1. These three appeals are by the assessee against the orders of the Commissioner (Appeals) for the assessment years 1999-2000, 2000-01 and 2002-03.
2. The only grievance raised by the learned Authorised Representative of the assessee is against confirmation of the disallowance of loss of Rs. 226.74 crores claimed to be arising out of normal business transaction of issuing drafts in favour of four banks on instructions of Mr. Harshad Mehta on presentation of cheque of NHB in favour of the assessee bank during its normal business activity.
3. The assessee State bank of Saurashtra (hereinafter referred to as 'SBS') is a public enterprise a wholly owned subsidiary of State Bank of India (SBI) and is engaged in the business of banking and Allied activities. The assessee has suffered loss of Rs. 226.74 crores during the year under consideration as a result of banking transactions undertaken solely in the regular course of carrying on its business of banking. A suit was filed by the National Housing Bank against SBS for refund of the principal amount of Rs. 95.40 crores pertaining to a cheque brought by Mr. Harshad Mehta at the Fort Branch of SBS for disposal accounting to his instructions was decreed against SBS and the bank was directed to refund the principal amount of Rs. 95.40 crores along with interest @ 9 per cent per annum from the date of the cheque i.e., 3-1-1992. The decree passed against the assessee has been reproduced in para 2 on p. 2 of the appellate order. The assessee filed an appeal against the judgment of Special Court. While not granting interim stay applied for, Hon'ble Supreme Court directed the bank-assessee to pay the decretal amount to NHB by 31-12-1999. The decretal amount with interest thereon worked out at 19 per cent, in terms of the order/judgment of the Special Court comes to Rs. 226.74 crores, which the assessee claimed as liability arose from transactions undertaken by the assessee bank solely in the regular course of carrying on its business of banking which has been crystalised during the year ending on 31-3-1999 and accordingly deduction of the said amount of Rs. 226.74 crores is claimed by the assessee. The assessing officer observed that in the return of income for assessment year 1996-97 deduction of Rs. 243.21 crores was claimed on account of liability on similar facts which was disallowed by the assessing officer and the order of the assessing officer, on this issue, has been confirmed by the learned Commissioner (Appeals). The appeal filed by the assessee bank is pending before the Tribunal. In the return of income for assessment year 1997-98 also, deduction of Rs. 159.72 crores was claimed on similar facts which has been disallowed and the appeal filed by assessee bank is pending with Commissioner (Appeals). In view of this, the assessing officer disallowed the loss as claimed during the year under consideration-Matter was carried to the Commissioner (Appeals) and the Commissioner (Appeals) has confirmed the same.
4. The learned Authorised Representative of the assessee submitted that the assessee has claimed similar loss in the assessment year 1996-97 which is the amount of liability finally determined by Hon'ble Supreme Court in respect of loss suffered in security transactions with Punjab National Bank (PNB). The assessee has claimed business loss and the Tribunal vide order dt 31-12-2004 for assessment year 1996-97 in ITA No. 5/Rjt/2004 filed by the assessee has allowed the loss of Rs. 212 crores and vide order dated 21-4-2006 for assessment year 1997-98 has allowed the loss of Rs. 147.75 crores. The order of the Tribunal was challenged before the Hon'ble High Court but the COD did not grant permission to the department to pursue the matter in the High Court.
Therefore, the revenue 's appeals were withdrawn. Similarly in assessment year 1997-98, the issue relating to allowance of loss incurred in security transactions with PNB and CANFINA became final.
Therefore, the learned Authorised Representative of the assessee submitted that the loss claimed in the year under consideration is a business loss, which is to be allowed. The learned Authorised Representative of the assessee contended that the issue in controversy is covered by the decision of the Tribunal in ITA No. 5/Rjt/2004 dated 31-12-2004 [since reported in State Bank of Saurashtra v. Dy. CIT (2005) 95 TTJ (Ahd) 225 : (2005) 93 ITD 662 (Ahd)]. Therefore, the loss as claimed for the year under consideration may be allowed.
5. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.
6. We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the Tribunal in the case of the assessee for the assessment year 1996-97 (supra), has discussed the disallowance of loss on account of transactions with PNB and SBS. The Tribunal has discussed the contractual liability and statutory liability and has also verified the Special Court's order in detail and interim order of the Hon'ble Supreme Court. In this case, the loss arising out transactions with NHB as per the judgment and decree of Special Court pertaining to the assessment year 1996-97, the Tribunal has allowed the loss arisen out of transactions with PNB and State Bank of Patiala which pertains to the security transactions with Mr. Harshad Mehta. The loss has arisen due to decree passed by the Special Court being a contractual liability and admitted Rs. 182 crores in 1996-97, paid Rs. 30 crores in assessment year 1997-98 and allowed by the Tribunal in assessment years 1996-97 and 1997-98 as business loss. We find that in the year under consideration the assessee has claimed deduction of Rs. 226.74 crores liability to NHB as per the judgment/decree in Special Court No. 2/1995. We find that the Tribunal has allowed the similar claim of the assessee in the assessment years 1996-97 and 1997-98. Therefore, respectfully following the said decision of the Tribunal [reported in (2005) 95 TTJ (Ahd) 225 : (2005) 93 ITD 662 (Ahd) (supra)], we allow the claim of the assessee by allowing deduction of Rs. 226.764 crores being the loss arising out of normal business transaction.
7. In the result, ITA No. 1019/Rjt/2004 (Assessment year 1999-2000) is allowed. ITA No. 1020/Rjt/2004 (Assessment year 2000-01): 8. The only ground raised in the present appeal is against disallowance of payment of Rs. 10.30 crores by way of interest to NHB.9. Having heard both the parties, we are of considered view that the reasons given by us for allowability of a sum of Rs. 226.74 crores as deduction in the assessment year 1999-2000, as discussed in the foregoing paras, is squarely applicable in respect of the amount of Rs. 10.30 crores which has been claimed as deduction in the assessment year 2000-01, and therefore, for the same reasoning, we allow the deduction of Rs. 10.30crores as allowable business expenditure in the year under consideration i.e., 2000-01.
10. In the result, ITA No. 1020/Rjt/2004 (Assessment year 2000-01) is allowed. ITA No, 1423/Rjt/2005 (Assessment year 2002-03) 11. During the course of hearing, the learned Authorised Representative of the assessee did not press grounds Nos. I, II-A, II-B, IV(ii), and therefore, these grounds are dismissed as not pressed.
12. Ground No. III relates to disallowance of Rs. 91,92,519 under Section 43B of the Act.
13. In Annexures. J and K to their tax audit report in Form No. 3CD for the assessment year 2001-02, the auditors have pointed out that actual payment of bank's contribution to the PF amounting to Rs. 91,92,519 was not made within the time stipulated under the relevant Provident Fund Rules. It is on this basis, the assessing officer disallowed the claim of the assessee and made the impugned addition of Rs. 91,92,519 under Section 43B of the Act. In appeal, the Commissioner (Appeals) confirmed the same.
14. The learned Authorised Representative of the assessee contended before us that the payments were made before filing of the return and therefore, it should have been allowed as deduction. The learned Authorised Representative of the assessee placed reliance on an unreported judgment of Hon'ble Karanataka High Court in a group of cases in IT Appeal No. 1088 of 2006 and others in the case of CIT v.Sabari Enterprises and Ors. reported at (2007) 213 CTR (Kar) 269 Ed. (a copy of the said judgment found placed in the paper book). The learned Departmental Representative on the other hand, supported the impugned orders of the authorities below. He also placed reliance on the decision of Hon'ble Madras High Court in the case of CIT v. Synergy Financial Exchange Ltd. .
15. We have heard both the parties. In the present case at hand. It is not disputed that the employees contribution to the PF has not been paid within the statutory time-limit as prescribed under Provident Funds Rules, but it is claim of the assessee that the same has been paid before filing of the return. We have gone through the judgments relied upon by both the parties. We find that on very much similar set of facts, relating to the assessment year 1994-95. Hon'ble Madras High Court in the case of Synergy Financial Exchange Ltd. (supra) has considered the second proviso to Section 43B and decided the case in favour of the revenue and concluded that-"Omission of second proviso to Section 43B by Finance Act, 2003, with effect from 1-4-2004, has no retrospective operation so as to make it applicable to the earlier period and, therefore, PF payments made after the due dates under the Provident Fund Act were not deductible in view of second proviso to Section 43B then in force." The relevant portions of the said judgment are extracted below: ...By Finance Act, 2003 which came into force from 1-4-2004, the second proviso to Section 43B was omitted the result being, the assessee is entitled to the deduction of payment made towards PF, etc. when such payment is actually made by the assessee on or before the due date applicable for filing return, irrespective of the fact that such payment is made on or before the due date by which the assessee is required to credit the contribution to the employee's account in the relevant fund under the relevant Act.
It is a settled law that the fiscal legislation imposing liability is generally governed by normal presumption that it is not retrospective. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. The above rule is applicable not only to the charging section, but also other substantive provision such as, the provision imposing penalty and it does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. Union of India v. Madan Gopal Reliance Jute & Industries Ltd. v. CIT and CWT v. Sharvan Kumar Swamp & Sons applied.
It is not permissible in law to take a liberal view or lenient approach to give retrospective effect to the deletion of second proviso to Section 43B so as to apply the same to the assessment year 1994-95, particularly when there is no indication in the Finance Act, 2003 from the language used and from the object indicated that the legislature intended expressly or by implication that the second proviso to Section 43B was deleted to cure an acknowledged evil for the benefit of the community as a whole or to remove any such hardship, nor there is any express provision in the statute that such deletion of second proviso to Section 43B will have any retrospective effect. Allied Motors (P) Ltd. v. CIT distinguished.
The test to be applied for deciding as to whether a later amendment should be given retrospective effect, despite a legislative declaration specifying a prospective date as the date from which the amendment is to come into force, is as to whether without the aid of the subsequent amendment the unamended provision is capable of being so construed as to take within its ambit the subsequent amendment.
Applying this test to the facts of the present case, it is not possible to hold that without the aid of the subsequent Finance Act, 2003. by which the second proviso to Section 43B was omitted, the unamended provision of Section 43B would allow the deduction of payment of PF, etc. when such payment was made by the assessee on or before the due date applicable for filing return.CWT v. B.R. Theatres & Industrial Concerns (P) Ltd. applied.
There is no material available to hold that the impugned deletion is either clarificatory or declaratory or intended for the removal of doubts to give a consequential retrospective effect to the impugned deletion so as to make it applicable to the assessment year 1994-95.
The Tribunal was not therefore right in law in deleting the disallowance of the PF payments. CIT v. Madras Radiators & Pressings Ltd. followed; CIT v. Standard Tile & Clay WorksHalmira Estate Tea (P) Ltd. v. CIT Omission of second proviso to Section 43B by Finance Act. 2003, with effect from 1-4-2004, has no retrospective operation so as to make it applicable to the earlier period and, therefore, PF payments made after the due dates under the Provident Fund Act were not deductible in view of second proviso to Section 43B then in force.
Before the Hon'ble High Court, Karnataka, in the case of CIT v. Sabari Enterprises and Ors. (supra), the question for decision was as follows: Whether the Tribunal was correct in holding that the contributions made by the assessee to PF and ESI are allowable deduction even though it is made beyond the stipulated period as contemplated under the mandatory provisions of Section 36(1)(va) read with Section 2(24)(x) and Section 43B of the Act as the same was paid by the assessee on or before the due date for furnishing the return of income as per Section 139(1) of the Act? The above question has been answered by the Hon'ble court against the revenue viz., in the negative. The relevant portion of the said decision is quoted herein below.
8. The learned Counsel Sri Parthasarathy and Dr. Krishna, appearing for respondents, also drew our attention to the deletion of second proviso to Section 43B of the Income Tax Act by the Finance Act, 2003 which provision has come into force with effect from 1-4-2004.
The reliance placed upon the decision of the Apex Court in the Allied Motors (P) Ltd. v. CIT (supra) and also on the decision in General Finance Co. v. CIT (supra), in respect of applicability of Section 43B(b) and also omission of Clause (a) or (c) or (d) or (f) referred to above occurred in the first proviso to Section 43B supports the case of the assessees and also relevant paras extracted from Allied Motor's case (supra) and para 59 referred to supra in this judgment from the Finance Bill with all fours supports the case of the assessee/respondents. Therefore, we have to answer the substantial question of law No. 1 framed by this Court in these appeals at the instance of the revenue against them viz., in the negative. Accordingly, we answer the substantial question No, 1 framed in these appeals in the negative.
In the case of CIT v. Vinay Cement Ltd. in CC No. 1934/2007 dated 7-3-2007 (reported as CIT v. Vinay Cement Ltd. (2007) 213 CTR (SC) 268-Ed.) (copy of the order placed on record), Hon'ble Supreme Court has held as under: In the present case we are concerned with the law as it stood prior to the amendment of Section 43B. In the circumstances the assessee was entitled to claim the benefit in Section 43B for that period particularly in view of the fact that he has contributed to PF before filing of the return.
Therefore, respectfully following the decision of Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. (supra) and the decision of Hon'ble Karnataka High Court in the case of CIT v. Sabari Enterprises and Ors. (supra), we hold that the Commissioner (Appeals) is not justified in confirming the disallowance. The addition made in this respect is, therefore, deleted.
16. Ground No. V relates to Rs. 43,18,86,000, the amount which is sought by the assessee to be withdrawn erroneously offered to the charge of tax under Section 41(1) of the Act.
17. Having heard both the parties and perusing the material on record, we find that the assessee has raised the following additional grounds before the Commissioner (Appeals).
(1) The ultimate decree having been passed by the Supreme Court of India for total sum of Rs. 212 crores on 26-4-2001, the difference between the original claim and the amount so decreed being Rs. 31,21,86,000 and ultimate decree having been passed by the Supreme Court of India in case of CANFINA for total sum of Rs. 147.75 crores on 26-9-2001, the difference between the original claim and the amount so decreed being Rs. 11,97,00,000 and bona fidely offered under Section 41(1) of the Income Tax Act, in assessment year 2002-03, the year under appeal, the same deserves to be deducted from the computation of income in view of the order dated 31-12-2004 in case of PNB and in view of the order passed by the Commissioner (Appeals) for the assessment year 1997-98 in case of CANFINA. (2) In addition to the withdrawal of total amount of Rs. 43,18,86,000 under Section 41(1) referred in detail hereinabove, taking into account the relevant observations made by the Tribunal in the order passed for the assessment year 1996-97 in relation to Rs. 30 crores being the difference between Rs. 212 crores confirmed by the Supreme Court of India and Rs. 182 crores allowed by the Tribunal (vide para 26 of its order dated 31-12-2004), further deduction of Rs. 30 crores be allowed in this year.
18. The appellant assessee raised additional ground for withdrawal of the amount of Rs. 43,18,86,000 offered to tax under Section 41(1) of the Act pertaining to assessment year 1996-97 and assessment year 1997-98. The said amount was claimed as deduction as business loss at the time of filing return for assessment year 1996-97 and assessment year 1997-98. However, for the assessment year under appeal the loss was finally determined by the Hon'ble Supreme Court and therefore the balance amount was offered to tax under Section 41(1) of the Act.
19. During pendency of appeal before the Commissioner (Appeals), the Tribunal decided the appeals for assessment year 1996-97 and assessment year 1997-98 and determined allowable loss as per the decision of the Apex Court. The claim of the assessee for loss amounting to Rs. 43,18,86,000 was therefore rejected for both the assessment years. The assessee therefore preferred additional ground before Commissioner (Appeals) to withdraw the said amount offered to tax under Section 41(1) for the assessment year under appeal.
20. In view of the above facts the assessing officer is directed to examine the facts in detail and pass order giving effect to the claim of the appellant for withdrawal of amount of Rs. 43,18,86,000 offered to tax under Section 41(1) of the Act for the assessment year under appeal. We cannot examine the claim of the assessee as the same was raised for the first time before the Commissioner (Appeals), This ground of appeal is therefore remitted back to the assessing officer accordingly.
21. In the result, ITA No. 1423/Rjt/2005 filed by the assessee for assessment year 2002-03 is partly allowed as indicated above.