Ita/70/2011 M/S. Indian Bank v. Commissioner Of Income Tax-Ii, Kolkata

OD–4 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITA/70/2011M/s. INDIAN BANKVS. COMMISSIONER OF INCOME TAX-II, KOLKATA BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 20[th] March, 2023 Appearance :Mr. C. Bhaskaran, Adv.Ms. Swapna Das, Adv.…for the appellant.Mr. Aryak Dutt, Adv.…for the respondent.. The Court : - This appeal filed by the assessee under Section 260A of theIncome Tax Act (the Act) is directed against the order dated September 30, 2009passed by the Income Tax Appellate Tribunal “B” Bench, Kolkata in ITANO.2486/Kol/2007 for the assessment year 2003-2004. The appeal was admitted on 18.03.2011 on the following substantialquestions of law:- “1. Whether the Tribunal below, while interpreting section36(1)(viia)(a) of the Income-tax Act, 1961, committed substantialerror of law in holding that deduction under the first proviso wasalternative to that under sub-clause (a) and that no deductionunder the first proviso was allowable if deduction had beenallowed under sub-clause (a) thereby rejecting the appellant’s claim for deduction of Rs.140,33,70,000/- under the first proviso?? 2. Whether the Tribunal below committed substantial error of law inholding that the proviso of sub-sections (2) and (3) inserted inSection 14A of the Income Tax Act, 1961 with effect from April1,2007 and Rule 8D inserted in the Income Tax Rules 1962 onMarch 24, 2008 was procedural and retrospective and wereapplicable for the assessment year 2003-2004?holding that the proviso of sub-sections (2) and (3) inserted inSection 14A of the Income Tax Act, 1961 with effect from April1,2007 and Rule 8D inserted in the Income Tax Rules 1962 onMarch 24, 2008 was procedural and retrospective and wereapplicable for the assessment year 2003-2004? 3. Whether the Tribunal below committed substantial error of law indirecting the Assessing Officer to decide disallowance undersection 14A of the Income-tax Act as per Rules 8D of the Income-tax Rules 1962 without arriving at any finding that the claims ofthe appellant as regards expenditure incurred in relation to taxfree interest income was not correct ?directing the Assessing Officer to decide disallowance undersection 14A of the Income-tax Act as per Rules 8D of the Income-tax Rules 1962 without arriving at any finding that the claims ofthe appellant as regards expenditure incurred in relation to taxfree interest income was not correct ? 4. Whether the Tribunal below committed substantial error of law inholding that only provision for ascertained liability/expense wasnot to be added back in computation of book profit under section115JB and that the deduction in the appellant’s case in respect ofprovisions for bad and doubtful debts, standard assets,depreciation of investment, fraud and forgery, stationery wastageand tangible assets could not be allowed unless the same werefor ascertained liability/expense ?holding that only provision for ascertained liability/expense wasnot to be added back in computation of book profit under section115JB and that the deduction in the appellant’s case in respect ofprovisions for bad and doubtful debts, standard assets,depreciation of investment, fraud and forgery, stationery wastageand tangible assets could not be allowed unless the same werefor ascertained liability/expense ? We have heard Mr. C. Bhaskaran, learned counsel assisted by Ms. SwapnaDas, learned advocate for the appellant/assessee and Mr. Aryak Dutt, learnedstanding counsel for the respondent/revenue. We have heard Mr. C. Bhaskaran, learned counsel assisted by Ms. SwapnaDas, learned advocate for the appellant/assessee and Mr. Aryak Dutt, learnedstanding counsel for the respondent/revenue. The first substantial question of law is whether the Tribunal was right inholding that the deduction under the first proviso to Section 36(1)(viia)(a) wasalternative to that under sub-clause (a) and that no deduction under the firstproviso was allowable if the deduction had been allowed under sub-clause (a).Identical issue was considered in the case of Commissioner of Income Tax, Chennaivs. Tamilnadu Industrial Investment Corporation Limited reported in (2019)112Taxmann.com 386 (Mad.). The only distinction in the said case was that therespondent assessee in the said case was Public Financial Institution to which sub-clause (c) under the said provision would stand attracted. The question of applyingsub-clause(3) in Section 36(1)(viia)(a) does not arise and the proviso cannot be readindependently was rejected for the reason that the proviso to sub-clause (c) inSection 36(1)(viia)(a) uses the words “at its option”. The proviso provided that aPublic Financial Institution or a State Financial Corporation or a State IndustrialInvestment Corporation referred to in sub-clause (c) of Section 36(1)(viia)(a) shall, atits option, be allowed to in any of the two consecutive assessment yearscommencing on or after 1[st] April, 2003 and ending before 1[st] April, 2005, deductionin respect of any provision made by it for any assets classified by the Reserve Bankof India as doubtful assets or loss assets in accordance with the guidelines issuedby it in this behalf, of an amount exceeding 10% of such assets shows in the booksof account of such institution or corporation, as the case may be, on the last day ofthe previous year. Thus, the Court held that the proviso carves out an exceptionfrom the stipulation in sub-clause(c), otherwise the use of the expression “at itsoption” would lose its significance. The said decision would squarely apply to thecase on hand and the only distinction being sub-clause(a) of Section 36(1)(viia)(a)would stand attracted in the case on hand and the said provision was given effect tofrom the assessment year 2000-01. The decision in the case of Tamilnadu Industrial Investment Corporation Limited was challenged by the revenue before theHon’ble Supreme Court and the Special Leave Petition was dismissed as reported in(2019) 112 Taxmann.com 387 (SC). Thus, following the above decision, the substantial question of law no.1 isanswered in favour of the assessee. So far as the substantial questions of law nos.2 and 3 are concerned, theycould be clubbed together and those questions were considered by this Court in thecase of PCIT vs. Dhansar Engineering Co. (P) Ltd. reported in (2022) 135Taxmann.com 167(Cal.). In the light of the said decision, the procedure under Rule8D of the Income Tax Rules, 1962 was held to be prospective in operation and notretrospective. Thus, the substantial questions of law nos.2 and 3 are answered infavour of the appellant/assessee and the Assessing Officer is directed to do the re-computation bearing in mind the above legal principle. So far as the substantial question of law no.4 is concerned, we are of the viewthat it is entirely factual and moreover the matter is remanded back to theAssessing Officer for a fresh decision in the matter and, therefore, the substantialquestion of law no.4 need not be answered in this appeal. In the result, the appeal (ITA/70/2011) is allowed to the extent indicatedleaving the substantial question of law no.4 unanswered on the above reason. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)