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2015 (3) TMI 91 - AT - Income TaxIncome claimed exempt under Section 10(23G) - assessee is a scheduled bank and carries on banking business - Held that - Before us the limited request of the learned counsel for the assessee was hat the necessary approvals from the CBDT is available and will be provided to the Assessing Officer. He prayed that the order of the Assessing Officer may be set aside and the assessee allowed opportunity of providing the necessary approvals for grant of exemption u/s.10(23G) of the Act. It would be just and appropriate to set aside the addition made by the Assessing Officer in this regard and allow opportunity to the assessee to produce the required certificate which will enable the assessee to claim exemption u/s.10(23G) of the Act. - Decided in favour of assessee for statistical purposes. Revenue expenditure claimed on account of software expenses - Held that - Respectfully following the decision of the Tribunal for A.Y. 2004-05 we hold that expenditure incurred on purchase of software should be allowed as revenue expenditure. - Decided in favour of assessee. Amortization of investments under HTM category - Held that - Issue requires to be examined by the AO afresh in the light of the ultimate decision on the claim of assessee for deduction for amortisation of investments in A.Ys. 2001-02 2002-03 and 2003-04. If consequent to appellate orders amortisation is allowed as deduction in those assessment years then the assessee will not be entitled to claim deduction in the present assessment year which is stated to be the year in which the securities were sold. The AO is therefore directed to verify this aspect and consider the claim of assessee afresh after affording the assessee an opportunity of being heard. - Decided in favour of assessee for statistical purposes. Expenditure incurred on Employee Stock Options (ESOP) disallowed - Held that - As relying on order of Tribunal for A.Y. 2004-05. in assessee s case wherein the claim of the assessee for deduction has to be allowed in principle it would be just and appropriate to direct the AO to consider the claim of assessee for deduction afresh - Decided in favour of assessee for statistical purposes. Provision for salary arrears disallowed - Held that - The estimate made by the assessee is reasonable and the assessee has written back the excess provision. In these circumstances we are of the view that the claim of the assessee for deduction has to be allowed as it cannot be said that the liability in question is a contingent liability. - Decided in favour of assessee Interest paid to MMRDA disallowed - Held that - Liability to pay interest crystallized only during the previous year and can be considered for allowance in A.Y. 2005-06. Payment of interest in respect of capital borrowed for acquiring assets to carrying on of business must be regarded as revenue expenditure in commercial practice and should not be termed as capital expenditure as relying on Bombay Steam Navigation Co. Pvt. Ltd case 1964 (10) TMI 12 - SUPREME Court . Reliance placed by the ld. DR on Explanation 8 to section 43(1) of the Act is not applicable for the reason that the asset involved in the present case is a land which is not a depreciable asset. Section 43(1) of the Act defines cost of acquisition of capital asset for the purpose of allowing depreciation. Also to be noticed that the deposit of the balance lease premium by the assessee in the IDBI Bank pursuant to the directions of the Bombay High Court pending disposal of the writ petition filed by the assessee yielded interest income which was duly offered by the assessee to tax. All the cumulative facts and circumstances clearly go to point out that expenditure in question was revenue expenditure and it has to be allowed as deduction in computing total income. - Decided in favour of assessee Claim of unamortized premium paid on change in the method of accounting disallowed - Held that - legally assessee has a right to change the method of accounting that it was adopting. The requirement of law is that change in method of accounting should be bonafide and should be consistently followed after the change by the assessee. In the present case as we have already seen the AO did not assign any reason for rejecting the claim of assessee for deduction. The CIT(A) on the other hand was of the view that there were no justifiable reasons for change in method of accounting. In our view the reasons assigned by the revenue authorities for rejecting the claim of assessee are without any basis. As has been observed by the Hon ble Supreme Court in the case of Bilahari Investments Pvt. Ltd. (2008 (2) TMI 23 - SUPREME COURT) the department has to show that change in method of accounting results in distortion of profits. In the absence of such a finding it has to be necessarily concluded that the change of accounting is revenue neutral. We are of the view that change in method of accounting is bonafide. We therefore hold that the claim of assessee deserves to be accepted - Decided in favour of assessee. Diminution in value of investment under AFS/HFT categories - CIT(A) deleted addition - Held that - CIT(A) was correct to as concluded the Assessee is entitled to value all the investments which are part of the trading stock at cost price or market value whichever is lower under section 145 of the Act. Therefore the total depreciation in respect of the investment amounting to 16, 99, 68, 583/- was claimed and that the AO was not correct in adding back the appreciation. - Decided in favour of assessee. Broken period interest - CIT(A) deleted addition - Held that - The assessee has been following the method of offering interest on securities to tax on receipt basis on maturity and the same has been accepted by the revenue in the past. In view of the aforesaid decision we are of the view that the order of the CIT(A) does not call for any interference. - Decided against revenue.
Issues Involved:
1. Income claimed exempt under Section 10(23G) of the Act. 2. Revenue expenditure claimed on account of software expenses. 3. Amortization of investments under HTM category. 4. Expenditure incurred on Employee Stock Options (ESOP). 5. Provision for salary arrears. 6. Interest paid to MMRDA. 7. Claim of unamortized premium paid on change in the method of accounting. 8. Diminution in value of investment under AFS/HFT categories. 9. Addition on account of broken period interest. Detailed Analysis: 1. Income claimed exempt under Section 10(23G) of the Act: The assessee, a scheduled bank, claimed exemption on interest income from investments in entities approved under Section 10(23G). The AO denied the exemption for Rs. 2,82,53,262, as the entities did not have approval from the competent authority. The Tribunal set aside the AO's addition, allowing the assessee to produce necessary approvals for claiming the exemption. 2. Revenue expenditure claimed on account of software expenses: The assessee claimed Rs. 2,11,61,800 as a deduction for software purchases, which the AO treated as capital expenditure, allowing only 60% as depreciation. The Tribunal, referencing the Karnataka High Court's decision in IBM India Ltd., held that application software expenses should be treated as revenue expenditure, allowing the assessee's claim. 3. Amortization of investments under HTM category: The assessee claimed deduction of amortization of investments held under HTM category, disallowed in previous years. The AO deferred the claim pending appeal outcomes. The Tribunal directed the AO to verify and consider the claim afresh based on the final decisions of previous years. 4. Expenditure incurred on Employee Stock Options (ESOP): The assessee claimed Rs. 1,04,46,542 as ESOP expenses, disallowed by the AO as contingent. The Tribunal, following the Special Bench decision in Biocon, held that ESOP expenses are ascertained liabilities and directed the AO to reconsider the quantification of the deduction. 5. Provision for salary arrears: The assessee made a provision of Rs. 21,75,53,603 for salary arrears based on a bipartite agreement. The AO disallowed it as contingent. The Tribunal, referencing its decision in Syndicate Bank, held that the provision was reasonable and not contingent, allowing the deduction. 6. Interest paid to MMRDA: The assessee paid Rs. 30,72,52,362 as interest for delayed payment of lease premium, which the AO treated as capital expenditure. The Tribunal held that the liability crystallized during the previous year and, referencing Supreme Court decisions, treated the interest as revenue expenditure, allowing the deduction. 7. Claim of unamortized premium paid on change in the method of accounting: The assessee changed its accounting policy, claiming Rs. 15,31,09,000 as unamortized premium. The AO disallowed it, suggesting spreading over the loan period. The Tribunal, citing the Supreme Court's decision in Bilahari Investments, held that the change was bonafide and revenue-neutral, allowing the claim. 8. Diminution in value of investment under AFS/HFT categories: The AO allowed only net depreciation on investments, disallowing Rs. 8,82,48,583. The Tribunal, following its decision in Corporation Bank, upheld the assessee's method of valuing investments at cost or market value, whichever is lower, allowing the full claim of Rs. 16,99,68,583. 9. Addition on account of broken period interest: The AO disallowed Rs. 6,07,37,240 claimed as broken period interest. The Tribunal, referencing decisions in Tamil Nadu Mercantile Bank and Karnataka Bank, held that interest on securities accrues only on coupon dates, not day-to-day, and upheld the CIT(A)'s deletion of the addition. Conclusion: The Tribunal allowed the assessee's claims on software expenses, ESOP, salary arrears, interest paid to MMRDA, unamortized premium, and diminution in value of investments, while directing the AO to reconsider amortization of HTM investments. The revenue's appeal on broken period interest was dismissed.
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