TMI Blog2023 (3) TMI 1425X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding. Assessee appeal allowed. Nature of expenses - software expenses - revenue or capital expenditure - HELD THAT:- This issue is covered in favour of the assessee in its own case by the Hon ble Delhi High Court for Assessment Years 2008- 09 to 2011-12 [ 2018 (4) TMI 1534 - DELHI HIGH COURT] it is nobody s case that assessee is dealing with computer softwares or is in the business of any related services. Rather it uses specific customized software, which is specific to its banking activities. But for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be answered in favour of the assessee. Disallowance of Assessee s claim of amortization of premium on HTM securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Section 115JB are now allowing the profit loss account to be prepared in accordance with the regulatory act under which the bank operates, all provisions as mandated by RBI and duly recorded in the books should be allowed. Also when in the Income Tax Act itself the deduction is allowed to the assessee, it cannot be held that the computation under book profit provisions contemplated addition of such claim under the garb of provision for diminution in the value of assets. Addition being loss on amortization of permanent investment alleging the same to be notional loss - HELD THAT:- The amortized value of the investment is reflected in the accounts. This is also clearly mentioned in note to the annual report. The loss on amortization is neither a provision nor a reserve and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. AO has wrongly considered the same as falling within the preview of Clause (i) to the Explanation 1 to Sec. 115JB(2) whereas the same is not a provision for diminution in the value of assets. It is the actual loss on amortization of investments and the same is allowed under the Income Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) as well as AO has erred in law and on facts in disallowing sum of Rs. 2153,02,00,000/- claimed as bad debt by the assessee u/s 36(1 )(vii). The disallowance made is wrong and bad in law and the claim of bad debt should be allowed as complete details of all loan accounts were furnished and the condition of write off is duly satisfied by the appellant. 6. The AO as well as CIT(A) has erred in law and on facts in applying the provisions of 115JB (MAT) erroneously, without appreciating that the appellant is a Nationalized bank under the Banking companies (acquisition and transfer of undertaking, Act, 1980). The provisions of sec. 115JB are not at all applicable to the appellant even after the amendment made by Finance Act, 2012. 7. Without prejudice, the Ld. CIT(A) has erred in law in sustaining addition under MAT in respect of provision for bad and doubtful debts which is actual reduction in the value of advances reflected as such in the balance sheet and not a provision. Hence the same is not falling under any of the items from (a) to (j) of the above explanation to section 115JB and therefore cannot be added in the book profit computation. 8. The Ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal, reserves, current account balances for making any investment in tax free securities. Further, all expenses of the bank are for carrying on the banking business. Even the investments in the case of bank are held as stock-in- trade and part of business of the bank. Thus, no expenses can be disallowed u/s 14A. 4. It was argued that the AO has applied Rule 8D without recording any satisfaction for rejecting the assessee s claim and embarking upon Rule 8D nor there is any finding of any expenses incurred for earning of any tax free income. 5. The ld. CIT(A) has given part relief by upholding the disallowance as per last limb of Rule 8D namely Rule 8D(2)(iii). 6. The assessee is a Nationalized Bank and the issue is squarely covered in its favour by the order of the Co-ordinate Bench of ITAT in ITA No.1519/Del/16 and in ITA No.7106/Del/2017 for A.Y. 2012-13 in the case of Punjab National Bank Limited. The relevant portion of the order is reproduced as under: 8. It is observed that decisions relied upon by Ld. Sr. DR has been passed prior to decision of Hon ble Supreme Court in the case of Maxopp Investment vs. CIT (supra). Further Hon ble Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Income Tax Act. 9. Therefore, this ground of the assessee is hereby allowed, the Revenue s appeal is hereby dismissed and the disallowance made u/s 14A is hereby deleted. 5.1 There being no change in the facts and circumstances of the instant case, and therefore in view of the aforesaid findings of the Hon ble Coordinate Bench, Ground No. 1 of Assessee s appeal stands allowed. 6. Ground No. 2 pertains to confirmation of disallowance of 100% depreciation claimed by the Assessee on temporary erections of Rs.30,76,16,842/-. We find that same issue has also been decided in favour of the Assessee, by the aforesaid order passed by coordinate Bench of Tribunal, in Assessee s own case for A.Y.2015-16, by holding as under: 28. This ground is against the allowance of depreciation on temporary wooden structure at 100% by the ld. CIT(A). The AO has dealt with on facts, page no.9, para no.4 of his order the facts has not been disputed that the nature of furniture of wooden cabins, wiring etc. which are temporary in nature. The above ground of the department has to be dismissed as it is a covered matter in favour of the assessee by the order of the Co-ordinate Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure and whether it resulted an enduring advantage to a particular assessee. It is nobody s case that assessee is dealing with computer softwares or is in the business of any related services. Rather it uses specific customized software, which is specific to its banking activities. But for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be answered in favour of the assessee and against the revenue. The appeals are consequently allowed. No order as to costs. 12. The details of the software expenses filed before the AO and before the ld. CIT(A) page 59 and 60 of the paper book. 13. We find that this issue stands covered in favour of assessee and the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not raised before the authorities below, we are of the considered opinion that the ends of justice would meet adequately if the Assessing Officer is directed to consider the assessee s claim in the light of the judicial precedents available on the issue. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in the matter. 22. The Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Limited (2014) 366 ITR 505(Bom), confirmed the ITAT Order wherein the claim of bank as deduction of amortized premium and HTM securities was allowed. The ITAT order has been upheld which is approved by the Bombay High Court: We find the Tribunal in the case of Lord Krishna Bank Ltd. (supra) has considered and adjudicated the issue in paragraphs 3 and 4 as under: 3. We have heard the rival submissions and perused the relevant material on record. The learned authorized representative has relied on Circular DBOD. No. BP. BC. 29/21.04.048/98, dated April 11, 1998, issued by the Reserve Bank of India prescribing the method to be followed for valuation of Government and other securities. The learned authorized representative invited our attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law as under: In addition, in ITA No. 18/2014, an additional substantial question of law arises, viz., whether the Tribunal committed an error of law in allowing the claim of the assessee on the issue of amortization of investment held to maturity without appreciating the fact that though the same was done as per the Reserve Bank of India guidelines, yet the same was not an allowable expenditure under section 37(1) of the Act . 25. At page 24 of the paper book the judgment of the Karnataka Bank Ltd. (2013) 356 ITR 549 wherein it was held as under: 12. Now we may advert to the second substantial question of law involved in ITA No. 18 of 2014. The aforesaid substantial question of law is squarely covered by Instruction No. 17 of 2008 dated November 26, 2008 issued by the Central Board of Direct Taxes/RBI and is covered by Clause )vii) provided herein. The decision in the case of Southern technologies was considered by a Division Bench of this court in Karnataka Bank Ltd. (supra) and it has been held that where the assessee maintains the accounts in terms of the Reserve Bank of India Regulations, the assessee is entitled to deductions and it cannot be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 cr. The provisions u/s 36(1)((viia) are separate which has also been noted by the Id. CIT(A) in her order pages 66-67. However, the ld. CIT(A) has concluded that it is not a bad debt written off but it is still a provision for bad and doubtful debts and is not a write off. Further, the ld. CIT(A) has relied on the CBDT Circular No.314 of 2014 and the amendment to section 36(1 )(vii) wherein Explanation- 2 was inserted by the Finance Act, 2013 with effect from A.Y. 2014- 15 which [CIT(A) s order at page 67] is again reproduced: 11.7 In order to clarify the scope and applicability of provision of clause (vii), (via) of sub-section (1) and sub-section (2), an Explanation in clause (vii) of sub-section (1) of section 36 has been inserted stating that for the purposes of the proviso to clause (vii) of sub-section (1) of section 36 and clause (v) of sub-section (2) of section 36, only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (via) of sub-section (1) of section 36 applies, the amount of deduction in respect of the bad debts actually written off under clause (vii) of sub section (1) of section 36 shall be limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra), a mere debit to the P L a/c was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the P L a/c but simultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/ debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in its impugned judgment. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under s. 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in its books, as indicated above. 47. Therefore, in assessee s case also, it is an actual write off in view of the decision of the Hon ble Supreme Court, this issue is fully covered in favor of assessee. The appeal of the assessee is hereby allowed on this ground. 9.2 In view of the aforesaid decision qua issue in hand, in Assessee s own case by the Hon ble tribunal, we find no reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 4706/Mum/2010 dtd. 30.06.2011 Indian Bank vs. Addl. CIT (ITAT) (Chennai) in ITA No.469/Mds/2010 dtd. 03.08.2011 Union Bank of India (ITAT Mumbai) in ITA Nos.4155 to4161 of 2011 dtd. 27.03.2012 Oriental Insurance Co. Ltd. vs. DCIT I ITA No.447/2015 dtd 30.08.2017 CIT vs. Union Bank of India (2019) 308 CTR 797 (Bom) HC 52. In the above referred judgment of the Bombay High Court, at relevant page 8, para no.11 (paper book page no.13) the court has held as under: This legal dichotomy emerging from the provisions of sub-section (2) of Section 115JB particularly having regard to the first proviso contained therein in case of banking company, would convince us that machinery provision provided in sub-section (2) of section 115JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme Court in case of Commissioner of Income-Tax, Bangalore vs. B.C. Shrinivasa Setty, Vo. 128ITR 294, had observed that in the Income Tax Act, a charging section and the computing provisions together constitute an integrated code. In a case where the computation provision cannot apply, it would be evident that such a case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company:] Provided that while preparing the annual accounts including profit and loss account, (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act, (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Bank of India vs. ACIT Mumbai vide order dated 11th December, 2020. 59. There is no jurisdictional High Court decision or for that matter any other High Court decision against the assessee. In view of the fact that two use are possible, the view that favour the assessee may kindly be considered, more so in the case of a Nationalized Bank as held by the Hon ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192. 60. Even if it is considered that book profit provisions would apply to the assessee bank, the adjustments carried out by the AO is not possible under the book profit computation as provided under Explanation to section 115JB of the Act. 61. The relevant extracts of Explanation to Section 115JB giving the meaning of Book Profits are reproduced for your ready reference: Explanation [1], For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of revaluation of assets referred to in clause (iia); or] (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation. For the purposes of this clause, (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or] (iv) to (vi) [****] (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 171 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation. For the purposes of this clause, net worth shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 32- of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of deferred tax, if any such amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and doubtful debts are made by the assessee bank as per the RBI Regulations which are called prudential norms and are in the nature of statutory provisions. The same are not in the nature of provisions which are set aside by the assessee for meeting any contingent liability/ or provision set aside for any diminution in the value of assets. The same are in relation to actual debts and debited in the Profit Loss account. 66. The assessee submitted that the amount debited in the profit loss account is reduced from the value of the loans and advances and therefore the net values of advances are shown in the books of accounts. It is not a provision which is shown as liability in the books. This fact has been noted by the AO in his order as well as by the ld. CIT(A) in his order. 67. Therefore, there is an actual diminution in the value of advances and it is reflected as such in the balance sheet of the bank. Hence the same is not falling under any of the items from (a) to (j) of the above explanation to section 115JB. The Hon ble Supreme Court in the case of Vijaya Bank vs. CIT reported in [2010] 323 ITR 166 has categorically held that: Though a mere debit to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the Explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under section 36(1)(vii) by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However, it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure in the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the view of Hon ble jurisdictional High Court, as is laid down by Hon ble Bombay High Court in the matter of CIT v. Godavari Devi Saraf [(1978) 113 ITR 589 (Bom.)]. In the hierarchical judicial system that we have, wisdom of the Court below has to yield ITA No. 740/Del/2020 30 to higher wisdom of the Court above and, therefore, one a authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal. The decisions of the coordinate bench, on that issue, cease to be relevant, nor is it open to us to take a call on merits, and thus sit de facto in judgment over what a higher judicial authority has decided. Whatever be the merits of the stand of the revenue on this issue, it is not for us to take call on merits. That exercise on merits, in the light of the non-jurisdictional High Court judgment, can only be done by Hon ble Courts above. In the light of these discussions, and having clarified the legal position as such, we remit the matter to the file of the learned CIT(A) for limited examination of facts so far as reduction of the corresponding amount, of the provision of Rs.5359,64,38,015 from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal are being reproduced herein below: HTM Investment: 73. The assessee submitted that loss on amortization of investment is on account of the investments purchased at the prevailing market price which is higher than its face value. The difference between the purchase price and face value of investments is amortized in equal installments over the life of the investments. This is as per the RBI guidelines master circular No RBI/2013- 14/109 DBOD No BP.BC. 8/21.04.141/2013- 14 July 1, 2013 which the bank has to follow mandatorily for arriving at the book profit results. 74. The amortized value of the investment is reflected in the accounts. This is also clearly mentioned in note to the annual report. 75. The loss on amortization is neither a provision nor a reserve and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. The AO has wrongly considered the same as falling within the preview of Clause (i) to the Explanation 1 to Sec. 115JB(2) whereas the same is not a provision for diminution in the value of assets. It is the actual loss on amortization of investments and the same is allowed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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