TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1350
X X X X Extracts X X X X
X X X X Extracts X X X X
....unctioning 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, 3644, 3645, 4563 & 4564/Mum/2016 State Bank of India For the assessee: K.K....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 assessee during the financial year 2007-08 relevant to A.Y. 2008-09 adopted Accounting Standard (AS) 15 - Employee Benefits (Revised 2005) issued by the Institu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 after discussing elaborately, disallowed the claim towards pension benefit by observing on the following 4 issues: - "a. In view of the language of Section 37(1) itself, it is clear that it is a residual section for allowability of various expenses in the computation of income if there is no other specific provision relating to allowance of any expenditure u/s 30 to 36 of the I.T. Act. b. Otherwise also, it is an establ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led 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 that if a business liability has arisen in the relevant year, a deduction has to be allowed though the liability may be actually discharged at a later date. But then the onus is on the tax payer to demonstrate that how the said liability had arisen in the relevant year. We also agree with the view taken by the AO in this regard that when there are specific provisions dealing with the contribution to welfare funds, the same are allowable under the general provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....B 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 expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". 12. The learned counsel for the assessee stated that the claim made by the assessee is on account of defined benefit Pension Plan and not on any recognized fund or superannuation fund or contribution to any approved gratuity fund. He stated that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 fulfilment of which may result in the reduction or even extinction f the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year ay properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. v. cit (1959) 37 ITR 1 (SC) w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ystallized. 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 issue is covered by the decision of the Hon'ble Delhi High Court because wherein a superannuation claim of its employees was under litigation and the Hon'ble Delhi High Court has noted that this claim was non funded and applicable to the managerial employees and hence the liability on account of superannuation of its employees for financial year 2001-02 was provided following AS-15 based on actuarial valuation and this provision was disallowed by the AO by invoking provisions of Section 43B(b) of the Act on the ground that even if it was an ascertained liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 service weightage of the employees." The Court held that such provision, which is in effect, a scheme for gratuity, is only a mere arrangement between the employer and the employee and hence stands clearly hit by provisions of Section 40A (7) (a) of the Act. He argued that the assessee bank has made a provision for pension on the basis of an "actuarial valuation" and has also submitted during the course of hearing that the valuation is based on the number of years served by the employee and similar criteria. He stated that the provision for "pension" as claimed by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 are 10,000 employees, the total pension payable would be Rs. 25,00,000/-. However, based on actuarial valuation, which takes into consideration entry into service, length of service and date of retirement of all employees, attrition before retirement, etc. the pension liability amounts to Rs. 18,00,000/-. Accordingly, a provision of Rs. 18,00,000/- is required to be created in the books. Therefore, the pension liability has definitely arisen during the year as the services of the employees are already availed, and they are eligible for the said pension. It is also pos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot 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 upheld by the Hyderabad Bench of the Tribunal in the case of NMDC Ltd. vs. JCIT (2015) 56 taxmann.com 396 (Hyderabad - Trib.) and Chandigarh Bench of the Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd. vs. ADIT being order dated 2.04.2013 (ITA No. 1148/Chd/2011). Both the aforesaid cases were specifically concerned with similar provision created towards post retirement employee benefits on account of revision of AS-15. In both the cases the Tribunal has allowed a deduction for a liability which the revenue alleged did not pertain to the year, created as in consequence of an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rore 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 that this aspect of the matter has not been controverted by the Revenue in their submissions before the Tribunal. The aforesaid provision represents the liability arising on account of the availment of services during the tenure of the employment recognized as a consequence of the transitional provisions of AS-15. The aforesaid provision does not represent contribution to any pension fund, and hence, the provisions of sections 36(1)(iv)/36(1)(v) or 40A(7)/40A(9) or 43B of the Act are not applicable. 22. In CIT vs. Ranbaxy Laboratories Ltd. [2011] 334 ITR 341 (Delhi), the Delhi High Court was concer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee. 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 the Act specifically deal with contribution to a recognized provident fund or an approved superannuation fund or an approved gratuity fund. The said sections do not deal with providing for a liability vis-à-vis pension or any other retirement benefits. Thus, the aforesaid provision for pension made on the basis of an actuarial valuation ought to be allowed as a deduction under section 37(1) of the Act. Since there are specific provisions dealing with contribution to pension fund/ gratuity fund, etc., the provision for pension (which doesn't represent any contribution to fund) falls under the purview of section 37(1) of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect 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 benefits, holding that these are employee costs which are not disallowable under section 43B, without appreciating that these expenses are in fact contingent in nature and hence not allowable as enunciated in the decision of the Hon. Supreme court in the case of CIT vs. Gemini Cashew Sales Corporation [65 ITR 643]." 26. We noted that the AO has made disallowance but the CIT(A) has restricted the disallowance as under: - "6.1 According to the appellant, during the assessment year 2008-09, the Bank had adopted Accounting Standard (AS) 15 - Employee Benefits (Revised 2005) issued by the Institute of Chartered Accountants of India. In accordance with the transitional....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 transitional provisions of AS-15, made provision of Rs. 532.70 crore based on actuarial valuation by debiting the revenue reserves. The details of other employee benefits are as under [see page 23 of the assessment order]: Sr. No. Particulars Amount (Rs. In crore) 1. Leave Travel and Home Travel Concession (Encashment/Availment) 232.64 2. Silver Jubilee Award 9.66 3. Resettlement Allowance 35.89 4. Sick Leave 208.00 5. Retirement Award 15.84 6. Casual Leave 30.67 TOTAL 532.70 28. The assessee claimed a deduction for the above in the computation of total income and the details can be seen from sr. no III.13 of the computation of total income on page 2 of the Paper Book - I filed by the assessee. The AO disallowed these provisions on the basis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 the employees are entitled to. It is not towards any encashment of leave at the credit of the employee so as to fall within the scope of section 43B(f) of the Act. Further, provision for casual leave and sick leave represents provision for the loss of services of the employees for the period of such leave which the employees of the assessee are entitled to, but not availed during the year. The above category of leave can only be availed by them and cannot be encashed. Therefore, these provisions are also not in lieu of any leave, but in respect of services of the employees utilised in respect of the leave not availed by the employees and which leave will be availed in future. 33. With respect to ground of appeal No. 2.1, the arguments put forth for ground of appeal No. 1 shall apply mutatis mutandis since the AO has disallowed Rs. 471.13 crore arising on account of transitional provisions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing 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 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 the contention of the assessee that the employees of the assessee are entitled to privilege leave encashment in terms of which they can either avail the privilege leave or encash it. Hence, it was claimed that it is entitled to deduction for provision made towards privilege leave encashment based on the following decisions: * Exide Industries Ltd vs. UOI [2007] 292 ITR 470 (Calcutta) * Bharat Earth Movers v/s. CIT [2000] 245 ITR 428 (SC) 37. The learned Counsel argued that the Calcutta High Court in the case of Exide Industries (supra) has held section 43B(f) of the Act to be struck down the validity of section 43B(f) being arbitrary and unreasonable. However, subsequently, the Supreme Court has granted a stay of the operation of the aforesaid judgment of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estment 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 department and appeal has been admitted by the Hon'ble High Court." Since both the grounds of Assessee and Department are dealing with the same issue of disallowance under section 14A of the Act relating to the disallowance of expenses relatable to exempt income, and submissions in respect of both the appeals are dealt with together. 39. The facts are that the assessee earned dividend income from equity shares in respect of which the benefit under section 10(34) of the Act was claimed and interest on tax free bonds amounting to Rs. 325 crore which was claimed exempt in terms of section 10(15) of the Act. In the original computation of total income, the assessee suo-moto made a disallowance of Rs. 201 crore in terms of rule 8D(2)(ii) and Rs. 20.37 crore in terms of rule 8D(2)(iii). In the revised computation of total income, the suo-moto disallowance was restricted to Rs. 20.37 crore in terms of rule 8D(2)(iii). Further, in the notes to the revised return of income, it was subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espect 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 in the Act justifying this direction of the CIT(A). Merely because a disallowance is made in the return based on a particular understanding of the law does not preclude an assessee from contesting to the contrary in the course of further proceedings and, if such contention is accepted, then, full relief ought to be given and the allowance of the same cannot be fettered in any manner. This is based on the principle that there is no estoppel against the statute and acquiescence cannot take away from a party the relief that he is entitled to, where the tax is levied or collected without authority of law. Reliance in this regard is placed on the decisions of CIT vs. Milton Laminates Ltd. (2013) 37 taxmann.com 249 (Gujarat) wherein, Hon'ble High Court upholding the findings of the Tribunal, has approved that pursuant to giving effect to an appellate order, the assessed income can go below the returned income. Similar view was taken by Hon'ble Bombay High Court in the case of Nirmala L. Mehta vs. CIT (2004) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch investments is attributable to business of banking falling under the head 'Profits and gains of business and profession". 45. It was also argued that no disallowance can be made in relation to interest expenses as the assessee's own/non-interest bearing funds far exceed the investments. Reliance in this regard is placed on the following decisions: * CIT vs. Reliance Industries Limited [Civil Appeal No. 37 of 2019] [ Supreme Court] * CIT vs. HDFC Bank Ltd. (2016) 383 ITR 529 (Bom.) * CIT vs. HDFC Bank (2014) 366 ITR 505 (Bom.) The following decisions laying down the same principle have been referred to in the tabulation filed before the Tribunal on 25.03.2019: * PCIT vs. Spanco Ltd. [ITA No. 488/2016 dt. 26.11.2018] [Bombay High Court] * PCIT vs. JSW Power Trading Co. Ltd. [ITA No. 1075/2015 dt. 14.02.2018] [Bombay High Court] * CIT vs. Tin Box Co. [2003] 260 ITR 637 (Delhi) * Gujarat State Fertilizers & Chemicals Ltd [Tax Appeal No. 82 of 2013] [Gujarat High Court] * CIT vs. UTI Bank Ltd. [2013] 32 taxmann.com 370 (Gujarat) * JCIT vs. Pudumjee Industries Ltd. [ITA No. 1933/Mum/2018 dt. 13.03.2019] * Cox and Kings Ltd. vs. ACIT [ITA No. 2066/Mum/2017 dt.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve and hence, this issue of the Revenue's appeal is dismissed. 49. As regards to the issue of disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the Rules, the administrative expenses the investment made in subsidiaries / strategic investment while computing disallowance is decided against the assessee in view of the decision of Supreme Court in the case of Maxopp Investment Ltd. (supra). However, it is to clarify that those strategic investment which have not yielded any exempt income during the year are to be excluded for the purpose of computing average value of investment. Even otherwise, now the law is settled that the investment which are giving exempt income during the year are to be considered for the purpose of disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the Rules, i.e. the administrative expenses for the purpose of computing average value of investment. We direct the AO accordingly. The AO will go into the details and will compute the disallowance in view of these observations. This issue is remanded back to the file of the AO. 50. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....during the appellate proceedings. It is thus clear that the lessor had no intention to recover and repossess the assets after the end of the lease period. The assets were never re possessed. The lease was certainly not an operating lease. As held in the case of Asea BrownBover Ltd V/s Industrial Finance Corporation of India (2006) 154 Taxman 512 (Supreme Court) and confirmed in Indus Ind Bank 135 lTD 165 (Special Bench) - in the appellant's case, the assets were user specific/risk and rewards incident to ownership were passed on to the lessee. The lessee bore the risk of obsolescence. The lessor was interested only in his rentals not in the asset The lease was non-cancellable. The lessor entered into the transaction only as a financier, lie did not bear the cost of repairs/ maintenance or operations. The lessor is typically a financial institution and cannot render specialized service in connection with the asset. A perusal of the aforesaid facts and the earlier year's assessment orders/ appellate orders gives to the inescapable conclusion that the lessee was the real owner. A simple loan transaction was made to adorn the garb of lease to avoid the rightful tax due to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee has claimed income-tax depreciation on the leased assets under section 32 of the Act since these assets are owned by the assessee. In the earlier years, certain lease agreements were considered as finance transaction and hence, depreciation was disallowed on these assets in the earlier years. In the year under consideration, the AO has disallowed the depreciation in respect of leased assets, where depreciation was disallowed in earlier years. The CIT(A) upheld the disallowance made by the AO following the earlier years. It was fairly agreed that this issue is decided against the assessee in its own case by the ITAT in following Orders: "Order dated 26.07.2013 for assessment Year 1996-97 [ITA 5470/Mum/2002] [see pages 450 to 496 of the Paper Book - II] Order dated 29.04.2016 for assessment years 1997-98 and 1998-99 [ITA 3823-24/Mum/2005] [see pages 501 to 528 of the Paper Book - I]" 53. However, we noted that the jurisdictional Bombay High Court vide its Order dated 23.08.2016, upon appeal by the assessee against the Tribunal's Order for assessment year 199697, has admitted the assessee's appeal but the operation of the order of Tribunal for earlier year was not stayed a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also a recurring issue and has been decided by the CFI(A) in AY 2002-03 to 2006-07 against the assessee. The decision dated 30.03.2013 of CIT(A) for AY 2006-07 in appeal no IT-241/09-10 is placed on record. As discussed therein, the Finance Act, 2013 has inserted explanation-2 to Sec 36(1) which reads as under the removal of doubts it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub section of clause (v) of sub-section 2 the account referred to therein shall be only one account in r/o provision of bad and doubtful debts under clause (viiia) and such account shall relate to all types of advances including advances made by rural branches". This explanation, though inserted w.e.f. 01.04.2014, is "clarificatory" in nature. It states that proviso to clause (vii) and clause(v) of sub-section2 shall relate to all types of advances including advances made by rural branches. The proviso to clause (vii) of Sec.36(1) therefore shall limit the application to both rural advances and non-rural advances. Therefore, there cannot be double deduction i.e. one on provision basis and then again on actual write-off basis separately and independently. The disallowanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction under section 36(1)(vii) of the Act can be allowed only to the extent it is in excess of the provisions created and allowed as a deduction under clause (viia). The Supreme Court held that if the bad debts actually written off in the accounts of the assessee-bank represents only debts arising out of urban advances, allowance thereof is not affected, controlled or limited in any way by the proviso to section 36(1)(vii) of the Act. The relevant extract of the judgement of the Supreme Court is reproduced below: "41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ties held as Available for Sale (AFS) ad Held for Trading (HFT) category." 61. Brief facts are that as per assessee from FY year 2004-05 the Bank has been valuing investments in 'Available for Sale' (AFS) and 'Held For Trading' (HFT) in books after netting off classification-wise depreciation and appreciation, computed scrip-wise and providing for net deprecation in each classification while ignoring net appreciation, as required by RBI guidelines. However, for tax purposes, investments in AFS and HFT categories are being valued scrip wise and depreciation, if any, was provided scrip wise while ignoring appreciation. Valuation of investments in AFS and HFT categories has consistently been done scrip-wise for tax purposes in earlier years. 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 classification while ignoring any appreciation. The assessee has claimed the deduction by way of notes to the computation of total income. The AO, however, has rejected the claim of the assessee. The CIT(A) also confirmed the action of the AO by observing as under: - 15.3 I have c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usion that no part of the profits of the firm in the accounting year can be said to have accrued or arisen at Bikaner, the reasoning by which the learned Judges arrived at that conclusion seems to us, with all respect, to proceed on a misconception. It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the bringing into charge any appreciation in the value of such stock. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually realised on the year's trading. ..... While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or mar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its the assessee has not realised. [para 28]" 65. In Sanjeev Wollen Mills vs. CIT [2005] 279 ITR 434 (SC), the Supreme Court was concerned with a case where the assessee had valued its finished goods at market value. For assessment year 1992-93, the opening stock was valued at Rs. 90 per kg (market price as on 1.4.1991 was Rs. 98 per kg) and the closing stock at Rs. 130 per kg. For assessment year 199394, the opening stock was valued at Rs. 130 per kg and there was no closing stock. The assessee returned a loss of Rs. 54,420 for the second year. The AO held that the profits were artificially inflated in assessment year 1992-93 to claim higher deduction under section 80HHC of the Act. The Supreme Court held that the profit earned by valuing finished goods is notional imaginary profit which could not be taxed. In view of the above, it is argued that appreciation in value of investments cannot be taken into account. The netting off of appreciation against the depreciation within a classification is therefore contrary to the principle laid down by the Supreme Court in the aforementioned judgements. 66. In context of netting off depreciation against appreciation, the Madras High Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e exactly same as in the aforesaid case of Union Bank of India. This issue stands covered by the judgement of the jurisdictional High Court. The facts of the assessee's case and the facts in the decision of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. vs. CIT [1994] 207 ITR 901 (Bombay), relied by the AO are different. In the aforesaid decision, the assessee had changed the method of valuing stock in the year under consideration, whereas in the assessee's case, there is no change in the method of valuation. Also, in that case, sugar was valued differently by bifurcating the stock into 'levy sugar' and 'free sugar'. The Court's conclusion is based on the fact that there was no justification for bifurcation of sugar between free and levy sugar. The Mumbai Tribunal in the case of DCIT vs. Majestic Holdings And Finvest (P.) Ltd. [2010] 2 ITR(T) 407 (Mumbai) has noted that the reliance of the Departmental Representative on the judgement of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. is misconceived inasmuch as in that case there was nothing to show the bifurcation of the closing stick of sugar into levy sugar and free sugar and henc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O in disallowing deduction claimed by assessee under section 36(1)(viia) of the Act being the amount of standard assets. For this assessee raised the following ground No. 8: - "8. Deprecation under section 36(1)(viia) of Rs. 566,96,68,537 8.1 The learned CIT(A) erred in holding that the provision for standard assets amounting to Rs. 566,96,68,537 is to be excluded for determining the deduction under section 36(1)(viia). 8.2 The learned CIT(A) erred in not appreciating that even in respect of assets that are classified as standard assets, a part of the debts are doubtful of recovery and accordingly qualifies for deduction under section 36(1)(viia)." 70. Brief facts are that the assessee is claiming deduction under section 36(1)(viia) of the Act for provision for bad and doubtful debts including provision made for standard assets of Rs. 566,96,68,537/-. The AO has held that the provision for standard asset amounting to Rs. 566,96,68,537/- is to be excluded for determining the deduction under section 36(1)(viia) of the Act. The CIT(A) also confirmed the action of the AO by observing as under: - "16.3 I have considered the appellant's submissions. This is recurring issue a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for a deduction to the bank in respect of 'any provision made for bad and doubtful debts' subject to certain ceiling. It does not specify the methodology for calculation of provision for bad and doubtful debts. The banks are required to make provision for bad and doubtful debts in accordance with the RBI guidelines. All the loan assets are initially classified as 'Standard'. Later on depending upon the problems arising, if any, and symptoms of sickness shown including delays in the repayment of the principal and interest, deterioration of security, etc., they may be shifted to other categories. A provision made on any loan assets is a provision for 'bad and doubtful debts' irrespective of the category in which the loan falls. This is to provide for the inherent risk of loan losses which the bank may suffer in subsequent years. 73. We noted from the provision of Section 36(1)(viia) of the Act that the same allows a deduction to banks in respect of any provision made 'for' bad and doubtful debts. It does not restrict the allowance to provision made 'on' bad and doubtful debts. Even in respect of assets that are classified as standard assets, a part of the debts are doubtful of recov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect. His purview would be to examine the reasonableness of the assessee's claim in light of the facts and circumstances qua each asset/s in respect of which provision is made. In arriving at our decision, we have taken a holistic view of the matter, placing due emphasis on the words 'provision' preceding the words 'for bad and doubtful debts' as well as the words 'not exceeding' occurring in the section, and which stand highlighted for the purpose. We decide accordingly." 74. In view of the above discussion, arguments of both the sides, we are of the view that the assessee is eligible for claim of deduction u/s 36(1)(viia) of the Act on standard assets and this issue is covered by Tribunal's decision in assessee's own case for AY 2006-07 in ITA No.3145/Mum/2004 vide order dated 06.09.2016. Hence, we allow this issue of assessee's appeal. 75. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of interest on non-performing assets(NPAs). For this assessee raised the following Ground No. 9: - "9. Taxation of interest on non-performing assets (NPAs) of Rs. 11,37,42,857/- The learned CIT(A) erred in confirmi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accrual basis, relying on section 43D of the Act and rule 6EA of the Rules. The CIT(A) has upheld the disallowance made by the Assessing Officer following the directions of the DRP for the assessment year 2012-13. 79. The Revenue before the Tribunal has emphasized on the applicability of the criteria prescribed as per rule 6EA and that the interest on NPAs cannot fall under the exception provided in clause (e) of rule 6EA. But, the assessee argued that the action of the lower authorities cannot be sustained due to the following three reasons viz., a. section 43D of the Act would not apply in cases where interest is neither received nor credited to the profit and loss account; b. RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the rule should be framed having regard to the guidelines; c. without prejudice, a deduction should be allowed of such interest as bad debts. 80. In relation to the above, it was argued that the provisions of section 43D of the Act provide that the categories of bad or doubtful debts would be prescribed having regard to the guidelines issued by the RBI in relation to such debts. In other words, the Legisla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect of the interest on such NPAs, no addition can be made. Further, even the Mumbai Tribunal in the case of American Express Bank Ltd. (supra) has considered this issue and 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. Hence, we delete the addition of interest income and allow this issue of assessee's appeal. 83. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of interest on non-performing Investments(NPIs). For this assessee raised the following Ground No. 10: - "10. Taxation of non-performing investments (NPIs) of Rs. 12,97,00,000 The learned CIT(A) erred in confirming the action of the Assessing Officer in making an addition to Rs.12,97,00,000 in respect of interest on NPIs." 84. Brief facts are, si....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... years 11.1 The learned CIT(A) erred in not allowing the claim of the Bank in respect on non-taxability of recovery of bad debts written off in earlier years. 11.2 The learned CIT(A) erred in not directing the Assessing Officer to not to tax the recovery of bad debts written off in terms of section 41(4), as the appellant had not claimed a deduction under section 35(1)(vii). 11.3 The learned CIT(A) erred in not directing the Assessing Officer to verify and allow the claim of the appellant." 88. Brief facts are that during the year under consideration the assessee has recovered bad debts written off in earlier years, in respect of which no claim for deduction was made under section 36(1)(vii) of the Act in the past. The assessee raised an additional ground before the CIT(A) in this regard. But, the CIT(A) has dismissed the additional ground raised on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not verified during the assessment proceedings and appellate proceedings. 89. The Revenue before the Tribunal has emphasized that the claim made for deduction under section 36(1)(viia) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....doubtful debts is dealt with specifically under section 41(4) of the Act, as laid down by the Supreme court in Nectar Beverages (supra), section 41(1) of the Act is not applicable in case of the assessee. Further, the primary condition to be satisfied for taxing an amount as deemed income under section 41(1) of the Act is that a deduction/allowance should have been claimed by the assessee in respect of a loss, expenditure or trading liability. A deduction under section 36(1)(viia) of the Act is not for a loss, expenditure or trading liability, but for a provision for bad and doubtful debts. We noted that the learned CIT Departmental Representative had raised a contention that the CIT(A) and AO have not perused the details and, hence, the matter may be restored back which was opposed. In relation to the above contention, without prejudice to the assessee's objection in the event the matter is proposed to be remanded back to the AO, a direction may be given to the AO to delete the addition, if the recovery of the amount is in respect of a write off claimed and allowed as a deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act in the earlier years.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appellant and this amount was neither verified by the AO during the assessment proceedings nor the facts are not placed before me, claim of the appellant cannot be allowed. Similar issue was decided against the Bank by the CIT(A) for AY 2007-08." 95. Now before us assessee claimed that income earned by the branches of the assessee located outside India is not to be taxed in India in light of the tax treaties between India and the countries where the branches are located, as the income has been subject to tax in foreign countries. The details of the income earned by foreign branches were submitted to the AO vide Annexure 1 of letter dated 19.02.2010 and now enclosed in assessee paper book 1 at page 325. It was contended that the assessee raised an additional ground before the CIT(A) in this regard. However, the CIT(A) dismissed the additional ground raised by the assessee on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not verified during the assessment proceedings and appellate proceedings. 96. The Revenue before the Tribunal emphasized that no details were filed before the AO in co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ready interpreted the meaning of the phrase 'may be taxed' in the case of CIT v/s. PAVL Kulandagan Chettiar [267 ITR 654], the notification cannot give a meaning to 'may be taxed' which is inconsistent with the views of the Supreme Court. The Notification cannot survive as it directly contradicts the judgment of the Supreme Court. 98. Without prejudice to the above argument made was that even if it held that the above notification is applicable, the same can be said to be applicable prospectively (i.e. from assessment 2009-10 onwards) and, hence, is not applicable for the year under consideration. Reliance in this regard, 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. Similar view has been taken by the Madras High Court in V.R.S.M Firm [1994] 208 ITR 400 (Madras). 99. We noted from the above discussion that this issue is squarely covered by the decision of Bank of India (supra), wherein the co-ordinate Bench he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellate authority is to be decided by the appellate authority in exercise of its discretion considering the facts and circumstances of the case before it. 103. We noted that in the assessment years 1996-97 to 199899, the assessee had raised a similar additional ground of appeal. The said ground of appeal was admitted by the Tribunal in those years and the matter was restored to the Assessing Officer. The Revenue has not filed an appeal challenging the admission of the additional ground raised by the assessee in the AYs 1996-97 to 1998-99. Hence, according to us the additional ground be accepted even in the current year under consideration because it is only a pure question of law arising from facts which are already on record. The only information required for adjudicating this ground is the assessee's Annual Accounts which already forms part of the record. 104. We noted that as per the Supreme Court judgement, the twin conditions for eligibility of deduction under section 36(1)(vii) of the Act are as under: * debit to profit and loss account; and * reduction of loans and advances from the asset side of balance sheet both of which conditions are satisfied in the assessee's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as raised the following Ground No. 2:- "2. On the facts and circumstances of the case, in law, the Ld. CIT(A) has erred in allowing the assessee's plea that the interest income on securities has to be taxed on the due basis only without appreciating that as per the mercantile system of accounting followed by the assessee, interest on securities has to be taxed on accrual basis." 108. Brief facts relating to this issue are that the AO made addition in respect of interest of securities on accrual basis instead of due basis of Rs. 3,804,07,30,799/-. The facts are interest on securities is payable six-monthly on the coupon date i.e. 30th June and 31st December. While closing the books as on 31st March, there is accrued interest on securities of 3 months i.e. from 1st January to 31st March. However, the bank is not eligible to receive such interest as on 31st March, as the payment of interest gets due only on the coupon date i.e. 30th June. It is the practice of the Bank to account for the interest on securities on accrual basis while arriving at the book profit. However, in the return of income, the interest on securities is taxed on due basis since the right to receive interest on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purposes. However, in the return of income filed for tax purposes, the interest on securities is taxed on accrued and due basis since the right to receive interest on securities arises on the due date only which falls after the accounting year. 110. The AO has taxed such interest which has neither accrued nor become due as on 31st March 2018 of Rs. 3804,07,30,799/-. The CIT(A) deleted the disallowance following Tribunal's order in assessee's own case for AYs 1991-92 to 1996-97 and the CIT(A) order for AY 2007-08. The Revenue before the Tribunal emphasized on the fact that the income has been accrued in the books of account of the assessee and based on the matching concept, the interest income should be taxable. 111. But assessee contended that the issue is squarely covered in favour of the assessee in its own case for assessment years 1991-92 to 1994-95 by the order of Tribunal dated 19.05.2008, which is filed in Assessee Paper Book- II, which was followed by the Tribunal in the subsequent assessment years. Moreover, the Hon'ble Bombay High Court on appeal by Revenue for assessment year 1996-97 has upheld the decision of Tribunal vide its order dated 01.08.2016. 112. The facts o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st in the present case as the obligation of the issuer to pay arises only on the coupon date. The learned CIT DR also relied on the decision of the Bombay High Court in the case of Taparia Tools Ltd. Vs. JCIT [2003] 260 ITR 102 (Bombay). It is to be clarified that the matching concept theory referred by the CIT DR in the decision of the Bombay High Court in the case of Taparia Tools Ltd. (supra) has been reversed by the Supreme Court in the case of Taparia Tools Ltd. Vs. JCIT [2015] 372 ITR 605 (SC). 114. We noted that this ground of appeal is covered in favour of the assessee vide the aforementioned orders of the Tribunal and Bombay High Court. The right to receive interest on securities arises on due date only, which falls after the accounting year and, accordingly, it cannot be taxed in the accounting year itself. Hence, in view of the above discussion, we decide this issue in favour of assessee and accordingly, this ground of Revenue's appeal is dismissed. 115. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of interest for Broken period. For this revenue has raised the following Ground No. 3:- "3. On....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wo components, viz., the market price of security plus BPI to the seller. In this case, the assessee treats the BPI paid as expenditure. Similarly, when the assessee sells a security, such interest is treated as income of the assessee. 118. The Revenue before us emphasized on the fact that interest income is offered to tax on due basis and, hence, the corresponding expenses cannot be allowed, on the basis of the matching concept. 119. We noted that this ground of appeal is covered in favour of the assessee by the order of the Tribunal in its own case for the AYs 1991-92 to 1994-95 (Order dated 19.05.2008), which was followed by the Tribunal in subsequent AYs. Further, the Bombay High Court on the appeal by Revenue for the assessment year 1996-97 upheld the decision of Tribunal, vide its order dated 01.08.2016. From these facts we noted that this issue is covered in favour of assessee and hence, this ground is decided against Revenue. This issue of Revenue's appeal is dismissed. 120. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of provision for other long term employee benefits holding contingent in natu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appeal ground 2.1 to 2.3, the said provision is an ascertained liability, determined based on reasonable certainty and hence, clearly allowable. Reliance in this regard is placed on the decision of the Supreme Court in the case of Bharat Earth Movers Vs. CIT [2000] 245 ITR 428 (SC), wherein it is held that the liability is not a contingent one if the liability has been incurred during the accounting year and an estimate with reasonable certainty can be made, even if the liability is to be discharged at a future date. We accordingly, dismiss this issue of revenue's appeal. 124. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of disallowing the provision for wage revision. For this revenue has raised the following Ground No. 5:- "5. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing the provision for wage revision without appreciating that provision in respect of an unascertained liability which has not be quantified or a liability which has not accrued, does not qualify for deduction and such additions are covered under the CBDT Inst. No. 17 of 2008 dated 26/11/20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as contingent and provision for wage revision was based on past experience, interim Pay Commission of Government employees, previous Pay Commissions reports of public sector employees, union demands and other relevant factors. The Tribunal also held that with the expiry of one wage settlement or agreement, invariably, there is a time lag when another fresh wage revision agreement is negotiated and entered. Though it is not fully quantified, this amount is real in nature and claim of the organization has to be allowed. In view of the above decision of Delhi High Court, provision for wage revision of Rs. 575 Crs is allowed. This ground is allowed." 126. We noted that the assessee enters into agreements with its employees (officers and other staff) union in respect of revision of wages. The Eighth Bipartite Settlement entered into by the Indian Banks' Association (IBA) on behalf of the member Banks with the All India Unions of Workmen expired on 31.10.07. The employees union had placed a fresh charter of demands before the management of the assessee for, inter alia, revision of wages on 07.11.07. Discussions had taken place between the Government, IBA, the assessee and Employees Unio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rived at based on indicative increase for assessment year 2009-10. The Mumbai Bench of the Tribunal allowed the claim on the basis that the provision was for services rendered by the employees and there was no doubt that the assessee has to make payment once the negotiations were over. We may mention that Bank of India is also a part of the same Bipartite settlement as in the present case of the assessee. 129. Similarly, in the case of Bank of Baroda [ITA/4619/Mum/2012] [Mum. Trib] the Mumbai Tribunal held that the date of effective commencement of the agreement is relevant and not the date of signing of the agreement or date of approval by DRE. The Mumbai Tribunal allowed the claim of the assessee for the assessment year 2008-09 on the basis that the wage revision was certain and could have been reasonably estimated. We may mention that Bank of Baroda is also a part of the same Bipartite settlement as in the present case of the assessee. Hence, we are of the view that CIT(A) has rightly allowed the claim of assessee. 130. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of disallowing the staff welfare expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal is covered in favour of the assessee vide the aforementioned orders of the Tribunal and Bombay High Court. The payment for reservation of seats was done by the assessee for its employees under the assessee's Staff Welfare Scheme and hence, should be allowed as normal business expenditure. This issue is also covered by the decision in the case of Mahindra and Mahindra Ltd. vs. CIT [2003] 261 ITR 501 (Bombay), wherein it was held that payment made to schools where children of its employees studied were incurred predominantly for staff welfare and consequently, is an allowable business expenditure. Hence, this issue of Revenue's appeal is dismissed. 134. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of disallowing the depreciation provided for investments classified under the HTM category. For this revenue has raised the following Ground No. 9: - "9. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in treating loss on account of depreciation of securities in HIM category/amortization of securities in HIM category without appreciating that no depredation is to be pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntral Board of the assessee has adopted the Employees Share Purchase Scheme (the Scheme), duly approved by the Central Government, and accordingly has approved the offer of 86,17,500 equity shares of Rs. 10 each at a premium of Rs. 1580 as part of its rights issue to the employees of the Bank including the Chairman and Managing Directors. The Scheme is in accordance with the provisions of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The said scheme has since closed on 30th April 2008. In view of the above scheme, the assessee claimed a deduction of Rs. 11 crore for provision for Employee Stock Purchase Scheme. The AO disallowed the claim of the assessee considering that the provision is merely a contingent liability and further relying the Supreme Court's ruling in the case of Goetz (India) Ltd. Vs. CIT [2006] 284 ITR 323 (SC) denied the claim as the claim is made only in the note to the return. The CIT(A) allowed the claim by observing as under:- "20.3 I have considered the appellant's submissions. In this case Bank adopted the Employees Share Purchase Scheme as per the approval of Central ....