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TMI Blog2014 (2) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the conditions set out in Section 36(1)(viia) of the Act - there was no enquiry made during the course of assessment proceedings - the order which was silent on the claim made by the assessee, and allowing such claim, without any discussion, will definitely render it erroneous and prejudicial to the interests of Revenue - An order without application of mind is definitely prejudicial to the interests of the revenue – the order of the CIT(A) upheld – Decided against Assessee. Disallowance u/s 43B of the Act - Claim of leave encashment – Held that:- The decision in Calcutta Co. Ltd. v. CIT [1959 (5) TMI 3 - SUPREME Court] relied upon – The provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability - The liability is not a contingent liability – Decided in favour of Assessee. Charging of Tax – Surplus ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be allowed as deduction disregarding the method prescribed in the Reserve Bank of India as per which ‘permanent’ investments had to be valued only at cost and only ‘current ’investments were to be valued at market price at the close of the accounting year” – Decided against Revenue. - ITA Nos. 99/Mds/2010, 818/Mds/2010, 861/Mds/2010 - - - Dated:- 19-3-2013 - N. S. Saini And Shri Vikas Awasthy,JJ. For the Petitioner : Mr. C.Naresh, CA For the Respondent : Mr. Shaji P.Jacob, Addl. CIT ORDER Per Bench : This is a bunch of four appeals. The three appeals are filed by the assessee ( ITA Nos. 99 818/Mds/2010, 1814 2306/Mds/2011) for the assessment year 2006-07 and 2007-08 and the appeal ITA No.861/Mds/2010 is preferred by the Revenue for the assessment year 2007-08 impugning the orders of the CIT(A) LTU, Chennai. Since the issues involved in these appeals are common, they are taken up together for adjudication. ITA No.99/Mds/2010 (A.Y.2004-05): 2. This appeal has been filed by the assessee impugning the order of the CIT(A)-LTU, Chennai dated 30.11.2009 relevant to the assessment year 2006-07. The assessee has raised primarily four grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide the issue fresh after taking into consideration the aforementioned judgements of the Hon ble Supreme Court of India. 5. This ground of appeal of the assessee is allowed for statistical purpose. 6. Ground No.3 relates to disallowance of expenditure under section 14A read with Rule 8D of the Act. The AR made a statement at the Bar that he is not pressing this ground of appeal of the assessee. Therefore, this ground is dismissed as not pressed. 7. In the fourth ground of appeal, the assessee has assailed the impugned order on the ground that the CIT(A) has rejected the profit and loss account prepared by the assessee in accordance with Schedule VI of the Companies Act to comply with the provisions of section 115JB of the Act. The AR contended that submissions with regard to this ground of appeal have already been made in ITA No.2306/Mds/2008 for the assessment year 2005-06 and adopts the same. We find that the issue in the present appeal relating to the applicability of provisions of section 115JB which has already been dealt in detail by us in the aforesaid appeal. The relevant extract of the order of the Tribunal in ITA No.2306/Mds/2008 is reproduced herein below:- 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sec 115JB. 14. The Mumbai Tribunal in the case of Krung Thai Bank Vs. JCIT (133 TTJ 435), to which one of us is a party has held that provision of Sec.115JB cannot be applied to the banking company. 15. In view of the above, as the amendment to sec 115JB by the Finance Act 2012 will be applicable only from the AY 2013-2014, we uphold the claim of the assessee that provision of Sec.115JB will not be applicable to the Assessee Bank and set aside the assessment made u/s 115JB on the Assessee company. Similar view has been taken by the Mumbai Bench of the Tribunal in the case of ICICI Lombard General Insurance Co. Ltd. in ITA No.2398/Mum/2009, wherein the Tribunal relying on the order of the Hyderabad Bench of the Tribunal in the case of State Bank of Hyderabad (supra) has concluded that the provisions of section 115JB are not applicable in the case of the assessee. On the other hand, the DR has vehemently argued that the assessee is a company and therefore, the provisions of section 115JB are applicable on the assessee. In order to support his contentions, the learned DR referred to the provisions of section 3 of the Companies Act, 1956 to say that the assessee was inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 (A.Y.2007-08): 11. The appeal has been preferred by the assessee impugning the order of the CIT(A) dated 23.03.2010 relevant to the assessment year 2007-08. The assessee has raised as many as nine grounds in the appeal. The issue-wise findings are as under:- 12. The first ground of appeal of the assessee relates to disallowance of depreciation on building including land. The A.R. for the assessee has fairly conceded that this issue has already been adjudicated by the Tribunal against the assessee in earlier appeal i.e. ITA No.1931/Mds/2000 decided on 31.03.2006 relevant to the assessment year 1997-98. Since, the AR has conceded that the issue is decided by the Tribunal against the assessee, we, respectfully following the decision of the Tribunal in the aforementioned appeal, dismiss this ground of appeal of the assessee. 13. The second ground of appeal relates to bad debts written off . This issue has already been adjudicated by us in para 4 hereinabove. For the reasons recorded in para 4 above, we remit this ground back to the file of the Assessing Officer to decide the issue fresh after taking into consideration the aforementioned judgements of the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India] or a non-scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank], an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. It is clear from the above that it is not a standard allowance which is given, but, the allowance is subject to the actual provision made by the assessee, which in no case shall exceed 7.5% of the gross total income. Therefore, the argument of the assessee that whatever the provision it had actually made in its books, a provision of 7.5% of the gross total income had to be allowed, is not in accordance with law. Now considering the second aspect, whether provision for standard assets could be considered as provision for bad and doubtful debts, admittedly a provision on standard assets is not against any debts which had become doubtful. Standard assets are always considered recoverable, in the sense, bank has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. However, here there was no enquiry made during the course of assessment proceedings. Therefore, the order which was silent on the claim made by the assessee, and allowing such claim, without any discussion, will definitely render it erroneous and prejudicial to the interests of Revenue. As held by Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), prejudicial to the interests of the Revenue is a term of wide import and not confined to loss of tax. An order without application of mind is definitely prejudicial to the interests of the revenue. We are in agreement with ld. CIT that the order of Assessing Officer was erroneous insofar as it was prejudicial to the interests of Revenue. No interference is required. 8. In the result, appeal filed by the assessee is dismissed. 15. The Tribunal has upheld the order of CIT u/s.263 in assessee s own case for the same assessment year on the issue in hand. Since, the matter has been remitted back to Assessing Officer, this ground of appeal of the assessee is dismissed. 16. The fourth ground on which the assessee has assailed the order of the CIT(A) is with regard to disallowance of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. 21. The Hon ble Calcutta High Court in the case of Exide Industries (supra) has held that the original enactment of section 43B of the Income Tax Act was to curb unreasonable deduction on the basis of the mercantile system of accounting without discharging statutory liabilities on the one hand and claim appropriate benefit under the Act on the other introduced the provisions of section 43B(f). Under clause (f) of section 43B any sum payable by the employer to its employees as leave encashment shall be deductible only in computing the income referred to in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability, would not have the effect of converting that liability into a contingent liability ; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) wherein this court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be dis- charged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one ; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the above said settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out of takeover of Bharat Overseas Bank is the result of transfer of going concern and as such is a capital gain. The AR in order to support his contentions has relied on the judgement of the Hon ble Supreme Court of India in the case of CIT Vs. Mugneeram Bangur Co., reported as 57 ITR 299(SC). 26. We have heard the submissions made by both the sides. The facts that the assessee has been treating the shares of Bharat Overseas Bank Ltd. as stock-in-trade has not been rebutted by the learned AR. The assessee bank has been offering profit on sale of shares as business income. The cancellation of stock-in-trade which has resulted in gain to the assessee is thus a business income. We do not find any infirmity in the order of the CIT(A) on this issue and we uphold the same. The law laid down by the Hon ble Supreme Court of India in the case of Mugneeram Bangur Co., (supra) referred to by the AR is not applicable in the facts and circumstances of the present case. Accordingly, this ground of appeal of the assessee is dismissed. 27. The next ground of appeal relates to claim for depreciation on UPS at 80%. The AR submitted that the CIT(A) has failed to appreciate that UPS is an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 2004-05 filed by the assessee. This ground has been remitted back to the Assessing Officer for deciding it afresh after considering the law laid down by the Hon ble Supreme Court of India in the case of Catholic Syrian Bank vs. CIT., 343 ITR 270. The detailed reasons are recorded in para 4 hereinabove. Accordingly, this ground of appeal of the Revenue is allowed for statistical purposes. 35. The third ground raised by the assessee is with regard to double taxation relief claimed by the assessee in respect of foreign branches. This issue has already been adjudicated in favour of the Revenue by the Tribunal in ITA No.213/Mds/2010 in the case titled DCIT Vs. Bharat Overseas Bank vide order dated 30.10.2012. The relevant extract of the order of the Tribunal is reproduced herein below:- 10. We have heard both the sides, perused the records and gone through the orders of the authorities below. In this case the assessee is a banking company and also having a branch office at Bangkok. The Assessing Officer in the original assessment order gave tax credit to the assessee on the tax paid at Bangkok at Rs.1,08,25,780/-. According to the assessee he is entitled for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other three grounds of appeal i.e. 5 to 7 relate to computing of book profits under section 115JB of the Act by taking into consideration capital gains pertaining to Venture Capital Funds, amount received in respect of FCNR Scheme and recovery of bad debts written off for computing book profit under section 115JB. These three grounds are consequential to ground no.4 of the Revenue. Once it has been held that provisions of section 115JB are not applicable on the assessee, these three grounds are liable to be dismissed. Accordingly, ground nos. 5 to 7 of the appeal of the Revenue are dismissed. 39. The Revenue has raised three additional grounds of appeal. The DR submitted that in view of the judgement of the Hon ble Rajasthan High Court in the case of Shilpa Associates Vs. ITO reported as 263 ITR 317 (Raj), the additional grounds raised by the Revenue may be taken on record. In view of the settled proposition of law, the appellant can raise additional ground if the ground is emanating from the order of the CIT(A) and the issue has been raised before the CIT(A) and inadvertently has not been taken in the original ground of appeal filed before the Tribunal. We, find that the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue. 42. The second issue in additional grounds of appeal of the Revenue relates to depreciation on fixed assets taken over from Bank of Tamil Nadu Ltd. The DR pointed out that similar issue had come up before the Tribunal in the case of the assessee in ITA No.843/Mds/2001 which was decided on 2nd June, 2008. The Tribunal held that the Revenue authorities have not tested the fact of amalgamation vis-a-vis section 2(1B) of the Act. It was incumbent upon the Assessing Officer to find out whether amalgamation took place as per the requirements of the section. The Tribunal held : 28. Both the parties had agreed that this issue may be restored back to the file of the Assessing Officer for examining the factum of amalgamation on the touchstone of section 2(1B). We order accordingly and restore this issue to the file of the Assessing Officer with a direction to decide it afresh in accordance with law after providing adequate opportunity to the assessee of being heard. 43. Representatives of both the sides are in consonance that in the present case also similar situation has arisen where provisions of section 2(1B) have not been taken into consideration while deciding the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but, in every case, it must be applied with care and within their recognized limits. 5. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. 3. Following the principles laid down by the Hon'ble Supreme Court, this Court has clearly held that the assessee is entitled to change the method of valuation of Government securities to market value from cost and claim depreciation on the difference in the diminution value. The Tribunal also rightly pointed out the above ruling and held that the securities are trading assets of the bank and the loss arising on its sale is an allowable deduction. The loss on sale of securities is a revenue loss considering that the securities are trading assets and not investments. Hence, this question of law is answered in favour of the assessee and against the revenue. 38. Respectfully following the above decision of the Hon'ble Madras High Court, we allow this ground of appeal of the assessee. Accordingly, this ground of appeal of the Revenue is dismissed. ITA No.1814/Mds/2011(A.Y.2006-07):- 45. The appeal has been filed by the Assessee impugning the order of the CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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