TaxTMI 
TaxTMI 
2023 (6) TMI 1441
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. The Assessing Officer ("AO"), vide order dated 29/03/2011 passed under section 143(3) of the Act assessed the total income of the assessee at Rs. 22196,46,82,210 after making certain additions/disallowances to the income declared by the assessee. The learned CIT(A) vide impugned order granted partial relief to the assessee. Being aggrieved, both the assessee and Revenue are in appeal before us. ITA no. 3645/Mum./2016 Assessee's Appeal - A.Y. 2009-10 3. In its appeal, the assessee has raised the following grounds:- "The appellant objects to the order of the Commissioner of Income-tax (Appeals) - 5, Mumbai [CIT(A)] dated 29 March 2016 for the aforesaid assessment year on the following among other grounds: 1. Provision for pension of Rs. 1495,50,00,000 The learned CIT(A) erred in upholding the action of the Assessing Officer in disallowing the appellant's claim in respect of provision for pension amounting to Rs. 1495,50,00,000. 2. Depreciation on matured securities of Rs. 53,14,55,386 The learned CIT(A) er....
X X X X Extracts X X X X
X X X X Extracts X X X X
....art of the debts are doubtful of recovery and accordingly qualifies for deduction under section 36(1)(viia). 8. Taxation of interest on non-performing assets (NPAs) of Rs. 17,46,28,278 The learned CIT(A) erred in confirming the action of the Assessing Officer in making an addition of Rs. 17,46,28,278 in respect of interest on sticky advances that had classified as NPAs by the Bank in terms of RBI guidelines. 9. Taxation of non-performing investments (NPIs) of Rs. 11,93,00,000 The learned CIT(A) erred in confirming the action of the Assessing Officer in making an addition of Rs. 11,93,00,000 in respect of interest on NPIs. 10. Contribution to Retired Employees Medical Benefit Scheme (REMBS) 10.1 The learned CIT(A) erred in confirming the action of the Assessing Officer in making disallowance of Rs. 13 crore in respect of payment towards contribution to Retired Employees Medical Benefit Scheme which was disallowed under section 43B by the Bank in the return of income of assessment year 2008-09 for non-payment. 10.2 The learned CIT(A) erred in not appreciating the fact that during the assessment year 2009. 10 the said sum was actually paid by the Bank to the Fund. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the fund. During the assessment proceedings, the assessee was asked to furnish complete working of the provision of the liability as per the actuarial valuation done by the assessee. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that assessee's claim of deduction is not allowable under section 37(1) of the Act on the following basis:- "(a) Since there are specific provisions for allowing Provisional Liabilities of Pension by way of contribution of employer towards pension benefits, i.e. u/s. (36)(1)(iv) and 36(1)(v) where allowability is subject to several conditions, and Sec. 40A(7) & (9), put several restrictions on allowances of certain expenditure relating to the benefits linked to retirement, a "provision" made for expenses of similar nature will not be allowable u/s. 37(1) of the Income Tax Act, by circumventing these specific provision. In fact it has been provided in the section 37(1) itself that the expenditure allowable under this section should not be in the nature of expenditure described in section 30 to section 36. (b) Further, the provisions of Sec. 43B will also need to be applied before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ension liability. In accordance with the transitional provisions of AS-15, a provision of Rs. 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 emp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reference". 17. Accordingly, a deduction was claimed in respect of provision for 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....they will be entitled to claim from the approved scheme. A bare perusal 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 applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... date. The case of the assessee, in our view, is duly covered 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 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Departmental Representative ("learned DR") could not show us any reason to deviate from the aforesaid decision rendered in assessee's own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedent in assessee's own case cited supra, we uphold the plea of the assessee and allow the claim of provision for pension. Accordingly, ground no. 1 raised in assessee's appeal is allowed. 9. The issue arising in ground no. 2, raised in assessee's appeal, is pertaining to depreciation on maturity securities. 10. The brief facts of the case, pertaining to this issue, are: It has been the practice of the assessee to make provisions in respect of overdue debentures/bonds which matured but remain unpaid at the end of the accounting year. In the earlier assessment years, provision for impairment in the valuation of such investments, i.e. depreciation on matured securities, has not been allowed. During the assessment proceedings, the assessee was asked to provide figures for depreciation on matured securities as well as an explanation as to why the same should not be disallowed. As per the assessee, it has booked an amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment would be made it cannot be expected to be less than the face value. On the date of maturity, the whole of the amount of redemption money becomes due under the mercantile system of accounting followed by the appellant unless a portion of this amount is written off as bad debt. It is a real income and hence has to betaxed as such under the mercantile system followed by the appellant. Reliance in this regard is placed on State Bank of Travancore vs. CIT 158 ITR 102, 155 (SC) which was followed in Western India Oil Distributing Co. Ltd. Vs. CIT 206 ITR 359 (Bom). It was held in this decision that the concept of real income should not be so read as to defeat the provisions of the Act. Extension of the concept of real income to a field so as to negate accrual after the amount had become receivable is contrary to the postulates of the Act, the Supreme Court held (p. 146 of 158 ITR). Moreover, as held in the case of Navin R. Karnani vs. CIT 185 ITR 408 (Bom), it was not possible to waive any amount of income which had accrued under the mercantile system of accounting on the ground of diminished hope of recovery. Furthermore, any liability de 11 stopp is not an ascertained liability in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income is Rs. 9,43,69,363. The depreciation on these assets as per books of Rs. 24.02 crores has been added back in the computation of total income. The assessee further submitted that the capital recovery component included in the leased rental credited to the profit and loss account and offered for taxation is Rs. 5,89,64,762. The assessee also submitted there is no new lease transaction entered in the year under consideration. The AO vide order passed under section 143(3) of the Act by relying on the discussion made in the assessment order for the assessment year 2008-09 disallowed the depreciation claimed on leased assets. The learned CIT(A), vide impugned order, following the decision of the coordinate bench of the Tribunal in assessee's own case for the assessment year 1996-97 dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 16. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in State Bank of India (supra) for the assessment year 1996-97 while deciding a similar issue observed as under:- "20. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as the case may be such as Freight, Octroi, Entry Tax, Erection and Installation Charges, Commissioning Charges, Testing Charges paid or payable in respect of the Equipment or value assessed by the valuers as per clause 2.2. Below whichever is lower. In case the Lessee proposes to avail MODVAT on the specified Excise Duty paid in terms of the Central Excise Rules, 1944, of which due intimation will be given by the Lessee to the Lessor, the acquisition cost will not include Excise duty payable on the equipment. 1.6 The Lessee hereby takes on lease the Equipment for the Fixed period from the Commencement Date as hereinafter referred to subject to the terms, conditions, covenants and stipulations contained herein and in the Schedules hereto. The Fixed period or the primary period of the Lease as defined in Part II of the First Schedule hereto is non-cancellable by the Lessee and/or the Lessor except as provided in Clause 13 hereof. The fixed period of the lease may be renewed for a further fixed term referred to as "the secondary period" at the option of the Lessee on the same terms and conditions as are contained in this agreement subject to payment by the Lessee of lease rentals i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l or State Government or Local Authority or any Public Officer or Authority under any law for the time being in force: 8.5 not sell, assign, sub-let, pledge, mortgage, charge, encumber, or part with possession of or otherwise deal with the Equipment or any interest therein nor create or allow to be created any lien on the Equipment whether for repairs or otherwise and in the event of any breach of this sub-clause by the Lessee, the Lessor shall be entitled to call upon the Lessee to have the lien or charge or other encumbrance lifted at its cost and in the event of the Lessee failing to do so within a reasonable time, the Lessor shall be entitled (but shall not be bound) to pay to any third party such sum as is necessary to procure the release of the Equipment from any lien charge or encumbrance and shall be entitled to recover from the Lessee forthwith all such expenses as might have been incurred for such release: 8.6 not sell, mortgage, charge, demise, sub-let or otherwise dispose of any land or building on or in which the Equipment are kept or enter into any contract to do any of the aforesaid things without giving to the Lessor at least six weeks prior notice in writing an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hase tax and/or any other tax or imposition or due to tax on the right to use goods as may be applicable to the Equipment the Acquisition Cost of the Equipment stands increased, then the Lessor reserves the right to increase the Lease rentals proportionate thereto and on such notification by the Lessor to the Lessee, the Lease Rentals shall correspondingly stand increased from the date specified by the Lessor in such notification. 12. Events of Default: An event of default shall occur hereunder, if the Lessee- 12.4 without the Lessor' s consent, sells, transfers, or attempts to sell or pledge, parts with possession or sub-lets or charges or encumbers or creates any lien on the Equipment or any item of the Equipment is endangered in the opinion of the Lessor or the interest of the Lessor is jeopardised: 13. Termination in the even of default: 13.2 On the termination of this Agreement the Lessor shall without any notice be entitled to remove and repossess the Equipment and for that purpose by itself its servants or agents enter upon any land buildings or premises where the Equipment is situated or is reasonably believed by the Lessor to be situated for the time being and de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r private sale or otherwise dispose of, hold, use, operates, lease to others or keep idle such Equipment, all free and clear of any rights of the lessee and without any duty to account to the Lessee for such action or inaction or with respect to any proceeds thereto and if such Equipment is sold the price obtained upon such sale shall not be questioned or challenged by the Lessee more shall the Lessee question or dispute the exercise or non-exercise by the Lessor of any one or more of the rights and remedies as set out in Clause 13 hereinabove. 16. Assignment: 16.1 The Lessor may hypothecate the Equipment owned by it and leased out hereunder in favour of any bank, Financial Institution or any other Institution whatsoever as and by way of security for the financial assistance arranged therefore by the Lessor for the acquisition of such Equipment. The Lessor may assign to any person any of its rights under this Agreement and in particular may assign such rights by way of a charge and any person to whom such rights are assigned shall be entitled to the full benefit of all such rights of the lessor. 21. It is manifest from the terms and conditions of the lease agreement that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....question could actually be taken in possession by the assessee. Therefore, the assessee cannot exercise the real and actual ownership over the asset keeping in view the facts and circumstances and nature of the asset in question. The Special Bench of this Tribunal in case of IndusInd Bank Ltd. (supra) by following the decision of Hon'ble Supreme Court in case of Asea Brown Boveri Ltd. Vs Industrial Finance Corporation of India (IFCI) 154 Taxman 512 as well decision in case of Association of Lease and Financing Service Company Vs Union of India (supra) has enumerated various features which make distinction between operating lease and finance lease in para 5.20 as under: "5.20 In view of the fact that the Id. AR has lodged a strong claim to consider the present agreement as that of operating and not a finance lease, it is imperative to understand the distinction between the two as under :- a. In the case of an operating lease, the lessor provides the asset for use for a certain period of time to the lessee for rent. On the expiry of such lease period, the lessor has to inevitably repossess the asset. On the other hand, a case of finance lease is in essence an arrangement for borr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The Special Bench then analysed the various factors of distinction between operating lease and finance lease in para 5.21-5.23 as under: "5.21 From the above points of distinction between operating lease and finance lease, the salient features of operating lease have become glaring. Now let us ascertain as to whether the above clauses, claimed by the id. AR as amply proving it to be a case of operating lease agreement, do in fact prove it so. IA an earlier para we have observed that this lease agreement fully satisfies all the characteristics of finance lease. The position which, therefore, emerges is that some clauses of the agreement tend to give impression of this being an operating lease whereas the others largely indicate it to be a finance lease. How to resolve the conflict? In order to decide as to whether the instant lease agreement be characterized as operating or finance lease, we need to take shelter of the doctrine of pith and substance. This rule stipulates that if there is some overlapping in the contents of the clauses of an agreement, then it becomes necessary to examine the pith and substance of the agreement. It can be done by seeing as to whether it predominant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The terms of the agreement are designed in a manner so that in any eventuality the assessee would recover the investment (cost of asset) with interest and not the asset in question. As discussed in the foregoing paras the title over the asset as per the lease agreement is only for securing the financial interest of the assessee and not intended to really take the asset in its possession on the expiry of lease term or on the termination of the lease agreement. Therefore all the features and attributes of finance lease as discussed by the Special Bench in case of Indusind Bank do exist in the case of the assessee. 24. Apart from the terms and conditions as stipulated in the lease agreement one more important aspect which is very relevant in deciding the issue is that as per the Banking Regulation Act, 1949, a Banking company is not permitted to engage in the activity of leasing of asset. Section 6 of the Banking Regulation Act specifies various business in which banking company may engage as under: "6. Forms of business in which banking companies may engage. - (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of bus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for any loans or advances or which may be connected with any such security; (h) undertaking and executing trusts; (i) undertaking the administration of estates as executor, trustee or otherwise; (j) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object; (k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company; (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company: (m) acquiring and undertaking the whole or an part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section; (n) doing....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of a provision for depreciation. (vi) As a prudent measure, full depreciation should be provided for during the primary lease period of the asset. The period of lease should not normally exceed five years. In exceptional cases, lease period not exceeding 7 years may be fixed in respect of lease transactions covering assets of Rs. 1 crore and above, as the recovery of cost may not be possible in a period of 5 years." 5.25 On perusal of the above paras of the above circular it becomes patent that the equipment leasing activity should be treated by banks "on par with loans and advances". The further contents of para 1 (ii) which provides that the guidelines on income recognition, asset classification and provisioning would also be applicable to them, make it clear that the activity of equipment leasing should be considered as an act of advancing loans and advances. It is so for the reason that the guidelines on income recognition and asset classification etc. As referred to herein, are applicable to loans and advances. Further para 1 (v) provides that the entire lease rental should not be taken to the bank' s income account. Only the interest component being the finance charge sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erefore, approve the view taken by the authorities below in coming to the conclusion that the lease agreement under consideration is that of finance lease and not operating lease." 26. As it is clear from the circular that the banks undertaking equipment leasing departmentally should follow prudential accounting system and only the interest charge component should be recognised as income and the recovery of cost of asset should be carried to balance sheet on the form of provision of depreciation. Therefore under the circular the transaction of equipment lease is treated at par with the loan transaction and accordingly only the interest component of the receipt is recognised as income. Since it is not permitted to recognise the entire receipt being lease rentals as income the assessee has also recognised only interest component of the receipt of the lease rental as income in the profit and loss account and the balance which represents the capital component is taken to the balance sheet. Thus, in the books of account, the assessee has treated the transaction in question as finance lease and not as an operating lease because the banks are permitted only to carry out the transaction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly, ground no. 4 raised in assessee's appeal is dismissed. 18. The issue arising in ground no. 5, raised in assessee's appeal, is pertaining to the disallowance of deduction under section 36(1)(vii) in respect of non-rural advances. 19. The brief facts of the case, pertaining to this issue, are: During the year under consideration, the assessee claimed deduction in respect of write-offs of non-rural branch advances amounting to Rs. 1334,21,65,835. The AO vide order passed under section 143(3) of the Act did not agree with the contention of the assessee and held that as per Board's Circular no. 464 dated 18/07/1986 the provision of section 36(1)(viia) of the Act is applicable both for rural and non-rural debts. The learned CIT(A), vide impugned order, after noting that this is a recurring issue, dismissed the appeal filed by the assessee on this issue by following the findings of its predecessor in assessee's own case for the assessment year 2007-08. Being aggrieved, the assessee is in appeal before us. 20. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in State....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 covered under Section 36(1)(viia) and has to be rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urities. 23. The brief facts of the case, pertaining to this issue, are: The assessee has been valuing investments in Available for Sale ("AFS") and Held for Trading ("HFT") after netting of classification-wise depreciation and appreciation, computed scrip-wise and provided for not depreciation in each classification while ignoring the depreciation, as per the RBI guidelines. However, for tax purposes, the valuation of investment in AFS & HFT categories has been consistently calculated over the years scrip wise, and depreciation, if any, was provided scrip wise, while ignoring appreciation. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee by following the approach adopted in the assessment year 2007-08. The learned CIT(A), vide impugned order, after noting that this is a recurring issue, dismissed the appeal filed by the assessee on this issue by following the findings of its predecessor in assessee's own case for the assessment year 2007-08. Being aggrieved, the assessee is in appeal before us. 24. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 25 stoppel 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 market price whichever is lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 1993- 94, 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 in the case of CIT vs. Chari & Ram [1949] 17 ITR 1 (Madras) has held that there would be no assurance that there would be a market for the entire stock of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 hence, the assessee was obligated to value the entire stock at one value. In the assessee's case as well, each scrip is different and therefore requires independent valua....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cited supra, we uphold the plea of the assessee and allow the claim of depreciation on securities. Accordingly, ground no. 6 raised in assessee's appeal is allowed. 26. The issue arising in ground no. 7, raised in assessee's appeal is pertaining to the deduction claimed under section 36(1)(viia) of the Act. 27. The brief facts of the case, pertaining to the issue, are: During the assessment proceedings, it was noticed that the assessee claimed deduction of Rs. 2709,78,23,972, under section 36(1)(viia) of the Act. In the notes to the computation of income filed along with the return of income, it was mentioned that the eligible amount of deduction in accordance with the provisions of section 36(1)(viia) of the Act comes to Rs. 4590,63,60,665, however, the same is restricted to Rs. 2709.78 crore i.e., the provisions for bad and doubtful debts created in the books of account. During the assessment proceedings, the assessee was asked to show cause as to why the provisions of standard assets be not excluded for working of deduction under section 36(1)(viia) of the Act. In response thereto, the assessee submitted that the provisions of debts made by the assessee are in line with the R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 categorization of the loan in terms of the guidelines issued by RBI. The provision on debts made by the assessee is in line with the RBI guidelines and section 36(1)(viia) of the Act does not have a requirement that the provision for debts should be in respect of specified debts only. Section 36(1)(viia) of the Act provides for a deduction to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 allowed. The matter is accordingly restored back to the file of the Assessing Officer for fresh determination by issuing definite findings of fact. Even as the primary onus would be on the assessee, the Assessing Officer cannot substitute his own judgement with regard to the risk assessment qua a particular asset and, correspondingly, the provision in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee and held that since the assessee maintains its books of account on accrual basis, the income in respect of bad and doubtful debts is required to be taxed on accrual basis except for the exceptions provided under rule 6EA r/w section 43D of the Act. Accordingly, the AO made an addition of Rs. 17.46 crore. 33. The learned CIT(A), vide impugned order, by placing reliance upon the directions of the Dispute Resolution Panel rendered in assessee's own case for the assessment year 2012-13, dismissed the appeal filed by the assessee on this issue. 34. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- "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 in terms of the RBI guidelines. Presently, the period to recognise a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 inthe 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 stood covered by the first proposition in terms of the Bombay High Court in assessee's favour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing receipt of such income. The assessee submitted that during the year, the quantum of interest worked on accrual basis on non-performing investment was Rs. 11.93 crore. The AO, vide order passed u/s 143(3) of the Act, did not agree with the submissions of the assessee and held that when the assessee is maintaining books of account on an accrual basis merely because the interest on NPI is not accounted on the basis of RBI guidelines, it cannot come out of the ambit of income tax. The AO further held that interest in relation to categories of bad and doubtful debts which a bank can offer on receipt basis, special provisions have been made in section 43D of the Act. Under these circumstances, without any special provisions allowing different treatment of the income from NPIs, the interest needs to be taxed on an accrual basis. Accordingly, the interest on NPI to the extent of Rs. 11.93 crore was taxed on an accrual basis. 38. The learned CIT(A), vide impugned order, placed reliance upon the directions issued by the Dispute Resolution Panel in assessee's own case for the assessment year 2012-13 and dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in assessee's appeal is allowed. 41. The issue arising in ground no. 10, raised in assessee's appeal is pertaining to disallowance in respect of payment towards contribution to Retired Employees Medical Benefit Scheme. 42. The brief facts of the case, pertaining to the issue, are: The assessee has claimed provisions for Retired Employees Medical Benefit Scheme, which was disallowed by the assessee under section 43B of the Act in the assessment year 2008-09, however, contributed in the current year. During the assessee assessment proceedings, the assessee was asked to show cause as to why the claim of the assessee amounting to Rs. 13 crore may not be disallowed as the same amounting to Rs. 13 crore may not be disallowed as the same is not an expenditure in respect of the welfare of the employees covered under section 43B of the Act. In response thereto, the assessee submitted that during the year under consideration, the said sum was actually paid by the assessee to the fund and accordingly was claimed as a deduction. The assessee further submitted that the amount contributed to the Retired Employees Medical Benefit Scheme is business expenditure. It was also submitted that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal held that the basic intention of the legislature for insertion of sub section 9 of section 40A was to discourage the practice of creation of camouflage Trust funds, ostensibly for the welfare of the employees and transferring huge funds to such Trusts by way of contribution, that in those cases the investment of the trust corpus was also left to the complete discretion of the Trustees, that to avoid hardship in the case where Trust/Funds had been set up wholly and exclusively for the welfare of the employees prior to 1.4.1984 sub section (10) was also inserted to section 40A. The Tribunal was of the opinion that provisions of section 40A(9) should not make any harm to the expenditure incurred bonafide, that the contribution by the assessee bank was not disputed by the AO, stating that the same was not bonafide, that the funds were not controlled by the assessee banks, that the bonafide contribution made by the assessee as an employer was not hit by section 9 of section 40A of the Act. In the case under consideration, there is no doubt about genuineness of payment nor it is the case of the AO or FAA that Trust was not bonafide or the expenditure was not incurred wholly and excl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t there in the earlier assessment years. The learned Sr. Counsel by referring to the additional evidence filed by the assessee vide application dated 30/09/2021 submitted that payment was made for setting up LSE India Observatory and I.G. Patel Chair in Contemporary Indian Society and Economy in LSE, London. It was further submitted that in this regard the assessee, RBI, and LSE entered into a Memorandum of Understanding, whereby both RBI and assessee each agreed to provide the LSE a sum of 1 lakh Sterling Pound per annum for a period of 10 years starting from 01/01/2007. The learned Sr. Counsel further submitted that the amount has been 37 stoppel during the course of the assessee's ordinary banking business during the year and thus is allowable as such while computing its business income. Since these documents filed by the assessee by way of additional evidence were not available before the lower authorities, therefore, we deem it appropriate to remand this issue to the file of AO for de novo adjudication after considering these documents. As a result, ground no. 12 raised in assessee's appeal is allowed for statistical purposes. 49. The issue arising in ground no. 13, raised in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eduction under section 36(1)(vii) of the Act is allowed. The assessee has been allowed a deduction in relation to provision made for bad debts under section 36(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 sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedent in assessee's own case cited supra, we uphold the plea of the assessee that provisions of section 41(4) of the Act is applicable only when recovery of bad debts are in relation to debts for which a deduction under section 36(1)(vii) is allowed. However, this issue is restored to the file of the AO to verify if the recovery of the amount, in the present case, is in respect of a write-off of the claim allowed as a deduction under section 36(1)(viia) or under section 36(1)(vii) of the Act in earlier years. Accordingly, ground no. 13, raised in assessee's appeal is allowed for statistical purposes. 54. The issue arising in ground no. 14, raised in assessee's appeal, is pertaining to the non-taxability of income from foreign branches. 55. The brief facts of the case, pertaining to this issue, are: Before the learned CIT(A), the assessee, inter-alia, raised additional ground regarding the taxability of income earned by foreign branches. The learned CIT(A), vide impugned order, dismissed the additional ground raised by the assessee by placing reliance upon the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see by the decision of the Mumbai Tribunal in the case of Bank of India vs. ACIT [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 trea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... having a prospective effect from the assessment year 2009-10 onwards and therefore considered to be not applicable for the assessment year 2008-09, i.e. the year under consideration before the coordinate bench. Further, the coordinate bench placed reliance upon the decision in Bank of India v/s ACIT [2012] 27 taxmann.com 335 (Mumbai.Trib), for the assessment year 2003-04, wherein it was held that the income attributable to foreign branches being permanent establishment outside India cannot be taxed in India, having regard to the mandate given in Article 7 (1) of the tax treaty. The coordinate bench further noted that this decision has further been affirmed by the Hon'ble jurisdictional High Court in CIT v/s Bank of India, [2015] 64 taxmann.com 215 (Bom.). 58. Before proceeding further, it is pertinent to note that the aforesaid Notification no. 91 of 2008 was issued under section 90(3) of the Act, which reads as under:- "(3) Any term used but not defined in this Act or in the agreement referred to in subsection (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate bench, following Hon'ble jurisdictional High Court's judgment in assessee's own case for the assessment year 2003-04 and without realizing that the amendment in law was effective 1st April 2004 i.e. assessment year 2004-05, decided the issue in favour of the assessee. The impact of amendment with effect from 1st April 2004 not having been noted or having been brought to the notice of the coordinate bench, this decision is clearly per incurium and, as such, not a binding judicial precedent. As a matter of fact, when subsequent assessment years of this very assessee came up for consideration of another bench, the said precedent was not followed and, vide order dated 30th November 2018, it was observed that "the decision of the Hon'ble High Court in assessee's own case pertained to the assessment years 2001-01 and 2003-04 and the Hon'ble High Court never had any occasion to examine the taxability of income of foreign branches in India keeping in view provisions of Section 90(3) read with the Government notification dated 28th August 2008" and that " we are unable to accept the submission of the learned authorised representative that the issue is covered ear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s with these countries. This decision by the Assessing Officer, whatever its merits, certainly does not constitute any estoppel against the statute, and, in any case, there is no res judicata in the income tax proceedings. Just because the Assessing Officer himself has allowed a relief to the assessee, which, in our humble understanding of law- whatever is its worth, is patently inadmissible in law, we are not obliged to give the assessee the same relief. If at all the stand of the Assessing Officer indicates or explains anything, it explains the anxiety of the assessee to go back to the assessment stage on this issue. We are, however, not inclined to follow the plan so laid out." (emphasis supplied) 62. We further find that the coordinate bench of the Tribunal in Bank of India v/s ACIT, [2020] 122 taxmann.com 247 (Mumbai - Trib.), for the assessment year 201516, following the aforesaid decision in Technimont (P.) Ltd. (supra) rejected the similar plea, as raised by the assessee in the present appeal, by observing as under:- "7. Learned counsel has shown, in accepting the fact that even though the issue is covered in favour of the assessee by earlier decisions of the coordinate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ectfully following the decisions rendered by the coordinate bench of the Tribunal in Technimont (P.) Ltd. (supra) and Bank of India (supra) for the assessment year 2015-16, we find no merits in the submissions of the assessee. As a result, ground no. 14 raised in assessee's appeal is dismissed. 64. The issue arising in ground no. Rs. 11, raised in assessee's appeal, is pertaining to double taxation relief. In view of our findings rendered in respect of ground no. 14, this issue is restored to the file of the AO for de novo adjudication, as per the provisions of the Act as well as the applicable tax treaty, after necessary verification of the details as may be submitted by the assessee. As a result, ground no. 11 raised in assessee's appeal is allowed for statistical purposes. 65. The assessee, vide application dated 01/10/2018, raised additional ground regarding the write-off of bad debts under section 36(1)(vii) of the Act. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dering the facts and circumstances of the case before it. 103. We noted that in the assessment years 1996-97 to 1998-99, 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 case. 105. The assessee has debited provision for bad and doubtful debts to the profit and los....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on dated 19/04/2021 pertaining to deduction in respect of education cess and secondary & higher education cess was not pressed during the course of the hearing. Accordingly, the said application is dismissed as not pressed. 68. In the result, the appeal by the assessee is partly allowed for statistical purposes. ITA no. 4564/Mum./2016 Revenue's Appeal : A.Y. 2009-10 69. In this appeal, the Revenue has raised the following grounds:- "1. The order of the CIT(A) is opposed to law and facts of the case. 2. On the facts and circumstances of 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. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred allowing the broken period interest holding that it is revenue in nature and in the process failing to appreciate that it is in the nature of cost of securities and therefore, capital in nature. 4. On the facts and in the circumstances of the case an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shtra when the order passed for A.Y. 2009-10 has not reached finality. 11. On the facts and circumstances of the case, the CIT(A) has erred in allowing the discount on issue of Employee Stock Purchase Scheme in accordance with the principle laid down by the Bangalore Special Bench in the case of Biocon Ltd. (ITA no. 368 to 371 & 1206/Ban/2010), when the decision has not been accepted and further appeal has been filed before the Karnataka High Court on this issue." 70. Ground no. 1 raised in Revenue's appeal is general in nature and therefore needs no separate adjudication. 71. The issue arising in ground no. 2, raised in Revenue's appeal, is pertaining to the taxability of interest on securities. 72. The brief facts of the case, pertaining to this issue, are: During the assessment proceedings, upon perusal of the computation of income filed with the original return of income, it was observed that the assessee has reduced income accrued but not due for the relevant financial year to the extent of Rs. 1466,80,70,080 from the income as per profit and loss account prepared in accordance with books of account maintained by the assessee. In the revised return of income, the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. We note that an identical issue has been considered and decided by this Tribunal in assessee's own case for the assessment year 1991-92. Further for the assessment year 1995-96 again the Tribunal has considered and decided this issue in para 16 & 17 as under: "16. As regards ground no. 8 relating to the addition of? 2,45,42,24,967/- made by the A.O. and confirmed by the Id. CIT(A) on account of interest on securities holding the same to be taxable on accrual basis instead of due basis, it is observed that this issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for earlier years vide its order dated 19.05.2008 (supra) wherein a similar addition was deleted by the Tribunal for the following reasons given in Para 20: "We have considered the submissions made by both sides, material on record and orders of authorities below. We find that the Tribunal in the case of Union Bank of India (supra) after going through various facts and various judicial decisions held as under: "In the course of the arguments, the Id. Counsel for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us has taken credit for the interest on Govt. securities on day today basis, it cannot be prevented form urging in the return that such interest accrues not on day to day basis but only on the specified coupon dates and that this is the correct legal position on the basis of which its income should be computed. Therefore, we reject the contention of the Id. (D.R.). For the above reasons, we accept the assessee's claim and hold that the interest on Govt. securities cannot be assessed "de die in diem". We direct the A.O. to assess the interest on the basis of the coupon dates. Ground no. 2 is allowed." Similarly, the Tribunal in the case of Housing Development and Finance Corporation (supra), following the aforesaid decision of the Tribunal, has also held that Section 145 of the Act could not override the provisions of Section 5 and, therefore, no person could be assessed unless the income accrued to him and in the cases of Securities, interest accrued to the assessee on specified dates and not on day today basis as the assessee has no right to receive the income before fixed date, hence, interest was taxable on the due basis only. In this view of the matter, we accept this g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities refers to the interest relatable to the period from the last due date till the date of purchase or sale. Thus, when a bank purchase a security, it pays the market price of the security plus broken period interest to the seller, because the seller is entitled to interest to the date of sale. The assessee further submitted that this is an age-old practice in the government securities market. It was further submitted that the purchasing bank trades the broken period interest paid as expenditure and the selling bank trades the broken period interest received as income. The assessee also submitted that the above-said market practice is in conformity with Accounting Standards 9 and 13 framed by the Institute of Chartered Accountants of India. The AO vide order passed under section 143(3) of the Act noted that in the assessment year 2007-08 and for earlier years, the contention of the assessee treating the broken period interest paid on the purchase of securities as revenue expenditure has not been accepted by the Revenue. The AO further noted that during the year under consideration, in the computation of income appended to return of income, the assessee has reduced income accrued ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inst Revenue. This issue of Revenue' s appeal is dismissed." 78. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee's own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedent in assessee's own case cited supra, we find no infirmity in the impugned order passed on this issue. Accordingly, ground no. 3 raised in Revenue's appeal is dismissed. 79. The issue arising in ground no. 4, raised in Revenue's appeal, is pertaining to the allowability of provision for wage revision. 80. The brief facts of the case, pertaining to this issue, are: The assessee entered into agreements with its employees (officers and other staff) union in respect of revision of wages. The 8th Bipartite Settlement entered into by the Indian Banks' Association on behalf of the member Banks with All India Unions of Workman expired on 31/10/2007. The employees union had placed a fresh charter of demands before the management of the assessee for, inter-alia, revision of wages. Discussions had taken place between the Government, IBA, the assessee, and Employees Unions / Associatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs and charter of demands, the assessee was required to create a provision of increase in wages for its employees from 01.11.2007. Accordingly, the assessee has made a provision of Rs. 575 crore for the estimated liability in respect of additional wages payable for the period 01.11.2007 to 31.03.2008. The said additional wages were computed, considering 13.25% increase in salary 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 Bi-partite 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 reasona....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt in assessee's own case cited supra, we find no infirmity in the impugned order passed on this issue. Accordingly, ground no. 4 raised in Revenue's appeal is dismissed. 83. The issue arising in ground no. 5, raised in Revenue's appeal, is pertaining to the allowance of staff welfare expenses, i.e. payment to schools towards reservation of seats for the children of the bank officers. 84. The brief facts of the case, pertaining to this issue, are: During the assessment year, the assessee incurred a sum of Rs. 61,56,18,935 towards various staff welfare facilities. During the assessment proceedings, the assessee was asked to furnish details of staff welfare expenses and an explanation of the liability of the same. Further, since an addition on this issue was made for the assessment year 2008-09, it was asked to furnish an explanation as to why an addition should not be made on similar lines this year. In response thereto, the assessee submitted that it has incurred a sum of Rs. 61,56,15,935 towards various staff welfare facilities such as holiday homes, scholarships, school seats, hospital beds, sports facilities, and other facilities for the benefit of the employee. The staff welf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s for the children of officers to ensure proper education of the children of the officers who are transferred periodically. We further note that an identical issue has been considered and decided by this Tribunal in assessee's own case for the assessment year 1992-93 vide order dated 19.5.2008 in para 30-34 as under: 30. The next issue is regarding deduction amounting to 32,27,534/- being staff welfare expenses on account of payments made to educational institutions for reservation of seat to the children of the employees. The learned Authorised Representative of the assessee has pointed out that the amount paid to schools for reservation of seats for children of employees. 31. The facts, in brief, are that the A.O. disallowed these expenses as these were not staff welfare expenses in the true sense of the word because of this, these were contrary to the Constitutional provisions of law and opposed to the public policy also. The Id. CIT(A), following his appellate order for A.Y. 1987- 88, also confirmed the same. Aggrieved by this, the assessee is in appeal before us. 32. The Id. Counsel submitted that the officers of the assessee bank were subject to frequent transfers, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r A.Y. 1987-88 rejected the claim of the assessee for want of details whereas in the present case the assessee has submitted these details, hence, the decision of the Tribunal in that year is not applicable. We find that both the Revenue Authorities have treated this expenditure as opposed to the public policy, however, in our view the same cannot be a valid reason for disallowing the expenditure because this aspect does not come within the provisions of I.T. Act, 1961. We are further of the opinion that it is a mater of corporate policy where policies of this type are framed after due consultation with employees/officers association, hence, it cannot be treated as arbitrary. Further, the officers of the bank do not get any bonus whereas the employees get bonus which can also be treated as arbitrary in the similar manner, if the contentions of the Revenue are accepted. As far as incurrence of this expenditure for business purpose is concerned, that is not doubted. In this back ground, we hold that the expenditure incurred by the assessee is allowable as revenue expenditure. Thus, this ground of the assessee stands accepted." 10. As it is clear from the above order of the Tribunal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated basis @0.5% of the average investment. The assessee claimed that the investment in subsidiaries is a strategic investment and the assessee has clearly not borrowed any funds for making such investment in subsidiaries and therefore no interest can be attributed to the same. In the case of other expenses, the assessee disallowed 0.5% of the average investment in accordance with Rule 8D(2)(iii). The AO vide order passed in section 143(3) of the Act did not agree with the submissions of the assessee and made a total disallowance of Rs. 512,11,54,149 under section 14A read with Rule 8D (i.e Rs. 466,31,64,648 under Rule 8D(2)(ii) and Rs. 45,79,89,501 under Rule 8D(2)(iii)). Since the assessee has already disallowed an amount of Rs. 31,33,74,490, the difference of Rs. 480,77,79,659 was added to the income of the assessee. The learned CIT(A), vide impugned order, after noting that assessee's own funds are more than investments deleted the disallowance made under Rule 8D(2)(ii) of the Rules. Further, in respect of disallowance made under Rule 8D(2)(iii) of the Rules, the learned CIT(A) directed to exclude stock in trade of the assessee, investment in subsidiaries which are strategic in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave considered the submissions of both sides and perused the material available on record. From the financial statement of the assessee, forming part of the paper book, we find that the assessee's share capital is Rs. 634.18 crores and reserves and surplus is Rs. 57,312.81 crores, while the investment in earning exempt income is Rs. 6559.24 crores. Therefore, it is sufficiently evident that during the year under consideration, the assessee's own funds are more than investments for earning exempt income. We find that the Hon'ble Jurisdictional High Court in CIT vs HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.) held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the Act can be made. We further find that the Hon'ble Supreme Court in South Indian Bank Ltd. vs CIT, [2021] 438 ITR 001 (SC) held that disallowance under section 14A of the Act would not be warranted where interest-free own funds exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out of assessee's own funds. Therefore, respectfully following the law laid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lying the aforesaid directions, be examined for its allowability under the provisions of the Act by the AO. Grounds no. 6 and 7 raised in Revenue's appeal and ground no. 3 raised in assessee's appeal are decided accordingly. 94. The issue arising in ground no. 8, raised in Revenue's appeal, is pertaining to the loss on revaluation of investments/provision for amortisation of premium paid on securities in Held to Maturity ("HTM") category. 95. The facts of the case, pertaining to this issue, are: During the year under consideration, the assessee has booked a loss of Rs. 1123.06 crores on account of amortisation of investment held in the HTM category. During the course of assessment proceedings, the assessee was asked to explain as to why the loss on amortisation should not be disallowed. In response thereto, the assessee submitted that in accordance with guidelines issued by RBI, investments in HTM categories should be carried 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. In view of the above, the assessee amortised a sum of Rs. 1020.21 crores being loss in respe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved as under:- "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 provided for investment classified under the HIM category." 135. Brief facts are that during the year the assessee has provided Rs. 1020,21,51,476 being loss on account of amortisation of premium paid on investments held under HTM category. The above provision is made in accordance with the RBI guidelines, wherein it has been stated that investments in HTM category should be carried 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 taxabi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the claim of depreciation may not be allowed as per the Act. In the absence of any reply in this regard, the AO vide order passed under section 143(3) of the Act disallowed the claim of depreciation of Rs. 239.01 crores in respect of foreign office assets. Before the learned CIT(A), assessee made the following submissions:- "15.2 Appellant's submissions are as under: The Bank had claimed depreciation on assets at foreign offices of Rs. 239,00,82,155 in the return of income. Further, vide letter dated 22 March 2011, the Bank has revised the claim to Rs. 229,01,70,135 on the basis of Annexure 1(a) and 1(b) of the Tax Audit Report in Form no. 3CD. The learned ACIT however did not allow the entire claim of depreciation on assets at foreign offices on the basis that there were certain negative block of assets and hence the depreciation has not been properly computed. Pursuant to the above, the Bank vide its rectification application dated 1 November 2011 (filed on 2 November 2011) submitted to the ACIT that depreciation should be allowed to the Bank as per the provisions of the Income-tax Act. Further the Bank also submitted a revised working for depreciation on assets at fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder passed under section 154, loss of State Bank of Saurashtra amounting to Rs. 29,10,42,392 as per the assessment order of the State Bank of Saurashtra was allowed to the assessee. It was further submitted that pursuant to the order giving effect to CIT(A) order of State Bank of Saurashtra, the loss of State Bank of Saurashtra has been determined at Rs. 98,08,30,776. Accordingly, the assessee prayed that the AO be directed to allow the set off of loss of State Bank of Saurashtra to the extent of Rs. 98,08,30,776. In view of the submissions made by the assessee, the learned CIT(A) directed the AO to allow the loss actually determined in the assessment order of the State Bank of Saurashtra. Being aggrieved, the Revenue is in appeal before us. 106. During the hearing, it was submitted that vide order giving effect dated 28/03/2018 to the order passed by the Tribunal in State Bank of Saurashtra, a loss of Rs. 367,52,29,962 has been assessed in the hands of State Bank of Saurashtra for the assessment year 2009-10. In view of the above, we deem it appropriate to direct the AO to allow the benefit of set-off of loss to the assessee which is determined in the case of State Bank of Saura....