TMI Blog2020 (2) TMI 1690X X X X Extracts X X X X X X X X Extracts X X X X ..... n - We adopt the above detailed reasoning mutatis mutandis and accept the assessee s contention seeking impugned amortization. CIT-DR said that the assessee did not identify the share issue expenses - He fails to dispute that the assessee s impugned expense have already been recorded in the books of accounts forming part of records. We thus allow the assessee s instant second substantive ground as well. Disallowance u/s 40(a)(ia) - Assessee not filing the necessary details of its payees - effect of section 40(a)(ia) 2nd proviso inserted in the Act vide Finance Act 2012 w.e.f. 01.04.2013 - HELD THAT:- We wish to clarify here that hon ble Kerala high court in Thomas George Muthoot [ 2015 (7) TMI 810 - KERALA HIGH COURT] had held the very proviso as having prospective operation only. We note in this backdrop that the assessee s omission, if any, in not filing the necessary details of its payees is not fatal to its cause in view of the legal developments qua interpretation of the above-stated amended proviso involving divergent views from various high courts. We thus accept the assessee s instant third substantive grievance for statistical purposes and leave it open for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 28-2-2020 - Shri S.S. Godara, JM And Dr. A. L. Saini, AM For the Appellant : Shri Soumitra Choudhury, Advocate. For the Respondent : Shri Vijay Shankar, CIT. ORDER PER SHRI S. S. GODARA: This assessee s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax - 23, Kolkata s order dated 08.06.2017 passed in case no.06/CIT(A)-23/L.T.U-1/16-17 involving proceedings u/s 143(3) of the Income Tax Act, 1961 (in short the Act ). Heard Shri Soumitra Choudhury, learned authorized representative for assessee and Shri Vijay Shankar, CIT-DR appearing at the Revenue s behest. 2. The assessee s first substantive grievance challenges correctness of both the lower authorities action disallowing club entrance fees of Rs.97,794/- in the course of assessment affirmed in the lower in the lower appellate proceedings. The assessee herein is admittedly a bank which claimed the impugned expenditure as an allowable deduction under revenue head. The Assessing Officer s assessment order dated 25.02.2015 held the same to be capital expenditure than revenue in nature. The CIT(A) has confirmed the impugned disallowance. 3. We have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking of the impugned expenses from part of records in pages 36 to 55, 75 76; respectively. The assessee company engaged in civil construction business, had sought for the impugned amortization u/s 35D(2)(c)(iv) of the Act regarding its IPO . It stated that although the expenditure eligible for amortization in issue stood at Rs.5,96,58,485/- out of which 5% of the project cost came to Rs.1,12,60,000/- only. The Assessing Officer rejected the impugned claim on two counts. He first of all observed that since the assessee stood incorporated way back on 25.08.1995 and it had been carrying out its business activities, it could not be said that this expenditure was prior to commencement of the business. And that this expenditure pertained to IPO only and therefore, it carried imprint of capital expenditure as well. The Assessing Officer then dealt with assessee s plea that capital raised through IPO has helped in achieving the growth and thus, it was an instance of extension of undertaking only. The Assessing Officer did not agree to the foregoing explanation. He came to assessee s details that the gross receipts had gone up 55.67% by raising share capital than 26.21% in the immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are otherwise eligible for section 80IA deduction as well. 13. Next comes the assessee s detailed paper book page 7 in latter assessment year 2011-12 indicating 98.99 per cent increase in turnover in assessment year 2009-10 (supra). Mr. Tulsiyan took us to assessee s objects of share capital as well and submits that the funds raised related to investment in capital equipment only as per page 24 of the paper book. 14. We have given our thoughtful consideration to the rival submissions in support of and against the CIT(A) s action deleting impugned section 35D amortisation disallowance. There can hardly be any dispute that this statutory provision prescribes amortisation of capital expenditure relating to specified items only u/s 35D which have been incurred; before the commencement of business or after the commencement of his business, in connection with the extension of its undertaking or in connection with his setting up a new industrial unit provided in sub-section 2(i) and (ii) of section 35D; respectively. We find that there is no rebuttal coming from the Revenue side about the purpose of assessee s capital raised as meant for investment in capital equipments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned disallowance made in both the lower proceedings is that the assessee ought to have filed corresponding details of its payees having assessed qua the impugned payments before the lower authorities. He fails to dispute the foregoing legal proposition having been recently settled by their lordships of hon ble apex court. We wish to clarify here that hon ble Kerala high court in Thomas George Muthoot vs. CIT (2016) 6 ITR 229 (Kerala) had held the very proviso as having prospective operation only. We note in this backdrop that the assessee s omission, if any, in not filing the necessary details of its payees is not fatal to its cause in view of the legal developments qua interpretation of the above-stated amended proviso involving divergent views from various high courts. We thus accept the assessee s instant third substantive grievance for statistical purposes and leave it open for the Assessing Officer to carry out the necessary factual verification as per law. This substantive ground is taken as accepted for statistical purposes. 9. Next comes correctness of both the lower authorities action invoking administrative expenses disallowance of Rs.1.64 crores u/s 14A r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome and without making investments, the assessee could not have earned dividend income. 7. Thus, as per Ld. AO the investments and dividend are integral part of financial transactions, and they are inseparable. One cannot claim that investment in shares is made only for earning trading benefits or for having dividend income only, because both the gains are existing simultaneously. Ld. AO further noted that in the same way, the expenditure incurred by way of interest on the money taken on loan for investment/purchase of shares cannot be segregated as the expenditure incurred exclusively for investment/purchase of shares. Actually, the expenditure has been incurred for having both the benefits. Thus, it is amply clear that the expenditure incurred by way of payment of interest has direct link with the dividend income and hence, disallowance as per section 14A of the I.T. Act. 8. Assessee placed reliance on the decision reported in the case of Vora Financial Services (P). Ltd. vs. ACIT, Mumbai by the ITAT, Mumbai Bench (2018) 96 com88 (Mum-Trib) wherein, it was held that where a major portion of dividend income had been received as shares held as stock-in-trade, it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed of a company for the purpose of gaining control over the said company or as stock in trade , though incidentally income is also generated in the form of dividends as well. 12. It was argued before the Hon ble Apex Court that though incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling the business in the company in which shares were invested, or for the purpose of trading in the shares as business activity. 13. After considering the entire case law on this aspect in the light of the peculiar facts involved in both the matters, the Hon ble Apex Court vide paragraph No. 39 and 40 held as follows:- 39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as income under the head profits and gains from business and profession . What happens is that, in the process, when the shares are held as stock-intrade , certain dividend is also earned, though incidentally, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 14. It is, therefore, clear from the above observations of the Hon ble Apex Court that depending upon the facts of each case, the expenditure incurred in acquiring the shares will have to be apportioned. Hon ble Apex Court held that the tribunal and the Hon ble High Court of Punjab and Haryana arrived at a correct conclusion by setting aside the disallowance under section 14 A of the Act in respect of the dividend earned on the shares held as stock in trade, because such shares were held during the business activity of the assessee and it is only by a quirk of fate that when the investee company declared dividend, those shares were held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. 15. Hon ble Apex Court made a clear distinction of this case from the case of Maxopp investment Ltd were the assessee knew that whenever dividend would be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed discussion that both the lower authorities have erred in law invoking the impugned disallowance in case of an assessee s shares held as stock-in-trade. The assessee s instant fourth substantive grievance is accepted. 11. The assessee s next substantive ground seeks to reverse both the lower authorities action disallowing its interest claim u/s 36(1)(viii) of the Act amounting to Rs.14,55,65,230/- after changing allocation of operative expenses from asset to turnover basis. We notice qua the instant issue as well that this tribunal s coordinate bench s decision in Allahabad Bank vs. DCIT ITA No.980 1009/Kol/2018 19.06.2019 has reversed the Revenue s identical stand as under: 12. Now we take up the assessee s appeal being ITA No. 980/KOL/2018, which involves a solitary issue relating to the disallowance of Rs.62,69,78,740/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee s claim for deduction under section 36(1)(viii) of the Income Tax Act, 1961. 13. In the return of income filed for the year under consideration, a deduction of Rs.198.49 crores was claimed by the assessee under section 36(1)(viii) being 20% of its profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its case on this issue before the ld. CIT(Appeals):- The appellant bank's contention is that operating expenses are to be apportioned in the ratio of eligible business (i.e. business of providing long term finance) to total business of the bank (i.e. aggregate of advance and deposits). Operating expenses of the bank represents various indirect expenses i.e. common expenses incurred by the bank. Such expenses are incurred by the appellant bank in relation to the entire business carried on by the bank i.e. granting of loans and advances and acceptance of various deposits. As operating expenses are incurred in relation to the total business of the bank, a part of such expense is definitely attributable to non-performing assets of the bank. The bank has to manage both performing assets and non-performing assets. Keeping this fact in mind operating expenses attributable to long term lending is to be worked out by considering the total business of the bank. According to the Learned Assessing Officer, loans and advances of the appellant bank are classified into performing nonperforming assets. Interest income from performing asset is only recognized whereas interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses in relation to performing assets only and since it is not factually correct, the basis adopted by them has given distorted result. He also contended that the same basis as adopted by the assessee for apportionment of operating expenses in the year under consideration was adopted by it even in the earlier years and the same was consistently allowed by the Revenue till assessment year 2010-11. By relying on the Rule of Consistency, he contended that the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee s claim for deduction under section 36(1)(viii) thus is not sustainable. 16. The ld. D.R., on the other hand, relied on the order of the Assessing Officer as well as that of the ld. CIT(Appeals) in support of the revenue s case on this issue and contended that the basis adopted by them to apportion the operating expenses is more fair and reasonable especially in case of Banking company. 17. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the apportionment of operating expenses made by the assessee in the ratio of eligible business to total bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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