The Commissioner Of Income Tax vs The Dhanalakshmi Bank Ltd
2021 Latest Caselaw 14397 Ker

                   IN THE HIGH COURT OF KERALA AT ERNAKULAM
                                     PRESENT
                     THE HONOURABLE MR.JUSTICE S.V.BHATTI
                                        &
               THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
             TUESDAY, THE 13TH DAY OF JULY 2021 / 22ND ASHADHA, 1943
                                ITA NO. 727 OF 2009
    AGAINST THE ORDER IN ITA 1262/COCH/2004 DATD 20.02.2007 OF I.T.A.TRIBUNAL,
                           COCHIN BENCH, ERNAKULAM
APPELLANT/APPELLANT:

             THE COMMISSIONER OF INCOME TAX
             THRISSUR.

             BY ADVS.
             SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
             SRI.JOSE JOSEPH, SC, FOR INCOME TAX



RESPONDENT/RESPONDENT:

             THE DHANALAKSHMI BANK LTD.
             NAICKANAL, ROUND, NORTH, THRISSUR.

             BY ADVS.
             SRI.P.BALAKRISHNAN E
             SRI.MOHAN PULIKKAL
             SRI.NARAYANAN P POTTY




    THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 13.07.2021, THE
COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
 ITA NO. 727 OF 2009
                                 -2-



                           JUDGMENT

S.V.BHATTI,J.

Heard learned Standing Counsel Mr.Jose Joseph and learned

Advocate Mr.Mohan Pulikkal for parties.

2. Revenue is the appellant. The Dhanalakshmi Bank Ltd,

Trichur/Assesee is the respondent. The appeal is directed against the

order of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A

1262/Coch/2004 dated 20.02.2007. The appeal deals with the issues

arising from the tax return filed by the assessee, for the assessment

year 2001-02.

2.1. The Assessing Officer through the assessment order in

Annexure-A disallowed the claim of payment of broken period

interest on securities purchased by the assessee for being compliant

with the statutory norms. Similarly, the Assessing Officer disallowed

the claim of the assessee under Section 36(1)(viia). The assessee filed

appeal before the Commissioner of Income Tax (Appeals) and the ITA NO. 727 OF 2009

appeal was allowed in part. In the appeal filed by the revenue before

Income Tax Appellate Tribunal, through Annexure-C order, the

Tribunal upheld the order of the Commissioner of Income Tax

(Appeals) and the claims of the assessee under Section 36(1)(viia) and

broken period interest were allowed. Hence the instant Income Tax

Appeal, at the instance of the revenue under Section 260 A of the

Income Tax Act (for short, the Act). The following substantial

questions of law are raised by the revenue:

1.Whether, on the facts and circumstances of the case, the assessee is entitled to claim deduction of the broken period interest and is the same an allowable expenditure in the assessee's case?

2.Whether, on the facts and in the circumstances of the case, and also in the light of the relevant provisions especially proviso to Section 36(1)(vii) cannot be the claim of the assessee for bad debts u/s. 36(1) (vii), and the claim in the credit balance in the provision for bad and doubtful debts u/s 36(1)(viia) be disallowed"

3.Whether, on the facts and in the circumstances of the case, the claim of bad debts and bad and doubtful debts is an allowable deduction?

3. Substantial question no.1 is on the entitlement of assessee ITA NO. 727 OF 2009

on the payment of broken period interest. The question is covered in

favour of the assessee and against the revenue in the reported

judgment in Commissioner of Income Tax v. Nedungadi Bank Ltd 1

read with Commissioner of Income Tax v. South Indian Bank 2

The operative portion of the judgment is excerpted hereunder:

"For all these reasons, we are of the view that the Income-tax Appellate Tribunal has rightly held that the securities held by the assessee-bank in all these cases are the stock-in-trade of the business of the assessee-banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits of the appellant. This disposes of the first two questions mentioned in para. 10 (page 552) above."

4. Question nos.2 and 3 are regarding the eligible deduction

under Section 36(1)(viia) of the Act. It is stated by the counsel

appearing for the parties that the question under consideration is

1 (2003) 264 ITR 545 (Ker.)

2(2000) 241 ITR 374 (Ker.) ITA NO. 727 OF 2009

covered in favour of the assessee by the reported judgment of

Supreme Court in Catholic Syrian Bank v. Commissioner of Income

Tax3 and had answered the issue in favour of assessee and against the

revenue. We are referring to the decision of the Apex Court with a

limited view to comprehensively advert to the outcome on all the

questions raised by the revenue in the instant appeal. The operative

portion in Catholic Syrian Bank Ltd case reads thus:

"Firstly, the Full Bench ignored the significant expression appearing 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'. In other words, if the case of the assessee does not fall under Section 36(1)(viia) proviso/limiations would not come into play.

xxxx xxxx xxxx "Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessee and dismiss the appeals preferred by the revenue. Further, we direct that all matters be remanded to the Assessment Officer for computation in accordance with law, in light of the law enunciated in this judgment."

3[2012] 343 ITR 270 (SC) ITA NO. 727 OF 2009

The questions of law framed, by following the judgments

referred to above, are answered in favour of the assessee and against

the revenue. Income Tax Appeal stands dismissed accordingly.

Sd/-

S.V.BHATTI JUDGE

Sd/-

BECHU KURIAN THOMAS JUDGE JS ITA NO. 727 OF 2009

APPENDIX

APPELLANT'S ANNEXURES

ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S. 143(3)OF THE I.T.ACT DATED 30.09.2002

ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.74/R1/TCR/CIT- V/02-03 DATED 10.09.2004

ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN I.T.A.NO.1262/ COCH/ 2004 DATED 20.02.2007

RESPONDENT'S ANNEXURES : NIL