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2019 (6) TMI 993 - AT - Income TaxAddition on account of amortization of premium paid for purchase of securities - nature and character of the relevant securities held by the assessee - HELD THAT - It is also observed that the CBDT Instruction No. 17/2008 issued on 26.11.2008 relied upon by the ld. D.R. recognizes the significance of this distinction made between the securities held as stock-in-trade and investment on the basis of RBI guidelines dated 16.10.2000. in view the said Instruction issued by the CBDT as well as the decision of Punjab Sind Bank 2012 (9) TMI 446 - DELHI HIGH COURT we are of the view that this matter should go back to the AO for deciding the same afresh after determining the nature and character of the relevant securities held by the assessee and even the ld. Counsel for the assessee has finally agreed with the same. We accordingly set aside the impugned order by the ld. CIT(Appeals) on this issue and restore the matter to the file of the AO. Addition u/s 14A by applying Rule 8D - HELD THAT - Since no such satisfaction was recorded by the AO, it was not permissible to him to invoke Rule 8D and make a further disallowance u/s 14A. It is observed that the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Ys. 2008-09 and 2009-10, inasmuch as, no proper satisfaction u/s 14A(2) was recorded by the AO in the assessment order passed for the year under consideration about the disallowance suo motu offered by the assessee being incorrect by pointing out any deficiency. We, therefore, respectfully follow the decision of the Coordinate Bench of this Tribunal rendered in assessee s own case in 2016 (6) TMI 181 - ITAT KOLKATA and uphold the impugned order of the CIT(Appeals) deleting the disallowance made by the AO u/s 14A by applying Rule 8D. Addition on account of income from house property - CIT(Appeals) directed the AO to determine the income of the assessee from house properties by taking the annual value on the basis of Municipal valuation - HELD THAT - As in case of CIT vs.- Satya Company Limited . 1993 (8) TMI 293 - CALCUTTA HIGH COURT wherein held when the Municipal valuation of the property in question itself is available and such valuation has not been disputed, the same should be adopted as the annual value of the property after adding 1/9th thereto. Assessee has also agreed for the adoption of the same method to determine the annual value of the assessee s properties. We accordingly modify the impugned order of the ld. CIT(Appeals) on this issue and direct the AO to determine the annual value of the assessee s properties by adopting the Municipal valuation after adding 1/9th thereto. Ground No. 3 of the Revenue s appeal is thus partly allowed. Addition on account of assessee s claim for deduction u/s 36(1)(viii) - apportioning the operating expenses - HELD THAT - As rightly contended on behalf of the assessee in this regard before the CIT(Appeals) as well as before us, the operating expenses were required to be incurred by the assessee in relation to its total banking business and the non-performing assets definitely formed part of such business. The assessee-Bank was required to manage both performing as well as non-performing assets and the operating expenses incurred by it thus were attributable to non performing assets also. It appears that this vital aspect was not appreciated by the authorities below in proper perspective and as rightly contended by the ld. Counsel for the assessee, the basis adopted by them for apportioning the operating expenses without proper appreciation of the vital position resulted in a distorted picture. The basis adopted by the assessee for the apportionment of operating expenses was more fair and reasonable and since the same followed consistently by the assessee in the earlier years was accepted by the revenue till assessment year 2010-11, we hold that the disallowance made by the AO and confirmed by the ld. CIT(Appeals) on this issue by deviating from the stand consistently taken in the earlier year is not sustainable. - Decided in favour of assessee.
Issues Involved:
1. Amortization of premium paid for purchase of securities. 2. Applicability of Section 115JB to Banking Companies. 3. Disallowance under Section 14A. 4. Determination of income from house property. 5. Disallowance under Section 36(1)(viii). Detailed Analysis: 1. Amortization of Premium Paid for Purchase of Securities: The Revenue challenged the deletion of the addition of ?61.26 crores made by the Assessing Officer (AO) on account of amortization of premium paid for purchase of securities. The assessee, a banking company, had deducted this amount from interest earned as per RBI guidelines. The AO disallowed the claim, stating there was no provision in the Income Tax Act to allow such amortization. The CIT(A) deleted the disallowance by following the Tribunal's decision in the assessee's own case for earlier years. The Tribunal observed that the nature and character of the securities (whether held as stock-in-trade or investment) were vital for deciding this issue. The case was remanded back to the AO for determining the nature and character of the relevant securities and deciding the matter afresh. 2. Applicability of Section 115JB to Banking Companies: The Revenue contended that the CIT(A) erred in holding that the provisions of Section 115JB were not applicable to banking companies. The Tribunal upheld the CIT(A)'s order, citing various decisions, including the Coordinate Bench's decision in the case of UCO Bank, which held that Section 115JB is not applicable to banking companies for the assessment year in question. The amendment making Section 115JB applicable to banking companies was prospective from assessment year 2013-14. 3. Disallowance under Section 14A: The AO disallowed ?363.13 crores under Section 14A by applying Rule 8D. The CIT(A) deleted this disallowance, following the Tribunal's decision in the assessee's own case for earlier years, where it was held that the AO could not invoke Rule 8D without recording satisfaction as envisaged in Section 14A(2). The Tribunal upheld the CIT(A)'s order, noting that no proper satisfaction was recorded by the AO about the disallowance offered by the assessee being incorrect. 4. Determination of Income from House Property: The AO determined the annual value of the assessee's properties by increasing the estimation from the previous year by 5%. The CIT(A) directed the AO to determine the income from house properties based on municipal valuation. The Tribunal modified the CIT(A)'s order, directing the AO to determine the annual value by adopting the municipal valuation after adding 1/9th thereto, in line with the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Satya Company Limited. 5. Disallowance under Section 36(1)(viii): The AO restricted the assessee's claim for deduction under Section 36(1)(viii) by apportioning operating expenses in the ratio of interest earned on long-term lending to total interest income. The CIT(A) upheld the AO's decision. The Tribunal, however, held that the basis adopted by the assessee for apportionment of operating expenses (considering advances and deposits) was more fair and reasonable. The Tribunal noted that the same basis was consistently followed and accepted by the Revenue in earlier years. Therefore, the disallowance made by the AO and confirmed by the CIT(A) was deleted. Conclusion: The Tribunal allowed the appeal of the assessee and partly allowed the appeal of the Revenue. The case regarding the amortization of premium paid for purchase of securities was remanded back to the AO for fresh determination. The Tribunal upheld the CIT(A)'s decision on the non-applicability of Section 115JB to banking companies and the deletion of disallowance under Section 14A. The Tribunal modified the CIT(A)'s order on income from house property and deleted the disallowance under Section 36(1)(viii).
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