2021 (7) TMI 1275 - AT - Income Tax

Disallowance in respect of broken period interest - HELD THAT - As both the leaned Counsels for the parties agreed that the identical issue raised in this ground by the assessee is now settled in favour of the assessee and against the Revenue by the decisions of the Tribunal rendered in assessee s own case in assessment years 2008-09, 1996-97, 1995-96 and 1991-92. The relevant findings of the Tribunal in State Bank of India v/s DCIT 2020 (2) TMI 1350 - ITAT MUMBAI Consistent with the view taken therein, we set aside the impugned order passed by the learned CIT(A) by allowing the ground raised by the assessee. We also observe that the appeal filed by the Revenue before the Hon'ble Jurisdictional High Court for the assessment year 1996-97, was also dismissed vide its order dated 1st August 2016. Thus, ground no.1, is allowed. Deferred payment guarantee commission - HELD THAT - As deduction for the deferred payment guarantee commission of the assessment year 1984-85 to 1989-90 and 1996-97. However, both the leaned Counsels for the parties conceded that that identical issue raised in this ground by the assessee is now settled in favour of the assessee and against the Revenue by the decisions of the Tribunal rendered in assessee s own case in as 2000-01, 1984-85, 1996-97, and 1999-2000 - we set aside the impugned order passed by the learned CIT(A) by allowing the ground raised by the assessee - assessee also brought to our notice that the Assessing Officer has given effect to the order of the Tribunal and has allowed the deduction for deferred payment guarantee commission for the assessment year 1984-85 to 1989-90 and 1996-97. Consequently, the ground raised by the assessee is decided in favour of the assessee. Disallowance on account of depreciation on securities - HELD THAT - We have heard both the parties and perused the material on record including the case laws relied upon by the parties. Both the parties agreed before us that identical issue has been decided by the Tribunal and has allowed the claim of depreciation on securities in the assessment year 2000-01, 1996-97, 1997-98, 1998-99, 1999-00. Consistent with the view taken therein, we set aside the impugned order passed by the learned CIT(A) by allowing the ground raised by the assessee. Ground no.3, is allowed. Disallowance in respect of payments for scientific research - HELD THAT - Both the parties agreed before us that identical issue in respect of disallowance on account payments for scientific research is decided against the assessee and in favour of the Revenue by the decisions of the Tribunal rendered in assessee s own case in assessment year 2000-01, 1997-98, 1998-99 and 1999-2000. Consistent with the view taken therein, we uphold the order of the learned CIT(A) by dismissing the ground raised by the assessee. Disallowance for earning exempt income under section 10(15)(iv)(c), 10(15)(iv)(f), 10(15)(iv)(h), 10(23G) and 10(33) by applying provisions of section 14A - HELD THAT - We notice that the provisions of rule 8D was introduced only from the assessment year 2008-09 and strictly the rules are not applicable in the current assessment year. However, following the findings of the Co-ordinate Bench decisions rendered in assessee s own case which has directed the Assessing Officer to estimate the disallowance under section 14A of the Act at one percent of the exempt income. Keeping in view the consistency maintained by the Tribunal in assessee s own case, we are also inclined to direct the Assessing Officer to estimate the expenditure under section 14A of the Act at the rate of one percent of the exempt income. Depreciation on account of leased assets - HELD THAT - As assessee submitted that the assessee has filed appeal against the order passed by the Tribunal, which has been admitted by the Hon'ble Jurisdictional, High Court and pending for hearing and yet no orders have been passed on merit. Keeping this in view and consistent with view taken by the Co-ordinate Bench of this Tribunal in assessee s own case, we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing the ground raised by the assessee. Ground no.6, is dismissed. Treating the amount received from Cardif S.A. as revenue receipt - HELD THAT - We cannot agree that it will fall under non-compete fee or restrictive trade practice. Rather it is towards offering the branch network for the establishment of insurance business. In the changing business scenario, the banking business has huge shift from the traditional banking business. RBI has taken note of it and we noticed that so many banks has established its own insurance business along with the banking business. Some of them has utilised their own brand name. But some of the banks have entered Joint Venture with the international big players in the insurance business. In this case, the assessee has selected Cardif S.A. The international players will look for readymade establishment to establish their business. The assessee is providing its huge network facility to establish this new line of business along with its regular banking business. The assessee received the onetime premium towards this additional facilities and advantage which it was willing to offer to the other partner. Therefore, in the changing business module in the banking sector, it can only be treated as charges for facilitation offer or advantage for establishing the insurance business in India. Therefore, it cannot be said that it is for non-compete but it is for the advantage offered for the Joint Venture business. Therefore, we are inclined to sustain the addition made by the AO. Thus, ground no.7, raised by the assessee is dismissed. Disallowance on account of road show, legal expenses and advertisement expenses incurred in connection with the issue of India Millennium Deposits under section 40(1) of the Act on account of non-deduction of tax at source under section 195 - HELD THAT - We find that identical issue has been decided in favour of the assessee and against the Revenue by the decision of the Tribunal rendered in assessee s own case in the assessment year 1999-2000 2018 (9) TMI 2054 - ITAT MUMBAI -It was also brought to our notice that the learned CIT(A) has also while decided the issue for the year under consideration has relied upon the order of the first appellate authority for the assessment year 1999-2000 holding that the facts of the issue are similar to the assessment year 1999-2000. Consistent with the view taken therein as aforesaid, we set aside the impugned order passed by the learned Commissioner (Appeals) and allow the ground raised by the assessee. Write-off of bad debts under section 36(1)(vii) of the Act in respect of non-rural advances - HELD THAT - We find that the issue for our consideration is identical to the issue decided by the Co-ordinate Bench of this Tribunal rendered in assessee s own case wherein the Tribunal has decided the issue against the assessee and in favour of the Revenue in assessment year 2008-09. Consistent with the view taken therein as aforesaid, we uphold the order passed by the learned CIT(A) by dismissing the ground raised by the assessee. Disallowance on account of doubtful debts under section 36(1)(viia) - HELD THAT - As it appears, the issue for our consideration is identical to the issue decided by the Co-ordinate Bench of this Tribunal rendered in assessee s own case wherein the Tribunal has decided the issue against the assessee and in favour of the Revenue in assessment year 2000-01, 1996-97, 1997-98, 1998-99 and 1999-2000. The learned Sr. Counsel for the assessee further brought to our notice that the assessee had also filed appeal against the order passed by the Tribunal for the assessment year 1996-97, wherein the Hon'ble Jurisdictional High Court vide its order dated 23rd August 2016 2016 (8) TMI 1441 - BOMBAY HIGH COURT has decided the issue against the assessee. Consistent with the view taken therein as aforesaid, we uphold the order passed by the learned CIT(A) by dismissing the ground raised by the assessee. Disallowance in respect of provisions made on account of foreign offices - HELD THAT - Tribunal in assessee s own case 2020 (3) TMI 1374 - ITAT MUMBAI wherein the Co-ordinate Bench Para-26 of its order has restored the issue to the file of the Assessing Officer directing him to decide the issue afresh after following the directions given in the order dated 31st January 2018 passed in assessee s own case for the assessment year 1999- 2000. Consistent with the view taken therein, we set aside the order of the first appellate authority and restore the issue to the file of the Assessing Officer for deciding the issue afresh. Levy of interest under section 234D - HELD THAT - This issue covered against the assessee and in favour of the Revenue by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Indian Oil Corporation Ltd. 2012 (9) TMI 517 - BOMBAY HIGH COURT wherein the Hon ble Court has decided identical issue in favour of the Revenue and against the assessee. Deduction for write-off of the bad debts under section 36(1)(vii) - HELD THAT - Tribunal rendered in assessee s own case as well as the decision of the Hon'ble Supreme Court in Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT relied upon by the learned Counsel for the assessee, both the parties agree before us that identical issue has been decided by the Tribunal in assessee s own case for the assessment year 1996-97 2014 (1) TMI 1887 - ITAT MUMBAI , 1997-98, 1998-99, 1999- 2000 2018 (9) TMI 2054 - ITAT MUMBAI 2000-01 2020 (3) TMI 1374 - ITAT MUMBAI , 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI wherein the Tribunal has restored the issue to the file of the Assessing Officer adjudication afresh. Recovery of bad-debts written-off should not be liable to tax under section 41(4) of the Act as the assessee had not claimed deduction under section 36(1)(vii) - HELD THAT - Tribunal following the order 3rd January 2014, passed in assessee s own case for the assessment year 1996-97 2014 (1) TMI 1887 - ITAT MUMBAI restored the issue to the file of the Assessing Officer and directed him to decide the controversy afresh by giving an opportunity of being heard to the assessee in accordance with law by following similar guidelines as given by the Tribunal in the aforesaid misc. application. Addition on account of payment made to various schools for reservation of seats for children of the Officers of the Bank - HELD THAT - The Tribunal in assessee s own case in State Bank of India 2020 (2) TMI 1350 - ITAT MUMBAI for the A.Y. 2008-09, has decided this issue in favour of the assessee and against the Revenue. Allowing the taxing of interest on securities on due basis - HELD THAT - Tribunal in assessee s own case in State Bank of India v/s DCIT 2020 (2) TMI 1350 - ITAT MUMBAI order dated 3rd February 2020, for the A.Y. 2008- 09, has decided this issue in favour of the assessee and against the Revenue. Addition of net unrealized appreciation on account of change in accounting Policy of investments in the HFT category of income - HELD THAT - DBOD circular guidelines clearly indicate that bank should not book the unrealized gain as profit or IFT. It is in fact the most Prudent method of accounting. Further, the banks are required to Prepare the financial statements only based on the guidelines and master circular. The whole financial results depend upon the master circular guidelines i.e., the guidelines on provision, valuation of investment, recording of bad debts, etc. The financial records and results depend upon the above uniform guidelines, across the banks. Therefore, the financial assets and liabilities are valued only based on the above master circular. The status of valuation will keep changing year on year. Therefore, there will be up and down on the book result of the banks, which will iron out over the period. It is not expected to revalue the opening and closing stock every year, which will give absurd results. This aspect was already considered by the RBI and the judiciary in the past. It was explained clearly in the decision of the Hon ble Karnataka High Court in CIT v/s Corporation Bank Ltd. 1988 (8) TMI 90 - KARNATAKA HIGH COURT The bank s financial results are completely different from the regular business results since they are bound by the guidelines of the RBI and the new method of valuation adopted by the banks, henceforth applied on a permanent basis in the later years. Therefore, the contention of the tax authorities are not proper and not as per judicial precedence. Accordingly, the ground raised by the assessee is allowed. Disallowance of payment made to Federal Reserve Bank of New York and State of New York Banking Department due to the payment being penal in nature - HELD THAT - The law of allowability of penalty is fully settled by the Hon ble Supreme Court in CIT v/s Ahmedabad Cotton Manufacturing Co. Ltd. 1993 (10) TMI 1 - SUPREME COURT wherein it is held that as per Explanation to section 37, the expenditure incurred for any purpose which is an offence or which is prohibited by law is to be treated to have not been incurred for the purpose of the business and, hence, the payment which is punitive is not allowable. In case the Payment is compensatory in nature, the same is to be allowed. In the given case, the penalty was levied on the non-compliance of accounting procedure and reporting requirements. These are mere infringement of certain rules governing the banking sector. These cannot be treated as punitive in nature. Therefore, these can be classified under compensatory in nature. Therefore, we are inclined to allow these expenses as business expenditure. Hence, the ground no.9, raised by the assessee is allowed. Deduction for write-off of the bad debts under section 36(1)(vii) - HELD THAT - As in the light of the decisions of the Tribunal rendered in assessee's own case as well as the decision of the Hon'ble Supreme Court in Vijaya Bank v/s CIT 2010 (4) TMI 46 - SUPREME COURT relied upon by the learned Counsel for the assessee, both the parties agree before us that identical issue has been decided by the Tribunal in assessee s own case for the assessment year 1996-97, 1997-98, 1998-99, 1999-2000, 2000-01, 2008-09, wherein the Tribunal has restored the issue to the file of the Assessing Officer adjudication afresh. Recovery of bad-debts written-off should not be liable to tax under section 41(4) of the Act as the assessee had not claimed deduction under section 36(1)(vii) - HELD THAT - As restored the issue to the file of the Assessing Officer and directed him to decide the controversy afresh by giving an opportunity of being heard to the assessee in accordance with law by following similar guidelines as given by the Tribunal in the aforesaid misc. application. Consistent with the view as aforesaid, we set aside the order passed by the learned Commissioner (Appeals) and restore the issue to the file of the Assessing Officer with similar direction. We order accordingly. Additional ground no.2, raised by the assessee is allowed for statistical purpose. Treatment of income earned from foreign branches i.e., whether or not the income earned is liable to be taxed in India - HELD THAT - Tribunal in assessee s own case for the assessment year 1996-97, 1997-98, 1998-99, 1999-2000, 2000-01 and 2008-09, wherein the Tribunal following the order 3rd January 2014, passed in assessee s own case for the assessment year 1996-97 2014 (1) TMI 1887 - ITAT MUMBAI restored the issue to the file of the Assessing Officer and directed him to decide the controversy afresh by giving an opportunity of being heard to the assessee in accordance with law by following similar guidelines as given by the Tribunal in the aforesaid misc. application. Consistent with the view as aforesaid, we set aside the order passed by the learned Commissioner (Appeals) and restore the issue to the file of the Assessing Officer with similar direction. Disallowance on account of staff welfare expenses, disallowance of deduction on account of loss in respect of amortization of securities held in HTM category and taxing of interest on securities - HELD THAT - As identical issue has also been decided by in assessee s own case for the assessment year 2001-02, vide Para-44 of this order, wherein, the issue has been decided in favour of the assessee and against the Revenue

Summary

Issues Involved:
1. Disallowance of broken period interest.
2. Deferred payment guarantee commission.
3. Depreciation on securities.
4. Payments for scientific research.
5. Disallowance for earning exempt income under section 14A.
6. Depreciation on leased assets.
7. Treatment of amount received from Cardif S.A.
8. Disallowance of expenses related to India Millennium Deposits.
9. Write-off of bad debts under section 36(1)(vii).
10. Doubtful debts under section 36(1)(viia).
11. Provisions made on account of foreign offices.
12. Levy of interest under section 234D.
13. Additional grounds related to write-off of bad debts, recovery of bad debts, and income from foreign branches.
14. Payment made to various schools for reservation of seats.
15. Taxing of interest on securities on due basis.
16. Amortization of securities held in HTM category.
17. Staff welfare expenses.
18. Penal payments to Federal Reserve Bank of New York.

Detailed Analysis:

1. Disallowance of Broken Period Interest:
The Tribunal noted that the issue of broken period interest has been consistently decided in favor of the assessee in preceding years (A.Y. 2008-09, 1996-97, 1995-96, and 1991-92). Accordingly, the Tribunal set aside the order of the CIT(A) and allowed the ground raised by the assessee.

2. Deferred Payment Guarantee Commission:
The Tribunal observed that the issue of deferred payment guarantee commission has been settled in favor of the assessee in previous years (A.Y. 2000-01, 1984-85, 1996-97, and 1999-2000). Consequently, the Tribunal set aside the order of the CIT(A) and allowed the ground raised by the assessee.

3. Depreciation on Securities:
The Tribunal found that the issue of depreciation on securities has been consistently decided in favor of the assessee in earlier years (A.Y. 2000-01, 1996-97, 1997-98, 1998-99, and 1999-00). Therefore, the Tribunal set aside the order of the CIT(A) and allowed the ground raised by the assessee.

4. Payments for Scientific Research:
The Tribunal noted that the issue of payments for scientific research has been decided against the assessee in previous years (A.Y. 2000-01, 1997-98, 1998-99, and 1999-2000). Consistent with this view, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the assessee.

5. Disallowance for Earning Exempt Income under Section 14A:
The Tribunal acknowledged that Rule 8D was introduced from A.Y. 2008-09 and is not applicable for the current year. Following the consistent view taken in earlier years, the Tribunal directed the Assessing Officer to estimate the disallowance under section 14A at one percent of the exempt income.

6. Depreciation on Leased Assets:
The Tribunal observed that the issue of depreciation on leased assets has been decided against the assessee in previous years (A.Y. 2008-09, 2000-01, 1996-97, 1997-98, 1998-99, and 1999-2000). Therefore, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the assessee.

7. Treatment of Amount Received from Cardif S.A.:
The Tribunal concluded that the amount received from Cardif S.A. was for facilitation and advantage offered for establishing the insurance business, rather than a non-compete fee. Hence, it sustained the addition made by the Assessing Officer and dismissed the ground raised by the assessee.

8. Disallowance of Expenses Related to India Millennium Deposits:
The Tribunal found that the issue has been decided in favor of the assessee in previous years (A.Y. 1999-2000). Consistent with this view, the Tribunal set aside the order of the CIT(A) and allowed the ground raised by the assessee.

9. Write-off of Bad Debts under Section 36(1)(vii):
The Tribunal noted that the issue has been decided against the assessee in previous years (A.Y. 2008-09). Consistent with this view, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the assessee.

10. Doubtful Debts under Section 36(1)(viia):
The Tribunal observed that the issue has been decided against the assessee in previous years (A.Y. 2000-01, 1996-97, 1997-98, 1998-99, and 1999-2000). Consistent with this view, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the assessee.

11. Provisions Made on Account of Foreign Offices:
The Tribunal restored the issue to the file of the Assessing Officer for fresh adjudication, following the directions given in the order for A.Y. 1999-2000. Thus, the ground was allowed for statistical purposes.

12. Levy of Interest under Section 234D:
The Tribunal noted that the issue is covered against the assessee by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Indian Oil Corporation Ltd. Consistent with this view, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the assessee.

13. Additional Grounds Related to Write-off of Bad Debts, Recovery of Bad Debts, and Income from Foreign Branches:
The Tribunal restored these issues to the file of the Assessing Officer for fresh adjudication, following the consistent view taken in previous years. These grounds were allowed for statistical purposes.

14. Payment Made to Various Schools for Reservation of Seats:
The Tribunal found that the issue has been consistently decided in favor of the assessee in previous years (A.Y. 1992-93, 1995-96, 1996-97, 1999-2000, 2000-01, and 2008-09). Therefore, it upheld the order of the CIT(A) and dismissed the ground raised by the Revenue.

15. Taxing of Interest on Securities on Due Basis:
The Tribunal observed that the issue has been consistently decided in favor of the assessee in previous years (A.Y. 1991-92, 1995-96, 1996-97, 1999-2000, 2000-01, and 2008-09). Consistent with this view, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the Revenue.

16. Amortization of Securities Held in HTM Category:
The Tribunal noted that the issue has been consistently decided in favor of the assessee in previous years (A.Y. 2008-09, 1995-96, 1996-97). Therefore, it upheld the order of the CIT(A) and dismissed the ground raised by the Revenue.

17. Staff Welfare Expenses:
The Tribunal found that the issue has been consistently decided in favor of the assessee in previous years (A.Y. 1992-93, 1995-96, 1996-97, 1999-2000, 2000-01, and 2008-09). Therefore, it upheld the order of the CIT(A) and dismissed the ground raised by the Revenue.

18. Penal Payments to Federal Reserve Bank of New York:
The Tribunal concluded that the payments were compensatory in nature and not punitive. Therefore, it allowed these expenses as business expenditure and allowed the ground raised by the assessee.

Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, while the appeals filed by the Revenue were dismissed. The Tribunal followed the consistent view taken in previous years for most of the issues and provided detailed reasoning for each ground.