ACIT Circle 13 (1), V. Oriental Bank of Commerce,

ITA 542/DEL/2008

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8278 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-04-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 14-02-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R R SINGH
• Keywords: Capital asset; Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 45(2); 14A

Judgement Text

1 ITA NO. 257/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE P RESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-542/DEL/2008 (ASSESSM ENT YEAR-2003-04) ACIT CIRCLE-3(1) NEW DELHI (APPELLANT) VS M/S ORIENTAL BANK OF COMMERCE, COMPETENT HOUSE, F-14, 4 TH FLOOR, CONNAUGHT PLACE, NEW DELHI-110001 (RESPONDENT) I.T.A .NO.-3491/DEL/2008 (ASSESSM ENT YEAR-2005-06) M/S ORIENTAL BANK OF COMMERCE COMPETENT HOUSE, F-14, 4 TH FLOOR, CONNAUGHT PLACE, NEW DELHI-110001 (APPELLANT) VS JCIT CIRCLE 13(1) NEW DELHI (RESPONDENT) I.T .A .NO.-3614/DEL/2008 (ASSE SSMENT YEAR-2005-06) DCIT CIRCLE-13(1) NEW DELHI (APPELLANT) VS M/S ORIENTAL BANK OF COMMERCE, COMPETENT HOUSE, F-14, 4 TH FLOOR, CONNAUGHT PLACE, NEW DELHI-110001 (RESPONDENT) APPELLANT BY SH. R. R. SINGH, CIT DR RESPONDENT BY SH. K. V. S.R KRISHNA, CA ORDER PER SUCHITRA KAMBLE, JM DATE OF HEARING 04.04.2016 DATE OF PRONOUNCEMENT 06.04.2016 2 ITA NO. 257/DEL/2014 ITA NO. 542/DEL/2008 (A.Y 2003-04) 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. 2. 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 INCUR RED 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 R EGISTERED IN THE NAME OF THE BANK. 3. AS RELATES TO GROUND NO. 1 WHICH DEALS WITH DELE TION OF ADDITION OF RS.18,85,15,912/- BEING ESTIMATED EXPEN DITURE 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 HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR PREVIOUS YEAR HAS REMANDED THE MATTER BACK TO THE ASSESSING OFFICER IN TERMS OF THE RATIO AND DIRECTIONS GIVEN BY THE HONBLE DELHI HIGH COURT IN CASE OF MA XOPP INVESTMENT 3 ITA NO. 257/DEL/2014 LTD. VS. CIT [2011] 15 TAXMANN.COM 390. THE LD. DR DID NOT REFUTE THE SAME. 5. IN LIGHT OF THIS, GROUND NO. 1 IS REMITTED BACK TO THE ASSESSING OFFICER. 6. THE LD. AR DURING THE COURSE OF HEARING SUBMITTE D THAT IN THIS PARTICULAR CASE FOR GROUND NO. 2 & 3, THE COD WAS D ECLINED VIDE COD DATED 28 TH 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 PR IOR TO 7 TH 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 HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. CANARA BANK 2014 (263) ITR 156 (KAR NATAKA). THE LD. DR DID NOT REFUTE THE SAME. 7. IN VIEW OF THIS GROUND NO. 2 &3 DOES NOT SURVIVE , HENCE DISMISSED. 8. IN RESULT, APPEAL ITA NO. 542/DEL/2008 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. I.T.A .NO.-3491/DEL/2008 (2005-06) 9. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER DATED 26/9/2008 PASSED BY CIT (A)-XVI, NEW DELHI FOR ASSE SSMENT YEAR 2005-06 4 ITA NO. 257/DEL/2014 10. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE OFFICER AND CONFIRMING THE ADDITION OF RS.40.74 CRORES/- WI THOUT APPRECIATING THAT THE ASSESSEE HAS ACTUALLY SUFFERE D THE LONG TERM CAPITAL LOSS ON CONVERSION OF US 64 UNITS OF U TI BY UTI AND THEREFORE THE LOSS AS CLAIMED SHOULD BE ALLOWED FOR SET-OFF. 2. THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ASS ESSEE INVESTED IN UTI US-64 SCHEME SUM OF RS.149.25 CRORES ON 2/11/20 00. DUE TO FALL IN THE VALUE OF SHARES AND THE CONSEQUENT I MPACT IN THE STOCK MARKET, US-64 SCHEME FAILED. UTI ACCOUNTED C ONVERSION 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 SU FFERED ACTUAL LONG TERM CAPITAL LOSS OF RS. 40.57 CRORES (149.25- 108.70) AND AFTER INDEXATION AS PER LAW THE LONG TERM CAPITAL L OSS 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 AG AINST THE LONG TERM CAPITAL GAINS AND THE BALANCE RS.12.77 CR ORES WAS SET OFF IN THE ASSESSMENT YEAR 2004-05. THE SAME SHOUL D BE ALLOWED TO THE ASSESSEE. 3. THE CIT(A) (A) HAS FAILED TO APPRECIATE THAT THE BANK HAS SUFFERED ACTUAL LOSS IN THIS TRANSACTION OF PURCHAS E 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 B ONDS, WHICH HAS RESULTED IN THE SAID LOSS WHICH SHOULD BE ALLOW ED THE ASSESSEE. 4. THE APPELLANT SUBMITS THAT HAD IT CONTINUED TO S HOW THE ABOVE TRANSACTIONS AS STOCK-IN-TRADE THE FALL IN VALUE WO ULD HAVE BEEN ALLOWED AS A BUSINESS DEDUCTION. THE FACT THAT RBI PERMITTED ASSESSEE TO HOLD THE US 64 BONDS AS PERMANENT INVES TMENT ONES FOR ALL AND NOT TO TRANSFER TO STOCK-IN-TRADE, THE ASSESSEE COULD NOT CLAIM FALL IN VALUE OF INVESTMENTS. HOWE VER, IN THE PREVIOUS YEAR, THE ASSESSEE HAD NO OPTION BUT ONLY TO ADHERE TO UTI MANDATE THUS RESULTING IN LOSS WHICH SHOULD BE ALLOWED. 5. THE APPELLANT CONTENDS THAT THE LOSES/UNABSORBED DEPRECIATION OF ERSTWHILE GLOBAL TRUST BANK AS PER THE RETURN SH OULD BE 5 ITA NO. 257/DEL/2014 DEEMED TO BE THE LOSSES/UNABSORBED DEPRECIATION OF THE ASSESSEE BANK AND ALLOWED PURSUANT TO THE AMALGAMAT ION U/S 45(7) OF THE BANKING REGULATION ACT, 1949 BY THE CE NTRAL GOVERNMENT. 6. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PR EJUDICE TO ONE ANOTHER. 11. THE LD. AR SUBMITTED THAT THE APPEAL IS WITHDRA WN. IN LIGHT OF THIS, ITA NO. 3491/DEL/2008 IS DISMISSED AS WITHDRA WN. I.T.A .NO.-3614/DEL/2008 (ASSESSMENT YEAR 2005-06) 12. THIS APPEAL IS FILED BY REVENUE AGAINST THE ORD ER DATED 26/09/2008 PASSED BY CIT(A)-XVI FOR ASSESSMENT YEA R 2005-06. 13. 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 DELETIN G THE ADDITION OF RS.12,72,86,272/- BEING PROPORTIONATE EXPENSES I NCURRED FOR EARNING OF DIVIDEND INCOME WHICH IS NOT TAXABLE (EX EMPT). THE CIT(A) HAS IGNORED THE FACT THAT THE ASSESSEE H AS DELIBERATELY NOT GIVEN THE DETAILS OF THE EXPENSES ATTRIBUTE TO EARN THE TAX-FREE INCOME AND HAS NOT APPRECIATED TH AT THE DIVIDEND INCOME HAS BEEN EARNED BY DEPLOYMENT OF FU NDS AND MONITORING THE SAME WITH THE FACILITIES OF THE ESTA BLISHMENT AND SUPERVISION OF THE MANAGEMENT, WHICH INVOLVE EXPEND ITURE. THE CIT(A) VIDE PARA 3.8 IN HIS ORDER HAS MERELY RE LIED UPON THE HONBLE ITATS DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 AND 2004-05 TO DELETE THE ADDITION. W HEREAS THE ISSUE OF DETERMINATION OF THE EXPENSES INCURRING IN TEREST ON BORROWED FUNDS ETC IS A QUESTION OF FACTS AND HAS T O BE DETERMINED/EXAMINED INDEPENDENTLY IN EACH ASSESSMEN T YEAR. 6 ITA NO. 257/DEL/2014 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 BORRO WED FUNDS. THIS CONTENTION OF THE ASSESSEE INTER-ALIA HAS ALSO NOT BEEN EXAMINED/VERIFIED BY THE CIT (A). IN ORDER TO ESCAP E THE APPLICABILITY OF SECTION 14A THE ASSESSEE HAS TO SH OW THAT IT HAS NOT USED THE INTEREST BEARING BORROWED FUNDS. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED IN LAW AND FACTS IN DELETING THE A DDITION OF RS.110,12,46,285/-ON THE SUBJECT OF CONVERSION OF C APITAL 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 ASSESS EE U/S 45(2) OF THE INCOME TAX ACT AND REMARKED THAT SINCE THE COMPUTATION IS IN LINE WITH THE PROVISIONS OF THE S ECTION 45(2), THE ADDITION MADE BY THE A.O IS NOT JUSTIFIED. THE COMPUTATION OF CAPITAL GAINS ON CONVERSION OF C APITAL ASSETS INTO STOCK IN TRADE AND THE COMPUTATION OF PROFITS/ LOSSES ON SALE OF THE SAID STOCK IS BASED ON THE ASSESSEES CLAIM THAT IT HAS RECATEGORISED THE GOVERNMENT SECURITIES HELD BY IT AS PER THE GUIDELINES OF RESERVE BANK OF INDIA (RBI). IN SUPP ORT OF THIS SUBMISSION, THE ASSESSEE HAS FILED THE COPY OF THE MEMORANDUM FOR BOARD OF DIRECTORS DATED 2 ND APRIL, 2003. IN THIS MEMORANDUM, THERE IS REFERENCE THAT RBIS GUID ELINES, ISSUED BY ITS CIRCULAR NO. DEOD NO. BP. BC. 32/21.04.048/2000-01 DATED 16 TH OCTOBER, 2000 PERMITS INTER- ALIA SHIFTING OF INVESTMENTS TO/FROM HELD TO MATUR ITY CATEGORY ONCE A YEAR NORMALLY IN THE BEGINNING OF THE ACCOUN TING 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. CO NVERSION HAS BEEN MADE FROM THE CATEGORY HELD TO MATURITY TO THE CATEGORY AVAILABLE FOR SALE. 7 ITA NO. 257/DEL/2014 AS PER THE CIRCULAR REFERRED TO ABOVE, THE GOVERNME NT SECURITIES ARE KEPT IN THREE CATEGORIES AS FOLLOWS:- (A) HELD TO MATURITY (B) AVAILABLE FOR SALE (C) HELD FOR TRADING IT CAN BE SEEN THAT THE SECURITIES HAVE NOT BEEN CO NVERTED TO THE CATEGORY HELD FOR TRADING. THE CONVERSION OF SEC URITIES FROM THE CATEGORY HELD TO MATURITY TO THE CATEGORY AVAILA BLE FOR SALE ONLY MEANS THAT THE BANK IS NOW FREE TO SELL THESE SECURITIES EVEN BEFORE THE DATE OF MATURITY. WITHOUT THIS CON VERSION, THE BANK WAS NOT PERMITTED TO SELL THE SECURITIES BEFOR E THE DATE OF ULTIMATE MATURITY. THUS, IT IS CLEAR THAT SECURITI ES HAVE NOT BEEN ACTUALLY CONVERTED INTO STOCK-IN-TRADE AND HAVE REM AINED AS CAPITAL ASSETS ONLY EVEN THOUGH AFTER THE CONVERSIO N, THE CAPITAL ASSETS IN THE SHAPE OF THE SAID SECURITIES WAS PERM ITTED TO BE SOLD BEFORE THE DATE OF MATURITY. THIS IS PRECISEL Y THE PURPOSE OF HAVING THREE CATEGORIES MENTIONED ABOVE. IF THE CA PITAL 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-I N-TRADE, THERE WOULD HAVE BEEN NO PURPOSE FOR THE RBI TO PLACE THE SECURITIES INTO THREE CATEGORIES. RBI WOULD HAVE DIRECTED THA T THE SECURITIES TO BE KEPT ONLY INTO TWO CATEGORIES, I.E . HELD TO MATURITY AND HELD FOR TRADING. THUS, THE ASSESSEES CLAIM OF CONVERSION OF THE CAP ITAL ASSETS IN THE SHAPE OF THE SAID GOVERNMENT SECURITIES INTO ST OCK-IN-TRADE HAS TO BE IGNORED AND THE BUSINESS PROFITS/LOSSES A RE TO BE COMPUTED AS IF THERE WAS NO CONVERSION. 14. AS RELATES TO GROUND NO. 1, THE ISSUE IS SIMILA R TO THAT OF EARLIER ASSESSMENT YEAR 2003-2004. IN THIS ASSESSMENT YEAR, THE SAID ISSUE IS REMANDED BACK TO THE ASSESSING OFFICER. 8 ITA NO. 257/DEL/2014 15. AS RELATES TO GROUND NO. 2, THE COD WAS REJECTE D VIDE COD DATED 3/9/2009 PARA 24 PG. HENCE, THE SAME GROUND I S DISMISSED. 16. IN VIEW OF THIS THE APPEAL IS PARTLY ALLOWED F OR STATISTICAL PURPOSE. 17. IN RESULT, ITA NO. 542/DEL/2008 AND 3614/DEL/20 08 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ITA NO. 3491/DEL/2008 IS DISMISSED AS WITHDRAWN BY THE ASSESSEE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 06 TH OF APRIL, 2016. SD/- SD/- (G. D. AGRAWAL) (SUC HITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 06/04/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 04/04/2016 PS 9 ITA NO. 257/DEL/2014 2. DRAFT PLACED BEFORE AUTHOR 04/04/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 06.04.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 0 6 .04.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.