THE COMMISIONER OF INCOME TAX, THRISSUR vs. M/S.SOUTH INDIAN BANK LTD

ITA/84/2013HC KeralaKLHC01025969201303 July 2015Author: HONOURABLE MR. JUSTICE SHAJI P.CHALY,HONOURABLE MR.JUSTICE ANTONY DOMINIC7 pages
AI SummaryDismissed

What were the facts?

The Revenue has filed these appeals against the orders of the Income Tax Appellate Tribunal (ITAT) for assessment years 2000-2001 to 2004-2005. The assessee, a scheduled bank, claimed deduction under Section 36(1)(vii) for investments made in shares of private companies, asserting the companies were defunct and share value was nil. The Assessing Officer disallowed this. The Commissioner (Appeals) upheld the disallowance. The ITAT, initially remitting the matter for re-consideration of loss on devaluation of shares, later directed the Assessing Officer to allow notional loss on revaluation of shares as deduction, relying on High Court judgments. The Assessing Officer had disallowed the deduction again, stating the assessee failed to provide satisfactory clarification or evidence of devaluation.

What did the High Court hold?

The High Court held that while the assessee had failed to adduce evidence as directed in the first round, the Assessing Officer's primary reason for disallowance was the inapplicability of RBI guidelines for valuing unsecured shares on a yield-to-maturity basis. The High Court found this view contrary to its own prior judgments in 'CIT v. Nedungadi Bank Ltd.' and 'Commissioner of Income Tax v. Lord Krishna Bank Ltd.'. Therefore, the Tribunal's reversal of the Assessing Officer's view and its direction to allow notional loss on revaluation of securities as a deduction was not illegal. The Court concluded that the RBI guidelines were applicable. The questions of law were answered against the Revenue and in favour of the assessee.

What were the issues?

1. Whether, in light of the findings of the CIT(A) that no supporting evidence was furnished for devaluation of bonds and the ITAT's own prior finding in the assessee's case that the bank must prove devaluation, the Tribunal was right in law in relying on High Court decisions where such defects/lack of proof were not considered, and in directing the allowance of notional loss on revaluation of securities as a deduction (Section 36(1)(vii))? 2. Whether, in the absence of proof from the assessee supporting the claim, the Tribunal was right in law in interfering with the assessment disallowance, and whether its order was perverse and invalid? Assessee's Contentions: The assessee argued that the shares were stock-in-trade and the loss was due to devaluation. The Tribunal ultimately held that the RBI guidelines for valuing securities on a yield-to-maturity basis were applicable, as per High Court judgments in 'CIT v. Nedungadi Bank Ltd.' and 'Commissioner of Income Tax v. Lord Krishna Bank Ltd.', and directed the allowance of notional loss. Revenue's Contentions: The Revenue contended that the assessee failed to adduce evidence to prove devaluation of shares, and therefore, the Tribunal was wrong in allowing the notional loss as a deduction. They argued that the High Court decisions relied upon by the Tribunal did not address such lack of proof.

Which sections of the Income-tax Act were involved?

Section 36(1)(vii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE SHAJI P.CHALY FRIDAY, THE 3RD DAY OF JULY 2015/12TH ASHADHA, 1937 I.T.A.No. 84 of 2013 () ---------------------- AGAINST THE ORDER IN ITA NO.9/COCH/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 18.09.2012 APPELLANT(S)/RESPONDENT: ------------------------------------------ THE COMMISIONER OF INCOME TAX, THRISSUR BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: ------------------------------------------ M/S.SOUTH INDIAN BANK LTD., SIB HOUSE, MISSION QUARTERS, THRISSUR - 680 001 BY ADV. SRI.P. BALAKRISHNAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 03-07-2015, ALONG WITH I.T.A. NO.106 OF 2013 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.T.O.

I.T.A. NO.84 OF 2013 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A: AOF THE ORDER OF THE ASSESSING OFFICER U/S. 143(3) READ WITH SEC.254 DATED 29.11.2007. ANNEXURE B:OF THE ORDER OF THE COMMISIONER OF INCOME TAX (APPEALS) DATED 29.10.2010. ANNEXURE C:OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.09/COCH/2

The order continues below.

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