2020 (5) TMI 483 - AT - Income Tax

Loss of revaluation of investment on the HTM category - assessee has claimed losses on account of amortization of premium paid at the time of purchase of securities held under the category of HTM - HELD THAT - We find that the issue is fully covered by the earlier orders right for assessment years 2019 (1) TMI 689 - ITAT DELHI , 2018 (12) TMI 50 - ITAT DELHI . The learned CIT(A) has only followed the principle laid down by the Hon ble Apex Court in the case of UCO Bank 1999 (9) TMI 4 - SUPREME COURT . In the light of the aforesaid binding decision of the Hon ble Apex Court, we do not find any infirmity in the order of CIT(A). In the absence of any material change, as confirmed by both the parties, we hereby delete the addition made by the revenue. Depreciation/loss on investments and on MTM on derivatives - HELD THAT - We are of the considered opinion that the loss arising on shifting of securities from AFS/HFT categories to HTM category and depreciation is allowable. Appeal of the revenue in this ground is dismissed. Contribution made by PNB employees pension trust - HELD THAT - As decided in own case 2019 (1) TMI 689 - ITAT DELHI held that similar expenses were allowed in earlier years in the assessments made under section 143 (3) of the Act and the decision of Delhi ITAT in the case of DCIT verses Ranbaxy laboratories Ltd 2009 (6) TMI 126 - ITAT DELHI-I wherein the allowability of expenses towards provision for Pension Fund were held to be allowable expenses and section 43B has no application, is applicable. The fact that the assessee had actually contributed/paid the amount to pension fund makes the case of the assessee even stronger. Expenses claimed u/s 36(1)(viii) - HELD THAT - CIT(A), however, held that inasmuch as the ld. AO was not satisfied with the method followed by the assessee bank that they had not correctly calculated the deduction under section 36(1)(viii) of the Act and the Ld. AO was of the view that the assessee bank had claimed profit attributable to eligible business and computed the same on proportionate basis, based on the total fund deployed method, Ld. CIT(A) directed the assessee to furnish the correct computation of eligible deduction under section 36(1)(viii) of the Act before the Ld. AO within 30 days and the AO shall verify the same to grant deduction - we hereby refrain from interfering with the order of the ld. CIT (A). Depreciation on goodwill - HELD THAT - As decided in own case 2019 (1) TMI 689 - ITAT DELHI since, the merging of Nedungadi Bank in the financial year 2002-03, the depreciation on the goodwill of the Nedungadi Bank has been consistently allowed subsequent to the merger for last many years. The AO may examine the computation part of depreciation on the goodwill from the year of merger and allow the claim of the assessee. Disallowance under Rule 8D(2) sec 14A - HELD THAT - Present assessee before us is also a Bank, where shares were held as stock-in-trade and therefore it becomes business activity of assessee. In our opinion specific observation Hon ble Supreme Court in the case of Maxopp Investment vs CIT 2018 (3) TMI 805 - SUPREME COURT reproduced hereinabove are squarely applicable to facts of present case. Respectfully following the view taken by Hon ble Supreme Court in the case of Maxopp Investment vs CIT (supra), we allow this ground raised by assessee and hold that these were not investments made by assessee in order to fall within the ambit of Rule 8D (iii) of Income tax Rules 1963. Addition on account of Leave Encashment - HELD THAT - After referring to the decision in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT and in the case of Exide Industries Ltd. Vs Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT the constitutional bench of the Hon ble Supreme Court vide order dated 24.04.2020 has upheld the constitutional validity of Clause (f) of Section 43B of the Income Tax Act. Hence, were hereby confirm the disallowance made by the revenue. Assessee appeal allowed.

Issues Involved:
1. Loss of revaluation of investment on the HTM category.
2. Depreciation/loss on investments and MTM on derivatives.
3. Contribution to PNB Employees Pension Fund Trust.
4. Deduction under Section 36(1)(viii).
5. Depreciation on goodwill.
6. Disallowance under Rule 8D(2).
7. Addition on account of Leave Encashment.

Issue-wise Detailed Analysis:

1. Loss of Revaluation of Investment on the HTM Category:
The first ground of the revenue’s appeal pertains to the “loss of revaluation of investment on the HTM category.” The assessee had claimed losses on account of amortization of premium paid at the time of purchase of securities held under the HTM category, amounting to ?212,47,18,151/-. The AO disallowed this claim, reasoning that the securities were sold before maturity, thus not complying with RBI guidelines, and the losses were notional. The CIT(A) had previously ruled in favor of the assessee for similar issues in earlier assessment years, and the Tribunal had also adjudicated against the revenue in previous years. The Tribunal found no infirmity in the CIT(A)'s order and deleted the addition made by the AO, following the principle laid down by the Hon’ble Apex Court in the case of UCO Bank 240 ITR 355.

2. Depreciation/Loss on Investments and MTM on Derivatives:
The second ground of the revenue’s appeal involves the disallowance of ?1,06,50,34,039/- for depreciation/loss on investment and ?5,74,10,270/- for MTM on derivatives. The AO disallowed these claims, stating that the investments were not shown as stock-in-trade and their profits on sale were not enhanced by the value of depreciation in subsequent years. The CIT(A) had consistently ruled in favor of the assessee in earlier years, and the Tribunal upheld these decisions, noting that the issue was fully covered by earlier orders and the binding decision of the Hon’ble Apex Court in UCO Bank 240 ITR 355.

3. Contribution to PNB Employees Pension Fund Trust:
The third ground of the revenue’s appeal concerns the disallowance of ?215,56,00,000/- contributed to the PNB Employees Pension Fund Trust. The AO disallowed this, arguing it was not a contribution to a recognized fund. The CIT(A) had allowed similar contributions in earlier years, referencing the Delhi ITAT’s decision in DCIT vs. Ranbaxy Laboratories Ltd. The Tribunal found no difference in the facts of the case and upheld the CIT(A)’s decision, dismissing the revenue’s appeal.

4. Deduction under Section 36(1)(viii):
The fourth ground pertains to the disallowance of ?98,90,00,000/- claimed under Section 36(1)(viii). The AO disallowed this, stating the assessee had not provided exact profits derived from eligible business. The CIT(A) had allowed similar claims in earlier years, directing the AO to verify the correct computation of eligible deduction. The Tribunal upheld the CIT(A)’s decision, noting the matter had attained finality.

5. Depreciation on Goodwill:
The fifth ground deals with the disallowance of ?2,58,34,887/- for depreciation on goodwill from the merger of Nedungadi Bank. The AO had consistently allowed this depreciation in subsequent years. The Tribunal directed the AO to examine the computation part of depreciation from the year of merger and allow the claim.

6. Disallowance under Rule 8D(2):
The sixth ground involves disallowance under Rule 8D(2) for expenses related to exempt income. The AO disallowed ?2,86,69,45,381/-, which the CIT(A) partly deleted. The Tribunal referenced the Supreme Court’s decision in Maxopp Investment Ltd. vs. CIT, noting that for banks, shares held as stock-in-trade do not fall under Rule 8D(iii). The Tribunal dismissed the revenue’s appeal on Rule 8D(2)(ii) and allowed the assessee’s appeal on Rule 8D(2)(iii).

7. Addition on Account of Leave Encashment:
The seventh ground pertains to the addition of ?31.35 crore for leave encashment. The AO did not allow this claim, following the specific provision of Section 43B(f). The Tribunal confirmed the disallowance, referencing the Supreme Court’s order upholding the constitutional validity of Section 43B(f).

Conclusion:
The Tribunal consistently upheld the CIT(A)’s decisions favoring the assessee, referencing binding precedents and Supreme Court decisions, and dismissed the revenue’s appeals on all grounds while allowing the assessee’s appeal on Rule 8D(2)(iii).

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