2017 (3) TMI 1335 - AT - Income Tax

Disallowance of depreciation on Wind Energy Generators - Held that - A decided in assessee own case for previous AY It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation. We find that the issue of depreciation on leased assets has been decided by Honourable Apex Court in the case of ICDS Ltd 2013 (1) TMI 344 - SUPREME COURT - Decided in favour of assessee Addition u/s 14A - Held that - As mentioned elsewhere the assessee was having sufficient own funds to meet out the tax free investment. Thus we do not find any merit in considering the interest expenses for the computation of disallowance u/s. 14A of the Act. To this extent we set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition of 29, 35, 41, 415/-.However in our considered opinion administrative expenses need to be disallowed and since the assessee has made suo moto disallowance of 63, 84, 525/- in our considered opinion this should meet the ends of justice. We accordingly confirmed the suo moto disallowance of 63, 84, 525/-. Securitization gains amortised as per RBI guidelines and non-allowance of such realized gains - Held that - The amortization merely represents a timing difference and since the bank is consistently making profits and paying tax at the highest rate without claiming any tax holiday benefit it can be safely concluded that the method followed is revenue neutral. Disallowance of bad debts - Held that - As decided in assessee s own case for A.Y. 2002-03 2001-02 & 2003-04 Non-convertible debentures are in the type of advancing funds to various companies and the income which is taken as interest and assessable as business income. For the banks giving of loans is part of its business and any bad debt arising therein is covered u/s 36(l)(vii) as bad debt whether it is loan or nonconvertible debentures. - Decided in favour of assessee Advertisement expenditure - Allowance as business expenditure - expenditure on advertisement and publicity to change the Bank s name from UTI Bank to Axis Bank - Held that - It is not possible to agree with the appellant-Revenue that the advertisement expenses incurred by the respondent-assessee at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit so as to be treated as capital in nature. A special advertisement campaign driven by the assessee to bring public awareness to the change in the name from UTI Bank to Axis Bank - Decided in favour of assessee.- Decided in favour of assessee

Issues Involved:
1. Disallowance of depreciation on Wind Energy Generators.
2. Disallowance made under Section 14A read with Rule 8D.
3. Securitization gains amortized as per RBI guidelines and non-allowance of such realized gains.
4. Disallowance of bad debts.
5. Disallowance of expenditure on advertisement and publicity for rebranding.

Detailed Analysis:

1. Disallowance of Depreciation on Wind Energy Generators:
The Assessee's appeal concerns the disallowance of depreciation on Wind Energy Generators (WEGs) amounting to ?12,53,376/-. The Tribunal noted that similar issues had been previously decided in favor of the Assessee in earlier assessment years (2002-03, 2004-05, and 2005-06). The Tribunal found that the Assessee was entitled to depreciation on leased assets as per the Supreme Court's decision in ICDS Ltd vs. CIT. The Tribunal held that the Assessee fulfilled the ownership and usage requirements under Section 32 of the Income-tax Act, 1961. Consequently, the Tribunal directed the A.O. to delete the disallowance of ?12,53,376/-.

2. Disallowance under Section 14A read with Rule 8D:
The Assessee challenged the disallowance of ?29,35,41,415/- made under Section 14A read with Rule 8D. The A.O. had computed this disallowance primarily on account of interest expenses, despite the Assessee having sufficient own funds for making tax-free investments. The Tribunal found that the Assessee had sufficient own funds to meet the tax-free investments and drew support from the Bombay High Court's decision in Reliance Utilities and Power Ltd., which established that investments made from mixed funds are presumed to be from interest-free funds. The Tribunal directed the A.O. to delete the interest expense-related disallowance but upheld the Assessee's suo moto disallowance of ?63,84,525/- for administrative expenses.

3. Securitization Gains Amortized as per RBI Guidelines:
The Assessee contested the addition of ?93,13,051/- towards gains on securitization amortized as per RBI guidelines. The Tribunal noted that the Assessee had consistently followed RBI guidelines, which mandate the amortization of gains over the life of the securities issued by the SPV. The Tribunal found that the method followed was revenue-neutral and consistent with judicial precedents recognizing RBI guidelines for taxation of banks/NBFCs. The Tribunal directed the A.O. to delete the addition of ?93,13,051/-.

4. Disallowance of Bad Debts:
The Assessee appealed against the disallowance of ?16,02,273/- written off towards non-convertible debentures of M/s. RVK Energy Pvt. Ltd. The Tribunal referred to its earlier decision in the Assessee’s own case, where it was held that investments in non-convertible debentures are part of the business and allowable under Section 36(1)(vii) as bad debts. The Tribunal directed the A.O. to delete the disallowance of ?16,02,273/-.

5. Disallowance of Expenditure on Advertisement and Publicity for Rebranding:
The Assessee incurred ?13,62,26,722/- on advertisement and publicity for rebranding from UTI Bank to Axis Bank. The A.O. disallowed the expenditure, treating it as capital in nature. The Tribunal, however, held that such expenditures were revenue in nature, as they were incurred to facilitate the ongoing business and did not bring any enduring benefit. The Tribunal drew support from the Supreme Court's decision in Empire Jute Co. Ltd. and the Gujarat High Court's decision in Core Healthcare Ltd., which clarified that advertisement expenses are generally revenue expenditures. The Tribunal directed the A.O. to delete the disallowance of ?13,62,26,722/-.

Conclusion:
The Assessee's appeal was partly allowed, with significant deletions of disallowances made by the A.O. The Tribunal's decision emphasized the application of judicial precedents and the recognition of RBI guidelines in determining the nature of expenditures and allowances.

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