AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 72
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....The learned Commissioner of Income-tax (Appeals), 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....
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....started paying pension directly to pensioners. (iii) The 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 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 ....
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.... time. It is only programme/instruction written by programmers in computer language. V. The Commissioner 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) I....
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....ks that the securities held as permanent category are intended to be held as investment and shown in the books of account at cost ; 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 Co....
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....interest under section 244A of the "Act" granted in the assessment year 1997-98 which was treated as income in the assessment. (b) Rs. 75,83,177 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 Th....
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....f 2010 which have been admitted on March 16, 2010. In the light thereof, his submission is that the ground be restored back to the file of the Assessing Officer to await the decision of the hon'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 asses....
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....ent year 2001-02, was admitted on the following substantial questions of law : '1. Whether, on the facts and in the circumstances of 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 co....
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....e had claimed for depreciation on leased out assets which has been denied by the Assessing Officer by following the assessment order of the assessment year 1996-97. The impugned assessment year before us is 1999-2000. On a query 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....
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....ed the decisions of co-ordinate Bench of the Cochin Income-tax Appellate Tribunal in the case of The Catholic Syrian Bank Ltd. v. Addl. CIT decided on February 11, 2011 and July 6, 2011 and prayed for acceptance of ground. 17. On the other 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, 20....
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....976] 105 ITR 251 (Mad), affirmed by the Supreme Court vide its decision reported at T. Stanes and Co. Ltd. v. CIT [1991] 188 ITR 237 (SC) which had, in fact, been relied upon by both the parties. The matter was accordingly restored to the Assessing 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 t....
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....Officer treated it as "capital" in nature and also held that the assessee would be entitled for depreciation at 25 per cent. In appeal, the Commissioner of Income-tax (Appeals) has also confirmed the Assessing Officer's finding. Therefore, the assessee 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 Off....
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....esentative has forcefully argued that the assessee's claim is not allowable as revenue expenditure as held by the Commissioner of Income-tax (Appeals) ; more so, in view of the hon'ble Supreme Court's judgment reported as Brooke Bond India Ltd. v. CIT [1997] 225 ITR 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) : &nb....
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....crease the capital has to be treated as revenue expenditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal. It is no doubt true that before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that the increase in the capital was to meet the need for working funds for the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the 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 comp....
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....peal, the Commissioner of Income-tax (Appeals) has also upheld the Assessing Officer's finding by observing as follows : "11.3 From the facts of the case it is seen that the appellant has claimed this wage revision as a provision only. 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 rig....
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....bsp; 13. In regard to wage revision we have heard the rival submissions. The assessee made a claim of Rs. 25 crores towards the ad hoc provision made for wage revision. The Assessing Officer disallowed the same treating it as contingent liability. 14. 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 arise....
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....t apart to meet liability on account of leave encashment of the employees could hold to be ascertained liability. In the said case, the guidelines regarding leaves in question already existed in the relevant accounting period. Therefore, their Lordships had allowed the claim of the assessee which is not the factual position in the 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 (Rev....
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....isallowance in question because the four year time period includes the impugned assessment year as well. Accordingly, we hold that the Commissioner of Income-tax (Appeals) has rightly deleted the addition. This ground stands decided against the Revenue. Ground No. 4 (Revenue's appeal) 38. In the enclosures filed with the return, the assessee has preferred to make a provision for an amount of Rs. 75,83,177 re-depreciation on investment. The Assessing Officer had passed initial assessment order under section 143(3) of the "Act" on 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 offer....
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....nd the net profit shown at Rs. 37,03,92,219 in page number III of the income statements includes this amount of Rs. 75,83,177. Therefore from the total provisions of Rs. 25,37,00,000 this amount of Rs. 75,83,177 has been reduced and the amount of Rs. 24,61,16,823 has been added with net profit. Therefore the disallowance made at Rs. 75,83,177 is not correct because it amounts to income considered twice. The assessee's contentions have been considered carefully. Since the refund including interest 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....
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....Commissioner of Income-tax (Appeals) has wrongly accepted the assessee's claim. 44. Per contra, the submissions of the authorised representative that the Commissioner of Income-tax (Appeals) has rightly deleted the addition made by the Assessing Officer. In this manner, he supported the findings of the Commissioner of Income-tax (Appeals). 45. We have heard rival contentions of both parties 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 ....
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....Income-tax (Appeals) on the basis of following findings : "9.3 Respectfully following the decision of the hon'ble jurisdictional High Court in the appellant's own case in TCA No. 665/04 order dated March 9, 2009, the above additions are not called for and hence deleted." Therefore, the Revenue has raised the instant ground. 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. ....
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....emanded to the Assessing Officer for computation in accordance with law, in light of the law enunciated in this judgment." Taking cue from the abovesaid observations of the hon'ble Supreme Court, we are of the view that in the instant case, none the less the assessee is entitled to write off the debts. At the same time and in the light of the hon'ble Supreme Court's observations, we also feel that while writing off the bad debts, the concerned assessee is not entitled to double deduction. It is also noticed that even the hon'ble Supreme Court has 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-app....
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....on payment starts after employees retired from active service. The pension fund was registered at the office of the Chief Commissioner of Income tax, Chennai. Agreement signed by all the parties (i.e.) bank, employees and IBA in January 1998. The Central Board of Direct Taxes was requested to grant exemption from rule 89. The exemption was given to nationalised banks in 1996. The application filed by the private sector banks were kept pending by the 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 ....
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....for business purposes. The retired employees are also equal to existing employees. They are also associate members of the union/association. The payment was not made for personal or private purposes. On these grounds the Commissioner of Income-tax (Appeals) had erred in disallowing the claim with the ruling that the pension payments were not made to any approved pension fund. IV (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." 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....
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....at only AFS and HFT category of securities would alone qualify for treatment as stock-in-trade. 4.1 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 confirmed the broken-period interest paid towards securities (AFS and HFT categories treated as stock-in-trade) lying unsold as closing stock. The Commissioner 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....
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....Steels Ltd. and M/s. Aruna Textiles and Exports Ltd. are genuine. Depreciation 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 mis management of business affairs by the lessee the projects failed after two years from the date of loan. (iii) The other banks were also advanced money to the lessee under different 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) t....
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....r of Income-tax (Appeals) erred in deleting the addition of surplus amount of Rs. 1,62,971 received from jewellery auction. 5.1 The Commissioner of Income-tax (Appeals) failed to follow the ratio of decision of the apex court in the case of CIT v. T. V. Sun daram Iyengar and Sons [1996] 222 ITR 344 (SC). The surplus arising from sale of jewels and lying unclaimed with the bank for more than 3 years ought to have been confirmed by the Commissioner of Income-tax (Appeals) as this surplus ought to be treated as income in the light of the abovereferred decision. 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 fi....
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....dition by holding as under : "6.3 Respectfully following decision of the hon'ble Income-tax Appellate Tribunal in this regard the Assessing Officer is directed to delete the addition on surplus from jewellery auction Rs. 1,62,971." 64. The Departmental representative representing the Revenue has assailed the Commissioner of Income-tax (Appeals) findings by reiterating the grounds raised in appeal as well as case law of T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 (SC). Whereas, the assessee 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 bo....
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....iple appears to be that if any amount is received in the course of trading transaction, even though it is not tax able in the year of deposit as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common-sense demands that the amount should be treated as income of the assessee'. 4. The above ratio was rendered on account of facts of that case where the Income-tax Officer found that for the assessment years 1982-83 and 1983-84, 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 ....
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....and 1139/Mds/03). 10.1 The issue raised in this regard reads as under : 'The Commissioner of Income-tax (Appeals) has failed to note that surplus amount was held by the assessee-bank because of non-loca tion of customers to whom the surplus amount was payable and they were in the nature of forfeited money by the customers which remained undisturbed and no claim from the customers was made. Further, the surplus amount on jewel auction was lying with the asses see-bank for being circulated in the business which earned income.' 10.2 On this issue, the assessee's claim is that the 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 ....
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....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. one lakh. Therefore the estimated disallowance of 2 per cent. on income from tax-free bonds may kindly be restricted to Rs. one lakh. 3. The learned Commissioner of Income-tax (Appeals) has erred in treating 2 per cent. of dividend income as estimated expenses on earning dividend income. 3.1 Your appellant a banking 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 ....
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....d also. On application by IBA to the Central Board of Direct Taxes, for giving exemption to rule 89 to all banks, the Central Board of Direct Taxes permitted the nationalised banks alone to have self-managed pension fund. Therefore, once again the private sector banks association had requested Central Board of Direct Taxes to grant exemption for them also. 5.2 This petition was pending before the Central Board of Direct Taxes. Since the pension was payable from 1993 the appellant-bank in order to avoid strike by employees and to have a harmonious rela tionship paid the pension directly without resorting to purchase of annuity. 5.3 The Central Board of Direct 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 sec....
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....aded as under : "1. The order of the Commissioner of Income-tax (Appeals) is contrary 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. 20,79,27,343. 2.1 The Commissioner of Income-tax (Appeals) failed to appreciate that Reserve Bank of India is a regulator of banks and can 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 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 ....
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....trade) lying unsold as closing stock. The Commissioner of Income-tax (Appeals) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS and HFT securities (treated as stock-in-trade) lying unsold as closing stock. 3.2 The Commissioner of Income-tax (Appeals) failed to consider the fact that this argument has not been taken up before and there fore ratio of decision of the assessee-bank for the earlier year is not applicable to the facts of the case. 4. The Commissioner of Income-tax (Appeals) erred in deleting the disallowance of amortisation expenses of Rs. 1,68,15,534. 4.1 The Commissioner of Income-tax (Appeals) failed 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) ....
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....ge outstanding rural advances made by the bank at the end of the accounting year without restricting the deduction to the incremental advance made during the year. The Commissioner of Income-tax (Appeals) failed to appreciate the fact that income for each year is required to be computed separately as each accounting year is a separate unit for assessment purpose and therefore deduction was available only on incremental rural advance during the year and not total outstanding at the end of the accounting year. 8. 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." 70. The facts 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....
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....isputedly, the order of the Commissioner of Income-tax (Appeals) has partly confirmed various additions (supra) made by the Assessing Officer, who had passed the order in furtherance to directions of the Commissioner of Income-tax, Trichy, vide order dated March 30, 2009, under section 263 of the "Act". It has come on record that the said revision order has been annulled by the co-ordinate Bench (supra), wherein one of us (N.S. Saini, Accountant Member) was Member of the Bench. The operative portion of the order reads as under : "8. We find that the provisions of section 263(2) of the Act reads as under : '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 afte....
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....ality, vide order dated March 29, 2004 passed under section 143(3) of the Act and do not arise out of the order dated December 29, 2006. Thus, if there was an error in the original order which was prejudicial to the interests of the Revenue, then time limit for revising under section 263 will be counted from the date of original assessment order. Only when there was some error which was prejudicial to the interests of the Revenue which was considered in the reassessment proceedings can be revised under section 263 by counting the period of limitation from the date of reassessment order. Our above view finds support from the decision of the hon'ble Supreme Court in the case of CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1 (SC), decision of the hon'ble Bombay High Court in the case of 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) wa....
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....missioner of Income-tax (Appeals) and that of the Assessing Officer have no legs to stand. Therefore, we hold that both these appeals have become infructuous as the additions in question made by the Assessing Officer no more hold ground. 75. As a sequel, both appeals have become infructuous. I.T.A. Nos. 930/Mds/2011 (by the assessee) and 1070/Mds/2011 (by the Revenue) 76. These cross-appeals by the assessee and the Revenue respectively; challenge the order of the Commissioner of Income-tax (Appeals), Tiruchirappalli, dated March 30, 2011 in I.T.A. No. 664/06-07 for the assessment year 2004-05, in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the "Act"). 77. The assessee has raised the following grounds : "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) 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 ....
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....and when an employee retires. 3.4 Your appellant paid pension directly to employees when the petition was pending before the Central Board of Direct Taxes. 3.5 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 when all other scheduled banks could follow the procedure laid down in rule 89, the assessee's act of resisting the import of rule 89 is not justified, is wholly erroneous and wrong. (page 18 of the order) 3.6 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 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 Corp....
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....r invest ing in shares and mutual funds. 5.4. Under the above circumstances the maximum administrative expenses will not be more than Rs. 1 lakh. Therefore the estimated disallowance of 2 per cent. on dividend income may kindly be restricted to Rs. 1 lakh. 6 The Commissioner of Income-tax (Appeals) has erred in dis allowing entire amount of presents given by the appellant. 6.1 It is a practice to give small memento/gifts to VIPs, participating in special occasions like branch opening, branch shifting, customers meet, and special meetings organised by banks to fulfil its social commitment. 6.2 The presents given at such occasions will develop good relationship between existing customers, and would be customers and bank. 6.3 The image of the bank will increase and more business will be done. 6.4 Your appellant himself has disallowed 20 per cent. of present 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 Commissione....
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....e-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 confirmed the broken-period interest paid towards securities (AFS and HFT categories treated as stock-in-trade) lying unsold as closing stock. The Commissioner of Income-tax (Appeals) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS and HFT securities (treated as stock-in-trade) lying unsold as closing stock. 3.2 The Commissioner of Income-tax (Appeals) failed to consider 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 se....
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....ve, we pass the same order in the instant case, i.e., grounds Nos. 2 and 5 are rejected and ground No. 3 stands remitted back to the Assessing Officer. This leaves us with grounds Nos. 4 and 6 raised in the instant appeal which pertain to pooja expenses and expenditure incurred by the assessee under the head "presents" made by the assessee for promotion of business. 79. Regarding ground No. 4, the relevant facts are that in the assessment proceedings, the assessee had debited an amount of Rs. 4,31,358 as pooja expenses. The Assessing Officer rejected the assessee's claim in the assessment vide order dated December 29, 2006 by terming it as inadmissible deduction, which has also been confirmed by the Commissioner of Income-tax (Appeals). 80. Challenging the Commissioner of Income-tax (Appeals)'s order confirming the disallowance of pooja expenses, the assessee has reiterated the submissions 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 disal....
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....ased on the particular facts and, therefore, no question of law arises out of the order of the Tribunal. The petitions are, accordingly, dismissed with costs. Counsel's fee Rs. 250 (rupees two hundred and fifty only), one set." In the light thereof, we are of the view that the Commissioner of Income-tax (Appeals) has erred in confirming the disallowance. Keeping in view the observations aforesaid, we accept the assessee's ground and delete the disallowance on account of pooja expenses. 83. Coming to ground No. 6. In the assessment proceedings, the assessee had claimed that it had incurred business expenditure for developing business by gifting small mementos and gifts on special occasions. Before the Assessing Officer, the assessee submitted that it had itself disallowed 20 per cent. of the expenses. In the assessment order, the Assessing Officer held that there is no proof of incurring expenditure for business 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 ....
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....mission that reason for disallowance of fifty per cent. on earlier occasion was not established by adducing cogent evidence that there has been purchase of the gift articles and the same were utilised for promotion and growth of business so as to bring the deduction under the head of business expenditure. In view of the aforesaid factual position it cannot be said that the facts and circumstances in the subsequent year is similar to that of the earlier year. Admittedly as correctly pointed out by Dr. Pal the evi dence were produced before all the authorities and indeed the Com missioner of Income-tax (Appeals) very carefully and elaborately dealt with the aspect of the evidence and found that there has been suf ficient proof that the gift articles were purchased and the same were sent to depots of the appellant at various places and the depot regis ters are maintained. Payments to the supplier were made by account payee cheque or otherwise. 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 h....
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....e learned Commissioner of Income-tax (Appeals), 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 appellant did not incur any expenditure in earning the tax-free income of dividends. The estimated disallowance at 2 per cent. of the tax-free income/dividend 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. 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, eve....
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....nly AFS and HFT category of securities would alone qualify for treatment as stock-in trade. 3.1 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 confirmed the broken-period interest paid towards securities (AFS and HFT categories treated as stock-in-trade) lying unsold as closing stock. The Commissioner 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. 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 Commis sioner 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. 7,30,92....
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....n this appeal, the Revenue has raised five substantive grounds, i.e., grounds Nos. 2 to 6 regarding disallowance of depreciation in the value of investment, interest claim on purchase of securities, disallowance of brokerage, bad debts and unclaimed balances. It is seen that in I.T.A. No. 897/Mds/ 2010 (supra) decided hereinabove, we have rejected the Revenue's contention qua disallowance of depreciation in value of investment. At the same time, in the said appeal, qua the interest claimed on purchase of securities and brokerage as well as bad debts, we have restored the matter back to the Assessing Officer. Therefore, grounds Nos. 3 to 5 of the instant appeal also stand remitted back to the Assessing Officer. 98. Ground No. 6 in the instant appeal pertaining to unclaimed balances for which disallowance was made by the Assessing Officer, but deleted by the Commissioner of Income-tax (Appeals). We take note of the fact that in I.T.A. No. 899/Mds/2010 (supra), we have decided this very issue 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 ....
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....ther 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. 1 lakh. Therefore the estimated disallowance of 2 per cent. on dividend income may kindly be restricted to Rs. 1 lakh. 4. The observation of the Commissioner of Income-tax (Appeals) that pooja performed by bank is not relating to banking business is not correct. 4.1 Conducting pooja gives peace of mind to employees in the midst of tension ; increases concentration power of employees ; develops unity among employees. These increases the output of employees resulting benefit for the organisation. 4.2 The Commissioner of Income-tax (Appeals) failed to apply High Court orders in the cases of (a) CIT v. Aruna Sugars Ltd. [1981] 132 ITR 718 (Mad) ; (b) Atlas Cycle Industries Ltd. v. CIT [1982] 134 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 gr....
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.... 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 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 HTM 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 ....
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.... 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. 6. The Commissioner of Income-tax (Appeals) erred in deleting of the disallowance of amortisation expenses of Rs. 22,51,01,585. 6.1 The Commissioner of Income-tax (Appeals) failed to observe that the premium paid over and above the face value of the HTM category of securities above the cost of the securities. 6.2 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. 6.3 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 guideline cannot override the provisions of the Income-tax Act. 7. For these and other reasons that may be adduced at the time of hearing, the order of the Commissioner of Income-tax (Appeals) ....
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....s raised total five substantive grounds. Ground No. 2 relates to disallowance of depreciation in the value of investments which we have already decided in favour of the assessee in I.T.A. No. 897/Mds/2010 (supra). Similarly, we notice in the said appeal that we have restored the issue pertaining to interest claimed on purchase of securities back to the Assessing Officer. In the light thereof, ground No. 3 in the appeal also stands remitted back to the Commissioner of Income-tax (Appeals). Ground No. 4 pleaded by the Revenue is about disallowance of brokerage which also stands restored to the Assessing Officer in I.T.A. No. 897/Mds/2010 (supra) for the assessment year 1999- 2000 decided hereinabove. So far as ground No. 5 is concerned, it is with regard to unclaimed balance regarding which disallowance was made by the Assessing Officer, but deleted by the Commissioner of Income-tax (Appeals). We have already upheld the Commissioner of Income-tax (Appeals)'s order in I.T.A. No. 1070/Mds/2011. So, we see no reason to interfere. 109. This leaves us with ground No. 6 raised by the Revenue challenging disallowance of amortisation of expense of Rs. 22,51,01,585. 110. The f....