9911796707
TMI Blog2013 (11) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee preferred another appeal No. ITA No. 310/07-08 by challenging the additions made therein. Since, the CIT(A) vide common order has decided both the above appeals and deleted some of the additions made by the Assessing Officer; therefore, on the one hand, the Revenue has filed [I.T.A. No. 900/Mds/2010] challenging the common order passed by the CIT(A); on the other, the assessee has preferred to file two appeals [I.T.A. Nos. 906 & 905/Mds/2010] against the order passed by the CIT(A) in ITA Nos. 254/04-05 and 310/07-08 respectively. 2. Brief facts common to all cases are that the assessee; who is banking company, had filed its 'return' on 29.12.2002 for the assessment year 2002-03 and declared income of Rs.107,99,72,662/-, which was processed under section 143(1) of the "Act". Thereafter, the Assessing Officer completed 'scrutiny' assessment on 18.08.2004 computing total income of Rs.135,25,30,353/-. In the said assessment order, he had made following additions: S.No. Issues Amount 1. Bad Debts Disallowance Rs. 18,75,59,964 2. Depreciation on Leased Assets Rs. 37,39,878 3. Software expenses Rs. 32,85,681 4. Subscription to SEBI Rs. 2,50,000 5. Cash in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the soft ware expenses of Rs.76,18,996 is capital nature and assessee has debited to profit and Loss account. 8. The assessee has claimed brokerage of Rs. 27,43,150 paid while purchasing securities need to-be capitalized. 9. Unclaimed balance of Rs.1,01,45,432 pertaining to this year is to be this year has not brought to tax." Accordingly, another reopening notice stood issued to the assessee on 30.03.2007. Per assessment order dated 31.12.2007, the assessee sought reasons for reopening from the Assessing Officer. It is revealed from the short paper book filed by the assessee that on 11.04.2007, the assessee's Deputy General Manager made a request to the Assessing Officer to supply the reasons of reopening. In the said correspondence, the assessee intimated the Assessing Officer that the purpose of seeking reasons in support of reopening was to enable it to raise objections. The letter dated 11.04.2007, which is available on record reads as follows: "Ref: AFMD/23/2007-08 Dated 11/04/2007. The Assistant Commissioner of Income Tax, Company Circle, Range - I, 4, Williams Road, Tiruchirapalli - 620 001. Sir, Ref: Notice u/s 148 dated 30/03/2007 Assessment year 2002-03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence required to be disallowed. 6. Amortisation - investment (Rs.5,93,233) claimed in the P & L account relating to securities of HTM Category is to be disallowed as the investments are capital in nature. 7. Claim of soft ware expenses (Rs.76,18,996) is to be disallowed as the same is of capital in nature. 8. Claim of brokerage payment (Rs.27,43,150) is to be disallowed as the same is capital in nature. 9. Unclaimed balance (Rs.1 ,01,45,432) pertaining to this year is to be brought to tax. Sd/- (B.YADAGIRI) Asst. Commissioner of Income Tax, Company Circle-I, Trichy." Thereafter, the Assessing Officer issued notice to the assessee under section 143(2) of the "Act" and completed reassessment vide order dated 31.12.2007 computing the assessee's income as Rs.143,52,00,695/- in view of the following additions: S.No. Issues Amount 1. Expenses of earning tax free income Rs. 95,11,409 2. Pension Payment Rs. 1,84,09,824 3. Amortization expenses Rs. 5,93,233 4. Brokerage Rs. 27,43,150 5. Software expenses Rs. 24,28,566 6. Pooja Expenses. Rs. 3,99,858 7. Unclaimed Balance Rs. 1,01,45,432 As it stands hereinabove clarified, the assessee filed appeal No. 310/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... okerage paid in respect of AFS & HFT category of securities. 3. The C.I.T.(Appeals) erred in deleting the disallowance of bad debts to the extent of Rs.18,75,59,964/-. 3.1 The C.I.T.(Appeals) failed to note that under proviso to clause (vii) of sub- section (1) of section 36, only bad debts written off which are over and above the credit balance available in the provision for bad and doubtful debts account would be eligible for deduction. The C.I.T.(Appeals) ought to have con finned the addition made by the A.O. 4. The C.I.T.(Appeals) erred in deleting the addition with regard to unclaimed balances. The C.I.T.(Appeals) failed to follow the ratio of decision of Apex Court in the case of T.V. Sundaram Iyengar & Sons. 222 ITR 344 (SC). The balances lying unclaimed with the bank for more than 3 years ought to have been confirmed by the C.I.T.(Appeals) as these are to be treated as income in the light of the above referred decision. 5. The C.I.T.(Appeals) erred in allowing the depreciation on leased out assets. 5.1 The C.I.T.(Appeals) failed to observe that the assessee had failed to produce any evidence to prove that assets alleged to have been leased to Erode Rane Textile Process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Sector Banks were kept pending by CBDT up to August 2003. In August 2003 the CBDT refused to give exemption to rule 89. The appellant Bank purchased Annuity from October 2003. (ii) Since exemption application was pending up to August 2003, the Bank started paying pension directly to pensioners. (iii) Pension scheme is applicable to all employees serving as on that date and those who retired on or after 01-01-1986. As per the settlement with IBA, pension is to be paid to retired employees from 01-11-1993. IBA through its letter dated 02- 01-1998 informed Government's decision to delete strike clause in the agreement. After this date only Pension agreement took effective form and acceptable to all Bank employees. When the Government of India decided in principle to give employees of Banks an option to prefer pension payment, IBA requested the member Banks to form a fund and get it registered with the Chief Commissioner of Income Tax. Accordingly in 1995 the rules and regulations of the fund were prepared and the CCIT gave his approval to the Fund. The appellant has got a self managed Provident Fund. So the IBA on behalf of the members filed an application to grant exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten by programmers in computer language. IV. The learned Commissioner of Income tax appeals, Trichy, has erred in disallowing Pooja expenses, which is commonly undertaken in all business concerns as a staff welfare measure, even after pointing out High court judgments." Similarly, in I.T.A. No. 906/Mds/2010, the following are the assessee's pleadings: "I (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the lease agreement of two lessee, viz, M/s Rajender Steels Ltd and M/s Aruna Textiles & Exports Ltd are genuine. Depreciation claimed by the appellant regarding the two items were remitted back to the assessing offer by the Commissioner of Income tax of Appeal for A Y 96-97. The transactions were genuine. (ii) In the case of M/s Rajender Steels Ltd, Kanpur due to mismanagement of business affairs by the lessee the projects failed after two years from the date of loan. (iii) The other banks were also advanced money to the lessee under different scheme. (iv) Purchase receipts are available. Insurance done and Bank Officials verified the existence of Machinery and all certificates were produced to Assessing Officer and the case is not yet opened by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC) and S.Kumar Tyre Manufacturing Co. Ltd. v. CIT 344 ITR 581 (MP) and prayed for acceptance of the petition in the interest of substantial justice. 8. Opposing the plea of the assessee, the Revenue has argued that at this belated stage, the assessee's plea is not liable to be entertained being highly belated one. In support, the DR has also relied on the case law of NTPC v. CIT (supra) and G.K.N. Driveshafts (India) Ltd. v. ITO & Others [259 ITR 19] (SC). 9. We have heard rival contentions and also perused the short paper book filed by the assessee as well as case law cited. Undisputed facts of the case are that the Assessing Officer had issued reopening notice on 30.03.2007 (supra) after finalizing 'scrutiny' assessment under section 143(3) on 18.08.2007. We also notice that from the very beginning, the assessee was very well aware of its right to raise objections opposing the reopening in question. This is the precise reason it chose to ask for reasons from the Assessing Officer on 11.04.2007 specifically stating therein that it intended to raise objections (supra). Thereafter, the Assessing Officer provided copy of reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational Limited vs. DDIT in I.T.A. No. 549/Bang/2011 decided on 10.12.2012 has held as under: "4.1.5 From the discussion in paras 4.1.1 to 4.1.4 of this order (supra), it is clear that the settled proposition of law, as laid down by the Hon'ble Apex Court, Hon'ble High Court of Mumbai and as followed by the two decisions of the coordinate benches of the Tribunal (all cited supra), is that the reasons as recorded by the Assessing Officer are required to be furnished to the assessee within reasonable time of their being recorded and certainly prior to the completion of assessment. In the instant case, the undisputable facts on record establish beyond doubt that the reasons recorded for initiation of proceedings under section 147/148 of the Act were never furnished to the assessee by the Assessing Officer before completion of the assessment proceedings on 29/12/2008, 33 months after the request was made by the assessee by letter dated 16/4/2007. The subsequent furnishing of the reasons recorded to the assessee by the learned CIT(A) by letter dated 28/1/2010 does not achieve any purpose or mitigate the illegality of the action of depriving the assessee its right to raise objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's claim of interest paid on securities as capital expenditure. In appeal before the CIT(A), the assessee relied on the order of the ITAT Chennai in preceding years as well as the judgment of the Hon'ble Madras High Court in assessee's own case. At the same time, we also find that the crucial factual aspect of the issue in question have nowhere been adverted to the CIT(A). In the operative part of the CIT(A) that it has been simply observed that in assessee's case the Hon'ble High Court as well as the Coordinate Benches of the ITAT have decided the issue in assessee's favour. This in our opinion, is nothing but sketchy finding of the CIT(A). At the same time, we cannot lose sight of the fact that we have remitted ground No. III back to the Assessing Officer. In those circumstances, in order to avoid multiplicity of proceedings of same year before the Assessing Officer in assessee's appeal and CIT(A) in Revenue's appeal, we find it appropriate that the issue deserves to be redecided by the Assessing Officer by way of a detailed order in accordance with law after according opportunity of hearing to the assessee. We also make it clear that we have not expressed any opinion on merits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements contemplated under Section 36(2). 42. Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessees and dismiss the appeals preferred by the Revenue. Further, we direct that all matters be remanded to the assessing officer for computation in accordance with law, in light of the law enunciated in this judgment." Taking cue from the above said observations of the Hon'ble Supreme Court, we are of the view that in the instant case, nonetheless the assessee is entitled to write off the debts. At the same time and in the light of the Hon'ble Supreme Court's observations, we also feel that while writing off the bad debts, the concerned assessee is not entitled to double deduction. It is also noticed that even the Hon'ble Supreme Court has remitted the matter back to the Assessing Officer with specific directions. In view thereof and more so, since we have restored preceding issue back to the Assessing Officer, we also deem it proper to restore the ground back to the Assessing Officer, who shall pass a speaking order in accordance with law by taking into consideration the judgment of the Hon'ble Supreme Court above said." In the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned borrowers which is disputed by the Revenue. We find that in the case law of City Union Bank Ltd. (supra); the Coordinate Bench, after considering case law of TV Sundaram Iyengar and Sons (supra) had decided the issue of surplus arising from 'stale drafts' as under: "2. The sole issue raised in this appeal is regarding confirmation of an addition of Rs.49.19 lakhs, which the assessee-bank has claimed as an outstanding liability. The Assessing Officer has treated it as income of the assessee due to efflux of time beyond which no legal claim is maintainable. The Bank has been showing this amount as due towards 'stale drafts' as a liability both in the audited Balance Sheet and in the statutory returns sent to RBI and it maintains cash reserve ratio at specified rate in current account with the RBI for such liability. From the yearwise details furnished, the Assessing Officer found that a sum of Rs. 49,19,662/- had been credited under outstanding liabilities towards stale drafts for the assessment year 1996-97 and as on 1.4.2000 also the same figure has been shown which is kept under suspense account for more than three years since 31.3.1997 for payment of stale drafts . It is a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ld. CIT(A) and this was upheld by the Tribunal. But the facts of this case are different because in banking business RBI guidelines are to be followed and that by, simplicitor, efflux of time, say beyond 3 years, ordinary limitation would not apply as the assessee has been showing cumulative total liability at the relevant period. In this case, after detailing period total outstanding amount has been shown in the Annexure attached to the assessment order. Actually, items are coming in and going out of this account every now and then throughout the year, and it is treated like a current account operated upon regularly doing in the course of business. Given the nature of transactions, the encashment of drafts after revalidation thereof, is a regular feature. Rather the common-sense demands that such drafts cannot be treated as unclaimable because time-barred, given the nature of banking transactions. Drafts issued, becoming stale is not an uncommon factor rather it is a usual and common feature in all banks. Unless the drafts amount becomes, in fact, unclaimable which can be by virtue of multifarious facts available and not by guess work, this amount cannot be treated as bank's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not convince the "Tribunal". Therefore, in our opinion, since the law of Hon'ble Supreme Court is not applicable qua the peculiar facts of the case and the same very issue has attained finality in view of the fact that the Revenue has not challenged the above findings, we hold that the CIT(A) has rightly deleted the addition arising from surplus of jewellery auction." In view of the above findings in I.T.A. No. 899/Mds/2010 (supra), grounds No. 4 and 7 pertaining to unclaimed balances and surplus from jewellery auction contain same issues in principle because in both cases, the assessee has retained the unclaimed balances and surplus from jewellery auction which has been decided in favour of the assessee. 14. So far as Revenue's grounds No. 5 and 6 pertaining to depreciation on leased out assets and addition of cash excess are concerned, we have upheld CIT(A)'s order while deciding similar issues in grounds No.3 and 4 in I.T.A. No. 897/Mds/2010 (supra) and relevant findings are reproduced hereunder: "Ground No. 3 (Revenue's appeal) 34. Facts relevant to this ground are that in the assessment, cash excess of Rs.1,87,375/- had been omitted by the assessee from being considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on investment. The Assessing Officer had passed initial assessment order under section 143(3) of the "Act" on 27.03.2002 (supra). In the said order, he had disallowed assessee's above said claim by holding that any provision of depreciation made during the relevant accounting year had to be disallowed and added back in assessee's income. Therefore, he relied on assessment order for the assessment year 1998-99 i.e. preceding assessment year and disallowed the provision. In appeal, the CIT(A) has deleted the addition by holding as follows: "2.3 As per appellant's submission this amount is already offered by the appellant. So this addition is not called for. However, the Assessing Officer is directed to verify the same and delete the addition." 39. In support of the ground raised, it has been submitted by the DR representing the Revenue that the CIT(A) has wrongly deleted the addition. Accordingly, he prayed for its restoration by accepting the ground in favour of the Revenue. 40. On the other hand, the AR has stated before us that the Assessing Officer himself vide rectification order under section 154 of the "Act" dated 03.07.2003 has rectified the assessment order dated 27.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een offered in the books of account as income. The disallowance made towards this amount in the assessment for 1999-2000 is therefore not in order. As these are mistakes apparent from the records the assessment for 1999-2000 is now revised u/s 154 as under." Taking cue from the same, we observe that since the Assessing Officer himself has held the disallowance to be inappropriate by rectifying the assessment order, there is no locus standi on the part of the Revenue to raise the instant ground. Hence, we reject this ground agitated by the Revenue." Accordingly, qua grounds No. 4 and 7 raised by the Revenue, the order of the CIT(A) is affirmed. In the light of our findings, we partly allow Revenue's appeal for statistical purpose. 15. Now, we come to I.T.A. No. 905/Mds/2010 filed by the assessee for the assessment year 2002-03. In this appeal, the assessee has stated that 4 substantive grounds have been raised which relate to disallowance of expenditure @ 2% by the CIT(A); deduction of amount for pension directly paid to its pensioners; software expenses and pooja expenses. It has been pointed out that these grounds except ground No. III are covered by our findings in assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed for statistical purpose on this ground for all the three assessment years under consideration." Against the above order passed by the Coordinate Bench, the assessee's appeals are pending before Hon'ble High Court. It has also came to our notice that recently, the Hon'ble Jurisdictional High Court has been pleased to hold that disallowance of expenditure in earning exempt income @ 2% based on estimation is reasonable. The operative part of the judgment in Tax Case (Appeal) No. 2621 of 2006 titled as M/s. Simpson and Co. Ltd. vs. DCIT decided on 15.10.2012 reads as under:- "This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal for the assessment year 2001-02, was admitted on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the estimated disallowance of 2% of the expenditure, as being incidental to earning dividend income, under section 14-A of the Act although no actual expenditure was incurred? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in not appreciating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1188 dated 31.10.2003. It also emerges that the private sector banking companies alike assessee had approached CBDT praying for exemption from compliance with Rule 89 of Income Tax Rules, which was rejected on 13.08.2003. In October, 2003, the assessee had purchased Annuity in compliance with Rule 89 which has nowhere been disputed by the Revenue. In the light thereof, the claim of the assessee is that the payment in question is allowable as business expenses under section 37 of the "Act" which is contested by the Revenue. We find that the Coordinate Bench of Cochin ITAT in I.T.A. No. 10/Coch/2009 (supra) has also dealt with this very issue and restored the same back to the Assessing Officer for fresh consideration after taking into account the relevant provisions i.e. section 37(1) of the "Act". The relevant observations read as under: "2. The issue raised by the assessee, a bank, is in respect of disallowance of pension paid to its retired employees (Rs310 lakhs) claimed u/s. 37(1) of the Act. The Assessing Officer's (A.O's) objection there-to was that the assessee had already established a pension fund for the purpose, and to which regular contributions were being claimed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediency (on the parameters as settled by the apex court) has admittedly not been examined by the AO, and which is a perquisite for the allowance of a claim u/s. 37(1), and the onus to exhibit which is only on the assessee. In the facts of the case, we find it as all the more relevant as there is no subsisting employer-employee relationship between the assessee and its retired employees. There is no enumeration of the basic and relevant facts in the assessment or the impugned order, which we find as not mentioned even in the orders referred to for the earlier years. As such, we are unable to see any infirmity in the impugned order, passed following that by the co-ordinate Bench, and neither has the assessee been able to show us any. The order by the tribunal referred to by the assessee disposes the Revenue's appeal, whose case, as afore-noted, stands dismissed by the tribunal, finding the allowance of deduction u/s. 36(1)(iv), which is qua the contribution to the fund, as no bar for the claim of deduction u/s. 37(1). However, that the same has to be on its merits, i.e., on a stand-alone basis, is unexceptional, and which we understand to be the import of the decision by the ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hish should be allowed as business expenses or welfare expenses of the staff ? " The facts are in a short compass. The assessment years under consideration are 1968-69 and 1969-70. The assessee claimed Rs. 1,751 and Rs. 3,250 as miscellaneous expenses. These had been classified as pooja expenses and also expenses for bakshish and presentation. The ITO disallowed the claim and the said disallowance was confirmed by the AAC on appeal. On further appeal, the Income- tax Appellate Tribunal allowed the appeals in part. In para. 12 of its order, the Tribunal pointed out that these expenses were incurred for the poojas, etc., performed by the workers and that they should form part of the welfare expenses. It also pointed out that, similarly, expenses on bakshish and presentation were found to have been incurred in respect of the workers alone. Hence, the Tribunal did not find any reason for the disallowance of these claims. It is this conclusion of the Tribunal that is now sought to be questioned. Having regard to the finding of the Tribunal that these expenses have been incurred only in respect of the workers, it is clear that the expenses have been rightly held to be ones incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) and therefore, we should restore the matter back to the Assessing Officer, we fail to agree with the said contention. In our view, merely because for the first year for the purpose of claiming depreciation is 1996-97 regarding which assessee's appeals are pending before CIT(A), it itself cannot a ground to restore the issue back to the Assessing Officer. We also deem it proper to observe that in case the assessee is held entitled for the relief of depreciation in question in first assessment year, it would get the same relief in subsequent years. Hence, for the purpose of deciding this ground, we see no reason to interfere with CIT(A)'s order. Similarly, so far as Revenue's contentions are concerned, we hold that since the assessee has been held entitled for the units in question for the assessment year 1996-97, we see no reason as to why it is not entitled for the same very assets in the impugned assessment year. The argument raised by the Revenue that the assessee led no evidence or material to prove its case also does not inspire any confidence as there is no cogent material placed before us to accept the Revenue's contention that the assessee is not entitled for the reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which have been disallowed by the Assessing Officer as well as CIT(A). Qua this aspect, we notice that the in I.T.A. No. 902/Mds/2010 (supra), the assessee had raised the same very ground, and our findings read as follows: 27. Rival contentions of the parties have been heard. We have also perused the findings of the Assessing Officer as well as CIT(A). Undisputedly, the explanation tendered by the assessee in support of the claim is that it had paid the sum in question to the Registrar of Companies so as to increase its authorized capital. The issue between parties is about the nature of expenditure i.e. per assessee, it is revenue expenditure and per Revenue it is capital expenditure. We notice that the Hon'ble Supreme Court in the above cited case (supra) also dealt with this question as to whether the expenditure directly related to expansion of its capital base is revenue or capital in nature. In the said case, their Lordships turned down assessee's argument and held as under: "We find that this matter has come up for consideration before this court in Punjab State Industrial Development Corporation Ltd. v. CIT [1997] 225 ITR 792 (Tax Reference No. 1 of 1990, decided on Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as well as before the Tribunal it was submitted on behalf of the assessee that the increase in the capital was to meet the need for working funds for the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the above quoted observations of this court in Punjab State Industrial Development Corporation Ltd.'s case [1997] 225 ITR 792 clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit-making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. In these circumstances, we do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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