TaxTMI 
TaxTMI 
2015 (3) TMI 91
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....ssed because of adverse order on identical issue in assessee's own case for A.Y. 2004-05. Consequently, ground No.10 is also dismissed. 4. We shall first take up for consideration grounds raised by the assessee which are identical to the grounds in its own case for A.Y. 2004- 05, which has already been adjudicated by this Tribunal in ITA No.443/Bang/2010 by order dated 30.12.2014. 5. Ground No.3 reads as follows:- "3. Income claimed exempt under Section 10(23G) of the Act amounting to Rs. 2,82,53,262 3.1 The learned CIT (A) has erred on facts and in law in confirming the disallowance made by the learned AO of the income claimed exempt under Section 1 0(23G) the Act." 6. The assessee is a scheduled bank and carries on banking business. The assessee claimed to have earned an amount of Rs. 11.77 crores by way of interest from investments in entities approved u/s. 10(23G). The AO, however, found that some of the entities did not have approval from the competent authority for claiming exemption. The assessee had furnished a list of such companies, where the approval was yet to be received. Interest from these parties totaling to Rs. 2,82,53,262 as tabulated below, was therefor....
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....re and has a right only for its usage. Therefore there was neither an enduring benefit as the software had a short lifespan, nor the assessee owner of the software. It was therefore submitted that the expenditure should be allowed as revenue expenditure. The CIT(A), however, did not agree with these submissions and he confirmed the order of AO. Aggrieved, the assessee has raised ground No.5 before the Tribunal. 12. At the time of hearing, it was brought to our notice that identical issue came up for consideration in assessee's own case before this Tribunal in A.Y. 2004-05 in ITA No.1143/Bang/2010. The Tribunal by its order dated 30.12.2014 dealt with issue in paras 13 to 21 of its order. Paras 19 to 21 of the said order relevant to the present case read thus:- "19. The learned counsel for the assessee brought to our notice the decision of the Hon'ble Karnataka High Court in the case of IBM India Ltd., in ITA No.130/2007, dt 10.04.2013. The Hon'ble Karnataka High Court in the aforesaid decision considered the following question of law : "Whether the Tribunal was correct in holding that the purchase of software amounting to Rs. 33,14,298/- should be allowed as a revenue....
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....r the subsequent years fresh licence fee is to be paid. Therefore, when the software is fitted to a computer system to work, it enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Though certain application is an enduring benefit, it does not result into acquisition of any capital asset. It merely enhances the productivity or efficiency and therefore, it has to be treated as revenue expenditure In that view of the matter, the finding recorded by the Tribunal is in accordance with law and do not call for any interference. Accordingly, the second substantial question of law is answered in favour of the assessee and against the Revenue." 20. According to the learned counsel for the Assessee, the aforesaid ruling of the Hon'ble Karnataka High Court that the expenditure incurred for acquiring application software has to be treated as revenue expenditure. The learned counsel further pointed out that in the remand report filed by the AO before CIT(A) on the aforesaid issue, the AO did not dispute the fact that the computer software which was claimed as revenue expenditure were not application software as was contended by the as....
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....lowing the said decision of the Tribunal, we hold that expenditure incurred on purchase of software should be allowed as revenue expenditure. Ground No.5 is therefore allowed. 14. Ground No.6 reads as follows:- "6. Amortization of investments under HTM category amounting to Rs. 5,26,36,981 6.1 The learned CIT (A) has erred on facts and in law in confirming the order of the learned AO of not allowing an amount of Rs. 5,26,36,981 as deduction in computing the income from sale of HTM category of investments. The learned CIT (A) ought to have appreciated the fact that such amount represents the amortization of HTM category of investments sold during the year, which have been disallowed in the past assessment years. 6.2 The learned CIT (A) ought to have appreciated that having disallowed the amortization in the past assessment years, the same should form part of the cost in the year in which such investments are sold." 15. The assessee claimed deduction of amortisation of investments held under HTM category, which were disallowed in A.Ys. 2001-02, 2002-03 and 2003-04 while computing total income. The AO rejected the claim observing as follows:- "12. Amortization of Investments unde....
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....rtization of HTM". The further claim of the Assessee was that all the securities held by the Assessee were held as "stock-in-trade" by the Assessee. The face value of the securities held in HTM category is alone shown in the books as cost and the premium is not claimed as cost of the securities, as the premium is claimed by way of amortization of premium over the life of the security. 08. The Assessing Officer disallowed the claim of the assessee on the ground that the HTM category of investments were not held by the assessee till maturity and had been sold off even before the maturity period. The Assessing Officer therefore held that the assessee had not followed the RBI guidelines. According to the Assessing Officer, the value of the securities would increase with each year and at any point of time the market value would be more than the purchase value and therefore there was no requirement for amortization. The Assessing Officer accordingly rejected the claim of the Assessee. 09. On appeal by the assessee, the CIT (A) confirmed the order of the Assessing Officer. According to the CIT (A), investments made by a banking company which are categorized as HTM are in the nature of i....
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.... v. JCIT (2006) 280 ITR 491. Aggrieved, the assessee moved the matter in appeal before the first appellate authority. 05. The learned Commissioner of Income-tax (Appeals) after considering the submissions made before him and following the decision of the Madras High Court cited supra, came to the conclusion that the Hon'ble Madras High Court has that merely because the RBI had directed the assessee to provide for non-performing assets, that direction cannot override the mandatory provisions of the Income-tax Act contained in section 36(1)(viia) which stipulate for deduction not exceeding 5 per cent of the total income only in respect of the provision for bad and doubtful debts which are predominantly revenue in nature or trade related and not for provision for non-performing assets which are of predominantly capital nature. Thus, he was of the view that the assessee was not entitled to deduction of amortization of premium on investments u/s.36(1)(vii). Aggrieved, the assessee is in second appeal before us with this issue. 06. The learned counsel for the assessee submitted that the Commissioner of Income-tax (Appeals) had failed to see the reason that a issue similar to that o....
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....ed to be amortized over the period remaining to maturity" (iii) In the case of Corporation Bank v. ACIT, M'lore in ITA.112/Bang/2008 (Bang), for the assessment year 2004- 05, the earlier bench had also held a similar view. In the light of the above discussion and the case laws discussed supra, taking into account the totality of the facts and materials, we are of the considered view that the assessee is entitled to claim this deduction and hence we allow the grounds of the assessee relating to this issue." 11. We are of the view that in the light of the decision on the issue considered by the Tribunal, the claim made by the assessee has to be allowed. Accordingly, the AO is directed to allow the claim of the assessee for deduction." 11. It was also brought to our notice that on identical issue the Hon'ble Kerala High Court in CIT Vs. South Indian Bank Ltd., ITA.946 of 2009, dt 9.10.2009 decided similar issue holding as follows : "The respondent-assessee is a Bank which purchased securities at market value above the face value. Admittedly when the securities were redeemed, respondent will be entitled to get only face value. Consequently, the loss arising on account of p....
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....sation cost - Rs. 97,73,232 : Learned CIT(A) has erred in law and on fact by confirming the disallowance made by the AC on the ground that employees compensation cost of Rs. 97,73,232 is an unascertained expense and contingent in nature." 68. During the previous year relevant to ÀY 2004-05, the assessee debited an amount of Rs. 9,773,232/- towards employee compensation expense under the Employee Stock Option Scheme (ESOP). These expenses were debited to the profit and loss account in accordance with the SEBI guidelines. The learned AO has disallowed the claim for deduction while computing income of the aforesaid expense on the ground that they are contingent in nature and hence not allowable as revenue expenditure. 69. Before CIT(A), the Assessee submitted that the treatment adopted by the Assessee is in accordance with the SEBI guidelines and that the expenditure is not a contingent liability and allowable revenue expenditure. Further the Assessee placed reliance on the decision of the Madras Tribunal in the case of SSI Ltd. V DCIT (85 ITJ 1049) wherein it was held that such expenditure was allowable as revenue in nature. The CIT(A) however upheld the order of the AO. Agg....
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....to have appreciated that the provision is made on the basis of bipartite agreement between the India Banks Association and the Appellant. 9.3 The learned CIT (A) ought to have observed that the same does not represent a contingent liability." 24. At the time of hearing, it was brought to our notice by both the parties that identical issue was also considered by this Tribunal in assessee's own case for A.Y. 2004-05 (supra) and this Tribunal held as follows:- "43. Ground no.7 raised by the assessee reads as follows : "7.Provision for salary arrears - Rs. 11,65,00,270 : Learned CIT(A) has erred in law and on fact by upholding the disallowance made by the Assessing Officer on the ground that provision for salary arrears amounting to Rs. 11,65,00,270 is contingent in nature. Learned CIT(A) failed to appreciate the fact that the provision for salary arrears was an actual and accrued expenditure." 44. During the previous year relevant to AY 2004-05, the assessee had made a provision of Rs. 116,500,000 for employees in the IBA Cadre in anticipation of enhanced wages. During the AY 2005-06, the Assessee made a further provision of Rs. 217,553,603 thereby the total provision amounti....
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....e Court in the case of BEML (245 ITR 428) (SC) that when the incurring of the liability is certain and it was only a question of quantification of the liability and if the quantification of the liability by the assessee is on a reasonable basis, then the deduction claimed has to be allowed and cannot be termed as contingent. Our attention was also drawn to the decision of the Hon'ble ITAT, Bangalore Bench in the case of Syndicate Bank v. DCIT in ITA.709/Bang/2012, wherein the Hon'ble ITAT in the case of a bank which also had to revise its wages on the basis of a bipartite settlement held that the provision for arrears of wages has to be held as a deduction. 49. The learned DR while relying on the order of the CIT (A) submitted that going by the figures set out by the assessee, it is clear that the estimat3 of liability made by the assessee in the books of account was excessive compared to the actual liability consequent to bipartite settlement. It was therefore submitted by him that the ratio of cases relied on by the AR cannot be applied in the facts of the assessee's case. 50. The learned counsel for the assessee pointed out that the excess provision was offered to ....
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...., we are of the view that the claim of the assessee for deduction has to be allowed as it cannot be said that the liability in question is a contingent liability. For the reasons given above we allow ground no.7 raised by the assessee." 25. The decision rendered by the Tribunal for A.Y. 2004-05 will apply to the facts and circumstances of the present case also. In fact, in para 44 of the said order of the Tribunal, the provision made on account of wage arrears for A.Y. 2005-06 has also been noted by the Tribunal. We are of the view that the conclusions of the Tribunal in para 52 of the said order will equally apply to the present assessment year also. Respectfully following the aforesaid decision of this Tribunal, we hold that the assessee should be allowed deduction on account of provision for salary arrears. Ground No.9 is accordingly allowed. 26. Thus the two contested grounds viz., Ground No.2 and 4 in Assessee's appeal alone are left to be adjudicated. Ground No.2 raised by the Assessee reads as follows:- 2. Interest paid to MMRDA amounting to Rs. 30,72,52,362 2.1 The learned CIT (A) has erred on facts and in law in confirming the disallowance made by the learned Assessing....
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....2004-05 Upto July 2004 1,98,30,502 TOTAL 48,72,12,084 29. The proceedings before the Hon'ble Bombay High Court ultimately ended in a compromise between the assessee and MMRDA. The terms of compromise recorded by the Hon'ble High Court in the order passed on 24.8.2004 specifically mention that the assessee was to pay the balance installment of Rs. 50,10,24,108 together with interest of Rs. 19,77,32,295. This interest was calculated at 5% on the balance lease amount premium for the period 29.9.1996 to 24.8.2004. 30. The assessee claimed as a deduction a sum of Rs. 10,95,20,067 paid on 30.10.96 as interest for delayed repayment of balance installment and further sum of Rs. 19.77 crores being the interest payable for the delayed payment of balance of installment of lease premium, pursuant to the order of Hon'ble High Court. The Assessing Officer was of the view that the sum of Rs. 10,95,20,067 paid by the assessee on 30.10.1996 was not an expenditure which accrued to the assessee during the previous year and therefore it cannot be allowed as a deduction. In other words, the AO took the view that this was a prior period expense and cannot be allowed as a....
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....ase premium amount of Rs. 50,10,24,108 (Rupees Fifty Crores Ten Lakhs Twenty Four Thousand One Hundred and Eight only) together with interest thereon of Rs. 19,77,32,295.00 (Rupees Nineteen Crores Seventy Seven Lakhs Thirty Two Thousand Two Hundred and Ninety Five only) computed at the rate of 5% per annum for the period from 29th September, 1996, till date hereof in full and final satisfaction of all the claims of Respondent No.1 in respect of the lease premium payable to it for allotment of the said plot, (the receipt whereof Respondent No.1 does hereby admit and acknowledge); (ii) Respondent No.1 has no further claim against Petitioner No.1 in respect of the lease premium for allotment of the said Plot; AGREED AND DECLARED that the sum of Rs. 10,95,20,067/- (Rupees Ten Crores Ninety Five Lakhs Twenty Thousand and Sixty Seven only) paid by the Petitioners to Respondent No.1 towards interest for delayed payment of the said second installment of lease premium calculated at the rate of 18% per annum for the period 13th July, 1995 to 28th September, 1996 shall be retained by Respondent No.1 and Petitioner No.1 shall not claim any refund or appropriation of the said amount or a....
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....he interest income on the amount deposited pursuant to the order of Court which was balance lease premium payable and refuse to allow deduction of interest paid on balance lease premium as a revenue expenditure. 37. The ld DR, on the other hand, while placing reliance on the order of the CIT(A), submitted that Explanation 8 to section 43(1) has been brought into statute by the Finance Act of 1986 w.r.e.f. 1.4.1974. It was his submission that by virtue of aforesaid Explanation, interest paid on deferred purchase consideration cannot be included as part of cost of asset. According to him, the decisions relied upon by the ld. counsel for the assessee which were rendered prior to the aforesaid statutory amendment, cannot therefore be applied to the facts of present case. It was further submitted by him that the transaction of acquisition of asset should be closely related to the carrying on assessee's business. It is only then that interest paid on unpaid balance consideration for the asset acquired can be regarded as an expenditure incurred for the purpose of business which was carried on by the assessee. 38. The ld. counsel for the assessee pointed out that Explanation 8 will n....
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.... back the amounts paid to MMRDA and in this regard filed a Writ Petition before the Hon'ble Bombay High Court. The Bombay High Court passed an interim order on 27.3.1997 directing the assessee to deposit a sum of Rs. 54,72,28,140 which includes balance premium payable of Rs. 50,10,24,108. The said amount was kept in deposit with IDBI Bank. Ultimately, the issue was compromised by assessee and MMRDA. As per compromise, the assessee had to pay interest of Rs. 19,77,32,295, which was the interest paid at 5% p.a. for the period 29.9.1996 to 24.8.2004, on the balance lease premium unpaid by the assessee to MMRDA. By compromise memo, assessee also agreed that a sum of Rs. 10,95,20,067 which was paid by the assessee on 30.10.1996 as interest for delayed payment of balance installment, will also be retained by MMRDA over which assessee will have no claim to the said amount. This sum represents interest calculated at 18% p.a. for the period from 30.7.95 to 28.9.96. It is thus clear that the liability towards interest (both the interest amounts of Rs. 19.77 crores and Rs. 10.95 crores) crystallized only pursuant to the Court's order dated 24.8.2004. Till that time, the character of t....
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....re not relevant. The argument of the ld. DR, therefore, cannot be accepted. 43. It is also to be noticed that the deposit of the balance lease premium by the assessee in the IDBI Bank, pursuant to the directions of the Bombay High Court pending disposal of the writ petition filed by the assessee, yielded interest income which was duly offered by the assessee to tax. All the cumulative facts and circumstances clearly go to point out that expenditure in question was revenue expenditure and it has to be allowed as deduction in computing total income. We hold accordingly and allow ground No.2 raised by the assessee. 44. Ground No.4 reads as follows:- "4. Claim of unamortized premium paid on change in the method of accounting amounting to Rs. 15,31,09,000 4.1 The learned CIT (A) has erred on facts and in law in confirming the disallowance made by the learned AO of the amount of unamortized premium, written off on account of change in the method of accounting. 4.2 The learned CIT (A) failed to appreciate that the claim was in accordance with the accounting policy of the Appellant. 4.3 The learned CIT (A) failed to appreciate that the change in the accounting policy was on account o....
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....nting policy was a bonafide change and that the effect will be tax neutral. Our attention was drawn to the decision of Hon'ble Supreme Court in CIT v. Bilahari Investments Pvt. Ltd., [2008] 168 taxman95 (SC), wherein the Hon'ble Supreme Court held that every assessee is entitled to arrange its affairs and follow method of accounting, which department has earlier accepted, and it is only in those cases where department records a finding that method adopted by assessee results in distortion of profits, that it can insist on substitution of existing method. Assessee-company was subscribing to chits as its business activity. In the aforesaid decision of the Hon'ble Supreme Court, the Assessee was offering to tax "chit discount" by following 'completed contract method' of accounting which was earlier accepted by department over several years. For relevant assessment years, Assessing Officer substituted that method by 'deferred revenue expenditure method'. The question before the Hon'ble Court was whether since in past department had accepted completed contract method; entire exercise arising out of change of method from completed contract method to deferred revenue expenditure was r....
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....ture and claiming it over a period of time cannot be the basis to hold that the same method of accounting should be followed. In other words, we are of the view that change in method of accounting is bonafide. We therefore hold that the claim of assessee deserves to be accepted. Accordingly, ground No.4 raised by the assessee is allowed. 53. In the result, appeal by the assessee is partly allowed. ITA 318/B/13 (Revenue's appeal) 54. Ground Nos. 1, 8 & 9 are general in nature and calls for no specific adjudication. 55. Ground Nos. 2 to 4 read as follows:- "2. The CIT (A) erred in deleting the addition made by the Assessing Officer of Rs. 16,99,68,583/- towards diminution in value of investment under AFS/HFT categories. 3. The CIT(A) has erred in not appreciating the fact that the AO had made the above addition based on the RBI guidelines dated 16.11.2008 wherein it clearly says that the depreciation and appreciation on these securities has to be aggregated scripwise and only net depreciation, if any, is to be provided and allowed for in the account. 4. The CIT(A) erred in directing the AO to delete the addition of Rs. 8,82,48,583 following the decision of the ITAT in the c....
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....back the appreciation. The Assessee relied on various decisions in their submissions including the decision of the Hon'ble ITAT, Bangalore in the case of Corporation Bank, Mangalore (ITA.No.794 & 795/Bang/2011 dt. 18/6/2012). The Hon'ble ITAT discussed the issue and various other decisions on the subject and held that the depreciation on account of valuation of the said securities is an allowable deduction. The CIT(A) following the said decision of the ITAT directed the AO to delete the addition. 58. Aggrieved by the order of the CIT(A), the Revenue has raised the aforesaid grounds before the Tribunal. The learned DR relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A). In support of assessee's contentions, following decisions were also relied upon:- (i) UCO Bank, 240 ITR 355 (ii) Karnataka Bank Ltd., 356 ITR 549 (iii) Southern Technologies Ltd., 310 ITR 577 (SC) 59. We have given a careful consideration to the rival submissions. Similar issue as to whether depreciation on investments held under the category "Held to Maturity" or "Available for Sale" can be allowed as deduction came up for consideration in the case of Corpor....
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.... the Department and there was no justifiable reason for not accepting the same. Preparation of the balance-sheet in accordance with the statutory provision would not disentitle the assessee in submitting the Income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining the balancesheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-intrade (investments) because the bank was required to prepare the balance-sheet in the prescribed form and it had no option to change it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case." The Bangalore Bench of ITAT in Corporation Bank (supra) has also followed the above decision of the Hon'ble Supreme Court as also the ITAT, Mumbai and ITAT, Chennai. Following the abov....
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....e Revenue." 60. Respectfully following the aforesaid decision of the Tribunal, we uphold the order of the CIT(A) and dismiss the relevant ground of appeal of the Revenue. 61. Ground Nos. 5 to 7 raised by the revenue read as follows:- "5. The CIT(A) erred in deleting the addition of Rs. 6,07,37,240 made on account of broken period interest without appreciating the fact that the interest on government securities does accrue on day-to-day basis as against the contention of the assessee to the contrary. 6. The CIT(A) erred in deleting the addition of Rs. 6,07,37,240 made on account of broken period interest without appreciating the fact that the assessee does have a right or claim over such interest on government securities till the date prior to its trading as against the contention of the assessee to the contrary. 7. The CIT(A) erred in directing the AO to delete the addition of Rs. 6,07,37,240 following the decision of the ITAT in the case of State Bank of Mysore in the order dt 17.04.2009 in ITA No.1409/Bang/03 while the same has not been accepted by the department and an appeal under section 260A has been filed before the Hon'ble High Court against such order and is pending."....
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....'ble Tribunal, the broken period interest income is not chargeable to tax in the assessment year 2005-06 and the addition made by the AO was deleted. 64. Aggrieved by the order of the CIT(A), the revenue has raised the aforesaid grounds of appeal before the Tribunal. We have heard the submission of the learned DR who relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A). Ld. counsel for the assessee placed reliance on the judgment of Hon'ble High Court of Karnataka in the case of Karnataka Bank Ltd. in ITA No.433/2005 dated 12.9.2013. 65. We have given a careful consideration to the rival submissions. At the time of hearing before us, it was agreed by the parties that the issue raised by the revenue in this appeal has already been decided by the Hon'ble Madras High Court in the case of CIT v. Tamil Nadu Mercantile Bank Ltd., 291 ITR 137 (Mad). The question of law before the Hon'ble Madras High Court was as follows:- "Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that interest on securities is taxable only on specified dates when it became due for payment and not on accrued basis?"....