TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 72
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....ls), Trichy failed to see that the appellant did not incur any expenditure in earning the tax- free income. The estimated disallowance at 2 per cent. of the tax-free income is not correct as per the decision of many appellate authorities. (ii) The learned Commissioner of Income-tax (Appeals), Trichy failed to see that the Assessing Officer had not proved any expenditure directly related to the tax-free income in the case of the appellant. II (i) The learned Commissioner of Income-tax (Appeals), Trichy, failed to see that the lease agreement of two lessee, viz., M/s Rajender Steels Ltd. and M/s. Aruna Textiles and Exports Ltd. are genuine. Depre ciation claimed by the appellant regarding the two items were remitted back to the Assessing Officer by the Commissioner of Income-tax (Appeals) for the assessment year 1996-97. The transactions were genuine. (ii) In the case of M/s Rajender Steels Ltd., Kanpur due to mismanagement of business affairs by the lessee th....
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....cheme is applicable to all employees serving as on that date and those who retired on or after January 1, 1986. As per the settlement with IBA, pension is to be paid to retired employees from November 1, 1993. IBA through its letter dated January 2, 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 it registered with the Chief Commissioner of Income-tax. Accordingly, in 1995 the rules and regulations of the fund were prepared and the Chief Commissioner of Income-tax gave his approval to the fund. The appellant has got a self-managed provident fund. So the IBA on behalf of the members filed an application to grant exemption from rule 89 (i.e.,) the individual banks can maintain the fund and pay pension to employees without investing in LIC as per rule 89. The Central Board of Direct Taxes gave exemption to rule 89 in 1996 to the nationalised banks only. So private sector banks through its....
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....mmissioner of Income-tax (Appeals) erred in confirming disallowance of Rs. 2,40,000 on account of expenses incurred to increase authorised capital, which is one of the fundamental component of business. This amount is paid to Government Statutory authorities (SEBI) as per the Government stipulation and so allowable as expenditure. VI (i) The wages of bank employees are determined by the bi-partite settlement. As per the sixth bi-partite settlement ended on October 31, 1997. So from November 1, 1997 salary to be paid as per the seventh bi partite settlement. The talks were in progress and on March 11, 1999 memorandum of understanding was signed by the parties. For the assessment year 1999-2000 relevant financial year is from April 1, 1998 to March 31, 1999. The increase in wage revision was certain; the liability was ascertained. (ii) Wage revision is not a contingent liability in this case. (iii) The actual wage revision was more or less equal to provision made. (iv) The case law cited by the appellant were not considered by the Commissioner of Income-tax (Appeals). (v) Impact of wage revision was provided during the year under consideration. This will reveal correct profit/lo....
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.... ; while the securities of current category are treated as stock-in-trade. It is these current securities which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in permanent of securities is to be treated as "investment" of capital nature. The Commissioner of Income-tax (Appeals), therefore, ought to have confirmed the disallowance for diminution in value in respect of permanent category of securities. The Commissioner of Income- tax (Appeals) erred in treating the entire portfolio of securities as stock-in trade and consequently, deleted the additions made on account of dis allowance of depreciation in value of portfolio of these securities shown as "investments" in books. 5. The Commissioner of Income-tax (Appeals) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The Commissioner of Income-tax (Appeals) failed to observe that interest paid on purchase of permanent category of securities will be capital expenditure and not revenue expenditure. The Commissioner of Income-tax (Appeals) erred in treating entire investment in securities as stock-in-trade, over looking the fact that ....
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.... disallowed in the assessment by taking it as provision for depreciation on investments. 5. On June 20, 2003, the Assessing Officer issued reopening notice under section 148 of the "Act" to the assessee for reopening the assessment finalised hereinabove. In response, on November 17, 2004, the assessee filed "return". This time, the amount of income read as Rs. 35,58,17,700 (same as declared on December 30, 1999). 6. In reassessment proceedings, the Assessing Officer passed the assessment order dated March 31, 2005 and made additions. In this background of facts, we proceed to deal with the respective pleadings of the parties. Ground No. I (assessee's appeal) 7. The backdrop of this ground is that in the assessment proceedings, the assessee had claimed the following receipts as "exempt" income : (Rs.) (a) Income from tax-free bonds 11,38,33,647 (b) Income from infrastructure bonds 1,62,36,208 (c) Dividend income 1,28,64,702 Total 14,29,34,557 The Assessing Officer, after noticing the assessee's above treatment of "exempt" income recorded a finding in the assessment order that in earlier assessment years, proportionate expenses....
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....39;ble jurisdictional High Court. 10. Opposing the arguments of the assessee, the submissions raised by the Revenue mainly revolve around supporting the order of the Commissioner of Income-tax (Appeals). However, regarding the issue of pendency of the assessee's appeal before the hon'ble jurisdictional High Court, the Departmental representative has not controverted the submission raised by the assessee. 11. We have considered the arguments of both parties and also gone through the orders of the Assessing Officer as well as the Commissioner of Income-tax (Appeals). It is evident that in the assessment proceedings, the assessee had raised the claim of exempt income (supra) without attributing any expenditure which was determined by the Assessing Officer by following apportionment formula. In appeal, the Commissioner of Income- tax (Appeals) has preferred to disallow the expenditure at rate of 2 per cent by following reasonable computation method. We notice that in earlier assessment years (supra), the co-ordinate Bench of Chennai Income-tax Appellate Tribunal in I.T.A. Nos. 1597, 1598, 1599/Mds/2005 decided on May 27, 2009 on similar issue had directed the Assessing Office....
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....the case, the Tribunal was justified in upholding the estimated disallowance of 2 per cent. of the expenditure, as being incidental to earning dividend income, under section 14A of the Act although no actual expenditure was incurred? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not appreciating that as per section 14A only that actual expenditure incurred in relation to income which does not form part of the total income shall be disallowed ?" 2. Learned counsel appearing for the assessee as well as learned standing counsel appearing for the Revenue submits that the issue involved in this Tax Case (Appeal) is covered by a decision of this court dated August 8, 2012 in T.C.(A) No. 2287 of 2006 in the case of EID Parry (India) Ltd. v. Joint CIT, wherein this court pointed out that in the absence of any materials regarding incurring of expenditure, the Tribunal was justified in confirming the order of the Commissioner of Income-tax (Appeals) that the deduction of 2 per cent. managerial expenses had to be made while calculating deduction under section 80M. Thus being pure question of fact....
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....ery being put up by the Bench, both parties have informed us that first assessment year for the purpose of depreciation of leased out asset is 1996-97 and also stated that in the said assessment year, the assessment under section 143(3) of the "Act" was completed on March 9, 1999, wherein the same very claim had been disallowed. In the assessee's appeal preferred before the Commissioner of Income-tax (Appeals), the issue stood restored back to the Assessing Officer for reconsideration vide appellate order dated March 31, 2005. As pointed out by the authorised representative, the Assessing Officer thereafter re-decided the issue vide order dated December 22, 2010 upholding the assessee's claim of depreciation in case of Erode Rane Textiles Processors-I and 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 Commissioner of Income-tax (Appeals) qua the assessment year 1996-97 against the order dated December 20, 2010 (supra) and therefore, we should restore the matter back to the Assessing Off....
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....her hand, the Revenue's argument mainly relies on the order of the Commissioner of Income-tax (Appeals) and findings contained therein in view of rule 89 of the Income-tax Rules. 18. We have considered the rival contentions, perused the relevant findings by the Assessing Officer as well as the Commissioner of Income-tax (Appeals) 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 October 31, 2003. It also emerges that the private sector banking companies alike assessee had approached Central Board of Direct Taxes praying for exemption from compliance with rule 89 of the Income- tax Rules, which was rejected on August 13, 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 expe....
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....ssing Officer with like directions. Aggrieved, the assessee is in appeal. 3. The assessee during the hearing pointed out the Tribunal's order in its own case for the immediately preceding year (i.e., assessment year 2004-05) (in I.T.A. No. 854/Coch/2007 dated August 6, 2009) holding in favour of the assessee in view of the decision by the apex court in the case of T. Stanes and Co. Ltd. v. CIT [1991] 188 ITR 237 (SC). We observe that the Tribunal in the assessee's case for the earlier years (viz., assessment year 1999-00/ in I.T.A. No. 26/Coch/2008 dated June 30, 2009 and assessment year 2000-01 (in I.T.A. No. 345/Coch/2008 dated August 6, 2009) had, similarly, restored the matter back to the file of the Assessing Officer for examining and determining the question of quantum. The legal issues sought to be raised by the Assessing Officer 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 under section 37(1) of the Act. However, the aspect of the commercial expediency (on the parameters as settled by the apex court) has admittedly no....
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....see is in appeal. 20. The authorised representative representing the assessee has submitted before us that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) have erred in treating the assessee's claim of software expenses, which is revenue in nature, as capital expenditure. He has also placed reliance on the following case law to buttress his submissions : CIT v. Amway India Enterprises [2012] 346 ITR 341 (Delhi), CCIT v. O. K. Play India Ltd. [2012] 346 ITR 57 (P&H), CIT v. Kotak Securities Ltd. [2012] 346 ITR 349 (Bom) and CIT v. Southern Roadways Ltd. [2006] 282 ITR 379 (Mad). and prayed for acceptance of the ground. 21. Opposing the submissions advanced by the assessee, the Revenue has stated that the Commissioner of Income-tax (Appeals) has rightly treated the assessee's software expenses as capital expenditure. 22. We have perused the relevant findings of the Assessing Officer as well as the Commissioner of Income-tax (Appeals). As we notice from the assessment order, the assessee's claim raised before the Assessing Officer was that it had purchased software and the expenses incurred were "revenue" in nature. It did not prefer to te....
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....798 (SC). 27. The rival contentions of the parties have been heard. We have also perused the findings of the Assessing Officer as well as the Commissioner of Income-tax (Appeals). 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 authorised capital. The issue between parties is about the nature of expenditure, i.e., per assessee, it is revenue expenditure and per Revenue it is capital expenditure. We notice that the hon'ble Supreme Court in the above cited case (supra) also dealt with this question as to whether the expenditure directly related to expansion of its capital base is revenue or capital in nature. In the said case, their Lordships turned down the assessee's argument and held as under (page 800 of 225 ITR) : "We find that this matter has come up for consideration before this court in Punjab State Industrial Development Corporation Ltd. v. CIT [1997] 225 ITR 792 (SC) (Tax Reference No. 1 of 1990, decided on December 4, 1996). In that case, the question under consideration was w....
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....fore 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 abovequoted observations of this court in Punjab State Industrial Development Corporation Ltd. v. CIT [1997] 225 ITR 792 (SC) clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit-making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the co....
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....nly. Accordingly, the Assessing Officer has rightly disallowed the same. The order of the Assessing Officer needs no interference hence confirmed. However, to meet the end of the justice the appellant is entitled for this claim on the basis of actual payment." Therefore, the assessee has raised the instant ground. 30. On behalf of the assessee it has been vehemently argued that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) in the instant case have wrongly rejected the assessee's claim of making provision for pay revision of its employees despite the fact that the liability in question stood duly ascertained. In support of the submissions, case law reported as Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) has also been referred. 31. In response, the submissions of the Revenue are that the Commissioner of Income-tax (Appeals) has rightly rejected the assessee's contention regarding liability in question. In addition to this, the Departmental representative has also placed reliance of the co-ordinate Bench decision of Income-tax Appellate Tribunal, Chennai in I.T.A. No. 1866/Mds/2006 decided on June 2, 2008 titled as Asst. CIT v. Indian Over....
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....4. The learned counsel for the assessee placed before us a memo randum of understanding dated March 11, 1999. It is stated in the said memorandum that the United Forum of Bank unions agreed to withdraw the strike call and other forms of agitations with immediate effect. At the earliest possible opportunity formal negotiations with the workmen unions and officers' associations shall be undertaken on a mutually agreed date. The seventh bi-partite settlement took place at a later date. Learned counsel for the assessee argued that the pro vision was made consequent upon the bi-partite settlement entered into during the relevant accounting period. When a provision had been made on the estimated basis in the accounts, the same should be allowed as deduction from profits of the year. In regard to the liability to pay the arrears as well as the additional wages arisen to the assessee during this year on the basis of the memorandum the exact quantification was not available and as such an adhoc provision was made. The overall load was limited to 12.25 per cent. of the wage bill. 15. The learned Departmental representative sub....
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....instant case. Consequently ; and more so, in view of the fact that the issue pertaining to the same very bipartite settlement and pay revision in respect of similar undertaking alike the assessee has been decided in favour of the Revenue, we subscribe to the same observations of the coordinate Bench and hold that the liability on account of pay revision as claimed by the assessee is not ascertained one. Hence, we affirm the finding of the Commissioner of Income-tax (Appeals). Accordingly, the ground is decided against the assessee. I.T.A. No. 897/Mds/2010 (Revenue's appeal) Ground No. 2 (Revenue's appeal) 33. We have already dealt with this ground while dealing with ground No. II filed by the assessee and affirmed the findings of the Commissioner of Income-tax (Appeals). Therefore, no separate adjudication is made. Ground No. 3 (Revenue's appeal) 34. The facts relevant to this ground are that in the assessment, cash excess of Rs. 1,87,375 had been omitted by the assessee from being considered for disallowance in the memo of adjustment. The explanation of the assessee was that the same had been shown as cash in excess and no identification had been made since it pe....
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....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 March 27, 2002 (supra). In the said order, he had disallowed the 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 the 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 Commissioner of Income-tax (Appeals) has deleted the addition by holding as follows : "2.3 As per the 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 addition." 39. In support of the ground raised, it has been submitted by the Departmental representative representing the Revenue that the Commissioner of Income-tax (Appeals) has wrongly deleted the addition. Accordingly, h....
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....ncome considered twice. The assessee's contentions have been considered carefully. Since the refund including interest under section 244A 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 assess ment for 1999-2000 is not in order. The examination of statements show that the amount of Rs. 75,83,177 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 under section 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. Ground No. 5.1 42. The factual matrix of this ground is that in the assessment proceedings, the assessee had raised a claim of Rs. 51,20,619 qua interest amount paid on securities as "revenue expenditure". In support thereof, i....
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....es and also perused assessment order as well as order of the Commissioner of Income-tax (Appeals) along with case law cited. It transpires that the assessing authority had held that the assessee's claim of interest paid on securities as capital expenditure. In appeal before the Commissioner of Income-tax (Appeals), the assessee relied on the order of the Income-tax Appellate Tribunal, Chennai, in preceding years as well as the judgment of the hon'ble Madras High Court in the 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 Commissioner of Income-tax (Appeals). In the operative part of the Commissioner of Income-tax (Appeals) that it has been simply observed that in the assessee's case the hon'ble High Court as well as the co-ordinate Benches of the Income-tax Appellate Tribunal have decided the issue in the assessee's favour. This, in our opinion, is nothing but sketchy finding of the Commissioner of Income-tax (Appeals). 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 ....
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....nd. 47. By reiterating the pleadings raised in the grounds, the Departmental representative representing the Revenue has argued that the Commissioner of Income-tax (Appeals) has wrongly deleted the amount of bad debts disallowed by the Assessing Officer. It has been further argued that even if the assessee's contention is accepted, still the matter is to be restored back to the Assessing Officer to verify that the assessee has not succeeded in getting double deduction, i.e., under section 36(1)(vii) as well as section 36(1)(viia). In this regard, he has placed reliance on the latest judgment of the hon'ble Supreme Court reported as Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC) and prayed that the issue be restored back to the file of the Assessing Officer. 48. Opposing the Revenue's argument, it has been argued at the behest of the assessee that the Commissioner of Income-tax (Appeals) has rightly deleted the disallowance made by the Assessing Officer and a prayer has been made to uphold the same. 49. We have considered the submissions of both parties as well as findings of the Assessing Officer, the Commissioner of Income-tax (Appeals) and also gone throu....
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.... 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 remitted the matter back to the Assessing Officer with specific directions. In view thereof and more so, since we have restored preceding issue back to the Assessing Officer, we also deem it proper to restore the ground back to the Assessing Officer, who shall pass a speaking order in accordance with law by taking into consideration the judgment of the hon'ble Supreme Court abovesaid. 50. Consequently, I.T.A. Nos. 902/Mds/2010 and 897/Mds/2010 stand partly allowed for statistical purposes. I.T.A. Nos. 903/Mds/2010 (by assessee) and 898/Mds/2010 (by Revenue) for the assessment year 2000-01 51. These cross-appeals by the assessee and the Revenue respectively challenge correctness of the order of the Commissioner of Income-tax (Appeals), Tiruchirappalli, dated March 23, 2010 in I.T.A. No. 44/03-04 for the assessment year 2000-01, in proceedings under section 143(3) of the Income-tax Act 1961 (in short the "Act"). 52. The assessee has pleaded the following grounds : "I (i) The learned Commissioner of Income-tax (Appeals), Trichy....
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....he Central Board of Direct Taxes up to August 2003. In August 2003 the Central Board of Direct Taxes 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 January 1, 1986. As per the settlement with IBA, pension is to be paid to retired employees from November 1, 1993. IBA through its letter dated January 2, 1998 informed the 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 it registered with the Chief Commissioner of Income-tax. Accordingly in 1995 the rules and regulations of the fund were prepared and the Chief Commis sioner of Income-tax gave his approval to the fund. The appellant has got a self-managed provident fund. So the IBA....
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....are of revenue expenditure as per the Income-tax Appellate Tribunal order dated July 14, 2006 (I.T.A. No. 1137/Mds/2003 for the assessment year 1994-95). (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." Whereas, the pleadings of the Revenue read as under : I.T.A. No. 898/Mds/2010 (Revenue's appeal) "1. The order of the Commissioner of Income-tax (Appeals) is con trary to law, facts and in the circumstances of the case. 2. The Commissioner of Income-tax (Appeals) erred in allowing the depreciation on leased out assets. 2.1 The Commissioner of Income-tax (Appeals) failed to observe that the assessee had failed to produce any evidence to prove that assets alleged to have been leased to Erode Rane Textile Processors I and II and Sri Sarvesh Cotton Mills Ltd. I, II and III ever existed. 2.2 The Commissioner of Income-tax (Appeals) ought to have appreciated the fact that if there is no asset in existence, then where is the question of user of the asset and consequently allowing the depreciation on the same asset. The Commissioner of Income-tax (Ap....
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....ioner of Income-tax (Appeals) failed to note the understatement in value of the closing stock to the extent of broken-period interest paid for pur chase of AFS and HFT securities (treated as stock-in-trade) lying unsold as closing stock. 5. For these and other reasons that may be adduced at the time of hearing, the order of the Commissioner of Income-tax (Appeals) may be cancelled and that of the Assessing Officer be restored." 53. By referring to the grounds raised hereinabove, both the representatives have fairly conceded that the grounds involved in these appeals are covered by our findings the identical issues in I.T.A. Nos. 902/Mds/2010 and 897/Mds/2010 decided hereinabove. 54. We have considered the fair submissions advanced by both parties. It is evident that in the assessee's appeal, four substantive grounds have been raised, i.e., disallowance qua exempt income, depreciation on leased assets, applicability of rule 89 with reference to direct payment made by the assessee to its pensioners and software expenses. It is noticed that in connecting appeal No. 902/Mds/2010 (supra), we have accepted the assessee's plea of payment made directly to its pensioners albeit f....
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....ferent scheme. (iv) Purchase receipts are available. Insurance done and bank officials verified the existence of machinery and all certificates were produced to the Assessing Officer and the case is not yet opened by the Assessing Officer for the assessment year 1996-97 and subsequent years. In the case of M/s. Aruna Textiles and Exports Ltd., (v) Valuation of machinery was done by an eminent valuer. The amount valued by SITRA was equal to the previous valuer. (vi) Bank officials verified the existence of machinery. Insurance companies insured the machineries. Without verifying all these facts, conclusion of the Commissioner of Income-tax (Appeals) that the appellant failed to establish exist ence of these assets is wrong and misleading. II (i) The Commissioner of Income-tax (Appeals), Trichy failed to see that software expenses are of revenue expenditure as per the Income-tax Appellate Tribunal order dated July 14, 2006 (I.T.A. No. 1137/Mds/2003 for the assessment year 1994-95). (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." At the same time....
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....n. 6. For these and other reasons that may be adduced at the time of hearing, the order of the Commissioner of Income-tax (Appeals) may be cancelled and that of the Assessing Officer be restored." 60. By referring to the grounds reproduced hereinabove, both representatives are unanimous in their respective submissions that our findings in I.T.A. Nos. 902/Mds/2010 and 897/Mds/2010 decided hereinabove for the assessment year 1999-2000 squarely cover all except ground No. 5 in the Revenue's appeal I.T.A. No. 899/Mds/2010. 61. After giving our thoughtful consideration to the fair submissions made by both parties, we find that the same is liable to be accepted. It is noticed that in the assessee's appeal No. I.T.A. No. 904/Mds/2010, only two substantive grounds have been raised i.e. depreciation on leased assets and software expenditure. In. I.T.A. No. 902/Mds/2010 decided hereinabove for the assessment year 1999-2000, we have confirmed the findings of the Commissioner of Income-tax (Appeals) qua both the grievances raised by the assessee. Following the same reasoning, we also affirm the findings of the Commissioner of Income-tax (Appeals) in the instant case. 62. Now we pro....
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....ssessee has chosen to rely on the findings of the Commissioner of Income-tax (Appeals) by drawing support from order of the Chennai, Income-tax Appellate Tribunal in I.T.A. No. 739/Mds/2009 titled as City Union Bank v. Asst. CIT decided on November 13, 2009 and orders passed in preceding assessment year in the 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 co-ordinate Bench, after considering case law of T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 (SC) 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 th....
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....3-84, the assessee had transferred an amount of Rs. 17,381 to the profit and loss account of the company during the accounting period ended on March 31, 1982 (assessment year 1982- 83) and an amount of Rs. 38,975 during the accounting period ended on March 31, 1983 (assessment year 1983-84). But these amounts were not included in the total income of the assessee. The sums were stated to be credit balances standing in favour of the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred by the assessee to the profit and loss account. The Income-tax Officer 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 learned Commissioner of Income-tax (Appeals) and this was upheld by the Tribunal. But the facts of this case are different because in banking business Reserve Bank of India 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 c....
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....e amount is still lying with the assessee as the pledgers of the jewellery to whom the balance from out of the auction money over and above the loan dues rightfully belong had not claimed the same for some reason or other. However, the assessee continues to be liable to the pledgers in respect of such balance amount and till the balance is given to the party, the assessee-bank acts as an agent and it is under liability to settle the accounts. 10.3 Considering the issue, we find that the claim of the assessee is justifiable as the surplus money realised 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 the hon'ble Supreme Court, 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 the hon'ble Supreme Court is not applicable qua the peculiar facts of the case and the same very issue has attained finality in vi....
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....nking company had not incurred any expenditure by way of interest for purchasing shares and mutual funds. Your appellant had not incurred any collection charges. Your appellant did not employ additional person to look after investments in shares and mutual funds. 3.2 The profit earned by taxable bonds and other taxable invest ments were not pulled down by investments in shares and mutual funds since the appellant has more interest-free funds. 3.3 Your appellant did not take/borrow loan from others for invest ing in shares and mutual funds. 3.4 Under the above circumstances the maximum administrative expenses will not be more than Rs. one lakh. Therefore the estimated disallowance of 2 per cent. on dividend income may kindly be restricted to Rs. one lakh. 4. The Commissioner of Income-tax (Appeals) has erred in treating ex gratia payment to employees as appropriation of profit and not towards contractual liability. 4.1 The Commissioner of Income-tax (Appeals) is not correct in stating that ex gratia payment to employees is merely an appropria tion of profit and has no co-relation with the alleged incentive to its employees. The learned Commissioner of Income-tax (Appeals) may b....
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....ect Taxes in August 2003 intimated its inability to grant exemption to private sector banks. The Karur Vysya Bank employees' pension fund started from September 2003 to pur chased annuity from LIC as per rule 89 in the case of employees retired. The fund is purchasing annuity from LIC as and when an employee retires. 5.4 Your appellant paid pension directly to employees when the petition was pending before the Central Board of Direct Taxes. 5.5 Since exemption was given to rule 89 for nationalised banks, private sector banks association also applied for exemption. As a member of private sector bank, the appellant did not purchase annuity while the petition was pending for disposal by the Central Board of Direct Taxes. So, the contention of the Assessing Officer that the writ filed by the appellant-bank before the honourable Chennai High Court was dismissed, is wholly erroneous and wrong. (page 24 of the order). The writ is still pending. 5.6 Rule 89 reads as under : Rule 89 : For the purpose of providing the annuities for the beneficiaries, the trustees shall- (i) enter into a scheme of insurance with the Life Insurance Corporation established under the Life Insurance Corp....
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....t, the Reserve Bank of India had asked the banks to maintain the portfolio of the securities in three categories, viz. held to maturity (HTM), available for sale (AFS) and held for trading (HFT). With a view to meet the legal requirement of SLR as per the Banking Regulations Act, the Reserve Bank of India has directed the banks that the securities held as HTM category are intended to be held till maturity and are to be shown in the books of account at cost ; while the securities AFS and HFT categories are treated as stock-in-trade. It is these securities (AFS and HFT) which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in HMT category of securities is to be treated as 'investments' of capital nature. The Commissioner of Income-tax (Appeals), therefore, ought to have confirmed the disallowances for diminution in value in respect of HTM category of securities. The Commissioner of Income- tax (Appeals) erred in treating the entire portfolio of securities as stock-in-trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as 'in....
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....led to observe that the premium paid over and above the face value of the HTM category of securities above the cost of the securities. 4.2 The Commissioner of Income-tax (Appeals) erred in treating amortisation as part of depreciation ignoring the fact that it is actually allowing of deduction by spreading the premium paid over and above the face value of the HTM category of the security over a period of maturity of securities concerned. 4.3 The Commissioner of Income-tax (Appeals) has failed to appreciate the ratio of the decision of the Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) that Reserve Bank of India guide line cannot override the provisions of Income-tax Act. 5. The Commissioner of Income-tax (Appeals) erred in deleting the addition with regard to unclaimed balances. The Commissioner of Income-tax (Appeals) failed to follow the ratio of decision of the apex court in the case of T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 (SC). The balance lying unclaimed with the bank for more than 3 years ought to have been confirmed by the Commissioner of Income- tax (Appeals) as these are to be treated as income in the light of ....
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....acts relevant to the case are that on October 29, 2001, the assessee had filed its "return" for the assessment year 2001-02 declaring income of Rs. 40,24,94,460 and the Assessing Officer completed assessment under section 143(3) of the "Act" vide assessment order dated March 29, 2004 determining the assessee's total taxable income as Rs. 56,34,40,300. On December 26, 2005, the Assessing Officer issued reassessment notice under section 148 of the Act for the reason that the assessee's income relating to interest on securities had been offered not on accrual basis but on due basis resulting in its escapement from being taxed. Thereafter, the Assessing Officer completed reassessment on December 29, 2006. This time he computed the assessee's total income as Rs. 58,91,81,588. We find from the record that the Commissioner of Income-tax, Trichy, subsequently formed an opinion that the assessment order passed in the assessee's case suffered from "error causing prejudice to the interests of the Revenue". Hence, he directed the Assessing Officer to make afresh assessment under section 263 of the "Act". In proceedings consequent thereto, the Assessing Officer completed the ass....
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....sp; 'No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.' 9. Thus, in our considered opinion, the order which has been sought to be revised under section 263 of the Act is barred by limitation after expiry of two years period from the end of the financial year in which the relevant order was passed. The contention of the learned Departmental representative is that the order passed by the Assessing Officer under section 143(3) merges with the order passed by the Assessing Officer under section 147 and the entire assessment is open to the Assessing Officer once reassessment proceedings are initiated. In our considered view, the above contention of the learned Departmental representative is not correct. The hon'ble Supreme Court in the case of CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC) has held as under : 'In proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of in....
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.... Ashoka Buildcon Ltd. v. Asst. CIT [2010] 325 ITR 574 (Bom) and decision of the Madras High Court in the case of CIT v. Shriram Engineering Construction Co. Ltd. [2011] 330 ITR 568 (Mad). 11. The contention of the learned Departmental representative that the issue of allowance of provision for bad debts under section 36(1)(viia) was considered and decided in reassessment order dated December 29, 2006 as because the figure of deduction was changed from Rs. 11,11,36,989 to Rs. 11,24,91,794 is also not acceptable because we find that the said issue was not a subject matter of section 147 proceedings and the Assessing Officer never took a fresh decision in respect of the same in reassessment order. In the reassessment order, only because of increase in total income, the Assessing Officer revised the figure in accordance with his decision taken in the original order dated March 29, 2004. In the original order dated March 29, 2004, the Assessing Officer held that the assessee was eligible for deduction under section 36(1)(viia) of the Act subject to maximum of 5 per cent. of total income. As in the reassessment order after inc....
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....rappalli in so far as it is against the appellant, is contrary to law, erroneous, and unsustainable on the facts of the case. 2. The learned Commissioner of Income-tax (Appeals) Tiruchirappalli has erred in treating 2 per cent. of the income from tax-free bonds as estimated expenses in earning tax-free interest. 2.1 Your appellant, a banking company which is controlled by Reserve Bank of India, has got interest-free funds such as capital, reserves and current account deposits. The appellant has not incurred any expenditure by way of interest on tax-free investment. Your appellant being a banking company having more than 300 branches had not incurred any collection charges for realising tax-free income. Your appellant did not employ any additional person to look after tax-free investment. 2.2 The profit earned by taxable bonds and taxable investments were not pulled down by the investments in tax-free bonds, since the appellant has more interest-free funds. 2.3 Your appellant did not take loan from others for investing in tax-free bonds. 2.4 Under the above circumstances the maximum administrative expenses will not be more than Rs. 1 lakh. Therefore the estimated disallowance o....
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....into a scheme of insurance with the Life Insurance Corporation established under the Life Insurance Corporation Act 1956 (31 of 1956), or any other insurer as defined in clause (28BB) of section 2 of the Income-tax Act, 1961, or (ii) accumulate the contribution in respect of each beneficiary and purchase an annuity from the said Life Insurance Corporation of India or any other insurer at the time of the retirement or death of each employee or on his becoming incapacitated prior to retirement. The above rule clearly directs and explains the dos and don'ts of the trustees. It refers to future events of retirement, death, incapacitation etc. In the case of the appellant, payment is made by bank (not by the trustees) to those who had already retired from the services. After the Central Board of Direct Taxes denial, the bank had entrusted the work of pension payment to the trustees, who had purchased annuity and fulfilled the norms of rule 89. For the assessment year 2001-02, the Commissioner of Income-tax after full study and hearing with the appellant accepted our views and given a direction under section 144A that the payments made by the bank to the retired employees, pending ....
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....t and added the same to the income in the memo. 7. For the reasons stated in the grounds of appeal and arguments that may be adduced at the time of hearing your appellant requests that the additions may kindly be deleted." Similarly, the Revenue's grounds read as under : "1. The order of the Commissioner of Income-tax (Appeals) is con trary to law, facts and in the circumstances of the case and relied upon cases which are not applicable to facts of the case. 2. The Commissioner of Income-tax (Appeals) has erred in deleting the disallowances of depreciation in the value of investment of Rs. 3,81,18,863. 2.1 The Commissioner of Income-tax (Appeals) failed to appreciate that Reserve Bank of India is a regulator of banks and can give direc tions to the banks with regard to SLR requirements, cash reserve ratio and the manner in which the accounts are to be kept by the banks. Pursuant to the powers given by the Banking Regulations Act, the Reserve Bank of India had asked the banks to maintain the portfolio of the securities in three categories, viz. held to maturity (HTM), available for sale (AFS) and held for trading (HFT). With a view to meet the legal requirement of SLR as pe....
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....nsider the fact that this argument has not been taken up before and therefore ratio of decision of the assessee-bank for earlier year is not applicable to the facts of the case. 4. The Commissioner of Income-tax (Appeals) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The Commissioner of Income-tax (Appeals) ought to have restricted the relief for the brokerage paid in respect of AFS and HFT category of securities. 5. The Commissioner of Income-tax (Appeals) erred in deleting the disallowance of bad debts to the extent of Rs. 17,26,60,231. 5.1 The Commissioner of Income-tax (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 eli gible for deduction. The Commissioner of Income-tax (Appeals) ought to have confirmed the addition made by the Assessing Officer. 6 The Commissioner of Income-tax (Appeals) erred in deleting the addition with regard to unclaimed balances. The Commissioner of Income-tax (Appeals....
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....raised in the ground and also placed reliance on the case law reported as CIT v. Aruna Sugars Ltd. [1981] 132 ITR 718 (Mad) and prayed for acceptance of the ground. 81. Opposing this, the Revenue states that the Commissioner of Income-tax (Appeals) has rightly confirmed the disallowance. 82. We have heard both parties and also perused the findings of the Assessing Officer, the Commissioner of Income-tax (Appeals) as well as case law cited. We notice that on facts there is no dispute that the assessee had incurred expenditure in performing poojas in question. The assessee has also stated that performing pooja gives peace of mind to its employees and increases work efficiency. We notice that in similar claim, the hon'ble jurisdictional High Court (supra) while accepting the issue concerned in the assessee's favour has held as under (page 719 of 132 ITR) : "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, ....
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....iness purposes. The said disallowance also stands confirmed by the Commissioner of Income-tax (Appeals). 84. The assessee has argued before us that for promoting its business, it incurred the above said expenditure which is allowable in law as per the judgment of the hon'ble Calcutta High Court as reported Duncans Tea Ltd. v. CIT [2012] 344 ITR 442 (Cal). 85. Contesting this, the Departmental representative representing the Revenue strongly supported the Commissioner of Income-tax (Appeals)'s order. 86. We have heard rival contention and also perused the impugned findings of the Assessing Officer and the Commissioner of Income-tax (Appeals) as well as case law cited. It is noticed that the assessee's claim is mainly confined to making "presents" etc. on special occasion and festivals for which it itself had disallowed 20 per cent. It is found that the hon'ble Calcutta High Court while dealing with such issue allowed the assessee's claim regarding deduction under the said head by observing as under (page 445 of 344 ITR) : "We have considered the submissions and gone through the citations....
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....herwise. If this evidence is considered then it is established beyond doubt that gift articles were purchased, and there has been no evidence that the same could not be utilised. Moreover, all the authorities in principle accepted that the same must have been utilised indeed what else could be done about the gift articles apart from utilising the same ? Under those circumstances we think that the assessee has been able to prove the case with preponderance of probability if not beyond reasonable doubt that the gift articles as mentioned in the return were purchased and the same were utilised for promotion and growth of the business, we think that the learned Tribunal was not justified in upsetting the judgment and order of the Commissioner of Income-tax (Appeals) following the earlier precedent of the learned Tribunal. We, accordingly are of the view that the judgment and order of the learned Tribunal is not sustainable and the same is set aside. Consequently, the judgment and order of the Commissioner of Income-tax (Appeals) is restored." Taking cue from the same and more so, in view of the fact that there is no issue between parties on facts, we hold that the assessee is entitle....
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....income in the case of the appellant. III. 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." Whereas, the grievances of the Revenue read as under : "1. The order of the Commissioner of Income-tax (Appeals) is con trary to law, facts and in the circumstances of the case. 2. The Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of depreciation in the value of investment of Rs. 31,83,87,854. 2.1 The Commissioner of Income-tax (Appeals) failed to appreciate that Reserve Bank of India is a regulator of banks and can (nay, is required to) give directions to the banks with regard to SLR requirements, cash reserve ratio and the manner in which the accounts are to be kept by the banks. Pursuant to the powers given by the Banking Regulations Act, the Reserve Bank of India had asked the banks to maintain the portfolio of the securities in three categories, viz. held to maturity (HTM), available for sale (AFS) and held for trading (HFT). With a view to meet the legal requirement of SLR as pe....
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....ted the relief for the brokerage paid in respect of AFS and HFT category of securities. 5. The Commissioner of Income-tax (Appeals) erred in deleting the disallowance of bad debts to the extent of Rs. 7,30,92,275. 5.1 The Commissioner of Income-tax (Appeals) failed to note that under the 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 Commissioner of Income-tax (Appeals) ought to have confined the addition made by the Assessing Officer. 6. The Commissioner of Income-tax (Appeals) erred in deleting the addition with regard to unclaimed balances. The Commissioner of Income-tax (Appeals) failed to follow the ratio of decision of the apex court in the case of T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 (SC). The balances lying unclaimed with the bank for more than 3 years ought to have been confirmed by the Commissioner of Income- tax (Appeals) as these are to be treated as income in the light of the above referred decision. 7. For these and other reasons that may be adduced at the time of hearing,....
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.... in favour of the assessee and against the Revenue. In the light thereof, this ground is decided against the Revenue. 99. Consequently, I.T.A. No. 901/Mds/2010 stands partly allowed for statistical purpose. I.T.A. Nos. 931/Mds/2011 (by the assessee) and 1071/Mds/2011 (by the Revenue) 100. These cross-appeals by the assessee and the Revenue respectively ; challenge correctness of the order of the Commissioner of Income-tax (Appeals), Tiruchirappalli, dated March 30, 2011 in I.T.A. No. 379/08-09 for the assessment year 2006-07, in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the "Act"). 101. In I.T.A. No. 931/Mds/2011, the following grounds have been raised for our consideration : "1. The order of the Commissioner of Income-tax (Appeals), Tiruchirappalli in so far as it is against the appellant, is contrary to law, erroneous, and unsustainable on the facts of the case. 2. The learned Commissioner of Income-tax (Appeals), Tiruchira palli has erred in treating 2 per cent. of the income from tax-free bonds as estimated expenses in earning tax-free interest. 2.1 Your appellant, a banking company which is controlled by the Reserve Bank of India, has got in....
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....34 ITR 458 (P&H) ; (c) Brijraman Das and Sons v. CIT [1983] 142 ITR 509 (All). 5. The Commissioner of Income-tax (Appeals) has erred in treating ex gratia payment to employees as appropriation of profit and not towards contractual liability. 5.1 The Commissioner of Income-tax (Appeals) is not correct in stating that ex gratia payment to employees is merely an appropriation of profit and has no co-relation with the alleged incentive to its employees. The learned Commissioner of Income-tax (Appeals) may be correct if incentive/gift is given to shareholders of a company or members of an association. 5.2 Ex gratia is paid to all employees recognising their joint effort in earning more profit for the appellant-company. 5.3 Payment of Bonus Act insists minimum bonus to be paid to employees who are paid a lesser salary. 5.4 The ex gratia paid to employees, made the employees to work hard and earn more profit to company. The profit for 2007-08 increased to Rs. 1,96,00,11,010 from Rs. 40,24,94,416 in 2001-02. 5.5 Ex gratia paid to employees is taxable in the hands of respective employees. Your appellant-bank while deducting tax on salary, deducts tax including ex gratia received by em....
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....e portfolio of securities as stock-in-trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as 'investments' in books. 3. The Commissioner of Income-tax (Appeals) has erred in allow ing the interest claimed on purchase of securities as revenue expenditure. The Commissioner of Income-tax (Appeals) failed to observe that interest paid on purchase of HTM category of securities will be capital expenditure and not revenue expenditure and therefore bro ken-period interest paid for HTM category of securities lying unsold at the end of the year ought to have been confirmed by the Commissioner of Income-tax (Appeals). 3.1 The Commissioner of Income-tax (Appeals) also erred in treating entire investment in securities as stock-in-trade, overlooking the fact only AFS and HFT category of securities would alone qualify for treatment as stock-in-trade. The Commissioner of Income-tax (Appeals) failed to observe that broken-period interest paid at the time of purchase of securities would be part of 'cost' of securities. The Commissioner of Income-tax (Appeals), therefore, ought to have confirme....
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.... that may be adduced at the time of hearing, the order of the Commissioner of Income-tax (Appeals) may be cancelled and that of the Assessing Officer be restored." 102. In the course of hearing, both parties have submitted that all grounds raised in the assessee's as well as the Revenue's appeal stand adjudicated hereinabove except ground No. 5 in the assessee's appeal and ground No. 6 in the Revenue's appeal. 103. We have considered the fair submissions of both representatives. We find that in the assessee's appeal in total four substantive grounds have been raised. Grounds Nos. 2 and 3 pertaining to disallowance made by the Assessing Officer and the Commissioner of Income-tax (Appeals) at 2 per cent. of exempt income which we have already upheld in I.T.A. No. 902/ Mds/2010 (supra) filed by the assessee decided hereinabove. Ground No. 4 pertains to pooja expenses disallowed by the Assessing Officer and the Commissioner of Income-tax (Appeals). We have already deleted this disallowance in part while adjudicating I.T.A. No. 930/Mds/2011 (supra). Accordingly, this ground stands partly accepted. 104. This leaves us ground Nos. 5 only. In the assessment proceedin....
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....llenging disallowance of amortisation of expense of Rs. 22,51,01,585. 110. The facts relevant to this ground are that in the assessment proceedings, the Assessing Officer noticed that in its profit and loss account, the assessee had debited a sum of Rs. 22,51,01,585. In the assessment order, the Assessing Officer held that since the amount related to securities held to maturity category, which are carried at acquisition cost and liable to be treated as a capital asset giving rise to capital expenditure. Accordingly the assessee's claim was disallowed. In appeal, the Commissioner of Income- tax (Appeals) has accepted the assessee's contention as follows : "13.3. Following the decision in the appellant's own case reported in CIT v. Karur Vysya Bank Ltd. [2005] 273 ITR 510 (Mad), amortisation claim being part of total depreciation, it should be allowed. Hence, the Assessing Officer is directed to allow the same." 111. The Revenue has submitted before us that the Commissioner of Income-tax (Appeals) has wrongly deleted the disallowance. In addition to this, the Departmental representativ....