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TMI Blog2023 (3) TMI 1425X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. Assessee appeal allowed. Nature of expenses - software expenses - revenue or capital expenditure - HELD THAT:- This issue is covered in favour of the assessee in its own case by the Hon ble Delhi High Court for Assessment Years 2008- 09 to 2011-12 [ 2018 (4) TMI 1534 - DELHI HIGH COURT] it is nobody s case that assessee is dealing with computer softwares or is in the business of any related services. Rather it uses specific customized software, which is specific to its banking activities. But for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be answered in favour of the assessee. Disallowance of Assessee s claim of amortization of premium on HTM securities - Assessee cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now allowing the profit loss account to be prepared in accordance with the regulatory act under which the bank operates, all provisions as mandated by RBI and duly recorded in the books should be allowed. Also when in the Income Tax Act itself the deduction is allowed to the assessee, it cannot be held that the computation under book profit provisions contemplated addition of such claim under the garb of provision for diminution in the value of assets. Addition being loss on amortization of permanent investment alleging the same to be notional loss - HELD THAT:- The amortized value of the investment is reflected in the accounts. This is also clearly mentioned in note to the annual report. The loss on amortization is neither a provision nor a reserve and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. AO has wrongly considered the same as falling within the preview of Clause (i) to the Explanation 1 to Sec. 115JB(2) whereas the same is not a provision for diminution in the value of assets. It is the actual loss on amortization of investments and the same is allowed under the Income Tax Act, 1961 under normal provisions also as held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- claimed as bad debt by the assessee u/s 36(1 )(vii). The disallowance made is wrong and bad in law and the claim of bad debt should be allowed as complete details of all loan accounts were furnished and the condition of write off is duly satisfied by the appellant. 6. The AO as well as CIT(A) has erred in law and on facts in applying the provisions of 115JB (MAT) erroneously, without appreciating that the appellant is a Nationalized bank under the Banking companies (acquisition and transfer of undertaking, Act, 1980). The provisions of sec. 115JB are not at all applicable to the appellant even after the amendment made by Finance Act, 2012. 7. Without prejudice, the Ld. CIT(A) has erred in law in sustaining addition under MAT in respect of provision for bad and doubtful debts which is actual reduction in the value of advances reflected as such in the balance sheet and not a provision. Hence the same is not falling under any of the items from (a) to (j) of the above explanation to section 115JB and therefore cannot be added in the book profit computation. 8. The Ld. CIT(A) has erred in upholding addition of Rs. 81,44,33,541/- being loss on amortization of permanent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k are for carrying on the banking business. Even the investments in the case of bank are held as stock-in- trade and part of business of the bank. Thus, no expenses can be disallowed u/s 14A. 4. It was argued that the AO has applied Rule 8D without recording any satisfaction for rejecting the assessee's claim and embarking upon Rule 8D nor there is any finding of any expenses incurred for earning of any tax free income. 5. The ld. CIT(A) has given part relief by upholding the disallowance as per last limb of Rule 8D namely Rule 8D(2)(iii). 6. The assessee is a Nationalized Bank and the issue is squarely covered in its favour by the order of the Co-ordinate Bench of ITAT in ITA No.1519/Del/16 and in ITA No.7106/Del/2017 for A.Y. 2012-13 in the case of Punjab National Bank Limited. The relevant portion of the order is reproduced as under: "8. It is observed that decisions relied upon by Ld. Sr. DR has been passed prior to decision of Hon'ble Supreme Court in the case of Maxopp Investment vs. CIT (supra). Further Hon'ble Supreme Court in the case of Maxopp Investment vs. CIT (supra), has rendered a clear finding in respect of banking institutions which is peculiar. Pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance made u/s 14A is hereby deleted. " 5.1 There being no change in the facts and circumstances of the instant case, and therefore in view of the aforesaid findings of the Hon'ble Coordinate Bench, Ground No. 1 of Assessee's appeal stands allowed. 6. Ground No. 2 pertains to confirmation of disallowance of 100% depreciation claimed by the Assessee on temporary erections of Rs.30,76,16,842/-. We find that same issue has also been decided in favour of the Assessee, by the aforesaid order passed by coordinate Bench of Tribunal, in Assessee's own case for A.Y.2015-16, by holding as under: "28. This ground is against the allowance of depreciation on temporary wooden structure at 100% by the ld. CIT(A). The AO has dealt with on facts, page no.9, para no.4 of his order the facts has not been disputed that the nature of furniture of wooden cabins, wiring etc. which are temporary in nature. The above ground of the department has to be dismissed as it is a covered matter in favour of the assessee by the order of the Co-ordinate Bench of ITAT in A.Y. 2007-08 in ITA No.1937/Del/11 and 1961 /Del/11 The matter was set aside to the AO for verification by the ITAT. 29. The AO after verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of any related services. Rather it uses specific customized software, which is specific to its banking activities. But for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be answered in favour of the assessee and against the revenue. The appeals are consequently allowed. No order as to costs." 12. The details of the software expenses filed before the AO and before the ld. CIT(A) page 59 and 60 of the paper book. 13. We find that this issue stands covered in favour of assessee and the appeal of the department (AY 2013-14) is hereby dismissed." 7.2 Respectfully following the decision of Hon'ble Coordinate Bench on the issue under consideration, Ground No. 3 of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the judicial precedents available on the issue. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in the matter." 22. The Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Limited (2014) 366 ITR 505(Bom), confirmed the ITAT Order wherein the claim of bank as deduction of amortized premium and HTM securities was allowed. The ITAT order has been upheld which is approved by the Bombay High Court: "We find the Tribunal in the case of Lord Krishna Bank Ltd. (supra) has considered and adjudicated the issue in paragraphs 3 and 4 as under: "3. We have heard the rival submissions and perused the relevant material on record. The learned authorized representative has relied on Circular DBOD. No. BP. BC. 29/21.04.048/98, dated April 11, 1998, issued by the Reserve Bank of India prescribing the method to be followed for valuation of Government and other securities. The learned authorized representative invited our attention towards page 4 of the paper book, which is the method suggested by the RBI to be adopted by the banks in respect of permanent investments. Clause (ii) of point No. 1 of this, being valuation of permanent investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of investment "held to maturity" without appreciating the fact that though the same was done as per the Reserve Bank of India guidelines, yet the same was not an allowable expenditure under section 37(1) of the Act". 25. At page 24 of the paper book the judgment of the Karnataka Bank Ltd. (2013) 356 ITR 549 wherein it was held as under: "12. Now we may advert to the second substantial question of law involved in ITA No. 18 of 2014. The aforesaid substantial question of law is squarely covered by Instruction No. 17 of 2008 dated November 26, 2008 issued by the Central Board of Direct Taxes/RBI and is covered by Clause )vii) provided herein. The decision in the case of Southern technologies was considered by a Division Bench of this court in Karnataka Bank Ltd. (supra) and it has been held that where the assessee maintains the accounts in terms of the Reserve Bank of India Regulations, the assessee is entitled to deductions and it cannot be denied by the authorities under the pretext that it was showing as investment in the balance-sheet. Accordingly, the common questions of law are answered in favour of the assessee and against the Revenue." 26. Similar view has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a write off. Further, the ld. CIT(A) has relied on the CBDT Circular No.314 of 2014 and the amendment to section 36(1 )(vii) wherein Explanation- 2 was inserted by the Finance Act, 2013 with effect from A.Y. 2014- 15 which [CIT(A)'s order at page 67] is again reproduced: "11.7 In order to clarify the scope and applicability of provision of clause (vii), (via) of sub-section (1) and sub-section (2), an Explanation in clause (vii) of sub-section (1) of section 36 has been inserted stating that for the purposes of the proviso to clause (vii) of sub-section (1) of section 36 and clause (v) of sub-section (2) of section 36, only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (via) of sub-section (1) of section 36 applies, the amount of deduction in respect of the bad debts actually written off under clause (vii) of sub¬section (1) of section 36 shall be limited to the amount by which such bad debts exceeds the credit balance in the provisions for bad and doubtful debts account made under clause (viia) of sub-section (1) of section 36 without any distinction between rural advances and other advances." 44. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/ debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in its impugned judgment. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under s. 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in its books, as indicated above. " 47. Therefore, in assessee's case also, it is an actual write off in view of the decision of the Hon'ble Supreme Court, this issue is fully covered in favor of assessee. The appeal of the assessee is hereby allowed on this ground." 9.2 In view of the aforesaid decision qua issue in hand, in Assessee's own case by the Hon'ble tribunal, we find no reason to deviate from the findings given by the Hon'ble Coordinate Bench. Accordingly, Ground no. 5 of appeal also stands allowed. 10. By Ground No. 6, the Assessee challenged the action of the ld. CIT(A) in applying the provisions of section 115JB(MAT) without appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank of India (2019) 308 CTR 797 (Bom) HC 52. In the above referred judgment of the Bombay High Court, at relevant page 8, para no.11 (paper book page no.13) the court has held as under: "This legal dichotomy emerging from the provisions of sub-section (2) of Section 115JB particularly having regard to the first proviso contained therein in case of banking company, would convince us that machinery provision provided in sub-section (2) of section 115JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme Court in case of Commissioner of Income-Tax, Bangalore vs. B.C. Shrinivasa Setty, Vo. 128ITR 294, had observed that in the Income Tax Act, a charging section and the computing provisions together constitute an integrated code. In a case where the computation provision cannot apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that while preparing the annual accounts including profit and loss account,-- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,-- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192. 60. Even if it is considered that book profit provisions would apply to the assessee bank, the adjustments carried out by the AO is not possible under the book profit computation as provided under Explanation to section 115JB of the Act. 61. The relevant extracts of Explanation to Section 115JB giving the meaning of "Book Profits" are reproduced for your ready reference: "Explanation [1],--For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by-- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name called &?[ other than a reserve specified under section 33AC1; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o (vi) [****] (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 171 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.--For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 32- of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.]" 62. On a reading of the above explanation, it is clear that tax liability as per MAT provisions will be on the book profits, as increased by the amounts, if any, from items (a) to (j) and reduced by the items from (i) to (viii). Therefore there are specified adjustments which can only be made to the net profits as per profit & loss account. Since this is a section wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the amount debited in the profit & loss account is reduced from the value of the loans and advances and therefore the net values of advances are shown in the books of accounts. It is not a provision which is shown as liability in the books. This fact has been noted by the AO in his order as well as by the ld. CIT(A) in his order. 67. Therefore, there is an actual diminution in the value of advances and it is reflected as such in the balance sheet of the bank. Hence the same is not falling under any of the items from (a) to (j) of the above explanation to section 115JB. The Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT reported in [2010] 323 ITR 166 has categorically held that: "Though a mere debit to the profit and loss account would constitute a provision for bad and doubtful debts yet that would not constitute actual write off. But where besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee has correspondingly / simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances / debtors on the asset side of the balance sheet, and, consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(1)(vii) by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However, it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then, the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal. The decisions of the coordinate bench, on that issue, cease to be relevant, nor is it open to us to take a call on merits, and thus sit de facto in judgment over what a higher judicial authority has decided. Whatever be the merits of the stand of the revenue on this issue, it is not for us to take call on merits. That exercise on merits, in the light of the non-jurisdictional High Court judgment, can only be done by Hon'ble Courts above. In the light of these discussions, and having clarified the legal position as such, we remit the matter to the file of the learned CIT(A) for limited examination of facts so far as reduction of the corresponding amount, of the provision of Rs.5359,64,38,015 from the loans and advances on the asset side of the balance sheet, is concerned. In the event it is found that the correspondence amount is indeed reduced from the loans and advances reflected in the assets of the balance sheet, the learned CIT(A) will direct CIT(A) the AO for excluding the same in the computation of book profits. Ordered, accordingly." 70. Though in the said Mumbai ITAT case the issue was referred back to the ld. CIT(A), in assessee's case the AO as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13- 14 July 1, 2013 which the bank has to follow mandatorily for arriving at the book profit results. 74. The amortized value of the investment is reflected in the accounts. This is also clearly mentioned in note to the annual report. 75. The loss on amortization is neither a provision nor a reserve and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. The AO has wrongly considered the same as falling within the preview of Clause (i) to the Explanation 1 to Sec. 115JB(2) whereas the same is not a provision for diminution in the value of assets. It is the actual loss on amortization of investments and the same is allowed under the Income Tax Act, 1961 under normal provisions also as held by Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. reported in [2014] 366 ITR 505 elaboratly explained while dealing with the grounds on allowing the amortization of HTM investment as allowable business deduction u/s, 37(1) of the Income Tax Act. 76. Hence, the same cannot be considered for the MAT computation." 12.2 In view of the aforesaid decision of Hon'ble Coordinate Bench in the cases of Assessee itself, on the issue in h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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