The Federal Bank Ltd, Aluva V. The ACIT, Aluva

ITA 169/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77476 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 23-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-04-2014
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: VIVEK C GOVIND
• Keywords: Proportionate interest
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 169/COCH/2014 ASSESSMENT YEAR : 2007-08 THE FEDERAL BANK LTD., FEDERAL TOWERS, H.O., ALUVA. [PAN:AABCT 0020H] VS. THE ADDL. COMMISSIONER OF INCOME-TAX, ALUVA RANGE, ALUVA. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI VIVEK C.GOVIND, CA REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 23/07/2014 DATE OF PRONOUNCEMENT 25/07/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 22- 12-2013 PASSED BY THE LD. CIT(A)-II, KOCHI FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: (1) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF THE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS. HINDUSTAN LATEX LTD. AND DELETED THE DISALL OWANCE OF PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS. 24.37 CRORES. (2) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN A SSESSING INTEREST/COMMISSION RECEIVED UPFRONT ON INLAND/EXPO RT BILLS PURCHASED/DISCOUNTED/LCS OPENED. I.T.A. NO.169 /COCH/2014 2 3. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF LEAVE ENCASHMENT AT RS. 24.37 CRORES BY OBSERVING THAT THIS IS ONLY A P ROVISION BASED ON VAGUE AND SUBJECTIVE ASSUMPTION AND NO AMOUNT WAS PAID AND IT IS NEITHER ACCRUED NOR EXISTING LIABILITY AND IT IS NOT CAPABLE OF BEING A CCURATELY DETERMINED. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS ON APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE FIND THAT THIS ISSUE IS FULLY COVERED BY THE JUDGMENT OF THE HONB LE KERALA HIGH COURT IN THE CASE OF THE SOUTH INDIAN BANK LTD. VS. CIT REPORTED IN WWW.LEGALCRYSTAL.COM/1126570 WHEREIN THE APEX COURT HELD THAT IT PERTAINS TO THE PROVISION MADE FOR LEAVE ENCASHMENT AND THE DI SALLOWANCE WAS U/S. 43B(F). THEREFORE, THE SAID DISALLOWANCE IS JUSTIFIED. IN VIEW OF THIS, WE ARE INCLINED TO DECIDE THE ISSUE AGAINST THE ASSESSEE. 6. THE NEXT GROUND IS WITH REGARD TO ASSESSMENT OF INTEREST RECEIVED UPFRONT OF RS. 27.64 CRORES. THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENGAGED IN BANKING BUSINESS AND HAS PURCHASED/DISCOUNTED INLAN D BILLS/EXPORT BILLS, LC ETC. THESE BILLS/LCS ETC. HAVE FIXED MATURITY PERIOD AND ARE SETTLED BY THE DRAWER ON MATURITY AND NOT THE BORROWER OF THE BANK. WHEN TH E ASSESSEE CAN CHARGE INTEREST ONLY ON THE BORROWER, SUCH INCOME IS APPOR TIONED ON TIME BASIS AS PER THE METHOD OF ACCOUNTING CONSISTENTLY EMPLOYED BY T HE ASSESSEE, WHEREIN THE INCOME RELATABLE TO CURRENT YEAR IS TAKEN AS INCOME FOR THE YEAR AND THE BALANCE RELATABLE TO THE SUBSEQUENT PERIOD IS OFFERED AS IN COME OF THAT YEAR. HE FURTHER SUBMITTED THAT THIS METHOD IS CONSISTENTLY FOLLOWED OVER THE YEARS AND ACCEPTED BY THE REVENUE. SECTION 5 IS SUBJECT TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE U/S. 145 OF THE ACT. A METHOD OF ACCO UNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE CANNOT BE DISTURBED WITHOUT ANY VAL ID REASON. THERE IS NO REQUIREMENT EITHER U/S. 5 OR UNDER SECTION 145 TO O FFER THE INCOME RECEIVED ON I.T.A. NO.169 /COCH/2014 3 CASH BASIS, AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER OUGHT NOT TO HAVE UNNECE SSARILY DISTURBED THE METHOD OF ACCOUNTING CONSISTENTLY WITHOUT ANY VALID REASON . 7. THE CIT(A) OBSERVED THAT SINCE THE ASSESSEE IS O NLY DISCOUNTING THE BILL, THE TRANSACTION IS COMPLETED AT THE POINT OF DISCOU NTING OF BILL AND THE INCOME ACCRUES TO THE ASSESSEE AT THAT POINT AND HENCE, CO NFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. ACCORDING TO THE LD. AR INCOME THOUGH RECEIVED U PFRONT IS ACTUALLY RELATABLE TO A PERIOD OF TIME AND IS OFFERED ON PER IOD BASIS FOR THE NEXT ASSESSMENT YEAR AND ACCORDINGLY, SUBMITTED THAT THE ADDITION BE DELETED. 9. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT SIN CE THE ASSESSEE IS IN THE RELATIONSHIP TO BORROWER WHO DISCOUNTS THE BILL, TH E TRANSACTION IS COMPLETED AT THE POINT OF DISCOUNTING OF BILL AND THE INCOME ALS O ACCRUES TO THE ASSESSEE AT THAT POINT AND ACCORDINGLY, THE ACTION OF THE ASSES SING OFFICER IS TO BE CONFIRMED. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. IN THIS CASE, THE ASSESSEE HAS TRANSFERRED AN AMOUNT OF RS. 27.64 CRO RES TOWARDS OTHER LIABILITIES OUT OF THE INTEREST RECEIVED UPFRONT ON INLAND BILL S AND EXPORT BILLS PURCHASED/DISCOUNTED. THOUGH INITIALLY, THE FULL A MOUNT RECEIVED IS CREDITED TO THE P&L ACCOUNT AS IT WAS RECEIVED BY THE ASSESSEE, AT THE TIME OF PREPARING FINAL ACCOUNTS, PROPORTIONATE INTEREST RELATING TO THE REMAINING PERIOD OF MATURITY OF THE BILLS WAS TRANSFERRED FROM THE P&L ACCOUNT T O UNEXPIRED INTEREST/DISCOUNT/COMMISSION IN THE BALANCE SHEET. ACCORDING TO THE LD. AR, THIS AMOUNT IS NOT ACCRUED TO THE ASSESSEE AND SINCE THE ASSESSEE CAN CHARGE INTEREST ONLY ON THE BORROWER, SUCH INCOME IS APPOR TIONED ON THE BASIS OF PERIOD OF TIME. IN OUR OPINION, WHEN BILLS ARE DISCOUNTED , THE TRANSACTION IS COMPLETED I.T.A. NO.169 /COCH/2014 4 AND INCOME IS ACCRUED TO THE ASSESSEE AND THERE IS NO QUESTION OF POSTPONEMENT OF RECOGNITION OF INCOME. HENCE, IN OUR OPINION, TH E LOWER AUTHORITIES ARE JUSTIFIED IN TREATING THE AMOUNT ACCRUED AS INCOME OF THE ASS ESSEE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 25-07- 2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 25TH JULY, 2014 GJ COPY TO: 1. THE FEDERAL BANK LTD., FEDERL TOWERS, H.O., ALUV A. 2. THE ADDL. COMMISSIONER OF INCOME-TAX, ALUVA RANG E, ALUVA. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCHIN