TaxTMI 
TaxTMI 
2014 (11) TMI 264
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....n quantifying the disallowance u/s 14A at a sum of Rs. 11,21,00,000/-. (iii) Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has further erred in calculating the amount of disallowance u/s 14A in terms of provisions of Rule 8D. He has also erred in applying these provisions of Rule 8D for the year under consideration as the same have been introduced on 24/03/2008. 2. Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 6,98,07,032/- made by the Assessing Officer by disallowing the depreciation on investment in respect of securities shifted from 'Held for Trading' category to 'Available for Sale' category. 3. Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 5,86,050/- by reducing the appellant's claim of depreciation u/s 32. 4(i) Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of prior period expenses of Rs. 34,23,944/-. He has further erred in not directing....
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....s is to be apportioned on the basis of total receipts under both the heads and disallowance U/s 14A of the Act is required to be made by the Assessing Officer. The assessee had claimed that its business is indivisible but the assessee runs various divisions and different branches and the expenditures usually can be worked out by the assessee. The appellant arguments of interest free fund available with him were not found tenable to the Assessing Officer that there is no direct nexus has been established by the appellant between both that tax free fund were utilized in investment in shares. The Assessing Officer held that there is no doubt about the fact that part of the interest can certainly be attributed to the tax free income. The total interest earned by the assessee is Rs. 1573,57,13,330/- as against total interest expenditure incurred by the assessee at Rs. 857,13,41,288, thus, he calculated the ratio of total interest expenditure over total interest earned i.e. Rs. .5447. As regard the administrative expenses, he estimated 5% of tax free interest receipt as administrative expenses. Thus, he made addition of Rs. 10,18,09,800/- U/s 14A of the Act. 3. Being aggrieved by the ....
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....ng Officer to adopt such disallowance at Rs. 11,21,00,000/- as against such disallowance adopted by Assessing Officer in the assessment order at Rs. 10,18,09,800/-." Now the assessee is in appeal before us. 4. The learned A.R. for the assessee has submitted that the learned CIT(A) made disallowance by applying Rule 8D of the Rules. Rule 8D is applicable prospectively from A.Y. 2008-09 as held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT 328 ITR 81, therefore, the disallowance made by the learned CIT(A) by applying Rule 8D of the Rules is incorrect. He further relied upon the following case laws: (i) CIT Vs. Walfort Share and Stock Brokers (P) Ltd. 326 ITR 1. (ii) Maxopp Investments Ltd. & Ors. Vs. CIT 347 ITR 272 (Del.). (iii) DCIT Vs. Maharashtra Seamless Ltd. 52 DTR 005 (Del.)(Trib.). (iv) CIT Vs. Metalman Auto (P) Ltd. 199 Taxman 149 (P&H) (Mag) (v) Bunge Agribusiness (India) (P) Ltd. Vs. DCIT 132 ITD 549 (Mum) (vi) CIT Vs. Hero Cycles Ltd. 31 DTR 301 (P&H). (vii) ACIT Vs. Mohan Exports (P) Ltd. 138 ITD 108 (Del.) (viii) ACIT Vs. SIL Investment 73 DTR (Del.)(Trib.) 233. He has further drawn ou....
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....ise method of valuation of scrips and in A.Y. 2002-03, the assessee had debited Rs. 12.58 crores on account of difference in provision of depreciation on securities at the closing and the beginning of the year in profit and loss account, but on the basis of global method, the above difference was zero. The learned Assessing Officer had disallowed the above depreciation computed on the basis of category wise method. The logic behind the above addition was that category wise method prescribed by the Reserve Bank of India (RBI) was not binding on the Income Tax Department and the global method adopted was also in accordance with the accounting standard even as in this method the costing of stock was being done at cost or market value whichever is lower. In assessment year 2003-04, the difference in provision for depreciation on securities at the closing and the beginning of the year was (-)3.03 crores, which was offered by the assessee in profit and loss account and also for income tax purposes in accordance with method adopted by it in earlier year. The Assessing Officer had allowed the difference of valuation method adopted by the Assessing Officer in A.Ys. 2002- 03 and 2003-04. For....
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.... provided for." Thus, it is clear that though, depreciation has to be provided at the time of shifting of category as per RBI guidelines, it nowhere says that such depreciation should not also be set off against appreciation in the same category on the closing. (c) Even if it would have been permissible under RBI guideline, it would not mean that it is in accordance with accounting standards and therefore, it is not binding on the Department under Section 145 of I.T. Act. (d) In fact the DBOD circular dated 06/9/2001, states, "it is to be noted that the above accounting treatment does not take into account taxation implications and hence the banks should comply with the requirements of Income Tax Authorities in the manner prescribed by them. (e) Now, if we go on merits and facts as to what has really happened then we see that as per category wise method, on the one hand depreciation on all securities of the same category can be set off against the appreciation in the same category but in this case depreciation on securities which have come to the category "available for sale" to the extent of Rs. 6.98 crores is not being set off despite an appreciation of Rs. 289.72 cro....
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....at the closing of F.Y. should have been 12,83,07,884/- as against 19,81,14,316/- computed by the assessee. Since depreciation at the beginning of F.Y. was Rs. 24,18,71,884/-, the difference Rs. 11,35,64,599/- should have been offered for taxation as against an amount of Rs. 4,37,57,567/- offered by assessee. The above addition will be without prejudice to the stand of department taken for A.Y. 2002- 03, which has not been accepted by the CIT(A) and is being further contested, as per method being followed by assessee and confirmed by CIT(A), thereby resulting into an addition of Rs. 6,98,07,032/-. 8. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had confirmed the addition by observing as under:- "I have considered facts of the case and arguments taken by Sh. Jhanwar and Sh. Parwal quite carefully. It is true that as per RBI guidelines the banker has provided depreciation of Rs. 6,98,07,032/-in respect of securities shifted from "held for trading" category to the category of "available for sale". For this purpose they have relied upon master circular issued by RBI on prudential norms for classificat....
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....ding" to category of "available for sale". Reasonably the question of appreciation and depreciation in the value of securities has to be seen as on 31.3.2004 only for the present A.Y. and undisputedly for the securities available in category of available for sale since appreciation is more as compared with depreciation therefore there is no question of allowing any further depreciation in respect of securities lying in the said category of investment. In this respect the instruction No. 17/2008 issued by CBDT vide its letter F.No.228/3/2008 - ITA -III dated 26.11.2008 which was issued after the review of assessment of bank carried out by C&AG. CBDT vide aforesaid instruction has clarified that in particular deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per provisions of the I.T. Act. Thereafter, in item No. 2 (VII) of the instruction the RBI guidelines dated 16.10.2000 in respect of investment port folio classification in three different categories has been discussed and has been clarified that in the case of "held for trading" and "available for sale" categories securities forming stock in ....
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....is diminution in the market value of the securities, as prudent businessmen the banks do not generally liquidate these securities on loss. In these circumstances the banks with the approval of Board of Directors can shift these securities in the category of 'Available For Sale'. The RBI guidelines requires to provide depreciation at the time of such transfer for the reason that banks should not be allowed the set off of the depreciation of the securities originally held as Held for Trading category with the appreciation in the securities held as Available for Sale category. The basic principle behind this guideline is to retain the depreciation as per the original classification so as to regulate the act of shifting of securities from one category to other category. 2. The CBDT in its instruction No. 17/2008 dated 26/11/2008 in para (vii) with reference to allowing the depreciation on the securities has directed that the latest guidelines of RBI is to be taken into consideration for allowing any such claim. In respect of shifting of securities from one category to another, the same should be at lower of acquisition cost/book value or market value and the depreciation on ....
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....e order of the learned CIT(A). 11. We have considered the rival submissions of both the parties and perused the material on record. As per paper book submitted by the appellant at page No. 53, total depreciation, which were shifted from HFT category to AFS category at Rs. 6,98,07,032/-. All the banks are regulated by the RBI and all instructions issued by the RBI are binding on every banks. The RBI issued circular on 2nd September, 2003 and prescribed Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks in master circular. The prudential norm classified the investment portfolio in A to F categories. These investments are to be kept by the bank under the three heads namely Held to Maturity (HTM), Held for Trading (HTF) and Available for Sale (AFS). As per this norm, the bank can shift investments to/from Held to Maturity category, Available for Sale category to Held for Trading category and from Held for Trading category to Available for Sale category for clarified these terms, the definition given in the circular as under:- (i) Held to Maturity: the Securities which are acquired with an intention to held up their maturity. (ii) Held....
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....able for Sale category at Rs. 6,98,07,032/-. The case law relied upon by the appellant in case of State Bank of Mysore Vs. DCIT and ITAT Bangalore 'B' Bench is squarely applicable being an identical fact of the case wherein denomination in value of securities consequent to conversion of securities from AFS category to HTM category held allowable. The assessee's appeal is allowed on this ground. 12. Ground No. 3 of assessee's appeal is against confirming the addition of Rs. 5,86,050/- by reducing the appellant's claim of depreciation U/s 32 of the Act. As per audit report, the allowable depreciation was Rs. 36,80,29,161/-. However, the assessee had claimed depreciation of Rs. 36,86,15,211/-, the Assessing Officer gave reasonable opportunity of being heard on this issue. After considering the assessee's reply, it has been held by the Assessing Officer that depreciation was allowed only to the extent as it was computed by the auditor in A.Y. 2003-04 and the addition has been contested by the assessee before the learned CIT(A), where the appeal is still pending. On the same line, claim of depreciation is allowed at Rs. 36,80,29,161/- as against claim of Rs. 3....
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....ed in any case. The learned A.R. further drawn our attention on identical issue decided by the Hon'ble ITAT 'B' Bench, Jaipur in ITA NO. 329/JP/2009 for the A.Y. 2003-04 order dated 30/10/2009 wherein identical issue has been decided by the Hon'ble Bench in favour of the assessee. 15. At the outset, the learned D.R. supported the order of the learned CIT(A). 16. We have considered the rival contentions of both the parties and perused the material on record. The Coordinate 'B' Bench of ITAT, Jaipur decided identical issue in A.Y. 2003-04 in favour of the assessee wherein the Coordinate Bench has accepted the assessee's submission and Assessing Officer was directed to work out the depreciation without shifting the opening written down value of plant and machinery to the written down value of furniture and fixture. Accordingly, we allow the assessee's appeal on this ground. 17. Ground No. 4 in assessee's appeal is against confirming the disallowance of prior period expenses of Rs. 34,23,944/- and other Misc. expenses of Rs. 28,85,358/-. The Assessing Officer observed that as per audit report, prior period expenses of Rs. 1,23,94,487 had bee....
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....s which could not be paid in earlier years on account of non availability of the bills and because of certain formalities to be completed regarding approval of management etc. With this discussion, the same claim of Rs. 28,85,358/- is allowed subject to complete verification from the details furnished and payment made during the year in respect of electricity/water/rent expenses/audit fee/taxes/business development/law charges/statutory/news paper in view of ITAT Jaipur Bench decision in the case of RIICO which has been referred by CIT(A)." Now the assessee is in appeal before us. 19. The learned A.R. for the assessee has submitted that expenditure to the tune of Rs. 34,23,944/- pertaining to waiver of penal interest, realization of interest due to change of computer system, for overdraft charges received after closing of books. The expenditure to the tune of Rs. 14,68,386/- was pertained to previous year but crystallized during the year under consideration. Mostly pertained to enhancement of rent of various branches. The other expenses were booked as and when claims are made against the bank to pay the same. The accounts of the branch gets finalized within a week of any of t....
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....an error or omission. Otherwise also the earlier years appeal were pending before us and if it is not allowed in this year the claim of the assessee that it should be allowed in earlier years is reasonable and permissible in view of the decision cited by learned AR. We therefore direct the Assessing Officer to allow the claim of prior period expenses of Rs. 36,46,004/-. This ground is allowed." By respective following the Coordinate Bench decision in assessee's own case, we also have considered view that these expenses are allowable during the year under consideration. Thus, the assessee gets relief fully on this issue. 22. Ground No. 4(ii) of the assessee's appeal is against disallowance of Misc. expenses of Rs. 28,85,358/-, which has not been pressed as claimed by the appellant. The Assessing Officer himself allowed the expenses. 23. The cross appeal i.e. ITA No. 436/JP/2009 filed by the Revenue is against deleting the addition of Rs. 4,56,60,998/- by taking the interest income on government and other securities on accrual basis instead of due basis as shown by the assessee. The Assessing Officer observed that as per audit report and profit and loss account and b....
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....y the Hon'ble Supreme Court in the case of CIT Vs. Goverdhan Limited 69 ITR 675 S.C. The learned CIT(A) has confirmed the addition for A.Y. 1999-2000 to A.Y. 2001-02 under the same head. Accordingly, the addition of Rs. 4,56,60,998/- was made by the Assessing Officer. 24. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter to the learned CIT(A), who had allowed the appeal by observing as under:- "I have considered facts of the case and arguments taken by Sh. Jhawar and Sh. Parwal quite carefully. It is a fact that right from A.Y. 1991-92 to A.Y. 2001-02 this issue has been decided by Hon'ble ITAT Jaipur Bench in favo8ur of the appellant bank. Hon'ble ITAT has upheld the view taken by the bank that it has rightly offered the interest income on due basis. Thereafter, on perusal of the minutes of the meeting of COD held on 06/12/2007 forwarded by Cabinet Secretariat vide their letter dated 26/12/2007 in which for item NO. 23 to 26 which were with reference to ITA No. 617, 618, 619 and 620/JP/2003 dated 7/11/2006 a decision has been conveyed that the dispute relates to the accounting principle to be followed for accounting for intere....