TMI Blog2013 (11) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, arise from a common order of the Commissioner of Income Tax (Appeals), Tiruchirappalli dated 23.03.2010 in ITA No. 310/07-08 254/04-05 for the assessment year 2002-03 in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act 1961 [in short the "Act"]. The appeals pertain to same assessment year. So they are being adjudicated upon together. We clarify that the Assessing Officer had passed assessment order under section 143(3) of the "Act" on 18.08.2004 making some additions. The assessee challenged those additions before the CIT(A) in ITA No. 254/04-05. Similarly, the Assessing Officer passed another order under section 143(3) r.w.s. 147 on 31.12.2007. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond u/s 10 (23 G) (Rs.1,60,00,000). 2. The assessee has paid the pension (Rs.1,84,09,824) directly to the employees and same has been claimed as a deduction. 3. Exgratia payment (Rs.2,59,89,589) which is claimed as deduction is to be disallowed as it has not been incurred out of any business necessity. 4. Provision for fraud (Rs.78,31,000) has not been added back as it a represents provision only. 5. It appears that encashment of privilege leave (Rs.83,74,662) is to be allowed on actual payment basis, no details have been furnished hence required to be disallowed . 6. Amortization of the 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. And also the brokerage payment (Rs.27,43,150) is to be disallowed as the same is capital in nature 7. The claim 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished -Regarding. Ref: Your letter dt. 11-4-2007. Please refer to the letter cited in that letter the assessee has requested the reasons for reopening the assessment. The same is furnished as under. 1. The expenditure, incurred while earning the exempted income such as dividend Mutual Fund (Rs.35,46,50,048) interest free bond u/s 10(15) (Rs 10,49,20,412) and Infrastructure bond u/s 10 (23 G) (Rs.1,60,00,000) is to be disallowed. 2. Payment of pension (Rs.1,84,09,824) directly which was claimed as deduction is to be disallowed. 3. Exgratia payment (Rs.2,59,89,589) which is claimed as deduction is to be disallowed as it has not been incurred out of any business necessity. 4. Provision for fraud (Rs.78,31,000) is to be added, as this represents provision only. 5. Encashment of privilege leave (Rs.83,74,662) is to be allowed on actual payment basis, no details have been furnished 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of banks and can (nay, is required to) give directions to the banks with regard to SLR requirements, Cash Reserve Ratio and the manner in which the accounts are to be kept by the banks. Pursuant to the powers given by the Banking Regulations Act, the RBI had asked the banks to maintain the portfolio of the securities in three categories viz. Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). It implies that investment in HTM category of securities is to be treated as "investment" of capital nature. With a view to meet the legal requirement of SLR as per Banking Regulations Act, the RBI has directed the Banks that the securities held as HTM category are intended to be held as investment and shown in the books of accounts at cost; while the securities of HFT AFS categories are treated as stock-in-trade. 2.1 The C.I.T.(Appeals) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The C.I.T.(Appeals) ought to have restricted the relief for the brokerage paid in respect of AFS HFT category of securities. 3. The C.I.T.(Appeals) erred in deleting the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be cancelled and that of the Assessing Officer be restored." Whereas, in I.T.A. No. 905/Mds/2010, the assessee's grounds read as follows: "I (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the appellant did not incur any expenditure in earning the tax free income. The estimated disallowance @ 2% of the tax free income is not correct as per the decision of many appellate authorities. (ii) The learned Commissioner of Income tax of Appeal Trichy failed to see that the Assessing Officer had not proved any expenditure directly related to the tax free income in the case of the appellant. II (i) Pension payments to Bank employees was one of the issue in Bi partite settlement. Pension payment starts after employees retired from active service. The Pension Fund was registered at the office of Chief Commissioner of Income tax, Chennai. Agreement signed by all the parties (ie) Bank, Employees IBA in January 1998. CBDT was requested to grant exemption from rule 89. The exemption was given to Nationalized Banks in 1996. The application filed by the Private Sector Banks were kept pending by CBDT up to August 2003. In August 2003 the CBDT refused to give e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial peace, the pension paid by Bank directly to pensioners. (vi) If pension fund pays pension directly to pensioners without purchasing Annuity it is violation. But, Pension was paid by Bank directly. This is actual payment. So there is no violation. (vii) This pension payment was made wholly and exclusively for the purpose of business. Paying pension to employees is expenditure for business purposes. The retired employees are also equal to existing employees. They are also Associate members of the Union/Association. The payment was not made for personal or private purposes. On these grounds the CIT(A) had erred in disallowing the claim with the ruling that the pension payments were not made to any approved pension fund. III. (i) The Commissioner of Income tax of Appeal,Trichy failed to see that Software expenses are of revenue expenditure as per Income tax appellate Tribunal order dated 14-07-2006(ITA No. 1 137/Mds/2003 for A Y 94-95). (ii) The life of the software cannot be determined. The software can also become obsolete at any time. It is only program/instructions written by programmers in computer language. IV. The learned Commissioner of Income tax appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, the assessee has filed a petition dated 04.05.2012 seeking leave of the 'Tribunal' to raise following additional grounds so as to challenge the validity of reopening as under: "1. The reopening of assessment and consequent reassessment was unsustainable in law. 2. The Assessment, having been completed u/s 143(3) on 18.08.2004, the reassessment done on 31.12.2007. Pursuant to notice u/s 148 on 30.03.2007, on the basis of very same material amounted to change of opinion which was unsustainable in law as well as on the facts of the case. 3. The Commissioner of Income Tax, in the absence of any finding by the Assessing Officer as to concealment of particulars and in any view of the matter, ought to have cancelled the reassessment." 7. Before us, on behalf of the assessee, it has been vehemently argued that the assessee's petition dated 04.05.2012 seeking permission to raise additional ground deserves to be accepted being purely legal in nature. It has also been stated that because of inadvertence, the ground could not be raised before the Assessing Officer as well as CIT(A). The AR has cited case law of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC) and S.Kumar Tyre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We also find that in case law of National Thermal Power Co. Ltd. (supra), while dealing with this very issue, the Hon'ble Apex Court has held as under: "Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The refrained question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits." Taking cue from the same, we see that the assessee has not shown its bonafides and good reasons in not raising the plea in assessment and lower appellate proceedings. 10. Further, we are well aware of the law that the purpose of raising objections to the reopening under the provisions of Income Tax Act is to rebut the opinion of the Assessing Officer that any income in question has escaped assessment. It is also noticed that various Courts as well as the 'Tribunal' have been holding from time to time that in case the Assessing Officer fails to supply the reasons for reopening and proceeds with the assessment, the order passed is bad in the eyes of law. In this regard, we find that the Coordinate Bench of Bangalore ITAT in the case of Synopsis International Limited vs. DDIT in I.T.A. No. 549/Bang/2011 decided on 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een submitted on behalf of the Revenue that the appeal comprises of grounds No. 2 to 7. The DR has clarified that all these grounds stand argued by the Revenue in its appeal No. 897/Mds/2010 for the assessment year 1999-2000, which were heard on 19.12.2012. In the light thereof, he has stated that the same order as it comes out in the said case be also be passed in the instant appeal. Those submissions of the Revenue have not been rebutted by the assessee as well. 12. After considering the submissions of the Revenue, we notice that we have heard appeal (supra) filed by the Revenue above said on 19.12.2012 [which has been decided vide order dated 17.01.2013]. After perusing the same, we find that the Revenue had raised ground No. 5 in the said appeal identical to ground No. 2 and 2.1 in the instant case and we have restored it to the file of the Assessing Officer. The relevant findings are reproduced as under: "45. We have heard rival contentions of both parties and also perused assessment order as well as order of the CIT(A) along with case law cited. It transpires that the assessing authority had held that assessee's claim of interest paid on securities as capital expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2). 42. Consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in suspense account being a liability. Accordingly, he followed assessment orders of earlier assessment years and made addition in assessee's total income. In assessee's appeal, the CIT(A) has deleted the addition by holding as under: "6.3 Respectfully following decision of the Hon'ble Income tax Appellate Tribunal in this regard the Assessing Officer is directed to delete the addition on surplus from jewellery auction Rs.1,62,971/-." 64. The DR representing Revenue has assailed CIT(A) findings by reiterating the grounds raised in appeal as well as case law of TV Iyengar Sons 222 ITR 344. Whereas, the assessee has chosen to rely on the findings of the CIT(A) by drawing support from order of Chennai ITAT in I.T.A. No. 739/Mds/2009 titled as City Union Bank vs. ACIT decided on 13.11.2009 and orders passed in preceding assessment year in assessee's cases. 65. We have considered the rival contention at length and perused the relevant findings as well as case law cited. The facts are not disputed i.e. the assessee had shown surplus amount received from the auction of jewellery which had claimed to be returnable to the concerned borrowers which is disputed by the Revenue. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey because of limitation or by any other statutory or contractual right. When such a thing happens, common-sense demands that the amount should be treated as income of the assessee." 4. The above ratio was rendered on account of facts of that case where the ITO found that for the assessment years 1982-83 and 1983-84, the assessee had transferred an amount of Rs. 17,381 to the Profit Loss Account of the company during the accounting period ended on March 31,1982 (assessment year 1982-83) and an amount of Rs.38,975 during the accounting period ended on March 31, 1983 (assessment year 1983-84). But these amounts were not included in the total income of the assessee. The sums were stated to be credit balances standing in favour of the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred by the assessee to the Profit Loss Account. The ITO was of the view that because the surplus had arisen as a result of trade transactions, the amount had the character of income and had to be added as income of the assessee for the purpose of income-tax assessment. The additions were deleted by the ld. CIT(A) and this was upheld by the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us amount on jewel auction was lying with the assessee bank for being circulated in the business which earned income." 10.2 On this issue, the assessee's claim is that the amount is still lying with the assessee as the pledgers of the jewellery to whom the balance from out of the auction money over and above the loan dues rightfully belong had not claimed the same for some reason or other. However, the assessee continues to be liable to the pledgers in respect of such balance amount and till the balance is given to the party, the assessee bank acts as an agent and it is under liability to settle the accounts. 10.3 Considering the issue, we find that the claim of the assessee is justifiable as the surplus money realised on account of the auction over and above the loan dues does belong to the customers. Hence, we uphold the orders of the learned Commissioner of Income Tax (Appeals) on this issue and decide the issue against the Revenue." 66. Although the Revenue has relied on the case law of Hon'ble Supreme Court (supra), but it is noticed that in the order of the Coordinate Bench, the same was dealt with and the Revenue's contention could not convince the "Tribunal". Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the Assessing Officer has granted benefit of Rs.1,03,674/- out of Rs.1,87,375/- to the assessee which had been transferred to miscellaneous income account of the assessee as on 31.03.1996. On the same analogy, the CIT(A) has observed that the cash excess is offered to tax in fourth year, therefore, the addition in question stands deleted. After giving our thoughtful consideration, we are also of the view that since the Assessing Officer himself had allowed the cash excess as on 31.03.1996, in view of the said findings only, the CIT(A) has proceeded to delete the addition. The factual position as it emanates from the orders of the lower authorities is that the assessee offers cash excess once in every fourth year, therefore, we see no reason to affirm the disallowance in question because the four year time period includes the impugned assessment year as well. Accordingly, we hold that the CIT(A) has rightly deleted the addition. This ground stands decided against the Revenue. Ground No. 4 [Revenue's appeal] 38. In the enclosures filed with the return, the assessee has preferred to make a provision for an amount of Rs.75,83,177/- re depreciation on investment. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee bank in its letter has stated that the Interest of Rs.98,22,000/- granted u/s 244A has been withdrawn in the scrutiny assessment completed for the assessment year 1997-98 and that this Interest Income taken for addition in the assessment for 1999-2000 is not correct. Further it has stated that the amount of Rs.75,83,177/- has been already offered as income in the books of account and the net profit shown at Rs.37,03,92,219/- in page number III of the income statements includes this amount of Rs.75,83,177/-. Therefore from the total provisions of Rs.25,37,00,000/- this amount of Rs.75,83,177/- has been reduced and the amount of Rs.24,61,16,823/- has been added with net profit. Therefore the disallowance made at Rs. 75,83,177/- is not correct because it amounts to income considered twice. The assessee's contentions have been considered carefully. Since the refund including interest u/s 244 A Rs.98,22,000/- has already been withdrawn while completing the scrutiny assessment for 1997-98 the addition made towards the Interest Income in the assessment for 1999-2000 is not in order. The examination of statements show that the amount of Rs.75,83177/- has been offered in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard the rival submissions and considered the facts and material on record. The learned DR relied on the decision of Special Bench of the ITAT, Mumbai Bench in the case of Income Tax Officer v. Daga Capital Management Pvt. Ltd. (2009) 312 ITR (AT) 1(Mumbai)(SB) whereby the Tribunal held that Rule 8 is to be followed in disallowing such expenses and the said Rule is retrospective. Hence, he submitted that the matter may be restored to the file of the Assessing Officer to follow the ratio laid down by the Special Bench of the Tribunal in the above cited order. We find force in the contention of the learned D.R. that the point at issue is now governed by the decision of the Special Bench of the Tribunal cited supra and hence, we restore this issue back to the file of the Assessing Officer with a direction to follow the decision of the Special Bench cited supra and decide the issue afresh according to law, of course, after giving effective opportunity of being heard to the assessee. The assessee is also directed to cooperate with the Assessing Officer by providing necessary details that would be required for deciding the issue. Thus, both the assessee and the Revenue are allowed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me at 2% of the gross total income. Accordingly, this Tax Case (Appeal) stands dismissed. No costs." In the light of observations of Hon'ble High Court, we also hold that the CIT(A) has rightly disallowed expenditure in earning exempt income @ 2%. So, the ground stands rejected." Since no distinguishing features have been pointed by the assessee, we uphold the order of the CIT(A) and reject ground No. 1 in the instant appeal. 17. So far as ground No. 2 in assessee's appeal is concerned, the same relates to the disallowance of amount which was paid by the assessee directly to the pensioners. It has come to our notice that in I.T.A. No. 902/Mds/2010 (supra), we have considered the issue as hereunder: "18. We have considered the rival contentions, perused the relevant findings by the Assessing Officer as well as CIT(A) and also have gone through the case law cited by the assessee (supra). Admitted facts pertaining to the ground are that the assessee had made direct payment to its pensioners. With effect from October, 2003, it had purchased Annuity from LIC of India which is also available on record at page 33 in the paper book containing Division Code No. 076 and Receipt No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Ltd., 105 ITR 251 (Mad.), affirmed by the supreme court vide its decision reported at (1991) 188 ITR 237 (SC) which had, infact, been relied upon by both the parties. The matter was accordingly restored to the AO with like directions. Aggrieved, the assessee is in appeal. 3. The assessee during the hearing pointed out the tribunal's order in its own case for the immediately preceding year (i.e., A.Y. 2004-05) (in I.T.A. No. 854/Coch/2007 dated 6.8.2009) holding in favour of the assessee in view of the decision by the apex court in the case of T. Stanes Co. Ltd. (supra). We observe that the tribunal in the assessee's case for earlier years (viz. AY 1999-00/ in ITA No. 26/Coch/2008 dated 30/6/2009 and AY 2000- 01 (in ITA No. 345/Coch/2008 dated 6/8/2009) had, similarly, restored the matter back to the file of the AO for examining and determining the question of quantum. The legal issues sought to be raised by the AO no longer obtain, i.e., in view of the consistent stand taken by the tribunal in the matter, so that the assessee is eligible, i.e., in principle, for deduction qua the direct payment of pension u/s. 37(1) of the Act. However, the aspect of the commercial exped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us with pooja expenses. It is evident from the order dated 17.01.2013 in connected cases(supra) qua assessment year 2004-05 in I.T.A. No.930/Mds/2011, we have accepted assessee's contention that pooja expenses are allowable as they have been held to be for the welfare of the staff members. Our findings in the said appeal read as under: "82. We have heard both parties and also perused the findings of the Assessing Officer, CIT(A) as well as case law cited. We notice that on facts there is no dispute that the assessee had incurred expenditure in performing poojas in question. The assessee has also stated that performing pooja gives peace of mind to its employees and increases work efficiency. We notice that in similar claim, the Hon'ble Jurisdictional High Court (supra) while accepting the issue concerned in assessee's favour has held as under: "The Commissioner of Income-tax, Tamil Nadu-III, Madras, has applied for a direction to the Tribunal in each of these two petitions for reference of the following question: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the expenses incurred by the assessee towards pooja and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad claimed for depreciation on leased out assets which has been denied by the Assessing Officer by following assessment order of assessment year 1996-97. The impugned assessment year before us is 1999-2000. On a query being put up by the Bench, both parties have informed us that first assessment year for the purpose of depreciation of leased out asset is 1996-97 and also stated that in the said assessment year, the assessment under section 143(3) of the "Act" was completed on 09.03.1999, wherein the same very claim had been disallowed. In assessee's appeal preferred before the CIT(A), the issue stood restored back to the Assessing Officer for reconsideration vide appellate order dated 31.03.2005. As pointed out by the AR, the Assessing Officer thereafter re-decided the issue vide order dated 22.12.2010 upholding assessee's claim of depreciation in case of Erode Rane Textiles - Processors - I II and Sri Sarvesh Cotton Mills Ltd. I, II and III (supra) and disallowed claim of depreciation in cases of Rajender Steels Ltd. and M/s Aruna Textiles. Though he has submitted that the assessee's appeals are also pending before the CIT(A) qua assessment year 1996-97 against the order dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer re-examined the issue and held that the assessee had shown to have debited total amount of Rs.76,18,996/- under this head which was held to be capital in nature and disallowed total amount of Rs.57,14,247/- [including amount of Rs.32,85,681/-] already added in 18.08.2004 order. 23. The factual position which emanates is that in both appeals pertaining to same assessment year, the software expenditure incurred is for the same purpose i.e. replacement of software which already stood installed. We notice that in the assessment order, without rebutting the replacement plea of the assessee, the Assessing Officer has simply treated the expenditure as capital in nature. We are unable to concur with the said course adopted by the lower authorities. We may add here that the Revenue nowhere rebuts the 'replacement' plea of the assessee on the basis of any material that the software in question gave any enduring benefit to the assessee or it increased the capacity. Hence, we accept the assessee's plea in both appeals I.T.A. Nos. 905/Mds/2010 and 906/Mds/2010 and delete the addition. 24. Now we come to ground No. III raised by the assessee on account of expenses incurred to introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company and may also help in profit-making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken by the different High Courts in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram's case [1981] 130 ITR 385. " This decision thus covers the question that falls for consideration in this appeal. Dr. Pal has, however, submitted that this decision does not cover a case, like the present case, where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal. It is no doubt true that before the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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