Rp/296/2012 Of The Commissioner Of Income Tax, Thrissur v. The South Indian Bank Ltd, Thrissur

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.SURENDRA MOHAN TUESDAY, THE 27TH DAY OF MARCH 2012/7TH CHAITHRA 1934 RP.No. 296 of 2012 () IN ITA/508/2009 --------------------------------------AGAINST THE ORDER/JUDGMENT IN ITA.508/2009 DATED 06-10-2010 REVIEW PETITIONER(S)/ APPELLANT :-------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S):/ RESPONDENT-------------- THE SOUTH INDIAN BANK LTD, THRISSUR - 680 001. BY MR.P.BALAKRISHNAN THIS REVIEW PETITION HAVING COME UP FOR ADMISSION ON27-03-2012, ALONG WITH R.P.NOS.297/2012 IN ITA NO.553/2009 &298/2012 IN ITA NO.565/2009 THE COURT ON THE SAME DAY PASSED THEFOLLOWING: C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. ....................................................................R.P.No.296 of 2012 in I.T.A. No.508 of 2009,R.P.No.297 of 2012 in I.T.A. No.553 of 2009 &R.P.No.298 of 2012 in I.T.A. No.565 of 2009 .................................................................... Dated this the 27[th] day of March, 2012. O R D E R Ramachandran Nair, J. These review petitions are filed by the Revenue based on observations made by the Honourable Supreme Court whiledisposing of Special Leave Petitions filed against the judgmentof this Court rendered in Income Tax Appeals relating to therespondent assessee. The respondent is a Banking Institutionwhich has incurred expenditure for earning income that isexempt from payment of tax and do not constitute part of thetotal income assessable under the Income Tax Act, 1961(hereinafter referred to as the Act for short). Section 14A ofthe Act is a new provision introduced in the Income Tax Act byFinance Act, 2001 with retrospective effect from 01/04/1962under which expenditure incurred by the assessee for earningincome which does not form part of total income is not an R.P.Nos.296, 297 & 298/2012 -2- allowable deduction. Even though the main provision ofSection 14A is given retrospectivity the proviso imposed aprohibition against the Assessing Officer from revising aconcluded assessment either under Section 147 or underSection 154 for making disallowance and for raising demandof tax or for demanding excess tax refunded. For easyreference Section 14A with the proviso is extracted hereunder. “Section 14A.income not includible in total income. Expenditure incurred in relation to (1)For the purposes of computing the totalincome under this Chapter, no deduction shall beallowed in respect of expenditure incurred by theassessee in relation to income which does not formpart of the total income under this Act. (Provided that nothing contained in this section shall empower the Assessing Officer eitherto reassess under section 147 or pass an orderenhancing the assessment or reducing a refundalready made or otherwise increasing the liabilityof the assessee under section 154, for anyassessment year beginning on or before the 1[st] dayof April, 2001) (2)The Assessing Officer shall determine theamount of expenditure incurred in relation to suchincome which does not form part of the totalincome under this Act in accordance with suchmethod as may be prescribed, if the AssessingOfficer, having regard to the accounts of the assessee, is not satisfied with the correctness ofthe claim of the assessee in respect of suchexpenditure in relation to income which does notform part of the total income under this Act.(3)The provisions of sub-section (2) shall alsoapply in relation to a case where an assesseeclaims that no expenditure has been incurred byhim in relation to income which does not form partof the total income under this Act.” In all these cases, the Assessing Officer completed (2)The Assessing Officer shall determine theamount of expenditure incurred in relation to suchincome which does not form part of the totalincome under this Act in accordance with suchmethod as may be prescribed, if the AssessingOfficer, having regard to the accounts of the assessee, is not satisfied with the correctness ofthe claim of the assessee in respect of suchexpenditure in relation to income which does notform part of the total income under this Act.(3)The provisions of sub-section (2) shall alsoapply in relation to a case where an assesseeclaims that no expenditure has been incurred byhim in relation to income which does not form partof the total income under this Act.” In all these cases, the Assessing Officer completed assessments without making disallowances under Section 14Aeven though the assessee had incurred expenditure mainly byway of interest incurred on borrowed funds diverted forinvestments in securities, shares etc, the income wherefromwere exempt from tax. By virtue of the prohibition containedin the proviso, the Assessing Officer was disabled from eithermaking income escaping assessment under Section 147 or byrectifying assessment under Section 154. However, since theproviso to Section 14A does not expressly bar theCommissioner from invoking suomotu revisional powers underSection 263 of the Act, in exercise of such powers theCommissioner set aside the assessments and directed R.P.Nos.296, 297 & 298/2012 reassessment for making disallowances for the past years.When the matter reached the Tribunal, the Tribunal allowedassessee's claim by holding that disallowance cannot be madeby reopening of concluded assessments in exercise of powersconferred under Section 263 of the Act by the Commissioner.It is against these orders, the matter reached this Court inappeals. 2.It may be noticed from the judgments under Reviewthat the above issue raised in all the cases were decided by usfollowing our judgment in ITA No.587/2009 dated14/01/2010. The Revenue has not challenged the judgmentin the main case which is stated to be for the reason that thedisallowance involved is a small amount. However, in thesecases, the Revenue filed Special Leave Petitions before theSupreme Court wherein they relied on our judgmentapparently on the same issue in Catholic Syrian Bank Ltd.v.CIT, reported in 330 ITR 556. The Honourable Supreme Courtfelt that the view taken by this Court in the judgment above It may be noticed from the judgments under Review R.P.Nos.296, 297 & 298/2012 referred was not considered by us while deciding the appeals. Therefore, the SLPs were closed leaving freedom to theRevenue to approach this Court with the Review Petitions, andhence the matter is before us. We have to necessarily considerthe review petitions with regard to our two judgments abovereferred. 3.So far as the decision of this Court in CatholicSyrian Bank Ltd.v. CIT, reported in 330 ITR 556 is concerned,we were called upon to decide the scope of CBDT CircularNo.11 of 2001, dated 23/07/2001, which does not permitreopening of concluded assessments. We notice that in thecase of that assessee, the assessment for 1997-98 was takenup in first appeal and the appellate authority set aside theassessment and remanded the matter for reconsideration bythe Assessing Officer on certain other issues. While theassessment remained set aside and remanded by the CIT(Appeals), the Commissioner in exercise of suo moturevisional powers under Section 263 issued notice to the R.P.Nos.296, 297 & 298/2012 3.So far as the decision of this Court in CatholicSyrian Bank Ltd.v. CIT, reported in 330 ITR 556 is concerned,we were called upon to decide the scope of CBDT CircularNo.11 of 2001, dated 23/07/2001, which does not permitreopening of concluded assessments. We notice that in thecase of that assessee, the assessment for 1997-98 was takenup in first appeal and the appellate authority set aside theassessment and remanded the matter for reconsideration bythe Assessing Officer on certain other issues. While theassessment remained set aside and remanded by the CIT(Appeals), the Commissioner in exercise of suo moturevisional powers under Section 263 issued notice to the R.P.Nos.296, 297 & 298/2012 assessee and directed revision of assessment for the purposeof making disallowance under Section 14A of the Act. In thiscontext, we held that when assessment stands set aside andremanded for reconsideration by the assessing authority, suchassessment cannot be treated as a concluded assessment andso much so, the Circular referred to therein does not barrevision of assessment by the Commissioner under Section263 of the Act for the purpose of making disallowance underSection 14A. In fact, the scope of the proviso to Section 14Awas not considered in the said decision at all. Obviously, thefacts arising in these cases are not similar to the facts basedon which we rendered our judgment in the above case becausein all these cases, assessment involved remained concludedand the powers of the Commissioner to suomotu orderrevision of assessment under Section 263 was considered withspecific reference to the proviso to Section 14A, which is partof the statute. 4. So far as the decision on merit in these cases is R.P.Nos.296, 297 & 298/2012 concerned, we have only followed judgment of the DivisionBench this Court in I.T.A.No.587/2009 dated 14/01/2010wherein this Court clearly held that if the Revenue's claim isallowed, then the prohibition under the proviso against theAssessing Officer to revise concluded assessments for makingdisallowance under Section 14A can be neutralised anddefeated by referring concluded assessments to theCommissioner for initiating suomotu revisional power underSection 263 of the Act. In other words, we felt that the provisois not procedural but guarantees vested rights of partiesagainst reopening concluded assessments. So far asconcluded assessments are concerned, the proviso makes itclear that the assessee should not be subjected todisallowance either by reopening assessment under Section147 or under Section 154 for raising demand of tax afterdisallowance or for withdrawing refund granted. If the right ofthe assessee cannot be taken away by the Assessing Officer,we see no reason why it can be permitted to be done by the R.P.Nos.296, 297 & 298/2012 -8- Commissioner under Section 263 to achieve the samepurpose, which is prohibited under the proviso to Section 14A.We therefore do not find any mistake in the judgmentwarranting interference in review. Consequently, these reviewpetitions are dismissed. Registry will attach a copy of the judgment in ITANo.587/2009 dated 14/01/2010 to form part of thisjudgment. (C.N.RAMACHANDRAN NAIR, JUDGE) (K.SURENDRA MOHAN, JUDGE) jg