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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
The aforesaid appeals filed by the Revenue arise out of two separate orders, both dated 25th July 2014, passed by the learned Commissioner of Income Tax (Appeals)–1, pertaining to the assessment years 2005–06 and 2010–11.
ITA no.6640/Mum./2014 Assessment Year – 2005–06
In total, the Revenue has raised five grounds. Grounds no.4 and 5, being general in nature do not require adjudication, hence, dismissed.
In ground no.1, the Revenue has challenged the decision of learned Commissioner (Appeals) in declaring the re–opening of assessment under section 147 of the Income Tax Act, 1961 (for short "the Act") to be invalid. Whereas, in grounds no.2 and 3, the Revenue has challenged allowance of assessee’s claim of deduction under section 80P(2) of the Act.
Brief facts are, the assessee is a Co–operative Society engaged in banking business. For the assessment year under consideration, the assessee filed its return of income on 31st October 2005, declaring total income at nil after claiming deduction under section 80P(2) of the Act. The assessment in case of the assessee was completed under
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section 143(3) of the Act vide order dated 22nd June 2007, accepting the income returned by the assessee. Subsequently, the Assessing Officer alleging escapement of income re–opened the assessment under section 147 of the Act by issuing notice under section 148 of the Act which was served on the assessee on 29th March 2012. During the re–assessment proceedings, the Assessing Officer noticed that the assessee had claimed amortization of premium on Government security held in three categories – (i) Held To Majority, (ii) Held For Trading (HFT) and (iii) Available For Sale (AFS). On a query made, the assessee submitted that the Government securities were held in different categories, as above, in accordance with guidelines prescribed in Reserve Bank of India’s master circular dated 17th July 2004. It was claimed by the assessee that HTM securities are in the nature of stock–in–trade. Hence, the premium paid on acquisition of securities is eligible for amortization. The Assessing Officer, however, was not convinced with the submissions of the assessee and held that the Government securities shifted to HTM category is in the nature of capital asset, hence, amortization is not allowable. Further, the Assessing Officer also disallowed various other provisions made for expenses including on account bad and doubtful debts reserve amounting to ` 4,13,23,900. Thereafter, referring to the provisions of section 80P(2)(a)(i) r/w section 80A(5) of the Act, the Assessing
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Officer restricted the deduction under section 80P(2)(a)(i) of the Act to ` 3,73,81,195. Accordingly, he determined the total income at ` 4,78,05,273. Being aggrieved with the assessment order so passed, the assessee preferred appeal before learned Commissioner (Appeals) challenging the validity of re–opening of assessment under section 147 of the Act as well as correctness of various disallowances made by the Assessing Officer.
After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) held that insofar as the re–opening of assessment under section 147 of the Act is concerned, the issue on the basis of which the re–opening was made has already been considered by the Assessing Officer during the original assessment proceedings. Further, he observed, the Assessing Officer has not formed his reason to belief on the basis of any new tangible information for re–opening the assessment. Accordingly, relying upon the decision of the Hon'ble Supreme Court in Kelvinator of India v/s CIT, [2010] 320 ITR 561 (SC), he held that re–opening of assessment under section 147 of the Act is invalid. Insofar as the merits of various disallowances are concerned, the learned Commissioner (Appeals) held that amortization of premium paid on HTM securities and the depreciation on shifting of AFS securities to HTM category is untenable as similar disallowance made in assessee’s
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own case in assessment year 2009–10 was allowed by him. As regards the other disallowances made including the provisions of bad and doubtful debts, learned Commissioner (Appeals) held that since such disallowances are in respect of normal business activities of the assessee, even if they are to be disallowed and added to the assessee’s income, the same will result only in increasing assessee’s income from business. Therefore, the assessee would be entitled to avail deduction under section 80P(2)(a)(i) of the Act in respect of such enhanced income. Accordingly, learned Commissioner (Appeals) directed the Assessing Officer to allow deduction under section 80P(2)(a)(i) of the Act on the enhanced income of the assessee due to disallowance.
We have considered rival submissions and perused the material on record. At the outset, we will address the issue relating to the validity of assessment under section 147 of the Act. Undisputedly, for the assessment year under dispute, the assessee had filed its return of income within the prescribed time provided under section 139(1) of the Act. It is also a fact on record that the return of income filed by the assessee was selected for scrutiny and in the course of assessment proceedings, the Assessing Officer called for various information and details regarding the income earned, expenditure incurred as well as deduction claimed under section 80P(2) and other provisions of the
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Act. After examining all the details and making necessary enquiry, the Assessing Officer completed the assessment under section 143(3) of the Act vide order dated 22nd June 2007. On a perusal of the aforesaid assessment order, a copy of which has been placed on record, it is noticed that in Para–4 and 5, the Assessing Officer has specifically dealt with various source of income earned by the assessee and has also referred to the books of account maintained and produced before him by the assessee and which were also contested by him. Further, he has specifically dealt with various categories of investment held by the assessee and observed that they are part of the business activities of the Bank. Therefore, he concluded that the assessee’s income since falls under the head Profits & Gains of Business, it is entitled to avail deduction under section 80P(2)(a)(i) of the Act. Accordingly, he allowed the deduction claimed. Thus, from the aforesaid assessment order, it is very much clear that the Assessing Officer was alive to all the facts and details relating to assessee’s claim of deduction in respect of investment made as well as other expenditures. It is evident, after due enquiry and proper application of mind, the Assessing Officer has completed the original assessment accepting the income earned by the assessee. Whereas, a perusal of the assessment order passed under section 143(3) r/w section 147 of the Act, would reveal that the re–opening of assessment was made after expiry of
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four years from the end of the assessment year under dispute and almost at the fag end of expiry of six years from the end of the relevant assessment year. In fact, as per the Assessing Officer’s own observation, the notice issued under section 148 of the Act was served on the assessee only on 29th March 2012, just two days prior to expiry of six years from the end of the relevant assessment year. This shows the casual manner in which the re–opening of assessment was made. Further, as rightly observed by learned Commissioner (Appeals), in the body of the assessment order, the Assessing Officer has not mentioned the reasons for re–opening of assessment. However, from the reasons supplied to the assessee, it appears that the re–opening of assessment was made only on the ground of claim of amortization on HTM securities. As discussed earlier, the aforesaid issue was subject matter of enquiry and consideration during the original assessment proceedings and after considering all the aspects relating to the issue, the Assessing Officer had allowed assessee’s claim. Therefore, it is established beyond doubt that the re–opening of assessment is not on the basis of any tangible material but on a mere change of information. Further, though the Assessing Officer has re–opened the assessment after expiry of four years there is no allegation either in the assessment order or anywhere else stating that the escapement of income was due to failure on the part of the assessee to disclose all
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material facts relating to his income truly and correctly. Accordingly, the condition enshrined in section 147 of the Act is not fulfilled. For the aforesaid reasons, we agree with learned Commissioner (Appeals) that the re–opening of assessment under section 147 of the Act in the present case is invalid.
Having held so, now we will proceed to decide the issue on merits. As discussed earlier, the Assessing Officer has disallowed the amortization of premium paid on Government securities on the ground that it relates to STM category, hence, capital in nature. However, we find that the aforesaid issue relating to claim of amortization was subject matter of dispute between the assessee and the Revenue in past several years and in assessment year 2008–09, the Tribunal, vide order dated 17th October 2012, in ITA no.7559/Mum./2011, has decided the issue in favour of the assessee. Pertinently, the aforesaid decision of the Tribunal was challenged by the Revenue before the Hon’ble High Court and the Hon’ble High Court, vide order dated 17th March 2015, in ITA no.1117/2013, has upheld the decision of the Tribunal. It is further relevant to observe, against the aforesaid decision of the Hon’ble High Court, the Revenue went in further appeal before the Hon'ble Supreme Court and the Hon'ble Supreme Court while deciding a batch of appeals filed by the Revenue in CIT v/s Vasshishth Chay Vyapar Ltd., which also included the appeal relating
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to assessee, being Civil Appeal no.23489 of 2017, dismissed the appeals of the Revenue and upheld the decision of the High Court. Thus, in view of the decision of the Hon'ble Supreme Court, the issue stands settled in favour of the assessee. As regards the other deductions claimed by the assessee and disallowed by the Assessing Officer, we fully agree with learned Commissioner (Appeals) that since such disallowances were in course of assessee’s regular business activities, they will only enhance the business profit of the assessee. Therefore, the assessee will be entitled to claim deduction under section 80P(2)(a)(i) of the Act in respect of such enhanced income. Accordingly, we dismiss the grounds raised by the Revenue.
In the result, appeal is dismissed.
ITA no.6639/Mum./2014 Assessment Year – 2010–11
Grounds no.1 and 2, raised by the Revenue are identical to ground no.3, raised by the Revenue in its appeal being ITA no.6640/ Mum./2014, dealt by us in the earlier part of this order. As held by us therein, this issue is squarely covered by the decision of the Hon'ble Jurisdictional High Court and Hon'ble Supreme Court, as referred to hereinabove. Therefore, following our decision in ITA no.6640/Mum./
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2014, the decision of learned Commissioner (Appeals) is upheld and grounds are dismissed.
In ground no.3, the Revenue has challenged the deletion of disallowance under section 14A of the Act.
During the assessment proceedings, the Assessing Officer noticed that in the year under consideration, the assessee has earned exempt income of ` 97,91,673. Being of the view that proportionate expenditure attributable towards earning of such income has to be disallowed under section 14A of the Act, the Assessing Officer proceeded to compute the disallowance on a proportionate basis which worked out to ` 66,74,594. The assessee contested the aforesaid disallowance before learned Commissioner (Appeals).
After considering the submissions of the assessee, the learned Commissioner (Appeals) deleted the addition.
Drawing our attention to the observations of the Assessing Officer, the learned Departmental Representative submitted, since the assessee has earned exempt income during the year, expenditure attributable to earning of such income has to be disallowed under section 14A of the Act. Further, he submitted, let such disallowance be made by adopting the methodology prescribed under rule 8D.
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Per contra, the learned Authorised Representative submitted, the disallowance computed by the Assessing Officer is purely on ad–hoc basis. He submitted, for earning the dividend income, the assessee has not incurred any expenditure. He further submitted, no interest expenditure was incurred by the assessee as the investments were made out of own capital. In this context, the learned Authorised Representative drew our attention to a chart showing availability of fund and their utilization. Further, he submitted, since the assessee is a bank, the investments are to be treated as stock–in–trade, hence no disallowance under section 14A of the Act can be made. In this context, he relied upon the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd v/s CIT, [2018] 402 ITR 640 (SC).
We have considered rival submissions and perused the material on record. At the outset, we must observe that the Assessing Officer while making disallowance under section 14A of the Act, has not applied the provisions of rule 8D.Rather, he has disallowed the expenditure on a proportionate basis. In our view, such disallowance on ad–hoc basis is unsustainable. Further, it is the contention of the assessee that the entire investment made were out of own fund. In this regard, the assessee has placed the surplus fund position available during the year. On a perusal of the details filed, we are satisfied that
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the assessee has sufficient own fund to make the investment. Therefore, no disallowance on account of interest expenditure can be made. Further, in case of Maxopp Investment Ltd (supra), the Hon'ble Supreme Court has held that in case of Bank, investments are held as stock–in–trade. Hence, it becomes a business activity of the assessee. That being the case, no disallowance under section 14A of the Act can otherwise also be made. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) on the issue by dismissing the ground raised by the Revenue.
In the result, Revenue’s appeal is dismissed.
To sum up, both the appeals of the Revenue are dismissed.
Before we part, it is necessary for us to deal with a procedural issue relating to pronouncement of the order. The hearing of this appeal was concluded on 25.02.2020. As per rule 34(5) of the Income Tax (Appellate Tribunal) Rules,1963, ordinarily the appeal order has to be pronounced before expiry of ninety (90) days from the date of conclusion of hearing of appeal. However, on 24.03.2020 a nationwide lockdown was enforced by the Government of India in view of COVID– 19 pandemic. Due to the unprecedented situation arising out of such lockdown all activities ceased and no normal official work could be done. For this reason only the appeal order could not be pronounced
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within the period of 90 days. Being faced with a similar situation the Tribunal in case of DCIT V/s JSW Limited, ITA Nos.6264 & 6103/Mum/2018, dated 14th May 2020, after interpreting rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963 as well as various decisions of the Hon’ble Supreme Court as well as the Hon’ble Jurisdictional High Court held that due to the extraordinary situation prevailing due to the pandemic, the lockdown period has to be excluded for the purpose of limitation in respect of pronouncement of order as per rule 34(5). The relevant observation of the Bench in this regard is reproduced hereunder for better clarity:–
“7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners: (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied
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by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. 8. Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon‟ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon‟ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon‟ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired
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after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon‟ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term „force majeure‟ has been defined in Black‟s Law Dictionary, as „an event or effect that can be neither anticipated nor controlled‟ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon‟ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon‟ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for
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disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon‟ble jurisdictional High Court and Hon‟ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.‟‟ 19. Following the aforesaid decision of the Coordinate Bench, we proceed to pronounce the order today the 30th day of June, 2020 through circulation in notice board in terms of rule 34 of the Income Tax (Appellate tribunal) Rule, 1963.
Sd/- Sd/- MANOJ KUMAR AGGARWAL SAKTIJIT DEY ACCOUNTANT MEMBERS JUDICIAL MEMBER
MUMBAI, DATED: 30.06.2020
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Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
Assistant Registrar ITAT, Mumbai