2011 (3) TMI 268 - AT - Income Tax

Disallowance - Broken period interest expenditure - As per the decision of the Hon ble Bombay High Court in the case of American Express International Banking Corporation (2002 -TMI - 12373 - BOMBAY High Court), allowed the assessee s claim, inter alia, observing that since the interest income of the assessee Bank had been taxed by the Department on accrual basis, the interest relatable to the said income is only to be allowed - Decided in favour of assessee. Software expenses - Revenue or Capital expenditure - This issue has been considered threadbare by the Special Bench of the Tribunal in the case of Amway India Enterprises and has laid down various tests for deciding the issue regarding software expenses - This ground is partly allowed. Income on tax free bonds - The matter needs to be restored back to the file of AO in view of the decision of the Hon ble Bombay High Court in the Godrej and Boyce Mfg. P.Ltd. vs. ACIT (2010 -TMI - 78448 - BOMBAY HIGH COURT) wherein it has been held that Rule 8D is prospective in operation - The assessee, however, submitted that the directions of the ld. CIT(A) do not need any modification as his directions are in conformity with the view taken by the Hon ble Bombay High Court or making the disallowance on reasonable basis as Rule 8D is not applicable for the present assessment year - Decided in favour of assessee.

Summary

Issues:
1. Assessment years 1999-2000 and 2000-01 - Common issues in separate appeals.

Analysis:
1. The appeals by the Revenue were against separate orders of the CIT(A)-XXXIII, Mumbai, for the assessment years 1999-2000 and 2000-01. Common issues were involved, so they were taken together for convenience.

2. The assessee, a Bank, carried out banking activities in India through its branches in the relevant assessment years.

3. ITA No. 5098/M/2004 (AY: 1999-2000):
- The AO made additions/disallowances in the assessment, which the CIT(A) partly allowed.
- The Revenue appealed on grounds related to broken period interest, software expenses, and disallowances on tax-free bonds.
- The broken period interest claim by the assessee was allowed by the CIT(A) based on the decision of the Hon'ble Bombay High Court.

4. The Revenue challenged the CIT(A)'s decision on broken period interest, software expenses, and disallowances on tax-free bonds for the assessment year 1999-2000.

5. Ground 1 - Broken Period Interest:
- The AO added the broken period interest, but the CIT(A) allowed the claim based on the Hon'ble Bombay High Court decision.
- The Tribunal confirmed the CIT(A)'s decision, citing that the method adopted by the assessee did not result in loss to the Revenue.

6. Ground 2 - Software Expenses:
- The AO treated software expenses as capital expenditure, but the CIT(A) allowed it as revenue expenditure.
- The Tribunal referred the issue back to the AO for reconsideration based on a Special Bench decision.

7. Ground 3 - Disallowances on Tax-Free Bonds:
- The AO disallowed expenses on tax-free bonds, but the CIT(A) directed the AO to compute the disallowance based on the available capital and reserves of the bank.
- The Tribunal upheld the CIT(A)'s decision, stating that the method adopted was in line with judicial precedents.

8. ITA No. 5099/Mum/2004 (AY: 2000-01):
- Similar issues of broken period interest and software expenses were considered for this assessment year.
- The Tribunal confirmed the CIT(A)'s decision on broken period interest and referred the software expenses issue back to the AO for reconsideration.

9. Both appeals were partly allowed based on the Tribunal's decisions on the respective issues.