TaxTMI 
TaxTMI 
2013 (11) TMI 923
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 143(3) r.w.s. 147 on 31.12.2007. The assessee preferred another appeal No. ITA No. 310/07-08 by challenging the additions made therein. Since, the CIT(A) vide common order has decided both the above appeals and deleted some of the additions made by the Assessing Officer; therefore, on the one hand, the Revenue has filed [I.T.A. No. 900/Mds/2010] challenging the common order passed by the CIT(A); on the other, the assessee has preferred to file two appeals [I.T.A. Nos. 906 & 905/Mds/2010] against the order passed by the CIT(A) in ITA Nos. 254/04-05 and 310/07-08 respectively. 2. Brief facts common to all cases are that the assessee; who is banking company, had filed its 'return' on 29.12.2002 for the assessment year 2002-03 and declared income of Rs.107,99,72,662/-, which was processed under section 143(1) of the "Act". Thereafter, the Assessing Officer completed 'scrutiny' assessment on 18.08.2004 computing total income of Rs.135,25,30,353/-. In the said assessment order, he had made following additions: S.No. Issues Amount 1. Bad Debts Disallowance Rs. 18,75,59,964 2. Depreciation on Leased Assets Rs. 37,39,878 3. Software expenses Rs. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... nature. And also the brokerage payment (Rs.27,43,150) is to be disallowed as the same is capital in nature 7. The claim of the soft ware expenses of Rs.76,18,996 is capital nature and assessee has debited to profit and Loss account. 8. The assessee has claimed brokerage of Rs. 27,43,150 paid while purchasing securities need to-be capitalized. 9. Unclaimed balance of Rs.1,01,45,432 pertaining to this year is to be this year has not brought to tax." Accordingly, another reopening notice stood issued to the assessee on 30.03.2007. Per assessment order dated 31.12.2007, the assessee sought reasons for reopening from the Assessing Officer. It is revealed from the short paper book filed by the assessee that on 11.04.2007, the assessee's Deputy General Manager made a request to the Assessing Officer to supply the reasons of reopening. In the said correspondence, the assessee intimated the Assessing Officer that the purpose of seeking reasons in support of reopening was to enable it to raise objections. The letter dated 11.04.2007, which is available on record reads as follows: "Ref: AFMD/23/2007-08 Dated 11/04/2007. The Assistant Commissioner of Income Tax, Compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....78,31,000) is to be added, as this represents provision only. 5. Encashment of privilege leave (Rs.83,74,662) is to be allowed on actual payment basis, no details have been furnished hence required to be disallowed. 6. Amortisation - investment (Rs.5,93,233) claimed in the P & L account relating to securities of HTM Category is to be disallowed as the investments are capital in nature. 7. Claim of soft ware expenses (Rs.76,18,996) is to be disallowed as the same is of capital in nature. 8. Claim of brokerage payment (Rs.27,43,150) is to be disallowed as the same is capital in nature. 9. Unclaimed balance (Rs.1 ,01,45,432) pertaining to this year is to be brought to tax. Sd/- (B.YADAGIRI) Asst. Commissioner of Income Tax, Company Circle-I, Trichy." Thereafter, the Assessing Officer issued notice to the assessee under section 143(2) of the "Act" and completed reassessment vide order dated 31.12.2007 computing the assessee's income as Rs.143,52,00,695/- in view of the following additions: S.No. Issues Amount 1. Expenses of earning tax free income Rs. 95,11,409 2. Pension Payment Rs. 1,84,09,824 3. Amortization expenses ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eated as stock-in-trade. 2.1 The C.I.T.(Appeals) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The C.I.T.(Appeals) ought to have restricted the relief for the brokerage paid in respect of AFS & HFT category of securities. 3. The C.I.T.(Appeals) erred in deleting the disallowance of bad debts to the extent of Rs.18,75,59,964/-. 3.1 The C.I.T.(Appeals) failed to note that under proviso to clause (vii) of sub- section (1) of section 36, only bad debts written off which are over and above the credit balance available in the provision for bad and doubtful debts account would be eligible for deduction. The C.I.T.(Appeals) ought to have con finned the addition made by the A.O. 4. The C.I.T.(Appeals) erred in deleting the addition with regard to unclaimed balances. The C.I.T.(Appeals) failed to follow the ratio of decision of Apex Court in the case of T.V. Sundaram Iyengar & Sons. 222 ITR 344 (SC). The balances lying unclaimed with the bank for more than 3 years ought to have been confirmed by the C.I.T.(Appeals) as these are to be treated as income in the light of the above referr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d was registered at the office of Chief Commissioner of Income tax, Chennai. Agreement signed by all the parties (ie) Bank, Employees & IBA in January 1998. CBDT was requested to grant exemption from rule 89. The exemption was given to Nationalized Banks in 1996. The application filed by the Private Sector Banks were kept pending by CBDT up to August 2003. In August 2003 the CBDT refused to give exemption to rule 89. The appellant Bank purchased Annuity from October 2003. (ii) Since exemption application was pending up to August 2003, the Bank started paying pension directly to pensioners. (iii) Pension scheme is applicable to all employees serving as on that date and those who retired on or after 01-01-1986. As per the settlement with IBA, pension is to be paid to retired employees from 01-11-1993. IBA through its letter dated 02- 01-1998 informed Government's decision to delete strike clause in the agreement. After this date only Pension agreement took effective form and acceptable to all Bank employees. When the Government of India decided in principle to give employees of Banks an option to prefer pension payment, IBA requested the member Banks to form a fund and get i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Appeal,Trichy failed to see that Software expenses are of revenue expenditure as per Income tax appellate Tribunal order dated 14-07-2006(ITA No. 1 137/Mds/2003 for A Y 94-95). (ii) The life of the software cannot be determined. The software can also become obsolete at any time. It is only program/instructions written by programmers in computer language. IV. The learned Commissioner of Income tax appeals, Trichy, has erred in disallowing Pooja expenses, which is commonly undertaken in all business concerns as a staff welfare measure, even after pointing out High court judgments." Similarly, in I.T.A. No. 906/Mds/2010, the following are the assessee's pleadings: "I (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the lease agreement of two lessee, viz, M/s Rajender Steels Ltd and M/s Aruna Textiles & Exports Ltd are genuine. Depreciation claimed by the appellant regarding the two items were remitted back to the assessing offer by the Commissioner of Income tax of Appeal for A Y 96-97. The transactions were genuine. (ii) In the case of M/s Rajender Steels Ltd, Kanpur due to mismanagement of business affairs by the lessee the projects fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....half of the assessee, it has been vehemently argued that the assessee's petition dated 04.05.2012 seeking permission to raise additional ground deserves to be accepted being purely legal in nature. It has also been stated that because of inadvertence, the ground could not be raised before the Assessing Officer as well as CIT(A). The AR has cited case law of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC) and S.Kumar Tyre Manufacturing Co. Ltd. v. CIT 344 ITR 581 (MP) and prayed for acceptance of the petition in the interest of substantial justice. 8. Opposing the plea of the assessee, the Revenue has argued that at this belated stage, the assessee's plea is not liable to be entertained being highly belated one. In support, the DR has also relied on the case law of NTPC v. CIT (supra) and G.K.N. Driveshafts (India) Ltd. v. ITO & Others [259 ITR 19] (SC). 9. We have heard rival contentions and also perused the short paper book filed by the assessee as well as case law cited. Undisputed facts of the case are that the Assessing Officer had issued reopening notice on 30.03.2007 (supra) after finalizing 'scrutiny' assessment under section 143(3) on 18.08.2007. We also notic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....escaped assessment. It is also noticed that various Courts as well as the 'Tribunal' have been holding from time to time that in case the Assessing Officer fails to supply the reasons for reopening and proceeds with the assessment, the order passed is bad in the eyes of law. In this regard, we find that the Coordinate Bench of Bangalore ITAT in the case of Synopsis International Limited vs. DDIT in I.T.A. No. 549/Bang/2011 decided on 10.12.2012 has held as under: "4.1.5 From the discussion in paras 4.1.1 to 4.1.4 of this order (supra), it is clear that the settled proposition of law, as laid down by the Hon'ble Apex Court, Hon'ble High Court of Mumbai and as followed by the two decisions of the coordinate benches of the Tribunal (all cited supra), is that the reasons as recorded by the Assessing Officer are required to be furnished to the assessee within reasonable time of their being recorded and certainly prior to the completion of assessment. In the instant case, the undisputable facts on record establish beyond doubt that the reasons recorded for initiation of proceedings under section 147/148 of the Act were never furnished to the assessee by the Assessing Officer before co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal identical to ground No. 2 and 2.1 in the instant case and we have restored it to the file of the Assessing Officer. The relevant findings are reproduced as under: "45. We have heard rival contentions of both parties and also perused assessment order as well as order of the CIT(A) along with case law cited. It transpires that the assessing authority had held that assessee's claim of interest paid on securities as capital expenditure. In appeal before the CIT(A), the assessee relied on the order of the ITAT Chennai in preceding years as well as the judgment of the Hon'ble Madras High Court in assessee's own case. At the same time, we also find that the crucial factual aspect of the issue in question have nowhere been adverted to the CIT(A). In the operative part of the CIT(A) that it has been simply observed that in assessee's case the Hon'ble High Court as well as the Coordinate Benches of the ITAT have decided the issue in assessee's favour. This in our opinion, is nothing but sketchy finding of the CIT(A). At the same time, we cannot lose sight of the fact that we have remitted ground No. III back to the Assessing Officer. In those circumstances, in order to avoid multipl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2). 42. Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessees and dismiss the appeals preferred by the Revenue. Further, we direct that all matters be remanded to the assessing officer for computation in accordance with law, in light of the law enunciated in this judgment." Taking cue from the above said observations of the Hon'ble Supreme Court, we are of the view that in the instant case, nonetheless the assessee is entitled to write off the debts. At the same time and in the light of the Hon'ble Supreme Court's observations, we also feel that while writing off the bad debts, the concerned assessee is not entitled to double deduction. It is also noticed that even the Hon'ble Supreme Court has remitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../2009 titled as City Union Bank vs. ACIT decided on 13.11.2009 and orders passed in preceding assessment year in assessee's cases. 65. We have considered the rival contention at length and perused the relevant findings as well as case law cited. The facts are not disputed i.e. the assessee had shown surplus amount received from the auction of jewellery which had claimed to be returnable to the concerned borrowers which is disputed by the Revenue. We find that in the case law of City Union Bank Ltd. (supra); the Coordinate Bench, after considering case law of TV Sundaram Iyengar and Sons (supra) had decided the issue of surplus arising from 'stale drafts' as under: "2. The sole issue raised in this appeal is regarding confirmation of an addition of Rs.49.19 lakhs, which the assessee-bank has claimed as an outstanding liability. The Assessing Officer has treated it as income of the assessee due to efflux of time beyond which no legal claim is maintainable. The Bank has been showing this amount as due towards 'stale drafts' as a liability both in the audited Balance Sheet and in the statutory returns sent to RBI and it maintains cash reserve ratio at specified rate in current ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred by the assessee to the Profit & Loss Account. The ITO was of the view that because the surplus had arisen as a result of trade transactions, the amount had the character of income and had to be added as income of the assessee for the purpose of income-tax assessment. The additions were deleted by the ld. CIT(A) and this was upheld by the Tribunal. But the facts of this case are different because in banking business RBI guidelines are to be followed and that by, simplicitor, efflux of time, say beyond 3 years, ordinary limitation would not apply as the assessee has been showing cumulative total liability at the relevant period. In this case, after detailing period total outstanding amount has been shown in the Annexure attached to the assessment order. Actually, items are coming in and going out of this account every now and then throughout the year, and it is treated like a current account operated upon regularly doing in the course of business. Given the nature of transactions, the encashment of drafts after revalidation thereof, is a regular feature. Rather the comm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on account of the auction over and above the loan dues does belong to the customers. Hence, we uphold the orders of the learned Commissioner of Income Tax (Appeals) on this issue and decide the issue against the Revenue." 66. Although the Revenue has relied on the case law of Hon'ble Supreme Court (supra), but it is noticed that in the order of the Coordinate Bench, the same was dealt with and the Revenue's contention could not convince the "Tribunal". Therefore, in our opinion, since the law of Hon'ble Supreme Court is not applicable qua the peculiar facts of the case and the same very issue has attained finality in view of the fact that the Revenue has not challenged the above findings, we hold that the CIT(A) has rightly deleted the addition arising from surplus of jewellery auction." In view of the above findings in I.T.A. No. 899/Mds/2010 (supra), grounds No. 4 and 7 pertaining to unclaimed balances and surplus from jewellery auction contain same issues in principle because in both cases, the assessee has retained the unclaimed balances and surplus from jewellery auction which has been decided in favour of the assessee. 14. So far as Revenue's grounds No. 5 and 6 pert....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., therefore, we see no reason to affirm the disallowance in question because the four year time period includes the impugned assessment year as well. Accordingly, we hold that the CIT(A) has rightly deleted the addition. This ground stands decided against the Revenue. Ground No. 4 [Revenue's appeal] 38. In the enclosures filed with the return, the assessee has preferred to make a provision for an amount of Rs.75,83,177/- re depreciation on investment. The Assessing Officer had passed initial assessment order under section 143(3) of the "Act" on 27.03.2002 (supra). In the said order, he had disallowed assessee's above said claim by holding that any provision of depreciation made during the relevant accounting year had to be disallowed and added back in assessee's income. Therefore, he relied on assessment order for the assessment year 1998-99 i.e. preceding assessment year and disallowed the provision. In appeal, the CIT(A) has deleted the addition by holding as follows: "2.3 As per appellant's submission this amount is already offered by the appellant. So this addition is not called for. However, the Assessing Officer is directed to verify the same and delete the additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sallowance made at Rs. 75,83,177/- is not correct because it amounts to income considered twice. The assessee's contentions have been considered carefully. Since the refund including interest u/s 244 A Rs.98,22,000/- has already been withdrawn while completing the scrutiny assessment for 1997-98 the addition made towards the Interest Income in the assessment for 1999-2000 is not in order. The examination of statements show that the amount of Rs.75,83177/- has been offered in the books of account as income. The disallowance made towards this amount in the assessment for 1999-2000 is therefore not in order. As these are mistakes apparent from the records the assessment for 1999-2000 is now revised u/s 154 as under." Taking cue from the same, we observe that since the Assessing Officer himself has held the disallowance to be inappropriate by rectifying the assessment order, there is no locus standi on the part of the Revenue to raise the instant ground. Hence, we reject this ground agitated by the Revenue." Accordingly, qua grounds No. 4 and 7 raised by the Revenue, the order of the CIT(A) is affirmed. In the light of our findings, we partly allow Revenue's appeal for statist....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribunal cited supra and hence, we restore this issue back to the file of the Assessing Officer with a direction to follow the decision of the Special Bench cited supra and decide the issue afresh according to law, of course, after giving effective opportunity of being heard to the assessee. The assessee is also directed to cooperate with the Assessing Officer by providing necessary details that would be required for deciding the issue. Thus, both the assessee and the Revenue are allowed for statistical purpose on this ground for all the three assessment years under consideration." Against the above order passed by the Coordinate Bench, the assessee's appeals are pending before Hon'ble High Court. It has also came to our notice that recently, the Hon'ble Jurisdictional High Court has been pleased to hold that disallowance of expenditure in earning exempt income @ 2% based on estimation is reasonable. The operative part of the judgment in Tax Case (Appeal) No. 2621 of 2006 titled as M/s. Simpson and Co. Ltd. vs. DCIT decided on 15.10.2012 reads as under:- "This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue as hereunder: "18. We have considered the rival contentions, perused the relevant findings by the Assessing Officer as well as CIT(A) and also have gone through the case law cited by the assessee (supra). Admitted facts pertaining to the ground are that the assessee had made direct payment to its pensioners. With effect from October, 2003, it had purchased Annuity from LIC of India which is also available on record at page 33 in the paper book containing Division Code No. 076 and Receipt No. 1188 dated 31.10.2003. It also emerges that the private sector banking companies alike assessee had approached CBDT praying for exemption from compliance with Rule 89 of Income Tax Rules, which was rejected on 13.08.2003. In October, 2003, the assessee had purchased Annuity in compliance with Rule 89 which has nowhere been disputed by the Revenue. In the light thereof, the claim of the assessee is that the payment in question is allowable as business expenses under section 37 of the "Act" which is contested by the Revenue. We find that the Coordinate Bench of Cochin ITAT in I.T.A. No. 10/Coch/2009 (supra) has also dealt with this very issue and restored the same back to the Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../2008 dated 30/6/2009 and AY 2000- 01 (in ITA No. 345/Coch/2008 dated 6/8/2009) had, similarly, restored the matter back to the file of the AO for examining and determining the question of quantum. The legal issues sought to be raised by the AO no longer obtain, i.e., in view of the consistent stand taken by the tribunal in the matter, so that the assessee is eligible, i.e., in principle, for deduction qua the direct payment of pension u/s. 37(1) of the Act. However, the aspect of the commercial expediency (on the parameters as settled by the apex court) has admittedly not been examined by the AO, and which is a perquisite for the allowance of a claim u/s. 37(1), and the onus to exhibit which is only on the assessee. In the facts of the case, we find it as all the more relevant as there is no subsisting employer-employee relationship between the assessee and its retired employees. There is no enumeration of the basic and relevant facts in the assessment or the impugned order, which we find as not mentioned even in the orders referred to for the earlier years. As such, we are unable to see any infirmity in the impugned order, passed following that by the co-ordinate Bench, and neith....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k efficiency. We notice that in similar claim, the Hon'ble Jurisdictional High Court (supra) while accepting the issue concerned in assessee's favour has held as under: "The Commissioner of Income-tax, Tamil Nadu-III, Madras, has applied for a direction to the Tribunal in each of these two petitions for reference of the following question: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the expenses incurred by the assessee towards pooja and bakshish should be allowed as business expenses or welfare expenses of the staff ? " The facts are in a short compass. The assessment years under consideration are 1968-69 and 1969-70. The assessee claimed Rs. 1,751 and Rs. 3,250 as miscellaneous expenses. These had been classified as pooja expenses and also expenses for bakshish and presentation. The ITO disallowed the claim and the said disallowance was confirmed by the AAC on appeal. On further appeal, the Income- tax Appellate Tribunal allowed the appeals in part. In para. 12 of its order, the Tribunal pointed out that these expenses were incurred for the poojas, etc., performed by the workers and that they should form p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order dated 31.03.2005. As pointed out by the AR, the Assessing Officer thereafter re-decided the issue vide order dated 22.12.2010 upholding assessee's claim of depreciation in case of Erode Rane Textiles - Processors - I & II and Sri Sarvesh Cotton Mills Ltd. I, II and III (supra) and disallowed claim of depreciation in cases of Rajender Steels Ltd. and M/s Aruna Textiles. Though he has submitted that the assessee's appeals are also pending before the CIT(A) qua assessment year 1996-97 against the order dated 20.12.2010 (supra) and therefore, we should restore the matter back to the Assessing Officer, we fail to agree with the said contention. In our view, merely because for the first year for the purpose of claiming depreciation is 1996-97 regarding which assessee's appeals are pending before CIT(A), it itself cannot a ground to restore the issue back to the Assessing Officer. We also deem it proper to observe that in case the assessee is held entitled for the relief of depreciation in question in first assessment year, it would get the same relief in subsequent years. Hence, for the purpose of deciding this ground, we see no reason to interfere with CIT(A)'s order. Similar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nature. We are unable to concur with the said course adopted by the lower authorities. We may add here that the Revenue nowhere rebuts the 'replacement' plea of the assessee on the basis of any material that the software in question gave any enduring benefit to the assessee or it increased the capacity. Hence, we accept the assessee's plea in both appeals I.T.A. Nos. 905/Mds/2010 and 906/Mds/2010 and delete the addition. 24. Now we come to ground No. III raised by the assessee on account of expenses incurred to introduce authorized capital which have been disallowed by the Assessing Officer as well as CIT(A). Qua this aspect, we notice that the in I.T.A. No. 902/Mds/2010 (supra), the assessee had raised the same very ground, and our findings read as follows: 27. Rival contentions of the parties have been heard. We have also perused the findings of the Assessing Officer as well as CIT(A). Undisputedly, the explanation tendered by the assessee in support of the claim is that it had paid the sum in question to the Registrar of Companies so as to increase its authorized capital. The issue between parties is about the nature of expenditure i.e. per assessee, it is revenue expendit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal. It is no doubt true that before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that the increase in the capital was to meet the need for working funds for the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the above....