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TMI Blog2016 (12) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... of income wherein the revised total income was declared at Rs. 1,70,15,28,724/-. The case was selected for scrutiny and thereafter assessment was framed under section 143(3) of the Income Tax Act, 1961 (in short "the Act") vide order dated 19.02.2014 and the total income was determined at Rs. 1,83,50,04,420/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before Ld. CIT(A), who vide consolidated order for assessment year 2010-11 & 2011-12 dated 27.02.2015 (in Appeal No.Pn/CIT(A)- 5/ACIT, Circle-7/367/2012-13/47 & Pn/CIT(A)-5/JCIT, Range-7/389/2013-14/47) granted partial relief to the assessee. Aggrieved by the order of Ld. CIT(A), Revenue and assessee are now in appeal before us. The effective ground raised by the Revenue in ITA No.611/PN/2015 read as under :- "1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in allowing the claim on account of depreciation on the merged bank losses treated as Intangible Assets. The learned CIT(A) failed to appreciate the fact that there is no provision in the IT Act under which the goodwill can be claimed or allowed as deduction. Since the banks that were merged with the appellant bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer concluded that the "goodwill cost" claimed by the assessee was the excess of liabilities of the merged banks over the realizable value of the assets of the merged banks that was taken over. He was of the view that the difference of liabilities over assets cannot be interpreted to mean any business or commercial rights and further since the amalgamation of the banks was by way of merger and not by way of purchase, therefore also the question of allocation of the consideration to individual identifiable assets and liabilities of the transferor on the basis of their fair values on the date of amalgamation does not arise. He accordingly denied the claim of depreciation of Rs. 3,97,93,694/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before CIT(A), who decided the issue in favour of the assessee by holding as under :- "4.3.4 Therefore my learned predecessor had held, in respect of assessment years 2007-08 to 2009-10, that the claim of merged bank losses can neither be allowed as business expenditure nor the alternative claim of depreciation by treating such losses as intangible assets, could be allowed. The learned counsel has stated that the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Time and Demand liabilities, rupee borrowings, bills payable, interest accrued, capital reserves and surpluses; whether statutory or not and all other liabilities including contingent liabilities, duties, undertakings and obligations of the Transferor Banks have been taken by the assessee. In-fact, the scheme specifically provides that all the licenses/ registrations of the bank or its branches etc. issued by Reserve Bank of India or any authority of the State/ Central Government or other authorities concerned, etc. stand transferred to the assessee Bank. Similar is the position with regard to the liabilities of the Transferor Bank including the savings bank account or current bank account or any other deposits of the customers. The scheme also envisaged taking over of all the employers of the Transferor Bank who wished to continue in service. In sum and substance, assessee bank took over the entire business apparatus of the Transferor Bank, which included its client base, operational branches of the bank at different places and also their employees, besides the licenses and other statutory approvals enjoyed by the Transferor Bank. Now, the case set-up by the assessee is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been taken over, which ostensibly is a reflection of the value of the aforesaid intangible advantages obtained by the assessee. Such advantages are to be considered in the nature of "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act, having regard to the parity of reasoning laid down by the Hon'ble Delhi High Court in' the case of Areva T & D India Ltd. & Ors. (supra). In the case of SKS Micro Finance Ltd. (supra), assessee acquired a running business under a slump sale agreement and the consideration paid included, sum paid for acquiring the client base of the transferor. The acquisition of rights over the assets of the transferor, inclusive of its customers base was held to be an 'intangible asset' being 'business or commercial rights of similar nature' contemplated in section 32(1)(ii) of the Act and was held eligible for depreciation. Following the aforesaid discussion, in the present case, 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 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's favour by the Hon'ble Tribunal. He therefore submitted that the issue in the present ground of Revenue is covered in favour of assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for assessment year 2009-10 (ITA No.925/PN/2013 order dated 20.05.2016). He placed on record the copy of the aforesaid order and pointed to the relevant observations of the Tribunal. He thus supported the order of CIT(A). The Ld. DR on the other hand supported the order of Assessing Officer but however could not controvert the submissions of Ld. AR. 7. We have heard the rival submissions and perused the material on record. The issue in the present case with respect to allowability of depreciation of the merged banks losses. We find that identical issue arose before the Co-ordinate Bench of Tribunal in assessee's own case for assessment year 2009-10. The issue was decided by the Co-ordinate Bench of Tribunal in favour of the assessee. The relevant issue before the Co-ordinate Bench and the observations of the Coordinate Bench of Tribunal are reproduced hereunder :- "3. Ground of appeal No.2 by the assessee reads as under : "Without prejudice to the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken-over mean all debts, demand deposits, saving bank deposits, term deposits, Time and Demand liabilities, rupee borrowings, bills payable, interest accrued, capital reserves and surpluses, whether statutory or not and all other liabilities including contingent liabilities, duties, undertakings and obligations of the Transferor Banks have been taken by the assessee. In-fact, the scheme specifically provides that all the licenses/registrations of the bank or its branches etc. issued by Reserve Bank of India or any authority of the State/Central Government or other authorities concerned, etc. stand transferred to the assessee Bank. Similar is the position with regard to the liabilities of the Transferor Bank including the savings bank account or current bank account or any other deposits of the customers. The scheme also envisaged takingover of all the employers of the Transferor Bank who wished to continue in service. In sum and substance, assessee bank took over the entire business apparatus of the Transferor Bank, which included its client base, operational branches of the bank at different places and also their employees, besides the licenses and other statutory approvals enjoy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee over and above the net worth of the banks which have been takenover, which ostensibly is a reflection of the value of the aforesaid intangible advantages obtained by the assessee. Such advantages are to be considered in the nature of "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act, having regard to the parity of reasoning laid down by the Hon'ble Delhi High Court in the case of Areva T & D India Ltd. & Ors. (supra). In the case of SKS Micro Finance Ltd. (supra), assessee acquired a running business under a slump sale agreement and the consideration paid included, sum paid for acquiring the client base of the transferor. The acquisition of rights over the assets of the transferor, inclusive of its customers base was held to be an 'intangible asset' being 'business or commercial rights of similar nature' contemplated in section 32(1)(ii) of the Act and was held eligible for depreciation. Following the aforesaid discussion, in the present case, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were upheld by CIT(A). He accordingly made addition of Rs. 1,10,11,414/- under section 43D of the Act. Aggrieved by the order of Assessing Officer, assessee carried the matter before CIT(A), who upheld the order of Assessing Officer by holding as under :- "8.2 During the appellate proceedings, the learned counsel for the appellant vehemently objecting to the addition made by the Assessing Officer submitted that the appellant being a scheduled bank is covered under the provisions of Sec.43D and therefore, there was no justification for the Assessing Officer to make any addition in this regard. He accordingly, pleaded that the additions made by the Assessing Officer of Rs. 2,30,52,692.91/- and Rs. 1,10,11,414/- be deleted. 8.3 The submissions of the appellant on this issue were examined with reference to the facts of the case and the provisions of section 43D read with Rule 6EA by my ld. predecessor who held : "Rule 6EA reads as under : [6EA. The provisions of section 43D shall apply in the case of every public financial institution, scheduled bank, State financial corporation and State industrial investment corporation where its income by way of interest pertains to the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills under letters of credit or instalments under deferred payment carried are overdue for less than 3 months; (3) bills not exceeding 10% to 15% of the total outstandings in the bills purchased or discounted account of the borrower are overdue for payment for a period of less than 3 months and refund in respect of unpaid bills is not forthcoming immediately. (b) Advances recalled, i.e., where the repayment is highly doubtful and revival of the unit is not considered worthwhile and a decision has been taken to recall the advances. (c) Suit-filed accounts, i.e., where legal action or recovery proceedings have been initiated and suits are pending for recovery of advances. (d) Decreed debts, i.e., where suits have been filed and decree obtained and such decree is pending for execution. (e) Debts recoverability whereof has become doubtful on account of shortfalls in value of security, difficulty in enforcing and realising the securities, or inability or unwillingness of the borrower to repay the banks dues, partly or wholly, and such debts have not been included in preceding clauses (a) to (d).] 6.3.1 As could be seen from the above Rule, income of the appellant bank bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not mandate the rule making authority to follow the guidelines issued by the NHB in relation to bad and doubtful debts. In exercise of such power the rule making authority has enacted Rule GEB of the Rules. The rule so enacted originally was in conformity with the guidelines issued by NHB. The guidelines were revised by NHB in the year 2004 but the rule making authority did not think it fit to revise the rules to be in conformity with the revised guidelines. In our view it cannot be said that the guidelines of the NHB as and when they are revised have to be treated by implication incorporated in Rule 6EB of the Rules. NHB is not the rule making authority for the purposes of section 43D of the Act. The discretion is left to the rule making authority to follow or not follow tile guidelines of NHB as and when they ore revised. The purpose of classification of debts as bad and doubtful by the NHB and the purpose of not recognising interest income for the purposes of the Act, are different. The considerations that weigh with the relevant authorities are also different. Therefore it cannot be said that the rule making authority under the Act has to automatically follow the guidelines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst three months and restrict the non-recognition of income in respect of NPAs u/s.43D to that extent. The additional income, if any, on account of such restriction i.e. extending the period of irregularities of the nature specified under Rule 6EA in the borrowers account to six months from three months, shall be brought to tax u/s.5 on accrual basis. Needless to say, the appellant shall furnish the necessary details to the Assessing Officer in this regard. Subject to these directions, this ground is partly allowed". 8.4 The view of the CIT(A) had been endorsed by the Pune ITAT in the appellant's own case for A.Y. 2008-09 in order dated 23.01.2014 wherein the computation of interest income in relation to bad and doubtful debts on the basis of the methodology prescribed in Rule 6EA of the I. T. Rules has been affirmed by following the Mumbai Bench of the Tribunal decision in the case of GIC Housing Finance Ltd. (supra). In view of the decision of the Pune ITAT the addition of Rs. 2,30,52,692/- and Rs. 1,10,11,414/- for A.Y. 2010-11 & 2011-12 respectively u/s 43D of the Income Tax Act, is confirmed. Ground no.4 for A.Y. 2010-11 & Ground no.3 for A.Y. 2011-12 are dismissed." 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision was not an expenditure incurred during the year under consideration but was a contingent provision and therefore not allowable. He accordingly disallowed Rs. 4,44,83,000/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before CIT(A) who upheld the order of Assessing Officer by holding as under :- "10.2 The issue was taken by the appellant in second appeal before ITAT vide ground no.5 for A.Y. 2007-08 and ground no.4 for A.Y. 2008-09. The ITAT held that undisputedly, the claim is a contingent provision made on the basis of percentage on the value of standard assets. The provision does not reflect any particular debt which is doubtful or bad but is only a general and non-specific provision and it has been rightly classified as a contingent provision by the Income tax Authority. Therefore it was held by the ITAT that the provision made was contingent in nature and the lower authorities had made no mistake in disallowing the same in view of the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra). In view of this decision in Pune ITAT, ground of appeal no.5 for the A.Y. 2011-12 is dismissed." 17. Aggrieved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delines, the assessee bank had prepared a statement of standard assets, sub-standard assets, etc. and made a provision in the books of account. It was submitted that the directions of RBI in the form of prudential norms was mandatory and, therefore, the provisions made in pursuance of the same constituted an allowable expenditure. In this regard, reliance was placed on the judgment of the Hon'ble Uttaranchal High Court in the case of Nainital Bank Ltd. (supra) wherein the binding nature of the RBI guidelines have been appreciated and the provision created on that basis was found to be allowable expenditure. 28. On the other hand, learned Departmental Representative pointed out that the Commissioner of Income-tax (Appeals) made no mistake in disallowing the impugned claim following the subsequent judgment of the Hon'ble Supreme Court in the case of Southern Technologies Ltd (supra) 29. We have carefully considered the rival submissions. In our view, the Commissioner of Income-tax (Appeals) has correctly appreciated the position and sustained the disallowance following the judgment of the Hon'ble Supreme Court the case of Southern Technologies Ltd. (supra). The Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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