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TMI Blog2017 (4) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... ension paid directly to the retired employees - assessee claims that the expenditure has to be allowed under Section 37(1) - HELD THAT:- In the earlier year, this Tribunal after considering the order of the Cochin Bench remitted back the issue to the file of the Assessing Officer for reconsideration. When the assessee has actually paid funds directly to the pension fund, this Tribunal is of the considered opinion that the claim of the assessee has to be examined under Section 37(1) of the Act as directed by the Tribunal in the earlier year. Accordingly, as directed by this Tribunal in the assessee s own case for assessment year 2001-02, 2004-05 and 2006-07, the claim of the assessee has to be re-examined under Section 37(1) of the Act. Accordingly, the orders of the lower authorities are set aside and the disallowance made by the AO towards pension payment is remitted back to the file of the AO. Disallowance of interest paid at the time of purchase of securities - HELD THAT:- As decided in own [ 2009 (7) TMI 1210 - MADRAS HIGH COURT ] expenses incurred or interest paid on purchase of shares was only revenue expenditure and not capital expenditure. The Madras High Court placed its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, there is accrued liability for payment. Since there is a liability for the services enjoyed by the assessee during the year under consideration, the same has to be allowed as expenditure while computing taxable income irrespective of the fact that the payment is actually made or not - in the mercantile system of accounting, the liability for payment towards services enjoyed by the assessee during the year under consideration is an allowable expenditure. Therefore, both the authorities below are not justified in disallowing the claim of the assessee. Disallowance of ex-gratia payment - AO disallowed the claim of the assessee on the ground that the incentive paid to the bank employees deemed to be distribution of profit to the employees - HELD THAT:- In view of Lakshmi Vilas Bank [ 2014 (4) TMI 826 - MADRAS HIGH COURT ] this Tribunal is of the considered opinion that the ex-gratia payment is in the nature of business expenditure. Therefore, it has to be allowed while computing taxable income. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer towards ex-gratia payment made to the employees of the bank is deleted. Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-in-trade. Once the investment was classified as stock-in-trade, all the expenditure incurred by the assessee has to be allowed without any restriction. Therefore, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the disallowance made by the Assessing Officer is deleted. Disallowance towards other expenses - No details and vouchers and supporting material to claim the expenditure produced - HELD THAT:- In the absence of any material, the assessee cannot blame the Assessing Officer for disallowance. Since the assessee claims that the materials were spread across various Branches, this Tribunal is of the considered opinion that giving one more opportunity to produce necessary material before the Assessing Officer would not prejudice any cause to the interests of the revenue. Accordingly, the orders of the authorities below are set aside and the disallowance is remitted back to the file of the Assessing Officer. Disallowance towards Pooja expenses - HELD THAT:- Assessee has to produce some material to substantiate the expenditure incurred. AO disallowed the claim of the assessee since no ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- Since Section 43D of the Act provides for application of guidelines issued by Reserve Bank of India, this Tribunal is of the considered opinion that the assessee cannot be found fault for preparing the bad and doubtful debts as per the guidelines issued by the Reserve Bank of India. The matter would stand differently in case Section 43D of the Act does not provide for such direction as per Reserve Bank of India guidelines. Since the Income-tax Act, more particularly Section 43D, specifies provision for preparation of bad and doubtful debts as per guidelines issued by Reserve Bank of India, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Addition towards office building - DR CIT(Appeals) deleted the addition made to the office building on the basis of additional evidence filed by the assessee without calling for remand report - HELD THAT:- Assessee claims that there was no construction of any new building. Therefore, the exact nature of expenditure has to be verified. Moreover, the CIT(Appeals) allowed the claim of the assessee without affording any opportunity to the Assessing Officer. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of India which is the statutory authority as per the Government stipulation. The Ld.counsel very fairly submitted that expenditure incurred by the assessee for increasing authorized capital to the extent of ₹ 43,44,844/- has to be disallowed in view of judgment of Apex Court in Brook Bond India Ltd. v. CIT (1997) 225 ITR 798. However, the list fee has to be allowed in view of the judgment of Madras High Court in the assessee's own case in Tax Case Appeal No.2139 of 2008. 6. We have heard Shri S. Sankaralingam, the Ld. Departmental Representative also. As rightly submitted by the Ld.counsel for the assessee, out of total expenditure of ₹ 43,44,844/-, a sum of ₹ 42,94,844/- pertains to increasing the authorized capital. Therefore, this amount of ₹ 42,94,844/- cannot be allowed as expenditure in view of the judgment of Apex Court in Brook Bond India Ltd. (supra). Accordingly, the order of the lower authority is confirmed to the extent of ₹ 42,94,844/-. However, the balance of ₹ 50,000/- pertaining to listing fee paid to the Security Exchange Board of India, we have carefully gone through the judgment of Madras High Court in the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the lower authorities. Accordingly, the matter was remitted back for reconsideration. The Ld.counsel submitted that the issue raised for the year under consideration was also similar, therefore, the matter may be remitted back to the file of the Assessing Officer. 9. We have heard Shri S. Sankaralingam, the Ld. Departmental Representative also. The Ld. D.R. very fairly submitted that this Tribunal in the assessee's own case, after considering the decision of Cochin Bench of this Tribunal in The Catholic Syrian Bank Ltd. v. Addl. CIT in I.T.A. No.10/Coch/2009 dated 11.02.2011 and 06.07.2011 remitted back the matter to the file of the Assessing Officer to consider the matter in the light of Section 37(1) of the Act. 10. We have considered the rival submissions on either side and perused the relevant material available on record. the assessee has paid directly to the pension fund of retired employees. The Assessing Officer disallowed the claim of the assessee on the ground that the payment of pension has to be routed through Group Insurance Scheme of LIC as provided in Rule 89 of Income-tax Rules, 1962. In fact, the Association of Public Sector Scheduled Banks approached C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment is available at page 24 of the paper-book. 13. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the interest paid on purchase of securities is capital outlay. Therefore, the Assessing Officer by placing reliance on the judgment of Apex Court in Vijaya Bank in 187 ITR 541, disallowed the claim of the assessee. 14. We have considered the rival submissions on either side and perused the relevant material available on record. The payment of interest for purchase of securities was subject matter of discussion by the Madras High Court in the assessee's own case. The Madras High Court found that the expenses incurred or interest paid on purchase of shares was only revenue expenditure and not capital expenditure. The Madras High Court placed its reliance on the judgment of Apex Court in United Commercial Bank v. CIT (1999) 240 ITR 355 and found that interest paid by the assessee will not be capital expenditure. In view of this judgment of Madras High Court, this Tribunal is of the considered opinion that both the authorities are not justified in disallowing the claim of the assessee. accordingly, the orders of the authorities below are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors. Some of the Branches which paid fees was shifted to other locations. Therefore, according to the Ld. counsel, the assessee-bank could not produce the vouchers for payment of fees. Even though 60% of vouchers were collected and produced before the Assessing Officer, the remaining vouchers could not be produced. According to the Ld. counsel, after considering the volume of the business transaction of the assessee and number of Branches spread across the country, the claim of the assessee may be allowed. 21. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that for the purpose of allowing the claim of the assessee as expenditure, the assessee has to substantiate the payment made to the auditors. Merely because the assessee is having 214 Branches across the country and some of the Branches were shifted to other locations, that cannot be a reason to allow the claim of the assessee without verification. The Ld. D.R. very fairly submitted that if the payment of fees to the auditors and advocates are established by producing necessary material, then the Department may not have any hesitation in allowing the claim of the assessee. 22. We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived account and interest received in advance account was credited. The credit balance in interest received in advance is a liability on 31st March. After 31st March, the balance income received in advance is transferred to income account. According to the Ld. counsel, the Assessing Officer in the original assessment order dated 27.03.2006 had made addition of ₹ 1,93,59,875/- and in the order dated 28.01.2009, made addition of ₹ 1,37,02,564/-. The total addition made was of ₹ 3,30,62,439/-. Since the assessee was following mercantile system of accounting, according to the Ld. counsel, the interest received in advance was offered in the subsequent year for taxation. In case the addition is confirmed, the income offered by the assessee in the subsequent year has to be deleted. 25. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the assessee received income in certain bills in advance. Referring to Section 5(1)(a) of the Act, the Ld. D.R. submitted that the total income of the assessee was inclusive of income from all source, which was received or is deemed to be received in India in such year by the assessee or on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le system of accounting, according to the Ld. counsel, the expenses relating to particular year, which was debited in the books, has to be allowed. Since the liability has incurred during the year under consideration, according to the Ld. counsel, the same has to be allowed during the year under consideration. 30. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the assessee has shown a sum of ₹ 1,85,49,609.63 under the head "Unpaid Expenses" where provisions made for expenses such as building rent, electricity, telephone, audit fee, postage charges, etc. The actual charges payable would be known on later date on receipt of bills. Therefore, according to the Ld. D.R., the estimation made by the assessee cannot be allowed during the year under consideration. According to the Ld. D.R., the unpaid expenses are only a provision and it is not accrued liability to the assessee, therefore, the same cannot be allowed as expenditure while computing the taxable income. 31. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee was following mercant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not justified in confirming the disallowance made by the Assessing Officer. 34. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the assessee, in fact, distributed profits to the employees, therefore, it is an application of profit, hence, it cannot be allowed as revenue expenditure. 35. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the order of this Tribunal in the assessee's own case for assessment year 2006-07. This Tribunal held that exgratia amount paid to the employees amounts to allowable expenditure. In fact, this Tribunal placed its reliance on the judgment of Calcutta High Court in CIT v. National Engineering Industries Ltd. (1994) 208 ITR 1002. 36. We have also carefully gone through the judgment of Madras High Court in Lakshmi Vilas Bank (supra). The Madras High Court found that the ex-gratia payment made to the employees in the form of incentive is a business expenditure. Therefore, it has to be allowed under Section 37 of the Act. In view of this judgment of Madras High Court in Lakshmi Vilas Bank (supra), this Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has received dividend income incidentally in business activity that cannot be a reason to disallow any part of expenditure incurred by the assessee. Therefore, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of the authorities below are set aside and the addition made by the Assessing Officer is deleted. 41. The next ground of appeal is with regard to advertisement and publicity. 42. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the assessee has incurred an expenditure of ₹ 3,75,69,047/- towards advertisement and publicity. The assessee was able to produce vouchers to the extent of ₹ 2,45,39,333/-. In fact, the assessee-bank was incorporated in the year 1916. The assessee has now 214 Branches across the country apart from administrative and Divisional Office. The Assessing Officer disallowed the claim of the assessee for want of vouchers. 43. The Ld.counsel further submitted that due to shifting of Branches and voluminous vouchers, the same cannot be collected from various Branches. According to the Ld. counsel, it is common practice to exhibit banners in the places where more people would ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter afresh in the light of the material that may be produced by the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 46. The next issue arises for consideration is depreciation on leased assets. 47. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the assessee claimed depreciation on 18 assets leased to various persons. In fact, the Assessing Officer allowed depreciation on 16 assets. The dispute was only with regard to two assets. According to the Ld. counsel, for the assessment year 1999-2000, this Tribunal in the assessee's own case in I.T.A. No.902/Mds/2010, allowed the depreciation. 48. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that the assessee claimed before the Assessing Officer that depreciation has to be allowed in respect of 18 assets said to be leased out. Even though the Assessing Officer disallowed the claim of the assessee by an order under Section 154 dated 12.06.2013, the CIT(Appeals) allowed depreciation on the leased assets in respect of 16 items to the extent of ₹ 18,26,230/-. However, in respect of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, submitted that some expenses were incurred by the assessee at various Branches. The vouchers were spread across all the Branches and also Administrative Office and Divisional Offices. In fact, the assessee requested for some time for production of vouchers before the Assessing Officer. In the meantime, the addition was made. According to the Ld. counsel, since the vouchers were spread across various Branches of the assessee, the same has to be collected and produced before the Assessing Officer. The bank is having various statutory controls, therefore, according to the Ld. counsel, the expenditure incurred by the assessee are genuine expenditure, hence, the Assessing Officer is not justified in disallowing the claim of the assessee. 54. On the contrary, Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that in fact, the Assessing Officer requested the assessee to produce all the details and vouchers and supporting material to claim the expenditure. Since no such materials were filed, according to the Ld. D.R., the Assessing Officer disallowed the claim of the assessee and the CIT(Appeals) has rightly confirmed the addition. 55. We have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer in case the assessee could produce some material before the Assessing Officer. 59. We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. D.R., if the assessee incurred expenditure for Pooja in the course of its normal business activity, the same has to be allowed while computing taxable income. However, the assessee has to produce some material to substantiate the expenditure incurred. The Assessing Officer disallowed the claim of the assessee since no material was produced before him. Therefore, this Tribunal is of the considered opinion that giving one more opportunity to produce necessary material before the Assessing Officer would not prejudice the interests of the revenue. Accordingly, the orders of both the authorities below are set aside and the disallowance of Pooja expenditure to the extent of ₹ 5,49,911/- is remitted back to the file of the Assessing Officer. the Assessing Officer shall re-examine the matter afresh in the light of the material that may be produced by the assessee and thereafter decide the same afresh in accordance with law, after giving a reasonable oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer shall re-examine the material that may be filed by the assessee and decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 64. Now coming to Department's appeal in I.T.A. No.1496/Mds/2013, the first issue arises for consideration is rural debt written off by the assessee and claimed deduction under Section 36(1)(vii) of the Act. 65. Shri Sankaralingam, the Ld. Departmental Representative, submitted that the assessee claimed ₹ 1,34,68,784/- as bad debt written off under Section 36(1)(vii) of the Act. The accounts written off as bad debt and claimed deduction under Section 36(1)(vii) of the Act do not find place in the list of accounts for which the provision has been made under Section 36(1)(viia) of the Act. According to the Ld. D.R., the assessee made claim for deduction both under Section 36(1)(vii) and 36(1)(viia) of the Act. However, the bank cannot claim deduction for a particular debt under both the sections. The Ld. D.R. further submitted that the assessee has also claimed deduction under Section 36(1)(viia) of the Act to the extent of ₹ 8,94,11,100/-. Referring to Rule 6ABA of Income-tax Rules, 1962, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for claim of deduction and both of them operate in different field. The bad debt written off for which provision was made under 36(1)(vii) of the Act will be covered under main part of Section 36(1)(vii) of the Act. First proviso will operate in cases under clause 36(1)(viia) of the Act to limit the extent of different bad debts or part thereof written off in the previous year and carried forward balance in the provision of bad and doubtful debts made under clause 36(1)(viia) of the Act. Therefore, the proviso, as rightly observed by the CIT(Appeals), would not permit double deduction with reference to rural loans. 68. The CIT(Appeals) by placing reliance on the judgment of Apex Court in Catholic Syrian Bank Ltd. (supra), found that scheduled banks continue to get the benefit of write off of irrecoverable debts under Section 36(1)(vii) of the Act in order to get benefit of deduction for the provision for bad and doubtful debts under Section 36(1)(viia) of the Act. This Tribunal is of the considered opinion that the CIT(Appeals) has rightly allowed the claim of the assessee by placing reliance on the judgment of Apex Court. Therefore, this Tribunal do not find any reason to interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered in favour of the assessee by the judgment of Madras High Court. The brokerage paid by the assessee irrespective of categories of securities has to be allowed as expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 77. The next issue arises for consideration is unclaimed balances for more than three years. 78. Shri S. Sankaralingam, the Ld. Departmental Representative, submitted that there are unclaimed amounts with the assesseebank continuously for more than three years. The Revenue has taken the same as income as per the provisions of Income-tax Act. However, the assessee claims that it cannot be treated as income under the provisions of RBI Act. According to the Ld. D.R., Incometax Act, being a special enactment will prevail over the provisions of RBI Act, therefore, it has to be treated as income of the assessee. 79. On the contrary, Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that provisions of Section 43D of the Act provides for preparation of statement as per provisions of RBI Act, hence, the assessee prepares the statement as per provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new building. Therefore, the exact nature of expenditure has to be verified. Moreover, the CIT(Appeals) allowed the claim of the assessee without affording any opportunity to the Assessing Officer. Therefore, the orders of the authorities below are set aside and the addition made by the Assessing Officer is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine and bring on record the nature of expenditure and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 85. Now let us come to the assessee's appeal for assessment year 2005-06. 86. The first issue arises for consideration is is non-issue of notice under Section 143(2) of the Act. 87. Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the assessee filed return of income on 05.09.2009. The time limit expired for issue of notice under Section 143(2) of the Act on 30.03.2010. In fact, the notice was issued only on 13.10.2010 after expiry of time limit provided under Section 142 of the Act. Therefore, according to the Ld. counsel, the consequential order passed by the Assessing Officer is not valid. On a query f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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