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2019 (12) TMI 685 - AT - Income TaxLevy penalty u/s 271(1)(c) - claim of deprecation on fall in value of investment and claim of depreciation on software - HELD THAT - In the instant case, the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown as stock-in-trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance-sheet , it is shown as investment, for the purpose of Income Tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the bank has to take into consideration the market value of the shares. If the market value is less than the cost price, in law, they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance-sheet. (emphasis supplied) . We therefore find that the issue raised in this Appeal is also squarely covered by the judgment of the Karnataka High Court in the case of Karnataka Bank Ltd. 2013 (7) TMI 656 - KARNATAKA HIGH COURT AMC charges AND License fee for oracle database, antivirus software etc .- HELD THAT - It is nobody's case that assessee is dealing with computer softwares or is in the business of any related services. Rather it uses specific customized software, which is specific to its banking activities. But for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be answered in favour of the assessee and against the revenue.
Issues Involved:
1. Penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. 2. Claim of depreciation on the fall in value of investment. 3. Claim of depreciation on software expenditure. Issue-wise Detailed Analysis: 1. Penalty levied under Section 271(1)(c) of the Income-tax Act, 1961: The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) which deleted the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was initially imposed by the Assessing Officer (AO) based on the disallowance of claims related to depreciation on the fall in value of investment and software expenditure. However, the Tribunal noted that the quantum addition in respect of the claim of depreciation on the fall in value of investment had been deleted by the Tribunal, and the claim of expenditure on software had been allowed by the Hon'ble High Court of Delhi. Consequently, the Tribunal found no basis for the penalty and upheld the deletion of the penalty by the CIT(A). 2. Claim of depreciation on the fall in value of investment: The Tribunal, in its quantum appeal, referenced ITA Nos. 6795 and 6796/DEL/2013, where it was held that the claim of loss due to the transfer of securities from the 'available for sale' category to the 'held to maturity' category was allowable. This decision was based on the Reserve Bank of India's circular on prudential norms for classification, valuation, and operation of the investment portfolio of banks. The Tribunal cited several judicial precedents, including decisions from the Karnataka High Court and Bombay High Court, which supported the assessee's claim. The Hon'ble High Court of Delhi further confirmed this view, noting that the assessee had consistently reflected the investment as stock-in-trade and the depreciation was allowable. The Tribunal, therefore, deleted the disallowance of ?209.99 crores and ?119.55 crores for the assessment years 2008-09 and 2009-10, respectively. 3. Claim of depreciation on software expenditure: Initially, the Tribunal dismissed the appeal of the assessee and upheld the disallowance by the CIT(A), who had distinguished between allowable AMC charges and disallowed license fees for oracle database and antivirus software due to the lack of evidence that they were for a particular period. However, the matter was taken to the Hon'ble High Court, which held that the nature of the software expenditure resulted in an enduring advantage to the assessee. The High Court opined that such specific customized software, essential for the banking activities of the assessee, should be considered as revenue expenditure. Consequently, the High Court allowed the appeal, answering the question of law in favor of the assessee and against the revenue. Conclusion: Given the above findings, the Tribunal upheld the deletion of penalties and disallowances by the CIT(A) based on the judicial precedents and decisions of the Hon'ble High Court. The appeals of the Revenue in ITA Nos. 5845 & 5846/DEL/2016 were dismissed, and the order was pronounced in the open court on 11.12.2019.
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