THE COMMISSIONER OF INCOME TAX, TRICHUR vs. THE SOUTH INDIAN BANK LTD., TRICHUR

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ITA/508/2009HC KeralaKLHC01025269200906 October 2010Bench: HONOURABLE MR.JUSTICE K.SURENDRA MOHAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR5 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that the Commissioner's authority to order revision of assessment under Section 263 for making a disallowance under Section 14A is indeed subject to the proviso to Section 14A. The Court relied on its own prior decision in ITA No. 587 of 2009 dated 14.1.2010, which established that the proviso to Section 14A applies even to the suo motu revisional power of the Commissioner under Section 263. Consequently, both Section 263 orders issued by the Commissioner for the assessment year 1998-99 were deemed unsustainable. The Court declared these orders invalid. As a result, the departmental appeals against the ITAT orders upholding these Section 263 orders were dismissed, and the assessee's appeals reversing the ITAT's impugned orders were allowed. The issue regarding the levy of interest under Section 234B was also to be decided in light of this finding.

What were the facts?

The Commissioner of Income Tax initiated proceedings under Section 263 of the Income Tax Act, 1961, against M/s. The South Indian Bank Ltd. for the assessment year 1998-99. The original assessment was completed without disallowing expenses related to interest and administrative charges on borrowed capital used for tax-free investments, as required by Section 14A. The Commissioner ordered a revision of the assessment. Subsequently, a revised assessment was made, and the Commissioner again invoked Section 263 to order a revision of this revised assessment for a further disallowance under Section 14A. The Income Tax Appellate Tribunal (ITAT) dismissed the assessee's appeals against the first Section 263 order but allowed the revenue's appeals against the second Section 263 order. The assessee also appealed against the levy of interest under Section 234B in the revised assessment.

What were the issues?

1. Whether the Commissioner has the authority to order revision of assessment under Section 263 of the Income Tax Act for making a disallowance under Section 14A, considering the proviso to Section 14A. Assessee's contentions: The assessee argued that the Commissioner's suo motu revisional power under Section 263 is subject to the proviso to Section 14A, which limits the disallowance. They relied on the High Court's decision in ITA No. 587 of 2009 dated 14.1.2010. Revenue's contentions: The revenue contended that the Commissioner's power under Section 263 was valid and that the original assessment officer had erred by not making the disallowance under Section 14A. They likely argued that the proviso to Section 14A did not restrict the Commissioner's revisional powers. 2. Whether the levy of interest under Section 234B in the revised assessment is sustainable. (Arguments for this issue are not explicitly detailed in the provided text, but it is mentioned as a challenge by the assessee.)

Which sections of the Income-tax Act were involved?

Section 263,Section 14A,Section 234B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN WEDNESDAY, THE 6TH OCTOBER 2010 / 14TH ASWINA 1932 ITA.No. 508 of 2009() --------------------- ITA.283/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- M/S.THE SOUTH INDIAN BANK LTD., THRISSUR. ADV. SRI.P.BALAKRISHNAN (E) FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 06/10/2010, ALONG WITH ITA NOS. 553, 565, & 1708 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C .N. RAMACHANDRAN NAIR, & K. SURENDRA MOHAN, JJ. ------------------------------------------------- I.T.A. Nos. 508, 553, 565 & 1708 of 2009 -------------------------------------------------- Dated this the 6th day of October, 2010 JUDGMENT Ramachandran Nair, J. The questions raised in the four connected appeals, two filed by the assessee, and two filed by the revenue, relate to revision of assessments issued by the Commissioner of Income Tax under Section 263 of the Income Tax Act and consequential orders issued by the assessing officer revising the assessments. Original assessment for 1998-99 was completed without making disallowance under Section 14A of the I.T. Act, though the assessee had incurred interest liability and administrative charges on capital borrowed for making investment in tax free bonds and securities. Since the assessing officer committed omission, the Commissioner issued suo motu proceedings under Section 263 of the Act ordering revision of assessment and again ordered revision of revised assessment for making disallowance under Section 14A. In the first round, the Tribunal dismissed the appeal against Section 263 order, against which assessee has filed appeals.

ITA 508/2009 and connected cases 2 However, the appeal filed against Section 263 order issued against revised order was allowed by the Tribunal against which revenue has filed appeals. The challenge in I.T.A.No. 1708 of 2009 filed by the assessee pertains to levy of interest in the revised assessment under Section 234B of the Act. After hearing both sides, we find that jurisdictional issue, that is the authority of the Commissioner to order revision of assessment under Section 263 for making disallowance under Section 14A of the Act is covered by our decision in I.T.A.No. 587 of 2009 dated 14.1.2010 wherein we held that the proviso to Section 14A applies even to suo motu revisional power of the Commissioner conferred under Section 263 of the Act. So much so, both the orders issued under Section 263 for the assessment year 1998- 99 are not tenable. The balance issues raised are only against consequential orders issued demanding tax and interest. Following our judgment above referred, we declare that Section 263 order issued by the Commissioner revising the original assessment and the second round order issued under Section 263 directing revision of revised assessment are unsustainable. Consequently we dismiss the

ITA 508/2009 and connected cases 3 departmental appeals sustaining the orders impugned therein and allow the assessee's appeals by reversing the impugned orders of the Tribunal.

(C.N.RAMACHANDRAN NAIR) Judge. (K. SURENDRA MOHAN) Judge.

ITA 508/2009 and connected cases 4

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