in Commissioner of Income-tax vs. Nedungadi Bank Ltd. 2002 (11) TMI 29 - KERALA High Court wherein it has been held that the bank constitute their stock in trade or investment - the loss claimed by the bank in valuation of their securities should be allowed as deduction in computing the taxable profit - the loss suffered by the taxpayer in revaluation of the securities has to be allowed as deduction - the RBI issued guidelines to value to unsecured shares on the basis of YTM, i.e., yield to maturity method adopted for valuation of securities - the assessing authority has not come out with any suggestion/formula for computation of market value of unquoted shares thus, the order of the CIT(A) is upheld Decided against revenue. Deletion of addition on appreciation on current category of investment Held that - As decided in assessee s own case for the earlier assessment year, wherein it has been held that the investment in the unquoted shares is to be treated as a part of its stock-in-trade and, accordingly, valued at cost or market value, whichever is less - the AO s objection with regard to the non-availability of the market quotation, the shares being unquoted, as also qua non write off of the relevant investment in books, the same being liable for a valuation, as stock-in-trade, on each valuation date, would not hold - however, the fact that the balance-sheets were uncommunicable or the companies were defunct, which only would enable the valuation at nil as against break-up value, the assessee claiming loss for the entire book value, would need to be established by it thus, there was no infirmity in the order Decided against revenue. Addition u/s 36(1)(viia) - Deduction of provision for bad debts - Held that - Following the decision in Commissioner of Income Tax Versus Lord Krishna Bank Ltd. 2010 (10) TMI 860 - Kerala High Court - the definition clause does not exclude the literal meaning of rural branch which necessarily excludes urban areas - if the assessee s case accepted by the Tribunal that population in a Ward has to be reckoned for deciding as to whether the location of a Panchayat is in a rural area or not is accepted, then probably even in Municipal areas there may be Wards with less than 10000 population thereby answering the branch located in such Municipal area also as a rural Branch - going by the ordinary meaning of Rural Branch, we feel only Branches of the Bank located in rural areas are covered - decided against assessee. Disallowance of provision of leave encashment Held that - As decided in assessee s own case for the earlier assessment year, wherein it has been held that the opinion of the CIT(A) was set aside so far as disallowance claimed in respect of leave encashment u/s 43B(f) of the Act, as on today - as long as Section 43B(f) is on Statute, the disallowance is justified Decided against assessee. Disallowance of payment of pension u/s 37 Held that - As decided in assessee s own case for the earlier assessment year, wherein it has been held that the assessee has claimed that the amount received from the Pension Fund is credited in the Profit & Loss Account and the amount of pension given to its retired employees is debited to the Profit & Loss Account - the tax authorities have not examined the present claim of the assessee that there is no duplication in this regard - the claim of the assessee needs re-examination at the end of the AO Decided in favour of assessee.

Summary

Issues Involved:

1. Deletion of addition of Rs. 1,00,90,000 as bad and doubtful debt.
2. Deletion of addition of Rs. 7,17,341 on account of appreciation on current category of investment.
3. Deletion of addition of Rs. 59,82,05,441 on account of depreciation claimed on HTM category investments.
4. Confirmation of disallowance u/s 14A of the Act.
5. Confirmation of addition of Rs. 30,43,83,717 u/s 36(1)(viia) of the Act.
6. Disallowance of provision for leave encashment amounting to Rs. 4,13,00,000.
7. Disallowance in respect of payment of pension u/s 37 amounting to Rs. 6,79,07,628.
8. Addition of Rs. 7,23,497 on account of surplus realized on sale of jewelry.
9. Addition of Rs. 4,05,225 on account of excess cash received at the branches.
10. Computation of income under section 115JB.
11. Levy of interest u/s 234B and 234C.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,00,90,000 as Bad and Doubtful Debt:
The Tribunal found that this issue was covered in favor of the assessee by its own earlier orders for assessment years 2000-2001 to 2003-2004, following the judgment of the Kerala High Court in the cases of Lord Krishna Bank and Nedungadi Bank. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's ground.

2. Deletion of Addition of Rs. 7,17,341 on Account of Appreciation on Current Category of Investment:
The Tribunal referred to its earlier order for the assessment year 2001-02, which treated investment in unquoted shares as stock-in-trade valued at cost or market value, whichever is lower. The Tribunal confirmed the CIT(A)'s order and dismissed the Revenue's ground.

3. Deletion of Addition of Rs. 59,82,05,441 on Account of Depreciation Claimed on HTM Category Investments:
The Tribunal followed its earlier decision, which relied on the Kerala High Court's judgment in the case of Nedungadi Bank Ltd. The Tribunal dismissed the Revenue's ground for the current year as well.

4. Confirmation of Disallowance u/s 14A of the Act:
The Tribunal restored the matter back to the file of the AO, directing him to follow the judgment of the Kerala High Court in CIT v. The Dhanalakshmy Bank Ltd. The issue was allowed for statistical purposes.

5. Confirmation of Addition of Rs. 30,43,83,717 u/s 36(1)(viia) of the Act:
The Tribunal followed the Kerala High Court's decision in CIT v. The Lord Krishna Bank Ltd., which defined "Rural branch" based on the population of the revenue village. The Tribunal dismissed the assessee's ground of appeal.

6. Disallowance of Provision for Leave Encashment Amounting to Rs. 4,13,00,000:
The Tribunal upheld the disallowance based on the Kerala High Court's decision in the assessee's own case, which stated that Section 43B(f) was in force, justifying the disallowance.

7. Disallowance in Respect of Payment of Pension u/s 37 Amounting to Rs. 6,79,07,628:
The Tribunal restored the matter to the AO for re-examination, following its earlier decision in the case of Dhanalakshmi Bank Ltd., which required verification of whether the pension fund amount was credited in the profit & loss account and whether any payment was made directly from the pension fund.

8. Addition of Rs. 7,23,497 on Account of Surplus Realized on Sale of Jewelry:
The Tribunal followed its earlier decision, which treated the surplus as a trade surplus, and dismissed the assessee's ground.

9. Addition of Rs. 4,05,225 on Account of Excess Cash Received at the Branches:
The Tribunal upheld the addition, following its earlier decision that considered the excess cash as a contingent liability.

10. Computation of Income Under Section 115JB:
The assessee did not press this ground, and it was dismissed as not pressed.

11. Levy of Interest u/s 234B and 234C:
The Tribunal followed its earlier decision, which upheld the levy of interest as per the provisions of law, and dismissed the assessee's ground.

Conclusion:
The appeal filed by the Revenue was dismissed, while the appeal filed by the assessee was partly allowed for statistical purposes.