TaxTMI 
TaxTMI 
2023 (6) TMI 1496
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....itio and/or otherwise bad-in-law. GROUND NO. II: DISREGARDING THE DIRECTION OF THE TRIBUNAL WITH RESPECT TO DISALLOWANCE U/S 14A OF THE ACT: On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in going beyond the order of the Hon'ble ITAT in the Appellant's own case for an earlier year and directing the AO to re-examine the entire claim made by the Appellant. WITHOUT PREJUDICE TO GROUND NOS. I AND II, GROUND NO. III: DISALLOWANCE UNDER SECTION 14A OF THE ACT: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in directing the AO to disallow proportionate interest expense u/s. 14A of the Act 2. He further erred in rejecting the plea of the Appellant that when the securities are held as stock-in-trade, no disallowance can be made us. 14A of the Act 3. The Appellant prays that the disallowance us. 14A of the Act, including the suo-moto disallowance of Rs. 2,09,42,284/- made by the Appellant, be deleted. GROUND NO. IV: ORDER MADE ON THE BASIS OF SURMISES AND ASSUMPTIONS: 1. On the facts and circumstances of the case and in law, the Hon'....
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....M securities be deleted. GROUND NO. IX: SETTING ASIDE TO THE AO THE GROUND ON SECTION 36(1)(viia) OF THE ACT: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in directing the AO to verify whether the Appellant had rural branches within the meaning of section 36(1) (via) when all the relevant details were available on record. 2. The Appellant prays that the claim for deduction u/s. 36(1) (via) of the Act be allowed without sending it back to the AO for re-verification. WITHOUT PREJUDICE TO GROUND NOS. I AND IX GROUND NO. X: NON ALLOWABILITY OF DEDUCTION CLAIMED U/S 36(1) (via) OF THE ACT: On the facts and in the circumstances of the case, it be held that the Appellant is eligible for deduction u/s 36(1) (via) as it was not a provision for standard assets as alleged by the AO. WITHOUT PREJUDICE TO GROUND NOS IX AND X GROUND NO. XI: IGNORING THE AMENDMENT IN SECTION 36(1)(vi) OF THEАСТ: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in ignoring the amendment in section 36(1) (vii) as per which there is no requ....
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.... stock option plan ("ESOP"), without appreciating the fact that the appellate authorities can admit and adjudicate the additional claim raised by the assessee during the course of Appellate proceeding. 2. The Appellant prays that the claim for deduction in respect of discount on issue of shares under the ESOP be allowed. WITHOUT PEJUDICE TO GROUND NO. XV GROUND NO. XVI: DEDUCTION OF DISCOUNT ON ISSUE OF SHARES UNDER THE EMPLOYEE STOCK OPTION PLAN ("ESOP"): 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not allowing the claim for deduction in respect of discount on issue of shares under the ESOP amounting to Rs. 53,27,10,069/-. 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not giving any findings on the additional evidence filed by the Appellant 3. The Appellant prays that the claim for deduction in respect of discount on issue of shares under ESOP be allowed. 2. The grounds raised by the Revenue are reproduced as under: 1. "Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing t....
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....n directing to delete BPI without appreciating the fact that theHTM category of Securities are long term securities held till maturity and forming a part of investment and not a stock in trade hence BPI on HTMSecurities is a capital outlay and hence not an allowable deduction?" 8. "Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to delete BPI without considering the decision of honorable supreme court in the case of Vijaya Bank Ltd. v/s Addl. CIT (1991)187 IT 547(S.C.) wherein it is held that BPI is a part of capital outlay for acquisition of securities and hence not an allowable deduction?" 9. "Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing to delete premium amortized without appreciating the fact that the HTM category of Securities are held as investment i.e. acapital asset and hence amortization of premium paid on such securities will form part of cost of acquisition of HTM securities and hence not an allowable deduction?" 3. Briefly stated, facts of the case are that the assessee company filed its return of income for the year under consideration o....
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....ed a detailed working of direct and indirect expenses related to the treasury division/department and also worked out the expenses incurred pass through certificates. The relevant computation of disallowance reproduced by the Assessing Officer on page 16 to 18 of the assessment order is extracted as under: "In this connection, Yes Bank submits that it has identified certain expenses actually incurred in connection with the activity of buying and selling of securities/equities/tax free instruments/ servicing of pass through certificates issued by securitisation trust and has offered the same for disallowance u/s. 14A of the Act. The details of such expenses are as under: Certain direct expenditure which are incurred solely for the purpose of earning exempt income are fully disallowed. Such expenditure is fully disallowed us 14A of the Act. Details of such expenditure is as below. Custody charges 10,240 10,240 100% 10,240 Brokerage on Equity 11,723 11,723 100% 11,723 Sec Transaction tax 22,695 22,695 100% 22,695 Total 44,658 In so far as indirect expenses in relation to e....
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....perating expenses incurred by Yes Bank for the assessment year under consideration are also considered on the basis of the employee strength of the TD to the total employee strength on a conservative basis. * Since the TD is involved in buying and selling of different types of securities (i.e. shares and other securities), ratio of equity deals to the total deal is used on the expenses referred to in the earlier paragraphs TD to finally compute the disallowance under 14A of the Act. * Expenses (such as Custody charges) which specifically pertain to the equity deals are identified and disallowed completely. Expenses incurred for Pass Through Certificates In addition to treasury expenses, for investments in Pass through certificates issued by securitisation trust, 9 employees of the of Corporate Finance department (CF) and 4 employees of Indian Financial Institution (IFI) group are involved in the activity of sourcing and servicing the the PTs. Both these departments are based in Mumbai in IndiaBulls Finance Centre, Mumbai. Based on the management estimate of the time spent (50% for corporate Finance) and (15% of Indian Financial Instituti....
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....l Assets as on 31-Mar-2013 991,041,273 Total Assets as on 31-Mar-2014 1,090,157,899 Average total asset for FY 2013-14 1,040,599,586 (C) Interest to be disallowed (A*B/C) 2,041,199 Add:1/2 % of total investment 146,183 Total disallowance Rs. 2,187,382 The disallowance u/s. 14A of the Act has to be read in consonance with Rule 8D of I.T. Rules which has been made effective w.e.f. A.Y. 2008-09. The working of the disallowance given in the table above clearly shows that there are elements of expenditure which the assessee has incurred and which are relatable to the investment made in shares, etc, the income from which is not includible in the total works out to Rs. 2,187,382,000/- is required to be made, however as the assessee has already made disallowance of Rs. 20,942,284/- in computation balance amount of Rs. 2,166,439,716/- is therefore added to the income of the assessee u/s 14A of the Act." 7.1 The Assessing Officer after reducing the suo moto disallowance made balance addition of Rs.2,166,430,716/-. On further appeal before the Ld. CIT(A), the a....
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....uidelines issued by RBI, it invests in securities and shares and thus made several investments in shares and securities in earlier assessment years and during the year and derived tax free income from these investments. Now, the investments require funds and these funds have to come from somewhere and that is the moot point for debate in the case. It is observed from the records that assessee's Investments yielding tax free incomes and Interest bearing borrowings went up during the year simultaneously and its position as on 31/3/2013 and 31/3/2014 was as follows: INR ('000s) Investment in shares/tax free bonds as on 31-03-2013 3,218,715 Investment in shares /tax free bonds/Pass through certificates as on 31-03-2014 55,254,609 Schedule 4 -Borrowings March 31, 2014 March 31, 2013 1 Innovative perpetual debt instruments (IPDI) and tier II debt A. Borrowing in India i. IPDI 7,410,000 7,510,000 ii. Upper tier II Borrowings 19,367,000 19,367,000 iii. Lower tier II Borrowings 30,255,000 31,255,000 &n....
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.... 209,42,284/-out of administrative expenses of its treasury wing and newly set up industrial finance department for disallowance in the computation of total income computed by it. It is worth noting here that the figure of Rs. 209,42,284/- has been worked out meticulously by the assessee, however, it has not worked out any interest and bill discounting charges allocable to the activity of the Treasury Wing especially when the auditors of the company and the directors of the company have themselves admitted in annual accounts that the treasury wing had segmented liabilities and hence segmented expenses including interest and bill discounting charges allocable to the Tax Free Income yielding investments even though rule 8D of the IT. Rules 1962 mandates it. It is important to note that assessee has cited numerous decisions of the High court/ITAT favoring it, however, the matter is not ultimately decided by the Supreme Court of India and even the ITATHC decisions cited by the assessee have also reiterated the issue that "It is a question of fact and whether there was a direct and/or indirect nexus between the borrowings" on which interest had been paid and the investments on which tax....
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....o the facts of the case. However, the assessee in its submissions cited that 'the ITAT, Mumbai in assessee's own case for AY2008-09 vide order dated 1/1/2016 has held as follows: "4.We heard the rival contentions on this issue and perused the record. We agree with the contention of the assessee that no disallowance under Rule 8D(@)G) and (i) is required to be made, if the non-interest bearing funds available with the assessee are more than the amount of investment which generate tax free income, since the said view has been upheld by the Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. (2014)366 IT 505 (Bom). However, the fund position of the assessee is required to be examined at the end of the AO. Accordingly, we set aside the order of Ld. CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue by following the ratio rendered in the case of HDFC Bank Ltd. (Supra) and also any other decision that may be relied upon by the assessee and take appropriate decision in açeordance with the law. 5. With regard to the expenditure with requires to be disallowed under Rule 8D(2)(iii), the Id.....
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....tion of the ITAT in the assessee's own case for earlier years. Alternatively, in ground No. 3, the assessee has prayed for relief for disallowance on proportionate interest expenses, no disallowance if securities as stock in trade and also submitted for deleting the suo moto disallowance also. The Ld. Counsel appeared before us and made various propositions praying deletion of the addition. Regarding the, first proposition, that no interest disallowance could be made to the extent of interest free funds available with the assessee, the assessee submitted as under : "The Assessee Bank submits that when own funds and interest free funds are more than tax free investments, no disallowance of interest w/s 144 r.w.r. 8D(fi) be made. The said proposition is supported with the position of own funds and tax-free investments as on March 31, 2014, tabulated below for reference: Details of Owned funds and other noninterest bearing funds Amount (Rs. In Lacs) As on March 31, 2014 Share Capital (a) (Pg. 8 of FPB) 36,063 Reserves and Surplus (b) (Pg. 8 of FPB) 6,76,110 Current Account Deposits - From Banks (c) 23,469 - From Others (d) 6,78....
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.... 144 disallowance is warranted with respect to investments held as stock-in-trade: ⮚ Nice Bombay Transport (P) Ltd vs. ACIT (20191 175 ITD 684 (Delhi-Trib.) ⮚ Punjab National Bank vs.ACIT ITA No. 1519/Del/2016 & ITA No. 7106/Del/2017] (Delhi-Trib.) ⮚ ACIT vs. UCO Bank [ITA No. 1615/Kol/2016| (Kolkata-Trib.) ⮚ Bank of Maharashtra v. DCIT (ITA No. 1370 /Pun/2014) Proposition 4: Only those investments yielding exempt income to be considered for calculating disallowance us 14A Without Prejudice to proposition 1, 2, 3 & 4 Proposition 5: Only net interest expenditure after setting off interest income should be considered for the purpose of interest disallowance u/s 14A r.w.r. 8D The Assessee has earned an amount of Rs. 9.981/- crores as interest and incurred interest expenditure of Rs. 7,265/- crores. The Assessee prays that since the interest income earned is higher than the interest expense incurred, no disallowance u/s 14A r.w.r. 8D is warranted. As for propositions 2 to 5 are concerned, the Assessee submits that if the Assessee under a mistake or misconception, has ov....
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.... those funds rather than availability of the funds in the year under consideration. However, no such details could be made available during the course of the hearing. In the circumstances, the proposition by the Ld. Counsel of the assessee cannot be adjudicated. Accordingly, we restore this issue of disallowance u/s 14A of the Act to the file of the Ld. CIT(A) for deciding afresh after taking into consideration submissions of the assessee. The ground Nos. 1 to 3 of the appeal of assessee and ground No. 1 of the appeal of the Revenue, are accordingly allowed for statistical purposes. 11. The ground Nos. 4, 5 and 6 of the appeal of the assessee relate to disallowance of deduction claimed u/s 35D on the expenses related to qualified institutional placement (QIP). 12. Brief facts qua the issue in dispute are that during the assessment year 2010-11, the assessee had raised Rs.103.87 crores by way of issue of share capital through QIP, in which it placed its share capital with qualified institutional buyers (QIB). In connection with issue of shares to QIB, the assessee incurred expenses aggregating to Rs.14,14,01,453/- on account of payments to lead managers of the issu....
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....A No. 3498 to 3500/Mum/2018 and the Miscellaneous Application filed against that order has also been rejected by the Tribunal and therefore, the Tribunal (supra) has duly considered the order of the Tribunal for assessment year 2010-11, therefore, this order is a binding precedent. The relevant finding of the Tribunal (supra) in MA No. 442 to 444 of 2022 are reproduced as under: "09. However, claim of the assessee is that the decision of the coordinate bench in A.Y. 2010-11 has categorically decided that assessee is entitled to deduction under Section 35D of the Act and therefore, the decision cannot be revisited and the Tribunal has to follow the same. Coordinate bench has decided this issue as under :- "031. We have carefully considered rival contentions and perused the orders of the lower authorities. According to provisions of section 35D (2) (c) (iv) of the act companies are allowable following deduction:- c) Where the assessee is a company, also expenditure (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage, and charges for drafting, typing, printing, and ....
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....ic' or not. After a careful and comprehensive consideration of the relevant provisions of the Company Law, Securities Contract (Regulation) Rules, SEBI Guidelines/Instructions, I am of the considered opinion that QIBs constitute 'public' and accordingly, the subscription made by the amount to public subscription. In this view of the matter and also considering the facts with regard to the utility of funds raised through QIB issue, I hold that the issue expenditure, to the extent attributable to the funds utilised for extension of the appellant's undertakings, is eligible for deduction under section 35D. So far as the remaining funds, utilised for modernisation and working capital requirements of the appellant's business are concerned, I have considered both factual and legal submissions of the applicant, in support of its contention that the expenditure was in the nature of revenue expenditure since the primary object and intent of raising these funds was to meet the operational requirements, in order to run the business more efficiently and profitably. The hon'ble High Court of Delhi, after analysing plethora of case law on this subject, had laid down certa....
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....s can be raised within a short span. This is an extremely important investment for larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or debentures of the company are allowable. Reliance is placed on CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the merits of the issue, the QIB expenditure can be treated as revenue expenditure and eligible for deduction under section 35D of the Income-tax Act is confirmed. Hence on merits of the issue as well as the fact that the same issue has been allowed in the earlier years and the Department cannot come upon in appeals in the subsequent years would be the reason to dismiss the Departmental appeal. We confirm the order of the Commissioner of Income-tax (Appeals) with respect to qualified institutional buyers expenses and dismiss the Departmental appeal on this issue. In the result, the Departmental appeal for the assessment years 2007-08 and 2008-09 are dismissed." 6.1 A perusal of the above order of the Tribunal clearly indicates that the present issue is directly covered in f....
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....ection of public qualifies as public" has been clarified in Nitta Gelatine India Limited (supra) and Andhra Chamber of Commerce (supra). 7. Facts being identical, we follow the order of the Tribunal in the case of Deccan Chronicle Holdings Limited (supra) and in view of the discussion hereinabove at para 6.2, hold that the appellant is eligible for deduction u/s 35D of the Act. Thus we set aside the order of the Ld. CIT(A) and allow the 1st, 2nd and 3rd ground filed by the assessee." 034. For Deduction u/s 35 D (2) ( C ) (iv), allottees of shares and Debentures are immaterial, those may be QIB, FII, DII, Other Investors Individuals etc, but only issue to be seen is whether the expenditure is " in connection with the issue for public subscription " or not. 035. Therefore, as we have already held that if the issue of shares is through " public Subscription" assessee is eligible for deduction u/s 35 D, conversely, if the issue of shares are not " Public Subscription" i.e. such as Private Placement etc, assessee is not eligible for deduction u/s 35 D of the Act . These facts are not on record whether shares issued to QIB are issued in "Publi....
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....3-14 has held that said investment are stock in trade of the assessee and brokerage expenses in relation to same ought to be allowed. The relevant finding of the Tribunal (supra) is reproduced as under: "024. We have carefully considered the rival contentions and perused the orders of the lower authorities. On appreciation of facts, we find that assessee offers profit and loss on sale of securities as business income and not as capital gain. This fact has also been accepted by the LD AO. Therefore the securities purchased and sold by assessee are its stock in trade. Therefore, all necessary expenditure incurred by assessee for purchase of stock in trade, like, commission/ brokerage are revenue expenditure only. It is not the case of revenue that, despite these securities being stock in trade, it needs to value at cost or market value whichever is less at the end of the year, and commission or brokerage incurred on its acquisition should have formed part of cost of such securities, subject to available market rate. Ld AO has held that commission or brokerage as far as it relates to unsold stock in trade is not allowable during the year of incurring such expenditure, but wou....
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....uch requirement that under section 36(1)(viia) of the Actdeduction can be claimed only with respect to rural branches. The Ld. Counsel further submitted that the issue in dispute is covered in assessee's own case for AY 2011-12 to 2013-14. The Ld. DR also could not controvert this fact. 18. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The identical issue has been decided by the Tribunal in favour of the assessee for AY 2011-12 to 2013-14. The relevant finding of the Tribunal is reproduced as under: "085. We have carefully considered the rival contention and perused the orders of the lower authorities. The only reason why the deduction is disallowed to the assessee is that assessee does not have any rural branches. we find that deduction u/s 36 (1) (viia) of the act is not restricted to the banks only having the rural branches. This has been dealt with in 42 taxmann.com 303 as under :- "34. It can be seen from the history of Sec.36(1)(viia) of the Act that at stage-I the deduction was allowed in respect of any provision for bad and doubtful debts made by a scheduled bank in relatio....
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....a) up to 2% (now 10%) of the aggregate average advances made by such branches and (b) a further deduction up to 5% of their total income in respect of provision for bad and doubtful debts. The further deduction of 5% of total income was available to banks which did not have rural branches. 36. Therefore after 1.4.1987, scheduled or non-scheduled banks having rural branches were allowed deduction., (a) up to 2% (now 10%) of the aggregate average advances made by such branches and (b) Schedule or non-scheduled banks whether it had rural branches or not a deduction up to 5% of their total income in respect of provision for bad and doubtful debts. Even under the new provisions creating a PBDD in the books of accounts is necessary. 37. Though under Stage-II and Stage-III of the provisions of Sec.36(1)(viia) of the Act, PBDD has to be created by debiting the profit and loss account of the sum claimed as deduction, the condition that the provision should be in respect of rural advances is not necessary. At stage-II of the provisions of Sec.36(1)(viia) of the Act, this condition was done away with and it was only necessary to create PBDD in the books of accoun....
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....nother subsidiary ground, alternatively raised for claim of deduction of discount on issue of shares Under ESOP scheme. As we have held that, the learned CIT - A should have admitted additional ground of the assessee, we do not find it appropriate here to allow the claim of the assessee for the simple reason that deduction is required to be verified with respect to its quantum by the lower authorities. Accordingly, we setaside the alternative ground of allowability of discount on issue of shares Under the employee stock option plan of Rs. 1,432,422,420/- back to the file of the learned assessing officer to examine the claim of the assessee and allow it in accordance with the law. The assessee is directed to produce the requisite details before the learned assessing officer. If the AO, on examination of such details, is not satisfied with the claim of the assessee, a reasonable opportunity of hearing is required to be given.Accordingly, alternative claim of the assessee is restored back to the file of the learned AO. Accordingly, ground number 6 of the appeal is partly allowed." 20.1 Respectfully following the finding of the Tribunal (supra) the additional ground in the year unde....