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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 921/JP/2009 & 299/JP/2014
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 921/JP/2009 & 299/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2007-08 cuke State Bank of Bikaner & Jaipur, ACIT, Vs. Tilak Marg, C-Scheme, Circle-6, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AADCS 4750 R vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 41/JP/2010 & 28/JP/2013 fu/kZkj.k o"kZ@Assessment Year : 2007-08 cuke ACIT, State Bank of Bikaner & Vs. Circle-6, Jaipur, Jaipur. Tilak Marg, C-Scheme, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AADCS 4750 R vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Smt. Rolly Agarwal (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 08.08.2017. ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29/08/2017. vkns'k@ ORDER PER BENCH Out of bunch of 21 appeals, these four cross appeals pertaining to the A.Y. 2007-08 are filed by the Assessee and Revenue i.e. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013 are directed against the order of the Ld. Commissioner of Income Tax (Appeals)-II, Jaipur, dated 9/11/2009 & 25/03/2014 respectively. Since the appeals were heard together, therefore, are being disposed off by way of consolidated order for the sake of brevity.
2 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
ITA No. 921/JP/2009 (Assessee)
First we take up Assessee’s appeal in ITA No. 921/JP/2009. The Assessee
has raised the following grounds of appeal:-
“1.(i) Under the facts and circumstances of the case Ld. Commissioner of Income Tax(Appeals) has erred in upholding the applicability of the provision of Section 14A and thereby upholding the disallowance of proportionate interest and estimated administrative expenditure of the banking business.
(ii) Under the facts and circumstances of the case Ld. Commissioner of Income Tax (Appeals) has erred in quantifying the disallowance u/s 14A at a sum of Rs. 6,26,12,887/-.
(iii) Under the facts and circumstances of the case Ld. Commissioner of Income Tax (Appeals) has further erred in calculating the amount of disallowance u/s 14A in terms of provisions of Rule 8D. The has also erred in applying these provisions of rule 8D for the year under consideration as the same have been introduced on 24.3.2008.
Under the facts and circumstances of the case Ld. CIT(A) has erred in confirming the disallowance of prior period expenses of Rs. 1,03,677/-. He has further erred in giving the directions to the assessing officer for verification of the evidence in respect of disallowance of remaining alleged prior period expense of Rs. 3,42,122/-.
Under the facts and circumstances of the case Ld. CIT(A) has erred in confirming the AO’s action of restricting the claim of assessee u/s 36(1)(viia) at Rs. 220,50,86,829/- as against allowable claim of Rs. 230,67,63,914/-.
Appellant craves to add, amend, alter or modify any of the ground of appeal.
The appropriate cost be awarded to the assessee.”
Ground no. 1(i) to (iii) are against disallowance made by invoking the
provisions of Rule 8D of Income Tax Rules, 1962 amounting to Rs. 6,26,12,887/-.
3.1 The facts in brief are that, the AO while framing the assessment noticed that
the substantial income of the assessee is not chargeable to tax. Therefore, the AO
3 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
following the assessment of the earlier years disallowed a sum of Rs. 4,08,07,240/-
by invoking the provision of Section 14A of the Act. However, Ld. CIT(A) enhanced
the disallowance by applying Rule 8D of the Income Tax Rules, 1962.
3.2 Ld. Counsel for the assessee reiterated the submissions as made in the
written submissions. He submitted that the issues are identical as in the AY 2006-
He adopted the same argument as were made in the A.Y. 2006-07.
3.3 On the contrary, Ld. D/R opposed the submissions and adopted the argument
as were in the A.Y. 2006-07.
3.4 We have heard the rival contentions, perused the material available on
record. The facts are identical as were in ITA No. 280/JP/2009 pertaining to A.Y.
2006-07. In ITA No. 280/JP/2007 for the A.Y. 2006-07 we have decided this issue
by observing as under:-
“4.5 We have heard the rival contentions, perused the material available on record and gone through the order of the authorities below. We find that Ld. CIT(A) has made disallowance by computing as per Rule 8D of the Income Tax Rules 1962. In our view, the Ld. CIT(A) was not justified in computing the disallowance as per rule 8D, as the Rule 8D became operational from the A.Y. 2008-09. Further, there is not dispute with regard to the fact that similar disallowances were made u/s 14A in the assessment year 2000-01, 2002-03 and 2003-04 and the matter traveled up to the Hon’ble Rajasthan High Court. The Hon’ble High court in DB Income Tax Appeal Nos. 172/2008, 119/2010, 141/2010 and 142/2010 was pleased to held that in view of the decision of the Hon’ble Supreme Court in the case of Godrej Boyce Manufacturing Company Ltd. vs. DCIT. The order of disallowance was reversed. The facts are identical in the present year and also there is no change into facts and circumstances. As the assessee bank is having sufficient interest free funds which has been accepted by both the authorities below.
4 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
Therefore, respectfully following the Judgment of the Hon’ble Jurisdictional High Court, we hereby direct the AO to delete the disallowance. Thus, this ground of assessee’s appeal is allowed.” 3.5 In view of the above, we directed the AO to delete the disallowance. Thus,
this ground of assessee’s appeal is allowed.
Ground no. 2, is against the disallowance of prior period expenses.
4.1 Facts in brief are that, while framing assessment u/s 143(3) of the Act. The
AO made disallowance of claim of the assessee related to prior period expenses.
The AO in respect of over time law charges depreciation and Misc. Expenses held
that there expenses crystallized in earlier. On appeal Ld. CIT(A), confirmed the
action of AO in respect of disallowance of overtime expenses, law charges and set
aside the issue of miscellaneous expenses to AO for verification. Aggrieved by this,
the assessee has assailed the order of Ld. CIT(A) before this Tribunal in the ground
of appeal under consideration.
4.2 Ld. Counsel for the assessee reiterated the submissions as made in the
written submissions. He submitted that the assessee debited prior period expenses
of Rs. 14,05,671/-. The Assessing Officer observed that after failing to make proper
provisions in the books of accounts, assessee cannot claim them on crystallization
basis. He therefore, disallowed Rs. 4,54,974/-. However, Ld. CIT(A) confirmed
disallowance in respect of overtime charges and law charges by holding that no
evidence have been given that liability of the same has been crystallized only in the
accounting year relevant to present assessment year. For remaining amount of Rs.
3,42,122/-, he directed the AO to verify the evidence and allow the deduction if the
liability has crystallized during the year under consideration. He submitted that
5 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
accounts of the branches get finalized within a week of end of the year and
therefore, the claims for these expenditures made thereafter are taken in the year of
claim only. He submitted that the Co-ordinate Bench in assessee’s own case in ITA
No. 619 & 620/JP/2003 dated 07/11/2006 directed the AO to allow the prior period
expenses.
4.3 He submitted otherwise also tax rate being same, if these expenses are not
allowed during the year, they are to be allowed in the previous year for which
appeal is pending before Hon’ble Bench. He further submitted that, so far as the
allowability of sum of Rs. 3,42,122/- is concerned, same is allowed by the Assessing
Officer while giving the appeal effect to the order of the Ld. CIT(A).
4.4 Ld. D/R supported the order of the authorities below.
4.5 We have heard the rival contentions, perused the material available on
record. Similar issue came up for hearing in the A.Y. 2006-07 in ITA No.
280/JP/2009 wherein we have confirmed the disallowance of overtime expenses and
legal expenses, taking the consistent view disallowance of Rs. 1,03,677/- is hereby
confirmed. Rest of other expenses are directed to be deleted in view of the decision
of this Tribunal pertaining to the Assessment Year 1999-2000. Thus, this ground is
partly allowed.
Ground no. 3 is not pressed; same is dismissed as not pressed.
Ground no. 4, is general in nature and needs no separate adjudication.
Ground no. 5, is prayer for cost, for the same reasoning as in the A.Y. 2006-
07, this ground is also dismissed.
In the result, Appeal of the assessee in ITA No. 921/JP/2009 is partly allowed.
6 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
ITA No. 41/JP/2010 ( Revenue)
Now, we take up appeal of the Revenue pertaining to the A.Y. 2007-08.
The Revenue has raised the following grounds of appeal:-
“1. Holding that interest on Government and other securities has to be included in the income on due basis.
Deleting addition of Rs. 19,78,71,896/- made on account of excess of broken period interest over the broken period interest received.
Deleting the addition of Rs. 43,66,84,312/- made by the AO on account of valuation of investment by adopting global method of valuation of securities as against category wise method of valuation followed by the assessee.
Deleting the addition of Rs. 1,30,10,16,055/- made by the AO on account of disallowance of amortization in respect of premium paid for purchase of securities held by the Bank under the “Head of Maturity” category.”
Ground no. 1, is against holding that interest on Government and other
securities has to be included in the income on due basis.
10.1 Ld. Counsel or the assessee submitted that the similar ground was raised in
the A.Y. 2006-07 in Revenue’s appeal in ITA No. 438/JP/2009. Ld. Counsel for the
assessee adopted the same argument as were made in the A. Y. 2006-07 in ITA No.
438/JP/2009.
10.2 Ld. D/R opposed the submissions and supported the order of the Assessing
Officer.
10.3 We have heard the rival contentions, this issue we have already decided
against the Revenue by holding as under:-
“12.3 We have heard the rival contentions of the parties. The undisputed facts is that the issue has been decided in favour of the assessee by the
7 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
Hon’ble High Court of Rajasthan in Appeals pertaining to the Assessment Year 1997-98 to 2000-01 & 2004-05 is not controverted by the Revenue. Ld. Counsel has invited our attention. The Judgment of Hon’ble High Court rendered in D.B. Income Tax Appeal No. 185/2014. Therefore, we do not see any reason to interfere into the finding of the Ld. CIT(A) same is hereby affirmed. This ground of Revenue’s appeal is rejected.”
10.4 For the same reasoning, this ground of Revenue’s appeal is dismissed.
Ground no. 2, is against deleing addition made on account of excess of
broken period interest over the broken period interest received.
11.1 Ld. D/R supported the Assessment Order.
11.2 On the contrary, Ld. Counsel for the assessee submitted that the issue is
squarely covered in favour of the assessee by the decision of the Hon’ble Rajasthan
High Court in assessee’s own case for the A.Y. 2000-01 in D.B. Income Tax Appeal
No. 446/2008, wherein the Hon’ble High Court decided the issue in favour of the
assessee. Respectfully following the same, this ground of the Revenue’s appeal is
dismissed.
Ground no. 3, is against deleting the addition of Rs. 43,66,84,312/- made by
the AO on account of valuation of investment by adopting global method of
valuation of securities as against category wise method of valuation followed by the
assessee.
12.1 Ld. D/R supported the order of the authorities below.
12.2 On the contrary, Ld. Counsel for the assessee submitted that the issue is
squarely covered in favour of the assessee by the Judgment of the Hon’ble
8 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
Rajasthan High Court. He submitted that the facts are identical as were in the A.Y.
2006-07.
12.3 We have heard the rival contentions, perused the material available on record
and gone through the order of the authorities below. There is no change into facts
and circumstances as were in the AY 2006-07. We have affirmed the view of the Ld.
CIT(A) by observing as under:-
14.3 We have heard the rival contentions, perused the material available on record. The Ld. CIT(A) by following its earlier years pertaining to the AY 2005-06 deleted the addition. We find that this issue was also decided by the Hon’ble Rajasthan High court in the assessee own case in DB Income Tax Appeal No. 27/2015 in favour of the assessee. Therefore, we do not see any reason to interfere into the finding of the Ld. CIT(A), same is hereby affirmed. This ground of Revenue’s appeal is dismissed
12.4 Therefore, taking a consistent view, we reject the ground of the Revenue.
Ground no. 4, deleting the addition of Rs. 1,30,10,16,055/- made by the AO
on account of disallowance of amortization in respect of premium paid for purchase
of securities held by the Bank under the “Held on Maturity” category.
13.1 Ld. D/R supported the order of the AO and adopted the same argument as
were made in the AY. 2006-07.
13.2 Ld. Counsel for the assessee opposed the submissions of the Ld. D/R and
supported the order of the Ld. CIT(A), that the issue is squarely covered in favour of
the assessee by the Judgment of the Hon’ble Rajasthan High Court in assessee’s
own case.
9 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
13.3 We have heard the rival contentions; there is no change into facts and
circumstances. The identical issue was decided by this Tribunal in assesse’s own
case in AY 2006-07 wherein it has been held as under:-
“15.2 On the contrary, Ld. Counsel for the assessee submitted that similar addition was made in the AY 2005-06, the Hon’ble Rajasthan High Court in D.B. Income Tax Appeal No. 27/2015, decided the issue in favour of the assesse. The contention of the assessee is not controverted by the Revenue and has also not brought to our notice any other contrary binding precedent. Therefore, we do not see any reason to interfere into the finding of the Ld. CIT(A), same is hereby affirmed. This ground of Revenue’s appeal is dismissed.”
13.4 For the same reasoning, this ground of Revenue’s appeal is rejected.
In the result, appeal of the Revenue in ITA No. 41/JP/ 2010 is dismissed.
ITA No. 299/JP/2014 (Assessee)
Now, we take up Assessee’s appeal in ITA No. 299/JP/2014 pertaining to the
A.Y. 2007-08.
The assessee has raised the following grounds of appeal:-
“1. Under the facts and circumstances of the case order by Ld. CIT(A) u/s 154 is illegal and bad in law.
Ld. CIT(A) has erred on facts and in law in disallowing Rs. 19,78,71,896/- on account of broken period interest paid by the bank by relying on the decision of Rajasthan High court in case of CIT vs. Bank of Rajasthan Ltd. 316 ITR 391 dated 24.03. 2008 by incorrectly distinguishing the subsequent judgment of Hon’ble Supreme Court in case of CIT vs. CITI Bank NA in civil Appeal No. 1549/2006 dated 12.08.2008.
10 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
Ld. CIT(A) has erred on facts and in law in making the above disallowance by making various incorrect observations and also not considering the various contentions, raised by the assessee.
Appellant craves to add, amend, alter or modify any of the ground of appeal.
The appropriate cost be awarded to the assessee.”
The only effective ground is against confirming the action of the AO by
disallowing the sum of Rs. 19,78,71,896/- on account of broken period action, by
rectifying its order u/s 154 of the Act.
The facts in brief are that, the Ld. CIT(A) sought to rectify its order dated
9.11.2009 pertaining to Assessment Year 2007-08 and a rectification order was
passed on 25.03.2014 on the ground that the ratio of Hon’ble Jurisdictional High
court rendered in the case of CIT vs. Bank of Rajasthan Ltd. 316 ITR 391 was not
followed. Aggrieved by this, the assessee has assailed the correctness of this order,
in the present appeal.
Ground no. 1 is against invoking the provision of Section 154 of the Act. 18.
18.1 Ld. Counsel for the assessee reiterated the submissions as made in the
written submissions. The submissions of the assessee are reproduced as under:-
“Submission:-
It is submitted that after the decision of Rajasthan High court in case of CIT vs. Bank of Rajasthan Ltd. 316 ITR 391 dt. 18.10.2012, the Supreme Court in case of CIT vs. Citi Bank NA in Civil Appeal No. 1549/2006 dt. 12.08.2008 has held that the claim of broken period interact paid is allowable in computing the total inc ome. Thus, when on this issue, there is already decision of Hon’ble Supreem Court, the order passd by Ld. CIT(A) u/s 154 is illegal and bad in law in view of the decision of Supreme Court in case of CIT vs. Volkart Brothers 82 ITR 50.
11 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
It is further submitted that against the order of Hon’ble ITAT for AY 2001- 02, 2002-03, & 2005-06 in ITA no. 700,701/JP/2003, 279/JP/2009 & 437/JP/2009 dt. 12.09.2014, assessee filed an appeal before the Hon’ble High Court of Rajasthan. Hon’ble High Court in DBIT Appeal No. 446/2008 for AY 2000-01 dt. 17.05.2017 and in DBIT Appeal No. 11,12 & 13/2015 for AY 2001-02, 2002-03, 2005-06 dt. 22.05.2017 after considering the decision of Hon’ble Supreme Court in case of CIT v. CITI Bank NA in civil appeal no. 1549 of 2006 dated 12.08.2008 & the decision of Bomaby High court in the case of American Express International Banking cooperation 258 ITR 601 (SLP of the department on this issue was dismissed by Hon’ble Supreme Court in case of CIT vs. Union of India S.L.P. No. 6815 of 2004, 268 ITR ( Statue) 216 and CIT Vs. Deutshe Bank A.G: S.L.P. (C.) No. 3710 of 2004, 266 ITR (Statute) 106, held that broken period interest paid is alowbae deduction in computing the total income. Thus, when th eHon’ble Rajasthan High Court in assessee’s own case has held that broken period interest paid is allowable deduction in computing the income under the head Profits & Gains of Business, the addition confirmed by the Ld. CIT(A) in order u/s 154 be directed to be deleted.”
18.2 On the contrary, Ld. D/R opposed the submissions.
18.3 We have heard the rival contentions, perused the material available on
record. Ld. CIT(A) decided this issue by observing as under:-
“4. I have carefully considered the facts of the case, submission of the appellant and of the AO. It is not in dispute that while deciding he aforesaid appeal, my learned predecessor did not consider the decision of jurisdictional High Court in the case of CIT V/S Bank of Rajasthan Ltd. 316 ITR 391 which is directly on the issue and in contradistinction to the decision of Mumbai High Court in the case of American Express Bank reported in 258 ITR 601. After considering all the decisions and relevant provisions on the issue,
12 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
jurisdictional High Court categorically held that broken period interest is not allowable as deduction but it will be part of cot of purchase of securities. The relevant part of this decision is quoted below- “4. After deletion of the above provisions, the income earned by the bank by way of interest is chargeable under section 28(i) as income under the head “Profits and Gains of business or profession.” Then, a look at section 36(1)(iii) does show, that the deduction pari material in terms of erstwhile section 19 is admissible under this clause. For the present purpose sections 20 and 21, as they earlier existed are not relevant for the present controversy. 1. It is in this background, that the ld. Tribunal has set aside the order of the CIT passed in revision under section 263, by holding, that Dy. CIT has thoroughly examined the case of the bank, and after discussion on various points. Assessing Officer had allowed the claim of the assessee. It has found, that the Assessing Officer had examined the facts of the case, and he has applied mind. Then, it was considered, that the judgment in Vijaya Bank Ltd.’s case (supra) is not applicable in this case, as that judgment was based on the interest income assessed under sections 18 to 21, which have been omitted with effect from 1-4-1989, and therefore, these sections are not applicable for the assessment year 1990-91 onwards. Then, reference has been made to the judgment in American Express International Bank-ing corporation v. CIT [2002] 258 ITR 601 (Bom), which has held that Vijaya Bank’s case (supra) is only with respect to section 18, and is not applicable in the circumstances, when the income is assessed under section 28, and that, it has been held, therein, that the Department ought to have taxed interest for the broken period interest received, and the Department ought to have allowed deduction, for the broken period interest paid. With this it has been found, that since the interest received for the broken period has been taxed under section 28, therefore, deduction has rightly been allowed for the interest paid for broken period for all these years. It has also been considered, that as per section 29 of the Banking Regulation Act, 1949 read with schedule III, shares and securities, though stock –in-trade, are to be shown as investment. This investment as stock-in-trade, because the entire shares and securities are stock-in-trade, as the bank deals in shares and securities, as per Banking Regulation Act, 1949 as well as memorandum of association of the company. Thus, shares and securities are stock-in- trade. In the case of the bank and investment represents in balance sheet which, in fact, is stock-in-trade, for all practical purposes. Then, certain other judgments of the Tribunal were relied upon, for holding, that if the securities are held as stock-in-trade, the entire consideration including the interest element is allowable as revenue deduction, by way of cost of purchases,. Thus, following the judgment in American Express International Banking Corpn.’s case (Supra), the order of the Ld. CIT passed under section 263 was quashed.
13 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
A look at the judgment in Vijaya Bank Ltd.’s case (supra) does show, that of course that judgment did not consider the provisions of section 18, as they existed at that time, but then, a look at the question framed therein, does show, that the precise question was, as to whether deduction could be claimed under section 19, 20 and 37 of the Income-tax Act, for the amount of Rs. 58,56, being interest accrued on securities taken over by assessee-bank, from Jayalakshmi Bank Ltd. and Rs. 11,630 being the interest accrued up to the date of purchase, in the case of securities by the assessee bank form the open market, and relying upon English judgment in IR v. Pilcher [1949] 31 Tax Cases 314,332 (A), wherein it was held that it is a well-settled principle, that outlay on the purchase of an income-bearing asset, is ;in the nature of capital outlay, and no part of the capital, so laid out can, for income-tax purposes, be set off as expenditure, against income accruing from the asset in question, and it was held, that in that instant case, the assessee purchases securities and the price paid for them was in the nature of a capital outlay, and no part of it can be set off as expenditure against income accruing on those securities. Subsequently, when these securities yielded income by way of interest, such income attracted section 18. Thus, the claim for deduction was found to be not allowable. 3. Then, a look at the judgment in American Express International Banking Corpn.’s case (supra) shows, that is does not look into the judgment in Vijaya Bank Ltd.’s case (supra), and substantially proceeds on the aspect of method of accounting adopted by the bank concerned. Then, it was considered, that since at the time when the security was sold, the assessee did received an amount representing interest for the broken period, as was paid by the assessee also, and therefore, when he assessee is taxed on the amount received component thereof, not allowing deduction for the broken period interest, paid by the assessee, would result into double taxation. Therefore, it was held to be an allowable deduction. To precisely quote the words used in the said judgments, which read as under:- “In the present case, as held by the Tribunal, the Department has proceeded to compute the entire income under section 28. In this case, the Department has sought to tax the broken period interest received under the head “Business” and not under the head ‘interest on securities..’Once the Department seeks to assess broken period interest under the head ‘Business’, then the Department could not have rejected the impugned adjustment in the method of accounting adopted by the bank unless the Department was in a position to prove that the method adopted by the bank did not disclose the true and proper income…” 4. In our view, so far as taxability of income from interest by the assessee, so also entitlement to claim deduction, is a matter, which regard to which there is no material of significant difference, consequent upon deletions of
14 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
the provisions of sections 18 and 19, obviously section 20 and 21 are not relevant for the present purpose. That being the position, the ratio propounded in Vijaya Bank Ltd.’s case (supra), even though it proceeds on consideration of the then provisions of sections 18 and 19, still does hold good. 5. Then we take up the judgment in American Express International Banking corpn.’s case (supra). A reading of that judgment shows that, reasons given by the Bombay High court, for distinguishing the judgment in Vijaya Bank Ltd.’s case (supra) proceed o a different line of reasoning. While in our view, when the Supreme Court judgment proceeds on a established legal principle, deduced from previous English judgment, with all humility at our command, we feel bound by the ratio laid down in vijaya Bank Ltd.’s (supra). Even otherwise, so far as the reasoning in American Express International Banking Corpn.’s case (supra) is concerned, we do not find ourselves able to agree with the reasoning, inasmuch as if carried to logical conclusion, it permits a post-mortem of the purchase component of the asset, and permits deduction of interest element paid, as business expenditure. We are afraid on the face of the judgment in Vijaya Bank Ltd.’s case (supra) this cannot be said to be permissible. 6. Thus, in view of the ratio laid down in Vijaya Bank Ltd.’s case (supra), which very much applied to the circumstance and facts of the present case, the judgment of the Ld. Tribunal, cannot be sustained. “(Emphasis applied) From the aforesaid decision which is binding on all appellate authroties working he jurisdiction of Hon’ble Rajasthan High court, cIT(A) was bound to follow the said decision even when there were ITAT decisions in earlier years in favour of appellant or other High courts decided the issue in favour of appellant. BY not considering and following the express decision of jurisdictional High court, CIT(A) committed an error which is mistake apparent from record and is rectifiable under section 154 of IT act as held by several decisions. As against this, appellant relied upon the decision of the Hon’ble Supreme Court in the case of Citibank NA (Supra) in which in the facts of that case, broken period interest was held to be allowable. The Hon’ble supreme Court in the case of Citibank NA(supra) has held as under:- “After going through the facts which are similar to the facts in American Express (supra), sine the tax-effect is neutral, the method of computation adopted by the assessee and accepted by the revenue cannot be interfered with. We agree with the view expressed by th4e Bombay High court in the American Express (supra) would have no
15 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
application. For the reasons given above, the question posed before us in answered in the affirmative i.e. in favour of the assessee and against the revenue.”
It is evident from the above that the Hon’ble Supreme Court has given its finding on the peculiar facts of the case. The judgment was given under the context that the tax-effect will be neutral and the method of accounting was accepted by the department. The facts in the instant case are remarkably different. Neither the tax-effect is neutral nor has the method of accounting followed by the assessee been accepted by the department. In the facts and circumstances of the present case, the tax-effect will not be neutral if broken period interest is considered as cost of purchase of securities not sold during the year. Disallowance of broken period interest paid would lead to an additional tax-liability for appellant in the instant case. Further, the department as not accepted the treatment of securities a stock-in trade by the asessee for the purpose of income tax only. The AO has pointed out the anamoly that on the one hand the appellant is itself showing these securities under the head “investment “in the balance sheet and on the other hand, the appellant is claiming that the securities are stock-in-trade so as to get taxation benefit. The balance sheet of the assesee which is prepared on the basis of RBI guidelines clearly reflected securities as investment and not as stock in trade. Therefore, it is clear that the AO has not accepted the method of accounting of treating investment in securities as stock in trade for tax purpose. Further on perusal of financial statements as per annual report there is no closing stock in the balance sheet. Further, the P & L account of the assessee clearly reveal that the assessee has accounted interest received and interest paid. If the assessee was really accounting the securities as stock-in-trade, the assessee would have shown opening stock and closing stock in the P & L account. Therefore, form the method of accounting followed by the appellant in preparing the accounts as per RBI guidelines, it is clear that purchase of securities were not treated as stock in trade. Accordingly, the decision of apex could in the case of Citibank which was
16 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
given in the context of specific fats of that case i.e. tax neutrality and acceptance of method of accounting of the assesee is not applicable in the appellant’s case and therefore does not overrule the decision of Hon’ble jurisdictional High Court in the case of Vijaya Bank Ltd. Accordingly, objections given by the appellant against following the decision of jurisdictional High court are not found sustainable. Other arguments of the appellant that ITAT in 97-98 and 98-99 did not consider appellant’s claim of treating investment in government securities as capital asset is not relevant to decide the issue of broken period of interest since broken period interest is to be considered as part of the cost of purchase of securities irrespective of them being treated as capital asset or not. Other issues raised by appellant are not arising from appeal order, the same are not dealt with. Since CIT(A) did not follow the decision of jurisdictional High Court which he was bound to follow, this is a clear mistake apparent from record which is required to be rectified. Accordingly, the addition on account of net broken period interest made by the AO, which was deleted in the original appeal order, is now sustained by respectfully following the decision of jurisdictional High court. The original appeal order is rectified to this extent.”
18.4 It is contended by the Ld. Counsel for the assessee that Hon’ble Rajasthan
High Court in assessee’s own case in DB Appeal No. 446/JP/2008 in the AY 2000-01
dated 17/5/2017, DB Appeal Nos. 11,12,13/2015 for the AY 2001-02,02-03,05-06
dated 22/05/2007 has allowed the broken period interest expenses. Ld. D/R has not
disputed this fact. Therefore, respectfully following the Hon’ble Jurisdictional High
Court we hereby direct the AO to delete the disallowance. Thus, this ground of
assessee’s appeal is allowed.
In the result, Appeal of the Assessee in ITA No. 299/JP/2014 is allowed.
17 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
ITA No.28/JP/2013
Now, we take up Revenue’s appeal in ITA No. 28/JP/2013 pertaining to the
A.Y. 2007-08 is directed against the order of the Commissioner of Income
Tax(Appeals)-II, Jaipur, dated 18/10/2012.
The Revenue has raised the followings grounds of appeal:-
“On the facts and in the circumstances of the case the Ld. CIT(Appeals) has erred in-
(i) Holding re-opening of the case as only change of opinion of the AO though it is apparent from the record that it is not mere change of opinion but it was a case of under assessment.
(ii) Deleting the addition of Rs. 1,25,99,060/- (7.5% of 2,87,37,353/- + 2,57,47,000+ 11,35,03,112) made by disallowing claim of deduction u/s 36(1) (viia) as this deduction is not for income from other sources.” 21. Briefly, stated facts are that, the AO reopened the assessment on the ground
that the assessee derives income mainly for bank business and the total income of
the assessee was assessed under the head profit and loss of business for profession.
The assessee received income on account of interest of income tax refund,
insurance commission, locker rent, lease rental and various other incomes
assessable under the head ‘income from the other sources’. Subsequently, the AO
passed an order u/s 143(3) read with section 148 of the Act. Against this, the
assessee preferred an appeal before Ld. CIT(A) who after considering the
submissions, allowed the appeal by holding that the AO was not justified in
reopening the assessment as all the material facts had been disclosed by the
appellant bank.
Now, the revenue is in appeal against the correctness of the order of the Ld.
CIT(A).
18 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
Ground no. 1 is against holding that reopening is on the basis of change of
opinion.
23.1 Ld. CIT(DR) vehemently argued that Ld. CIT(A) was not justified in holding
that Ld CIT(DR) supported the order of the AO.
23.2 On the contrary, Ld. Counsel for the assessee supported the order of the Ld.
CIT(A).
23.3 We have heard the rival contentions, perused the material available on
record. Ld. CIT(A) has decided the issue in para 5 reads as under:-
“5. After going through rival submissions following points emerges: 1. Interest on Income tax refund, Insurance commission etc. consistently been declared as Business Income by the Appellant Bank in its return: All material facts had been disclosed by the appellant in the return. The appellant is a Banking Company where the aboe income like income tax refund interest, insurance commission, lease rent have consistently been grouped in the audited accounts as Business Income and have been so declared as Business Income. 2. Such Business Income constantly been accepted in scrutiny assessments by the department: Such income has been allowed by the department in all earlier scrutiny assessments, including subsequent assessment of AY 2008-09, 2009-10, 2010-11 & 2011-12. There are several case laws supporting the principle of consistency. 3. Change made by bifurcating certain income into Income from other sources only in AY 2007-08 that too u/s 147: In all assessments interest on refund, lease rentals, insurance commission have been accepted and assessed as Business Income. 4. Earlier scrutiny assessment of AY 2007-08 made after proper application of mind by the AO and on disclosure of all facts by the appellant: It is seen that in AY 2007-08 – the year under consideration
19 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
order u/s 143(3) dated 24-12-2009 – discussed in para 9 the deduction allowable u/s 36(1)(Vii) & 36(1)(viia) and held that Provision for bad and doubtful debt deduction u/s 36(1)(viia) should not exceed Rs. 2,20,50,86,829/-. In the computation of in come it was stated as under: “Assessed Business Income before Claim u/s 36(1)(viia) Rs. 811,49,76,353 Less: Deduction u/s 36(1)(viia) 10% of Rural Advance ` Rs. 1,69,81,40,688 7.5% of Total Income Rs. 60,86,23,226 Rs. 2,30,67,63,914 To be restricted up to Rs. 220,50,86,829 Rs.220,50,86,829”
This show that the deduction was allowed after proper application of mind and has been allowed by the department in all earlier scrutiny assessments, including subsequent assessments of AY 2008-09, 2009- 10, 2010-11& 2011-12. All material facts had been disclosed by the appellant in the return. Therefore the reassessment notice constitutes only change of opinion on the part of the AO. 5. Action of the AO of reassessment constitutes change of opinion as per Ape Court decision: Following decisions of Hon’ble Supreme Court relied upon by the appellant in submission dated 16-10-2012 do not justify reopening: 1. CIT vs. Kelvinator of India Ltd. 320 ITR 561/187 Taxman 312 (SC)
The concept of “change of opinion” on the part of the Assessing Officer to reopen as assessment does not stand obliterated after ht substitution of section 147 of the Income-tax At, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen as assessment on mere change of opinion. The concept of “change of opinion” must be treated as an in-built test to heck the abuse of power. Hence after April; 1, 1989,
20 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
the Assessing Officer has power to reopen an assessment, provided there is “tangible material“ to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief.
CIT vs. Foramer France : 264 ITR 567(SC)
Supreme Court affirmed the decision of the Allahabad High Court in the case of Foramer v. CIT 247 ITR 463, wherein it was, inter alia, held by the Court in the context of the provisions of section 147/148 of the Act, as amended with effect from 1.4.1989, that the reassessment cannot be based on a mere change of opinion and that the law that an assessment could not be reopened on a change of opinion was the same before and after the amendment by the Direct Tax Laws (Amendment) Act, 1987.
In view of the points summarized in this para 5, the AO was not justified in reopening the assessment as all material facts had been disclosed by the appellant like in earlier year where the department had accepted the same and the action of the AO constituted only change of opinion as earlier deduction was allowed after proper application of mind.” 23.4 The above finding on fact recorded by the Ld. CIT(A) is not controverted by
the Revenue and the Revenue could not controvert the fact that income derived
from insurance commission, lease rent have been consistently groped in the audited
accounts such as income has been grouped as business income and the revenue has
not disturbed the same. No reason is given as to why in this year such income
becomes ‘income from other sources’. Therefore, we do not see any reason to
interfere into the order of the Ld. CIT(A), same is hereby affirmed.
Ground no. 2 is read as under:-
“Deleting the addition of Rs. 1,25,99,060/- (7.5% of 2,87,37,353/- + 2,57,47,000+ 11,35,03,112) made by disallowing claim of deduction u/s 36(1) (viia) as this deduction is not for income from other sources.”
21 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
24.1 Ld. CIT(DR) supported the order of the Assessing Officer.
24.2 On the contrary, Ld. Counsel for the assessee supported the order of the Ld.
CIT(A).
24.3 We have heard the rival contentions, Ld. CIT has given finding on fact by
observing as under:-
“6. Ground no. 2 is that the AO erred in reducing the claim of deduction u/s 36(1)(viia) by Rs. 1,25,99,060/- by holding that such deduction is allowed with reference to business income and not to total income and thereby not considering the insurance commission income of Rs. 2,87,37,353/-, lease rentals of Rs. 2,57,47,000/- and interest on income tax refund amounting to Rs. 11,35,03,112/- for the calculation of deduction u/s 36(1)(viia). It is seen that the Assessing Officer as per his discussion at page 4-5 of the order held that insurance commissioner, lease rental and interest on income tax refund are assessable under the head income from other sources. Further by referring to section 28, sec. 36(1) and clause (viia) of section 36(1) he held that it cannot be the intention of law to allow deduction in respect of provision for bad and doubtful bets with reference to the total income. According to him the deduction /s 36(1)(viia) is allowable in respect of any Provision for bad and doubtful debts in relation to the Business only and it cannot be allowed with reference to income assessable under other heads of income. Accordingly he disallowed claim of deduction u/s 36(1)(viia) by Rs. 1,25,99,060/- (7.5% of 2.87,37,353 + 2,57,47,000 + 11,35,03,112). 7. Through written submission and arguments it was stated that the AO is misreading section 36(1) (viia) as the section states that the deduction is to be limited to an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this
22 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
clause and Chapter VIA) and an amount not exceeding ten percent of the aggregate average advance made by the rural branches of such bank. 8. It is seen that section 36(1)(viia) provides for the deduction of 7.5% of the total income, and the same is reproduced as under:- “36(1)(viia) in respect of any provision for bad and doubtful debts made by- (a) A scheduled bank not being a bank incorporated by or under the laws of a country outside India] or a non- scheduled bank or a co- operative bank other than a primary agricultural credit society or a primary co-operative 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 advance made by the rural branches of such bank”. (Emphasis Supplied)
From the use of word “total income “ and “computed before making any deduction under this clause and chapter VIA” in the section makes it clear that deduction towards Provision for bad and doubtful debts is allowable with reference to the total income and not with reference to the business income alone. Further Hon’ble Supreme Court in case of Padmasundara Rao and other vs. State of Tamil Nadu 255 ITR 147 held that the Court cannot read anything into a statutory provision which is not mentioned. The AO in the present case has tried to interpret the law which is not tenable as per the plain and simple reading of the law. Total income mean all income. Income from insurance commission, interest on income tax refund and lease rental are integral part of banking activities as per the section 6(1) of the Banking Regulations Act, 1949. In the past years deduction u/s 36(1) (viia) has been allowed to the appellant with reference to the total income and not with reference to the business income. Therefore the disallowance made by the AO out of the deduction already allowed u/s 36(1)(viia) is not as per law. Therefore, on merits also the
23 ITA Nos. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013. State Bank of Bikaner & Jaipur, Jaipur.
disallowance made by the AO in re-assessment under appeal is not maintainable and is directed to be deleted.”
24.4 The above finding is not controverted by the Revenue, Therefore, we do not
see any reason to interfere into the finding of the Ld. CIT(A), same is hereby
affirmed. Thus, this ground of Revenue’s appeal is dismissed.
In the combined result, Appeals of the Assessee in ITA Nos. 921/JP/2009 is
partly allowed & ITA No. 299/JP/2014 is allowed and the Appeals of the Revenue in
ITA No. 41/JP/2010 & 28/JP/2013 are dismissed. Order pronounced in the open court Tuesday, the 29th day of August 2017.
Sd/- Sd/- ( dqy Hkkjr) ¼foØe flag ;kno½ (VIKRAM SINGH YADAV) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 29/08/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
The Appellant- State Bank of Bikaner & Jaipur, Jaipur. 2. The Respondent- ACIT, Circle-6, Jaipur. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 921/JP/2009, 41/JP/2010, 299/JP/2014 & 28/JP/2013)
vkns'kkuqlkj@ By order,
सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत