TMI Blog2020 (3) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted by the Department for 30 years. Consequently, the Supreme Court allowed the appeal filed by UCO Bank [1999 (9) TMI 4 - SUPREME COURT ]. In our view, the judgment of the Supreme Court in UCO Bank's case (supra) squarely applies to the facts of this case. In fact, the present case before us is on a stronger footing because in the case of UCO Bank (supra), the loss was not debited to the profit and loss account whereas in this case, as can be seen from the working at pages 25 and 26 of the paper-book, the loss has been debited to the profit and loss account which is reflected as a provision for Liability in the balance sheet and shares and securities were valued at cost on the asset side. For the reasons given hereinabove, we answer the above quoted question in the affirmative i.e. in favour of the assessee-bank and against the Department. Disallowance under section 14A - HELD THAT:- The assessee has not allocated any expenses for earning the said dividend income. The Assessing Officer invoked the provision of Rule 8D and calculated the disallowance under section 14A of ₹ 7,81,083/-. Admittedly, the provisions of Rule 8D is not applicable for the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r For the Appellant : Shri Dhanesh Bafna with Ms. Chandni Shah with Shri Nishant Shah (AR) For the Respondent : Shri Simi Samant (CIT-DR) ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These four appeals out of two cross appeals for Assessment Year 2007- 08 and two cross appeals for Assessment Year 2008-09 are directed against the order of ld. CIT(A)-3, Mumbai. In all the appeals, the parties have raised certain common grounds of appeal, therefore, all the appeals were clubbed, heard and are decided by a consolidated order. For appreciation of fact, the appeals for Assessment Year 2007-08 is treated as lead case. The assessee in its appeal has raised the following grounds of appeal: Ground 1 The learned Commissioner of Income-tax (Appeals) - 3 ('CIT (An erred in remanding the matter to Additional Commissioner of Income-tax, Range 1(3), Mumbai ('Addl. CIT') and not deleting the addition made in relation to the leasehold refurbishment expenses of ₹ 4,49,08,640 claimed by the Appellant as revenue expenditure. Ground 2 The learned CIT (A) erred in confirming the disallowance made by Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit Reserves and hence cannot be treated as dividend receipts? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the assessing officer to re-compute the disallowance u/s. 14A r.w. rule 8D(2)(ii) of the IT, Act, when the section 14A is explicit in mentioning that the disallowance can be made even if there is no exempt income earned by the assessee ? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in directing the assessing officer to restrict the disallowance u/s. 14A r.w. rule 8D(2)(iii) of the IT, Act to 50% of the administrative expenses when there is no such provision under the Act? ITA No. 7069/Mum/2016 for A.Y. 2007-08 by assessee 3. Brief facts of the case are that the assessee is non-banking finance company. The assessment for Assessment Year 2007-08 was completed on 28.12.2010. The Assessing Officer while passing the assessment order made the following additions/disallowance: 1. Leasehold / Refurbishment expenses ₹ 4,49,08,640/- 2. Income accrued on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o new line of business. From the material available on record, it is evident that impugned expenditure was incurred against several properties located over different places and were incurred mainly on account of interior work, electrical works, cabling wiring, carpets, signage expenses, architect's fees, brokerage expenses, consultants' fees etc. which prima facie, are expenses of revenue in nature. It is well settled principle that entries in the books of accounts are not conclusive / determinative of taxability of income and therefore, issue of taxability has to be adjudged within the statutory framework only. At this juncture, it would be prudent to reproduce the relevant observations of apex Court in CIT Vs. Madras Auto Services (P) Ltd. [supra]:- 11. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of business with the intention to trade and are shown in the current investment. The securities are valued at lower weight, the average cost of market value, determined separately for each category of investment has shown in page no. 13 of Paper Book. The revenue has allowed the provision for depreciation in some Assessment Year and disallowed in some other Assessment Year. Further on sale of these investments, the department has allowed profit/loss as income/loss. There is inconsistent approach followed by revenue. The ld. AR of the assessee furnished the details showing the treatment by revenue for provision of depreciation of investment and profit/loss on sale of investment in the following manner: Assessment Year Intimation under Section 143(1)/Assessment Amount of Provision Treatment of Provision by Department Amount of profit/loss on sale of investment Treatment of profit/loss on sale of investment 2005-06 Assessment u/s 147 32,51,57,000 Disallowed 8,25,000 Accepted as Bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that it is a non-banking finance company, all NBFC s has to follow Accounting Standard-13 (AS-13) and Reserve Bank of India (RBI) Guidelines for classifying its investment portfolio, the accounting standard permits to Non Banking Finance Company (NBFC) to classify its investment into current investment in long term investment. On certain criteria and intends behind making and holding the investment. The assessee has classified its investment into non-convertible debenture into current investment following the AS-13 with intend to hold them for the purpose of trading. The Memorandum of Association of assessee also included to business of dealing and trading in share, stock, debenture and debenture stock. The assessee submits that current investments are as per the Accounting Standard. The market value is determined taking certain reference quote from the brokers to reflect the value of these securities as on 31.03.2006 and 31.03.2007, the reference quotes are considered as market rates for sub-debts at the end of each year. The assessee has debited the diminution in the value of investment of ₹ 2.65 crore to its Profit Loss A/c for the Financial Year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival submissions and perused the relevant material on record. The assessee is a bank governed by the rules of the Reserve Bank of India. As per such guidelines, the securities are required to be divided into two categories, viz., ( a ) permanent investment, and ( b ) current investment. The distinction between the two is that the securities purchased with the intention of retaining it till the maturity of the security are to be classified as permanent investment , whereas the securities acquired by the bank with the intention of trading by taking advantage of short-term price/interest, are to be considered as current investments . The securities from which the assessee has incurred loss were depicted as current investment as has also been noted by the Assessing Officer in the assessment order. A certificate from Chartered Accountant certifying that the securities sold by the assessee were under current investment category has been given to the lower authorities. When it is so the securities in the nature of current investments automatically become the stock-in-trade of the assessee and not investment. It is a settled legal position that the nomenclature given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department contended that the securities were not held as stock in trade. That, they were held as investments and, consequently, the assessee-bank was not entitled to value such Investments on the principle of Cost or Market Value whichever was lower. It was argued that the securities were held by the assessee-bank as Permanent Investments. Findings 4. We do not find any merit in this argument. In the case of UCO Bank v. CIT [1999] 240 ITR 3551, the assessee-bank had submitted return for assessment year 1982-83 contending that there was a notional loss of ₹ 7.45 crores on account of closing stock of securities valued at market price which fell below the cost. The ITO accepted the said loss vide Assessment order dated 19-3-1985. However, the Commissioner of Income-tax intervened by order dated 9-3-1987 under section 263 of the Income-tax Act. By the said order, the Commissioner set aside the order of assessment holding that the assessee-bank had no right to calculate profit or loss arising out of Investment Trading Account as the said account did not form part of final account of the assessee-bank. That, since Investment Trading Account was not incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank did not mention the market value of the investments. In the circumstances, the Supreme Court came to the conclusion that from the form of prescribed balance sheet, it was evident that Nationalised Banks were directed to put the value of shares and securities at cost and if the market value was lower than the cost then, it was to be shown separately in the brackets. Before the Supreme Court, however, it was argued on behalf of the Department that the balance sheet/audited accounts maintained on the basis of investment in shares at Cost would not disclose the real profit/loss of the bank in view of the fact that depreciation in the value of the shares or fall in the market price of shares and securities was not provided for in the audited accounts. On the other hand, it was argued on behalf of the assessee-bank that even though in the balance sheet the market price of shares and securities was not mentioned yet, for determining the real income of the assessee, the said price was required to be taken into account. That, for last 30 years, the assessee-bank was submitting income-tax returns after taking into account the market price of such shares and securities which was accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that similar depreciation was allowed by revenue itself in subsequent Assessment Year i.e. A.Y. 2009-10 2020-11. This ground of appeal raised by assessee is allowed. 17. Ground no.3 relates to provision for doubtful advances. The ld. AR of the assessee submits that the provision has been reflects in A.Y. 2009- 10 and offered to tax to avoid the double disallowance, the provision should be allowed in the current year. The ld. AR of the assessee further submits that the ld. CIT(A) has directed the Assessing Officer to verify the fact in A.Y. 2009-10 and if the same is found that claim of the year in order allowed relief to the assessee. 18. On the other hand, the ld. DR for the revenue submits that the ld. CIT(A) has already granted relief to the assessee, this there is no need to pass further direction. 19. We have considered the submission of both the parties and considered the fact that ld. CIT(A) has already directed in para-10 of his order to the Assessing Officer to verify the plea of the assessee that if this provision has been reversed in A.Y. 2009-10 and offered to tax in A.Y. 2009-10 and allowed the relief to the assessee, if found in year. 20. Consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and other connectivity charges. The ld. AR of the assessee submits that this ground of appeal is covered in favour of assessee by various decisions of Tribunal including Special Bench of Mumbai Tribunal in DCIT vs. Datacraft India Ltd. (ITA No. 754/Mum/2007), in DCIT vs. BSES Rajdhani Powers Ltd. (ITA No. 1266 of 2010), in CIT vs. Bonanza Portfolio Ltd. (ITA No. 833 of 2011). The ld. AR of the assessee submits that computer peripherals and accessories such as printers, cables, routers form and integral part of computer system and eligible for depreciation as held in various cases as referred above. 26. On the other hand, the ld. DR for the revenue supported the order of lower authorities. 27. We have considered the submission of both the parties and perused the record. The Assessing Officer while passing the assessment order allowed depreciation @ 15% against the claim of assessee of 60%. The ld. CIT(A) confirmed the action of Assessing Officer. 28. We have noted that Hon ble Delhi High Court in DCIT vs. BSES Rajdhani Powers Ltd. (supra) and in CIT vs. Bonanza Portfolio Ltd. (supra) held that computer peripherals and accessories form an integral part of computer system a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed in the paper-book reveals that these instruments have been classified as preference shares in the books of issuer as part of share capital. 20. As per Note No. 3 forming part of Computation and Return of income for impugned AY, it is stated that the assessee, following applicable accounting guidelines, hold preference shares on Held to maturity basis / Long Term Capital Assets and accordingly, income credited to Profit Loss account on these shares has been deducted from computation of income and would be offered to tax in accordance with Section 45. The amount so accrued and deducted in AY 2006-07, 2007-08 2008-09 is ₹ 8.56 crores, ₹ 18.76 crores ₹ 5.54 crores respectively. The assessee has reflected 'Short term capital gains' on sale of Idea Cellular Preference shares in AY 2007-08 for ₹ 8.44 ₹ 8.47 crores as 'Long Term Capital Gains' on sale of preference shares in AY 08-09 which has been accepted by the revenue in 143(3) assessments. The same reveals consistency in the arguments of the Ld. AR vis- -vis financial statements / documents placed before us. 21. Therefore, on the facts and circumstances of the case, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s own appeal, we have restricted the disallowance under section 14A to 2% of the exempt income. Therefore, the Ground of appeal raised by revenue is become infructuous. 36. In the result, appeal of the revenue is partly allowed. ITA No. 7070/Mum/2016 by assessee for AY 2008-09 37. The assessee has raised following ground of appeal: 1. Disallowance for provision of depreciation on investment. 2. Disallowance under section 14A. 3. Not granting TDS credit. 38. Ground No.1 relates to disallowance for provision of depreciation on investment. We have noted that this ground of appeal is similar to the ground no.2 in assessee s appeal for A.Y. 2007-08, which we have allowed, therefore, following the principle of consistency, this ground of appeal is allowed with similar direction. 39. Ground No.2 relates to disallowance under section 14A. The ld. AR of the assessee submits that this ground of appeal is similar to the ground no.4 in assessee s appeal for A.Y. 2007-08. The assessee has sufficient interest free fund available for making investment for earning exempt income. Therefore, no disallowance under Rule 8D(2)(ii) be made. 40. On the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT, Act, when the section 14A is explicit in mentioning that the disallowance can be made even if there is no exempt income earned by the assessee ? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in directing the assessing officer to restrict the disallowance u/s. 14A r.w. rule 8D(2)(iii) of the IT, Act to 50% of the administrative expenses when there is no such provision under the Act? 45. At the outset of hearing, the ld. AR of the assessee submits that ground no. 1 to 3 are similar to the ground no.1 to 3 in revenue s appeal for A.Y. 2007-08 and similar order may be followed. 46. On the other hand, the ld. DR for the revenue relied upon the order of Assessing Officer. 47. We have considered the submission and find that this ground of appeal is identical to the ground no. 1 to 3 in revenue s appeal for A.Y. 2007- 08, thus our decision in A.Y. 2007-08 will apply mutatis mutandi in this year. 48. Ground No.4 relates to disallowance under section 14A r.w.r 8D(2)(ii). We have noted that on similar ground of appeal in assessee s appeal we have restored the issue to the file of Assessing Officer. Therefore, our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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