The Fourth Question Is Regarding The Eligible v. Commissioner Of Income Tax_[1] And Had Answered The Point In

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASTUESDAY, THE 13 DAY OF JULY 2021 / 22ND ASHADHA, 1943 ITA NO. 178 OF 2009 AGAINST THE ORDER IN ITA 113/1996 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX,TRICHUR. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: THE SOUTH INDIAN BANK LTD.,.TRICHUR. 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 13.07.2021,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No.178/2009 J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Senior Advocate Mr.Joseph Markos for the parties. 2.Commissioner of Income Tax, Trichur/Revenue is theappellant. M/s.South Indian Bank Ltd, Trichur/assessee is therespondent. The appeal is directed against the order of theIncome Tax Appellate Tribunal, Cochin Bench in I.T.A113/Coch/1996 dated 27.06.2003. The appeal deals with theissues arising from the tax return filed by the assessee for theassessment year 1993-94. 2.1The Assessing Officer through the assessment orderin Annexure-A, disallowed the claim of the assessee underSection 36(1)(viia). Similarly, the Assessing Officer disallowedthe revaluation of unquoted securities adopted by the assessee. I.T.A. No.178/2009 The assessee filed appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. In the appealfiled by the assessee before Income Tax Appellate Tribunal, through Annexure-C order, the Tribunal partly allowed theappeal. Hence, the instant Income Tax Appeal, at the instance ofthe Revenue under Section 260A of the Income Tax Act (forshort 'the Act'). The following substantial questions of law areraised by the revenue: “1.Whether, on the facts and in the circumstances of thecase and in the light of the decision in British Paints (188 ITR44) should not the Tribunal have sustained the disallowance ofdepreciation made by the Assessing Officer? 2.Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the investments madeby the assessee in approved government securities form part ofits stock in trade and therefore, the claim of depreciation onthe revaluation of the securities was rightly claimed by theassessee? 3.Whether, on the facts and circumstances of the case andsince the assessee was regularly following the method of I.T.A. No.178/2009 valuation of government securities on book value is itpermissible for the assessee to change the method ofaccounting and revalue the same adopting market value? 4.Whether, on the facts and in the circumstances of thecase the Tribunal is correct in law in reversing the decision ofthe Commissioner of Income Tax (Appeals) on the issueregarding the debiting of bad debts relating to the non-ruralbranches in the provisions for bad debt account created inaccordance with the provisions of section 36(1) (vii) (a) of theAct?” 3. The fourth question is regarding the eligible deduction under Section 36(1)(viia) of the Act. The counselappearing for parties state that the question concerning baddebts and provision for bad debts falling under Section 36(1)(vii) and 36(1)(viia) is covered in favour of the assessee inreported judgment of the Supreme Court in Catholic Syrian Bankv. Commissioner of Income Tax[1] and had answered the point in favour of assessee and against the Revenue. We are referring tothe decision by the Apex Court with a view to comprehensively1(2012) 343 ITR 270 (SC) I.T.A. No.178/2009 advert to the outcome on all the substantial questions raised by the Revenue in the instant appeal. The operative portion in Catholic Syrian Bank Ltd judgment reads thus: 3. The fourth question is regarding the eligible deduction under Section 36(1)(viia) of the Act. The counselappearing for parties state that the question concerning baddebts and provision for bad debts falling under Section 36(1)(vii) and 36(1)(viia) is covered in favour of the assessee inreported judgment of the Supreme Court in Catholic Syrian Bankv. Commissioner of Income Tax[1] and had answered the point in favour of assessee and against the Revenue. We are referring tothe decision by the Apex Court with a view to comprehensively1(2012) 343 ITR 270 (SC) I.T.A. No.178/2009 advert to the outcome on all the substantial questions raised by the Revenue in the instant appeal. The operative portion in Catholic Syrian Bank Ltd judgment reads thus: “Firstly, the Full Bench ignored the significant expressionappearing in both the proviso to Section 36(1) (vii) clause(v) of Section 36(2) i.e ., 'assessee to which clause (viia) sub-section(1) applies'. Inother words, if the case of the assessee does not fall underSection 36(1)(viia) proviso/limitation would not comeinto play.” xxx xxxx xxxxx “Consequently, while answering the question in favour ofthe assessee, we allow the appeals of the assessee anddismiss the appeals preferred by the revenue. Further, wedirect that all matters be remanded to the AssessmentOfficer for computation in accordance with law, in light ofthe law enunciated in this judgment.” Thus the fourth question is answered by the Supreme Court in favour of assessee and against the Revenue. I.T.A. No.178/2009 4.The other questions for consideration are whether the appreciation in the value of securities; revaluation ofunquoted securities adopted by the assessee is legal or not.These questions are no more res integra and are answered byfollowing the precedents in Commissioner of Income Tax v.Nedungadi Bank Ltd[2] and Commissioner of Income Tax v. LordKrishna Bank Ltd[3], and this Court had answered the issue infavour of the assessee. The operative portion of the reportedjudgments is excerpted hereunder: “Nedungadi Bank Ltd (supra) For all these reasons, we are of the view that the Income-taxAppellate Tribunal has rightly held that the securities held by theassessee-bank in all these cases are the stock-in-trade of thebusiness of the assessee-banks and the notional loss suffered onaccount of the revaluation of the said securities at the close of theyear is an allowablededuction in the computation of the profits ofthe appellant. This disposes of the first two questions mentioned inpara. 10 (page 552) above” 2(2003) 264 ITR 545 (Ker.) 3(2011) 339 ITR 606 (Ker) I.T.A. No.178/2009 Lord Krishna Bank Ltd (Supra) “Nedungadi Bank Ltd (supra) For all these reasons, we are of the view that the Income-taxAppellate Tribunal has rightly held that the securities held by theassessee-bank in all these cases are the stock-in-trade of thebusiness of the assessee-banks and the notional loss suffered onaccount of the revaluation of the said securities at the close of theyear is an allowablededuction in the computation of the profits ofthe appellant. This disposes of the first two questions mentioned inpara. 10 (page 552) above” 2(2003) 264 ITR 545 (Ker.) 3(2011) 339 ITR 606 (Ker) I.T.A. No.178/2009 Lord Krishna Bank Ltd (Supra) “The first question raised pertains to valuation of unquotedGovernment securities. Since securities involved are not quoted inthe market, market price is not known. The assessee treats theunquoted Government securities as current assets and, therefore, ithas to work out the profit or loss in the end of the year for thepurpose of payment of tax. The assessee adopted the RBI guidelinesfor valuation of unquoted Government securities and based on thesame it claimed a substantial loss. The Assessing Officer, however,rejected the claim because according to him when shares are notquoted, the cost price has to be adopted and going by the cost pricethe assessee has not suffered the loss as claimed. It is a settledposition through various decisions including that of this CIT v.Nedungadi Bank Ltd. reported in [2003] 264 ITR 545 (Ker) that forpurpose of assessment cost price or market value, whichever islower, should be adopted. Admittedly, market value is not knownand so much so, some method has be adopted to fix the market valueand thereafter only the lower of the cost price or the market valuehas to be taken for the purpose of computation of profit or loss inrespect of the unsecured securities. Senior counsel appearing for theassessee produced the RB guidelines before us wherein the RBI hassuggested banks to value unquoted Central Government securitieson the basis of the prices/YTM rates put out by the PDAI/FIMMDA atperiodical intervals. YTM is the yield to maturity method adoptedfor valuation of securities. It is seen that the Tribunal accepted theassessee's valuation which is based on the RBl guidelines. RBI being I.T.A. No.178/2009 the apex body issuing guidelines to the banks for valuation ofunquoted Government securities, we feel it is the rational basiswhich the assessee was bound to adopt. The Assessing Officer alsohas not come out with any formula for computation of market valueof unquoted securities and he has no case that the RBI guidelines forvaluation is irrational. So much so, we feel the Tribunal rightlyupheld the assessee's claim for valuation of unquoted Governmentsecurities based on the RBI guidelines. We, therefore, dismiss theRevenue's appeal on this issue.” The questions of law framed, by following the judgments referred to above, are answered in favour of the Assessee andagainst the Revenue. Income Tax Appeal stands dismissedaccordingly. Sd/-S.V.BHATTIJUDGE Sd/- BECHU KURIAN THOMASJUDGE PETITIONER ANNEXURE ANNEXURE A ANNEXURE B ANNEXURE C APPENDIX OF ITA 178/2009 TRUE COPY OF THE ORDER UNDER SECTION 143(3) OF THE ASSESSING OFFICER DATED 14.03.1995. TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 30.11.1995. TRUE COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 27.06.2003.