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TMI Blog2020 (2) TMI 1690X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.2015 held the same to be capital expenditure than revenue in nature. The CIT(A) has confirmed the impugned disallowance. 3. We have given our thoughtful consideration to rival pleadings. We notice that hon'ble Delhi high court's judgment in CIT vs. Samtel Colour Limited ITA 1152/2008 dated 30.01.2009 holds that such an admission fee expenditure incurred for corporate membership is very much allowable as revenue expenditure. There is no distinction of facts pinpointed from the Revenue side. We thus hold that both the learned lower authorities have erred in law and on facts in disallowing the impugned payments as capital expenditure. The same stands deleted. 4. Next comes the assessee's second substantive grievance that the Assessing Officer as well as CIT(A) have erred in disallowing its section 35D deduction of Rs.34,29,200/- regarding share issue expenditure. Learned CIT-DR invited our attention to both the lower authorities' action invoking the impugned disallowance more particularly the CIT(A)'s findings in page 4 of lower appellate order referring to hon'ble apex court's decision in Brooke Bond India Ltd. 91 Taxman 26 (SC) [(1997) 225 ITR 798] that such an expenditure unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. He came to assessee's details that the gross receipts had gone up 55.67% by raising share capital than 26.21% in the immediate succeeding assessment year even though no such capital had been raised. All this made him to hold that the assessee's capital did not have any direct impact on the gross receipts. He finally concluded that the assessee's impugned claim relating to its IPO did not qualify section 35D amortization since it neither pertained to time period "prior to commencement of business" nor in "connection with extension of undertaking or setting up of a new unit". He therefore disallowed the assessee's section 35D amortization claim amounting to Rs.112,60,00,000/-. 10. The CIT(A) has deleted the impugned disallowance as under: 11. Learned CIT-DR vehemently contends during the course of hearing that the CIT(A) has erred in law and on facts in deleting the impugned section 35D disallowance. He reiterated the Assessing Officer's twin reasons that the assessee's IPO expenses neither pertained to time period prior to commencement of business nor they indicate any extension or setting up of a new unit. Case law (2006) 6 SOT 200 (Chennai) Ashok Leyland Ltd. vs ACIT, (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue side about the purpose of assessee's capital raised as meant for investment in capital equipments, working capital requirement, general corporate purposes followed by issue expenses only. This tribunal's recent decision in ACIT vs. West Gujarat Expressway Ltd. (2015) 154 ITD 103 (Mumbai-Trib) allows similar instance of expenses of authorized share capital as amortizable falling under extension of the undertaking" only. Learned coordinate bench has also considered EID Parry (India) Ltd. vs. DCIT 256 CTR 104 (Madras). We conclude in the foregoing factual and legal position that the assessee's case comes u/s 35D(2)(ii) since in connection with extension of its undertaking only as evident from assessee's foregoing factual details. The CIT(A)'s identical findings under challenge deleting impugned identical section 35D disallowance of Rs.120,00,000/- in both these assessment years are upheld therefore. We adopt the above detailed reasoning mutatis mutandis and accept the assessee's contention seeking impugned amortization. 6. Learned CIT-DR at this stage invited our attention to para 5 in the assessment order that the assessee did not identify the share issue expenses. He fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authorities' action invoking administrative expenses disallowance of Rs.1.64 crores u/s 14A r.w.r 8D(2)(iii) qua assessee's exempt income of Rs.193,60,00522/-. Suffice to say, it transpires at the outset that this tribunal's coordinate bench in assessee's case itself for assessment year 2010-11 holds that the impugned disallowance does not apply in its case as under: "13. Ground no. 5 raised by the assessee relates to disallowance u/s 14A amounting to Rs. 1. 58 crores. 14.When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated 19.11.2018, passed by the Division Bench of Delhi Tribunal in the case of Nice Bombay Transport (P) Ltd,in ITA No.1331/Del/2012for the Assessment Year 2008-09 whereby the issue relating to section 14A read with rule 8D in respect of shares held in stockhas been discussed and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 15. Learned Departmental Representative relied upon the orders of the authorities below. 16. We see no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend income had been received as shares held as stock-in-trade, it cannot be appropriate to apply the provisions of Rule 8D. It is further argued by the Ld. Autherized Representative that whatever the expenses that are debited to the profit and loss account are the business expenses relating to trading of the shares and not additional expense whatsoever made. 9. Further reliance is placed on the decision of the Hon'ble Kerala High Court in the case of CIT vs. Smt. Leena Ramachandran (2010) 235 CTR 512 (Ker.) for the principle that the assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on borrowed funds utilized for the acquisition of shares, when the shares held as stock-in-trade which arise if the assessee is engaged in the trading of shares. 10. In fact, this question had fallen for consideration in the case of Maxopp investment Ltd versus CIT (2018) 91 taxman.com 154 (SC), wherein the Hon'ble Apex Court considered two cases wherein the question of apportionment of expenditure had arisen and predominant intent of investment in shares was pleaded, though an different facts, on the ground that the objective of investing in shares was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of that view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee knew that whenever dividend would be declared by the investee company such dividend would necessarily be earned by the assessee and assessee alone, and it would be in the common knowledge of the assessee that such shares would generate dividend income as well as and when such dividend income is generated that would be earned by the assessee Hon'ble Apex Court in unequivocal terms held that in contrast, where the shares are held as stock in trade, this may not be necessarily a situation and the main purpose was to liquidate those shares whenever the share price goes up in order to earn profits. In the words of the Hon'ble Apex Court, the situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. 16. Hon'ble Apex Court, therefore, while rejecting the theory of dominant purpose in making investment in shares- whether it was to acquire and retain controlling interest in the other company or to make profits out of the trading activity in such shares - clearly made a clear distinction between the dividend earned in respect of the shares w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (viii) being 20% of its profit of the eligible business of providing long-term finance. While determining the said profit, the operating expenses were apportioned by the assessee in the ratio of eligible business to total business by taking into consideration the deposits, borrowings and advances. The said apportionment was done as under:- Particulars Amount (Rs.) Operating expense as per profit & loss account (domestic) 2691,38,87,410 Total business of the bank (Advances + deposits) 270738,17,90,301 Balance of long-term lending outstanding 36407,49,27,134 Operating expenses apportioned to income from long-term lending 2691,38,87,410 x 36407,49,27,134 2,70,738,17,90,301 361,92,42,632 The basis adopted by the assessee for apportionment of the total operating expenses was not found acceptable by the Assessing Officer. According to him, the assessee while apportioning the operating expenses had considered the non-performing assets also from which no income was recognized. He held that when no income was recognized from the nonperforming assets, the operating expenses were not required to be apportioned to such non-existent income and, therefore, the method ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term lending to total interest income. The Learned Assessing Officer has failed to appreciate the basic fact that operating expenses are incurred not only for managing performing assets but also for managing all assets and deposits accepted by the appellant bank. If the formula applied by the Learned Assessing Officer for apportioning operating expenses is accepted, it gives a distorted result. Such formula implies that the bank incurred operating expenses in relation 10 performing assets only which is not factually correct. No specific formula has been prescribed in section 36(1)(viii). The basis of apportioning operating expenses as adopted by the appellant bank is being followed consistently and such basis has been accepted by the Revenue consistently till assessment year 2010-11. There is no reason to deviate from the rule of consistency". The ld. CIT(Appeals) did not find merit in the submissions made on behalf of the assessee on this issue. According to him, the basis followed by the Assessing Officer for apportionment of operating expenses was more reasonable especially in the case of Bank as the volume of business of any Bank was considered on the basis of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below mainly on the ground that the said basis adopted by the assessee had also taken into consideration the nonperforming assets from which no income was recognized. According to them, when no income was recognized from the non-performing assets, there was no justification to apportion operating expenses by taking into consideration the non-performing assets which did not yield any income. As rightly contended on behalf of the assessee in this regard before the ld. CIT(Appeals) as well as before us, the operating expenses were required to be incurred by the assessee in relation to its total banking business and the non-performing assets definitely formed part of such business. The assessee-Bank was required to manage both performing as well as nonperforming assets and the operating expenses incurred by it thus were attributable to non-performing assets also. It appears that this vital aspect was not appreciated by the authorities below in proper perspective and as rightly contended by the ld. Counsel for the assessee, the basis adopted by them for apportioning the operating expenses without proper appreciation of the vital position resulted in a distorted picture. Keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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