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TMI Blog2017 (3) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... lete the addition of 29,35,41,415/-.However, in our considered opinion, administrative expenses need to be disallowed and since the assessee has made suo moto disallowance of 63,84,525/-, in our considered opinion, this should meet the ends of justice. We, accordingly, confirmed the suo moto disallowance of 63,84,525/-. Securitization gains amortised as per RBI guidelines and non-allowance of such realized gains - Held that:- The amortization merely represents a timing difference and since the bank is consistently making profits and paying tax at the highest rate without claiming any tax holiday benefit, it can be safely concluded that the method followed is revenue neutral. Disallowance of bad debts - Held that:- As decided in assessee’s own case for A.Y. 2002-03, 2001-02 & 2003-04 Non-convertible debentures are in the type of advancing funds to various companies and the income which is taken as interest and assessable as business income. For the banks, giving of loans is part of its business and any bad debt arising therein is covered u/s 36(l)(vii) as bad debt, whether it is loan or nonconvertible debentures. - Decided in favour of assessee Advertisement expenditure - Allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered a similar issue qua ground no. 1 of that appeal. The relevant findings read as under:- Ground no. 1 relates to the claim of depreciation of ₹ 313.34 lacs on Wind Energy Generators. 5. This issue has been considered by the A.O at para 4 of his assessment order wherein he has followed the findings given in the assessment order for A.Y. 05-06 and following the findings of his predecessor, the claim of depreciation was disallowed. When the matter was agitated before the ld. CIT(A). The CIT(A) also followed the findings of his predecessor and dismissed assessee's appeal. 6. Before us, the ld. counsel for the assessee stated that the issue is no more res integra in so far as the assessee is concerned because the Tribunal has allowed the claim of depreciation in assessee's own case in 02-03, 04-05 & 05-06. Per contra, the ld. D.R. strongly objecting to the claim of the ld. counsel strongly relied upon the decision of the Tribunal Special Bench in the case of IndusInd Bank 19 Taxman.com 173. 7. We have carefully considered the rival contentions and the facts in issues. We find force in the contention of the ld. counsel; this issue has been considered at length by the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a twin requirement of "ownership" and "usage for business" for a successful claim under section 32 of the Act. The section requires that the assessee must use the asset for the "purpose, of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. The definitions of "ownership" essentially make ownership a function of legal right or title against the rest of the world. However, it is "nomen generalissimum", and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. As long as the assessee has a right to retain the legal title against the rest of the world, it would be the owner of the asset in the eyes of law. Held, affirming the decision of the Tribunal, (i) that the assessee was a leasing company which leased out the trucks that it purchased. Therefore, on a combined reading of section 2(13) and (24) of the Act the income derived from leasing of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs CIT, in CA No. 3286 to 3290 of 2008, wherein the question that was sought to be answered was whether the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers". The Hon. supreme Court of India, concluded, extracted from para 28, "From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question" (para28, page28). 32. Coming to the issue of finance lease, wherein the CIT(A) sustained the disallowance because the usage of the equipment lease out could not be substantiated. On going through the decision of the jurisdictional High Court of Bombay, we find that the issue now is at rest, in so far as the lessor is concerned, because, while dealing the case of the lessor, i.e. the assessee in the instant case, the asset has left its corridors for being utilized, and in return, rent had been received by the assessee. The Hon. Bombay High Court in the case of Kotak Securities Ltd. has held that what is to be seen is that the asset has been given on lease and the lease rent has been received, given in that case, so far as lessor is concerned, the asset has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25/- Further Disallowance u/s. 14A = ₹ 29,35,41,415/- 13. Aggrieved by this, the assessee carried the matter before the ld. CIT(A) but could not succeed. 14. Before us, the ld. counsel for the assessee vehemently stated that the A.O. has computed the disallowance which is mainly on account of interest expenses. It is the say of the ld. counsel that the assessee was having sufficient own funds for making tax free investment, therefore, there is no question of considering interest expenses for the computation of the impugned disallowance. Per contra, the ld. D.R. strongly supported the findings of the A.O. and also objected to the additional ground raised by the assessee for the deletion of suo moto disallowance of ₹ 63,84,525/-. 15. After giving a thoughtful consideration to the facts in issue, we find that from the balance sheet of the assessee for the year under consideration, the capital balance is at ₹ 360 crores and the free reserves are at ₹ 8411 crores totaling to ₹ 8051 crores. Against this, we find that the tax free investment at ₹ 651 crores. Thus, it can be safely concluded that the assessee was having sufficient own funds to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the assignee/ SPV. The bank also provides credit enhancement in the form of cash collaterals and/ or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/ disclosure is made at the time of sale in accordance with AS-29- provisions, contingent liabilities and contingent assets. Gains on securitization transaction is recognized over the period of the underlying securities issued by the SPV. Loss on securitization is immediately debited to Profit and Loss Account. 7.2.Further, it is seen that 'Notes to account' (Para 5.1.15) reads as under:- 31.03.07 (Rs in Cr.) Number of loan accounts securitized 2.00 Book value of loan assets securitized 547.16 Sale consideration received for the securities assets 550.09 Net gain/ loss over net book value 2.93 7.3 The assessee was asked to explain where the above amount of ₹ 2.93 crores has been offered as income in its annual accounts. In this regard, the assessee contended as under: GAIN ON SECURITIZATION OF ASSET OF ₹ 2.93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee once again stated that being a bank it has to mandatorily follow the guidelines issued by the RBI. It is the say of the ld. counsel that it is not the case of the revenue authorities that the assessee has not followed the guidelines of the RBI. Therefore, the action of the A.O and also of the ld. CIT(A) are against the facts of the case. Per contra, the ld. D.R. strongly relied upon the order of the revenue authorities. 27. Having heard the rival submissions, we have carefully considered the orders of the authorities below. It is a settled proposition of law that what is relevant for Income Tax on the basis is the real income as held by the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. 225 ITR 746. Various High Courts have given due recognition to RBI guidelines which determined the taxation of banks/NBFC. The Hon'ble Uttaranchal High Court in the case of Nainital Bank Ltd. 309 ITR 335, Hon'ble Allahabad High Court in the case of Kailash Auto Finance Ltd. 320 ITR 394 and also Hon'ble High Court of Delhi in the case of Elgi Finance Ltd. 293 ITR 357. 28. In our considered opinion, the amortization merely represents a timing difference and si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested in non convertible debentures of the company. On account of the failure of the borrower to repay the loan, the loan had turned bad and accordingly, the Assessee had written off the loans along with the investment. AO was of the view that the allowability of writing off of debts under Section 36(1)(vii) cannot be equated with writing off of investments and therefore the investments cannot be written off as bad debts. He was further of the view that profit or loss from investment have to be computed as provided under sections 45 to 55 of the Act for the computation of income or loss. For computation of income or loss there has to be transfer under Section 2 (47) which had not occurred in the present case and therefore the same cannot be allowed u/s 36. AO was therefore of the view that the instrument which the assessee had invested were in the nature of investment and not a loan for the purpose of deduction as bad debts u/s 36(1)(vii). He accordingly considered the amount written off of ₹ 8.64 crore as capital loss and disallowed the claim of the assessee. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, we set aside the findings of the ld. CIT(A) and direct the A.O. to delete the impugned disallowance of ₹ 16,02,273/-. Ground no. 4 is allowed. 27. Ground no. 5 relates to the disallowance of expenditure on advertisement and publicity to change the Bank's name from UTI Bank to Axis Bank. 28. On perusal of the Annual Accounts of the assessee read with the directors report, the A.O. was of the opinion that significant amount of expenditure was incurred by the assessee for the new brand. The assessee was asked to provide the details and explain the allowability of the same as revenue expenditure. The assessee replied as under:- The rebranding expenditures have been incurred not with a view to bring into existence an asset or advantage for enduring benefit for the Bank's business. The object of incurring such expenditures was not to acquire a capital asset but it was commercially necessary to incur such expenditures to facilitate the Bank's ongoing business. The question whether the expenditures on account of capital or revenue must be viewed in the larger context of business necessity or expediency and would depend effectively on practical and business point of vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pported the findings of the revenue authorities. It is the say of the ld. D.R. that the assessee has built a new identity and incurred heavy expenditure which will have enduring benefit and, therefore, the same cannot be considered as revenue expenditure. 33. We have given a thoughtful consideration to the orders of the authorities below and have carefully considered the facts in issue. It is true that the impugned expenditure was incurred only once and for all and by bringing public awareness to the change in the name of the bank from UTI Bank to Axis Bank. But at the same time, it cannot be said that it has brought into existence an advantage for the enduring benefit. 34. Every expenditures incurred by a business concern for the purpose of its business is bound to result in some benefit to its business and, the mere fact, that the benefit is not confined to one year, does not to our mind mean that it is of capital in nature. It is not a case where an assessee had started a new line of business or acquired new premises or purchased other assets which could be included as an asset. It is merely because where for the purpose of bringing public awareness, the impugned expenditures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35. Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. 36. In our considered opinion an advertisement expense of the nature in question here cannot compulsorily be made to be treated by the assessee as a long-term capital expenditure. On the other hand advertisement expenses are normally to be treated as revenue expenditure since the memory of the purchasing market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year. 37. The Hon'ble Jurisdictional High Court of Gujarat in the case of Core Healthcare Ltd. 308 ITR 263 was, interalia, seized with the following question of law: Whether advertisement expenses incurred by the assessee to create a brand image with enduring benefit are allowable as revenue expenditure? 38. And the Hon'ble High Court held as under:- 14. In relation to the first item, namely, advertisement expenses, it is not in dispute that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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