Lord Krishna Bank Ltd. vs Deputy Commissioner of Income Tax

G. Sivarajan, J.—This appeal is filed by the Lord Krishna Bank Ltd., Kochi, an assessee to Income Tax, against the order dt. 29th April, 2002, in ITA No. 644 (Coch)/1996 passed by the Tribunal. The only issue that arises for consideration in this appeal is as to whether the Tribunal was justified in holding that the interest income from securities derived by the appellant for the asst. yr. 1993-94 cannot be set off against the carried forward business losses of the earlier years. The assessment year concerned is 1993-94, the relevant previous year ending on 31st March, 1993. In the return filed for the asst. yr. 1993-94, the appellant sought to adjust/deduct the carried forward business loss of the earlier years as well as of the current year. The assessing authority originally accepted the same in the intimation issued u/s 143(1)(a). Last, the assessing authority invoked the provisions of Section 154 of the IT Act and sought to rectify the mistake by withdrawing the set off allowed.

As per the revised statement of income filed by the assessee-bank, the net income for the year was a loss of Rs. 12,40,478. The assessee received interest on Government and other trusts securities of Rs. 1,84,11,970 and after adjusting the loss of Rs. 12,40,478, the income came to Rs. 1,71,71,492. From the said amount, an .equal amount representing the carried forward business loss of the previous years 1990-91, 1991-92 and 1992-93 was deducted and the net income thus became nil. According to the AO, the set off of carried forward business loss against the income under ''other sources'' is not permitted u/s 72 of the Act. He accordingly rectified the intimation and fixed the total income at Rs. 1,64,47,390. In appeal filed by the appellant, the ''first appellate authority observed that the question whether interest on securities is business income or income from other sources is a debatable issue and hence it does not come within the purview of the prima facie adjustment contemplated u/s 143(1)(a) and the addition made was accordingly deleted. This order of the first appellate authority was upheld by the Tribunal in ITA 285/Coch/1995 (Annexure A). Thereafter, the assessing-authority completed the assessment for the year 1993-94 u/s 143(3) of the Act by disallowing the claim for set off of the carried forward the business loss of the earlier years for the very same reasons, The first appellate authority allowed the appeal by holding that the appellant is entitled to set off of the business losses brought forward against the income computed for the year 1993-94. The Department took up the matter in appeal before the Tribunal. The Tribunal also considered the legal principles regarding the set off of carried forward business loss from the interest income of the current year and summarised the legal position thus :

"The basic question is regarding the nature of the investment itself. In The Bihar State Co-operative Bank Ltd. Vs. The Commissioner of Income Tax, , the Hon''ble Supreme Court has held that the income earned by the assessee in the form of interest is also income from the business of the assessee-bank. Banks do usually earn interest as its business income on loans and advances made by it. As far as the investments are concerned, the income earned is interest and if necessary it has to be further substantiated that the interest income earned by the banks on securities was nothing but business income. In Commissioner of Income Tax, Andhra Pradesh Vs. Cocanada Radhaswami Bank Ltd., , again the Honourable Supreme Court has held that even though interest on securities is separately classified for the purpose of computation of income, income by way of interest from securities does not cease to be part of the business income if the securities are part of the trading asset."

The Tribunal, however, noted that the facts corresponding to the above proposition advanced by the assessee have not been proved before it. The Tribunal accordingly set aside the order of the first appellate authority and restored the order of the AO on this point.

Shri Joseph Markos, learned counsel appearing for the appellant, submits that in fact the authorised representative of the assessee, by letter, dt. 16th April, 2002, (Annexure L) requested for 15 days'' time for filing the required papers. He further submitted that the Tribunal, without affording an opportunity to the appellant to produce the documents, had rejected the appeal stating that the assessee has not proved its case with supporting documents. The counsel further submits that the appellant was ready with all the required details immediately thereafter, and further submitted that the requirement of production of evidence regarding the true nature of the securities, etc., was not in the contemplation of the appellant since the first appellate authority had decided the matter only on the legal principles and the Department has also canvassed only the legal principles in the appeal before the Tribunal.

We have also heard Shri P.K.R. Menon, learned senior standing counsel, Taxes, appearing for the respondent. After considering the rival submissions, we are of the view that since the Tribunal has ascertained the legal principles governing the issue of set off of carried forward business losses of the earlier years against the interest income of the current year and since neither the AO nor the first appellate authority had gone into the factual details regarding the claim made, the appropriate course for the Tribunal was to remit the matter to the AO for passing fresh assessment order with reference to the legal principles discussed by the Tribunal. The Tribunal, instead, had rejected the claim of the assessee and restored the order of the AO. We are unable to approve this course adopted by the Tribunal. In these circumstances, we are of the view that instead of deciding the questions which are raised by the appellant in this appeal, it is necessary to remit the matter to the assessing authority for consideration of the claim of the assessee in the light of the principles laid down by the Tribunal in the appellate order under challenge. We accordingly set aside the orders of all the authorities including the Tribunal on this point and remit the matter to the AO to consider the claim of the assessee for set off of the carried forward business losses of the previous years against the interest income for the year 1993-94 in the light of the principles ascertained and stated in the order of the Tribunal. It is open to the parties to rely on other binding decisions, if any, on this point at the time of passing fresh orders. Before parting with the case, we note that the Tribunal has rejected the request of the appellant for adjournment of the case made in Annexure L letter with the following observations :

"5. When the proceeding was called on for hearing, Shri E.S. Kannan, the learned Departmental Representative appeared for the Revenue. There was no appearance on behalf of the assessee. Instead, an adjournment petition has been placed before us. The case was last time heard on 26th Feb., 2002. At the time of hearing the assessee-bank was required to furnish details of the pattern of investments made by the assessee in interest-bearing securities. The learned counsel appearing for the assessee-bank sought time and the matter was adjourned for 19th April, 2002. On 19th April, 2002, the authorised representative of the assessee required for more time, as according to him, the details are still being compiled.

We are not impressed by the adjournment application put in by the assessee''s representative. We have already given reasonable time to the assessee to prepare for the case. When this appeal was ,posted for hearing in the past, the case was adjourned on request made by the assessee and on one occasion there was no appearance for the assessee. In these circumstances, we do not find much force in the prayer of the assessee seeking for further time. We are, therefore, proceeding to decide the matter exparte qua the assessee, after hearing the learned Departmental Representative for the Revenue."

The stand taken by the appellant before the Tribunal was that the appellant was compiling the details called for by the Tribunal and that it will require some more time for compiling the same. From the relevant portion of the Tribunal''s order which we have already extracted, it would appear that sufficient time was given to the appellant to produce the compilation of the details regarding the nature of the securities, etc., but the same was not availed. Having regard to the fact that the Tribunal had to decide the appeal against the assessee only because of the lapses on the part of the appellant which led the appellant to approach this Court for relief and the valuable time of this Court was taken for the disposal of the appeal in the manner done, we are of the view that such lapses on the part of the public sector undertakings cannot be allowed to go unnoticed. We accordingly direct the appellant to pay a sum of Rs. 5,000 (Rupees five thousand only) to the Kerala Legal Services Authority within a period of two months from today.

The ITA is disposed of as above.