2021 (11) TMI 588 - HC - Income Tax

High Court remands case to Tribunal for reconsideration of expenses, rules in favor of appellant on software, wages, ex-gratia payments.

M/s. The Karur Vysya Bank Ltd., Karur. Versus The Commissioner of Income-Tax, Trichy.

The High Court remanded the case back to the Tribunal for reconsideration of the disallowance of estimated expenses. The Court ruled in favor of the ... Disallowance of estimated expenses - assessee's case was that, it did not incur any collection charges and the amounts were invested out of circulating capital - CIT(A) directed the Assessing Officer to restrict the disallowance to 2% only on tax free bond, which in the opinion of the CIT(A), was a reasonable disallowance also confirmed by ITAT - HELD THAT:- Though the assessee specifically took a stand that they did not incur any expense to get the tax free income and assessee Bank has got more interest free funds for investing in the tax free income, the CIT(A) did not examine the said aspect, but merely directed the Assessing Officer to restrict the disallowance in this regard to 2% only on tax free bonds, finding the same to be reasonable. Had the CIT(A) adjudicated the correctness of the stand taken by the assessee and rendered a finding, the Tribunal could have tested the correctness of the same. Further, there has been development in law. We do not propose to deny the benefit of the assessee to place reliance on those decisions and put forth their submissions and for such purpose alone, we are inclined to remand the matter back to the Tribunal for fresh consideration. The substantial question of law No.1 is left open for fresh consideration by the Tribunal. Disallowance of software expenses as being relatable to capital filed - HELD THAT:- This issue has been squarely covered by the decision of the Division Bench of this Court in the case of Commissioner of Income Tax v. Southern Railways Ltd [2006 (1) TMI 64 - MADRAS HIGH COURT] wherein, the question was answered in favour of the assessee, which was also taken note of in the case of Commissioner of Income Tax, Trichy v. The Lakshmi Vilas Bank Ltd. [2018 (9) TMI 1094 - MADRAS HIGH COURT]. Thus, the substantial question of law No.2 is answered in favour of the appellant/assessee. Disallowing the payment made to Registrar of Companies for increasing the authorised capital - HELD THAT:- Tribunal followed the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. v. Commissioner of Income Tax [1996 (12) TMI 6 - SUPREME COURT]. We find no error in the said decision of the Tribunal. Hence, the 3rd substantial question of law is answered against the appellant/assessee. Disallowance being arrears of wages on account of upward pay decision as per MOU signed on 11.03.1999 - HELD THAT:- The said question is covered by the decision of the Division Bench of this Court in the case of Commissioner of Income Tax, Chennai-I v. M/s.Kasturi and Sons Ltd. [2018 (9) TMI 1411 - MADRAS HIGH COURT] was answered in favour of the assessee. Following the same, the substantial question of law No.4 is answered in favour of the appellant/assessee. Disallowance being ex-gratia paid to employees - HELD THAT:- Issue decided in favour of the assessee in the assessee's own case in Commissioner of Income Tax, Chennai v. The Karur Vysya Bank Ltd., Karur [2015 (5) TMI 72 - ITAT CHENNAI] Following the same, the 5th substantial question of law is answered in favour of the appellant/assessee. Issues involved:1. Challenging order passed by Income Tax Appellate Tribunal on various substantial questions of law.2. Disallowance of estimated expenses on exempted income.3. Disallowance of software expenses as capital expenditure.4. Disallowance of payment made to Registrar of Companies for increasing authorized capital.5. Disallowance of arrears of wages due to upward pay decision.6. Disallowance of ex-gratia payment to employees.7. Validity of reassessment under Section 147 of the Income Tax Act.Detailed Analysis:Issue 1: Disallowance of estimated expenses on exempted income- The Tribunal confirmed the disallowance of 2% estimated expenses on exempted income without finding on actual expenditure.- Appellant argued against disallowance citing lack of expenditure for tax-free income.- CIT(A) directed 2% disallowance, which Tribunal found reasonable.- Appellant relied on recent legal decisions to challenge the disallowance.- High Court remanded the matter back to Tribunal for fresh consideration due to lack of examination on appellant's stand.Issue 2: Disallowance of software expenses as capital expenditure- Tribunal confirmed disallowance of software expenses as capital-related.- High Court referred to previous legal precedents favoring the appellant, answering this issue in favor of the assessee.Issue 3: Disallowance of payment to Registrar of Companies for increasing authorized capital- Tribunal decision based on Supreme Court precedent.- High Court upheld Tribunal's decision, answering this issue against the appellant.Issue 4: Disallowance of arrears of wages due to upward pay decision- Covered by Division Bench decision in favor of assessee.- High Court answered this issue in favor of the appellant.Issue 5: Disallowance of ex-gratia payment to employees- Previous decision favored assessee in similar case.- High Court answered this issue in favor of the appellant.Issue 6: Validity of reassessment under Section 147- Appellant withdrew the appeal on this issue.- High Court left this issue open as not pressed by the appellant.Conclusion:- High Court remanded the matter back to Tribunal for fresh consideration on disallowance of estimated expenses.- Decided in favor of appellant on software expenses, arrears of wages, and ex-gratia payment issues.- Upheld Tribunal's decision on payment to Registrar of Companies.- Left reassessment issue open as withdrawn by the appellant.