Substantial Question Nos.1 And 2 Deal With v. Dcit[1

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASWEDNESDAY, THE 14 DAY OF JULY 2021 / 23RD ASHADHA, 1943 ITA NO. 1091 OF 2009 AGAINST THE ORDER IN ITA 359/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX.THRISSUR. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S. THE SOUTH INDIAN BANK LTD.MISSON QUARTERS, THRISSUR. BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.07.2021,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No. 1091/2009 J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph andlearned Senior Advocate Mr. Joseph Markos for the parties. 2.Commissioner of Income Tax, Trichur/Revenue is the appellant. M/s. South Indian Bank Ltd, Thrissur/assessee is therespondent. The appeal is directed against the order of IncomeTax Appellate Tribunal (for short ‘Tribunal), Cochin Bench inITA No.359/Coch/2006 dated 27.09.2007. The appeal deals withthe issues arising in the tax return filed by the assessee for theAssessment Year 2003-04. 3.The Assessing Officer through the assessment order in Annexure-A, added appreciation in the value of securities;disallowed the claim of pension payment, bad debts in urban I.T.A. No. 1091/2009 branches, and asset amortization. The assessee filed appeal before the Commissioner of Income Tax (Appeals) and theappeal was allowed in part. In the appeal filed by the assesseebefore Income Tax Appellate Tribunal, through Annexure-Corder, the claims of the assessee referred to above were allowedby the Tribunal. Hence, the instant Income Tax Appeal, at theinstance of the Revenue under Section 260A of the Income TaxAct (for short 'the Act'). 4.The Revenue has framed the following substantial questions of law for decision in the subject appeal. “1. Whether on the facts and in the circumstances of the caseand also in the light of section 14A of the Income tax Actintroduced by the Finance Act. 2001 with retrospective effectfrom 01/04/1962, the assessee is entitled to claim theexpenditure in respect of income which does not form part oftotal income? 2. Whether on the facts and in the circumstances of the case,the Tribunal is right in law in interfering with the order of the I.T.A. No. 1091/2009 Assessing Officer disallowing proportionate interest on tax freebonds? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the investmentmade by the assessee-company in Bonds are in the nature ofStock-in-trade by quoting one para from Kerala High Courtdecision in the case of Nedungadi Bank (264 ITR 545) which isnot there, as quoted. Further, every investment by Bank in Bonds, Shares, etc.cannot be treated as Stock-in-trade.” 5.Substantial question nos.1 and 2 deal with disallowance of claim of expenditure in respect of income whichdoes not form part of the total income. The Assessing Officerdisallowed the claim by referring to Section 14A of the Act forthe Assessment Year 2003-04. The question is considered bythis Court in the decision reported in Federal Bank Ltd. V. DCIT[1]. The operative portion of the reported judgment reads asfollows: I.T.A. No. 1091/2009 “The fifth question is covered against the Revenue and infavour of the assessee in CIT v. Essar Teleholdings Pvt. Ltd. [2018]401 ITR 445 (SC). It has been held by the Hon'ble SupremeCourt that the machinery provision for giving effect to section14A of the Income-tax Act came into effect only from theassessment year 2008-09. Hence, there can be no applicationof section 14A to the subject year. The question is answeredagainst the Revenue and in favour of the assessee.” The operative portion of the reported judgment reads asfollows: I.T.A. No. 1091/2009 “The fifth question is covered against the Revenue and infavour of the assessee in CIT v. Essar Teleholdings Pvt. Ltd. [2018]401 ITR 445 (SC). It has been held by the Hon'ble SupremeCourt that the machinery provision for giving effect to section14A of the Income-tax Act came into effect only from theassessment year 2008-09. Hence, there can be no applicationof section 14A to the subject year. The question is answeredagainst the Revenue and in favour of the assessee.” In the light of the reported judgment substantial questionnos.1 and 2 are answered in favour of assessee and against theRevenue. 5.2Substantial question no.3 deals with investmentsmade by the assessee in shares, bonds, etc. the question isdecided by the judgment of this Court in Commissioner of IncomeTax v. Nedungadi Bank Ltd[2]. The operative portion of thereported judgment is excepted: “For all these reasons, we are of the view that the Income-tax I.T.A. No. 1091/2009 Appellate Tribunal has rightly held that the securities held bythe assessee-bank in all these cases are the stock-in-trade ofthe business of the assessee-banks and the notional losssuffered on account of the revaluation of the said securities atthe close of the year is an allowablededuction in thecomputation of the profits of the appellant. This disposes of thefirst two questions mentioned in para. 10 above” Keeping in view what has been laid down in the reported judgments referred to above, the questions of law are answeredagainst Revenue and in favour of assessee. IT Appeal stands dismissed accordingly. Sd/-S.V.BHATTIJUDGESd/- BECHU KURIAN THOMASJUDGE I.T.A. No. 1091/2009 PETITIONER ANNEXURE ANNEXURE A ANNEXURE B ANNEXURE C APPENDIX OF ITA 1091/2009 TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3) DATED 15.12.2005. TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA 69/R I/TCR/CIT-V/05.06 DATED 17.3.2006 TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA 359 (COCH)/2006 DATED 27.9.2007