TaxTMI 
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2026 (2) TMI 159
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....t year 2016-17 is considered as a lead case, and the decision rendered therein shall apply mutatis mutandis to the cross-appeal for the assessment year 2018-19. ITA No. 1451/Mum./2023 Assessee's appeal - A.Y. 2016-17 3. In the appeal, the assessee has raised the following grounds: - "1. On the facts and in the circumstances of the case and in law, the learned Assistant Commissioner of Income-Tax 2(1)(1) ["ACIT*) has erred in disallowing Rs. 57,84,37,239 u/s. 14A of the Income-tax Act, 1961 ("the Act") read with Rule 8D(ii) towards expenditure incurred in relation to income claimed exempt u/s. 10 and the Hon'ble CIT(A) has erred in confirming the said disallowance by restricting it up to Rs. 12,94,13,414 u/s. 14A read with Rule 8D(iii). The learned ACIT be directed to delete the disallowance made u/s. 14A read with Rule 8D(iii) of Rs. 12,94,13,414 and reduce the total income accordingly. 1A. Without prejudice to Ground no. 1 above, on the facts and in circumstances of the case and in law, assuming without accepting that the contention of the Appellant Bank is not acceptable, in such case, the learned ACIT be directed to restrict the disallo....
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.... of income-tax laws of respective countries and not the income computed as per provisions of Income-tax Act, 1961. The Hon'ble CIT(A) has erred in not considering the same. The learned ACIT be directed to consider the same and reduce the total income accordingly. 3B. Without prejudice to Ground no. 3 above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs. 1440,17,71,495 is not allowed and therefore, taxed in India, then the Appellant Bank prays that the credit for taxes paid by the said branches in their respective countries be allowed while determining tax liability in India in accordance with Sec. 90 and Sec. 91 of the Act. 4. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in adding back the provision for country risk amounting to Rs. 3,58,00,000 Act and the Hon'ble CIT(A) has erred in confirming the disallowance made by ACIT. The learned ACIT be directed to allow the deduction of claim and reduce the total income accordingly. 5. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing the claim of....
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....of banking and other related financial activities. The business and operations of the assessee are governed by the guidelines issued by the Reserve Bank of India ("RBI") from time to time. For the year under consideration, the assessee filed its return of income on 30/11/2016, declaring a total loss of Rs. 844,76,92,620 and book loss of Rs. 8,106,24,94,032. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the year under consideration, the assessee earned income total amounting to Rs. 57,84,37,239, which is exempt under section 10 of the Act. The assessee also incurred an amount of Rs. 30,071.84 crore as interest on the borrowed funds as against receipts of Rs. 41,796.64 crore under the same head. Since the investment yielding the exempt income was quite sizeable in the case of the assessee, the Assessing Officer ("AO"), vide order dated 14/03/2019 passed under section 143(3) of the Act, held that it is unreasonable to assume that the assessee would not have invested any part of the borrowed capital in tax-free investments. Accordingly, the assessee was ....
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.... is not relevant. The Hon'ble Apex Court in the said case has rejected the theory of "dominant purpose". Here it would be relevant to refer to the following observations of the Hon'ble Apex Court: "38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as 'stock-in-trade' and not as investment. We proceed to discuss this aspect hereinafter. 39. In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits th....
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....fore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove." 7. The Hon'ble Delhi High Court in the case of PCIT vs. Punjab & Sind Bank (supra) after considering the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra) has upheld the decision of Tribunal in deleting disallowance made u/s. 14A of the Act in respect of exempt income earned on shares held as stock-in-trade. Similar view has been expressed by Hon'ble Delhi High Court in the case of PCIT vs. Punjab National Bank, 140 taxman.com 131 following the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra). The relevant extract of ....
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....come. The ITAT set aside the order of the AO as well as CIT(A). The High Court upheld the order of the ITAT and dismissed the appeal filed by the Revenue. The Supreme Court after deliberating on the object and purpose of section 14A, conclusively held that in cases where shares are held by assessee as stock-in-trade, the dividend earned on the said shares is incidental and would not attract the provisions of section 14A of the Act. In this regard, the following paragraphs of the judgment are apposite:- "49. We note from the facts in State Bank of Patiala case 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 8-D of the Rules and holding that section 14-A 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 ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of ITAT, though we are not subscribing t....
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....ome was earned from stock-in-trade." Thus, in light of various decisions rendered by Hon'ble Delhi High Court after considering the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra) deleting disallowance u/s. 14A where shares are held asstock-intrade, we are of considered view that disallowance u/s. 14A of the Act is unsustainable in the instant case. Thus, the assessee succeeds on ground No.1 of the appeal." 8. The learned Departmental Representative ("learned DR") could not show any reason to deviate from the aforesaid decision rendered in the assessee's own case, and no change in facts or 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 the disallowance made by the AO under section 14A read with Rule 8D of the Rules is hereby deleted. As a result, Ground No.1, raised in assessee's appeal, is allowed. In view of our aforesaid findings, Grounds No.1A and 1B are rendered academic and, therefore, need no separate adjudication. 9. Ground No.2, raised in assessee's appeal, pertains to the disallowance of the claim f....
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....up for consideration before the Coordinate Bench of the Tribunal in assessee's own case in Bank of India vs. ACIT, in ITA No. 1767/Mum/2019, for the assessment year 2015-16. While deciding this issue against the assessee, vide order dated 11/12/2020, the Coordinate Bench vide aforesaid decision, observed as follows: - "45. In the second set of ground of appeal, the assessee-appellant has raised the following grievances: 2. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing amortization of lease premium paid in respect of various lease hold properties aggregating to Rs. 4,08,67,975 by treating the same as capital expenditure and the Hon'ble CIT(A) has erred in confirming the disallowance made by the learned ACIT. The learned ACIT be directed to allow amortization of lease premium paid in respect of various lease hold properties aggregating to Rs. 4,08,67,975 as revenue expenditure and reduce the total income accordingly. 2A. Without prejudice to Ground no. 2 above, on the facts and in the circumstances of the case and in law, assuming without accepting that your Honours is of the opinion that amortiz....
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....e case of Technimont (supra), admirable grace. It is not clear to us whether this approach is to preempt a detailed discussion on merits of the matter, or whether this approach is indeed bonafide stand of the assessee. That does not, however, matter much at this stage, as all the facets of this matter are covered above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28* August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The notification deals with connotations of the expression "may be taxed", appearing in the tax treaties entered into....
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....ld. representative of the parties and perused the order of authorities below. The Assessing Officer while relying upon the Notification No. 2123(e) dated 28.08.2008 treated the income of foreign branches as taxable in India. The ld. CIT(A) on the basis of decision of Tribunal in assessee's own case for Assessment Year 2005-06 to 2007-08 in ITA No. 2927, 2928, 5735/Mum/2011 dated 25.07.2014 held that as per the Notification, the income which is to be included in the total income is such income of foreign branch that was taxed in the foreign country, the relief of tax will be allowed based on the taxed paid in the foreign country and thereby granted part relief to the assessee. We have noted that similar ground of appal was raised by Revenue in appeal for AY. 2009-10 and the coordinate bench of the Tribunal in ITA No. 2480/Mum/2015 dated 17.02.2017 passed the following order: 24. We have carefully considered the submission and perused the record we find that the ITAT in the aforesaid decision has duly considered the said notification referred by the Ld. Counsel of the assessee. We may carefully refer to the contents of the said notification as under; "In exercis....
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....gly, we allow the ground raised by the revenue. 5. Considering the decision of co-ordinate bench in assessee's own case, the ground of appeal raised by Revenue is allowed mutatis mutandis as per order dated 17.02.2017 for A. Y. 2009-10. In the result, Ground No.2of appeal of the Revenue is allowed. Since the notification issued by the Government does not differentiate between dividend income and business income, we are unable to agree with the interpretation given by Ld A.R on the notification issued by the Government. Accordingly, we set aside the order of learned CIT(A)." 19. Thus, respectfully following the decision of the Coordinate Bench of the Tribunal rendered in Bank of Baroda (supra), Ground No.3A, raised in assessee's appeal, is dismissed. 20. Ground No.3B, raised in assessee's appeal, pertains to the grant of credit towards foreign taxes. 21. Having considered the submissions of both sides and perused the material available on record, we find that while considering a similar issue, the Coordinate Bench of the Tribunal in assessee's own case for the assessment year 2015-16 cited supra, observed as follows: - "8. So far as the tax cr....
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....rovision, the reversal of the provision has not been offered to tax. The AO, vide order passed under section 143(3) of the Act, held that the assessee's explanation is not justifiable for claiming the amount of Rs. 3.58 crore as a reduction from the net profit in the computation of income. Accordingly, the AO added the amount of Rs. 3.58 crore to the total income of the assessee. 25. During the appellate proceedings before the learned CIT(A), the assessee submitted that this amount of provision as per the RBI guidelines is debited every year in the accounts and added back in the computation of income. However, the actual amount crystallised during the year is claimed in the competition of income. Accordingly, the assessee was asked to submit the working of the actual claim of country risk written off during the year. However, the assessee expressed its inability to provide these details as the matter is old. The learned CIT(A), vide impugned order, found it strange that the net credit of provision of country risk will exactly match with the exact claim of country risk. Since the assessee could not provide the working of crystallised country risk, the addition of Rs. 3.58 crore m....
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....ly a credit balance account. 2. The Legislature has allowed for Provision for Doubtful Debts in case of banks considering the peculiar requirements of the banking business. Making provisions is normally an accounting concept whereby any expected loss and expense is to be provided for so that when the same actually occurs, its impact is minimal on the business & profits of the business perse in the year of its actual occurrence. This is actually in line with the Conservative Principles of Accounting. In Accounting Theories, once the loss actually occurs and is ascertained it is first set-off against the provision created in relation to it and only the balance, if any, is accounted for as a loss or expense from the profits of the year of occurrence. Similar is the situation with Provision for Bad and Doubtful Debts and bad debts written off. Thus, even the Accounting Theories support the interpretation that the Bad Debts written off are to be first set-off against the Provision for Doubtful Debts made and allowed in earlier years under Section 36(i) (viia) and only balance, if any, can be claimed as expense in the year of actual write-off of the Bad Debts u/s Section 36(i)(v....
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....As per CBDT Instruction No. 17 of 2008 clarifying first proviso to Section 36(1)(vii), opening credit balance of provision for bad and doubtful debt account is to be considered for reducing bad debts and the excess amount of bad debts written off is to be claimed u/s 36(1)(vii). As per section 36(2)(v) only that part of bad debt is to be debited to the provision account for which there is a credit balance available in the account. The amount exceeding the credit balance is allowed as deduction u/s 36(1)(vii) directly, and it cannot be debited to the PBDD account, which otherwise will result in double deduction effectively. In each case when bad debt written off exceeds credit balance of provision for bad and doubtful debt account, the account will become nil and the excess amount is directly accounted for as loss or expense allowable u/s 36(1)(vii). It cannot remain debited to the provision for bad and doubtful debt account defying the accounting principles. Following this principle. the claim u/s 36(1) (viia) allowed in the year end will at least still remain as closing balance in PBDD account and the opening credit balance for next year. This is so because closing allowance u/s 3....
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....ritten off twice under section 36(1)(vii) as well as section 36(1)(viia) of the Act. Accordingly, the AO computed the bad debt written off under section 36(1)(vii) at Rs. 202.73 crore as against Rs. 2356.44 crore claimed by the assessee, by observing as follows: "15.9 Thus, for AY under consideration, AY 2016-17, the minimum opening balance shall be Rs. 2,926.41 crore which has been claimed as deduction u/s 36(1) (viia) during AY 2015-16. Thus, as clearly stated in proviso to section 36(i)(vii), the amount of bad debt written off in excess of Rs. 2926.41 crore can only be allowed. In this AY the assessee's claim of debt written off amounts to Rs. 2356.44 crore. As per the discussion in the para 14, the loss on sale of ARC by the bank is considered as Bad debt written off and therefore the total bad debt written off for A.Y. 2016-17 is 2356.44 crore + 772.70 Crore totaling to Rs. 3129.14 Crore. The total bad debt written of exceeds the opening PBDD by Rs. 3129.14 - 2926.41= Rs. 202.73 crore. Hence, the amount of Rs. 202.73 crore is only allowable as bad debt written off u/s 36(1)(vii). 15.10 In view of the aforementioned discussion, bad debt written off claim o....
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....para 15.3 to 15.10 on this issue. Accordingly, the addition made by the AO on this issue is confirmed subject to the modification in figures of addition on account of decision on the issue of loss on sale of assets to ARC decided above. This ground of appeal is dismissed." Being aggrieved, the assessee is in appeal before us. 31. We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee reduced the actual bad debts from the credit balance in the provision made under section 36(1)(viia) and the resultant debit balance in the account made under section 36(1)(viia) was carried forward as the opening balance of the next year. At the same time, the amount of bad debts exceeding the credit balance in the provisions account made under section 36(1)(viia) was claimed under section 36(1)(vii) of the Act. The assessee credited the provision under section 36(1)(viia) of the next year, having a debit opening balance, and again reduced the actual bad debts claimed for the year from this account. Thus, the amount exceeding the provision under section 36(1)(viia) is claimed under section 36(1)(vii) of the Act. As the pro....
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....primary co-operative agricultural and rural development bank, an amount not exceeding seven and 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 : Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted : Provided als....
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....uction No.17 of 2008, dated 26/11/2008 issued by the CBDT provided the clarity regarding the manner of computation of deduction under section 36(1)(vii) of the Act as follows: - "INSTRUCTION NO. 17/2008, DATED 26-11-2008 In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession', deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the Income-tax Act, 1961 : (i) Under section 36(1)(vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debts to the provision for....
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....In this regard, it is pertinent to note the following observations of the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. vs. CIT, reported in (2012) 343 ITR 270 (SC): - "17. The provisions of Section 36(1)(vii) would come into play in the grant of deductions, subject to the limitation contained in Section 36(2) of the Act. Any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year is the deduction which the assessee would be entitled to get, provided he satisfies the requirements of Section 36(2) of the Act. Allowing of deduction of bad debts is controlled by the provisions of Section 36(2). The argument advanced on behalf of the Revenue is that it would amount to allowing a double deduction if the provisions of Sections 36(1)(vii) and 36(1)(viia) are permitted to operate independently. There is no doubt that a statute is normally not construed to provide for a double benefit unless it is specifically so stipulated or is clear from the scheme of the Act. As far as the question of double benefit is concerned, the Legislature in its wisdom introduced Section 36(2)(v) by the Finance Act, 1985 with effect from ....
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....s. ITA No. 1547/Mum./2023 Revenue's appeal - A.Y. 2016-17 44. In the appeal, the Revenue has raised the following grounds: - "1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in holding that if there are funds available both interest free and loans fund then presumption would arise that investment is made out of interest free fund for calculation of disallowance w/s.14Arwr8D2(ii) when the issue of mixed fund as pending before larger Bench of Supreme Court. More so when no nexus is established by the assessee to prove that own ie. interest free funds were initiated to make the investment? (Tax Effects: Rs. 15,53,98,165/-@ 34.61% of Rs. 44,90,23,825/-) 2. Whether on the facts and in the circumstances of the case and in law: the Ld. CITA) was justified in holding that disallowance us. 144 is to be restricted to the exempt income, where as in Finance Act 2022, explanation to Section 14A has been inserted which provides for applicability of the said section even in the absence of exempt income, which being clarificatory in nature has retrospective effect? (Tax Effects: Rs. 1,56,73,70,902/- of Rs. Rs. 452,89,....
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....f Pepsu Road Transport Corps CIT (130 ITR 18 (P&H)? (Tax Effect: Rs. 55.63.92.816/- @ 34.61% of Rs. 160,77,00,000/-) 9. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition of Rs. 443,40,00,000/- on account of commission received on deferred payment bank guarantee when in fact the commission income has accrued and arisen and further the income is not contingent in nature? (Tax Effect of Rs. 1,53,45.18,720/- @34.61% of Rs. 443,40,00,000/-) 10. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was correct in deleting the addition of Rs. 1.95.41.06, 729/- of unrealized interest income on NAs holding that the limit of time for classification of NPAs as per RBI guidelines had to be followed as per section 43D of the Act? (Tax effect: Rs. 67,62,77,257 @ 34.61% of Rs. 195,41,06,729/-) 11. Whether on the facts and in the circumstances of the case and in law, the Ld. CITYA) was correct in deleting the disallowance of Rs. 772, 70.00.000/- being loss on sale of financial assets to ARC which is only a notional loss and assessee had not suffered real loss? (Tax effec....
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.... facts of the case pertaining to this issue as emanating from the record are: During the year under consideration, the assessee paid Rs. 30,40,09,273 as broken period interest on the purchase of Held to Maturity ("HTM") Securities, treating the same as revenue expenditure. Accordingly, during the assessment proceedings, the assessee was asked to furnish an explanation why the broken period interest should be allowed as revenue expenditure. In response, the assessee submitted that the interest on Government Securities is normally credited half-yearly, and when the Government Securities are sold, the purchaser has to pay the seller not only the purchase price of the securities but also the interest accrued on the Government Securities from the last due date of the interest till the date of purchase of the securities. The assessee submitted that the interest from the last due date till the date of purchase is referred to as a broken period interest. It was also submitted that its clients treat the investment in Government Securities as stock-in-trade. The AO, vide order passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the broken peri....
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....firmity in the findings of the learned CIT(A) on this issue and the same are upheld. As a result, Grounds No.4 and 5 raised in Revenue's appeal, are dismissed. 53. Ground No.6, raised in Revenue's appeal, pertains to the deletion of the disallowance of the premium of HTM securities. 54. The brief facts of the case pertaining to this issue as emanating from the record are: During the year under consideration, the assessee booked a loss of Rs. 231,78,68,424 on account of amortisation of investment held in the HTM category. Accordingly, the assessee was asked to explain why the loss on amortisation should not be disallowed. In response, the assessee submitted that as per section 24 of the Banking Regulation Act, it has been made obligatory that the banking institutions must maintain a certain percentage of its asset in form of security at any given date. Accordingly, the investment, inter alia, in HTM securities is made in the course of business and constitutes stock-in-trade. In its submission, the assessee also placed reliance upon the decision rendered in its own case by the Tribunal, wherein it was held that the investment in securities constitutes stock-in-trade of the asse....
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....than the face value, the loss is not booked in the year of sale but is spread over the period of holding. If the securities are held as investment, there is no question of allowance of any amount till such time as they are sold or redeemed. Even if these securities are held as stock-in-trade, as per RBI's guidelines, the method of valuation of closing stock adopted in respect of securities in HTM category is cost price which is one of the two recognized methods of valuation. Since the cost price is constant, there is no question of deduction of any amount under the commercial principles even if HTM securities are accepted to be stock-in-trade of the assessee. Whatever loss is suffered on sale of redemption of securities, that will constitute the loss of the year in which they are sold or redeemed. In between, no amount can be allowed under the provisions of section 145. By claming amortization, the assessee seeks to neutralize the effect of valuing the securities in HTM category on cost price which is one of the two recognized methods of valuation of the closing stock. 7.5 It cannot be the effect of the RBI guidelines that the total income for the purpose of Income Tax....
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....t of premium amortized in respect of HTM securities of Rs. 231,78,68,424/- is disallowed and added back to the total income. Penalty proceedings u/s. 271(1)(c) are initiated for filing of inaccurate particulars of income. Addition: Rs. 231,78,68,424/-" 55. The learned CIT(A), vide impugned order, following the decision of the Tribunal rendered in assessee's own case for the assessment year 2015-16, deleted the addition made by the AO on this issue and allowed the loss on account of amortisation of investment held in HTM category. Being aggrieved, the Revenue is in appeal before us. 56. Having considered the submissions of both sides and perused the material available on record, we find that the Coordinate Bench of the Tribunal in the assessee's own case for the assessment year 2015-16, vide order dated 11/12/2020 cited supra, dismissed a similar ground raised by the Revenue on this issue. Since the learned CIT(A) has followed the decision of the Coordinate Bench of the Tribunal rendered in the assessee's own case in the preceding year, we do not find any infirmity in the same, and, therefore, the impugned order on this issue is upheld. As a result, Ground No.6, raised in R....
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....assessee was asked to show cause as to why the perpetual bonds should not be treated as equity and consequently the interest paid on such bonds should be allowed under section 36(1)(iii) of the Act. In response, the assessee submitted that it has issued perpetual debts instruments over the years and as on 31/03/2016, the outstanding balance of perpetual debt is at Rs. 1680 crore. It was further submitted that these instruments are classified as borrowing in bank's balance, and interest paid on the above instruments is provided in the books as interest expenses. In this regard, the assessee submitted that the above accounting treatment of the interest and presentation in balance sheet is in tune of the RBI Guidelines and Accounting Standard-16 issued by the ICAI on borrowing cost. The assessee submitted that the interest paid on the perpetual debt is out of distributable profits of previous year or current year and the nature of payments is different from the interest i.e. borrowed for the purpose of business, which is allowable under section 36(1)(iii) of the Act. The AO, vide order, passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held tha....
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....nterest and are being redeemed by the appellant from time to time after expiry period, are listed & tradable in debt market, non-participative in profits/voting/shareholder register etc. In such circumstances, these cannot be called to be in the nature of equity which carries right in management, cannot be redeemed normally, may or may not get fixed quantum of dividend return on investment etc. Thus, the characteristics of these IPB instruments are in the nature of Debt and not equity. The above decision of Hon'ble ITAT Mumbai is a later date decision, wherein the relevant case laws had also been considered. In these facts & circumstances of the case, it is held that the interest on IPBs is deductible u/s 36(1)(iii) of the IT Act. Accordingly, this addition of Rs 160,77,00,000/- made by the AO is hereby deleted and this ground of appeal is "allowed"." Being aggrieved, the Revenue is in appeal before us. 64. Having considered the submissions of both sides and perused the material available on record, we find that the Coordinate Bench of the Tribunal in State Bank of India (successor to State Bank of Bikaner and Jaipur) vs. DCIT, in ITA No.2873/2019, vide order dated 29/09/2022....
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..... 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 the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 stating that it h....
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....s 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 non-convertible 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 these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consider that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee. 16.3 Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the ....
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....e internal guidelines submitted by the appellant that the guarantees in different categories are charged differently either on quarterly basis or on annual basis. In some of the guarantees, the commission in earlier redemptions is also paid back at certain percentage of unexpired period. Further, the appellant had submitted the instances where there had been refund of Guarantee Charges. Thus, it can be said that these amounts received are contingent and not ascertained for unexpired period. The appellant had not considered, the received but not accrued, portion of the commission as income in the year under consideration and treated it as advance receipt for the unexpired period of guarantee. The appellant had consistently followed this method for accounting of these receipts. In view of the above case laws cited on the issue coupled with the fact that the guarantees commission of unexpired period is not an ascertained but contingent liability, the whole of the commission received does not accrue to the appellant in the year of receipt, the addition made by the AO is not sustainable. Accordingly, the addition of Rs. 443,40,00,000/- made by the AO on account of advance guarantee comm....
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....er, passed under section 143(3) of the Act, made an addition on account of interest on NPA by observing as follows: - "12.2 Thus, the provisions of Rule 6EA read with section 43D are very clear that irregularity of the nature referred in Rule 6EA (a)(ii) should be noticed for a period of 6 months or more. The benefit of non-recognition of interest in NPAs can be granted to the assessee as per the provisions of Rule 6EA read with section 43D only when the irregularities exist for a period of 6 months or more. 1. On this issue, what has been disputed by the assessee is that the guidelines of Reserve Bank of India prescribed recognition of the assets being NPA when the period of default is 90 days or more and that the provisions of section 43D of the Act which stipulates recognition of income by way of interest in relation to such categories of all bad or doubtful debts having regard to the guidelines issued by the RBI in relation to such debts. The assessee mainly seeks to contend that what would prevail is RBI guidelines in relation to section 43D of the Act and not the Rule 6EA of the Rules. In regard to such contention of the assessee, it is stated that the provi....
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....in the case of Southern Technologies Ltd. vs. JCIT. The assessee, in their submission, have sought to contend that in their case it is the recognition of income and not the claim of deduction/exclusion. In regard to such contention, it is stated that the case of the assessee would fall under the expression "exclusion of recognizable income under the Act". The assessee has further placed reliance on the decision of Hon'ble Supreme Court in the case of UCO Bank vs. CIT. The said decision is in respect of recognition of income on receipt basis on the sticky loans. The same has no reference to either Rule 6EA or corresponding or related guidelines of RBI in this regard. The assessee has also placed reliance on the decision of Hon'ble Mumbai Tribunal in the case of American Express Bank Ltd. vs. ACIT. In respect of such reliance placed, it is stated that the same is in respect of proviso to section 5 of the Interest Act r.w.s.43D of the Act and the same does not deal with Rule 6EA of the Rules. 2. The assessee has further contended that Rule 6EA cannot expand the scope of section 43D. In this regard, it is stated that Rule 6EA has been prescribed so as to apply the prov....
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....ia prescribed as per rule 6EA and that the interest on NPAs cannot fall under the exception provided in clause (e) of rule 6EA. But, the assessee argued that the action of the lower authorities cannot be sustained due to the following three reasons viz., a. section 43D of the Act would not apply in cases where interest is neither received nor credited to the profit and loss account; b. RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the rule should be framed having regard to the guidelines; c. without prejudice, a deduction should be allowed of such interest as bad debts. 80. In relation to the above, it was argued that the provisions of section 43D of the Act provide that the categories of bad or doubtful debts would be prescribed having regard to the guidelines issued by the RBI in relation to such debts. In other words, the Legislature envisages that the RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the categories prescribed in rule 6EA necessarily have to follow the RBI guidelines. Accordingly, rule 6EA operates in a very narrow scope and has to be r....
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....essee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Hence, we delete the addition of interest income and allow this issue of assessee's appeal." 35. The learned DR could not show 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 precedents in assessee's own case cited supra, we uphold the plea of the assessee, and the addition made by the AO on this issue is hereby deleted. Thus, ground no.8, raised in assessee's appeal is allowed." 75. Respectfully following the aforesaid decisions rendered by the Coordinate Bench, we do not find any infirmity in the findings of the learned CIT(A) on this issue and, therefore, the same are upheld. Accordingly, Ground No.10, raised in Revenue's appeal....
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....ppeal, is dismissed. 79. Grounds No.12 and 13, raised in Revenue's appeal, pertain to the computation of book profit under section 115JB of the Act. In view of our findings rendered in respect of Ground No.6 raised in assessee's appeal for the assessment year 2016-17 (supra), these grounds are rendered infructuous and therefore are kept open. 80. In the result, the appeal by the Revenue for the assessment year 2016- 17 is dismissed. ITA No. 1452/Mum./2023 Assessee's appeal - A.Y. 2018-19 81. In the appeal, the assessee has raised the following grounds: - "1. (A) On the facts and in the circumstances of the case and in law, the FAC has erred in making disallowance of Rs. 32,79,58,949 u/s. 14A of the Income-tax Act, 1961 ("the Act") read with Rule 8D of the Income-tax Rules, 1962 ("the Rules") towards expenditure incurred in relation to income claimed exempt u/s. 10 of the Act and the Hon'ble CIT(A) has erred in confirming the said disallowance u/s. 14A r.w.r 8D by restricting it up to exempt income of Rs. 27,63,18,249. The NFAC be directed to delete disallowance u/s. 14A read with Rule 8D of Rs. 32,79,58,949 towards expenditure incurred in rel....
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.... in total income will be the Income computed as per provisions of Income-tax laws of respective countries and not the income computed as per provisions of Income-tax Act, 1961. (C) Without prejudice to Ground no.3(A) above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs. 965,85,86,196 is not allowed and therefore, taxed in India, then the Appellant Bank prays that credit for taxes paid by the said branches in their respective countries amounting to Rs. 255,58,45,663 be allowed as per section 90 of the Act while determining tax liability. (D) The NFAC has erred in not granting credit us. 90 of the Act for taxes withheld on dividend income received from foreign subsidiaries & associate of the Appellant Bank in Uganda, Tanzania and Zambia amounting to Rs. 1,28,14,551 while determining tax liability in the Computation Sheet annexed to assessment order u/s. 143(3) r.w.s. 144B dated 28-09-2021. The NFAC be directed to grant credit u/s. 90 for taxes withheld on dividend income received from foreign subsidiaries & associate of the Appellant Bank in Uganda, Tanzania demand accordingly and Zambia amounting to Rs.....
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....resaid foreign branches amounting to Rs. 270,31,40,630 while computing Book Profit and reduce the Book Profit accordingly. Without prejudice to above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs. 270,31,40,630 is not allowed while computing Book Profit u/s. 115JB and therefore, taxed in India, then the Appellant Bank prays that the credit for taxes paid by the said branches in their respective countries be allowed in accordance with Sec. 90 & 91 of the Act while determining tax liability in India." 82. Ground No.1A, raised in assessee's appeal, pertains to the disallowance of deduction made under section 14A read with Rule 8D of the Rules. Since a similar issue has already been adjudicated in assessee's appeal for the assessment year 2016-17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Accordingly, the disallowance made by the AO under section 14A read with Rule 8D of the Rules is hereby deleted, and Ground No.1A, raised in assessee's appeal, is allowed. In view of our aforesaid findings, Ground No.1B is rendered academic....
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....nt year 2015-16, in ITA No. 1767/Mum/2019. As a result, Grounds No. 3C and 3D, raised in assessee's appeal, are allowed for statistical purposes. 87. Ground No. 3E, raised in assessee's appeal, pertains to the grant of credit of taxes paid by foreign branches in countries or territories with whom India does not have any agreement under section 90 of the Act. We restore this issue to the file of the AO for de novo adjudication with a direction to grant the credit of tax as per the provisions of section 91 of the Act after necessary verification of the relevant facts as per law. With the above, Ground No.3E, raised in assessee's appeal, is allowed for statistical purposes. 88. Ground No. 4, raised in assessee's appeal, pertains to the disallowance of bad debts written off. Since a similar issue has already been adjudicated in assessee's appeal for the assessment year 2016-17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Accordingly, the impugned addition made by the AO on this issue is deleted. As a result, Ground No.4 raised in assessee's appeal is allowed. 89. Ground No. 5A, raised in asse....
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....ill not decide the taxability of income? (Tax Effect: Rs. /29,49,62,144/- @34.61% of Rs. 374,18,00,000/-) 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of interest on Perpetual Bonds as Perpetual Bonds are not borrowed funds as per settled legal position in the decision of Hon'ble Punjab & Haryana High Court in the case of Pepsu Road Transport Corp vS CIT (130 ITR 18 (P&H)? (Tax Effect : Rs. 227,39,58,906/- @34.61% of Rs. 657,06, 16,348/-) 5. Whether on the facts and circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition made on account of interest on NPA amounting to Rs. 733,98,20, 787/-not recognized by the assessee in its books of accounts on the ground that the same is not in line with the provisions of section 43D of the Act r.w.r. 6EA of the Income Tax Rules, 1962? (Tax Effect : Rs. 254.01.65,178/- @34.61% of Rs. 733,98,20, 787/-) 6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of payment of penalty and charges levied by RBI for non-compliance with RBI norms being, Penalty cha....
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.... Ground No.1, raised in Revenue's appeal, is rendered academic and, thus, is dismissed. 95. Ground No.2, raised in Revenue's appeal, pertains to the deduction of taxes paid by the assessee outside India. We find that this issue does not emanate from the order passed by the lower authorities. Therefore, this ground does not require adjudication. 96. Ground No.3, raised in Revenue's appeal, pertains to the deletion of the disallowance of the premium of HTM securities. Since a similar issue has already been adjudicated in Revenue's appeal for the assessment year 2016- 17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Accordingly, the impugned order on this issue is upheld. As a result, Ground No.3, raised in Revenue's appeal, is dismissed. 97. Ground No.4, raised in Revenue's appeal, pertains to the deletion of the disallowance of interest on perpetual bonds. Since a similar issue has already been adjudicated in Revenue's appeal for the assessment year 2016-17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Acco....
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....ed the material available on record. In the present case, a penalty of Rs. 25.72 crore was levied on the assessee, and the same was claimed as expenditure under section 37(1) of the Act. During the hearing, in response to the query raised, the learned AR filed the following details of the penalty levied on the assessee: S. No. Branch/Subsidiary of Bank Penalty levied by Authority Rs. In Lakhs Reasons for levy of penalty 1 PT Bank of India Indonesia (Subsidiary) Bank Indonesia - Local Regulator 2.77 Failure to comply with internal regulation of Indonesia exchange regulation, delay in statement submission and Input error in commercial bank daily report 2 Singapore Branch (Foreign Branch) Monetary Authority of Singapore (MAS) - Local Regulator 2,164.50 Breaches in respect of MAS Notice 626 which lays down internal guidelines towards prevention of Money Laundering by following KYC and other guidelines such as failure to record customer's existing residential address, registered or business address and nationalities, to take reasonable measures to understand the ownership and control structure of the customer, to monitor on an ongoing bas....
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....ty referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. (2) [***] (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party." 104. Thus, under section 37 of the Act, any expenditure, which is not in the nature of expenditure described in section 30 to section 36, and which is not in the nature of capital expenditure or personal expenses, is allowable as a deduction, if the same is laid or expended wholly and exclusively for the purposes of the business. Explanation-1 to section 37 of the Act, further lays down an exception to the aforesaid provision and provides that any expenditure, which is an offence or which is prohibited by law, shall not be deemed to have been incurred for the purpose of business or profession and no deduction in respect of such expenditure shall be allowable. Therefore, under section 37(1) read with Explanation-1 to section, any expe....
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....ngapore. In this regard, the learned AR placed on record the order passed by MAS levying the penalty on the Singapore Branch of the assessee, which is reproduced as follows for ready reference: - "27 July 2017 Bank of India, Singapore Branch 158 Cecil Street #01-01 Singapore 069545 BY HAND Attention: Mr C.G. Chaitanya, Chief Executive Officer Dear Sir BREACHES OF MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM ISSUED PURSUANT TO SECTION 27B OF THE MONETARY AUTHORITY OF SINGAPORE ACT (CAP. 186) ("MAS ACT") OFFER OF COMPOSITION FOR OFFENCE UNDER SECTION 41A OF THE MAS ACT We refer to the regulatory breaches noted in the following reports (collectively the "Reports"): i) the Monetary Authority of Singapore's ("MAS") inspection report on Bank of India, Singapore Branch, as enclosed in MAS' letter to Bank of India, Singapore Branch dated 10 December 2013; and ii) the written reports issued by the independent consultants Deloitte & Touche Financial Advisory Services Pte Ltd's ("DTFSA") dated 4 October 2013 and 30 January 2014. ....
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.... doubt, please note that MAS may in its sole discretion publish any information pertaining to Bank of India, Singapore Branch's contravention and all other matters relating thereto, at such time and in such form or manner as MAS thinks fit. 6 If you have queries on this matter, please contact Wee Jun Wei at (65) 6422 5486 ([email protected]). 7 Please acknowledge receipt of this letter. Yours faithfully TAN KENG HENG EXECUTIVE DIRECTOR BANKING DEPARTMENT II" 107. From the perusal of the said order, as reproduced above, it is evident that the penalty equivalent to Rs. 21.64 crore was levied on the assessee's Singapore Branch for breach of MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism, issued pursuant to section 27B of the MAS Act. In paragraph 3 of the aforesaid order, it is mentioned that as per section 27B(2) of the MAS Act, a fine of USD 1,000,000 per offence is prescribed. However, in exercise of the powers granted under the MAS Act, 45 offences out of a total of 1765 offences were compounded, and the decision was taken not to take any action against the remaining 1720 ....
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....ey Laundering Act, 2002 and Foreign Contribution (Regulation), apart from dedicated intelligence units. It is pertinent to note that Singapore is also an active member of the Financial Action Task Force and has been recognised to have a strong, sophisticated Anti-Money Laundering and Counter-Terror Financing System in place. Therefore, it is evident that the penalty of Rs. 21.64 crore was levied on the assessee's Singapore Branch for violation of regulations that have been laid down in Singapore to prevent a serious cause of global concern. Therefore, having regard to the nature of offences committed by the assessee's Singapore Branch, in the light of the order under the provisions of MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism, we are of the considered view that the penalty was levied on assessee's Singapore Branch for an offence which is prohibited by law and the same cannot be said to be merely compensatory in nature. 110. Further, from the perusal of the decision of the Coordinate Bench in IDBI Bank Ltd. (supra), as placed reliance by the learned CIT(A), it is evident that the penalty in the facts of the case was levied on the s....