TaxTMI 
TaxTMI 
2021 (10) TMI 1330
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....ng aggrieved by order dated 4-1-2016 passed by learned Commissioner of income Tax (Appeals] 10, Ahmedabad [hereinafter the learned CIT(A)], this appeal is filed on following grounds, which may be considered without prejudice to one another. 1.0 Disallowance u/s 14A r.w. Rule 8D Rs. 26,19,60,802 (Rs. 26.19 crores) plus suo moto disallowance of Rs. 106,38,000 (Rs. 1.06 crores) 1.1 In facts and circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance out of interest expenses to the extent of Rs. 24.26 crores and out of operating expenses to the extent of Rs. 3.00 crores, thus aggregate Rs. 27.26 crores (inclusive of disallowance out of operating expenses of Rs. 106 crores volunteered u/s 14A by the Bank) i.e. confirming disallowance by upholding invocation of Rule 8D in relation to tax-free income of Rs. 13.83 crores. The disallowance is unlawful and, in any case, highly excessive and unrealistic in facts and law of the case. 1.2 In facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that (i) The Bank held (except shares in subsidiaries/JV companies) its entire investment port....
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.... any tax-free securities, no disallowance was warranted out of interest expenses having regard to adequate interest free funds available in the form of paid-up share capital, reserves and interest-free current account balances of constituents, as held by the Hon. Gujarat HC for A.Y. 2002-03 to AY 2005-06 and upheld by the Hon. S.C. for A.Y. 2003-04 in the Bank's own case and particularly without giving any cogent reasons how the said Hon. HC and Hon. SC orders u/s 14A though for pre-Rule 8D years are irrelevant in application of Rule 8D r.w.s. 14A during the previous year. 1.5 In facts and circumstances of the case and in law, the learned CIT (A] erred in not appreciating that administrative expenditure was incurred in the course of banking business and no port of such expenditure could have been disallowed u/s 14A as held by the Hon. Gujarat HC for A.Y. 2002-03 to 2005-06 rejecting the Revenue TA in the Bank's own case, much less by sustaining harbour formula of Rule SD. 1.6 Without prejudice it is submitted that suo-moto disallowance out of operating expenses at Rs. 1.06 crores be cancelled or alternatively the said disallowance be restricted to 1% to 2%....
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....d that the AO be directed to allow reduction of Rs. 2.54 crores recognized as income during the previous year which was disallowed and taxed as accrual of income last year, resulting into double taxation of the same income without expressed authority of the Act and ought to be so reduced even on the principle of equity and justice. 3.0 Bank Guarantee (BG) commission income prorate relatable to unexpired period treated (w.e.f. A.Y. 2010-11) by the Bank as income received in advance but held taxable Rs. 136.52 crores 3.1 The learned CIT(A) erred both in law and on facts in upholding the addition of Rs. 136.52 crores in respect of BG commission income for unexpired period (beyond year end) as chargeable income of the previous year, but treated by the Bank as pre-received income. 3.2 It is submitted that there is nothing in section 145 to prohibit a change from one regular method of accounting to another regular method. The learned CIT(A) failed to appreciate that prudence and conservatism require not anticipating a receipt which had not become due at previous year end. 3.3 It is submitted that the changed pro-rate method is not devoid of logic, on t....
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....recognised as expense in hands of the customer. It is, therefore, submitted that addition of Rs. 136.52 crores in respect of commission income relatable to period beyond previous year end be cancelled. The appellant craves leave to add, to amend, alter, delete and/or modify the above grounds of appeal on or before the final date of hearing. 2.1 The assessee vide letter dated 27/11/2017 has filed additional grounds of appeal as detailed under: Additional ground in the application dated 27-11-2017 1.1 The Appellant submits that Employees stock Options plan (ESOP) cost of Rs.250.63 crores, incurred by the Appellant on issue of new shares to the eligible employees ought to be allowed as deduction under section 37 of the Act and other applicable provisions of the Act. 1.2 The ESOP cost of Rs.250.63 crores represents the difference between the market price of shares as on date of exercise and the exercise price (being market price of share as on date of grant option). The Appellant submits that it be granted deduction of the said ESOP cost of Rs.250.63 crores while computing its total income for the assessment year under consideration. 1....
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....ccordingly, the AO made the disallowance of the balance amount of Rs. 26,19,72,629/- and added to the total income of the assessee. 4. The aggrieved assessee preferred an appeal to the Ld. CIT(A), who found that his predecessor in the own case of the assessee for the Assessment Year 200809 has also made the disallowance in the identical manner vide order dated 01/12/2011. Accordingly, the Ld. CIT(A) upheld the disallowance made by the AO under the provision of section 14A r.w. Rule 8D of Income Tax Rules. 5. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 6. The Ld. AR before us filed a paper book running from pages 1 to 464 and contended that the Ld. CIT(A) has made the disallowance under the provisions of section 14A r.w. Rule 8D after making the reference to the order of his predecessor for the Assessment Year 2008-09 which has been reversed by order of the ITAT in ITA No. 251/AHD/2012 vide dated 24-01-2017. 6.1 The Ld. AR further contended that the order of the Tribunal for the AY 200809 bearing ITA No. 251/AHD/2012 was also upheld by the Hon'ble High Court of Gujarat in tax appeal No. 878 of 2001 vide order dated 12-12-2017. ....
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....inistrative expenses need to be disallowed and since the assessee has made suo moto disallowance of Rs. 63,84,525/-, in our considered opinion, this should meet the ends of justice. We, accordingly, confirmed the suo moto disallowance of Rs. 63,84,525/-. Ground no. 2 Is accordingly dismissed and the additional ground raised by the assessee is also dismissed. 8.2 The fact of the case on hand seems identical to the fact of the case as discussed above in ITA No. 251/Ahd/2012 (Supra). However, before parting it is pertinent to note that the ITAT has not given any detailed findings based on reasons with respect to the administrative expenses disallowed under the provision of Rule 8D(2)(iii) of Income Tax Rules. The assessee has made suo moto disallowance of Rs. 1,06,38,000/- without any basis. Accordingly, a question was put up to the ld. AR for the assessee at the time of hearing to explain the basis of making the disallowance of Rs. 1,06,38,000/- but he failed to provide any information. Rather the Ld. AR requested to set aside the issue to the file of the AO to allow one more opportunity to the assessee to furnish the details concerning the basis adopted for disallowance of Rs. 1,....
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.... securitisation of loan assets for Rs. 17.99 crores ( 2.54 crores, the brought forward balance and 15.45 crores the income in the year under consideration). 12.3 The assessee also submitted that above system of recognising the income on the sale of loan assets under securitisation has been followed by it consistently in pursuance to the RBI guidelines dated 1st February 2006. The above system of accounting was also approved by the statutory auditors and the shareholders of the bank. 12.4 Admittedly, under securitisation the loan assets are transferred to the SPV but the bank (assessee) carry the responsibility for servicing the loan till it comes to the end. Furthermore, the bank remains liable to the investors to provide safeguard for the security, loan documents etc. Accordingly, the assessee contended that it is recognising the income by spreading the same over the residual term of the loan. 12.5 The assessee also contended that it is paying tax on the maximum marginal rate and without any tax holiday benefit. Thus, the amount of income recognized by the assessee over the residual period of the loan is nothing but represents the timing difference. Hence, it is a tax neu....
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....ere is no uncertainty to the income on these transactions, there is no question of postponing the income. In my view the appellant's sell transactions as if the category of true sale to which AS 9 apples and as per that revenue need to be recognized in the year of sale. Even otherwise, since appellant's transactions were complete in this year with no uncertainty or liability in future, there is no question of postponing income has to be taxed on the basis of accrual and not on the basis of accounting entries. Accounting entries may be prescribed for the purpose of disclosure but that cannot decide the taxability of income Wherever there is any conflict between income tax act and accounting standards prescribed by any authority, income tax act will prevail. The chargeability of income not based on accounting standard or accounting guidelines but it is based on real income earned. When there is no dispute or confusion about the quantum of income, income earned cannot be postponed to the future year. In view of this I agree with the assessing officer that deferment of income is not justified. Addition made by the AO is therefore confirmed. Appellant's cla....
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....loans transferred to the assignee/ SPV. The bonk also provides credit enhancement in the form of, cash collaterals and/ or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc./ accepted by the Bank, appropriate provision/disclosure is mode at the time of sale in accordance with AS-29- provisions, contingent liabilities and contingent assets. Gains on securitization transaction is recognized over the period of the underlying securities issued by the SPV. Loss on securitization is immediately debited to Profit and Loss Account. 7.2.further, it is seen that 'Notes to account'(Para 5.1.15) reads as under:- 31.03.07 (RS in Cr.) Number of loon accounts securitized 2.00 Book value of loan assets securitized 547.16 Sale consideration received for the securities assets 550.09 Net gain/ loss over net book value 2.93 7.3 The assesses was asked to explain where the above amount of Rs. 2.93 crores has been offered as income in its annual accounts. In this regard, the assessee contend....
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....come. The Id. CIT (A) confirmed the addition made by the A.O. Before us, the Id. counsel for the assessee once again stated that being a bank It has to monetarily follow the guidelines Issued by the RBI. It is the soy of the ld. counsel that It is not the case of the revenue authorities that the assessee has not followed the guidelines of the RBI, Therefore, the action of the A.O and also of the ld. CIT (A) ore against the facts of the case. Per Contro, the Id. D.R. strong relied upon the order of the revenue authorities. 27. Having heard the rival submissions, we hove carefully considered the orders of the authorities below. It is a settled proposition of law that what is relevant far income Tax on the basis is the real income as held by the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. 225 ITR 746. Various High Courts have given due recognition to RBI guidelines which determined the taxation of banks/NBFC. The Hon'ble Uttaranchal High Court in the case of Nainital Bank Ltd., 309 ITR 335, Hon'ble Allahabad High Court in the case of Kailash Auto Finance Ltd. 320 ITR 394 and also Hon'ble High Court of Delhi in the case of Elgi Finance Ltd.....
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.... 18.1 The change in the policy for recognising the income in the books of accounts was justified by the assessee on the reason that the bank guarantee is issued for certain period of time but the same can be rescind before the expiry of term on account of any reason. In that event the assessee has to refund the guarantee commission under the rules framed by the Foreign Exchange Dealers Association of India. Thus, the assessee changed its accounting policy to recognise the commission income qua the bank guarantee furnished which is accrued during the period of 12 months comprising in the financial year. There is no prohibition under the provisions of section 145 of the Act to change the policy to recognise the income if it is based on bona fides reasons. 18.2 However, the AO disregarded the contentions of the assessee by observing that there was no requirement for changing the accounting policy either under any statute or mandated by the ICAI. The assessee consistently has been following the system of recording the commission income on upfront basis. Similarly, the assessee has not given any justification that the change in the method of accounting will show the better presentat....
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....h bank guarantee. However, the appellant changed its policy to recognize the commission income on guarantees whereby all kinds of guarantees issued by the bank was recognized on pro-rata basis over the period of the guarantee The AO held that such a change in the method resulted in to lower income for the year under consideration and the change was also not justified. He therefore added a sum of Rs 136.52 Crores as income considering the non acceptance of the changed method and as per note in the audited accounts It is necessary to understand the various types of bank guarantees so as to ascertain whether in respect of the guarantees issued by the appellant there is any service remaining to be provided as is the case of deferred payment guarantees 7.3 1 The various types of Bank Guarantees are generally issued as below. i) Financial Guarantee: Here, the bank guarantees that the beneficiary will meet the financial obligation and in case he fails the bank as a guarantor is bound to pay. ii) Performance Guarantee1 Here the guarantee issued is for honouring a task and completion of the same in the prescribed/agreed upon manner as stated in the guarantee docum....
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....ny such commission has been refunded. If on happening of any such contingency in future during tenure of guarantee any such payment or refund is given, the same can be certainly claimed as expenditure in accordance with the provisions of law or as a loss incidental to the business in the year in which such even occurs but in such a case, (here is no effect as far as the commission income which has already accrued & the time of issuing the guarantee is concerned. By changing the method, the assessee cannot reverse the accrual of income. The basis of accounting the income and its chargeability is now specified in section 145 and the assessee can adopt either cash or mercantile method. Once the mercantile method is adopted for several years on the correct basis under which the commission income on normal type of financial guarantees is accounted for and taxed upfront. there is no justification to change the same in the year under consideration as that would disturb the very fundamental of accrual concept. 7.3.3 As far as the various case laws on which reliance is placed by the appellant it is to be stated that they are not relevant to the issues on hand. The decisions upholdi....
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....made in the year which was under consideration). The Bombay High Court in 214 Taxman 548 affirmed the said decision because the facts found in that case were that the guarantee which has been issued for a certain period of time is cancelled by the client before the expiry of the tenure of the guarantee, resulting into the respondent-assessee returning to its clients the part of the guarantee commission attributable to the unexpired period of the guarantee, hence the facts are clearly distinguishable from the facts of the appellant's case in which the commission income on bonk guarantees was accounted for upfront in the past (except deferred payment guarantees) and the same was regularly followed and accepted in the past and there is no refund clause as noted above. 7.3 6 Regarding the contention that the guarantee transaction, does not get concluded or completed upon the signing of guarantee deed and it may be involving risk where the guarantee is invoked by the beneficiary, as already discussed above, there is no services to be rendered to the client from whom commission is received by the appellant and in the eventuality of invocation of guarantee , such payment by t....
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....iod and hence the expense was spread over the period of use in the instant case, it is not the case of any such expenditure of which benefit is received (or future years but here the case is of receipt of income on accrual basis. 7.3.7 In my opinion, once guarantee is issued, the service to the client gets concluded unlike in the case of deferred payment guarantee where the provision of service is continued in respect of future payment. The contention of the appellant that a change in accounting policy is permissible, there is no dispute about such contention Also, the fact that in the year of change (here may be transitional impact is not the question relevant in the instant case. The moot question is that is there any justification which may permit the change in the accounting policy once the concept of accrual is considered and guarantee commission is held io have accrued when the guarantee is issued. 7.3.8 As regards the contention that change in method is merely a timing difference and reliance on the decisions in the case of Nagri Mills Limited 33 ITR 681 and Excel Industries Limited relied upon by the appellant the decision of the Nagri Mills was pertaining....
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....scuve of the period for which the guarantee is given, if the customer does not make a default to the third party, theft this au-arc-itss zxpiKi at the end of the period and the security received from its customer, in the shape of FOfii. is returned There may be situation in which the client revokes the guarantee onor to the completion of the guarantee period 01 commits the default as o result of which the bank hoi to appropriate the proceeds of the security to satisfy the third part. Whatever may be the case the bank incurs no personal obligation cither at the time of issuing guarantee or thereafter, which may land it into situation of paying from its own pocket The bank's duty is only to either return the security in the shape of FDfts tc its customer as such at ibe end of the guarantee period, if all goes well, or to appropriate the security in discharge of obligation of the customer to the third party, in case of default Ordinarily the guarantee commission, once received, is not returnable even if the customer revokes the guarantee prior to the prescribed period. In such a case, the income accrues at the time when the guarantee is given irrespective of the duration of the gu....
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.... show the understanding between the Dank and the customer to that extent, in that situation the accrual of entire income will not take place on furnishing guarantee, but it will be spread over the period to which the guarantee relates If, however, the amount of the guarantee commission is 'Cceived at ,'; siretch and there is no contingency of paying it beck even in the eventuality of revoking the guarantee prior to the completion of the guarantee period, then the entire amount of guarantee commission will partake the character of income in the year of receipt itself. Coming back to the facts of our case, we find that no material has been placed before us to demonstrate that there was any clause in the agreement or there wo.-, some other material obliging the bonk to refund the part of the guarantee comniission. in case it is eoetici revoked." 7.3.10 In view of the above, the contentions of the appellant cannot be accepted. The plea that a right always remain with customer to recall the payment for the debt of unexpired period and that it can be enforced by The Ombudsman Office or regulatory authority is not supported by evidence on record and are merely empty argum....
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.... deferred payment guarantees), the Bank now recognizes the income on a pro-rata basis over the period of the guarantee. As a result of the aforesaid change in policy, other income for the year is lowe by Rs.136.52 crores with a corresponding increase in other liabilities. 20.1 Now, first let us understand what does the accounting policy means. Accounting policies are the specific doctrines, conventions, rules and practices adopted by the assessee in the preparation and presentation of financial statements. These policies are used to deal specifically with complicated accounting practices such as depreciation methods, recognition of goodwill, preparation of research and development (R&D) costs, inventory valuation, and the consolidation of financial accounts. These policies may differ from company to company. It is the management of the company to choose specific accounting policies that are advantageous to the financial reporting of the company. Once a policy has been adopted by the company but on a later date the management decides to change the same then, the onus of justifying the change in accounting policy is on the assessee. In other words, the assessee has to justify the ....
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....o 277 of the paper book. 20.5 We also draw support and guidance from the judgment of Hon'ble Madras High Court in the case of CIT Vs. Coral Electronic Pvt Ltd. reported 274 ITR 336, where it was held as under: 8. In the instant case the amount that was received was only as charges for the services to be rendered in future. The services may be rendered or may not be rendered depending upon withdrawal of the money as and when the customer required. So, it is highly uncertain as to whether it would at all remain as income of the assessee. Only when the service is done the assessee has a right over the amount that was deposited. Till then, he has no right over the same. It is in that sense till then, it cannot be considered as an income of the assessee and is not exigible to tax. Therefore, the issue is answered in favour of the assessee and against the revenue. 20.6 We further draw support and guidance from the judgment of Hon'ble Delhi High Court in case of CIT Vs. Dinesh Kumar Goel reported in 331 ITR 10, where it was held as under: In the instant case, it was apparent that at the time of admission, the students were required to deposit the whole fee of the e....
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....al grounds of appeal has sought the deduction on account of education, secondary and higher education cess as well as employee stock option plan for Rs. 44,06,59,588.00 and 250.63 crores respectively. 22. The assessee has submitted two applications dated 27-11-2017 and 9-9-2020 for admitting the additional grounds of appeal which read as under: Additional ground in the application dated 27-11-2017 1.4 The Appellant submits that Employees stock Options plan (ESOP) cost of Rs.250.63 crores, incurred by the Appellant on issue of new shares to the eligible employees ought to be allowed as deduction under section 37 of the Act and other applicable provisions of the Act. 1.5 The ESOP cost of Rs.250.63 crores represents the difference between the market price of shares as on date of exercise and the exercise price (being market price of share as on date of grant option). The Appellant submits that it be granted deduction of the said ESOP cost of Rs.250.63 crores while computing its total income for the assessment year under consideration. 1.6 The appellant craves leave to add, amend, alter, substitute, delete and/or modify in any manner whatsoever th....
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....he relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. 25.1 The view that the Tribunal is confined only to issues arising out of the appeal before Commissioner (Appeals) is too narrow a view to describe the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 25.2 Since the claim of the assessee is purely legal claim and entire facts are available on record. Thus it is not j....
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....es]; and cash profit after tax of Rs. 2718 crores earned during the previous year. (iii) Dealing in shares and securities is one of the principal and core business of the Bank. (iv) There was no specific borrowing for making such tax-free shares and securities; there is no adverse evidence even for primary presumption that interest-bearing funds have been utilized for making tax-free investment. (v) The Bank earned trading profits of Rs. 366 crores from shares and securities as business profits which was much higher than the tax-free dividend income of Rs. 16.25 crores. The primary object of the treasury operations is to reap trading profits and not to earn tax-free income. Tax-free securities yielded meagre ROR of 1.03% p.a. (vi) The Bank has earned interest income far in excess of interest expenses there against i.e. there is no net interest expenses and Rule 8D(2)(ii) cannot be invoked. (viij Rule 3D is not charging provision. Rule 8D is subordinate to charge provide section I4A. Rule 8D w.e.f. A.Y, 2008-09 cannot supersede judicial authorities in the Bank's own case for A.Y. 2002-03 to A.Y. 2005-06 by Hon. Gujarat HC/Hon. SC. Rul....
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....ssessee to adopt accounting policies so as to represent a true and fair view. Para 9 of AS 1 notified u/s 145(2) permits a change in accounting policy if it is considered that the change would result in more appropriate preparation or presentation of the financial statements. 2.5 The adverse inference u/s 145 against the change is permissible only if accounting system adopted is contrary to prescribed AS u/s 145; or AS notified by ICAI u/s 211 (3c) of the Companies Act, 1956 or where true profits cannot be deduced 2.6 The learned CIT(A) failed to appreciate that the customer has right to receive refund for unexpired period in the event of BG being terminated period-. 2.7 Upfront collection of small BG commission is only mode of fee collection to cover several time more devolving risk. BG is a continuing obligation, the liability generally extends beyond previous year end and monetary risk upon invocation of BG is disproportionately high than rate of BG commission earned. 2.8 The issue merely represents a timing difference, tax-neutral and there is no loss of revenue if considered over the years [Please see Excel Industries Limited 358 ITR 295 [SC....
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....ines. 3.5 It is submitted that real income test does not authorize the AO to tax hypothetical interest income which is not real income earned by the assessee. 3.6 It is further submitted that alternatively the interest income deemed, by (he AO as accrued on 31-3-2011, becomes NPA interest on 30-6-2011 even as per 1991 RBI Guidelines 180 days overdue criteria (as against 90 days overdue criteria at present) under Rule 6EA. 3.7 Without prejudice it is submitted that interest income of Rs. 11.16 crores, deemed chargeable under Rule 6EA, should consequently be deemed bod debt write off as per present RBI binding directives and hence consequential allowable deduction u/s36fl)(vii). 3.8 Without prejudice and alternatively such interest income, deemed chargeable under Rule 6EA, becomes deemed provision for bad and doubtful debt u/s 36(I)fviia) and be allowed thereunder being within the ceiling limit of Rs. 546.07 crores allowable u/s 36(l)(viia). 3.9 It is further submitted that this addition is only timing difference based addition, tax neutral over two years and hence ought to be cancelled in view of Hon. SC judgement in the case of Excel Industries L....
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....he loss of revenue in the year of change is only a transitional one and over the years is tax-neutral. 4.6 The CIT(A) also failed to appreciate revised estimate adopted by the Bank, has foundational relevance to the nature of banking business carried on in the branches, offices, ATM, extension counters etc. which are housed in the premises acquired for long duration tenure upto 9 years period. 5.0 Deemed short term capital gains on transfer of depreciable residential flat Rs. 81,18,900 (Rs. 0.81 crores). 5.1 The CIT(A) erred to appreciate that residential flat was sold under Open Bid process, though registered agreement for sale was executed on 14-3-2011, only 10% of sale consideration was received upto 31-3-2011, possession of the flat was not given upto 31-32011, the Bank has exclusive right-to cancel the agreement for sale and reallocate the said flat to next successful bidder if balance sales consideration is not received within stipulated time. 5.2 The learned CIT(A) also failed to appreciate that balance 90% sales consideration was actually received during June/July, 2011, possession of the flat was actually given to the purchaser on 15-7-2....
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....No. 311/Ahd/2016. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the grounds of appeal filed by the assessee is allowed. 30. The next issue raised by the assessee in ground No. 3 is that the learned CIT (A) erred in confirming the addition of Rs. 11,16,75,000.00 being the amount of interest on the sticky advances under rule 6EA read with section 43D of the Act. 31. The assessee in the year under consideration has not recognised the interest as income on accrual basis with respect to the sticky advances i.e. the interest was due for 3 months. It was the contention of the assessee that as per the guidelines issued by the Reserve Bank of India, the advances/ loans in respect of which the interest was overdue for 3 months have to be categorised as non-performing assets. As per the assessee, the income on such overdue advances was to be recognised on realization/cash basis. The same method was also adopted by the assessee in the earlier years which was also accepted by the Revenue. The assessee also pointed out that the RBI guidelines are mandato....
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....red by Hon'ble Mumbai Tribunal in the following case GIG Housing Finance Ltd Vs Addl CIT ITA No. 1874/Mum/ 2010, it has been held that "In our view it cannot be said that the guidelines of trie NHB as and when they arc revised have to be treated by implication incorporated in Rule 6EB of the Rules. NHB is not the rule making authority for the purposes of Sec.43D of the Act. The discretion is left to the rule making authority to follow or not follow the guidelines of NHB as and when they are revised. The purpose of classification of debts as bad and doubtful by the NHB and the purpose of not recognising interest income for the purposes of the Act, are different. The considerations that weigh with the relevant authorities are also different. Therefore it cannot be said that the rule making authority under the Act has to automatically follow the guidelines of NHB as they exist from time to time. In that view of the matter, we cannot agree with the submission of the learned counsel for the Assessee, that the guidelines issued by the NHB, has to be read as part of Sec.43D of the Act. We cannot also agree that the expression "Having regard to" used in Sec.43D of the Act, mea....
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....pellant is dismissed. 33 Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 34. The learned AR before us contended that the assessee is not liable to recognize the income on the NPA as per the RBI Provisions. The ld. AR in support of its contentions vehemently relied on various orders which are placed on record. 35. On the other hand the learned DR before us vehemently supported the order of the authorities below. 36. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether interest income with respect to the loans and advances which were overdue for more than 3 months but less than 6 months should be recognized as income. The AO was of the view that the interest on such categories of loans and advances has to be recognized as income as per rule 6EA of Income Tax Rule read with section 43D of the Act. The view taken by the AO was subsequently confirmed by the learned CIT(A). 36.1 However we find that the banks are governed by the rules/ regulations/ schemes of the Reserve Bank of India. As per the guidelines of Reserve Bank of India the in....
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....ilar facts held as under: 20. Section 45Q finds place in Chapter IIIB of the RBI Act. Thus, the provisions of Chapter IIIB of the RBI Act have an overriding effect qua other enactments to the extent the same are inconsistent with the provisions contained therein. In order to reflect a bank's actual financial health in its balance sheet, the Reserve Bank has introduced prudential norms for income recognition, asset classification and provisioning for advances portfolio of the cooperative banks. The guidelines provided thereunder are mandatory and it is incumbent upon all co-operative banks to follow the same. Insofar as income recognition is concerned, clause 4.1.1 of the circular provides that the policy of income recognition has to be objective and based on the record of recovery. Income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis. Thus, in view of the mandate of the RBI Guidelines the assessee cannot recognise income from non-performing assets on accrual basis but can book such income ....
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....-B of the RBI Act, 1934. These norms deal essentially with income recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By virtue of Section 45-Q, an overriding effect is given to the RBI Directions, 1998 vis-àvis "income recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these RBI Directions, 1998 and the IT Act operate in different areas. These RBI Directions, 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the "permissible deductions" or "their exclusion" under the IT Act. The inconsistency between these Directions and the Companies Act is only in the matter of income recognition and presentation of financial statements. The accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the accounting policies followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the RBI Directions, 1998 in view of Section 4....
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....7/2008, ITA 408/2003 well. The assessee has further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the assessment years 2006-07. Reason was adverse financial circumstances and the financial crunch faced by Shaw Wallace. So much so, it was facing winding up petitions which were filed by many creditors. These circumstances, led to an uncertainty insofar as recovery of interest was concerned, as a result of the aforesaid precarious financial position of Shaw Wallace. What to talk of interest, even the principal amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". We are in agreement with the submission of Mr. Vohra on this count, supported by various decisions of different High Courts including this court which has already been referred to above. (2) In the instant case, the assessee-company being NBFC is governed by the provisions of RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI and Prude....
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....ble income. However, insofar as income recognition is concerned, the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act. That insofar as income recognition is concerned, section 145 of the Income-tax Act, 1961 has not role to play. 36.3 In view of the above we hold that there cannot be any addition to the total income of the assessee by way of interest with respect to the loans and advances which were overdue for 3 months. Thus we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 37. The next issue raised by the assessee in ground No. 4 is that the learned CIT (A) erred in confirming the disallowance made by the AO for Rs. 93.04 crores on account of lease operating expenses. 38. The assessee being the bank takes various premises/properties on long-term lease basis. These lease are known as operating lease. Generally, in every lease agreement there is a clause for increase of the rent either on yearly or once in 3 years. Accordingly the assessee was claiming the rent expenses on accrual basis in each year. However, the bank foun....
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....straight-line method. Thus, the AO disallowed the sum of Rs. 93.04 crores and added to the total income of the assessee. 39. Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO by observing as under: 10.3 I have carefully considered the submissions of the appellant and the assessment order. This ground is relating to disallowance of additional expenditure on account of revision of lease operating expenditure. The appellant included secondary lease period while claiming the liability of lease expenses. The AO has noted that the appellant reviewed the method of accounting for the said purpose and that the claim made was contingent in nature. The AO has noted that in the circumstances of lease being cancelled, the expenditure allowed would be claimed as deduction and the would never be taxed in the hands of the recipient. The AO has noted that judgment of Delhi High Court in the case of Virtual Soft System Ltd 341 ITR 593 was on different issue and was not applicable;. The appellant has mainly relied on AS19 and the case laws on Accounting Standards required to be followed. 10.3.1 Having carefully considered the observat....
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....f the appellant will show true & correct income / profit in any year. The appellant tried to explain the method with the help of the table mentioned above, but in the said table, the period of lease rent mentioned is static for six years, but the actual situation cannot remain same. Every year some new properties will be acquired on rent by the appellant and similarly few may be evacuated. This further shows that the method adopted by the appellant will create more confusion in maintaining the accounts of the appellant in next years. Moreover the appellant has not submitted any reason for change of method for accounting of this expenditure. The appellant was following the method for several years and change in the same in the year under consideration without any change of facts or circumstances is unwarranted. The appellant itself violated the principle of consistency without any reason. Keeping in view the facts of the case, reasons given for making additions, appellant's submission and the discussion above, it is found that the additions made by the AO are justified. Hence, these are confirmed. This ground of appeal is dismissed. 40. Being aggrieved by the order o....
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....y has also to be treated in the same manner. (3) A condition subsequent has to be recognised. The fact that the liability may ultimately get reduced or even become extinct does not make it a contingent liability. (4) A trader computing his taxable income is entitled to deduct payments actually made to his employees as well as the present value of any payments to be made in a subsequent year, if it can be satisfactorily estimated. 41.3 From the above, it is transpired that the liabilities which have accrued, the assessee can claim the deduction thereof. Admittedly, the deduction claimed by the assessee in the year under consideration considering the increament clause in the lease deed over the lease period has not been accrued to the assessee. As per the lease agreement, the liability arises to the assessee for its payment with respect to the increase rent in the later years. Thus in our considered view. Such amount cannot be treated as accrued liability. 41.4 We are also conscious to the fact that there will not be any impact on the Revenue if the assessee claims the deduction of the lease rental on straight-line method. It is for the reason that the assesse....
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....y was offered to tax in the subsequent assessment year. 43.1 However, the AO disagreed with the contention of the assessee on the reasoning that the transfer of the residential flat has taken place in the year under consideration within the meaning provided under section 53A of Transfer of Property Act 1982. Thus the AO made the addition of Rs. 81.18 lakhs to the total income of the assessee. 43.2 Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO by observing as under: 9.3 I have carefully considered the submissions of the appellant and the1 assessment order. The AO made the additions of Rs.81,18,900/- stating that the appellant has not shown income on sale of property on 14-03-2011, which falls in the assessment year under consideration. The appellant contended that although the property was sold on 14-03-2011 is an open bid and 10% of the sale consideration was received but as 90% of the sale consideration was received in next financial year, the income has been shown in next assessment year. The contention of the appellant is not legally acceptable for the reason that as per definition of transfer given u/s.2(47) of th....
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....sary that the possession of the property should be handed over to the transferee. However, in the case on hand, the possession of the property has not been transferred. Accordingly, we are of the view that the transfer has not taken place within the meaning of the provisions of section 2(47) of the Act and consequently the provisions of capital gain cannot be attracted. 47.2 Besides the above, we also note that there is no loss to the Revenue in the given facts and circumstances for the reason that the assessee has already shown capital gain in the subsequent year. If, the addition sustained in the year under consideration then the same has to be deleted in the subsequent year. After considering the facts in totality as discussed above, we are not inclined to a the finding of the authorities below. Hence the ground of appeal of the assessee is allowed. 48. The assessee in the additional grounds of appeal has sought the deduction on account of education, secondary and higher education cess as well as employee stock option plan for Rs. 58.21 crores and Rs. 460.43 crores respectively. 49. At the outset we note that the issues raised by the assessee in its additional grounds o....
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....-ll, my predecessor held as under: "6,3 Ihave considered the facts of the case; assessment order and appellant's written submission. On the identical facts, this issue has been decided by me in appeal order fat- assessment year 2006-07 in the appellant's own case. The relevant pan of the said order is quoted below- "It is not in dispute that appellant received Bill from Infosys during the current year. The services rendered in earlier year were also included in the said Bill. Assessing officer allocated expense relating to earlier year and disallowed the same as prior period expenses. However the expense was crystallised during the year since undisputedly Bill was received during the current year and appellant could not have debited expense prior to this. Gujarat High Court in the case of Saurashtra cement and chemicals held that if the expense is crystallised during the year, the same is allowable even if relating to earlier years. Since expense was crystallised during the year, respectfully following the decision of jurisdictional High Court, the disallowance made by the assessing officer is deleted. " Considering the above, disallowance made by the asse....
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....erprises holds that such a disallowance is not to be invoked in case an assessee is assessed at the same rate in the two assessment years in question. We therefore affirm the CIT(A)'s findings under challenge. The Revenu's sole substantive ground as well as main appeal ITA No.2395/Ahs/2014 fail 55.1 Before us, the learned AR has not brought out anything on record suggesting that the above finding in the own case of the assessee has either been stayed or overruled by a higher forum. Accordingly we are of the view, the principles laid down by the ITAT in the case of the assessee are squarely applicable in the given facts and circumstances. Hence the ground of appeal of the Revenue is dismissed. 55.2 In the result appeal of the Revenue is dismissed. Coming to ITA No. 165/AHD/2017, an appeal by Assessee for the AY 2012-13 56. The assessee has raised the following grounds of appeal: 1.1 The CITfA) erred in confirming disallowance out of operating expenses of Rs. 7,37,03,738 under Rule 8d r.w.s. 14 A, though the Bank is o dealer of and holds all its shares and securities as ifs sfock-in-trade. The Bonk has earned treasury business profits (taxable] of Rs. 72.84 c....
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....ver the years. The appellant craves, leave to add, to amend, alter delete and/or modify the above grounds of appeal on or before the final date of hearing. 57. The first issue raised by the assessee is that the Ld.CIT(A) erred in confirming the order of the AO by sustaining the disallowance of Rs. 7,37,03,738/- under the provision of section 14A r.w.Rule 8D of Income Tax Rules. 58. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee in ITA No. 311/AHD/2016 for the assessment year 2010-11. Therefore, the findings given in ITA No. 311/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 201011 has been decided by us vide paragraph Nos. 8 to 10 of this order in favoure the assessee for statistical purposes. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee is partly allowed for statistical purposes. 59. The 2nd iss....
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....findings given in ITA No. 2176/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 201112 has been decided by us vide paragraph Nos 41 to 41.5 of this order in favoure of the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee is dismissed. 65. The assessee in the additional grounds of appeal has sought the deduction on account of education, secondary and higher education cess as well as employee stock option plan for Rs. 66.10 crores and Rs. 185.51 crores respectively. 66. At the outset we note that the issues raised by the assessee in its additional grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee in ITA No. 311/AHD/2016 for the assessment year 2010-11. Therefore, the findings given in ITA No. 311/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2010-11 has been decided by us vide paragraph Nos 25 ....
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.... for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the Revenue is partly allowed for statistical purposes. 70. The next issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,20,69,810/- on account of prior period expenses. 71. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the Revenue in ITA No. 2173/AHD/2016 for the assessment year 2011-12. Therefore, the findings given in ITA No. 2173/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the Revenue for the assessment 201011 has been decided by us vide paragraph Nos. 55 to 55.2 of this order in favoure the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-123. Hence, the grounds of appeal filed by the Revenue is allowed. 72. The issue raised by the revenue in ground No. 3 is that the learned CIT (A) erred in deleting the disallowance made by the AO for Rs. 67,4....
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.... appeal of the Revenue is dismissed. 77.1 In the result appeal of the Revenue is partly allowed for statistical purpuses Coming to ITA No. 520/AHD/2018, an appeal by Assessee for the AY 2013-14 78. The Assessee has raised following grounds of appeal: 1. Disallowance u/s 14A r.w. Rule SD of the Income-tax Act, 1961 1.1 The learned CIT(A) erred in confirming disallowance out of operating expenses of Rs.9.58 crores under section 14A r.w. Rule 8D, despite the Bank being a dealer and holding all its shares and securities (except shares in subsidiaries/ JV companies) as its stock-intrade. The learned CIT(A) has failed to appreciate that the Bank has earned treasury business profits (taxable) of Rs. 586.30 crores on dealings in shares and securities which is one of its main objects and the Bank is actively and extensively carrying out treasury operations .in shares and securities in order to contribute to its profits. 1.2 The learned CIT(A) erred in not appreciating that Rule 8D is neither charging provision nor automatic and Rule 8D(2)(iii) w.e.f. A.Y, 2008-09 cannot supersede favourable judgements of Hon. ITAT upfo AY 2009-10 and Gujarat HC upto A.Y. ....
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....artment. 5. Employee Stock Option cost 5.1 The learned CIT(A) erred in law by not allowing the ESOP cost of Rs. claimed as deduction u/s 37(1) of the Act. 177.34 crores 5.2 The learned CITfA) failed to appreciate that the market price as on date of exercise of options being greater than the exercise price, there is actual discount offered to the employees. 5.3 The learned CIT(A) also failed in correctly applying the ratio of the decision of Bangalore Special Bench of Hon'ble ITAT in case of Biocon Limited Vs DCIT [2013] 144 ITD 21 (Bangalore(SB) which states that ESOP cost in hands of the company has to be equivalent to amount taxable as perquisite in the hands of employees. Relying on the decision of Hon'ble Special Bench, the difference between market price as on date of exercise of options and the exercise price (i.e. the market price on the grant date) is an allowable deduction for computing income under the head 'profits and gains from business or profession' in the year of exercise of options by the employee (such amount being equal to the amount taxable as perquisite in hands of employee). The appellant craves leav....
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....ssessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ITA No. 2176/AHD/2016 for the assessment year 2011-12. Therefore, the findings given in ITA No. 2176/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 201112 has been decided by us vide paragraph Nos 36 to 36.3 of this order in favoure of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the assessee is allowed. 85. The next issue raised by the assessee in ground No. 4 is that the learned CIT (A) erred in confirming the disallowance made by the AO for Rs. 17.86 crores on account of lease operating expenses. 86. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ITA No. 2176/AHD/2016 for the assessment year 2011-12. Therefore, the findings given in ITA No. 2176/AHD/2016 shall also be applicable for the year under....
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....Rs. 1,29,54,449/- made under section 14A read with rule 8D of Income tax Rule. 91. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ITA No. 311/AHD/2016 for the assessment year 2010-11. Therefore, the findings given in ITA No. 311/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 201011 has been decided by us vide paragraph Nos. 8 to 10 of this order partly allowed for statistical purposes. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is partly allowed for statistical purposes. 92. The next issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 1,82,63,504/- on account of prior period expenses. 93. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the Revenue in IT....
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....ties in order to contribute to its profits. 1.2 The learned CIT[A) erred in not appreciating that Rule 8D is neither charging provision nor automatic and Rule 8D(2)(iii) w.e.f. A.Y. 2008-09 cannot supersede favourable judgements of Hon. ITAT upto AY 2009-10 and Gujarat HC upto A.Y. 2008-09 in the Bank's own case. 2. Bank guarantee commission 2.1 The CIT (A) erred in upholding the addition of Bank Guarantee (BG) commission income of Rs. 182.58 crores being the sum relatable to unexpired period of the guarantee contract. This sum represents the pro-rata income for the period beyond 1-04-2014 which shall be amortised by the Bank over the balance tenure of the guarantee contract. This addition represents timing difference which shall be tax neutral and there shall not be loss ot revenue to the department. 2.2 The learned CIT(A) failed to appreciate that the customer has inherent legal right to receive refund of proportionate amount of guarantee commission pertaining to the unexpired period of guarantee contract, in the event of bank guarantee being terminated before full period of the guarantee contract. Thus, the entire amount of commission rece....
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....ate) is an allowable deduction for computing income under the head 'profits and gains from business or profession' in the year of exercise of options by the employee (such amount being equal to the amount taxable as perquisite in hands of employee), The appellant craves leave to add, to amend, alter, delete and/or modify the above grounds of appeal'on or before the final date of hearing. 97. The first issue raised by the assessee is that the Ld.CIT(A) erred in confirming the order of the AO by sustaining the disallowance of Rs. 15.59 crore under the provision of section 14A r.w.Rule 8D of Income Tax Rules. 98. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2014-15 are identical to the issues raised by the assessee in ITA No. 311/AHD/2016 for the assessment year 2010-11. Therefore, the findings given in ITA No. 311/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2014-15. The appeal of the assessee for the assessment 201011 vide paragraph Nos. 8 to 10 of this order has been partly allowed for statistical purposes. The learned AR and the DR also agreed that whatever will be the find....
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....the issues raised by the assessee in its grounds of appeal for the AY 2014-15 are identical to the issues raised by the assessee in ITA No. 2176/AHD/2016 for the assessment year 2011-12. Therefore, the findings given in ITA No. 2176/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2014-15. The appeal of the assessee for the assessment 201112 has been decided by us vide paragraph Nos 41 to 41.5 of this order in favour of the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2014-15. Hence, the grounds of appeal filed by the assessee is dismissed. 105. The assessee in the gorund no 5 and additional grounds of appeal has sought the deduction on account of education, secondary and higher education cess as well as employee stock option plan for Rs. 104.56 crores and Rs. 102.19 crores respectively. 106. At the outset we note that the issues raised by the assessee in its additional grounds of appeal for the AY 2014-15 are identical to the issues raised by the assessee in ITA No. 311/AHD/2016 for the assessment year 2010-11. Therefor....
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....IT (A) erred in deleting the addition made by the AO for Rs. 3,08,31,629/- on account of prior period expenses. 111. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2014-15 are identical to the issues raised by the Revenue in ITA No. 2173/AHD/2016 for the assessment year 2011-12. Therefore, the findings given in ITA No. 2173/AHD/2016 shall also be applicable for the year under consideration i.e. AY 2014-15. The appeal of the Revenue for the assessment 2011-12 has been decided by us vide paragraph Nos.55 to 55.2 of this order in favour the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2014-15. Hence, the grounds of appeal filed by the Revenue is allowed. 112. The issue raised by the revenue in ground No. 3 is that the learned CIT (A) erred in deleting the disallowance made by the AO for Rs. 1,07,69,748/- on account of interest expenses incurred in respect of capital work in progress. 113. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2014-15 are ide....