Case Law Details
PCIT Vs Karnataka Bank Ltd. (Karnataka High Court)
The Karnataka High Court dismissed the Revenue’s appeal against the order of the Income Tax Appellate Tribunal (ITAT) concerning Assessment Year 2004-05. The appeal arose from the Tribunal’s order dated 8 February 2024, wherein the issues had been decided in favour of the assessee by following its earlier orders.
The Revenue raised substantial questions of law relating to the treatment of diminution in the value of the investment portfolio maintained by the assessee bank. According to the Revenue, during assessment proceedings and while giving effect to earlier orders, the Assessing Officer had observed that the assessee had not effected diminution in the value of investments in its books of account in a manner consistent with the applicable guidelines. It was contended that the assessee had considered the market value only in respect of those securities where the value of investments had diminished, while appreciation in other securities had not been accounted for. The Revenue argued that such treatment violated the RBI guidelines relating to classification and valuation of investments by banks and was also contrary to the CBDT Circular dated 5 October 1993.
Read SC Judgment in this case: SC Dismisses Revenue’s SLP as Issues on Investment Diminution Already Covered by Earlier Ruling
The Revenue further contended that depreciation in certain investments ought to have been netted against appreciation in other investments and that suitable adjustments were necessary to determine the real income of the assessee in accordance with Section 145 of the Income-tax Act. It also pointed out that a Special Leave Petition filed by the Department before the Supreme Court on an identical issue arising in the assessee’s own case for Assessment Year 2008-09 was pending consideration.
On behalf of the assessee, it was submitted that the Tribunal had merely followed its earlier order in the assessee’s case for Assessment Year 2014-15. It was further argued that the substantial questions of law raised by the Revenue had already been answered by the Karnataka High Court in an earlier decision involving the same assessee for Assessment Year 2004-05.
After examining the impugned Tribunal order and the earlier judgment of the High Court, the Court noted that the Tribunal had extracted the grounds raised by the Revenue. The Court observed that the issue relating to netting off depreciation against appreciation in other securities, as highlighted by the Revenue before the High Court, had not been raised before the Tribunal. Consequently, the Court held that an issue not raised before the Tribunal could not form the subject matter of an appeal before the High Court.
In relation to the remaining substantial questions of law, the Court found that they were squarely covered by its earlier judgment in the assessee’s own case. In view of the binding precedent already operating on the same issues, the Court found no reason to entertain the Revenue’s appeal.
Accordingly, the appeal filed by the Revenue was dismissed. However, the Court clarified that it would remain open to the Revenue to pursue any remedy available before the Tribunal for adjudication of the issue concerning netting of appreciation, in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Heard Sri M. Thirumalesh, learned counsel appearing for the appellants-Revenue and Smt. Tanmayee Rajkumar, learned counsel appearing for the respondent-Assessee.
2. This appeal by the Revenue is directed against the order of the Income Tax Appellate Tribunal, Bengaluru (hereinafter referred to as the ‘Tribunal’), in ITA No.878/Bang/2023, dated 8th February 2024, for the Assessment Year 2004-05.
3. The Revenue has raised the following substantial questions of law for consideration :
1. Whether the ITAT is justified in ignoring the fact that while verifying during the assessment proceedings as well as order giving effect the AO has noticed that the assessee has not effected the diminution in value of investment portfolio in the books of accounts. The assessee considered the market value for the purpose of valuation of investments only in those scrips where the value of investments has diminished and not in those scrips where the value of investments has appreciated, which is in violation of RBI Guidelines for classification and valuation of investments by banks dated 16-10-2000 and also contrary to CBDT Circular No.665 (F.No.201/3/92-ITA-II dated 05-10-1993)?
2. Whether the ITAT is justified in ignoring that the assessee ought to have netted off the depreciation against the appreciation in other investments?
3. Whether the ITAT is justified in not considering that in order to arrive at the real income for the income tax purpose, the assessee should follow suitable adjustments with suitable accounting practices as per section 145 of the IT Act as per Apex Court decision in the case of UCO Bank Vs. CIT reported in 240 ITR 355?
4. Whether ITAT is justified in not considering the fact that the Special Leave Petition to the Supreme Court filed by the Department on the decision of Hon’ble High Court of Karnataka on identical issue involved in the assessee’s case for the AY 2008-09 is still pending and the decision can be made only after analysing the merits of that case?
4. At the outset, Smt. Tanmayee Rajkumar, learned counsel appearing for the respondent, submits that the Tribunal, in the impugned order, has followed its earlier order in the case of the assessee for the Assessment Year 2014-15 and has held the issues in favour of the assessee. It is further submitted that the substantial questions of law raised in the present appeal have already been answered by this Court in favour of the assessee in the case of Karnataka Bank Ltd. v. Assistant Commissioner of Income-tax, Circle 2(1) reported in [2013] 356 ITR 549 (Karnataka), relating to the Assessment Year 2004-05.
5. Sri M. Thirumalesh, learned Senior Standing Counsel appearing for the Revenue, opposing the submissions of the learned counsel for the respondent-assessee, submits that the assessee has claimed a deduction for diminution in the value of investments, whereas the appreciation thereon has not been accounted for. He further submits that the Assessing Officer has held that depreciation, without netting it against the appreciation in other securities, is not permissible, and that this aspect has not been addressed by the Tribunal. It is also submitted that the earlier judgment of this Court did not deal with this issue, and, therefore, prays that the same be considered.
6. We have perused the impugned order passed by the Tribunal and the judgment of this Court in the case of Karnataka Bank Ltd. (supra). The Tribunal, in the impugned order, has extracted the grounds raised by the Revenue. The issue canvassed by the learned Senior Standing Counsel regarding netting of appreciation was not raised for consideration before the Tribunal. An issue not raised before the Tribunal cannot form the subject-matter of an appeal before this Court.
7. Insofar as the other questions are concerned, we find that they are squarely covered by the judgment of this Court in the case of Karnataka Bank Ltd. (supra). In view of the said judgment, we find no reason to entertain the present appeal. Accordingly, the appeal is dismissed. However, it is open to the Revenue to avail of the remedy before the Tribunal, as may be permissible, for adjudication of the issue regarding netting of appreciation, in accordance with law.
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