The ACIT Cir-1(1), Thrissur V. South Indian Bank Ltd, Thrissur

ITA 390/COCH/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5378 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 10-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A.S.BINDHU
• Keywords: Business income; Business expenditure; Earning of tax free income; Bad and doubtful debts; Tax effect; Revised return; Rule 8D; Set aside; Capital Gains
• Section: 14A; 37(1); 201; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI CHANDRA POOJAR I, AM & SHRI GEORGE GEORGE K, JM ITA NO. 390 /COCH/201 9 : ASST.YEAR 2015 - 2016 THE ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1) THRISSUR. VS. M/S. THE SOUTH INDIAN BANK LIMITED, SIB HOUSE PB NO.28, MISSION QUARTERS, THRISSUR. PAN : AABCT0022F . (APPELLANT) (RESPONDENT) ITA NO. 373 /COCH/201 9 : ASST.YEAR 2015 - 2016 M/S.THE SOUTH INDIAN BANK LIMITED, SIB HOUSE PB NO.28, MISSION QUARTERS, THRISSUR. VS. THE ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1) THRISSUR. (APPELLANT) (RESPONDENT) REVENUE BY : SMT.A.S.BINDHU, SR.DR ASSESSEE BY : SRI. C.NARESH, FCA DATE OF HEARING : 20.08.2019 DATE OF PRONOUNCEMENT : 22 .08.2019 O R D E R PER CHANDRA POOJARI, AM : THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 27.02.2019, IN RELATION TO ASSESSMENT YEAR 2015 - 2016. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF ELIGIBLE DEDUCTION U/S 36(1)(V III) OF THE I.T.ACT IN RESPECT OF LONG TERM LOANS GIVEN TO INDIVIDUALS ON THE GROUND THAT THEY DO NOT CONSTITUTE LOANS FOR DEVELOPMENT OF HOUSING IN INDIA. THE REVENUE HAS ALSO RAISED SIMILAR GROUND IN ITS APPEAL AGAINST THE DELETION OF DISALLOWANCE OF DED UCTION U/S 36(1)(VI I I) AMOUNTING TO RS.43,50,39,038. ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED DEDUCTION U/S 36(1)(VIII) OF THE I.T.ACT BY HOLDING THAT THE ASSESSEE HAS NOT ADVANCED ANY LOAN TERM FINANCE FOR INDUST RIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND DEVELOPMENT OF HOUSING IN INDIA. 4. IN FIRST APPEAL, THE CIT(A), CONFIRMED THE SAME , BY OBSERVING AS UNDER: - 6.3 FACTS BEING IDENTICAL, FOLLOWING MY OWN ORDER, I HOLD THAT THE APPELLANT IS ENTITLED TO DEDUCTION IN ACCORDANCE WITH THE SECTION 36(1)(VIII) FOR THE INCOME GENERATED FROM ADVANCING TO (A) INDUSTRIAL OR AGRICULTURAL DEVELOPMENT (B) DEVELOPMENT OF INFRASTRUC TURE FACILITY IN INDIA ONLY. NO DEDUCTIONS SHALL BE ALLOWED TO THE APPELLANT FOR AMOUNT CLAIMED IN RESPECT OF ADVANCES / LOANS GIVEN FOR INDIVIDUAL HOUSES. FURTHER, THE DISALLOWANCE WILL BE COMPUTED WITH RESPECT TO AMOUNT CLAIMED BY THE APPELLANT IN ITS RE VISED RETURN OF INCOME. THIS GROUND IS, THEREFORE, PARTLY ALLOWED. AGAINST THE SAME, BOTH THE ASSESSEE AND REVENUE IS IN APPEAL BEFORE US. 5 . AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE OPINION THAT THE SAME ISSUE CA ME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012 - 2013 IN ITA NO.215/COCH/2018, WHEREIN THE TRIBUNAL VIDE ITS ORDER DATED 20 TH MARCH, 2019, OBSERVED AS UNDER: - 5. THE NEXT COMMON GROUND IN ASSESSEES APPEAL IN ITA NO.215/COCH/2018 AND REVENUES APPEAL IN ITA NO. ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 3 219/COCH/2018 IS WITH REGARD TO DISALLOWANCE OF DEDUCTION OF RS.10,79,80,515/ - (LATER RE - WORKED AND REVISED AT RS.9,53,09,753/ - ) DURING THE COURSE OF THE APPEAL) CLAIMED IN RESPECT OF SPECIAL RESERVE U/S. 36 (1)(VIII) OF THE ACT. 6. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAD DISALLOWED AN AMOUNT OF RS.10,79,80,515/ - BEING THE DEDUCTION CLAIMED U/S. 36(1)(VIII) OF THE ACT HOLDING THAT THE ASSESSEE HAD NOT ADVANCED ANY LOAN AS LONG TERM FINANCE F OR DEVELOPMENT OF HOUSING IN INDIA, INDUSTRIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA. 7. ON APPEAL, THE CIT(A) ALLOWED DEDUCTION U/S. 36(1)(VIII) OF THE ACT FOR THE INCOME GENERATED FROM ADVANCING LOANS TO INDUSTRIAL OR AGRICULTURAL DEVELOPMENT AND DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF ERNAKULAM DISTRICT CO - OP. BANK LTD. VS. JT. DIRECTOR OF INCOME - TAX (TS - 7866 - ITAT - 2017), HOWEVER, WITH REGARD TO LONG TERM FINANCE FOR DEVELOPMENT OF HOUSING IN INDIA, HE OBSERVED THAT CONSTRUCTION/PURCHASE OF INDIVIDUAL HOUSES DOES NOT TANTAMO UNT TO HOUSING DEVELOPMENT. HENCE, HE UPHELD THE ACTION OF THE ASSESSING OFFICER IN SO FAR AS THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE FOR ADVANCES GIVEN FOR DEVELOPMENT OF HOUSING IS CONCERNED U/S. 36(1)(VIII) OF THE ACT. 8. AGAINST THIS, BOTH THE REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US. THE LD. AR HAD MADE ELABORATE SUBMISSIONS WHICH HAS BEEN EXTRACTED IN THE CIT(A)S ORDER. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 9. WE HAVE HEARD THE RI VAL SUBMISSIONS AND PERUSED THE RECORD. AS REGARDS THE ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S 36(1)(VIII), FIRST POINT TO BE CONSIDERED IS WHETHER THE ASSESSEE IS A SPECIFIED ENTITY. FOR THIS WE WILL HAVE TO CONSIDER EXPLANATION (A) TO SECTION 36(1) (VIII) WHICH IS REPRODUCED BELOW: (I) A FINANCIAL CORPORATION SPECIFIED IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956); (II) A FINANCIAL CORPORATION WHICH IS A PUBLIC SECTOR COMPANY (III) A BANKING COMPANY (IV) A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK; ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 4 (V) A HOUSING FINANCE COMPANY AND (VI) ANY OTHER FINANCIAL CORPORATION INCLUDING A PUBLIC COMPANY BEING A BANKING COMPANY, IT IS CLEAR THAT THE ASS ESSEE IS A SPECIFIED ENTITY WITHIN CLAUSE (III) OF EXPLANATION (A) TO SECTION 36(1)(VIII). 9.1 NEXT POINT TO BE CONSIDERED IS WHETHER THE ASSESSEE WILL BE ENTITLED TO DEDUCTION U/S. 36(1)(VIII) FOR INCOME GENERATED BY GIVING LOANS TO THEIR CUSTOMERS FOR PURCHASE/CONSTRUCTION OF INDIVIDUAL HOUSES. FOR THIS WE WILL HAVE TO CONSIDER EXPLANATION (B) TO SECTION 36(1)(VIII). (B) ELIGIBLE BUSINESS MEANS (I) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB - CLAUSE (I) OR SUB - CLAUSE (II) OR SUB - CLAUSE ( III) OR SUB - CLAUSE (IV) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR (A) INDUSTRIAL OR AGRICULTURAL DEVELOPMENT (B) DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA; OR (C ) DEVELOPMENT OF HOUSING IN INDIA (II) IN RESPECT OF THE SPE CIFIED ENTITY REFERRED TO IN SUB - CLAUSE (V) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES; AND 9.2 HERE IT IS QUITE APPARENT THAT A HOUSING FINANCE COMPANY WILL BE ENTITLED TO THE DEDUCTION U/S 36(1)(VIII) FROM INCOME GENERATED OUT OF THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES. A BANKING COMPANY WILL BE ENTITLED TO THE DEDUCTION U/S 36(1)(V III) FROM INCOME GENERATED OUT OF THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR ONLY DEVELOPMENT OF HOUSING IN INDIA. THIS MAKES IT ABUNDANTLY CLEAR THAT FOR THE PURPOSES OF SECTION 36(1)(VIII) PROVIDING LONG - TERM FINANCE FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND PROVIDING LONG - TERM FINANCE FOR ONLY DEVELOPMENT OF HOUSING IN INDIA ARE DIFFERENT. 9.3 THE WORDS DEVELOPMENT OF HOUSING OR HOUSING HAS NOT BEEN DEFINED IN T HE ACT. HENCE, WE WILL HAVE TO TAKE THE DICTIONARY MEANING. HOUSING MEANS AS PER DICTIONARY MEANING : - MERRIAM WEBSTER - IS A GROUP OF INDIVIDUAL DWELLINGS OR APARTMENT HOUSES TYPICALLY OF SIMILAR DESIGN THAT ARE USUALLY ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 5 BUILT AND SOLD OR LEASED BY ONE MA NAGEMENT. CAMBRIDGE : AN AREA CONTAINING LARGE NUMBER OF HOUSES OR APARTMENTS BUILT CLOSE TOGETHER AT THE SAME TIME. COLLINS: A LARGE NUMBER OF HOUSES OR FLATS BUILT TOGETHER AT THE SAME TIME. 9.4 HOWEVER, THE ASSESSEE REFERRED TO LEGISLATIVE HISTORY OF SECTION 36(1)(VIII). PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2009 ALL BANKING COMPANIES WERE ENTITLED TO DEDUCTION U/S 36(1)(VIII) FOR THE PROFITS GENERATED FROM THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN I NDIA FOR RESIDENTIAL PURPOSES. NOW LET US QUOTE FROM THE EXPLANATORY CIRCULAR FOR FINANCE (NO.2) ACT, 2009. 17. SPECIAL DEDUCTION UNDER SECTION 36(1) (VIII) TO NATIONAL HOUSING BANK (NHB) 17.1 CLAUSE (VIII) OF SUB - SECTION (1) OF SECTION 36 [SECTION 36 (1)(VIII)] PROVIDES SPECIAL DEDUCTION TO FINANCIAL CORPORATIONS AND BANKING COMPANIES OF AN AMOUNT NOT EXCEEDING 20% OF THE PROFITS SUBJECT TO CREATION OF A RESERVE. EXPLANATORY CIRCULAR FOR FINANCE (NO.2) ACT, 2009 PAGE 22 OF 63 17.2 NATIONAL HOUSING BA NK (NHB) IS WHOLLY OWNED BY RESERVE BANK OF INDIA AND IS ENGAGED IN PROMOTION AND REGULATION OF HOUSING FINANCE INSTITUTIONS IN THE COUNTRY. IT PROVIDES RE - FINANCING SUPPORT TO HOUSING FINANCE INSTITUTIONS, BANKS, ARDBS, RRBS ETC., FOR THE DEVELOPMENT OF H OUSING IN INDIA. IT ALSO UNDERTAKES FINANCING OF SLUM PROJECTS, RURAL HOUSING PROJECTS, HOUSING PROJECTS FOR EWS AND LIG CATEGORIES ETC. NHB IS ALSO A NOTIFIED FINANCIAL CORPORATION UNDER SECTION 4A OF THE COMPANIES ACT. 17.3 A VIEW HAS BEEN EXPRESSED TH AT NHB IS NOT ENTITLED TO THE BENEFITS OF SECTION 36(1)(VIII) ON THE GROUND THAT IT IS NOT ENGAGED IN THE LONG - TERM FINANCING FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSE. HENCE THE ACT HAS BEEN AMENDED TO PROVIDE THAT CORPORATIO NS ENGAGED IN PROVIDING LONG - TERM FINANCE (INCLUDING REFINANCING) FOR DEVELOPMENT OF HOUSING IN INDIA WILL BE ELIGIBLE FOR THE BENEFIT UNDER SECTION 36(1)(VIII). ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 6 17.4 APPLICABILITY - THESE AMENDMENTS WILL BE EFFECTIVE FROM THE 1ST APRIL, 2010 AND WILL AC CORDINGLY APPLY IN RESPECT OF ASSESSMENT YEAR 2010 - 11 AND SUBSEQUENT ASSESSMENT YEARS.' 9.5 IT IS TRUE THAT THE AMENDMENT PROVIDED THE DEDUCTION TO NATIONAL HOUSING BANK. BUT THE AMENDMENT ALSO SUBSTITUTED THE PREVIOUS WORDS WITH WORDS 'DEVELOPMENT OF HOUSING' WHICH HAS TO BE INTERPRETED IN ITS PLAIN DICTIONARY MEANING IN ABSENCE OF ANY DEFIN ITION GIVEN. WE CANNOT READ INTO LAW ANYTHING THAT IS NOT SPECIFICALLY PROVIDED THEREIN. 9.6 THE ASSESSEE REFERRED TO THE ORDER OF THE TRIBUNAL IN THE CASE OF ERNAKULAM DISTRICT CO - OP BANK LTD. VS. JOINT DIRECTOR OF INCOME TAX (TS - 7866 - IT AT - 2017 (COCHIN ). IT IS STATED THAT DEVELOPMENT OF HOUSING WAS NOT ISSUE FOR ADJUDICATION BEFORE THE IN THIS CASE. THE ITAT HAD ADJUDICATED UPON THE ISSUE OF DEVELOPMENT OF INFRASTRUCTURE VIDE THE AFORESAID ORDER. THUS, THE SAID CASE IS OF NO HELP TO THE ASSESSEE. 9.7 FROM THE ABOVE, IT IS CLEAR THAT CONSTRUCTION/PURCHASE OF INDIVIDUAL HOUSES DOES NOT TANTAMOUNT TO HOUSING DEVELOPMENT. HENCE, WE UPHOLD THE ACTION OF THE LOWER AUTHORITIES IN SO FAR AS THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE FOR ADVANCES/LOANS GIVE N FOR DEVELOPMENT OF HOUSING IS CONCERNED. NO DEDUCTION SHALL BE ALLOWED TO ASSESSEE U/S 36(1)(VIII) FOR THE AMOUNT CLAIMED BY ASSESSEE IN RESPECT OF ADVANCES/LOANS GIVEN FOR INDIVIDUAL HOUSES. 10.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE CORD. THE CIT(A) HAS PLACED RELIANCE ON THE DECISION OF THE ITAT IN THE CASE OF ERNAKULAM DISTRICT CO - OP. BANK LTD. VS. JOINT DIRECTOR INCOME - TAX (TS - 7866 - IT AT - 2017 (COCHIN) WHEREIN IT WAS HELD AS UNDER: 9. BRIEFLY STATED THE FACTS IN RELATION TO THE REVENUE'S APPEAL IS THAT DURING THE ASSESSMENT YEAR 2010 - 11, THE ASSESS E E HAD CLAIMED AN AMOUNT OF RS.1,73,33,833/ - AS DEDUCTION U/S.36(1)(VIII) OF THE IT ACT. HOWEVER, WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER RESTRICTED THE SAME TO RS. 45,93 ,784/ - . FOR RESTRICTING THE DEDUCTION, THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION IN RESPECT OF THE LOANS FOR HOSPITAL CONSTRUCTION, EDUCATIONAL INSTITUTIONS, INDUSTRIAL PURPOSES, SMALL SCALE PROJECTS. ACCORDING TO THE ASSES SING OFFICER, ONLY THE LOANS UNDER THE CATEGORY OF HOUSING ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 7 LOANS IS ELIGIBLE FOR DEDUCTION AND ACCORDINGLY RESTRICTED THE CLAIM OF DEDUCTION TO THE INTEREST INCOME EARNED FROM HOUSING LOANS. 9.1 ON APPEAL, THE CIT(A) READ AS FOLLOWS: - '8.5 FURTHER, AS PER THE PROVISIONS OF SECTION 36(1)(VIII), ELIGIBLE BUSINESS MEANS BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT, DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND DEVELOPMENT OF HOUSING IN INDIA. THE BREAK UP OF THE LONG TERM FINANCE WAS ALSO FURNISHED BY THE APPELLANT, AS BELOW: - DESCRIPTION INTEREST (RS.) INCOME PURPOSES LONG TERM A/ ON HOUSING LOAN AGRI. 11,19,104 HOUSING LOAN AGRI. LOAN 37,89,067 AGRI. PURPOSES. MITHRA SHG / NHG LOANS 12,59,494 CARRY BAG MFG. UNITS (INDUSTRIAL PURPOSES) TERM LOANS 64,17,383 FOR ESTABLISHMENT OF NEW INDUSTRIES AND ALLIED ACTIVITIES SOCIETIES AND EXPANSION OF EXISTING INDUSTRIES. HOUSING LOANS 42,85,34,630 HOUSING PROJECT LOANS 2,32,48,158 SMALL SCALE INDUSTRIAL PROJECTS ETC. OTHER LONG TERM 4,54,60,679 FOR PURCHASE OF PROPERTY LOAN HOUSING (CONSTRUCTION OF FLATS / PURCHASE OF PROPERTY FOR CONSTRUCTION OF HOUSE /FLAT) TOTAL 50,98,18,515 8.6. FROM THE ABOVE DISCUSSIONS, IT IS CLEAR THAT THE SAID LOANS FALLS UNDER THE ELIGIBLE BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT, DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND DEVELOPMENT OF HOUSING IN INDI A AND HENCE IS ELIGIBLE FOR DEDUCTION U/S.36(1)(VIII). ACCORDINGLY, DEDUCTION OF RS.1, 56,78,943 IS ALLOWED TO THE ASSESSEE. 9.2 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. THE ID. DR STRONGLY SUPPORTED THE ORDER OF THE ASSE SSING OFFICER AND CONTENDED THAT THE NEW ORDER OF THE CIT(A) IS A NON - SPEAKING ORDER AND THE SAME NEEDS TO BE QUASHED. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERATED THE SUBMISSION MADE BEFORE THE INCOME TAX ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 8 AUTHORITIES. JOINT DIRECTOR OF INCOME TAX {TS - 7866 - IT AT - 2017 (COCHIN) - 9.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER PROVISIONS OF SECTION 36(1)(VIII) OF THE IT ACT, THE ELIGIBLE BUSINESS MEANS BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT, DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND DEVELOPMENT OF HOUSING IN INDIA. IN OUR VIEW, INDUSTRIAL PURPOSES INCLUDES ALL TYPES OF INDUSTRIES BOTH MANUFACTURING AS WELL AS SERVICE INDUSTRY. ADMITTEDLY, THESE ARE LOANS ADVANCED BY THE ASSESSEE FOR LONG TERM FI NANCE AND THE DETAILS OF THE PURPOSE FOR WHICH THE LOANS ARE ADVANCED ARE ENUMERATED IN PARA 8.5 OF THE IMPUGNED ORDER OF THE CIT(A). THE CIT(A), AFTER EXAMINING THE PURPOSE FOR WHICH THE LOANS WERE ADVANCED HAD CATEGORICALLY HELD THAT THE INTEREST INCOME, OUT OF LOANS ENUMERATED, CLEARLY FALLS WITHIN THE DEFINITION IF 'ELIGIBLE BUSINESS' UNDER SECTION 36(1)(VIII) OF THE ACT. THIS FACTUAL FINDING OF THE CIT(A) WAS NOT DISPELLED BY THE REVENUE BY ANY CONTRARY MATERIAL ON RECORD. MOREOVER, ON IDENTICAL FACTS, THE CLAIM U/S. 36(1)(VIII) OF THE ACT FOR EARLIER ASSESSMENT YEARS NAMELY A.Y.2008 - 09 AND 2009 - 10 WERE DISALLOWED BY THE CIT(A) AND DEPARTMENT HAD ACCEPTED THE SAME. IT IS WELL SETTLED THAT DEPARTMENT HAVING ACCEPTED THE CIT(A)'S ORDER FOR EARLIER YEARS C ANNOT AGITATE THE ISSUE FOR THE CURRENT ASSESSMENT YEARS, UNLESS DEPARTMENT IS ABLE TO PROVE THAT FOR EARLIER YEARS CIT(A) ORDERS WERE ACCEPTED ON ACCOUNT OF LOW TAX EFFECT. THEREFORE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCOR DANCE WITH LAW ON THIS ISSUE AND NO INTERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.2 ACCORDINGLY, THE CIT(A) OBSERVED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION IN ACCORDANCE WITH SECTION 36(1)(VIII) FOR THE INCOME GENERATED FROM ADVANCING TO (A) INDUSTRIAL OR AGRICULTURAL DEVELOPMENT AND (B) DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA. THEREFORE, THIS GROUND WAS PARTIALLY ALLOWED. HOWEVER, THE CIT(A) FOUND THAT THE ASSESSE E HAD ADOPTED A NEW METHODOLOGY FOR CLAIMING DEDUCTION U/S 36(1)(VIII) OF IT ACT WHICH IS MORE OBJECTIVE AND HAD RESULTED IN REDUCTION OF ASSESSEES CLAIM. THUS, WHILE ALLOWING DEDUCTION U/S 36(1)(VIII) OF IT ACT, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW SUCH DEDUCTION AS PER THE NEW COMPUTATION. ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 9 10.3 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL IN THE CASE OF ERNAKULAM DISTRICT CO - OP. BANK LTD. VS. JOINT DIRECTOR INCOME - TAX (SUPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN GRANT ING RELIEF TO THE ASSESSEE U/S. 36(1)(VIII) OF THE ACT WITH REGARD TO PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND THE SAME IS CONFIRMED. THUS, THIS GROUND OF APPEALS OF BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED. 6 . IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO DISMISS THE GROUND RAISED BY THE REVENUE AS WELL AS THE ASSESSEE . ACCORDINGLY, THIS GROUND OF APPEAL IS REJECTED. 7 . GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST NOT ALLOWING DEDUCTION U/S 36(1)(VIIA) IN RESPECT OF RURAL BRANCHES BASED ON POPULATION OF WARD AND INSTEAD CONFIRMING THE ORDER OF THE A.O. ALLOWING THE SAME BASED ON POPULATION OF VILLAGE. 8 . THE FACTS OF THE CASE IN B RIEF ARE THAT THE ASSESSING OFFICER DISALLOWEDRS.47,56,61,323 ON ACCOUNT OF AMOUNT ADMISSIBLE IN RESPECT OF PROVISION OF BAD AND DOUBTFUL DEBTS PERTAINING TO RURAL BRANCHES. THE ASSESSEE ITSELF HAS SUBMITTED THAT THE SAID ISSUE IS DECIDED AGAINST THE ASSES SEE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ITS OWN CASE. IN FIRST APPEAL, THE CIT(A) CONFIRMED THE SAME. 9 . AFTER HEARING BOTH SIDES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT V. LORD KRISHNA BANK LIMITED [ ( 201 1 ) 339 ITR 606 (KER. ) ] WHEREIN IT WAS HELD AS UNDER: - 4. NEXT QUESTION RAISED PERTAINS TO THE ASSESSEE'S CLAIM FOR DEDUCTION OF PROVISION FOR BAD DEBTS IN TERMS OF SECTION 36(1)(VIIA) OF THE ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 10 INCOME - TAX ACT. HERE THE ONLY QUESTION RAISED IS AS TO BASIS OF CLASSIFYING BRANCHES OF THE BANK AS RURAL BRANCHES AND OTHER BRANCHES. RURAL BRANCH IS DEFINED UNDER EXPLANATION (IA) TO SECTION 36(1)(VIIA) AS FOLLOWS : ' 'RURAL BRANCH' MEANS A BRANCH OF A SCHEDULED BANK OR A NON SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOT MORE THAN TEN THOUSAND ACCORDIN G TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR.' 5. WHAT IS CLEAR FROM THE ABOVE IS THAT THE CLASSIFICATION BETWEEN RURAL AND OTHER BRANCHES OF A BANK IS MADE BASED ON THE POPULATION IN THE PLACE WHERE THE CONCERNED BRANCH IS LOCATED. WHILE THE ASSESSEE'S CASE THAT FOUND ACCEPTANCE WITH THE TRIBUNAL IS THAT 'PLACE' REFERRED TO IN THE ABOVE DEFINITION CLAUSE IS THE WARD OF A PANCHAYAT OR MUNICIPALITY, THE ASSESSING OFFICER TO OK THE VIEW THAT 'PLACE' CONTAINED IN THE DEFINITION CLAUSE SHOULD MEAN A REVENUE VILLAGE. NO DOUBT, 'PLACE' AS SUCH IS NOT DEFINED IN THE DEFINITION CLAUSES AND SO MUCH SO, WE HAVE TO FIND OUT THE SCOPE AND MEANING OF 'PLACE' REFERRED TO IN THE SECTION. S TANDING COUNSEL FOR THE DEPARTMENT PRODUCED BEFORE US LAST PUBLISHED CENSUS REPORT OF 2001. EVEN THOUGH THE PREVIOUS CENSUS REPORT MAY BE THE RELEVANT ONE, WE FEEL THE SCOPE OF 'PLACE' AS REFERRED TO IN THE CENSUS REPORT PRODUCED COULD BE ADOPTED FOR THE P URPOSE OF THIS CASE. WHAT IS WRITTEN IN THE CENSUS REPORT 2001 IS AS FOLLOWS : 'THE BASIC UNIT FOR RURAL AREAS IS THE REVENUE VILLAGE WITH DEFINITE SURVEYED BOUNDARIES. THE RURAL AREA IS, HOWEVER, TAKEN AS THE RESIDUAL PORTION EXCLUDING THE URBAN AREA AND FOR THAT NO STRICT DEFINITION IS FOLLOWED.' 10 . IN VIEW OF THE AFORESAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE ARE INCLINED TO REJECT THE ABOVE GROUND OF APPEAL RAISED BY THE ASSESSEE . 11 . THE OTHER GROUNDS OF APPEAL RAISED BY TH E ASSESSEE FOR OUR CONSIDERATION READ AS UNDER: - 3 ALLOWABILITY OF CLAIMS MADE DURING THE COURSE OF ASSESSMENT. THE LD. CIT(A) ERRED IN HOLDING THAT CLAIMS MADE DURING THE COURSE OF ASSESSMENT CANNOT BE ALLOWED EVEN BY CIT(A) WITHOUT APPRECIATING THAT IN A NUMBER OF JUDICIAL DECISIONS THAT APPELLATE AUTHORITIES SHOULD DECIDE ON CLAIMS MADE OTHER THAN BY WAY OF REVIS ED RETURN. ACCORDINGLY, CIT(A) OUGHT TO HAVE DECIDED AND ALLOWED THE FOLLOWING CLAIMS. ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 11 4. DEDUCTION U / S 36(1)(VII) THE CIT(A) ERRED IN NOT ALLOWING DEDUCTION IN RESPECT OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS.97,32,19,596.00 U / S 36(1)(VII) CLAIMED DURI NG THE ASSESSMENT PERIOD. THE CIT(A) OUGHT TO HAVE TAKEN COGNIZANCE OF SAID CLAIM WHICH APPELLANT WAS ENTITLED AND FURTHER AS THERE WAS NO CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT U / S 36(1)(VIIA) TO BE SET OFF AGAINST THE BAD DEBT S WRITTEN OFF BY VIRTUE OF THE AMENDED PROVISIONS OF SEC 36(1)(VII) APPLICABLE FROM AY 2014 - 15. 5 DISALLOWANCE OF BAD DEBTS WRITTEN OFF. THE CIT(A) ERRED IN NOT CONSIDERING AND ALLOWING THE CLAIM IN RESPECT OF BAD DEBTS WRITTEN OFF OF RS. 97.32 CRORE SINCE THERE WAS NO OPENING CREDIT BALANCE IN PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT U / S 36(1 )(VIIA) COMPUTED FROM 01.04.2013 BASED ON THE AME NDED PROVISIONS OF SECTION 36(1 )(VII). 6 DISALLOWANCE OF WRITE OFF FROM PROVISION FOR OTHER IMPAIRED ASSETS THE CIT(A) OUGHT TO HAVE CONSIDERED AND ALLOWED THE CLAIM OF WRITE OFF AMOUNTING TO RS. 53,8601 - SINCE PROVISION MADE FOR IMPAIRED ASSETS EVERY YEAR IS ADDED BACK AND OFFERED TO TAX. SINCE, THE APPELLANT HAD WRITTEN OFF THE IRRECOVERABLE AMOUNT FROM THE SAID PROVISION OFFERED TO TAX, THE SAME SHOULD HAVE BEEN ALLOWED. 7 ALLOWABILITY OF DEDUCTION U/ S 35D THE CIT(A) SHOULD HAVE CONSIDERED AND ALLOWED THE CLAIM OF DEDUCTION U / S 35D OF RS. 1.03 CRORE BEING 1/5TH OF THE EXPENDITURE INCURRED FOR RAISING CA PITAL BASED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF DHANALAKSHMI BANK LTD (261 TAXMAN 521). 8 TAXING OF PROFIT ON SALE OF NON - BANKING ASSETS UNDER CAPITAL GAINS INSTEAD OF BUSINESS INCOME ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 12 THE CIT(A) SHOULD HAVE CONSIDERED AND ALLOWED THE CLAIM OF APPELLANT THAT PROFIT ARISING FROM SALE OF NON - BANKING ASSETS OF RS. 40,000 / - SHOULD BE TAXED UNDER CAPITAL GAINS AND NOT UNDER BUSINESS INCOME SINCE IT IS NOT THE BUSINESS OF BANK TO SELL NON - BANKING ASSETS ACQUIRED IN SATISFACTION OF DEBTS. 9 TAXING OF RECOVERY IN RESPECT OF BAD DEBTS WRITTEN OFF OF RURAL BRANCHES THE CIT(A) SHOULD HAVE CONSIDERED AND ALLOWED THE CLAIM OF APPELLAN T THAT RECOVERY IN RESPECT OF BAD DEBTS WRITTEN OFF OF RURAL BRANCHES OF RS. 19.4 8 LACS CANNOT BE TAXED SINCE B AD DEBTS WRITTEN OFF OF RURAL BRANCHES WAS NEVER ALLOWED AS DEDUCTION. 10 DISALLOWANCE OF AMOUNT PAID TO RBI FOR NON - ADHERENCE TO ITS GUIDELINES THE CIT(A) SHOULD HAVE CONSIDERED AND ALLOWED THE CLAIM OF APPELLANT OF RS. 81,140/ - BEING PAYMENT MADE TO RBI FOR NON - ADHERENCE TO ITS GUIDELINES SINCE EXPLANATION 1 TO SECTION 37(1) IS NOT APPLICABLE TO SUCH PAYMENTS. 1 2 . THESE GROUNDS WERE RAISED FOR THE FIRST TIME BEFORE THE CIT(A). THE ASSESSEE HAS NOT MADE ANY CLAIM IN ITS ORIGINAL RETURN OR IN THE REVISED RETURN FILED BY IT. ACCORDING TO THE ASSESSEE, THE ASSESSING OFFICER OUGHT TO HAVE TAKEN COGNIZANCE OF SUCH CLAIMS WHICH WERE ENTITLED TO. HOWEVER, THE CIT(A) OBSERVED THAT THESE CLAIMS WERE MADE BY THE ASSESSEE DURING THE COURSE ASSESSMENT PROCEEDINGS BY WAY OF LETTER DATED 19.12.2017 AND THERE WAS NO CLAIM MADE IN THE ORIGINAL RETURN OR REVISED RETURN AND THESE CLAIM S WERE MADE BY WAY OF ABOVE LETTER, BEFORE THE A.O., AS SUCH THE ASSESSING OFFICER HAS NOT ALLOWED SUCH CLAIM OF DEDUCTIONS MADE BY THE ASSESSEE BY WAY OF LETTER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AND HENCE, HE REJECTED THE GROUNDS. ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 13 1 3 . AFTER HE ARING BOTH SIDES AND PERUSING THE MATERIAL ON RECORD, IN OUR OPINION, THE OBSERVATION OF THE CIT(A) IS NOT PROPER AS HELD BY THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF RAKESH SINGH V. ACIT IN ITA NO.1027/BANG/2011 DATED 24 TH AUGUST, 2012 RELEVANT TO AS SESSMENT YEAR 2007 - 2008, WHEREIN THE TRIBUNAL OBSERVED THAT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES, BUT IS ALSO ENTITLED TO RAISE ADDITIONAL CLAIMS BEFORE THEM. THE APPELLATE AUTHORITIES H AVE THE DISCRETION WHETHER OR NOT TO PERMIT SUCH ADDITIONAL CLAIMS TO BE RAISED. IT CANNOT, HOWEVER, BE SAID THAT THEY HAVE NO JURISDICTION TO CONSIDER THE SAME. THEY HAVE THE JURISDICTION TO ENTERTAIN THE NEW CLAIM. THAT THEY MAY CHOOSE NOT TO EXERCISE TH EIR JURISDICTION IN A GIVEN CASE IS ANOTHER MATTER. THE EXERCISE OF DISCRETION IS ENTIRELY DIFFERENT FROM THE EXISTENCE OF JURISDICTION. FOR THAT PURPOSE, THE TRIBUNAL RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V . CIT [(2006) 284 ITR 323 (SC)] AND REMANDED THE ISSUE TO THE FILE OF CIT(A) FOR FRESH CONSIDERATION. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL CITED SUPRA, WE ARE INCLINED TO REMIT ALL THE ABOVE GROUNDS TO THE CIT(A) TO CONSIDER AFRESH AND DECIDE THE SAME IN ACCORDANCE WITH LAW. 1 4 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 1 5 . THE FIRST GROUND RAISED BY THE REVENUE FOR OUR CONSIDERATION READS AS UNDER: - ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 14 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS.11,36,18,730/ - ON ACCOUNT OF ADDITIONS / DISALLOWANCES UNDER SECTION 14A OF THE I.T.ACT, 1961, SINCE THE DISALLOWANCE CANNOT EXCEED THE EXEMPTED INCOME EARNED FOR THE CUR RENT YEAR WHICH IS RS.1,30,42,860/ - AS PER RULE 8D AND THIS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. (402 ITR 640). THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE PASSING THE ORDER HAS NOT CONSIDERED THIS ASPECT AND THE ENTIRE ADDITION WAS DELETED. 1 6 . THE F ACTS OF THIS ISSUE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE RECEIVES VARIOUS FUNDS IN THE NATURE OF CAPITAL FUNDS, RESERVES, CURRENT ACCOUNT DEPOSITS WHICH ARE INTEREST FREE AND IT IS CLAIMED THAT IT IS THESE FUNDS THAT ARE INVESTED IN EARNING DIVIDEND INCOME. BUT THE FACT REMAINS THAT THE ASSESSEE IS UNABLE TO FURNISH ANY EVIDENCE TO PROVE THAT THE FUNDS ARE ACTUALLY FROM THIS INTEREST FREE FUNDS . THE INVESTMENTS ARE ACTUALLY MADE FROM A COMMO N SOURCE CONSISTING OF BOTH INTEREST BEARING AND INTEREST FREE FUNDS. THE ASSESSEE IS UNABLE TO MAKE A ONE TO ONE RELATION BETWEEN THE INTEREST FREE FUNDS AND THE INVESTMENT IN SHARES WHICH HAS YIELDED THE DIVIDEND. THE ASSESSEE, BEING A BANK, THE FUNDS GE NERATED FROM ALL ACTI V ITIES IS KEPT COMMON AND THERE IS NO SEGREGATION OF INTEREST BEARING AND INTEREST FREE FUNDS. IT IS HELD THAT WHAT SECTION 14A CONTEMPLATES IS REAL EXPENDITURE AND NOT ASSUMED OR DEEMED EXPENDITURE. THE FACT THAT THE ASSESSEE HAS NOT RECOGNIZED ANY EXPENDITURE TOWARDS EARNING THIS INCOME DOES NOT MEAN THAT THERE IS NO EXPENDITURE AT ALL IN CONNECTION WITH THE INVESTMENT IN SUCH SHARES. THERE IS AN ELEMENT OF EXPENDITURE IN CONNECTION WITH ADMINISTRATION AND A PORTION OF INTEREST PAID A LSO GETS MERGED ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 15 INTO THE ACTIVITY OF EARNING DIVIDEND. HAD THE MONEY NOT BEEN INVESTED IN SUCH SHARES, IT WOULD HAVE BEEN AVAILABLE FOR NORMAL BUSINESS AND TO THAT EXTENT THERE WOULD NOT HAVE BEEN A NEED TO BORROW TO THAT EXTENT FROM PUBLIC AND OTHER BANKS . WHILE DECIDING THIS MATTER RELIANCE IS PLACED ON THE DECISIONS OF THE FOLLOWING COURTS / ITAT : - (I) K.SOMASUNDARAM & BROS. VS. CIT (2381TR 139)(MAD.) (II) ) CIT VS. H.R.SUGAR FACTORY PVT. LTD. (187/TR 363)(ALAH.) (III) CONSOLIDATED COFFEE VS. ST ATE OF KAMATAKA (248 ITR 432)(SC) (IV) ITA T DECISION IN CIT VS. S. G. INVESTMENTS (89 ITO 44/KOL.) (V) ITAT DECISION IN CFT VS. QANISH K BHATT (91 ITD) (ABA D) (VI) ITAT DECISION IN CI T VS. EVERPLUS SECURITIES & FIN. LTD.(101 ITO 151) 17. IN THIS CONTEXT, THE DECISION OF THE KERA L A HIGH COURT IN ASSESSEE'S OWN CASE IN ITA NO.730 OF 2009 DATED 21.10.2010 IS OF IMPORTANCE. THOUGH THIS DECISION PERTAINS TO A YEAR BEFORE THE INTRODUCTION OF RULE 80 (I.E. A. Y.2007 - 08), THE OBSERVATIONS OF THE HON. HIG H COURT IS OF RELEVANCE. THE HIGH COURT EMPHASIZES THAT NON - MAINTENANCE OF SEPARATE ACCOUNTS IS NO EXCUSE FOR BEING UNABLE TO SUBSTANTIATE ITS CLAIM OF INTEREST BEARING FUNDS BEING USED TO EARN THE EXEMPT INCOME. THE COURT HAS HELD THAT IN THIS CIRCUMSTANC E, THE A . O. WAS RIGHT IN MAKING PROPORTIONATE DISALLOWANCES ULS.14A FOR A. YS. PRIOR TO A. Y.2007 - 08. THE HIGH COURT CATEGORICALLY HELD THAT FOR A. Y.2007 - 08 ONWARDS, RULE 80 GIVES A CLEAR PICTURE OF THE AMOUNT THAT IS TO BE DISALLOWED AND SHOULD BE APPLIE D. ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 16 18 . ON APPEAL, THE CIT(A) DELETED THE ADDITION BY PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT [ (2018) 402 ITR 640 (SC)] WHEREIN IT WAS HELD THAT EVEN IN THE CASE OF A DEALER IN SHARES, EARNING DIVIDEND INCOME FROM ITS STOCK - IN - TRADE, MAY EXPOSE HIS TO THE RIGORS OF SECTION 14A OF THE ACT . AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 1 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, SIMILA R ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.215/COCH/2018 FOR ASSESSMENT YEAR 2012 - 2013. THE TRIBUNAL VIDE ITS ORDER DATED 22.03.2019 FOLLOWED EARLIER ORDER OF THE TRIBUNAL IN ITA NO.29/COCH/2017 DATED 13.12.2017, WHEREIN IT WAS HELD AS UNDER: - 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND, THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, IN ASSESSEE'S OWN C ASE IN ITA 730 OF 2009. THE RELEVANT PARA OF THE HON'BLE JURISDICTIONAL HIGH COURT READS AS FOLLOW: - '5. WHAT WE HAVE SLATED ABOVE IS ONLY A REASONABLE SUGGESTION FOR THE ASSESSING OFFICER TO ADOPT WHICH ARISES ONLY IF ASSESSEE IS NOT ABLE TO ESTABLISH MO RE ACCURATELY THE INTEREST SPENT ON EARNING TAX FREE INCOME. WE, THEREFORE, LEAVE THIS MATTER TO BE DECIDED BY THE ASSESSING OFFICER WITH REFERENCE TO THE ACCOUNTS OF THE ASSESSEE BANKS FOR EACH YEAR. SINCE WE FIND THAT THE RATIONALE ADOPTED BY THE ASSESSI NG OFFICER TO ESTIMATE THE EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A IS NOT TENABLE, WE FEEL THE MATTER SHOULD BE RESTORED TO THE ASSESSING OFFICER FOR MAKING DISALLOWANCE UNDER SECTION 14A BY REASONABLY ESTIMATING AS NEARLY AS POSSIBLE THE EXPENDITURE INCURRED FOR EARNING THE TAX FREE INCOME. THIS SHOULD BE DONE AFTER GIVING OPPORTUNITY TO '.HE ASSES SEE - BANKS TO SUGGEST THEIR OWN FORMULA WITH REFERENCE TO ACCOUNTS FOR THE PURPOSE OF ARRIVING AT THE ACTUAL AMOUNT OR NEAR ACTUAL AMOUNT T HE DISALLOWANCE ON ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 17 ESTIMATED BASIS HAS TO BE DONE AS ABOVE UNTIL RULE 80 WAS FRAMED AND THEREAFTER IT IS FOR THE ASSESSING OFFICER TO MAKE DISALLOWANCE BY FOLLOWING SUB - SECTION (2) OF SECTION 14A AND RULE 80 OF THE INCOME TAX RULES. 6. SO FAR AS THE DISALL OWANCE OF ADMINISTRATIVE EXPENDITURE IS CONCERNED, WE FEEL CONSIDERING THE FACT THAT THERE IS NO PRECISE FORMULA FOR PROPORTIONATE DISALLOWANCE, NO DISALLOWANCE IS CALLED FOR, FOR PROPORTIONATE ADMINISTRATIVE COST ATTRIBUTABLE TO EARNING OF TAX FREE INCOME UNTIL RULE 80 CAME INTO FORCE. WE, THEREFORE, DISPOSE OF THE APPEALS BY SETTING ASIDE THE ORDERS OF THE TRIBUNAL AND THAT OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE AND REMAND ALL THE ASSESSMENTS BACK TO THE ASSESSING OFFICER FOR REWORKING DISALLOWANC E UNDER SECTION 14A IN THE CASE OF EACH ASSESSEE FOR EACH ASSESSMENT YEAR. THE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A SHOULD BE LIMITED TO ONLY INTEREST LIABILITY AND NOT OVERHEADS OR ADMINISTRATIVE EXPENDITURE; WHICH SHOULD BE CONSIDERED FOR DISALLO WANCE UNDER RULE 80 FROM 2007 - 08 ONWARDS.' 5. FROM THE ABOVE, IN OUR OPINION, IT IS VERY CLEAR THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR 2010 - 2011 ONWARDS, THE DISALLOWANCE U/S 14A SHOULD BE MADE UNDER RULE 8D BY THE A.O. IN THE IMPUGNED ASSESSMENT YEAR, I.E., 2009 - 2010, THE CIT(A) HAS RIGHTLY UPHELD THE ORDER OF THE A.O. BY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, IN ASSESSEE'S OWN CASE. THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE AS SESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF THE CIT(A). IT IS ORDERED ACCORDINGLY. 4.1 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO REJECT THIS GROUND OF APPEAL OF THE ASSESSEE. 20 . THE LEARNED AR SUBMITTED THAT AT THE TIME OF ADJUDICATING THE ISSUE IN ASSESSMENT YEAR 2012 - 2013, THE TRIBUNAL HAD NO OCCASION TO CONSIDER THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA) , HENCE, THE ISSUE TO BE DECIDED IN THE PRESENT APPEAL IN FAVOUR OF THE ASSESSEE. FOR THAT PURPOSE, HE ALSO PLACED RELIANCE ON VARIOUS DECISIONS, SPECIFICALLY FOLLOWING DECISIONS : - ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 18 (I) STATE BANK OF PATIALA (391 ITR 218) (P&H HIGH COURT) (II) ACIT V.UCO BANK [ITA NO.1615/KOL/2016 ORDER DATED 21.08.2018 FOR ASSESSMENT YEAR 2012 - 2013 ITAT KOLKATA BENCHES] (III) PUNJAB NATIONAL BANK V. ACIT [ITA NO.5481/DEL/ 2014 ORDER DATED 03.01.2019 FOR ASSESSMENT YEAR 2011 - 2012 ITAT DELHI BENCHES] 21 . WE HAVE CAREFULLY GONE THROUG H THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA) . IN THAT CASE AFTER CONSIDERING THE ISSUE, IT WAS HELD AS FOLLOWS: - HELD, (I) THAT WHEN THE SHARES WERE HELD AS STOCK - IN - TRADE AND NOT AS INVESTMENT, PARTICULARLY, BY BANKS, THE MAIN PURPOSE WAS TO TRADE IN THOSE SHARES AND EARN PROFITS THEREFROM. THOSE PROFITS WHICH WOULD NATURALLY BE TREATED AS INCOME UNDER THE HEAD PRO FITS AND GAINS FROM BUSINESS AND PROFESSION. WHEN THE SHARES WERE HELD AS STOCK - IN - TRADE, CERTAIN DIVIDEND WAS ALSO EARNED, THOUGH INCIDENTALLY, WHICH WAS ALSO INCOME WHICH BY VIRTUE OF SECTION 10(34) OF THE ACT, WAS NOT TO BE INCLUDED IN THE TOTAL INCO ME AND WAS EXEMPT FROM TAX. THIS TRIGGERED THE APPLICABILITY OF SECTION 14A OF THE ACT WHICH IS BASED ON THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON - TAXABLE INCOME. THEREFORE, TO THAT EXTENT, DEPENDING UPON THE FACTS OF EACH CASE, TH E EXPENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. (II) THAT THE ASSESSING OFFICER, WHILE PASSING THE ASSESSMENT ORDER, HAD ALREADY RESTRICTED THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE F ORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDING THAT SECTION 14A OF THE ACT WOULD BE APPLICABLE. THE COMMISSIONER (APPEALS) DISALLOWED THE ENTIRE DEDUCTION OF EXPENDITURE. THAT VIEW OF THE COMMISSIONER (APPEALS) WAS CLEARLY UNTENABLE AND RIGHTLY SET A SIDE BY THE TRIBUNAL. THEREFORE, ON THE FACTS, THE PUNJAB AND HARYANA HIGH COURT HAD RIGHTLY AFFIRMED THE VIEW OF THE TRIBUNAL, THOUGH THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT WAS INCORRECT. 22 . THUS, IT WAS OBSERVED BY THE HONBLE SUPR EME COURT THAT IF AN EXPENDITURE INCURRED HAS NO CONNECTION WITH THE EXEMPTED INCOME, THE SAME WOULD NOT BE CONSIDERED AS RELATED TO EXEMPT INCOME AND WAS ALLOWABLE AS BUSINESS EXPENSES. IT WAS ALSO HELD THAT THE DOMINANT PURPOSE FOR ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 19 WHICH SALES ARE HELD, WAS NOT RELEVANT OF SECTION 14A OF THE ACT. IT IS ALSO OBSERVED AS LONG AS THE EXEMPT INCOME WAS EARNED, THE EXPENDITURE INCURRED AS ATTRIBUTABLE TO EARNING SUCH EXEMPT INCOME HAD TO BE DISALLOWED U/S 14A AND ALSO IRRESPECTIVE OF THE OBJECTIVE OF INVESTMEN T IN SHARES WHEN THE SHARES ARE HELD AS STOCK - IN - TRADE WITH A VIEW TO EARN TRADING PROFITS OR AS INVESTMENT REPRESENTING CONTROLLING INTEREST AND IN THE COURSE IF THE ASSESSEE EARNED ANY EXEMPT INCOME, SECTION 14A WAS APPLICABLE AND EXPENSES TO BE DISALLOW ED IN RESPECT OF EXEMPT INCOME BY APPORTIONING THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE BETWEEN TAXABLE AND NON - TAXABLE INCOME. HOWEVER, THE A.O. HAS TO RECORD THE SATISFACTION BEFORE INVOKING ALL THESE PROVISIONS. THUS, IT IS WRONG TO SAY THAT IN TH E CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA) THE PRINCIPLE OF APPORTIONMENT IS NOT APPLICABLE. IN OTHER WORDS, THE HONBLE SUPREME COURT HELD THAT APPLYING THE PRINCIPLE OF APPORTIONMENT APPLICABLE IN SUCH CASES AND IT HAS TO BE DEPEND UPON THE FACTS OF EACH YEARS, THE EXPENDITURE INCURRED TO EARN EXEMPT INCOME TO BE APPORTIONED. FOR CLARITY WE REPRODUCE RELEVANT PARA OF THE JUDGMENT OF THE HONBLE SUPREME COURT: - 40. WE NOTE FROM THE FACTS IN THE STATE BANK OF PATIALA CASES THAT THE ASSESSING OFFICER, WHILE PASSING THE ASSESSMENT ORDER, HAD ALREADY RESTRICTED THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDING THAT SECTION 14A OF THE ACT WOULD BE APPLICABLE. IN SPITE OF THIS EXERCISE OF APPORTIONMENT OF EXPENDITURE CARRIED OUT BY THE ASSESSING OFFICER, THE COMMISSIONER OF INCOME - TAX (APPEALS) DISALLOWED THE ENTIRE DEDUCTION OF EXPEND ITURE. THAT VIEW OF THE COMMISSIONER OF INCOME - TAX (APPEALS) WAS CLEARLY UNTENABLE AND RIGHTLY SET ASIDE BY THE INCOME - TAX APPELLATE TRIBUNAL. THEREFORE, ON FACTS, THE PUNJAB AND HARYANA HIGH COURT HAS ARRIVED AT A CORRECT CONCLUSION BY AFFIRMING THE VIEW OF THE INCOME - TAX APPELLATE TRIBUNAL, THOUGH WE ARE NOT SUBSCRIBING TO THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS 'STOCK - IN - TRADE', IT BECOMES A BUSINESS ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 20 ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. WHETHER DIVIDEND IS EARNED OR NOT BECOMES IMMATERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE - COMPANY DECLARED DIVIDEND, THOSE SHARES ARE HELD BY THE ASSESSEE, THOUGH THE ASSE SSEE HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. THE SITUATION HERE IS, THEREFORE, DIFFERENT FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTROL OVER THE I NVESTEE - COMPANY. IN THAT CASE, WHENEVER DIVIDEND IS DECLARED BY THE INVESTEE - COMPANY THAT WOULD NECESSARILY BE EARNED BY THE ASSESSEE AND THE ASSESSEE ALONE. THEREFORE, EVEN AT THE TIME OF INVESTING INTO THOSE SHARES, THE ASSESSEE KNOWS THAT IT MAY GENERAT E DIVIDEND INCOME AS WELL AND AS AND WHEN SUCH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HELD AS STOCK - IN - TRADE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDATE THOSE SHAR ES WHENEVER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFITS. IN THE RESULT, THE APPEALS FILED BY THE REVENUE CHALLENGING THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN STATE BANK OF PATIALA ALSO FAIL, THOUGH LAW IN THIS RESPECT HAS BEEN CLARIFIED HE REINABOVE. 2 3 . IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE IS DECISION IN FAVOUR OF THE REVENUE IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR, WHICH HAS TO BE APPLIED FOR THE PRESENT ASSESSMENT YEAR ALSO. ACCORDINGLY, THIS GROUND OF APPE AL BY THE REVENUE IS ALLOWED . 2 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THIS 22 ND DAY OF AUGUST, 2019 . SD/ - SD/ - ( GEORGE GEORGE K ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN ; DATED : 22 ND AUGUST, 2019 . DEVDAS* ITA NO S . 390 & 373 / COCH /201 9 M/S. THE SOUTH INDIAN BANK LIMITED. 21 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, COCHIN 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (APPEALS), THRISSUR. 4. THE PR.CIT THRISSUR . 5. DR, ITAT, COCHIN 6 . GUARD FILE.