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

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 13TH DAY OF JULY 2021 / 22ND ASHADHA, 1943 ITA NO. 1065 OF 2009 AGAINST THE ORDER IN ITA 990/COCH/2004 DATED 28.07.2006 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX THRISSUR. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S.THE DHANALAKSHMI BANK LTD. BY ADVS. SRI.P.BALAKRISHNAN E SRI.MOHAN PULIKKAL SRI.NARAYANAN P POTTY THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 13.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA NO. 1065 OF 2009 - 2 - J U D G M E N T S.V.BHATTI,J. Heard learned Standing Counsel Mr.Jose Joseph and learned Counsel Mr.Mohan Pullickal for parties. 2. Revenue is the appellant. The Dhanalakshmi Bank Ltd Trichur/Assesee is the respondent. The appeal is directed against the order of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A 990/Coch/2004 dated 28.07.2006. The appeal deals with the issues arising from the tax return filed by the assessee, for the assessment year 2000-01. 2.1. The Assessing Officer through the assessment order in Annexure-A disallowed the claim of payment of broken period interest on securities purchased by the assessee for being compliant with statutory norms. Similarly, the Assessing Officer disallowed the claim of the assessee under Section 36(1)(viia). The assessee filed

ITA NO. 1065 OF 2009 - 3 - appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. In the appeal filed by the revenue before Income Tax Appellate Tribunal, through Annexure-C order, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and the claims of the assessee under Section 36(1)(viia) and broken period interest were allowed. Hence the instant Income Tax Appeal, at the instance of the revenue under Section 260 A of the Income Tax Act (for short, the Act). The following substantial questions of law are raised by the revenue: 1.Whether, on the facts and circumstances of the case, the assessee is entitled to claim deduction of the broken period interest and is the same an allowable expenditure in the assessee's case? 2.Whether, on the facts and in the circumstances of the case, and also in the light of the relevant provisions especially proviso to Section 36(1)(vii) cannot be the claim of the assessee for bad debts u/s. 36(1) (vii), and the claim in the credit balance in the provision for bad and doubtful debts u/s 36(1)(viia) be disallowed” 3.Whether, on the facts and in the circumstances of the case, the claim of bad debts and bad and doubtful debts is an allowable deduction?

ITA NO. 1065 OF 2009 - 4 - 3. Substantial question no.1 is on the entitlement of assessee on the payment of broken period interest. The question is covered in favour of the assessee and against the revenue in the reported judgment in Commissioner of Income Tax v. Nedungadi Bank Ltd1 read with Commissioner of Income Tax v. South Indian Bank2 The operative portion of the judgment is excerpted hereunder: “For all these reasons, we are of the view that the Income-tax Appellate Tribunal has rightly held that the securities held by the assessee-bank in all these cases are the stock-in-trade of the business of the assessee-banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits of the appellant. This disposes of the first two questions mentioned in para. 10 above.” 4. Question nos. 2 and 3 are regarding the eligible deduction 1 (2003) 264 ITR 545 (Ker.) 2(2000) 241 ITR 374 (Kerala).

ITA NO. 1065 OF 2009 - 5 - under Section 36(1)(viia) of the Act. It is stated by the counsel appearing for the parties that the question under consideration is covered in favour of the assessee by the reported judgment of Supreme Court in Catholic Syrian Bank v. Commissioner of Income Tax3 and had answered the issue in favour of assessee and against the revenue. We are referring to the decision of the Apex Court with a limited view to comprehensively advert to the outcome on all the questions raised by the revenue in the instant appeal. The operative portion in Catholic Syrian Bank Ltd case reads thus: “Firstly, the Full Bench ignored the significant expression appearing in both the proviso to Section 36(1) (vii) clause (v) of Section 36(2) i.e ., 'assessee to which clause (viia) sub-section(1) applies'. In other words, if the case of the assessee does not fall under Section 36(1)(viia) proviso/limitation would not come into play. xxxx xxxx xxxx “Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessee and dismiss the appeals preferred by the revenue. Further, we direct that all matters be remanded to the Assessment Officer for computation in accordance with law, in light of 3[2012] 343 ITR 270 (SC)

ITA NO. 1065 OF 2009 - 6 - the law enunciated in this judgment.” The questions of law framed, by following the judgments referred to above, are answered in favour of the assessee and against the revenue. Income Tax Appeal stands dismissed accordingly. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE JS

ITA NO. 1065 OF 2009 - 7 - APPENDIX APPELLANT'S ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/s. 143(3) OF THE I.T.ACT DATED 30.09.2002. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.73/R1/TCR/CIT- V/02-03 DATED 07.06.2004. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN I.T.A. No. 990/COCH/2004 DATED 28.07.2006. RESPONDENT'S ANNEXURES:NIL