ITO 2(1)(1), MUMBAI vs. CENTRAL; BANK OF INDIA, MUMBAI

Per Bench

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 provisions as against returned loss of Rs.126.25 crores filed by the assessee on 29/03/2001 as per revised return of income. The book profits within the meaning of Section 115JA has been computed at Rs.48.90 crores as against book loss of Rs.152.72 crores as per return of income. 2.2 The revenue has raised five grounds of appeal in ITA No.8581/M/2010 out of which Ground No.1 & 5 are general in nature. The effective grounds are Ground Numbers 2 to 4 which contest the order of Ld.CIT(A) qua relief provided to the assessee on account of adjustment of Bad Debts & diminution in value of investments from computation of book profits u/s 115JA. The assessee, in cross objections, has raised two grounds which contest reopening of assessment and certain adjustment to book profits u/s 115JA. The assessee, by way of additional ground of appeal, has questioned the very applicability of provisions of Section 115JA in the case of the assessee and since the same is legal issue and goes to the root of the matter, we take up the same first. 3. The respective counsel, at the outset, brought to our notice the fact that the assessee being a scheduled bank was governed by the provisions as applicable to banking company and was not required to prepare its Profit & Loss account in accordance with the provisions of Part II and Part III of the Schedule VI to the Companies Act, 1956 and therefore, the provisions of Section 115JA were not at all applicable to the assessee. Our attention has been drawn to several judicial pronouncements placed on record.

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 4. We have carefully considered the same. We find that Section 115JA of the Act is a special provision introduced to the Income Tax Act by the Finance (No.2) Act, 1996 w.e.f. 01/04/1997 and as per sub- section (1) of the said provision, in the case of a company whose total income computed under the Act is less than 30% of its book profits, then the total income chargeable to tax in the relevant previous year shall be deemed to be an amount equal to 30% of such book profit. Sub-section (2) of the said provision provides that the company referred to in sub- section (1) of Section 115JA must prepare a profit & Loss Account in accordance with the provisions of Parts II and Part III of the Schedule VI of the Companies Act, 1956. The ITAT Mumbai benches in the case of Krung Thai Bank PCL Vs. JCIT [2010 133 TTJ 435] have held that the provisions contained in Section 115JB, which in other words is also known as Minimum Alternative Tax [MAT] provisions, are not applicable to banking companies since they are not required to prepare a Profit & Loss Account in accordance with the provisions of Parts II and Part III of the Schedule VI of the Companies Act, 1956. The aforesaid decision has subsequently been followed in a number of decisions of different benches of the Tribunal. In fact, in assessee’s own case for AY 2000-01 in ITA No. 3639/Mum/2004, the coordinate bench vide order dated 12/08/2016 held that the provisions contained in Section 115JA / 115JB are not applicable to the assessee, being a banking company. In view of the above said binding precedent of coordinate bench in assessee’s own case, we hold that since the provisions of Section 115JA are not applicable to the assessee. Accordingly, the grounds of appeal raised in both the appeals become merely academic in nature and do not require

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 any further elaboration or adjudication. Resultantly, revenue’s appeal stands dismissed whereas assessee’s cross objections succeeds on legal grounds i.e. applicability of Section 115JA to the assessee bank and therefore, stands partly allowed.

ITA No. 8582/M/2010, AY 2002-2003 5. This is revenue’s appeal for AY 2002-03 which assails the order of Ld. Commissioner of Income Tax (Appeals)-4, Mumbai [CIT(A)] Appeal No. CIT(A)4/R-2(1)/IT-246/09-10 dated 23/09/2010. The assessment was framed by Ld. Income Tax Officer Range 2(1)(1), Mumbai on 31/10/2006 u/s 143(3) read with Section 147. The revenue has raised the following effective ground of appeal:- 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that interest u/s. 234D cannot be charged in the A.Y.2002-03 without appreciating that chargeability of interest is in relation to the period in which the order is passed and not the assessment year of the case. 6. Facts giving rise to the dispute is that the assessee has been assessed u/s 143(3) read with Section 147 on 31/10/2006 at Rs.457.12 crores. The assessee contested the imposition of interest u/s 234D for Rs.8,01,64,223/- before first appellate authority by placing reliance on the decision of ITO Vs. Ekta Promoters Private Limited [305 ITR 1 SB DELHI] on the premises that interest u/s. 234D could be charged only after AY 2003-04 and not for any earlier years. The Ld. CIT(A) agreed with the same, against which the revenue is in further appeal before us. 7. The Ld. DR drew our attention to Page Nos. 91 & 92 and contended that the interest u/s 234D has been charged only in regular assessment u/s 143(3) and the same has rightly been charged as per

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 statutory provisions since the assessee was granted refund u/s 143(1). Per Contra, Ld. Counsel for Assessee contended that interest u/s 234D could not be applied in reassessment proceedings since the same do not constitute regular assessment within the meaning of Section 234D as per judgment of Hon’ble Punjab & Haryana High Court rendered in CIT Vs. Inderjeet Bedi [2002 126 Taxman 259]. 8. We have carefully heard the rival contentions. To understand the issue, it is imperative to understand the factual matrix. The documents placed on record reveals that the assessee has claimed refund of Rs.131.75 crores as per original return of income filed on 31/10/2002. The refund has been revised upwardly to Rs.134.28 crores in revised return of income filed on 26/03/2004. In the meantime, refund has been determined / granted as per intimation u/s 143(1) dated 25/07/2003 at Rs.145.75 crores which comprise of refund amount of Rs.131.61 crores and interest u/s 244A for Rs.14.13 Crores. Subsequently, the assessee has been assessed u/s 143(3) on 24/02/2005 at Rs.399.67 crores on which tax, as per Income Tax Computation Form, works out to Rs.142.63 crores. After deducting prepaid taxes and adding interest u/s 234B and 234D for Rs.3.23 crores & Rs.8.01 crores, the net demand raised is Rs.19.48 crores. In this amount, the refund already granted to assessee for Rs. 145.75 crores has been further added. Finally, total demand raised is Rs. 165.23 crores. The assessee has contested the quantum assessment passed u/s 143(3), first before first appellate authority and thereafter before this Tribunal vide ITA No. 2557/Mum/2011 order dated 12/08/2016, where, prima-facie, the imposition of interest u/s 234D is nowhere in dispute. The revenue had

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 also contested certain issues for this year before this Tribunal vide ITA No. 2364/Mum/2011 order dated 12/08/2016 but apparently the issue of 234D is not in dispute in that appeal also. The assessee, in reassessment proceedings, have been saddled with certain further additions which have been further contested before Ld. CIT(A) vide impugned order dated 23/09/2010. However, upon perusal of the impugned order of Ld. CIT(A), we find that the amount of interest computed u/s 234D remains the same i.e. Rs.8.01 crores, which lead us to conclude that no further interest u/s 234D has been computed by revenue in reassessment proceedings. 9. On merits, we find that Explanation-2 to Section 234D squarely applies to the assessee since the original quantum assessment order u/s 143(3) was passed after 01/06/2003. The Ld.CIT(A) has provided relief to the assessee by placing reliance on the decision of Special Bench of Delhi Tribunal in ITO Vs. Ekta Promoters Private Limited [305 ITR 1 SB DELHI]. However, we find that the impugned issue stood squarely against the assessee in view of the judgment of Hon’ble Bombay High Court rendered in CIT Vs. Indian Oil Coproration Ltd. [2012 25 taxmann.com 284] where Hon’ble court has clinched the issued in the following manner:- 27. In view of the above, we hold that the decision of the Tribunal in ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi) (SB) which has been followed in the impugned order by the Tribunal is not correct. One more aspect of the matter which must be borne in mind is that till such time as the assessment proceedings are completed in respect of any assessment year, the amendment made to the Act would be applicable even in case of pending proceedings. It is not the case of the respondent that the proceeding in regard to refund which has been granted under section-143(1) of the Act are concluded and final. The refund which has been granted under section 143(1) of the Act is provisional, to be finally determined when final assessment order is passed under section 143(3) of the Act. Explanation-2 to section 234D of the Act makes it clear that it would be applicable to pending

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 proceedings i.e. where assessments in respect of such assessment year is not completed on 1/6/2003.

Respectfully following the same, we reverse the stand of Ld. CIT(A) in this regard and allow revenue’s appeal since no additional interest has been computed u/s 234D in reassessment proceedings and the same did not arise out of reassessment proceedings.

ITA No. 910/M/2011 & C.O. No. 43/M/2013 , AY 2003-2004 10. The revenue’s appeal ITA No. 910/M/2011 contest order of Ld. CIT(A) Appeal No. CIT(A) 4/ITO-2(1)(1)/IT-177/06-07 dated 29/11/2010. The assessment was framed by Ld. Income Tax Officer Range 2(1)(1), Mumbai on 31/10/2006 u/s 143(3) read with Section 147. The following sole ground has been urged:- 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the amount of Rs.220.23 Lacs on sale of shares is to be treated as capital gain and not as business income chargeable to tax u/s. 28 without appreciating that – (i) as far as banks are concerned for income tax purpose all investments are treated as current assets and profit and loss on sale of the same is to be treated as business income. (ii) the assessee bank has been valuing the ‘investments’ at the end of previous year on the basis of cost or market price which ever is least thus treating the investments as stock-in-trade. (iii) the assessee bank has held the ‘investments’ as business assets in its banking business.

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 Losses of earlier years from the same. However, the investments in question, in the opinion of Ld. AO, constituted business assets held in the normal course of banking business and therefore assessable under the head Business Income. Accordingly, the assessee was not eligible to claim indexation or set-off of brought forward Long Term Capital Losses against the same. 12. Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 29/11/2010 where Ld. CIT(A) agreed with the contentions of the assessee by making following observations:- 7. I have duly considered the submissions of the authorized representative and I find that the assessee has been declaring capital gain on sale of investment held to maturity as capital gain in earlier years also which has been accepted by the department. These investments were held by the bank for more than one year. I also find that the appellant has divided the investment in two categories i.e. current category and permanent category. The current category investment when sold are treated as business income and permanent category which are held to maturity for more than one year are treated as capital gain as they are covered within the definition of Long term capital gain. Hence the A.O.is not justified in treating the Long term capital gain shown by the assessee as business income. Reliance is placed on the decision of UCO Bank vs CIT (240 ITR 355). Reliance is also placed on the decision of CIT Vs NSS Investment Pvt. Ltd. (277 ITR 149)(MAD) wherein it was held that a company can hold shares as the stock-in trade for the purpose of doing business of buying and selling such shares at the same time it can also hold some other shares as its capital for the purpose of earning dividend. The shares were not held as stock-in-trade. Hence, there would be capital gain and not business income. Reliance is also placed on the decision of Supreme Court in the case of Madhya Pradesh Co-operative Bank Ltd. Vs Addl. CIT (218 ITR 43)(SC) wherein it was held as under:- The Supreme Court held that if a co-operative society is engaged only in the business of banking, but part of its activity is not attributable to engagement in such activity, then the income derived from the investment in Government Securities placed with the State Bank of India / Reserve Bank of India cannot be regarded as the essential part of its banking activity inasmuch as the same does not form part of its stock-in-trade or working / circulating capital. 8. In the facts and circumstances of the case the A.O.is directed to delete this addition. This ground of appeal is allowed.

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 13. Aggrieved, the revenue is in further appeal before us. The Ld. DR has contended that all investment for banking company constitute normal business assets and hence assessable as Business Income only. Per Contra, Ld. AR placed reliance on the stand of Ld. CIT(A) and explained that the assessee had two categories of investment viz. current investment and permanent investment. The dispute was only relating to permanent investment since current investment was always treated under the head business income. The permanent investments were held by the assessee for a minimum period of one year and the same was carried in the books only at cost price. Further, the assessee was consistently following such practice of classification and treatment since past several years, which the revenue has accepted in earlier years. Our attention is drawn to the fact that similar issue was decided in assessee’s favor by first appellate authority in immediately preceding assessment year i.e. 2002-2003 and the revenue, while accepting the same, did not prefer any appeal against the same. 14. We have heard the rival contentions. We find that the assessee is consistently following such classification and treatment of income from investment since past many years. The revenue has nowhere disputed that permanent investment were carried at cost price. Further, upon perusal of the order of Ld. CIT(A) for AY 2002-03, we find that the same issue arose in that year also and Ld. CIT(A) upheld the stand of the assessee and concluded that the income from investment was rightly offered under the head capital gains. It is noteworthy that the revenue, in its appeal for AY 2002-03, accepted the stand of Ld. CIT(A) and did not prefer any further appeal qua this issue. Therefore, following the rule of

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 consistency, we see no reason to disturb the findings of Ld. CIT(A) in this year and therefore, inclined to dismiss revenue’s appeal on this ground. Resultantly, the revenue’s appeal stands dismissed. 15. The first ground of assessee’s cross objection assails reopening of assessment. Since, we have already dismissed revenue’s appeal on merits, this ground remains merely academic in nature and therefore, we dismiss the same in limine being infructuous. 16. In ground No. 2, the assessee is aggrieved by direction of Ld. CIT(A) to Ld. AO to compute interest u/s 234D on the premises that the quantum assessment order u/s 143(3) read with section 147 did not contain any specific directions for the same. However, it is settled legal position that charging of interest is mandatory and consequential in nature and therefore, no specific direction to charge the same is required in the quantum assessment order. So far as the quantum is concerned, we find that the assessee has been charged interest u/s 234D pursuant to original quantum assessment order passed u/s 143(3). We have already dismissed revenue’s appeal for this year and therefore, practically, the assessee is not saddled with any further additions in reassessment proceedings. Hence, this ground raised by the assessee also becomes infructuous and hence, dismissed in limine. Finally, the cross objections filed by the assessee stands dismissed. 17. In nutshell, ITA No.8581/M/2010, ITA No. 910/M/2011 & CO No.43/M/2013 stands dismissed, CO No.153/M/2012 stands partly allowed & ITA No.8582/M/2010 stands allowed. Order pronounced in the open court on 04th October, 2017.

Central Bank Of India Assessment Years-1999-2000, 2002-03, 2003-04 Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member

मुंबई Mumbai; िदनांक Dated : 04.10.2017 Sr.PS:- Thirumalesh आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. आयकर आयु�(अपील) / The CIT(A) 3. आयकर आयु� / CIT – concerned 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai