Commissioner of Income Tax vs. M/S. Lord Krishna Bank Ltd.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 10TH DAY OF OCTOBER 2017/18TH ASWINA, 1939 ITA.No. 348 of 2009 -------------------AGAINST THE ORDER IN ITA 299/2002 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 17-12-2004 APPELLANT/RESPONDENT: --------------------- THE COMMISSIONER OF INCOME TAX, COCHIN BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: --------------------- M/S. LORD KRISHNA BANK LTD,. KALOOR, COCHIN. R,R BY ADV. SRI.JOSEPH KODIANTHARA R,R BY ADV. SRI.TERRY V.JAMES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10-10-2017, ALONG WITH ITA.1264/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ANTONY DOMINIC, J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.Nos.348 & 1264 of 2009** **- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 10[th] day of October, 2017** ## **JUDGMENT** ## _**Antony Dominic, J.**_ These appeals are filed by the Revenue impugning the orders of the Income Tax Appellate Tribunal in I.T.A.299/02 concerning the assessment year 1998-1999. Since the parties are common and the issues are also common, appeals were heard together and are disposed of by this common judgment. 2. Insofar as ITA 348/09 is concerned, among the four issues that were raised before the Tribunal, three issues are in respect of loss on account of revaluation of investment in Government securities, disallowance of expenditure for issue of bonds and broken interest. These questions have already been considered by this court and answered against the Revenue. Issue No.1 and 3 are covered by the judgment in _**Commissioner of Income Tax v. Nedungadi Bank Limited [264 ITR 545]**_ of this court and the issue No.2 concerning disallowance of expenditure for issue of I.T.A.Nos.348 & 1264 of 2009 : 2 : bonds is covered by the judgment of the _**Apex Court in India Cements Limited v. Commissioner of Income Tax (1996) 60 ITR 52**_ . The fourth issue was regarding the applicability of Section 14A of the Income Tax Act which was introduced by the Finance Act 2001 with effect from 1.4.1962. We find that the assessment order for the assessment year 1998-1999 was passed on 23.2.2001 disallowing Rs.1,50,000/- being the proportionate operation expenses. The Commissioner of Income Tax (Appeals) confirmed the disallowance but directed the Assessing Officer to consider disallowance of Rs.2,61,06,277/- under Section 14A of the Income Tax Act. In ITA 299/02, the Tribunal upheld the order of the 1[st] Appellate Authority. Against the order of the Tribunal, the assessee filed ITA 14/02. By judgment dated 3[rd] October 2005, the appeal was disposed of by this court, holding that the impact of Section 14A and the proviso were not considered by the authorities below and the Tribunal and on that basis, the order of the Tribunal was I.T.A.Nos.348 & 1264 of 2009 : 3 : set aside and the matter was remitted to the Tribunal for fresh consideration. Accordingly, the matter was reconsidered and the Tribunal passed Annexure E order in ITA 1264/09 where the Tribunal took the view that Section 14A was not applicable as the business was indivisible. It is this order that is challenged by the Revenue in ITA 1264/09 and question of law framed for the consideration of this court read as under: _“1. Whether, on the facts and in the circumstances of the case did the Tribunal pass an order as contemplated by the Honourable High Court?_ _2. Whether, on the facts and in the circumstances of the case did the Tribunal consider the applicability of Section 14A to the facts of the case?_ _3. Whether, on the facts and in the circumstances of the case-_ _i) Did the Tribunal interpret the scope of Sec.14A?_ _ii) Is not the order of the Tribunal against the intendment of Section 14A of the I.T.Act are not the orders of the Assessing Officer and CIT (A) correct and in accordance with law?”_ I.T.A.Nos.348 & 1264 of 2009 : 4 : 3. Having heard the Standing Counsel for the Revenue and the learned Senior Counsel for the assessee, we find that these questions are already answered in the judgments rendered by this court and, therefore, should be answered against the Revenue. In the judgment in _**Commissioner of Income Tax v. Dhanalakshmy Bank Limited [(2012) 344 ITR 259],**_ while discussing the scope of Section 14A and the proviso thereto this court, inter alia, held thus: _“In other words, assessments for any assessment year up to the assessment year 2000-2001 that were finalised when the proviso was introduced without making any disallowance under Section 14A, were allowed to achieve finality. Disallowance under Section 14A was intended to be made only for pending assessments and for assessments for for the assessment years commencing from 2001-2002 onwards.”_ 4. However, this judgment was sought to be distinguished by the learned Standing Counsel appearing for the Revenue by contending that the proviso only fetters on the powers of the Assessing Officer. As rightly pointed out by the learned Senior I.T.A.Nos.348 & 1264 of 2009 : 5 : Counsel for the assessee that contention was also raised by the Revenue and the same has been negatived by this court in the judgment reported in _**The Commissioner of Income Tax, Thrissur**_ ## . _**v. Paul John [2010 (1) KLJ 297]**_ _“It is clear from the above proviso that even though the scheme of disallowance of expenditure incurred by the assessee in relation to income exempted under the Act is introduced with retrospective effect from 1.4.1962, Parliament has chosen to implement the provision only from the assessment year 2001-02 because express prohibition is introduced in the proviso against assessing officers reopening or rectifying assessments under Section 147 or under Section 154 for withdrawing deduction allowed in assessments concluded for periods prior to 1.4.2001. The contention of the standing counsel is that prohibition introduced in the proviso is only against assessing officers from exercising their powers under Sections 147 and 154 of the Act and since there is no restriction against Commissioner's power under Section 263 he is free to invoke the same and disallow it, consistent with the express provision contained in Section 14A, within the period of limitation provided therein. Senior counsel appearing for the respondentassessee on the other hand contended that the prohibition in the proviso is against reopening of concluded assessments for periods prior to 1.4.2001 and even though Commissioner's authority under_ I.T.A.Nos.348 & 1264 of 2009 : 6 : _Section 263 is not expressly provided therein, the bar under the proviso applies to him as well. We are of the view that the proviso to Section 14A is intended to provide finality for concluded assessments where deductions for earning exempted income would have been allowed and therefore unless the proviso applies to Commissioner of Income tax as well, the purpose of the proviso will be defeated. Further, in our view, the bar against the assessing officer passing an order enhancing the assessment stated in the proviso takes in an order which the Officer may have to pass pursuant to the direction issued by the Commissioner under Section 263. Even though standing counsel submitted that the proviso is applicable only to proceedings that can be issued by the assessing officer under Sections 147 and 154, we feel besides the powers of the Officer under Sections 147 & 154, the assessing officer has the authority to increase the liability of the assessee pursuant to orders issued under Section 263 by the Commissioner and pursuant to orders of enhancement which the Commissioner of Income Tax (Appeals) can issue under Section 251(1) (a) while deciding the appeal tiled by the assessee. We therefore hold that the proviso to Section 14A prohibits all situations where the Officer is otherwise entitled or required to revise an assessment which includes orders issued by the Commissioner under Section 263 or order of enhancement issued by the CIT (Appeals) in exercise of his power above referred._ _Consequently the appeal filed by the revenue is dismissed.”_ I.T.A.Nos.348 & 1264 of 2009 : 7 : Therefore, this contention of the Revenue also has to be negatived. In the light of the above, answering the questions of law framed in these cases against the Revenue and in favour of the assessee, these appeals are disposed of. SD/- **ANTONY DOMINIC JUDGE** SD/- **DAMA SESHADRI NAIDU JUDGE** _jes_