Kerala H.C : sub-clause (f) of Explanation to section 115JA authorises addition to the book profit on the proportionate expenditure attributable to the exempted income

High Court Of Kerala

CIT Vs. Dhanalekshmi Bank Ltd.

Assessment Year : 1999-2000

Section : 14A, 147, 115JA, 28(i), 234D

C.N. Ramachandran Nair And K. Surendra Mohan, Jj.

IT Appeal Nos. 1758, 1772 & 1778 Of 2009

October  22, 2010

JUDGMENT

C. N. Ramachandran Nair, J. – All the three appeals are filed by the Revenue against the very same assessee against the orders of the Tribunal for the very same assessment year 1999-2000. In I. T. A. No. 1758 of 2009, the first issue raised is whether the provision for bad debt is to be added in the computation of book profit. Even though the issue stands decided in favour of the assessee by the decision of the Supreme Court, the said judgment of the Supreme Court is got over by a subsequent amendment with retrospective effect. We, therefore, set aside the order of the Tribunal on this issue and direct the Assessing Officer to consider the scope of assessment and remake the assessment based on the amended provisions. The next question pertaining to the levy of interest under section 234D of the Income-tax Act, 1961, is covered by the judgment in CIT v. Kerala Chemicals & Proteins Ltd [2010] 323 ITR 584. (Ker.) Here again, we set aside the order of the Tribunal on this issue and direct the Assessing Officer to demand interest by following the above judgment.

2. In I.T. A. Nos. 1778 and 1772 of 2009, one common question raised is with regard to the disallowance under section 14A of the Act. We have in similar cases held that by virtue of the proviso to section 14A, there is no justification to make reassessment under section 147 for any assessment year prior to 2001-02. Consequently, the Revenue’s appeals on this issue are dismissed. One issue arising in I. T. A. No. 1778 of 2009 is the yield to the maturity method of valuation, which is covered by our judgment in I.T.A. No. 234 of 2009 CIT v. Lord Krishna Bank Ltd. [2011] 339 ITR 606/[2010] 195 Taxman 57/7 taxmann.com 118 (Ker.) in favour of the assessee. We, therefore, turn down the appeal on this issue. The next issue pertaining to appeal, I. T. A. No. 1772 of 2009 is the classification of rural branches with reference to the definition contained in the statute. This issue is covered by our judgment in I. T. A. No. 234 of 2009 Lord Krishna Bank Ltd. (supra). We, therefore, reverse the order of the Tribunal on this issue and direct the Assessing Officer to follow our judgment abovereferred to and modify the assessment to the extent necessary. The last issue is the proportionate addition of expenditure attributable to exempted income in the computation of book profit under section 115JA of the Act. The disallowance in the computation of business income is said to be achieved by introduction of section 14A which is introduced by the Finance Act, 2001. The contention of counsel for the assessee is that going by our decision on section 14A in the assessee’s own case for the very same year, no disallowance under section 115JA also is called for, i.e., in the form of addition of expenditure attributable to exempted income in the computation of book profit. We find that none of the authorities have considered sub-clause (f) of Explanation to section 115JA which is an independent provision authorising addition to the book profit on the proportionate expenditure attributable to the exempted income. We direct the Assessing Officer to consider the above provision and modify the assessment without reference to section 14A of the Act. The appeals are disposed of as above.

[Citation : 357 ITR 448]