2017 (5) TMI 1695 - AT - Income Tax

Addition as broken period interest - HELD THAT - The Tribunal relied on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT , which in turn had relied on the ratio laid down by the Hon ble Bombay High Court in American Express International Banking Corporation Vs. CIT 2002 (9) TMI 96 - BOMBAY HIGH COURT , which in turn, had distinguished the ratio laid down by the Hon'ble Supreme Court in Vijaya Bank Vs. CIT 1990 (9) TMI 5 - SUPREME COURT and the Hon ble High Court of Rajasthan in CIT Vs. Bank of Rajasthan Ltd. 2008 (3) TMI 325 - RAJASTHAN HIGH COURT and had held that broken period interest is allowable as deduction. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of broken period interest of ₹ 16,97,027/-. The ground of appeal No.1 raised by the assessee is thus, allowed. Disallowance of payment made on account of voluntary retirement of the employees - HELD THAT - The issue arising before us is identical to the issue before the Tribunal in The Satara District Central Co.Op Bank Ltd. Vs. DCIT 2014 (12) TMI 1217 - ITAT PUNE and following the same parity of reasoning, we hold that the ex-gratia payment made to the retiring employees in recognition of their services was profits in lieu of salary and is duly allowable as expenditure under section 37(1). The ground of appeal No.2 raised by the assessee is thus, allowed. Nature of receipts - refund of municipal tax receipts - revenue or capital receipt - HELD THAT - Assessee had claimed the deduction on account of municipal taxes on actual payment basis, in the earlier years, since the assessee was following mercantile system of accounting. Once the refund of such municipal taxes has been received by the assessee in the year under consideration, the same is to be added as income in the hands of assessee. Accordingly, the ground of appeal No.3 raised by the assessee is dismissed. Addition on account of prior period expenses - HELD THAT - The said expenses were on account of advertisement expenditure relating to assessment year 2010-11. The assessee claimed that the expenditure was treated as accrued as and when the bills were submitted to the bank and were sanctioned for payment. AO did not allow the said expenditure and the CIT(A) upheld the same. We find merit in the plea of the assessee that where the bill for prior expenditure was received by the assessee during the year under consideration and hence, the same merits to be allowed as deduction. We direct so. The ground of appeal No.4 raised by the assessee is thus, allowed. The grounds of appeal raised by the assessee are thus, partly allowed.

Summary

Issues:
1. Allowance of broken period interest
2. Disallowance of ex-gratia payments to retired employees
3. Treatment of refund of municipal tax receipt
4. Disallowance of prior period expenses
5. Levy of interest under sections 234A, 234B, and 234C

Issue 1: Allowance of Broken Period Interest
The assessee claimed deduction of ?16,97,027 as broken period interest, which the Assessing Officer disallowed. The AO held that such expenditure was a capital outlay and not allowable against income accruing in securities. The CIT(A) upheld this decision. However, the Tribunal allowed the claim based on precedents citing that broken period interest is deductible. The ground of appeal was allowed in favor of the assessee.

Issue 2: Disallowance of Ex-gratia Payments to Retired Employees
The AO disallowed ?26,05,728 claimed as ex-gratia payments to retired employees due to the absence of a formulated scheme by the assessee bank. The CIT(A) upheld this disallowance. The Tribunal referred to a similar case where such payments were allowed as profits in lieu of salary under section 37(1) of the Act. Following this reasoning, the Tribunal allowed the ground of appeal in favor of the assessee.

Issue 3: Treatment of Refund of Municipal Tax Receipt
The AO treated the refund of ?3,40,185 of municipal tax receipt as revenue in nature, whereas the assessee treated it as a capital receipt. The CIT(A) upheld the AO's decision. The Tribunal ruled that once the refund was received in the current year, it should be added as income, dismissing the appeal on this issue.

Issue 4: Disallowance of Prior Period Expenses
An amount of ?5,000 claimed as prior period expenses for advertisement expenditure was disallowed by the AO and upheld by the CIT(A). The Tribunal allowed this expense as a deduction since the bill was received during the current year, directing its allowance. The ground of appeal was thus allowed in favor of the assessee.

Issue 5: Levy of Interest under Sections 234A, 234B, and 234C
The assessee contested the levy of interest under these sections. However, the Tribunal did not provide specific details on the decision regarding the levy of interest.

In conclusion, the Tribunal partly allowed the appeal of the assessee, allowing the deductions for broken period interest, ex-gratia payments, and prior period expenses, while upholding the treatment of the refund of municipal tax receipt as income. The decision on the levy of interest under sections 234A, 234B, and 234C was not explicitly detailed in the provided summary.