Income Tax Appellate Tribunal - Ahmedabad
Axis Bank Ltd.,, Ahmedabad vs Department Of Income Tax on 15 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "A" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT
MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER)
ITA. Nos: 577 & 691/AHD/2011
(Assessment Year: 2006-07)
Axis Bank Limites V/S Addl. Commissioner of
(Formerly known as UTI Income tax Range-1,
rd
Bank Ltd.) "Trishul", 3 Ahmedabad
Floor Opp Samtheshwar
Temple Law Garden
Ellisbridge, Ahmedabad
Addl. Commissioner of V/S Axis Bank Limites
Income tax Range-1, (Formerly known as UTI
Ahmedabad Bank Ltd.) "Trishul", 3rd
Floor Opp Samtheshwar
Temple Law Garden
Ellisbridge, Ahmedabad
(Appellant) (Respondent)
ITA. Nos: 1015 & 1129/AHD/2011
(Assessment Year: 2007-08)
Axis Bank Limites V/S Addl. Commissioner of
(Formerly known as UTI Income tax Range-1,
rd
Bank Ltd.) "Trishul", 3 Ahmedabad
Floor Opp Samtheshwar
Temple Law Garden
Ellisbridge, Ahmedabad
Addl. Commissioner of V/S Axis Bank Limites
Income tax Range-1, (Formerly known as UTI
2 ITA No. 577 & 691/Ahd/2011
ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12
. A.Ys. 2004-05, 2006-07 & 2007-08
Ahmedabad Bank Ltd.) "Trishul", 3rd
Floor Opp Samtheshwar
Temple Law Garden
Ellisbridge, Ahmedabad
(Appellant) (Respondent)
ITA. No: 250/AHD/2012
(Assessment Year: 2004-05)
Axis Bank Limites V/S Addl. Commissioner of
(Formerly known as UTI Income tax Range-1,
rd
Bank Ltd.) "Trishul", 3 Ahmedabad
Floor Opp Samtheshwar
Temple Law Garden
Ellisbridge, Ahmedabad
PAN: AAACU 2414K
Appellant by : Shri Arvind Sonde, AR
Respondent by : Shri R.I. Patel, CIT/ D.R.
(आदे श)/ORDER
Date of hearing : 08 -03-2016
Date of Pronouncement : 15 -03-2016
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. ITA Nos. 577 & 691/Ahd/2011 are cross appeals by the assessee and the revenue preferred against the order of the ld. CIT(A)-VI, Ahmedabad dated 16.12.2010 pertaining to A.Y. 2006-07, ITA Nos. 1015 & 1129/Ahd/2011 are cross appeals by the assessee and the revenue for assessment year 2007- 08 and in ITA No. 250/Ahd/2012 assessee's appeal for A.Y. 2004-05.
3 ITA No. 577 & 691/Ahd/2011ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08
2. All these appeals were heard together and are disposed of by this common order for the sake of convenience.
3. At the very outset, it was brought to our notice by the ld. counsel that the revenue is in appeal against the deletion of the disallowance of Rs. 19,82,420/- made on account of Annual Technical Services (ATS) fees paid to Infosys. It is the say of the ld. counsel that the grievance of the revenue cannot be entertained because of the Circular of the CBDT restricting the revenue to file appeal below the tax effect which is Rs. 10 lakhs. The ld. D.R. fairly conceded to this.
4. We have carefully gone through the grounds of appeal taken by the revenue admittedly the tax effect on the deleted amount is less than Rs. 10 lakhs, therefore, revenue's appeal is dismissed in the light of the Circular of the CBDT No. 21/2015 dated 10.12.2015.
ITA No. 577/Ahd/2011 for A.Y. 2006-07.Ground no. 1 relates to the claim of depreciation of Rs. 313.34 lacs on Wind Energy Generators.
5. This issue has been considered by the A.O at para 4 of his assessment order wherein he has followed the findings given in the assessment order for A.Y. 05-06 and following the findings of his predecessor, the claim of depreciation was disallowed. When the matter was agitated before the ld.
4 ITA No. 577 & 691/Ahd/2011ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 CIT(A). The CIT(A) also followed the findings of his predecessor and dismissed assessee's appeal.
6. Before us, the ld. counsel for the assessee stated that the issue is no more res integra in so far as the assessee is concerned because the Tribunal has allowed the claim of depreciation in assessee's own case in 02-03, 04-05 & 05-06. Per contra, the ld. D.R. strongly objecting to the claim of the ld. counsel strongly relied upon the decision of the Tribunal Special Bench in the case of IndusInd Bank 19 Taxman.com 173.
7. We have carefully considered the rival contentions and the facts in issues. We find force in the contention of the ld. counsel; this issue has been considered at length by the Tribunal in assessee's own case in A.Y. 02-03, 04-05 & 05-06. The facts considered by the Tribunal in ITA Nos. 152/Ahd/06, 815/Ahd/07 & 4387/Ahd/07 at Para 24 and the findings thereof read as under:-
24. Before us, the learned A.R. at the outset submitted that the issue of depreciation on leased assets has now been settled and decided by Hon. Supreme Court in the case of ICDS Ltd vs. CIT & Anr (2013) 350 ITR 527 (SC). He also submitted the following the aforesaid decision of Hon. Apex Court, the Mumbai Tribunal on identical facts in the case of Development Credit Bank Ltd. vs. DCIT ITA No. 300/Ahd/2001 and 4892/Ahd/2003 has decided the issue in assessee's favour. He placed on record the copy of the aforesaid decisions at page 379 to 461. The learned A.R. further submitted that the Assessee had entered into lease transaction in the normal course of business as the same was permissible by the Banking Regulation Act. He further submitted that the lease income earned by the Assessee is also disclosed in its Profit and Loss account. He pointed out to Schedule 14 of "Other income" forming part of Profit and loss account for the year ended 31st March, 2002, placed at page 326 of the paper book. He also placed 5 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 on record the comparison or lease transactions entered by the assessee with features of ownership as per the test laid down by the Supreme Court in the case of ICDS Ltd. (supra). He thus urged that the addition made be the AO be deleted.
25. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation.
We find that the issue of depreciation on leased assets has been decided by Honourable Apex Court in the case of ICDS Ltd (supra). One of the question before the Hon. Supreme Court was "whether the Assessee is entitled to depreciation vehicles finance by it which is neither owned nor used by the Assessee by virtue of the business" the Hon. Supreme Court held as under:
" The provision on depreciation in the Income-tax Act, 1961, reads that the asset must be "owned, wholly or partly, by the assessee and used for the purposes of the business".
Therefore, it imposes a twin requirement of "ownership" and "usage for business" for a successful claim under section 32 of the Act.
The section requires that the assessee must use the asset for the "purpose, of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. The definitions of "ownership" essentially make ownership a function of legal right or title against the rest of the world. However, it is "nomen genera-lissimum", and its meaning is to be gathered from the connection in which it is used, and from the subject- matter to which it is applied. As long as the assessee has a right to retain the legal title against the rest of the world, it would be the owner of the asset in the eyes of law. Held, affirming the decision of the Tribunal, (i) that the assessee was a leasing company which leased out the trucks that it purchased. Therefore, on a combined reading of section 2(13) and (24) of the Act the income derived from leasing of the trucks would be business income, or income derived in the course of business, and had been so assessed. Hence, it fulfilled the requirement of section 32 of the Act, that the asset must be used in the course of business. The assessee did use the vehicles in the course of its leasing business. The fact that the trucks themselves were not used by the assessee was irrelevant for the purpose of the section.
26. The case of Development Credit Bank Ltd. the issue before Mumbai Tribunal was with respect to depreciation on assets given on lease. The Co-ordinate Bench of Tribunal decided the issue in favour of Assessee by holding as under:
28 We have heard the arguments of both the sides and we are of the view that cross appeals on the issue of allowance of depreciation in the current year have to be decided 6 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 simultaneously. In so far as disallowance of depreciation on the assets involved in SLB transactions, the issue stands settled in favour of the assessee. From the synopsis filed by the AR, it is seen that the assessee provided the AO with all the information as was asked for, i.e. lease agreements, copies of bills for purchase of assets, inspection reports, copies of insurance cover etc., which, in our considered opinion, was identical circumstance, which was before the Hon'ble Delhi High Court in the case of Cosmo Films (supra), i.e. SLB transactions, revenue authorities applying McDowell's case and arguing that it is a devise for lowering the tax effect and relying on the Board's circular (supra), and more importantly, that, that case also pertained to assessment year 1996-97. The Hon'ble Delhi Court took the view that SLB transactions are genuine and cannot be considered to be sham.
29. On appreciation of the records, as produced before us, the decision of Hon'ble Delhi High Court in the case of Cosmo Films Ltd. (supra) has arguments of the assessee on the impugned issue, thereby, impliedly, reversed the ratio in the decisions of MidEast (supra) and Induslnd (supra). We find that tests laid down in MidEast case was primarily to ascertain the genuineness of the transaction entered by the assessee with its lessee, which was done by the CIT(A) in each case.
31. In any case, the issue of SLB transaction and in particular the issue of ownership of asset, also has been laid to rest by the Hon'ble Apex Court in the case of ICDS Ltd. Vs CIT, in CA No. 3286 to 3290 of 2008, wherein the question that was sought to be answered was whether the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers". The Hon. supreme Court of India, concluded, extracted from para 28, "From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question" (para28, page28).
32. Coming to the issue of finance lease, wherein the CIT(A) sustained the disallowance because the usage of the equipment lease out could not be substantiated. On going through the decision of the jurisdictional High Court of Bombay, we find that the issue now is at rest, in so far as the lessor is concerned, because, while dealing the case of the lessor, i.e. the assessee in the instant case, the asset has left its corridors for being utilized, and in return, rent had been received by the assessee. The Hon. Bombay High Court in the case of Kotak Securities Ltd. has held that what is to be seen is that the asset has been given on lease and the lease rent has been received, given in that case, so far as lessor is concerned, the asset has been used.
34. After having examined all the transactions which have been impugned before us, we are of the opinion that the assessee is entitled to the claim of depreciation under all the three circumstances, i.e. sale lease back, genuineness of transaction and asset having being put to use. We, therefore, allow ground no. 1 the assessee's appeal and dismiss both the grounds of the department's appeal.
27. In view of the aforesaid facts, we are of the view that in view of the decision of Hon'ble Apex Court in the case of ICDS (supra) and the decision of Mumbai Tribunal in the case of Development Credit Bank Ltd, Assessee is eligible for depreciation and we 7 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 thus delete the addition made by the Assessing Officer. Thus this ground of the Assessee is allowed.
8. We find that in the subsequent years also, the Tribunal has followed its own decision (supra). Respectfully following the findings of the Tribunal, we hold that the assessee is eligible for depreciation and delete the addition made by the A.O and confirmed by the ld. CIT(A). Ground no. 1 is accordingly allowed.
Ground no. 2 relates to the disallowance made u/s. 14A of the Act.
9. This ground is considered along with the additional ground of appeal taken by the assessee claiming that even the suo motu disallowance should also be deleted.
10. Disallowance u/s. 14A of the Act has been discussed by the A.O at para 5 of the assessment order wherein he has observed that the assessee has earned exempt income of Rs. 25.80 crores against which it has disallowed Rs. 2.20 crores under protest. Referring to the assessment order for A.Y. 2005-06, the A.O observed hat in that year, the assessee had made a similar suo motu disallowance but the disallowance u/s. 14A was computed by the A.O at Rs. 37.37 crores. The A.O proceeded by computing the disallowance for the year under consideration also and made a further disallowance of Rs. 42.68 crores. Assessee carried the matter before the ld. CIT(A) but without any success. Before us, the ld. counsel for the assessee stated that an identical issue was considered by the Tribunal in earlier years also. The ld. consel 8 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 placed the order of the Tribunal. Per contra, the ld. D.R. could not bring any distinguishing decision/facts before us.
11. We have given a thoughtful consideration to the facts in issues, we also gone through the decisions of the Tribunal in assessee's own case for A.Y. 02-03, 04-05 & 05-06. We find that a similar issue was considered first by the Tribunal in A.Y. 02-03 in ITA Nos. 152/Ahd/06, 815/Ahd/07 & 4387/Ahd/07. We find that the Tribunal has also considered the additional grievance of the assessee relating to the deletion of the suo motu disallowance made by it. The relevant facts and the findings of the Tribunal on this issue reads as under:-
15. During the course of assessment proceedings, AO noticed that Assessee had submitted that it had investments to the tune of Rs. 413.60 Crore on which the assessee has earned tax free income. AO also noticed that Assessee has claimed exemption of Rs. 39.65 Crore on account of interest on tax free bonds and debentures and dividend income and had further calculated expenses disallowable u/s 14A at Rs. 6.32 Crore. The Assessee was asked to justify its claim and allocate tax free income to tax free investment.
Assessee interalia submitted that the investments were totally funded out of interest free funds which were available with it in the form of Capital, Reserves and Surplus, balance in current account deposits etc. On the basis of its computation, the Assessee had shown incremental position of tax free investment of Rs. 13 Crore for the year under appeal. On the aforesaid investment it had computed the total interest cost of Rs. 6.23 Crore which was added back to computation income. The submission made by the Assessee were not found acceptable to the AO for the reason that the Assessee had not confirmed the date of purchase of investments and therefore he was of the view that the Assessee cannot claim that the investments were held by it permanently for 8 long years. He also noted that Assessee had opening balance of tax free investment of Rs. 401 Crore, had entered into purchase and sale of investment worth hundreds of crores in the tax free investment, the total transactions in shares and bonds and debentures including taxable and tax free 9 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 instruments was to the tune of Rs. 6,818 Crore He accordingly concluded that the Assessee was trading heavily in tax free instruments. He further noticed that Assessee has considered only the interest cost of funds for the purpose of disallowance. He was of the view that since the bank was carrying on different activities which earned taxable as well as tax free income the business of the Assessee cannot be termed as indivisible business and therefore allocation of expenses in proportion basis needs to be done taking into account the total funds, interest bearing and non interest bearing funds with the assessee. He thereafter worked out disallowance u/s 14A as under:
Total Tax-free Investments at 31/3/2002 (Rs. 414 crores + Rs. 428.92 crores 14.92 crores) Proportion of total funds to interest bearing funds 91% Proportion of interest bearing funds used for Tax free Rs. 390.32 crores investment (91% of Rs. 428.92 crores) Expenses allocated to such amount of Rs. 390.32 crores @ 9.4 Rs. 36.68 crores % on the basis of average cost of borrowal = 9.4% of Rs.
390.32 Cr.
Total expenses incurred for earning tax-free income is Rs. 36.68 crores determined at Disallowances u/s 14A Rs. 36.68 crores Already disallowed by assessee Rs. 6.23 crores Balance disallowable Rs. 30.45 crores
16.The disallowance worked out by the AO was Rs. 36.68 Crore but since the Assessee had already suo motu disallowed Rs. 6.23 Crore, he made disallowance of balance amount of Rs. 30.45 Crore. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee granted partial relief to the Assessee by holding as under:
6.3 After considering the submissions of the appellant and the case laws relied upon, I am of the opinion that the action of the A.O. is not correct as regards disallowing interest expenses amount after allocating it to the investments for exempted income. The appellant has filed the details before the A.O. admitting that only part of the interest bearing funds is used for investing in the investments giving tax exempted income. The 10 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 interest cost is calculated at Rs. 6.23 Cr. which is offered for taxation. Hence, the A.O. is not justified in further allocating the interest expenditure for this purpose disregarding the fact that the appellant has surplus funds. However as regards the other operating expenses are concerned, the appellant has not filed any details as to how much expenditure is to be apportioned for earning the exempted income. The total operating expenses are Rs. 205 .47 Cr. and the exempt income claimed by the appellant is Rs. 39.65 Cr. whereas the total income earned by the appellant is Rs. 1595.40 Cr. Hence the exempted income is 2.485% of the total income. Therefore, by allocating the operating expenses of Rs. 205.47 Cr. in this ratio, the expense allocable to the exempt income comes to Rs. 5.11 Cr. (205.47 x 2.485%) Therefore, this expenditure has to be disallowed out of the total expenditure for earning the exempt income under the provisions of Sec.
14A. This view is supported by the decision of ITAT Chennai Bench in the case of Southern Petro Chemicals Industries V. DCIT, 93 TTJ 161. As pt this decision, the investment decisions are very strategic decisions in which top management is involved and, therefore, proportionate management expenses are required to be deducted while computing the exempted income. On similar logic, the other operating expenses are also to be deducted. The appellant has already disallowed Rs. 6.23 Cr. out of interest expenditure. The disallowance out of operating expenses comes to Rs. 5.11 Cr. which is justified. Hence, the disallowance is confirmed to the extent of Rs. 5.11 Cr. and the balance amount of Rs. 25.34 Cr. is deleted.
17.Aggrieved by the order of CIT(A), the Assessee and Revenue, both are in appeal before us.
18.Before us, the learned A.R. placed at page 61 of the paper book the chart showing opening position of interest free funds vis-a-vis tax free investment for various years starting from 31st March, 1995 to 31st March, 2003. From the aforesaid chart, he pointed that the interest free funds available with the Assessee in the form of Capital, Reserves and interest free demand deposits aggregated to Rs. 1766 Crore as against which the tax free investment at the end of the year was Rs. 414 Crore. He thus submitted that the interest free funds available with the assessee were far in excess over the tax free investment and in percentage terms, the interest free deposits in relation to tax free funds worked out to 327%. He further submitted that in view of the fact that interest free funds was far in excess of tax free investments, no disallowance u/s 14A was called for. He further submitted that the disallowance made suo motu by the Assessee of Rs. 6.23 Crore should also be reversed for the reason that on identical facts in the case of Assessee, the Hon. Tribunal had deleted the addition made u/s 14A and which was also upheld by Hon. Gujarat High Court in Tax appeal no. 118/Ahd/2013. He placed on record at page 335 to 372 the order of Tribunal for A.Y. 2003-04 and at page 373 to 378 the order of 11ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 Gujarat High Court. The learned A.R. further submitted that since no amount of disallowance u/s 14A can be made in the case of the Assessee and therefore urged to delete the entire disallowance u/s 14A. He further submitted that the deletion of entire disallowance u/s 14A can be raised by the assessee for the first time before Tribunal and for which he placed reliance on the decisions in the case of National Thermal Power Company Limited vs. CIT 1998 229 383 ITR (SC), Jute Corporation of India vs. CIT (1991) 187 ITR 688 (SC). He also placed reliance on the decision in the case of Asit Kumar Ghosh vs. CIT (1953) 24 ITR 576 for the proposition that estoppel is only a rule of evidence and not a cause of action. In any event estoppel is not a basis of liability to assessment under the Income Tax Act and therefore the assessment of a person for an amount of income to which he is a stranger cannot be based on the ground that he himself wanted to be assessed on it. The learned D.R. on the other hand pointed to the relevant paragraphs of the order of AO and relied on the order of AO and further submitted that the AO has rightly made the disallowance u/s 14A and thus supported his order.
19.We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee has earned Rs. 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed Rs. 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at Rs. 36.68 Crore and after setting off disallowance made by the assessee, he disallowed Rs. 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of Rs. 25.35 Crore. We further find that on identical facts for A.Y. 2003-04, (ITA No 2571/Ahd/2006), the Co-ordinate Bench of Tribunal had restricted the disallowance to that made by the Assessee by holding as under:
33. We have heard the rival contentions and perused the material on record. The undisputed facts are that during the year the assessee has earned interest of Rs 17.45 crore on tax free bond and debentures as against which the assessee had suo moto disallowed Rs 5.53 crore being the interest expenses u/s 14A as against which the AO has worked out the disallowance of Rs 32.76 crore. After giving the credit of disallowance of Rs 5.53 crore made by the Assessee, the AO disallowed Rs 27.23 crore u/s 14A. As on 12 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 31st March 2003, the interest free funds available with the assessee was to the tune of Rs 3404 crore (comprising of share capital of Rs 230 crore, Reserves of Rs 689 crores and interest free demand deposits of Rs 2485 crores) as against which the tax free investments were to the tune of Rs 589 crore. Thus the interest free funds were far in excess of the investments. CIT (A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly he has followed the decision of CIT (A) for AY 2002-03. These facts have not been controverted by the Ld. D.R. nor have they brought on record any facts to the contrary. Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities & Power Ltd (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assessee has suo moto disallowed Rs 5.53 crore u/s 14A, respectfully following the decision of Bombay High Court, we are of the view that in the facts of the present case, no further disallowance over and above than what has been disallowed by the Assessee is called for. As far as disallowance of other administrative expenses is concerned, the undisputed fact is that the disallowance has been made by the AO without giving a finding as to how much administrative expenditure has been incurred to earn the exempt income. In the case of Hero Cycles (supra) the Hon'ble High Court has held that the contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s 14A cannot be accepted. Disallowance u/s 14A requires finding of incurring of expenditure. In the present case, the AO has presumed that the assessee might have incurred expenditure to earn the exempt income. He has not given any finding of incurring of expenditure. In view of these facts and respectfully following the decision of High Court, we are of the view that no disallowance of administrative expenses can be made. We accordingly direct for the deletion of the addition made by the AO and allow this ground of the assessee.
20.Before us, the learned A.R. has raised a new argument wherein it was submitted that even the suo motu disallowance made by the Assessee while computing the income should be deleted and for which he placed reliance the decision of Hon. Calcutta High Court and the decision of Supreme Court. We find that this ground was not taken by the assessee before A.O. and CIT(A). AO had proceeded on the basis of the suo-moto disallowance made by the Assessee. Thus the AO or CIT(A) did not had any opportunity to examine the aforesaid contention and therefore there is no finding on it either by the A.O. and CIT(A). In view of these facts, we are of the view that the matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee.
13 ITA No. 577 & 691/Ahd/2011ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 Assessee is also directed and furnish promptly the details called for by the AO to decide the issue. Thus this ground of the Assessee is allowed for statistical purposes.
12. We find that the Tribunal has followed its own order and has given a similar finding for A.Y. 04-05 & 05-06. Respectfully following the findings of the Tribunal (supra), we direct the A.O accordingly. Ground no. 2 with all its sub ground and the additional ground are treated as allowed for statistical purpose.
Ground no. 3 relates to the disallowance of loss on write off of preference shares.
13. During the course of the scrutiny assessment proceedings, the A.O noticed that the assessee has claimed bad debts written off at Rs. 67.60 crores, the assessee provided a list which involved 43 debtors. On perusing the said list, the A.O noticed that the assessee has written off Rs. 11 crores as "preference shares written off". Assessee was asked to justify the same. Assessee filed an explanation stating that it has advanced money to Sanghi Industries Ltd. By way of term loan, it was explained that the preference shares were allotted on private placement basis to the bank in lieu of interest accrued and overdue on such parent term loans. It was further explained that the overdue interest represents money lent in ordinary course of the banking business and if such investment becomes non performing in accordance with the RBI guidelines, it is bad debt covered under section 36(i)(vii) of the Act. It was claimed that this irrecoverable advance in the form of preference shares has been written off.
14 ITA No. 577 & 691/Ahd/2011ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08
14. After considering the submissions made by the assessee, the A.O found that the query related to the preference shares of Rs. 11 crores whereas the assessee has replied for Rs. 6.70 crores. However, the A.O declined to accept the claim of the assessee that write off of preference shares is nothing but bad debt written off. The A.O accordingly made an addition of Rs. 11 crores.
15. When the matter was agitated before the ld. CIT(A), the ld. CIT(A) was of the opinion that the A.O has inadvertently accepted the claim of write off of Rs. 6.70 crores which needs enhancement and accordingly notice for enhancement was issued and served upon the assessee. The assessee strongly supported its claim in the light of the Accounting Standard AS-31. IAS-32 issued by the ICAI and IASB. It was strongly contended that the nature and the substance of the transaction was not understood by the A.O in the right perspective. For the bank, the funds deployment is in the nature of trading assets . The assets under reference have also been shown as current assets. They constitute the rolling inventory for the Bank. It was claimed that even otherwise the assessee was entitled to so treat this deployment to value the same at cost or market value whichever is lower and claim the differential as its business loss. The detailed explanation and the reliance on the Accounting Standard by the assessee did not find any favour with the First Appellate Authority who was of the firm belief that originally the amount might be lending but once the same is converted into shares, it is no longer lending in the ordinary course of banking business, the ld. CIT(A) was of the opinion that the preference shares will remain investment even in substance. The ld. CIT(A) accordingly disallowed the loss claimed by the assessee as 15 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 write off and enhanced the addition of Rs. 6.7 crorers and confirmed the disallowance at Rs. 17.7 crores. Aggrieved by this, the assessee is before us. The ld. counsel for the assessee vehemently reiterated what has been stated before the lower authorities. It is the say of the ld. counsel that the preference shares allotted to the assessee were in lieu of the loans given by the assessee and the assessee, being a bank, is in the business of lending money and as per RBI guidelines, the assessee has valued the shares at Nil and wrote off the amount in its books.
16. For the first time, the ld. counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of UCO Bank 240 ITR 355 claiming that the investments/securities held by a Bank are in the nature of stock in trade and has to be valued as per the norms/guidelines fixed for the valuation of inventories. It is the claim of the ld. counsel that even otherwise, the assessee is entitled to value its securities at Nil when the recoverable value is Zero. It is the contention of the ld. counsel that even otherwise, the assessee is entitled for the claim of write off. Per contra, the ld. D.R. strongly supported the findings of the revenue authorities.
17. We have given a thoughtful consideration to the facts in issues. We have also considered the decision of the Hon'ble Supreme Court in the case of UCO Bank (supra). We find force in the contention of the ld. counsel that as per the ratio laid down by the Hon'ble Supreme Court in the case of UCO Bank (supra), the bank is free to value its inventories "securities" at cost or market price whichever is lower. Since the entire issue of write off has not been looked upon by the lower authorities in this perspective, we, therefore, 16 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 restore the matter to the files of the A.O. The A.O is directed to examine this issue in the light of the ratio laid down by the Hon'ble Supreme Court in the case of UCO Bank (supra) and Banking Regulation Act and decide afresh after giving a reasonable and sufficient opportunity of being heard to the assessee. Ground no. 3 is treated as allowed for statistical purpose.
18. Ground no. 4 relates to the claims not allowed relating to exempt income of Rs. 3606 lakhs, HTM investments-8803 lakhs and Foreign Exchange Fluctuation-6.29 lakhs. We find that these claims were not entertained by the revenue authorities, following the decision of the Hon'ble Supreme Court given in the case of Goetze India Ltd. 284 ITR 323 since the assessee has not made the claim by filing a revised return of income, the claim was denied. However, this issue is no more res integra as it is now a well settled proposition of law that the assessee can make a new claim as held by the Hon'ble High Court of Bombay in the case of Pruthvi Brokers and Shareholders Pvt. Ltd. 349 ITR 336. In the light of the ratio laid down by the Hon'ble Bombay High Court, we restore the entire issue to the files of the A.O. The A.O is directed to decide the claims of the assessee as per the provisions of law; ground no. 4 is treated as allowed for statistical purpose.
19. ITA Nos. 1015 & 1129/Ahd/2011 are cross appeals by the assessee and the revenue for assessment year 2007-08.
ITA No. 1015/Ahd/2011 Assessee's appeal 17 ITA No. 577 & 691/Ahd/2011ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08
20. Ground no. 1 relates to the disallowance of depreciation allowance of Rs. 62.66 lacs on Wind Energy Generators.
21. An identical issue has been considered and decided by us at length in assessee's appeal in ITA No. 577/Ahd/2011. For our detailed discussion thereon, this ground is allowed.
22. Ground no. 2 relates to the disallowance made u/s. 14A of the Act.
23. An identical issue has been considered and decided by us in assessee's appeal for A.Y. 2006-07 in ITA No. 577/Ahd/2011 qua ground no. 2 and additional ground of that appeal. For our detailed discussion therein, this ground is allowed.
24. Ground no. 3 relates to the addition made towards Gain on securitization amortized as per RBI guidelines.
25. The A.O has considered this issue at para 7 on page 14 of his order wherein the Officer made the following observations:-
7.1 On perusal of the significant accounting policies to the financial statement, it is seen that the note on 'securitization1 (Para 4.4) reads as under:
The bank enters into purchase/ sale of corporate and retail loans through direct assignment/ special purpose vehicle (SPV). In most case, post securitization, the bank continues to service the loans transferred to the assignee/ SPV. The bank also provides credit enhancement in the form of cash collaterals and/ or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/ disclosure is made at the time of sale in accordance with AS-29- provisions, contingent liabilities and contingent assets.18 ITA No. 577 & 691/Ahd/2011
ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 Gains on securitization transaction is recognized over the period of the underlying securities issued by the SPV. Loss on securitization is immediately debited to Profit and Loss Account.
7.2.Further, it is seen that 'Notes to account' (Para 5.1.15) reads as under:-
31.03.07 (Rs
in Cr.)
Number of loan accounts securitized 2.00
Book value of loan assets securitized 547.16
Sale consideration received for the securities assets 550.09
Net gain/ loss over net book value 2.93
7.3 The assessee was asked to explain where the above amount of Rs. 2.93 crores has been offered as income in its annual accounts. In this regard, the assessee contended as under:
GAIN ON SECURITIZATION OF ASSET OF RS. 2.93 CRORES AS PER PARA 5.1.15 OF THE AUDITED ACCOUNTS During the hearing held on 10.11.2009, you have requested us to provide explanation that where the net gain of Rs. 2.93 on securitization transactions, as per para 5.1.15 (Page No. 60 of the annual report), has been accounted in the Profit and Loss. In this regard we submit as follows:
For the year under consideration, the Bank has recognized income of Rs. 2,00,28,097 under the head Other Income, (Schedule 14, sub-clause, VII, miscellaneous income) and Rs. 93,13,051 was shown under the head other liabilities and provisions (Schedule 5, sub clause VII, others including provisions). The method of accounting followed in this regard is as per the RBI guidelines.
In terms of the RBI Notification, a copy of which is enclosed for your reference, any loss arising on account of the sale pursuant to securitization proposal should be accounted and charged to the Profit and Loss account for the year during which the sale upon secularization is effected and any profit/premium arising on account of such sale should 19 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 be amortized over the life of the securities issued or to be issued by the SPV (special purpose vehicle).
As per the RBI directives, (Please refer Significant Accounting Policies at Para 4.4 under the head 'Securitisation1, on Page No. 51 of the annual report), gain on securitization is recognized over the period of the underlying securities issued by the SPV and loss on securitization is debited to Profit and Loss account
26. The explanation of the assessee did not find favour with the A.O. who went on to make an addition of Rs. 93,13,051/-. Assessee carried the matter before the ld. CIT(A) and reiterated what has been stated during the course of assessment proceedings. It was strongly contended that what is relevant for Income Tax is real income. It was further brought to the notice of the First Appellate Authority that RBI guidelines are expressly made mandatory for all banks. After considering the facts and the submissions, the ld. CIT(A) was of the opinion since the assessee has sold these impugned assets, therefore, the assessee has no liability whatsoever on these transactions afterwards. Since there is no uncertainty to the income on these transactions there is no question of postponing the income. The ld. CIT(A) confirmed the addition made by the A.O. Before us, the ld. counsel for the assessee once again stated that being a bank it has to mandatorily follow the guidelines issued by the RBI. It is the say of the ld. counsel that it is not the case of the revenue authorities that the assessee has not followed the guidelines of the RBI. Therefore, the action of the A.O and also of the ld. CIT(A) are against the facts of the case. Per contra, the ld. D.R. strongly relied upon the order of the revenue authorities.
20 ITA No. 577 & 691/Ahd/2011ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08
27. Having heard the rival submissions, we have carefully considered the orders of the authorities below. It is a settled proposition of law that what is relevant for Income Tax on the basis is the real income as held by the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. 225 ITR
746. Various High Courts have given due recognition to RBI guidelines which determined the taxation of banks/NBFC. The Hon'ble Uttaranchal High Court in the case of Nainital Bank Ltd. 309 ITR 335, Hon'ble Allahabad High Court in the case of Kailash Auto Finance Ltd. 320 ITR 394 and also Hon'ble High Court of Delhi in the case of Elgi Finance Ltd. 293 ITR 357.
28. In our considered opinion, the amortization merely represents a timing difference and since the bank is consistently making profits and paying tax at the highest rate without claiming any tax holiday benefit, it can be safely concluded that the method followed is revenue neutral. We draw support from the decision of the Hon'ble High Court of Bombay in the case of Nagri Mills Co. Ltd. 33 ITR 681.
29. Considering the facts in totality in the light of the judicial decisions referred to hereinabove, we do not find any merit in the findings of the ld. CIT(A). We accordingly set aside the findings of the ld. CIT(A) and direct the A.O to delete the addition of Rs. 93.13 lacs. Ground no. 3 is accordingly allowed.
30. Ground no. 4 relates to the levy of interest u/s. 234 of the Act. The levy is mandatory though it should be upon the returned income of the assessee. We accordingly direct the A.O. to charge interest as per the provisions of the law 21 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 on the returned income of the assessee. Ground no. 4 is treated as allowed for statistical purpose.
ITA No. 1129/Ahd/2011 Revenue's appeal31. The sole grievance of the revenue relates to the addition made by the A.O u/s. 14A of the Act which has been partly allowed by the ld. CIT(A). This issue has considered at length in assessee's appeal in ITA No. 1015/Ahd/2011 wherein we have followed our detailed decision given in assessee's appeal for A.Y. 2006-07 in ITA No. 577/Ahd/2011. For our detailed reasons given therein, appeal filed by the revenue is dismissed.
ITA No. 250/Ahd/2012 Assessee's appeal for A.Y. 2004-05.32. With this appeal, the assessee has challenged the correctness of the order of the ld. CIT(A)-VI, Ahmedabad dated 28.11.2011 pertaining to A.Y. 2004-
05.
33. The sum and substance of the grievance of the assessee relates to the withdrawal of interest of Rs. 1.60 crores.
34. In the assessment order made u/s. 143 (3) of the Act dated 31.01.2006, the assessee was allowed interest u/s. 244A of the Act which was subsequently withdrawn by the A.O by his order made u/s. 154 of the Act dated 10.06.2010. Assessee carried the matter before the ld. CIT(A) and re- agitated the issue of the withdrawal of interest u/s. 244A and not granting 22 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 proper interest on refund arose on account of TDS credits given in rectification order u/s. 154 of the Act. After considering the facts and the submissions, the ld. CIT(A) held as under:-
2.3 I have considered the facts of the case; rectification order and appellant's written submission. To examine the facts relevant to the issue in detail calculation of interest in various orders passed by AO were referred. It is seen that assessing officer granted interest under section 244A while processing the return under section 143 (1) which was not withdrawn even when assessment under section 143 (3) resulted in substantial demand more than the refund granted. Assessing officer further granted interest while giving appeal effect to the order under section 250. In the order passed under section 154 while giving credit of certain IDS certificates, assessing officer withdrew part of the interest paid under section 244A and granted additional interest on refund worked out on IDS credit given in the order. All these facts show that calculation of interest under section 244A is not properly done by the assessing officer. It is possible that AO has not withdrawn correct interest U/S.244A. Assessing officer is therefore directed to work out interest under section 244A on the basis of the assessed total income in latest order correctly on the basis of the provisions of the act.
35. Aggrieved by this, the assessee is before us. Ld. counsel for the assessee drew our attention to the decision of the Hon'ble High Court of Bombay in the case of Larsen and Toubro Ltd. 330 ITR 340 and stated that interest u/s.
244A cannot be denied. Per contra, the ld. D.R. could not bring any distinguishing decision in favour of the revenue.
36. We have given a thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld.counsel, the assessee is entitled for the interest u/s. 244A of the Act as per the provisions of the law. If the refund was not delayed for reasons attributable to the assessee. We, 23 ITA No. 577 & 691/Ahd/2011 ITA Nos. 1015 & 1129/Ahd/11 & 250/Ahd/12 . A.Ys. 2004-05, 2006-07 & 2007-08 therefore restore this issue to the files of the A.O. The A.O is directed to re- compute the refund allowable to the assessee after giving appeal effect and allow interest u/s. 244A of the Act. If it is found that the delay is not attributable to the assessee.
37. In the result, the appeal filed by the assessee is treated as allowed for statistical purpose.
Order pronounced in Open Court on 15 - 03 - 2016
Sd/- Sd/-
(KUL BHARAT) (N. K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad