TMI Blog2016 (3) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue. Thus this ground of the Assessee is allowed for statistical purposes. Disallowance of loss on write off of preference shares - Held that:- We find force in the contention of the ld. counsel that as per the ratio laid down by the Hon’ble Supreme Court in the case of UCO Bank (1999 (9) TMI 4 - SUPREME Court) the bank is free to value its inventories “securities” at cost or market price whichever is lower. Since the entire issue of write off has not been looked upon by the lower authorities in this perspective, we, therefore, restore the matter to the files of the A.O. The A.O is directed to examine this issue in the light of the ratio laid down by the Hon’ble Supreme Court in the case of UCO Bank (supra) and Banking Regulation Act and decide afresh after giving a reasonable and sufficient opportunity of being heard to the assessee Exempt income of ₹ 3606 lakhs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07, ITA Nos. 1015 1129/Ahd/2011 are cross appeals by the assessee and the revenue for assessment year 2007- 08 and in ITA No. 250/Ahd/2012 assessee s appeal for A.Y. 2004-05. 2. All these appeals were heard together and are disposed of by this common order for the sake of convenience. 3. At the very outset, it was brought to our notice by the ld. counsel that the revenue is in appeal against the deletion of the disallowance of ₹ 19,82,420/- made on account of Annual Technical Services (ATS) fees paid to Infosys. It is the say of the ld. counsel that the grievance of the revenue cannot be entertained because of the Circular of the CBDT restricting the revenue to file appeal below the tax effect which is ₹ 10 lakhs. The ld. D.R. fairly conceded to this. 4. We have carefully gone through the grounds of appeal taken by the revenue admittedly the tax effect on the deleted amount is less than ₹ 10 lakhs, therefore, revenue s appeal is dismissed in the light of the Circular of the CBDT No. 21/2015 dated 10.12.2015. ITA No. 577/Ahd/2011 for A.Y. 2006-07. Ground no. 1 relates to the claim of depreciation of ₹ 313.34 lacs on Wind Energy Generators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS Ltd. (supra). He thus urged that the addition made be the AO be deleted. 25. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation. We find that the issue of depreciation on leased assets has been decided by Honourable Apex Court in the case of ICDS Ltd (supra). One of the question before the Hon. Supreme Court was whether the Assessee is entitled to depreciation vehicles finance by it which is neither owned nor used by the Assessee by virtue of the business the Hon. Supreme Court held as under: The provision on depreciation in the Income-tax Act, 1961, reads that the asset must be owned, wholly or partly, by the assessee and used for the purposes of the business . Therefore, it imposes a twin requirement of ownership and usage for business for a successful claim under section 32 of the Act. The section requires that the assessee must use the asset for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s case and arguing that it is a devise for lowering the tax effect and relying on the Board's circular (supra), and more importantly, that, that case also pertained to assessment year 1996-97. The Hon'ble Delhi Court took the view that SLB transactions are genuine and cannot be considered to be sham. 29. On appreciation of the records, as produced before us, the decision of Hon'ble Delhi High Court in the case of Cosmo Films Ltd. (supra) has arguments of the assessee on the impugned issue, thereby, impliedly, reversed the ratio in the decisions of MidEast (supra) and Induslnd (supra). We find that tests laid down in MidEast case was primarily to ascertain the genuineness of the transaction entered by the assessee with its lessee, which was done by the CIT(A) in each case. 31. In any case, the issue of SLB transaction and in particular the issue of ownership of asset, also has been laid to rest by the Hon'ble Apex Court in the case of ICDS Ltd. Vs CIT, in CA No. 3286 to 3290 of 2008, wherein the question that was sought to be answered was whether the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers . The H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the assessment order wherein he has observed that the assessee has earned exempt income of ₹ 25.80 crores against which it has disallowed ₹ 2.20 crores under protest. Referring to the assessment order for A.Y. 2005-06, the A.O observed hat in that year, the assessee had made a similar suo motu disallowance but the disallowance u/s. 14A was computed by the A.O at ₹ 37.37 crores. The A.O proceeded by computing the disallowance for the year under consideration also and made a further disallowance of ₹ 42.68 crores. Assessee carried the matter before the ld. CIT(A) but without any success. Before us, the ld. counsel for the assessee stated that an identical issue was considered by the Tribunal in earlier years also. The ld. consel placed the order of the Tribunal. Per contra, the ld. D.R. could not bring any distinguishing decision/facts before us. 11. We have given a thoughtful consideration to the facts in issues, we also gone through the decisions of the Tribunal in assessee s own case for A.Y. 02-03, 04-05 05-06. We find that a similar issue was considered first by the Tribunal in A.Y. 02-03 in ITA Nos. 152/Ahd/06, 815/Ahd/07 4387/Ahd/07. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and non interest bearing funds with the assessee. He thereafter worked out disallowance u/s 14A as under: Total Tax-free Investments at 31/3/2002 (Rs. 414 crores + 14.92 crores) ₹ 428.92 crores Proportion of total funds to interest bearing funds 91% Proportion of interest bearing funds used for Tax free investment (91% of ₹ 428.92 crores) ₹ 390.32 crores Expenses allocated to such amount of ₹ 390.32 crores @ 9.4 % on the basis of average cost of borrowal = 9.4% of ₹ 390.32 Cr. ₹ 36.68 crores Total expenses incurred for earning tax-free income is determined at ₹ 36.68 crores Disallowances u/s 14A ₹ 36.68 crores Already disallowed by assessee ₹ 6.23 crores Balance disallowable ₹ 30.45 crores 16.The disallowance worked out by the AO was ₹ 36.68 Crore but sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to the extent of ₹ 5.11 Cr. and the balance amount of ₹ 25.34 Cr. is deleted. 17.Aggrieved by the order of CIT(A), the Assessee and Revenue, both are in appeal before us. 18.Before us, the learned A.R. placed at page 61 of the paper book the chart showing opening position of interest free funds vis-a-vis tax free investment for various years starting from 31 st March, 1995 to 31 st March, 2003. From the aforesaid chart, he pointed that the interest free funds available with the Assessee in the form of Capital, Reserves and interest free demand deposits aggregated to ₹ 1766 Crore as against which the tax free investment at the end of the year was ₹ 414 Crore. He thus submitted that the interest free funds available with the assessee were far in excess over the tax free investment and in percentage terms, the interest free deposits in relation to tax free funds worked out to 327%. He further submitted that in view of the fact that interest free funds was far in excess of tax free investments, no disallowance u/s 14A was called for. He further submitted that the disallowance made suo motu by the Assessee of ₹ 6.23 Crore should also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 2571/Ahd/2006), the Co-ordinate Bench of Tribunal had restricted the disallowance to that made by the Assessee by holding as under: 33. We have heard the rival contentions and perused the material on record. The undisputed facts are that during the year the assessee has earned interest of ₹ 17.45 crore on tax free bond and debentures as against which the assessee had suo moto disallowed ₹ 5.53 crore being the interest expenses u/s 14A as against which the AO has worked out the disallowance of ₹ 32.76 crore. After giving the credit of disallowance of ₹ 5.53 crore made by the Assessee, the AO disallowed ₹ 27.23 crore u/s 14A. As on 31 st March 2003, the interest free funds available with the assessee was to the tune of ₹ 3404 crore (comprising of share capital of ₹ 230 crore, Reserves of ₹ 689 crores and interest free demand deposits of ₹ 2485 crores) as against which the tax free investments were to the tune of ₹ 589 crore. Thus the interest free funds were far in excess of the investments. CIT (A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). In view of these facts, we are of the view that the matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue. Thus this ground of the Assessee is allowed for statistical purposes. 12. We find that the Tribunal has followed its own order and has given a similar finding for A.Y. 04-05 05-06. Respectfully following the findings of the Tribunal (supra), we direct the A.O accordingly. Ground no. 2 with all its sub ground and the additional ground are treated as allowed for statistical purpose. Ground no. 3 relates to the disallowance of loss on write off of preference shares. 13. During the course of the scrutiny assessment proceedings, the A.O noticed that the assessee has claimed bad debts written off at ₹ 67.60 crores, the assessee provided a list which in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted into shares, it is no longer lending in the ordinary course of banking business, the ld. CIT(A) was of the opinion that the preference shares will remain investment even in substance. The ld. CIT(A) accordingly disallowed the loss claimed by the assessee as write off and enhanced the addition of ₹ 6.7 crorers and confirmed the disallowance at ₹ 17.7 crores. Aggrieved by this, the assessee is before us. The ld. counsel for the assessee vehemently reiterated what has been stated before the lower authorities. It is the say of the ld. counsel that the preference shares allotted to the assessee were in lieu of the loans given by the assessee and the assessee, being a bank, is in the business of lending money and as per RBI guidelines, the assessee has valued the shares at Nil and wrote off the amount in its books. 16. For the first time, the ld. counsel for the assessee relied upon the decision of the Hon ble Supreme Court in the case of UCO Bank 240 ITR 355 claiming that the investments/securities held by a Bank are in the nature of stock in trade and has to be valued as per the norms/guidelines fixed for the valuation of inventories. It is the claim of the ld. cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of depreciation allowance of ₹ 62.66 lacs on Wind Energy Generators. 21. An identical issue has been considered and decided by us at length in assessee s appeal in ITA No. 577/Ahd/2011. For our detailed discussion thereon, this ground is allowed. 22. Ground no. 2 relates to the disallowance made u/s. 14A of the Act. 23. An identical issue has been considered and decided by us in assessee s appeal for A.Y. 2006-07 in ITA No. 577/Ahd/2011 qua ground no. 2 and additional ground of that appeal. For our detailed discussion therein, this ground is allowed. 24. Ground no. 3 relates to the addition made towards Gain on securitization amortized as per RBI guidelines. 25. The A.O has considered this issue at para 7 on page 14 of his order wherein the Officer made the following observations:- 7.1 On perusal of the significant accounting policies to the financial statement, it is seen that the note on 'securitization 1 (Para 4.4) reads as under: The bank enters into purchase/sale of corporate and retail loans through direct assignment/special purpose vehicle (SPV). In most case, post securitization, the bank continues to service the loans transferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year during which the sale upon secularization is effected and any profit/premium arising on account of such sale should be amortized over the life of the securities issued or to be issued by the SPV (special purpose vehicle). As per the RBI directives, (Please refer Significant Accounting Policies at Para 4.4 under the head 'Securitisation 1 , on Page No. 51 of the annual report), gain on securitization is recognized over the period of the underlying securities issued by the SPV and loss on securitization is debited to Profit and Loss account 26. The explanation of the assessee did not find favour with the A.O. who went on to make an addition of ₹ 93,13,051/-. Assessee carried the matter before the ld. CIT(A) and reiterated what has been stated during the course of assessment proceedings. It was strongly contended that what is relevant for Income Tax is real income. It was further brought to the notice of the First Appellate Authority that RBI guidelines are expressly made mandatory for all banks. After considering the facts and the submissions, the ld. CIT(A) was of the opinion since the assessee has sold these impugned assets, therefore, the assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r statistical purpose. ITA No. 1129/Ahd/2011 Revenue s appeal 31. The sole grievance of the revenue relates to the addition made by the A.O u/s. 14A of the Act which has been partly allowed by the ld. CIT(A). This issue has considered at length in assessee s appeal in ITA No. 1015/Ahd/2011 wherein we have followed our detailed decision given in assessee s appeal for A.Y. 2006-07 in ITA No. 577/Ahd/2011. For our detailed reasons given therein, appeal filed by the revenue is dismissed. ITA No. 250/Ahd/2012 Assessee s appeal for A.Y. 2004-05. 32. With this appeal, the assessee has challenged the correctness of the order of the ld. CIT(A)-VI, Ahmedabad dated 28.11.2011 pertaining to A.Y. 2004- 05. 33. The sum and substance of the grievance of the assessee relates to the withdrawal of interest of ₹ 1.60 crores. 34. In the assessment order made u/s. 143 (3) of the Act dated 31.01.2006, the assessee was allowed interest u/s. 244A of the Act which was subsequently withdrawn by the A.O by his order made u/s. 154 of the Act dated 10.06.2010. Assessee carried the matter before the ld. CIT(A) and reagitated the issue of the withdrawal of interest u/s. 244A and not grant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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