2015 (8) TMI 216 - AT - Income Tax

Tribunal rules in favor of assessee, addressing Section 115JB, computerization expenditure, and debenture write-off

Asst. Commissioner of Income-tax, Circle 11 (4), Bangalore Versus The Vysya Bank Ltd., (Now ING Vysya Bank Ltd.) and M/s. ING Vysya Bank Ltd. Versus Deputy Commissioner of Income-tax, Circle 12 (3), Bangalore

Asst. Commissioner of Income-tax, Circle 11 (4), Bangalore Versus The Vysya Bank Ltd., (Now ING Vysya Bank Ltd.) and M/s. ING Vysya Bank Ltd. Versus ... Issues Involved:1. Disallowance under Section 14A of the Income-tax Act, 1961.2. Write-off of non-convertible debentures.3. Expenditure on computerization of branches.4. Deduction under Section 36(1)(viia) of the Act.5. Amortization of cost over face value of investment held to maturity.6. Applicability of Section 115JB to a banking company.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income-tax Act, 1961:The Assessing Officer (AO) disallowed Rs. 1,43,69,418/- under Section 14A, claiming the assessee did not incur any expenses to earn exempt income. The AO estimated 15% of the expenses as incurred for earning exempt income. The CIT(A) reduced this to 5%, following an earlier Tribunal decision in the assessee's case. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.2. Write-off of Non-Convertible Debentures:The AO disallowed the assessee's claim of Rs. 7,48,41,688/- for non-convertible debentures, stating there was no actual write-off. The CIT(A) upheld this decision. The Tribunal, however, found the issue in favor of the assessee, referencing the Supreme Court decision in UCO Bank and remanded the issue back to the AO for reconsideration.3. Expenditure on Computerization of Branches:The AO categorized Rs. 23,05,49,466/- spent on the Vysyamulya Project (computerization of branches) as capital expenditure. The Tribunal, referencing the Karnataka High Court's decision in CIT vs. IBM India Ltd., held that such expenditure should be considered revenue in nature, thus allowing the assessee's claim.4. Deduction under Section 36(1)(viia) of the Act:The AO disallowed the assessee's claim of Rs. 1 lakh under Section 36(1)(viia). The Tribunal, following its own decision in the assessee's case for earlier years, directed the AO to allow the deduction subject to permissible limits, stating that bifurcating PBDD into rural and non-rural advances was unnecessary.5. Amortization of Cost over Face Value of Investment Held to Maturity:The AO disallowed Rs. 3,19,37,457/- for amortization of cost over face value of investments held to maturity, treating it as capital expenditure. The Tribunal, following its decision in Sir M. Visveswaraya Co-op. Bank Ltd., held that the amortization of the premium on Government securities is deductible, thus allowing the assessee's claim.6. Applicability of Section 115JB to a Banking Company:The assessee contended that Section 115JB does not apply to banking companies. The Tribunal, referencing decisions in Canara Bank, Dena Bank, and ICICI Lombard General Insurance Co. Ltd., agreed and held that Section 115JB is not applicable to the assessee. Consequently, the Tribunal did not adjudicate the related grounds.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, providing relief on multiple grounds including the applicability of Section 115JB, the nature of expenditure on computerization, and the treatment of amortization costs. The Tribunal remanded the issue of write-off of non-convertible debentures back to the AO for reconsideration.