M/S.CATHOLIC SYRIAN BANK LTD. vs. THE COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM MONDAY, THE 3RD AUGUST 2009 / 12TH SRAVANA 1931 ITA.No. 194 of 2009() --------------------- ITA.188/COCH/2003 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: -------------------- M/S.CATHOLIC SYRIAN BANK LTD, REPRESENTED BY ITS CHAIRMAN SRI.N.R.ACHAN, AGED 61,SON OF SRI.LATE PADMANABHA MENON, ST.MARY'S COLLEGE ROAD, POST BOX NO.502,THRISSUR - 680 020. BY ADV. SRI.K.VINOD CHANDRAN SRI. SARANGAN RESPONDENT(S): --------------- THE COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), TRICHUR. ADV. SRI. JOSE JOSEPH, S.C. FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 03/08/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

CR C.N.RAMACHANDRAN NAIR & C.K.ABDUL REHIM, JJ. ------------------------------- I.T.A. No. 194 of 2009 --------------------------------- Dated this the 3rd day of August, 2009 J U D G M E N T ---------------------- Ramachandran Nair,J. This is an appeal filed by the assessee Bank against the order of the Tribunal confirming the order issued by the CIT under Section 263 of the Income Tax Act directing the Assessing Officer to make proportionate disallowance in respect of expenditure incurred on items of income which do not form part of total income under Section 14A of the Income Tax Act. We have heard senior counsel Sri.Sarangan appearing for the appellant. 2. The appellant is a Bank, the assessment of which was completed by Assessing Officer for the year 1997-98 without making pro-rata disallowance in respect of expenditure incurred on items of income which do not form part of total income as provided under Section 14A of the Act. Assessee filed appeal against the assessment on some other issues and the CIT (Appeals) allowed the appeal in part and remanded the case for revision of assessment by Assessing Officer. In between, the CIT

ITA.194/09 2 noticed that the Assessing Officer has not taken into account Section 14A while completing the original assessment and therefore by order issued under Section 263 he directed pro-rata disallowance in terms of Section 14A. Against this order issued under Section 263 the assessee filed appeal before the Tribunal which dismissed the appeal. Appellant has come before us in this appeal mainly contending that under CBDT Circular No.11 dated 23.11.2000 concluded assessment could not be re-opened for purpose of disallowance under Section 14A of the Income Tax Act. The senior counsel appearing for the appellant contended that the assessment has become final as it was completed on 23.11.2000 whereas Section 14A was introduced by Finance Act 2001 though with retrospective effect from 1.4.1992. On facts we notice from Tribunal's order that assessment in this case was not concluded for the reason that it was directed to be modified in appeal filed by the assessee itself by orders of the first appellate authority namely CIT (Appeals). In fact the Commissioner has issued a suo moto order under Section 263 directing pro-rata disallowance of expenditure incurred in respect of items of income which do not form part of the total income of the assessee when the assessment was pending before the officer for finalisation based on the orders of the first

ITA.194/09 3 appellate authority on other issues. So much so Tribunal took the view that assessment has not been concluded as on the date Commissioner passed order under Section 263 and so much so circular does not bar proceedings for disallowance under Section 14A. We are of the view that the Tribunal rightly held that an assessment pending finalisation after remand by first appellate authority in appeal filed by the assessee cannot be said to be a concluded assessment. Besides this, we notice that Section 263(2) of the Income Tax Act authorises Commissioner to scrunitise every assessment and to order revision of assessment to the extent such orders are prejudicial to the interest of the Revenue within two years from the end of the financial year in which assessment was made. In this case the commissioner issued orders within the time prescribed under Section 263(2) of the Act. An assessment which could be modified by a higher authority cannot be said to have become final or concluded until expiry of the statutory time provided for such orders because it is always subject to revision by higher authority within the time stipulated under the statute. So much so we feel the circular prohibits against modification of assessment for the purpose of pro-rata disallowance under Section 14A only when time limit for modification of assessment by original authority or revisional

ITA.194/09 4 authority is over. In other words circular applies only to cases where assessment otherwise cannot be modified by any authority under the provisions of the Act. There is no dispute that amendment is retrospective and on merits appellant has no case that commissioner's order is against any statutory provision. It is therefore open to the assessee to furnish details so that disallowance is limited to the actual pro-rata expenditure allowed in original assessment which is attributable to the items of income which do not form part of total income. We therefore dismiss the appeal filed by the appellant. C.N.RAMACHANDRAN NAIR, JUDGE. C.K.ABDUL REHIM, JUDGE. okb