2018 (12) TMI 698 - HC - Income Tax

Pension contribution Fund after the due dates an impermissible deduction - addition u/s 43B - Held that - Whether the second proviso to Section 43B being brought into the statute book on 01.04.2004, the deduction is impermissible insofar as the payment to pension fund having been made after the due dates. The Honourable Supreme Court in Commissioner of Income Tax v. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT has found that the amendment by introduction of a proviso to Section 43B has to be read retrospectively to give full effect thereto. Hence, the question stands answered in favour of the assessee and against the Revenue upholding the order of the Tribunal, which affirmed the deduction as granted by the first appellate authority. Entitled to claim the expenses under the head Lease Equalization charges - Held that - In favour of the assessee as found by the Honourable Supreme Court in Commissioner of Income Tax v. Virtual Soft Systems Ltd. 2018 (4) TMI 1472 - SUPREME COURT . The issue of lease equalization charges arose in the context of the assessee claiming the lease rentals to be adjusted towards the cost of acquisition of the property or machinery, which is leased out. The Guidance Note of the Institute of Chartered Accountants of India providing for separation of capital recovery element and finance income has been approved by the Honourable Supreme Court in the aforesaid decision. Hence, the said question also has to be answered in favour of the assessee and against the Revenue. MAT - computing minimum alternate tax payable under Section 115JA, the provision for bad and doubtful debts has to be added back under clause (c) of the Explanation to Section 115JA(2), which speaks of the provisions made for meeting liabilities - Held that - The Honourable Supreme Court in Commissioner of Income Tax-IV v. HCL Comnet Systems and Services Ltd. 2008 (9) TMI 18 - SUPREME COURT categorically held that the addition made under clause(c); of the provision for bad and doubtful debts cannot be permitted. However, clause (g) as noticed in the question has now been introduced, which has retrospective effect from 01.04.1998 onwards. That when the Tribunal considered the issue, clause (g) was not introduced, which was introduced by the Finance Act, 2009. In such circumstances, it is only appropriate that the Tribunal considers the issue afresh on the basis of the facts and the specific provision of bad and doubtful debts as provided for by the assessee- Bank. hence, shall stand remanded. The parties shall appear before the Tribunal on 11.01.2019 and the Tribunal shall consider the issue expeditiously, especially noticing the fact that the assessment is of the year 1999-2000. Treatment of loss on amortisation of securities purchased for a price and then sold or redeemed at a lower price - Held that - The Honourable Supreme Court in Commissioner of Income Tax-IV v. HCL Comnet Systems and Services Ltd. 2008 (9) TMI 18 - SUPREME COURT categorically held that the addition made under clause(c); of the provision for bad and doubtful debts cannot be permitted. However, clause (g) as noticed in the question has now been introduced, which has retrospective effect from 01.04.1998 onwards. We notice that when the Tribunal considered the issue, clause (g) was not introduced, which was introduced by the Finance Act, 2009. In such circumstances, it is only appropriate that the Tribunal considers the issue afresh on the basis of the facts and the specific provision of bad and doubtful debts as provided for by the assessee- Bank. Treatment of loss on amortisation of securities purchased for a price and then sold or redeemed at a lower price - Held that - The assessee purchases securities at face value or otherwise at a premium. When purchase is made at a premium and the same is redeemed on maturity, the assessee gets only the face value of the security so purchased. Similarly, when the security is sold before the period of maturity, then the assessee at times suffers a loss for reason of the market value having fallen. The assessee claimed write off of such loss in the years at which the assessee held the security, which was allowed by the Tribunal. The issue is covered by a Division Bench judgment of this Court in Commissioner of Income Tax v. South Indian Bank Ltd. 2009 (10) TMI 905 - KERALA HIGH COURT . Additions made for appreciation in the value of securities - learned Senior Counsel points out the specific instance in which the question arose - Held that - The assessee-Bank in a particular year values a security, the cost price of which is ₹ 100/- at the market value of ₹ 90/-. Then, the assessee is entitled to depreciation on the reduction that has been occasioned in the market value, which is the loss suffered by the assessee. In the subsequent year, if the market value exceeds the cost price and the same reaches ₹ 105/-, the question is as to what is the addition to be made. Then, what is to be adopted is the cost price, since what is required as per the RBI guidelines is to show the profits in accordance with the cost price or the market value whichever is lower. The question of additions made for appreciation in the value of securities also has to be answered in favour of the assessee Excess bad debts written off over and above the existing provisions in non-rural branches can be claimed as an expense without setting off against the existing provision for bad debts for rural branches. The question is covered in favour of the assessee-Bank by the decision of Catholic Syrian Bank Ltd. v. Commissioner of Income Tax 2012 (2) TMI 262 - SUPREME COURT OF INDIA . Levy of interest under Section 234C - Held that - We cannot accede to the view that considerable advance tax payment would absolve the liability of interest if it arises under Section 234C. The question, hence, is answered in favour of the Revenue and against the assessee. The order of the Tribunal is set aside and it is directed that the AO would determine the interest payable under Section 234C, in accordance with law.

Summary

Issues:
1. Interpretation of Section 43B regarding pension fund contributions and lease equalization charges.
2. Treatment of provision for bad debts under Section 115JA.
3. Treatment of loss on amortization of securities.
4. Disallowance of depreciation in respect of current category of investments.
5. Additions made for appreciation in the value of securities.
6. Excess bad debts written off in non-rural branches.
7. Loss on revaluation of unquoted securities.
8. Levy of interest under Section 234C.

Interpretation of Section 43B regarding pension fund contributions and lease equalization charges:
The first issue pertains to the interpretation of Section 43B concerning pension fund contributions and lease equalization charges. The court ruled in favor of the assessee regarding pension fund contributions, citing the retrospective application of the second proviso to Section 43B. Additionally, the court upheld the deduction of lease equalization charges based on a decision by the Supreme Court. Consequently, ITA No.3/2010 and related appeals were rejected.

Treatment of provision for bad debts under Section 115JA:
The question regarding the treatment of provision for bad debts under Section 115JA was raised in ITA No.23/2010. The court noted the introduction of Explanation 'g' below Section 115JA(1) and remanded the case back to the Tribunal for fresh consideration due to the retrospective effect of the amendment. The court directed the Tribunal to review the issue considering the specific provision for bad and doubtful debts made by the assessee.

Treatment of loss on amortization of securities:
Regarding the treatment of loss on amortization of securities, the court referred to Division Bench judgment supporting the assessee's entitlement to write off such losses in instalments. The court dismissed the Revenue's appeal, affirming the Tribunal's decision in favor of the assessee.

Disallowance of depreciation in respect of current category of investments:
The issue of disallowance of depreciation in respect of the current category of investments was addressed by the court. Relying on previous decisions, the court ruled in favor of the assessee, allowing depreciation when the market value of securities is lower than the face value.

Additions made for appreciation in the value of securities:
The court also considered the additions made for appreciation in the value of securities. It was determined that the assessee is entitled to depreciation when the market value exceeds the cost price, following RBI guidelines to show profits based on the lower value. This issue was decided in favor of the assessee.

Excess bad debts written off in non-rural branches:
Regarding the claim of excess bad debts written off in non-rural branches, the court referred to a Supreme Court decision supporting the assessee's position. The court ruled in favor of the assessee based on the precedent, rejecting the Revenue's stance.

Loss on revaluation of unquoted securities and levy of interest under Section 234C:
The court addressed the loss on revaluation of unquoted securities and upheld the Tribunal's decision in favor of the assessee. However, on the levy of interest under Section 234C, the court disagreed with the Tribunal's view and directed the AO to determine the interest payable in accordance with the law. Consequently, ITA No.88/2010 was partly allowed on the question of levy of interest.

In conclusion, all appeals except ITA Nos.23/2010 and 88/2010 were rejected. ITA No.88/2010 was partly allowed, and ITA No.23/2010 was remanded back to the Tribunal for fresh consideration.