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Dy. Commissioner of Income Tax, Circle – 8, Pune And Bajaj Finance Limited Versus Bajaj Finance Limited And The Addl. Commissioner of Income Tax, Circle – 8, Pune

2016 (4) TMI 1143 - ITAT PUNE

Addition made on account of gain arising out of repurchase of debentures - CIT(A) deleted the addition - Held that:- We find that the order passed by the Commissioner of Income Tax (Appeals) is well reasoned and thus no interference is called for placing reliance on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Industrial Credit & Development Syndicate Ltd.(2006 (3) TMI 90 - KARNATAKA High Court ) wherein held to the reality of the situation, as the assessee has not derived .....

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the issue adjudicated by the Co-ordinate Bench of the Tribunal in assessee’s own case in earlier assessment years wherein held that the impugned disallowance has been made by the Assessing Officer on mere conjectures and surmises. It is quite clear that the claim of the assessee for the bad debts written-off is in terms of section 36(1)(vii) r.w.s. 36(2) of the Act. It is also quite clear that the debts in question have been actually written-off as irrecoverable in the account books of the asse .....

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of provisions of RBI Act over the provisions of Sec. 145 of the Income Tax Act - Held that:- As decided in assessee's own case as per the CIT(A), unrecognized income on NPAs classified in terms of RBI guidelines cannot be assessed on actual basis. The aforesaid stand of the CIT(A) is directly supported by the judgement of the Hon’ble Delhi High Court in the case of Brahamputra Capital Financial Services Ltd. (2011 (5) TMI 321 - Delhi High Court ), which is also a case of a NBFC. The CIT(A) has .....

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ons with regard to the satisfaction recorded by the Assessing Officer for invoking the provisions of Rule 8D in identical words, as was recorded in assessment year 2008-09. We respectfully follow the order of Co-ordinate Bench of the Tribunal and delete the addition made u/s. 14A r.w. Rule 8D. In assessment year 2008-09 the assessee had made disallowance of ₹ 57,600/-, which includes ₹ 7,600/- towards demat charges and ₹ 50,000/- based on past assessments. Similarly, in the ass .....

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2008-09. After perusal of the order of Co-ordinate Bench of the Tribunal in appeal by the assessee for assessment year 2008-09 (supra), we find that this issue was remitted back to the file of Assessing Officer to allow the credit for the TDS on behalf of the assessee in the light of judgment of Hon'ble Allahabad High Court in the case of Rakesh Kumar Gupta Vs. Union of India & Others (2014 (5) TMI 520 - ALLAHABAD HIGH COURT ). Since, the issue in the present appeal is identical we deem it appro .....

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he assessee is entitled for deduction with respect to the diminution in value of the investment and amortization of premium on investment held to maturity on the ground of mandate by RBI guidelines – Decided against revenue. - Claim of deduction in respect of Employee Stock Options (ESOP) expenditure - Held that:- It is an admitted fact that the assessee has claimed ESOP expenditure for the first time before the Tribunal. The Hon'ble Supreme Court of India in the case of Goetze (India) Ltd. .....

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ome before the Assessing Officer. The Assessing Officer shall consider the same and decide the claim of assessee in accordance with law. Accordingly, this ground of appeal of the assessee is allowed for the statistical purpose. - ITA Nos. 560 & 561/PN/2014 & ITA Nos. 578 & 579/PN/2014 - Dated:- 11-4-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM Assessee by : Shri Percy Pardiwalla Revenue by : Shri D.A. Mao ORDER PER VIKAS AWASTHY, JM : ITA No. 560/PN/2014 has been filed by the Revenue as .....

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No. 579/PN/2014. Since, the issues arising in above appeals for the respective assessment years are similar, these appeals are taken up together for adjudication and are decided by this combined order. For convenient and seriatim disposal of appeals, we will first take up the appeals of the Revenue and thereafter the appeals by the assessee. ITA Nos. 560 & 561/PN/2014 (Appeals by Revenue) 2. The grounds raised by the Revenue in appeals for the assessment years 2009-10 and 2010-11 are identic .....

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Industrial Credit & Development Syndicate Ltd. (2006) 285 ITR 310, when the facts are distinguishable from that of the assessee. 4. The assessee during the financial year 2007-08 issued 52,48,365 debentures on right basis. During the period between March 24 and March 26, 2008 the assessee repurchased 21,86,380 debentures having face value of ₹ 500/- each aggregating to ₹ 109.32 crores for a consideration of ₹ 101.87 crores, resulting into a gain of ₹ 7.45 crores on re .....

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₹ 58.76 lakhs on repurchase. Since, the debentures could be reissued, the gain on repurchase of debentures was recognized as income equally over the balance period to maturity i.e. 10 months. Accordingly, no gain was recognized in the profit and loss account for the financial year 2008-09. The details of debentures repurchased by the assessee are tabulated here-in-below for ready reference : Particulars No. of debentures Amount (Rs.) Debenture redemption reserve Gain on repurchase recogniz .....

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entures has arisen during the assessment year 2009-10 and hence, the same is taxable in assessment year 2009-10. Accordingly, the Assessing Officer made addition of ₹ 58,76,558/- as gain on redemption of debentures during the period relevant to the assessment year 2009-10. The Assessing Officer further made addition of ₹ 40,654,144/- as gain on redemption of debentures during the financial year 2007-08 (relevant to the assessment year 2008-09) on protective basis in the impugned asse .....

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in the present case. In support of his submissions, the ld. DR of the assessee has placed reliance on the following case laws: i. Commissioner of Income Tax Vs. Hukumchand Mohanlal, 82 ITR 624 (SC); ii. Commissioner of Income Tax Vs. Kerala Estate Mooriad Chalapuram (SC), 161 ITR 155 (SC); iii. Commissioner of Income Tax Vs. P. Ganesa Chettiar, 133 ITR 103 (Mad.). 7. On the other hand Shri Percy Pardiwalla appearing on behalf of the assessee vehemently supported the findings of Commissioner of I .....

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case of CIT Vs. Industrial Credit & Development Syndicate Ltd. (supra). To further buttress his submissions the ld. AR also placed reliance on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Sulzer India Ltd. reported as 369 ITR 717 (Bom) and the decision of Mumbai Bench of the Tribunal in the case of Prism Cement Ltd. Vs. Joint Commissioner of Income Tax reported as 101 ITD 103 (Mum.). 8. We have heard the submissions made by the representatives o .....

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1 On the other hand, the assessee has spread the gain on repurchase of debentures over the unexpired period of debentures. The Commissioner of Income Tax (Appeals) has deleted the addition by following the judgment rendered in the case of CIT Vs. Industrial Credit & Development Syndicate Ltd. (supra). The ld. DR has placed reliance on the following decisions : (i) Commissioner of Income Tax Vs. Hukumchand Mohanlal (supra), (ii) Commissioner of Income Tax Vs. Kerala Estate Mooriad Chalapuram .....

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, debentures, shares, etc. and also granting loans and advances to other parties. In the year 1973, the assessee-company had issued a large number of debentures of ₹ 10 each at par. These debentures were redeemable during the accounting years corresponding to the assessment years 1984-85, 1985-86 and 1986-87 at the rate of 30 percent, 30 percent and 40 percent, respectively of the face value thereof. During the period of redemption, the assessee- company purchased some of these debentures .....

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nts with the nominees of the assessee constituted its revenue receipts and should therefore be included within its business income. The assessee carried the matter in appeal to Tribunal. The Tribunal held that the surplus amounts were not chargeable to tax either as revenue or even as capital gain. The Department took the matter in appeal before Hon ble High Court. The issue before Hon ble High Court for adjudication was; Whether the amount saved by assessee by redeeming the debentures at a lowe .....

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e debenture-holders was paid by the assessee as reflected in the books of account by a loan advanced to the nominee. Thereafter, on the due dates the assessee has redeemed those debentures for the purpose of accounting, the entire liability was shown as a liability at the price paid by the nominee of the assessee. In the balance-sheet, the entire amount due under the debentures was shown as a liability. After redemption, the difference in the amount was transferred to the profit and loss account .....

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value of the debentures. It is well recognised that in revenue cases regard must be had to the substance of the transaction rather than to its mere form. It is wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then by means of a fictional sale introduce a fictional profit which in truth and in fact did not exist. Cut away the fictions and you reach the position that the man is supposed to be selling t .....

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ved any income, he is entitled not to treat it as an income. Therefore, the Tribunal was fully justified in its conclusion that the said surplus amount reflected in the balance-sheet cannot be treated as an income of the assessee. We do not find any error in the said conclusion reached by the Tribunal. 8.3 In the case of Prism Cement Ltd. Vs. Joint Commissioner of Income Tax (supra) the assessee-company had issued non-convertible debentures (NCDs) some of which were forfeited by it due to non- p .....

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r (Appeals) upheld the impugned addition. The assessee carried the matter in second appeal before the Tribunal. The Tribunal after analyzing the facts of the case and considering various decisions of the Hon'ble Apex Court concluded : 15. Thus, the earnest money or an advance amount received on account issuance of NCDs, if forfeited on account of nonpayment of call money, the loan liability would only convert into a capital receipt. It would not assume a character of revenue receipt or busin .....

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al receipt which earlier was shown as a loan liability in the books of account of the assessee. If we consider this receipt to be a business receipts even then it would not be taxable to tax under the provisions of Section 41(1) of the Act, inasmuch as there was no allowance or deduction of this liability in the earlier years. We also do not find any provision in this Act according to which this type of receipts are chargeable to tax. We, therefore, are of the considered view that the revenue wa .....

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under: 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of ₹ 13,76,12,351/- made on account of Bad debts by overlooking the fact that the assessee company could not prove the Bonafide of the said bad debts and the accounting entries thereof. 10. During the course of assessment proceedings the Assessing Officer observed that the assessee had written off following bad debts : i. Sundry debit balance written off ₹ 3 .....

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the ground that the assessee has failed to prove that unrealized cheques represent bad debts. As regards disallowance of bad debts of ₹ 67,29,73,245/-, the Assessing Officer disallowed 20% of the same i.e. ₹ 13,45,94,649/-by following assessment order in the preceding assessment year. In first appeal the Commissioner of Income Tax (Appeals) deleted the addition made on both the counts under the head bad debts written off. In respect of ₹ 30,17,702/- the Commissioner of Income .....

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ormal bad debts written off, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee by following orders of the First Appellate Authority in assessment years 2006-07, 2007-08 and 2008-09. 12. The ld. AR of the assessee submitted at the outset that this issue is squarely covered by the decision of Co-ordinate Bench of the Tribunal in assessee s own case in ITA Nos. 1273 & 1709/PN/2012 for the assessment years 2007-08 & 2008-09 decided on 30-06-2014. A copy of the order .....

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fter appreciating the facts of the case, followed the judgment of Hon'ble Supreme Court of India in the case of TRF Ltd. Vs. CIT reported as 323 ITR 397 and decided the issue in favour of the assessee. The relevant extract of the findings of the Tribunal on this issue are as under: 16. In the appeal of the Revenue, the first Ground relates to the disallowance of bad debts written-off representing sundry debit balance written-off, normal bad debts written-off and loss on sale of seized goods .....

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s, amount of debt, date on which the debt was taken, date on which the debt taken bad and efforts made for recovery of the debts. After considering the replies of the assessee, the Assessing Officer found that (i) complete postal addresses; and, (ii) evidence regarding efforts made by the assessee for recovery of the amounts were not furnished. The Assessing Officer also noted that in the immediately preceding assessment year of 2006-07, an amount of ₹ 28,08,237/- was disallowed on this is .....

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ear 2006-07, a similar deletion made by the CIT(A) has since been affirmed by the Tribunal vide its order in ITA No.1066/PN/2010 dated 31.08.2012. The relevant discussion in the order of the Tribunal is as under :- 44. The first Ground is with regard to disallowance of bad debts written off representing sundry debit balances written off amounting to ₹ 28,08,02,837/-. The claim of the assessee was that the impugned sums which are irrecoverable in the course of carrying on financing business .....

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ly that it was not known as to what efforts were made by the assessee to recover such bad debts. The CIT(A) has since allowed the claim of the assessee. While doing so, the CIT(A) considered the Remand Report of the Assessing Officer and thereafter concluded that the claim of the assessee was allowable in terms of the judgment of the Hon ble Supreme Court in the case of TRF Ltd. Vs. CIT 323 ITR 397 (SC) and that of the Hon ble Bombay High Court in the case of DIT Oman International Bank 313 ITR .....

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ve for the respondent assessee vehemently pointed out that the ratio of the judgment of the Hon ble Supreme Court in the case of TRF Ltd. (supra) squarely covers the controversy before us and the CIT(A) was justified in allowing the claim of the assessee. 47. We have carefully considered the rival submissions. The assessee admittedly is in the business of finance and leasing and advancing of monies for hire purchase of vehicles, etc. The claim of the assessee was in terms of section 36(1)(vii) r .....

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as is clearly emerging from the findings of the CIT(A). The debts in question have been written-off as irrecoverable in the account books of the assessee and this aspect is also not disputed by the Assessing Officer. In fact, as per the Assessing Officer, the debts had become bad in the preceding assessment year and according to him, it is incorrect that the same have been claimed as write-off in the instant assessment year. Be that as it may, it clearly establishes that the debts have been writ .....

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onclusion of the CIT(A) which is based on the legal position propounded by the Hon ble Supreme Court in the case of TRF Ltd. (supra). Therefore, on this Ground Revenue has to fail. 20. In this background, the learned Representative appearing for the assessee contended that the impugned debts have been written-off primarily on account of non-recovery of amounts from delinquent customers. Explaining the recovery efforts, the learned counsel explained that the assessee has a countrywide network of .....

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zed goods, the same shows that assessee has a recovery mechanism in relation to collection of outstanding debts. In this manner, the learned counsel has submitted that having regard to the facts and circumstances of the present year, the entire claim is allowable keeping in mind the precedent in the assessee s own case pertaining to assessment year 2006-07 (supra). It was also asserted in the course of hearing that the order of the Tribunal for assessment year 2006-07 (supra) on this aspect has .....

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cer on mere conjectures and surmises. It is quite clear that the claim of the assessee for the bad debts written-off is in terms of section 36(1)(vii) r.w.s. 36(2) of the Act. It is also quite clear that the debts in question have been actually written-off as irrecoverable in the account books of the assessee. It is also not disputed by the Revenue that the impugned debts have arisen in the course of carrying on assessee s business of financing. In the background of the aforesaid undisputed fact .....

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eal is identical to the issue adjudicated by the Co-ordinate Bench of the Tribunal in assessee s own case in earlier assessment years. The ld. DR has not placed on record any material to controvert the findings of the Co-ordinate Bench on this issue. We find no reason to take a contrary view. Respectfully following the decision of the Co-ordinate Bench we dismiss ground no. 2 raised in the appeal of the Department. 13. The ground no. 3 raised by the Revenue reads as under: 3. Whether on the fact .....

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t to the assessment year 2009-10, the assessee did not include sum of ₹ 24,47,09,172/- being interest on Non- performing assets. Since, the issue is recurring in nature the Assessing Officer by following earlier assessment orders for 2005-06 to 2007-08 made addition of ₹ 24,47,09,172/- in the income returned by the assessee. In first appeal the Assessing Officer decided the issue in favour of the assessee by observing as under: 23. I have carefully considered the facts of the as well .....

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nd decided the issue in favour of the assessee. Recently, Pune Tribunal in the case of DCIT Vs. Alfa Laval Financial Services Ltd. in ITA No. 138/PN/06 for A.Y. 2001-02 held that the judgment of Hon'ble Supreme Court in Southern Technologies Ltd. (supra) stands on a different footing than the judgment of the Hon'ble Delhi High Court in the case of Vasistha Chay Vyapar Ltd. (supra). The aforesaid two decisions operate in different fields in as much as the decision in the case of Southern .....

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reproduced for the sake of clarity. …………….The assessee shall satisfy the Assessing Officer that it is a case where the amount of ₹ 19,95,596/- represents unrecognized income on a non-performing asset classified in terms of prudential norms of RBI and it is not a case where a provision of equivalent amount has been debited in the Profit & Loss account and claimed as deduction under section 36(1)(vii) or 37(1) of the Act. In case the assessee succeeds .....

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ied in terms of prudential norms of RBI, then no addition would be warranted in terms of the judgment of the Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra). Thereafter, on identical facts, Hon'ble Pune Tribunal in the case of ACIT Nanded Vs. Osmanabad Janta Sahakari Bank Ltd. Latur in ITA No. 795/PN/2011 dated 31.08.2012 has allowed relief on account of interest on NPA. Several orders have been passed by the Tribunal following the above decision. 25. If the fact .....

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llowed. 15. The ld. AR submitted that the Department had agitated this issue before the Tribunal in ITA No. 1273/PN/2012 (supra). The Co-ordinate Bench of the Tribunal after considering decisions of various Hon'ble High Courts including the decision of Hon'ble Delhi High Court in the case of DIT Vs. Brahmaputra Capital Financial Services Ltd. reported as 335 ITR 182 (Delhi) and the decision of Pune Bench of the Tribunal in the case of Dy. Commissioner of Income Tax Vs. Alfa Laval Financi .....

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r. The Assessing Officer has been disallowing the same and the appellate authority has been consistently reversing the findings of the Assessing Officer. The Co-ordinate Bench of the Tribunal in assessee s own case for assessment year 2007-08 in the appeal filed by the Department in ITA No. 1273/PN/2012 (supra) had dismissed the similar ground raised by the Revenue. The Tribunal concluded that the amount representing unrecognized income on NPA classified as per the RBI guidelines cannot be asses .....

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sessment years 1996-97 to 1999-2000 and 2000-01 to 2003-04, vide a common order dated 31.03.2010 the issue was remanded back to the file of the Assessing Officer to be considered in the light of the judgement of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) and also allowing the assessee to demonstrate the justification and criterion for identification of NPAs and non-accrual of income on such advances. Subsequently, when similar issue came up before the Tribunal is .....

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i High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) and Brahamputra Capital Financial Services Ltd. (supra); and, (ii) decision of the Pune Bench of the Tribunal in the case of Alfa Laval Financial Services Ltd. (supra), which was cited before the Tribunal. The aforesaid precedents were not available when the Tribunal considered the issue on the earlier occasion vide order dated 31.10.2010 (supra). 28. In the course of the impugned appellate proceedings before the CIT(A) for the pre .....

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PAs. This finding of the CIT(A) is not disputed by the Revenue. In the background of this undisputed factual position, now we have to examine the ultimate conclusion of the CIT(A). As per the CIT(A), unrecognized income on NPAs classified in terms of RBI guidelines cannot be assessed on actual basis. The aforesaid stand of the CIT(A) is directly supported by the judgement of the Hon ble Delhi High Court in the case of Brahamputra Capital Financial Services Ltd. (supra), which is also a case of a .....

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,18,88,570/- in assessment year 2010-11) being interest pertaining to Non-performing assets. Accordingly, ground no. 3 raised in the appeal of the Revenue is rejected. 17. In the result, the appeals of the Revenue are dismissed. ITA No. 578/PN/2014 (A.Y. 2009-10) 18. Now, we proceed on to decide the appeals filed by the assessee. The first issue raised by the assessee in appeal relates to disallowance made u/s. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. During the period rel .....

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e aforesaid exempt income, which includes demat charges ₹ 26,951/- and ad hoc disallowance of ₹ 23,096/- towards indirect expenses. The Assessing Officer made disallowance u/s. 14A by invoking the provisions of Rule 8D and disallowed expenditure to the tune of ₹ 33,60,173/- in respect of tax free income earned by the assessee. In appeal before the Commissioner of Income Tax (Appeals) the assessee objected to the disallowance on the ground that no satisfaction was recorded by th .....

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and 31-03-2010. The ld. AR submitted that investment in 2009 was ₹ 2,73,90,82,451/- whereas the assessee company was having own funds to the tune of ₹ 10,88,73,73,590/-. Similarly, for the period relevant to the assessment year 2010-11 the assessee had investments to the tune of ₹ 3,01,82,68,823/- against own funds of the assessee ₹ 11,52,54,04,831/-. The assessee had not taken any loans for the purpose of investments. The assessee has primarily made investment in equity .....

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considered, in all probability they would not exceed ₹ 1000/-. The core and main object of the assessee is finance activity and not investment in tax free sources of the funds. The tax free income earned by the assessee during the period relevant to the assessment year 2009-10 is merely 0.71% of the total income of the assessee. The ld. AR submitted that the issue relating to disallowance u/s. 14A had come up before the Tribunal in assessee s own case for assessment year 2008-09. The Trib .....

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erused the orders of the authorities below. We find that the issue relating to disallowance u/s. 14A r.w. Rule 8D had come up before the Co-ordinate Bench of the Tribunal in assessee s own case in ITA No. 1676/PN/2012 for the assessment year 2008-09 decided on 30-06-2014. In assessment year 2008-09, disallowance u/s. 14A r.w. Rule 8D was made under similar circumstances. The Tribunal while adjudicating the issue with regard to applicability of provisions of Rule 8D as well as the manner in which .....

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form part of the total income under the Act. In the case before us, assessee has earned an income of ₹ 1,09,58,664/- which does not form part of the total income under the Act as per the Chapter-III of the Act. In the return of income, assessee computed a sum of ₹ 57,600/- as an expenditure incurred in relation to the aforesaid income, and disallowed it while computing total income under the Act. The determination of such disallowance on account of an application of section 14A of th .....

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the bone of contention before us. The power of the Assessing Officer to invoke rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is contained in sub-section (2) of section 14A of the Act. So however, invoking of rule 8D of the Rules by the Assessing Officer is subject to fulfillment of a condition prescribed in subsection (2) of section 14A of the Act itself. Sub-section (2) of section 14A of the Act prescribes that the Assessing Officer shall determine the amount of .....

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sfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which does not form part of the total income. In-fact, the Hon ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), though holding that the provisions of rule 8D of the Rules were applicable from assessment year 2008-09 onwards, has also laid down that invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is nei .....

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he judgement of the Hon ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) and opined that the Assessing Officer can determine the amount of expenditure incurred in relation to exempt income by applying rule 8D of the Rules only if he records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure, having regard to the accounts of the assessee. As per the Hon ble Delhi High Court, such a satisfaction .....

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. In this background of the matter, having regard to the judgements of the Hon ble Bombay High Court and Hon ble Delhi High Court in the cases of Godrej & Boyce Manufacturing Co. Ltd. (supra) and Maxopp Investment Ltd. & Ors. (supra) respectively, it has to be held that resort to rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act is permissible only where the Assessing Officer records a finding that he was not satisfied with the correctness of the clai .....

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not form part of the total income only in a situation where the Assessing Officer, having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It, therefore, merits emphasis that sub-section (2) of section 14A does not authorize or empower the Assessing Officer to apply the prescribed method irrespective of the nature of the claim made by the assessee. The Assessing Officer has to first consider the correctness .....

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In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill, 2006, and the Central Board of Direct Taxes circular dated December 28, 2006, state that since the existing provisions of section 14A did not provide a method of co .....

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en to a situation where the assessee has claimed that no expenditure at all was incurred in relation to the earning of non-taxable income. 71. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the ass .....

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The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under sub-section (2) of s .....

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form part of the total income, must be based on reasons and relevant considerations. The Hon ble High Court has not only emphasized that invoking of rule 8D of the Rules to compute the disallowance is conditional on the recording of satisfaction by the Assessing Officer in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee, but it has also been held that such satisfaction is to be an objective satisfaction . Therefore, the satisfaction contempla .....

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an exempted income under Chapter-III of the Act and therefore it does form part of the total income under the Act. In the computation of income, having regard to section 14A of the Act, assessee determined the amount of expenditure incurred in relation to such income at ₹ 57,600/-. The Assessing Officer did not find it acceptable and instead determined the amount of disallowance u/s 14A of the Act by invoking rule 8D of the Rules. The said invoking of rule 8D of the Rules has to be precee .....

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s to why disallowance u/s 14A should not be made in accordance with Rule 8D as the assessee has incurred expenses for earning tax free income. The assessee has submitted that there is no applicability of Rule 8D in the assessee's case. However, I do not agree with the contention of the assessee. Contextual interpretation of section 14A clearly suggests that expenditure in relating to exempted income has to be disallowed even though such expenditure would have been allowable under the computa .....

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69 (Special Bench). Hence, a disallowance of ₹ 71,70,861/- is made u/s 14A of the IT Act, 1961. The working of the same is as per Annexure A. However, the assessee shall get a deduction of ₹ 57,600/- being the amount already disallowed by the assessee in the Statement of Total Income. Thus, effective disallowance u/s 14A would be ₹ 71,13,261/-. 44. The aforesaid discussion made by the Assessing Officer reveals that on being show-caused as to why the disallowance u/s 14A should .....

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section 14A(2) of the Act required the Assessing Officer to record a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure, having regard to the accounts of the assessee. The determination of expenditure incurred in relation to the exempt income made by the assessee has been mechanically rejected without recording any objective satisfaction. This aspect of the matter, in our view, clearly shows that the Assessing Officer has not recor .....

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sessing Officer was not justified in enhancing the disallowance u/s 14A of the Act to ₹ 71,70,881/- as against ₹ 57,600/- suo-motu disallowed by the assessee in its return of income. 45. Before parting, we may refer to the following discussion in para 20 of the order of the CIT(A), which has been relied upon by the learned Departmental Representative, to say that the required satisfaction u/s 14A(2) of the Act has been correctly recorded by the Assessing Officer :- 20. I have careful .....

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en from the action of the Assessing Officer read with the assessment order. In this case, there is assertion of the Assessing Officer that the appellant has incurred expenses for earning tax free income in the very first line of the assessment order. The Assessing Officer may not have discussed the same in details but his opening sentence itself proves that the Assessing Officer was convinced that expenditure was incurred for earning tax free income. Therefore, there is no merit in the submissio .....

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ation as to how the satisfaction is to be based because section 14A(2) of the Act itself provides that the satisfaction contemplated therein has to be made, having regard to the accounts of the assessee . The presence of the aforesaid expression is significant in section 14A(2) of the Act and if the same is read with the discussion of the Hon ble Bombay High Court wherein the satisfaction contemplated is stated to be an objective satisfaction , it is quite clear that what is required of the Asse .....

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that there was no satisfaction recorded by the Assessing Officer as required in terms of section 14A of the Act before invoking rule 8D of the Rules. Secondly, the CIT(A) has also proceeded on the basis that from the assessment year under consideration i.e. assessment year 2008-09 onwards application of rule 8D of the Rules is automatic. No doubt, rule 8D of the Rules is effective from assessment year 2008-09 onwards, as held by the Hon ble Bombay High Court in the case of Godrej & Boyce Ma .....

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automatic and mandatory. Thus, in our view, the CIT(A) erred in sustaining the action of the Assessing Officer on the issue of computation of disallowance u/s 14A of the Act. 48. In the result, we set-aside the order of the CIT(A) and direct the Assessing Officer to retain the disallowance u/s 14A of the Act to the extent of ₹ 57,600/- and delete the balance. Thus, on this Ground assessee succeeds. 22. In assessment year 2009-10 disallowance has been made for the similar reasons and the Co .....

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00/- based on past assessments. Similarly, in the assessment year under appeal we direct the Assessing Officer to make disallowance of ₹ 26,951/- towards demat charges and ₹ 50,000/- to cover other expenditure. Thus, total disallowance u/s. 14A would be ₹ 76,951/-. Accordingly, the first issue raised in the appeal by the assessee is partly allowed. 23. In ground no. 2 raised by the assessee in the appeal is with respect to non grant of TDS credit. The assessee had claimed credi .....

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he file of Assessing Officer to allow credit for the tax deducted at source in the light of judgment of Hon'ble Allahabad High Court in the case of Rakesh Kumar Gupta Vs. Union of India & Others in Civil Misc. Writ Petition (Tax) No. 657 of 2013 decided on 06-05-2014. 25. On the other hand ld. DR strongly defended the action of the authorities below in restricting credit of TDS as per Form 26AS. 26. We have heard the submissions made by the representatives of rival sides and have perused .....

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light of judgment of Hon'ble Allahabad High Court in the case of Rakesh Kumar Gupta Vs. Union of India & Others (supra). Since, the issue in the present appeal is identical we deem it appropriate to remit this issue back to the file of Assessing Officer to decide the issue in similar terms. Accordingly, this ground of appeal is allowed for statistical purpose. 27. The assessee has filed an additional ground of appeal on account of claim for deduction in respect of amortization of premium .....

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count in accordance with the RBI guidelines. However, while computing taxable income, the premium amount amortized the profit and loss account has been disallowed. The ld. AR submitted that issue of amortization of premium on business assets has been decided by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. M/s. Lord Krishna Bank Ltd. in Income Tax Appeal No. 1079 of 2012. This was again reiterated by the Hon'ble Bombay High Court in the case of Commissioner .....

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High Court in the aforesaid appeal was : (C) Whether the ITAT is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of the investment and amortization of premium on investment held to maturity on the ground of mandate by RBI guidelines thereby ignoring the decision of the Supreme Court in the case of Southern Technologies vs. CIT (320 ITR 577) ? The Hon'ble High Court held that identical question of law was framed and answered in favo .....

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to decide the issue in accordance with the judgment of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. M/s. Lord Krishna Bank Ltd. (supra). Thus, the additional ground raised in the appeal by the assessee is allowed for statistical purpose. 29. In the result, the appeal of the assessee is partly allowed. ITA No. 579/PN/2014 (A.Y. 2010-11) 30. The first issue raised by the assessee in ground nos. 1 and 2 relates to disallowance u/s. 14A r.w. Rule 8D of the Income Tax .....

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round on account of smallness of the amount involved. Accordingly, ground no. 3 raised in the appeal by the assessee is dismissed as not pressed. 32. The assessee raised additional ground as ground no. 4 on account of claim of deduction in respect of Employee Stock Options (ESOP) expenditure of ₹ 1,33,64,340/-. The ld. AR submitted that the assessee is a listed company and issued stock options with a ceiling of 5% of the issued equity capital of the company to its employees pursuant to Emp .....

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imited Vs. DCIT reported as 25 ITR (Trib.) 602 the additional ground of appeal is raised before Tribunal for claiming ESOP expenditure as a tax deductible expense. 33. On the other hand ld. DR submitted that the assessee raised this issue first time before the Tribunal. The ld. DR submitted that the expenditure was never claimed by the assessee. Therefore, the same is not allowable. 34. Both sides heard. It is an admitted fact that the assessee has claimed ESOP expenditure for the first time bef .....

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