Substantial Questions Of Law v. Excel Indusries (Reported In 358 Itr Page 295) And Decision Of Calcutta High Court In The Case Of Bank Of Tokyo Ltd.?

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30 DAY OF JUNE, 2021 PRESENT THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY BETWEEN: I.T.A. NO.267 OF 2018 1. THE COMMISSIONER OF INCOME-TAX, LTU, 7 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095 2. THE JOINT COMMISSIONER OF INCOME TAX, LTU, 7 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095. …APPELLANTS (BY SRI. ARAVIND K.V., ADVOCATE) AND: M/S. CANARA BANK, BSCA SECTION, HEAD OFFICE, 112, JC ROAD, BENGALURU-560002, PAN:AAACC 6106G …RESPONDENT (BY SRI. T.SURYANARAYANA, ADVOCATE) THIS APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961, ARISING OUT OF THE ORDER DATED 15.09.2017 PASSED IN ITA NO.979/BANG/2013, FOR THE ASSESSMENT YEAR 2009-2010 PRAYING THIS HON'BLE COURT TO (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED IN THE APPEAL (2) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.979/BANG/2013 DATED 15/09/2017 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, LTU, BENGALURU (3) TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY. THIS APPEAL COMING ON FOR HEARING THIS DAY, SATISH CHANDRA SHARMA J., DELIVERED THE FOLLOWING: JUDGMENT The present appeal is arising out of the order dated 15.09.2017 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore, in ITA No.979/Bang/2013 for the assessment year 2009-2010. 2. The appeal has been admitted on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of expenditure of earning exempt income under Sec.14A of the Act by erroneously holding that no disallowance is called for under Section 14A of the Act by following earlier order which has not reached finality even when all the ingredients of Section 14A are satisfied in the case of Assessee? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of claim of deduction on account of commission on locker rent received in advance of Rs.112.84 Crore by following the decision of Apex Court in the case of CIT vs. EXCEL INDUSRIES (reported in 358 ITR page 295) and decision of Calcutta High court in the case of Bank of Tokyo Ltd.? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside in allowing depreciation on assets leased to M/s. Kedia Group of Companies by following earlier orders which has not reached finality even when the assessee is not entitled for Depreciation on assets leased to others under the provisions of the Act? 4. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside that the provisions of Section 115JB are not applicable to banking companies as no accounts are drawn up as per the requirement of Schedule VI of the Companies Act 1956 by following its earlier orders which has not reached finality? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside relying upon Circular No.18 of 2015 dated 2.11.2015, the fact that investments are shown as Stock in Trade in books of account, loss/depreciation on account of fall in value of securities held by assessee bank should be allowed as deduction and therefore the income arising therefrom should also be treated as business income ignoring Section 45(2) which requires investments are to be treated as Stock in Trade? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside relying upon Circular No.18 of 2015 dated 2.11.2015, the fact that investments are shown as Stock in Trade in books of account, loss/depreciation on account of fall in value of securities held by assessee bank should be allowed as deduction and therefore the income arising therefrom should also be treated as business income ignoring Section 45(2) which requires investments are to be treated as Stock in Trade? 6. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the rejection of claim of assessee as deduction on account of unrealised gains on revaluation of forward contracts by relying on the decision of Apex Court in the case of CIT vs. SHOORJI VALLABHADAS (REPORTED in 46 ITR PAGE 144) AND GODHRA ELECTRICITY CO.LTD CASE (REPORTED IN 225 ITR PAGE 746)? 7. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that addition to book profits under Section 115 JB towards expenditure on exempt income is purely academic in nature as the Tribunal has held that no disallowance can be made under the provisions of Section 14A in respect of Exempt Income, the question of adding back the amount of disallowances to the book profits does not arise even though bank earned exempt income from tax and as such assessing authority rightly estimated 5% of exempt income as expenditure and disallowed the same under provisions of Section 14A of the Act?" 3. While hearing the matter, this Court is of the opinion that one additional question of law is also required to be framed in the matter and the same reads as under: Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowances of depreciation on HTM category of investments by erroneously holding that value of investments made pursuant to SLR requirements of RBI can be allowed as a deduction while computing business income of a banking company even though conversion of securities from investments to Stock in Trade attracts provision of Section 45(2) and also that the Bank had no working regarding depreciated value of assets and capital gains on sale of such assets ? 4. Learned counsel for the parties at the outset have informed this Court that so far as question of law Nos.5 and additional question of law are concerned, they have already been answered by this Court in ITA No.27/2017 connected with ITA No.28/2017 decided on 30.11.2020. The order passed by this Court dated 30.11.2020 ITA No.27/2017 (The Commissioner of Income-Tax and another vs. M/s.Canara Bank) is reproduced as under: "These appeals under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) have been preferred by the revenue. The subject matter of these appeals pertain to the Assessment Year 2006-07. 2. At the outset, learned counsel for the revenue submitted that he is confining his submissions in respect of only four substantial questions of law, which are reproduced below:- '1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of expenditure of earning exempt income under Section 14A of the Act by erroneously holding that no disallowance is called for under Section 14A of the Act by following earlier order which has not reached finality even when all the ingredients of Section 14A are satisfied in the case of assessee? 2. At the outset, learned counsel for the revenue submitted that he is confining his submissions in respect of only four substantial questions of law, which are reproduced below:- '1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of expenditure of earning exempt income under Section 14A of the Act by erroneously holding that no disallowance is called for under Section 14A of the Act by following earlier order which has not reached finality even when all the ingredients of Section 14A are satisfied in the case of assessee? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowances of depreciation on HTM category of investments by erroneously holding that value of investments made pursuant to SLR requirements of RBI can be allowed as a deduction while computing business income of a banking company even though conversion of securities from investments to Stock in Trade attracts provision of Section 45(2) and also that the Bank had no working regarding deprecated value of assets and capital gains on sale of such assets? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside that the provisions of Section 115JB are not applicable to banking companies as no accounts are drawn up as per the requirement of Schedule VI of the Companies Act, 1956 by following its earlier orders which has not reached finality? 4. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that addition to book profits under Section 115 JB towards expenditure on exempt income is purely academic in nature as the Tribunal has held that no disallowance can be made under the provisions of Section 14A in respect of Exempt Income, the question of adding back the amount of disallowances to the book profits does not arise even though bank earned exempt income from tax and as such assessing authority rightly estimated 5% of exempt income as expenditure and disallowed the same under provisions of Section 14A of the Act?’ 3. Learned counsel for the assessee submitted that the substantial questions of law No.1 and 4 are answered against the revenue by judgment dated 17.01.2020 passed by a Bench of this Court in ITA No.97/2010 and connected matter. It is further submitted that the substantial question of law No.2 is answered against the revenue by a Bench of this Court in ‘KARNATAKA BANK LTD. V. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)’, [2013] 34 TAXMANN.COM 150 (KARNATAKA). It is further submitted that substantial question of law No.3 is covered by the judgment dated 16.01.2020 passed by a Bench of this Court in ITA No.18/2014 and connected matters. The aforesaid submission could not be disputed by learned counsel for the revenue. 4. For the reasons assigned in the aforesaid judgments, we answer the substantial questions of law framed in these appeals against the revenue and in favour of the assessee. In the result, we do not find merit in these appeals. The same fails and are hereby dismissed." 5. Resultantly, the substantial question of law No.5 and additional substantial question of law are answered in favour of the assessee and against the revenue. So far as the remaining substantial questions of law are concerned, they are already subject matters of other income tax appeals pending before this Court and therefore, the said questions are left open and the Appeal stands disposed of. Sd/- JUDGE sma Sd/- JUDGE