2024 (12) TMI 1595 - HC - Income Tax

Claim u/s 36(1)(viii) maid by filing a revised return - claim rejected on the ground that the Assessee could not have made the claim at a belated stage - CIT(A) accepted the Assessee s claim u/s 36(1)(viii) and rejected the AO s reasoning that such a claim could not be made by filing a revised return - CIT(A) remanded the matter to the AO for the purpose of quantifying the said claim. HELD THAT - Revenue was not aggrieved by the said decision. However the Assessee being aggrieved by the direction to remanding the matter to AO for quantification preferred an appeal before the learned ITAT. ITAT confirmed the direction of the CIT(A) and did not accede to the Assessee s challenge against the remand to the AO for the purposes of quantification of the allowance. Revenue cannot be aggrieved by the decision of the learned ITAT in regard to the aforesaid issue. No substantial question of law arises on this count as well.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this appeal under Section 260A of the Income Tax Act, 1961, arising from the assessment year 2008-09, were as follows:

a. Whether the Income Tax Appellate Tribunal (ITAT) erred in deleting the addition of Rs. 80,38,00,000/- made under Section 14A of the Act read with Rule 8D of the Income Tax Rules, despite the assessee earning exempt income of Rs. 67,77,69,486/- during the relevant previous year.

b. Whether the ITAT erred in deleting the addition of Rs. 18,41,00,000/- made on account of loss on shifting securities from Available-for-Sale (AFS) or Held-for-Trading (HFT) category to Held-to-Maturity (HTM) category, ignoring that such losses are notional and not allowable for tax purposes.

c. Whether the ITAT erred in allowing the deduction of Rs. 722,21,00,000/- credited to PNB Employees' Pension Fund under Section 43B of the Act when the amount was not payable as per the terms and conditions of the pension fund.

d. Whether the ITAT erred in holding that the excess of liabilities over assets of the amalgamating company can legally be classified automatically as goodwill in the hands of the amalgamated company.

e. Whether the ITAT erred in allowing the deduction under Section 36(1)(viii) of the Act to the assessee, ignoring the fact that the assessee did not create any special reserve until the approval of accounts by its Annual General Meeting (AGM), but created the reserve after a delay of two years.

2. ISSUE-WISE DETAILED ANALYSIS

Issues (a) to (d): These four questions were also subject matter of a separate appeal for assessment year 2009-10, which was dismissed by a separate order. The Court declined to admit the present appeal on these four questions for the sake of brevity, adopting the reasoning from the dismissal of the other appeal. Therefore, the detailed analysis and findings on these issues are incorporated by reference and not repeated in this judgment.

Issue (e): Deduction under Section 36(1)(viii) - Special Reserve Creation and Timing

Relevant Legal Framework and Precedents: Section 36(1)(viii) of the Income Tax Act allows deduction for amounts credited to a special reserve created under a scheme approved by the Reserve Bank of India (RBI) or other relevant authority. The timing and manner of creation of such reserves are critical, as the deduction is allowable only when the reserve is actually created and credited in the books of accounts.

Court's Interpretation and Reasoning: The assessee had claimed the deduction under Section 36(1)(viii) by filing a revised return. The Assessing Officer (AO) rejected this claim on the ground that the claim was made belatedly and not in the original return. The assessee challenged this rejection before the Commissioner of Income Tax (Appeals) [CIT(A)], who accepted the claim and held that the claim could be made by filing a revised return. However, CIT(A) remanded the matter to the AO to verify and quantify the claim.

The Revenue did not challenge CIT(A)'s acceptance of the claim but the assessee was aggrieved by the remand to the AO for quantification and appealed to the ITAT. The ITAT upheld the CIT(A)'s order, confirming the remand for quantification and rejecting the assessee's challenge to this direction.

Key Evidence and Findings: The record showed that the special reserve was not created at the time of the original return or the approval of accounts by the AGM but was created later. The timing of creation was thus a factual issue requiring verification by the AO.

Application of Law to Facts: The Court observed that since the Revenue did not dispute the allowance of the deduction per se, but only the quantification, and the ITAT had directed a remand for quantification, no substantial question of law arose from this issue for adjudication by the High Court.

Treatment of Competing Arguments: The assessee argued that the remand was unnecessary and the deduction should be allowed outright. The Revenue did not challenge the allowance of the deduction but was concerned with the quantification. The Court found the ITAT's approach appropriate, allowing the AO to verify the claim's correctness and amount.

Conclusion: The Court held that the issue regarding deduction under Section 36(1)(viii) did not arise for consideration in the present appeal and no substantial question of law was involved. The direction for remand to the AO for quantification was upheld.

3. SIGNIFICANT HOLDINGS

The Court's significant determinations are as follows:

- The appeal was dismissed primarily because the first four issues raised by the Revenue were already adjudicated in a separate appeal relating to the subsequent assessment year, and the Court declined to revisit those issues in the present matter.

- Regarding the fifth issue on the deduction under Section 36(1)(viii), the Court held: "The Revenue was not aggrieved by the said decision. However, the Assessee being aggrieved by the direction to remand the matter to AO for quantification, preferred an appeal before the learned ITAT. The learned ITAT confirmed the direction of the learned CIT(A) and did not accede to the Assessee's challenge against the remand to the AO for the purposes of quantification of the allowance."

- The Court further observed: "Thus, the Revenue cannot be aggrieved by the decision of the learned ITAT in regard to the aforesaid issue. No substantial question of law arises on this count as well."

- The Court allowed the condonation of delay in filing the appeal, noting that the Revenue did not seriously object to the delay and the issues raised were covered in favour of the assessee.

- The final determination was to dismiss the appeal, thereby upholding the ITAT's order dated 09.01.2019.