TaxTMI 
TaxTMI 
2026 (7) TMI 192
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....y the Ld.AO arise out of a similar set of facts and circumstances as were involved in A.Y. 2010-11. The arguments advanced by the Ld.DR in the year under consideration are substantially the same as those canvassed before the Tribunal while adjudicating the appeal for A.Y. 2010-11. 3.2. However, while arguing Ground No.1 for the year under consideration, the Ld.DR has additionally placed reliance upon certain judicial precedents which were not cited during the proceedings relating to A.Y.2010-11 and, therefore, were not considered in the order passed by the Tribunal for that assessment year. Accordingly, the additional submissions and judicial precedents relied upon by the Ld.DR are considered hereunder:- 3.2.1. The Ld.DR relied upon the decision of Hon'ble Calcutta High Court in case of Brooke Bond India Ltd. v. JCIT reported in (2012) 20 taxmann.com 393 and submitted that a mere provision created in the books of account, even if based on actuarial valuation, cannot be allowed as deduction unless there is an accrued and enforceable liability. It was submitted that in the present case also, the assessee has merely made a provision towards the liability without there being any ....
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....a later date. We have perused the submissions advanced by both sides in light of the record placed before us. 4. The short controversy before us is whether the provision made by the assessee towards the employee benefit liability, based on actuarial valuation, represents an allowable accrued liability or a contingent liability. 4.1. We note that the Ld.DR has placed reliance on the decision of the Hon'ble Calcutta High Court in the case of Brooke Bond India Ltd. (supra). However, on perusal of the facts of the said case, we find that the claim therein was rejected as the liability was sought to be created merely on the basis of a Board Resolution and there was no independent enforceable obligation existing against the assessee. The said decision, therefore, turned on the absence of a crystallised liability. 4.2. In the present case, however, the facts are materially different. The liability has arisen out of the existing employee benefit obligations and the assessee is required to account for such liability in accordance with the applicable accounting principles. The actuarial valuation has not created the liability but has merely quantified the present value of an obli....
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....in the assessee's own case for the Assessment Year 2009-10 8 Order dated 23/12/2016 for A.Y. 2009-10 in case of erstwhile State Bank of Saurashtra, which has since merged with assessee in ITA 4949/Mum/2013. 7.16. The Ld.AR submitted that the assessee has been following identical approach of accounting, regarding the provision relating to pension liability. He placed reliance on the following observations of the decision of Co-ordinate Bench of this Tribunal for A.Y. 2009-10 in assessee's own case vide order dated 06/06/2023 (supra), wherein on identical facts, following view was taken:- 7. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in State Bank of India v/s DCIT, in ITAs no. 3644 and 4563/Mum/2016, for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- "15. We have heard rival contentions on this issue and gone through facts and circumstances of the case. We have also perused the material placed before us including assessment order, order of CIT(A) and case laws. We noted....
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....arial valuation. The assessee explained this by an example stating that, if as per employee policy an amount of Rs. 250/- is payable to each employee towards pension and there are 10,000 employees, the total pension payable would be Rs. 25,00,000/-. However, based on actuarial valuation, which takes into consideration entry into service, length of service and date of retirement of all employees, attrition before retirement, etc. the pension liability amounts to Rs. 18,00,000/-. Accordingly, a provision of Rs. 18,00,000/- is required to be created in the books. Therefore, the pension liability has definitely arisen during the year as the services of the employees are already availed, and they are eligible for the said pension. It is also possible to estimate the pension liability with reasonable certainty. Hence, the provision made is for a present actual liability, payable in future, and not a contingent liability. It is clearly an ascertained liability and has been recognised in the books of account on a scientific basis, based on actuarial valuation. The Supreme Court in the case of Metal Box Co. of India (supra) and Bharat Earth Movers (supra) and several other cases, have held ....
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....the transitional liability and has arisen on account of adoption of Revised AS-15 relating to employee benefits issued by the ICAI. The allowability of such transitional provision has been upheld by the Hyderabad Bench of the Tribunal in the case of NMDC Ltd. vs JCIT (2015) 56 taxmann.com 396 (Hyderabad - Trib.) and Chandigarh Bench of the Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd. vs ACIT being order dated 2.04.2013 (ITA no. 1148/Chd/2011). Both the aforesaid cases were specifically concerned with similar provision created towards post retirement employee benefits on account of revision of AS-15. In both the cases the Tribunal has allowed a deduction for a liability which the revenue alleged did not pertain to the year, created as in consequence of an adoption of the revised accounting standard. 19. The fact that in year of change of accounting method there may be a distortion was accepted by the Bombay High Court in CIT vs. West Coast Paper Mills Ltd. [1992] 193 ITR 349 (Bombay). The Court was concerned with a case where the assessee changed its method of accounting for claiming deduction of bonus payments to employees from cash to mercantile. Cons....
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....t only the prescribed items can be disallowed in terms of section 43B of the Act. Therefore, the above provisions are clearly not applicable in the present case. 21. It also requires consideration that this aspect of the matter has not been controverted by the Revenue in their submissions before the Tribunal. The aforesaid provision represents the liability arising on account of availing of services during the tenure of the employment recognised as a consequence of the transitional provisions of AS-15. The aforesaid provision does not represent contribution to any pension fund, and hence, the provisions of sections 36(1)(iv)/36(1)(v) or 40A(7)/40A(9) or 43B of the Act are not applicable. 22. In CIT vs. Ranbaxy Laboratories Ltd. [2011] 334 ITR 341 (Delhi), the Delhi High Court was concerned with a case where the assessee had introduced a pension scheme for its managerial employees which was over and above the benefits available under the superannuation scheme of the company. The Delhi High Court held that the pension scheme of the assessee does not envisage any regular contribution to any fund or trust or any other entity and, therefore, allowed the deduction on th....
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....ied that section 40A(9) of the Act will not be applicable since the provision is not towards contribution to any pension fund. We are of the view that sections 36(1)(iv) and 36(1)(v) of the Act specifically deal with contribution to a recognized provident fund or an approved superannuation fund or an approved gratuity fund. The said sections do not deal with providing for a liability vis-à-vis pension or any other retirement benefits. Thus, the aforesaid provision for pension made on the basis of an actuarial valuation ought to be allowed as a deduction under section 37(1) of the Act. Since there are specific provisions dealing with contribution to pension fund/ gratuity fund, etc., the provision for pension (which doesn't represent any contribution to fund) falls under the purview of section 37(1) of the Act and ought to be allowed as deduction. Reliance in this regard is placed on the decision of the Supreme Court in the case of CIT vs. Kalyanji Mavji & Co. [1980] 122 ITR 49 (SC), wherein it was held that if expenditure incurred by the assessee was not covered by the specific provision under section 10(2)(v) of the Act, then, benefit should be given to the assessee under t....
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....ed. 7.19. Respectfully following the consistent view adopted by this Tribunal in the assessee's own case for earlier years, and in the absence of any justifiable reason to deviate therefrom, we see no reason to interfere with the findings rendered therein. Accordingly, the claim of the assessee is upheld, and the Ld. AO is directed to allow the provision for pension in accordance with the earlier orders of the Tribunal." 4.6. We find that the Ld.DR could not factually controvert the findings recorded by the Tribunal in assessee's own case for A.Y.2010-11, nor could any material be brought on record demonstrating any change in facts or law warranting a departure from the view already taken by the Co-ordinate Bench. The additional judicial precedents relied upon by the Ld.DR also do not persuade us to take a view different from that adopted by the Tribunal in the earlier year. 4.7. Accordingly, respectfully following the order of the Coordinate Bench in assessee's own case for A.Y. 2010-11 on an identical set of facts and circumstances, we allow Ground No. 1 raised by the assessee. 5. Ground No. 2 - Disallowance u/s 14A of the Act 5.1. Ground No.....
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....of 2012 * Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. [2016] 383 ITR 529 (Bom.) * Assessee's appeal in A.Y. 2006-07 & 2007-08 9.11. The Ld.DR extensively referred to the decision of Hon'ble Supreme Court in case of Maxopp Investment vs CIT reported in 402 ITR 640, the decision of Hon'ble Punjab and Haryana High Court in case of A- one cycles Ltd vs CIT reported in 53 taxmann.com 297, decision of the HDFC Bank Ltd by coordinate bench in miscellaneous application number 18-20/M/2015 in ITA number 375/M/2012 dated 31/3/2015 and also the decision of the Honourable Supreme Court in case of South Indian bank Ltd versus CIT 130 taxmann.com 178 to support his contention. 9.12. It is admitted position that, assessee does not have separate books of account maintained for the purposes of investment as well as loans granted. It is also noted that assessee has common pool of funds which is utilized for the purposes of making long term advances, foreign exchange financing and investments in tax free bonds and shares. 9.13. It has been submitted that assessee has been always carried out investment and granted loans out of own funds ....
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....ax free income is earned by the assessee, has been considered by Hon'ble Supreme Court in case of South Indian Bank Ltd. vs. CIT reported in (2021) 130 taxmann.com 178, wherein, it has been held as under:- "7. At outset it is clarified that none of the assessee banks amongst the appellants, maintained separate accounts for the investments made in bonds, securities and shares wherefrom the tax-free income is earned so that disallowances could be limited to the actual expenditure incurred by the assessee. In other words, the expenditure incurred towards interest paid on funds borrowed such as deposits utilized for investments in securities, bonds and shares which yielded the tax-free income, cannot conveniently be related to a separate account, maintained for the purpose. The situation is same so far as overheads and other administrative expenditure of the assessee. 8. In absence of separate accounts for investment which earned tax-free income, the Assessing Officer made proportionate disallowance of interest attributable to the funds invested to earn tax-free income. The assessee's in these appeals had earned substantial tax-free income by way of interest from tax-....
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....ax India Ltd. [2016] 75 taxmann.com 268/388 ITR 81 (Punj. & Har.). Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have further pointed out that those judgments have attained finality. On reading of these judgments, we are of the considered opinion that the High Courts have correctly interpreted the scope of section 14A of the Act in their decisions favouring the assessee's. 20. Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessee's in bonds/shares using interest free funds, under section 14A of the Act. In other words, if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax-free securities then in such cases, disallowance under section 14A cannot be made. 21. On behalf of Revenue Mr. Arijit Prasad, the learned Senior Advocate refers to SA Builders Ltd. v. CIT [2007] 158 Taxman 74/288 ITR 1 (SC), where this Court ruled on issue of disallowance in relation to funds lent to sister concern out of mixed funds. The issue in SA Builders is pending consideration before the lar....
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....ted by the learned ASG will have no application to support the Revenue's contention against the assessee. 23. It would now be appropriate to advert in some detail to Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154/254 Taxman 325/402 ITR 640 (SC). This case interestingly is relied by both sides' counsel. Writing for the Bench, Justice Dr. A.K. Sikri noted the objective for incorporation of section 14A in the Act in the following words:- "3. ............ The purpose behind section 14-A of the Act, by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such an income............" The following was written explaining the scope of section 14-A(1): "41. In the first instance, it needs to be recognised that as per Section 14-A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the ass....
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....en considered the implication of Rule 8D of the Rules in the context of Section 14-A(2) of the Act and clarified that before applying the theory of apportionment, the Assessing Officer must record satisfaction on suo motu disallowance only in those cases where, the apportionment was done by the assessee. The following is relevant for the purpose of this judgment: "51. ............ It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect..............." 24. Another important judgment dealing with section 14A disallowance which merits consideration is Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2017] 1 SCC 421. Here the assessee had access to adequate interest free funds to make investments and the issue pertained to disallowance of expenditure incurred to earn dividend income, which was not forming part of total income of the Assessee. Justice Ranjan Gogoi writing the opinion on behalf of the Division Bench observed that for disallowance of expenditure incurred in earning an income, it is a condition precedent that ....
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....tments made in tax-free bonds/securities which yield taxfree dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessee's. 28. The above conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income. The respondents as earlier noted, have failed to substantiate their argument that assessee was required to maintain separate accounts. Their reliance on Honda Siel (supra) to project such an obligation on the assessee, is already negated. The learned counsel for the revenue has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance. 29. In the above context, the following saying of Adam Smith in his seminal work - The Wealth of Nations may aptly be quoted: "The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought al....
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....s are made as part of its core business operations and for strategic and regulatory purposes, such proximate nexus is absent. The incidental earning of exempt income, if any, cannot be regarded as the basis for attributing expenditure under section 14A. Accordingly, we hold that in respect of strategic investments held by the assessee-bank as part of its banking operations, no disallowance under section 14A is warranted. 9.22. It is noted that in order to cover the dividend income earned by the assessee from domestic companies assessee already offered Rs. 2.75 Crores to tax u/s 14A being proportionate disallowance. Insofar as the revenue's ground in respect of average investment is concerned we are of the opinion that the principle laid down by the Hon'ble Delhi Special Bench in case of Vireet Investment (P.) Ltd. reported in [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB), is to be followed. Only those investment are to be considered under the third limb of Rule 8D(2) that has yielded exempt income during the year under consideration. " 5.3. After considering the rival submissions, we find that the Ld. DR could not point out any distinguishing feature in the facts of th....
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....g the issue held as under:- "10.5. Admittedly the issue has been decided against assessee by various decisions as noted herein above for the preceding assessment years. The facts and circumstances of the case shows that assessee was merely advancing loan which was made to adorn in the garb of yeast to avoid the rightful tax due to the exchequer. This Tribunal has recorded a clear finding of fact that the lessee's are the actual and the real owner and the lessor who is assessee is only a nominal or symbolic and so called perceived owner. 10.6. Facts being identical with the year under consideration we do not find any reason to deviate from the view taken by this tribunal in the preceding assessment years. We therefore do not find any infirmity in the view taken by the Ld.CIT(A) and the same is apparent. Accordingly ground number 4 raised by the assessee stands dismissed." Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, Ground No. 3 raised by the assessee stands dismissed. 7. Ground No. 4 - Provision for other employee benefits 7.1. This Ground relates to the disallowance made in r....
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....nt obligation arising from past service, the same assumes the character of an ascertained liability. 12.9. The contention of the Ld. DR that no expenditure would be incurred if the employees do not avail the leave is, in our view, misplaced. The obligation of the employer arises the moment the employees earn such leave in accordance with the service conditions, and the liability thus accrues with the rendering of services. Insofar as Leave Travel Concession/Home Travel Concession is concerned, the provision represents the estimated liability towards actual reimbursement of travel costs such as rail or air fare to which the employees become entitled upon availing such leave. The same is not in the nature of leave encashment so as to fall within the ambit of section 43B(f) of the Act. 12.10. Similarly, the provision towards casual leave and sick leave represents the obligation arising on account of services already rendered by the employees, being in the nature of compensation for loss of services during the period of leave that the employees are entitled to avail. Such leave is not encashable and can only be availed in future. Therefore, these provisions do not par....
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....nce of items mentioned at Sr. Nos. 2, 3 & 6 aggregating Rs. 41.50 crore. With respect to item mentioned at Sr. No. 1, a separate ground of appeal viz. ground of appeal No. 3 has been raised in the captioned appeal, whereas ground of appeal No. 2.2 has been raised with respect to items mentioned at Sr. Nos. 2, 3 & 6 aggregating Rs. 41.50 crore. 32. Provision for Leave Travel and Home Travel Concession represents provision towards actual payments to be made by the assessee to its employees for the travel costs incurred by them such as rail fare, air fare, etc. on availment of the leave the employees are entitled to. It is not towards any encashment of leave at the credit of the employee so as to fall within the scope of section 43B(f) of the Act. Further, provision for casual leave and sick leave represents provision for the loss of services of the employees for the period of such leave which the employees of the assessee are entitled to, but not availed during the year. The above category of leave can only be availed by them and cannot be encashed. Therefore, these provisions are also not in lieu of any leave, but in respect of services of the employees utilised in respect ....
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....allowable and hence, allowed. This issue of assessee's appeal allowed and that of the revenue is dismissed." Accordingly, Ground No. 6 raised by the assessee stands allowed." 7.4. The Ld.DR could not point out any distinguishing feature in the facts of the year under consideration nor place any material on record warranting a view different from that taken by the Coordinate Bench. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, we decide Ground No.4 in terms of the findings recorded therein. 8. Ground No. 5 - Provisions for privilege leave encashment 8.1. This Ground relates to the disallowance made on account of provision for privilege leave encashment. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. 8.2. The Ld. AR submitted that the claim of provision for privilege leave encashment is fully covered by the decision of the Co-ordinate Bench in the assessee's own case for A.Y.2010-11. The Ld. DR relied upon the orders of the lower authorities and reitera....
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....ted that the issue is squarely covered in favour of the assessee by the order of the Co-ordinate Bench. The Ld. DR relied upon the orders of the lower authorities and reiterated the submissions advanced in the earlier year. We have perused the submissions advanced by both sides in light of the record placed before us. 9.3. We find that the issue arising in the present ground is identical to that considered by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11 wherein the Tribunal adjudicating the issue has held as under:- "14.15. It is an admitted position that no specific claim was made by the assessee in the return of income and the claim was raised by way of a letter before the Ld. AO, which came to be rejected. However, this fact alone cannot be a ground to reject the assessee's claim, since the issue arises from material already on record and concerns the correct computation of taxable income. It is well settled that while the Assessing Officer may be constrained in entertaining a fresh claim otherwise than by way of a revised return, the appellate authorities are vested with wide powers to examine such claims so as to determine the correct tax li....
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....imed in the return of income. 14.20. We are also unable to accept the contention of Ld.DR that since no addition has been made by the Ld.AO, the assessee cannot raise the issue in appeal. The right of appeal is not confined only to cases where an addition is made, but extends to situations where a lawful claim of the assessee has not been granted or has been effectively rejected. The denial of the assessee's claim, as evident from the assessment order, clearly gives rise to a cause of grievance, entitling the assessee to seek adjudication. 14.21. The further objection of Ld.DR that the claim was made by way of a note and therefore deserves to be rejected is untenable in view of the settled legal position that a note forming part of the return or accompanying computation constitutes part of the record and cannot be disregarded. Even otherwise, once the issue is before the appellate authorities, the technical limitation applicable to the Assessing Officer does not operate. 14.22. On merits, the Revenue's insistence that valuation must strictly follow RBI guidelines even for tax purposes, cannot be accepted. While RBI norms govern the preparation of accounts....
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....Para Nos. 22 to 25) * for the AY 2005-06 vide Order dated 22 March 2022 [ITA No. (refer para No. 26 to 29) * for the AY 2004-05 vide Order dated 30 September 2021 [ITA No.3780/Mum/2012] (refer para Nos. 33.1 to 33.2) * for the A.Y. 2008-09 vide Order dated 03 February 2020 (ITA No. 3644/Mum/2016) (para Nos. 60 to 68) 14.27. This Tribunal in the assessee's own case for A.Y. 2008-09 in ITA Nos. 3644 & 4563/Mum/2015, vide order dated 03/02/2020, decided an identical issue on similar facts by observing as under:- "62. Before us it was argued that from the financial year 2004-05, the assessee has been valuing investments in 'Available for Sale' (AFS) and 'Held for Trading' (HFT) in books after netting off classification-wise depreciation and appreciation, computed scrip-wise and providing for net depreciation in each classification while ignoring net appreciation, as required by RBI guidelines. However, for tax purposes, investments in AFS and HFT categories are being consistently valued scrip wise and depreciation, if any, was provided scrip wise while ignoring appreciation. Valuation of investments in AFS and HFT categories has consistently....
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....ue of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's account in a business that is continuing are not brought into the charge as a matter of practice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually 26stoppel. ..... Again, it is a misconception to think that any profit "arises out of the valuation of the closing stock" and the sites of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock at th....
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....o account. The netting off of appreciation against the depreciation within a classification is therefore contrary to the principle laid down by the Supreme Court in the aforementioned judgements. 66. In context of netting off depreciation against appreciation, the Madras High Court in the case of CIT vs. Chari & Ram [1949] 17 ITR 1 (Madras) has held that there would be no assurance that there would be a market for the entire stock of articles of which the market value is higher and therefore, it would be hazardous to assume that the entire stock could be sold at the prevailing market rate and necessarily bring in a profit. The High Court also held that there is no provision of law or principle according to which the assessee could be compelled to adopt either the average cost for all the items or the market rate for all the items. Further, the Supreme Court in the case of United Commercial Bank vs. CIT [1999] 240 ITR 355 (SC) has held that there is no such question of following two different methods for valuing its stock-in-trade (investments) because bank was required to prepare balance sheet in the prescribed form and it had no option to change it and for the purpose of ....
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....(T) 407 (Mumbai) has noted that the reliance of the Departmental Representative on the judgement of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. is misconceived inasmuch as in that case there was nothing to show the bifurcation of the closing stock of sugar into levy sugar and free sugar and hence, the assessee was obligated to value the entire stock at one value. In the assessee's case as well, each scrip is different and therefore requires independent valuation. The CIT DR placed reliance on the decision of the Mumbai Tribunal in the case of JCIT vs. Dena Bank [2012] 20 taxmann.com 278 (Mumbai). In the aforementioned case, the security was purchased in year 1 at Rs. 100 and the market price at the end of the year was Rs. 90. Accordingly, the stock was valued at market price of Rs. 90 being lower than the cost. In year 2, the market price went upto Rs. 95. Accordingly, the stock was valued at market price of Rs. 95 being lower than the cost. However, suppose in year 3, the market value rises to Rs. 120, in such a situation, the stock would be valued at cost i.e. Rs. 100, being lower than the market price. The Mumbai Tribunal held that excess of appreciation over....
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....the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, Ground No. 6 stands allowed. 10. Ground No.7 - Deduction u/s 36(1)(viia) - exclusion of provision for standard assets 10.1. This Ground relates to the deduction claimed by the assessee u/s 36(1)(viia) of the Act. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. We have perused the submissions advanced by both sides in light of the record placed before us. 10.2. We find that the issue arising in the present ground is identical to that considered by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11 wherein the Tribunal held as under:- "15.12. We have considered the submissions of the Ld. DR and perused the material on record. The core objection of the Revenue is that the provision created by the assessee includes amounts relatable to "standard assets", which, as per the prudential norms prescribed by the Reserve Bank of India, are not Non-Performing Assets (NPAs), and therefore, according to the Revenue, cannot form part of "bad and doubtful debt....
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....ia) of the Act. The assessee has also filed the details vide note 17 and Annexure 6 to the revised return of income on pages 8, 9 and 20 of Paper Book - 1 filed by assessee. As per the provisions of section 36(1)(viia) of the Act, a bank is eligible to avail deduction in respect of provision made for bad and doubtful debts, of an amount not exceeding 7.5% of total income and 10% of the aggregate average advances made by the rural branches of the bank. The provision is created by the assessee on the basis of RBI Guidelines. The assessee is required to create provision on nonperforming assets on the basis of the classification of assets into the four prescribed categories i.e. loss assets, doubtful assets, substandard assets and standard assets [refer para 5.1.2 of the RBI Guidelines]. 72. The Revenue before us emphasized that the provision for standard assets is not same as provision for bad and doubtful debts and the same is contingent in nature, since it is created only out of abundant caution. We noted from the provisions that the assessee is required to make a provision on all its debts ranging from 0.25% to 100% depending upon the categorization of loan in terms of the....
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....the bank (assessee) itself regards as good for receipt and, therefore with the decision by the tribunal in Bharat Overseas Bank Ltd. (supra) relied upon by the Revenue. A provision by definition a charge against profits, while that in respect of an asset, considered good, would be more in the nature of an appropriation of profit i.e. a reserve. This is precisely what the Tribunal in Bharat Overseas Bank Ltd. (supra) means when it states of the deduction being not in the nature of a standard allowance. No contrary judgement by the Tribunal or a higher court has even otherwise been brought to our notice. At the same time, the provision as per RBI guidelines - which are contended to have been followed / adopted, provide for minimum provision, and the bank is free to make a higher provision, i.e., than that prescribed by the RBI norms. Provisioning, it may be noted, is a management function, made reflecting its risk assessment qua different assets. If therefore, the assessee-bank is able to satisfy the assessing authority that the provision as made is justified with reference to the debts considered by it as bad and doubtful, we see no reason as to why the same cannot be allowed. The m....
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....to sections 36(1)(vii) and 36(1)(viia), particularly the reconciliation between provision created, write-offs effected, and the statutory limits prescribed, have already been restored to the file of the Assessing Officer. The correct quantification of deduction under section 36(1)(viia), including the extent to which the provision (comprising standard as well as nonperforming assets) falls within the permissible limits, is intrinsically linked with such verification. 15.18. Accordingly, while upholding the principle of allowability, we set aside the impugned order only for the limited purpose of quantification of the deduction under section 36(1)(viia). The Ld.AO shall re-compute the allowable deduction in accordance with law, having regard to the provision actually created, the statutory ceilings, and the findings rendered in respect of related grounds, after affording adequate opportunity of being heard to the assessee. It is clarified that the issue on merits stands decided in favour of the assessee, and the remand is confined strictly to the arithmetical and factual determination of the quantum. Accordingly, Ground No. 9 raised by assessee stands allowed." ....
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....the sweeping proposition canvassed by the Revenue. The decision in Southern Technologies Ltd. itself recognizes that while RBI norms do not override the provisions of the Income-tax Act, they are relevant in determining the real income of the assessee, particularly in the context of income recognition. In the case of banking entities, section 43D is a beneficial provision intended to align taxability of interest on sticky advances with commercial reality by deferring taxation until realization. The provision cannot be interpreted in a manner that compels taxation of hypothetical income which, in terms of binding regulatory norms, has not accrued in real terms. 16.9. In the present case, the assessee followed RBI-mandated prudential norms, under which income on NPAs is not recognized unless actually realized. The difference between the 90-day norm (RBI) and 180-day norm (Rule 6EA) is thus only in the threshold of classification, and not in the fundamental principle of taxing real income. Where, on facts, the asset has already become nonperforming under RBI norms and income is not recognized in the books, bringing such notional income to tax would run contrary to the settled....
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.... 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 read in conjunction with RBI guidelines. 81. We have gone through the case law in American Express Bank Ltd. vs. Addl. CIT [2012] 25 taxmann.com 572 (Mumbai), wherein the Mumbai Tribunal was considering a case where the loans on which interest/principal remained unpaid for 90 days were classified as non-accrual loans. The unpaid interest in respect of such loans was reversed to an account called Reserve for Doubtful Interest (RFDI) account. All subsequent interest accruals of such loans were credited to RFDI account and not to the profit and loss account. The assessee offered to tax the net amount credited to the RFDI account i.e. the interest accruals in the RFDI account net of recoveries. However, it was argued that such tax treatment leads to offering interest on non-accrual loans to tax on accrual basis, even if the same is not credited to t....
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....ound no.8, raised in assessee's appeal is allowed." 16.11. The Ld.DR could not demonstrate any cogent reason to depart from the consistent view taken by the coordinate Bench of this Tribunal in the assessee's own case, nor could he point out any distinguishing feature, either on facts or in law, to support the contentions raised hereinabove. 16.12. Accordingly, we hold that the action of Ld.AO in taxing interest on sticky advances merely by applying Rule 6EA, without appreciating the binding nature of RBI norms on income recognition and the concept of real income, is not sustainable. The addition made on this account is therefore directed to be deleted. Accordingly, Ground No.10 raised by assessee stands allowed." 11.3. The Ld.DR could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warranting a departure from the view already taken by the Tribunal. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, Ground No. 8 stands allowed. 12. Ground No.9 - Taxation of interest income from nonperforming investment 1....
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....d recognition thereof is prohibited under binding regulatory norms, such income cannot be brought to tax on a hypothetical basis. 17.9. In the present case, once the investment is classified as nonperforming, the uncertainty of realization is established. Taxing such interest on accrual basis, despite its non-recognition in the books in accordance with RBI norms, would amount to taxing notional income, which is impermissible in law. We find that the issue of taxation of interest on NPAs is governed by settled law, and such interest cannot be said to have accrued where its recovery is uncertain. The doctrine of real income squarely applies, and accordingly, only income that has truly accrued in a real sense can be brought to tax. 17.10. Similar issue has been decided in favour of assessee in State Bank of India v/s DCIT, in ITAs no. 3644 and 4563/Mum./2016, for the assessment year 2008-09, vide order dated 03/02/2020 by observing as under:- 39. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in State Bank of India (supra) for the assessmen....
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....e point out any distinguishing feature, either on facts or in law, to support the contentions raised hereinabove. Accordingly, Ground No. 11 raised by assessee stands allowed." 12.3. The Ld. DR could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warranting a departure from the view already taken by the Tribunal. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, Ground No. 9 stands allowed. 13. Ground No.10 - Disallowance in respect of payment towards contribution to retired employees medical benefit scheme. 13.1. This Ground relates Disallowance in respect of payment towards contribution to retired employees medical benefit scheme. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. We have perused the submissions advanced by both sides in light of the record placed before us. 13.2. We find that the issue arising in the present ground is identical to that considered by the Co-o....
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...., goodwill, and continuity in workforce relations. Expenditure incurred in furtherance of such objectives cannot be said to be unrelated to business. We also find merit in the reliance placed by the assessee on the decision of the Tribunal in the case of State Bank of Travancore (supra), wherein on similar facts, such contribution was held to be allowable and not hit by section 40A(9). 18.10. It is noted that, this issue was considered by Co-ordinate Bench of this Tribunal in assessee's own case in ITA No. 3645 & 4564/Mum/2016 vide order dt. 06/06/2023 for AY 2009-10 by observing as under:- "44. Having heard the submissions of both the sides and perused the material on record, we find that co-ordinate bench of the Tribunal in assessee's own case for assessment years 1997-98 and 1998-99 in ITA No. 3823-3824/Mum/2005, vide order dated 29/04/2016, while deciding similar issue observed as under:- "We have heard the rival submissions and perused the materials before us. We find that in the case of State Bank of Travancore(supra), the AO had disallowed the claim of the Bank in respect of the contribution to medical benefit scheme, amounting to Rs. 50.00 lakhs. ....
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....s ground on this issue as noted hereinabove by the Co-ordinate Bench. Thus this issue has attained finality. We further note that where the assessee has claimed deduction under section 36(1)(viia) in respect of provision for bad and doubtful debts, any subsequent recovery is adjusted against such provision, and the Legislature itself has recognized this position by excluding the applicability of section 41 to such recoveries. 18.12. The Ld.DR could not demonstrate any cogent reason to depart from the consistent view taken by the coordinate Bench of this Tribunal in the assessee's own case, nor could he point out any distinguishing feature, either on facts or in law, to support the contentions raised hereinabove. In view of the above, we hold that the contribution made by the assessee to the retired employees benefit scheme, being a bona fide business expenditure incurred wholly and exclusively for the purposes of business, is allowable as deduction. The disallowance made by the Ld.AO is thus directed to be deleted." 13.2. The Ld. DR could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warra....
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.... claimed that income earned by the branches of the assessee located outside India is not to be taxed in India in light of the tax treaties between India and the countries where the branches are located, as the income has been subject to tax in foreign countries. The details of the income earned by foreign branches were submitted to the AO vide Annexure 1 of letter dated 19.02.2010 and now enclosed in assessee paper book 1 at page 325. It was contended that the assessee raised an additional ground before the CIT(A) in this regard. However, the CIT(A) dismissed the additional ground raised by the assessee on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not verified during the assessment proceedings and appellate proceedings. "96. The Revenue before the Tribunal emphasized that no details were filed before the AO in connection with income from foreign branches and that the Notification No. 91/2008 dated 28 August 2008 issued under section 90(3) by the CBDT is clarificatory in nature and applicable to the assessee for the year. "97. During the course of the hearing, it was....
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...." 98. Without prejudice to the above argument made was that even if it is held that the above notification is applicable, the same can be said to be applicable prospectively (i.e. from assessment 2009-10 onwards) and, hence, is not applicable for the year under consideration. Reliance in this regard is placed on the decision of the Supreme Court in case CIT vs. Vatika Township (P.) Ltd. [2014] 367 ITR 466 (SC), wherein it was held that one established rule for interpretation of legislation is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. Similar view has been taken by the Madras High Court in V.R.S.M Firm [1994] 208 ITR 400 (Madras). 99. We noted from the above discussion that this issue is squarely covered by the decision of Bank of India (supra), wherein the co-ordinate Bench held that income attributable to foreign branches being permanent establishment outside India cannot be taxed in India, having regard to the mandate given in Article 7(1) of the DTAA. This view has been affirmed by Hon'ble Bombay High Court. Since, the issue is squarely covered by the decision of Hon'ble Bombay High....
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....he method for elimination or avoidance of double taxation provided in such agreement." 60. Therefore, as is evident from section 90(3) of the Act, the same refers to term used but not defined both in the Act as well as in the tax treaty. Thus, we find no basis in the submission made on behalf of the assessee that the aforesaid notification has no applicability to the tax treaty. Further, the word 'term' used in section 90(3) of the Act not only means a word but also means a phrase and thus cannot be restricted to words such as salary, dividend, etc. as claimed by the assessee but also includes phrase such as 'may be taxed' as used in the tax treaty. 61. We further find that the aforesaid notification as well as the aforesaid decision of the Hon'ble jurisdictional High Court in Bank of India (supra) was considered by the coordinate bench of the Tribunal in Technimont (P.) Ltd. v/s ACIT, [2020] 116 taxmann.com 996 (Mumbai - Trib.). The coordinate bench of the Tribunal, after taking into consideration the change in legal provisions, i.e. amendment to section 90 of the Act w.e.f. 01/04/2004 and also the decisions rendered in the case of Bank of India for subsequent ye....
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.... judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee's representative before the DRP, as indeed before us, would really be oblivious of the correct legal position and that it was anything less than a calculated ignorance, before the DRP, on the basic legal position. Advising the correct legal position and then making whatever aggressive claim one makes is one thing, but not explaining the correct legal position and then hoping to succeed with the claim, by keeping the adjudicator in dark about the statutory developments, is quite another. The path chosen by the assessee could have fallen in the first category if submissions were made before the DRP about the amendment in law by way of Section 90(3) and notification thereunder, and yet the exemption claim was to be justified due to no fresh notification being issued after the substitution of Section 90(3) with effect from 1st October 2009. That is not the case. In any case, the DRP decisions cannot fetter our adjudication." 62. We further find that the coordin....
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....otification is issued without any such specific restriction for application to business income, we cannot infer a restriction in its application. We, therefore, reject the plea of the assessee, and thus decline to interfere in the matter. We uphold the action of the Assessing Officer including the profits of the assessee's overseas branches, amounting to Rs. 1,408.32 crores, in its taxable income in India." 63. Therefore, in view of the above, respectfully following the decisions rendered by the coordinate bench of the Tribunal in Technimont (P.) Ltd. (supra) and Bank of India (supra) for the assessment year 2015-16, we find no merits in the submissions of the assessee. As a result, ground no. 14 raised in assessee's appeal is dismissed." Respectfully following the above view we do not find any merit in the arguments of the Ld.AR." 14.3. The Ld.DR could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warranting a departure from the view already taken by the Tribunal. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11....
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....s relied upon by the assessee stand overruled and that Explanation 2 to section 36(1)(vii) disentitles the claim. In this regard, we note that the allowability of deduction under section 36(1)(vii) is governed by the requirement of actual write-off in the books of account and is subject to the conditions laid down in section 36(2). Further, the interplay between sections 36(1)(vii) and 36(1)(viia), particularly in the case of banking companies, has been explained by the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. v. CIT, wherein it has been held that both provisions operate in distinct fields and deduction under section 36(1)(vii) in respect of nonrural advances is not barred, subject to statutory conditions. 11.13. We have perused the decision of Hon'ble Supreme Court in case of Catholic Syrian Bank Ltd vs CIT reported (2012) 343 ITR 270 which is subsequent decision to the Full bench of Hon'ble Kerala High Court in case of South Indian Bank (supra). 11.14. It is relevant to note that the later decision of the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. v. CIT (supra) explained the scope and interplay of sections 36(1)(vii) and 36(1)(viia) by holding....
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....g a departure from the view already taken by the Tribunal. Respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, the issue requires a fresh examination both on facts and in law, particularly in the light of the later judgment of the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. (supra), which has explained the true scope of sections 36(1)(vii) and 36(1)(viia). We, therefore, set aside the impugned order on this issue and restore the matter to the file of the Ld.AO for necessary verification and adjudicate in accordance with law. The assessee shall be at liberty to place all relevant material in support of its claim, and the Ld.AO shall decide the issue by way of a speaking order after granting adequate opportunity of being heard. Ground No. 12 stands allowed for statistical purposes. 16. Ground No.13 - Non-taxability of recovery of bad-debts written off in earlier years 16.1. This Ground relates to non-taxability of recovery of baddebts written off in earlier years. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's....
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.... Brief facts are that during the year under consideration the assessee has recovered bad debts written off in earlier years, in respect of which no claim for deduction was made under section 36(1)(vii) of the Act in the past. The assessee raised an additional ground before the CIT(A) in this regard. But, the CIT(A) has dismissed the additional ground raised on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not verified during the assessment proceedings and appellate proceedings. 89. The Revenue before the Tribunal has emphasized that the claim made for deduction under section 36(1)(viia) of the Act and also under section 36(1)(vii) of the Act, to the extent the write off exceeds the opening credit balance for the provision made for bad and doubtful debts and that even if the assessee has not claimed deduction under section 36(1)(vii) of the Act, but has claimed a deduction under section 36(1)(viia) of the Act, the same will be hit by the provisions of section 41(1) or 41(4) of the Act. In relation to the above, the assessee argued that the provisions of section 41(4) of the Act a....
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....a) of the Act is not for a loss, expenditure or trading liability, but for a provision for bad and doubtful debts. We noted that the learned CIT Departmental Representative had raised a contention that the CIT(A) and AO have not perused the details and, hence, the matter may be restored back which was opposed. In relation to the above contention, without prejudice to the assessee's objection, in the event the matter is proposed to be remanded back to the AO, a direction may be given to the AO to delete the addition, if the recovery of the amount is in respect of a write off claimed and allowed as a deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act in the earlier years. 92. In view of the above discussion, we are of the view that principally the assessee is entitled for claim of deduction under section 36(1)(viia) of the Act, which has rightly been claimed. The assessee has not made claim under section 36(1)(vii) of the Act in this regard. Hence, we allow the claim of assessee but the matter is restored back to the file of the AO for verification purposes. This issue of assessee's appeal is allowed for statistical purposes." ....
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..... Ground No.14 - Payment from Research and Development fund Account. 17.1. The Ld.AR submitted that during the year under consideration, the assessee had created a provision of Rs.3,00,00,000 towards Research & Development (R&D) Fund, which formed part of the "Other Provisions" and disclosed in Note No.18.17(a) of the Audited Financial Statements. The said provision was disallowed by the assessee itself while computing the total income. 17.2. It was submitted that during the year under consideration, the assessee had actually incurred expenditure aggregating to Rs.3,20,84,000 from the said R&D Fund by making payments of Rs.70,84,000, Rs.50,00,000 and Rs.2,00,000 on 09.11.2010, 29.12.2010 and 14.12.2011 respectively. The Ld.AR thus contended that since the amount had actually been utilised for business purposes, the same was allowable as deduction. 17.3. Per Contra, the Ld.DR submitted that the claim of deduction towards expenditure incurred from the Research & Development (R&D) Fund is not maintainable and deserves to be rejected. It was submitted that the assessee had created a provision of Rs.3,00,00,000 towards R&D Fund, forming part of "Other Provisions" disclosed in N....
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....holly and exclusively for the purposes of business. 18.4. We are of the view that the mere fact that certain payments have been made from the R&D Fund does not, by itself, establish the allowability of such expenditure. The assessee is required to demonstrate the actual nature of expenditure and its business nexus before claiming deduction under the Act. 18.5. Since the claim has been raised for the first time before the Tribunal and the relevant facts have not been examined by the lower authorities, coupled with the failure of the assessee to furnish the basic details and supporting evidence, we are unable to adjudicate upon the allowability of such claim. Accordingly, Ground No.14 raised by the assessee stands dismissed. 19. Ground No.15 Provision for incentive towards meritorious students 19.1. This Ground relates to provision for incentive towards meritorious students. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. We have perused the submissions advanced by both sides in light of the record placed before us. 19.2. We f....
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....R could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warranting a departure from the view already taken by the Tribunal. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, Ground No. 15 stands partly allowed for statistical purposes. 20. Ground No.16 - Refund of Dividend Distribution 20.1. This Ground relates to refund of dividend distribution. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. We have perused the submissions advanced by both sides in light of the record placed before us. 20.2. We find that the issue arising in the present ground is identical to that considered by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11 wherein the Tribunal held as under:- "23.6. Further, the claim of refund of excess DDT paid also requires verification of the computation, payment details, and applicability of relevant provisions governing tax on distributed profits. In vie....
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....bmitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. We have perused the submissions advanced by both sides in light of the record placed before us. 22.2. We find that the issue arising in the present ground is identical to that considered by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11 wherein the Tribunal held as under:- "23.2. At the outset, it is observed that the claims relating to (i) disallowance under section 40(a)(ia) on account of short deduction of TDS, (ii) deduction under section 80-IA in respect of income from windmills, and (iii) refund of excess Dividend Distribution Tax (DDT), were raised by the assessee by way of notes appended to the revised computation/return of income. It is an admitted position that the Ld. Assessing Officer has not examined these claims on merits. 23.3. Insofar as the objection of the Revenue regarding claims being made through notes is concerned, the same cannot, by itself, be a ground to reject the claims outright. It is well settled that appellate authorities are empowered to entertain and adjudic....
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....favour of the assessee by the decision of Hon'ble Mumbai Special Bench of the Tribunal in the case of Union Bank of India vs. ACIT in ITA No. 424/Mum/2020 order dated 06/09/2024. It was submitted that Hon'ble Mumbai Special Bench, after an elaborate consideration of the statutory provisions and judicial precedents, has held that the provisions of section 115JB are not applicable to banking companies. The Ld. DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of the record placed before us. 25. We find that the issue under consideration is squarely covered by the decision of the Special Bench of the Tribunal in the case of Union Bank of India vs. ACIT (ITA No. 424/Mum/2020 dated 06/09/2024), wherein, vide para 40 of the order the Tribunal held as under:- "40. The question which has been referred to the Special Bench is whether the requirement of sub-section (2) of 115JB is fulfilled in the present case of the assessee's. Sub-section (1) of Section 115JB mandates charge of income tax based on book profits subject to fulfillment of certain conditions and also provides the rate on which such tax sha....
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....efore the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year. 41. In so far as Clause (a), the same applies to a case of a company other than referred to in Clause (b). According to clause (a), for the purpose of Section 115JB the company has to prepare its profit and loss account for the relevant previous year in accordance with the Companies Act, 2013 and the First proviso ....
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....e state of affairs of the company, merely by reason of the fact that they do not disclose (a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), (b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949 (10 of 1949), (c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003 (36 of 2003), (d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law." 44. The second proviso applies to any insurance company, banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company. In so far as the present case is concerned, one has to consider whether the assessee could be regarded as a ....
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....n the first part of the said section. 49. Further, the expression "existing company has been defined in Section 3(1)(ii) to mean as under: "(ii) "existing company" means a company formed and registered under any of the previous companies laws specified below :- (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866), and repealed by that Act; (b) the Indian Companies Act, 1866 (10 of 1866); (c) the Indian Companies Act, 1882 (6 of 1882); (d) the Indian Companies Act, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Acts or the Ordinance aforesaid and in force - (1) in the merged territories or in a Part B States (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or (2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), insofar as banking, insurance and financial corporations ....
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.... Tax Act r.w.s. 2(26) which defines "company" to mean a company formed and registered under the Companies Act, 1956, does not meet the requirement of being a company in the case of assessee bank, because the Indian company has to be formed and registered under the Companies Act. Notwithstanding that Section 11 of the Acquisition Act deems assessee bank to be a company for the purpose of Income Tax Act, but that does not lead to an inference that merely regarded as a company for the purpose of the Income Tax Act it is also Company registered under the Companies Act. The fiction created by Section 11 of the Acquisition Act, does not imply that the assessee bank would also become a company for the purpose of the Companies Act for which Clause (b) of Sub-Section 2 of Section 115JB is applicable. 55. In the earlier part of the order, we have already noted that by the Acquisition Act, the banking business of the existing bank was transferred from Union Bank of India Ltd to The Union Bank of India. The earlier entity, i.e., Union Bank of India Ltd. was a company under the earlier Companies Act, however, that company as a whole was not taken over or acquired but only banking busin....
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....mpany have been treated separate and independent from each other for which our reference was also drawn to Section 36(1)(viii) & 72A. Apart from that, it is noticed that, Section 194A(1) of the Act which provides that if any specified person is responsible for paying to a resident any income by way of interest is obliged to deduct tax at source, however, Section 194A(3) provides that Section 194A(1) shall not apply if the payment has been made to certain entities. Clause (iii) of sub-section (3) of section 194A, deals with such entities. The said clause reads as under:- iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) ....
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....nction for the aforesaid banks including the assessee are not covered as banking company, then, this further buttresses the point that these banks are separate and distinct from other banking companies. 60. Accordingly, the question referred to Special Bench is decided in favour of the assessee banks that clause (b) to sub section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 w.e.f. 1-4-2013, that is, from assessment year 2013-14 onwards, are not applicable to the banks constituted as 'corresponding new bank' in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and therefore, the provision of Section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks. 25.1. The issue has been decided in favour of the assessee. The Ld. DR could not bring to our notice any contrary decision of a higher judicial forum nor point out any distinguishing feature warranting a different view. Respectfully following the decision of the Special Bench of the Tribunal in the case of Union Bank of India vs. ACIT (supra), we hold that the provisions of section 115JB are not applic....
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....e basis, which is inconsistent and contrary to the matching principle. We also note that the Coordinate Bench in assessee's own case in ITA No. 3868/Mum/2013 dated 11.10.2024 has observed that the concept of accrual cannot be applied differently for accounting and taxation purposes and such selective treatment leads to distortion of income. 28.5. However, it is an admitted position that the identical issue has been consistently decided in favour of the assessee in earlier years and the same has been affirmed by Hon'ble jurisdictional High Court. In view of the binding nature of such precedents and following the principle of judicial discipline, we are constrained to follow the earlier decisions. We therefore do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Accordingly, Ground No.2 raised by the Revenue is dismissed." 27.3. The Ld.DR could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warranting a departure from the view already taken by the Tribunal. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case fo....
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....d by the assessee is, therefore, in accordance with commercial principles and reflects the true income. 29.14. The contention of the Revenue that, since the securities are classified under the HTM category, the same are to be treated as investments and the BPI paid should be capitalized, does not merit acceptance. Merely because Broken Period Interest received is assessed as business income, it does not ipso facto follow that the underlying securities are to be regarded as stock-in-trade. The Hon'ble Supreme Court in Bank of Rajasthan Ltd. v. CIT (2024) 167 taxmann.com 430 has clarified that the characterization of securities in the hands of a banking company is a fact-dependent exercise and that RBI classification is not determinative for tax purposes. However, for the limited purpose of allowability of Broken Period Interest, such distinction is not decisive. 29.15. In the present case, the Revenue has admittedly brought to tax the Broken Period Interest received as business income. In such circumstances, the corresponding Broken Period Interest paid cannot be disallowed, as doing so would result in taxing notional income and would be contrary to the settled pri....
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....ax as business income. The method followed is consistent and borne out from the record. In the absence of any factual ambiguity requiring verification, we find no justification for restoring the issue to the file of the Ld.AO. 29.18. In view of the above discussion, we hold that the Broken Period Interest paid by the assessee on purchase of HTM securities is allowable as deduction. We therefore do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Accordingly, ground no.3 raised by the revenue stands dismissed." 28.4. The Ld.DR could not point out any distinguishing feature in the facts of the year under consideration nor bring any contrary material on record warranting a departure from the view already taken by the Tribunal. Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, we dismiss Ground No. 2 raised by the Revenue. 29. Ground No. 3 raised by the Revenue is found to have been wrongly raised and does not survive for adjudication in the year under consideration. Accordingly, the same is dismissed as infructuous. 30. Ground No.4: Taxation of guarantee com....
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....o the file of the learned assessing officer to decide afresh after taking into the decision into consideration. However, decision for the assessment year 2005 - 06 rendered on 22 March 2022 in ITA number 3685/M/2013 as per paragraph number 6 - 9 following the decision in assessee's own case has allowed the claim. 99. Hon Calcutta High court in case of bank of Tokyo Limited relied on by the ITAT while allowing the claim of the assessee has following fact that the Tribunal has also recorded a finding of fact that the assessee-bank has been refunding guarantee commission to its different clients in those cases where guarantee contract was revoked prematurely. In other words, the assessee-bank has been refunding guarantee commission for the unexpired period of guarantee in case the guarantee contract was revoked earlier. This finding negatives the stand taken and/or allegation made by the IAC (Assessment) to the effect that the guarantee contract was irrevocable, and the bank was not refunding the guarantee commission for the unexpired period. It was contended on behalf of the revenue that the commission was payable initially and not year by year. That being the mandatory ....
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....mission is received. Accordingly ground number 1 of the appeal is dismissed. 30.10. We, are in complete agreement with the decision of the co-ordinate bench and accordingly hold that the guarantee commission is taxable in the year of receipt and cannot be spread over the period of guarantee. The order of the Ld. CIT(A) is therefore set aside and the action of the Ld.AO is restored. Accordingly, this ground raised by the revenue stands is allowed." Accordingly, respectfully following the order of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, we allow Ground No. 4 raised by the Revenue. 31. Ground No.5: Deletion of disallowance towards expenditure incurred on staff welfare scheme At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. The Ld.AR submitted that the issue stands covered by the order of the Coordinate Bench in favour of the assessee. 31.1. The Ld.DR relied upon the assessment order and reiterated the submissions advanced by the Revenue in the earlier year. We have perused the submissions adva....
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....14A of the Act. This issue has been dealt with while deciding Ground No.2 in assessee's appeal. The view taken herein above shall be apply mutatis mutandis. The issue has been remitted for limited verification. Accordingly, this ground raised by the revenue stands partly allowed. 33. Ground No.8: Disallowance of depreciation claimed on securities classified under the Held to Maturity (HTM) category. At the outset, both the parties submitted that the issue involved in the present ground is identical to the issue adjudicated by the Tribunal in assessee's own case for A.Y. 2010-11. The Ld. AR submitted that the issue stands covered by the order of the Coordinate Bench in favour of the assessee. 33.1. The Ld.DR relied upon the assessment order and reiterated the submissions advanced by the Revenue in the earlier year. We have perused the submissions advanced by both sides in light of the record placed before us. 33.2. We find that the issue arising in the present ground is identical to that considered by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11, wherein the Tribunal held as under:- "33.7. It is an undisputed position that the asse....
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....e Court in CIT v. Bank of Rajasthan Ltd. reiterated that the treatment of securities in the hands of banks must be viewed in the context of their business model, and regulatory classification under RBI norms does not conclusively determine their tax character. 33.14. We also find that the CBDT itself has, in its circulars, accepted that banks may follow the method of valuing securities at cost or market value whichever is lower, and that such method, when consistently followed, reflects true and fair income. Thus, the position adopted by the assessee is in consonance not only with judicial precedents but also with administrative guidance. 33.15. Equally important is the principle of consistency. We note that in the assessee's own case for earlier assessment years, the coordinate benches of this Tribunal consistently has held that, depreciation on securities, including those classified under HTM category, is allowable. The Ld. DR has not brought on record any material change in facts or law warranting a deviation from such settled position. In the absence of any distinguishing feature, a contrary view would lead to uncertainty and arbitrariness in tax administratio....
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....of the Ld. AO with specific directions. It was submitted that the Co-ordinate Bench had proceeded on the premise that the deduction was claimed in respect of bonus, leave encashment and other employee-related liabilities, the allowability of which was required to be examined in the light of the provisions of section 43B of the Act. 35.2. In response, the Ld.AR submitted that the issue involved in the present ground is materially different. It was contended that the expenditure under consideration pertains to provisions made towards Silver Jubilee Awards, Resettlement Units and Retirement Awards and not towards bonus, leave encashment or other liabilities governed by section 43B of the Act. The Ld. AR further placed reliance upon the decision of the Co-ordinate Bench in assessee's own case for A.Y. 2008-09 vide order dated 03/02/2020, wherein the issue was decided in favour of the assessee and held as under:- "12. We have considered the rival contentions and find that the issue involved in this appeal is squarely covered by the decision of the coordinate bench in the case of State Bank of India (supra) wherein on identical facts and circumstances of the case the coor....
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..... AR submitted that identical issue is considered by the coordinate Bench in the case of State Bank of India wherein the Silver Jubilee Award of Rs. 1.22 crores was disallowed on identical basis. The coordinate Bench has allowed this expenditure holding it to be definite and not contingent. 18. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. We find that identical issue arose in the case of State Bank of India wherein the employee benefit of Rs. 143.40 crores was in question and one of the item was provision of Silver Jubilee Award of Rs. 1.22 crores. These facts are considered by the coordinate Bench at para 25 onwards, where the CIT(A) himself has allowed the above claim which is not contested by the Revenue. In para 31 of the order, it was stated that the CIT(A) allowed items at sl.No.4 which is Silver Jubilee Award of Rs. 1.22 crores. 19. Even otherwise, looking at the nature of expenditure which are supported by actuarial valuation certificate and further which is made in terms of provisions of AS 15, could not have been held to be a contingent liability. 20. Accordingly we direct the ld AO to a....
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....er factors for valuation. There may always be some factors which somebody can dispute so far as the provision is concerned. The provision is estimated over the liability which will arise in the hands of the assessee. Even otherwise, it was allowed in the case of State Bank of India, now the parent entity, but allowed in the hands of the assessee. It is not the claim of the Revenue that the actuarial valuation made by the assessee is substantially incorrect or based on incorrect presumption. It is merely stated that many factors have not been considered. In view of the above facts, we hold that the provision made by the assessee based on actuarial valuation is an ascertained and not contingent liability and therefore could not have been disallowed. 25. Accordingly the orders of the ld. lower authorities are reversed and the ld. AO is directed to delete the disallowance. Accordingly ground No.3 of the appeal is allowed." 35.3. It was submitted that the said decision has subsequently been followed by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11 vide order dated 05/08/2020 and for A.Y. 2011-12 vide order dated 03/11/2020. Copies of the aforesaid orders ....