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2024 (7) TMI 704 - AT - Income TaxDisallowance u/s 14A r.w.r.8D - suo-moto disallowance working done by the assessee - mandation to record satisfaction - HELD THAT - Considering the fact that the investments made are in subsidiaries companies and that there is no movements in the investments during the year under consideration. We do not see merit in the findings given by the AO that the assessee should have incurred indirect expenses such as market report, telephone stationary, etc. for the purpose of investments. We are also of the view that the observations of the AO as extracted above cannot be considered to be recording of satisfaction, since the AO has not stated anything as to why the calculation of suo-moto disallowance is not acceptable by the AO and why he is not satisfied about the correctness of the said calculation. Therefore, there is merit in the alternate contention of the assessee that the AO has invoked section 14A without recording satisfaction and therefore, bad in law. The Hon'ble Supreme Court in the case of Maxopp Investments 2018 (3) TMI 805 - SUPREME COURT as given a finding that the AO needs to record satisfaction that having regard to the kind of the assessee suo-moto disallowance under section 14A is not correct. Thus, AO is not correct in invoking the provisions of section 14A without recording any satisfaction as to why the suo-moto disallowance computed by the assessee is not correct. Accordingly, we delete the disallowance made by the AO and direct the AO to restrict the disallowance to the suo-moto disallowance made by the assessee. Disallowance of ESOP expenses - non admission of additional claim before the Appellate - Authority HELD THAT - we hold that the CIT(A) is not correcting in not admitting the claim of the assessee with regard to ESOP expenses. As relying on Biocon Ltd. 2020 (11) TMI 779 - KARNATAKA HIGH COURT we hold that the ESOP expenses claimed by the assessee an allowable expenditure u/s 37(1) of the Act. Accordingly, we direct the AO to allow the claim of the assessee. This ground of the assessee is allowed. Disallowance u/s 14A - as per DR Explanation inserted by the Finance Act, 2022 is clarificatory in nature and therefore, should be applied retrospectively - contention of Revenue that CIT(A) erred in not appreciating that the amendment brought in by Finance Act 2022 to section 14A whereby it has been clarified that the provisions of section 14A can be invoked when the assessee has investments which have the potentional of yielding exempt income and the amount of exempt income earned is not relevant in this context - HELD THAT - We noticed that the Hon'ble Delhi High Court in the case of Era Infrastructure India Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT has considered a similar issue held the amendment of section 14A, which is for removal of doubts cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. Thus, we are of the considered view that the Explanation inserted by Finance Act, 2022 to section 14A is prospective in nature. Accordingly, ground raised by the Revenue is rejected. Disallowance of Broken period interest on securities - HELD THAT - Considering that the facts for the year under consideration being identical, we are of the view that the issue of allowance of broken period interest on securities is covered by the decision of Co-ordinate Bench in assessee's own case for AY 2012-13 2021 (9) TMI 7 - ITAT MUMBAI is applicable for the year under consideration also. Accordingly we see no reason to interfere with the decision of the CIT(A). This ground of the Revenue is dismissed. Disallowance of bad debts on credit cards - AO did not allow the claim of the assessee for the reason that the credit card bad debts were never taken into account for computing the income of the assessee and that the same does not represent the money lent in the ordinary course of business of banking - CIT(A) allowed the claim of the assessee stating that the services provided by the assessee is a banking service which is part of the lending activity - HELD THAT - There is merit in the contention that the amount settled by the assessee to the merchants against the purchases made by the credit card holders is given in the normal course of business. Further we also noticed that in the case of Hotel Leela Ventures Ltd. 2018 (12) TMI 1637 - BOMBAY HIGH COURT while considering the applicability of deduction of tax at source under section 194H on the credit card charges has held that the amount of fees retained by the Bank is a fee charged by them for having rendered the banking services and cannot be treated as commission or brokerage. Combined reading of the RBI Circular and the decisions of the Hon'ble High Court and the Co-ordinate Bench leads us to the conclusion that the bad debts arising out of the business of credit card services is part of the banking activities and the loss arising on account of un-recovered balance is arising out of the normal course of banking business. Accordingly, the same shall be allowed as a deduction under section 36(1)(vii) of the Act. We, therefore, uphold the decision of the CIT(A) in allowing the claim of the assessee. The ground raised by the Revenue in this regard is dismissed. Disallowance towards provision for debit and credit card reward points - AO held that the provision made is a book entry and is not a real expenditure incurred by the assessee - CIT(A) deleted the disallowance stating that the assessee has followed a scientific basis for arriving at the provision and therefore, the same is not a contingent liability - HELD THAT - We noticed that the AO has made the disallowance based on the difference between the closing provision as of 31.03.2016 and the subsequent utilization and came to the conclusion that the provision made by the assessee is excess. The CIT(A) allowed the claim of the assessee stating that the provision made on the basis of actuarial valuation cannot be held to be an ascertained liability since the actuarial valuation takes into consideration various factors such as discount available to the Bank on purchase, customer leaving the credit cards is without redeeming the points, customer losing eligibility to redeem points, etc. Considering the fact that in the expert advisory committee of the ICAI, it is stated that the liability towards reward points on credit and debit cards should not be limited to the points expected to be redeemed in a particular period such as next year and that the actuarial report based on which the provision is made takes into consideration all the relevant factors with regard to the reward points, in our considered view there is merit in the claim of the assessee that the provision made towards reward points on credit and debit cards should be allowed as a deduction. No infirmity in the decision of the CIT(A) in allowing the claim of the assessee with regard to the provision for reward points on credit and debit cards. This ground of the Revenue is dismissed. Disallowance of revised claim for deduction u/s 36(1)(viia) - AO did not allow the revised claim by the assessee stating that the revised claim during assessment proceedings cannot be allowed without filing the revised return of income relying on the decision of Goetz India Ltd. 2006 (3) TMI 75 - SUPREME COURT - CIT(A) allowed the revised claim of the assessee for the reason that the assessee has not made a new claim but has asked for re-computation of the deduction claimed which is based on re-classification of the existing branches into Rural and Urban branches which was not available at the time of filing the return of income - HELD THAT - It is a settled position that when the assessee has not made a fresh claim but has only revised the claim which is already made in the return of income, the disallowance cannot be denied on the ground that the additional claim is not made by filing the revised return of income. In assessee's case it is an admitted position that the assessee has not made a fresh claim under section 36(1)(viia) but has only re-computed the amount of claim based on the fresh data made available with respect to the classification of branches into Rural and Urban. Therefore, we are inclined to agree with the decision of the CIT(A) and accordingly, direct the AO to verify the revised claim and allow the same in accordance with law. It is ordered accordingly. This ground of the revenue is dismissed.
Issues Involved:
1. Disallowance under section 14A. 2. Disallowance of ESOP expenses. 3. Disallowance of broken period interest on securities. 4. Disallowance of bad debts on credit cards. 5. Disallowance towards provision for debit and credit reward points. 6. Disallowance of revised claim for deduction under section 36(1)(viia). 7. Condonation of delay in filing appeals by the Revenue. Issue-wise Detailed Analysis: 1. Disallowance under section 14A: The assessee had earned exempt income and offered a suo-moto disallowance under section 14A, which was not accepted by the AO, leading to a higher disallowance. The CIT(A) provided partial relief, but the Tribunal found that the AO did not record satisfaction as to why the suo-moto disallowance was incorrect. The Tribunal directed that the disallowance should be restricted to the suo-moto disallowance made by the assessee, citing the Supreme Court's decision in Maxopp Investments Ltd. vs. CIT. 2. Disallowance of ESOP expenses: The assessee's claim for ESOP expenses was initially disallowed by the AO and CIT(A) based on the Supreme Court's decision in Goetz (India) Ltd. However, the Tribunal allowed the claim, referencing the Karnataka High Court's decision in CIT vs. Biocon Ltd., which recognized ESOP expenses as deductible under section 37(1), and the jurisdictional High Court's decision in Pruthvi Brokers and Shareholders Pvt. Ltd. on admitting additional claims during appellate proceedings. 3. Disallowance of broken period interest on securities: The Tribunal upheld the CIT(A)'s decision to allow the deduction for broken period interest on securities, referencing the Bombay High Court's decision in CIT vs. HDFC Bank Ltd., which had previously settled this issue in favor of the assessee. 4. Disallowance of bad debts on credit cards: The AO disallowed the bad debts on credit cards, arguing it was not part of the banking business. The CIT(A) and Tribunal, however, allowed the deduction, referencing the RBI's classification of credit card accounts as part of banking activities and the Tribunal's decision in IndusInd Bank Ltd. vs. ACIT, which recognized such debts as part of the ordinary course of banking business. 5. Disallowance towards provision for debit and credit reward points: The AO disallowed the provision for reward points, considering it a contingent liability. The CIT(A) and Tribunal allowed the provision, noting it was based on actuarial valuation and consistent accounting policies, referencing the Tribunal's decision in ACIT vs. Shoppers Stop Ltd., which supported the allowance of such provisions. 6. Disallowance of revised claim for deduction under section 36(1)(viia): The AO disallowed the revised claim for deduction under section 36(1)(viia) on procedural grounds. The CIT(A) and Tribunal allowed the revised claim, recognizing it was based on updated data for branch classification and not a fresh claim, citing the jurisdictional High Court's decision in Pruthvi Brokers and Shareholders Pvt. Ltd. 7. Condonation of delay in filing appeals by the Revenue: The Tribunal condoned the 120-day delay in filing appeals by the Revenue, accepting the reason of the concerned AO's ill health and referencing the Supreme Court's decision in Collector, Land Acquisition vs. MST. Katiji & Ors., which emphasized a liberal approach to condonation of delay. Separate Judgments: - The Tribunal delivered a common judgment for all the issues across the assessment years 2016-17, 2017-18, and 2018-19, applying the same principles and legal precedents to each year. - The Tribunal's decisions were consistent with prior judgments and legal precedents, ensuring uniformity in the application of tax laws.
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