2016 (12) TMI 296 - AT - Income Tax

Claim on account of depreciation on the merged bank losses treated as Intangible Assets - Held that - The impugned goodwill cost of the merged banks, has been held to result in the acquisition of an asset in the nature of business or commercial rights and therefore amounts to intangible asset, the action of the Assessing Officer in not allowing depreciation on the goodwill cost cannot be sustained. The business advantages detailed earlier, are liable to be considered as an intangible asset, being business or commercial rights of similar nature contemplated u/s 32(1)(ii) of the Act. In our considered opinion, the plea of the assessee for allowance of depreciation in terms of section 32(1)(ii) of the Act cannot be faulted either in law or on facts. Disallowance under section 43D - Held that - As decided in assessee s own case for assessment year 2009-10 we find no reason to interfere with the order of CIT(A) and thus the ground of assessee is dismissed. Disallowance of provision for standard assets - Held that - AR has fairly conceded that on an identical issue in the case of Sindhudurg Dist. Central Co-op. Bank Ltd. 2012 (3) TMI 492 - ITAT PUNE the Co-ordinate Bench has decided the issue against the assessee pointed out that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. (2010 (1) TMI 5 - SUPREME COURT OF INDIA) clearly applies to the present case and the claim of the assessee has been rightly rejected by the lower authorities.

Summary

Issues Involved:

1. Depreciation on merged bank losses treated as intangible assets.
2. Disallowance under section 43D of the Income Tax Act.
3. Disallowance of provision for standard assets.
4. Disallowance under section 40A(2)(b) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Depreciation on Merged Bank Losses Treated as Intangible Assets:

The Revenue contested the allowance of depreciation on merged bank losses treated as intangible assets. The Assessing Officer (AO) had denied the claim, reasoning that the difference between liabilities and assets of merged banks did not constitute business or commercial rights. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the claim, referencing prior Tribunal decisions that considered such acquisitions as conferring substantial business advantages, thus qualifying as intangible assets under section 32(1)(ii) of the Income Tax Act. The Tribunal upheld the CIT(A)’s decision, following precedent from earlier years where similar claims were allowed, recognizing the acquired client base, operational branches, and licenses as intangible assets eligible for depreciation.

2. Disallowance Under Section 43D of the Income Tax Act:

The AO added interest income on Non-Performing Assets (NPAs) for one quarter, asserting that interest should be accounted for at least two quarters as per Rule 6EA. The CIT(A) upheld this addition, citing that the appellant bank treated accounts as NPAs if interest or loan installment was not received for three months, contrary to the six months criterion in Rule 6EA. The Tribunal confirmed the CIT(A)’s decision, referencing its earlier ruling in the assessee’s case for the previous assessment year, where it was held that the RBI guidelines could not override the statutory provisions of the Income Tax Act.

3. Disallowance of Provision for Standard Assets:

The AO disallowed the provision for standard assets, deeming it a contingent provision and not an actual expenditure. The CIT(A) upheld this disallowance, referencing the Tribunal’s decision in the assessee’s earlier years and the Supreme Court’s judgment in Southern Technologies Ltd., which held that such provisions are contingent and not allowable as deductions. The Tribunal affirmed the CIT(A)’s decision, noting that similar provisions were disallowed in the case of Sindhudurg Dist. Central Co-op. Bank Ltd., where it was held that RBI guidelines do not govern the allowability of such provisions under the Income Tax Act.

4. Disallowance Under Section 40A(2)(b) of the Income Tax Act:

The AO disallowed 50% of the outsourcing expenses and security charges paid to Cosmos Foundation under section 40A(2)(b), considering them excessive. The CIT(A) upheld this disallowance, finding no merit in the appellant’s contention that the payments were reasonable and necessary. The Tribunal did not specifically address this issue in the provided text, implying that the CIT(A)’s decision stood unchallenged.

Conclusion:

The Tribunal dismissed both the Revenue’s and the assessee’s appeals, affirming the CIT(A)’s decisions on all contested issues. The judgments were consistent with precedents and statutory interpretations, emphasizing adherence to the Income Tax Act over external guidelines.