2019 (2) TMI 1713 - AT - Income Tax

Tribunal rules in favor of assessee in tax appeals, rejecting Revenue's challenges on various issues.

DCIT-2 (3) (2), Mumbai Versus M/s. Indusind Bank Ltd. and M/s. Indusind Bank Ltd., Versus Additional Commissioner of Income Tax, Range 2 (3), Mumbai 

DCIT-2 (3) (2), Mumbai Versus M/s. Indusind Bank Ltd. and M/s. Indusind Bank Ltd., Versus Additional Commissioner of Income Tax, Range 2 (3), Mumbai  - TMI Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Amortization of Employee Stock Plan (ESOP) expenses.3. Disallowance of broken period interest.4. Admission of new claim for deduction under Section 35D.Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The assessee, a banking company, challenged the disallowance of Rs. 18,50,000/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D(2)(iii) for administrative and other expenses related to earning exempt income. The AO initially disallowed Rs. 2,21,10,000/- under Section 14A, which included Rs. 2,02,60,000/- under Rule 8D(2)(ii) and Rs. 18,50,000/- under Rule 8D(2)(iii). The CIT(A) deleted the disallowance under Rule 8D(2)(ii) but upheld the disallowance under Rule 8D(2)(iii). The Tribunal found that the issue had already been decided in favor of the assessee in its own case for earlier assessment years, following the ruling of the Punjab & Haryana High Court in PCIT vs. State Bank of Patiala and the CBDT Circular No. 18/2015. It was held that investments made by banking concerns are part of the business activity of banking, and thus, no disallowance under Section 14A is warranted. Consequently, the Tribunal directed the AO to delete the disallowance, allowing the assessee’s appeal and dismissing the Revenue’s appeal on this ground.2. Amortization of Employee Stock Plan (ESOP) expenses:The Revenue challenged the deletion of disallowance of Rs. 6,45,53,097/- related to ESOP expenses, which the AO had treated as capital expenditure. The CIT(A) allowed the deduction, following the ITAT’s direction in the assessee's own case for A.Y. 2009-10, where ESOP expenses were accepted as allowable expenses. The Tribunal upheld the CIT(A)’s decision, noting that the issue had been consistently decided in favor of the assessee in previous years. Thus, the Revenue’s appeal on this issue was dismissed.3. Disallowance of broken period interest:The Revenue contested the deletion of disallowance of Rs. 2,81,01,155/- and Rs. 10,40,07,375/- on account of broken period interest, which the AO had treated as capital expenditure. The CIT(A) allowed the deduction, following the decision of the Hon’ble Bombay High Court in the case of HDFC Bank and the Hon’ble Supreme Court in CIT vs. Citi Bank NA. The Tribunal upheld the CIT(A)’s decision, confirming that the issue was covered in favor of the assessee by precedent. Therefore, the Revenue’s appeal on this ground was dismissed.4. Admission of new claim for deduction under Section 35D:The Revenue challenged the CIT(A)’s decision to admit a new claim for deduction under Section 35D for preliminary expenses incurred in connection with the issue of shares under qualified institutional placement (QIP). The CIT(A) admitted the claim, following the Hon’ble Bombay High Court’s rulings in CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. and Grasim Industries Ltd., which held that appellate authorities have the power to entertain legal issues raised for the first time. The Tribunal upheld the CIT(A)’s decision, noting that the appellate authority had correctly followed judicial precedents. Consequently, the Revenue’s appeal on this issue was dismissed.Conclusion:The Tribunal allowed both appeals of the assessee and dismissed both appeals of the Revenue, upholding the CIT(A)’s decisions on all contested issues. The order was pronounced in the open court on 28.02.2019.