AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 530
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.... passed under section 143(3) of the Act, both dated 30/09/2022. 2. Since, the appeals carry identical facts and issues, for the sake of convenience, they were clubbed together, heard together and are being disposed of by this consolidated order. ITA No. 2149/Mum/2024 is taken as lead case. The following are the grounds taken by the revenue: - ITA No. 2149/Mum/2024 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) erred in allowing the deduction claimed u/s 36(1)(viia) of the Act amounting to Rs. 1836,21,78,882/- without appreciating that this provision was made by the assessee for NPA as per RBI guidelines which cannot be equated with provision for bad and doubtful debts as required to be made as per the provisions of section 36(1)(viia)? (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) ought to have appreciated that the disallowance of the above provision was made by the AO based on the specific findings that the provision for NPA made by the assessee include the NPA cases relating to corporates and those located in Metro, Urban and semi urban areas and therefore did not satisfy the working as per Rule....
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.... T. Act are not applicable to the assessee, without appreciating the facts of the case?" (xi) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting a sum of Rs. 4,27,73,538/- towards disallowance u/s 14A in computing the book profit u/s 115 JB of the Act?" (xii) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the Education Cess & Secondary & Higher Education Cess paid ignoring the fact that Explanation 3 to section 40(a)(ii) inserted by Finance Act, 2022 with effect from 1-4-2005 makes it clear that any surcharge or cess forms part of 'tax' and same cannot be allowed as deduction while computing profits and gains of business of assessee? 4. Brief facts of the case are that the assessee is a banking company. The original return of income was electronically filed on 12.02.2021 declaring total income as NIL under normal provisions after setting off losses of earlier years and Rs. 136,23,32,185/- under Section 115JB provision. Subsequently, the case was selected for Scrutiny under CASS and notice u/s 143(2) of the Act was issued. The Ld. ....
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....the Hon'ble Karnataka High Court. The Act permits such deductions, considering that unrealized debts should be allowed based on the provision made in the books of account. The nomenclature of the provision, though referred to as NPAs, in essence and substance, constitutes a provision for bad and doubtful debts, as recognized by the Hon'ble Karnataka High Court. Accordingly, the revenue's grounds of appeal, Ground Nos. (i) to (iii) are dismissed. 7. Disallowance under section 14A 7.1 The Ld. AO made an addition of Rs. 4,27,73,538/- on the ground that the assessee had not allocated expenses related to the earning of exempt income as required under Section 14A of the Act read with Rule 8D of the Income Tax Rules 1962.The Ld. CIT(A) considered the submissions made by the assessee and found that the assessee had incurred efforts to earn the exempt income. Further, the Ld. CIT(A) noted that the shares in question were treated as stock-in-trade. The Ld. CIT(A) relied on the judgment of the Hon'ble Supreme Court in South Indian Bank Ltd vs CIT, 438 ITR 1 (SC) and the decision of the ITAT Hyderabad in the case of Andhra Bank vs. DCIT [2015 (5) TMI 478]. Additionally, the Ld. CIT....
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....ct, read with Rule 8D of the Rules, is applicable where the assessee is unable to determine or allocate the correct expenses incurred to earn exempt income. In the present case, the Ld. CIT(A) relied solely on the judicial precedents and allowed the issue in favor of the assessee without duly considering the relevant facts. As per the ratio laid down by above cited case laws, the disallowance u/s 14A is required to be made, when the assessee has earned any exempt income. In the instant case, it is submitted that the interest free funds available with the assessee is more than the value of investments. In that case, no disallowance out of interest expenses is called for. However, disallowance may be called for from out of administrative expenses in terms of sec.14A of the Act. For this purpose, we are of the view that the assessee may be provided with an opportunity to present the relevant facts before the AO. Accordingly, we set aside the order passed by Ld CIT(A) and restore this issue to his file for examining this issue afresh. After providing adequate opportunity of being heard to the assessee, the AO may take appropriate decision. We also direct the assessee to present its ....
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....ke to submit that the penalty is not for infraction of any law. It is levied by Reserve Bank of India for non compliance with certain procedural guidelines of Reserve Bank of India. It can be seen from RBI Act that for these kinds of violations, only a penalty in the form of civil liability is prescribed and there is no criminal prosecution prescribed in respect of these violations. Under these circumstances, it is submitted that the penalty is not for infraction of any law and hence these are allowable deductions u/s 37. Therefore, the Appellant Bank submits that the addition of Rs. 25,00,000/- being disallowance u/s 37 be deleted." The Ld.CIT(A) considered the submission of the assessee and found that penalty is not sustainable as it is not against the infraction of law and same issue has already been taken care in the appeal order for A.Y. 2017-18 where the Ld.CIT(A) allowed the claim of the assessee. The Ld. CIT(A) followed the precedence in the earlier year and doctrine of consistency was followed. Further, the Ld.AR relied on the order in the case CIT vs M/s Stock & Bond Trading Co (2011) 10 TMI 172 (Bom) and the relevant of the said order is reproduced as below:- ....
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....e interest of Innovative Perpetual Debt Instruments (IPDI) Bond amount to Rs. 70,63,35,532/-. The Ld.AO held that the said interest is not admissible for deduction under section 36(1)(iii) for the reason that the bonds are (a) perpetual nature; (b) high loss absorption capacity - provision for write down of principal; or conversion of equity on tracker and (c) discretionary pay out with existence of full coupon discretion. The issue was brought before the Ld.CIT(A). The Ld.CIT(A) considering the judicial precedence and relied on the order of the coordinate bench of ITAT Mumbai in ICICI Bank Ltd vs DCIT,2022 (12)TMI 1373 ITAT Mumbai the issue was squarely covered. Further, the same issue was decided in assessee's own case by the co-ordinate bench of ITAT, Mumbai Bench ITA Nos.1440,1819,1441 & 1818/Mum/2023, date of order 27/09/2024. Relevant paragraph is reproduced as below:- "Disallowance of interest paid on IPDI Bonds 7. The assessee has incurred interest expenditure of Rs. 100,89,00,000/- against issue of Innovative Perpetual Debt Instruments (IPDI) Bonds. The AO held that the said interest is not admissible as a deduction u/s 36(1)(iii) for the reason that the ....
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....on Ltd (supra) cannot be applied or the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perpetual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under: Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr.CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives, we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 to 160 of ....
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.... surplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual nonconvertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting this undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest ....