TaxTMI 
TaxTMI 
2023 (5) TMI 1485
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....xpenses u/s 14A r.w.r. 8D while computing income under normal provision of Act?" 2.1 Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowances of expenses u/s 14A r.w.r. 8D while computing book profit u/s. 115JB of the Act?" "3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowances of amortization of premium amounting to Rs. 170,49,95,007/- in respect of securities in HTM category?" 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowance of interest expenses of Rs. 160,93,50,169/- incurred in respect of Innovative Perpetual Debt Instrument? 3. With regard to Ground No. 1 which is in respect of broken period interest, Ld. DR brought to our notice relevant facts and relied on the order of the Assessing Officer. He submitted its written submissions, for the sake of clarity it is reproduced below: - "The AO disallowed the Broken Period Interest amounting to Rs. 43,15,60,415/- for the reason elaborately discussed in the assessment ....
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....nsidering the case of American Express International Banking vs. CIT (258 ITR 601) in detail. In view of the above discussion the hon'ble ITAT is requested to uphold the addition made by the AO of BPI." 4. On the other hand, Ld. AR of the assessee submitted that this issue under consideration is decided in favour of the assessee and against the department by Hon'ble Bombay High Court in the case of State Bank of India in ITA. No. 254 of 2014 and copy of the order is placed on record. 5. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee and against the department by the Hon'ble Bombay High Court in the case of CIT v. State Bank of India in Income Tax Appeal No. 254 of 2014 dated 01.08.2016. While deciding the issue, the Hon'ble Bombay High Court observed as under: - "2. This appeal raises the following four question of law for our consideration :- (a) Whether, on the facts and in the circumstance of the case, the Tribunal was right in law in allowing the Broken Period Expenses, whereas the same is in the nature of Capital outlay towards acquiring inves....
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....alakshmi Bank. They also took over assets belonging to Jayalakshmi Bank These assets consisted of two items, viz. Rs. 58,568 and Rs. 11,630.00. The said amount of Rs. 58,568 represented interest, which accrued on securities taken over by Vijaya Bank from Jayalakshmi Bank and Rs. 11,630 was the interest which accrued up to the date of purchase of securities by the assessee-bank from the open market. These two amounts were brought to tax by the Assessing Officer under section 18 of the Income-tax Act. The assessee-bank claimed that these amounts were deductible under sections 19 and 20. This was on the footing that the Department had brought to tax, the aforestated two amounts as interest on securities under section 18. It is in the light of these facts that one has to read the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC). In the light of the above facts, it was held that the outlay on purchase of income-bearing asset was in the nature of capital outlay and no part of the capital outlay can be set off as expenditure against income accruing from the asset in question. In our case, the amount which the assessee received has been brought to tax under the head "Busines....
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.... by the Supreme Court in Cocanada Radhaswami Bank Ltd.'s case [1965] 57 ITR 306, income from securities treated as trading assets can come under section 28. In the present case, the Departent has treated income from securities under section 28. Lastly, the facts in the case of United Commercial Bank Ltd. [1957] 32 ITR 688 (SC), also support our view in the present case. In United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the assessee-bank claimed a set-off under section 24(2) of the Indian Income-tax Act, 1922 (section 71(1) of the present Act), against its income from interest on securities under section 8 of the 1922 Act (similar to section 18 of the present Act). It was held that United Commercial Bank was not entitled to such a set-off as the income from interest on securities came under section 8 of the 1922 Act. Therefore, even in United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the Department had assessed income from interest on securities right from the inception under section 8 of the 1922 Act and, therefore, the set-off was not allowed under section 24(2) of the Act. Therefore, United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), ....
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....mal provisions of the Act.). The CIT(A) has observed that the Hon'ble ITAT has already given decision in its favour in ITA 3394/MUM/2019 and later by First Appellate Authority for immediately preceding year i.e. 2016-17. The ld. CIT(A) held that there is no such occasion to confirm action of Ld. A.O. in making disallowance of Rs. 41,86,49,994/-. The Ld. CIT(A) has held that the amount of addition being only a result of misapplication of case Laws by the Ld. AO and misappreciation of facts of the case and directed to be deleted. With respect to disallowance u/s 14A r.w.r. 8D is added with Book profit under u/s 115JB of the Act, the Ld. CIT(A) deleted the disallowance. Arguments of the department: Assessee claimed that it held sufficient own funds to make investments and, therefore, the exempt investments have been made from own funds. However, the bank is in no position to show that the entire investment in exempt investments has come only from own funds. Actually, the bank has common mix of borrowed funds which have been used for making exempt investment also. The claim of assessee having sufficient reserve and surplus in hand is also not ten....
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....s made by a banking concern are part of the business or banking. Therefore, the income arising from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. The learned AR of the assessee further submits that no disallowance is warranted under section 14A as held by Kolkata tribunal in UCO Bank (ITA No. 1615 /Kol/2016), Delhi tribunal in case of Punjab National Bank (ITA No. 5481/Del/2014 and Nice Bombay Transport (P) Ltd reported vide (175 ITD 684). 12. In without prejudice submission, the learned AR submitted that no disallowance under Rule 8D(2)(ii) is warranted in assessee's cases as the interest free funds of Rs. 14567.58 Crore are far exceed the securities from which tax free income was earned of Rs. 1598.60 Crore. In support of his submission the learned AR relied upon the decision of Bombay High Court in case of HDFC Bank (383 ITR 529) and Gujarat High Court in Syntax Industries Ltd (82 taxmann.com 171). It was submitted that the SLP filed against the order of Gujarat High Court has been dismissed by Hon'ble Supreme Court. 13. On the other head the learned DR for the reve....
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....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 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'. 16. The coordinate bench of Kolkata Tribunal in UCO bank (supra) after following the decision of Maxopp Investment P Ltd (supra) on similar set of facts passed the following order: "11. Having considered the submissions of the parties, we find that the issue involved in the Revenue's appeal is squarely covered in assessee's favour by the judgment of the Hon'ble Bombay High ....
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.... 218. In the said judgment the Hon'ble Punjab & Haryana High Court had taken note of the fact that the banking companies in the course of carrying on their banking business were required to hold shares & securities and the expenses were incurred in connection with such banking business and the income therefrom was assessable under the head "Profits & Gains of Business". The Hon'ble High Court had taken note of the Board's Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head "Profits & Gains of Business" and not under the head "Other Sources". The High Court had also taken note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs Nawanshahar Central Co-operative Bank Ltd (289 ITR 6).Applying the ratio in the said decision the Hon'ble Punjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon'ble Punjab & Haryana High Court therefore held that in assessing the....
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....the addition of Rs.78,84,387/- under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 SOT 101 (Dei), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?" The Hon'ble High Court held that: 4 So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in ITA No. 3850/Mum/2010 to hold that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.43B of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law." 24. Facts being identical, we follow the above order of the Hon'ble Bombay High Court ....
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.... 4563/Mum/2016. Copy of the order is placed on record. Further, he placed reliance on decision of ITAT in case of State Bank of India (Successor to State Bank of Bikaner and Jaipur) in ITA. No. 3033 & 2873/Mum/2019. Copy of the order is placed on record. 15. Considered the submissions and material placed on record, we observe from the record that identical issue is decided by the Coordinate Bench in favour of the assessee in ITA. No. 3644 & 4563/MUM/2019 dated 03.02.2020. While deciding the issue, the Coordinate Bench of the Tribunal held as under: - "134. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of disallowing the depreciation provided for investments classified under the HTM category. For this revenue has raised the following Ground No. 9 :- "9. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in treating loss on account of depreciation of securities in HTM category without appreciating that no depreciation is to be provided for investment classified under the HTM category." 135. Brief facts are that during the year the assessee has prov....
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.... assessee by the co-ordinate Bench of the Tribunal from A. Y. 1996- 97 to A.Y. 2004-05 and order passed by the Tribunal in A.Y. 1996-97 and A. Y. 1997-98 has been confirmed by the Hon'ble Bombay High Court in favour of the assessee. We have perused the order passed by the co-ordinate Bench of the Tribunal dated 30.09.2021 for A.Y. 2003-04 which is on identical issue and has been decided in favour of the assessee by returning the following findings: "We have heard rival submissions and perused the materials available on record. Both the parties mutually agreed that this issue is already covered by the order of this Tribunal in assessee's own case for A. Yrs. 2001-02 and 2002-03 vide order dated 12/07/2021. The relevant operative portion of the said order is reproduced hereunder: "During the course of hearing, both the parties agree before us that identical issue has been consistently decided in favour of the assessee and against the Revenue by the Tribunal in assessee's own case for the assessment year 1992-93, 1995-96 1996-97, 1999- 2000, 2000-01 and 2008-09. The Tribunal in assessee's own case in 'State Bank of India vs DCIT, ITA no.3....
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....Officer relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of Pepsu Road transport Corpn v CIT, reported in 130 ITR 18 (P&H) and held that in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, the said amount cannot be held as 'borrowing' and, hence, the interest on such bonds is not admissible as deduction u/s 36(1)(iii) .. The Ld. CIT(A) held that Perpetual bonds cannot be compared to the equity/share capital of the banks. Accordingly, the Ld. CIT(A) allowed the appeal of the assessee. Arguments of the department: Perpetual Bonds or Debt instruments are in nature of debt instruments or bonds with no maturity date. The RBI guidelines have allowed treating the perpetual bond as tier I capital subject to certain conditions. The investors do not get the right to redeem the bonds at any given point of time. Only the issuing bank can buy back the bonds from the investors. Therefore, even if subsequently borrower buys back these bonds, it will not alter the nature and character of these bonds because it is the borrower and not the lender who has every right in such bonds....
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....eby is allowable as deduction while computing total income. Ld.AR of the assessee submitted that the issue under consideration is decided in favour of the assessee and against the department by the Coordinate Bench in the case of relied on the decision of State Bank of India (Successor to State Bank of Bikaner and Jaipur) in ITA. No. 3033, 2873/Mum/2019) and in the case of ICICI Bank Ltd in ITA. No. 3215 & 3864/Mum/2019. Copies of the order is placed on record. 20. Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided by the Coordinate Bench in favour of the assessee in the case of DCIT v. M/s. State Bank of India in ITA. No. 3033 & 2873/MUM/2019 dated 29.09.2002. While deciding the issue, the Coordinate Bench of the Tribunal held as under: - "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....
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....olding 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 has issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities 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 FY 2010-11. But the same was charged to Rs. 113.61 crores after netting off taxes [142.03-28.42]. The amount of tax imp....
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....ebentures 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 Ld. A.O. to delete the disallowance of interest amounting to Rs. 18,00,00,000/-, which was made u/s 36(1)(iii) of the Act. The ground No. 4 of the appeal of the assessee is accordingly allowed." 21. Further, in the case of DCIT v. ICICI Bank Limited in ITA. No. 3864/Mum/2019 dated 22.08.2022, the Coordinate Bench held as under: "10. Heard both the sides and perused the material on record. The A.O has disallowed the claim of interest made u/s 36(1)(iii) by treating the perpetual....
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....ndia Vs. ACIT vide 122 taxman.com 247 (Mum ITAT) are also distinguishable from the case of the assessee. In that case the revenue had not discussed about the terms on which perpetual bond were issued. Therefore, the issue was remained back to the ld. CIT(A) for fresh adjudication. We have also perused the decision of Kerala Road Transport Corporation Vs. ITO 34 TTJ 101 Cochin, ITAT, wherein held that payment of interest was not made to the corporation but it was the payment made to the third parties. In the light of the above facts and circumstances merely that RBI recognizes to treat the said debt instruments as additional Tier/Capital would not change the nature of Innovative Perpetual Debt Instruments which were of the nature of long term borrowings and the interest paid was debited to the profit and loss account. These debt instruments were also redeemed on different dates as discussed supra in this order, therefore, we don't find any reason to interfere in the decision of Id. CIT(A), accordingly, this ground of appeal of the revenue is dismissed." 22. Respectfully following the above decisions, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in ....
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....) which has no application to book profits." 25. We shall proceed to dispose off this appeal ground wise. 26. With regard to Ground No. 1 which is in respect of non-granting of opportunity of hearing before Ld. CIT(A), Ld. AR of the assessee submitted that this ground is not pressed, accordingly, Ground No.1 is dismissed as not pressed. 27. With regard to Ground No. 2 which is in respect of Disallowance of estimated amounts u/s 43B included under provision made for wage arrears. Ld. AR submitted that assessee made provision on an estimated basis in respect of wage arrears which included the estimated amounts in respect of PF, Pension, New Pension Scheme and Gratuity. Since these sums were provided on estimated basis and were not payable to the respective funds during the previous year, the provisions of section 43B cannot be invoked. Even otherwise it is submitted that in respect of New Pension Scheme there is no due date prescribed and accordingly no disallowance u/s 43B is warranted. Copies of wage settlements are placed in Paper Book. Further, Ld. AR submitted that this issue was decided in favour of assessee by ITAT Mumbai Bench in the case of Adithya Birla Nuvo Ltd in....
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....y the tax or duty be incurred in the accounting year but also should be statutorily payable in the accounting year. In our considered opinion, the provision for leave salary is not a statutory liability but only a contractual liability which is payable only if the employees resigns or retired from the services. We also find that the Hon'ble Calcutta High Court in the case of Excide Industries Ltd. (supra) has struck down Sec. 43B(f) being arbitrary, unconscionable and dehors the Apex Court decision in the case of Bharat Earth Movers 245 ITR 428. It is relevant to state that the Tribunal in the case of CIT Vs Universal Medicare in ITA No. 6191/M/08, has followed the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers and directed the AO to allow the amounts so claimed. Respectfully following the afore discussed decisions, we direct the AO to allow the claim of provisions for leave salary. Ground No. 6 is accordingly allowed." Respectfully following the above, grounds no.4,2 and 2 for the AY.s. under appeal are decided in favour of the assessee-company. In view of the above, ground no.4 is decided in favour of the assessee." Respectfully, followi....
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....Id. AO to pass orders based on the outcome of the main appeal on merits by the Hon'ble Supreme Court as stated supra. Accordingly, the ground No.3 of original grounds of appeal raised by the assessee is allowed for statistical purposes." 30. We observed that that the Co-ordinate Bench of the Tribunal while deciding the appeal of the assessee for assessment year 2008-09 decided the issue on merits in turn by placing reliance on Tribunal order for A. Y. 2008-09. The Tribunal allowed relief to the assessee by following the decision of the Hon'ble Apex Court in the case of Bharat Earth Movers vs. CIT reported as 245 ITR 428(SC). Dehors the issue of constitutional validity of clause(f) to section 43B of the Act, the Co-ordinate Bench after considering the issue on merits has deleted the addition. Taking into consideration, entirety of facts we respectfully follow the decision of Tribunal in assessee's own case for assessment year 2008-09 and confirm the findings of CIT(A) in deleting the disallowance. Consequently, ground No.4 of the appeal by the Revenue is dismissed." 30. Respectfully following the above decision, ground raised by the assessee is allowed. 31....
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....ognized 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 No. 2433 & 2467 of ITAT Chennai dated 29.03.2017 held that it becomes necessary to read down such rules so that it is in consonance with the RBI regulation or prudential norms for recognizing income. In Royal Bank of Scotland Vs. DCIT vide ITA No. 477/Kal/2015 ITAT Kolkata held as under: "2.6 We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by....
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....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 financial corporation or the State industrial investment corporation or "[a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company or] the public company to its profit and loss account for that year or as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier." It is categorically provided in the provisions of section 43D that ....
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.... the assessee and he brought to our notice Para Nos. 25 to 29 of the order. 37. On the other hand, Ld. DR relied on the order of the lower authorities. 38. Considered the rival submissions and material placed on record, we observed that similar issue was considered and adjudicated by the Coordinate Bench in assessee's own case for the A.Y. 2015-16 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - "29. We have heard the rival submissions and perused the relevant materials on record. In the instant case, the assessee vide reply dated 29.11.2017 has stated before the AO that as per Tax Audit report for AY 2015-16, on the year end provision for expenses of Rs.99,33,30,984/- for which bills were not received and which are reversible in the subsequent years upon receipt of final bills, no tax at source was deducted. Further, relying on various orders of the Tribunals mentioned at para 4.1 of the assessment order, it was stated by the assessee that : "since the payee is not identifiable at the time of making of provision and further the entire provision has been written back in the next year and the actual a....
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....e taxpayer had only made the provisions in the account but had not credited the same in the accounts of concerned parties and, therefore, the provisions of Section 40(a)(ia) of the Act would not be applicable. The Tribunal upheld the order of the CIT(A). Aggrieved, the tax department filed an appeal before the High Court. The Hon'ble Gujarat High Court observed that the tax was not deducted on the aforesaid expenses since the same were a contingent liability and for which bills were not issued. Subsequently, as and when the final bills were received/issued, the tax was deducted. Accordingly, the High Court deleted the disallowance under Section 40(a)(ia) of the Act and upheld the orders of the Tribunal as well as the CIT(A). Thus following the above decision of the Hon'ble Gujarat High Court and order of the Tribunal in assessee's own case for earlier year, we affirm the order of the Ld. CIT(A) and dismiss the 2nd ground of appeal. However, following the above order of the Hon'ble Gujarat High Court, we direct the AO to examine and verify that "Subsequently, as and when the final bills were received/issued, the tax was deducted" 39. Since the issue is ex....