TaxTMI 
TaxTMI 
2015 (3) TMI 91
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.... submitted that ground No.10 was also not pressed 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 tot....
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....were for the purpose of day to day usage. It was pointed out that assessee does not have ownership rights over the software 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 ....
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....is allowable as revenue expenditure and these softwares if they are licensed for a particular period, for utilizing the same for 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 ....
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....refore the decision rendered by the Tribunal in A.Y. 2004-05 will be applicable to the present assessment year also. Respectfully following 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-....
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.... and the face value of such investments were spread over to the life of the investments and proportionate deduction was claimed by the assessee under the head "Amortization 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 CI....
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..... While disallowing the same, the Assessing Officer followed the decision of the Madras High Court in the case of TN Power Finance and Infrastructure Development Corporation Ltd., 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 bef....
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....39;held to maturity'. That being so and having regard to the CBDT Instruction No.17 of 2008 dated.26.11.2008 as reproduced herein above, the premium paid on such government securities is required 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 wh....
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....o considered by this Tribunal in assessee's own case for A.Y. 2004-05 (supra) and this Tribunal held as follows:- "67. Ground no.10 raised by the assessee reads as follows : "10. Liability relating to employees compensation 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 Assess....
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....s amounting to Rs. 21,75,53,603 9.1 The learned CIT (A) has erred on facts and in law by confirming the disallowance made by the learned AO of a sum of Rs. 21,75,53,603 being the provision for salary arrears. 9.2 The learned CIT (A) ought 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 rel....
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....nt provision for salary arrears is not a contingent liability. It was submitted by him that the Hon'ble Delhi High Court in the case of CIT v. Bharath Heavy Electricals Ltd. (352 ITR 88 (Del) while dealing with a similar provision made on account of wage revision, held, following the decision of the Hon'ble Supreme 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 o....
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....e AO to allow the claim of the assessee in this regard." 52. We are of the view that the ratio laid down in the aforesaid decision will squarely apply to the facts of the assessee's case. In our view the estimate made by the assessee is reasonable and the assessee has written back the excess provision. In these circumstances, 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.....
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..... The said deposit yielded interest income which was offered by the assessee to tax in the various assessment years as follows:- Deposit with IDBI Bank - Interest recognized in the accounts yearwise Year Amount Rs. 1998-99 12,18,64,978 1999-00 6,80,21,372 2000-01 7,88,17,501 2001-02 7,54,62,407 2002-03 6,79,35,432 2003-04 5,52,79,892 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 leas....
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....t No.1, the second and final installment of the lease premium payable in respect of Plot No. C-12. G-Block International Finance and Business Centre, Bandra-Kurla Complex (hereinafter "the said plot") aggregating to Rs. 69,87,56,403.00 (Rupees Sixty Nine Crores Eighty Seven Lakhs Fifty Six Thousand Four Hundred and Three only) (by Bank Pay Order No. 094677 dated August 18, 2004 ) being the balance 1ease 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 Crore....
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....o. Ltd. (1999) 237 ITR 254 (Bom) Coimbatore Pioneer Mills Ltd. (1999) 236 ITR 69 (Mad) 36. The ld. counsel for the assessee also brought to our notice that the assessee had offered to tax interest income on deposit of the balance lease premium in IDBI Bank, pursuant to the orders of Hon'ble Bombay High Court of Rs. 48,72,12,084 for the A.Ys. 1998-99 to 2004-05. It was submitted by him that revenue cannot tax the 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 pres....
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.... for a period of 80 years. Assessee was granted time for making payment till 28.3.1997, subject to the condition that assessee pays interest on the delayed payment of balance premium of Rs. 10.95 crores on or before 31.10.1996. The assessee paid Rs. 10.95 cores on 30.10.1996. The same was shown as advance paid to MMRDA and was not claimed as revenue expenditure. Subsequently, assessee wanted to surrender the leasehold land and take 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 paym....
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....enue expenditure. 42. We are also of the view that reliance placed by the ld. DR on Explanation 8 to section 43(1) of the Act is not applicable for the reason that the asset involved in the present case is a land, which is not a depreciable asset. Section 43(1) of the Act defines cost of acquisition of capital asset for the purpose of allowing depreciation. When land is not a depreciable asset, provisions of section 43(1) of the Act are 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....
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....und that, when an assessee changes the method of accounting for bona fide reasons, the same should be accepted. However, I am not convinced with the appellant's arguments in the absence of justifiable reasons for change in the method of account. In view of this, the AO's action is upheld." 48. Aggrieved by the order of CIT(Appeals), the assessee has raised ground No.4 before the Tribunal. 49. The ld. counsel for assessee submitted that the change in accounting 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 discoun....
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....s been observed by the Hon'ble Supreme Court in the case of Bilahari Investments Pvt. Ltd. (supra), the department has to show that change in method of accounting results in distortion of profits. In the absence of such a finding, it has to be necessarily concluded that the change of accounting is revenue neutral. We are also of the view that the expenditure in question is purely revenue expenditure and the fact that assessee in the past was deferring the expenditure 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/H....
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....Assessee on the ground that the Assessee was regularly and consistently following the same accounting treatment in all the years. The CIT(A) noticed the argument that the Assessee is entitled to value all the investments, which are part of the trading stock at cost price or market value, whichever is lower under section 145 of the Act. Therefore, the total depreciation in respect of the investment amounting to Rs. 16,99,68,583/- was claimed and that the AO was not correct in adding 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 ord....
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....tments as stock-in-trade by drawing the investment trading account of Rs. 775,96,55,047. The Tribunal held "16. We have heard both sides and find that the Supreme Court in the case of UCO Bank in 240 ITR 355 has held as under : "In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance-sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by 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 t....
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....n identical issue for the A.Y. 2005-06 has upheld the claim of the assessee. The later decision of the Hon'ble High Court of Karnataka is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the revenue in its appeal is without merit. Consequently, the same is dismissed." 22. The above decision squarely covers the issue in favour of the Assessee. Respectfully following the same, we uphold the order of the CIT(A) and dismiss the relevant grounds of appeal of the 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 righ....
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....ding the decision of the jurisdictional ITAT, Bangalore in the case of State Bank of Mysore in ITA.No.1401/Bang/03 dated 17/4/2009. As per the said decision, the Hon'ble ITAT has examined the issue of taxability of broken period interest income by considering various decisions on the subject. The Hon'ble Tribunal concluded that the broken period interest income cannot be included in the computation of income for the purpose of income-tax. The CIT(A) was of the view that in view of the binding nature of the decision of Hon'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....