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TMI Blog2022 (6) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... operating expenses of Rs.20.59 crores under section 14A read with Rule 8D. The learned CIT(A) has failed to appreciate that suo-moto disallowance made by the Bank under section 14A of the Act is made on a scientific basis by proportionately allocating operating expenses incurred towards earning tax-free income. Hence, there is no basis or reason for any further disallowance under Rule 8D of the Income-tax Rules. 1.2 The learned C1T(A) erred in not appreciating that Rule 8D is neither charging provision nor automatic and Rule 8D(2)(iii) cannot supersede favourable judgements of Hon. ITAT upto AY 2009-10 and Gujarat HC upto AY 2008-09 in the Bank's own case. 2. Bank guarantee commission {Tax effect- Rs. 61,67,61,673) 2.1 The CIT (A) erred in upholding the addition of Bank Guarantee commission income of Rs. 181.45 crores being the sum relatable to unexpired period of the guarantee contract. This sum represents the pro-rata income for the period beyond 1-4-2015 which shall be amortised by the Bank over the balance tenure of the guarantee contract. This addition represents timing difference which will be tax neutral and there will not be any loss of revenue to the department. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial bench of Hon'ble ITAT in case of Biocon Limited vs DCIT [2013] 144 ITD 21 (Bangalore)(SB) which states that ESOP cost in hands of the company has to be equivalent to amount taxable as perquisite in the hands of employees. Relying on the decision of Hon'ble Special Bench, the difference between market price as on the date of exercise of options and exercise price (i.e market price on grant date] is an allowable deduction for computing income under the head 'profit and gains from business and profession' in the year of exercise of options by the employee (such amount being equal to the amount taxable as perquisite in hands of employee). The appellant craves leave to add, to amend, alter, delete and/or modify the above grounds of appeal on or before the final date of hearing. 3. The assessee vide letter dated 14/08/2020 has filed additional grounds of appeal as detailed under: Additional ground in the application dated 14-08-2020 The Appellant has filed an appeal on 16lh May, 2019. In regard to the captioned appeal, we request your Honour to kindly admit the following additional ground as taken hereunder. It is respectfully submitted that the additional gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expense under section 37 of the Act and hence the same be allowed as a deduction in computation at taxable income of the Bank for AY 2015-16. 2. The appellant craves leave to add, amend, alter, substitute, delete and/or modify in any manner whatsoever this ground on or before the hearing of appeal. 4. The first issue raised by the assessee is that the Ld.CIT(A) erred in confirming the order of the AO by sustaining the disallowance of Rs. 20,58,91,006/- under the provision of section 14A r.w. Rule 8D of Income Tax Rules. 5. The facts in brief are that the assessee in the present case is a Schedule Bank and engaged in the business of banking. The assessee in the year under consideration has earned exempt income of Rs. 3,51,18,11,112/- by way of dividend. The assessee against such income has made the disallowance of Rs. 1,16,45,009/- under the computation of income under protest in pursuance to the provision of section 14A of the Act. However, the AO during the assessment proceedings found that there was no basis for making the disallowance of Rs. 1,16,45,009/- against the exempted income. As per the AO the disallowance needs to be made in terms of the provision of Rule 8D of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the outset, we note that the disallowance has been made by the AO under the provisions of section 14A r.w.Rule 8D of Income Tax Rules for Rs. 26,19,72,629/- which was subsequently confirmed by the Ld. CIT(A) after making the reference to the order of his predecessor for the Assessment Year 2008-09 as discussed above. 8.1 The order of the Ld. CIT(A) for the Assessment Year 2008-09 has been reversed by the order of this ITAT in ITA No. 251/Ahd/2012 vide order dated 24/06/2017 by observing as under: 15. After giving a thoughtful consideration to the facts in issue, we find that from the balance sheet of the assessee for the year under consideration, the capital balance is at Rs. 360 crores and the free reserves are at Rs. 8411 crores totaling to Rs. 8051 crores. Against this, we find that the tax free investment at Rs. 651 crores. Thus, it can be safely concluded that the assessee was having sufficient own funds to make the tax free investment, ^jfhe Hon'ble High Court of Bombay in the case of Reliance Utilities and wer Ltd. 313 ITR 340 has held that if there are mixed funds then the power presumption would be that the investments have been made out of interest free funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suo moto disallowance of Rs. 1,06,38,000, we are inclined to extend one more opportunity to the assessee to provide the basis of such disallowance by furnishing the necessary details. Accordingly, the issue with respect to administrative expenses is set aside to the file of AO for fresh adjudication as per the provision of law. Hence, the ground of appeal of the assessee is partly allowed for statistical purposes. 11.1 Respectfully following the above finding in own case of the assessee we hereby hold that there would be no disallowances of interest expenses under section 14A read with rule 8D of Income Tax Rule as the assessee was having sufficient interest free own fund of Rs. 1,00,785 crores against the investment of Rs. 3,704 crores. However with respect to disallowances of administrative expenses under rule 8D(2)(iii) of Income Tax Rules, we inclined to provide one more opportunity to the assessee for to demonstrate the basis of suo moto disallowance. Therefore, the issue to the extent of disallowances of administrative expenses is set aside to the file of the AO for fresh adjudication as per the provision of law. Thus the ground of Revenue's appeal is hereby dismissed wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come whereas its customers will recognize the expenses in the year in which the bank guarantee was furnished by the bank. Thus, there will be a mismatch between the income shown by the assessee viz a viz the expenses to be shown by the customers. The assessee by issuing a bank guarantee is not rendering services on constant/ year to year basis. As such, once the bank guarantee issued even for a longer period but the services are assumed to be rendered in one time. 13.3 The AO further observed that there was no clause appearing in the guarantee agreement making the assessee liable to repay the guarantee commission in the event it comes to an end before the tenure provided therein. Thus, there was no liability on the assessee to repay the amount of bank guarantee commission received by it. 13.4 Once the contract for the guarantee signed, it means the services have been rendered by the assessee. As such the period of contractual terms becomes immaterial. Accordingly the amount of commission cannot be treated at par with the advances. 13.5 The deferment of tax liability on the commission income cannot invite the principles of matching concept. If it is accepted, then it would lead t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n manner as stated in the guarantee document. iii) Advance Payment Guarantee: This guarantee assures that the advance amount would be returned, in case the agreement for which the advance is given does not get fulfilled. iv} Payment Guarantee/Loan Guarantee: The guarantee is for assuring the payment/loan repayment. In case, the party fails to do so, guarantor is bound to pay on behalf of the defaulting borrower. v) Bid Bond Guarantee: As a part of the bidding process, this guarantee assures that the bidder would undertake the contract he has bid for, on the terms the bidding is done. vi) Foreign Bank Guarantee: When a guarantee is issued for a foreign beneficiary, it is called foreign BG. vii) Deferred Payment Guarantee: When the bank guarantees some deferred payment, the guarantee is termed as Deferred Payment Guarantee. For example: A company purchases a machine on credit basis with terms of payment being 6 equal instalments. In this case, since the payment is deferred to a /ater period, creditor seeks deferred payment guarantee for an assurance that the payment would reach him in thegiven time period. viii) Shipping Guarantee: This guarantee protects the shipping com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read over of income in later years are those in which there is some services to be provided in future and amount is received in advance but thai is not the case as far as the question issuance of bank guarantees is concerned where the commission is received and becomes the income of the appellant bank soon on the date when such guarantees are issued. No further service are pending for being rendered as far as the client is concerned and what remains is only the likely obligation under such guarantee in case such contingency happens on invocation of such guarantees by the beneficiary. However, such obligation cannot be terms as "service" provided by the appellant but it is only part of its undertaking which it has undertaken to discharge which is a separate transaction on the side of outgo of the money. 7.3.4 Regarding reliance placed by the appellant on the decisions in the case of Bank of Tokyo Ltd 71 Taxman 85 and on decision in the case of BNP Paribas Bank 150 TTJ 395 (Mum), it is to be noted that in the case of Bank of Tokyo, the issue related to commission income on deferred payment guarantee and the facts were that under the terms of the guarantee, the amount of commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the expenditure of loss but that does not entitle the appellant to reduce the commission on the ground of likely hood of such contingency. It is not the case of any product being sold with a warranty where in there may be scientific method of calculating risk based on past history and the provision thereof may be permitted as deduction when made based on such scientific analysis. In the case of a bank guarantee there may not be invocation for several years or might be such invocation in any particular year which is quite contingent and such risk cannot be calculated as can be done in case of a sale of manufactured product. Bank guarantee is a service and not sale of product. Considering the facts and circumstances of the case, the judgments in the case of Woodward Governor India P Ltd 312 ITR 254 and the case laws cited regarding real profits or commercial principles , permissible change in method are not applicable to the facts of the appellant's case. Any actual expenses or loss on account of payment while discharging obligation under the guarantee is always claimed and allowed to the appellant according to the accepted accounting method in the past. The judgment of Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus and year of allowability. In the case of Excel Industries Limited again, the Supreme Court was concerned with question of value of benefit in respect of benefit of duty on advance license pass book and issue was whether there can be brought to tax any hypothetical income which has not accrued ? The Court on the contrary held that income "accrues" when the same is due and right to receive the same gets vested in the assessee. In the instant case, not only the right to receives the bank guarantee commission is due and gets vested in the appellant but the same is also received when the guarantee is issued .It is settled legal position that a decision in a case is always to be read with reference to the facts of that particular case. In the appellant's case, once there is no refund clause of commission received on issuance of bank guarantee , the income of commission gets accrued in the year in which the guarantee is issued. 7.3.9 it is pertinent to state that the Special Bench of ITA.T in the case of Dy.CITvs Bank of BaharainS, Kuwait 132 TTJ 505 (Mum) (SB) has considered the identical issue and also judgment in the case of Bank of Tokyo and Madras industrial Investment Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive the commission arises in favour of the bank at the moment of giving guarantee. Not only the right to receive the income becomes absolute and gets vested into it at the time of giving guarantee, the amount of commission is also received there and then. It is beyond our comprehension as to how it can toe linked with the period for which the guarantee runs, it is just like a doctor charging fee for giving prescription to a chronic patient for six months and the period of three months falling in this year and the remaining three months in the next year. Can it be said that the fee of the doctor, for giving the prescription, has not entirely accrued to him at that time itself and the income will accrue on month-tomonth basis and as such half of the fee be not considered as income in the year one? In our considered opinion, the answer to this question has to be in negative and negative alone. In the like manner, when the bank gives guarantee for period extending the close of the year and there is no obligation to refund the amount in case such guarantee is revoked prior to the prescribed period, the entire commission accrues to it at the time of giving guarantee and no part of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have happened in the year under consideration and even if it happens, the payment or expenditure ultimately borne by the appellant can be claimed as the expenditure. However, this is not the issue for consideration in this appeal. On totality of facts and the legal position discussed above, the ground raised by the appellant is_reiected. The addition_of Rs. 136.42 Croresjrtade by the AO is confirmed and appeal of the appellant on this ground_ is dismissed. However, if the appellant has shown the part of such commission in the later year, the relief can be claimed by the appellant as per legal remedy available to it as the same income cannot be taxed twice once it is taxed on its accrual." As the issue and facts remains same this year identical to the issue involved in AY 2010- 11 & 2012-13 as decided by my predecessor for that year and following the above mentioned order, the additions of Rs. 170,91,00,000 made by the AO are confirmed for the reasons mentioned above. This ground of appeal is dismissed It is observed that facts of the year under consideration are similar to the facts of preceding assessment years wherein the undersigned has confirmed the addition made by AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial years i.e. FY 2010-11 and 2011-12. The assessee for such change in the policy has justified by furnishing the note in the financial statements which is reproduced as under: Change in recognition of bank Guarantee commission income During the current financial year, the bank has changed its policy to recognize commission income on guarantees issue by it. Against the earlier practice of recognizing the commission income on guarantees upfront when due (except in the case of deferred payment guarantees), the Bank now recognizes the income on a pro-rata basis over the period of the guarantee. As a result of the aforesaid change in policy, other income for the year is lowe by Rs.136.52 crores with a corresponding increase in other liabilities. 20.1 Now, first let us understand what does the accounting policy means. Accounting policies are the specific doctrines, conventions, rules and practices adopted by the assessee in the preparation and presentation of financial statements. These policies are used to deal specifically with complicated accounting practices such as depreciation methods, recognition of goodwill, preparation of research and development (R&D) costs, inventor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 274 of the paper book. Likewise it is also seen that the assessee has issued a bank guarantee to a company known as Farsight securities Ltd dated 24 January 2011 for a period of 12 months. The period of 12 months is falling in two different financial years. Accordingly, the exposure of the assessee to the risk on such guarantee is relating to different financial years i.e. Financial Year 2011-12 and 2012-13. This fact can be verified from the details available on pages 275 to 277 of the paper book. 20.5 We also draw support and guidance from the judgment of Hon'ble Madras High Court in the case of CIT vs. Coral Electronic Pvt Ltd. reported 274 ITR 336, where it was held as under: 8. In the instant case the amount that was received was only as charges for the services to be rendered in future. The services may be rendered or may not be rendered depending upon withdrawal of the money as and when the customer required. So, it is highly uncertain as to whether it would at all remain as income of the assessee. Only when the service is done the assessee has a right over the amount that was deposited. Till then, he has no right over the same. It is in that sense till then, it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by changing the accounting policy has not been offered to tax. In other words the income of 1 year has been postponed to the another year in the manner and for the reasons as discussed above. In view of the above and after considering the facts in totality, we set aside the finding of the ld. CIT-A and direct the AO to delete the addition made by the AO. Hence, the ground of appeal of the assessee is allowed. 18.1 At the time of hearing, the ld. DR has not brought anything contrary to the above finding of the ITAT in the own case of the assessee. Thus respectfully following the above finding in own case of the assessee, we hereby allow the grounds of appeal of the assessee. 19. The next issue raised by the assessee in ground No. 3 is that the learned CIT (A) erred in confirming the addition of Rs. 40,56,87,046 being the amount of interest on the sticky advances under rule 6EA read with section 43D of the Act. 20. The assessee in the year under consideration has not recognized the interest as income on accrual basis with respect to the sticky advances i.e. the interest was due for 3 months. It was the contention of the assessee that as per the guidelines issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing or prudency norms. 8.3.1 The appellant has reiterated the contentions raised during assessment proceedings It is also contended that section 43D is a beneficial provision and should be read so as to promote substantive provision of the Act. Arguments have been made regarding necessity of following RBI guidelines and AS-9. It is further contended that intention of section 43D is not to supersede expressly or impliedly applicability of RBI guidelines or mandatory AS-9. It is also contended that disconnect between Rule 6EA and present RBI guidelines should be resolved in favour of RBi guidelines .It is argued that Rule 6EA is not binding being in conflict with parent provision of section 43D. 8.3.2 I have considered the assessment order and submissions of the appellant. Identical issue was there in the appellant own case for A.Y. 2011-12 & 2012-13 . For that year my predecessor had decided the issue for A.Y. 2012-13 as mentioned below: 8.3,3 On careful consideration of the contentions of the appellant, I find it difficult to accept the contention of the appellant. It is no doubt true that section 43D is a beneficial provision but the provision is very clear when it states th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e making authority should amend the rules as and when the guidelines of NHB are revised or that we have to read the guidelines of NHB as part ofSec.43D of the Act." In view of above clear position and (he same being directly on the issue in the present case whether Rule 6EA will prevail over RBI guidelines which is not the issue considered in the cases relied upon by appellant, I am inclined to agree with the decision of the AO that the difference in income of Rs.11,16,75,000/- had to be considered as accrued interest income and liable to tax on the basis of mercantile method adopted, As regards the contention that since the income will be offered when realized and the judgment of Apex Court in the said case of Excel Industries Ltd 358 IJR 295, I am of the opinion that the facts in the case before the Hon'ble Supreme Court in the case of Excel Industries were different as in the said case the Hon'ble Court was concerned with time of accrual of income from advance licenses and duty entitlement pass book which was being held in favour of assesses by ITAT for last several years against which d/d not prefer any further appeal and also, the Court held that there was no liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd facts remains same this year identical to the issue involved in AY 2013-14 & 2014-15 as decided by my predecessor for that year and following the above mentioned order, disallowance of Rs. 40,56,87,0467- made by the AO is confirmed. 22. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 23. The learned AR before us reiterated the submissions made before the authorities below. 24. On the other hand the learned DR before us vehemently supported the order of the authorities below. 25. We have heard the rival contention of both the parties and perused the material available on records. At the outset we note identical issue was before us in own case of the assessee for A.Y. 2011-12 bearing ITA No. 2176/Ahd/2016 where it was observed as under: 36. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether interest income with respect to the loans and advances which were overdue for more than 3 months but less than 6 months should be recognized as income. The AO was of the view that the interest on such categories of loans and advances has to be recogniz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the grounds raised by the assessee are allowed." 36.2 We also find that Hon'ble Jurisdiction High Court in case of Pr. CIT vs. Shri Mahila Sewa Sahakari Bank Ltd reported in [2016] 72 taxmann.com 117 (Gujarat) in similar facts held as under: 20. Section 45Q finds place in Chapter IIIB of the RBI Act. Thus, the provisions of Chapter IIIB of the RBI Act have an overriding effect qua other enactments to the extent the same are inconsistent with the provisions contained therein. In order to reflect a bank's actual financial health in its balance sheet, the Reserve Bank has introduced prudential norms for income recognition, asset classification and provisioning for advances portfolio of the co-operative banks. The guidelines provided thereunder are mandatory and it is incumbent upon all co-operative banks to follow the same. Insofar as income recognition is concerned, clause 4.1.1 of the circular provides that the policy of income recognition has to be objective and based on the record of recovery. Income from non-performing assets (NPA) is not recognised on accrual basis but is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insofar as income recognition is concerned, the Supreme Court has held thus: "Applicability of Section 145 57. At the outset, we may state that in essence the RBI Directions, 1998 are prudential/provisioning norms issued by RBI under Chapter III-B of the RBI Act, 1934. These norms deal essentially with income recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By virtue of Section 45-Q, an overriding effect is given to the RBI Directions, 1998 vis-à-vis "income recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these RBI Directions, 1998 and the IT Act operate in different areas. These RBI Directions, 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the "permissible deductions" or "their exclusion" under the IT Act. The inconsistency between these Directions and the Companies Act is only in the matter of income recognition and presentation of financial statements. The accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said ICD placed with Shaw Wallace since the assessment year 1996-97 as it had become NPAs in accordance with the Prudential norms which was entered in the books of accounts as ITA 139/2008,ITA 466/2008, ITA 537/2008,ITA 408/2003 well. The assessee has further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the assessment years 2006-07. Reason was adverse financial circumstances and the financial crunch faced by Shaw Wallace. So much so, it was facing winding up petitions which were filed by many creditors. These circumstances, led to an uncertainty insofar as recovery of interest was concerned, as a result of the aforesaid precarious financial position of Shaw Wallace. What to talk of interest, even the principal amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". We are in agreement with the submission of Mr. Vohra on this count, supported by various decisions of different High Courts including this court which has already been referred to above. (2) In the instant case, the assessee-company b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial Norms for recognition of revenue by NBFC." 25. The distinction drawn by the Delhi High Court is that while the accounting policies of adopted by the NBFC cannot determine the taxable income. However, insofar as income recognition is concerned, the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act. That insofar as income recognition is concerned, section 145 of the Income-tax Act, 1961 has not role to play. 36.3 In view of the above we hold that there cannot be any addition to the total income of the assessee by way of interest with respect to the loans and advances which were overdue for 3 months. Thus we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 25.1 At the time of hearing, the ld. DR has not brought anything contrary to the above finding of the ITAT in the own case of the assessee. Thus respectfully following the above finding in own case of the assessee, we hereby allow the ground of appeal of the assessee. 26. The next issue raised by the assessee in ground No. 4 is that the learned CIT (A) erred in confirming th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuation of lease agreement. In the event the lease agreement is cancelled, the assessee would have already claimed those expenses which have not been incurred. Simultaneously, the income in the hands of the recipient will never be brought to tax. 27.3 The accounting standard 19 for leases issued by the ICAI has not been recognized by the Income Tax Department. Therefore the assessee cannot be allowed the deduction of the lease rent on straight-line method. Thus, the AO disallowed the sum of Rs. 16,68,71,547/- and added to the total income of the assessee. 28. Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO by observing as under: 6.3. I have carefully considered the submissions of the appellant and the assessment order. This ground is relating to disallowance of additional expenditure on account of increase in lease operating expenditure. During the current year, the bank revised its estimate of lease term in case of assets taken on operating lease to include secondary period of lease involving further payment of lease rentals based on continuation of lease at the option of bank as against the primary lease period considered h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deductible though it may have to be discharged in future. However, any liability which is not presently ascertained but contingent is not deductible as expenses of the current year. The appellant tried to explain the situation with the help of the following table:-(Amount in Rupees) Year Annualrent liability as per agreement Annualrent payment Rent Expense as per SLM of AS-19 Additional charge/(reversal) 1 100 100 150 50 2 120 120 150 30 3 140 140 150 10 4 160 160 150 (10) 6 200 200 150 (50) Total 900 900 900 0 Average rent for the lease tenure of 6 years considering the escalations as agreed in the lease agreement (Rs.900/6) 150 As seen from the above table, the illustration given by the appellant to explain the system adopted by the appellant from this year, in first three years, the appellant debits more lease rental expenditure than the actual expenditure incurred for the same. The AO has correctly stated that the appellant has debited notional expenditure, which has not been incurred by the appellant at all. Further, the recipient of such notional receipt will not show the said as income and it will not be and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al available on records. At the outset we note identical issue was before us in own case of the assessee for A.Y. 2011-12 bearing ITA No. 2176/Ahd/2016 where it was observed as under: 41. We have heard the rival contentions of both the parties and carefully gone through the submissions of the assessee along with the documents furnished and the case law relied upon and perused the facts of the case including the finding of the learned CIT (A) and other documents brought on record. The expert advisory committee of ICAI has issued a clarification with respect to the treatment of accounting of operating lease rental expenses as provided under the Accounting Standard 19 issued by the ICAI. Pursuant to that clarification, the assessee was required to account the lease rent expenses on straight-line method. Under SLM Method the total lease rentals over the lease period will be divided by number of years and this will result the lease expense/income to be recognized in a particular year. 41.1 Under the Accounting Standard 19, the assessee is required to recognise the operating lease expenses on a straight-line method unless another systematic and rational basis is more presentable of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time it will claim the deduction of the lease rent at the lesser value in the later years. Thus, the entire exercise over the lease period is tax neutral. In other words the liability for the tax under the Act of the initial periods shall be deferred to the later years. But in our considered view this will distort the pictures of the principles of income recognition under the income tax Act. The assessee in the initial year will claim higher amount of lease rent whereas the recipient will claim lesser amount of lease income. Likewise, the assessee will deduct the TDS on the higher amount which will not match with the income of the assessee recipient disclosed in the return of income. 41.5 Admittedly, the accounting standard issued by the ICAI are mandatory to be followed by the assessee under the Companies Act. But the question arises, such accounting standards should also be followed while working out the income under the provisions of the income tax Act. So far, the Income Tax Act has not notified the accounting standard 19 issued by the ICAI, though mandatory for the assessee to follow while preparing its books of accounts, but this is not the same under the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on account of education, secondary and higher education cess for Rs. 1,14,92,44,906/-. 35.1 The assessee has submitted applications dated 14th August 2020 for admitting the additional grounds of appeal. 35.2 It was pleaded by the assessee in the application filed for the admission of the additional grounds of appeal that the issue raised in the additional grounds of appeal go to the root of the matter and the necessary facts are available on record. Accordingly, it was prayed by the learned AR for the assessee that the same should be admitted for adjudication. 36. On the other hand, the learned DR opposed to admit the additional ground of appeal on the reasoning that it was not raised before the authorities below. 37. We have heard both the parties and perused the materials available on record. The Hon'ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT, cited supra, has held as under :- " Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal purposes. 38. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Coming to ITA No. 956/Ahd/2019 and appeal by the Revenue 36. The Revenue has raised following grounds of appeal: The appellant has raised the following grounds of appeal:- (1) The ld.CIT(A) has erred in law and/or on facts in restricting the addition from Rs.2,39,41,23,239/- to Rs.20,58,91,006/- made on account of disallowance made u/s 14A r.w.Rule 8D(2)(ii) of the Act. (2) The Id. CIT(A) has erred in law and/or on facts in deleting the addition of Rs.1,47,53,606/- on account of disallowance of expenses incurred on account of Annual Technical Service Tees. (3) The ld.CIT(A) has erred in law and/or on facts in deleting the addition of Rs.1,16,47,871/- mode on account of disallowance of interest in respect of capital work in progress. (4) On the facts and circumstances of the case, the Id. CIT(A) ought to have upheld the order of the Assessing Officer. (5) It is therefore, prayed that the order of ld.CIT(A) may be set aside and that of the Assessing Officer be restored. 37. The first issue raised by the Revenue is that the learned CIT(A) erred in restricting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant pail of the said oidet is quoted helow- "It is not in dispute that appellant received Bill from Infosys during the current year. The services rendered in earlier year wero also included in the said Bill. Assessing officer allocated expense relating to earlier year and disallowed the same as prior period expenses. However the expense was crystallised during the year since undisputediy Bill was leceivod during the current year and appellant could not have debited expense ptior to this. Gujarat High Court in the case of Saurashtra cement and chemicals held that if the expense is crystallised during the year, the same is allowable even if relating to earlier year's. Since expense was crystallised dining the year, respectfully following the decision of jurisdictional High Cotnt, tho disallowance made by the assessing officer is deleted " Considering the above, disallowance made by Hie assessing officer on the identical facts is deleted." facts remaining the same in the year under consideration, following the abovementioned order, impugned disallowance of prior-period expenditure of Rs. 59,73.681/- is deleted it is also seen that the CIT(A)'s decision on the issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani Enterprises holds that such a disallowance is not to be invoked in case an assessee is assessed at the same rate in the two assessment years in question. We therefore affirm the CIT(A)'s findings under challenge. The Revenu's sole substantive ground as well as main appeal ITA No.2395/Ahs/2014 fail 55.1 Before us, the learned AR has not brought out anything on record suggesting that the above finding in the own case of the assessee has either been stayed or overruled by a higher forum. Accordingly we are of the view, the principles laid down by the ITAT in the case of the assessee are squarely applicable in the given facts and circumstances. Hence the ground of appeal of the Revenue is dismissed. 43.1 At the time of hearing, the ld. DR has not brought anything contrary to the above finding of the ITAT in the own case of the assessee. Thus respectfully following the above finding in own case of the assessee, we hereby dismiss the grounds of appeal of the Revenue. 44. The last issue raised by the revenue in ground No. 3 is that the learned CIT (A) erred in deleting the disallowance made by the AO for Rs. 1,16,47,871/- on account of interest expenses incurred in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized in respect of the capital work in progress were out of its own interest free funds and not from interest hearing funds. Accordingly, a sum of Rs. 1.16 crores is disallowed by the A.O. and added back to the total income of the assessee company. The AR has submitted that the Bank has not borrowed any fund for the purpose of making purchase of such fixed asset or for making advance payment along with purchase order for the fixed asset. The Bank hos huge interest-free funds by way of paid-up share capita! and reserves aggregating Rs. 44,6777- crores, apart from huge balances in current account:; of the customers (Rs. 56,108/- crores), which ore non-interest bearing. The Bank had cash on hand of Rs. 4,215 crores and bank balances with oilier banks in current accounts of Rs. 15,603.40 crores. The Bank has earned gross interest income of Rs. 35,479 crores and on the other hand has incurred gross interest expenses of Rs.21,254 crores. Thus, there is no net interest expense. The AR drew my attention and placed on record Bombay High Court judgment in Reliance Utilities 313 ITR 340 (Bombay) in respect of disallowance out of interest paid on borrowed capital u/s 36(1)(iii). it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstantial evidences to satisfy nexus lest. The AO made proportionate disallowance out of interest expenses at Rs.1.16 crores. It is observed that similar disallowance was made in case of appellant in A.Y. 2014- 15, wherein the issue was decided by the undersigned in favour of appellant and following relevant findings were given: "10.3 I have carefully considered the submissions of the appellant and the assessment ore/or considering the ratio o! Mumbai High Court in Reliance Utilities (supra) where similar issue has been decided in favour of the assesses. I am also of (lie opinion that where an assesses has interest-free funds far in excess of cost of capital advances towards purchase of fixed assets, in view of the judicial authorities brought out on the records, there is valid legal presumption that such investment in capital advances have been made out of interest-free funds in absence of any specific contrary evidence brought out by the AO. The addition of Rs.73.03 lacs made u/s 36(1)(iii) is cancelled for the reasons mentioned above. This ground of appeal is allowed." Following the above findings and the fact that the appellant has sufficient interest froe funds to cover it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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