Bonds Is Covered By The Judgment Of The Apex Court In Indiacements Limited v. I.t.a.nos.348 & 1264 Of 2009

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 10TH DAY OF OCTOBER 2017/18TH ASWINA, 1939 ITA.No. 348 of 2009 -------------------- AGAINST THE ORDER IN ITA 299/2002 of I.T.A.TRIBUNAL,COCHIN BENCHDATED 17-12-2004 APPELLANT/RESPONDENT: --------------------- THE COMMISSIONER OF INCOME TAX, COCHIN BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT:--------------------- M/S. LORD KRISHNA BANK LTD,. KALOOR, COCHIN. R,R BY ADV. SRI.JOSEPH KODIANTHARA R,R BY ADV. SRI.TERRY V.JAMES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10-10-2017,ALONG WITH ITA.1264/2009, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: ANTONY DOMINIC, J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -I.T.A.Nos.348 & 1264 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 10[th] day of October, 2017 Antony Dominic, J. JUDGMENT These appeals are filed by the Revenue impugning the ordersof the Income Tax Appellate Tribunal in I.T.A.299/02 concerningthe assessment year 1998-1999. Since the parties are commonand the issues are also common, appeals were heard together andare disposed of by this common judgment. 2. Insofar as ITA 348/09 is concerned, among the four issuesthat were raised before the Tribunal, three issues are in respect ofloss on account of revaluation of investment in Governmentsecurities, disallowance of expenditure for issue of bonds andbroken interest. These questions have already been considered bythis court and answered against the Revenue. Issue No.1 and 3 arecovered by the judgment in Commissioner of Income Tax v.Nedungadi Bank Limited [264 ITR 545] of this court and theissue No.2 concerning disallowance of expenditure for issue of bonds is covered by the judgment of the Apex Court in IndiaCements Limited v. Commissioner of Income Tax (1996) 60 ITR52. The fourth issue was regarding the applicability of Section 14Aof the Income Tax Act which was introduced by the Finance Act2001 with effect from 1.4.1962. We find that the assessment orderfor the assessment year 1998-1999 was passed on 23.2.2001disallowing Rs.1,50,000/- being the proportionate operationexpenses. The Commissioner of Income Tax (Appeals) confirmedthe disallowance but directed the Assessing Officer to considerdisallowance of Rs.2,61,06,277/- under Section 14A of the IncomeTax Act. In ITA 299/02, the Tribunal upheld the order of the 1[st]Appellate Authority. Against the order of the Tribunal, the assesseefiled ITA 14/02. By judgment dated 3[rd] October 2005, the appealwas disposed of by this court, holding that the impact of Section14A and the proviso were not considered by the authorities belowand the Tribunal and on that basis, the order of the Tribunal was I.T.A.Nos.348 & 1264 of 2009 : 3 : set aside and the matter was remitted to the Tribunal for freshconsideration. Accordingly, the matter was reconsidered and the Tribunal passed Annexure E order in ITA 1264/09 where theTribunal took the view that Section 14A was not applicable as thebusiness was indivisible. It is this order that is challenged by the Revenue in ITA 1264/09 and question of law framed for theconsideration of this court read as under: “1. Whether, on the facts and in the circumstances ofthe case did the Tribunal pass an order as contemplatedby the Honourable High Court? 2. Whether, on the facts and in the circumstances of thecase did the Tribunal consider the applicability ofSection 14A to the facts of the case?3. Whether, on the facts and in the circumstances of thecase- i) Did the Tribunal interpret the scope of Sec.14A? ii) Is not the order of the Tribunal against theintendment of Section 14A of the I.T.Act are notthe orders of the Assessing Officer and CIT (A)correct and in accordance with law?” Revenue in ITA 1264/09 and question of law framed for theconsideration of this court read as under: “1. Whether, on the facts and in the circumstances ofthe case did the Tribunal pass an order as contemplatedby the Honourable High Court? 2. Whether, on the facts and in the circumstances of thecase did the Tribunal consider the applicability ofSection 14A to the facts of the case?3. Whether, on the facts and in the circumstances of thecase- i) Did the Tribunal interpret the scope of Sec.14A? ii) Is not the order of the Tribunal against theintendment of Section 14A of the I.T.Act are notthe orders of the Assessing Officer and CIT (A)correct and in accordance with law?” I.T.A.Nos.348 & 1264 of 2009 : 4 : 3. Having heard the Standing Counsel for the Revenue and the learned Senior Counsel for the assessee, we find that these questions are already answered in the judgments rendered by thiscourt and, therefore, should be answered against the Revenue. Inthe judgment in Commissioner of Income Tax v. Dhanalakshmy Bank Limited [(2012) 344 ITR 259], while discussing the scope ofSection 14A and the proviso thereto this court, inter alia, held thus: “In other words, assessments for any assessmentyear up to the assessment year 2000-2001 that werefinalised when the proviso was introduced withoutmaking any disallowance under Section 14A, wereallowed to achieve finality. Disallowance underSection 14A was intended to be made only forpending assessments and for assessments for for theassessment years commencing from 2001-2002onwards.” 4. However, this judgment was sought to be distinguished by the learned Standing Counsel appearing for the Revenue bycontending that the proviso only fetters on the powers of theAssessing Officer. As rightly pointed out by the learned Senior I.T.A.Nos.348 & 1264 of 2009 : 5 : Counsel for the assessee that contention was also raised by theRevenue and the same has been negatived by this court in the judgment reported in The Commissioner of Income Tax, Thrissur .v. Paul John [2010 (1) KLJ 297] “It is clear from the above proviso that eventhough the scheme of disallowance of expenditureincurred by the assessee in relation to incomeexempted under the Act is introduced withretrospective effect from 1.4.1962, Parliament haschosen to implement the provision only from theassessment year 2001-02 because express prohibitionis introduced in the proviso against assessing officersreopening or rectifying assessments under Section 147or under Section 154 for withdrawing deductionallowed in assessments concluded for periods prior to1.4.2001. The contention of the standing counsel isthat prohibition introduced in the proviso is onlyagainst assessing officers from exercising their powersunder Sections 147 and 154 of the Act and since thereis no restriction against Commissioner's power underSection 263 he is free to invoke the same and disallowit, consistent with the express provision contained inSection 14A, within the period of limitation providedtherein. Senior counsel appearing for the respondent-assessee on the other hand contended that theprohibition in the proviso is against reopening ofconcluded assessments for periods prior to 1.4.2001and even though Commissioner's authority under Section 263 is not expressly provided therein, the barunder the proviso applies to him as well. We are of theview that the proviso to Section 14A is intended toprovide finality for concluded assessments wheredeductions for earning exempted income would havebeen allowed and therefore unless the proviso appliesto Commissioner of Income tax as well, the purpose ofthe proviso will be defeated. Further, in our view, thebar against the assessing officer passing an orderenhancing the assessment stated in the proviso takesin an order which the Officer may have to passpursuant to the direction issued by the Commissionerunder Section 263. Even though standing counselsubmitted that the proviso is applicable only toproceedings that can be issued by the assessing officerunder Sections 147 and 154, we feel besides thepowers of the Officer under Sections 147 & 154, theassessing officer has the authority to increase theliability of the assessee pursuant to orders issuedunder Section 263 by the Commissioner and pursuantto orders of enhancement which the Commissioner ofIncome Tax (Appeals) can issue under Section 251(1)(a) while deciding the appeal tiled by the assessee. Wetherefore hold that the proviso to Section 14Aprohibits all situations where the Officer is otherwiseentitled or required to revise an assessment whichincludes orders issued by the Commissioner underSection 263 or order of enhancement issued by the CIT(Appeals) in exercise of his power above referred. Consequently the appeal filed by the revenue isdismissed.” : 7 : Therefore, this contention of the Revenue also has to benegatived. In the light of the above, answering the questions of lawframed in these cases against the Revenue and in favour of theassessee, these appeals are disposed of. SD/- ANTONY DOMINIC JUDGE jes SD/- DAMA SESHADRI NAIDU JUDGE