The Karnataka Bank Ltd.,, Mangalore v. DCIT, Mangalore

ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B' BANGALORE BEFORE DR. O. K. NARAYANAN VICE PRESIDENT AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER 1-4. I.T.A NOS.427 TO 430/BANG/2010 (ASSESSMENT YEARS : 2001-02 2003-04 2005-06 & 200 6-07) 5. I.T.A NO.711/BANG/2010 (ASSESSMENT YEAR : 2007-08) DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -2(1) BANGALORE .. APPELLANT V. M/S. KARNATAKA BANK LTD. HO NEAR MAHAVEERA CIRCLE PUMPWELL MANGALORE .. RESPONDENT 6. I.T.A NO.216/BANG/2010 (ASSESSMENT YEAR : 2004-05) (BY THE ASSESSEE) 7-8. CROSS OBJECTION NOS.27 & 58/BANG/2010 (IN I.T.A NOS.429 & 711/BANG/2010 (ASSESSMENT YEARS : 2005-06 & 2007-08) (BY THE ASSESSEE) ASSESSEE BY : SHRI. A. RAGHAVENDRA RAO CA REVENUE BY : SHRI. HARSHA PRAKASH COMMISSIONER OF INCOME-TAX-II O R D E R PER BENCH : THE FIRST SET OF FIVE APPEALS ARE FILED BY THE REV ENUE FOR THE ASSESSMENT YEARS 2001-02 2003-04 2005-06 2006-07 AND 2007-08. IN THE SECOND SET THE ASSESSEE HAS FILED AN APPEAL FOR THE ASSESSMENT ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 2 YEAR 2004-05 AND CROSS OBJECTIONS FOR THE ASSESSME NT YEAR 2005-06 AND 2007-08. ITA.427/BANG/2010 ASST.YEAR : 2001-02 -BY THE REV ENUE : 02. IN THIS APPEAL THE ONLY GROUND IS THAT THE COMM ISSIONER OF INCOME-TAX(A) HAS ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF DEPRECIATION ON VALUATION OF INVESTMENT PORTFOLIO B Y TREATING THE INVESTMENTS HELD BY THE ASSESSEE BANK AS STOCK-IN-T RADE. THE DECISION OF THE COMMISSIONER OF INCOME-TAX(A) ON THIS POINT IS FOUND JUST AND PROPER IN LAW IN VIEW OF THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V. COMMISSIONER OF INCOME-TAX (1999) 240 ITR 355 AND THE DECISION OF THE ITAT BA NGALORE BENCH IN THE CASE OF CORPORATION BANK IN ITA.112/BANG/2008 DATED.03.12.2008 AND JUDGEMENT OF THE HON'BLE KARNA TAKA HIGH COURT IN ASSESSEE'S OWN CASE IN ITA.NOS.480 & 481/BANG/20 03 DATED.19.03.2008. THEREFORE THIS APPEAL FAILS. ITA.428/BANG/2010 ASST.YEAR : 2003-04 -BY THE REV ENUE : 3. IN THIS APPEAL THE GROUND REGARDING DEPRECIATIO N ON INVESTMENT IS REJECTED AS HELD ABOVE. ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 3 4. THE NEXT ISSUE FOR THE YEAR IS THE DISALLOWANCE MADE U/S.14A AND DELETED BY THE COMMISSIONER OF INCOME-TAX(A). THIS ISSUE IS ALSO DECIDED AGAINST THE REVENUE IN VIEW OF THE ORDER OF THE ITAT BANGALORE IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEA R 2000-01 AND 2001-02 IN ITA NOS.309 & 310/BANG/2005 DATED.18.0 1.2008. THIS APPEAL IS LIABLE TO BE DISMISSED. ITA.429/BANG/2010 ASST.YEAR : 2003-04 -BY THE REV ENUE : 5. AGAIN THE ISSUE OF DEPRECIATION ON INVESTMENT IS DISMISSED; THE GROUND RELATING TO DISALLOWANCE U/S.14A IS ALSO DIS MISSED. 6. THE GROUND RELATING TO BAD DEBTS WRITTEN OFF U/S .36(1)(VII) AND 36(1)(VIIA) IS ALSO DISMISSED IN VIEW OF THE JUDGEM ENT OF THE ITAT BANGALORE IN ASSESSEE'S OWN CASE IN 78 TTJ 996. T HIS APPEAL ALSO FAILS. ITA.430/BANG/2010 ASST.YEAR : 2006-07 -BY THE REV ENUE : 7. THE GROUND RELATING TO DEPRECIATION ON INVESTMEN T IS DISMISSED ; THE GROUND RELATING TO SECTION 14A IS DISMISSED ; A ND THE ISSUE REGARDING BAD DEBTS WRITTEN OFF IS ALSO DISMISSED A S EXPLAINED IN PARAGRAPHS ABOVE. ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 4 08. IN RESPECT OF THE GROUND RELATING TO BROKEN PER IOD INTEREST THE JUDICIAL PRONOUNCEMENTS ARE IN FAVOUR OF THE ASSESS EE AS SEEN FROM THE JUDGEMENT OF THE HON'BLE KARNATAKA HIGH COURT IN TH E CASE OF COMMISSIONER OF INCOME-TAX V. CANARA BANK (1997) 19 5 ITR 66 AND THE DECISION OF THE HON'BLE SUPREME COURT IN COMMIS SIONER OF INCOME-TAX V. SHOORJI VALLABDAS & CO. (1962)46 ITR 144 (SC). THE ITAT BANGALORE BENCH HAS ALSO HELD IN ASSESSEE'S O WN CASE IN FAVOUR OF THE ASSESSEE THROUGH ITS COMMON ORDER DATED.07.0 9.2007 FOR THE ASSESSMENT YEARS 2001-02 & 2002-03. THIS GROUND A CCORDINGLY FAILS. THE APPEAL IS LIABLE TO BE DISMISSED. ITA.711/BANG/2010 ASST.YEAR : 2007-08 -BY THE REV ENUE : 09. THE GROUND RELATING TO DEPRECIATION ON INVESTME NT IS DISMISSED ; THE GROUND RELATING TO DISALLOWANCE U/S.14A IS DISM ISSED ; THE GROUND RELATING TO BROKEN PERIOD INTEREST IS DISMISSED ; A ND THE GROUND RELATING TO BAD DEBTS WRITTEN OFF IS DISMISSED AS DISCUSSED IN PARAGRAPHS ABOVE. THE APPEAL FAILS. ITA.216/BANG/2010 ASST.YEAR : 2004-05 -BY THE ASS ESSEE : 10. THE GROUND RAISED BY THE ASSESSEE IS THAT THE C OMMISSIONER OF INCOME-TAX(A) HAS ERRED IN CONFIRMING THE LEVY OF I NTEREST U/S.234D WHICH WAS ALREADY COLLECTED CONSEQUENT TO INTIMATIO N U/S.143(1) ON ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 5 31.03.2005. WE CONSIDERED THIS MATTER. THE REFUND AS PER ORDER U/S.143(1) WAS RECOVERED WITH INTEREST U/S.234D IN CONSEQUENCE OF THE ORDER PASSED U/S.143(1)(A). AS THE ENTIRE REFUND U /S.143(1) HAS BEEN RECOVERED WITH INTEREST U/S.234D THERE CANNOT BE A NY FURTHER INTEREST AS THERE IS NO BALANCE LEFT TO BE CHARGED U/S.234D. THEREFORE IT IS THE CASE OF THE ASSESSEE THAT THE REPEATED LEVY OF INTE REST U/S.234D CANNOT BE MADE AGAIN IN THE LIGHT OF THE SUBSEQUENT PROCEE DINGS U/S.143(1)(A). WE AGREE WITH THE ARGUMENT OF THE LEARNED REPRESENT ATIVE APPEARING FOR THE ASSESSEE. THERE CANNOT BE A LEVY OF INTERE ST U/S.234D WHERE NO REFUND WAS REMAINING TO BE ADJUSTED IN THE DEMAND A CCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO GO THROUGH THE COMPUTATION FURNISHED BY THE ASSESSEE RECTIFY THE MISTAKE AND GIVE RELIEF. THE ASSESSEE SUCCEEDS IN ITS APPEAL. C.O.NO.27/BANG/2010 ASST.YEAR : 2005-06 -BY THE A SSESSEE : 11. THE GROUND RAISED BY THE ASSESSEE IS THAT THE C OMMISSIONER OF INCOME-TAX(A) IS NOT JUSTIFIED IN OMITTING TO CONSI DER THE RELIEF U/S.88E URGED BEFORE THE COMMISSIONER OF INCOME-TAX(A) WHI CH WAS ORIGINALLY DISALLOWED BY THE ASSESSING AUTHORITY. UNDER SIMILAR CIRCUMSTANCES THE ASSESSING OFFICER WAS DIRECTED T O CONSIDER THE CLAIM IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 20 06-07 IN THE LIGHT OF THE DECISIONS OF THE HON'BLE DELHI HIGH COURT IN COMMISSIONER OF ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 6 INCOME-TAX V. JAI PARABOLIC SPRINGS LTD. (2008) (3 06 ITR 42) AND THAT OF HON'BLE KARNATAKA HIGH COURT IN SMT. GYARASIDEVI V. UNION OF INDIA AND OTHERS (2001) (250 ITR 432). ACCORDINGLY THIS ISSUE IS REMITTED BACK TO THE ASSESSING OFFICER TO RECONSIDE R THE ISSUE AND PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW. 12. THIS CROSS OBJECTION IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. C.O.NO.57/BANG/2010 ASST.YEAR : 2007-08 -BY THE A SSESSEE : 13. THE ONLY GROUND RELATES TO DISALLOWANCE OF EXPE NDITURE OF ` 46 61 380/-. THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE BANK IN THE CONTEXT OF ENTERING INTO INSURANCE BUSINESS. T HE ASSESSEE ISSUED 2 25 00 000 SHARES OF ` .10/- EACH RAISING CAPITAL OF ` .22 50 00 000/-. THE SUBJECT AMOUNT IS THE INCIDENTAL EXPENDITURE IN CURRED BY THE ASSESSEE IN CONNECTION WITH ENTERING INTO AN AGREEM ENT OF JOINT VENTURE WITH M/S. UNIVERSAL SOMPO GENERAL INSURANCE CO. LTD . ACCORDING TO THE ASSESSEE THIS EXPENDITURE IS INCURRED FOR THE P URPOSE OF WIDENING THE BUSINESS AND INCIDENTAL TO THE BUSINESS CARRIED ON BY THE ASSESSEE AND THEREFORE LIABLE TO BE ALLOWED IN THE NATURE OF REVENUE EXPENDITURE. WE DOT AGREE WITH THIS. THE ASSESSEE WAS SETTING U P A NEW LINE OF BUSINESS IN INSURANCE SECTOR. THEREFORE THE EXPEN DITURE INCURRED IS IN ITA.427 TO 430 216 711 & COS.27 & 57/B/2010 PAGE - 7 THE NATURE OF CAPITAL EXPENDITURE INCURRED FOR SETT ING UP OF A NEW BUSINESS. THIS EXPENDITURE ALSO WAS INCURRED CONTE MPORANEOUS TO ISSUE OF SHARES AND RAISING OF SHARE CAPITAL FOR TH E NEW JOINT VENTURE. THE SAID JOINT VENTURE IS BASICALLY DISTINCT FROM T HE BANKING BUSINESS CARRIED ON BY THE ASSESSEE. THEREFORE THIS EXPEND ITURE HAS BEEN RIGHTLY HELD TO BE CAPITAL EXPENDITURE BY THE AUTHO RITIES BELOW. THIS GROUND IS REJECTED. THE CROSS OBJECTION FAILS. 14. IN RESULT : (I) APPEALS FILED BY THE REVENUE ARE DISMISSED ; (II) APPEAL FILED BY THE ASSESSEE IN ITA.216/BANG/2 010 IS ALLOWED ; (III) CROSS OBJECTION FILED BY THE ASSESSEE ARE TRE ATED AS ALLOWED FOR STATISTICAL PURPOSE ; AND (IV) CROSS OBJECTION IN NO.57/BANG/2010 FILED BY TH E ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY THE 25TH DAY OF FEBRUAR Y 2011 AT BANGALORE. SD/- SD/- (SMT. P. MADHAVI DEVI) (DR. O. K. NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT