2015 (5) TMI 72 - AT - Income Tax

Disallowance u/s 14A - CIT(A) directed AO to restrict the disallowance in this regard to 2 per cent. only on tax-free bond reasonably as some expenditure element is definitely involved in earning this tax-free bond - Held that - It is evident that in the assessment proceedings, the assessee had raised the claim of exempt income without attributing any expenditure which was determined by the Assessing Officer by following apportionment formula. Thus disallowance of expenditure in earning exempt income at 2 per cent. based on estimation is reasonable - Decided against assessee. Depreciation on leased out assets - Held that - Merely because for the first year for the purpose of claiming depreciation is 1996-97 regarding which the assessee s appeals are pending before the Commissioner of Income-tax (Appeals), it itself cannot a ground to restore the issue back to the Assessing Officer. We also deem it proper to observe that in case the assessee is held entitled for the relief of depreciation in question in the first assessment year, it would get the same relief in subsequent years. Since the assessee has been held entitled for the units in question for the assessment year 1996-97, we see no reason as to why it is not entitled for the same very assets in the impugned assessment year. The argument raised by the Revenue that the assessee led no evidence or material to prove its case also does not inspire any confidence as there is no cogent material placed before us to accept the Revenue s contention that the assessee is not entitled for the relief granted by the Commissioner of Income-tax (Appeals). - Decided in favour of assessee. Disallowance of payment to non approved pension fund - Held that - In the instant case as well, the vital aspect of application of the legal principle of commercial expedience under section 37(1) of the Act has escaped the consideration of the Assessing Officer as well as the Commissioner of Income-tax (Appeals). Hence, we observe that the Assessing Officer in this case shall pass a fresh order in accordance with law by taking into consideration the above case law after affording adequate opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Cost of software purchase expenditure - Revenue v/s capital expenditure - Held that - The concerned claimant has to prove by leading cogent evidence that the software in issue does not give any enduring benefit. In this case, no such explanation of the assessee is forthcoming. It is also not the assessee s case that it had not been afforded adequate opportunity of hearing by the Assessing Officer or the Commissioner of Income-tax (Appeals) so as to prove the software s use and utility by leading cogent evidence. Hence, we are unable to concur with the assessee s claim on the premise that purchase of software by the assessee is necessarily liable to be termed as revenue expenditure. Although the authorised representative has taken pains to refer the abovesaid case law, but as already observed hereinabove, on facts itself the assessee s case has failed to convince us for want of details of expenses. - Decided against the assessee Filing fees paid to the Registrar of Companies - Revenue v/s capital expenditure - Held that - In the instant case as well, the assessee had made the payment to the Registrar of Companies to embroaden its capital base. Thus the payment in question made by the assessee to the Registrar of Companies is an instance of incurring capital expenditure - Decided against the assessee. Arrears of wages on account of pay revision of its employees disallowed - Held that - in view of the fact that the issue pertaining to the same very bipartite settlement and pay revision in respect of similar undertaking alike the assessee has been decided in favour of the Revenue, we subscribe to the same observations of the coordinate Bench and hold that the liability on account of pay revision as claimed by the assessee is not ascertained one. Hence, we affirm the finding of the Commissioner of Income-tax (Appeals). - Decided against assessee. Cash excess disallowed - cash excess as on March 31, 1996, an amount of ₹ 1,03,674 stood transferred to miscellaneous account - CIT(A) deleted addition - Held that - Since the Assessing Officer himself had allowed the cash excess as on March 31, 1996, in view of the said findings only, the Commissioner of Income-tax (Appeals) has proceeded to delete the addition. The factual position as it emanates from the orders of the lower authorities is that the assessee offers cash excess once in every fourth year, therefore, we see no reason to affirm the disallowance in question because the four year time period includes the impugned assessment year as well. Accordingly, we hold that the Commissioner of Income-tax (Appeals) has rightly deleted the addition. - Decided against revenue. Re-depreciation on investment - Held that - Since the Assessing Officer himself has held the disallowance to be inappropriate by rectifying the assessment order, there is no locus standi on the part of the Revenue to raise the instant ground. Hence, we reject this ground agitated by the Revenue. - Decided against revenue. Interest amount paid on securities as revenue expenditure - Held that - the issue deserves to be redecided by the Assessing Officer by way of a detailed order in accordance with law after affording an opportunity of hearing to the assessee. We also make it clear that we have not expressed any opinion on merits of the issue. Therefore, the Assessing Officer would be at liberty to examine the issue afresh in the light of judgment of CIT v. Karur Vysya Bank Ltd. 2004 (7) TMI 52 - MADRAS High Court as well as various orders of co-ordinate Bench of Income- tax Appellate Tribunal, Chennai in the earlier assessment years and the case law of CIT v. ING Vysya Bank Ltd. 2013 (6) TMI 43 - KARNATAKA HIGH COURT Disallowance of bad debts write off under section 37(1)(vii) - Held that - In the instant case, none the less the assessee is entitled to write off the debts. At the same time and in the light of the hon ble Supreme Court s observations in Catholic Syrian Bank Ltd. v. CIT 2012 (2) TMI 262 - SUPREME COURT OF INDIA , we also feel that while writing off the bad debts, the concerned assessee is not entitled to double deduction. It is also noticed that even the hon ble Supreme Court has remitted the matter back to the Assessing Officer with specific directions. In view thereof and more so, since we have restored preceding issue back to the Assessing Officer, we also deem it proper to restore the ground back to the Assessing Officer, who shall pass a speaking order in accordance with law by taking into consideration the judgment of the hon ble Supreme Court abovesaid. - Decided in favour of assessee by way of remand. Addition of surplus amount received by the assessee from jewellery auction - Held that - The facts are not disputed, i.e., the assessee had shown surplus amount received from the auction of jewellery which had claimed to be returnable to the concerned borrowers which is disputed by the Revenue. We find that in the case law of City Union Bank Ltd. (supra) ; the co-ordinate Bench, after considering case law of T. V. Sundaram Iyengar and Sons 1996 (9) TMI 1 - SUPREME Court had decided the issue of surplus arising from stale drafts to hold that it is true that this liability has occurred due to ordinary business (trading) transac tions of the assessee-bank. - Thus Commissioner of Income-tax (Appeals) has rightly deleted the addition arising from surplus of jewellery auction. - Decided in favour of assessee. Revision u/s 263 - Held that - we are of the view that since the revision order under section 263 dated March 30, 2009 passed by the Commissioner of Income-tax, Trichy itself does not exist, the order of the Commissioner of Income-tax (Appeals) and that of the Assessing Officer have no legs to stand. Therefore, we hold that both these appeals have become infructuous as the additions in question made by the Assessing Officer no more hold ground. - Decided in favour of assessee. Disallowance on account of pooja expenses - Held that - These expenses have been incurred only in respect of the workers, it is clear that the expenses have been rightly held to be ones incurred for the welfare of the workers. Thus we accept the assessee s ground and delete the disallowance on account of pooja expenses - Decided in favour of assessee. Business expenditure for developing business by gifting small mementos and gifts on special occasions - Held that - The assessee has been able to prove the case with preponderance of probability if not beyond reasonable doubt that the gift articles as mentioned in the return were purchased and the same were utilised for promotion and growth of the business . Thus there is no issue between parties on facts, we hold that the assessee is entitled for the relief in question. - Decided in favour of assessee. Ex gratia payments disallowed by CIT(A) - Held that - Admitted the relevant facts are that the assessee claims that the payment in question is made for earning more profit. This, in our opinion is nothing but bonus which is only in appropriations of profit. Hence, we see no reason to interfere in the findings of the Commissioner of Income-tax (Appeals). - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of Expenditure on Tax-Free Income
2. Depreciation on Leased Assets
3. Direct Pension Payments
4. Software Expenses
5. Filing Fees for Increasing Authorized Capital
6. Provision for Wage Revision
7. Excess Cash Addition
8. Depreciation on Investments
9. Interest on Purchase of Securities
10. Bad Debts
11. Unclaimed Balances
12. Ex Gratia Payments to Employees
13. Pooja Expenses
14. Amortization Expenses
15. Loss on Sale of Mutual Funds
16. Deduction on Rural Advances

Detailed Analysis:

1. Disallowance of Expenditure on Tax-Free Income:
The assessee claimed exempt income without attributing any expenditure, which the Assessing Officer (AO) disallowed by following an apportionment formula. The Commissioner of Income-tax (Appeals) [CIT(A)] restricted the disallowance to 2% of the tax-free bonds. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's precedent that a 2% disallowance is reasonable.

2. Depreciation on Leased Assets:
The AO disallowed the depreciation on leased assets, which was partially upheld by the CIT(A). The Tribunal noted that the issue for the first assessment year (1996-97) was pending and held that the CIT(A)'s partial allowance was correct, rejecting both the assessee's and the Revenue's appeals on this issue.

3. Direct Pension Payments:
The AO disallowed the pension payments made directly to retirees, not through an approved pension fund as per Rule 89. The CIT(A) confirmed this disallowance. The Tribunal, however, restored the issue to the AO for fresh consideration under Section 37(1) after examining the commercial expediency of the payments.

4. Software Expenses:
The AO and CIT(A) treated the software expenses as capital expenditure. The Tribunal upheld this decision, stating that the assessee failed to provide details proving the software did not provide enduring benefits.

5. Filing Fees for Increasing Authorized Capital:
The AO and CIT(A) treated the filing fees as capital expenditure. The Tribunal upheld this decision, referencing the Supreme Court's ruling that such expenses are directly related to the expansion of the capital base and thus are capital in nature.

6. Provision for Wage Revision:
The AO disallowed the provision for wage revision, deeming it a contingent liability. The CIT(A) upheld this disallowance. The Tribunal agreed, noting that the liability was not ascertained during the relevant accounting period.

7. Excess Cash Addition:
The AO added the excess cash found during the assessment. The CIT(A) deleted the addition, noting that the excess cash was offered to tax in the fourth year. The Tribunal upheld the CIT(A)'s decision, agreeing that the four-year period included the assessment year in question.

8. Depreciation on Investments:
The AO disallowed the depreciation on investments, treating it as a provision. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the AO had rectified the disallowance in a subsequent order.

9. Interest on Purchase of Securities:
The AO treated the interest on securities as capital expenditure. The CIT(A) allowed the interest as revenue expenditure. The Tribunal restored the issue to the AO for fresh consideration, directing the AO to re-examine the facts and apply relevant case law.

10. Bad Debts:
The AO disallowed the bad debts, stating they did not exceed the credit balance in the provision for bad and doubtful debts. The CIT(A) deleted the addition. The Tribunal restored the issue to the AO for verification, ensuring no double deduction under sections 36(1)(vii) and 36(1)(viia).

11. Unclaimed Balances:
The AO added the unclaimed balances as income. The CIT(A) deleted the addition. The Tribunal upheld the CIT(A)'s decision, referencing previous Tribunal decisions and distinguishing the facts from the Supreme Court's ruling in T.V. Sundaram Iyengar and Sons.

12. Ex Gratia Payments to Employees:
The AO disallowed the ex gratia payments, treating them as appropriations of profit. The CIT(A) confirmed this disallowance. The Tribunal upheld the CIT(A)'s decision, agreeing that the payments were not contractual liabilities but appropriations of profit.

13. Pooja Expenses:
The AO disallowed the pooja expenses. The CIT(A) confirmed the disallowance. The Tribunal deleted the disallowance, citing the jurisdictional High Court's ruling that such expenses, incurred for the welfare of employees, are allowable.

14. Amortization Expenses:
The AO disallowed the amortization expenses, treating them as capital expenditure. The CIT(A) deleted the disallowance. The Tribunal restored the issue to the AO for fresh consideration, directing the AO to re-examine the facts and apply relevant case law.

15. Loss on Sale of Mutual Funds:
The AO disallowed the loss on the sale of mutual funds, treating it as a contrived loss. The CIT(A) deleted the disallowance. The Tribunal restored the issue to the AO for fresh consideration, directing the AO to re-examine the facts and apply relevant case law.

16. Deduction on Rural Advances:
The AO limited the deduction on rural advances to incremental advances. The CIT(A) allowed the deduction on total average outstanding rural advances. The Tribunal restored the issue to the AO for fresh consideration, directing the AO to re-examine the facts and apply relevant case law.

Conclusion:
The Tribunal's decisions varied, with some issues being upheld, others restored for fresh consideration, and a few disallowances deleted. The Tribunal emphasized the need for detailed examination and application of relevant case law in several instances.