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2017 (11) TMI 982
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....s no expenditure incurred by the assessee bank for earning tax free income and hence no disallowance should be made u/s 14A of the Income Tax Act, 1961. 3. The appellant contends that no expenditure is incurred for earning tax free income because a) expenditure incurred is for banking business of the assessee, b) assessee has sufficient non-interest bearing own funds to invest c) the investments made by the bank are to meet RBI norms like CRR, SLR ratios etc. d) the investments in the bank are made to realize gains or losses and earning dividend is only incidental, e) neither the Assessing Officer nor the CIT(A) has any material to support nexus between expenditure incurred and earning of tax free income for disallowance. Hence the order of the CIT(A) upholding disallowance u/s 14A is wrong and bad in law. 4. The CIT(A) has erred in treating sum of Rs. 9,20,47,969/- being software expenses alleging them to be of capital nature, consequently allowing depreciation instead of treating the entire amount as revenue expenditure. The appellant contend that the software expenses have not resulted in bringing into existence any asset nor any benefit of enduring nature. The....
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....ture in relation to earning exempt income and its calculation is prescribed therein. 6. On the facts and circumstances of the case, the Ld. CIT(A)has erred in law and facts by ignoring the fact that the section 14A talks about the investments made and the expenses paid there on. In its financials the assessee has no where been able to prove the distinction between its investments. 7. On the facts and circumstances of the case, the Ld. CIT(A) erred in law and in facts of the case by giving relief to the assessee on 100% depreciation claimed by the assessee on temporary fixtures, ignoring the fact that the fixtures noted by the assessee have longer life than one year. 8. On the facts and circumstances of the case, the Ld. CIT(A) erred in law and in facts of the case by ignoring the principal laid down by the apex Court in the case of Madras Industrial Corporation vs CIT where in expenses have been amortized over a period of five years. 9. On the facts and circumstances of the case, the Ld. CIT(A) erred in law and in facts of the case by ignoring the fact the assessee after being granted many opportunities, was not able to file any proof that it has....
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....hatsoever incurred by the bank is in the course of conducting the banking business under the banking Regulation Act, 1949 and hence, the expenditure is allowable as business expenditure as allowed in the past. The assessee had adequate share capital and reserves to cover the entire investment and therefore, there would be no expenditure for disallowance u/s. 14A. The AO was not satisfied with the explanation of the assessee and disallowed a sum of Rs. 50.52 crores u/s. 14A of the Act, applying Rule 8D against tax free income of Rs. 15,59,46,671/- earned by the assessee-bank. The ld. CIT(A) after considering the submissions of the assessee, decision of Hon'ble Bombay High Court, relevant provisions of section 14A and Rule 8D, deleted the indirect interest expenditure of Rs. 46.56 crores computed by AO u/r 8D(2)(ii) of the IT Rules. The ld. CIT(A), however, sustained the disallowance of Rs. 3.96 crores as computed by AO u/r 8D(2)(iii) of the IT rules, being 0.5% of average value of investments, as contemplated in the last limb of Rule 8D. 4. We have heard both the parties and have perused the material on record and we find that this issue is covered by the decision of ITAT, Delhi ....
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.... to be disallowed as per clause (iii) of sub-rule (2), which is to be determined on the basis of average value of investment from which the exempt income is earned. 2.2.3 Hon'ble High Court of Bombay in Godrej & Boyce Mfg. Co. Ltd. v. DCIT [2010] 194 Taxman 203 (Bom) held that as a result of the enactment of section 14A, no expenditure can be allowed as a deduction in relation to income which does not form part of the total income under the Act. Only that part of the expenditure, which is incurred in relation to income which forms part of the total income, can be allowed. The expenditure incurred in relation to income which does not form part of the total income has to be disallowed. The expression 'expenditure incurred' in section 14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for. Hon'ble High court further held that sub-sections (2) and (3) of section 14A are intended to enforce and implement the provisions of sub-section (1). The object of sub-section (2) is to provide uniformity of method where the Assessing Officer is, on the basis of the accounts of the assessee, not satisfied with the ....
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....nds are available, therefore, no disallowance of indirect interest expenditure can be made under Rule 8D(2)(ii). In view of the above the indirect interest expenditure of Rs. 45.52 crores computed by the AO under Rule 8D(2)(ii) for disallowance u/s 14A is not justified. 5.2.7 However, considering the tax exempt investment of Rs. 759.04 crores and tax exempt income of Rs. 46.56 crores, some administrative and managerial expenses are definitely incurred which are attributable to tax exempt investment income. Therefore, as per Rule 8D(2)(iii), 0.5% of average value of investment calls for disallowance u/s 14A keeping in view the administrative and managerial expenses attributable to tax free investment income. The AO has disallowed Rs. 3,63,00,0007- under Rule 8D(2)(iii) being 1/2% of average value of tax exempt investment which is, therefore, justified. In view of the above factual and legal position, the disallowance made by the AO u/s 14A is reduced from Rs. 49.15 crores to Rs. 3.63 crores. Accordingly the grounds of appeal are partly allowed." Similar finding has been recorded by the ld. CIT(A) in appeal for the assessment year 2009-10. Both the parties could not....
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....xpenses which were charged to revenue. Assessee stated that the expenditure pertained to license fee for use of various software applications, purchase of new software licenses of Oracle Data Base, Anti Virus Software, Support Charges for Software Items etc. AO observed that no breakup of expenses with reference to AMC etc. was provided except a list outlining total expenses incurred. The assessee also did not furnish any reason for not capitalizing the said expenses and charging them to revenue. The AO, therefore, following the decision in CIT v. Aravali Construction Co. Pvt. Ltd. 124 Taxman 146 (Raj) (2002) concluded that the expenditure incurred on acquisition of computer software was to be treated as capital in nature. Accordingly, the expenditure of Rs. 2,83,89,975/- was disallowed for A.Y. 2008-09 and in A.Y. 2009- 10 after giving corresponding depreciation, the expenditure of Rs. 7,11,05,582/- was disallowed by the AO. The ld. CIT(A) deleted the disallowance of expenditure incurred for AMC holding them as Revenue expenditure but sustained the disallowance of remaining expenditure incurred on software as capital expenditure. The findings recorded by the ld. CIT(A) on this iss....
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....ftware Tech P.L. AMC Relay Server 41,800/- 14-08-2008 Network Solution P.L. AMC of Networking at PDC 3,25,000/- 01-10-2008 Logica P.L. AMC of QPH & QLM for RTGS 4,63,5007- 03-01-2009 HCL Infosystems Ltd. AMC IBM Websphare for rtgs application 2,62,045/- Network Solution P.L. AMC Information Security Infrastructure 1,62,500/- Logica Pvt Ltd. AMC of QPH & QLM software 1,54,500 Network Solutions P.L. AMC networking of 440 OBC & 104 Egtb 4,60,591/- 24-03-2009 Wipro Limited AMC of hw/sw cluster installed at PDC 27,79,357/- 26-03-2009 FSS Pvt. Ltd. AMC of BASE 24 Software PDC 16,73,010/- 26-03-2009 FSS Pvt. Ltd. AMC of BASE 34 Software DR Site 7,83,180/- 27.03.2009 Network Solutions Pvt. Ltd. AMC cluster cisco router & software switches at PDC 4,40,000/- Total: 74,95,483/- Therefore, the above expenses of Rs. 74,95,4837- are clearly revenue expenses and AO is not justified in treating the same as capital item. Out of the remaining expenses only the under mentioned five ....
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....ws relied upon by the appellant has rightly been distinguished by the ld. CIT(A). We, therefore, find that the ld. CIT(A) has passed a good order which needs no interference on this issue. Accordingly, grounds No. 7 in both the appeals of the assessee are dismissed." Following the decision of co-ordinate Bench, grounds Nos.4 & 5 of the assessee's appeal are dismissed. 7. The Revenue in its appeal, by way of grounds Nos. 7 & 8 has challenged the deletion of addition of Rs. 7.68 crores made by the AO on account of excess depreciation claimed on temporary wooden structure. This issue is also covered by the aforesaid decision of Tribunal for A.Y. 2008-09 & 2009-10 (supra), whereby the issue has been restored to the file of AO observing as under : "11. Issue No. 5 : This issue involved in both the appeals of the Revenue pertains to 100% depreciation on temporary wooden structure allowed by the ld. CIT(A). The brief facts of the case are that the assessee-bank claimed 100% depreciation on temporary erections including internal partition, cabin formation, flooring and concealed wiring etc. for the computers aggregating to Rs. 10,01,24,279/- and Rs. 9,60,81,761/- as supporte....
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....O to decide the same in the same lines as directed by the Tribunal in appeal for A.Y. 2007-08 as noted above. Accordingly, grounds Nos.3 & 3.1 in Revenue's appeal for A.Y. 2008-09 and ground Nos. 2 & 2.1 in Revenue's appeal for A.Y. 2009-10 are allowed for statistical purposes." Respectfully following the above decision, this issue is restored to the file of AO to decide the same, as directed by the Tribunal in appeal of the assessee for A.Y. 2007-08, as indicated above, after affording an opportunity of being heard to the assessee. Accordingly, grounds Nos. 7 & 8 of the Revenue's appeal are allowed for statistical purposes. 8. The next issue involved in appeal of the Revenue, challenged by way of grounds Nos. 9 to 11, relates to deletion of addition of Rs. 17.00 crores made by AO on account of interest on overdue deposits. Similar issue came for consideration in the identical facts before the Tribunal in appeal of the Revenue in case of assessee itself for A.Y. 2009-10, wherein, the coordinate Bench vide order dated 27.12.2016 (supra) has decided the matter in the following manner : "13. Issue No. 6 : This issue involved in appeal of Revenue for A.Y. 2009- 10, relat....
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....limited purpose to verify whether actual payment of the provision has been made to the customers or not and to decide the same accordingly as per law. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, ground No. 3 of Revenue's appeal for A.Y. 2009-10 is allowed for statistical purposes." Following the above findings of the Tribunal, we restore this issue to the file of AO to decide the same afresh in the light of directions given by the Tribunal in appeal of Revenue for A.Y. 2009-10, as reproduced above. Accordingly, grounds Nos. 9 to 11 of Revenue's appeal are allowed for statistical purposes. 9. The last issue involved in appeal of the Revenue relates to deletion of addition of Rs. 527.93 crores made on account of excess deduction u/s. 36(1)(viia) of the IT Act. In our considered opinion, this issue has been properly dealt with by the ld. CIT(A) after appropriate consideration of the relevant provisions of law. The observations made by the ld. CIT(A) in the impugned order read as under : "4.5.1 In ground no. 10,11,12 & 13 of appeal the plea of the appellant inter alia is that the AO has erred in making a disallowance o....
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.... income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : [Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:] [Provided further that for the relevant assessment years commencing on or after the 1st day of April. 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted :] [Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a furth....