TaxTMI 
TaxTMI 
2024 (11) TMI 1591
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..../- made u/s. 14 A r.w, Rule 8D while computing income under normal provisions and book profit u/s. 115JB of the Act without appreciating the fact that clause (f) of 'explanation 1 to 11 SJB which provide that net profit shall be increased by the amount of expenditure incurred for earning exempt income?" (ii)" Whether, on the facts and in the circumstances of the case and in law, the Ld, CFT(A) is justified in deleting the Disallowances of amortization of premium amounting to Rs. 112,88,01,190/- in respect of securities in HTM category? (iii) 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, 1,14,88,28,130/- incurred in respect of Innovative Perpetual Debt Instrument without appreciating the fact that interest paid on them does not fall under the purview of section 36(1)(iii) as the issuing of Innovative Perpetual Debt Instrument lacks the concept of borrowing? (iv) "Whether, on the facts and in the circumstances of the case one? in law, the Ld. CIT(A) is justified in deleting the Disallowance capital loss amounting to Rs. 8,04,15,79,747/- instead o....
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....9 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 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 tenable as those reserves are shown on the liability side of the balance sheet and represented by a variety of assets on the asset side. These assets could be fixed o....
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.... 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 revenue after going through digital furnished in the chart and decision relied by learned AR of the assessee, submits that he relied upon the order of lower authorities. ....
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....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 Court in the case of CIT Vs HDFC Bank Ltd (383 ITR 529). In that case also the issue before the Hon'ble Bombay High Court was whether any part of the interest paid by....
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....king 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 income of the assessee engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its ba....
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....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 and confirm the order of the Ld. CIT(A). Thus the 1st ground of appeal is dismissed." 12. Respectfully following the above decisions and following the principle of consistency, the vie....
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....in respect of HTM securities of Rs. 155,78,68,968/- is disallowed and added back to the total income. In view of the above discussion the hon'ble ITAT is requested to uphold the addition made by the AO." 14. On the other hand, Ld. AR of the assessee submitted that this issue is decided in favour of assessee by decision of Hon'ble Jurisdictional High Court in case of HDFC Bank Ltd (366 ITR 505). This issue was also decided in favour of the assessee by Hon'ble ITAT Mumbai in case of State Bank of India in ITA. No. 3644 and 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 C....
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....that issue in dispute is covered in favour of the assessee by the order of the Tribunal in the earlier years including the order dated 22/03/2022 for A.Y. 2005-06 in ITA No. 3685 and 4951/Mum/2013. The relevant part of the decision of the Tribunal (supra) is reproduced as under: Revenue has challenged the allowance of assessee's appeal by Ld. CIT(A) by holding the security as stock in trade and loss on revaluation as revenue expenditure. The Ld. A.R. for the assessee contended that this issue has already been decided in favour of the 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 Tri....
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.... find any infirmity in the order of the Ld. CIT (A) on the issue in dispute, accordingly, ground raised by the revenue is dismissed." 7. Facts and circumstances being identical for this assessment year also, consistent with the precedent, we do not see a reason to arrive at a different conclusion than the one arrived at by the Ld. CIT(A). The ld. DR unable to bring any contrary judgment against the order of the coordinate bench. Ground no 2 of the revenue fails. 8. Ground no. 3 pertains to interest on IPDI bonds. The assessee company has claimed an amount of Rs. 114,88,28,130/- being interest on Interest on Innovative Perpetual Instruments(IPDI). Regarding its allowability, the ld. AO has accepted that Ld. CIT(A) has deleted similar addition in AY : 2016-17. But the revenue has filed appeal before the ITAT. The issue is not yet reached finality. So, the addition is confirmed. Upon hearing the parties, we find that this issue also stands decided in favour of the assessee by the decision of the co-ordinate bench in ITA No.2937 & 2919/Mum/2022 for A.Y. 2017-18. The relevant paragraphs 18-22 of the ITAT order are as below :- 18. With regard to Ground No. 4 which is in re....
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....pt of borrowing. If there is no obligation to refund the capital provided, interest on such capital is not deductible under section 36(1)(iii). Therefore, 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). In view of the above the amount of Rs. 160,93,50,169/- being interest expenses claimed on account of IPDI Bonds added to total income of the assessee by the AO may kindly be upheld." 19. On the other hand, Ld. AR of the assessee submitted that the IPDI bonds issued by the banks are in nature of borrowings only as Interest on these bonds are paid at pre fixed rate which is evident from the disclosure document for issue of such bonds. A copy of disclosure documents issued are enclosed in Paper Book. The interest so paid is classified only under schedule -15- Interest expended in the financial statements. Further, he submitted that interest paid on these bonds are also subjected to TDS. It is also submitted that even though the bonds are stated to be perpetual, the bank has an optio....
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....DS and further the claim of the investor of the IPD bonds is superior to that of equity investor and subordinate to other creditors. Further, it was submitted that interest paid on IPD cannot be equated with the dividend as dividend is not mandatory to be paid each year and it has to be paid if there is profit during the any financial year and on approval of the proposal of the Board of Directors by the shareholders in the annual general meeting. Whereas in the case of the IPD, it is mandatory to pay interest irrespective of the availability of the profit and no approval of the Board of Directors or shareholders was required. In view of the above discussion, we concur with the contention of the assessee that ratio in the case of Pepsu Road transport Corporation Ltd (supra) cannot be applied or the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perpetual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under: Heard both....
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....t page 67 of the paper book, it is mentioned that utilization of funds to be raised through this private placement will be for general business purpose and at page no. 62 issue size was mentioned of 15000 debentures of face value of Rs. 10 lac each aggregating to Rs.1500 crores. It is demonstrated from the detailed submission and copies. of documents placed in the paper book that assessing officer has made detailed inquiry/verification during the course of assessment proceedings that assessee has borrowed funds for business use by issue of debentures. The borrowed fund were payable on call option exercising by company after the 10th year or any at the end of every year thereafter. It was also explained that the lenders were not entitled to share any surplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts and after considering the detailed mate....
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....of the balance sheet placed in the paper book wherein at serial no. (vi) Innovative Perpetual Debt Instruments was placed under the head borrowings. The interest payment on these debt instruments was paid before computing profit of the assessee bank. We have also perused the detail of the redemption of perpetual debt instrument made by the assessee placed in the paper book reproduced as under: Sr. No Series Allotment Date Date of redemption Principle amount Interest for the period FY 2009-10 1. DAG06RRB 09.08.2006 09.08.2016 Rs.233, 00,00,000 23,53,30,000 2. DSP06RRB 13.09.2006 13.09.2016 Rs. 550,00,00,000 54,89,00,000 3. DJA07RB1 15.01.2007 30.04.2017 Rs. 18,00,00,000 1,79,63,998 4. DJA08RB1 10.01.2008 30.04.2018 Rs. 500,00,00,000 50,75,00,000 5. BHSTN 7.25% 24.06.2006 31.10.2016 USD 34,00,00,000 1,16,68,81,013 2,47,65,45,011 It is further noticed that the assessee had demonstrated from the submission that these debt instruments were also redeemed. We also find that facts of the case of Pepsu Road Transport....
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....he claim of STCL of Rs 658,30,39,996/- and Rs. 50,89,83,968/- remains unsubstantiated. Furthermore, the ld. AR contended that two submissions dated 05/09/2022 & 12/09/2022 were filed with details calculation of loss to substantiate the claim of total capital loss of Rs. 804,15,79,747/-. On appeal, the Ld. CIT(A) decided the issue in favour of the assessee by observing as under: - "5.12 Having considered the above submission of the appellant and documents available on records, I don't find any merit in the impugned addition made by the AO. Appellant has submitted all the details in respect of the STCL claimed during the year under consideration which has duly been substantiated with the documents available on record. Therefore, the addition amounting to Rs. 8,04,15,79,747/- made on account of disallowance of capital loss is hereby deleted. Thus, Ground no. 5 of the appeal raised on the issue is allowed." 11. We have heard the parties on the above issue. We find the Ld.AO abruptly brushed aside the evidence submitted by the assessee by holding that the claim was not substantiated. Whereas the Ld. CIT(A) has accepted the documents of the assessment unit, filed by the a....