TaxTMI 
TaxTMI 
TaxTMI 
2024 (2) TMI 1590
X X X X Extracts X X X X
X X X X Extracts X X X X
....counts of the Appellant to verify if the Appellant had interest free funds, which direction is beyond the powers conferred on CIT(A) under section 251 of the Act, even after Hon'ble CIT(A) has deleted the disallowance of interest. WITHOUT PREJUDICE TO GROUNDS 1: GROUND NO. III: RULE 8D IS NOT AUTOMATIC: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in holding that there is no substance in the claim of the Appellant that the AO has not passed a speaking order in recording his satisfaction. 2. He erred in upholding the action of the AO of computing the disallowance as per Rule 8D of the Rules when the AO has not recorded his satisfaction for rejecting the suo-moto disallowance computed by the Appellant. 3. The Appellant prays that the AO be directed to delete the disallowance u/ s. 14A r.w.r. 8D. WITHOUT PREJUDICE TO GROUNDS I & III: GROUND NO. IV: NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE WHEN SECURITIES ARE HELD AS STOCK-IN- TRADE: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the disallowance us. 14A of the Act even when the securities are held as st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us 35D in respect of expenses incurred in connection with the QIP on the alleged ground that the issue of shares to QIP does not tantamount to public subscription and such capital expenses are not eligible for deduction u/ s. 35D of the Act. 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in holding that the facts in the year under consideration are same and thereby relying on the order of his predecessor for confirming the disallowance u/s. 35D without considering the facts in the captioned year. 3. The Appellant prays that the AO be directed to allow Rs. 3,44,94,634/- as a deduction u/ s. 35D of the Act. WITHOUT PREJUDICE TO GROUND NOS. VII AND VIII: GROUND NO. VII: DISALLOWANCE OF QIP EXPENSES BY INVOKING SECTION 40(a) (i)/ (ia) OF THE ACT: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in observing that the expenses in connection with QIP may not be allowable in view of section 40(a) (i)/ (ia) of the Act. 2. The appellant prays that the AO be directed to allow the expenses in connection with QIP. GROUND NO. IX: SETTING ASIDE TO THE AO THE ISSUE OF ALLOWANCE OF BROKERAGE PAID ON HTM SECU....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant is making such claims only as an additional claim and not in the ROI without considering that the claim for ESOPs is a legal claim and that there are no restrictions provided in law for putting forth a legal claim at any stage of appellate proceedings. The Appellant prays that the claim for discount on ESOP be admitted and allowed in accordance with the Act. WITHOUT PREJUDICE TO GROUND NO. XIII: GROUND NO. XIV: DISALLOWANCE OF DEDUCTION OF DISCOUNT ON ISSUE OF SHARES UNDER THE EMPLOYEE STOCK OPTION PLAN ('ESOP'): 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not allowing the claim for deduction in respect of discount on issue of shares under the ESOP made during the course of the assessment proceedings, amounting to Rs. 138,52,00,738/- 2. The Appellant prays that the AO be directed to allow the claim for deduction in respect of discount on issue of shares under ESOP. GROUND NO. XV: ADDITION OF INTEREST INCOME ON NON PERFORMING ASSETS ('NPAs') U/S. 43D R.W.R 6EA OF THE RULES AMOUNTING TO RS. 1,62,47,886/ -: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e interest amounting to Rs. 77,53,20,737/ - paid on the IPDIs issued by the Appellant u/s 37(1)/28 of the Act. 2. The Appellant prays that the AO be directed to allow the interest of Rs. 77,53,20,737/-on IPDIs u/s. 37/28 of the Act in computing business income of the Appellant. GROUND NO XIX: LEVY OF INTEREST U/S 234A OF THE ACT: 1. On the facts and the circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the levy of interest u/ s 234A of the Act when the details that the return was filed within the statutory time limit specified u/s 139 of the Act were on record. 2. The Appellant prays that the AO be directed to delete the interest charged u/ s 234A of the Act. GROUND XX: LEVY OF INTEREST U/S. 234D OF THE ACT: 1. On the facts and the circumstances of the case and in law, the Hon'ble CIT(A) erred in directing the AO to levy interest u/s 234D of the Act when the Appellant had not received any refund for the captioned year before the date of regular assessment. 2. The Appellant prays that the AO be directed to delete the interest levied u/ s 234D of the Act. 2. The grounds raised by the Revenue are reproduced as under: 1. 'Whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e investments made by the Assessee in Pass-Through certificates ('PTCs') issued by securitization trust for the purposes of computing disallowance u/s 14A of the Income-Tax Act, 1961('the Act'). 2. The Assessee submits and prays that since Income-Tax is paid on the income distributed by the trust to the PTC holders as per provisions of section 1151A of the Act, provisions of section 14A cannot apply to PTCs. 3. We have heard rival submission of the parties on the issue of the admissibility of the additional ground. The additional ground raised by the assessee being purely of the legal nature, without requiring investigation of the fresh facts, same is admitted for adjudication. 4. The briefly stated facts of the case are that the assessee bank filed return of income on 28/11/2015, which were subsequently revised at total income of Rs. 2790,15,01,072/ -. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 ( in short the Act) were issued and complied with. The assessment under section 143(3) of the Act was completed on 31/12/2017. On further appeal, the Ld. CIT(A) allowed part relief to the assessee.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earned income of Rs.237,66,81,445/-, which has been distributed by the 'securitization trusts' and claimed that tax was paid by the respective securitization trust, thus the income distributed by said trust is exempted income in the hands of the assessee u/s 10(35A) of the Act, being received as investor of securitization trust. A pass through certificate (PTC) is a certificate that is given to an investor against certain mortgaged- backed securities that lie with the issuer. The certificate can be compared to securities (like bonds and debentures) that may be issued by banks and other companies to investors. The only difference being that they are issued against underlying securities. The interest that is paid to the issuer on these securities comes to the investor in the form of a fixed income. A list of such investments and income earned has been reproduced by the Assessing Officer on page 4 of the assessment order. The additional ground raised by the assessee is in respect of the investment made in PTCs. 6.5 Before the Assessing Officer, the assessee suo-motu submitted details of expenditure incurred for earning above exempted income of Rs 3, 03,13,068/- including disa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Department ('TD') of Yes Bank is the Department which is exclustely engaged in the buying and selling of securities. The TD is engaged in buying and selling of Government Securities, Treasury Bills, Corporate /PSU Bonds, Equity, Mutual Funds and other investments. Hence, Yes Bank has considered the expenses of the TD for the purpose of computation of the disallowances under section 14A of the Act. The TD of Yes Bank operates from its office in india Bulls Financial Centre which also has its Back Office ('Back Office'). The locations is in situated in Mumbai. ● As the first step, Yes Bank has identified the specific expenses of the TD which are incurred in relation to the buying and selling activities of Government Securities, Treasury Bills, Corporate / PSU Bonds and Shares. These specific expenses are salary expense of TDs, Rent of the corporate office, rent of Back Office, electricity and telephone expenses of TD. ● Other expenses from the total operating expenses incurred by Yes Bank for the assessment year under consideration are also considered on the basis of the employee strength of the TD to the total employee strength on a conservative basis. ● Sin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isallowance of expenses computed under section 14A of the Act and invoked Rule 8D of Income-tax Rules, 1962 (in short the 'Rules').The disallowance computed by the Assessing Officer is reproduced as under: '3.4.6 Further, Rule 8D of the I.T. Rule is also applicable retrospectively. Therefore, disallowance of expenditure under Sec 14A is as follows: Investment in shares / tax free bonds as on 31 55,254,608,626 Investment in shares / tax free bonds as on 31 35,045,395,311 Average Investment for FY 2014 45,150,001,968 Interest cost for FY 2014-15 80,841,692,265 Total Assets as on 31 1,090,157,899,000 Total Assets as on 31 1,361,704,098,000 Average total asset for FY 2014-15 1,225,930,998,500 Interest to be disallowed (A*B/C) 2,977,331,162 Add: 1/2 % of total investment 225,750,010 Total disallowance Rs. 320,30,81,172 3.4.3. The disallowance u/ s. 14A of the Act has to be read in consonance with Rule 8D of I.T. Rules, which has been made effective w.e.f. A.Y. 2008- 09. The working of the disallowance given in the table above clearly shows that there are elements of expenditure which the assessee has i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been followed by my Ld. Predecessors in appellant's own case for AY 2014-15, while considering the disallowance under Rule 8D(2)i has held that there is no requirement to make any disallowance during the year under consideration, since the assessee has not received any exempt income and also that the object of appellant is to hold the investment as stock in trade. As discussed above the Hon'ble Supreme Court in the above referred case of Maxopp Investments Ltd. has rejected the dominant purpose of making the investments and also has held that where the securities are held as stock in trade the applicability of section 14A would trigger. In view of above discussions and respectfully following above referred decisions of Hon'ble Supreme Court and that of Hon'ble ITAT Amritsar who has rendered the above referred decision after considering the said decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd., with due respect to the Hon'ble ITAT Mumbai, in the appellant own case for 2008-09, I am of the considered opinion that the propositions laid down there in cannot be applied in the present assessment year, as therein said decision of Hon'ble....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sake of convenience, the finding of the Hon'ble Gujarat High Court in the above referred case is reproduced as under: '8. To give effect to the provision of Section 14A and in particular sub-section (2) thereof, Rule 8D of the Rules provides the method for determining the amount of expenditure in relation to the income not includable in the total income. Sub-rule (1) echoes the provision of sub-sections (2) and (3) of Section 14A where it provides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or the claim made is that no expenditure has been incurred in relation to the income which does not form part of the total income, he would determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). Sub-rule (2) of Rule 8D prior to its amendment with effect from 02.06.2016 provided a formula to apportion the expenditure in connection with the tax free income. Section 14A as well as Rule 8D require the Assessing Officer to arrive at a satisfaction that the claim of the expenditure made by the assessee is not correct. It is only then h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to such income, 'he shall' determine the amount of such expenditure in accordance with the method prescribed, namely, Rule 8D. The word 'determine' in Section 14(2), therefore, is in respect of the exercise to be undertaken for the purpose of computing the expenditure in relation to exempt income in accordance with the method as may be prescribed. The Assessing Officer is not required to quantify the amount prior to the invocation of Rule 8D. 35. For an Assessing Officer not to be satisfied with the correctness of the claim of the assessee, it is not necessary for him to determine the expenditure incurred for earning the exempt income. Indeed, if that were so, Rule 8D would be redundant. It is sufficient for the Assessing Officer to come to the conclusion that the claim of the assessee is not correct. It is not necessary, however, for him to determine the extent to which it is incorrect in order to resort to Rule 8D 36. There would be several instances where an Assessing Officer can come to the conclusion that the claim is incorrect but would be unable to assess the extent of the inaccuracy. That is precisely the purpose of Rule 8D. For instance in the presen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in the claim of the appellant that before invoking the provisions of sec 14A wr 8D, the Ld. AO has not passed a speaking order on the claim of the appellant and hence the same is herewith rejected.' 8.2 We further note that the Assessing Officer in para 3.4.1 and 3.4.2 of the assessment order has expressed his dissatisfaction as to the claim of the assessee regarding disallowance under section 14A of the Act towards earning of the exempted income. The contention of the assessee that Assessing Officer has invoked rule 8D of the rules without recording dissatisfaction to the accounts of the assessee, is not tenable and accordingly the contention of the assessee are rejected. The Hon'ble Delhi high Court in the case of India bulls Financial services Ltd vs CIT ( ITA 470/2016) in decision dated 21/11/2016 observed that the AO made elaborate analysis indicating three important steps and in such a case it can't be held that AO did not expressly recorded dissatisfaction or did not record cogent reasons for dissatisfaction. Accordingly, we don't find any infirmity in the finding of Ld CIT(A) on the issue in dispute and uphold the same. The ground No. III of the appeal of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e for AY 2008-09 at LPB pg. no. 2, para 4. Further, the availability of own funds and interest-free funds is to be considered in the context of the balance sheet date. Reliance in this regard is placed on the following decisions: > HDFC Bank Limited v. ACIT (ITA no. 5672/Mum/ 2017) (Refer pg. no. 63 of LPB, para 16) 16. As regards the point of time on which the availability of own funds and interest free funds with the assessee for making of investments in exempt income yielding securities was to be looked into, we concur with the claim of the Id. A.R that as observed by the Hon'ble High Court of Bombay in the case of CIT Vs. Reliance Utility & Power Ltd. (2009) 313 ITR 340 (Bom), the same has to be considered in context of the date of the 'balance sheet', and not otherwise. We thus, finding no infirmity in the view taken by the CIT(A) who had after dislodging the claim of the revenue qua the drawing of presumption as regards utilization of the own funds and interest free funds out of the mixed funds available with the assessee for making of investments in exempt income yielding securities had rightly vacated the disallowance of the interest expendit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has to be seen as on the balance sheet date and one need not go into a fishing expedition of finding out the position on which date the investment was made. As held by the Learned Assessing Officer ('the Ld. AO'), the first referred decision relies upon the decision of the Hon'ble Bombay High Court in CIT v. Reliance Utilities & Power Limited (313 ITR 340). Indeed, a cursory look at the decision of Reliance Utility & Power Limited (supra) very clearly makes a reference to the position as on the balance sheet date. The second-mentioned decision refers to and follows the Hon'ble Supreme Court in South Indian Bank Ltd (438 ITR 1). The Hon'ble Supreme Court, in turn, has quoted with approval, inter alia, the decision of the Hon'ble Bombay High Court in the case of Bombay Dyeing & Mfg. Co. Ltd (ITA No. 2182 & 2140/ Mum/ 2000) (see para 17 of the said decision on running pg. no. 11 of LPB). The Hon'ble Bombay HC in Bombay dyeing case (supra), in turn, has followed the decision of the Hon'ble Supreme Court in Reliance Utility & Power Limited (supra). Thus, the Hon'ble Supreme Court has impliedly approved the proposition that the position is to be seen on the ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opimon, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment.' 7.6 This view is also confirm by the Hon'ble Tribunal, Mumbai Bench in the case of M/s HDFC Bank Ltd dated 12.11.2014 where; in it is held by the Hon'ble Tribunal that the assessee has to show with material available that on the date of investment the assessee has used its own fund for investment from which the exempted income is earned by the assessee and not as on the balance sheet date. Also, it is noteworthy that the Hon'ble Bombay High Court has not reversed or stayed the said order of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailability of interest-free funds really cannot be faulted' 7.8 It may be appreciated that the assessee is a bank and receiving money in the form of deposits or otherwise from the regular customers. The assessee is not owner of these funds. The assessee is only a custodian of such amount. The assessee pays interest to the depositors. Therefore, the funds constantly raised from depositors are interest-bearing funds for the assessee. Therefore, wherever such funds are invested by the assessee to earn exempted income, the interest paid or payable to the depositors or otherwise qualifies for applicability of section 14-A. 7.9 Further, it may be appreciated that the above views are also confirm by the Hon'ble Tribunal in assessee's own case in ITA No. 3249/2018 and 3501 of 2018. For the sake of ready reference the decision of Hon'ble Tribunal in assessee's own case is reproduced as under- ' 10. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. It is evident that the Ld. CIT(A) has not adjudicated the issue in dispute in support of disallowance of expenses related to exempted income u/ s 14A r.w.r. 8D ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hon'ble Supreme Court in case of South India Bank (438 ITR 1), decision of Hon'ble Bombay High Court in case of CIT v. Reliance Utilities & Power Limited (313 ITR 340) and the decision of the Hon'ble Bombay High Court in the case of Bombay Dyeing & Mfg. Co. Ltd (ITA No. 2182 & 2140/ Mum/ 2000). In para 7.7, it seems that the Ld. DR has completely lost sight of the following factual aspects discussed in Reliance Utility & Power Limited (supra): 5. It was also pointed out that considering the balance sheet for the year ending 31st January, 2000 the availability of interest-free fund was as under : Share capital 180.00 Reserves & Surplus 120.80 Depreciation reserves 95.39 Total interest-free fund 398.19 It was, therefore, submitted that from the analysis of balance sheet as on 31-3-2000 the respondent had enough interest-free funds at its disposal for making investment. In the light of the above material the CIT (Appeals) held that it agreed with the contention advanced by the assessee that they had enough interest-free fund at its disposal for investment and accordingly deleted the addition of Rs. 4,40,00,000 made by the Assessing Officer and directed him t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td 366 ITR 505 (bom) and decision of the Hon'ble Supreme Court in the case of Maxopp investment Ltd (supra) and other decisions of the Hon'ble Supreme Court. The ground No. II of the appeal of the assessee is allowed for statistical purposes. 11. In ground no. IV, the assessee has raised the issue that no disallowance under section 14A could be made in respect of the securities held as stock-in-trade. 11.1 The submissions of the assessee in relation to above propositions are reproduced as under: 'The Appellant Assessee being in the business of banking, holds all its investments as stock-in-trade. Any income/loss from sale of such investments is charged to tax by the Ld. AO under the head 'Profits and gains from Business or Profession'. Kindly note that no portion of profits is charged to tax under the head 'Capital Gains'. Reliance is placed on various case laws filed in LPB at Pg. no. 1-217 under Proposition 3 including the decision of Hon'ble Tribunal in Assessee's own case for AY 2008-09 (LPB Pg. No. 3, Para 6). Out of the above decisions, special attention of the Hon'ble Bench was drawn at the time of hearing to the following judicial precede....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e us 14A of the Act, irrespective of the fact whether exempt income was derived from such investments or not.' ACIT v. UCO Bank (ITA No. 1615/ Kol/ 2016) (Kolkata Trib.) '13 .... The Revenue's appeal against the judgment of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supreme Court. We therefore find that qua the assessees engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO to delete the disallowance of Rs.2,90,37,490/- made under Rule 8D(2) (iii). Ground No. 2 of the Revenue's appeal is therefore dismissed and the grounds of assessee's CO are allowed.' > Bank of Maharashtra v. DCIT (ITA No. 1370/Pun/2014) '8.3 Both sides heard. The first contention of the assessee is that the investments were held by the assessee as stock in trade, therefore, no disallowance u/ s. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....end or interest, no expenditure was incurred in relation to the same.' 8.4 The Hon'ble Apex Court in the case of Maxopp Investment Ltd. Vs. Commissioner of Income Tax (supra) has approved the judgment rendered in the case of Pr. Commissioner of Income Tax Is. State Bank of Patiala (supra). Therefore, in view of the law settled by the Hon'ble Aper Court, no disallowance w/s. 144 is warranted in respect of shares held by the assessee as stock in trade.' M/s. The Karur Vysya Bank Ltd. v. ACIT (ITA No. 902, 903, 905 & 907/ Chny/ 2010 and ITA No. 930 & 931/Chny/2011) '5. The Ld. DR, Mr. AR.V. Sreenivasan, Addi. CIT, referring to the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT; reported in [2018/ 91 taxman.com 154 (SC), more particularly, Para Nos. 38-41 of the said judgment, submitted that the Hon'ble Supreme Court clearly held that even if in a case of investments held as stock in trade, the moment assessee earns exempt income proportionate expenses relatable to exempt income and taxable income needs to be apportioned. Although, the Hon'ble Supreme Court in the above case held that proportionate expenses need to be disallowed, in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n taxable income earned from such securities in proportion of the taxable and non-taxable income earned. The relevant submission of the learned DR reproduced as under: 7.3 It may be appreciated that the reliance placed by the assessee on the decision of Hon'ble apex court in the case of M/s Maxopp Investment as mentioned supra is completely misplaced. In such decision, the Hon'ble apex Court as made it clear that' the dominant intention' of assessee to hold the investment whether business asset or otherwise is not definite factor for applicability of section 14-A. For the sake of reference the inference drawn by the Hon'ble apex court in the case of M/s Maxopp Investment as mentioned supra is reproduced as under- "34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of Punjab & Haryana High Court which went by dominant purpose theory. The aforesaid reasoning would be applicable in cases where shares are held as investment in the investee company, may be for the purpose of having controlling interest therein. On that reasoning, appeals of Maxopp Investment Limited as well as similar cases where shares were purchased by the assessees to have controlling interest in the investee companies have to fail and are, therefore, dismissed. 36. There is yet another aspect which still needs to be looked into. What happens when the shares are held as 'stock-in-trade' and not as 'investment', particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. 37. This Circular has already been reproduced in Para 19 above. This Circular takes note of the judgment of this Court in Nawanshahar case wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share & Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under section 14A of the said Act. On the basis of the aforesaid discussion, the High Court answered the question formulated by it in the affirmative. *** 32. In the first instance, it needs to be recognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee 'in relation to income which does not form part of the total income under this Act'. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of http://www.itatonline.org 37 business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock- in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elied upon by them. Admittedly, the exempt income yielding shares were held by the assessee as „stock-in-tradel. Although, the opening stock of inventories as on 01.04.2013 was reflected at Rs. 21,46,64,955/-, however, the same as on 31.03.2014 stood reduced to nil. In sum and substance, the stock of shares which were held by the assessee as on 01.04.2013 were liquidated during the year under consideration, and no part of the same was reflected in its „closing stock as on 31.03.2014. However, in our considered view, the aforesaid factual position would principally have no bearing on the computing of the disallowance under Sec. 14A r.w. Rule 8D. We find that it is the claim of the Ld. A.R that as the exempt dividend income yielding shares were held by the assessee company as „stock-in- tradel, therefore, no disallowance under Sec. 14A r.w. Rule 8D was called for in its case. In our considered view, the aforesaid contention of the Ld. A.R is absolutely misconceived and cannot be accepted. On a perusal of judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi, we find, that the Hon ble Apex Court had disapproved the dominan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of Nice Bombay Transport (P) Ltd. Vs. ACIT(OSD), New Delhi (2019) 175 ITD 684 (Del), the same in our considered view, not being consistent with the view taken by the Hon'ble Apex Court in the case of Maxopp Investment Ltd. (supra), would thus not be binding as a judicial precedent. Insofar the reliance placed by the Ld. A.R on the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Alpha G. Corp. Development Ltd. (ITA No. 599/2018, dated 25.04.2019), the same being distinguishable on facts would not assist the case of the assessee before us. Also, the order of the ITAT 'F' Bench, Mumbai in the case of M/s Vora Financial Services P. Ltd. Vs. ACIT-2(3)(1), Mumbai, wherein an adhoc disallowance had been preferred as against that worked out under Sec. 14A r.w. Rule 8D(2), having been rendered without considering the aforesaid judgment of the Hon'ble Apex Court in the case of Maxopp Investment Ltd. (supra) would also not be binding. We thus finding no infirmity in the order of the CIT(A) who had rightly sustained the disallowance computed by the A.O under Sec. 14A r.w. Rule 8D(2)(iii), therein uphold the same. 8. Resultantly, the appeal filed by the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce to the extent of suo-motu disallowance made by the assessee. 13.1 We have heard rival submission of the parties on the issue in dispute. We are of the opinion that with effect from assessment year 2008-09, once the Assessing Officer is dissatisfied with the computation of claim of disallowance of expenses in terms of section 14A of the Act, the Assessing Officer is required to invoke rule 8D of 'Rules'. Since in the case, Assessing Officer after recording dissatisfaction to the claim of the assessee, has invoked rule 8D of the 'Rules',, therefore we do not find any infirmity in the same and the prayer of the assessee for restricting the disallowance to the extent of suo-motu disallowance is rejected. The ground No. VI of the assessee is accordingly dismissed. 14. In Additional ground, the assessee has raised contention that Income-tax has already been paid by the securitisation trust on the income from PTC, which has been distributed to the assessee as per the provisions of section 115TA of the Act, therefore provisions of section 14A cannot apply to PTC. 14.1 The written submissions filed by the learned counsel for the assessee on the issue in dispute are re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evy of additional income tax in the hands of the securitization trust at the rate of 25% of the distributed income if such income is paid to a person being an individual or Hindu undivided family. The additional income tax shall be levied at the rate of 30%, if such distributed income is paid to a person other than an individual or Hindu undivided family. However, no additional income tax shall be levied if the distributed income is paid to any person who is exempt under the Act. ● Assessee being a Bank, the additional income tax shall be levied at the rate of 30%. It can be seen that the Section 115TA of the Act provides for different rates for different Assessees, which substantiates that the tax paid by trust u/s 115TA of the Act is the tax paid on behalf of the Assessee. The taxability in the hands of the Securitisation trust. ● Thus, the interest income of the Assessee, though not taxed in the hands of the Assessee (investor) directly, is taxed in the hands of the Trust. Since the income has suffered tax, the same cannot be termed as exempt income, rendering the provisions of section 14A inapplicable. ● Further, the Assessee is aware of the argument tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Andhra. HC) CIT v. Dr. David Joseph (214 ITR 658) (Ker: HC) > In view of the above-mentioned legal position, the provision of section 10(35A) of the Act can be regarded as merely clarificatory in nature and it is submitted that even in absence of section 10(35A) of the Act, the position would have been the same, namely that the income is taxed in the hands of the trustee u/s 115TA of the Act, therefore the beneficiary should not have been taxed in law. It is not unknown in the Indian tax history that certain tax provisions are held to be made out of abundant caution to allay fears in the minds of taxpayers as regards taxability of certain income. See for example one of the early decisions was that of as held in Madurai Mills Co. Ltd (89 ITR 45) (SC) wherein the provision of section 12B of the Act was held to be merely clarificatory and enacted by the legislature only to allay fears as regards to taxability of income. In view of the foregoing, income on PTs is not be considered for the purpose of section 14A of the Act since the same has already suffered tax in the hands of the Trustee on behalf of the beneficiary and hence cannot be said to be exempt in the hands of the Assessee.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act. For ready reference, said sections are reproduced as under: "115TA. Tax on income distributed to investors .- (1) Notwithstanding anything contained in any other provisions of the Act, any amount of income distributed by the securitisation trust to its investors shall be chargeable to tax and such securitisation trust shall be liable to pay additional income-tax on such distributed income at the rate of- (i) twenty-five per cent on income distributed to any person being an individual or a Hindu undivided family; (ii) thirty per cent on income distributed to any other person: Provided that nothing contained in this sub-section shall apply in respect of any income distributed by the securitisation trust to any person in whose case income, irrespective of its nature and source, is not chargeable to tax under the Act. (2) The person responsible for making payment of the income distributed by the securitisation trust shall be liable to pay tax to the credit of the Central Government within fourteen days from the date of distribution or payment of such income, whichever is earlier. (3) The person responsible for making payment of the income distributed by the securit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Any income which has been included in the total income of the person referred to in sub-section (1), in a previous year, on account of it having accrued or arisen in the said previous year, shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the securitisation trust." 14.5 In the year under consideration, the income distributed under the provision of section 115TA was exempted in the hands of recipient as per the provisions of section 10(35A) of the Act. For ready reference, said provision is reproduced as under: "(35A) any income by way of distributed income referred to in section 115TA received from a securitisation trust by any person being an investor of the said trust : [Provided that nothing contained in this clause shall apply to any income by way of distributed income referred to in the said section, received on or after the 1st day of June, 2016.] Explanation .- For the purposes of this clause, the expressions 'inves-tor' and 'securitisation trust' shall have the meanings respectively assigned to them in the Explanation below '[section 115 TCA):]" 14.6 Before us, the learned counsel for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t i.e. income from PTC are embedded in total expenses debited in profit and loss account of the assessee, which are therefore not eligible for deduction against the taxable income of the assessee, and therefore need to be excluded as per the formula provided under rule 8D of the rules. In view of the aforesaid discussion, we reject the contention of the assessee for not considering the investment in PTC for the purpose of disallowance under section 14A of the Act. The additional ground raised by the assessee is accordingly dismissed. 15. The ground no. VII and VIII of the appeal relate to disallowance under section 35D of the Act by the Assessing Officer. 15.1 We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. During the financial year 2014-15, the assessee bank raised Rs.2,942 crores through a qualified institutional placement (QIP), in which it allotted equity shares to qualified institutional buyers(QIB). The assessee incurred expenses aggregating to Rs.17,24,73,171/- on account of payments to lead managers of the issue and payments to legal consultants and auditors etc. The assessee claimed one fifth of the abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssue is decided in favour of the assessee in assessee's own case for Assessment Year 2010-11 in ITA NO. 3497/Mum/2018 dated 14 July 2020 so far the issue was whether QIB is 'Public' or not. The co-ordinate Bench in that case considered whether the allottees Qualified Institutional Buyers is " public" or not. The coordinate Bench following the decision of ITAT in Deccan Chronicle Holdings Ltd. (supra) hold that QIB is " Public" so deduction under Section 35D of the Act is allowable. It held as under :- "6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The appellant is a banking company. It filed its revised return of income for the AY 2010-11 on March 30, 2012 declaring total income at Rs. 7,90,10,18,157/ -. As mentioned earlier, the question involved in this appeal is whether QIB can be regarded as 'public' and whether the offer made to them can be regarded as 'offer made to public' for the purpose of section 35D of the Act. In Deccan Chronicle Holdings Limited (supra), the Tribunal has held as under : "6. With respect to ground No. 4 for the assessment year 200809, we find that the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rly falls in the revenue field. These guidelines were impliedly approved by the hon'ble Supreme Court, in view of the fact that the special leave petition filed against this decision was dismissed. There is also merit in the argument of the appellant-company that the facts of its case are distinguishable from those in the case of Brooke Bond, for the detailed reasons submitted by it, and therefore its claim cannot be denied by relying on that decision. It was further claimed that though the entire expenditure was allowable in one year under section 37, the same was treated as deferred revenue expenditure and claimed over five years, starting from the assessment year 2007-08. The concept of deferred revenue expenditure is now legally recognised by various judicial authorities and in fact, this was upheld even in the case of the appellant by my predecessor, while deciding the appeal for assessment year 2006-07. In view of the above facts, I hold that the expenditure of Rs. 2,07,00,112 claimed for assessment year 2008-09 is allowable under sections 35D and 37. As the claim of this expenditure under section 35D read with section 37 is in order, the disallowance on this account is d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in Clause 35, reference is made to Clause 40A of the Listing Agreement. As can be seen therefrom, Mutual Funds/Financial Institutions which are QIBs are classified under 'public shareholding'. The terms are defined in Clause 40A of the SEBI Listing Agreement. Further, the listing agreement takes us to Securities Contracts (Regulation) Rules, 1957 (in short 'SCRR'). Also Rule 19(2)(b) and Rule 19A of the SCRR provide that companies are required to maintain minimum public shareholding of 25% in case of first time listing and in case of continuous listing agreement respectively. In this context, we may refer to section 2(d) of SCRR defining the term 'public'. It (public) is defined to mean any person other than the promoter, promoter group, subsidiaries and associates of the company. Thus any person other than these four qualify to be considered as public. As can be seen from the list of QIBs to whom shares are issued, the shares are not issued to any of the aforesaid category. Thus QIBs, not being promoters, promoter group, subsidiaries and associates of the company would qualify as "public". As specified in clause 40A(ii) of the listing agreement, public shareholding can be incr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nate bench while deciding the issue has clearly considered the decision in case of assessee in first year. We do not find there is any finding in the order in the coordinate bench for earlier year whether it was an issue of public subscription or not. This is the basic requirement of that section. As no evidence was put forth, the issue was set aside for verification whether the expenses were in connection with the issue for ' Public Subscription' or not. The coordinate bench in earlier year allowed claim of the assessee holding that whether QIP is public or not. It did not decide whether it is a 'public subscription' or not. 011. Any way in these proceedings, we cannot go in to the merits of the case as held by Hon Sc in case of CIT V Reliance Telecom Limited2021] 133 taxmann.com 41 (SC). Further, as we have restored the issue to the file of the LD AO, our observation on the merits, even otherwise, may influence the order of the LD AO in set aside proceedings. Therefore, these grounds of all these MA are dismissed, as on this issue there is no mistake in the order." 14.1 Thus, following the finding of the Tribunal for AY 2011-12 to 2013-14 in ITA No. 3498 to 35....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der the provisions of the Act, the Ld. CIT(A) is not authorised to restore the matter back to the file of the Assessing Officer, therefore, we feel it appropriate to restore this matter back to the file of the Ld. Assessing Officer for deciding a fresh in the light of the direction of the Tribunal in assessment year 2014-15. Thus, if the securities have been treated by the assessee as stock-in-trade then the expenses incurred at the time of acquisition of such securities is allowable at the time of acquisition being revenue expenditure, but if the securities are held as investment and income from sale of those securities has been offered under the head capital gain, then brokerage for acquisition of those securities, would be allowable at the time of sale of those securities and not at the time of purchase of those securities. Thus, whether the HTM securities have been treated by the assessee as investment or stock-in-trade, is a subject matter of verification from the books of accounts and financial statements of the assessee, matter is restored back to the file of the Assessing Officer. The ground Nos. IX and X of the appeal of assessee are accordingly allowed for statistical pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dispute are that during the year under consideration, the assessee changed the method of recognizing 'guaranty commission' from 'anniversary date' to the 'specific period of guaranty' during the year under consideration and therefore part of the guaranty commission received was deferred for tax purposes. According to the assessee apportionment of the basis of the No. of days for which Guaranty was given in the year of the issue of such guaranty, is based on scientific method for computation of guaranty commission accrued to the assessee for the year under consideration. The Assessing Officer however rejected the said contention. According to the Assessing Officer, the commission has been received by the bank upfront during the year under consideration which is received or deemed to be received as assessable to tax and there is nothing in the Act, which permits the assessee to distribute revenue across the years, when the expenditure related to that revenue has not been deferred. On further appeal, the Ld. CIT(A), though in principle agreed that bank guaranty commission cannot be taxed in entirety in the year in which the guaranty agreements entered and same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer, and therefore we set aside the direction of the Ld. CIT(A) and restore the matter back to him for deciding afresh keeping in view our observations above and in accordance with law. The ground of the appeal of the assessee is accordingly allowed for statistical purposes. 21. The ground No. 6 (six) of the appeal of the Revenue also relate to the issue of guaranty commission. Since the issue of the guaranty commission raised in the appeal of the assessee in ground No. XII has been restored back to the file of the Assessing Officer for deciding afresh, this ground of the appeal of the Revenue is also allowed for statistical purposes. 23. The ground No. XIII and XIV relate to not admitting of the claim for deduction of discount on shares under employee stock option scheme by the Ld CIT(A). 23.1 We have heard the rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that identical additional claim of the assessee was rejected by the Ld. CIT(A) in assessment year 2014-15, but the Tribunal (supra) in assessment year 2014-15 admitted said claim and restored the matter back to the Ld. CIT(A) for deciding in the lig....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The ground Nos. XIII and XIV of the appeal are accordingly allowed for statistical purposes. 24. The ground No. XV of the appeal of the assessee relates to addition of interest on non-performing assets under section 43D read with Rule 6EA of Rules, amounting to Rs.1,62,47,886/-, which has been upheld by the Ld. CIT(A). 24.1 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The dispute is regarding considering recognition of interest income on non- performing assets. According to the Reserve Bank of India guidelines interest on non-performing assets beyond the period of 90 days need not to be offered on accrual basis, whereas according to Income-tax rule 6EA read with section 43D of the Act, this period should be beyond 180 days. The Ld. CIT(A) following the decision of Tribunal in the case of state Bank of India (supra), upheld the addition made by the Assessing Officer. The relevant finding of the Ld. CIT(A) is reproduced as under: "15.4 Decision- 15.4.11 have considered the submissions made by the appellant and have perused the materials available on records. The appellant has requested to delete the impugne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y days and therefore the AO has rightly added the interest on that category of loans were default period was between ninety days to six months. After having considered the facts of the case, the addition made by the AO is confirmed.' 15.4 The above decision of the DRP is considered. It is seen that the above facts are similar in this year also. Therefore, the above decision is followed and the claim of the appellant is reject ted. This ground of appeal is dismissed.' The facts and circumstance of the issue under consideration are similar as that of decided by my Ld. Predecessor in the case of State Bank of India for AY 2014-15. It is also an admitted fact that the appellant has explained that Rule 6EA of the Rules provides for recognition of non viable or sticky advances which are outstanding for more than six months on receipt basis whereas the RBI guidelines considers advances outstanding for more than 90 days as NP As on which interest is recognized on receipt basis. It is setfled law that the RBi guidelines would not override the provisions of the Act, as held by the Hon'ble Supreme Court in the case of Southern Technologies Lid reported in 187 Taxman 346. Similar law h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccordingly, the Ground No. X raised in appeal is DISMISSED." 24.2 Before us, the learned counsel for the assessee however has relied on the decision of the Tribunal coordinate bench in the case of ICICI Bank Ltd in IT No. 3215/Mum/2019 and ITA No. 3864/Mum/2019 for assessment year 2010-11. The relevant finding of the Tribunal is reproduced as under: 6. Heard both the sides and perused the material on record. The asesssee has recognized the amount of interest attributable on sticky advances as NPA for a period of 90 days or more as per the guidelines issued by the RBI in accordance with Sec. 43D of the Act. However, the A.O was of the view that as per Rule 6E, interest is not to be offered for taxation with respect to advances which become Non Performing Assets for a period of 180 days or more. With the assistance of ld. representative we have perused the decision of ITAT, Mumbai in the case of Union Bank of India VS. ACIT, 16 taxman.com 304 wherein on identical issue and similar facts held that bank had no option but follow the RBI guidelines to make a provision for unrealized interest on the NPA by debiting profit and loss account. In the case of DCIT Vs. Karur Vysya Bank ITA N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ained in any other pro vision of this Act,- (a) in the case of a public financial institution or a scheduled bank or '[a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or] a State financial corporation or a State industrial investment corporation '[or a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company] the income by way of interest' in relation to such categories of bad or doubtful debts as may be prescribed' having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, (b) in the case of a public company, the income by way of interest' in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or '[a co-operative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank or] the State fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....D of the Act was involved, which being a decision of higher appellate forum, therefore, keeping in view the judicial discipline, we are bound to follow the decision of the Tribunal in the case of State Bank of India (supra). We accordingly, uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground No. XV of the appeal of the assessee is accordingly dismissed. 25. The ground No. XVI of the appeal relate to disallowance of deduction amounting to Rs.24,91,43,645/- claimed by the assessee under section 36(1)(viia) of the Act in respect of provision of rural advances separately. 25.1 The brief facts qua the issue in dispute are that under section 36(1)(viia) of the Act, the assessee has claimed deduction in respect to of provision for bad and doubtful 1 debts amounting Rs.129,79,83,400/- and for provision against the rural advances amounting to Rs. 24,91,43,645/ -. According to the assessee, the deduction for provision of rural advances is allowable under section 36(1)(viia) separately other than the deduction for provision of bad and doubtful debt which is subjected to limit of 7.5% of total income before claiming deduction under chapter VIA of the Act. It is stated by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner :' From the above it is evident that for claiming any deduction u/ s 36(1) (viia) creation of provision for bad doubtful debt is sine-qua-none and once the provision for the same has been made therein, the same is required to be restricted to an amount not exceeding seven and one-half per cent of the total income, computed before making any deduction under this section & under this clause and Chapter VIA, and an amount not exceeding 10% of the aggregate average advances made by the Rural Branches of such Bank computed in the manner prescribed therein. Hence, it is evident that under no circumstances the claim of deduction u/s 36(1)(viia) can exceed the provision for bad and doubtful debt created therein. In the present case it is an admitted fact that the appellant has made provision for bad and doubtful debt u/s 36(1)(viia) at Rs. 129,79,83,437/ -. The appellant has also admitted that 7.5% of total income before claimi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Tribunal has rightly pointed out that this issue stands further clarified from the proviso to clause (vii) of section 36(1) of the Act, which reads as under: "Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause" 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. In the present case, the assessee has not made any prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d doubtful debts (PBDD), an Assessee is entitled to 10 percent of the AARA as deduction u/ s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the aforesaid decision was as follows: "20. The learned CIT has also acted under the misconception that deduction under cl. (viia) is related to the actual amount of provision made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entifled to a deduction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the aggregate average advances made by the rural branches of the bank. In other words, this is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts" 10. However the Bangalore Bench of ITAT in the case of Syndicate Bank (supra) 150 ITD 103 (Bang.) noticed that the ITAT Bangalore Bench in the case of Canara Bank in ITA No.58/Bang/2004....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to be followed. The Hon'ble Karnataka High Court in the case of Patil Vijayakumar (supra) dealt with argument that decision of one High Court of a State is not binding on the High Court of another State. In the present case the only decision of Hon'ble High Court available on the issue whether u/s.36 (1) (viia) of the Act has to be allowed only on the basis of actual debit towards PBDD in the profit & Loss Account by the Assessee, is the decision of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra). The question therefore is as to whether the co-ordinate Tribunal decision has to be followed in preference to a non jurisdictional High Court decision. The Hon'ble Karnataka High Court in the case of Patil Vijayakumar (supra) has not dealt with any such issue. Going by the hierarchical system in our country, this Tribunal in the case of Canara Bank ITA No. 58/Bang/ 2004 dated 9.6.2006, after considering the decision rendered in the case of Syndicate Bank 78 ITD 103(Bang.) preferred to follow the decision of Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra) though of a non jurisdictional High Court than t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The appellant has requested to delete the impugned disallowance of Rs. 77,53,20,737/-, being the claim of interest paid on Innovative Perpetual Debt Instrument (IPDI). The appellant has made elaborate submissions as detailed above and the same have been considered carefully. Before deciding the issue it is worthwhile to examine the nature of Instrument under consideration. The appellant has issued Innovative Perpetual Debt Instrument (IPDI) which by nature is perpetual and the investor has no right to ask for refund at any time. It is the discretion of the appellant as to decide whether such IPDI is to be called back or not. The Wikipedia defines the 'Perpetual Bond' as under. "Perpetual bond, which is also known as a perpetual or just a perp, is a bond with no maturity date. Therefore, it may be treated as equity not as debt. Issuers pay coupons on perpetual bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore. those of a perpetuity.' Similarly the Black Dictionary defines the Perpetual Bond as 'a bond with no maturity date and investor receives coupon but the principle is never paid. Conceptually, with the perpetual bonds, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evant finding of the Tribunal is reproduced as under: "13 The ground No. 4 of the appeal of the assessee relates to disallowance of Rs. 18,00,00,000/- for interest paid on Innovative Perpetual Debt Instruments (IPDI Bonds). The IPD bonds issued by the assessee qualify as Tier I capital of bank and book value of such bonds was reported by the assessee Rs. 160,00,00000/-at the end of the relevant previous year corresponding to the A.Y. under consideration. Before the Ld. A.O., the assessee claimed deduction on account of the interest paid/ payable on those bonds u/s 36 (1)(iii) of the Act. According to the assessee these bonds are in the nature of the debentures carrying a fixed interest rate and the interest is paid out of the distributable profit of the previous year or current year. It was further claimed that interest paid to bondholders unlike dividend income is not exempt as per the provisions of the Act and the bondholders would have accordingly offered the same to the income in their respective returns and therefore disallowance of said interest would result in double taxation of the same income. The Ld. A.O. however rejected the contention of the assessee and held that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and an erroneous or mistaken view cannot fetter the authorities into repeating them by application of rule such as estoppel, for the reason that being an equitable principle, it has to be yield to the mandate of law. Similar law has been laid down by the Hon'ble Delhi High Court in the case of Krishak Bharati Cooperative Ltd reported in 23 taxmann.com 265, wherein the Hon'ble Court held as under. It is now necessary to take up the submission that the Tribunal erred in departing from the 'consistency' rule. This is based on the fact that for the period of about 15 years, the income tax authorities had accepted the assessee's submissions and permitted annual amortization of the initial lease consideration, as advance rent. The assessee here relied on the "consistency"rule enunciated in Radhasaami Satsang (supra). The Supreme Court observed, in that case that: ' ... where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder of the lower authorities. 16 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as argument of rule of consistency is concerned, the Ld. CIT(A) has rejected the contention of the assessee following the decision of the Hon'ble Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra). The said finding being based on the precedent, we concur with the finding of the Ld. CIT(A). 16.1 The assessee has distinguished the decision of Hon'ble Punjab Haryana High Court in the case of Pepsu Road transport Corporation (supra) on the ground that in said case capital was provided by the Union of India under a statutory obligation which had no provision of repayment. Further in the event of the liquidation of Pepsu Road transport Corporation after meeting the liabilities if any, the assets were to be divided among Central Government and the State Government and such other parties, if any as may have subscribed to the capital in proportion to the contribution made by each of them to the total capital. However in the instant case there was no statutory obligation on the investors to subscribe to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecurities is payable @ 11.40% per annum. The assessee has also specifically explained in line with accounting standard, the aforesaid interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of Rs.142.03 crores for F.Y. 2010-11. But the same was charged to Rs.113.61 crores after netting off taxes [142.03 - 28.42]. The amount of tax impact of Rs.28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs. 18.63 crores on issue of 10.75% debenture of Rs. 1500 crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also supplied to the Assessing Officer detailed offer document issued for unsecured perpetual debentures of Rs. 1500 crores during the course of assessment proceedings. In the offer document the terms and conditions of issuing perpetual debentures, basis of allotment, creation of debenture redemption reserves along with object of the issue were clearly mentioned. As per the copy of object of the issue placed at pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act. The ground No. 4 of the appeal of the assessee is accordingly allowed.' 26.3 Thus, respectfully following the finding of the Tribunal(supra), we set aside the finding of the Ld. CIT(A) and delete the disallowance of interest in respect of IPDI, which was made under section 36(1)(iii) of the Act. The ground of appeal of the assessee is accordingly allowed. 27. The ground No. XVIII has been raised as an alternative to ground No. XVII of the appeal, which we have already allowed in favour of the assessee and therefore this ground is rendered merely academic and hence dismissed as infructuous. 28. In ground No. XIX and XX, the assessee has raised the issue of levy of interest under section 234A and 234D of the Act. 28.1 We find that Ld. CIT(A) directed the Assessing Officer to verify the claim of the assessee as in the assessment order no details of computation of interest under section 234A or section 234D was provided. In the grounds raised the assessee has submitted with regard to interest under section 234A of the Act that return of income was filed within the statutory Limit as specified under section 139 of the Act. Regarding interest levied under section 234D of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... are part of the business of banking. The CBDT has recognized the said laws pronounced by the Hon'ble Apex Court and vide Circular No. 18/2015 dated 02.11.2015 has brought the same to the notice of the field formations and the same stipulates as under. "CIRCULAR NO. 18/2015 [F.NO.279/MISC./ 140/2015/ITJ], DATED 2- 11-2015 It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, 'expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income from other sources.' 2. Clause (id) of sub-section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income- tax under the head 'Income from Other Sources', if the income is not chargeable to income-tax under the head 'Profits and Gains of Business and Profession'. 3. The matter has been examined' in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Cooperative Bank Ltd. 2007] 160 Taxman 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ating the HTM securities as capital assets, but had not dealt with other consequential issues of taxability of income arising from the sale of securities as capital gains and other relevant issues under section 45 to 55 of the I.T. Act 1961. Anyhow, assessee's diam for deduction of broken period interest of Rs. 49,96,29,21 1/-is aliowed. In this connections, reliance is also 'placed on the decisions of Bombay High Court in the case of HDFC vs CIT -366/ITR/505 and Bombay ITAT in the case of KBC Bank us JCIT-34/TAXMAN.COM/26. In nutshell, assessee's appeal is allowed." The facts and circumstances of the issue under consideration remain same as that in AY 2014-15 and hence respectfully following the said decision of my Ld. Predecessor in appellant's own case for AY 2014-15 the impugned disallowance of Rs 68,06,37,940/- is DELETED. Accordingly, the Ground No. IV raised in appeal is ALLOWED.' 29.2 Before us the learned counsel for the assessee referred to the decision of the coordinate bench of the Tribunal in the case of the assessee in assessment year 2011-12 to 2013-14 in ITA No.3498 to 3500 & 3296 to 3238/ Mum/2018 and submitted that issue in dispute is covered in fav....