MAT exclusion for corresponding new banks, with CSR and compensatory RBI penalties treated as allowable business deductions.

Section 115JB is stated not to apply to a nationalised bank treated as a corresponding new bank, because such banks are treated as separate from companies for MAT computation. CSR expenditure is described as allowable under section 37(1) when incurred voluntarily on commercial expediency and not as a statutory obligation under section 135 of the Companies Act, 2013. A penalty paid to the Reserve Bank of India is treated as a compensatory civil liability, not a payment for an offence or prohibited purpose, and is therefore also allowable under section 37(1). The write-off of sundry assets is remanded for de novo verification because the factual basis was not finally examined.

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Issues: (i) Whether section 115JB of the Income-tax Act, 1961 applies to a nationalised bank treated as a corresponding new bank; (ii) whether expenditure on corporate social responsibility and penalty paid to the Reserve Bank of India are allowable deductions under section 37(1); (iii) whether the disallowance relating to sundry assets written off should be sustained or remanded for fresh consideration.

Issue (i): Whether section 115JB of the Income-tax Act, 1961 applies to a nationalised bank treated as a corresponding new bank.

Analysis: The issue was decided by following the Special Bench view that banks constituted as corresponding new banks under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 are separate from companies for the purpose of section 115JB. Once the assessee is not to be treated as a company for this provision, the machinery for computation of book profit and minimum alternate tax does not apply.

Conclusion: Section 115JB does not apply to the assessee bank, and this issue is decided in favour of the assessee.

Issue (ii): Whether expenditure on corporate social responsibility and penalty paid to the Reserve Bank of India are allowable deductions under section 37(1).

Analysis: The corporate social responsibility expenditure was held to be voluntary expenditure incurred on grounds of commercial expediency and not expenditure incurred under the statutory obligation under section 135 of the Companies Act, 2013. The penalty paid to the Reserve Bank of India was treated as a compensatory civil liability and not as a payment for an offence or something prohibited by law. On that basis, both items fall within the allowance framework of section 37(1).

Conclusion: The corporate social responsibility expenditure and the Reserve Bank of India penalty are allowable deductions, and this issue is decided in favour of the assessee.

Issue (iii): Whether the disallowance relating to sundry assets written off should be sustained or remanded for fresh consideration.

Analysis: The factual basis for the write-off was not verified by the lower authorities, and the record did not permit a final finding on allowability. The matter was therefore sent back for denovo examination with a direction to allow the claim if the assessee's factual claim is found correct.

Conclusion: The disallowance relating to sundry assets written off is set aside and remanded for fresh consideration.

Final Conclusion: The assessee succeeds on the MAT issue, secures allowance of CSR and RBI penalty claims, and obtains remand on the write-off issue, resulting in partial relief across the connected appeals.

Ratio Decidendi: A nationalised bank constituted as a corresponding new bank is outside the scope of section 115JB, and voluntary CSR expenditure and compensatory regulatory penalties are allowable under section 37(1) when they are not incurred for an offence or a prohibited purpose.

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