Kerala High Court
The Principal Commissioner Of Income ... vs M/S. Federal Bank Ltd on 27 January, 2025
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
2025:KER:6265
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
MONDAY, THE 27TH DAY OF JANUARY 2025/7TH MAGHA, 1946
I.T.A.NO.16 OF 2023
AGAINST THE ORDER DATED 12.12.2022 IN I.T.A.NO.309/COCH/2020
OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH
APPELLANT/APPELLANT/RESPONDENT:
THE PRINCIPAL COMMISSIONER OF INCOME TAX
KOCHI-I, KOCHI, INCOME TAX OFFICE, CENTRAL
REVENUE BUILDING, I. S. PRESS ROAD, KOCHI,
PIN - 682018
BY SRI.JOSE JOSEPH, SC, INCOME TAX DEPARTMENT
BY ADV.SRI.P.K.RAVINDRANATHA MENON (SR.)
RESPONDENT/RESPONDENT/APPELLANT:
M/S. FEDERAL BANK LTD.
FEDERAL TOWERS, ALUVA, PIN - 683101,
REPRESENTED BY THE MANAGER.
BY ADV.SRI.JOSEPH MARKOS (SR.)(J-383)
BY ADV.ABRAHAM JOSEPH MARKOS
BY ADV.SRI.V.ABRAHAM MARKOS(K/354/1975)
BY ADV.SRI.ISAAC THOMAS(K/571/2014)
BY ADV.SRI.ALEXANDER JOSEPH MARKOS( K/001270/2018)
BY ADV.SRI.SHARAD JOSEPH KODANTHARA (K/001677/2018)
THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON
27.01.2025, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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JUDGMENT
Dr. A.K. Jayasankaran Nambiar, J.
The Revenue is in appeal before us in this I.T. Appeal that
impugns the order dated 12.12.2022 of the Income Tax Appellate
Tribunal, Cochin Bench in I.T.A.No.309/Coch/2020 pertaining to the
assessment year 2012-13.
2. The brief facts necessary for disposal of this I.T. Appeal are
as follows:
The respondent/assessee is a company engaged in banking
business, and for the assessment year in question, it had declared
taxable income of Rs.901,06,81,840/-. The said return was later
revised to correct the figure of total income as Rs.900,94,29,530/-. In
its return, the assessee had also claimed a deduction of Rs.28.50
crores under Section 36(1)(viii) of the Income Tax Act [hereinafter
referred to as the "I.T. Act"] being the special reserve created, in an
amount not exceeding 20% of the profit derived from eligible
business. The gross income from eligible business was computed at
Rs.577 crores. The assessee also had the corresponding figures of
income and expenses for all the businesses carried on by it. Thus, the
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only figure that it did not have in its accounts was the one relating to
expenses incurred for earning the income from eligible business. The
assessee therefore arrived at the expenses for eligible business
through an estimation, by applying the ratio of income to expenses in
relation to the entire business carried on by the assessee, and
applying that ratio to the figure representing gross income from
eligible business. After arriving at the proportionate expenses
relating to the eligible business, the assessee arrived at the figure
representing profits of the eligible business and applied 20% to that
figure to claim the deduction of Rs.28.50 crores under Section 36(1)
(viii) of the I.T. Act.
3. The Assessing Authority found the claim of the assessee to
be unacceptable and therefore proceeded to apply the ratio of total
income to gross business income to the figure representing gross
income from eligible business, and then adding thereto the deduction
of Rs.10.72 crores which was allegedly claimed in excess by the
assessee under Section 36(1)(viii) of the I.T. Act. He therefore
restricted the deduction claimed by the assessee to an amount of
Rs.17.72 crores.
4. Aggrieved by the finding of the Assessing Authority on the
quantum of deduction available under Section 36(1)(viii) of the I.T.
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Act, the assessee preferred an appeal before the First Appellate
Authority which allowed the claim of the assessee and sustained the
figure of Rs.28.5 crores claimed towards deduction under Section
36(1)(viii) of the I.T. Act. In the further appeal carried by the Revenue
before the Appellate Tribunal, the order of the First appellate
authority in favour of the assessee was sustained by the Appellate
Tribunal. It is therefore that the Department is in appeal before us
raising the following substantial questions of law:
(i) Whether, on the facts and in the circumstances of the case, the
Hon'ble Tribunal is right in law in its computation of the quantum of
deduction u/s.36(1)(viii) of the Income Tax Act ?
(ii) Whether the Tribunal is right in law in its interpretation and
understanding of Sec.36(1)(viii) of the Act ?
(iii) Whether on the facts and circumstances of the case, the
Hon'ble Tribunal is right in law in not appreciating the fact that in the
absence of separate books of accounts for eligible business, the
expenses which are not pertaining to eligible business can enter into
computation of net income from eligible business ?
5. We have heard Sri.Jose Joseph, the learned Standing counsel
for the Department and Sri.Joseph Markos, the learned senior
counsel, assisted by Sri.Abraham Joseph Markos, the learned counsel
for the respondent/assessee.
6. On a consideration of the rival submissions, we are of the
view that no exception can be taken to the methodology followed by
the assessee in its return, which was sustained by the First Appellate
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Authority and the Appellate Tribunal in appeal, for the purposes of
computation of deduction under Section 36(1)(viii). It is the admitted
position that the accounts maintained by the assessee did not show
the actual expenditure incurred for the purposes of earning the
income for the eligible business. As already noticed, the assessee's
accounts showed the figures relating to gross income of the entire
business and the gross expenditure incurred for earning the said
gross income from the entire business. The accounts also showed the
gross income earned in respect of the eligible business. The only
figure that was not discernible from the accounts was the gross
expenditure incurred for the eligible business. It was under these
circumstances that the assessee had computed the proportionate
expenses for the eligible business by taking the ratio of the income
earned and expenditure incurred in respect of the entire business and
applying the said ratio to the income earned in respect of the eligible
business. The resulting figure representing the proportionate
expenditure for the eligible business was reduced from the income
earned in respect of the eligible business to arrive at the profit of the
eligible business. Thereafter, 20% of that figure was taken for the
purposes of deduction under Section 36(1)(viii) of the I.T. Act.
We see no reason to take a different view from what was
expressed by the First Appellate Authority and the Appellate Tribunal
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while sustaining the claim of the assessee. The I.T. Appeal therefore
fails and is accordingly dismissed by answering the questions of law
raised against the Revenue and in favour of the assessee.
Sd/-
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
EASWARAN S.
JUDGE
prp/28/1/25
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APPENDIX OF I.T.A.NO.16/2023
PETITIONER'S ANNEXURES:
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED
28-03-2015.
ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF
INCOME TAX (APPEALS) DATED 06-03-2020
ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE INCOME TAX
APPELLATE TRIBUNAL DATED 12-12-2022.
RESPONDENTS ANNEXURES: NIL.
//TRUE COPY//
P.S. TO JUDGE
