TaxTMI 
TaxTMI 
2024 (7) TMI 704
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....assessee Ground No.1 Ground No.1 Ground No.1 Disallowance of ESOP of expenses Ground No.2 Ground No.2 - Revenue's Appeal Issue AY 2016-17 AY 2017-18 AY 2018-19 Disallowance under section 14A - Amendment brought in by Finance Act 2022 is retrospective Ground No.1 Ground No.1 Ground No.1 Disallowance of broken period interest on securities Ground No.2 Ground No.2 Ground No.2 Disallowance of bad-debts on Credit Card Ground No.3 Ground No.3 Ground No.3 Disallowance towards provision for debit and credit reward points Ground No.4 Ground No.4 Ground No.4 Disallowance of revised claim for deduction under section 36(1)(viia) Ground No.5 Ground No.5 Disallowance of ESOP of expenses Ground No.5 2. We will first consider the assessee's appeal for adjudication. ITA No. 1783/Mum/2023 - AY 2016-17 Disallowance under section 14A - Ground No.1 2. During the year under consideration, the assessee had earned exempt income to the tune of Rs. 480,76,49,494/-. The Assessing Officer (AO) called on the assessee as to why disallowance should not be made under....
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....t disallowance of Rs. 29,42,64,233/-. Aggrieved the assessee filed further appeal before the CIT(A). Before the CIT(A), the assessee had contended both the disallowance made under Rule 8D(2)(iii) and 8D(2)(ii). With regard to disallowance under section 14A r.w.r. 8D(2)(ii) the assessee submitted that, assessee's own funds are sufficient and therefore, no is warranted. With regard to disallowance made by the AO under Rule 8D(2)(ii), the CIT(A) has given a detailed finding and gave relief to the assessee stating that when the assessee is having sufficient own funds no disallowance shall be warranted . With regard to 8D(2)(iii) the CIT(A) by relying on assessee's own case in ITA No. 374/Mum/2012 for AY 2008-09 held that for the purpose of disallowance under Rule 8D(2)(iii) the disallowance should be restricted to only those investments yielding exempt income. Against the decision of the CIT(A), the assessee is before the Tribunal contending that the plea of the assessee before the CIT(A) was to restrict the disallowance to the suo-moto disallowance offered by the assessee and the said relief has not been considered by the CIT(A). 4. The ld. AR with regard to the plea that d....
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....s, additional infusion of capital, if any for the year under consideration and several other items. Step 2: Thereafter, we proceed to identify the total cost incurred in the Board meeting. The total cost includes sitting fees paid to non-executive directors, salary cost of the executive directors and other employees (deputed on the Board of the subsidiary companies of the HDFCBL) pertaining to the date of the Board meeting, secretarial cost for conducting the Board meeting, rental charges in case where meeting is conducted outside the HDFCBL's owned premises, travel cost of all the directors which has been incurred for the purpose of this Board meeting and other expenses which are incurred for the purpose of the Board meeting. Step 3: The total cost of conducting the Board meeting has been identified for every meeting which the Bank has conducted. After identifying the total cost, the Bank counts the total agenda discussed in the Board meeting. The total agenda pertaining to the subsidiary companies is also identified. The ratio of the agenda pertaining to the subsidiary companies in proportion to the total agendas is applied to the total cost incurred for the....
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....he lower authorities have completely ignored the suo-moto disallowance working done by the assessee and has proceeded to arrive at the disallowance under section 14A r.w.r. 8D(2)(iii). The ld. AR also raised a legal contention that the AO while invoking the provisions of section 14A r.w.r. 8D(2)(iii) did not record any satisfaction. The ld. AR further submitted that the AO while arriving at the disallowance did not record any findings as to why the suo-moto disallowance calculated by the assessee is not correct thereby failed to record any satisfaction. The ld. AR in this regard relied on the decision of the Co-ordinate Bench in the case of Aditya Birla Finance Ltd. Vs. ACIT (83 taxmann.com 85) where the Tribunal has accepted similar accountant report and held that the disallowance should be restricted to the suo-moto disallowance. The relevant findings of the co-ordinate bench are as extracted below: "3.28 In the light of the foregoing discussion, we find that neither the Ld. Assessing Officer nor the Ld. Commissioner of Income Tax (Appeal) pointed out any defect in the accounts of the assessee, therefore, the ratio laid down in the case of Britania Industries Ltd. v. Dy ....
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....method wherein all the relevant costs incurred towards strategic investments in subsidiaries have been considered and proportionate disallowance is arrived at. The alternate contention of the assessee is that the AO failed to record satisfaction before invoking the provisions of section 14A. 8. On the first contention of the assessee, we noticed that the assessee has followed a scientific method as explained in the Accountant's report which is extracted in the earlier part of this order for arriving at the disallowance under section 14A. From the perusal of the financial statements, it is also noticed there no movement in the investment made in the subsidiaries and therefore, there is merit in the contention of the ld. AR that only the cost pertaining to the Board meeting where strategic decisions are taken with regard to investments in subsidiaries and the proportionate costs of those employees in the company who involving the decisions have been considered for the purpose of disallowance under section 14A and that the said method is appropriate. 9. On the contention that the AO has not recorded any satisfaction, it is relevant to take note of the following observations ....
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....cceptable by the AO and why he is not satisfied about the correctness of the said calculation. Therefore, there is merit in the alternate contention of the assessee that the AO has invoked section 14A without recording satisfaction and therefore, bad in law. The Hon'ble Supreme Court in the case of Maxopp Investments (supra) while considering the similar issue and have given a finding that the AO needs to record satisfaction that having regard to the kind of the assessee suo-moto disallowance under section 14A is not correct. In view of these discussions and considering the judicial pronouncements, we are of the view that the AO is not correct in invoking the provisions of section 14A without recording any satisfaction as to why the suo-moto disallowance computed by the assessee is not correct. Accordingly, we delete the disallowance made by the AO and direct the AO to restrict the disallowance to the suo-moto disallowance made by the assessee. It is ordered accordingly. Disallowance of ESOP expenses - Ground No.2 11. The ld. AR in this regard submitted that the assessee for the first time made the claim before the CIT(A) with regard to the ESOP Expense. The CIT(A) did no....
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.... claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Co. Ltd. (supra) contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held:- "4. The decision in question is that the power of the Tribunal under section 254 of the Income- tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limi....
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.... Guidelines, 1999. 12 So far as reliance place by the revenue in the case of Infosys Technologies Ltd.(supra) is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under section 201 of the Act for non-deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Years in question was 1997-98 to 1999-2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 1-4-2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisions relied upon by the revenue in A. Gajapathy Naidu, Morvi Industries Ltd. and Keshav Mills Ltd.(supra) support the case of assessee as the assesse....
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.... health and ultimately opted for VRS for the said reason. Therefore, there is merit in the claim that the AO could not fully focused on the official duties which resulted in the delay in filing the appeal by the Revenue. In our considered opinion there is reasonable cause for the delay in filing the appeal by the Revenue and therefore, following the decision of the Hon'ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 120 days in filing the appeal and admit the appeal for adjudication. ITA.No.3375/Mum/2023 Disallowance under section 14A - Ground No.1 22. The contention of the Revenue is that the CIT(A) erred in not appreciating that the amendment brought in by Finance Act 2022 to section 14A whereby it has been clarified that the provisions of section 14A can be invoked when the assessee has investments which have the potentional of yielding exempt income and the amount of exempt income earned is not relevant in this context. The ld. DR in this regard submitted that the Explanation inserted by the Finance Act, 2022 is clarificatory in nature and therefore, should be applied retrospectivel....
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....en received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. 5. This amendment will take effect from 1st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non- obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." (emphasis supplied) 6. Furthermore, the Supreme Court in Sedco Forex International Drill. Inc. v. CIT [2005] 149 Taxman 352/279 ITR 310 has held that a retrospective provision in a tax act which is "for the removal of doubts cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment is reproduced here-in-below. '9. The High Court did not refer to the 1....
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....S.R. Patton [(1992) 193 ITR 49 (Ker.)] while following the Gujarat High Court's decision in S.G. Pgnatale [(1980) 124 ITR 391 (Guj.)] to hold that the Explanation was not declaratory but widened the scope of Section 9(1)(ii). It was further held that even if it were assumed to be clarificatory or that it removed whatever ambiguity there was in Section 9(1)(ii) of the Act, it did not operate in respect of periods which were prior to 1-4-1979. It was held that since the Explanation came into force from 1-4-1979, it could not be relied on for any purpose for an anterior period. 14. In the appeal preferred from the decision by the Revenue before this Court, the Revenue did not question this reading of the Explanation by the Kerala High Court, but restricted itself to a question of fact viz. whether the Tribunal had correctly found that the salary of the assessee was paid by a foreign company. This Court dismissed the appeal holding that it was a question of fact. (CIT v. SR Patton [(1998) 8 SCC 608].) 15. Given this legislative history of Section 9(1)(ii), we can only assume that it was deliberately introduced with effect from 1-4-2000 and therefore intended to ap....
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....ed by the Supreme Court in M.M. Aqua Technologies Ltd. v. CIT [20211 129 taxmann.com 145/282 Taxman 281/436 ITR 582. The relevant portion of the said judgment is reproduced here-in-below:- "22. Second, a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. This was stated in Sedco Forex International Drill inc. v. CIT, (2005) 12 SCC 717 as follows: 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 1391) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of UP., (1981) 2 SCC 585]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the ....
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.... consideration to the aforesaid issue, and find, that the Tribunal in the assessee's own case for the immediately preceding year ie A.Y. 2011-12 in ITA No. 6187/Mum/2016 had decided the said issue in favour of the assessee and had dismissed the revenues appeal. It was observed by the Tribunal that the issue pertaining to allowability of broken period interest had been decided by the Hon'ble jurisdictional High Court and the Tribunal in the assessee's own case for A.Y. 2008-09, Α.Y. 2009-10 and A.Y. 2010-11 in ITA No.s 375,722,3465,4367/Mum/2012 and ITA No. 1795/Mum/2010, dated 12.11.2014. It was observed by the Tribunal that in all the aforementioned decisions it was held that the broken period interest paid by the assessee was allowable as a deduction while computing its total income. Observing, that the issue was covered in the assessee's own case by various decisions of the Tribunal and that of the Hon'ble jurisdictional High Court, the order of the CIT(A) vacating the disallowance of broken period interest was upheld by the Tribunal. For the sake clarity the relevant observations of the Tribunal are culled out as under: "7. The only issue to b....
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....enue is dismissed." 27. The ld. DR fairly conceded that the issues covered by the above mentioned decision of the Jurisdictional High Court. 28. We have heard the parties and perused the material on record. Considering that the facts for the year under consideration being identical, we are of the view that the issue of allowance of broken period interest on securities is covered by the decision of Co-ordinate Bench in assessee's own case for AY 2012-13 is applicable for the year under consideration also. Accordingly we see no reason to interfere with the decision of the CIT(A). This ground of the Revenue is dismissed. Disallowance of bad debts on credit cards - Ground No.3 29. During the year under consideration, the AO noticed that the assessee has claimed Rs. 375,10,36,088/- as write off of bad debts towards credit card. The AO did not allow the claim of the assessee for the reason that the credit card bad debts were never taken into account for computing the income of the assessee and that the same does not represent the money lent in the ordinary course of business of banking. The relevant observation of the AO is extracted below: "(i) It is observed th....
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....s not carry out the business of money lending, but acts only as service provider or as agent of the card issuer companies such as Visa or master card. Therefore, the bad debts incurred with regard to issuance and services of credit cards are neither related to banking business or business of money lending. (iv) Hence, the deduction claimed u/s 36(1)(vii) regarding bad debt on credit cards is not allowed and Rs. 375,10,36,088/- is added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Act are initiated for furnishing inaccurate particulars of income." 30. The CIT(A) allowed the claim of the assessee stating that the services provided by the assessee is a banking service which is part of the lending activity . The CIT(A) placed reliance on the decision of the Delhi High Court in the case of JDS Apparels Pvt. Ltd. 370 ITR 454 (Del. HC) and the decision of the Jurisdictional Bombay High court in the case of PCIT Vs. Hotel Leela Ventures Ltd. (ITA No. 847 & 954 of 2016 dated 18.12.2018). 31. The ld. DR relied on the order of the AO to submit that the credit card written off as bad debts cannot be allowed as deduction under section 36(1)(v....
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....d as bad debts u/s.36(1)(vii) of the Act. It is not in dispute that assessee had indeed offered income from credit card business as income under the head „profits and gains of business or profession‟ and which has been taxed as such by the ld. AO. Hence, the income derived from credit card business has been accepted as business income by the ld. AO. The satisfaction of requirement of offering of income in terms of Section 36(2) of the Act has been done by the assessee in the instant case. Hence, if any of the debts in respect of income already offered to tax by the assessee bank had become bad, and the same is written off as bad debt by the assessee in its books of accounts, the assessee would certainly be entitled for deduction u/s.36(i)(vii) of the Act. It need not be routed through provision for bad and doubtful debts account. Moreover, we find that RBI has issued a master circular dated 01/07/2013 which provides for credit card / debit card and rupee denominated co-branded prepaid card portions of the banks. The said circular clearly establishes the fact that credit card business is part and parcel of banking business. This fact that was placed on record by the asse....
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....ng out of the business of credit card services is part of the banking activities and the loss arising on account of un-recovered balance is arising out of the normal course of banking business. Accordingly, the same shall be allowed as a deduction under section 36(1)(vii) of the Act. We, therefore, uphold the decision of the CIT(A) in allowing the claim of the assessee. The ground raised by the Revenue in this regard is dismissed. Disallowance towards provision for debit and credit card reward points - Ground No.4 36. During the year under consideration, the assessee has made a provision of Rs. 179.5 crores towards credit card and debit card reward points. The AO held that the provision made is a book entry and is not a real expenditure incurred by the assessee. Therefore, the AO held the provision to be an ascertained liability. The AO based on the perusal of annual reports for the subsequent financial year was of the view that the assessee is utilizing only Rs. 65-70 crores out of the provision made and accordingly disallowed a sum of Rs. 106.29 crores. 37. The CIT(A) deleted the disallowance stating that the assessee has followed a scientific basis for arriving at the p....
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....uation takes into consideration various factors such as discount available to the Bank on purchase, customer leaving the credit cards is without redeeming the points, customer losing eligibility to redeem points, etc. In this regard we noticed that a similar issue has been considered by the Co-ordinate Bench of the Tribunal in the case of Shoppers Stop Ltd. where it has been held that "10. The Commissioner (Appeals) has dealt with the issue of allowability of the claim of assessee on reward points from para-3.3 to 3.3.2 of his order, which is reproduced below for ready reference:- "3.3 I have considered the assessment order and the submissions of the appellant. As I see, the Assessing Officer has disallowed the claim as an unascertained expenditure in view of the fact that the appellant is recognizing redemption of the FCC point only when gift vouchers or points are actually redeemed by a customer. The Assessing Officer has been Led to this view by the Auditor's Notes to Financial Statement reproduced by him in the assessment order. As against this, the main plank of appellant's defence is that the claim is being made in sync with the concept of matching r....
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....nce the value of reward points also includes gross profit margin for the purpose of quantification of liability, the appellant- reduces the estimated gross profit margin of 30%. I find this process of quantification scientific as it is based on past trends and further, I also find it reasonable since the final liability debited also takes into account the trend of redemption and the gross profit margins. In this view of the matter, the ascertainment of the FCC points is found to be based on sound and reasonable quantification. This being so, the claim cannot be disallowed on the ground that it is an unascertained expenditure. In this respect, the decision 9f1 the Hon'ble Supreme Court in the case Rotork Controls India (P) Ltd. Vs. CIT bears special mention. In this decision, in the context of allowability of provision for warranty on account of warranty claims likely to arise on the sales, the Hon'ble Supreme Court has held that if historical trend indicates that in past, large number of sophisticated goods were being manufactured and the defects existed in some of the items manufactured and sold, then provision made for warranty in respect of army of such sophisticated goo....
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.... the time of making booking or at the time of checking in for a flight based on this information available in the system, the miles are then updated-in each members account. The total number of miles earned is ascertained in the above manner and a provision for the cost of tickets to be issued in future for the unutilized redeemable miles is made in the books of accounts as a liability. Such liability is claimed as revenue expenditure. In our view, the claim of the assessee is based on the liability it has undertaken under the frequent flyer programme. It is not the case of the revenue that the liability provided by he assessee is not in accordance with the scheme operated by the assessee. The liability provided is in respect of variable cost of flying the aircraft. That is also based on the minimum cost. In our view, these provisions are based on the experience of the airline and the actual miles accumulated by the passengers. If one were to go through the entire scheme it cannot be said that provision made by the assessee is in respect of a contingent liability. The principle laid down by the Hon'ble Supreme Court in the case of Bharat Earth Movers (supra), equally applies to....
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.... in the expert advisory committee of the ICAI, it is stated that the liability towards reward points on credit and debit cards should not be limited to the points expected to be redeemed in a particular period such as next year and that the actuarial report based on which the provision is made takes into consideration all the relevant factors with regard to the reward points, in our considered view there is merit in the claim of the assessee that the provision made towards reward points on credit and debit cards should be allowed as a deduction. Accordingly, we hold that there is no infirmity in the decision of the CIT(A) in allowing the claim of the assessee with regard to the provision for reward points on credit and debit cards. This ground of the Revenue is dismissed. Disallowance of revised claim for deduction under section 36(1)(viia) - Ground No.5 42. The assessee vide letter dated 24.12.2018 stated that at the time of filing the return of income the census data was not fully available and since the data is now available the deduction with respect to Rural Branches have been revised on the basis of such data. The assessee revised the claim under section 36(1)(viia) r.w....
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....e appellant are allowed." 43. The ld. DR submitted that the reason given by the assessee for revising the deduction claimed under section 36(1)(viia) before the AO is not bonafide and that the assessee should have made the claim by filing the revised return of income. Accordingly, the ld. DR supported the order of the AO. 44. The ld. AR on the other hand submitted that the assessee has not made a fresh claim but has only revised the quantum of deduction claim and therefore, the CIT(A) correctly allowed the claim. The ld. AR accordingly prayed that the decision of the CIT(A) be upheld. 45. We have heard the parties and perused the material on record. It is a settled position that when the assessee has not made a fresh claim but has only revised the claim which is already made in the return of income, the disallowance cannot be denied on the ground that the additional claim is not made by filing the revised return of income. In assessee's case it is an admitted position that the assessee has not made a fresh claim under section 36(1)(viia) but has only re-computed the amount of claim based on the fresh data made available with respect to the classification of branches in....