2023 (6) TMI 1441 - AT - Income Tax

Disallowance of provision for pension - assessee made a claim for allowing provision towards pension liability without actually contributing to the fund - HELD THAT - As decided in assessee own case 2020 (2) TMI 1350 - ITAT MUMBAI provision towards pension is not a contingent liability. It is an ascertained liability and has been provided for in the books of account on a scientific basis, as per the actuarial valuation. Further, it would also be contrary to the judgement of Metal Box Co. of India 1968 (8) TMI 53 - SUPREME COURT wherein observed that contingent liabilities properly discounted were to be allowed as a deduction. In view of the above factual discussion, legal position based on various decisions, we are of the view that this deduction claimed by the assessee is allowable and hence, allowed. This issue of assessee s appeal is allowed. Depreciation on maturity securities - practice of the assessee to make provisions in respect of overdue debentures/bonds which matured but remain unpaid at the end of the accounting year. In the earlier assessment years, provision for impairment in the valuation of such investments, i.e. depreciation on matured securities, has not been allowed - HELD THAT - As we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India 2013 (8) TMI 520 - ITAT MUMBAI held no such ad hoc deduction could be allowed against the amount receivable on redemption of securities which had matured and become due for payment before the close of the accounting year. Ground raised in assessee s appeal is dismissed. Depreciation on leased assets - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 1996-97 2016 (8) TMI 963 - BOMBAY HIGH COURT hold that the transaction in question is finance lease and not operating lease. Accordingly, we uphold the orders of the authorities below qua this issue - Ground raised in assessee s appeal is dismissed. Disallowance of deduction u/s 36(1)(vii) in respect of non-rural advances - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India for the assessment year 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI 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. In the present case, the legislature stipulated a fixed date i.e. 01.04.2014 while inserting Explanation 2 to section 36(1)(vii) of the Act. In view of the above, we are of the view that assessee is entitled to deduction under section 36(1)(vii) of the Act being the amount of bad debts written off (other than in respect of rural advances). This issue of assessee appeal is allowed. Depreciation on securities - assessee has been valuing investments in Available for Sale ( AFS ) and Held for Trading ( HFT ) after netting of classification-wise depreciation and appreciation, computed scrip-wise and provided for not depreciation in each classification while ignoring the depreciation, as per the RBI guidelines - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI as held we are not concerned with a scenario where in the later year the depreciation provided in earlier years is reduced. Decision in the case of Deutsche Bank A.G vs. DCIT 2002 (6) TMI 158 - ITAT BOMBAY-G relied by the AO is in connection with valuation of foreign exchange forward contracts. In this case the assessee did not account for in the financial statement the anticipated/contingent profits from the contracts to the extent not settled as on the last day of the accounting year whereas any loss on such contracts was provided for by a charge in the profit and loss account on the best estimates. The Department brought to tax the profit on such forward exchange contracts and stated that one method for valuation of the entire stock of securities should be followed. This resulted in a situation of taxing appreciation of stock, which goes against the general and settled principle of non-taxation of notional income, as laid in the case of Sanjeev Wollen Mills 2005 (11) TMI 26 - SUPREME COURT and others discussed supra. Hence, disallowance of depreciation/ reducing of depreciation on appreciation in the value of securities held as available for sale and held for trading category are allowable.This issue of assessee appeal is allowed. Deduction claimed u/s 36(1)(viia) - HELD THAT - Assessee is eligible for claim of deduction u/s 36(1)(viia) of the Act on standard assets and this issue is covered by Tribunal s decision in assessee s own case for AY 2006-07 2016 (10) TMI 164 - ITAT MUMBAI Taxation of interest income from Non Performing Assets ( NPA ) - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI held that this issue is squarely covered by the decision of American Express Bank Ltd 2015 (8) TMI 1584 - BOMBAY HIGH COURT wherein it is held that there is no credit entry in the books of the account in respect of the interest on such NPAs, no addition can be made. Even the Mumbai Tribunal in the case of American Express Bank Ltd. (supra) has considered this issue and held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Hence, we delete the addition of interest income and allow this issue of assessee s appeal. Taxation of Non Performing Investment ( NPI ) - Since the overdue interest on investments and bills discounted was not recognised on the accrual basis, the assessee was asked to furnish the details of such interest and an explanation on this accounting treatment - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI deleted the addition of interest income from nonperforming Investments made by the AO as interest on inter corporate deposits recognised as NPA, in terms of the directions of RBI was not taxable. Decided in favour of assessee. Disallowance in respect of payment towards contribution to Retired Employees Medical Benefit Scheme - HELD THAT - Tribunal in assessee s own case for the assessment years 1997 98 and 1998 99 2016 (4) TMI 1392 - ITAT MUMBAI uphold the plea of the assessee and allow the contribution made to the Retired Employees Medical Benefit Scheme as provisions of section 40A(9) should not make any harm to the expenditure incurred bonafide, that the contribution by the assessee bank was not disputed by the AO, stating that the same was not bonafide, that the funds were not controlled by the assessee banks, that the bonafide contribution made by the assessee as an employer was not hit by section 9 of section 40A of the Act. In the case under consideration, there is no doubt about genuineness of payment nor it is the case of the AO or FAA that Trust was not bonafide or the expenditure was not incurred wholly and exclusively for the employees. Decided in favour of assessee. Allowance of amount paid for setting up a chair in London School of Economics ( LSE ) - HELD THAT - Sr. Counsel by referring to the additional evidence filed by the assessee vide application dated 30/09/2021 submitted that payment was made for setting up LSE India Observatory and I.G. Patel Chair in Contemporary Indian Society and Economy in LSE, London. It was further submitted that in this regard the assessee, RBI, and LSE entered into a Memorandum of Understanding, whereby both RBI and assessee each agreed to provide the LSE a sum of 1 lakh Sterling Pound per annum for a period of 10 years starting from 01/01/2007. The learned Sr. Counsel further submitted that the amount has been 37 stoppel during the course of the assessee s ordinary banking business during the year and thus is allowable as such while computing its business income. Since these documents filed by the assessee by way of additional evidence were not available before the lower authorities, therefore, we deem it appropriate to remand this issue to the file of AO for de novo adjudication. Taxability of recovery of bad debt written off in earlier years - As submitted that recovery of bad debt written off should not be allowed to tax under section 41(4) of the Act as it has not claimed deduction under section 36(1)(vii) - HELD THAT - As respectfully following the judicial precedent in assessee s own case for the assessment year 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI we uphold the plea of the assessee that provisions of section 41(4) of the Act is applicable only when recovery of bad debts are in relation to debts for which a deduction under section 36(1)(vii) is allowed. However, this issue is restored to the file of the AO to verify if the recovery of the amount, in the present case, is in respect of a write-off of the claim allowed as a deduction under section 36(1)(viia) or under section 36(1)(vii) of the Act in earlier years. Accordingly, ground no. 13, raised in assessee s appeal is allowed for statistical purposes. Non-taxability of income from foreign branches - scope of Notification no. 91 of 2008 was issued u/s 90(3) - HELD THAT - As relying on Technimont (P.) Ltd. 2020 (2) TMI 1400 - ITAT MUMBAI and Bank of India (supra) for the assessment year 2015-16, we see no substance in this plea either. The notification deals with connotations of the expression may be taxed , appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor to do we see any justification for inferring the same. Learned counsel does not have any material whatsoever in support of the proposition canvassed by him, nor does this proposition make any sense on the first principles- inasmuch as once the notification 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 in including the profits of the assessee s overseas branches in its taxable income in India. Decided against assessee. Taxability of interest on securities - Assessee excluding interest accrued but not due for income tax purposes - HELD THAT - As decided in own case 2013 (8) TMI 520 - ITAT MUMBAI , for the assessment year 1996-97 we accept the assessee's claim and hold that the interest on Govt. securities cannot be assessed de die in diem . We direct the A.O. to assess the interest on the basis of the coupon dates - Similarly, the Tribunal in the case of Housing Development and Finance Corporation 2005 (9) TMI 234 - ITAT BOMBAY-I following the aforesaid decision of the Tribunal, has also held that Section 145 of the Act could not override the provisions of Section 5 and, therefore, no person could be assessed unless the income accrued to him and in the cases of Securities, interest accrued to the assessee on specified dates and not on day today basis as the assessee has no right to receive the income before fixed date, hence, interest was taxable on the due basis only. In this view of the matter, we accept this ground of the assessee. Allowability of broken period interest - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case for the assessment year 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI as noted that BPI refers to interest on Government and other approved securities relatable to the period from last due date (upto which interest was paid) till the date of purchase or sale. Thus, when the assessee purchases a security, it pays a price which is calculated having regard to two components, viz., the market price of security plus BPI to the seller. In this case, the assessee treats the BPI paid as expenditure. Similarly, when the assessee sells a security, such interest is treated as income of the assessee. This ground of appeal is covered in favour of the assessee. Allowability of provision for wage revision - assessee s contention is that the liability in respect of wage revision has accrued during the year under consideration, as the contracted wages is payable to the employee from 01.11.2007 - HELD THAT - As decided in assessment year 2008-09 date of effective commencement of the agreement is relevant and not the date of signing of the agreement or date of approval by DRE. The Mumbai Tribunal allowed the claim of the assessee for the assessment year 2008-09 on the basis that the wage revision was certain and could have been reasonably estimated. We may mention that Bank of Baroda is also a part of the same Bipartite settlement as in the present case of the assessee. Hence, we are of the view that CIT(A) has rightly allowed the claim of assessee. Allowance of staff welfare expenses, i.e. payment to schools towards reservation of seats for the children of the bank officers - HELD THAT - As it is clear from the above order of the Tribunal that for the assessment year 1992-93 this issue was decided in favour of the assessee. The ground of disallowance for the year under consideration is treating the same as gratitudes payment. We note that as per the policy of the bank the arrangements are made for the reservation of seats in the schools for the children of the officer who are frequently transferred. Thus there is no discrimination in the policy as far as the officers subjected to transfer. A similar view has been taken by the Tribunal for the assessment year 1995-96 vide order dated 17.9.2009. Accordingly, following the order of this Tribunal for the assessment year 1992-93, we allow this claim of the assessee. Disallowance u/s 14A r/w Rule 8D - suo moto addition - HELD THAT - It is the claim of the assessee that only those investments which yielded exempt income during the year should be considered for computation of disallowance under section 14A of the Act. We find that this claim of the assessee is supported by the decision of Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that only those investments are to be considered for computing average value of investments, which yield exempt income during the year. Accordingly, we direct the AO to only considered those investments for the purpose of computation of disallowance under section 14A read with Rule 8D(2)(iii) of the Rules, which yield exempt income during the year. As undisputed that the assessee suo moto disallowed sum towards administrative expenses under section 14A of the Act, in the original as well as the revised computation of taxable income. Thus, we are of the considered view that in such a scenario, the expenditure offered by the assessee over and above the disallowance computed under section 14A read with Rule 8D, by applying the aforesaid directions, be examined for its allowability under the provisions of the Act by the AO. Loss on revaluation of investments/provision for amortisation of premium paid on securities in Held to Maturity ( HTM ) category to be allowed following the Tribunal order in assessee s own case for AYs 1995-96 to 1996-97 and the CIT(A) order for AYs 2002-03 to 2007-08. Allowance of depreciation on foreign assets - HELD THAT - During the hearing, as submitted that the assessee has filed a rectification application before the AO on this issue, which has still not been disposed off wherein as claimed that the assessee is entitled to depreciation - assessee has also furnished the working before the AO. Accordingly, we deem it appropriate to remand this issue to the file of the AO for de novo adjudication. Set off of loss of erstwhile State Bank of Saurashtra - Direction to allow the benefit of set-off of loss to the assessee which is determined in the case of State Bank of Saurashtra, after necessary verification. Discount on the issue of the Employee Stock Purchase Scheme - Discount on Employee Stock Purchase Scheme is an allowable deduction under section 37(1) in view of case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE As this issue is squarely covered in favour of assessee.

Summary

Issues Involved:

1. Disallowance of provision for pension.
2. Depreciation on matured securities.
3. Disallowance under section 14A.
4. Depreciation on leased assets.
5. Deduction under section 36(1)(vii) for non-rural advances.
6. Depreciation on securities.
7. Deduction under section 36(1)(viia) for standard assets.
8. Taxation of interest on Non-Performing Assets (NPAs).
9. Taxation of Non-Performing Investments (NPIs).
10. Contribution to Retired Employees Medical Benefit Scheme.
11. Double taxation relief.
12. Payment for setting up a chair in London School of Economics.
13. Recovery of bad debts written off in earlier years.
14. Non-taxability of income from foreign branches.
15. Taxability of interest on securities.
16. Allowability of broken period interest.
17. Allowability of provision for wage revision.
18. Allowance of staff welfare expenses.
19. Disallowance under section 14A r/w Rule 8D.
20. Loss on revaluation of investments in HTM category.
21. Allowance of depreciation on foreign assets.
22. Set off of loss of erstwhile State Bank of Saurashtra.
23. Discount on Employee Stock Purchase Scheme.

Detailed Analysis:

1. Disallowance of Provision for Pension: The Tribunal allowed the assessee's claim for provision for pension, following the precedent set in the assessee's own case for the assessment year 2008-09. It was held that the provision for pension is an ascertained liability and should be allowed as a deduction under section 37(1) of the Act.

2. Depreciation on Matured Securities: The Tribunal upheld the disallowance of depreciation on matured securities, following the decision in the assessee's own case for the assessment year 1996-97. It was held that the depreciation claim was not allowable as the securities were not impaired.

3. Disallowance under Section 14A: The Tribunal deleted the disallowance under Rule 8D(2)(ii) as the assessee's own funds exceeded the investments. However, it directed the AO to exclude stock-in-trade and strategic investments while computing disallowance under Rule 8D(2)(iii).

4. Depreciation on Leased Assets: The disallowance of depreciation on leased assets was upheld, following the decision in the assessee's own case for the assessment year 1996-97, where it was treated as a finance lease.

5. Deduction under Section 36(1)(vii) for Non-Rural Advances: The Tribunal allowed the deduction for non-rural advances, following the Supreme Court's decision in the case of The Catholic Syrian Bank Ltd., which held that the provisions of sections 36(1)(vii) and 36(1)(viia) are distinct and independent.

6. Depreciation on Securities: The Tribunal allowed the claim of depreciation on securities, following the precedent in the assessee's own case, where it was held that unrealized gains on stock are not taxable.

7. Deduction under Section 36(1)(viia) for Standard Assets: The Tribunal allowed the deduction for provisions on standard assets, following the decision in the assessee's own case for the assessment year 2006-07, where it was held that the provision for standard assets is also for bad and doubtful debts.

8. Taxation of Interest on NPAs: The Tribunal deleted the addition made by the AO, following the Bombay High Court's decision in the case of American Express Bank Ltd., where it was held that interest on NPAs is taxable only when credited to the profit and loss account or received.

9. Taxation of NPIs: The Tribunal deleted the addition of interest income from NPIs, following the Supreme Court's decision in the case of Vasisth Chay Vyapar Ltd., which held that interest on NPIs is not taxable.

10. Contribution to Retired Employees Medical Benefit Scheme: The Tribunal allowed the contribution, following the precedent in the assessee's own case, where it was held that the contribution was not hit by section 40A(9).

11. Double Taxation Relief: The issue was remanded to the AO for de novo adjudication, as per the provisions of the Act and the applicable tax treaty.

12. Payment for Setting Up a Chair in LSE: The issue was remanded to the AO for de novo adjudication after considering additional evidence submitted by the assessee.

13. Recovery of Bad Debts Written Off in Earlier Years: The Tribunal restored the issue to the AO to verify if the recovery is in respect of a write-off claimed under section 36(1)(viia) or 36(1)(vii).

14. Non-Taxability of Income from Foreign Branches: The Tribunal dismissed the ground, following the decision in Technimont (P.) Ltd., which considered the applicability of Notification no. 91 of 2008.

15. Taxability of Interest on Securities: The Tribunal upheld the CIT(A)'s decision, following the precedent in the assessee's own case, where interest on securities was taxed on a due basis.

16. Allowability of Broken Period Interest: The Tribunal upheld the CIT(A)'s decision, following the precedent in the assessee's own case, where broken period interest was allowed as revenue expenditure.

17. Allowability of Provision for Wage Revision: The Tribunal upheld the CIT(A)'s decision, following the precedent in the assessee's own case, where the provision for wage revision was allowed as a deduction.

18. Allowance of Staff Welfare Expenses: The Tribunal upheld the CIT(A)'s decision, following the precedent in the assessee's own case, where staff welfare expenses were allowed as revenue expenditure.

19. Disallowance under Section 14A r/w Rule 8D: The Tribunal directed the AO to consider only those investments which yielded exempt income during the year for computing disallowance under Rule 8D(2)(iii).

20. Loss on Revaluation of Investments in HTM Category: The Tribunal upheld the CIT(A)'s decision, following the precedent in the assessee's own case, where amortisation of premium on HTM securities was allowed.

21. Allowance of Depreciation on Foreign Assets: The issue was remanded to the AO for de novo adjudication after verifying the details filed by the assessee.

22. Set Off of Loss of Erstwhile State Bank of Saurashtra: The issue was remanded to the AO to allow the benefit of set-off of loss determined in the case of State Bank of Saurashtra.

23. Discount on Employee Stock Purchase Scheme: The Tribunal upheld the CIT(A)'s decision, following the Special Bench decision in Biocon Ltd., where the discount on ESPS was allowed as a deduction.