TaxTMI 
TaxTMI 
2021 (10) TMI 1330
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....ned 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 portfolio of Rs. 55821 crores (including tax-free shares and securities of Rs. 683 ....
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....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% of tax-free income of Rs. 13.83 crores as held by Hon. Mumbai ITAT/Mumbai HC in the peer bank's cases. 2.0 Securitisation gains of Rs. 3,85,08,433 (Rs. 3.85....
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....hout 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 the contrary is well-recognized, followed by peer banks, more rational and in accordance with global practises. 3.4 Para 4 of AS 1 notified u/s 145(2) permits an assessee to adopt accounting policies so as to represent a true and fair view of its state ....
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....eal 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. 1.3 The appellant craves leave to add, amend, alter, substitute, delete and/or modify in any manner whatsoever this ground on or before the hearing of appeal. 2.2 The assessee vide letter dated 14-08-2020 has filed further additional grounds of appeal as detailed under: Additional ground in the application dated 14-08-2020 1. DEDUCTION....
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....held 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. 6.2 It was also contended by the ld. AR that the impugned issue was also decided in favour of the assessee by the order of the ITAT in ITA No. 2196/Ahd/2014 for the Assessment Year 2009-10 vide order dated 13-10-2017. 6.3 In view of the above the Ld. AR for the assessee contended that there cannot be any disallowance under the provision of section 14A r.w. Rule 8D of Income Tax Rules. 7. On the other hand, the ....
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....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. 1,06,38,000/- only under rule 8D(2)(iii) of Income Tax Rules. 9. The Ld. DR has not raised any objection if the matter is set aside to the file of the AO with respect to administrative expenses as per the provisions of law. 10. Indeed, the onus lies upon the assessee to justify the expenses incurred in relation to exempt income. If the assessee failed to discharge the onus, the only option available to Revenue is to make the disallowanc....
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....rs 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 neutral exercise. 12.6 However, the AO being disagreed with the contention of the assessee and observed that on the sale of loan assets under securitisation, buyer i.e. SPV becomes the owner of the loan whereas the assessee has no connection with such loans. Accordingly there was no rational for spreading over the income over the tenure of the loan. Accordingly, the AO made the addition of Rs. 3.85 crores to the total income of the assessee. 13. Aggrieved....
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....d 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 claim of consequential relief on the basis of last year's appeal aider cannot be granted at this stage since appellant has disputed the addition before ITAT and the issue is not final yet. Therefore ' agree with the assessing officer that assessee will be free to claim deduction once the issue is finalized in assessment year 2007-08." Facts remaining the same in the year under consideration, following the above-mentioned order, impugned addition of profit on securitization of Rs 3,85,0....
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.... 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 contended as under: GAIN ON SECURITIZA TION OF ASSET OF RS. 2.93 CRORES AS PER PARA 5.1,15 OF THE AUDITED ACCOUNTS During the hearing held on 10.3.1.2009, you have requested us to provide explanation that where the net gain of R$. 2.93 on securitization transactions, as per para 5.1.15 (Page No. 60 of the annual report), has been accounted in the Profit and Loss. In this regard we submit as follows: For the year under consideration, the Bonk has recognized income of fts. 2,00,28,09? under the head Other Income, (Schedule 14, sub-clause, VII, miscellaneous income) and Rs. 93,13,051 was....
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....ities 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. 293 ITR 357. 28. In our considered opinion, the amortization merely represents a timing difference and since the bank is consistently making profits and paying tax at the highest rate without claiming any tax holiday benefit, it can be safely concluded that the method followed Is revenue neutral. We draw support from the decision of the Hon'ble High Court of Bombay in the case of Nagri Mills Co. Ltd. 33 ITR 681. 29. Considering the acts in totality in the tight of the judicial decisions referred to hereinabove, we do not find any merit in the findings of the ld. CIT(A). We accordingly set aside the findings of the....
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....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 presentation and preparation of the financial statements. As such the assessee has adopted unrealistic approach by postponing its real profit for a liability which is contingent in nature. Furthermore, the assessee will defer its income whereas its customers will recognise the expenses in the year in which the bank guarantee was furnished by the bank. Thus, there will be a mismatch between the income shown by the assessee viz a viz the expenses to be shown by the customers. The assessee by issuing a bank guarantee is not rendering services on constant/ year to year basis. As such, once the bank guarantee issued even for a longer period but the services are assum....
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....ny 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 document lii) Advance Payment Guarantee This guarantee assures that the advance amount would be returned, in case the agreement for which the advance is given does not get fulfilled. iv) Payment Guarantee/Loan Guarantee The guarantee is for assuring the payment/loan repayment In case, the party fails to do so, guarantor is bound to pay on behalf of the defaulting borrower v) Bid Bond Guarantee: As a part of Ihe bidding process, this guarantee assures that the bidder would undertake the contract he has bid for. on the terms the bidding is done. vi) Foreign Bank Guarantee. When a guarantee is issued for a foreign beneficiary, it is called foreign BG vii) Deferred Payment Guarantee- Whe....
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....s 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 upholding spread over of income in later years are those in which there is some services to be provided in future and amount is received in advance but that is not the case as far as the question issuance of bank guarantees is concerney, when the commission is received and becomes the income of the appellant bank soon date when such guarantees are issued No further service are pending for being rendered as far as the client is concerned and what remains is only the likely obligation under such guarantee in case such contingency happens on invocation of such guarantees by the beneficiary However such obligation cannot be terms as "service' provided by the appellant but it is only part of its undertaking which it has undertaken to discharge which i....
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....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 the appellant bank may be the expenditure of icss but that does not entitle the appellant to reduce the commission on the ground of likely hood of such contingency It is not the case of any product being sold with a warranty where in there may be scientific method of calculating risk based on past history and the provision thereof may be permit deduction when made base on such scientific analysis. in the case of guarantee there may not be invocation for several years or might be such invocation in any particular year which is quite contingent and such risk cannot be calculated as can be done in case of a sale of manufactured product. Bank guarantee is a service and not sale of product. Considering the facts and circumstances of the case, the judgments in the case o....
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....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 to deduction of bonus and year of allowability in the case of Excel Industries Limited again the Supreme Court was concerned with question of value of benefit in respect of benefit of duty on advance license pass book and issue was whether there can be brought to tax any hypothetical income which has not accrued ? The Court on the contrary held that income "accrues' when the same is due andvri to receive the same gets vested in the assessee. In the instant case, not only the to receives the bank guarantee commission is due and gets vested in the appellant but the same is also received when the guarantee is issued it is settled legal position that a decision in a case is always to be read with reference to the facts of that particular case, in the appellant's case, on....
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....d, 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 guarantee period. The right to receive the commission arises in favour of the bank at the moment of giving guarantee. Not only the right to receive the income becomes absolute and gets vested into it at the time of giving guarantee, the amount of commission is also received there and then, ft is beyond our comprehension os to how it can be linked with the period for which the guarantee runs. It is just like o doctor charging fee for giving prescription to a chronic patient for six months and the period of three months falling in this year and the remaining three months in the next year. Can it be said that the fee of the doctor, for giving the prescription, has not entirely accrued TO him at that time itself and this income will accrue on month-to-month basis and as such half of the fee be not consi....
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....ee 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 arguments as no such eventuality has been brought on record to have happened in the year under consideration and even if it happens, the payment or expenditure ultimately borne by the appellant can be claimed as the expenditure. However, this is not the issue for consideration in this appeal. On totality of facts and the legal position discussed above the ground raised by the appellant is rejected. The addition of Rs.136.42 Crores made by the AO is confirmed and appeal of the appellant on this ground is dismissed. 19.1 Being aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. 19.2 The ld.A.R before us submitted that commission income has been recognized in the books of accounts over the period of the guarantee furnished to the parties. Furthermore, in the event of cancellation of the ban....
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....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 change in the accounting policy on the parameters that it is more logical and transpires sound commercial basis. Furthermore such change in the accounting policy should not defeat or postpone the charge on the income of the assessee which has been earned by it. 20.2 Now the question arises whether the commission income has accrued to the assessee on furnishing the bank guarantee to the parties. Admittedly, the assessee was charging commission immediately on furnishing the bank guarantee irrespective of the period to which the guarantee relates. For example, if the guarantees is issued for 2 years, the assessee shall charge the commission from the party for both the years upfront but the same shall be accounted as income in 2 different financial years to which it relates. Upon furnishing the bank guarantee, the assessee undertakes the ....
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....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 entire course, but that would only remain a 'deposit' or 'advance' and it could not be said that said fee had become 'due' at the time of deposit. Fee was charged in advance for the entire course, presumably because of the reason that there should not be any default in making the same by the students during the period of course. Interestingly, the Assessing Officer, in his assessment order, had himself stated that 'students were required to deposit the fee for the whole module of course at the time of registration itself'. The Assessing Officer had used the expression 'deposit'. In the very next breadth, he drew the conclusion that it would mean that the fee had become 'due'. Thus, the Assessing Officer knew the significance of the expression 'deposit' viz -a-viz 'due', though he committed the mis....
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.... 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 this ground on or before the hearing of appeal. Additional ground in the application dated 9-9-2020 2. DEDUCTION OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS 2.1 The appellant submits that education cess and secondary and higher education cess of INR 44,06,59,588 paid by the appellant should be allowed as deduction under section 37 of the Income-tax Act, 1961('the Act') 2.2 The appellant had not claimed education cess and secondary and high secondary cess (collectively referred to as 'Cess') of INR 44,06,59,588 paid for FY 2009-10, in the return of income filed for AY 2010-11. 2.3 It is respectfully submitted that Cess is allowable as a deduction while computing taxable income. This is because it is different from and not forming part of income tax and hence does not fall under the purview of section 40(a)(ia) of the Act. 23. It was pleaded by the assessee in the appli....
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....wed 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 justified in not admitting the purely legal ground raised by the assessee for the first time. As the assessee has not claimed this expenditure before the lower authorities, they have not got opportunity to examine the same as per the provisions of Act, thus In the interest of justice, these grounds are restored back to the file of the Assessing Officer with a direction to examine assessee's eligibility to claim of deduction of the items raised in the grounds of appeal de novo afresh after providing an opportunity of being heard to the assessee. Thus both the additional grounds of appeal raised by the assessee are allowed for statistical purposes. 25.3 In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Now coming to the ITA No. 2176/Ahd/2016, an appeal by the Assessee for A.Y. 2011-12 26. The assessee has raised the following grounds of appeal: The appellant, being aggrieved by order dated 1-6....
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....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. Rule 8D standalone cannot source charge in form of excessive and unrealistic disallowance. (viii) Position of law upto A.Y. 2007-08 and post A.Y. 2008-09 (Rule 8D] cannot be different as to charge of tax u/s i 4A r.w.s. 4. 1.3 The learned CIT(A) has erred in confirming that Rule 8D is mandatory or automatic with no scope for variation, holding that Rule 8D, though subordinate or machinery provision, could go beyond scope of charge provided in section 14A. 1.4 In facts and circumstances of the case and in law, the learned CIT (A) erred in not appreciating that administrative expenditures were incurred in the course of bonking business and no part of such expenditure could have been disallowed u/s 14A as held by The Hon. Gujaiat HC for A.Y. 2002-03 to 2005-06 rejecting the Revenue TA in the Bank's own case, much less by upholding harbour formula of Rule 8D. 1.5 Without prejudice it is submitted that suo-moto disallowance out of operating expenses at Rs. 0.67 lacs be cancelled or alternatively the said disall....
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....ered over the years [Please see Excel Industries Limited 358 ITR 295 [SCJ] 2.9 BG commission income is incidental income and not main revenue streams of the Bank. The learned CIT(A) erred in holding changed accounting method as unrealistic presentation which postpones real profits for a liability which is contingent and creates a mis-match in revenue impact in hands of customer and in hands of the Bank. The learned CIT(A) also erred in holding that entire revision serves only one purpose i.e. deferment of tax for the Bank. The learned CIT(A) also erred in law that the Bank's right to receive BG commission stands established since it is recognised as expense in hands of the customer. 2.10 It is, therefore, submitted that addition of Rs. 139.49 crores in respect of BG commission income relatable to period beyond previous year end be cancelled; and such BG commission income of Rs. 108.40 crores, included in total income but already taxed during A.Y. 2010-11 but recognized and offered to tax as chargeable income during the previous year, be allowed as deduction. 3.0 Interest income on NPA held as deemed accrued as per RBI repealed Guidelines under Rule 6EAr.w.s. 43D Rs. 11,16....
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....d 358 ITR 295 (SC), since the Bank has already recognized and offered to tox/consider the same during A.Y. 2012-13. 4.0 Disallowance of additional expenditure on account of revision of lease operating expenses charged to revenue in accordance with ICAI AS 1? Rs. 93.04 crores. 4.1 The learned CIT(A) failed to appreciate that such lease arrangements are covered by mandatory AS 19, have been classified as operating lease thereunder, Expert Advisory Committee of ICAI by its opinion in February/March 2001 has reiterated and advised an enterprise to recognize operating lease rental expenses in P&L account on Straight Line Method (SLM) basis over the , lease tenure, since the lease property would be used throughout the lease term on a consistent basis irrespective of market rate variation of lease rental in the area and also since physical use of lease property during lease tenure is on consistent basis. 4.2 The CIT(A) failed to appreciate that ICAI is a recognized accounting Apex body vested with the authority to recommend AS for ultimate adoption by the Central Government in consultation with National Advisory Committee of Accounting Standards and further as per proviso to section....
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....uded in total income by the Bank during A.Y. 2012-13 [Please see Rajarani Devi Rarnana 201 ITR 1032 (Patna)]. 5.3 It is further submitted that the addition is only timing difference based addition, is tax neutral, the Bank has already recognized and offered to tax the same capital gain and the AO has already taxed the same again as offered by the Bank during A.Y. 2012-13 [Please also see ratio of Excel Industries Limited 358 ITR 295 (SC)] 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. 27. 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. 36,65,00,000/- under the provision of section 14A r.w.Rule 8D of Income Tax Rules. 28. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2011-12 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 2011-12. The appeal of the assessee for the ass....
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....hat the assessee is maintaining its books of accounts on accrual basis. Therefore, the income in respect of bad and doubtful debt is required to be taxed on accrual basis except for the exceptions provided under rule 6EA read with section 43D of the Act. As per rule 6EA, the interest on the sticky advances should not be recognised as income when overdue period is of 180 days or more. As per the AO, the amount of interest for Rs. 11.16 crores representing on the sticky advances where the overdue period was more than 3 months but less than 6 months ought to have been recognized as income under rule 6EA of Income Tax Rule. Thus the AO made the addition of Rs. 11.16 crores to the total income of the assessee. 32. Aggrieved assessee preferred an appeal to the learned CIT (A) who has also confirmed the order of the AO by observing as under: 8.3.2 On careful consideration of the contentions of the appellant, I find it difficult to accept the contention of the appellant. It is no doubt true that section 43D is a beneficial provision but the provision is very clear when it states that " {a} in the case of a scheduled bank the income by way of interest in relation to such categories of ba....
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.... the guidelines of NHB as part of Sec.43D of the Act." In view of above clear position and the same being directly on the issue in the present case whether Rule 6EA will prevail over RBI guidelines which is not the issue considered in the cases relied upon by appellant, I am inclined to agree with the decision of the AO that the difference in income of Rs. 11,16,75,000/- had to be considered as accrued interest income and liable to tax on the basis of mercantile method adopted. As regards the contention that since the income will be offered when realized and the judgment of Apex Court in the said case of Excel Industries Ltd 358 ITR 295,1 am of the opinion that the facts in the case before the Hon'ble Supreme Court in the case of Excel Industries were different as in the said case the Hon'ble Court was concerned with time of accrual of income from advance licenses and duty entitlement pass book which was being held in favour of assessee by ITAT for last several years against which did not prefer any further appeal and also, the Court held that there was no liability of payer to pay the income in the particular year and hence right to receive was absent in the relevant yea....
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....cal facts and circumstances in the case of DCIT Vs. Royal Bank of Scotland reported in 76 taxmann.com 91 has held as under: "2.6 We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute before the lower authorities that the loan accounts had become sticky and doubtful of recovery. The only contention of the revenue is that section 43D of the Act read with Rule 6EA of the Rules permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three months but less than six months as on 31.3.2010. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon'ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards 'Provision for NPA....
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....accrual basis. This is, therefore, a case pertaining to recognition of income and not computation of the income of the assessee. 21. The Supreme Court in Southern Technologies Ltd. (supra) has held that the 1998 Directions are only disclosure norms and have nothing to do with computation of total income under the IT Act or with the accounting treatment. The 1998 Directions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. The court has referred to the deviations between the RBI Directions and the Companies Act as follows: '42. Broadly, there are three deviations: (i) in the matter of presentation of financial statements under Schedule VI to the Companies Act; (ii) in not recognising the "income" under the mercantile system of accounting and its insistence to follow cash system with respect to assets classified as NPA as per its norms; (iii) in creating a provision for all NPAs summarily as against creating a provision only when the debt is doubtful of recovery under the norms of the accounting standards issued by the Institute of Chartered Accountants of India. These deviations prevail over certain provisions of the Companies....
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....e Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act and that as far as income recognition is concerned, section 145 of the Income-tax Act, has not role to play. 23. In the light of the above discussion what emerges is that while determining the tax liability of an assessee, two factors would come into play. Firstly, the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the provisions of the Income-tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income-tax Act and the accounting principles have no role to play. However, recognition of income stands on a different footing. Insofar as income recognition is concerned, it would be the RBI Directions which would prevail in view of the provisions of section 45Q of the RBI Act and section 145 would have no role to play. Hence, the Assessing Officer has to follow the RBI Directions. 24. The Delhi High Court in Vasisth Chay Vyapar Ltd., (supra), has in the context of a similar issue arising in the case of a non-banking financi....
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....see. No doubt, in first blush, reading of the judgment gives an indication that the Court has held that RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr. Sabharwal may not be entirely correct. in the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of section 36 (1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i) (vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the Apex court centered around deductibility of provision for NPA. After analyzing the provisions of the RBI Act, their Lordship....
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....rent payable for the entire lease period should be charged on straight line method in the profit and loss account. It was explained by the assessee that the lease property will be used throughout the lease period consistently despite the variation in the market rate, therefore the average amount of total rent payable over the lease period should be charged to the profit and loss account on the basis of straight-line method. Accordingly the assessee worked out the additional amount of lease rent and debited the same in the books of accounts. 38.1 As per the assessee, additional amount of lease rent is tax neutral. As such the assessee, will claim more deduction in the initial years of the lease agreement whereas the same deduction will be reduced in the later years. In effect, there will not be any impact on the taxable income of the assessee over the lease period. 38.2 However, the AO disagreed with the contention of the assessee by observing that the expenses to the assessee has to be allowed on accrual basis. But the assessee is claiming the amount of lease expenses which has not been due for payment in the year under consideration by reviewing its method of accounting as per A....
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....oncancellable while a secondary lease is normally cancellable. Under the provisions of the Income tax Act, in case of mercantile method adopted, the liability which is ascertained is deductible though it may have to be discharged in future, However, any liability which is not presently ascertained but contingent is not deductible as expenses of the current year. The appellant tried to explain the situation with the help of the following table :- (Amount in Rupees) Year Annual rent liability as per agreement Annuairent payment Rent Expense as per SLM of AS- 19" Additional cliarge/(reversal) 1 100 100 150 50 2 120 120 150 30 3 140 140 150 10 4 160 160 150 (10) 5 180 180 150 (30) 6 200 200 150 (50) Total 900 900 900 0 Average rent for the lease tenure of 6 years considering the escalations as agreed in the lease agreement (Rs.900/6) 150 As seen from the above table, the illustration given by the appellant to explain the system adopted by the appellant from this year, in first three years, the appellant debits more lease rental expenditure than the actual expenditure incurred for the same. The AO has correctly stated that the appellant has de....
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.... facts of the case including the finding of the learned CIT (A) and other documents brought on record. The expert advisory committee of ICAI has issued a clarification with respect to the treatment of accounting of operating lease rental expenses as provided under the Accounting Standard 19 issued by the ICAI. Pursuant to that clarification, the assessee was required to account the lease rent expenses on straight-line method. Under SLM Method the total lease rentals over the lease period will be divided by number of years and this will result the lease expense/income to be recognized in a particular year. 41.1 Under the Accounting Standard 19, the assessee is required to recognise the operating lease expenses on a straight-line method unless another systematic and rational basis is more presentable of the time pattern in which the benefit is derived from the lease property. The relevant extract of AS 9 reads as under: "Lease payments under an operating lease should be recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the user's benefit." 41.....
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.... income tax Act. The assessee in the initial year will claim higher amount of lease rent whereas the recipient will claim lesser amount of lease income. Likewise, the assessee will deduct the TDS on the higher amount which will not match with the income of the assessee recipient disclosed in the return of income. 41.5 Admittedly, the accounting standard issued by the ICAI are mandatory to be followed by the assessee under the Companies Act. But the question arises, such accounting standards should also be followed while working out the income under the provisions of the income tax Act. So far, the Income Tax Act has not notified the accounting standard 19 issued by the ICAI, though mandatory for the assessee to follow while preparing its books of accounts, but this is not the same under the Income Tax Act. Hence the ground of appeal of the assessee is dismissed. 42. The 5th issue raised by the assessee is that the learned CIT (A) erred in confirming the addition of Rs. 81.18 lakhs on the transfer of residential flat as shortterm capital gain. 43. The assessee in the year under consideration has entered into the registered agreement for sale dated 14 March 2011 of a residential f....
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....erty in the subsequent year. Therefore, no addition can be made in the year under consideration. 46. On the other hand the learned DR before us relied on the order of authorities below. 47. We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 53A of TOPA were amended w.e.f. 24.09.2001 whereby the requirement of registration of agreement was made mandatory. While the provisions of s. 53A prior to the said amendment were applicable irrespective of whether the contract between the parties had been registered or not, the said relaxation in registration was done away with pursuant to the said amendment. This is evident from the amended s. 53A which is reproduced below: "53 A. Part performance.- Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part....
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....ear 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 for statistical purposes. 49.1 In the result, the appeal of the assessee is partly allowed for statistical purposes. Coming to the ITA No. 2173/AHD/2016, an appeal by the revenue for the Assessment Year 2011-12. 50. The only issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,72,21,975/- on account of prior period expenses. 51. The AO during the assessment proceedings found that the assessee has claimed certain expenses of Rs. 2,72,21,975.00 representing the annual payment to Infosys technologies Ltd for technical services fees which were pertaining to the earlier year. As per the AO, the assessee was not eligible for the deduction of such expenses for the reasons as discussed below: I. The expenses claimed by the assessee do not match with the income of the current year. II. There was no detail available suggesting that the expenses were crystallised in the year under consideration. III. The assessee is maintaining mercantile system of accounting which requires to cla....
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....s allowed. 53. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 54. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 55. We have heard the rival contentions of both the parties and perused the materials of the record. At the outset we note that the issue raised by the revenue has already been decided by this tribunal in the own case of the assessee in its favour for the assessment year 2009-10 in ITA No. 2196/AHD/2014 by observing as under: 10. We now advert to the Revenue's appeal ITA No.2395/Ahd/2014 raising solitary substantive ground seeking to revive prior period expenditure disallowance of Rs.45,49,315/- made by the Assessing Officer qua annual technical fees paid to Infosys as deleted in lower appellate proceedings. There is no dispute that the issessee incurred the impugned expenditure in preceding assessment, year between July 2007 to March 2008. It however claimed that the above expenditure stood crystallized only in relevant previous year as it received corresponding bills in said period only. The Assessing Officer termed the same as violation of matchi....
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....ata income for1 The" period beyond 1-4-2012 amortised by the Bank. This addition represents timing difference based addition which is tax-neutral and there is no loss of revenue. 2.2 The CIT[A] squarely erred in not admitting the Bank's judicious claim for reduction of similar BG commission income of Rs. 134,09,00,000, included in total income, but held accrued/assessable and already taxed during A.Y. 2010-11 and A.Y. 2011-12. 3.1 The CIT (A) erred in law in confirming addition of notional interest income on NPA in accordance with RBI repealed guidelines of Rs. 30,40,62,000 under Rule 6EAj\w.s._4j: as interest income deemed to be accrued during previous year> though there has been no change in underlying facts or law since A.Y. 1995-96 and the same is accepted hitherto in income tax upto A.Y. 2010-11 [Radhasaomi Satsang 193 1TR 321 ISC)]. 3.2 The CIT [A] failed to appreciate that Rule 6EA is subservient to Section 43D and hence it cannot extend the scope beyond the charge of income provided in section 43D. 3.3 It is submitted that such notional interest income, deemed as accrued, gets crystalised in any case by 30-6-2012 wherein period of 180 days is completed and hence....
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....to 20.8 of this order in ITA 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 2012-13. Hence, the grounds of appeal filed by the assessee is allowed. 61. The next issue raised by the assessee in ground No. 3 is that the learned CIT (A) erred in confirming the addition of Rs. 30,40,62,200.00 being the amount of interest on the sticky advances under rule 6EA read with section 43D of the Act. 62. 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. 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 2012-13. 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 2012....
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....That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.2,20,69,810/- made on account of disallowance of "Annual Technical Services Fees paid to Infosys Limited. " (3) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs,67,48,546/- made u/s 36(l)(iii) of the l.T.Act. on account of capital work in progress. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 68. The fisrt issue raised by the Revenue is that the leanred CIT (A) erred in deleting the addition of Rs. 85,24,00,000/- made under section 14A read with rule 8D of Income tax Rule. 69. 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 assessee in ITA No. 311/AH....
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....d an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 10.3 I have carefully considered the submissions of the appellant\ and the assessment order considering the ratio of Mumbai High Court in Reliance Utilities (supra) where similar issue has been decided in favour of the assessee. I am also of the opinion that where an assessee has interest-free funds far in excess of cost of capital advances towards purchase of fixed assets, in view of the judicial authorities brought out on the records, there is valid legal presumption that such investment in capital advances have been made out of interest free funds in absence of any specific contrary evidence brought out by the AO. The addition of Rs.67,48,546 made u/s.36(1)(iii) is cancelled for the reasons mentioned above. This ground of appeal is allowed. 75. Being aggrieved by the order of the learned CIT (A), the revenue is in appeal before us. 76. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 77. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly the own ....
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....g terminated before full period of the guarantee contract. Thus, the entire amount of commission received cannot be recognised as income in the year of receipt itself. Upfront collection of guarantee commission covers guarantee risk which extends over the tenure of the guarantee not being limited to the year in which such commission is received by the Bank. 3. Interest on NPA 3.1 The learned CIT (A) erred in law in confirming addition of notional interest income on NPA of Rs. 16.30 crores under Rule 6EA r.w.s. 43D of the Act as interest income is deemed to be accrued during previous year, though there has been no change in underlying facts or law since AY 1995-96 and the same is accepted hitherto in income tax assessment upto AY 2010-1 I. 3.2 The learned CITfA] failed to appreciate that recognition of interest income on NPA is in accordance with binding RBI guidelines and specific mandate of section 43D and that Rule 6EA is subservient to Section 43D and hence it cannot extend the scope beyond the charge of income provided in section 43D. 4. Lease operating expenditure 4.1 The learned CIT(A) erred in confirming disallowance of Rs. 17.86 crores by ignoring Ihe treatment of....
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.... 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 assessee is allowed for statistical purposes. 81. The 2nd issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by sustaining the addition of Rs. 152.32 crore on account of commission income from the bank guarantee furnished to the customers. 82. 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. 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. 20 to 20.8 of this order in ITA 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 2013-14. Hence, the grounds of appeal filed by the assessee is all....
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.... 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 2010-11 has been decided by us vide paragraph Nos. 25 to 25.2 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 2013-14. Hence, the grounds of appeal filed by the assessee is allowed for statistical purposes. 88.1 In the result appeal of the assessee is partly allowed for statistical purposes Coming to ITA No. 604/AHD/2018, an appeal by Revenue for the AY 2013-14 89. The Revenue has raised following fgfrounds of appeal: (1) That the ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A from Rs.1,31,27,60,212/- to Rs.9,58,07,301/-. (2) That the ld.CIT(A) has erred in law and on facts in deleing the addition of Rs.1,82,63,504/- made on account of Annual Technical Fees. (3) That the ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.73,03,649/- made on account of interest in....
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....the Revenue in ITA No. 287/AHD/2017 for the assessment year 2012-13. Therefore, the findings given in ITA No. 287/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the Revenue for the assessment 201213 has been decided by us vide paragraph Nos. 77 to.77.1 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is dismissed. 95.1 In the result appeal of the Revenue is partly allowed for statistical purposes Coming to ITA No. 521/AHD/2018, an appeal by Assessee for the AY 2014-15 96. The Assessee has raised following grounds of appeal: 1. Disallowance u/s 14A r.w. Rule 8D of the Income-tax Act, 1961 1.1 The learned CIT(A) erred in confirming disallowance out of operating expenses of Rs.15.59 crores under section I4A 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 ....
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....4.1 The learned CIT(A) erred in confirming disallowance of Rs. 25.47 crores by ignoring the treatment of lease operating expenses followed by the Bank in accordance with AS-19 issued by ICAI to be mandatory followed by the Bank as per section 133 of The Companies Act, 2013. 4.2 The learned CIT(A) also failed to appreciate that this addition represents timing difference which shall be tax neutral and there will not be any loss of revenue to the department, 5. Employee Stock option cost 5.1 The learned CIT(A) erred in law by not allowing the ESOP cost of Rs. 104.56 crores claimed as deduction u/s 37(1) of the Act. 5.2 The .learned CIT(A) 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 Ben....
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....der consideration i.e. AY 2014-15. Hence, the grounds of appeal filed by the assessee is allowed. 101. The next issue raised by the assessee in ground No. 3 is that the learned CIT (A) erred in confirming the addition of Rs. 18.08 crore being the amount of interest on the sticky advances under rule 6EA read with section 43D of the Act. 102. 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. 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 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 2014-15. Hence, the grounds of appeal filed by the assessee is allowed. 103. The next issue raised by the assessee in ground No. 4 is that the learned CIT (A) erred in confirming the disallowanc....
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.... in law and on facts in deleting the disallowance of Rs.1,07,69,748/- made on account of interest in respect of capital work in progress. (4) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary. 108. The first issue raised by the Revenue is that the leanred CIT (A) erred in deleting the addition of Rs. 2,09,81,890/- made under section 14A read with rule 8D of Income tax Rule. 109. 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 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 findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2014-15. Hence, the grounds of appeal filed by the Revenue is partly allowed for statistical purpos....