TaxTMI 
TaxTMI 
2020 (2) TMI 1350
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....ny other Bench because "G" Bench was not functioning during that week. Hence Revenue moved transfer petition and early hearing petition before the Vice President, ITAT, Mumbai. The relevant text of the letter dated 20.03.2019 reads as under: - "Appeal Nos. - ITA 3680/M/17, ITA 3882/M/17 ITA 3644/M/16, ITA 3645/M/16 ITA 4563/M/16, ITA 4564/M/16 Sir, It is brought to your kind notice that hearing in the above mentioned matters was fixed by the Hon'ble Members of the G-Bench, ITAT for the 25th and 27th of March, 2019. However, it is learnt that the G Bench is not functioning on the above mentioned dates. You are hence requested to kindly transfer the above mentioned appeals to an appropriate bench of the honourable Tribunal so that the above appeals are heard on 25th March, 2019. I shall be obliged for kind consideration of this request." 3. Consequent to the same, this application was put up before the Bench on 22.03.2019 and the Bench passed the order transferring these appeals to "A" Bench and posting on the same day, i.e. 23.05.2019 and the relevant order of the Bench reads as under: - "ITA Nos. 3680, 3882/Mum/2017....
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....sp; VP" In terms of the above, these appeals were heard after the consent of the parties. 4. The first issue in this appeal of the assessee is as regards to the order of the CIT(A) confirming the disallowance made by AO in respect to assessee's claim of deduction on account of provisions for pension amounting to Rs. 3724/- crores. For this the assessee raised the following ground No. 1: - "1. Provision for pension of Rs.3724,00,00,000/-. The learned CIT(A) erred in upholding the action of the Assessing Officer in disallowing the appellant's claim in respect of provisions for pension amounting to Rs. 3724,00,00,000." 5. Brief facts of the case are that the....
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....36.43) Total costs of defined benefit plans included in Schedule 16 "payment to and provisions for employees" 885.60 5.00 Reconciliation of expected return and actual return on Plan Assets Expected Return on Plan Assets 976.42 269.72 Actuarial gain/(loss) on Plan Assets 70.74 63.46 Actual Return on Plan Assets 1047.16 333.18 Reconciliation of opening and closing net liability/(asset) recognized in Balance Sheet Opening Net Liability as at 1st April, 2007 3723.74 Nil Expenses as recognized in profit and loss account 885.00 5.00 Net liability (Asset) recognized in Balance Sheet 3725.20 Nil 6. The AO, after discussing provisions of Sections 36(1)(iv), 36(1)(v), 40A(7) and 40(9) of the Act, noted that since these specific provisions are applicable for allowability of the above noted expenditure and expenditure of similar nature, they cannot be allowed under the general provisions of section 37(1) of the Act. The AO further noted that even the conditions as per Section 43B of the Act would be applicable to similar expenditure. The AO, finally a....
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....of similar nature, they cannot be allowed under the general provisions of Section 37(1) of the Act. Accordingly, he noted that the assessee has created these transitional liabilities as a result of adoption of revised AS-15. Hence, he disallowed the defined benefit Pension Plan claim by the assessee of Rs. 3724/- crores. Aggrieved assessee preferred appeal before the CIT(A). 8. The CIT(A), after considering the submission of the assessee and the detailed discussion carried out by the AO in the assessment order and also the decision of the DRP for A.Y. 2012-13 vide para 62, extracted hereunder, affirmed the order of the AO: - "The assessee has made a provision of 1663.41 crores towards pension liability. The plea of the assessee is that the said provision is allowable under section 37(1) of the Act. We are unable to accede to this plea of the assessee. Though it had been claimed the said provision was on actuarial valuation, it could not be ascertained before this Panel as to how it is an ascertained liability which has been ascertained at the time it has been debited to the books and it is not contingent in nature. We have no hesitation in agreeing with the contention t....
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....ed that the said expenditure in the previous year as a liability was quantified and as accrued during the year notwithstanding the fact that the same had to be discharged at a later date. 11. He stated that provisions of Section 37(1) of the Act grants a deduction from the profit of the business in respect of any expenditure not been in the nature of capital expenses or personal expenses laid out wholly and exclusively for the purpose of business. He stated that provisions of Section 43B of the Act are not applicable for the reason that the provisions are in relation to expenditure and not towards contribution towards welfare fund and are accordingly governed by provisions of Section 37(1) of the Act. The learned counsel for the assessee also brought to our notice the provisions of Section 37(1) of the Act and stated that Section 37(1) of the Act applies only to the expenditure which is expenditure not in the nature prescribed in Sections 30 to 36 of the Act. He referred to provisions of Section 37(1) of the Act which read as under: - "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expen....
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....ny was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of servicethe exact time of the occurrence of the later two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under:- (i) For an assessee maintain his accounts on the mercantile system, a liability already accrued, though to be discharged at a future date, would be proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in the case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the....
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....r "income from other sources" is required to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The assessee bank has followed mercantile system of accounting and in terms of the guidelines of the RBI, the assessee bank was required to follow AS-15 from financial year 2007-08 relevant to A.Y. 200809. He argued that the provision made on account of pension liability may relates to earlier years but it is well settled principle in law that such liabilities are allowable in the year in which they are crystallized. In the present case the liability in respect of pension has been crystallized in the relevant previous year 2007-08 relevant to A.Y. 2008-09 pursuant to adoption of AS-15 and accordingly allowable as a deduction. He stated that assessee's case is also covered by the decision in the case of State Bank of Saurashtra in ITA NO. 4949/Mum/2013 dated 23.12.2016 for A.Y. 2009-10, which has since merged with assessee bank and referred to Para 18.1 of the order. He then took us through the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ranbaxi Laboratories Ltd 334 ITR 341 (Del) and stated that the iss....
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....gratuity that has become payable during the previous year. Sec 40A(9) of the Act also puts several restrictions on allowing several expenses incurred by an assessee as an employer except in accordance with provision of Sec.36(1)(iv) and (v) of the Act. Under these circumstances, the assessee's claim of deduction for provision for meeting the similar liabilities under section 37(1) of the Act is not acceptable because the section itself bars expenses of the nature provided under section 30 to 36 of the Act. Otherwise, such action will circumvent these specific provisions. It may be mentioned that it is a well established legal principle that special provision prevail over general provision. It is submitted that in a recent judgement in the case of Pricol Limited, the Hon'ble Madras HC has explain the definition of the word "gratuity" by borrowing from the Hon'ble SC's decision AIR 2004 SC 1426 and stated that gratuity is a gratuitous payment given to an employee on discharge superannuation or death. Thus, the Hon'ble court has brought out the encompassing nature of the word "gratuity." The Court in the present case was deciding on the allowability of "provision for s....
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....s. 3,724 crores were made based on the actuarial valuation by debiting the revenue reserves. The details are filed by the assessee in its note filed vide note 18.9 (a)(v)(I) of the financial statements at page No. 73 of the Paper Book - I, filed by assessee. 16. We noted that the above amount was debited to revenue reserves, the assessee claimed a deduction for the same separately in the computation of total income and the relevant details are filed by the assessee at Sr. No III.14 of the computation of total income on page 2 of the Paper Book - I filed by assessee. As consideration for availing of the benefit of the services of the employees during the year it in addition to the salary, bonus, allowances, perquisites, etc. is also obliged to provide various retirement benefits such as pension, gratuity, etc. to the employees. These liabilities although to be discharged in the future relate to the rendering of the services during the year and because of the various imponderables determined based on an actuarial valuation. The assessee explained this by an example stating that, if as per employee policy an amount of Rs. 250/- is payable to each employee towards pension and there ....
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.... pension liability based on the principle laid down by the Courts, as discussed above. The claim was further supported by the Accounting Standard 1 notified by the Central Government in terms of section 145(2) of the Act, which mandates the adoption of a policy of prudence pursuant to which a provision is to be made for every known liability even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. But, the Revenue before the Tribunal has emphasised on the following contentions: a. expenditure does not relate to the year under consideration; b. Specific provision of sections 36(1)(iv)/36(1)(v) and 40A(7)/40A(9) of the Act are applicable to the pension liability. Further, the same should only be allowed on payment basis as per section 43B of the Act. Hence, a general provision like section 37(1) of the Act cannot apply. 18. We noted that, in the present case, the provision of Rs. 3,724 crore relates to the transitional liability and has arisen on account of adoption of Revised AS-15 relating to employee benefits issued by the ICAI. The allowability of such transitional provision has been....
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....erusal of sections 36(1)(iv)/36(1)(v) of the Act shows that, they would apply when deduction is claimed of any sum paid by an assessee as an employer towards a recognised provident fund or an approved superannuation fund or an approved gratuity fund. The amount of Rs. 3,724 crores are clearly not a contribution towards any recognised provident fund or approved superannuation fund or approved gratuity fund. Similarly sections 40A(7)/40A(9) of the Act would apply to provision made as an employer towards contribution to fund, or trust or any other entity. We also noted that the amount of Rs. 3,724 crore is not a provision made for contribution to any fund or trust or any other entity. Similarly, section 43B of the Act deals with contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. The amount of Rs. 3,724 crores are not a contribution to a pension fund and is a provision towards pension liability. We are of the view that only the prescribed items can be disallowed in terms of section 43B of the Act. Therefore, the above provisions are clearly not applicable in the present case. 21. It also requires consideration t....
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....overed by the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] (245 ITR 428) in which it was held as under: "..................... ........................" The provision of section 43B will not apply to the same as this does not represent the sum payable by the assessee as an employer by way of contribution to pension fund. We, therefore, respectfully, following the decision of Hon'ble Supreme Court delete the disallowance" Hence, this issue is also covered by the Tribunal decision in the case of State Bank of Suarashtra (supra), which has merged with the Assessee. 24. The reliance placed by the learned Departmental Representative at the time of the hearing on the decision of the Madras High Court in the case of Pricol Limited is completely misplaced since the same deals with a case of disallowance of provision towards gratuity which was squarely covered by the provision of section 40A(7) of the Act. Further, it is clarified that section 40A(9) of the Act will not be applicable since the provision is not towards contribution to any pension fund. We are of the view that sections 36(1)(iv) and 36(1)(v) of t....
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....s appeals is as regards to the order of CIT(A) restricting the disallowance on account of provision for other employee benefit. For this assessee has raised the following ground No.2: - "2. Provision for other employee benefits 2.1 The learned CIT(A) erred in not allowing the deduction of Rs.471,31,00,000 for provision on account of transactional provisions of accounting standard 15 in respect of other employee benefits comprising of leave travel & home travel concession, sick leave and casual leave. 2.2 The learned CIT(A) erred in not allowing the deduction of Rs.41,50,00,000/- for provision for the year under construction in respect of other employee benefits comprising of leave travel & home travel concession, sick leave and casual leave. 2.3 The learned CIT(A) erred in holding that the aforesaid provisions were covered under clause(f) of section 43B without appreciating that the provisions in respect of casual leave and sick leave is not encashable." Revenue has raised the following ground No. 4: - "4. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing the provision for other long term employee b....
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....items are disallowable under section 43B of the Act. The AO is directed to delete the proposed disallowance under section 43B 6.3 In the direction of the DRP they have allowed claim of benefits for silver jubilee awards and only retirement award. Regarding other disallowance i.e. leave travel and home travel, sick leave, casual leave, this will come under section 43B(f) where deduction is not allowed, any sum payable by assessee as an employer in lieu of any leave at the credit of his employee. As three of the claim like leave travel and home travel, sick leave, casual leave are in lieu of the leave and which come under the purview of section 43B, hence claim of the appellant is disallowed. Only as per DRP direction silver jubilee awards, resettlement expenses on superannuation and retirement award is allowed. Ground of appeal is partly allowed." Aggrieved, assessee as well as revenue came in appeal before Tribunal. 27. We have heard rival contentions and gone through facts and circumstances of the case. We have also perused the material placed before us including assessment order, order of CIT(A) and case laws. We noted that the assessee in accordance with the trans....
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..... The assessee claimed a deduction for the items mentioned at Sr. Nos. 2,3,4 and 5 above in the computation of total income and offered to tax the write back for items at Sr. Nos. 6 and 7. The assessee filed the details vide note No. 9 to the revised return of income on page 7 of the Paper Book - I. The AO disallowed these provisions on the basis that the same cannot be allowed under section 37(1) of the Act and the provisions of section 43B of the Act are applicable. 31. Out of the above, the CIT(A) allowed items mentioned at Sr. Nos. 4, 5 & 7 aggregating Rs. 3.90 crore and upheld the disallowance of items mentioned at Sr. Nos. 2, 3 & 6 aggregating Rs. 41.50 crore. With respect to item mentioned at Sr. No. 1, a separate ground of appeal viz. ground of appeal No. 3 has been raised in the captioned appeal, whereas ground of appeal No. 2.2 has been raised with respect to items mentioned at Sr. Nos. 2, 3 & 6 aggregating Rs. 41.50 crore. 32. Provision for Leave Travel and Home Travel Concession represents provision towards actual payments to be made by the assessee to its employees for the travel costs incurred by them such as rail fare, air fare, etc. on availment of the leave t....
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....he case of Robert Bosch Engineering & Business Solutions Ltd. v/s. DCIT [ITA No. 336/Bang/2014 dated 21.04.2017. Further, the provision made is for an ascertained liability based on an actuarial valuation and is to be allowed as a deduction under section 37(1) of the Act while computing the total income. It is provided towards an ascertained liability, based on actuarial valuation, on a scientific basis and is not contingent in nature. In view of the above factual discussion, legal position based on various decisions, we are of the view that this deduction claimed by the assessee is allowable and hence, allowed. This issue of assessee's appeal is allowed and that of the revenue is dismissed. 35. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing provision for privilege leave encashment. For this assessee raised the following Ground No.3: - "3. Provision for privilege leave encashment of Rs. 88,00,00,000 The learned CIT(A) ought to have allowed the deduction of Rs. 88,00,00,000 in respect of provision for privilege leave encashment." 36. We have heard rival contentions and gone through fac....
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....empt interest and dividend income is to be disallowed under section 14A. 4.4 Without prejudice to the above, the learned CIT(A) erred in not appreciating that income of yielding any exempt income during the year will not be considered for the purpose of computing disallowance under section 14A." Revenue has raised the following ground No. 7 & 8 as under: - "7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that no disallowance under section 14A read with Rule 8D(2)(ii) is called for, there by granting relief to the assessee, overlooking the fact that the AO had correctly made the disallowance, as the assessee could not establish the nexus between its own funds and investments made in tax free income. 8. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to restrict the disallowance under section 14A rw.r. 8D(2)(iii) by the excluding the long term investment in subsidiary/ group concerns relying on the decision of ITAT in the case of Garware Wall Ropes Ltd. (65 SOT 86), without appreciating the fact that the decision of ITAT has not been accepted by the d....
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....free bonds, shares (other than strategic investments) and units of mutual funds, as these investments are stock-in-trade and for holding that the disallowance cannot go below the suo-moto disallowance made by the assessee. Further, the investments not yielding exempt income during the year should also not be considered. 41. The assessee contended that only those investments which have yielded exempt income during the year are to be considered for computing average value of investments in terms of rule 8D(2)(iii) of the Rules. Reliance is placed on the following decisions: * ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB) * Cox and Kings Ltd. vs. ACIT [ITA No. 2066/Mum/2017 dt. 3.01.2019] [Mumbai Tribunal] 42. It was contended that no disallowance under section 14A of the Act is called for based on the judicial precedents on the subject. Even the suo-moto disallowance made by the assessee in its revised return of income ought to be deleted. With respect to the CIT(A)'s direction that the disallowance u/s 14A of the Act should not go below the amount suo-moto disallowed by the assessee. It was argued that there is no provision i....
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....ered for calculating disallowance in terms of rule 8D(2)(iii) of the Rules- [refer para No. 8 on page No. 7 of the aforesaid Order] * State Bank of Hyderabad [63 taxmann.com 322] [Hyderabad Tribunal] [see pages 634 to 646 of Paper Book - I] * It was stated that the Supreme Court has also recalled the decision in the case of ACIT v/s. Jamnalal Sons Pvt. Ltd. wherein the appeal filed by the Department was initially dismissed on the issue of disallowance under section 14A of the Act on investments which are held as stockin-trade. The said issue has also been decided in favour of the assessee by the Mumbai Tribunal in [ITA NO. 3789/Mum/2013] [erstwhile State Bank of Saurashtra which has since merged with the assessee] vide its Order dated 23.12.2016 for AY 2008-09 (see pages 613 to 623 of the Paper Book - I) * Reliance is also placed on the CBDT Circular No. 18/2015 dated 2.11.2015, wherein it is discussed that investments made by a banking concern are part of the business of banking and therefore, the income arising from such investments is attributable to business of banking falling under the head 'Profits and gains of business and profession". ....
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....s but to comply with the SLR requirements. Accordingly, the expense incurred in relation to earning of the interest income should not be disallowed under section 14A of the Act. Reliance in this regard is placed on the decision of the Cochin Tribunal in the case of State Bank of Travancore [318 ITR (AT) 171]. The argument to exclude investment made in subsidiaries/strategic investments while computing disallowance u/s 14A of the Act is decided against the assessee by the decision of the Supreme Court in the case of Maxopp Investment Ltd. (supra). The assessee contended that those strategic investments which have not yielded any exempt income during the year ought to be excluded for the purpose of computing average value of investment, as elaborated above. 48. We Noted from the above discussion that, the issue of disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Rules in regard to interest, is covered by the decision of Hon'ble Bombay High Court in the case of HDFC Ltd. (supra), wherein it is clearly held that no disallowance can be made in the relation to interest expenses as assessee's own non-interest bearing funds far exceed the investment as details a....
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....: - "12.3 I have considered the appellant's submissions. This is a recurring issue and this issue was considered by CIT(A) in appellant's own case for A.Y. 2007-08 and by ITAT for A.Y. 1996-97 which are reproduced as under: It is noticed that identical issue had arisen in earlier years. On the issue, in AY 200607, the relevant part of the observation finding of my predecessor CIT(A), as contained in order dated 30.03.2013 in appeal No. IT-241/09-10, is reproduced hereunder: No new leases have been entered during the year. Some of the leases have expired during the year and some of the leases have been renewed on the same terms and conditions. In r/o the leases which have expired the appellant has stated that the same have been transferred to the lessee on residual value. During the course of appeal proceedings, the appellant was required to produce any documentary evidence of the Registered Valuer to show the market value of the underlying assets at the time of expiry of the lease/renewal of the lease. No such documentary evidence of the Registered Valuer to show the market value of the alleged leased assets on the date of expiry of the lease/ ren....
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....der the present facts and circumstances of the case, when the genuineness of the lease agreement itself is not proved and was a shorn agreement to give the colour of finance lease to mere advancing of loans by the assessee - the ratio laid down and relied upon by the appellant in the case of M/s ICDS Ltd. V/s CIT Mysore Et. Another Civil Appeal No. 3282 of 2008 (Supreme Court) shall not apply to the facts of the case. There was no genuine leasing. Accordingly, no depreciation is admissible to the assessee lessor. The issue has been decided against the assessee by CIT(A) in assessment years AY 1999-2000 to 2006-07. Disallowance were confirmed even in the years prior to that. The decision of Hon'ble ITAT for AY 1996-97 in ITA No. 5470/Mum/2002 [order dated 26.07.2013] on the issue is also against the assessee. Following that, the disallowance of Rs.+++/- on account of deprecation on leased assets is confirmed. This ground of appeal is therefore dismissed." 52. Before us also the assessee contended that during the course of its business, assessee enters into lease agreements with various parties whereby assets were granted on lease to them. During the year under cons....
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....t amounting to Rs. 1026,23,30,375/- by way of note 18 to the revised return of income. The AO did not allow the claim of the assessee on the basis that deduction under section 36(1)(viia) of the Act is available towards rural and nonrural advances and in view of the proviso to section 36(1)(vii) of the Act, the deduction under section 36(1)(vii) of the Act is limited to excess of the amount written off over the credit balance of provision for bad and doubtful debts under section 36(1)(viia) of the Act. The CIT(A) confirmed the disallowance following the order of the CIT(A) for the assessment year 200708, wherein the CIT(A) had held that Explanation 2 to section 36(1)(vii) of the Act inserted w.e.f 01.04.2014 which states that the proviso to section 36(1)(vii) of the Act and section 36(2)(v) of the Act relates to all types of advances i.e. rural and nonrural advances, is clarificatory in nature. Accordingly, the CIT(A) held that the assessee cannot be allowed double deduction i.e. one on provision basis and then again on actual write-off basis. The CIT(A) observed as under: - "14.3 I have considered the appellant's submissions. This is a recurring issue and this issue w....
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....f an amount lower of the provision made for bad and doubtful debts or the amount calculated as per the prescribed methodology. As per the proviso to section 36(1)(vii) of the Act, deduction under section 36(1)(vii) of the Act is limited to excess of the amount written off over the credit balance in the provision for bad and doubtful debts accounts made under section 36(1)(viia) of the Act. Further, as per section 36(2)(v) of the Act, where a debt made by the assessee to which section 36(1)(viia) of the Act applies, no deduction shall be allowed unless the assessee has debited the amount of such debt to the provision for bad and doubtful debts account made under section 36(1)(viia) of the Act. On a conjoint reading of the aforesaid provisions, it can be inferred that sections 36(1)(viia) and 36(2)(v) of the Act and the first proviso to section 36(1)(vii) of the Act, apply only to rural advances. 57. We noted that, as reliance placed by assessee, this issue is decided in favour of the assessee by the Supreme Court judgment in the case of The Catholic Syrian Bank Ltd. vs. CIT [2012] 343 ITR 270 (SC). The Supreme Court was concerned with a case where the assessee had claimed a deduc....
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....relates to all types of advances i.e. rural and nonrural advances, is Clarificatory in nature. In this regard, reliance is placed on the decision of the Supreme Court in case CIT vs. Vatika Township (P.) Ltd. [2014] 367 ITR 466 (SC), wherein it was held that one established rule for interpretation of legislation is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. In the present case, the legislature stipulated a fixed date i.e. 01.04.2014 while inserting Explanation 2 to section 36(1)(vii) of the Act. In view of the above, we are of the view that assessee is entitled to deduction under section 36(1)(vii) of the Act being the amount of bad debts written off (other than in respect of rural advances). This issue of assessee appeal is allowed. 60. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing deduction claimed by assessee on account of reducing depreciation/ taxing appreciation in the value of securities held as Available For Sale(AFS) and Held For Trading(HFT) category. For this assessee has raised the following ground No. 7: - ....
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....crip-wise for tax purposes in earlier years. The same has also been accepted by the AO upto assessment year 2004-05 i.e. prior to the change in the treatment given in books of account. Therefore, for tax purposes valuation is done on the basis of lower of cost or market value computed scrip-wise and providing for depreciation in each of the scrip, while ignoring any appreciation. The assessee has claimed a deduction on this account vide note 24 to the revised return of income. 63. We noted that revenue rejected the claim of the assessee following the decision of the Mumbai Tribunal in the case of Deutsche Bank AG. The CIT(A) upheld the disallowance made by the AO following the earlier years order of CIT(A) for assessment year 2007-08. The Revenue before the Tribunal has emphasised on the applicability of Mumbai Tribunal's decision in the case of Deutsche Bank AG and that the valuation is as per RBI guidelines. It was contended by the assessee that it is a well settled principle of law that unrealised gains on stock are not to be brought to the tax net. Reliance in this regard is placed on the decision of the Supreme Court in the case of Chainrup Sampatram vs. CIT [1953] 24 ITR 4....
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....an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as the "source" of such profits." 64. The Supreme Court in the case of A.L.A. Firm vs. CIT (1991) (189 ITR 285) (SC) has observed that closing stock cannot be valued at a market value higher than the cost as that will result in taxation of the notional profits which the assessee has not realised. The relevant extract of the judgement of the Supreme Court is reproduced below: "The valuation of the closing stock at market value invariably will create a problem. For if the market value is higher than cost, the accounts will reflect notional profits not actually realised. On the other hand, if the market value is less, the assessee will get the benefit of a notional loss he has not incurred. Nevertheless, as mentioned earlier, the ordinary principles of commercial accounting permit valuation 'at cost or market price, whichever is the lower'. [para 27] The proper practice is to value the closing stock at cost. That will eliminate entries relating to the same stock from both sides of the account. To this rule custom recogn....
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....come which is to be deduced on the basis of the accounting system regularly maintained by the assessee. In view of the above, it was claimed that the assessee be allowed a deduction in respect of depreciation on each securities, scrip wise, while ignoring the appreciation. 67. Further, the assessee claimed that it has consistently been following the method of valuation of lower of cost or market price in respect of securities. Accordingly, the method of valuation followed by the assessee is required to be accepted. Reliance in this regard is placed on the following decisions: * CIT vs. Bank of Baroda [2003] 262 ITR 334 (Bombay) * CIT vs. Corpn. Bank Ltd. [1988] 174 ITR 616 (Karnataka) Further, the issue was not disputed upto financial year 2003-04 and hence, the AO is not justified in taking a different view. 68. The assessee also relied on the judgement of the Bombay High Court in the case of Union Bank of India dated 08.02.2016 in ITA 1977 of 2013. The assessee in this case for the purpose of its books was netting off the depreciation in its securities against appreciation in other securities while for tax purpose, the assessee has been claiming gross d....
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....luing the closing stock. In the present case, we are not concerned with a scenario where in the later year the depreciation provided in earlier years is reduced. Further, the decision of the Mumbai Tribunal in the case of Deutsche Bank A.G vs. DCIT [2003] 86 ITD 431 (Mumbai), relied by the AO is in connection with valuation of foreign exchange forward contracts. In this case the assessee did not account for in the financial statement the anticipated/contingent profits from the contracts to the extent not settled as on the last day of the accounting year whereas any loss on such contracts was provided for by a charge in the profit and loss account on the best estimates. The Department brought to tax the profit on such forward exchange contracts and stated that one method for valuation of the entire stock of securities should be followed. This resulted in a situation of taxing appreciation of stock, which goes against the general and settled principle of non-taxation of notional income, as laid by the Supreme Court in the case of Sanjeev Wollen Mills vs. CIT [2005] 279 ITR 434 (SC) and others discussed supra. Hence, we are of the view that this disallowance of depreciation/ reducing ....
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....g the deduction under section 36(1)(viia) of the Act. The assessee has also filed the details vide note 17 and Annexure 6 to the revised return of income on pages 8, 9 and 20 of Paper Book - 1 filed by assessee. As per the provisions of section 36(1)(viia) of the Act, a bank is eligible to avail deduction in respect of provision made for bad and doubtful debts, of an amount not exceeding 7.5% of total income and 10% of the aggregate average advances made by the rural branches of the bank. The provision is created by the assessee on the basis of RBI Guidelines. The assessee is required to create provision on non-performing assets on the basis of the classification of assets into the four prescribed categories i.e. loss assets, doubtful assets, substandard assets and standard assets [refer para 5.1.2 of the RBI Guidelines]. 72. The Revenue before us emphasized that the provision for standard assets is not same as provision for bad and doubtful debts and the same is contingent in nature, since it is created only out of abundant caution. We noted from the provisions that the assessee is required to make a provision on all its debts ranging from 0.25% to 100% depending upon the categ....
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....ch the bank (assessee) itself regards as good for receipt and, therefore with the decision by the tribunal in Bharat Overseas Bank Ltd. (supra) relied upon by the Revenue. A provision by definition a charge against profits, while that in respect of an asset, considered good, would be more in the nature of an appropriation of profit i.e. a reserve. This is precisely what the Tribunal in Bharat Overseas Bank Ltd. (supra) means when its states of the deduction being not in the nature of a standard allowance. No contrary judgement by the Tribunal or a higher court has even otherwise been brought to our notice. At the same time, the provision as per RBI guidelines - which are contended to have been followed / adopted, provide for the minimum provision, and the bank is free to make a higher provision, i.e., than that prescribed by the RBI norms. Provisioning, it may be noted, is a management function, made reflecting its risk assessment qua different assets. If therefore, the assessee-bank is able to satisfy the assessing authority that the provision as made is justified with reference to the debts considered by it as bad and doubtful, we see no reason as to why the same cannot be allowe....
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....rms of the consistent policy adopted by the assessee. Section 43D of the Act provides that in the case of a scheduled bank, income by way of interest in relation to prescribed categories of bad or doubtful debts, having regard to the guidelines issued by the RBI in relation to such debts, shall be chargeable to tax in the previous year: a. in which it is credited by the scheduled bank to its profit and loss account; or b. in which it is actually received by the bank; whichever is earlier. 77. Rule 6EA of the Rules inter alia provides the categories of advances that may be classified as bad and doubtful debts (i.e. 180 days norm). Clause (e) of rule 6EA also includes therein debts recoverability whereof has become doubtful on account of shortfalls in value of security, difficulty in enforcing and realising the securities, or inability or unwillingness of the borrower to repay the banks dues, partly or wholly. 78. We noted that the assessee does not offer to tax, the interest income on NPAs, classified in terms of RBI guidelines, on accrual basis. The same is offered to tax in the year in which the same is received and credited to the profit and loss account i....
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....he profit and loss account. The assessee offered to tax the net amount credited to the RFDI account i.e. the interest accruals in the RFDI account net of recoveries. However, it was argued that such tax treatment leads to offering interest on non-accrual loans to tax on accrual basis, even if the same is not credited to the profit and loss account. The Mumbai Tribunal held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. The aforesaid decision has been affirmed by the Bombay High Court in the case of DIT vs. American Express Bank Ltd [2015] 235 Taxman 85 (Bombay). In the present case the assessee argued that there is no credit entry in the books of the account in respect of the interest on such NPAs and, accordingly, the addition made cannot be sustained. Hence according to assessee the issue....
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....i High Court had to consider a case where the assessee, being a NBFC, treated the inter corporate deposits as an NPA, in terms of the directions of the RBI and, hence, did not recognise interest income in respect of the same. The Delhi High Court has recognised the real income theory and this was approved by the Supreme Court in the case of Sothern Technologies and held that provisions of other enactment which contain a non obstante clause, would override the provisions of the Act. In view of the above, the Delhi High Court held that the interest on inter corporate deposits recognised as NPA, in terms of the directions of RBI was not taxable. The aforesaid decision of Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra) has been affirmed by Hon'ble Supreme Court in the case of CIT vs. Vasisth Chay Vyapar Ltd. [2019] 410 ITR 244 (SC). 86. In view of the above decision of Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra), which was affirmed by Hon'ble Supreme Court, the facts and circumstances are exactly identical in the present case before us and hence, respectfully following the same, we delete the addition of interest income from non-....
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....1)(viia) of the Act in the earlier years. This provision, as if by a fiction deems something to be income, has to be strictly construed. Therefore, the provisions of section 41(4) of the Act, do not apply. 90. We noted from the above arguments of both the sides and case law cited by the parties, that the issue is squarely covered by a decision of the Bangalore Bench of the Tribunal in the case of State Bank of Mysore Vs. DCIT [2009] 33 SOT 7 (Bangalore), now merged with assessee. We noted that the Tribunal in the case of State Bank of Mysore (supra) narrated the facts and the facts in the present case are exactly the same as in the case of State Bank of Mysore. In the case of State Bank of Mysore (supra), the assessee had claimed deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act. Accordingly, the Bangalore Tribunal has held that section 41(4) of the Act cannot be invoked. Sections 41(1), 41(2), 41(3) and 41(4) of the Act operate in different spheres. Each of the sub-sections to section 41 of the Act deals with different and distinct circumstances. Each of the sub-sections deals with different and distinct topics and one cannot read recoup....
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....Non-taxability of income from foreign branches 12.1 The learned CIT(A) erred in not allowing the claim of the Bank in respect of nontaxability of income earned by its foreign branches. 12.2 The learned CIT(A) erred in not directing the Assessing Officer to not tax the income earned by the foreign branches of the appellant, based in countries with whom India has entered into a tax treaty. 12.3 The learned CIT(A) erred in not directing the Assessing Officer to verify and allow the claim of the appellant. 12.4. The learned CIT(A) erred in observing that no facts were on record, without appreciating that the claim of Double Taxation Relief was verified by the Assessing Officer and hence significant facts were available on record." 94. Brief facts are that the income earned by the foreign branches of the assessee should not be liable to tax in India in terms of the relevant tax treaties in light of various judicial pronouncements. Assessee claimed before CIT(A) that necessary directions may be given to the AO to not tax income of foreign branches based in countries with which India has a tax treaty. The CIT(A) held as under:- "23.2.4 I hav....
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....CIT [2012] 27 taxmann.com 335 (Mumbai.Trib), wherein it has been held that income attributable to foreign branches being permanent establishments outside India cannot be taxed in India having regard to the mandate contained in Article 7(1) of the relevant double taxation avoidance agreements. The aforesaid decision has been affirmed by the Bombay High Court [2015] 64 taxmann.com 215 (Bombay). When under the relevant tax treaty it is provided that tax 'may be' charged in a particular State in respect of the specified income, it is implied that tax will not be charged by the other State. Once an income is held to be taxable in a particular jurisdiction under a tax treaty, unless there is a specific mention that it can be taxed in the other jurisdiction, the other tax jurisdiction is denuded of its powers to tax the same. As regards the learned CIT DR's reliance on the Notification No.91/2008 dated 28 August 2008 issued under section 90(3), it is submitted as under: section 90(3) empowers the Central Government to define any term which is not defined in the Income-tax Act, 1961 or in the relevant tax treaty. The legal meaning of 'term' is any expression or phrase which has a ....
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....reme Court in the case of Vijaya Bank Vs. CIT [2010] 323 ITR 166 (SC). For this, assessee raised additional ground. 101. The assessee by this additional ground claimed that the deduction should be allowed on account of write-off of bad debts under section 36(1)(vii) of the Act in terms of the decision of the Hon'ble Supreme Court in the case of Vijaya Bank (supra). During the year, the assessee has created a provision for non-performing assets of Rs. 2000.94 crore (excluding the provision for standard assets of Rs. 566.97 crore). The assessee filed these details vide note no 18.9(k) of the financial statements on page 81 of Assessee Paper Book-I. The assessee had claimed a deduction under section 36(1)(viia) of the Act in the revised computation of total income amounting Rs. 2567 crore. The AO recomputed the deduction under section 36(1)(viia) of the Act on the basis of the assessed income to Rs. 3652 crore. 102. We noted that the assessee now raised an additional ground, to claim a deduction under section 36(1)(vii) of the Act in respect of the provision for bad debts of Rs. 2000.94 crore (excluding the provision for standard assets of Rs. 566.97 crore), in accordance with t....
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.... the Supreme Court judgement in the case of Vijaya Bank (Supra). Further, we noted that this issue has been remanded back to the AO for fresh examination and adjudication by the Tribunal in the assessee's own case vide its Orders dated: * 3.01.2014 (in MA. No. 371/M/14) for the assessment year 1996-97 (para No. 5), where the AO has allowed the deduction in the order giving effect to the Tribunal's order. * 29.04.2016 for the assessment years 1997-98 and 1998-99 (refer para 10 and para 21), where the AO allowed the deduction in the order giving effect to the Tribunal's order. However, the CIT exercising power of revision under section 263 of the Act, set aside the matter. The appeal filed by the assessee before the Tribunal against the aforesaid order under section 263 of the Act is heard on 14 March 2019 and the Tribunal's order is awaited. * 31.01.2018 for assessment year 1999-00 (refer para 34 to 36 on page 43 to 45), where the AO is yet to pass the order giving effect to the Tribunal's order. Moreover, the AO in the assessee's own case, while passing the assessment orders for AYs 2011-12 to 2015-16 has allowed the claim of deduction under section 36(1)....
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....lant had offered the income based on the principle of right to receive interest on securities. In the case of securities there are two coupon dates on which interest is received i.e 3oth June & 3151 December. As the bank has to close its books on 313t March, there is accrued interest on securities from 15, January to 31St March. Bank had not offered interest which has to be received on 301h June as it has no right to receive any income tax return, but while calculating the book profit bank had offered the interest on accrual basis. However, AO had assessed the total interest due to the bank in the A.Y. This issue is recurring in nature which has arisen in appellants own case in A.Y. 199900 to 2007-08 and also ITAT's order in appellant's own case for the A.Yrs 1991-92 to 1996-97 which are in favour of the appellant and which are as under: ........................................... 4.4 In view of the above decision of CIT(A) and ]TAT, claim of the appellant is allowed. This ground of appeal is allowed. Aggrieved, revenue came in appeal before Tribunal. 109. We have heard rival contentions and gone through the facts and circumstances of the case. We no....
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....er had taxed interest accrued but not due on securities held as on 31st March. The Bombay High Court held that right to receive the interest vested only on the due date mentioned in the securities and, hence, the same cannot be taxed since interest was not payable on the 31st March as per the terms of the said securities. 113. The learned CIT DR referred to several decisions such as State Bank of Travancore Vs. CIT [1986] 158 ITR 102 (SC), U.P Chalchitra Nigam Ltd. Vs. CIT [2015] 370 ITR 379 (Allahabad) and Mahindra Telecommunication Investment P. Ltd Vs. ITO [2016] 69 taxmann.com 431 (Mumbai). He argued that the facts are not applicable to the present issue as in the said cases there was no dispute that as per the terms of contract between the parties, income had accrued but the dispute was with respect to its taxability based on the financial difficulty of the debtor parties. However, in the present case, the issue is with respect to whether the interest has become due and payable as per the terms of securities. The present is not a case wherein the right to receive the interest on securities exists and there is improbability of realisation of such interest. Even in such a cas....
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.... it pays the market price of security plus BPI to the seller, because seller is entitled to interest till the date of sale. This is an old practice in the Government securities market. The purchasing banker treats the BPI paid as expenditure and the selling banker treats the BPI received as income. According to the assessee, this is as per Accounting Standards 9 and 13 framed by the ICAI. However, AO had disallowed BPI claim deduction of the assessee for Rs. 2150,10,16,116/- for the year under consideration on the ground that this goes against the theory of real income as well as matching concept which are fundamental to the accounting. The CIT(A) allowed the claim by observing as under: - 5.3 The facts of the case are discussed above. Here AO had disallowed claim of deduction of Rs. 2150,10,16,116/- for the year under consideration on the ground that it is against the theory of real income as well as matching concept which are fundamental to the accounting. This issue is recurring in nature in as per CIT(A)'s order in appellants own case in A.Yrs. 1997-98 to 2007-08 and also ITAT's order in appellant's own case for the A.Yrs. 1991-92 to 1996-97 which are in fa....
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....TR 643]." 121. We noted that this ground is similar to ground nos. 2.1 to 2.3 of the Assessee's appeal. The Department has filed an appeal against the CIT(A)'s order wherein deduction has been allowed in respect of provision towards silver jubilee award, resettlement allowance and retirement award on the basis that the same are not covered under section 43B of the Act. Accordingly, the CIT(A) had allowed transition provision amounting to Rs. 61.39 crore and net provision of Rs. 3.90 crore (after considering write back of retirement award of Rs. 1.05 crore). Silver jubilee award is a benefit payable to the employees as per the employment guidelines on completion of 25 years of service with the assessee. Resettlement allowance is payable to the employees as per the employment terms in cases where the employees are posted from one jurisdiction to other. Retirement award is a benefit payable to the employees as per the employment guidelines on retirement. The provision towards these employee benefits is created on the basis of actuarial valuation and in accordance with the Accounting Standards. 122. The Revenue before the Tribunal emphasised that these expenses are contingent in ....
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.... Government, IBA, the Bank and Employees Unions/Associations. The Bank is required to revise the wages of its employees from 1st November 2007. For this assessee bank had claimed for wage revision for Rs. 575 crores which AO has disallowed on the ground that quantification of liability will be done later and agreement is not finalized till the date of passing assessment order and the claim of assessee is merely based on certain expectations and not on the basis of any definite material and the employees are not in position to claim the upward wage from the bank till the above process is complete. The CIT(A) allowed the claim of assessee by observing as under: - "8.4 I have considered the appellant's submission. This identical issue had come up before Delhi High Court in the case of CIT v. Bharat Heavy Electrical Limited (2010) (26 taxmann.com 202) which is reproduced as under: - "The Tribunal had noticed that there was no dispute as regards the terms of employment of the workers and officers. The only question was the exact quantification of the compensation or wage revision. The Tribunal also held that provision for wage revision was based on past experience,....
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....ary and allowances on salary slip component (i.e. based on the percentage increase finalised during the earlier Eighth Bipartite Settlement). On 27.04.2010, IBA signed an industry level Bipartite settlement/ Joint Note (effective from 1.11.2007) with representative Unions, Associations of workmen & officers, following which a 17.5% wage increment was decided to be given to the employees. 127. We noted that revenue before us argued that the provision for wage revision is contingent in nature. But assessee's contention is that the liability in respect of wage revision has accrued during the year under consideration, as the contracted wages is payable to the employee from 01.11.2007. It is an ascertained liability and not a contingent one. Further, based on past experience and practise, the assessee was reasonably certain that an upward revision of wages was inevitable. In fact, as evident from the facts, the wage revision agreement was finalised on 27.04.2010, whereby the wages were revised with effect from 01.11.2007. Also, the provision for wage revision is debited to the profit and loss account following the general accounting standard followed by the assessee. Accordingly, the....
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....hat the assessee has paid a sum of Rs. 32,51,664/- to various schools towards reservation of seats for the children of the officers of the Bank. These payments were included in the staff welfare expenses as the payments were towards the welfare of the staff. These payments are made with a view to ensure that certain seats in various schools all over India are reserved for the children of the officers of the Bank so that the hardship otherwise faced by the officers of the Bank for children's education during transfer / re-location may be reduced. The AO disallowed the expenditure on the ground that payments made was donations and was not acceptable as expenditure incurred wholly and exclusively for the purpose of business. The CIT(A) allowed the claim by observing as under: - "10.3 I have considered the appellant's submissions. This is a recurring issue and this issue was considered by CIT(A)in appellant's own case for A.Y. 2007-08 and by ITAT for A.Y. 1996-97 which are reproduced as under: .............................. 10.4 In view of the above decisions of CIT (A) and ITAT, following the Rule of consistency, AC's disallowance is deleted ....
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....ied at acquisition cost. In case the purchase price is higher than the face value, the premium should be amortised over the remaining period of maturity of the security. The AO disallowed the aforesaid provision on the basis that RBI guidelines do not decide taxability. The CIT(A) deleted the disallowance made by the AO following the Tribunal order in assessee's own case for AYs 1995-96 to 1996-97 and the CIT(A) order for AYs 2002-03 to 2007-08. The Revenue before the Tribunal emphasised that there is no section under the Act that allows deduction for such amortisation of premium on securities. 136. It was contended that the issue is squarely covered in favour of the assessee by assessee's own case for assessment year 1995-96 by the order of Tribunal dated 17.09.2009, which was followed by the Tribunal in subsequent assessment year 1996-97 vide order dated 26.07.2013. Further, the Bombay High Court on the appeal by revenue in assessment year 199697, has upheld the decision of Tribunal, vide its order dated 01.08.2016. 137. We noted that the facts in the year under consideration are same as the facts in the earlier years. In view of the above, this ground of appeal is covered ....
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....nd also AO considered it as merely a contingent liability. Appellant has placed reliance on decision of Madras High Court in the case of CIT v. PVP Ventures Ltd. (23 taxmann.com 286) wherein it is held as under: As far as the Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal. and also decision of the Bangalore Tribunal Special Bench in the case of Biocon Ltd v. CIT (35 taxmann.com 335) wherein it was held as under: 'It is a trite law that deduction is permissible in respect of an ascertained liability and not a contingent liability. From the stand point of the company, the options under ESOP vest with the employees at the rate of 25 per cent only on putting in service for one year by the employees. Unless ....