TMI Blog2022 (7) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... that disallowance offered by assessee is inadequate as envisaged by the books of assessee - No hesitation in holding that the learned Assessing Officer has jumped the queue by invoking Rule 8D of the Rules without recording any satisfaction a holding that quantum of disallowance offered by assessee is inadequate. We reverse the orders of the learned CIT(A) on this ground and hold that in absence of any satisfaction of the learned Assessing Officer about correctness of the disallowance offered under Section 14A of the Act, no disallowance under Section 14A read with Rule 8D of the Rules can be made. Accordingly, we dismiss ground no. 1 of the appeal of the learned Assessing Officer and allow ground no. 1 and 2 of the appeal of the assessee. Disallowance of brokerage paid on acquisition of investments - Whether CIT Appeal was right in directing to delete the disallowances of brokerage paid on acquisition of investments without appreciating that such expenditure is in the nature of capital expenditure and forms a part of cost of asset? - HELD THAT:- All necessary expenditure incurred by assessee for purchase of stock in trade, like, commission/ brokerage are revenue expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of shares are not Public Subscription i.e. such as Private Placement etc, assessee is not eligible for deduction u/s 35 D of the Act . These facts are not on record whether shares issued to QIB are issued in Public Subscription or otherwise. Therefore, the matter needs to be set aside to the file of the ld AO for fresh examination, to show before him that the issue was a public subscription and not otherwise, onus lies on assessee. Ld AO may examine the same; if shares are issued in Public Subscription , deduction may be allowed. Non-admission of additional ground of appeal - allowance of deduction of discount on issue of shares under the Stock Option Plan - HELD THAT:- As in claiming such expenditure, in the original return of income and now raising an additional ground cannot be said to be willful. Assessee is duty bound to file its return of income with proper due diligence, taking plausible stand about taxability of its income, Otherwise, there are severe consequences of penalties. After the assessee has same judicial precedents in its favour rendered by the courts and tribunals. Later on based on that any claim is made by raising additional ground of appeal, It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be adjudicated. Revaluation of securities held as stock in trade - method of valuation followed by the assessee is to value investment at cost of market value in line with the guidelines issued by the reserve bank of India on valuation of investment - AO held that the guidelines issued by the reserve bank of India are not determinative to grant any deduction to the assessee Under the income tax act. Therefore, the entire depreciation provided in the books was disallowed - HELD THAT:- This issue has been decided in favour of the assessee by the learned CIT A but has given a direction to the AO to verify the accounting entries and the method of valuation adopted by the assessee. This issue has also been considered by the coordinate benches in assessee s own case for assessment year 2006 07 and 2007 08 wherein loss in Revelation of securities classified as held for trading in available for sale is held to be a revenue expenditure and allowable as deduction. We do not find any reason to sustain the order of the learned CIT A for the purpose of verification to the file of the learned AO wherein identical deduction is allowed to the assessee in earlier years also. It wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled legal position be treated as illegal. WITHOUT PREJUDICE TO GROUND I: GROUND NO. I: DISALLOWANCE of EXPENSES UNDER SECTION 14A OF THE ACT: 3. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in rejecting the plea of the Appellant that when the securities are held as stockin-trade, no disallowance can be made u/s. 14A of the Act. 4. The Appellant, therefore, prays that the suo-moto disallowance of Rs. 9,27,255/- be deleted. GROUND NO. III: ORDER MADE ON THE BASIS OF SURMISES AND ASSUMPTIONS IS BAD IN LAW: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in disallowing the claim for deduction u/s. 35D of the Act on the assumption that the shares may have been allotted only to selected QIPs. 2. The Appellant prays that an order made on surmises and presumptions is bad-in-law and void-ab initio. WITHOUT PREJUDICE TO GROUND III: GROUND NO. IV: DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 35D ON EXPENSES INCURRED IN CONNECTION WITH THE QUALIFIED INSTITUTIONAL PLACEMENT ( QIP ): 1. On the facts and circumstances of the case and in law, the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising following grounds of appeal:- 1. Whether on the facts and in the circumstances of the case and in law, learned CIT Appeal was right in directing to delete the disallowances made U/s 14A of the IT Act without appreciating that the disallowance u/s 14A has to be mandatorily calculated as per rule 8D of IT Rules and no discretion is available with the A.O for estimated disallowances? 2. Whether on the facts and in the circumstances of the case and in law, learned CIT Appeal was right in directing to delete the disallowances of brokerage paid on acquisition of investments without appreciating that such expenditure is in the nature of capital expenditure and forms a part of cost of asset? 05. Assessee is a company engaged in the business of banking. It filed its original return of income on 30th September, 2011, and subsequently, filed revised return on 30th March, 2013, declaring income of ₹1176,82,76,464/-. Return of the assessee was picked up for scrutiny and assessment order under Section 143(3) of the Income Tax Act, 1961 (the Act) was passed on 12 March 2014. 06. The learned Assessing Officer made following disallowances:- I. Disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the additional evidence field by the appellant 011. The first ground of appeal of the learned Assessing Officer and ground nos. 1 and 2 of the appeal of the assessee are with respect to the disallowance under Section 14A of the Act. 012. Assessee has claimed dividend income of ₹50,76,400/- as exempt under Section 10(34) of the Act. Assessee disallowed a sum of ₹ 9,27,255/- under Section 14A of the Act. Learned Assessing Officer asked assessee to furnish details regarding the disallowance. Assessee submitted that i. It has made investment in equity shares of various companies and holding is those shares in compliance with statutory requirement as part of stock in trade. ii. It has not incurred any expenses in relation to earning of such dividend income. iii. However, it has offered identified expenditure of ₹9,26,255/-,as disallowable expenses u/s 14A of the Act. It identified direct and indirect expenditure for the same. It stated that assessee has disallowed 100% of treasury cost of custodian charges amounting to ₹3,25,930/- as direct expenditure. It further submitted the details of indirect expenses of salary, rent, electricity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interest disallowance, he agreed with the argument of the assessee that in view of more interest free funds available than the amount invested in tax-free income earning securities, o disallowance u/r 8D (2) (i) and (ii) can be made. Therefore, he deleted the disallowance of ₹3,65,18,979/-. Thus, both the parties aggrieved with the above order 015. The learned Authorized Representative submitted that the learned Assessing Officer has failed to record any satisfaction about the correctness of the disallowance offered by the assessee. He submitted that this is mandatory requirement before the learned Assessing Officer proceeds to invoke Rule 8D for making disallowance. He referred to section 14 A (2) of the Act. For this proposition, he relied on the decision of Hon'ble Supreme Court in case of Maxopp Investment Ltd. Vs. CIT [2018] 91 taxmann.com 154 (SC) and also the decision of the Hon'ble Bombay High Court in Principal Commissioner of Income Tax-2 Vs. Bombay Stock Exchange Ltd. [2020] 113 taxmann.com 303 (Bombay) dated 15-10-2019. He also relied on several judicial precedents of co-ordinate Benches. Thus, it was stated that as learned Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee and that why it is not correct. That means learned Assessing Officer has to give reasons with regard to the accounts of the assessee about incorrectness of the claim of the assessee. The Supreme Court also held that while recording such satisfaction, the nature of loans and the nature of investment need to be examined by the learned Assessing Officer. Further, Hon'ble Bombay High Court following the aforesaid judgment of the Hon'ble Supreme Court in Bombay Stock Exchange Ltd. (supra) in Paragraph no. 9 has also categorically held that the learned Assessing Officer must first record a conclusion that having regard to the account of the assessee he has not satisfied with the disallowance offered by the assessee. In paragraph no. 11, it further held that no satisfaction with the disallowance offered has to be arrived at, based on the accounts submitted by the assessee. In the present case, we find that the learned Assessing Officer has failed to carry out the necessary exercise before applying the provisions of Rule 8D of the Rules. There is no reference to examination of accounts of the assessee. There is no finding that disallowance offered by assessee is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the treatment of securities as per books of account and as per Banking Regulation Act. Therefore, he held that when a particular security has been treated as stock-in-trade and profit or loss has been offered as business income, all the expenses incidental to the earning of such income has to be allowed as deduction as revenue expenditure. The learned Assessing Officer is aggrieved with the same. 022. Learned Departmental Representative vehemently supported the order of the learned Assessing Officer. 023. Learned Authorised Representative supported the order of the learned Commissioner of Income Tax (Appeals). He further supported the order of the learned CIT(A) relying on the decisions of CIT vs. Nawan shahar co-operative Bank of India 289 ITR 6, CIT vs. DLF Universal Ltd 317 ITR 197 of Hon'ble Delhi High Court and also relied upon circular no. 18/15 dated 2nd November, 2015. 024. We have carefully considered the rival contentions and perused the orders of the lower authorities. On appreciation of facts, we find that assessee offers profit and loss on sale of securities as business income and not as capital gain. This fact has also been accepted by the LD A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed Rs. 2,82,80,291/- being 1/5th of such expenditure as deduction u/s 35D of The Act. This is the first year of such claim with respect to this issue of shares. Assessee submitted that said expenses are in connection with the issue of public subscription of shares of the assessee. 027. Learned Assessing Officer examined the claim and held that since the issue of shares to Qualified Institutional Buyers, does not tantamount to issue of shares to public and therefore, expenditure incurred is not covered under Section 35D of the Act. Hence, he disallowed the same. 028. Assessee aggrieved with the same and preferred the appeal before the learned CIT (A). Assessee submitted that the provisions of Section 35D of the Act are complied with. It further stated that Qualified Institutional Buyers are public and therefore, the assessee deserves to be allowed the above deduction. For this proposition, assessee relied on the SEBI Regulation. Assessee also referred to Securities Contract Regulation Rules, wherein the word Public was defined. The learned CIT (A) referred to SEBI (issue of capital and disclosure requirement) 2019, Rules, and the Companies Act. He ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The co-ordinate Bench in that case considered whether the allottees Qualified Institutional Buyers is public or not. The coordinate Bench following the decision of ITAT in Deccan Chronicle Holdings Ltd. (supra) hold that QIB is Public so deduction under Section 35D of the Act is allowable. It held as under:- 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The appellant is a banking company. It filed its revised return of income for the AY 2010-11 on March 30, 2012 declaring total income at ₹ 7,90,10,18,157/-. As mentioned earlier, the question involved in this appeal is whether QIB can be regarded as public and whether the offer made to them can be regarded as offer made to public for the purpose of section 35D of the Act. In Deccan Chronicle Holdings Limited (supra), the Tribunal has held as under : 6. With respect to ground No. 4 for the assessment year 200809, we find that the Assessing Officer has not disallowed for the assessment years 2006-07 and 2007-08. However, the Assessing Officer has disallowed the expenditure on the issue of qualified ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against this decision was dismissed. There is also merit in the argument of the appellant-company that the facts of its case are distinguishable from those in the case of Brooke Bond, for the detailed reasons submitted by it, and therefore its claim cannot be denied by relying on that decision. It was further claimed that though the entire expenditure was allowable in one year under section 37, the same was treated as deferred revenue expenditure and claimed over five years, starting from the assessment year 2007-08. The concept of deferred revenue expenditure is now legally recognised by various judicial authorities and in fact, this was upheld even in the case of the appellant by my predecessor, while deciding the appeal for assessment year 2006-07. In view of the above facts, I hold that the expenditure of ₹ 2,07,00,112 claimed for assessment year 2008-09 is allowable under sections 35D and 37. As the claim of this expenditure under section 35D read with section 37 is in order, the disallowance on this account is deleted. 7. We find that during the year 2007-08, the company incurred debenture expenses of ₹ 2.07 crores and QIB issue expenditure of ₹ 8.28 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns which are QIBs are classified under public shareholding . The terms are defined in Clause 40A of the SEBI Listing Agreement. Further, the listing agreement takes us to Securities Contracts (Regulation) Rules, 1957 (in short SCRR ). Also Rule 19(2)(b) and Rule 19A of the SCRR provide that companies are required to maintain minimum public shareholding of 25% in case of first time listing and in case of continuous listing agreement respectively. In this context, we may refer to section 2(d) of SCRR defining the term public . It (public) is defined to mean any person other than the promoter, promoter group, subsidiaries and associates of the company. Thus any person other than these four qualify to be considered as public. As can be seen from the list of QIBs to whom shares are issued, the shares are not issued to any of the aforesaid category. Thus QIBs, not being promoters, promoter group, subsidiaries and associates of the company would qualify as public . As specified in clause 40A(ii) of the listing agreement, public shareholding can be increased by any of the modes specified therein to comply with Rule 19(2) and 19A of SCRR. One such note is the issue of IIP in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of discount on issue of shares under the Stock Option Plan. 038. Before the learned CIT (A), vide letter dated 8th December, 2017, assessee raised an additional ground that he is entitled to deduction of Rs. 143,24,22,420/- being the discount on issue of shares under the ESOP computed as difference between the fair market value of shares on the date on which the ESOP were exercised by the eligible employees and issue price of shares. 039. The fact shows that assessee introduced the ESOP in accordance with the provisions of Securities Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999. Assessee submitted that the issue is squarely covered in favour of the assessee by the Special Bench decision of Biocon Ltd. VS. DCIT [2013] 35 taxman. com 335 (Bangalore - Trib.) (SB) 040. With respect to the fact that whether the adequate information was available on record for pressing the additional ground, the learned Authorized Representative referred to the annual report of the assessee for the year ended 31st March, 2011. He referred to note number 18.7.7, where ESOP disclosures were made. He submitted that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal. He submitted that additional ground of appeal could only be admitted in accordance with the provisions of Section 250 (5) of the Act, which has been dealt with by the learned CIT (A). Therefore, it has not been correctly admitted. The learned Departmental Representative further submitted in addition to that assessee has failed to raise this ground before the learned Assessing Officer and it is an admitted fact that for four assessment years i.e. AYs 2011-12 to 2014-15, assessee never claimed this deduction in the original return of income or even in the revised return. It was also not claimed before the learned Assessing Officer during scrutiny assessment proceedings and all these claims have been raised first time in December 2017 as fresh claims before the learned CIT (A) as additional grounds. It was stated that inexplicable pattern of making the fresh claim stated to be due to inadvertent error is devoid of any merit. Assessee further stated that no specific reason supported by evidence has been mentioned as to why the alleged inadvertence occurred. Merely stating that the ground could not be raised earlier is a bald statement, which is unacceptable. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable on record before the learned Assessing Officer. He therefore submitted that, if the material was available before the learned Assessing Officer and facts were on record before the learned Assessing Officer there would not have been any need of filing such a Paper Book. 044. The learned Departmental Representative on merit submitted that piece of expenditure is contingent, notional and capital in nature. For this proposition, he relied on the order of the co-ordinate Bench in cases of Medha Servo Drivers Ltd. Vs. DCIT dated 01.02.2011 in ITA No. 1189 1190/Hyd/2009, DCIT vs. Blow Plast Ltd in ITA No. 512/Mum/2009 dated 26th Nov, 2010, Mahindra Mahindra Vs. DCIT in ITA No. 8597/Mum/2010 and M/s VIP Industries Ltd vs. DCIT in ITA no. 7242/Mum/2018. He also relied on the decision of Hon'ble Supreme Court in case of EMCO KCP Ltd. Vs. CIT 159 CTR 137, that the shares issued against assets contributed by shareholders cannot be considered as Revenue expenditure. He further submitted that ESOP expenses has not attained finality and pending before the Hon'ble Supreme Court in 2021] 131 taxmann.com 188 (SC)/[2021] 283 Taxman 290 (SC). In view of this, he submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the learned CIT (A) when the assessee filed its appeal it was filed with due application of mind and same was signed by Managing Director. When the audited accounts were finalized, the Board of Directors of the assessee stated it to be a capital expenditure even at the time of the filing of the return, the assessee did not claim the same therefore, filing of the return, the assessment proceedings, the appellant proceedings to the extent of filing of appeal which with due application of mind and therefore, as the omission to raise additional ground was a conscious decision considering all the facts and therefore, same is not admissible. The learned CIT (A) relied on the decision of Hon'ble Bombay High Court in case of Ultratech Cement Ltd. (supra). 048. The learned CIT (A) also invoked the provisions of Section 46A of the Act and stated that the case of the assessee do not fall into parameters from (a) to (d) laid down in that Rule. Hence, he rejected the same. Therefore, he held that omission of raising the above ground in the original appeal was willful and hence, it does not pass the test of provision of Section 250(5) of the Act. 049. Section 250 deals wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illful. Assessee is duty bound to file its return of income with proper due diligence, taking plausible stand about taxability of its income, Otherwise, there are severe consequences of penalties. After the assessee has same judicial precedents in its favour rendered by the courts and tribunals. Later on based on that any claim is made by raising additional ground of appeal, It cannot be said to be not a bona fide action of assessee. Assessee cannot be prevented to do so. No malafide can be attributed on part of the assessee in raising these additional grounds. Hence, according to us, it passes the test of section 250(5) of the Act. Therefore, we hold that raising the additional ground by the assessee is not willful and unreasonable failure. The ld CIT (A) ought to have admitted the same. 051. The second issue that arises is that fresh claims can be raised before the learned CIT (A) or not. Undisputedly, the claims are required to be made in the return of income under Section 139 of the Act or by filing revised return. Certain times it may happen that claims are not raised in return of income , but are raised/made before appellate authorities. Such an event may arise on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law arises from facts which are already on record then there is no reason why appellate authority should not considered the question of law, so as it determine the correct tax liability of assessee in accordance with law. However, where necessary evidences, which are required to be examined for the claim of the assessee, are not recorded then the additional ground could be raised and admitted if assessee satisfies the appellate authority that such claim could not be made for good and sufficient reasons. Therefore, there could be two situations first, where the facts are on record and second, whether the facts are not on record. 053. If the facts are not on record, even then the additional ground can be raised if assessee proves that such ground could not be raised before the lower authorities for good and sufficient reasons. Such is the mandate of Hon'ble Jurisdictional High Court in 408 ITR 500. Now, therefore, we must say that whether the relevant material is on record or not, the claim of the assessee is with respect to deduction of ESOP expenditure. In this proposition, assessee has submitted the balance sheet of the assessee. As per Para no. 18.7.5, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vesting takes place at the end of three years from the grant date for 50% of the options granted and at the end of five years for the balance. Options under all these plans are granted for a term of 10 years (inclusive of the vesting period) and are settled with equity shares being allotted to the beneficiary upon exercise. 18. Notes forming part of the Accounts for the year ended March 31, 20110 (Continued) 18.7 Disclosures as required by Accounting Standards (Continued) 18.7.7 ESOP disclosures (Continued) YBL ESOP (PESOP 1), a sub scheme of YBL ESOP, YBL PESOP II and YBL PESOP II 2010, sub schemes of YBL JESOP V/ PESOP II are Performance Stock Option Plans and are also administered by the Board Remuneration Committee of the Bank. Under YBL ESOP (PESOP I) vesting takes place at the end of each year from the grant date for 25% of the options granted and are settled with equity shares being allotted to the beneficiary upon exercise. Under YBL PESOP II, 30% of the granted options vest at the end of first year, 30% vest at the end of second year and balance 40% vest at the end of third year. Further grants under PESOP II had been discontinued with effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have been lower by 224,012 thousands, the basic earnings per share would have been 20.47 per share instead of 21.12 per share; and diluted earnings per share would have been ₹ 19.63 per share instead of 20.25 per share. 18. Notes forming part of the Accounts for the year ended March 31, 20110 (Continued) 18.7 Disclosures as required by Accounting Standards (Continued) 18.7.7 ESOP disclosures (continued) The following assumptions have been made for computation of the fair value Particulars JSOP I JESOP II JSOP III JESOP IV YBL PESOP-I UBL PESOP-II JESOP V PESOP II 2010 Risk free interest rate 6.54% ~6.81% 6.73% ~7.45% 7.27% ~8.23% 7.48% ~8.55% 5.98% ~8.51% 4.96% ~8.51% 5.20% ~8.55% 5.83% ~7.49% Expected life 6.5 yrs to 7.5 yrs 6.5 yrs to 7.5 yrs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income or during the course of assessment proceedings, the occasion would not have arisen, for making this additional claim before the learned CIT A by raising an additional ground. In view of this, we are of the view that the learned CIT A is not correct in not admitting the additional ground raised by the assessee in respect of deduction of discount on issue of shares Under ESOP scheme. In the result ground, number 6 of the appeal of the assessee is allowed. 056. Ground number 6 has also another subsidiary ground, alternatively raised for claim of deduction of discount on issue of shares Under ESOP scheme. As we have held that, the learned CIT A should have admitted additional ground of the assessee, we do not find it appropriate here to allow the claim of the assessee for the simple reason that deduction is required to be verified with respect to its quantum by the lower authorities. Accordingly, we setaside the alternative ground of allowability of discount on issue of shares Under the employee stock option plan of ₹ 1,432,422,420/ back to the file of the learned assessing officer to examine the claim of the assessee and allow it in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant, be deleted GROUND No IV : order made on the basis of surmises and assumptions is bad in law 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in disallowing the claim for deduction u/s 35D of the act on the assumption that the shares may have been allotted only to selected QIPs 2. the appellant prays that an order made on surmises and presumption is bad in law and void ab initio GROUND No V : disallowance of deduction claimed u/s 35D on expenses incurred in connection with the qualified institutional placement [ QIP] 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in confirming the disallowance of deduction of ₹ 28,280,291/ claimed u/s 35D in respect of expenses incurred in connection with the QIP on the alleged ground that the issue of shares to QIP does not amount to public subscription and such capital expenses are not eligible for deduction u/s 35D of the act 2. the appellant prays that the AO be directed to allow ₹ 2,82,80,291/ as a deduction u/s 35D of the act GROUND no VI :-disallowance of QIP expenses by invoking Section 40 (a) (i)/(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case and in law, the honourable CIT (A) erred in contradicting his own stand by rejecting the claim for deduction u/s 36 (1) (viia) of the act after directing the AO to allow the claim of the verification of facts 2. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in confirming the action of the AO of rejecting the claim of the appellant of ₹ 115,677,762/ made u/s 36 (1) (viia) of the act 3. he further added holding that the deduction u/s 36(1) (viia) is available only in respect of advances given by rural branches 4. he further added holding that the claim for deduction u/s 36 (1) (viia) is available only when separate and distinct provisions is made by the appellant in respect of advances made by its rural branches 5. the appellant prays that the claim for deduction u/s 36 (1)(viia) of the act amounting to ₹ 115,677,762/ be allowed Ground No XII alternatively on higher deduction u/s 36 (1) (vii) in subsequent year 1. on the facts circumstances of the case and in law the honourable CIT (A erred in not directing the AO to allow the alternatively that the bad debts in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law the learned CIT (A) was right in allowing depreciation on HTM securities without appreciating the fact that such securities do not form part of stock in trade 3. whether on the facts and in the circumstances of the case and in law the learned CIT (A) was right in allowing depreciation on HTM securities without appreciating the fact that the RBI guidelines cannot override the statutory provisions of the IT act for the purpose of valuation of closing stock of securities 4. whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was right in directing to delete the disallowance of brokerage paid on acquisition of investment without appreciating the fact that such expenditure is in the nature of capital expenditure and forms a part of cost of assets 5. whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was right in directing to delete BPI without appreciating the fact that the HTM category of securities are long-term securities held till maturity and forming part of investment and not as stock in trade hence BPI on HTM securities is a capital outlay and hence not an allowable deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c arguments were produced before us and therefore ground number 1 is dismissed 066. ground number two is with respect to the disallowance u/s 14 A of the act wherein the assessee is aggrieved in and not following the order of ITAT by the learned CIT A and with respect to ground number 3 the assessee is aggrieved with the disallowance of interest expenditure u/s 14 A of the act. Therefore, ground number 2 and 3 are against the disallowance u/s 14A of the act. The fact shows that assessee has earned exempt income in the form of dividend of ₹ 5,652,800/ on the shares, which would though not, purchased by the assessee but which were acquired by the assessee in corporate debt restructuring as a part of the rehabilitation package where the outstanding loan was converted into equity. Further the assessee has earned tax free interest income of ₹ 154,01,205/ the assessee was asked to furnish the details regarding the disallowance u/s 14 A of the act as assessee was holding investment in equity share capital of the company. The assessee submitted a detailed letter stating that it has earned tax-free dividend incomes, which are part of the securities. However, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. However, the learned assessing officer without recording any satisfaction u/s 14 A (2) of the act proceeded to compute the disallowance under rules 8D of the act. This issue is identical to the issue involved in the appeal of the assessee for assessment year 2011 13 wherein we have held that as the learned assessing officer has failed to record any satisfaction with respect to the correctness of the claim of the assessee of the disallowance offered, the learned assessing officer could not have proceeded to compute the disallowance Under rule 8D of the act. Accordingly, we have deleted the disallowance and directed the learned assessing officer to restrict the disallowance as offered by the assessee. As there is no change in the facts and circumstances of the case for this year also, we direct accordingly. Accordingly, ground numbers 2 3 of the appeal are allowed. 070. Ground number 4 of the appeal is with respect to the disallowance of deduction u/s 35D of the act. Ground number 5 is also with respect to the disallowance of deduction amounting to ₹ 28,280,291/ claimed u/s 35D in respect of issue made of shares to QIP. Ground number 6 of the appeal is also with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to show whether it was an issue of shares of public subscription of private placement. The learned assessing officer may examine the claim as soon as submitted by the assessee and decide the issue afresh. Accordingly, ground number 4 and 5 of the appeal is allowed with above directions. 074. With respect to ground number 6 on disallowance of QIP expenses by noting whether the expenditure are subject to deduction of tax at source or not. We find that in this year the expenditure has not been incurred by the assessee and therefore the question does not arise of disallowance u/s 40 (a)(ia) and (i) of the act. In the result ground, number 6 of the appeal is not required to be adjudicated. 075. Ground number 7 is with respect to the revaluation of securities held as stock in trade amounting to ₹ 160,152,000/ is disallowed by the learned AO. The brief facts of the case show that assessee is holding investment in securities. The method of valuation followed by the assessee is to value investment at cost of market value in line with the guidelines issued by the reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held for trading in available for sale is held to be a revenue expenditure and allowable as deduction. We do not find any reason to sustain the order of the learned CIT A for the purpose of verification to the file of the learned AO wherein identical deduction is allowed to the assessee in earlier years also. It would be a futile exercise. In view of this, we allow ground number 7 of the appeal. 077. Ground number 8 of the appeal is with respect to disallowance of brokerage paid on acquisition of held to maturity investments. The facts of the case shows that assessee charges to the revenue the amount of expenditure incurred such as brokerage commission et cetera on purchase of investments paid at the time of acquisition itself as an expenditure. This method is challenged by the AO and accordingly he held that whatever is the amount of investment which has been carried forward at the end of the accounting year, the expenditure of brokerage et cetera paid on such investments which have not been sold during the year are not allowable to the assessee as a deduction as revenue expenditure. The learned CIT A noted that there is no details available whether the disallowance has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a provision for non-performing assets. The 7.5% of the income of the assessee company comes to Rs 117,55,45,107/ . Assessee has claimed deduction lower of these two amounts at ₹ 115,677,762/ . The assessee was questioned that how the deduction is available to the assessee in view of the decision of the honourable Supreme Court in case of 343 ITR 270. The assessee submitted that the entire provision is with respect to urban branches and assessee did not have any rural advances. The bank is entitled to deduction at the rate of 7.5% of total income and 10% of aggregate average advances made by the rural branches. Therefore, assessee is entitled to the above deduction. Assessee also submitted that it has return of bad debts amounting to ₹ 165,394,457 u/s 36 (1) (vii) which has not been claimed as deduction which is more than the right of ₹ 929,421,651/ . The learned assessing officer rejected the contention of the assessee holding that deduction Under this Section can only be claimed in respect of rural advances. As assessee has admitted that it has not created any provision because of rural advances and the total claim of deduction is with respect to the urban bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income (computed before making any deduction under the proposed new provision) or two per cent of the aggregate average advances made by rural branches of such banks, whichever is higher. At this stage also the PBDD had to be created and debited to the profit and loss account but it was not required to be done in relation to advances made by Bank's rural branches and can be in relation to any debt. PBDD need not be in relation to rural advances but can be in relation to any advances both rural and non-rural advances. The two percent AAA made by rural branches of such banks had to be computed and the PBDD made in books has to be in relation to rural advances. The other eligible sum which can be considered for deduction u/s.36(1)(viia) of the Act viz., ten per cent of the total income (computed before making any deduction under the proposed new provision) does not require computation in relation to rural advances. Nevertheless the debit of PBDD to Profit and Loss account is necessary of the higher of the two sums to claim deduction u/s.36(1)(viia) of the Act. If the concerned bank does not have rural branches then they could not claim the deduction. Therefore the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s.36(1)(viia) of the Act will not be available to the bank. The second part of the deduction u/s.36(1)(viia) has to be ascertained viz., 7.5% seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VI-A). The above are the permissible upper limits of deductions u/s.36(1)(viia) of the Act. The actual provision made in the books by the Assessee on account of PBDD (irrespective of whether it is rural or non-rural) has to be seen. To the extent PBDD is so created, then subject to the permissible upper limits referred to above, the deduction has to be allowed to the Assessee. The question of bifurcating the PBDD as one relating to rural advances and other advances (Non-rural advances) does not arise for consideration. 086. Therefore respectfully following the decision of the coordinate bench we hold that the lower authorities were not justified in denying deduction u/s 36 (1) (viia) of the act. Therefore, we set-aside the whole issue back to the file of the learned assessing officer to compute the deduction allowable to the assessee Under this Section and grant the same. In view of this ground number 10 of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with ground number 7 of the appeal of the assessee. Ground number 7 is with respect to the amortization of premium paid for acquisition of held to maturity securities. 094. The learned authorised representative stated that that this issue is now squarely covered in favour of the assessee by the decision of the honourable Bombay High Court in case of CIT versus HDFC bank Ltd 366 ITR 505 wherein loss on revaluation of securities classified as held till maturity is a revenue expenditure. 095. The learned departmental representative vehemently supported the order of the learned assessing officer. 096. We have carefully considered the rival contention and perused the orders of the lower authorities. We fully agree with the learned authorised representative that identical issue has been decided by the honourable Bombay High Court in favour of the assessee in CIT versus HDFC bank Ltd 366 ITR 505 while deciding the issue number (C) , the issue being (C) Whether the ITAT is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of the investment and amortization of premium on investment held to maturity on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of this Court in the case of American Express International Banking Corpn. v. CIT [2002] 258 ITR 601/125 Taxman 488. On going through the said judgment, we find that question (B) reproduced above and projected as substantial by Mr Suresh Kumar is squarely answered by the judgment of this Court in the case of American Express International Banking Corpn. (supra). In view thereof, we do not find that even question (B) gives rise to any substantial question of law that needs to be answered by this Court. 0101. In view of this ground number 5 6 of the appeal of the learned assessing officer is dismissed. 0102. Accordingly, appeal filed by the learned assessing officer in ITA number 3237/M/2018 for assessment year 2012 13 is dismissed. Assessment year 2013 14 ITA number 3500/M/2018 (by assessee) And ITA number 3238/M/2018 (by AO) 0103. for assessment year 2013 14, both the parties filed a cross appeals against the order of the Commissioner of income tax (appeals) 5, Mumbai dated 31/1/2018. 0104. Both the parties confirmed that the grounds of appeal raised by both the parties in the respective appeals are identical to ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of brokerage paid on acquisition of investments without appreciating the fact that such expenditure is in the nature of capital expenditure and forms a part of cost of assets. 3) Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was right in directing to allow deduction u/s 36 (1) (viia) after verification without appreciating the fact that the assessee has no branches and hence not entitled for the same to deduction claimed. 4) Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was right in directing to allow deduction u/s 36 (1) (viia) after verification without appreciating the fact that the assessee has not created any provisions on account of rural branches and hence not entitled for the said deduction claimed 5) whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was right in directing to allow deduction u/s 36 (1) (viia) after verification of provisions for bad and doubtful debt accounts of the earlier assessment years and examine claim of allowability of deduction u/s 36 (1) (vii) of the IT act without appreciating the fact that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y setting aside the ground of appeal numbers III, IX and XI to the file of the AO, which is beyond the powers conferred u/s 251 of the act 2. the appellant prays that it be held that the order of the CIT (A) is void ab initio and/or otherwise bad in law GROUND No II: - disregarding the direction on the tribunal with respect to disallowance u/s 14 A of the act 1) on the facts and circumstances of the case and in law, the honourable CIT (A) erred in going beyond the order of the honourable ITAT in the appellant s own case for earlier year in directing the AO to reexamine the entire claim made by the appellant Ground No III :- disallowance of interest and expenses u/s 14 A of the act 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in disallowing the proportionate interest expenditure u/s 14 A of the act 2. he further erred in rejecting the plea of the appellant that when the securities are held as stock in trade, no disallowance can be made u/s 14 A of the act 3. the appellant, therefore, prays that the disallowance u/s 14A of the act, including the SUO Moto disallowance of ₹ 13,39,128/- made by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant as stock in trade 3. the appellant prays that the disallowance of brokerage paid on HTM securities be deleted GROUND NO IX : setting aside to the AO the ground of Section 36 (1) (viia) of the act 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in directing the AO to verify whether the appellant had rural branches within the meaning of Section 36 (1) (viia) when all the relevant details were submitted before him as additional evidences during the appellate proceedings and on which the AO had given his remand report 2. the appellant prays that the claim of deduction u/s 36 (1) (viia) of the act be allowed without sending it back to the AO for verification GROUND No X: - non-allowability of deduction claimed u/s 36 (1) (viia) of the act amounting To Rs 128,33,49,717/- 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in contradicting his own stand by rejecting the claim for deduction u/s 36 (1) (viia) of the act after directing the AO to allow the claim of the verification of facts 2. On the facts and circumstances of the case and in law, the honourable CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant prays that the additional claim for deduction u/s 36 (1) (vii) of the act amounting to Rs 2,43,53,135/ be allowed GROUND No XV non-admission of additional ground of appeal 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in rejecting the additional ground raised by the appellant, in respect of discount on issue of shares Under the employee stock option plan (ESOP) without appreciating the fact that the appellant authorities can admit and adjudicate the additional film raised by the assessee during the course of appellate proceedings 2. the appellant prays that the claim for deduction in respect of discount on issue of shares Under the ESOP be allowed GROUND no XVI deduction of discount on issue of shares under the employee stock option plan {ESOP] 1. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in not allowing the claim for deduction in respect of discount on issue of shares Under the ESOP amounting to ₹ 144,05,19,989/ 2. on the facts and circumstances of the case and in law, the honourable CIT (A) erred in not giving any finding on the additional evidences fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0118. Now we come to the appeal of the learned assessing officer. The ground number one is with respect to the disallowance u/s 14 A of the act which is related to the ground number 2 4 of the appeal of the assessee. Those grounds of appeal in the appeal of the assessee are allowed and therefore ground number 1 of the appeal of the AO becomes infructuous and dismissed. 0119. Ground number 2 is with respect to the disallowance of brokerage paid on acquisition of investment. This issue is identical to the issue in the appeals for earlier years wherein we have allowed the claim of the assessee. Therefore, we do not find any reason to deviate from the same hence ground number 2 of the appeal of the AO is dismissed. 0120. Ground number 3 6 are on the issue of deduction u/s 36 (1) (viia) of the act. This issue is decided in appeal of the assessee for assessment year 2012 13. These are the grounds related to the same issue. As we have already said those grounds in appeal of the assessee for assessment year 2012 13, for the similar reasons we do not find any merit in these grounds of appeal of the learned AO and hence dismissed. 0121. Ground number 7 8 are with res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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