2017 (4) TMI 1514 - AT - Income Tax

Expenditure incurred in issuing right issue - revenue or capital expenditure - HELD THAT - Payment was made towards listing fee towards bonus and right issues. It is not very clear whether the fee paid by the assessee is for carrying on the merchant banking business. Tribunal is of the considered opinion that the matter needs to be reconsidered by the AO and find out whether the listing fee is for carrying on merchant banking business by the assessee or it is for listing of the right issues for increasing the share capital. Accordingly the orders of the lower authorities are set side and the disallowance onwards listing fee is remitted back to the file of the AO. AO shall re-examine the matter and find out whether the listing fee is for the purpose of carrying on merchant banking business of the assessee or otherwise. Disallowance towards pension and family pension paid directly to the retired employees - assessee claims that the expenditure has to be allowed under Section 37(1) - HELD THAT - In the earlier year this Tribunal after considering the order of the Cochin Bench remitted back the issue to the file of the Assessing Officer for reconsideration. When the assessee has actually paid funds directly to the pension fund this Tribunal is of the considered opinion that the claim of the assessee has to be examined under Section 37(1) of the Act as directed by the Tribunal in the earlier year. Accordingly as directed by this Tribunal in the assessee s own case for assessment year 2001-02 2004-05 and 2006-07 the claim of the assessee has to be re-examined under Section 37(1) of the Act. Accordingly the orders of the lower authorities are set aside and the disallowance made by the AO towards pension payment is remitted back to the file of the AO. Disallowance of interest paid at the time of purchase of securities - HELD THAT - As decided in own 2009 (7) TMI 1210 - MADRAS HIGH COURT expenses incurred or interest paid on purchase of shares was only revenue expenditure and not capital expenditure. The Madras High Court placed its reliance on the judgment of Apex Court in United Commercial Bank 1999 (9) TMI 4 - SUPREME COURT and found that interest paid by the assessee will not be capital expenditure. In view of this both the authorities are not justified in disallowing the claim of the assessee. Loss due to non-delivery of UTI Master Gain 92 and UTI Master Shares - HELD THAT - It is not in dispute that the securities are classified as stock-in-trade. Therefore the loss in transit has to be allowed as revenue loss. Therefore this Tribunal is unable to uphold the order of the lower authority. Accordingly the orders of the authorities below are set aside and the disallowance made by the Assessing Officer is deleted. Fees paid by the assessee to the auditors and advocates - Addition for non-production of vouchers - HELD THAT - Merely because the assessee entered into huge volume of transactions and having numerous Branches across the country that cannot be a reason to allow the claim of the assessee when the payments cannot be substantiated by producing necessary material. Therefore giving one more opportunity to the assessee for producing necessary material for payment of fees to auditors and advocates would not prejudice the interest of Revenue in any case. Accordingly the orders of the authorities below are set aside and the disallowance made by the AO towards payments made auditors and advocates is remitted back to the file of the AO and examine whether the fees paid to advocates are recovered from customers or not? . Addition on account of income received in advance - HELD THAT - there was no liability for the assessee for payment in the subsequent year or at any point of time. Therefore as rightly submitted by the Ld. D.R. when the assessee has physically received the amount towards income in advance and there was no liability for repayment this Tribunal is of the considered opinion that the same has to be treated as income of the assessee. The matter would stand differently in case there was liability for repayment of money received in advance. Since such a liability for repayment of money has not been established by the assessee before this Tribunal this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance of unpaid expenses - HELD THAT - As rightly submitted by the Ld.counsel for the assessee there is accrued liability for payment. Since there is a liability for the services enjoyed by the assessee during the year under consideration the same has to be allowed as expenditure while computing taxable income irrespective of the fact that the payment is actually made or not - in the mercantile system of accounting the liability for payment towards services enjoyed by the assessee during the year under consideration is an allowable expenditure. Therefore both the authorities below are not justified in disallowing the claim of the assessee. Disallowance of ex-gratia payment - AO disallowed the claim of the assessee on the ground that the incentive paid to the bank employees deemed to be distribution of profit to the employees - HELD THAT - In view of Lakshmi Vilas Bank 2014 (4) TMI 826 - MADRAS HIGH COURT this Tribunal is of the considered opinion that the ex-gratia payment is in the nature of business expenditure. Therefore it has to be allowed while computing taxable income. Accordingly the orders of the lower authorities are set aside and the addition made by the Assessing Officer towards ex-gratia payment made to the employees of the bank is deleted. Disallowance of expenses for earning the exempted income - Addition u/s 14A - HELD THAT - investment made in shares and securities has to be classified as stock-in-trade. Once the investment was classified as stock-in-trade this Tribunal is of the considered opinion that the expenditure incurred by the assessee has to be allowed while computing taxable income. The dividend income which was exempted from taxation was invested in the business of the assessee. Merely because the assessee has received dividend income incidentally in business activity that cannot be a reason to disallow any part of expenditure incurred by the assessee. Therefore this Tribunal is unable to uphold the orders of the authorities below. Addition to be deleted. Expenditure on advertisement and publicity - assessee was not able to produce vouchers - HELD THAT - As rightly submitted by the Ld. D.R. merely because there are volumes of vouchers and Branches are shifted from one place to another that cannot be the reason to claim exemption without producing vouchers. When the assessee claims expenditure while computing taxable income it is the responsibility of the assessee-bank a public limited company in which public has substantial interest to produce necessary vouchers before the Assessing Officer for establishing the payment. If the payments are not established this Tribunal is of the considered opinion that the assessee cannot claim the same as expenditure incurred for the purpose of business. Therefore the actual payment needs to be verified. Therefore one more opportunity needs to be given to the assessee for producing necessary vouchers before the AO. Depreciation on leased assets - HELD THAT - It is not known the nature of assets leased out by the assessee. It is also not known when the assets were purchased by the assessee. For the purpose of claiming depreciation first the assessee has to establish that it owned the assets and used in the business of leasing in the course of its business activity. The lease agreement was also not produced by the assessee before this Tribunal. Therefore this Tribunal is of the considered opinion that the matter needs to be reexamined by the Assessing Officer. Disallowance of tax-free income under Section 80M - HELD THAT - It is not in dispute that the investment made by the assessee in shares and securities has to be classified as stock-in-trade. Once the investment was classified as stock-in-trade all the expenditure incurred by the assessee has to be allowed without any restriction. Therefore this Tribunal is unable to uphold the orders of the authorities below. Accordingly the orders of both the authorities below are set aside and the disallowance made by the Assessing Officer is deleted. Disallowance towards other expenses - No details and vouchers and supporting material to claim the expenditure produced - HELD THAT - In the absence of any material the assessee cannot blame the Assessing Officer for disallowance. Since the assessee claims that the materials were spread across various Branches this Tribunal is of the considered opinion that giving one more opportunity to produce necessary material before the Assessing Officer would not prejudice any cause to the interests of the revenue. Accordingly the orders of the authorities below are set aside and the disallowance is remitted back to the file of the Assessing Officer. Disallowance towards Pooja expenses - HELD THAT - Assessee has to produce some material to substantiate the expenditure incurred. AO disallowed the claim of the assessee since no material was produced before him - this Tribunal is of the considered opinion that giving one more opportunity to produce necessary material before the Assessing Officer would not prejudice the interests of the revenue. Accordingly the orders of both the authorities below are set aside and the disallowance of Pooja expenditure to the extent is remitted back to the file of the AO to re-examine the matter afresh. Disallowance towards presents / gifts - HELD THAT - Assessee has to produce details of presents / gifts and the purpose for which it was given and the details of recipients. In the absence of such details this Tribunal is of the considered opinion that the matter needs to re-examined by the Assessing Officer. Rural debt written off - deduction claimed u/s 36(1)(vii) - HELD THAT - When the amounts of advances were made by each rural Branch and it was outstanding at the end of last day of each month has to be considered separately. This was actually taken by the CIT(Appeals). As rightly observed by the CIT(Appeals) provisions of Section 36(1)(vii) and 36(1)(viia) are distinct and independent for claim of deduction and both of them operate in different field. The bad debt written off for which provision was made under 36(1)(vii) of the Act will be covered under main part of Section 36(1)(vii) - First proviso will operate in cases under clause 36(1)(viia) of the Act to limit the extent of different bad debts or part thereof written off in the previous year and carried forward balance in the provision of bad and doubtful debts made under clause 36(1)(viia) of the Act. Therefore the proviso as rightly observed by the CIT(Appeals) would not permit double deduction with reference to rural loans. Investment in HTM category of securities as investment of capital nature - HELD THAT - Investment made by the assessee in shares and securities has to be classified as stock-in-trade. The CBDT also instructed its officers to treat all the investments in shares and securities as stock-in-trade. Brokerage paid in respect of HFT and AFS categories of securities - HELD THAT - The brokerage paid by the assessee irrespective of categories of securities has to be allowed as expenditure. Therefore this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Unclaimed balances for more than three years - HELD THAT - Since Section 43D of the Act provides for application of guidelines issued by Reserve Bank of India this Tribunal is of the considered opinion that the assessee cannot be found fault for preparing the bad and doubtful debts as per the guidelines issued by the Reserve Bank of India. The matter would stand differently in case Section 43D of the Act does not provide for such direction as per Reserve Bank of India guidelines. Since the Income-tax Act more particularly Section 43D specifies provision for preparation of bad and doubtful debts as per guidelines issued by Reserve Bank of India this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Addition towards office building - DR CIT(Appeals) deleted the addition made to the office building on the basis of additional evidence filed by the assessee without calling for remand report - HELD THAT - Assessee claims that there was no construction of any new building. Therefore the exact nature of expenditure has to be verified. Moreover the CIT(Appeals) allowed the claim of the assessee without affording any opportunity to the Assessing Officer. Therefore the orders of the authorities below are set aside and the addition made by the Assessing Officer is remitted back to the file of the Assessing Officer. Non-issue of notice u/s 143(2) - issue not raised before the Assessing Officer or CIT(Appeals) - HELD THAT - Even though non-issue of notice under Section 143(2) of the Act was not raised before the Assessing Officer or CIT(Appeals) this being a legal issue can be raised before this Tribunal. Therefore by respectfully following the judgment of GITSONS ENGINEERING CO 2014 (11) TMI 59 - MADRAS HIGH COURT this Tribunal is of the considered opinion that the consequential order passed by the Assessing Officer cannot stand in the eye of law.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Disallowance of expenditure incurred in issuing right issues.
3. Disallowance of pension and family pension payments.
4. Disallowance of interest paid on purchase of securities.
5. Loss due to non-delivery of UTI Master Gain 92 and UTI Master Shares.
6. Disallowance of fees paid to auditors and advocates.
7. Addition on account of income received in advance.
8. Disallowance of unpaid expenses.
9. Disallowance of ex-gratia payment.
10. Disallowance of expenses for earning exempted income.
11. Disallowance of advertisement and publicity expenses.
12. Depreciation on leased assets.
13. Disallowance of tax-free income under Section 80M.
14. Disallowance of other expenses.
15. Disallowance of Pooja expenses.
16. Disallowance of expenses for presents/gifts.
17. Rural debt written off and claimed deduction under Section 36(1)(vii).
18. Investment in HTM category of securities.
19. Brokerage paid for HFT and AFS categories of securities.
20. Unclaimed balances for more than three years.
21. Addition made towards office building.
22. Non-issue of notice under Section 143(2).

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Tribunal condoned the delay of 10 and 15 days in filing appeals by the Revenue, finding sufficient cause for the delay, and admitted the appeals.

2. Disallowance of Expenditure Incurred in Issuing Right Issues:
The Tribunal confirmed the disallowance of ?42,94,844/- incurred for increasing authorized capital based on the judgment of the Apex Court in Brook Bond India Ltd. v. CIT. However, the disallowance of ?50,000/- listing fee was remitted back to the Assessing Officer to determine if it was for carrying on merchant banking business.

3. Disallowance of Pension and Family Pension Payments:
The Tribunal remitted the issue of disallowance of ?2,01,63,763/- towards pension and family pension back to the Assessing Officer for reconsideration under Section 37(1) of the Act, following its own earlier decision.

4. Disallowance of Interest Paid on Purchase of Securities:
The Tribunal set aside the disallowance of ?24,99,24,235/- towards interest paid on purchase of securities, referencing the Madras High Court's judgment that such expenditure is revenue in nature.

5. Loss Due to Non-Delivery of UTI Master Gain 92 and UTI Master Shares:
The Tribunal deleted the disallowance, recognizing the loss as business loss, supported by the Madras High Court's decision in the assessee's own case.

6. Disallowance of Fees Paid to Auditors and Advocates:
The Tribunal remitted the issue back to the Assessing Officer for re-examination, requiring the assessee to substantiate the payments made to auditors and advocates.

7. Addition on Account of Income Received in Advance:
The Tribunal upheld the addition, treating the income received in advance as income of the assessee during the year it was received, unless there was a liability for repayment.

8. Disallowance of Unpaid Expenses:
The Tribunal set aside the disallowance, recognizing the accrued liability for expenses incurred during the financial year under consideration, and remitted the issue back to the Assessing Officer for verification.

9. Disallowance of Ex-Gratia Payment:
The Tribunal allowed the ex-gratia payment of ?3,12,97,665/- as business expenditure, referencing the Madras High Court's judgment in Lakshmi Vilas Bank.

10. Disallowance of Expenses for Earning Exempted Income:
The Tribunal deleted the disallowance, noting that investments in shares and securities were classified as stock-in-trade, thus, the expenditure incurred was allowable.

11. Disallowance of Advertisement and Publicity Expenses:
The Tribunal remitted the issue back to the Assessing Officer for verification of the actual expenditure incurred, requiring the assessee to produce necessary vouchers.

12. Depreciation on Leased Assets:
The Tribunal remitted the issue back to the Assessing Officer to verify the ownership and leasing of the disputed assets and decide afresh.

13. Disallowance of Tax-Free Income under Section 80M:
The Tribunal deleted the disallowance, reiterating that investments in shares and securities were stock-in-trade, and all related expenditure was allowable.

14. Disallowance of Other Expenses:
The Tribunal remitted the issue back to the Assessing Officer, allowing the assessee to produce necessary material to substantiate the expenses incurred.

15. Disallowance of Pooja Expenses:
The Tribunal remitted the issue back to the Assessing Officer for re-examination, allowing the assessee to produce material to substantiate the expenditure.

16. Disallowance of Expenses for Presents/Gifts:
The Tribunal remitted the issue back to the Assessing Officer, requiring the assessee to provide details of the presents/gifts and their recipients.

17. Rural Debt Written Off and Claimed Deduction under Section 36(1)(vii):
The Tribunal upheld the CIT(Appeals) decision allowing the claim under Section 36(1)(vii) and 36(1)(viia), referencing the Apex Court's judgment in Catholic Syrian Bank Ltd. v. CIT.

18. Investment in HTM Category of Securities:
The Tribunal confirmed that investments in all categories of securities, including HTM, should be classified as stock-in-trade, following the Madras High Court's decision.

19. Brokerage Paid for HFT and AFS Categories of Securities:
The Tribunal upheld the allowance of brokerage paid for HFT and AFS categories of securities as expenditure, in line with the Madras High Court's judgment.

20. Unclaimed Balances for More than Three Years:
The Tribunal confirmed the CIT(Appeals) decision, allowing the treatment of unclaimed balances as per the guidelines issued by the Reserve Bank of India under Section 43D.

21. Addition Made Towards Office Building:
The Tribunal remitted the issue back to the Assessing Officer to verify the nature of expenditure and decide afresh, noting that the CIT(Appeals) allowed the claim without affording an opportunity to the Assessing Officer.

22. Non-Issue of Notice under Section 143(2):
The Tribunal set aside the consequential order passed by the Assessing Officer due to the non-issue of notice under Section 143(2) within the prescribed time limit, following the Madras High Court's judgment in CIT v. Gitsons Engineering Co.

Conclusion:
The Tribunal's detailed analysis addressed each issue comprehensively, providing directions for re-examination and verification where necessary, and confirming or deleting disallowances based on legal precedents and the assessee's own case history.