Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 9397 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 11 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-01-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
19-01-2017
Assessment Year
2008-2009
Appeal Filed On
30-01-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 251/AHD/2012 (ASSESSMENT YEAR: 2008-09) AXIS BANK LIMITED (ERSTWHILE KNOWS AS UTI BANK LTD.) TRISHUL, OPP. SAMTHESHWAR MAHADEV NEAR LAW GARDEN, ELLISBRIDGE, AHMEDABAD-380006 V/S ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACU2414K APPELLANT BY : SHRI ARVIND SONDE, AR RESPONDENT BY : SHRI R. I. PATEL, CIT/ D.R. ( )/ ORDER DATE OF HEARING : 19 -01-201 7 DATE OF PRONOUNCEMENT : 24 -01-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF LD. CIT(A)-6, AHMEDABAD DATED 01.12.2011 PERTAINING TO A.Y. 2008- 09. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 2 2. REPRESENTATIVES OF BOTH SIDES WERE HEARD AT LENGTH. ORDERS OF THE AUTHORITIES BELOW WERE CAREFULLY PERUSED AND WITH T HE ASSISTANCE OF THE LD. COUNSEL, THE RELEVANT DOCUMENTARY EVIDENCES WERE CO NSIDERED IN THE LIGHT OF RULE 18(6) OF THE ITAT RULES. 3. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF DEPRECI ATION ON WIND ENERGY GENERATORS AMOUNTING TO RS. 12,53,376/-. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS ENTERED INTO AN OPERATING LEA SE AGREEMENT DURING F.Y. 2003-04 FOR 30 WEGS. OUT OF THESE, 27 WEGS WER E PUT TO USE DURING THE F.Y. 2003-04 AND THE REMAINING 3 WEGS WERE PUT TO USE DURING THE F.Y. 2004-05. 5. TAKING A LEAF OUT OF THE ASSESSMENT FOR A.YS. 2005- 06, 2006-07 & 2007-08 AND DERIVING SUPPORT FROM THE ORDER OF THE FIRST AP PELLATE AUTHORITY FOR A.Y. 2005-06. THE A.O. DISALLOWED RS. 12,53,376/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS AS THE LD. CIT(A) FOLLOWED THE ORDER OF HIS PREDECESSO R. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE IN THE EARLIER ASSESSMENT YEARS. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 3 8. AFTER PERUSING THE ORDER OF THE TRIBUNAL, WE FIND F ORCE IN THE CONTENTION OF THE LD. COUNSEL. THE CO-ORDINATE BENCH IN ITA NOS. 1015 & 1129/AHD/2011 AND 250/AHD/2012 FOR ASSESSMENT YEARS 2004-05, 2006 -07 & 2007-08 HAD CONSIDERED A SIMILAR ISSUE QUA GROUND NO. 1 OF THAT APPEAL. THE RELEVANT FINDINGS READ AS UNDER:- GROUND NO. 1 RELATES TO THE CLAIM OF DEPRECIATION O F 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 A SSESSMENT 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. CIT(A). THE CIT(A) ALSO FOLLOWED THE FINDINGS OF HIS PREDECESSOR AND DISMIS SED ASSESSEES APPEAL. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT THE ISSUE IS NO MORE RES INTEGRA IN SO FAR AS THE ASSESSEE IS CONCERNED BECA USE THE TRIBUNAL HAS ALLOWED THE CLAIM OF DEPRECIATION IN ASSESSEES OWN CASE IN 02-03, 04-05 & 05-06. PER CONTRA, THE LD. D.R. STRONGLY OBJECTING TO THE CLAI M OF THE LD. COUNSEL STRONGLY RELIED UPON THE DECISION OF THE TRIBUNAL SPECIAL BE NCH IN THE CASE OF INDUSIND BANK 19 TAXMAN.COM 173. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND THE FACTS IN ISSUES. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL; TH IS ISSUE HAS BEEN CONSIDERED AT LENGTH BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A. Y. 02-03, 04-05 & 05-06. THE FACTS CONSIDERED BY THE TRIBUNAL IN ITA NOS. 152/AH D/06, 815/AHD/07 & 4387/AHD/07 AT PARA 24 AND THE FINDINGS THEREOF REA D AS UNDER:- 24. BEFORE US, THE LEARNED A.R. AT THE OUTSET SUBMI TTED 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 H ON. APEX COURT, THE MUMBAI TRIBUNAL ON IDENTICAL FACTS IN THE CASE OF DEVELOPM ENT CREDIT BANK LTD. VS. DCIT ITA NO. 300/AHD/2001 AND 4892/AHD/2003 HAS DECIDED THE ISSUE IN ASSESSEES FAVOUR. HE PLACED ON RECORD THE COPY OF THE AFORES AID DECISIONS AT PAGE 379 TO 461. THE LEARNED A.R. FURTHER SUBMITTED THAT THE AS SESSEE 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 ITA NO. 251/ AHD/2012 . A.Y. 2008-09 4 THE ASSESSEE IS ALSO DISCLOSED IN ITS PROFIT AND LO SS ACCOUNT. HE POINTED OUT TO SCHEDULE 14 OF OTHER INCOME FORMING PART OF PROFI T AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2002, PLACED AT PAGE 326 OF THE PAPER BOOK. HE ALSO PLACED ON RECORD THE COMPARISON OR LEASE TRANSACTIO NS ENTERED BY THE ASSESSEE WITH FEATURES OF OWNERSHIP AS PER THE TEST LAID DOW N BY THE SUPREME COURT IN THE CASE OF ICDS LTD. (SUPRA). HE THUS URGED THAT THE A DDITION 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 TH E AO HAS CONSIDERED THE LEASE ENTERED BY THE ASSESSEE TO BE A FINANCE LEASE TO AR RIVE AT THE CONCLUSION THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION. WE FIND T HAT THE ISSUE OF DEPRECIATION ON LEASED ASSETS HAS BEEN DECIDED BY HONOURABLE APEX C OURT IN THE CASE OF ICDS LTD (SUPRA). ONE OF THE QUESTION BEFORE THE HON. SUPREM E COURT WAS WHETHER THE ASSESSEE IS ENTITLED TO DEPRECIATION VEHICLES FINAN CE 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 AC T, 1961, READS THAT THE ASSET MUST BE 'OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE A ND USED FOR THE PURPOSES OF THE BUSINESS'. THEREFORE, IT IMPOSES A TWIN REQUIREM ENT OF 'OWNERSHIP' AND 'USAGE FOR BUSINESS' FOR A SUCCESSFUL CLAIM UNDER SEC TION 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 BUSINES S OF THE ASSESSEE, THE REQUIREMENT OF SECTION 32 WILL STAND SATISFIED, NOT WITHSTANDING NON-USAGE OF THE ASSET ITSELF BY THE ASSESSEE. THE DEFINITIONS OF 'OWNERSHIP' ESSENTIALLY MAKE OWNER SHIP A FUNCTION OF LEGAL RIGHT OR TITLE AGAINST THE REST OF THE WORLD. HOWEV ER, IT IS 'NOMEN GENERA- LISSIMUM', AND ITS MEANING IS TO BE GATHERED FROM T HE CONNECTION IN WHICH IT IS USED, AND FROM THE SUBJECT-MATTER TO WHICH IT IS AP PLIED. AS LONG AS THE ASSESSEE HAS A RIGHT TO RETAIN THE LEGAL TITLE AGAINST THE R EST OF THE WORLD, IT WOULD BE THE OWNER OF THE ASSET IN THE EYES OF LAW. HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, (I) T HAT THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT THE TRUCKS THAT IT PURCHAS ED. THEREFORE, ON A COMBINED READING OF SECTION 2(13) AND (24) OF THE ACT THE IN COME DERIVED FROM LEASING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERI VED IN THE COURSE OF BUSINESS, AND HAD BEEN SO ASSESSED. HENCE, IT FULFILLED THE R EQUIREMENT OF SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE COURSE OF B USINESS. THE ASSESSEE DID USE ITA NO. 251/ AHD/2012 . A.Y. 2008-09 5 THE VEHICLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT THE TRUCKS THEMSELVES WERE NOT USED BY THE ASSESSEE WAS IRRELE VANT FOR THE PURPOSE OF THE SECTION. 26. THE CASE OF DEVELOPMENT CREDIT BANK LTD. THE IS SUE BEFORE MUMBAI TRIBUNAL WAS WITH RESPECT TO DEPRECIATION ON ASSETS GIVEN ON LEASE. THE CO- ORDINATE BENCH OF TRIBUNAL DECIDED THE ISSUE IN FAV OUR OF ASSESSEE BY HOLDING AS UNDER: 28 WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D WE ARE OF THE VIEW THAT CROSS APPEALS ON THE ISSUE OF ALLOWANCE OF DEPRECIA TION IN THE CURRENT YEAR HAVE TO BE DECIDED SIMULTANEOUSLY. IN SO FAR AS DISALLOW ANCE OF DEPRECIATION ON THE ASSETS INVOLVED IN SLB TRANSACTIONS, THE ISSUE STAN DS 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, C OPIES OF INSURANCE COVER ETC., WHICH, IN OUR CONSIDERED OPINION, WAS IDENTICAL CIR CUMSTANCE, WHICH WAS BEFORE THE HON'BLE DELHI HIGH COURT IN THE CASE OF COSMO F ILMS (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 (SUP RA), AND MORE IMPORTANTLY, THAT, THAT CASE ALSO PERTAINE D 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 BE FORE 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, IMPLIE DLY, 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 GENUINE NESS 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 I N PARTICULAR THE ISSUE OF OWNERSHIP OF ASSET, ALSO HAS BEEN LAID TO REST BY T HE 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 APPE LLANT (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 P ARA 28, FROM A PERUSAL OF THE LEASE AGREEMENT AND OTHER RELATED FACTORS, AS D ISCUSSED ABOVE, WE ARE SATISFIED OF THE ASSESSEES OWNERSHIP OF THE TRUCKS IN QUESTION (PARA28, PAGE28). ITA NO. 251/ AHD/2012 . A.Y. 2008-09 6 32. COMING TO THE ISSUE OF FINANCE LEASE, WHEREIN THE CIT(A) SUSTAINED THE DISALLOWANCE BECAUSE THE USAGE OF THE EQUIPMENT LEA SE OUT COULD NOT BE SUBSTANTIATED. ON GOING THROUGH THE DECISION OF TH E 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 COU RT 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 I N THAT CASE, SO FAR AS LESSOR IS CONCERNED, THE ASSET HAS BEEN USED. 34. AFTER HAVING EXAMINED ALL THE TRANSACTIONS WHI CH 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 ASSESSEES APPEAL AND DISMISS BOTH THE GR OUNDS OF THE DEPARTMENTS APPEAL. 27. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE V IEW THAT IN VIEW OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF ICDS (SUPRA) A ND THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD , ASSESSEE IS ELIGIBLE FOR DEPRECIATION AND WE THUS DELETE THE ADDITION MADE B Y 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 FINDI NGS OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION AND DELET E THE ADDITION MADE BY THE A.O AND CONFIRMED BY THE LD. CIT(A). GROUND NO. 1 IS AC CORDINGLY ALLOWED. 9. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT ON R ECORD BEFORE US, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 12,53,376/-. GR OUND NO. IS ALLOWED. 10. GROUND NO. 2 RELATES TO THE DISALLOWANCE MADE U/S. 14A R.W.R 8D AT RS. 29,35,41,415/-. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 7 11. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 30,19,15,390/-. THE A.O. FOUND THAT THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS. 63,8 4,525/- BUT THE SAME WAS MADE UNDER PROTEST. IT WOULD NOT BE OUT OF PLAC E THAT VIDE AN ADDITIONAL GROUND THE ASSESSEE HAS ALSO CHALLENGED THE SUO MOTO DISALLOWANCE MADE BY IT. 12. THE A.O. WAS OF THE FIRM BELIEF THAT THE DISALLOWAN CE HAS TO BE MADE AS PER THE PROVISIONS OF SECTION 14A R.W.R 8D. AFTER CONSI DERING THE RELEVANT FIGURES FOR THE YEAR UNDER CONSIDERATION, THE A.O. WORKED OUT THE DISALLOWANCE U/S. 14A R.W.R 8D AS UNDER:- (A) INTEREST EXPENSES RS. 44,19,96,16,765/- (B) AVERAGE VALUE OF INVESTMENT RS. 5,62,1 ,942,148/- (C) AVERAGE ASSETS RS. 914,17,53,21,422/- AMOUNT TO BE DISALLOWED = (A*B)/C= 0.5% OF AVERAGE VALUE OF INVESTMENT = 27,18,16,229 + 2,81,09,711 = RS. 29,99,25,940/- LESS: DISALLOWED IN COMPUTATION = RS. 63,84,525/- FURTHER DISALLOWANCE U/S. 14A = RS. 29,35,41 ,415/- 13. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE A.O. HAS COMPUTED THE DISALLOWANCE WHICH IS MAINLY ON AC COUNT OF INTEREST ITA NO. 251/ AHD/2012 . A.Y. 2008-09 8 EXPENSES. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING TAX FREE INVESTMENT , THEREFORE, THERE IS NO QUESTION OF CONSIDERING INTEREST EXPENSES FOR THE C OMPUTATION OF THE IMPUGNED DISALLOWANCE. PER CONTRA, THE LD. D.R. ST RONGLY SUPPORTED THE FINDINGS OF THE A.O. AND ALSO OBJECTED TO THE ADDIT IONAL GROUND RAISED BY THE ASSESSEE FOR THE DELETION OF SUO MOTO DISALLOWANCE OF RS. 63,84,525/-. 15. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACT S 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 FR EE RESERVES ARE AT RS. 8411 CRORES TOTALING TO RS. 8051 CRORES. AGAINST THIS, W E FIND THAT THE TAX FREE INVESTMENT AT RS. 651 CRORES. THUS, IT CAN BE SAFEL Y CONCLUDED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS TO MAKE TH E TAX FREE INVESTMENT. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF REL IANCE UTILITIES AND POWER LTD. 313 ITR 340 HAS HELD THAT IF THERE ARE M IXED FUNDS THEN THE PRESUMPTION WOULD BE THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS. THIS RATIO OF THE HONBLE HIGH COURT OF BOMBAY WAS SUBSEQUENTLY FOLLOWED IN THE CASE OF HDFC LTD. 266 ITR 505. AS MENTIONED ELSEWHERE, THE ASSESSEE WAS HAVING SUFFICIENT OWN F UNDS TO MEET OUT THE TAX FREE INVESTMENT. DRAWING SUPPORT FROM THE DECIS ION OF THE HONBLE HIGH COURT OF BOMBAY (SUPRA), WE DO NOT FIND ANY MERIT I N CONSIDERING THE INTEREST EXPENSES FOR THE COMPUTATION OF DISALLOWAN CE U/S. 14A OF THE ACT. TO THIS EXTENT, WE SET ASIDE THE FINDINGS OF THE LD . CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 29,35,41,415/-. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 9 16. HOWEVER, IN OUR CONSIDERED OPINION, ADMINISTRATIVE EXPENSES NEED TO BE DISALLOWED AND SINCE THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS. 63,84,525/-, IN OUR CONSIDERED OPINION, THIS SHOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, CONFIRMED THE SUO MOTO DISALLOWANC E OF RS. 63,84,525/-. GROUND NO. 2 IS ACCORDINGLY DISMISSED AND THE ADDIT IONAL GROUND RAISED BY THE ASSESSEE IS ALSO DISMISSED. 17. GROUND NO. 3 RELATES TO THE SECURITIZATION GAINS OF RS. 3,16,64,200/- AMORTISED AS PER RBI GUIDELINES AND NON-ALLOWANCE O F SUCH REALIZED GAINS OF RS. 86,29,309/-. 18. THE A.O. HAS CONSIDERED THIS ISSUE AT PARA 6 ON PAG E 5 OF ITS ORDER AND HAS FOLLOWED THE FINDINGS GIVEN IN THE IMMEDIATE PRECED ING ASSESSMENT YEAR 2007-08. 19. WE FIND THAT IN EARLIER ASSESSMENT YEAR, THIS DISPU TE TRAVELLED UP TO THE TRIBUNAL AND THE TRIBUNAL HAS CONSIDERED THE SAME I N ITA NOS. 1015 & 1219/AHD/2011 AND 250/AHD/2012. THE RELEVANT FINDIN GS OF THE CO- ORDINATE BENCH READS AS UNDER:- 24. GROUND NO. 3 RELATES TO THE ADDITION MADE TOWA RDS 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 T O THE FINANCIAL STATEMENT, IT IS SEEN THAT THE NOTE ON 'SECURITIZATION 1 (PARA 4.4) READS AS UNDER: THE BANK ENTERS INTO PURCHASE/ SALE OF CORPORATE AN D RETAIL LOANS THROUGH DIRECT ASSIGNMENT/ SPECIAL PURPOSE VEHICLE (SPV). IN MOST CASE, POST S ECURITIZATION, THE BANK CONTINUES TO SERVICE THE LOANS TRANSFERRED TO THE ASSIGNEE/ SPV. THE BANK AL SO PROVIDES CREDIT ENHANCEMENT IN THE FORM OF ITA NO. 251/ AHD/2012 . A.Y. 2008-09 10 CASH COLLATERALS AND/ OR BY SUBORDINATION OF CASH F LOWS TO SENIOR PASS THROUGH CERTIFICATE (PTC) HOLDERS. IN RESPECT OF CREDIT ENHANCEMENTS PROVIDED OR RECOURSE OBLIGATIONS (PROJECTED DELINQUENCIES, FUTURE SERVICING ETC.) ACCEPTED BY T HE BANK, APPROPRIATE PROVISION/ DISCLOSURE IS MADE AT THE TIME OF SALE IN ACCORDANCE WITH AS-29- PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS. GAINS ON SECURITIZATION TRANSACTION IS RECOGNIZED O VER THE PERIOD OF THE UNDERLYING SECURITIES ISSUED BY THE SPV. LOSS ON SECURITIZATION IS IMMEDI ATELY DEBITED TO PROFIT AND LOSS ACCOUNT. 7.2.FURTHER, IT IS SEEN THAT 'NOTES TO ACCOUNT' (PA RA 5.1.15) READS AS UNDER:- 31.03.07 (RS IN CR.) NUMBER O F LOAN ACCOUNTS SECURITIZED 2.00 BOOK VALUE OF LOAN ASSETS SECURITIZED 547.16 SALE CONSIDERATION RECEIVED FOR THE SECURITIES ASSE TS 550.09 NET GAIN/ LOSS OVER NET BOOK VALUE 2.93 7.3 THE ASSESSEE WAS ASKED TO EXPLAIN WHERE THE ABO VE AMOUNT OF RS. 2.93 CRORES HAS BEEN OFFERED AS INCOME IN ITS ANNUAL ACCOUNTS. IN THIS R EGARD, 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 REQ UESTED US TO PROVIDE EXPLANATION THAT WHERE THE NET GAIN OF RS. 2.93 ON SECURITIZATION TRANSACT IONS, AS PER PARA 5.1.15 (PAGE NO. 60 OF THE ANNUAL REPORT), HAS BEEN ACCOUNTED IN THE PROFIT AN D LOSS. IN THIS REGARD WE SUBMIT AS FOLLOWS: FOR THE YEAR UNDER CONSIDERATION, THE BANK HAS RECO GNIZED INCOME OF RS. 2,00,28,097 UNDER THE HEAD OTHER INCOME, (SCHEDULE 14, SUB-CLAUSE, VII, M ISCELLANEOUS INCOME) AND RS. 93,13,051 WAS SHOWN UNDER THE HEAD OTHER LIABILITIES AND PROVISIO NS (SCHEDULE 5, SUB CLAUSE VII, OTHERS INCLUDING PROVISIONS). THE METHOD OF ACCOUNTING FOLLOWED IN T HIS REGARD IS AS PER THE RBI GUIDELINES. IN TERMS OF THE RBI NOTIFICATION, A COPY OF WHICH I S ENCLOSED FOR YOUR REFERENCE, ANY LOSS ARISING ON ACCOUNT OF THE SALE PURSUANT TO SECURITIZATION PROP OSAL SHOULD BE ACCOUNTED AND CHARGED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR DURING WHICH T HE SALE UPON SECULARIZATION IS EFFECTED AND ANY PROFIT/PREMIUM ARISING ON ACCOUNT OF SUCH SALE SHOU LD 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 SIGNIFICAN T ACCOUNTING POLICIES AT PARA 4.4 UNDER THE HEAD 'SECURITISATION 1 , ON PAGE NO. 51 OF THE ANNUAL REPORT), GAIN ON SEC URITIZATION IS RECOGNIZED OVER THE ITA NO. 251/ AHD/2012 . A.Y. 2008-09 11 PERIOD OF THE UNDERLYING SECURITIES ISSUED BY THE S PV AND LOSS ON SECURITIZATION IS DEBITED TO PROFIT AND LOSS ACCOUNT. 26. THE EXPLANATION OF THE ASSESSEE DID NOT FIND F AVOUR WITH THE A.O. WHO WENT ON TO MAKE AN ADDITION OF RS. 93,13,051/-. ASSESSEE CARRIED THE M ATTER BEFORE THE LD. CIT(A) AND REITERATED WHAT HAS BEEN STATED DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. 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 EXPRESS LY 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 UNCERTAI NTY 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 AG AIN 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 T HE CASE OF THE REVENUE AUTHORITIES THAT THE ASSESSEE H AS 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. 27. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CA REFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. IT IS A SETTLED PROPOSITION OF L AW THAT WHAT IS RELEVANT FOR INCOME TAX ON THE BASIS IS THE REAL INCOME AS HELD BY THE HONBLE SUP REME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. 225 ITR 746. VARIOUS HIGH COURTS HAVE GIVEN DU E RECOGNITION TO RBI GUIDELINES WHICH DETERMINED THE TAXATION OF BANKS/NBFC. THE HONBLE UTTARANCHAL HIGH COURT IN THE CASE OF NAINITAL BANK LTD. 309 ITR 335, HONBLE ALLAHABAD HIGH COURT IN THE CASE OF KAILASH AUTO FINANCE LTD. 320 ITR 394 AND ALSO HONBLE HIGH COURT OF DEL HI IN THE CASE OF ELGI FINANCE LTD. 293 ITR 357. 28. IN OUR CONSIDERED OPINION, THE AMORTIZATION ME RELY 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 THA T THE METHOD FOLLOWED IS REVENUE NEUTRAL. WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE 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 ADD ITION OF RS. 93.13 LACS. GROUND NO. 3 IS ACCORDINGLY ALLOWED. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 12 20. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT TO O UR NOTICE, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH (SU PRA), WE DIRECT THE A.O. TO DELETE THE IMPUGNED DISALLOWANCE/ADDITIONS. GROU ND NO. 3 IS ACCORDINGLY ALLOWED. 21. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF BAD DEB TS AMOUNTING TO RS. 16,02,273/-. 22. THE A.O. HAS CONSIDERED THIS ISSUE AT PARA 7 ON PAG E 9 OF ITS ORDER WHEREIN HE HAS OBSERVED THAT THE ASSESSEE HAS WRITTEN OFF A SUM OF RS. 16,02,273/- TOWARDS NON-CONVERTIBLE DEBENTURES OF M/S.RVK ENERG Y PVT. LTD. THE A.O. WAS OF THE FIRM BELIEF THAT SINCE THE AMOUNT WRITTE N OFF IS NOT ON ACCOUNT OF A TRADING TRANSACTION, IT CANNOT BE ALLOWED AS A BA D DEBT U/S. 36(1)(VII) OF THE ACT AS IT IS NOT A DEBT AT ALL. THE A.O. DISALL OWED THE CLAIM OF THE ASSESSEE. 23. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 24. BEFORE US, LD. COUNSEL FOR THE ASSESSEE DREW OUR AT TENTION TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN 152/AHD/2006 , 815/AHD/2007 AND 4387/AHD/2007 FOR A.Y. 2002-03, 2001-02 & 2003-04 A ND POINTED OUT THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 13 25. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL AT PARA 30 OF ITS ORDER AND THE SAME READS AS UNDER:- GROUND NO. 3 IS WITH RESPECT TO DISALLOWANCE OF RS. 8.6 CRORE WRITE OFF IN RESPECT OF INVESTMENT. 30. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT INVESTMENTS WORTH RS. 8.64 CRORES HAVE BEEN WRITTEN OFF AND HAS BEEN CLAIMED AS BAD DEBTS WRITTEN OFF. ON PERUSING THE SUBMISSIONS MADE BY TH E ASSESSEE, AO NOTICED THAT ASSESSEE IN ADDITION TO SANCTIONING LOAN HAD ALSO I NVESTED IN NON CONVERTIBLE DEBENTURES OF THE COMPANY. ON ACCOUNT OF THE FAILUR E OF THE BORROWER TO REPAY THE LOAN, THE LOAN HAD TURNED BAD AND ACCORDINGLY, THE ASSESSEE HAD WRITTEN OFF THE LOANS ALONG WITH THE INVESTMENT. AO WAS OF THE VIEW THAT THE ALLOWABILITY OF WRITING OFF OF DEBTS UNDER SECTION 36(1)(VII) CANNO T BE EQUATED WITH WRITING OFF OF INVESTMENTS AND THEREFORE THE INVESTMENTS CANNOT BE WRITTEN OFF AS BAD DEBTS. HE WAS FURTHER OF THE VIEW THAT PROFIT OR LOSS FROM INVESTMENT HAVE TO BE COMPUTED AS PROVIDED UNDER SECTIONS 45 TO 55 OF THE ACT FOR THE COMPUTATION OF INCOME OR LOSS. FOR COMPUTATION OF INCOME OR LOSS T HERE HAS TO BE TRANSFER UNDER SECTION 2 (47) WHICH HAD NOT OCCURRED IN THE PRESEN T CASE AND THEREFORE THE SAME CANNOT BE ALLOWED U/S 36. AO WAS THEREFORE OF THE V IEW THAT THE INSTRUMENT WHICH THE ASSESSEE HAD INVESTED WERE IN THE NATURE OF INVESTMENT AND NOT A LOAN FOR THE PURPOSE OF DEDUCTION AS BAD DEBTS U/S 36(1) (VII). HE ACCORDINGLY CONSIDERED THE AMOUNT WRITTEN OFF OF RS 8.64 CRORE AS CAPITAL LOSS AND DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER: 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT ALONG WITH THE CASE LA WS RELIED UPON. I AM INCLINED TO AGREE WITH THE APPELLANTS VIEWS. NON-C ONVERTIBLE DEBENTURES ARE IN THE TYPE OF ADVANCING FUNDS TO VARIOUS COMPA NIES AND THE INCOME ITA NO. 251/ AHD/2012 . A.Y. 2008-09 14 WHICH IS TAKEN AS INTEREST AND ASSESSABLE AS BUSINE SS INCOME. FOR THE BANKS, GIVING OF LOANS IS PART OF ITS BUSINESS AND ANY BAD DEBT ARISING THEREIN IS COVERED U/S 36(L)(VII) AS BAD DEBT, WHET HER IT IS LOAN OR NON- CONVERTIBLE DEBENTURES. AS PER THE DECISION OF SUPR EME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD., MERE DESCRIPTION B OOK DOES NOT DECIDE THE NATURE OF TRANSACTION, BUT IT SHOULD BE INDEPEN DENTLY DECIDED, RELYING ON THE BOARD'S CIRCULAR AND VARIOUS CASE LAWS CITED BY APPELLANT, IT IS HELD THAT THE LOSS ARISING ON WRITING OFF THIS IS PART O F BAD DEBT AND IS ALLOWABLE. HENCE, THIS GROUND OF THE APPELLANT IS D ECIDED IN FAVOUR OF THE APPELLANT. 31. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 32. BEFORE US, THE LEARNED D.R. RELIED ON THE ORDE R OF ASSESSING OFFICER. ON THE OTHER HAND THE LEARNED A.R. SUBMITTED THAT GIVING O F LOANS WAS A PART OF BUSINESS AND THE DEPLOYMENT OF FUNDS IN DEBENTURES CONSTITUT ES ONE OF THE MODES OF ADVANCING LOANS IN THE ORDINARY COURSE OF BUSINESS AND THE INVESTMENTS IN DEBENTURES WAS AS PER THE PROVISIONS OF SECTION 6 O F BANKING REGULATION ACT, 1949. THE LEARNED A.R. FURTHER SUBMITTED THAT THE I NCOME FROM DEBENTURES HAS BEEN OFFERED FOR TAX AND IS TREATED AS BUSINESS INC OME. HE THUS SUPPORTED THE ORDER OF CIT(A). 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT G IVING OF LOANS WHETHER IN THE FORM OF LOAN OR NON CONVERTIBLE DEBENTURES IS THE P ART OF THE BUSINESS AND RELYING ON THE DECISION OF SUPREME COURT IN THE CASE OF KED ARNATH JUTE MANUFACTURING COMPANY LIMITED VS. CIT 82 ITR 363 HELD IT TO BE CO VERED UNDER SECTION 36(1)(VII). HE ALSO RELIED ON THE BOARD CIRCULAR. BEFORE US, TH E REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY BRINGING ANY CONTRARY MAT ERIAL ON RECORD. IN VIEW OF THE AFORESAID FACTS WE FIND NO INFIRMITY IN THE ORDER O F CIT(A) AND THUS THIS GROUND OF THE REVENUE IS DISMISSED. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 15 26. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED DISALLOWANCE OF RS. 16,02,273/-. GROUND NO. 4 IS A LLOWED. 27. GROUND NO. 5 RELATES TO THE DISALLOWANCE OF EXPENDI TURE ON ADVERTISEMENT AND PUBLICITY TO CHANGE THE BANKS NAME FROM UTI BA NK TO AXIS BANK. 28. ON PERUSAL OF THE ANNUAL ACCOUNTS OF THE ASSESSEE R EAD WITH THE DIRECTORS REPORT, THE A.O. WAS OF THE OPINION THAT SIGNIFICAN T AMOUNT OF EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR THE NEW BRAND. THE ASSESSEE WAS ASKED TO PROVIDE THE DETAILS AND EXPLAIN THE ALLOWABILITY OF THE SAME AS REVENUE EXPENDITURE. THE ASSESSEE REPLIED AS UNDER:- THE REBRANDING EXPENDITURES HAVE BEEN INCURRED NOT WITH A VIEW TO BRING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR ENDURING BENEFI T FOR THE BANK'S BUSINESS. THE OBJECT OF INCURRING SUCH EXPENDITURES WAS NOT TO AC QUIRE A CAPITAL ASSET BUT IT WAS COMMERCIALLY NECESSARY TO INCUR SUCH EXPENDITURES T O FACILITATE THE BANK'S ONGOING BUSINESS. THE QUESTION WHETHER THE EXPENDIT URES ON ACCOUNT OF CAPITAL OR REVENUE MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY AND WOULD DEPEND EFFECTIVELY ON PRACTICA L AND BUSINESS POINT OF VIEW RATHER THAN UPON JURISTIC CLASSIFICATION OR LEGAL R IGHTS. THESE EXPENDITURES HAVE TO BE INCURRED BY THE BANK TODAY OR TOMORROW AND THE B ANK THOUGHT IT FIT TO REBRAND THE NAME AROUND 1 ST APRIL, 2008 WHICH WAS THE CUT-OFF DATE STIPULATED BY THE TRANSFER AGREEMENT BETWEEN GOVERNMENT OF INDIA AND UTI AMC, (BEING OWNER OF THE BRAND UTI) DATED 15 TH JANUARY, 2003. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 16 29. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE A. O. FOUND THAT THE ASSESSEE HAS CLAIMED REVENUE EXPENDITURE AMOUNTING TO RS.13,62, 26,722/- THE DETAILS OF WHICH ARE AS UNDER:- I. ADVERTISEMENT AND PUBLICITY EXPENSES INCLUDE RS.13, 59,85,887/-ON ACCOUNT OF THE RE- BRANDING EXERCISE. SR. NO. NATURE OF EXPENSES AMOUNT / (IN CRORES) 1. CONSULTANCY FEES PAID FOR DESIGNING THE AXIS LOGO 0.74 2. ADVERTISEMENT &. PUBLICITY ON TELEVISION 5.46 3. ADVERTISEMENT &. PUBLICITY IN PRINT MEDIA 2.50 4. OUT OF HOME ADVERTISEMENT (HOARDINGS, BILLBOARD ETC) 4.35 5. ADVERTISEMENT &. PUBLICITY ON RADIO 0.29 6. ONLINE ADVERTISEMENT &. PUBLICITY EXPENSES 0.25 TOTAL 13.59 II. LEGAL EXPENSES: RS. 1.96 LACS WAS PAID TOWARDS REGI STRATION OF TRADEMARK AND OTHER LEGAL EXPENSES. III. ROC EXPENSES: RS. 2,500/- WAS PAID TO REGISTRAR OF COMPANIES FOR CHANGING OF BANK NAME. IV. FEES PAID BY THE OVERSEAS BRANCHES IN RELATION TO T HE NAME CHANGE OF THE BANK IN F.Y. 2007-2008 WAS RS. 41,835/- ITA NO. 251/ AHD/2012 . A.Y. 2008-09 17 30. THE A.O. WAS OF THE FIRM BELIEF THAT NEW BRAND NAME AXIS BANK WOULD GIVE THE ASSESSEE TO A NEW IDENTITY IN THE MARKET WHICH HAS SEPARATE CAPITAL VALUE. THE A.O. CONCLUDED BY HOLDING THAT THE EXPEN DITURE CANNOT BE CONSIDERED AS REVENUE IN NATURE AND ACCORDINGLY DIS ALLOWED RS. 13,62,26,722/-. 31. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 32. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE LOWER AUTHORITIES HAVE GROSSLY ERRED IN APPRECIATIN G THE FACTS IN TRUE PERSPECTIVE. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS CHANGED ITS NAME FROM UTI BANK TO AXIS BANK AND NO NEW IDENTITY HAS COME INTO EXISTENCE, THE ASSESSEE WAS INTO BANKING BUSINESS S INCE PAST MANY YEARS. THOUGH IN THE NAME OF UTI BANK BUT SINCE THE NAME H AS BEEN CHANGED TO AXIS BANK, THE ASSESSEE HAS INCURRED ROUTINE ADVERT ISEMENT EXPENDITURE/EXPENDITURE ON SIGNBOARD ETC. WHICH ARE OF REVENUE IN NATURE AND SHOULD BE ALLOWED ACCORDINGLY. PER CONTRA, THE LD D.R. SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. IT IS THE SAY OF THE LD. D.R. THAT THE ASSESSEE HAS BUILT A NEW IDENTITY AND INCURRED HEAV Y EXPENDITURE WHICH WILL HAVE ENDURING BENEFIT AND, THEREFORE, THE SAME CANN OT BE CONSIDERED AS REVENUE EXPENDITURE. 33. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW AND HAVE CAREFULLY CONSIDERED THE FACTS IN IS SUE. IT IS TRUE THAT THE IMPUGNED EXPENDITURE WAS INCURRED ONLY ONCE AND FOR ALL AND BY BRINGING ITA NO. 251/ AHD/2012 . A.Y. 2008-09 18 PUBLIC AWARENESS TO THE CHANGE IN THE NAME OF THE B ANK FROM UTI BANK TO AXIS BANK. BUT AT THE SAME TIME, IT CANNOT BE SAID THAT IT HAS BROUGHT INTO EXISTENCE AN ADVANTAGE FOR THE ENDURING BENEFIT. 34. EVERY EXPENDITURES INCURRED BY A BUSINESS CONCERN F OR THE PURPOSE OF ITS BUSINESS IS BOUND TO RESULT IN SOME BENEFIT TO ITS BUSINESS AND, THE MERE FACT, THAT THE BENEFIT IS NOT CONFINED TO ONE YEAR, DOES NOT TO OUR MIND MEAN THAT IT IS OF CAPITAL IN NATURE. IT IS NOT A C ASE WHERE AN ASSESSEE HAD STARTED A NEW LINE OF BUSINESS OR ACQUIRED NEW PREM ISES OR PURCHASED OTHER ASSETS WHICH COULD BE INCLUDED AS AN ASSET. IT IS M ERELY BECAUSE WHERE FOR THE PURPOSE OF BRINGING PUBLIC AWARENESS, THE IMPUG NED EXPENDITURES WERE INCURRED. IT CANNOT BE SAID THAT AN EXPENDITURE OF THIS KIND BRINGS IN AN ADVANTAGE FOR THE ENDURING BENEFIT. AT THIS STAGE, IT WOULD BE OF ADVANTAGE TO DISCUSS THE JUDGMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF EMPIRE JUTE CO. LTD. 124 ITR 1 WHICH REPELLED THE T HEORY OF EXPENDITURE OF ENDURING NATURE IN A GREAT MEASURE. IN THAT CASE, T HE SUPREME COURT NOTED THAT BY DECIDED CASES, THE COURTS EVOLVED VARIOUS T ESTS FOR DISTINGUISHING BETWEEN THE CAPITAL AND REVENUE EXPENDITURE BUT NO TEST IS PARAMOUNT OR CONCLUSIVE. EVERY CASE HAS TO BE DECIDED ON ITS FAC TS KEEPING IN MIND THE BROAD PICTURE OF WHOLE OPERATION IN RESPECT OF WHIC H THE EXPENDITURE HAS BEEN INCURRED. AT THE SAME TIME, FEW TESTS FORMULAT ED BY THE COURTS WERE TAKEN NOTE OF. ONE SUCH TEST WHICH WAS SPECIFICALLY SPELLED-OUT AND MAY BE RELEVANT FOR OUR PURPOSE WAS 'WHEN EXPENDITURE IS M ADE NOT ONLY ONCE AND FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE OF AN ADVANTAGE FOR WHICH ENDURING BENEFIT OF A TRADE, THE EXPENDITURE CAN BE TREATED AS CAPITAL IN ITA NO. 251/ AHD/2012 . A.Y. 2008-09 19 NATURE AND NOT ATTRIBUTABLE TO REVENUE'. HOWEVER, C AUTIONED THE COURT, IT WOULD BE MISLEADING TO SUPPOSE/THAT IN ALL CASES SE CURING A BENEFIT FOR BUSINESS EXPENDITURE WOULD BE CAPITAL EXPENDITURE. THE COURT ADDED THE CAUTION IN THE FOLLOWING WORDS : THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCUR RED FOR OBTAINING ADVANTAGE, OF ENDURING BENEFIT, MAY, NONE-THE-LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSES THAT BRI NGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAG EMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFIC IENTLY OR MORE PROFITABLY WHITE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPE NDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDU RE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS THEREFORE N OT CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICA LLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. 35. APPLYING THE AFORESAID PRINCIPLE TO THE FACTS OF TH IS CASE, IT CLEARLY EMERGES THAT THE EXPENDITURE ON PUBLICITY AND ADVERTISEMENT IS TO BE TREATED AS REVENUE IN NATURE ALLOWABLE FULLY IN THE YEAR IN WH ICH IT WAS INCURRED. CONCEDEDLY, THERE IS NO ADVANTAGE WHICH HAS ACCRUED TO THE ASSESSEE IN THE CAPITAL FIELD. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 20 36. IN OUR CONSIDERED OPINION AN ADVERTISEMENT EXPENSE OF THE NATURE IN QUESTION HERE CANNOT COMPULSORILY BE MADE TO BE TRE ATED BY THE ASSESSEE AS A LONG-TERM CAPITAL EXPENDITURE. ON THE OTHER HA ND ADVERTISEMENT EXPENSES ARE NORMALLY TO BE TREATED AS REVENUE EXPE NDITURE SINCE THE MEMORY OF THE PURCHASING MARKET IS SHORT AND ADVERT ISEMENT IS NEEDED FROM YEAR TO YEAR AND CANNOT BE MADE ONCE FOR ALL I N ANY SINGLE PARTICULAR YEAR. 37. THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF CORE HEALTHCARE LTD. 308 ITR 263 WAS, INTERALIA, SEIZED WITH THE FOLLOWING QUESTION OF LAW: WHETHER ADVERTISEMENT EXPENSES INCURRED BY THE ASSE SSEE TO CREATE A BRAND IMAGE WITH ENDURING BENEFIT ARE ALLOWABLE AS REVENU E EXPENDITURE? 38. AND THE HONBLE HIGH COURT HELD AS UNDER:- 14. IN RELATION TO THE FIRST ITEM, NAMELY, ADVERTIS EMENT EXPENSES, IT IS NOT IN DISPUTE THAT THE EXPENDITURE OF RS. 70 LAKHS AND OD D WAS INCURRED ON A SPECIAL CAMPAIGN. HOWEVER, THAT BY ITSELF WOULD NOT BE SUFF ICIENT TO DETERMINE AS TO WHETHER THE EXPENDITURE IN QUESTION IS ON REVENUE A CCOUNT OR CAPITAL ACCOUNT. THE APPROACH OF THE COMMISSIONER (APPEALS) THAT THE EXPENDITURE IN QUESTION WAS TREATED AS DEFERRED REVENUE EXPENDITURE AND HEN CE WAS CAPITAL IN NATURE, CANNOT BE TERMED TO BE A CORRECT APPROACH BECAUSE I N SO FAR AS THE INCOME-TAX ACT IS CONCERNED, THERE IS NO SUCH CATEGORY OF DEFE RRED REVENUE EXPENDITURE. SIMILARLY, MAKING OF AN ENTRY OR ABSENCE OF AN ENTR Y DOES NOT DETERMINE THE ALLOWABILITY OR OTHERWISE OF THE ITEM OF EXPENDITUR E AND THE SAME CANNOT BE CONSIDERED TO BE A FACTOR ADVERSE, IF THE EXPENDITU RE IS OTHERWISE OF ALLOWABLE ITA NO. 251/ AHD/2012 . A.Y. 2008-09 21 NATURE. EVERY EXPENDITURE INCURRED BY A BUSINESS CO NCERN, IF INCURRED FOR THE PURPOSES OF BUSINESS, IS BOUND TO RESULT IN SOME BE NEFIT, DIRECT OR INDIRECT, IMMEDIATE OR AFTER SOME TIME, BUT THE BENEFIT TO TH E BUSINESS CANNOT BE TERMED CAPITAL OR REVENUE ONLY ON THE BASIS OF THE PERIOD FOR WHICH THE BENEFIT IS DERIVED BY THE BUSINESS. ANY BENEFIT RESULTING TO A BUSINES S NEED NOT BE CONFINED TO THE YEAR OF EXPENDITURE AND THIS IS AN ORDINARY INCIDEN T OF A RUNNING BUSINESS. IN THE CASE BEFORE THE ALLAHABAD HIGH COURT IN HINDUSTAN C OMMERCIAL BANK LTD., IN RE [1952] 21 ITR 353, THE EXPENDITURE ON ADVERTISEMENT HAD BEEN INCURRED AT THE POINT OF TIME WHEN NEW BRANCHES OF THE BANK HAD TO BE OPENED AND INAUGURATED. IT HAS BEEN HELD BY THE ALLAHABAD HIGH COURT THAT T HERE IS NO PROPOSITION THAT THE AMOUNT SPENT IN A SPECIAL CAMPAIGN OF ADVERTISEMENT MUST NECESSARILY BE CAPITAL EXPENDITURE. 15. THE APEX COURT DECISIONS ON WHICH RELIANCE HAS BEEN PLACED BY THE TRIBUNAL, NAMELY, EMPIRE JUTE CO. LTD. [1980] 124 ITR 1 (SC) AND ALEMBIC CHEMICAL WORKS CO. LTD. [1989] 177 ITR 377 (SC) SPECIFICALLY LAY D OWN THAT THE NATURE OF ADVANTAGE HAS TO BE CONSIDERED IN A COMMERCIAL SENS E AND THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN OR CONCLUSIVE TEST AND CAN NOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. THE EXPRESSION 'ASSET OR ADVANTAGE OF AN ENDUR ING NATURE' HAS BEEN EVOLVED TO EMPHASISE THE ELEMENT OF A SUFFICIENT DE GREE OF DURABILITY APPROPRIATE TO THE CONTEXT. THE IDEA OF ONCE FOR ALL PAYMENT AN D ENDURING BENEFIT ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITION S. 16. APPLYING THE AFORESAID SETTLED LEGAL POSITION TO TH E FACTS OF THE CASE, IT IS NOT POSSIBLE TO AGREE WITH THE APPELLANT-REVENUE THAT T HE ADVERTISEMENT EXPENSES INCURRED BY THE RESPONDENT-ASSESSEE AT THE TIME OF INSTALLATION OF ADDITIONAL MACHINERY IN THE EXISTING LINE OF BUSINESS RESULTED IN ANY ENDURING BENEFIT, SO AS TO BE TREATED AS CAPITAL IN NATURE. ITA NO. 251/ AHD/2012 . A.Y. 2008-09 22 39. CONSIDERING THE FACTS IN ISSUE BEFORE US IN THE LIG HT OF THE AFOREMENTIONED DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I T IS INDEED A SPECIAL ADVERTISEMENT CAMPAIGN DRIVEN BY THE ASSESSEE TO BR ING PUBLIC AWARENESS TO THE CHANGE IN THE NAME FROM UTI BANK TO AXIS BAN K. 40. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN O UR CONSIDERED OPINION, THE FINDINGS OF THE LD. CIT(A) HAS TO BE SET ASIDE AND WE ACCORDINGLY DO SO AND DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 13,62 ,26,722/-. GROUND NO. 5 IS ALLOWED. 41. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 24 - 01- 2017 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 24 /01/2017 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,AHME DABAD
