TMI Blog2022 (3) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Assessing Officer to delete the disallowance which is expenses pertaining to earlier year but incurred during the year. Ground No.1 of the appeal is allowed. Disallowance being 1/5th expenditure on stamp duty for increasing the authorized share capital of the assessee - HELD THAT:- Hon'ble Karnataka High Court in the case of CIT s. Buhler India Ltd. [ 2011 (9) TMI 797 - KARNATAKA HIGH COURT] , in case of Dhanalakshmi Bank Ltd. [ 2018 (12) TMI 836 - KERALA HIGH COURT] and CIT vs. Nuchem Ltd. [ 2015 (5) TMI 259 - PUNJAB HARYANA HIGH COURT] , has held that assessee bank extending financial services would be entitled to amortization of preliminary expenses for public subscription. The Hon'ble Punjab and Haryana High Court has also held that fees of ROC, for enhancement of authorized capital is deductible over a period of ten years under section 35D(2) of the Act. Further, this is the second year of amortization period expenses challenged before us. In the first year, co-ordinate bench has decided the above issue in favour of the assessee, respectfully following the decision of co-ordinate Bench in assessee s own case; we also allow the ground No.2 of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirm the action of the learned lower authorities in disallowing the above sum of ₹ 5 lacs under section 37(1) of the Act. Ground no 5 of the appeal is dismissed. Reopening of assessment u/s 147 - Disallowance of any loss claimed - HELD THAT:- No doubt, the treatment of similar sum in earlier year is a tangible material coming in to the possession of the assessee. In the present case, it was not shown that whether above issue was at all examined or even looked at by the learned Assessing Officer. The facts shows that the Assessing Officer has applied his mind on this issue while making an assessment for Assessment Year 2001- 02, wherein it is found that the above sum was not allowable as deduction to the assessee , identical sum was also claimed y assessee in this year. Therefore, we find that there is a fresh material available before the Assessing Officer to take a prima facie view that income of the assessee had escaped assessment and it definitely forms a tangible material to invoke provision under section 147 - CIT (A) also considered the fact that as per the note mentioned in the financial statements there was no mention of claim of the provision made in the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses for provision of ₹ 10 lac made by the Appellant for Contingent Expenses and duly added back in Return of Income are also wrong and contrary to the facts and law. 2. The learned CIT(A) has failed in sustaining disallowance of ₹ 700000/- which represents 1/5th of the expenditure on stamp duty for increasing the authorised share capital of the Assessee in A.Y. 2001- 02. He ought to have held that Banking is recognised as an Industry and the context of Sec. 35D does not require manufacture of an article to quality for deduction and failed to appreciate that the claim was under Sec. 35D (2) (c)(iv) and not U/s 37 as was the case in Punjab State Industrial Development Corporation V/S CIT 225 ITR 792 which he purported to follow. 3. The learned CIT(A) has erred in upholding the disallowance of ₹ 72300000/ U/s 14A without appreciating the scope and purpose of Sec. 14A. He ought to have held that it was for the A.O. to establish a direct nexus between tax-exempt income and expenditure to earn such income. He also ought to have held that unless expenditure is incurred wholly and exclusively for the purpose of making or earning such income, no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent as well as confirmation of the disallowance of ₹ 2,35,00,000/- as losses written off. 05. The assessee is aggrieved on following grounds of appeal:- Aggrieved by the Appellate Order dated 17.07.2007, passed by the Commissioner of Income Tax (Appeals) II, Pune [CIT (A)] for the Assessment Year 2002-03 u/s 250 of the Income Tax Act, the Appellant begs to file this appeal, and raise the following grounds of appeal, which are independent of and without prejudice to each other. 1. Reopening of Assessment The Hon'ble CIT (A) erred in upholding the action of the learned assessing officer in reopening of assessment. In the facts and the circumstances of the case the reopening of the assessment by the A.O,was bad in law. The Hon'ble CIT (A) ought to have held that the action of the A.O. in reopening the assessment, as bad in law. 2. Disallowance of expenditure The Hon'ble CIT (A) erred in following his predecessor and in confirming the disallowance of ₹ 2,35,00,000 claimed as expenditure by the appellant. The Hon'ble CIT (A), in the facts and circumstances of case ought to have deleted the addition made by the A.O amounting to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Unpaid Bonus (Para No 09 Page Nos 8 to 9) ₹ 4537 3. 1/5th of expenditure on stamp duty etc for increasing authorised capital (Para No.10 Page Nos. 9 to 14) ₹ 7,00,000 4. Proportionate expenditure on income not includible in total income (Para No. 11 Page Nos.14 to 21) ₹ 7,23,00,000 5. Depreciation on leased commercial vehicles other vehicles (Para No.12 Page Nos 21 to 26) ₹ 27,85,077 6. Excess claim Bad debts u/s 36(1)(vii) (Para No. 13 Page Nos. 26 to 28) ₹ 2,68,54,381 7. Penalty (Para No.14 Page Nos. 28 to 35) ₹ 5,00,000 Total Addition ₹ 10,33,48,354 010. The assessee aggrieved with the same preferred the appeal before the learned CIT (A), who partly allowed the appeal of the assessee and the issue on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to period of earlier year but when the liability to pay such sum is acknowledged during the year, the same is allowable. In the present case, ₹ 44,563/- is with respect to rent, ₹ 37,124/- is also of water charges and electricity and expenditure of ₹ 1,112/- of different branches are also disallowed for the same reason. With respect to the sum of ₹ 1 lac that was given, as advance in earlier years but accounted for expenditure during the current year on completion of the work. Therefore, it cannot be said to be an expenditure pertaining to earlier year because the event of completion of work falls in this year. Therefore, respectfully following the decision of coordinate Bench in assessee s own case for earlier years we direct the learned Assessing Officer to delete the disallowance of ₹ 2,04,359/- which is expenses pertaining to earlier year but incurred during the year. Ground No.1 of the appeal is allowed. In view of our decision of ground No.1, alternative plea for ground no. 1A do not survive. 015. The 2nd ground of appeal, with respect to the sustaining of disallowance of ₹ 7 lacs being 1/5th expenditure on stamp duty for increasing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for public subscription. The Hon'ble Punjab and Haryana High Court has also held that fees of ROC, for enhancement of authorized capital is deductible over a period of ten years under section 35D(2) of the Act. Further, this is the second year of amortization period expenses challenged before us. In the first year, co-ordinate bench has decided the above issue in favour of the assessee, respectfully following the decision of co-ordinate Bench in assessee s own case; we also allow the ground No.2 of the appeal. 018. Ground No.3 and 3A of the appeal is with respect to disallowance under section 14A of the Act. During the year assessee has claimed tax-free income of ₹ 33,12,67,172/-. In the return of income as note no. 3 assessee has stated that no expenditure is incurred attributable to tax-free income, as the amount of investment made in those equity is less than the amount of share capital and free reserve of the assessee and therefore there cannot be any interest expenditure disallowable under section 14A of the Act. During the assessment proceedings also the assessee submitted that it has interest free funds of ₹ 682 crores and investment in securities generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Assessing Officer on the basis of the work found that assessee has gross bad debt of ₹ 83,01,10,149/- and the balance of the provision as on 31.03.2001 was ₹ 9,49,87,381/-. The assessee has made the provision for current year of ₹ 15,88,11,299/- resulting into balancing figure of gross bad debt of ₹ 57,63,11,469/-, which at maximum could have been claimed . The assessee has claimed bad debts of ₹ 60,31,65,850/- and therefore, the learned Assessing Officer held that ₹ 2,68,54,381/- is an excess claim of bad debts under section 36(1) (vii) of the Act. Against this disallowance of assessee preferred the appeal before the learned CIT (A) who confirmed the above disallowance. While confirming the same, he noted that decision of the co-ordinate Bench in assessee s own case for AY 1993-94 has decided this issue against assessee and therefore following the same he is confirming the disallowance. Therefore, the assessee is in appeal before us. 022. The learned Authorised Representative submitted that there is no excess claim made by the assessee. He relied on the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a regulatory authority and the penalty is not levied for infraction of any law or any criminal offence and therefore it is not disallowable. He also referred to several judicial precedents including in assessee s own case where disallowance made of penalty levied by RBI is deleted. Before us, the assessee has relied upon the decision of co-ordinate Bench in the case of Bapunagar Mahalla Co-operative Bank Ltd. in ITA No. 2423/Ahd/2010 dated 02.07.2015 and Hon'ble Bombay high Court in the case of Stock and Bond Trading Co. in ITA No.4117 of 2010 dated 14th October 2011 stating that the above payment is not prohibited by law and therefore it should be allowed. 027. The learned Departmental Representative vehemently supported the orders of the lower authorities. 028. We have carefully considered the rival contentions and perused the orders of lower authorities. Firstly, we have asked the assessee to produce the order of the Reserve bank of India for levy of penalty. The penalty was levied for the reason that assessee has allotted shares in excess of 5 % of capital of the bank. Because of such violation, assessee was directed by RBI to liquidate such shares and assessee has i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative does not apply as none of those decisions have considered the decision of Honourable Supreme court in case of ICICI bank [ supra]. More so, we do not find that violation of the above provisions of the banking Regulation Act is merely technical or venial in nature. In view of this, we confirm the action of the learned lower authorities in disallowing the above sum of ₹ 5 lacs under section 37(1) of the Act. Ground no 5 of the appeal is dismissed. 029. In view of this, the ITA No.1738/PN/2005 is partly allowed. 030. Now, we come to the ITA No.1339/PN/2007 filed against the order passed by the learned Commissioner of Incometax Appeals-3, Pune dated 17.07.2007, wherein the appeal filed by the assessee against the order passed by the Dy. Commissioner of Income-tax, satara Circle, Satara passed under section 143(3) of the Act read with section 147 of the Income-tax Act, 1961 (hereinafter referred to as Act ) was dismissed. 031. The learned CIT (A) upheld the reopening of the assessment as well as disallowance of ₹ 2,35,00,000/- claimed as expenditure by the assessee on account of ESOP. 032. The assessee filed its return of income that was assessed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). the A.O has further examined the Bank's claim that deduction be allowed as a Bad Debit since the loss has arisen in the normal banking business of advancing loans' and held that claim on the ground also cannot be allowed as such. It is seen from assessment records of A.Y. 2002-03 that the assessee bank has written off loss of ₹ 2,35,00,000/- being the balance amount in above credited loan account of Employees Equity Trust'. This loss has been allowed to be written off by the A.O. The claim of Bad Debits of Bank on this account cannot be admitted in view of the provisions of Sec. 36(2)(i) and with the fact that interest fee loan is the Employee's Trust is not a ordinary course of business of banking. Therefore, the loss claimed should have been disallowed on merit as well as, as per consistent by basis on it was disallowed in A.Y. 2001-02. Omission to do so has resulted in underassessment of income of ₹ 2,35,00,000/- and consequent short levy of tax of ₹ 1,69,67,000/- including interest U/s. 234-B. In view of the aforesaid, discussion, I have reason to believe that Income to this extent chargeable to tax has escaped assessment within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in notes to financial statements in schedule 18 that there would be a further write off of ₹ 2,35,00,000/- relating to employees stock option plan. This was so because of the reason that assessee was granted a further period of 6 months i.e. up to 30th September, 2001 for sale of shares by RBI which resulted in the above loss and therefore it was booked in Assessment Year 2002-03. The Authorised Representative submitted that the learned CIT(A) has confirmed this disallowance following his own order for Assessment Year 2001-02, he submitted that identical ground for Assessment Year 2001-02 has been decided by the co-ordinate Bench wherein the issue was set aside to the file of the learned Assessing Officer. He referred to the paragraph no. 3 to 8 of the above order. 038. The learned Departmental Representative supported the orders of the lower authorities. 039. We have carefully considered the rival contentions and perused the orders of the lower authorities. The first ground of appeal is with respect to the reopening of the assessment which is challenged by the assessee stating that there is absence of any tangible material and even otherwise, it is a mere change of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Assessing Officer to decide it afresh. Accordingly, ground no. 2 of the appeal is allowed with above direction. 041. Accordingly, ITA No. 1339/PN/2007 is partly allowed. 042. ITA no. 289/PN/2010 is with respect to levy of penalty under section 271(1)(c) of the Act for the Assessment Year 2002-03 levied by the learned Assessing Officer as well as confirmed by the learned CIT(A) under section 271(1)(c) of the Act of ₹ 83,94,975/- on the disallowance of ₹ 2,35,15,332/- on account of loss of sale of shares claim as bad debts per order under section 143(3) read with section 147 of the Act. The same order was also subject matter of appeal before us in ITA no. 1339/PN/2007. As the issue of disallowance on which penalty has been levied has been restored back to the file of learned Assessing Officer, issue of levy of penalty thereon is also set aside to the file of the learned Assessing Officer to decide it afresh after deciding about allowability of loss of ₹ 2.35 crores. If the same is disallowed, the LD AO is free to initiate penalty proceeding u/s 274 rws 271(1) (c) of the act afresh, after giving assessee an opportunity of hearing. 043. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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