2017 (10) TMI 598 - HC - Income Tax

Debiting of bad debts relating to the non-rural branches in the provision for bad debt account created in accordance with the provisions of Section 36(1)(viia) - Held that - Thus issue has already been considered and has been answered in favour of the Revenue in the judgment of this Court in The Commissioner of Income Tax v. Lord Krishna Bank Ltd. 2010 (10) TMI 860 - Kerala High Court . Addition of interest accrued on Government securities - interest on Government securities does not accrue on a day-to-day basis but only on the due date - whether the interest for broken period is a capital expenditure or a revenue expenditure - ITAT deleted the addition - Held that - The questions have also been considered by this Court and answered against the Revenue in the judgments in Commissioner of Income Tax v. Federal Bank Ltd. 2008 (1) TMI 195 - KERALA HIGH COURT and Commissioner of Income Tax v. Nedungadi Bank Ltd. 2002 (11) TMI 29 - KERALA High Court .

Summary

Issues:
1. Debiting of bad debts in provision for bad debt account.
2. Addition of interest accrued on Government securities.
3. Assessment of interest on Government securities.
4. Entitlement to different systems for receipts and payments.
5. Treatment of interest paid on purchase of securities.
6. Reliance on the decision of the Supreme Court in Vijaya Bank.

Debiting of Bad Debts:
The appeal by the Revenue challenges the Tribunal's decision on bad debts relating to non-rural branches in the provision for bad debt account under Section 36(1)(viia) for the assessment year 1995-1996. The High Court refers to a previous judgment in The Commissioner of Income Tax v. Lord Krishna Bank Ltd., where a similar issue was decided in favor of the Revenue. The court upholds the decision in favor of the Revenue based on the precedent.

Interest on Government Securities:
The Tribunal's deletion of the addition of interest accrued on Government securities is questioned by the Revenue. The High Court cites judgments in Commissioner of Income Tax v. Federal Bank Ltd. and Commissioner of Income Tax v. Nedungadi Bank Ltd., where similar issues were decided against the Revenue. Following these precedents, the High Court dismisses the appeal, ruling that the interest accrued on Government securities and the treatment of interest for a broken period as revenue expenditure have already been settled against the Revenue.

Assessment of Interest on Government Securities:
The Tribunal's interference with the Assessing Authority's order regarding the assessment of interest on Government securities is challenged. The High Court, based on previous judgments, supports the Tribunal's decision against the Revenue. The court relies on established case law to uphold the Tribunal's authority in this matter.

Different Systems for Receipts and Payments:
The question of whether the assessee is entitled to have different systems for receipts and payments is raised. The Tribunal's order is scrutinized for potentially resulting in such a conclusion. However, the High Court does not provide detailed analysis on this issue, but it is mentioned as one of the questions raised in the appeal.

Treatment of Interest on Purchase of Securities:
The Tribunal's decision on the treatment of interest paid on the purchase of securities as revenue expenditure rather than capital outlay is contested. The High Court, without delving into specifics, mentions that this issue was addressed in the appeal and disposed of based on established judgments against the Revenue.

Reliance on Supreme Court Decision:
The final issue pertains to the Tribunal's decision not to rely on the Supreme Court decision in Vijaya Bank. The High Court does not provide a detailed analysis of this issue but mentions it as part of the questions raised in the appeal. The judgment does not elaborate on the implications of this decision on the overall outcome of the case.