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

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 & 7508/Mum/2007 Assessment Year: 2001-02 the appeal preferred by the Assessee. Therefore, both, the Assessee as well as the Revenue are in cross-appeals before us against the aforesaid order of the CIT(A).

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.

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 & 7508/Mum/2007 Assessment Year: 2001-02 CIT(A). The CIT(A) granted some relief to the Assessee holding as under: ”4.4. I have carefully considered the submissions made by the Appellant, I find that the computation made by the AO has to be modified. Keeping in view that all the investment made cannot be said to be out of the borrowed funds and therefore, there is a necessity to identify the percentage of interest expenses allocable to the earnings. Therefore, the AO will calculate the deduction U/s 10(23G) as under: a. The AO will calculate the ratio of own funds to total funds and apply the same to the Gross Income claimed exempt u/s 10(23G) to find out the component of Infrastructure Income out of own funds. b. Thus, the AO will also arrive at the Infrastructure Income out of borrowed funds. c. The AO will work out ratio of allocable expenses after considering interest and administrative expenses and after reducing expenses clearly not relatable to earning of Infrastructure income. d. The ratio arrived at in (c) will be applied to (b) to determine interest expenses allocable to (b). e. The difference of (b) and (d) will give Net Infrastructure income out of borrowed funds. f. The AO will add (a) to (c) and the Capital Gains to arrive at Total income exempt u/s 10(23)(G) of the Act. The relief admissible u/s 10(23G) will thus modified in the light of the above.”

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.

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 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:- “ 8.3 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 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) 14. 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:

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.

During the relevant previous year the Assessee received dividend & 7508/Mum/2007 Assessment Year: 2001-02 of INR 112,17,49,605/- which was claimed by the Assessee to be exempt under Section 10(33) of the Act. The Assessing Officer concluded that exemption under Section 10(33) of the Act is allowable in respect of net dividend income and not on gross basis and was claimed by the Assessee. Applying the average cost of fund of 10.65%, the Assessing Officer computed the amount of interest expenditure incurred by the Assessee for earning dividend income at INR 485,54,00,000/- and attributed 1% of dividend as managerial expenditure incurred for earning dividend income, to arrive at managerial expenses of INR 1,13,00,000/-. Thus, arriving at aggregate cost/expenditure of INR 486,67,00,000/- incurred by the Assessee to earn dividend income of INR 112,17,49,605/-. Since, according to the Assessing Officer the amount of expenditure relatable to earning dividend income exceeded the dividend income, the Assessing Officer concluded that the Assessee was not entitle to claim any exemption under Section 10(33) of the Act.

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 & 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. 6.6 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 & 7508/Mum/2007 Assessment Year: 2001-02 and Investments’ placed at page 46 of the paper-book. She submitted that as on 31/03/2001, Total Own and Non-Interest bearing Funds stood at INR 8008.32 Crores, whereas Investment Earning Exempt Income stood at INR 4559.10 Crores only. She also placed reliance upon the judgment of Hon’ble Supreme Court in the case of South Indian Bank Ltd. vs. CIT : 438 ITR 1 (SC) and CIT vs. Reliance Industries Ltd. : 410 ITR 466 (SC).

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 & 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.”

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 & 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: “19. At the outset, the learned Counsel for the assessee stated the claim of depreciation and claim of interest on loan for building on fixed assets acquired on merger with Anagram Finance Ltd. but the CIT(A) has not considered this aspect. She claimed that the depreciation on business and commercial rights acquired at the time of merger being in the nature of goodwill should have been allowed in term of the decision of the Hon’ble Supreme Court in the case of CIT v. Smiffs Securities Ltd. 348 ITR 307 (SC) and as regards to interest on capitalization of building ought to have been allowed as revenue expenditure following the decision of the Hon’ble Bombay High Court in the case of CIT v. Tata Chemicals 175 CTR 443 (Bom). On query from the bench, the learned Sr. DR fairly conceded that let the facts be examined by the AO because none of the authorities below have deliberated on these issues. Learned Counsel for the assessee has not objected to the proposal. In term of the above, we restore these two issues back to the file of the AO for deciding the issue in terms of decision of the Hon’ble Supreme Court in the case of Smiffs Securities Ltd. (supra) on the issue of depreciation and in term of Tata Chemicals (supra) on the issue of interest capitalization on building. Accordingly, these two issues are restored back to the file of the AO.” (Emphasis Supplied) & 7508/Mum/2007 Assessment Year: 2001-02 31. On perusal of above, it can be seen that for the Assessment Year 2000-01, the Tribunal has remanded the issue back to the Assessing Officer for adjudication keeping in view the judgment of Hon’ble Bombay High Court in the case of CIT vs. Tata Chemicals 175 CTR 443 (Bom). Since the CIT(A) had followed the order of his predecessor for the Assessment Year 2000-01, we deem it appropriate to remand this issue back to the file of the Assessing Officer for fresh adjudication keeping in view the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Tata Chemicals (256 ITR 395 (Bombay) and the judgment of Hon’ble Supreme Court in the case of DCIT vs. Core Healthcare Ltd. : 298 ITR 194 (SC). In view of the aforesaid, Ground No. [4] raised by the Assessee is allowed for statistical purposes. Ground No. [5] 32. Ground No. [5] pertains to claim of exemption made by the Assessee under Section 10(15)(iv)(h) of the Act 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. 4,44,51,655 instead of Rs. Nil as declared by the Appellant.” 33. 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 & 7508/Mum/2007 Assessment Year: 2001-02 observing that it cannot be held that all the investments were made out of borrowed funds and therefore, it was necessary to identify the percentage of interest expenses allocable to the earnings.

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: “8. Ground no.2, raised by the Revenue corresponding to ground no.3, raised by the assessee are on the common issue of allocation of interest and other expenditure for earning tax free interest income under section 10(15) of the Act. 9. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that in the relevant previous year assessee had earned interest income on tax free bonds issued by Konkan Railway NBARD National Housing Bank, HUDCO, etc., amounting to ` 7,44,42,709. After calling for necessary details and explanation of the assessee, the Assessing Officer applying the same methodology which he adopted for computing net exempt income under section 10(23G) of the Act by applying the gross profit rate of 13.69% reduced net income exempt under section 10(15) of the Act to ` 1,01,91,207. The assessee challenged the disallowance made out of net exempt income under section 10(15) of the Act before the learned Commissioner (Appeals). 10. The learned Commissioner (Appeals) after considering the submissions of the assessee directed the Assessing Officer as under:

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 & 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.

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 & 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:

Brief facts are, the Assessing Officer during the assessment proceedings noticing that the assessee has debited an amount of Rs.19,11,850 towards club membership fees called upon the assessee to furnish necessary details. The Assessing Officer having found that such expenditure was incurred for acquiring corporate membership for directors / senior management officers of the assessee disallowed the expenditure by treating it as capital in nature. The assessee challenged the disallowance before the learned Commissioner (Appeals).

The learned Commissioner (Appeals) after considering the submissions of the assessee and following the decisions of the Tribunal in assessee’s own case for assessment year 1990–91 and 1991–92, deleted the addition.

We have heard rival contentions and perused the material available on record. The Hon'ble Supreme Court in United Glass Manufacturing Co. ltd., Civil Appeal no.6649 of 2012, has held that club membership fees for employees are to be treated as business expenditure of a company under section 37 of the Act. We must also observe that in the decisions referred to by the learned Commissioner (Appeals) similar view has been expressed. That being the case, we do not find any reason to interfere with the order of the learned Commissioner (Appeals) on this issue. Accordingly, we uphold the order of the learned Commissioner (Appeals) by dismissed ground no.9 raised by the Revenue.” (Emphasis Supplied) Respectfully following the above decision of the Tribunal, we hold that the Assessee is entitled to claim deduction under Section 37 of the Act in respect of payment of INR 32,71,567/- made to the clubs as membership fee. Accordingly, we delete the addition of INR 32,71,567/- made by the Assessing Officer. Ground No. [6] raised by the Assessee is, therefore, allowed. & 7508/Mum/2007 Assessment Year: 2001-02 Ground No. [7] 41. Ground No. [7] pertains to charging of interest under Section 234B of the Act, and the same is disposed of as being consequential in nature. Ground No. 1 42. Ground No. 1 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(23G) of the Act and reads 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.

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 & 7508/Mum/2007 Assessment Year: 2001-02 Debts". Individual accounts of borrower companies were appraised, and after scrutiny of individual borrower company, the amounts determined to be irrecoverable are written off in the accounts to the extent the debts are irrecoverable. Separate departments of the Assessee monitored the working of various projects. When accounts were determined to be fully irrecoverable the same were written off as "Bad debts". The aforesaid method/system of writing off bad debts was consistently being followed right from the beginning viz. assessment year 1971-72 onwards from which such write offs are usually made in account. The RBI guidelines provide for provisioning norms which was the minimum statutory requirement for financial institutions. In case the actual provisioning/write off requirement was higher, the bank/FII was permitted to make additional write off. During the relevant previous year the Assessee had made write off over and above RBI requirements only after ascertaining that each of the amounts written off was irrecoverable as per an elaborate system being followed by the Assessee consistently over the years. Thus the claim for deduction in respect of bad debts written off during the relevant previous year should have been allowed to the Assessee in terms of Section 36(1)(vii) of the Act. However, the Assessing Officer was not convinced with the explanation/submissions of the Assessee and therefore, made a disallowance of INR 226,90,30,000/- in respect of deduction for bad debts written off claimed by the Assessee.

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 & & 7508/Mum/2007 Assessment Year: 2001-02 392/Mum/2008, dated 07.07.2017] the CIT(A) deleted the disallowance of INR 226,90,30,000/- made by the Assessing Officer.

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 & 392/Mum/2008, dated 07.07.2017 wherein under identical facts and circumstances it was held by the Tribunal as under:

While deciding assessee's appeal against the addition so made the learned Commissioner (Appeals) following his order passed in case of assessee for assessment year 2001-02, deleted the & 7508/Mum/2007 Assessment Year: 2001-02 addition on the reasoning that in the case of recovery of the bad debt written-off earlier it is to be taxed in the year of recovery.

The learned Departmental Representative submitted, bad and doubtful debt when actually written-off is to be allowed as deduction.

We have considered the submissions of the parties and perused the material available on record. As per the provisions contained in Section 36(1)(vii), after its amendment w.e.f. 1st April 1989, any bad debt if actually written-off as irrecoverable in the books of account is to be allowed as deduction. However, Explanation-1 to section 36(1)(vii) puts a caveat that the amount to be allowed as bad and doubtful debt shall not include any provision for bad and doubtful debt made in the account. It is the contention of the assessee before the Departmental Authorities as well as before us that the assessee has actually written-off the amount claimed as bad debt and it is not in the nature of provisions. The aforesaid fact has not been controverted by bringing any material on record. Therefore, applying the statutory provisions and the ratio laid down in the decision cited by the learned Authorised Representative, since, the assessee has actually written-off the bad debt in its books of account, the amount is allowable as deduction under section 36(1)(vi). Accordingly, we uphold the order of the learned Commissioner Appeals) on this issued. Ground no.5, is dismissed.” (Emphasis) 51. It is admitted position that the Assessee had claimed deduction only for the debts actually written off as bad in the books of accounts of the Assessee. The CIT(A) had granted relief to the Assessee by placing reliance upon the decision of the Special Bench of the Tribunal in the case of DCIT vs. Oman International Bank: 100 ITD 285 wherein it was held that after its amendment in Section 36(1)(vii) of the Act, with effect from 01/04/1989, it & 7508/Mum/2007 Assessment Year: 2001-02 was not obligatory on part of an assessee to prove that debt written off by him is indeed a bad debt for purpose of allowance under section 36(1)(vii) provided the same has been actually written off in the books of accounts during the relevant previous year.

Thus, in view of the above, we do not find any infirmity in the order passed by the CIT(A). Ground No. 3 raised by the Revenue is, therefore, dismissed.

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.

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 USD 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. & 7508/Mum/2007 Assessment Year: 2001-02 However, RSL failed to arrange for equity contribution for the third ship and therefore, the third ship was purchased in the name of the Assessee and given to RSL under Bare Boat Charter- Cum- Demises Agreement dated 07/03/2001. According to the aforesaid agreement, RSL was given the ship for commercial employment in return for charter charges. Further, RSL had optioned to purchase a ship on payment of Call Option price. The Assessing Officer had disallowed the depreciation claimed by the Assessee on the ground that the Assessee had failed to furnish details related to acquisition of ship during the assessment proceedings. However, the CIT(A) allowed the claim of depreciation on ship after examining the Bare Boat Charter-Cum- Demises Agreement, dated 07/03/2001, and after taking note of the fact that claim of depreciation on ship was not disallowed for the Assessment Year 2002-03 by the Assessing Officer even though similar query was made by the Assessing Officer during the assessment proceedings. The CIT(A) concluded that the conditions specified in Section 32 of the Act stood fulfilled and therefore, the Assessee was allowed to claim depreciation on ship.

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 & 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.