M/S.the Karur Vysya Bank Ltd., Karur v. The Commissioner Of Income-Tax, Trichy

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 07.09.2021 CORAM : THE HON'BLE MR. JUSTICE T.S. SIVAGNANAMAND THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP T.C.A.Nos.704 to 711 of 2013 M/s.The Karur Vysya Bank Ltd.,Karur. ...Appellant in all appealsVs. The Commissioner of Income-Tax,Trichy. ...Respondent in all appeals Tax Case Appeals in T.C.A.Nos.704 to 709 of 2013 preferredunder Section 260A of the Income Tax Act, 1961, against theorder of the Income Tax Appellate Tribunal, Madras, “A” Bench,dated 17.01.2013 in I.T.A.Nos.902/Mds/2010, 903/Mds2010,904/Mds/2010, 907/Mds/2010, 930/Mds/2011 and 931/Mds/2011, forthe Assessment Years 1999-2000, 2000-01, 2001-02, 2005-06, 2004-05 and 2006-07, respectively. T.C.A.Nos.704 to 709 of 2013 Against the order of the Commissioner of Income Tax-5Appeals, Tiruchirappalli dated 23.03.2010 in ITA Nos.358/05-06,53/04-05, 311/07-08 respectively and dated 30.03.2021 in ITANos.664/06-07 & 379/08-09 and against the order of the AssistantCommissioner of Income Tax, Company circle I (i/c)Tiruchirappalli dated 31.03.2005, 28.03.2003, 09.03.2004respectively in GIR/PAN No.101CT16/ for the assessmentyears 1999-2000, 2000-2001, 2001-02 & dated 27.02.2007,29.12.2006 & 31.12.2018 respectively in PAN No. forthe assessment years 2005-06, 2004-05 & 2006-07. Tax Case Appeals in T.C.A.Nos.710 and 711 of 2013 preferredunder Section 260A of the Income Tax Act, 1961, against theorder of the Income Tax Appellate Tribunal, Madras, “A” Bench,dated 30.01.2013 in I.T.A.Nos.905/Mds/2010 and 906/Mds/2010respectively for the Assessment Year 2002-03. T.C.A.Nos.710 and 711 of 2013 Against the order of the Commissioner of Income Tax Appeals,Tiruchirappalli dated 23.03.2010 in ITA.Nos.310/07-08 & 254/04-05 and against the order of the Assistant Commissioner of IncomeTax, company circle I(i/c) Tiruchirappalli dated 31.12.2017 in https://hcservices.ecourts.gov.in/hcservices/ GIR/PAN No. & dated 18.08.2004 in GIR/PANNo.101CT16/ for the assessment year 2002-2003. For Appellant : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan in all appeals (Judgment was delivered by T.S. SIVAGNANAM, J.) These Tax Case Appeals have been filed by the assessee,M/s.Karur Vysya Bank Limited, Karur, under Section 260A of theIncome Tax Act, 1961 (“the Act” for brevity), challenging theorder passed by the Income Tax Appellate Tribunal, Madras “A”Bench, in I.T.A.Nos.902, 903, 904, 907, 930 and 931/Mds/2011for the Assessment Years 1999-2000, 2000-01, 2001-02, 2005-06,2004-05 and 2006-07, respectively, and I.T.A.Nos.905 &906/Mds/2010 for the Assessment Year 2002-03. 2.Though the Tax Case Appeals were admitted on 17.04.2014 todecide nine substantial questions of law, with the consent ofthe learned counsel on either side, the questions are re-framedas hereunder : “1.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in confirmingthe disallowance of 2% estimated expenses on exemptedincome, in the absence of a finding as to theincurring of expenditure? 2.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law inconfirming the disallowance of software expenses asbeing relatable to capital filed? 3.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law indisallowing the payment made to Registrar of Companiesfor increasing the authorised capital? 4.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law in https://hcservices.ecourts.gov.in/hcservices/ confirming the disallowance of Rs.3,51,55,372/- beingarrears of wages on account of upward pay decision asper MOU signed on 11.03.1999? 5.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law inconfirming the disallowance of Rs.4,13,43,888/- beingex-gratia paid to employees? 3.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law indisallowing the payment made to Registrar of Companiesfor increasing the authorised capital? 4.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law in https://hcservices.ecourts.gov.in/hcservices/ confirming the disallowance of Rs.3,51,55,372/- beingarrears of wages on account of upward pay decision asper MOU signed on 11.03.1999? 5.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law inconfirming the disallowance of Rs.4,13,43,888/- beingex-gratia paid to employees? 6.Whether on the facts and in the circumstancesof the case, the Tribunal was justified in upholdingthe reassessment u/s.147?” 3.Insofar as the substantial question of law No.1 isconcerned, it arises for consideration in all appeals exceptT.C.A.Nos.706 of 2013 and 711 of 2013, relating to AssessmentYears 2001-02 and 2002-03 respectively. 4.So far as the 2[nd] substantial question of law isconcerned, it arises for consideration only in three appeals,namely, T.C.A.Nos.704 of 2013, 705 of 2013 and 706 of 2013. 5.With regard to the 3[rd] substantial question of law, itarises for consideration in two appeals, namely, T.C.A.Nos.704of 2013 and 711 of 2013. 6.The 4[th] substantial question of law, which pertains todisallowance of arrears of wages, arises for consideration onlyin one of the appeals, namely, T.C.A.No.704 of 2013 for theAssessment Year 1999-2000. 7.The 5[th]substantial question of law arises forconsideration only in one of the appeals, namely, T.C.A.No.709of 2013 for the Assessment Year 2006-07. 8.The 6[th] substantial question of law, which pertains toreopening of assessment under Section 147 of the Act, arises forconsideration only in one of the appeals, namely, T.C.A.No.710of 2013 for the Assessment Year 2002-03. 9.Heard Mr.R.Vijayaraghavan, learned counsel appearing forM/s.Subbaraya Aiyar Padmanabhan, learned counsel for theappellant/assessee and Mr.M.Swaminathan, learned Senior StandingCounsel and Ms.V.Pushpa, learned Standing Counsel, appearing forthe respondent/Revenue. 10.Since few of the substantial questions of law, which havebeen framed for consideration, are covered by certain decisions,we shall first dispose of the same, for which purpose, we neednot be required to elaborately deal with the factual situation. https://hcservices.ecourts.gov.in/hcservices/ 11.The 2[nd] substantial question of law, which has beenframed for consideration, is as to whether the order of theTribunal was correct in confirming the disallowance of softwareexpenses as being relatable to capital fee. This issue has beensquarely covered by the decision of the Division Bench of thisCourt in the case of Commissioner of Income Tax v. SouthernRailways Ltd. reported in (2006) 282 ITR 379 (Mad), wherein, thequestion was answered in favour of the assessee, which was alsotaken note of in the case of Commissioner of Income Tax, Trichyv. The Lakshmi Vilas Bank Ltd. [T.C.A.Nos.210 and 211 of 2018,dated 24.07.2018]. Thus, the substantial question of law No.2is answered in favour of the appellant/assessee. 12.Insofar as the substantial question of law No.3 isconcerned, the Tribunal followed the decision of the Hon'bleSupreme Court in the case of Punjab State Industrial DevelopmentCorporation Ltd. v. Commissioner of Income Tax reported in(1997) 225 ITR 792 (SC). We find no error in the said decisionof the Tribunal. Hence, the 3[rd] substantial question of law isanswered against the appellant/assessee. 12.Insofar as the substantial question of law No.3 isconcerned, the Tribunal followed the decision of the Hon'bleSupreme Court in the case of Punjab State Industrial DevelopmentCorporation Ltd. v. Commissioner of Income Tax reported in(1997) 225 ITR 792 (SC). We find no error in the said decisionof the Tribunal. Hence, the 3[rd] substantial question of law isanswered against the appellant/assessee. 13.With regard to the 4[th] substantial question of law, whichrelates to disallowance of arrears of wages, which arises forconsideration only for one Assessment Year, namely, AY 1999-2000, the said question is covered by the decision of theDivision Bench of this Court in the case of Commissioner ofIncome Tax, Chennai-I v. M/s.Kasturi and Sons Ltd. [T.C.No.958of 2008, dated 28.08.2018] and was answered in favour of theassessee. Following the same, the substantial question of lawNo.4 is answered in favour of the appellant/assessee. 14.The 5[th] substantial question of law, which pertains todisallowance of ex-gratia payment, has been decided in favour ofthe assessee in the assessee's own case in Commissioner ofIncome Tax, Chennai v. The Karur Vysya Bank Ltd., Karur[T.C.A.No.611 of 2014, dated 05.08.2021]. Following the same,the 5[th] substantial question of law is answered in favour of theappellant/assessee. 15.Now reverting back to the substantial question of lawNo.1, which pertains to disallowance of estimated expenses, theassessee is a Banking Company and it has got interest freefunds, which have been invested. The assessee's case was that,it did not incur any collection charges and the amounts wereinvested out of circulating capital. The Assessing Officer didnot agree with the said submission and referred to the additionmade in the earlier years and as against those additions, theCommissioner of Income Tax (Appeals), Tiruchirapalli (“CIT(A)”for brevity) had deleted the additions and the Revenue has challenged the order before the Tribunal and the issue ispending. Therefore, the Assessing Officer chose to disallow theproportionate expenses. The assessee filed an appealreiterating the earlier stand that the assessee Bank did notincur any expenditure to get the tax free income and theassessee Bank, at no point of time, had borrowed money for beinginvested in tax free securities and therefore, requested theCommissioner to delete the addition. The CIT(A) directed theAssessing Officer to restrict the disallowance to 2% only on taxfree bond, which in the opinion of the CIT(A), was a reasonabledisallowance. This finding was questioned by the assesseebefore the Tribunal and the Tribunal found 2% to be a reasonablesum. 16.The assessee is on appeal before us questioning the same,by referring to the decision of the Hon'ble Supreme Court in thecase of Maxopp Investment Ltd. v. Commissioner of Income Taxreported in (2018) 402 ITR 640 (SC), the decision of the Hon'bleSupreme Court in the case of Commissioner of Income Tax v. StateBank of Patiala reported in (2018) 102 CHH 289 ISCC and thedecision of the High Court of Delhi in the case of PrincipalCommissioner of Income Tax-7 v. M/s.Punjab and Sind Bank[I.T.A.Nos.904 and 906 of 2019, dated 16.10.2019]. 17.The argument of the learned counsel for the assessee isthat the recent decision of the High Court of Delhi had takennote of the decision of the Hon'ble Supreme Court in MaxoppInvestment Ltd. and decided the matter concerning a Bankingcompany and the said decision would squarely apply to theassessee's case, which is also a Banking company and thequestion of disallowance of an adhoc amount of 2% would not besustainable. 17.The argument of the learned counsel for the assessee isthat the recent decision of the High Court of Delhi had takennote of the decision of the Hon'ble Supreme Court in MaxoppInvestment Ltd. and decided the matter concerning a Bankingcompany and the said decision would squarely apply to theassessee's case, which is also a Banking company and thequestion of disallowance of an adhoc amount of 2% would not besustainable. 18.The learned Senior Standing Counsel appearing for theRevenue strenuously contended that the submission made by theassessee before this Court is a submission made for the firsttime, not supported by any facts. In the assessee's own case inthe earlier year, the Tribunal took note of the decision of thisCourt in the case of M/s.Simpson & Co. Ltd. v. The DeputyCommissioner of Income Tax, Company Circle-VI, Chennai[T.C.No.2621 of 2006, dated 15.10.2012] and confirmed the orderpassed by the CIT(A), and no interference is called for andprayed that the question may be answered against the assessee. 19.As rightly pointed out by the learned Senior StandingCounsel for the respondent/Revenue, the decisions relied on bythe learned counsel for the appellant/assessee were notavailable when the Tribunal decided the matter, because, thosedecisions were rendered during the year 2018-19. In any event,the legal question requires to be considered. However, we find that, though the assessee specifically took a stand that theydid not incur any expense to get the tax free income andassessee Bank has got more interest free funds for investing inthe tax free income, the CIT(A) did not examine the said aspect,but merely directed the Assessing Officer to restrict thedisallowance in this regard to 2% only on tax free bonds,finding the same to be reasonable. Had the CIT(A) adjudicatedthe correctness of the stand taken by the assessee and rendereda finding, the Tribunal could have tested the correctness of thesame. Further, there has been development in law. We do notpropose to deny the benefit of the assessee to place reliance onthose decisions and put forth their submissions and for suchpurpose alone, we are inclined to remand the matter back to theTribunal for fresh consideration. The substantial question oflaw No.1 is left open for fresh consideration by the Tribunal. 20.Insofar as the substantial question of law No.6 isconcerned, which arises for consideration in T.C.A.No.710 of2013, pertaining to the Assessment Year 2002-03, with regard toreopening of the assessment, the learned counsel for theappellant/assessee has filed a memo not pressing the said issue.The said memo is placed on record and the substantial questionof law No.6 is left open. 21.In the result, these Tax Case Appeals are disposed of andthe substantial questions of law, which arise for considerationin these appeals, are answered as follows : ➢The 1[st] substantial question of law is left open for freshconsideration by the Tribunal. The matter is remanded backto the Tribunal for fresh consideration insofar as the 1[st]substantial question of law is concerned.consideration by the Tribunal. The matter is remanded backto the Tribunal for fresh consideration insofar as the 1[st]substantial question of law is concerned. ➢The 2[nd] substantial question of law is answered in favour ofthe assessee.the assessee. ➢The 3[rd] substantial question of law is answered in favour ofthe Revenue.the Revenue. ➢The 4[th] substantial question of law is answered in favour ofthe assessee.the assessee. ➢The 5[th] substantial question of law is answered in favour ofthe assessee.the assessee. ➢The 6[th] substantial question of law is left open, as notpressed by the appellant/assessee.No costs. pressed by the appellant/assessee.No costs. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar mkn To 1. The Income Tax Appellate Tribunal, “A” Bench, Chennai. “A” Bench, Chennai. ➢The 2[nd] substantial question of law is answered in favour ofthe assessee.the assessee. ➢The 3[rd] substantial question of law is answered in favour ofthe Revenue.the Revenue. ➢The 4[th] substantial question of law is answered in favour ofthe assessee.the assessee. ➢The 5[th] substantial question of law is answered in favour ofthe assessee.the assessee. ➢The 6[th] substantial question of law is left open, as notpressed by the appellant/assessee.No costs. pressed by the appellant/assessee.No costs. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar mkn To 1. The Income Tax Appellate Tribunal, “A” Bench, Chennai. “A” Bench, Chennai. 2. The Commissioner of Income Tax Appeals, Trichy. Trichy. 3. The Assistant Commissioner of Income Tax, Company Circle I(ic), Tiruchirappalli. Company Circle I(ic), Tiruchirappalli. +1cc to M/s.Subbaraya Aiyar Padmanabhan, Advocate, S.R.No.45637 +1cc to Mr.M.Swaminathan, Advocate, S.R.No.45636 T.C.A.Nos.704 to 711 of 2013 AJS[co] NSK 29/10/2021