IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY WEDNESDAY, THE 16TH FEBRUARY 2011 / 27TH MAGHA 1932 ITA.No. 350 of 2010() --------------------- AGAINST ORDER DATED 30/03/2010 IN ITA.668/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE FEDERAL BANK LTD,FEDERAL TOWERS, ALUVA, REP.BY ITS EXECUTIVE DIRECTOR MR.P.C.JOHN. BY ADV. SRI.JOSEPH MARKOSE, SENIOR ADVOCATE SRI.V.ABRAHAM MARKOS SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.B.J.JOHN PRAKASH SRI.TOM THOMAS (KAKKUZHIYIL) RESPONDENT(S): --------------- THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, ALUVA. ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) FOR R SRI.JOSE JOSEPH, SC, FOR INCOME TAX FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16/02/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & BHABANI PRASAD RAY, JJ. ---------------------------------- ITA No.350 of 2010 --------------------------------- Dated, this the 16th day of February, 2011 J U D G M E N T Ramachandran Nair, J. Both questions raised in the appeal filed by the assessee pertain to the reversal by the Officer of the adjustments made by the assessee in the Profit & Loss Account prepared under the Company's Act for making book profit assessment under Section 115JA of the Income Tax Act (hereinafter referred to as the Act for short). 2. We have heard Shri.Joseph Markos, learned Senior counsel appearing for the appellant assessee, and learned Standing Counsel appearing for the Revenue. 3. The assessee is a Bank, which has been purchasing Government Securities. Under the accounting practice followed by the assessee, broken period interest on securities was treated as cost for acquisition of assets and the assessee has been claiming loss on revaluation of assets every year through depreciation. ITA No.350/2010 -2- However, the Reserve Bank of India later directed all the Banks to debit broken period interest in the profit & loss account as against the capitalisation of the amount by the Banks. The assessment year 1999-2000 seems to be the first year of assessment wherein the RBI instructions are followed in regard to the accounting of broken period interest on securities purchased. The assessee made in the profit & loss account provision for non-performing assets of Rs.39.29 crores, which was disallowed by the Assessing Officer. Even though the first appellate authority allowed the claim following the Tribunal's order in the case of Jt.CIT v. Usha Martin Industries Ltd., reported in 288 ITR (AT) 63, the Tribunal reversed the finding of the CIT (Appeals) and allowed the departmental Appeal because the decision of the Tribunal is neutralised by introduction of Clause (g) to the explanation to Section 115JA(2) of the Act. In view of the amendment with retrospective effect and since the claim represents provision for diminution in the value of assets, the Tribunal rightly rejected the assessee's claim. We do not find any merit to interfere with this finding of the Tribunal. So far as the next issue is concerned, what we notice is that ITA No.350/2010 -3- the assessee made adjustment of the entire carried forward excess depreciation in investments by crediting in the profit & loss account, and at the same time, made reversal of the entire carried forward broken period interest. The Assessing Officer noticed that the assessee could not debit the carried forward broken period interest in the profit & loss account prepared under the Company's Act for this year. However, while reversing the debit of broken period interest, the Assessing Officer allowed deduction of excess provision for depreciation, which was added to the profit & loss account by the assessee. The net result is that the Officer made a reversal of debit of Rs.7.56 crores in the profit & loss account. The clear finding of the Tribunal is that what the Assessing Officer did is only make up of the profit & loss account prepared by the assessee, which is the profit & loss account required to be prepared for computation of book profit in accordance with the provisions of Parts II & III of Schedule VI of the Company's Act. Even though learned counsel for the assessee contended that once the system of accounting is changed, in order to make up the profit made in the balance sheet, the assessee has to make additions and debits in the ITA No.350/2010 -4- profit & loss account, we do not think these adjustments in the profit & loss account are permissible for assessment under Section 115JA of the Act. The finding of the Tribunal is that the Assessing Officer made only permissible adjustments to the profit & loss account prepared by the assessee in tune with the provisions of the Company's Act (Section 211 (3C)) to make assessment under Section 115JA of the Act. We, therefore, do not find any substantial question of law arising from the order of the Tribunal. Consequently, this IT Appeal is dismissed. (C.N.RAMACHANDRAN NAIR, JUDGE) (BHABANI PRASAD RAY, JUDGE) jg