Himachal Pradesh High Court Judgments — 2010

The High Court held that the second question, concerning the addition back of amounts after rejecting books of account and computing income on a percentage basis, is a valid contention that can be raised. The Court found that the Assessing Officer, after rejecting the books of accounts and computing profit on a percentage basis, could not have added back amounts paid in cash in violation of Section 40-A(3). This would result in quantifying the assessee's income twice. The Court relied on the Allahabad High Court's judgment in *Commissioner of Income Tax Vs. Banwari Lal Banshidhar*, which held that when income is computed applying a gross profit rate and no deduction is allowed for purchases, there is no need to scrutinize Section 40-A(3) provisions, as the gross profit rate application takes care of everything. Therefore, the addition back of amounts paid in violation of Section 40-A(3) was not justified. The second question was answered in favour of the assessee, and the appeal was allowed to this extent. The Court did not explicitly decide the first question on its merits, as the second question's resolution rendered it moot in the context of the appeal's outcome.

The Tribunal held that when an application under Section 5 of the Limitation Act is dismissed, and as a consequence, the appeal itself is dismissed as time-barred, the remedy available to the aggrieved party is a Regular Second Appeal. This is based on the Supreme Court's judgment in Shyam Sundar Sarma vs. Pannalal Jaiswal (2005) 1 SCC 436, which affirmed that an appeal presented out of time is still an appeal in the eyes of law, and an order dismissing it as time-barred is an order passed in an appeal. The Tribunal cited several Supreme Court decisions, including Nagendra Nath Dey, Raja Kulkarni, Messrs Mela Ram and Sons, Sheodan Singh, and Board of Revenue vs. M/s Raj Brothers Agencies, to support the principle that the dismissal of an appeal on a preliminary ground like limitation, when it confirms the trial court's decision, amounts to the appeal being heard and decided. Therefore, the order dated April 24, 2006, converting the appeal to a revision, was recalled. The Registry was directed to register the revision petition as a Regular Second Appeal with its original number. The case was listed for admission on May 11, 2016.

The High Court held that the question of whether a family arrangement is bona fide or not is a pure question of fact, not a question of law, and certainly not a substantial question of law. Therefore, the appeal filed by the Revenue was not maintainable as no question of law arose from the ITAT's order. The ITAT's finding that the transfer constituted a bona fide family arrangement was not disturbed. The appeal was accordingly dismissed. No order as to costs was made. The specific amount in dispute was not recorded.

The High Court held that the interest earned on deposits of non-SLR and surplus funds in non-statutory reserves is directly attributable to the business of banking. The Court reasoned that any banking institution carrying on banking business would not keep its reserves uninvested. Investing funds, including those from non-statutory reserves, is part of prudent business management and an integral component of banking activities. The Court reiterated its earlier decision in ITA No. 40 of 2006, finding that the term "attributable to" is wide in scope and encompasses income generated from such investments. Regarding the revenue's reliance on the Apex Court's judgment in Totgar’s case, the High Court distinguished it, noting that the Apex Court itself clarified that its judgment was confined to the facts of that case, which involved a cooperative society not carrying on banking business. Since the present assessees are cooperative banks carrying on banking business, the Totgar’s case was held not applicable. Therefore, the questions were answered in favour of the assessee and against the revenue. All appeals were disposed of accordingly.

The High Court held that the first question, concerning whether the liability had crystallized during the year, was a pure question of fact. The Tribunal's finding that the liability had crystallized was upheld. The Court found that the assessee, following the mercantile system, was entitled to claim the deduction as the liability had arisen during the year. The ITAT's decision to set aside the CIT(A)'s order and direct the AO to allow the deduction was affirmed. Regarding the second question, the Court ruled that the revenue could not raise the plea under Section 43B for the first time in the appeal under Section 260-A. This was because the issue of whether the payments constituted tax, duty, cess, or fee under Section 43B was not considered by any of the lower authorities, and it involved a mixed question of fact and law. Therefore, the revenue was not permitted to raise this new plea at the appellate stage. The appeal was dismissed.