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TMI Blog2015 (8) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of IBM India Ltd. (2013 (10) TMI 1225 - KARNATAKA HIGH COURT ) and the coordinate bench of this Tribunal in the assessee's own case for Assessment Year 2001-02 we hold that the expenditure incurred by the assessee for purchase of application software is revenue in nature - Decided in favour of assessee. Disallowance of expenditure incurred for employee stock option plan - Held that:- We set aside the orders of authorities below and remit the issue back to the AO for considering it afresh in the light of directions given by of the Tribunal in A. Y. 2004-05 wherein held the claim of the assessee for deduction has to be allowed in principle. - Decided in favour of assessee for statistical purpose. Expenditure relating to rights issue disallowed u/s.35D - Held that:- Evidently, the sum of ₹ 5,37,45,182/- from which the AO started his computation and made the disallowance did include income of ₹ 3,53,58,063/-, from business, which amount was arrived at after adding back the inadmissible operating expenditure, which inter alia included the rights issue expenditure of ₹ 1,38,98,183/-. In other words, when the AO made an addition of ₹ 1,65,83,020/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer that these expenses are not for the purposes of the assessee's business or that they are capital in nature. These expenses are related to the housing products which are very much a part of the assessee's business activities and the payment of insurance premium on the housing products is also not capital in nature. Once the expenditure is accepted to be revenue in nature and incurred for the purposes of business, then it is allowable in the year in which it is incurred. Thus we concur with the finding of the learned CIT (Appeals) that the expenditure incurred as insurance premium in connection with their housing loan scheme is revenue in nature and is eligible for deduction - Decided in favour of assessee. Addition made for broken period interest - Addition deleted by the CIT (A) - Held that:- Broken period interest does not constitute income in the year under consideration as it has not become due and payable / receivable as per the provisions of the Act. - Decided in favour of assessee. - ITA No. 289/Bang/2013, ITA No. 319/Bang/2013 - - - Dated:- 12-6-2015 - N. V. Vasudevan, JM And Abraham P. George, AM,JJ. For the Appellant : Shri S Ananthan, CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as tabulated below, was therefore brought to tax by the AO denying exemption u/s. 10(23G). Sl. No. Party Amount 1. Gujarat Industries Power Co. Ltd. 1,15,25,477 2. Lanco Kondapalli Power Corpn. Ltd. 46,26,609 3. Samalpatti Power Co. Ltd. 3,06,988 4. BSES Kerala Power Ltd. 72,44,263 5. Rajahmundry Express Way 56,52,800 6. Spectrum Power Generation Ltd. 32,86,000 7. Samalpatti Power Co. Ltd. 2,37,735 7. Even before CIT(Appeals), assessee was not able to file required certificates. 8. Before us, the limited request of the learned counsel for the assessee was that the necessary approvals from the CBDT is available and will be provided to the Assessing Officer. He prayed that the order of the Assessing Officer may be set aside and the assessee allowed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second substantial question of law relates to application of the amount utilized for projects of Software in a sum of ₹ 33,14,298/-. The Tribunal on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of company's working expenses or is it expenditure laid out as a part of process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the assessee. 10. Vide its ground 4, grievance of the assessee is that expenditure of 62,68,139/- incurred for employee stock option plan (ESOP for short) was disallowed by the AO, which disallowance was confirmed by the CIT (A). 11. Ld. AR submitted that the write-off of ESOP expenditure was in accordance with guidance note on Employee Stock Option Scheme based payments, issued by ICAI and was not a contingent liability as considered by the lower authorities. As per the Ld. AR, similar issue had come up in assessee's own case for A.Y. 2005-06 (ITA.288/Bang/2013, dt.06.02.2015, where this Tribunal had remitted the issue back to the file of the AO for correct quantification of the deduction. 12. Per contra Ld. DR supported the orders of authorities below. 13. We have perused the materials on record and considered the rival submissions. We find that the claim of expenditure on ESOP had come up before this Tribunal in assessee's own case for A. Y. 2005- 06. This Tribunal had held as under at paras 20 -22 of its order : 20. Ground No.7 reads as follows:- 7. Expenditure incurred on Employee Stock Options (ESOP) amounting to ₹ 1,04,46,542 7.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round no.10 has since been considered by the Special Bench of the ITAT Bangalore in the case of Biocon (2013) 35 Taxmann.Com 305 (Bangalore - Trib) (SB). The Special Bench in the aforesaid decision held that when an Assessee issues shares under an Employee's Stock Option Plan (ESOP) and claimed difference between market price and exercise price as deduction under section 37(1), spread equally over vesting period of years, on basis of SEBI Guidelines and accounting principles, the AO cannot disallow the same holding it to be contingent liability. It was further held that the mere fact that quantification is not precisely possible and time of incurring liability is not certain would not make an ascertained liability a contingent. The Special Bench further held that where liability in respect of ESOP is incurred at end of each year, which is quantified at end of vesting period when employees become entitled to exercise options, on ESOP it is an ascertained liability and not a contingent liability. It was held that discount on ESOP being a general expense, is an allowable deduction under section 37(1) during years of vesting on basis of percentage of vesting during such period, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue during the relevant previous year as well as amortisation of deferred revenue expenditure of earlier year u/s.35D of the Act. AO disallowed both the claims. According to him, these were in the nature of capital expenditure and Section 35D of the Act applied to a banking company for the impugned assessment year. Assessee's appeal in this regard before the CIT (A) was not successful. However, what we find is that the sum of ₹ 1,38,19,183/- was considered by the assessee itself as a part of inadmissible expenditure in its computation of income filed along with the return of income. The business income shown by the assessee in the statement of computation was ₹ 3,53,58,063/-. The said amount was arrived at after making additions and deductions to the profit of ₹ 9,05,65,482/-. The breakup of this has been given as schedule B to the computation and such break-up included in it a sum of ₹ 1,38,19,183/-. In the computation of total income done by the AO in the assessment order, he has started from a sum of ₹ 5,37,45,182/-. The said sum of ₹ 5,37,45,182/- comprised of 3 items, namely, Income from house property - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Year 2002-03 (supra). On a perusal of the cited decision in ITA No.443/Bang/2013 dt.14.8.2013 in the assessee's own case for Assessment Year 2002- 03, we find that the issue of whether or not the provisions of section 115JB of the Act are applicable to Banks has been considered and held in favour of the assessee. The relevant portion of the order at pages 20 and 22 thereof are extracted hereunder :- 20. Ground No.5 raised by the assessee reads as follows:- 5. Ground 5 - Section 115JB not applicable 5.1 The adjustment on account of Minimum Alternative tax provisions under section 115JB is bad in law in as much as the provisions of MAT were never applicable to the appellant company. 21. The issue raised in the aforesaid ground is the question as to whether the provisions of section 115JB are applicable to a banking company. This issue is no longer res integra and has been decided by the ITAT Bangalore Bench in the case of Syndicate Bank v. DCIT in ITA No.668 669/Bang/2010 vide order dated 19.06.2013 for the A.Ys. 2006-07 2007-08. The relevant portions of the decision reads as follows:- 88. Ground No.3 raised by the assessee reads as follows:- 3. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91. On the applicability of section 115JB, the assessee placed reliance on the decision of the Mumbai Bench of the Hon'ble ITAT in the case of Maharashtra State Electricity Board Vs. JCIT [2002] 82 ITD 422, where it was held that a company which was not constituted as a company within the meaning of section 3 of the Companies Act, 1956, could not be deemed as a company within the meaning of section 616(c) of the Companies Act and since such company was not required to distribute any dividend, it would not come under the mischief of section 115JA. 92. The CIT(Appeals) was of the view that this decision is not applicable to the assessee's case because the decision was rendered in the context that the concept of an annual general meeting was alien to the Electricity Board and the reference to section 616(c), which was relevant to a company engaged in the generation or distribution of electricity. 93. The assessee bank does conduct annual general meetings, declares dividends, and is not engaged in generation or distribution of electricity. The Mumbai bench of the Hon'ble ITAT has, in the case of Union Bank of India Vs. JCIT in their order dated 25.07.2006 in ITA Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' Bench, Mumbai in the case of Krung Thai Bank; (2) Order dated 30.06.2011 in ITA Nos.4702 to 4706/2010 passed by the ITAT, Mumbai 'F' Bench in the case of Union Bank of India; and (3) Order dated 03.08.2011 in ITA No.469/2010 passed by the ITAT 'C' Bench, Chennai in the case of Indian Bank, did not adjudicate on the applicability of section 115JB, but following an earlier order in the assessee's own case for earlier years (at which point of time the above Tribunal's decisions were not available), restored the matter to the Assessing Officer to compute book profits based on recast P L account prepared in accordance with the Schedule-VI of the Companies Act. 96. The learned counsel for the Assessee also submitted that the provisions of Sec.115JB of the Act were amended with effect from 01.04.2013 making it obligatory, inter alia, for banks to prepare P L account in accordance with the Banking Regulation Act is clearly indicative of legislative understanding that upto and including A.Y. 2012-13, section 115JB had no application to banks and insurance companies. It was so held by ITAT, Hyderabad in the case of State Bank of Hyderabad dated 07.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntent and plain wordings of the statute. 7. The plea of the assessee is indeed well taken, and it meets our approval. The provisions of Section 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and I II of Schedule VI to the Companies Act . The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Section 211 (2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act . The provisions of Section 115 JB cannot thus be applied to the case of a banking company. 99. We are of the view that in the light of the decision of the Mumbai Bench of the Tribunal, we have to necessarily hold that provisions of section 115JB of the Act are not applicable to the assessee which is a banking company. The decisions relied upon by the ld. counsel for the assessee, clearly support the plea o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011, dt. 18.06.2012 for allowing the claim of the assessee. 26. We find that this issue stands covered in favour of the assessee by virtue of the decision off this Tribunal in assessee's own case of A. y. 2007-08 in ITA.967/Bang/2013, dt.06.02.2015. At paras 16.1 to 16.3.3 it was held as under by this Tribunal. 16.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee has claimed diminution in the value of investments under the AFS/HFT categories to the extent of ₹ 6,05,64,289 by considering only the depreciation in the value of securities and ignoring the appreciation in the value of other scrips. According to the Assessing Officer, the assessee ought to consider both the appreciation and depreciation in the respective portfolios and after netting off, the balance should be offered as profit for taxation. As the assessee had claimed only the depreciation in value of scrips and ignored the appreciation of value of other scrips, the Assessing Officer disallowed the assessee's claim of deduction of ₹ 6,05,64,289 on account of diminution in value of investments under the AFS/HFT categories. 16.2 On appeal, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , though this is Revenue's appeal, the learned Chartered Accountant appearing for the assessee, placed on record a Xerox copy of the order of the Tribunal in ITA 112/Bang/2008 for the assessment year 2004-05 and drew our attention to para nos.14 to 16 of the said order and pleaded that the issue on hand is squarely covered in favour of the assessee. We have also heard the learned DR and considered the facts and materials on record. 06. In our considered opinion, the decision of the coordinate bench of this Tribunal in assessee's own case is binding on us, facts and circumstances being the same. In the said decision cited above, the Tribunal in para nos.14 to 16 has held as under : 14. We are of the considered view that the decision of the Hon'ble Supreme Court in the case of United Commercial Bank v. Commissioner of Income-tax reported in 240 ITR 355 is directly applicable to the facts of the case on hand. As per the Head Note of the said decision, the Hon'ble Apex Court has held that preparation of the Balance sheet in accordance with the statutory provisions would not disentitle the assessee in submitting the Income-tax return on the real taxable income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the assessee's claim of depreciation on conversion of securities. 28. Ld. DR submitted that assessee could claim capital loss or gain on sale of securities which was classified as HTM. However, according to him, the impact of depreciation/appreciation could be claimed only in the year of sale of securities. As per the Ld. DR, when the assessee shifted its investments from AFS to HFT, it had not made any devaluation of the investments in the books. As per the Ld. DR, the investments were held on the same value as it were held in the HTM category. Since the book value remained the same, as per Ld. DR, if the assessee sold the said investment in a later year, the profits or loss arising therefrom would be measured taking the book value as the base and not the depreciated value. 29. Per contra, Ld.AR submitted that Department had not correctly appreciated the way the assessee had accounted the depreciation while shifting the investment from one category to the other. According to the Ld. AR, there was considerable balance in provisions carried forward from earlier year and it was against such provision that the adjustments were done. It was for this reason that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 253/Bang/2007, dt. 24th Jan., 2008 in the case of Asstt. CIT (LTU) vs. Vijaya Bank had an occasion to deal with a similar issue. After considering the rival submissions, analyzing the RBI guidelines and also extensively quoting various judicial pronouncements on which both the parties have placed their reliance, the Hon'ble Tribunal has observed thus- 15. From the above, it is clear that the assessee is treating the securities held under the category 'held for maturity' as stock-in-trade. If there is appreciation in the market value as compared to the market value at the opening of the year and such appreciation is also accounted for. It is not claiming depreciation only for the years, when the value has gone down. If that had been the case, the assessee would not have accounted for any appreciation in 3rd, 4th and 5th year. The method by which the assessee bank is valuing securities is in accordance with the accounting principles by treating such securities as stock-in-trade. Moreover, the Revenue itself is treating the profit on maturity of such security as business income and, therefore, such securities cannot be treated as capital assets. 16. Special Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.4 In RBI's master circular, under the caption 2 classification, it has been mentioned thus- (i) The entire investment portfolio of the banks (including SLR securities and non-SLR securities) should be classified under three categories viz., 'held to maturity', 'available for sale' and 'held for trading'. However, in the balance sheet, the investments will continue to be disclosed as per the existing six classifications viz., (a) Government securities, (b) other approved securities, (c) shares, (d) debentures and bonds, (e) subsidiaries/joint ventures, and (f) other (CP mutual fund units, etc.). (ii) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals. 2.3 Shifting among categories : (i) Banks may shift investments to/from held to maturity category with the approval of the board of directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year. 7.5 In view of the clear-cut guidelines of the RBI and res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the matter, we concur with the finding of the learned CIT (Appeals) in the impugned order that the expenditure incurred on insurance premium on housing loan are revenue in nature and is an allowable deduction. It is not the case of the Assessing Officer that these expenses are not for the purposes of the assessee's business or that they are capital in nature. These expenses are related to the housing products which are very much a part of the assessee's business activities and the payment of insurance premium on the housing products is also not capital in nature. Once the expenditure is accepted to be revenue in nature and incurred for the purposes of business, then it is allowable in the year in which it is incurred. There is no concept of deferred revenue expenditure in the scheme of the Act and unless otherwise expressly provided, the revenue expenditure is to be allowed in full, in the year in which it is incurred. In this view of the matter, we concur with the finding of the learned CIT (Appeals) that the expenditure of ₹ 2,39,38,811 incurred as insurance premium in connection with their housing loan scheme is revenue in nature and is eligible for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised Representative of the assessee placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT V Karnataka Bank Ltd. in ITA No.433 of 2005 dt.12.9.2012. The relevant portion of the said judgment at paras 16 17 thereof is extracted hereunder :- 16. It is declared under Section 5 of the Act that when interest is accrued or deemed to have been accrued, it is liable to tax. The word 'accrued' has defined the legal connotation. The interest that becomes due or liable to be payable whether or not it is paid, the interest is accrued or deemed to have been accrued. If the interest does not become due and not liable to pay such part of the interest arise, it cannot be said that the interest has become accrued. It appears form the facts of the case that the assessee is a bank. For its accounting purpose, it has shown the proportionate interest entitled to receive on the Govt. securities. But for the assessment year, although it is not accrued, in the legal sense and in terms of sections 5 and 145 of the I.T. Act. The contention of the Revenue that in the books of accounts, the proportionate interest shown for the broken period in the balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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