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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI G. D. AGRAWAL & SMT SUCHITRA KAMBLE
This appeal is filed by against the order dated 14/12/2007 passed by CIT(A)-XVI, New Delhi for the Assessment Year 2003-04.
The grounds of appeal are as follows:
“1. The CIT (A) has erred in law and in facts and circumstances of the case in deleting the addition of Rs.18,85,15,912/- being estimated expenditure incurred to earn exempt income u/s 14A.
2. The CIT(A) has erred in law and in facts and circumstances of the case in deleting the addition of interest accrued but not due amounting to Rs.17,28,12,066/-.
3. The CIT (A) has erred in law and in facts and circumstances of the case in deleting the addition of Rs.89,60,000/- being depreciation on building not registered in the name of the Bank.
3. As relates to Ground No. 1 which deals with deletion of addition of Rs.18,85,15,912/- being estimated expenditure exempt income u/s 14A. The Ld. DR submitted that the CIT (A) has not taken cognizance of Assessing Officer ’s order and relied upon the assessment order.
4. The Ld. AR submitted that the Hon’ble Delhi High Court in assessee’s own case for previous year has remanded the matter back to the Assessing Officer in terms of the ratio and directions given by the Hon’ble Delhi High Court in case of Maxopp Investment
5. In light of this, Ground No. 1 is remitted back to the Assessing Officer.
The Ld. AR during the course of hearing submitted that in this particular case for Ground No. 2 & 3, the COD was declined vide COD dated 28th October 2008. The Ld. AR pointed out that as per OM dated 4th February 2013, para 3 (i), no Ministry/ Department or Public Sector undertaking under them may reopen those cases in which clear decisions had been issued by the COD prior to 7th February 2011. Thus, the Ld. AR submitted that the appeal in respect of Ground No. 2 & 3 does not survive. This contention was supported by the decision of the Hon’ble Karnataka High Court in case of CIT Vs. Canara Bank 2014 (263) ITR 156 (Karnataka). The Ld. DR did not refute the same.
In view of this Ground No. 2 &3 does not survive, hence dismissed.
In result, appeal is partly allowed for statistical purpose.
I.T.A .No.-3491/DEL/2008 (2005-06)
This appeal is filed by the assessee against the order dated 26/9/2008 passed by CIT (A)-XVI, New Delhi for Assessment Year 2005-06 “1. The CIT(A) has erred in upholding the order of the Officer and confirming the addition of Rs.40.74 crores/- without appreciating that the assessee has actually suffered the long term capital loss on conversion of US 64 units of UTI by UTI and therefore the loss as claimed should be allowed for set-off.
2. The CIT(A) has failed to appreciate that the assessee invested in UTI US-64 scheme sum of rs.149.25 crores on 2/11/2000. Due to fall in the value of shares and the consequent impact in the stock market, US-64 scheme failed. UTI accounted conversion on 24.=/06/2003 and issued 6.75% tax free bonds for a face value of Rs.108.70 crores. As a result the bank suffered actual long term capital loss of Rs. 40.57 crores (149.25-108.70) and after indexation as per law the long term capital loss came to Rs.53.51 crores. Assessee has claimed a sum of Rs. 40.74 crores in the Assessment Year 2005-06 as set-off against the long term capital gains and the balance Rs.12.77 crores was set off in the Assessment Year 2004-05. The same should be allowed to the assessee.
The CIT(A) (A) has failed to appreciate that the bank has suffered actual loss in this transaction of purchase and sale of US 64 units of UTI for no fault of the bank. It is the UTI which has converted the US 64 units into 6.75% tax free bonds, which has resulted in the said loss which should be allowed the assessee.
The appellant submits that had it continued to show the above transactions as stock-in-trade the fall in value would have been allowed as a business deduction. The fact that RBI permitted assessee to hold the US 64 Bonds as permanent investment ones for all and not to transfer to stock-in-trade, the assessee could not claim fall in value of investments. However, in the previous year, the assessee had no option but only to adhere to UTI mandate thus resulting in loss which should be allowed.
The appellant contends that the loses/unabsorbed depreciation of Erstwhile Global trust Bank as per the return should be 5 deemed to be the losses/unabsorbed depreciation of the assessee bank and allowed pursuant to the amalgamation u/s 45(7) of the Banking Regulation Act, 1949 by the Central Government. 6. The above grounds are independent and without prejudice to one another. 11. The Ld. AR submitted that the appeal is withdrawn. In light of this, is dismissed as withdrawn.
I.T.A .No.-3614/DEL/2008 (Assessment Year 2005-06)
This appeal is filed by Revenue against the order dated 26/09/2008 passed by CIT(A)-XVI for Assessment Year 2005-06.
The grounds of appeal are as under:-
“(i). On the facts and in the circumstances of the case, the CIT(A) has erred in law and on the facts in deleting the addition of rs.12,72,86,272/- being proportionate expenses incurred for earning of dividend income which is not taxable (exempt). The CIT(A) has ignored the fact that the assessee has deliberately not given the details of the expenses attribute to earn the tax-free income and has not appreciated that the dividend income has been earned by deployment of funds and monitoring the same with the facilities of the establishment and supervision of the management, which involve expenditure. The CIT(A) vide para 3.8 in his order has merely relied upon the Hon’ble ITAT’s decision in assessee’s own case for Assessment Year 2000-01 and 2004-05 to delete the addition. Whereas the issue of determination of the expenses incurring interest on borrowed funds etc is a question of facts and has to be determined/examined independently in each Assessment Year.
6 As per the CIT(A) in Ground No. 1(d), the assessee has contended that it has used its funds, namely, share capital and reserves meaning thereby that it has not used borrowed funds. This contention of the assessee inter-alia has also not been examined/verified by the CIT (A). In order to escape the applicability of section 14A the assessee has to show that it has not used the interest bearing borrowed funds. (ii) On the facts and in the circumstances of the case, the CIT(A) has erred in law and facts in deleting the addition of Rs.110,12,46,285/-on the subject of conversion of capital assets into stock-in-trade and the sale thereof. Vide para 4.4 on page 9 of the Appellate Order, the CIT(A) has merely looked at the computation made by the assessee u/s 45(2) of the Income Tax Act and remarked that since the computation is in line with the provisions of the Section 45(2), the addition made by the A.O is not justified. The computation of capital gains on conversion of capital assets into stock in trade and the computation of profits/losses on sale of the said stock is based on the assessee’s claim that it has recategorised the Government Securities held by it as per the guidelines of Reserve Bank of India (RBI). In support of this submission, the assessee has filed the copy of the Memorandum for Board of Directors dated 2nd April, 2003. In this Memorandum, there is reference that RBI’s guidelines, issued by its Circular No. DEOD No. BP. BC. 32/21.04.048/2000-01 dated 16th October, 2000 permits inter- alia shifting of investments to/from ‘held to maturity’ category once a year normally in the beginning of the accounting year with the approval of the Board of Directors. From the above referred Memorandum, it is seen that the Government Securities of the face value of Rs.3000 Crores have been recategorised. Similarly, further securities of the face value of Rs.201 Crores have been recategorised. Conversion has been made from the category ‘held to maturity’ to the category ‘available for sale’.
It can be seen that the securities have not been converted to the category ‘held for trading’. The conversion of securities from the category ‘held to maturity’ to the category ‘available for sale’ only means that the bank is now free to sell these securities even before the date of maturity. Without this conversion, the bank was not permitted to sell the securities before the date of ultimate maturity. Thus, it is clear that securities have not been actually converted into stock-in-trade and have remained as capital assets only even though after the conversion, the capital assets in the shape of the said securities was permitted to be sold before the date of maturity. This is precisely the purpose of having three categories mentioned above. If the capital assets i.e, the securities on conversion from the category ‘held to maturity’ to the category ‘available for sale’ was to mean that the capital assets have been converted into stock-in-trade, there would have been no purpose for the RBI to place the securities into three categories. RBI would have directed that the securities to be kept only into two categories, i.e. “Held to maturity” and “Held for trading.” Thus, the assessee’s claim of conversion of the capital assets in the shape of the said Government Securities into stock-in-trade has to be ignored and the business profits/losses are to be computed as if there was no conversion.
As relates to ground No. 1, the issue is similar to that of earlier assessment year 2003-2004. In this Assessment Year, the said issue is remanded back to the Assessing Officer.
As relates to Ground No. 2, the COD was rejected vide COD dated 3/9/2009 Para 24 PG. Hence, the same ground is dismissed.
In view of this the appeal is partly allowed for statistical purpose.
In result, and 3614/Del/2008 are partly allowed for statistical purpose and is dismissed as withdrawn by the assessee.
The order is pronounced in the open court on 06th of April, 2016.