Income Tax Appellate Tribunal - Cochin
South Indian Bank Ltd, Trichur vs Assessee on 12 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S.GANESAN, JM and B.R.BASKARAN, AM
I.T.A. Nos. 479 & 480/Coch/2011
Assessment Years : 2003-04 & 2004-05
The South Indian Bank Ltd., Vs. The Assistant Commissioner of
SIB House, Income-tax, Circle-1(1), Thrissur.
Mission Quarters,
Thrissur-1
[PAN: AABCT 0022F]
(Assessee -Appellant) (Revenue-Respondent)
Assessee by Shri Mohan Pulickal, Adv.
Revenue by Smt. Susan George Varghese, Sr.
DR and Shri M. Anil Kumar, CIT(DR)
Date of hearing 26/03/2013
Date of pronouncement 12/06/2013
ORDER
Per B.R.BASKARAN, Accountant Member:
The appeals filed by the assessee are directed against distinct orders passed by the Ld. CIT(A)-V, Kochi and they relate to the assessment years 2003-04 and 2004-05. Since these appeals were heard together, they are being disposed of by this common order for the sake of convenience.
2. In assessment year 2003-04, the assessee is contesting following issues before us:
(a) Disallowance of pension paid : Rs. 3,78,87,559/-.
(b) Disallowance of non-performing investments written off : Rs. 3,13,11,800/-.
(c) Chargeability of interest u/s. 220(2) : Rs. 1,89,282/-.
(d) Interest levied u/s. 234D.2 I.T.A. Nos. 479 & 480/Coch/2011
3. The first issue relates to the disallowance of claim of pension payment of Rs.3,78,87,559/- made to the retired employees of the assessee. During the course of assessment proceedings, the Assessing Officer noticed that the assessee is having pension fund named 'The South Indian Bank Ltd. Employees' Pension Fund', which was also approved under the Income Tax Act. The assessee was also claiming deduction u/s. 36(1)(iv) of the Act in respect of provision created for contribution to the above said Pension Fund. In addition to the above contribution, the assessee has claimed deduction of pension payments made directly to the retired employees u/s. 37 of the Act. The Assessing Officer took the view that the deduction of an expense u/s 37 can be claimed only if it is not allowable under sections 30 to 43A of the Act. Since the assessee has claimed contribution made to the Pension fund and claimed deduction u/s 36(1)(vi) of the Act, the Assessing Officer took the view that the claim of pension paid directly to the retired employees cannot be again allowed u/s 37 of the Act. Accordingly, he disallowed the claim of pension payments made to the retired employees. The Ld. CIT(A) has also confirmed the said disallowance.
4. The Ld. Counsel appearing for the assessee submitted that the tax authorities have not properly understood the nature of claim made by the assessee and hence they have treated two different claim of expenses as one and the same. The Ld A.R submitted that the deduction claimed towards contribution to pension fund and the deduction claimed towards actual amount of pension paid directly to the retired employees are two distinct claims. He further submitted that the pension fund was created after an agreement was reached with the Employees' Unions and accordingly, the assessee has transferred funds to the Pension Fund every year and claimed the same u/s 36(1)(vi) of the Act. However, the corpus of the Pension fund was not sufficient enough to meet the pension expenditure liability of the assessee and hence, it was constrained to make pension payments directly to the retired employees, which is allowable u/s 37 of the Act. He submitted that the direct pension payments cannot be claimed u/s 36(1)(vi) of the Act. The Ld. Counsel for the assessee further placed reliance on the decision dated 12th October, 2012 rendered by this bench of Tribunal in 3 I.T.A. Nos. 479 & 480/Coch/2011 the case of Dhanalakshmi Bank in I.T.A. Nos. 186-189/Coch/2011 relating to the assessment years 2000-2001 to 2003-04 and submitted that the Tribunal considered an identical issue in the above said case and has set aside the matter to the file of the Assessing Officer with a direction to examine claim of the assessee afresh. He further submitted that the Tribunal has observed that the pension paid to the retired employees has to be allowed as deduction in view of the contractual obligation to pay the pension. The Ld. Counsel for the assessee has also furnished a copy of the order passed by the Tribunal.
5. On the contrary, the Ld D.R strongly placed reliance on the order passed by Ld CIT(A) on this issue.
6. We have carefully gone through the order passed by this bench of Tribunal in the case of Dhanalaxmi Bank Ltd (referred supra). We notice that the assessee in that case has claimed that the amount received from the Pension Fund is credited in the Profit & Loss Account and the amount of pension given to its retired employees is debited to the Profit & Loss Account. In that scenario, the Tribunal has expressed the opinion that the amount of pension paid by the taxpayer has to be allowed as deduction in view of the contractual obligation to pay the pension. The observations made by the Tribunal in the above said case is extracted below for the sake of convenience:
"6. We have considered the rival submissions on either side and also perused the material available on record. The only issue arises for consideration is disallowance of pension paid by the taxpayer to the retired employees. The contention of the Ld. DR is that the taxpayer contribute to the pension fund and also pays pension of its retired employees and claims both the payments as deduction; therefore, there is duplication of payment. The explanation of the taxpayer appears to be that the pension is not paid to the retired employee from the fund. The pension fund pays to the taxpayer and what was received from the pension fund is not sufficient enough to meet the entire liability of pension to its retired employees. Therefore, the amount of pension received from the pension fund is credited to the profit & loss account and thereafter the taxpayer makes payments to its retired employees. Therefore, the amount of pension received from the pension fund is credited in the profit & loss account and what was paid by the taxpayer is debited in the profit & loss account. Therefore, according to the ld. representative, there is no duplication. This Tribunal finds that if the amount received from the pension fund is credited to the profit & loss 4 I.T.A. Nos. 479 & 480/Coch/2011 account of the taxpayer and then the taxpayer makes the payment to the retired employees as pension, then there may not be any duplication at all. But it has to be verified whether the amount received from the pension fund is credited in the profit & loss account or not. It also needs to be examined whether any payment is made to the retired employees from the pension fund directly. If no payment is made from the pension fund directly and the entire amount received from the pension fund is credited in the profit & loss account and then the taxpayer makes the payment to its retired employees by debiting the same in the profit & loss account, then the amount paid by the taxpayer as pension has to be allowed as deduction in view of the contractual obligation to pay the pension. Since these facts were not examined by the lower authority, this Tribunal is of the considered opinion that the matter needs to be examined as to whether the amount received from the pension fund is credited in the profit & loss account and whether the pension fund authorities have made any payment directly to the retired employees. Accordingly, the orders of the lower authorities are set aside and the entire matter is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the same in the light of observations made by this Tribunal and thereafter decide the same after giving reasonable opportunity to the taxpayer".
7. According to the Ld. Counsel for the assessee, the facts and circumstances prevailing in that instant case are also identical with the case of M/s Dhanalakshmi Bank. We notice that the tax authorities have not examined the present claim of the assessee that there is no duplication in this regard. Hence, in our view, the claim of the assessee needs re-examination at the end of the Assessing Officer in the light of the decision rendered by this Bench in the case of Dhanalaxmi Bank Ltd (referred supra). Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of the Assessing Officer with a direction to examine the issue afresh by duly considering the facts prevailing on this issue and also by taking into consideration the decision rendered by the Tribunal in the case of Dhanalaxmi Bank Ltd (referred supra).
8. The next issue relates to the disallowance of claim of writing off of non performing investments. It was brought to our notice that an identical issue was considered by this Bench of the Tribunal in assessee's own case in I.T.A. Nos. 09 & 10/Coch/2011 and 149 & 150 /Coch/2011 and the Tribunal, vide its order date dated 18-09-2012, has decided the issue in favour of the assessee by following the decision 5 I.T.A. Nos. 479 & 480/Coch/2011 rendered by the Hon'ble jurisdictional High Court of Kerala in the case of Lord Krishna Bank and Nedungadi Bank. We have gone through the said order and for the sake of convenience, we extract below the observations made by the Tribunal on an identical issue:-
"4. We have considered the rival submissions and also perused the material available on record. the only question arises for consideration is whether the notional loss said to be suffered by the taxpayer on revaluation of the securities is allowable as deduction or not. This issue was considered by the jurisdictional High Court in Commissioner of Income-tax vs. Nedungadi Bank Ltd. (supra)(264 ITR 545) and after considering the judicial pronouncements on the subject found that security held by the bank constitute their stock in trade or investment. Consequently, the loss claimed by the bank in valuation of their securities should be allowed as deduction in computing the taxable profit. In view of this judgment of the Kerala High Court, the loss suffered by the taxpayer in revaluation of the securities has to be allowed as deduction.
5. In the case before us, the taxing authority disallowed the claim of the taxpayer on the ground that the balance-sheet of the respective companies was not filed to establish the valuation. The contention of the taxpayer is that the valuation was made on the basis of the guideline issued by RBI taking into consideration the realisable value. In fact, as seen from the order of the Commissioner of Income-tax(A), the taxpayer claimed that the revaluation was made on the basis of the guideline issued by the RBI and the value is based on realisable value. The taxpayer has also brought to the notice of the lower authorities that in spite of their best effort, they could not get the copies of the balance-sheet from the respective company. Admittedly, the assessing authority has not suggested any formula for valuation of the unquoted shares. On identical situation the Kerala High Court in the case of Lord Krishna Bank Ltd. (supra)(ITA No.234 of 2009 dated 07-10-2010) examined the issue in the light of the law laid down by the Kerala High Court in Nedungadi Bank Ltd. (supra) and observed as follows ".....It is a settled position through various decisions including that of this court in COMMISSIONER OF INCOME-TAX VS. NEDUNGADI BANK LTD. reported in (2003) 264 ITR 545 THAT FOR THE PURPOSE OF ASSESSMENT COST PRICE OR MARKET VALUE WHICHEVR IS LOW SHOULD BE ADOPTED. Admittedly market value is not known and so much so, some method has to be adopted to fix the market value and thereafter only the lower of the cost price or the market value has to be taken for the purpose of computation of profit or loss in respect of the unsecured securities. Senior Counsel appearing for the assessee I.T.A. No. 234/2009 produced RBI guidelines before us wherein the RBI has suggested Banks to value unquoted Central Government securities on the basis of the prices/YTM rates put out by the PDAI/FIMMDA at 6 I.T.A. Nos. 479 & 480/Coch/2011 periodical intervals. YTM is the yield to maturity method adopted for valuation of securities. It is seen that the Tribunal accepted the assessee's valuation which is based on RBI guidelines to the Banks for valuation of unquoted Government securities, we feel it is the rational basis which assessee was bound to adopt. The Assessing Officer also has not come out with any formula for computation of market value of unquoted securities and he has no case that the RBI guidelines for valuation is irrational. So much so, we feel the Tribunal rightly upheld assessee's claim for valuation of unquoted Government securities based on RBI guidelines".
6. The RBI issued guidelines to value to unsecured shares on the basis of YTM, i.e., yield to maturity method adopted for valuation of securities. The Kerala High Court has also found that YTM rates have been put out by the PDAI/FIMMDA at periodical intervals. Therefore, when the taxpayer revalued the asset on the basis of the guideline issued by the RBI at realizable value i.e. YTM method suggested by RBI, the taxing authority cannot find fault with taxpayer. As observed by Kerala High Court, the assessing authority has not come out with any suggestion/formula for computation of market value of unquoted shares. It is also not the case of the revenue that the guideline issued by the RBI for valuation is irrational. In these facts and circumstances, this Tribunal is of the considered opinion that the law laid down by the jurisdictional High Court in the case of Nedungadi Bank Ltd. (supra) and Lord Krishna Bank Ltd. (supra) is applicable in the case of the present taxpayer also. Therefore, by respectfully following the judgment of the Kerala High Court in the case of Nedungadi Bank Ltd. (supra) and Lord Krishna Bank Ltd. (supra) and for the reasons stated therein the orders of the lower authorities are set aside and the assessing authority is directed to allow the notional loss claimed by the taxpayer on revaluation of the securities as deduction while computing the total income".
Consistent with the view taken by the Tribunal in the assessee's own case in the earlier years, we direct the Assessing Officer to delete the impugned disallowance and accordingly the order of Ld CIT(A) is set aside on this issue.
9. The next issue relates to the validity of interest charged u/s. 220(2) of the Act. We notice that the issue relating to the chargeability of interest u/s. 220(2) of the Act has since been settled by the Hon'ble Supreme Court in the case of Vikrant Tyres vs. First ITO (247 ITR 821) (SC). We also notice that the tax authorities have not examined this issue in the light of the decision rendered by the Hon'ble Supreme Court 7 I.T.A. Nos. 479 & 480/Coch/2011 in the above cited case. Accordingly, in our view, this issue needs fresh examination. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and remit the same to the file of the Assessing Officer with a direction to examine the issue relating to chargeability of interest u/s. 220(2) of the Act in the light of the decision rendered by the Hon'ble Supreme Court in the case of Vikrant Tyres (referred supra).
10. The next issue relates to the chargeability of interest u/s. 234D of the Act. We notice that the Ld. CIT(A) has dismissed the claim of the assessee by following the following the decision rendered by the Hon'ble jurisdictional High Court of Kerala in the case of CIT vs. Kerala Chemicals & Proteins Ltd. reported in 323 ITR 584. Since the Ld. CIT(A) has followed the binding decision rendered by the Hon'ble jurisdictional High Court, we do not find any reason to interfere with his decision on this issue.
11. Now we shall take up the appeal filed for the assessment year 2004-05, in which following three issues are contested.
(a) Disallowance of pension payments claimed u/s 37 of the Act.
(b) Disallowance of non-performing investments written off.
(c) Charging of interest u/s 220(2) of the Act.
12. The first issue relates to the disallowance of pension payments claimed u/s 37 of the Act. In the immediately preceding year, we have considered an identical issue and set aside the matter to the file of the assessing officer for making fresh examination of the claim made by the assessee. Consistent with the view taken in that year, we set aside this issue to the file of the assessing officer in this year also with similar directions and accordingly the order of Ld CIT(A) on this issue stands set aside.
13. The next issue relates to the disallowance of writing off of non-performing investments. In the earlier years, the Tribunal has considered an identical claim made by the assessee and has decided the issue in favour of the assessee by following the decision rendered by the Hon'ble jurisdictional High Court. Consistent with the view 8 I.T.A. Nos. 479 & 480/Coch/2011 taken in the earlier years, we direct the AO to delete the impugned disallowance made in this year also and accordingly, the order of Ld CIT(A) on this issue stands set aside.
14. The next issue relates to the validity of charging of interest u/s 220(2) of the Act. In the immediately preceding year, we had set aside this matter to the file of the AO with the direction to examine the issue in the light of the decision rendered by the Hon'ble Supreme Court in the case of First ITO Vs. Vikarant Tyres (referred supra). Accordingly, in this year also, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh in the light of the decision of Hon'ble Supreme Court in the case of Vikrant Tyres (referred supra).
15. In the result, both the appeals filed by the assessee are treated as allowed for statistical purposes.
Pronounced accordingly on 12-06-2013.
sd/- sd/-
(N.R.S.GANESAN) (B.R.BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi
Dated: 12th June, 2013
GJ
Copy to:
1. The South Indian Bank Ltd., SIB House, Mission Quarters, Thrissur-1.
2. The Assistant Commissioner of Income-tax, Circle-1(1), Thrissur.
3. The Commissioner of Income-tax(Appeals)-V, Kochi.
4.The Commissioner of Income-tax, Thrissur.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T, COCHIN