Citation Codes

Equivalent Citations

citation codes

Case Number

IT Appeal Nos. 131, 132, 345 and 346 (Coch.) of 2008 and 130, 406, 700, 812 and 854 (Coch.) of 2007

Advocates

Jose Pottokkaran

Judges

N. VIJAYAKUMARANDr. O.K. Narayanan

Acts

section 36(1)(vii) of the Income-tax Act.22.
SECTION 37 INCOME TAX ACT
Sub-clause (3) to section 37

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Smart Summary

Concise, Structured Summary of the Tribunal Order (Consolidated Appeals)

Factual and Procedural Background

This is a consolidated bench order disposing of nine appeals (five by the assessee and four by the Revenue) relating to different assessment years. The appeals were heard together and disposed of by a common order for convenience. The appeals arise from assessments and appeals against orders of the Assessing Officer and the Commissioner of Income Tax (Appeals) (CIT(A)). Several issues recur across the appeals, including (inter alia) deductions for contributions to pension/gratuity funds, lease equalisation charges, amortisation of premium on Government securities, revaluation losses on (unquoted) investments, bad debts, and interest/penalty computations under sections 234C and 234D. In several matters the Tribunal followed earlier Tribunal orders or High Court/Supreme Court decisions and, in some instances, remitted quantification issues to the Assessing Officer for limited purposes.

Legal Issues Presented

Whether contribution to a recognised pension fund/similar funds paid within the time limit (i.e., before the due date of filing return) is an allowable deduction.
Whether lease equalisation charges are allowable as per the accounting method consistently followed by the assessee.
Whether amortisation of premium on purchase of Government securities (as per RBI prudential norms and consistent accounting practice) is allowable.
Whether loss on revaluation of unquoted shares/investments is allowable as business loss when written off in accordance with RBI prudential norms and the assessee's accounting method.
Whether payments of gratuity (contributions to approved gratuity fund made before filing return) are deductible.
Whether disallowance of bad debts under section 36(1)(vii) should be upheld or deleted.
Whether interest under section 234C (and section 234D) is chargeable where advance tax payments and returned income are in dispute or where the CIT(A) has cancelled such interest.
Whether expenses incurred in relation to earning income from tax-free bonds (section 14A context) are deductible.
How unquoted investments should be valued for assessment purposes, particularly where RBI guidance or earlier assessments/directives are relied upon.

Arguments of the Parties

Assessee's Arguments

The assessee contended that contributions to pension/gratuity funds made before the due date of filing returns (and to recognised/approved funds) are allowable deductions, relying on precedent and consistent accounting practice.
For amortisation of premium on Government securities and write-offs/revaluation losses on investments, the assessee relied on having followed Reserve Bank of India (RBI) prudential norms and a consistent method of accounting; thus such items should be allowed.
The assessee argued that sufficient advance tax had been paid to meet tax liabilities and therefore interest under section 234C should not be chargeable (in the relevant appeal where the CIT(A) had cancelled such interest, the assessee relied on that cancellation).
On valuation of unquoted shares the assessee relied on an RBI circular (arguing valuation at Re.1 where balance sheet not available) and on Tribunal/bench decisions favourable to the assessee in earlier years.

Revenue's Arguments

The Revenue sought to sustain various disallowances (for revaluation losses, pension/gratuity payments not from approved funds, lease equalisation charges, amortisation of premium, and expenses in relation to tax-free bonds), urging that the Assessing Officer's adjustments be upheld where justified.
The Revenue contended that interest under section 234C was chargeable where the returned/assessed income had been enhanced by disallowances and where advance tax computations required interest.
On valuation of unquoted investments, the Revenue rejected the binding effect of RBI circular directives on the Income-tax department and relied on judicial decisions (including jurisdictional High Court decisions) to sustain valuations adopted by the Assessing Officer or ld. Commissioner.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Allied Motors (P.) Ltd. v. Commissioner Of Income Tax, Delhi [1997] 224 ITR 677	Contribution to pension/provident/gratuity funds paid within the time limit (before filing return) is an allowable deduction.	The Tribunal followed this Supreme Court decision to allow contributions to pension/gratuity funds paid within the due date; used repeatedly across appeals to allow such claims.
CIT v. Vinay Cement Ltd. [2007] 166 Taxman 62	Contribution made to provident/pension fund before filing the return cannot be disallowed under section 43B (ratio concerning timing and allowability).	Followed alongside Allied Motors to confirm allowability of pension/provident fund contributions paid before filing return; used to reject Revenue's challenge in related appeals.
CIT v. Vegetable Products Ltd. [1973] 88 ITR 192	Principles regarding lease equalisation charges (as cited by the Tribunal order).	Relied upon (through an earlier Tribunal order) to allow lease equalisation charges and to set aside the orders of authorities below.
Commissioner Of Income-Tax v. Nainital Bank Ltd. [2009] 309 ITR 335 (Uttarakhand High Court)	Authority allowing claim for lease equalisation charges.	Followed by the Tribunal (through an earlier Tribunal order) to allow lease equalisation charges in favour of the assessee.
United Commercial Bank v. CIT [1999] 240 ITR 355	If valuation is in accordance with RBI guidelines/prudential norms, the Assessing Officer should allow the deduction to that extent.	Relied upon to uphold the allowance of amortisation of premium on Government securities and valuation-related deductions when consistent with RBI guidelines and accounting practice.
South Indian Bank Ltd. v. CIT [2003] 262 ITR 579 (Ker.)	Decision directly on treatment of bad debts and related accounting issues (Kerala High Court).	Followed to confirm deletion of disallowance of bad debts in the relevant appeal(s); Tribunal declined to interfere with CIT(A) where this High Court decision applied.
T. Stanes & Co. Ltd. v. CIT [1991] 188 ITR 237	Payment of pension otherwise than from a pension fund may be allowable business expenditure under section 37.	Followed to confirm that direct pension payments to retired employees can be allowed as business expenditure under section 37; used to dismiss Revenue's ground.
ITO v. Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 (Special Bench, Mumbai)	Principles relating to expenses incurred for earning income from tax-free bonds—valuation aspects binding on Tribunals.	Followed to reverse the CIT(A) and confirm the Assessing Officer on disallowance of expenses related to tax-free bonds (section 14A context); resulted in partial allowance of Revenue appeal.
Commissioner Of Income Tax v. South Indian Bank Ltd. [2000] 241 ITR 374 (Ker.)	Broken period interest paid for purchase of Government securities and bonds is deductible business expenditure.	Applied to allow broken period interest as deductible where the assessee had consistently accounted for it; used in a merits determination in one appeal.
Tamil Nadu Power Finance Corporation (Madras High Court) [cited]	Authority on valuation approach for unquoted shares (as applied by the Madras High Court).	Followed by the Tribunal to reject the assessee's contention that RBI circular valuation (Re.1) was binding on the Income-tax Department; supported the ld. Commissioner's valuation approach for unquoted shares.
ITAT, Cochin Bench decisions (e.g., ITA No. 126/Coch./04 dated 19-9-2005 and earlier orders in assessee's own case)	Tribunal precedents on amortisation of premium on Government securities and other recurring accounting issues.	Repeatedly followed by the Tribunal in these consolidated appeals to allow amortisation claims, lease equalisation charges, and other items where the assessee followed consistent accounting practices.

Court's Reasoning and Analysis

The Tribunal proceeded issue-by-issue across the consolidated appeals and, where applicable, followed binding or persuasive earlier decisions (Supreme Court, jurisdictional High Court, or earlier Tribunal orders). The Tribunal's analysis can be summarized in the key steps taken by it:

For pension fund contributions and gratuity contributions: the Tribunal examined whether the contributions were to recognised/approved funds and whether they were paid within the time limit (before the due date of filing the return). Relying on Allied Motors and Vinay Cement (and Tribunal precedents), it held that contributions paid within the due date and to proper funds are allowable deductions; orders below were set aside or confirmed in favour of the assessee as appropriate.
For lease equalisation charges: the Tribunal followed an earlier Tribunal order and authorities (including CIT v. Vegetable Products Ltd. and Nainital Bank HC decision) that allowed lease equalisation charges where the accounting treatment was consistent; therefore the Tribunal set aside the authorities below and allowed the claims.
For amortisation of premium on purchase of Government securities: the Tribunal considered whether the amortisation was made as per RBI prudential norms and whether the assessee followed a consistent accounting method. On finding consistency and precedent (including ITAT Cochin Bench decisions and United Commercial Bank), the Tribunal upheld the allowance and declined to interfere with the CIT(A)'s order in favour of the assessee.
For revaluation loss on unquoted shares/investments: the Tribunal applied precedent and earlier Tribunal findings in some appeals to sustain disallowance (i.e., in one revenue cross-appeal it followed an earlier Tribunal order adverse to the assessee and confirmed the Assessing Officer). In other instances the Tribunal remitted the issue to the Assessing Officer for verification/quantification where earlier Tribunal directions had done so (for instance remitting the matter for quantification or verification whether write-off was in course of business and in accordance with RBI prudential norms).
For bad debts under section 36(1)(vii): the Tribunal followed the jurisdictional High Court decision in South Indian Bank Ltd. v. CIT (Ker.) to confirm deletion of disallowance where that decision applied.
For interest under section 234C (and 234D in one instance): the Tribunal carefully reviewed whether the assessee had paid sufficient advance tax and whether the CIT(A) had correctly cancelled the interest. Where the Tribunal found that sufficient advance tax was paid, it upheld the CIT(A)'s cancellation of section 234C interest (dismissing the Revenue appeal). In another appeal where CIT(A) had not considered sections 234C/234D (no deliberation), the Tribunal remitted the issue back to the CIT(A) for proper adjudication on the merits.
For expenses relating to earning income from tax-free bonds (section 14A context): the Tribunal followed the Special Bench ITAT (ITO v. Daga Capital Management) and reversed the CIT(A) to confirm the Assessing Officer where valuation principles binding on tribunals applied; the Revenue's ground was allowed in that appeal.
For valuation of unquoted investments and the applicability of RBI circulars: the Tribunal accepted the ld. Commissioner's view that RBI circular directives are not binding on the Income-tax Department; it followed the Madras High Court decision in Tamil Nadu Power Finance Corporation to adopt the valuation approach (e.g., face value or the valuation applied in earlier assessments) where the assessee could not furnish real market value.

Holding and Implications

Final Dispositions of the Consolidated Appeals

The assessee's appeal in ITA No. 131/Coch./2008: allowed (pension contribution and lease equalisation charges allowed, order of authorities below set aside on those grounds).
The Revenue appeal in ITA No. 345/Coch./2005: partly allowed (revaluation loss on unquoted shares—disallowance justified and sustained; other grounds partly rejected as per text).
The assessee appeal in ITA No. 132/Coch./08: partly allowed (pension contribution remitted to AO for quantification; lease equalisation charges allowed; revaluation loss remitted to AO for verification).
The Revenue appeal in ITA No. 346/Coch./08: dismissed (CIT(A)'s decisions on pension contribution and valuation-related matters were confirmed; section 234C interest was cancelled by CIT(A) and the Tribunal upheld that cancellation on the facts).
The assessee appeal in ITA No. 406/Coch./07: partly allowed (lease equalisation charges allowed; chargeability of sections 234C and 234D remitted to CIT(A) for adjudication).
The Revenue appeal in ITA No. 700/Coch./07: dismissed (CIT(A)'s deletions relating to bad debts, appreciation/depreciation on current investments, pension payments, and amortisation of premium on Government securities were affirmed).
The assessee appeal in ITA No. 812/Coch./07: allowed (lease equalisation charges allowed for assessment year 2004-05).
The Revenue appeal in ITA No. 854/Coch./07: partly allowed (appeal partly allowed where expenses for earning tax-free bonds (section 14A) were disallowed by following Special Bench authority; other grounds dismissed/cannot be interfered with).
The assessee appeal in ITA No. 130/Coch./07 (challenge to ld. Commissioner's section 263 order): allowed on merits (the Tribunal decided merits in favour of the assessee on lease equalisation charges, pension fund contribution and broken period interest; however the Tribunal did not go into the validity of assumption of jurisdiction under section 263).

Implications:

Direct effects on the parties are specific to each appeal as listed above: several claims of the assessee were allowed (particularly where contributions/payments were made to approved/recognised funds and within the filing time limit, and where consistent accounting practices and RBI prudential norms were followed); several Revenue grounds were either dismissed or partly allowed depending on earlier binding decisions and facts.
The Tribunal consistently followed earlier Supreme Court, jurisdictional High Court, and Tribunal precedents; it remitted quantification and verification matters to the Assessing Officer where earlier directions required limited scope facts to be examined. The order does not announce any new legal principle but applies and follows existing precedents to the facts before it.

Note: This summary is prepared strictly from the text of the provided Tribunal order. No information has been invented or inferred beyond what appears in that document.

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Catholic Syrian Bank Ltd. v. Assistant Commissioner of Income-tax, Circle-1(1), Thrissur

ORDER

Per Bench

1. All these nine appeals are cross appeals, five by the assessee and four by the revenue for different assessment years. All these appeals were heard together and are being disposed of by this common order for the sake of convenience.

2. In the assessee appeal in ITA No. 131/Coch./08, Ground Nos. 1 and 2 are of general nature.

3. Ground No. 3 relates to disallowance of the amount paid as contribution to pension fund. We have considered the rival submissions and perused the material available on record. The Tribunal in assessee's own case in ITA No. 919/Coch./07, common order of the Tribunal dated 30th June, 2009, by following the decision of the Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. v. Commissioner Of Income Tax, Delhi [1997] 224 ITR 677 and in the case of CIT v. Vinay Cement Ltd. [2007] 166 Taxman 62 found that the amount of contribution paid to pension fund which is a recognised pension fund scheme within the time limit, i.e., before the due date of filing of the return of income is an allowable deduction. Hence, to be consistent with the findings of the Tribunal in assessee's own case, respectfully following the decisions of the Hon'ble Supreme Court cited supra and the Tribunal decision on this issue for the assessment year 1999-2000, we set aside the orders of the authorities below and allow the claim of the assessee.

4. Coming to Ground No. 4, it is regarding the lease equalisation charges which was disallowed by the authorities below. We have considered the rival submissions and perused the material available on record. The above referred earlier Tribunal order in para 16, pg. 8, by following the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 as well as the decision of the Hon'ble Uttaranchal High Court in the case of Commissioner Of Income-Tax v. Nainital Bank Ltd. [2009] 309 ITR 335 has allowed the claim of the assessee under the Head lease equalisation charges by setting aside the orders of the authorities below. Respectfully, following the above referred Tribunal dated 30th June, 2008, in assessee's own case, we set aside the orders of the authorities below and allow the claim of the assessee. The assessee's appeal in ITA No. 13l/Coch./2008 is allowed.

5. Coming to the cross appeal of the Revenue in ITA No. 345/Coch./08, the first issue is on the deletion of disallowance of loss on revaluation of unquoted shares amounting to Rs. 7,59,666. After considering the rival submissions, we find that the Tribunal in its earlier order in ITA Nos. 284 and 381/Coch./05 dated 14-3-2008 has decided the case against the assessee and in favour of the Revenue. Respectfully following the above Tribunal decision, we set aside the order of the CIT(A) and confirm that of the Assessing Officer. Therefore, we justify the disallowance under the Head loss on revaluation of unquoted shares. Hence, this ground raised by the Department is allowed.

6. Coming to Ground No. 2, it is regarding deletion of disallowance of payment of pension paid to retired employees under section 37. After considering the rival submissions, we in principle, agree with the claim of the assessee but for quantification, it was remitted back to the file of the Assessing Officer vide earlier Tribunal order in ITA Nos. 284 & 381/Coch./06 dated 14-3-2008 for limited scope of quantification of the allowance. It is needless to say that the Assessing Officer should afford an opportunity of being heard to the assessee. The earlier direction of the Tribunal will also hold good for this issue. This ground of the revenue is allowed for statistical purposes.

7. Coming to Ground No. 3, it is regarding amortisation of premium on purchase of Government securities. It was clarified that this was made as per the prudential norms of the Reserve Bank of India. The ld. Counsel for the assessee relied on the decision of the Hon'ble Supreme Court in the case of United Commercial Bank v. CIT [1999] 240 ITR 355 . The ld. Counsel for the assessee submitted that ITAT Cochin Bench has already allowed the claim in the case of South Indian Bank Ltd. [IT Appeal No. 126 (Coch.) of 2004 dated 19-9-2005. This issue has been duly considered in detail and the Tribunal has decided the issue in favour of the assessee. Respectfully following the above Tribunal decision and considering that the assessee-bank is following consistent and regular method of accounting system, we see no justification in interfering with the order of the CIT(A) on this issue of amortisation of premium on Government securities. The Revenue fails on this ground.

8. The last ground is on the allowance of payment of gratuity relating the assessment year 1999-2000. The provision towards payment of gratuity fund was made on 31-3-1999. It is the payment to the approved gratuity fund which was made on 31-12-1999, i.e., within the due date of filing of Income-tax return for this assessment year 2000-01.

9. We have heard the rival submissions and perused the material available on record. The Hon'ble Supreme Court in the case of Allied Motors Ltd. (supra) held that it is an allowable deduction. The contribution made to provident fund before filing the return could not be disallowed under section 43B is the ratio laid down by the Hon'ble Supreme Court in the case of Vinay Cements Ltd. (supra). Respectfully following the above decisions, we confirm the order of the CIT(A) and reject this ground of the revenue. The revenue appeal in ITA No. 345/Coch./2005 is partly allowed.

10. Coming to the assessee appeal in ITA No. 132/Coch./08 for the assessment year 2001-02, Ground Nos. 1 & 2 are general in nature.

11. The first vital issue is on the deletion of contribution to pension fund. In principle, we agree that the assessee is entitled to the allowance but for earlier assessment year we have remitted the issue back to the Assessing Officer for quantification of the allowance. Following the same direction we decided the issue in favour of the assessee only for limited purpose of quantification. In this case also, we remit this issue back to the file of the Assessing Officer for quantification as per the earlier direction of the Tribunal. It is needless to say that the Assessing Officer should afford sufficient opportunity of being heard to the assessee. The assessee's appeal on this ground is partly allowed.

12. The second issue is on the disallowance of lease equalisation charges. For the earlier assessment year 2000-01, we have allowed this ground while deciding the assessee appeal. The same reasoning will hold good. By following the earlier year order, we set aside the order of the authorities below and allow the claim of lease equalisation charges of the assessee.

13. The third issue is on the revaluation loss on investments which was occasioned during the course of the banking business. The assessee contended that he had written off certain investments as per the prudential norms of the Reserve Bank of India, which the assessee has been following consistently. It was claimed by the assessee as business loss under section 37 of the Income-tax Act. This issue has already been remitted back to the file of the Assessing Officer for verification whether it was made during the course of the business or whether it has been written off as per the prudential norms of the RBI. However, considering the system of accounting followed by the Assessing Officer, the same direction will hold good in this case also. Therefore we set aside the order of the CIT(A) and this ground specifically which relates to bad investments is restored back to the file of the Assessing Officer for verification. The assessee's appeal in ITA No. 132/Coch./08 is partly allowed.

14. Coming to the Revenue appeal in ITA No. 346/Coch./08, the first issue is on the contribution to pension fund. The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. (supra) and the decision of the Hon'ble Supreme Court in the case of Vinay Cement Ltd. (supra) wherein it was held that the amount paid as contribution to the pension fund within the time limit under section 43B is an allowable deduction. Respectfully following the above decisions, cited supra, we confirm the order of the CIT(A) by rejecting the ground of the Department.

15. The next issue is regarding the valuation of unquoted shares which resulted in loss by revaluation. The assessee has relied on the decision of the Hon'ble Supreme Court in the case of United Commercial Bank (supra) wherein it was observed that if the valuation is found as per the guidelines of RBI, the Assessing Officer is directed to allow the deduction to that extent, it is in conformity with the RBI guidelines. Respectfully, following the decision of the Hon'ble Supreme Court, cited supra, we find that there is no justification in interfering with the order of the CIT(A). Hence, we reject this ground of the revenue.

16. The last issue is on the chargeability of interest under section 234C which was cancelled by the CIT(A). On this issue, we have heard the learned Departmental Representative and the ld. Counsel for the assessee at length. The CIT(A) found that since advance tax is payable on current income/returned income, there is no room in charging interest under section 234C. Therefore, the CIT(A) cancelled the interest charged under section 234C. After considering the rival submissions, we find that the assessee has to pay section 234C interest as computed by the Assessing Officer. The assessee filed the return of income in response to notice under section 148 admitting total income of more than Rs. 15 crores. However, the Assessing Officer refused to accept the business loss of more than Rs. 28 crores. The ld. Counsel for the assessee contended that the total income should have been computed adopting business loss returned as per the returns. The ld. Counsel for the assessee submitted that the total income has been enhanced from the returned income which was disallowance of revaluation loss on investments, disallowance of write-off of unrealizable investment and payment of contribution to pension fund, and lease equalisation charges.

17. Regarding section 234C, the assessee's contention is that this interest calculation is not at all justified as the assessee has already remitted sufficient amount of advance tax to meet the tax liabilities. Sub-clause (3) to section 37 will not be applicable to the assessee's case as the additions made to the total income are unsustainable, is the argument before the authorities. However, in reply, the learned Departmental Representative vehemently supported the findings of the authorities below and he maintained his argument that chargeability of interest under section 234C is quite justified.

18. We have heard the rival submissions and perused the materials available on record including the precedents. We find that it is made abundantly clear that the assessee has paid sufficient amount of advance tax to meet the tax liabilities. When that being the fact, the order of the CIT(A) who cancelled the section 234C interest, requires no interference. The Revenue appeal in ITA No. 346/Coch./08 is dismissed.

19. Coming to the assessee appeal in ITA No. 406/Coch./07 for the assessment year 2000-01, the first issue is on the lease equalisation charges which we have decided already in favour of the assessee.

20. The other grievance of the assessee is on the issue of chargeability of interest under sections 234C and 234D. The ld. Counsel for the assessee submitted that the CIT(A) has not considered the issue, particularly Ground No. 6 in the Ground of Appeals wherein the assessee has challenged the chargeability of sections 234C and 234D interest. To that extent, we could not decide this issue as there is no deliberation on the issue of chargeability of sections 234C and 234D interest by the CIT(A), even though it was specifically raised in the grounds before the CIT(A). Therefore, we remit this issue of chargeability of sections 234C and 234D interest back to the file of the CIT(A) for proper adjudication on merits. As we have already decided the issue on lease equalisation charges in favour of the assessee and against the Department by following the earlier years Tribunal order, we set aside the order of the authorities below. Therefore, the assessee's appeal in ITA No. 406/Coch./07 is partly allowed.

21. Coming to the Department appeal in ITA No. 700/Coch./07 for the assessment year 2003-04, the first issue is on the deletion of the disallowance under the Head 'bad debts' under section 36(1)(vii) of the Income-tax Act.

22. We have considered the rival submissions and perused the material available on record including the precedents. The decision of the Hon'ble Jurisdictional High Court in the case of South Indian Bank Ltd. v. CIT [2003] 262 ITR 579 (Ker.) is directly on the issue. Respectfully, following the decision of the Hon'ble Jurisdictional High Court, cited supra, we see no justification in interfering with the order of the CIT(A) on this issue.

23. The second issue is on the deletion of addition on account of appreciation and deleting the disallowance being depreciation in respect of current category of investments.

24. We have heard the ld. Counsel for the assessee and the learned Departmental Representative at length. The addition was on account of appreciation of the investments and the disallowance being the depreciation in respect of current category of investments. The CIT(A) found that the Bank has consistently been following the method as per Accounting. Schedule 17 shows that both appreciation and depreciation are being accounted for in the books consistently. It is the recognised accounting practice relating to depreciation on current investments which were treated as stock in trade which has to be debited to P&L account. The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of United Commercial Bank (supra). However, the Assessing Officer ignored the appreciation for calculating the provision and the appreciation in shares has been netted for calculating the provision as on 31-3-2003. According to the CIT(A), all the categories have been accounted for in the books. Based on the above facts and circumstance of the case, the CIT(A) came to the conclusion that if the value of current asset has gone down, depreciation on the asset taken as stock in trade is to be allowed as deduction while appreciation is ignored. The important aspect which is to be taken, is the appreciation in value in subsequent year of an asset which had depreciated on earlier occasion. The difference by which the depreciated value has appreciated or recovered has to be taxed and not appreciation over and above the cost price, in view of the method of valuation being followed by the assessee. Further, the CIT(A) found that the assessee has consistently followed this method of accounting and the appreciation calculation by the Assessing Officer is erroneous which made the CIT(A) to delete the addition on account of appreciation and allowed deduction on account of depreciation. Under the above facts and circumstances of the case, we see no justification in interfering with the order of the CIT(A) on this issue. This issue is decided in favour of the assessee and against the Department.

25. Coming to the third issue, it is regarding deletion of addition being payment of pension otherwise than from the Pension Fund covered under section 36(1)(iv) of the Act. The assessee-bank has made contribution to the approved Employees Pension Fund Account which was made as a provision for payment of pension on the basis of the actuarial valuation done at the end of the every financial year. The assessee deducted both the contribution to the pension fund and the pension paid directly to the retired employees. It is not disputed before us that the assessee has contributed to the pension fund based on actuarial valuation after deducting pension actually paid to the retired employees. Therefore, it is an allowable business expenditure particularly when there is no double deduction which was incurred during the course of business and for the purpose of business. Therefore, the CIT(A) allowed it under section 37 as it was business expenditure. We see no justification in interfering with the order of the CIT(A) and affirm the findings of the CIT(A). This ground of the Revenue is dismissed.

26. Coming to the last issue, it is regarding deletion of addition on account of amortisation of premium on purchase of Government securities. The ITAT, Cochin Bench in ITA No. 126/Coch./04 dated 19-9-2005 in the case of South Indian Bank ( supra) by relying on its earlier order in assessee's own case for the assessment year 1996-97 has decided this issue in favour of the assessee. Therefore, following the above Tribunal decision, the CIT(A) deleted the addition on account of amortisation of premium on purchase of Government securities. Hence, we see no justification in interfering with the order of the CIT(A) on this issue. This ground of the Revenue is dismissed. Under the above circumstances, the Revenue appeal under the above captioned appeal is dismissed.

27. Next we will take up the assessee appeal in ITA No. 812/Coch./07 for the assessment year 2004-05. The only issue is regarding the disallowance of lease equalisation charges. The assessee-bank claimed that the lease equalisation charges is an allowable deduction as per the method of accounting followed by the assessee consistently. We have already decided this issue in favour of the assessee and against the Department for the same reasons given for the earlier assessment year. Hence, we set aside the order of the authorities below. The appeal filed by the assessee is allowed.

28. Coming to the Revenue appeal in ITA No. 854/Coch./07, the first issue is on the deletion of disallowance made in respect of the claim of the assessee-Bank being excess claim of bad debts under section 36(1)(vii) of the Act. The decision of the Hon'ble Kerala High Court in the case of South Indian Bank Ltd. (supra) is directly on the issue. Therefore, following the decision of the Hon'ble Kerala High Court, cited supra, we confirm the order of the CIT(A) and reject the argument of the learned Departmental Representative.

29. The second issue as in Ground No. 3 is on the deletion of addition on account of appreciation and deleting the disallowance being depreciation in respect of current category of investments. By following our earlier order on the same issue, we confirm the order of the CIT(A). This ground of the Revenue is dismissed.

30. Coming to the third issue as in Ground No. 4, it is regarding deletion of disallowance of payment of pension otherwise than from the Pension Fund covered under section 36(1)(iv) of the Act. It is a direct payment of pension. The decision of the Hon'ble Supreme Court in the case of T. Stanes & Co. Ltd. v. CIT [1991] 188 ITR 237 is directly on the issue. Respectfully, following the above decision, we confirm the order of the CIT(A) who held that it is an allowable business expenditure under section 37. Hence, this Revenue ground is dismissed.

31. Coming to the fourth issue as in Ground No. 5, it is the deletion of disallowance being the amortisation of the premium on account of purchase of permanent category of investments. The ITAT, Cochin Bench in ITA No. 126/Coch./04 dated 19-9-2005 in the case of South Indian Bank Ltd. (supra) by relying on its own decision in ITA No. 36/Coch./01 for the assessment year 1996-97 has decided the issue in favour of the assessee and against the Department which the CIT(A) also followed. There is no controverted decision relied upon by the Department to be in consistent with the above Tribunal decision. Hence, we confirm the order of the CIT(A). This Ground of the Revenue is dismissed.

32. The fifth issue as in Ground No. 6 is regarding the deletion of disallowance of expenses incurred for earning Tax Free Bonds under section 14A. The learned Departmental Representative submitted that a feeble attempt was made by the ld. Counsel for the assessee by relying on the decision of the ITAT, Cochin Bench in the case of South Indian Bank in [ITA No. 283/Coch./2006 for the assessment year 1998-99 dated 17-1-2007]. Therefore, we are unable to accept the plea of the ld. Counsel for the assessee, as rightly contended by the learned Departmental Representative, the valuation has to be followed and it is binding on all the Tribunals. Respectfully following the decision of the Special Bench of ITAT, Mumbai in the case of ITO v. Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 , we reverse the findings of the CIT(A) and confirm the order of the Assessing Officer. This Revenue ground is allowed. In this way, the revenue appeal in ITA No. 854/Coch./07 is partly allowed.

33. Now we are left with one solitary appeal of the assessee against the 263 order of the ld. Commissioner in ITA No. 130/Coch./07 for the assessment year 2002-03. As we have adverted in isolation on the merits of the case, we do not want to go into the validity of assumption of jurisdiction under section 263.

34. On merits, the first issue is on the disallowance of lease equalisation charges. We have already decided the issue in favour of the assessee and against the Department by following the earlier Tribunal order referred in this order. By following the above Tribunal order, we allow this ground of the assessee.

35. Coming to the second issue which is Ground No. 4, it is regarding contribution to pension fund. We have already decided this issue in favour of the assessee and against the Department by following the earlier year's Tribunal order.

36. Coming to Ground No. 5 without adverting to Ground No. 6 which relates to contribution to pension fund which we have already decided in favour of the assessee and against the Department by relying on the earlier year's Tribunal order, it is regarding the valuation of investments in accordance with the provisions of prudential norms issued by the Reserve Bank of India. The assessee-bank was consistently following proper system of accounting for crediting the interest on securities. However, the broken period interest is an allowable deduction. As per the decision of the Hon'ble Kerala High Court in the case of Commissioner Of Income Tax v. South Indian Bank Ltd. [2000] 241 ITR 374 , the Hon'ble High Court held that such interest paid for purchase of Government securities and Bonds is a deductible business expenditure. Therefore, on this ground, the assessee succeeds.

37. The only ground which was in favour of the Department is regarding the valuation of unquoted investments which we have decided against the assessee and the reasons given by the ld. Commissioner is quite justified. The ld. Commissioner found that the value of unquoted shares in the current category of investments were taken as zero value. Since the assessee is unable to furnish the real market value of such shares, the face value of such shares were to be adopted as followed in the assessment year 1997-98. However, the assessee maintained the argument by relying on the Circular issued by the RBI that in case the balance sheet is not available, the shares are to be valued at Re. 1 per company. The ld. Commissioner found that this kind of directive is not binding on the Income-tax Department and the decision of the Hon'ble Madras High Court in the case of Tamil Nadu Power Finance Corporation is directly on the issue. Respectfully following the decision of the Hon'ble Madras High Court in the case of Tamil Nadu Power Finance Corporation, we reject this ground of the assessee. The assessee's appeal is allowed on merits.

38. In the result, the assessee's appeal in ITA No. 131/Coch./2008 is allowed, the Revenue appeal in ITA No. 345/Coch./2005 is partly allowed, the assessee appeal in ITA No. l32/Coch./08 is partly allowed, the revenue appeal in ITA No. 346/Coch./08 is dismissed, the assessee appeal in ITA No. 406/Coch./07 is partly allowed, the revenue appeal in ITA No. 700/Coch./07 is dismissed, the assessee appeal in ITA No. 812/Coch./07 is allowed, the revenue appeal in ITA 854/Coch./07 is partly allowed and the assessee's appeal in ITA No. 130/Coch./07 is allowed.

Catholic Syrian Bank Ltd. v. Assistant Commissioner of Income-tax, Circle-1(1), Thrissur

Concise, Structured Summary of the Tribunal Order (Consolidated Appeals)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Catholic Syrian Bank Ltd. v. Assistant Commissioner of Income-tax, Circle-1(1), Thrissur

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