M/s. ING Vysya Bank Ltd., Bangalore V. ACIT, Bangalore

ITA 254/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9408 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-08-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 24-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Assessee Lawyers: ANANTHA PADMANABHAN
• Keywords: Depreciation; Earning of tax free income; Valuation report; Revenue expenditure; Capital expenditure; Set aside; Capital Gains
• Section: 37; 263; 14A

Judgement Text

ITA NO.254 & 255/B/09 1 1 IN THE INCOME TAX APPELL ATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH BANGALORE BENCH BANGALORE BENCH BANGALORE BENCH B BB B BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI K.P.T. THANGAL K.P.T. THANGAL K.P.T. THANGAL K.P.T. THANGAL, , , , VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT AND AND AND AND SHRI SHRI SHRI SHRI K.K. GUPTA K.K. GUPTA K.K. GUPTA K.K. GUPTA, A , A, A , ACCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER ITA NO.254 & 255/BANG/2009 (ASSESSMENT YEAR 2003-04 & 2004-05) ING VYSYA BANK LTD., ING VYSYA HOUSE, NO.22, M.G ROAD, BANGALORE-01. . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-11(5), BANGALORE. . RESPONDENT APPELLANT BY : SHRI ANANTHA PADMANABHAN RESPONDENT BY : SMT. SWATHI S PATIL O R D E R O R D E R O R D E R O R D E R PER K.P.T. THANGAL, VICE PRESIDENT PER K.P.T. THANGAL, VICE PRESIDENT PER K.P.T. THANGAL, VICE PRESIDENT PER K.P.T. THANGAL, VICE PRESIDENT : : : : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) - 1, BANGALORE DATED 15.04.08 FOR THE ASSESSMENT YEAR S 2003-04 AND 2004-05. SINCE, ISSUES INVOLVED IN BOTH THE APPEA LS ARE THE SAME, WE ARE DISPOSING OF BOTH THE APPEALS BY A SINGLE CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IN THIS CASE, ASSESSEE FILED THE APPEAL BEFORE T HE LEARNED CIT(A) CHALLENGING THE FOLLOWING ADDITIONS : ITA NO.254 & 255/B/09 2 2 1. AMORTISATION OF INVESTMENTS UNDER THE HEAD TO MATURITY CATEGORY RS.3,13,61,004/- A. THE LEARNED ACIT ERRED IN DISALLOWING A SUM OF RS.3,13,61,004/- BEING THE AMORTIZATION OF INVESTMENTS IN THE HELD TO MATURITY CATEGORY. B. THE LEARNED ACIT OUGHT TO HAVE OBSERVED THAT IN THE PRESENT CASE, THE HELD TO MATURITY CATEGORY O F INVESTMENTS OF THE APPELLANT REPRESENTS STOCK-IN- TRADE AND HENCE THE AMORTIZATION OF THE SAME REPRESENTS EXPENDITURE. FURTHER THE PROFIT/LOSS ON SALE OF INVESTMENT UNDER HELD TO MATURITY IS ALSO BEING OFFERED AS BUSINESS PROFIT/LOSS AND THE SAME IS NOT TREATED AS CAPITAL GAINS/LOSS WHEREIN THE SAME IS TAXABLE AT A CONCESSIONAL RATE. C. THE LEARNED ACIT ERRED IN NOT FOLLOWING THE DEC ISION OF THE BANGALORE TRIBUNAL IN APPELLANTS OWN CASE FOR THE AY 1993-94 IN ITA NO.382/BANG/1997 WHEREIN THE CLAIM ON SIMILAR GROUNDS HAS BEEN ALLOWED. 2. DISALLOWANCE UNDER SECTION 14A OF THE INCOME- TAX ACT, 1961-RS.3,22,65,853/- A. THE LEARNED ACIT ERRED IN DISALLOWING A SUM OF RS.3,22,65,853/- BEING AN ESTIMATED EXPENDITURE ATTRIBUTABLE TO INCOME EARNED WHICH IS EXEMPT UNDER SECTION10 OF THE ACT @ 15% ON THE EXEMPT INCOME. B. THE LEARNED ACIT OUGHT TO HAVE OBSERVED THAT ALL INVESTMENTS HAVE BEEN MET OUT OF THE APPELLANTS ITA NO.254 & 255/B/09 3 3 OWN FUNDS AND THE APPELLANT HAD NOT INCURRED ANY SPECIFIC EXPENDITURE ATTRIBUTABLE TO THE EARNING OF THE INCOME. 3. EMPLOYEES CONTRIBUTION TO PROVIDENT FUND RS.6,45,560/- A. THE LEARNED ACIT ERRED IN DISALLOWING A SUM OF RS.6,45,650/- BEING THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND FOR THE MONTHS OF FEBRUARY AND MARCH 2006. B. THE LEARNED ACIT OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD DEPOSITED THE SAME IN AUGUST, 2003 WHICH WAS BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME AND NO ADDITION IS REQUIRED. 4. CONTINGENT LIABILITY RELATING TO EMPLOYEES COMPENSATION EXPENSES RES.19,32,385/- A. THE LEARNED ACIT ERRED IN DISALLOWING A SUM OF RS.19,32,385/- RELATING TO EMPLOYEE COMPENSATION EXPENSES UNDER THE EMPLOYEE STOCK OPTION SCHEME INTRODUCED BY THE APPELLANT DURING THE FINANCIAL YEAR 2002-03. B. THE LEARNED ACIT OUGHT TO HAVE APPRECIATED THAT THE OBSERVATION IN THE TAX AUDIT REPORT IS NOT CONCLUSIVE OF THE NATURE OF THE EXPENSE. C. THE LEARNED ACIT OUGHT TO HAVE APPRECIATED THE TREATMENT ADOPTED BY THE APPELLANT IS IN ACCORDANCE WITH THE SEBI GUIDELINES AND THAT THE EXPENDITURE I S ITA NO.254 & 255/B/09 4 4 NOT A CONTINGENT LIABILITY AND AN ALLOWABLE REVENUE EXPENDITURE. D. THE LEARNED ACIT HAS ERRED IN NOT PLACING RELIAN CE ON JUDICIAL PRECEDENTS IN THIS REGARD. THE LEARNED ACIT OUGHT TO HAVE PLACED RELIANCE ON THE DECISION OF THE MADRAS TRIBUNAL IN THE CASE OF SSI LTD. VS. DCIT (85 TTJ 1049) WHEREIN IT WAS HELD THAT SUCH EXPENDITURE WAS ALLOWABLE AS REVENUE IN NATURE. 5. CAPITAL EXPENDITURE ON PURCHASE OF SOFTWARE RS.4,75,61,599/- A. THE LEARNED ACIT HAS ERRED IN DISALLOWING A SUM OF RS.4,75,61,599/- TOWARDS THE PURCHASE OF APPLICATION SOFTWARE AND TREATING THE SAME AS CAPITAL EXPENDITURE. B. THE LEARNED ACIT OUGHT TO HAVE OBSERVED THAT THE SAID SOFTWARE DOES NOT PROVIDE ANY ENDURING BENEFIT TO THE APPELLANT AND WOULD BE REQUIRED TO BE REPLACED WITHIN A SHORT SPAN OF TIME. C. THE LEARNED ACIT OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS RIGHTLY CLAIMED THE ABOVE AS REVENUE EXPENDITURE. THE LEARNED ACIT OUGHT TO HAVE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS IN THIS REGARD: 1. BUSINESS INFORMATION PROCESSING SERVICE VS. ACIT 239 ITR (AT) 19 (JAIPUR) HELD THAT EXPENDITURE ON DEVELOPMENT OF SOFTWARE REQUIRED TO DO THE JOB UNDERTAKEN BY ITA NO.254 & 255/B/09 5 5 THE ASSESSEE SHOULD BE TREATED AS NOT INVOLVING ENDURING ADVANTAGE AND SHOULD, THEREFORE BE FULLY ALLOWABLE AS REVENUE EXPENDITURE FOLLOWING THE WELL ESTABLISHED LAW IN ALEMBIC CHEMICALS WORKS VS. CIT 177 ITR 377 (SC). 2. KIRLOSKAR OIL ENGINES LTD. VS. CIT 71 TAXMAN 300 BOM 3. BAJAJ TEMPO LTD. VS. CIT 69 TAXMAN 94 BOM 4. EMPIRE JUTE COMPANY 124 ITR 1 SC 5. BANK OF PUNJAB LTD. VS. JCIT 122 TAXMAN 235 (CHANDIGARH BENCH ITAT) 6. MEDIA VIDEO LTD. VS. JCIT 122 TAXMAN (DELHI BENCH ITAT) 6. LOSS ON ACQUISITION OF LAND RS.1,05,73,978/- A. THE LEARNED ACIT ERRED IN DISALLOWING AN AMOUNT OF RS.1,05,73,978/- BEING THE LAND PORTION OF THE PROPERTY WRITTEN OFF. B. THE LEARNED ACIT OUGHT TO HAVE OBSERVED THAT THE SAME REPRESENTS BUSINESS LOSS. C. NOTWITHSTANDING THE ABOVE, THE LEARNED ACIT OUGHT TO HAVE APPRECIATED THAT THE SAME REPRESENTS A REVENUE EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. ITA NO.254 & 255/B/09 6 6 7. DEPRECIATION ON LEASED ASSETS RS.45,11,260 A. THE LEARNED ACIT ERRED IN DISALLOWING A SUM OF RS.45,11,260/- BEING THE DEPRECIATION ON ASSETS LEASED TO M/S RAJENDER STEELS & OTHERS. B. THE LEARNED ACIT OUGHT TO HAVE TAKEN COGNIZANCE OF THE VALUATION REPORT OF THE DEPARTMENTAL VALUATION OFFICERS IN THE APPELLANTS OWN CASE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR THE ASSESSMENT YEARS 1994-95 TO 1997-98 WHILE MAKING THE ADJUSTMENT. 8 DEDUCTION UNDER SECTION 80M RS.6,45,800/- A. THE LEARNED ACIT HAS ERRED IN REDUCING A SUM OF RS.6,45,800 FROM THE DEDUCTION CLAIMED UNDER SECTION 80M @ 5% OF THE GROSS DIVIDEND. B. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF THE DIVIDEND INCOME. C. THE EXPENDITURE ESTIMATED BY THE LEARNED ACIT IS ONLY A NOTIONAL COST AND NOT ACTUALLY INCURRED. HENCE, THERE IS NO BASIS FOR MAKING ANY ADJUSTMENT TO THE CLAIM OF THE APPELLANT. ITA NO.254 & 255/B/09 7 7 D. IN THIS REGARDS, RELIANCE MAY BE PLACED ON THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. UNITED COLLIERIES LTD. (203 ITR 857 CAL) WHEREIN IT WAS HELD THAT RELIEF UNDER SECTION 80M IS ALLOWABLE ONLY ON THE NET DIVIDEND WHICH IS ARRIVED AT AFTER TAKING INTO ACCOUNT THE EXPENDITURE, IF ANY INCURRED FOR THE PURPOSE OF EARNING SUCH DIVIDEND. WHERE THERE IS NO SUCH EXPENDITURE, THE GROSS DIVIDEND WILL BE THE NET DIVIDEND. FURTHER, IT WAS HELD THAT THERE IS NO SCOPE FOR ANY ESTIMATE OF EXPENDITURE BEING MADE AND NO NOTIONAL EXPENDITURE CAN BE ALLOCATED. 9. INTEREST UNDER SECTION 234D RS.35,64,327/- THE LEARNED ACIT HAS ERRED IN LEVYING INTEREST OF RS.35,64,327/- UNDER SECTION 234D OF THE ACT. 3. ACCORDING TO THE ASSESSEE, WHILE THE MATTER WAS STILL PENDING BEFORE THE LEARNED CIT(A), LEARNED CIT, PASSED ORDE R UNDER SECTION 263 DISALLOWING THE CLAIM OF THE ASSESSEE WITH REGA RD TO : A) DISALLOWANCE OF INCOME CLAIMED EXEMPT UNDER SECT ION 10(23G) B) DEDUCTION UNDER SECTION 36(1)(VII) AND 36(1)(VII A) C) DISALLOWANCE OF PROVISIONS FOR FRAUDS D) DISALLOWANCE UNDER SECTION 14A OF THE ACT. ITA NO.254 & 255/B/09 8 8 4. ACCORDING TO THE ASSESSEE, LEARNED CIT(A) CAN RE FUSE TO CONSIDER THE APPEALS ON MERIT, PROVIDED ALL THESE ITEMS ARE CONSIDERED BY THE LEARNED CIT IN REVISION ORDER. ACCORDING TO THE ASSESSEE NONE OF THESE ISSUES WERE MATTER OF GROUNDS OF APPEAL BE FORE HIM AGAINST THE ORDER PASSED UNDER SECTION 143(3). HOWEVER, WE FIND, THOUGH NOT EXTENSIVELY ARGUED ONE OF THE GROUNDS TAKEN BY THE LEARNED CIT(A) WITH REFERENCE TO SECTION 14A OF THE ACT, WHETHER I T IS ON THE SAME LINE OR SO, WHICH IS ON DIFFERENT GROUND, WE ARE NOT AWA RE. AT THE MOST, IF AT ALL ONLY SUCH GROUNDS THAT WAS CONSIDERED BY THE LE ARNED CIT AND REMANDED, LEARNED CIT(A) COULD NOT CONSIDER. REFUS AL OF THE GROUNDS SIMPLY SAYING THAT ORDER OF THE LEARNED CIT UNDER S ECTION 263 ORDER IS IN EXISTENCE AND, THEREFORE, CANNOT CONSIDER THE IS SUE AT ALL, IS AN UNACCEPTABLE POSITION. WE, THEREFORE, SET ASIDE TH E ORDER OF THE LEARNED CIT(A) AND DIRECT HIM TO PASS THE ORDER ON MERIT EXCEPT THE GROUND THAT HAS BEEN CONSIDERED BY THE LEARNED CIT IN HIS REVISION ORDER UNDER SECTION 263 FOR BOTH THE YEARS. IN THE RESULT, APPEALS OF THE ASSESSEE TO THE EXTEN T STATED ABOVE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 7TH AUG, 2009. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/ ( (( (K.K K.KK.K K.K. .. . GUPTA GUPTA GUPTA GUPTA) ) ) ) ( ( ( (K.P.T. THANGAL K.P.T. THANGAL K.P.T. THANGAL K.P.T. THANGAL ) ) ) ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED 7/8/09 VMS. ITA NO.254 & 255/B/09 9 9 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF 7. GF, ITAT, NEW DELHI. BY ORDER ASST. REGISTRAR, ITAT, BANGAL ORE.