TaxTMI 
TaxTMI 
2017 (4) TMI 1514
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the assessee. We find that there was sufficient cause for not filing these appeals before the stipulated time. Therefore, we condone the delay and admit the appeals. 3. Let's first take the assessee's appeal for assessment year 2003-04 in I.T.A. No.1340/Mds/2013. 4. The first issue arises for consideration is with regard to expenditure incurred by the assessee in issuing right issues. 5. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the total disallowance was Rs. 43,44,844/- on account of expenses incurred to increase authorized capital out of which, Rs. 42,94,844/- pertain to right issue expenses and the balance of Rs. 50,000/- pertain to listing fees paid to Security Exchange Board of India for listing bonus and right issues. According to the Ld. counsel, this amount of Rs. 50,000/- was paid to Security Exchange Board of India which is the statutory authority as per the Government stipulation. The Ld.counsel very fairly submitted that expenditure incurred by the assessee for increasing authorized capital to the extent of Rs. 43,44,844/- has to be disallowed in view of judgment of Apex Court in Brook Bond India Ltd. v. CIT (1997) 225 ITR 798. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sue in accordance with law after considering the judgment of Madras High Court referred above, after giving a reasonable opportunity to the assessee. 7. The next issue arises for consideration is with regard to disallowance of Rs. 2,01,63,763/- towards pension and family pension paid directly to the retired employees. 8. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that this issue was considered by this Tribunal in the assessee's own case for the assessment years 2001-02, 2004-05 and 2006-07 in I.T.A. Nos.902, 903, 904 and 907/Mds/2010, etc. dated 17.01.2013. This Tribunal in fact referred back the matter to the file of the Assessing Officer for reconsideration. This Tribunal found that the provisions of Section 37(1) of the Income-tax Act, 1961 (in short 'the Act') was not considered by the lower authorities. Accordingly, the matter was remitted back for reconsideration. The Ld.counsel submitted that the issue raised for the year under consideration was also similar, therefore, the matter may be remitted back to the file of the Assessing Officer. 9. We have heard Shri S. Sankaralingam, the Ld. Departmental Representative also. The Ld. D.R.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chase of securities. 12. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed the claim of the assessee on the ground that securities are stock-in-trade by referring to the judgment of Madras High Court in Tamil Nadu Mercantile Bank Ltd. According to the Ld. counsel, the Assessing Officer initially disallowed Rs. 92,96,31,764/- in the order dated 27.03.2006. By way of rectification order, the Assessing Officer gave relief to the extent of Rs. 67,97,07,529/-. The issue arises for consideration before this Tribunal only to the balance amount of Rs. 24,99,24,235/-. According to the Ld. counsel, in the assessee's own case, the Madras High Court in T.C. No.2139 of 2008 by judgment dated 13.07.2009, found that such expenditure is revenue in nature. A copy of the judgment is available at page 24 of the paper-book. 13. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the interest paid on purchase of securities is capital outlay. Therefore, the Assessing Officer by placing reliance on the judgment of Apex Court in Vijaya Bank in 187 ITR 541, disallowed the claim of the assessee. 14. We....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transit has to be allowed as revenue loss. Therefore, this Tribunal is unable to uphold the order of the lower authority. Accordingly, the orders of the authorities below are set aside and the disallowance made by the Assessing Officer is deleted. 19. The next issue arises for consideration is fees paid by the assessee to the auditors and advocates. 20. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed the fees paid to auditors and advocates for non-production of vouchers. According to the Ld. counsel, the assessee-scheduled bank is having 214 Branches across the country. The statutory audits are conducted every year by well-known Chartered Accountants. The fees were actually paid. According to the Ld. counsel, the concurrent and revenue audit were also done by outside auditors. Some of the Branches which paid fees was shifted to other locations. Therefore, according to the Ld. counsel, the assessee-bank could not produce the vouchers for payment of fees. Even though 60% of vouchers were collected and produced before the Assessing Officer, the remaining vouchers could not be produced. According to the Ld. counsel, after c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ving a reasonable opportunity to the assessee. 23. The next issue arises for consideration is addition on account of income received in advance. 24. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the assessee is following mercantile system of accounting, therefore, the provisions of Section 5(1)(a) of the Act is not applicable to the assessee. According to the Ld. counsel, in certain types of bills purchased and discounted, the interest was received in advance. If the bill was realized before 31st March, the interest amount collected in advance will not be distributed. However, if the actual realization was subsequent to the account closing day, the interest received upto the period of closing date was offered for taxation. The interest related to the period beyond the closing day was debited from interest received account and interest received in advance account was credited. The credit balance in interest received in advance is a liability on 31st March. After 31st March, the balance income received in advance is transferred to income account. According to the Ld. counsel, the Assessing Officer in the original assessment order dated 27.03.2006 had ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the year in which it was received, the Assessing Officer shall exclude such income in case it was offered in the subsequent year as claimed by the assessee. 27. With the above observation, the orders of the lower authorities are confirmed. 28. The next issue arises for consideration is disallowance of unpaid expenses. 29. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the unpaid expenses are ascertained liability for the services rendered and enjoyed by the assessee. According to the Ld. counsel, the building rent, electricity bills, telephone bills, courier and postage charges, audit fee are due for the month of March, in respect of services enjoyed by the assessee during the year under consideration. The liability to pay is also is also certain and crystalized. Since the assessee is following mercantile system of accounting, according to the Ld. counsel, the expenses relating to particular year, which was debited in the books, has to be allowed. Since the liability has incurred during the year under consideration, according to the Ld. counsel, the same has to be allowed during the year under consideration. 30. On the contrary, Shri S. Sankar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rant incentive. The incentive paid was claimed as ex-gratia payment to the bank employees while computing taxable income. The Assessing Officer disallowed the claim of the assessee on the ground that the incentive paid to the bank employees deemed to be distribution of profit to the employees. According to the Ld. counsel, in the assessee's own case, this Tribunal for the assessment year 2006-07, allowed the claim of the assessee in M.P. No.205/Mds/2013 dated 10.01.02014, a copy of which is available at page 281 of the paper-book. The Madras High Court in CIT v. Lakshmi Vilas Bank in Tax Case Appeal No.897 of 2013 by judgment dated 16.04.2014, a copy of which is available at page 284 of the paper-book, found that the ex-gratia payment has to be allowed as revenue expenditure. Therefore, according to the Ld. counsel, the CIT(Appeals) is not justified in confirming the disallowance made by the Assessing Officer. 34. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the assessee, in fact, distributed profits to the employees, therefore, it is an application of profit, hence, it cannot be allowed as revenue expenditure. 35. We have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee that no expenditure was incurred. In the absence of any details of expenditure for making investment in stocks and securities, the Assessing Officer has rightly treated 10% of tax-free income as expenditure. 40. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee is a scheduled bank engaged in the business of merchant banking. Therefore, investment made in shares and securities has to be classified as stock-in-trade. Once the investment was classified as stock-in-trade, this Tribunal is of the considered opinion that the expenditure incurred by the assessee has to be allowed while computing taxable income. The dividend income, which was exempted from taxation, was invested in the business of the assessee. Therefore, merely because the assessee has received dividend income incidentally in business activity that cannot be a reason to disallow any part of expenditure incurred by the assessee. Therefore, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of the authorities below are set aside and the addition made by the Assessing Office....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aims expenditure while computing taxable income, it is the responsibility of the assessee-bank, a public limited company in which public has substantial interest, to produce necessary vouchers before the Assessing Officer for establishing the payment. If the payments are not established, this Tribunal is of the considered opinion that the assessee cannot claim the same as expenditure incurred for the purpose of business. Therefore, the actual payment needs to be verified. Therefore, one more opportunity needs to be given to the assessee for producing necessary vouchers before the Assessing Officer. Accordingly, the orders of the authorities below are set aside and the addition made by the Assessing Officer towards publicity and advertisement expenses are remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter afresh in the light of the material that may be produced by the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 46. The next issue arises for consideration is depreciation on leased assets. 47. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng a reasonable opportunity to the assessee. 50. The next ground of appeal is with regard to disallowance of tax-free income under Section 80M of the Act. 51. We have heard Ld.counsel for the assessee and Ld. Departmental Representative. It is not in dispute that the investment made by the assessee in shares and securities has to be classified as stock-in-trade. Once the investment was classified as stock-in-trade, all the expenditure incurred by the assessee has to be allowed without any restriction. Therefore, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the disallowance made by the Assessing Officer is deleted. 52. The next ground of appeal is disallowance of Rs. 27,11,945/- towards other expenses. 53. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that some expenses were incurred by the assessee at various Branches. The vouchers were spread across all the Branches and also Administrative Office and Divisional Offices. In fact, the assessee requested for some time for production of vouchers before the Assessing Officer. In the meantime, the addition wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as revenue expenditure by order dated 17.01.2013. The Ld.counsel further submitted that the Madras High Court in CIT v. Aruna Sugars Ltd. (132 ITR 718) has also allowed the claim of the assessee. 58. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that if the assessee incurred the expenditure in the course of its business activity, it has to be allowed as deduction while computing taxable income. But, the assessee could not produce any material for incurring the expenditure so as to claim the same. A mere claim that the assessee has incurred Rs. 5,49,911/- as Pooja expenses cannot be allowed unless some material is produced to substantiate the expenditure incurred by the assessee. The Ld. D.R. further submitted that he would not have any objection if the matter is remitted back to the file of the Assessing Officer in case the assessee could produce some material before the Assessing Officer. 59. We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. D.R., if the assessee incurred expenditure for Pooja in the course of its normal business activity, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aim has to be allowed without verification. The Assessing Officer has to satisfy himself that assessee, in fact, incurred the expenditure in the course of its business activity. Therefore, this Tribunal is of the considered opinion that the assessee has to produce details of presents / gifts and the purpose for which it was given and the details of recipients. In the absence of such details, this Tribunal is of the considered opinion that the matter needs to re-examined by the Assessing Officer. In other words, giving one more opportunity to the assessee to produce necessary material would not cause any prejudice to the interests of Revenue. Accordingly, the orders of the authorities below are set aside and the disallowance made by the Assessing Officer to the extent of Rs. 4,45,425/- is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the material that may be filed by the assessee and decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 64. Now coming to Department's appeal in I.T.A. No.1496/Mds/2013, the first issue arises for consideration is rural debt written off by the assessee and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7. We have considered the rival submissions on either side and perused the relevant material available on record. The Ld. Departmental Representative is placing his reliance on the word "advances made" in Rule 6ABA of Income-tax Rules, 1962. However, the Ld.counsel for the assessee is placing reliance on the word "as outstanding" at the end of the last day of each month. This Tribunal is of the considered opinion that Rule 6ABA has to be read harmoniously by taking into consideration the entire language of the rule. Therefore, when the amounts of advances were made by each rural Branch and it was outstanding at the end of last day of each month has to be considered separately. This was actually taken by the CIT(Appeals). As rightly observed by the CIT(Appeals), provisions of Section 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent for claim of deduction and both of them operate in different field. The bad debt written off for which provision was made under 36(1)(vii) of the Act will be covered under main part of Section 36(1)(vii) of the Act. First proviso will operate in cases under clause 36(1)(viia) of the Act to limit the extent of different bad debts or part ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gly the same is confirmed. 73. The next issue arises for consideration is brokerage paid in respect of HFT and AFS categories of securities. 74. Shri S. Sankaralingam, the Ld. Departmental Representative, very fairly submitted that the brokerage paid for Held for Trading (HFT) and Available for Sale (AFS) has to be allowed in view of judgment of Madras High Court. 75. We have heard Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, also. According to the Ld. counsel, brokerage was paid in the course of acquiring the securities. Irrespective of category of securities, according to the Ld. counsel, the same has to be classified as stock-in-trade, therefore, the expenditure has to be allowed. 76. We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. D.R., the issue is covered in favour of the assessee by the judgment of Madras High Court. The brokerage paid by the assessee irrespective of categories of securities has to be allowed as expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entative, submitted that the CIT(Appeals) deleted the addition made to the office building on the basis of additional evidence filed by the assessee without calling for remand report. Therefore, according to the Ld. D.R., the matter may be remitted back to the file of the Assessing Officer for reconsideration. 83. On the contrary, Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that there is no addition to the building or construction of any new building. It is an expenditure incurred during the course of business activity in respect of the building, therefore, it is a revenue expenditure. 84. We have considered the rival submissions on either side and perused the relevant material available on record. The ground of appeal is with reference to addition made to office building. Now, the Ld.counsel for the assessee claims that there was no construction of any new building. Therefore, the exact nature of expenditure has to be verified. Moreover, the CIT(Appeals) allowed the claim of the assessee without affording any opportunity to the Assessing Officer. Therefore, the orders of the authorities below are set aside and the addition made by the Assessing Officer ....