M/S. ICICI BANK LTD ( ERSTWHILE ICICI LTD),MUMBAI vs. THE DY CIT RG 3(1), MUMBAI

These are cross appeals arising out of the order, dated 28.09.2007, passed by the Ld. Commissioner of Income Tax (Appeals)-XXVII, Mumbai [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2001-02, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 27.02.2004, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The relevant facts in brief are that the Assessee is a company set up as a Development Finance Institution. For the Assessment Year 2001-02, the Assessee filed original return of income on 31/10/2001 declaring total income of INR 314,57,08,980/-. The Assessee filed a revised return of income on 28/03/2003 declaring loss of INR 91,11,71,830/- after claiming, inter alia, higher depreciation and deduction on account of bad debts under the normal provisions of the Act. In the revised return the total income of the Assessee under Section 115JA of the Act was computed at INR 95,72,42,478/-.

The case of the Assessee was selected for scrutiny and notices under Section 143(2) and 142(1) of the Act were issued and served upon the Assessee. The Assessing Officer completed the assessment under Section 143(3) of the Act vide Assessment Order, dated 27/02/2004 at total income of INR 1263,01,56,819/-after making certain additions/disallowances.

Being aggrieved, the Assessee preferred appeal before the CIT(A). Vide order, dated 28/09/2007, the CIT(A) partly allowed

We would first take up appeal preferred by the Assessee wherein 8 grounds of appeal have been raised by the Assessee which are taken up in seriatim.

Ground No. [1] and [8] are general in nature, and therefore, do not require adjudication.

Ground No. [2] pertains to exemption claimed by the Assessee under Section 10(23G) of the Act and read as under: “On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses at Rs. 3,33,37,57,096 incurred for earning interest on tax free bonds instead of Rs. 4,30,69,65,255 being only direct expenses viz. interest on borrowings made for infrastructure financing and thereby by allowing only part exemption under section 10(23G)”

During the relevant previous year, the Assessee had earned income of INR 696,07,04,844/- consisting of the following: S.No. Particular Amount (INR) i. Interest income 585,75,94,350/- ii. Guarantee commission 25,59,90,785/- iii. Front end fee 18,69,57,750/- iv. Appraisal fees 2,80,92,178/- v. Project fees 25,00,000/- vi. Conversion fee 1,65,45,931/- vii. Pre payment premium 2,71,40,000/- viii. Loan processing fees 9,76,77,000/- ix. Long term capital gains 48,82,06,850/- Total 696,07,04,844/-

The Assessee claimed that the above income of INR 696,07,04,844/- was exempt under Section 10(23G) of the Act which provides for exemption in respect of income by way of Interest, Long Term Capital Gains and Dividend of an infrastructure capital company from investments made by way of share and long term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Further, during the relevant previous year, the Assessee has raised funds INR 4942,33,00,000/- by way of public issue of bonds eligible for benefit under Section 88, 54EA and 54EB of the Act which was utilized exclusively lending to infrastructure sector. The Assessee had incurred interest cost of INR 333,37,57,096/- in respect of the aforesaid funds. Therefore, in the return of income Assessee had disallowed INR 333,37,57,096/- under Section 14A of the Act, and had, thus, in effect, claimed exemption under Section 10(23G) of the Act in respect of INR 362,69,47,748/- [INR 696,07,04,844/- minus INR 333,37,57,096/-] only.

However, the Assessing Officer restricted the amount of exemption under Section 10(23G) of the Act to INR 142,06,82,932/- holding that the Assessee was entitled to claim exemption under Section 10(23G) of the Act in respect of Net Interest Income (as opposed to the gross interest receipt). Accordingly, the Assessing Officer made an addition of INR 220,62,64,856/- holding the same to be excess amount of exemption claimed by the Assessee under Section 10(23G) of the Act.

Being aggrieved, the Assessee carried the issue in appeal before

Not being satisfied with the relief granted by the CIT(A), the Assessee carried the issue in appeal before the Tribunal.

Both the sides agreed that identical issue stands decided in the case of the Assessee in appeals for the Assessment Years 1997- 98 to 2000-01 and 2002-03. 13. While deciding identical ground raised in appeal for the ITA. No. 7589 & 7508/Mum/2007 Assessment Year: 2001-02 Assessment Year 2000-01 [ITA No. 4657 & 4826/Mum/2004, dated 31/01/2017] the Tribunal restored the issue back to the file of the Assessing Officer with certain directions holding as under:

Both the parties admitted that the facts and circumstances are exactly identical what was in assessment year 1999- 2000& 1998-1999 also. Before us, the learned Counsel for the assessee stated that identical issue was decided in assessment year 1997-98 in ITA No.5424/Mum/2001 wherein the Tribunal has set aside the issue to the file of the AO vide Para 8.3 and 8.4 by observing as under:- “

3 We have gone through the facts of this case and find that the order passed by the Ld. CIT (A) is not a speaking order on various aspects of computation of income on net basis as were raised by the assessee in its statement of facts filed before the Ld. CIT(A). Before us, the assessee has submitted detailed working sheet so as to calculate correctly, the amount of net income available for exemption u/s 10(23G). For the sake of ready reference, the said work sheet submitted by the ld. Counsel is reproduced below: xx xx 8.4 These facts have not been analysed by either of the lower authorities. In principle, we agree with the contention of the ld. Counsel that only those expenses which are relatable to earning of the exempt income can be deducted for computing net income available for exemption u/s 10(23G). Under these circumstances, we send this issue back to the file of the Assessing Officer, who shall decide this issue afresh after giving adequate opportunity of hearing to the assessee to submit requisite details and documents in support of claim made by the assessee. The assessee shall also extend requisite cooperation to the Assessing Officer. The Assessing Officer shall consider aforesaid circular of the Board as well as judgments relied upon by both the parties before us. The assessee is also free to place on record any other judgment in its support as may be available at the time of passing of fresh assessment order. The assessee is free to raise all legal and factual issues in this regard. The Assessing Officer is also at liberty to taken into account latest position of law as may be available at the time of deciding this issue afresh. The Assessing Officer shall consider all the submissions and evidences as may be placed by the assessee on objective basis and shall decide all the issues as may be raised by the assessee before him.

Before us now, as narrated above, the assessee relied on the decision of the Coordinate Bench of the Tribunal for Assessment Year 1997-98 wherein no interest expense was disallowed by the assessee by claiming that it was the gross income to be allowed as exempt u/s 10(23G) of the Act. As in the earlier year, now, the assessee before us also filed alternative working of expenses, which was not before the lower authorities. Before us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the mater back to the file of the AO for fresh consideration. The only differential fact in the present case is that the assessee itself has disallowed direct expenses of Rs. 174,37,66,592/- by way of interest expenses for earning of income u/s 10(23G) of the Act, which has been offered for disallowance. We also agree that only those expenses which are relatable to earning of exempt income can be claimed as deduction for computing net income u/s 10(23G) of the Act. In term of the above and in term of the direction of the Coordinate Bench of the Tribunal in assessment year 1997-98 in assessee’s own case in ITA No.5424/Mum/2001, the AO will decide the issue. Accordingly, this issue of assessee’s appeal is allowed for statistical purposes and the issue of Revenue’s appeal is dismissed.” (Emphasis Supplied)

Similarly, while disposing appeal for the Assessment Year 2002- 03 [ITA No. 836 & 392/Mum/2008, dated 07/07/2017] it was held by the Tribunal as under:

The issue being identical, following the decision of the Co- ordinate Bench as referred to above, we restore the issue back to the file of the Assessing Officer for deciding afresh

Both the sides agreed that the facts and circumstances in the assessment year before us (i.e. Assessment Year 2001-02) are identical to those prevailing in the preceding assessment years and Assessment Year 2002-03. Therefore, in view of the above decisions of the Tribunal in appeals for the immediately preceding and succeeding assessment years, consistent with the view taken by the Tribunal, we restore the issue back to the file of Assessing Officer for deciding the issue afresh keeping in view the directions of the Tribunal reproduced hereinabove. It is clarified that the Assessee would be eligible to claim eligible for exemption under Section 10(23G) of the Act in respect of net income. Further, while computing the net interest income eligible for exemption under Section 10(23G) of the Act, the Assessing Officer shall deduct only those expenses which are relatable to earning of exempt income and shall take into consideration the suo-motu disallowance of INR 333,37,57,096/- made by the Assessee in terms of Section 14A of the Act. In terms of the aforesaid, Ground No. [2] raised by the Assessee is allowed for statistical purposes.

Ground No. [3] pertains to exemption claimed by the Assessee under Section 10(33) of the Act and read as under: “On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses at Rs. 69,76,98,835 and managerial and administrative expenses @ 1% at Rs. 1,12,17,496/- instead of Rs. Nil as declared by the Appellant.”

During the relevant previous year the Assessee received dividend

Being aggrieved, the Assessee carried the issue in appeal before CIT(A). The CIT(A) granted partial relief to the Assessee as the CIT(A) observing that investments were made out of common pool of funds consisting of own funds as well as borrowed funds. The CIT(A) directed the Assessing Officer to exclude expenses not relatable to earning dividend income and modified the order passed by the Assessing Officer holding as under: “6.5 I have carefully looked into the case and the submissions made by the Appellant before me and I find that the computation made by the AO deserves to be modified. It is a fact that the Appellant has own funds and borrowed funds in the common pool out of which investments were made. Therefore, a. The AO should work out the ratio of borrowed funds to ITA. No. 7589 & 7508/Mum/2007 Assessment Year: 2001-02 the total funds and apply it to gross dividend received, to determine the gross dividend income out of the borrowed funds. b. The AO should thereafter take into account the total interest expenses and reduce from the same, the depreciation on leased assets, technical service charges on leased assets and bad and doubtful debts to arrive at the net interest expenses. On this basis, the ratio for allocation of expenses has to be worked out by the AO.

6 For calculating exemption available u/s 10(33), the AO will take note of the fact that in view of (a) above, only a percentage of gross income claim exempt u/s 10(33) can be said to be out of the borrowed funds. Applying the ratio calculated in (b) above to the said dividend income out of the borrowed funds, the AO can ascertain the interest expenses allocable to the above dividend. The difference between the dividend income out of the borrowed funds and the interest expenses allocable to the above dividend would give the net income u/s 10(33) out of the borrowed funds. This net income u/s 10(33) when added to the income from owned funds (ie. residual) would yield the total dividend income computed after taking into account the interest cost. The AO will thereafter reduce 1% of gross dividend of Rs.113,00,000 for administrative and managerial expenses to arrive at the net exemption u/s 10(33) of the Act. The Appellant thus succeeded in part in regard to ground E. In view of the said relief para no.25 in respect of further expenses of Rs.12,17,49,605 disallowed from business income accordingly stands deleted as the same now becomes only academic”

Not being satisfied with the relief granted by the CIT(A), the Assessee carried the issue in appeal before the Tribunal.

The Ld. Authorised Representative for the Assessee appearing before us submitted that identical issue covered in Assessment Year 1998-99 to 2000-01 to 2000-01 and Assessment Year 2002- 03, Assessment Year 2004-05 and Assessment Year 2005-06. She submitted that no interest expenses to be allocated as investments made out of Assessee’s own funds and in this regard she relied upon ‘Statement Showing Non-Interest Bearing Funds

Per contra, the Ld. Departmental Representative relied upon paragraph 5 to 5.30 of the Assessment Order and submitted that admittedly, the Assessee common pool of funds which was utilized for business activities including acquisition of shares. Therefore, the Assessing Officer was justified in attributing a portion of the interest expenditure to earning of exempt dividend income. Further, the investment activity would result in consumption of management and administrative resources and therefore, the Assessing Officer was justified in attributing 1% of the dividend as managerial expenditure incurred for earning dividend income. Thus, the Ld. Departmental Representative supported attribution of administrative expenditure of INR 1,13,00,000/- and INR 485,54,00,000/- as administrative expenditure and interest expenditure, respectively, incurred by the Assessee for earning exempt dividend income of INR 112,17,49,605/-.

We have considered the rival submissions and perused the material on record. We note that the identical facts and circumstances, the Tribunal had, while disposing appeal for the Assessment Year 2004-05, (common order dated 03/11/2017 passed in ITA No. 6137 & 6127/Mum/2008) had held as under:

After hearing both the sides, we find that the AO while examining the assessee’s own funds vis-à-vis investments in shares will follow the decision of the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities & Power Ltd. (supra). In case, the investment is made out of assessee’s funds, then, no interest expenses is to be allocated to the interest income. Accordingly, we set aside this issue to the file of the AO to verify the facts. This issue of the assessee is allowed for statistical purposes and the issue in Revenue’s appeal is dismissed.”

Consistent with the view expressed by the Co–ordinate Bench of the Tribunal reproduced herein above, we direct the Assessing Officer to verify the facts and decide the issue keeping in view the directions of the Tribunal herein above. Ground no.5, raised by the Revenue corresponding to ground no.4, in assessee’s appeal are allowed for statistical purposes” (Emphasis Supplied)

Since facts in the present appeal are identical to appeal for the Assessment Years 2000-01 and 2004-05, consistent with the above view expressed by the Co–ordinate Bench of the Tribunal, we direct the Assessing Officer to verify the facts and decide the issue keeping in view the directions given by the Tribunal while deciding appeal for the Assessment Years 2000-01 and 2004-05 reproduced herein above. Accordingly, the Ground No. [3], raised by the Assessee is allowed for statistical purposes.

Ground No. [4] pertains to disallowance of interest paid on capitalization of building read as under: “On the facts and circumstances of the case and in law, the CIT(A) erred in not allowing as a revenue expenditure interest on loan for building amounting to Rs. 14,47,986/-.

In the computation of income the Assessee had claimed deduction for INR 14,47,986/- being the amount of interest related to purchase/construction of building claimed as deduction though capitalized in the books of accounts. The Assessing Officer disallowed deduction for the aforesaid interest amount of INR 14,47,986/- on the ground that the same had been capitalized in the books of accounts. The provisions of Section 36(1)(iii) of the Act are applicable on interest on borrowing and not on cost of assets which is governed by provision of Section 43(1) and other allied provisions pertaining to depreciation etc.

Being aggrieved, the Assessee carried the issue in appeal. The CIT(A) upheld the disallowance made by the Assessing Officer following the order passed by his predecessor in appeal for the Assessment Year 2000-01. The CIT(A), however, accepted the without prejudice contention of the Assessee and directed the Assessing Officer to allow depreciation @ 10% on the interest amount of INR 14,47,986/-.

Being aggrieved, the Assessee carried the issue in appeal before the Tribunal.

The Ld. Authorised Representative for the Assessee submitted that the interest expenditure was allowable under Section ITA. No. 7589 & 7508/Mum/2007 Assessment Year: 2001-02 36(1)(iii) of the Act and the same was incurred wholly and exclusively for the purpose of business. She also relied upon the order, dated 31/01/2017, passed by the Tribunal in appeal for the Assessment Year 2000-01 (ITA No. 4657 & 4826/Mum/2004) and the judgment of Hon’ble Supreme Court in the case of DCIT vs. Core Healthcare Ltd. : 298 ITR 194 (SC).

Per contra, Ld. Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A) and submitted that the interest were capitalized in the books of accounts by the Assessee and therefore, the same could not be treated as revenue expenditure.

We note that the Tribunal has, in the case of the Assessee in appeal for the Assessment Year 2000-01 (ITA No. 4657/Mum/2004), vide order dated 31.01.2017 held as under:

In the return of income the Assessee had claimed exemption of INR 6,68,01,850/- under Section 10(15)(iv)(h) of the Act in respect of interest earned on tax free bonds on gross basis. However, the Assessing Officer restricted the quantum of exemption to INR 1,00,20,278/- being 15% of the interest on the ground that exemption under Section 10(15)(iv)(h) of the Act is available on net basis. Thus, the Assessing Officer made a disallowance of INR 5,67,81,572/-.

Being aggrieved, the Assessee carried the issue in appeal before CIT(A). The CIT(A) granted partial relief to the Assessee by modifying the computation made by the Assessing Officer

Not being satisfied with the relief granted by the CIT(A). The Assessee carried the issue in appeal before the Tribunal.

Both the sides agreed that identical issue was decided by the Tribunal while disposing appeal for the Assessment Year 2004-05 (ITA No. 6137 & 6217/Mum/2008, dated 03/11/2017). The relevant extract the decision of the Tribunal read as under:

Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, no disallowance under section 14A of the Act can be made in respect of interest expenditure as the entire investment giving rise to exempt interest income was made out of own funds and no borrowed fund was utilised. Referring to the assessment order the learned Authorised Representative submitted that as on 31st March 2004, the assessee had own interest free funds of ` 15619.62 crore as against tax free income yielding investment of ` 3107.92 crore. Thus, she submitted, no disallowance of interest expenditure can be made. Further, she submitted, as far as disallowance of administrative expenditure is concerned, the learned Commissioner (Appeals) has directed the Assessing Officer to work out the allocable expenditure towards exempt income. She, therefore, submitted, in assessee’s own case for the preceding assessment year, the Tribunal has decided the issue in favour of the assessee even in so far as it relates to disallowance of administrative expenses.

Learned Departmental Representative submitted, interest expenditure relating to utilisation of borrowed funds for earning exempt interest income should be disallowed. He further submitted, part of the administrative expenditure allocable to earning of exempt interest income should also be disallowed.

We have heard rival contentions and perused the material available on record. As far as disallowance of interest

A perusal of the order shows that the Tribunal has restored the issue back to the file of the Assessing Officer, inter alia, with the directions to verify whether sufficient interest free funds as claimed by the Assessee were available for investment yielding tax free interest income. Consistent with the view expressed by the coordinate Bench of the Tribunal reproduced hereinabove, we restore this issue back to the file of the Assessing Officer for fresh adjudication as per the directions of the Tribunal for the Assessment Year 2004-05 reproduced herein above. While verifying whether sufficient interest free funds were available with the Assessee the Assessing Officer shall also take into ITA. No. 7589 & 7508/Mum/2007 Assessment Year: 2001-02 consideration the funds invested by the Assessee for making investment into investments yielding tax-free dividend income claimed to be exempt under Section 10(33) of the Act.

Ground No. [6] pertains to disallowance of club expenses of INR 32,17,567/- and reads as under:

The Assessee had claimed deduction for INR 32,71,567/- in respect of payments made to clubs. The Assessing Officer disallowed the same without giving any reasons for the said disallowance. In appeal, the CIT(A) also failed to consider this ground. The Ld. Authorized Representative for the Assessee submitted that the payments made to clubs were incurred wholly and exclusively for business and were allowable as deduction under Section 37 of the Act. She relied upon the decision of Mumbai Bench of the Tribunal in the case of the Assessee for the Assessment Year 2004-05 [ITA No. 6217 & 6137/Mum/2008, dated 03/11/2017]. She also relied upon the decision of the Hon’ble Bombay High Court in the case of Otis Elevator Co. (India) Ltd. vs. CIT : [1992] 195 ITR 682 (Bombay) Per contra, the Learned Departmental Representative submitted that since the issue has not been considered by the CIT(A) the same could be remanded back to the CIT(A) for adjudication.

We have considered the rival submission and perused the material on record. We find that the Assessing Officer has made the disallowance in the Assessment Order without assigning any ITA. No. 7589 & 7508/Mum/2007 Assessment Year: 2001-02 reason. Further, the Tribunal has while deciding appeal for the Assessment Year 2004-05 [ITA No. 6217 & 6137/Mum/2008, dated 03/11/2017], held as under:

We note that Ground No. 1 raised by the Revenue in appeal is connected to Ground No. [2] raised by the Assessee in appeal. Accordingly, in view of our findings/adjudication in relation to Ground No. [2] raised by the Assessee in appeal in paragraph 7 to 15 above, Ground No. 1 raised by the Revenue is allowed for statistical purposes in terms of paragraph 15 above.

Ground No. 2 raised by the Revenue is directed against the relief granted by the CIT(A) by modifying the order passed by the Assessing Officer in relation to exemption under Section 10(33) of the Act and reads as under:

Ground No. 3 raised by the Revenue is directed against the order of CIT(A) accepting the claim of deduction of INR 226,90,30,000/- made by the Assessee in respect of additional bad debts, over and above the limit specified by the Reserve Bank of India guidelines and/or prudential norms, written off by the Assessee during the relevant previous year and reads as under:

The relevant facts in brief are that in the return of income the Assessee had claimed deduction for write-off of bad debts under Section 36(1)(vii) of the Act in respect of debts of INR 226,90,30,000/- which were written off as irrecoverable in the accounts of the Assessee as irrecoverable bad debts in accordance with the systematic method of evaluation followed by the Assessee. According to the Assessee, the bad debts written off during the relevant previous year fulfilled all the conditions laid down under Section 36(2) of the Act as these debts represented money lent in the ordinary course of business which have turned bad and hence, written off as per the system followed by the Assessee. The Assessee had an elaborate internal system for write off of bad debts through account heads "Bad

Being aggrieved, the Assessee carried the issue in appeal before CIT(A). Following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2002-03 [ITA No. 836 &

Being aggrieved that the above relief granted by the CIT(A), the Revenue has carried the issue in appeal before us.

Having considered the rival submission and perused the material on record, we find that the issue under considerations stands decided in favour of the Assessee and against the Revenue by the decisions of the Tribunal in the case of the Assessee for the Assessment Year 2002-03 in ITA No. 836 & 392/Mum/2008, dated 07.07.2017 wherein under identical facts and circumstances it was held by the Tribunal as under:

The relevant facts in brief are that during the assessment proceedings the Assessee was asked to explain why amount of INR 53,60,600/- claimed by the Assessee to be capital receipt arising from re-purchase of foreign currency bonds issued by the Assessee should not be treated as a revenue receipt. In response, vide letter dated 16/02/2004 the Assessee explained that the foreign currency bonds issued by the Assessee were re-purchased by the Assessee at a discount which was credited to revenue account which cannot be regarded as a revenue receipt being merely in the nature of an accounting entry. However, the Assessing Officer was not satisfied with the explanation furnished by the Assessee and therefore made an addition of INR 53,60,600/- as a trading receipt arising from sales/purchase of foreign currency bonds.

Being aggrieved the Assessee carried the issue in appeal before CIT(A). The CIT(A) has granted relief to the Assessee and deleted the addition by following the decision of the Tribunal in the case of the Assessee in appeal for the Assessment Year 2000- 01 [ITA No. 4657 & 4826/Mum/2004, dated 31/01/2017], the relevant extract of which read as under:

Being aggrieved by the above order of the CIT(A) deleting the addition of INR 53,60,600/-, the Revenue has preferred appeal on this issue.

Having perused the material on record we find that identical issue was decided by the Tribunal in favour of the Assessee and against the Revenue while disposing of appeal for the Assessment Year 2000-01 [ITA No. 4657 & 4826/Mum/2004, dated 31/01/2017]. The CIT(A) has granted relief to the Assessee and deleted the addition by following the aforesaid decision of the Tribunal. Therefore, we do not find any infirmity in order passed by the CIT(A) on this issue. Respectfully following the above decision of the Co-ordinate Bench of the Tribunal in the case of the Assessee for the Assessment Year 2000-01[ITA No. 4657 & 4826/Mum/2004, dated 31/01/2017]., we confirm the order passed by the CIT(A) and dismiss Ground No. 4 raised by the Revenue.

Ground No. 5 read as under:

While framing assessment vide Assessment Order dated 27/02/2004 passed under Section 143(3) of the Act. The Assessing Officer treated amount of INR 3,81,50,000/- as capital expenditure incurred for purchase of software and allowed depreciation @ 25% while making disallowance of the balance 75% and thus, making an addition of INR 2,86,12,500/-.

Before CIT(A), the Assessee has claimed that during the relevant previous year the Assessee has incurred of INR 3,81,00,000/- as expenditure towards purchase of software licenses. The Assessee has claimed deduction for the aforesaid expenditure by treating the same as revenue in nature. Since, no enduring benefit had accrued to the Assessee on account of due to the need for replacement for software to meet business exigencies on account of fast changing technology in the field of software. The CIT(A) accepted the contention of the Assessee and deleted the disallowance of INR 2,86,12,500/-. Therefore, the Revenue is in appeal before us on this issue.

We have considered the rival submissions and perused the material on record. The CIT(A) has accepted the claim contention of the Assessee by placing reliance decision of the Tribunal in the case of the Assessee for the Assessment Year 1995-96 [ITA No. 4915/Mum/1999] holding as under:

On perusal of above it can be seen that the CIT(A) has granted relief to the Assessee by following the above decision of the Tribunal. The finding returned by the CIT(A) that software licenses do not result in any enduring benefit to the Assessee has also not been controverted. Accordingly, we decline to interfere with the order passed by the CIT(A) on this issue and confirm order passed by the CIT(A) in this regard. Ground No. 5 raised by the Revenue is, therefore, dismissed. Ground No. 6 Ground No. 6 raised by the Revenue is directed against the order 63. of CIT(A) allowing claim of depreciation of INR 2,77,73,600/- on ship and reads as under: “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of depreciation of Rs. 2,77,73,600/- on ship.”

The relevant facts in brief are that the Assessee had claimed depreciation of INR 2,77,73,600/- in respect of ship held for sale. The Assessee had sanctioned Indian Rupee loan equivalent to U 8.3 million to Radiant Shipping Ltd. (RSL) in March, 2000 for acquisition of three ships from Balaji Group, Chennai which was to be disbursed in three tranches for acquiring three ships.

We have considered the rival submissions and perused the material on record. For the Assessment Year 2002-03, the Assessing Officer has allowed depreciation and thus, accepted the contention of the Assessee that the assessee is the owner of the ship entitled to claim deprecation. Hence, we do not find any infirmity the order passed by the CIT(A) to the extent it hold that the Assessee is entitled to claim depreciation on ship. The only issue that survives for consideration is the quantum of depreciation. Accordingly, the Assessing Officer is directed to ITA. No. 7589 & 7508/Mum/2007 Assessment Year: 2001-02 verify the date on which the ship was put to use and allow depreciation under Section 32 of the Act in respect of the same as per law. Ground No. 6 raised by the Revenue is partly allowed for statistical purposes.

In the result, both the appeals are partly allowed.