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Income Tax Appellate Tribunal, “G” Bench, Mumbai
O R D E R Per B.R. Baskaran, AM :-
The cross appeals relate to the assessment year 2010-11 and the assessee has filed appeals for AY 2009-10. All these appeals are directed against the orders passed by Ld CIT(A)-13, Mumbai. They were heard together
2 M/s. Yes Bank Ltd. and hence they are being disposed of by this common order, for the sake of convenience.
The assessee is a banking company. The first issue urged in the appeals filed by the assessee for both the years relate to the disallowance made u/s 14A of the Act. Identical issue was considered by this bench of Tribunal in the assessee’s own case for assessment year 2008-09 (ITA No.3357/Mum/2013), wherein the Tribunal decided this issue as under:- (a) The tribunal held that the disallowance of interest under Rule 8D(2)(ii) is to be examined in the light of the decision rendered by the jurisdictional Hon’ble Bombay High Court in the case of HDFC Bank Ltd (366 ITR 505), since the assessee has contended that the interest free funds available with the assessee is more than the investments held it. Accordingly, the disallowance under Rule 8D(2)(ii) was restored to the file of the AO.
(b) With regard to the disallowance to be made under Rule 8D(2)(iii), the Tribunal noticed that the assessee did not receive any exempt income in that year. Further the assessee contended that the investments were held as stock in trade. Under these set of facts, the Tribunal held that the disallowance under Rule 8D(2)(iii) should be restricted to the amount disallowed by the assessee in that year, i.e., Rs.5,93,665/-.
In AY 2009-10, the assessee has disallowed a sum of Rs.19,922/-, being the custody charges of equity shares u/s 14A of the Act. It was submitted that the assessee did not carry out any equity deals during the financial year relevant to AY 2009-10 and accordingly it was contended that no more disallowance was called for. In AY 2010-11, the assessee disallowed a sum of Rs.1,53,177/-. However the AO computed the disallowance as per rule 8D of the I.T rules. The Ld CIT(A) confirmed the addition in both the years.
We have heard the rival contentions on this issue. Consistent with the view taken by us in AY 2008-09, we restore the issue relating to disallowance to 3 M/s. Yes Bank Ltd.
be made under rule 8D(2)(ii) of the I.T rules for both the years to the file of the AO with the direction to examine this claim in accordance with the decision of Hon’ble Bombay High Court rendered in the case of HDFC Bank Ltd (supra). With regard to the disallowance made under rule 8D(2)(iii) of the I.T Rules, we are of the view that the disallowance of Rs.19,922/- and Rs.1,53,177/- computed by the assessee is on the lower side. We notice that in AY 2009-10, the assessee held shares to the tune of Rs.56.14 lakhs and in AY 2010-11, it has held shares to the tune of Rs.9292.60 lakhs, i.e., the assessee has purchased more quantity shares in the year relevant to the AY 2010-11. In AY 2010-11, the assessee has received dividend income of Rs.45.00 lakhs.
Since there is no fresh equity transaction during the year relevant to AY 2009-10 and since the value of equity shares held by it is low, we are of the view that the disallowance under rule 8D(2)(iii) can be estimated at a lump sum figure of Rs.50,000/-. However in AY 2010-11, we notice that the assessee has entered into equity transactions and the value of shares have also gone up. Accordingly, considering the facts available in this case, we are of the view that the disallowance under rule 8D(2)(iii) can be estimated at a lump sum of Rs.5.00 lakhs. We order accordingly. The order of Ld CIT(A) passed on this issue in both the years under consideration stood modified accordingly.
The next common issue contested by the assessee in AY 2009-10 and 2010-11 relates to the disallowance of amortisation of expenses incurred on the initial public offering of equity shares made in the earlier years. The assessee has claimed this expenses u/s 35D of the Act, which provides for deduction of expenses in five annual installments. Upto 31.3.2008, the deduction u/s 35D is available for expenses incurred for issue of shares for public subscription, if it is related to setting up or extension of “industrial” undertaking. Since the expenses in connection with public issue of shares were incurred by the assessee before
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31.3.2008 and since the assessee is not an “industrial” undertaking, the claim made u/s 35D was disallowed by the tax authorities and the Tribunal also decided this issue against the assessee in the earlier years (in AY 2008-09 referred supra and in AY 2006-07 in ITA No.4270/Mum/2013).
7. However, with effect from 1.4.2009, the expression “industrial” has been omitted in sec. 35D paving way for granting of deduction to Services sector also. Before the tax authorities, the assessee took a plea that the amendment made in sec. 35D by removing the expression “industrial” should be considered to be procedural in nature and accordingly the deduction should be allowed to the assessee during these two years, even though the same was disallowed in the earlier years. The tax authorities however held that the amendment is substantive in nature and accordingly rejected the plea of the assessee. Similar contentions have been made before us also. We notice that the legislature has taken a policy decision to extend benefit to the services sector only from 1.4.1999. Further, the assessee has incurred the public issue expenses in the earlier years and not after 1.4.1999. Hence, in our view, the provisions that prevailed at that time of incurring expenses should govern the deduction. At that point of time, the public issue expenses incurred by industrial undertakings alone were allowed deduction u/s 35D of the Act in five or ten equal annual installments, as the case may be. The deductions claimed by the assessee in these two years are part of annual installments of public issue expenses, that were incurred in the earlier years. Accordingly, we are of the view that the provisions that prevailed at the time of incurring the expenses should cover this deduction and hence we do not find merit in the contentions of the assessee. Accordingly, consistent with the view taken in the earlier years, we confirm the orders of Ld CIT(A) passed on this issue in both the years.
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We shall now take up the individual issues urged in the appeals filed by the parties for AY 2010-11. In the appeal of the revenue, the only issue urged relates to the disallowance of claim of loss arising on revaluation of securities. This issue has been decided by the Tribunal in favour of the assessee in the earlier years (in AY 2008-09 referred supra and in AY 2006-07 in ITA No.5833/Mum/2012). Consistent with the taken in the earlier years, we confirm the order passed by Ld CIT(A) on this issue.
Another issue contested by the assessee in AY 2010-11 relates to the deduction claimed u/s 35D of the Act in respect of expenses incurred in issuing shares under Qualified Institutional Placement (QIP) investors. During the year relevant to AY 2010-11, the assessee issued shares to Qualified Institutional Buyers (QIB) under Qualified Institution Placement (QIP) scheme. The assessee incurred a sum of Rs.14.14 crores in connection with the issue of shares to QIB. The assessee claimed 1/5th of the above said expenses as deduction u/s 35D of the Act. The assessee submitted before the AO that the shares were issued in connection with “extension of its undertaking”. It further submitted that the expenses have been incurred in connection with the issue, for public subscription, of shares as per sec. 35D(2)(c)(iv) of the Act. The assessee contended that the word “Public” has not been defined in the Income tax Act and hence the same should receive its meaning as per general connotation. The assessee relied upon the definition given in K.J. Aiyar’s judicial dictionary, wherein it is defined that the word “public” includes in the ordinary acceptation, any section of public. It was further submitted that the shares issued to QIB is included in the category of “public share holding” under Clause 40A of the Listing Agreement. The AO did not agree with the contentions of the assessee and accordingly rejected the claim of the assessee.
6 M/s. Yes Bank Ltd.
The Ld CIT(A) confirmed the disallowance by following the decision rendered by the Tribunal in the case of EMCO Limited (2005)(2 SOT 804) (sic.), wherein it was held that the expenses incurred in connection with the public issue is a capital expenditure.
Before us the assessee contended that the shares issues to QIB should also be considered as “public issue” falling within the ambit of provisions of sec. 35D of the Act. The assessee also placed reliance on the provisions of Companies Act, Listing agreements etc. in support of its contentions. However, we notice that the Ld CIT(A) has failed to address this claim, even though the assessing officer has rejected the same. The question that was contested before the Ld CIT(A) was not, whether the share issue expenses is capital or revenue expenditure. The assessee appears to have accepted that the expenses incurred for issuing shares to QIB is a capital expenditure and hence it has claimed deduction u/s 35D of the Act. We notice that the Ld CIT(A) has, however, failed to address the claim of the assessee for deduction u/s 35D of the Act. Accordingly, we deem it proper to restore this issue to the file of Ld CIT(A) for disposing of the same. Accordingly, we set aside the order passed by the first appellate authority on this issue and restore the same to his file with the direction to dispose of this issue by affording adequate opportunity to the assessee and take appropriate decision in accordance with the law.
The assessee has also raised grounds relating to levying of interest u/s 234A and 234C of the Act. In the grounds of appeal, it is mentioned that the interest has been charged in excess under the above said sections. We direct the AO to consider the contentions of the assessee and take appropriate decision in accordance with the law.
7 M/s. Yes Bank Ltd.
In the result, the appeal filed by the assessee for AY 2009-10 is partly allowed. The appeal of the assessee filed for AY 2010-11 is treated as partly allowed and the appeal of the revenue filed for AY 2010-11 is dismissed.
Order has been pronounced in the Open Court on 25.5.2016.