Where employer bank's failure to claim for leave encashment was not inadvertant mistake, same was rightly disallowed

IT: Expenditure incurred on earning tax free bonds and dividends was to be disallowed
IT: Where employer bank's failure to claim for leave encashment was not inadvertant mistake, same was rightly disallowed
IT: Share issue expenses expanding capital base, though enhance business profit also, is capital in nature
IT: Excess cash in branches of assessee-bank that was to be refunded only if any customer would claim, is to be added to income under section 41(1)
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[2014] 49 taxmann.com 100 (Kerala)
HIGH COURT OF KERALA
South Indian Bank Ltd.
v.
Commissioner of Income-tax, Trichur*
DR. MANJULA CHELLUR, CJ.
AND A.M. SHAFFIQUE, J.
IT APPEAL NO. 189 OF 2011†
JANUARY  22, 2014
I. Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Dividends) - Assessment year 2005-06 - Whether expenditure estimated to have been incurred by assessee for earning interest on tax free bonds and dividends which are exempted under section 10 was to be disallowed - Held, yes [Para 5] [In favour of revenue]
II. Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment (Leave encashment) - Assessee bank's case was that it had inadvertently failed to claim for leave encashment - Authorities below have found that claim with regard to section 43B(f) was enclosed along with original as well as revised return - Therefore, it was observed that there was no inadvertent mistake in not claiming it - Whether impugned claim could not be considered since claim was not bona fide inadvertence as original and revised returns filed in accordance with provisions of Act were considered by Assessing Officer under section 143(3) - Held, yes [Para 6] [In favour or revenue]

III. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Share issue expenses) - Assessment year 2005-06 - Claim of deduction of share issue expenses were disallowed - Assessee bank's case was that it had increased its share capital to maintain capital adequacy ratio as prescribed by Reserve Bank of India, failing which assessee bank could not continue its business and therefore, shares were issued - Authorities had come to finding that increase in capital resulted in expansion of capital base though it may help in business as well by increasing profit, yet, expenditure incurred retained character of a capital expenditure since it was directly related to expansion of capital base - Whether share issue expenses could not be allowed as a deduction in computing total income of assessee - Held, yes [Para 7][In favour of revenue]
IV. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Excess cash) - Assessment year 2005-06 - In respect of excess cash received by branches of appellant-bank, it was contended by assessee-bank that in course of cash transaction at branches, and ATMs, excess amount was found due to operational deficiency - These were all to be repaid to customers as and when claimed by them and it could not be considered as income of bank - Whether when these amounts were only to be refunded at time when there was demand, nevertheless view expressed by Tribunal that such excess cash was to be added to total income had to be accepted - Held, yes [Para 8] [In favour of revenue]