STATE BANK OF BIKANER & JAIPUR, Jaipur V. ACIT, Jaipur

MA 33/JPR/2014

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 2816 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2001-2002
• Appeal Filed On: 01-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Cost of acquisition; Tax effect
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM M.A. NOS. 33 & 34/JP/2014 (ARISING OUT OF I.T.A. NOS. 700 & 701/JP/2003) ASSTT. YEARS-2001-02, 2002-03 STATE BANK OF BIKANER & JAIPUR TILAK MARG, C-SCHEME, JAIPUR. CUKE VS. THE A.C.I.T. CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AADCS 4750 R VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT M.A. NO. 35/JP/2014 (ARISING OUT OF I.T.A. NO. 437/JP/2009) ASSTT. YEAR-2005-06 STATE BANK OF BIKANER & JAIPUR TILAK MARG, C-SCHEME, JAIPUR. CUKE VS. THE D.C.I.T. CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AADCS 4750 R VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL. JKTLO DH VKSJ LS @ REVENUE BY : MRS. NEENA JEPH LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 09/01/2015 ?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 19/02/2015 M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 2 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THE ASSESSEE HAS FILED THREE MISCELLANEOUS APPLICAT IONS AGAINST THE ORDER OF THIS BENCH OF ITAT, JAIPUR IN ITA NOS. 700/ JP/2013, 701/JP/2003 AND ITA NO. 437/JP/2009, WHICH WAS PASSED ON 12/09/2014. 2. THE ASSESSEE HAS FILED THESE M.AS FOR A.Y. 2001-0 2, 2002-03 AND 2005- 06 AND CHALLENGING THE FINDING GIVEN BY THE ITAT ON ISSUE OF DISALLOWANCE U/S 14A IN A.Y. 2001-02 AND 2002-03 AS WELL AS CHALLENGI NG THE FINDING GIVEN ON BROKEN PERIOD INTEREST ON SECURITY PURCHASE IN A.Y. 2001-02, 2002-03 AND 2005-06. 3. THE APPELLANT SUBMITTED AS UNDER:- 1. THAT THE GROUND NO. 1 OF REVENUES APPEAL FOR A.Y . 2001-02 AND 2002-03 WAS AGAINST REDUCING THE DISALLOWANCE OF EXPE NDITURE IN RELATION TO EXEMPT INCOME MADE U/S 14A OF THE IT ACT AND GROUND NO. 1 OF ASSESSEES APPEAL FOR A.Y. 2005-06 WAS AGAI NST UPHOLDING THE DISALLOWANCE OF EXPENDITURE IN RELATIO N TO EXEMPT INCOME MADE U/S 14A OF THE IT ACT. HONBLE BENCH HA S GIVEN A COMMON FINDING FOR ALL THE THREE YEARS VIDE PARA 2 TO 5 OF THE ORDER. 1.1 HONBLE BENCH HAS SET ASIDE THE ISSUE OF DISALL OWANCE U/S 14A TO THE ASSESSING OFFICER FOR ALL THE THREE YEARS GIVIN G FOLLOWING FINDING AT PARA 5 OF THE ORDER: M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL AVAILABLE ON THE RECORD. THE COORDINATE BENCH HAS DE CIDED THE ASSESSEES APPEAL IN ITA NO. 329/JP/2005 FOR A.Y. 2 003-04 ON THE BASIS OF RULE 8D OF THE RULES BUT AS DISCUSSED IN O UR ORDER IN ITA NO. 278/JP/2009 FOR A.Y. 2004-05, THE RULE 8D IS AP PLICABLE FROM A.Y. 2008-09 AS HELD BY THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DEPUTY C OMMISSIONER OF INCOME TAX (SUPRA). THUS, IN THIS YEAR ALSO, WE DIR ECT THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S 14A OF THE ACT ON THE BASIS OF DECISION GIVEN BY THIS BENCH IN A.Y. 2004-05. THIS GROUND OF APPEAL IS SET ASIDE TO THE ASSESSING OFFICER. 1.2 IT IS SUBMITTED THAT SO FAR AS THE ASSESSMENT Y EAR 2001-02 AND 2002-03 ARE CONCERNED, THE ISSUE HAS BEEN DECIDED B Y THE HONBLE BENCH IN ASSESSEES APPEAL IN ITA NO. 578/J P/2003 AND 577/JP/2003 DATED 30/10/2009 WHERE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND PARTLY CONFIRMED BY THE C IT(A) WAS REDUCED BY THE HONBLE ITAT AS UNDER:- ASSESSMENT YEAR DISALLOWANCE BY A.O. DISALLOWANCE CONFIRMED BY CIT(A) DISALLOWANCE CONFIRMED BY ITAT IN ASSESSEES APPEAL. 2001-02 11,87,68,152/- 7,76,47,631/- 2,83,00,000/- 2002-03 15,81,27,285/- 12,47,28,784/- 6,83,00,000/- 1.3 THUS THE ISSUE OF DISALLOWANCE U/S 14A FOR A.Y. 2 001-02 AND 2002-03 WAS ALREADY DECIDED BY THE BENCH IN ASSESSEE S APPEAL AGAINST WHICH APPEAL FILED BY ASSESSEE IS ADMITTED I N THE HIGH M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 4 COURT. IN COURSE OF HEARING ALSO THE BENCH HAS OBSE RVED THAT IN THESE FACTS DEPARTMENTAL APPEAL; IS TO BE DISMISSED . SETTING ASIDE THE ISSUE FOR THESE YEARS TO THE ASSESSING OFFICER WOULD LEAD TO ANOMALY, INASMUCH AS, THE ASSESSING OFFICER WOULD NO T BE IN A POSITION TO GIVE EFFECT TO THE DIRECTION OF ITAT AND THEREFORE PARA 5 OF THE ORDER NEEDS TO BE SUITABLY MODIFIED. SIMILAR OBJECTIONS WERE MADE BY THE ASSESSING OFFICE R IN A.Y. 2002-03. 4. WE HAVE HEARD BOTH THE PARTIES AND IT IS A FACT THAT THE ASSESSEES APPEALS IN ITA NO. 578/JP/2003 FOR A.Y. 2001-02 AN D 577/JP/2003 FOR A.Y. 2001-02 AND 2002-03, THE ASSESSEES APPEAL DECIDED BY THIS BENCH WITHOUT CONSIDERING THE REVENUES APPEAL IN THESE YEARS ON THIS ISSUE. AS CLAIMED BY THE APPELLANT, THE ISSUE IS PENDING BEFORE THE HON BLE RAJASTHAN HIGH COURT AGAINST THE DECISION GIVEN BY THIS BENCH IN CASE OF ASSESSEES APPEAL FOR A.Y. 2001-02 AND 2002-03. THEREFORE, IT IS APPARENT MISTA KE ON OUR ORDER DATED 12/09/2014 IN ITA NO. 700/JP/2003 FOR A.Y. 2001-02 AND 701/JP/2003 FOR A.Y. 2002-03, ACCORDINGLY WE RECALL OUR ORDER TO THE EXTE NT OF FINDING GIVEN ON SECTION 14A IN BOTH THE ASSESSMENT YEARS. THE ASSESS EES M.AS ON SECTION 14A OF THE ACT ARE ALLOWED. 5. THE SECOND GROUND OF M.A. IS AS UNDER:- 2. THAT THE GROUND NO. 2 OF DEPARTMENTAL APPEAL REL ATES TO DISALLOWANCE OF BROKEN PERIOD INTEREST. IN DECIDING THIS ISSUE HONBLE BENCH HAS NOT CONSIDERED CERTAIN DECISIONS CITED BY THE M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 5 ASSESSEE AND HAS GIVEN CONTRADICTORY FINDING WHICH G OES TO THE ROOT OF THE MATTER. THESE ARE AS UNDER:- 2.1 DECISION OF MUMBAI ITAT IN CASE OF KBC BANK NV V S. DEPARTMENT OF INCOME TAX ITA NO. 2785/MUM/2004 DATED 28/09/2012 RELIED BY THE ASSESSEE IS NOT CONSIDERED IN WHICH THE JUDG MENTS OF VIJAYA BANK 187 ITR 541 (SC), BANK OF RAJASTHAN LTD. 316 ITR 391 (RAJ.) AND CIT BANK NA CIVIL APPEAL NO. 1549/20 06, 12 TH AUGUST, 2008 (SC) WAS CONSIDERED AND AFTER DISCUSSIN G ALL THE THREE JUDGMENTS IT WAS HELD THAT THE DECISION OF BAN K OF RAJASTHAN LTD. IS NOT APPLICABLE IN VIEW OF THE SUBS EQUENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF C IT BANK NA. 2.2 AT PARA 11 PAGE 21, HON'BLE BENCH HAS HELD THA T THE INTEREST COST FOR THE BROKEN PERIOD ON SECURITIES AT THE TIME OF PURCHASE AND SALE IS TO BE INCLUDED IN PURCHASE COST AND SALES R ECEIPTS RESPECTIVELY. AND THE CASE REFERRED BY THE LEANED A R OF THE ASSESSEE I.E. THE DECISION OF HON'B1E SUPREME COURT IN THE CASE OF CITIBANK (SUPRA) ARE SQUARELY APPLICABLE, BUT IT IS EVIDENT FROM THE DECISION THAT (IT) HAS BEEN RENDERED ON PECULIA R FACTS OF THE CASE AS TAX EFFECT WILL BE NEUTRAL AND THE METHOD OF ACCOUNTING WAS ACCEPTED BY THE DEPARTMENT. IN ASSESSEE'S CASE, THE TAX EFFECT IS SUBSTANTIAL AND DEPARTMENT HAS NOT ACCEPT ED ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE. THESE FINDINGS ARE CONTRADICTORY IN ITSELF. FIRSTLY , ONCE IT IS HELD THAT INTEREST COST FOR BROKEN PERIOD AT THE TIME OF PURCHASE AND M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 6 AT THE TIME OF SALE IS TO BE INCLUDED IN PURCHASE C OST AND IN SALES RECEIPTS RESPECTIVELY, THE PURCHASE COST HAS TO BE ALLOWED AS DEDUCTION WHEN SALE RECEIPT HAS BEEN TAXED AND THER EFORE THE BROKEN PERIOD INTEREST INCLUDED IN PURCHASE COST CA NNOT BE DISALLOWED. SECONDLY, THE DECISION OF SUPREME COURT IN CASE OF CITI BANK NA IN CIVIL APPEAL NO. 154912006 DATED 12 .08.2008 IS NOWHERE REFERRED IN THE ORDER. WHAT IS CONSIDERED IS ONLY THE DECISION OF BOMBAY HIGH COURT IN CIT VS. CITI BANK NA 264 ITR 18. THIRDLY, ONCE IT IS HELD THAT THE DECISION OF SU PREME COURT IN CASE OF CITI BANK NA IS SQUARELY APPLICABLE BROKEN PERIOD INTEREST CANNOT BE DISALLOWED AS THE SUPREME COURT IN THIS CA SE HAS ALLOWED THE CLAIM OF BROKEN PERIOD INTEREST. FOURTHL Y, THERE IS NO DISCUSSION AS TO HOW IN THE ASSESSEE'S CASE THE TAX EFFECT IS SUBSTANTIAL AND THE DEPARTMENT HAS NOT ACCEPTED THE ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE MORE PARTICULARLY WHE N THE SUPREME COURT IN CITI BANK CASE HAS ONLY OBSERVED T HAT DISALLOWANCE OF BROKEN PERIOD INTEREST IS TAX NEUTRA L AND THE DEPARTMENT HAS ACCEPTED THE METHOD OF ACCOUNTING FO LLOWED BY THE ASSESSEE. HON'BLE BENCH HAS FAILED TO CONSIDER THAT EVEN IF TAX EFFECT IS SUBSTANTIAL, THE SAME IS TAX NEUTRAL AS IF IT IS DISALLOWED IN ONE YEAR IT HAS TO BE ALLOWED IN THE SU BSEQUENT YEAR. FURTHER THE METHOD OF ACCOUNTING FOLLOWED BY T HE ASSESSEE IN RESPECT OF THE SECURITIES HAS BEEN ACCEPTED BY T HE DEPARTMENT IN AS MUCH AS, DEPRECIATION OF SECURITIES HAS BEEN CONSISTENTLY ALLOWED BY THE DEPARTMENT. M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 7 2.3 HON'BLE BENCH HAS GIVEN A FINDING THAT SECURITI ES ARE SHOWN IN THE BALANCE SHEET AS INVESTMENT BUT THE ASSESSEE IS CLAIMING THEM AS STOCK IN TRADE TO GET BENEFIT IN TAXATION. IN GIVING SUCH FINDING THE DECISION OF KARNATKA HIGH COURT RELIED BY THE ASSESSEE IN CASE OF KARNATKA BANK LTD.94 DTR 448 WHER EIN IT WAS HELD THAT ONLY BECAUSE IN THE BALANCE SHEET THE SECURITIES ARE SHOWN UNDER THE HEAD 'INVESTMENTS' WOULD NOT MAK E IT A CAPITAL ASSET IN AS MUCH AS, MAKING ENTRY IN BOOKS OF ACCOUNTS IS NOT DECISIVE OR CONCLUSIVE. FURTHER IN ASSESSEE'S C ASE ITSELF HON'BLE ITAT IN ITA NO. 617 & 6L8LJPL2003 DATED 07.1 1.2006 HAS HELD THAT INVESTMENT IN SECURITIES IS PART OF BANKI NG BUSINESS AND THEREFORE THE PROFIT ARISING ON REDEMPTION/ SALE OF SECURITIES IS TAXABLE AS BUSINESS INCOME AND NOT AS CAPITAL GAINS . THIS DECISION REFERRED BY THE ASSESSEE IS NOT CONSIDERED . BESIDES THE CBDT IN INSTRUCTION NO. 17/2008 DATED 26.11.2008 HAS ALSO CLARIFIED THAT INVESTMENT PORTFOLIO OF THE BANK IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES I.E. HELD TO MATU RITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS) AND THE PREMIUM PAID ON HTM SECURITIES SHOULD BE AMORTIZED OVER THE PERIOD OF MATURITY AND THE DEPRECIATION OF HFT AND AFS SECURIT IES PROVIDED IN THE ACCOUNTS SHOULD BE ALLOWED AS DEDUCTION. THESE INSTRUCTIONS ARE ALSO NOT CONSIDERED. THEREFORE THE OBSERVATION OF THE HON'BLE BENCH THAT THE TREATMENT OF SECURITIES AS STOCK IN TRADE IS TO GET BENEFIT FROM TAXATION IS WITHOUT BAS IS AND AGAINST THE DECISION OF THE KARNATAKA HIGH COURT, DECISION OF ITAT IN ASSESSEE'S OWN CASE AND THE CBDT INSTRUCTION. M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 8 2.4 THE HON'BLE BENCH ON THE ONE HAND HELD THAT THE SECURITIES ARE INVESTMENT AND THUS CAPITAL ASSETS BUT AT THE SAME TIME HAS NOT GIVEN ANY DIRECTION TO` WORK OUT THE CAPITAL GAIN ON SALE OF THE SECURITIES AFTER ALLOWING THE INDEXATION BENEFIT. THI S HAS RESULTED INTO TAXATION OF THE PROFIT ON SALE OF SECURITIES A S BUSINESS INCOME AND NOT AS CAPITAL GAIN WHICH HAS RESULTED INTO TAX AT HIGHER RATE AS AGAINST LOWER RATE PRESCRIBED FOR TAX ON CAPITAL GAIN. 3. IN VIEW OF ABOVE THE APPLICANT HUMBLY PRAYS THAT THE ORDER PASSED BY THE HON'BLE BENCH BE SUITABLY MODIFIED CO NSIDERING THE ABOVE FACTS BY PASSING AN ORDER U/S 254(2). 6. SIMILAR OBJECTIONS HAVE BEEN MADE FOR A.Y. 2002- 03 AND 2005-06. 7. WE HAVE HEARD THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD & THE ABOVE DECISIONS IN ASSESSES OWN CASE. IN OUR CON SIDERED VIEW THE ISSUES RAISED BY THE ASSESSEE CANNOT BE TERMED AS APPARENT MISTAKES. WHILE TAKING THIS VIEW WE HAVE RELIED ON JURISDICTIONAL HIGH COURT JUDGMENT. BESIDES WE HAVE TAKEN A CONSIDERED VIEW THAT CITI BANK JUDGMENT WAS DECIDED ON THE PECULIAR FACTS. THUS THE DECISION IN QUESTION HAS BE EN TAKEN AFTER CONSIDERING ALL THE RELEVANT ASPECTS ON MERITS. WE ARE OF THE V IEW THAT THE PRESENT APPLICATIONS FILED BY THE ASSESSEE U/S 254(2) AMOUN T TO REVIEW OF OUR ORDERS; THE ALLEGED MISTAKES CANNOT BE HELD AS MISTAKES APP ARENT FROM THE RECORD. THEREFORE, THE GROUND IN THIS BEHALF IN THESE THREE M.AS. OF THE ASSESSEE ARE M.A. NO. 33, 34 AND 35/JP/2014_ ACIT VS. SBBJ 9 DISMISSED AS THEY ARE FOR REVIEW OF OUR OWN ORDERS WHI CH IS NOT PERMISSIBLE U/S 254(2). 8. IN THE RESULT, THE MISC. APPLICATIONS OF THE ASS ESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/02/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 19 TH FEBRUARY, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- STATE BANK OF BIKANER & JAIPUR, JAIPU R. 2. IZR;FKHZ @ THE RESPONDENT- THE ACIT/DCIT, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (M.A. 33,34 & 35/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR