TMI Blog2017 (11) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... but in case of license fee for oracle database, antivirus software etc., the appellant could not establish that the same were for a particular period. The case laws relied upon by the appellant has rightly been distinguished by the ld. CIT(A). We, therefore, find that the ld. CIT(A) has passed a good order which needs no interference on this issue. Accordingly, grounds No. 7 in both the appeals of the assessee are dismissed. Addition on account of excess depreciation claimed on temporary wooden structure - Held that:- This issue is covered by the decision of Tribunal for A.Y. 2008-09 & 2009-10 whereby the issue has been restored to the file of AO observing that assessee has shown these items as furniture and fixtures and we do not find that Appendix I as per Income tax rules 1962 prescribed under the head furniture and fixtures any class of items, which is eligible for 100 % depreciation. As per annexure D of the tax audit report, assessee himself has classified it is temporary wooden structure. Definitely, it is apparent that it is not building which CIT (A) has considered. Therefore, from the facts it is not clear that whether it is building or furniture and fittings. Second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of ₹ 3,96,00,000/- on adhoc basis without showing any nexus between the expenditure incurred and tax free income. The disallowance made is wrong and bad in law and hence deserves to be deleted. 2. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in not accepting the plea of the assessee that there is no expenditure incurred by the assessee bank for earning tax free income and hence no disallowance should be made u/s 14A of the Income Tax Act, 1961. 3. The appellant contends that no expenditure is incurred for earning tax free income because a) expenditure incurred is for banking business of the assessee, b) assessee has sufficient non-interest bearing own funds to invest c) the investments made by the bank are to meet RBI norms like CRR, SLR ratios etc. d) the investments in the bank are made to realize gains or losses and earning dividend is only incidental, e) neither the Assessing Officer nor the CIT(A) has any material to support nexus between expenditure incurred and earning of tax free income for disallowance. Hence the order of the CIT(A) upholding disallowance u/s 14A is wrong and bad in law. 4. The CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that once provisions of section 14A are held applicable, then the provisions of sub- section (2) of section 14A will empower the AO to compute the disallowance in accordance with such method as may be prescribed i.e. Rule 8D. The Rule 8D does not mention anything about direct applicability or non- applicability of the expenditure in relation to earning exempt income and its calculation is prescribed therein. 6. On the facts and circumstances of the case, the Ld. CIT(A)has erred in law and facts by ignoring the fact that the section 14A talks about the investments made and the expenses paid there on. In its financials the assessee has no where been able to prove the distinction between its investments. 7. On the facts and circumstances of the case, the Ld. CIT(A) erred in law and in facts of the case by giving relief to the assessee on 100% depreciation claimed by the assessee on temporary fixtures, ignoring the fact that the fixtures noted by the assessee have longer life than one year. 8. On the facts and circumstances of the case, the Ld. CIT(A) erred in law and in facts of the case by ignoring the principal laid down by the apex Court in the case of Madra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment in Tax Free Bonds 308.49 13.50 Total 960.64 623.21 Out of above investments, the assessee had earned tax free income of ₹ 15,59,46,671/-, the details of which are given at page 18 of the impugned order. The assessee did not make any deduction u/s. 14A in respect of expenditure incurred in relation to above exempt income. The assessee claimed that no expenditure were incurred for earning the exempt income and the expenditure, whatsoever incurred by the bank is in the course of conducting the banking business under the banking Regulation Act, 1949 and hence, the expenditure is allowable as business expenditure as allowed in the past. The assessee had adequate share capital and reserves to cover the entire investment and therefore, there would be no expenditure for disallowance u/s. 14A. The AO was not satisfied with the explanation of the assessee and disallowed a sum of ₹ 50.52 crores u/s. 14A of the Act, applying Rule 8D against tax free income of ₹ 15,59,46,671/- earned by the assessee-bank. The ld. CIT(A) after considering the submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire any interference being based on sound reasonings. The relevant portion of the impugned order reads as under for ready reference: 5.2.2 Section 14A provides that all the expenditure incurred in relation to the exempt income shall be disallowed. Rule 8D clearly provides for disallowance of direct expenditure incurred in relation to the exempt income under clause (i) of sub-rule (2) and indirect expenditure by way of interest of relevant previous year, under clause (ii) of sub rule (2). Further other indirect expenditure of the relevant previous year are to be disallowed as per clause (iii) of sub-rule (2), which is to be determined on the basis of average value of investment from which the exempt income is earned. 2.2.3 Hon'ble High Court of Bombay in Godrej Boyce Mfg. Co. Ltd. v. DCIT [2010] 194 Taxman 203 (Bom) held that as a result of the enactment of section 14A, no expenditure can be allowed as a deduction in relation to income which does not form part of the total income under the Act. Only that part of the expenditure, which is incurred in relation to income which forms part of the total income, can be allowed. The expenditure incurred in relation to inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndirectly incurred in connection with investment from which the exempt income is earned. In the light of the fact that sufficient funds are available to make the investments and the appellant's submission that the investments were made out of interest free funds available, therefore, AO is required to indicate cogent reason on the basis of the accounts that the claim of the appellant is not correct. In the absence of any finding on the basis of accounts that interest expenditures are incurred in relation to exempt income and considering the fact that sufficient interest free funds are available, therefore, no disallowance of indirect interest expenditure can be made under Rule 8D(2)(ii). In view of the above the indirect interest expenditure of ₹ 45.52 crores computed by the AO under Rule 8D(2)(ii) for disallowance u/s 14A is not justified. 5.2.7 However, considering the tax exempt investment of ₹ 759.04 crores and tax exempt income of ₹ 46.56 crores, some administrative and managerial expenses are definitely incurred which are attributable to tax exempt investment income. Therefore, as per Rule 8D(2)(iii), 0.5% of average value of investment calls for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable on record, we find that this issue is also covered by the order dated 27.12.2016 of ITAT, Delhi Benches in the case of assessee itself for A.Y. 2008- 09 2009-10 (supra), wherein the issue has been decided as follows : 7. Issue No. 3 : This issue involved in ground No. 7 of both the appeals of the assessee, relates to disallowance of software expenses of ₹ 2.60 crores and ₹ 10.91 crores respectively for A.Y. 2008-09 and 2009-10. During the years under consideration, amounts of ₹ 2,83,89,975/- and ₹ 11,66,05,590/- respectively were claimed to have been expended on account of Software Expenses which were charged to revenue. Assessee stated that the expenditure pertained to license fee for use of various software applications, purchase of new software licenses of Oracle Data Base, Anti Virus Software, Support Charges for Software Items etc. AO observed that no breakup of expenses with reference to AMC etc. was provided except a list outlining total expenses incurred. The assessee also did not furnish any reason for not capitalizing the said expenses and charging them to revenue. The AO, therefore, following the decision in CIT v. Aravali Constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Capital in nature. In the case of AMC, because it is specific that the contract is for one year, therefore, expenditure on AMC is required to be treated as revenue expenses. In the case of software license, unless it is specifically for one year, the expenditure cannot be treated as revenue. Moreover, sec 32 also specifically provides that licenses are intangible assets. In the Issue in appeal, from the detail of software expenses furnished before the AO, it is seen that only the following expenses are incurred for AMC: Date Name of the Vendor Software Details Amount (in Rs.) 09-08-2008 Mithi Software Tech P.L. AMC Relay Server 41,800/- 14-08-2008 Network Solution P.L. AMC of Networking at PDC 3,25,000/- 01-10-2008 Logica P.L. AMC of QPH QLM for RTGS 4,63,5007- 03-01-2009 HCL Infosystems Ltd. AMC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wipro Ltd. 50 Symantec Antivirus licenses 32,500.00 Therefore, the remaining expenses on acquisition of computer software ₹ 10,91,10,107/-including the licenses are to be treated as capital in nature. Further, the case laws relied upon by the A/R viz. Amway India Enterprises Vs. DCIT [2008] 301 ITR (AT.) 0001 ITAT (Del.) (SB), CIT Vs. G.R Capital Services Ltd. [2008] 300 ITR 420 (Delhi), Business Information Processing Services Vs. ACIT [1999] 239 ITR (AT) 19 ITAT (Jai) and CIT Vs. Southern Roadways Ltd [2008] 304 ITR 84 (Mad.) are not of any help because all the decisions are pertaining to assessment years prior to amendment brought in w.e.f. April 1, 2003 where computer software was also included along with computer as a different class of asset within Machinery and Plant. In view of the above factual and legal position the AMC expenses ₹ 74,95,483/- mentioned above are to be treated as revenue expenditure and the remaining expenses ₹ 10,91,10,107/- are capital in nature. AO is directed to recompute the depreciation allowable on the above items of capital expenditure of ₹ 10,91,10,107/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,92,16,352/- respectively. The ld. CIT(A) following the order of first appellate authority in the case of assessee for A.Y. 2007-08 deleted the additions made by AO. Accordingly, the Revenue is in appeal before the Tribunal. 12. We have heard the submissions of both the parties and have gone through the entire record. It is notable that the order of first appellate authority for A.Y. 2007-08, which the ld. CIT(A) followed to decide this issue, was challenged by both the parties before the Tribunal and the Tribunal in the identical facts and circumstances of the case has restored this issue to the file of AO for decision afresh vide order dated 04.11.2015 observing as under : 36. We have carefully considered the rival submissions. Assessee banks has shown addition of ₹ 15,73,78,019/- to the opening WDV of ₹ 15622208/- and reduction therefrom of ₹ 100163 resulting in to WDV of ₹ 99748028 and claimed depreciation thereon of ₹ 75136583/-. Firstly, assessee has shown these items as furniture and fixtures and we do not find that Appendix I as per Income tax rules 1962 prescribed under the head furniture and fixtures any class of items, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .005/2008-09 dated 22.08.2008. Instruction No. (xi) of the above RBI circular reads as under : (xi). Interest on saving bank accounts should be credited on regular basis whether the account is operative or not. If a fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest. This issue has been discussed in detail by the ld. CIT(A) in his order. The assessee Bank is covered by the Banking Regulation Act, 1949 and it has to follow the directions of Reserve Bank of India which regulates all the banks operation in India. The books of accounts are to be maintained as per directions of the Reserve Bank of India and financial results of the banks are also prepared by the banks as per the prescribed norms fixed by RBI. The Reserve Bank of India has considered in its circular that interest should be paid at the rate of saving banks interest rate on overdue deposits. Accordingly, the assessee bank has made the provision of ₹ 83.00 crores as on the date of balance sheet, i.e., 31.03.2009. No such provision is proved to have been made by the assessee bank prior to this circular. However, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 527.93 crores shows that ₹ 241.63 crores is on account of excess deduction claimed relating to the assessment years 2006-07 to 2009-10 and ₹ 286.30 crores relating to the year under consideration. AO has not given any working and basis for arriving at the year wise quantum of excess deduction claimed. There is no provision under the Income Tax Act, which allows the AO to make any disallowance / addition in any year of an amount not related to that year or related to other years. The addition if any to be made, is required to be made in the relevant year. Therefore, the addition of ₹ 241.63 crores on account of alleged excess deduction claimed in AY 2006-07 to AY 2009-10 is erroneous and legally not sustainable. 4.5.2 The only ground for disallowance made by the AO appears to be that the deduction is to be made after adjustment for the opening balance. The above assumption by the AO is erroneous because there is nothing provided under the provision of sec. 36(1)(viia) which talks about adjustment for opening balance. The section simply says that while calculating the business income of the assessee u/s 28, deduction u/s 36(1)(viia) will be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 4.5.3 There is nothing mentioned in the said section about opening balance or closing balance. Each year is an independent year and the income u/s 28 is calculated every year. Therefore the deductions allowed by the Income Tax Act for computing income u/s 28 should be calculated for each year. The provision for bad and doubtful debts is debited to the profit loss account in each year according to the guidelines prescribed by Reserve Bank of India for assets classification. However for the purpose of claim of deduction under the provisions of Income Tax Act, the allowability is computed according to the provisions of sec. 36(1)(viia). On a reading of the above section, it is clear that while computing the income chargeable u/s 28, deduction is allowed in respect of any provision for bad and doubtful debts made by a scheduled bank which cannot exceed 7.5% of total income and 10% of aggregate average advances made by the rural branches of such bank in the prescribed manner. The manner of computation of the aggregate average advances in respect of rural branches is prescribed in Rule 6ABA which is as under: (a) the amounts of advances made by each rural branch as outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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