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TMI Blog2022 (6) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes at the maximum marginal rate and there is no allegation by the Revenue that the income of the assessee by changing the accounting policy has not been offered to tax - the income of 1 year has been postponed to the another year in the manner and for the reasons as discussed above. In view of the above and after considering the facts in totality, we set aside the finding of the ld. CIT-A and direct the AO to delete the addition made by the AO. Hence, the ground of appeal of the assessee is allowed. Addition being the amount of interest on the sticky advances under rule 6EA read with section 43D of the Act - HELD THAT:- We hold that there cannot be any addition to the total income of the assessee by way of interest with respect to the loans and advances which were overdue for 3 months. Thus we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Disallowance on account of lease operating expenses - HELD THAT:- Admittedly, the accounting standard issued by the ICAI are mandatory to be followed by the assessee under the Companies Act. But the question arises, such accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumption can be drawn that the own fund of the assessee was utilised in such capital work in progress. Accordingly, there cannot be any disallowance on account of interest expenses. Hence the ground of appeal of the Revenue is dismissed. - ITA No. 852/AHD/2019 And ITA No. 956/AHD/2019 - - - Dated:- 30-3-2022 - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Assessee : Shri S.N. Soparkar Sr. Advocate with Shri Parin Shah, A.R For the Revenue : Shri Vijaykumar Jaiswal, CIT.D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned cross appeals have been filed at the instance of the Assessee and the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-6, Ahmedabad, dated 29/03/2019 arising in the matter of assessment order passed under s. 143(3) r.w.s. 263 of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2015-2016. 2. First, we take up ITA No. 852/Ahd/2019 for AY 2015-16 for the purpose of adjudication. The assessee has raised the following grounds of appeal: 1. Disallowance u/s 14A read with Rule 8D of The Income-tax Act, 1961 (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate that recognition of interest income on NPAs is in accordance with binding RBI guidelines and specific mandate of section 43D and that Rule 6EA is subservient to Section 43D and hence it cannot extend the scope beyond the charge of income provided in section 43D. 4. Operating expenditure on leases (Tax effect - Rs. 5,67,19,639) 4.1. The learned CIT(A) erred in confirming disallowance of Rs.16.68 crores by ignoring the treatment of lease rentals under operating expenses followed by the Bonk in accordance with AS-19 issued by 1C At to be mandatorily followed by the Bank as per section 133 of The Companies Act, 2013. 4.2. The learned C1T(A) also failed to appreciate that this addition represents timing difference which will be tax neutral and there will not be any loss of revenue to the department. 5. Employee Stock Option cost (Tax effect- Rs. 158,51,81,835) 5.1 The learned CIT(A) erred in law by not allowing the ESOP cost of Rs. 466.36 crores claimed os deduction u/s37fl) of the Act. 5.2 The learned CIT(A) failed to appreciate that the market price as on date of exercise of options being greater than the exercise price, there is actual disco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Circular No. 91/58/66- ITJ(I9) doted 18-05-1967 has expressly clarified that the effect of the omission of the word 'cess' from Sec. 40(a) [ii) of the Act is that only taxes paid are to be disallowed in the assessment for the years 1962-63 onwards. 1.5. Further, the following decisions have held that education cess and secondary and higher education cess is an allowable expenditure under section 37(1) of the Act - a. Sesa Goa Limited vs. JCIT (2020) (Tax appeal No 17 and 18 of 2013, order dated 28- 02-2020) (Bombay High Court) b. Chambal Fertilisers and Chemicals Limited v. JCIT (ITA No. 52/2018, order dated 31.07.2018) (Rajasthan High Court] c. ITC Limited vs. ACIT (ITA No.685/Kol/2014 order dated 27-11-2018] d. The Peerless General Finance Investment Co. Ltd. Vs. DCIT (ITA No. 937 938/Kol/2018 order dated 24-04-2019). e. DCIT vs. Bajaj Allianz General Insurance Company Ltd [ITANos.Hll 1112/PUN/2017 order dated 25-07-2019) f. Atlas Copco (India) Limited vs. ACIT (ITA No.736 8. 732/PUN/2011 order dated 05- 08-2019] g. M/s Sicpa India Private Ltd. v. DCIT (ITA No. !586/Kol./20l6 order dated 3-01-2020) h. ACIT v. Persis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowances of administrative expenses. Accordingly, the Ld.CIT(A) upheld the disallowance of administrative expenses for Rs. 20,58,91,006/- after providing credit of suo moto disallowances of Rs. 1,16,45,009/- under the provision of section 14A r.w. Rule 8D of Income Tax Rules. 7. Being aggrieved by the order of the Ld. CIT(A), both the assessee and the revenue are in appeal before us. The assessee is in appeal against the confirmation of administrative expense of Rs. 20,58,91,006/- whereas the revenue is in appeal against the disallowances of interest expenses of Rs. 218,8232,232/-. The relevant ground of appeal of the Revenue reads as under: The ld.CIT(A) has erred in law and/or on facts in restricting the addition from Rs.2,39,41,23,239/- to Rs.20,58,91,006/- made on account of disallowance made u/s.14A r.w. Rule 8D(2)(ii) of the Act. 8. The Ld. AR before us filed a paper book running from pages 1 to 474 and contended that the identical issue was decided in the own case of the assessee for AY 2010-11 bearing ITA No. 311/Ahd/2016 for the statistical purposes. 9. On the other hand, the learned DR reiterated the findings of the AO and the ld. CIT-A. 10. Both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25/-, in our considered opinion, this should meet the ends of justice. We, accordingly, confirmed the suo moto disallowance of Rs. 63,84,525/-. Ground no. 2 Is accordingly dismissed and the additional ground raised by the assessee is also dismissed. 8.2 The fact of the case on hand seems identical to the fact of the case as discussed above in ITA No. 251/Ahd/2012 (Supra). However, before parting it is pertinent to note that the ITAT has not given any detailed findings based on reasons with respect to the administrative expenses disallowed under the provision of Rule 8D(2)(iii) of Income Tax Rules. The assessee has made suo moto disallowance of Rs. 1,06,38,000/- without any basis. Accordingly, a question was put up to the ld. AR for the assessee at the time of hearing to explain the basis of making the disallowance of Rs. 1,06,38,000/- but he failed to provide any information. Rather the Ld. AR requested to set aside the issue to the file of the AO to allow one more opportunity to the assessee to furnish the details concerning the basis adopted for disallowance of Rs. 1,06,38,000/- only under rule 8D(2)(iii) of Income Tax Rules. 9. The Ld. DR has not raised any objection i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its policy for recognizing the income by way of commission from the bank guarantees. Instead of charging the commission income in entirety in the year in which bank guarantee was furnished, it has spread the income over the guarantee period. 13.1 The change in the policy for recognizing the income in the books of accounts was justified by the assessee on the reason that the bank guarantee is issued for certain period of time but the same can be rescind before the expiry of the term on account of any reason. In that event the assessee has to refund the guarantee commission under the rules framed by the Foreign Exchange Dealers Association of India. Thus, the assessee changed its accounting policy to recognize the commission income qua the bank guarantee furnished which is accrued during the period of 12 months comprising in the financial year. It was also submitted by the assessee that there is no prohibition under the provisions of section 145 of the Act to change the policy to recognize the income if it is based on bona fides reasons. 13.2 However, the AO disregarded the contentions of the assessee by observing that there was no requirement for changing the accounting polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.3 I have considered the observations of the AO and the submissions made by the appellant. ! find that the appellant had been following the accounting policy in respect of accounting its income of commission from providing bank guarantee on upfront basis i.e. as accrued in the year of issuing bank guarantee. While commission on deferred payment guarantee was being recognised in the books on pro rata basis over the tenure of such guarantee, the commission income on guarantee other than deferred payment guarantee was recognised as income in the year of issue of such bank guarantee. However, the appellant changed its policy to recognize the commission income on guarantees whereby a!! kinds of guarantees issued by the bank was recognized on pro-rata basis over the period of the guarantee. The AO held that such a change in the method resulted in to lower income for the year under consideration and the change was also not justified He therefore added a sum of Rs, 136.52 Cmres as income considering the non acceptance of the changed method and as per note in the audited accounts. It is necessary to understand the various types of bank guarantees so as to ascertain whether in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may so arise due to invocation of the guarantee and the failure of the client to pay the same to the bank has nothing to do with the commission income that has already accrued at the time of issuing the financial guarantees. There remains nothing further in the matter of providing any service by the appellant bank once an irrevocable guarantee is issued. Hence the accrual of commission income in such a case cannot be postponed over the period of the guarantee- No such claim of any loss is the issue before me nor it is the appellant's case that any such commission has been refunded. If on happening of any such contingency in future during tenure of guarantee any such payment or refund is given, the same can be certainly claimed as expenditure In accordance with the provisions of law or as a loss incidental to the business in the year in which such even occurs but in such a case, there is no effect as far as the commission income which has a/ready accrued at the time of issuing the guarantee is concerned. By changing the method, the assessee cannot reverse the accrual of income. The basis of accounting the income and its chargeability is now specified in section 145 and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch refund clause to return the commission income already accrued as noted by AO after verification of sample guarantee documents. 7.3.5 As regards the decision of the ITAT Mumbai in the case of BNP Paribas Bank 150 TTJ 395, the ITAT has followed the judgment of Calcutta High Court in the case of Bank of Tokyo Ltd which as seen above dealt with the issue of deferred payment guarantee. The said decision of iTAT also makes it clear that the appellant was following the method of spread over such commission in earlier year (and it was not change made in the year which was under consideration) The Bombay High Court in 214 Taxman 548 affirmed the said decision because the facts found in that case were that the guarantee which has been issued for a certain period of time is cancelled by the client before the expiry of the tenure of the guarantee, resulting into the respondent- assessee returning to its clients the part of the guarantee commission attributable to the unexpired period of the guarantee, hence the facts are clearly distinguishable from the facts of the appellant's case in which the commission income on bank guarantees was accounted for upfront in the past (except defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no impact as far as income side of the appellant is concerned. As far as commission on bank guarantee is concerned, the same cannot be compared with receipt of interest or bill discount where the borrower himself is using the funds of the bank for future period and hence the receipt is related to the period of such use . The judgment of Supreme Court in the case of Madras Industrial Investment Corporation Ltd 225 ITR 802 is also not relevant to the facts of the appellant's case as in that case the assesses was making use of the funds for future period and hence the expense was spread over the period of use. In the instant case, it is not the case of any such expenditure of which benefit is received for future years but here the case is of receipt of income on accrual basis. 7.3.7 In my opinion, once guarantee is issued, the service to the client gets concluded unlike in the case of deferred payment guarantee where the provision of service is continued in respect of future payment. The contention of the appellant that a change in accounting policy is permissible, there is no dispute about such contention. Also, the fact that in the year of change there may be transition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion cannot be apportioned with reference to the period over which the guarantee extended. Similar view is taken by Mumbai ITAT in the case of Dy CIT vs Chohung Bank 126 ITD 448 after considering the judgments in the case of Bsnk of Tokyo and Madras Industrial Investment corporation and held as under: Admittedly, the amount of commission is received when the bank issues guarantee. Such guarantee is for a specific penod, sometimes extending to years. The amount of full guarantee commission is received a! the time of issuing guarantee irrespective of the period for which the guarantee is given. If the customer does not make 3 default to the third party, then the guarantee expires at the end of the period and the security received from its customer, in the shape of FDRs, is returned. There may be situation in which the client revokes the guarantee prior to the completion of the guarantee period or commits the default 9s a result of which the bank has to appropriate the proceeds of the security to satisfy the third party Whatever may be the case the bank incurs no personal obligation either at the time of issuing guarantee or thereafter, which may land it into situation of payin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the accrual is dependent on tfie period for which the guarantee continues. The accrual of the amount of commission reiatable to the period beyond the dose of the year in such a situation will be solely dependent on the fact that whether the guarantee continues or not Thus, in the contingency of the customer revoking the guarantee, the amount earlier received will require refund. Consequently, if there exists such a clause of refund of the commission in the agreement on the earlier revoking of the guarantee or there is some other material to show the understanding between the bank and the customer to that extent, in that situation the accrual of entire income will not take place on furnishing guarantee, but it will be spread over the period to which the guarantee relates. If, however, the amount of the guarantee commission is received at a stretch and there is no contingency of paying it back even in the eventuality of revoking the guarantee prior to the completion of the guarantee period, then the entire amount of guarantee commission will partake the character of income in the year of receipt itself. Coming back to the facts of our case, we find that no material has been place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is proved by Appellant that income of current is already subjected to taxation in preceding assessment years. This ground of appeal is partly allowed. 15. Being aggrieved by the order of the ld. CIT-A, the assessee is in appeal before us. 16. The ld. AR before us submitted that commission income has been recognized in the books of accounts over the period of the guarantee furnished to the parties. Furthermore, in the event of cancellation of the bank guarantee, the assessee was liable to refund the commission expenses. Thus, the assessee changed the policy for recognizing the commission expenses. 17. On the contrary, the learned DR vehemently supported the order of the authorities below. 18. We have heard the rival contention of both the parties and perused the materials available on records. At the outset we note identical issue was before us in the own case of the assessee for A.Y. 2010-11 bearing ITA No. 311/Ahd/2016 where it was observed as under: 20. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee till the immediate preceding assessment year was recognising the commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial basis. Furthermore such change in the accounting policy should not defeat or postpone the charge on the income of the assessee which has been earned by it. 20.2 Now the question arises whether the commission income has accrued to the assessee on furnishing the bank guarantee to the parties. Admittedly, the assessee was charging commission immediately on furnishing the bank guarantee irrespective of the period to which the guarantee relates. For example, if the guarantees is issued for 2 years, the assessee shall charge the commission from the party for both the years upfront but the same shall be accounted as income in 2 different financial years to which it relates. Upon furnishing the bank guarantee, the assessee undertakes the risks for the period covered under the bank guarantee. If such risks spreads over more than one financial year, then the income should also correspond to such financial years. That is the requirement of the matching concept. Under matching concept the income is recognised to the period to which it relates. Thus, the mere receipt of commission does not mean that such amount represents the income of the assessee. It is for the reason that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said that said fee had become 'due' at the time of deposit. Fee was charged in advance for the entire course, presumably because of the reason that there should not be any default in making the same by the students during the period of course. Interestingly, the Assessing Officer, in his assessment order, had himself stated that 'students were required to deposit the fee for the whole module of course at the time of registration itself'. The Assessing Officer had used the expression 'deposit'. In the very next breadth, he drew the conclusion that it would mean that the fee had become 'due'. Thus, the Assessing Officer knew the significance of the expression 'deposit' viz -a-viz 'due', though he committed the mistake in treating the said deposit as the fee due. On applying the principles of law laid down in E.D. Sassoon Co. Ltd. (supra) and Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), it would be apparent that the fee was not due at the time of the deposit. The services in respect of the financial year 1997-98, for which also the payment was taken in advance, were yet to be rendered. Therefore, applying the principle in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is maintaining its books of accounts on accrual basis. Therefore, the income in respect of bad and doubtful debt is required to be taxed on accrual basis except for the exceptions provided under rule 6EA read with section 43D of the Act. As per rule 6EA, the interest on the sticky advances should not be recognized as income when overdue period is of 180 days or more. As per the AO, the amount of interest for Rs. 40,56,87,046/- representing the sticky advances where the overdue period was more than 3 months but less than 6 months ought to have been recognized as income under rule 6EA of Income Tax Rule. Thus the AO made the addition of Rs. 40,56,87,046/- to the total income of the assessee. 21. Aggrieved assessee preferred an appeal to the learned CIT (A) who has also confirmed the order of the AO by observing as under: 5.3. / have carefully considered the submissions of the appellant and the assessment order. The identical issue came up for consideration in Appellant's own case for AY 2013-14 and AY 2014-15 wherein the undersigned has held as under:- 8.377)e AO has relied on rule 6EA which is prescribed in terms of provisions of section 43D of the income tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tful debt, interest on which is required to be offered on receipt basis is to be considered in accordance with the RBI guidelines^ Had that be the intention of the legislature, it would have been provided so that the same shall be in accordance with RBI guidelines and not as prescribed by authority. There is no question of rule being not in accordance with provision of the law because the legislature has given authority in the relevant provision to frame such rules. RBI guidelines may be taken in to consideration while farming such rule but that does not mean that rule must conform totally with such guidelines. 8.3-4 This very issue is considered by Hon'ble Mumbai Tribunal in the following case of QIC Housing Finance Ltd vs Addl CIT ITA No, 1874/Mum/ 2010, it has been held that- In our view it cannot be said that the guidelines of the NHB as and when they are revised have to be treated by implication incorporated in Rule 6EB of the Rules. NHB is not the rule making authority for the purposes of Sec.43D of the Act. The discretion is left to the rule making authority to follow or not follow the guidelines of NHB as and when they are revised. The purpose of classification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that rule 6EA prescribed is not to be followed. On the contrary, the circular in Para (xii) emphasizes the need for banks to follow mercantile method of accounting and not cash system as per RBI guidelines and Companies Act but does not state that while following mercantile method (for interest income), the provisions of Income tax Act in accordance with section 43D read with rule 6EA is not to be followed. 8.3.5 As the issue and facts remains same this year identical to the issue involved in AY 2010-11 2012-13 as decided by my predecessor for that year and following the above mentioned order, disallowance ofRs. 16,30,32,051/- made by the AO is confirmed. 8.3.6 Considering above factual position and the legal position directly dealt with after considering the various judgments and circulars relied upon by the appellant, the addition made by the AO is confirmed and this ground of the appellant is dismissed. 8.37 It has also been brought to my notice by the assessee that a sum of Rs. 30.41 crores be allowed as deduction for the current assessment year since the amount was already taxed in A. Y.2012-13 and if the deduction is not allowed, it would tantamount to doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of DCIT Vs. Royal Bank of Scotland reported in 76 taxmann.com 91 has held as under: 2.6 We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute before the lower authorities that the loan accounts had become sticky and doubtful of recovery. The only contention of the revenue is that section 43D of the Act read with Rule 6EA of the Rules permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three months but less than six months as on 31.3.2010. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon'ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards 'Provision for NPA'. We find that the same de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, a case pertaining to recognition of income and not computation of the income of the assessee. 21. The Supreme Court in Southern Technologies Ltd. (supra) has held that the 1998 Directions are only disclosure norms and have nothing to do with computation of total income under the IT Act or with the accounting treatment. The 1998 Directions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. The court has referred to the deviations between the RBI Directions and the Companies Act as follows: '42. Broadly, there are three deviations: (i) in the matter of presentation of financial statements under Schedule VI to the Companies Act; (ii) in not recognising the income under the mercantile system of accounting and its insistence to follow cash system with respect to assets classified as NPA as per its norms; (iii) in creating a provision for all NPAs summarily as against creating a provision only when the debt is doubtful of recovery under the norms of the accounting standards issued by the Institute of Chartered Accountants of India. These deviations prevail over certain provisions of the Companies Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act and that as far as income recognition is concerned, section 145 of the Income-tax Act, has not role to play. 23. In the light of the above discussion what emerges is that while determining the tax liability of an assessee, two factors would come into play. Firstly, the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the provisions of the Income-tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income-tax Act and the accounting principles have no role to play. However, recognition of income stands on a different footing. Insofar as income recognition is concerned, it would be the RBI Directions which would prevail in view of the provisions of section 45Q of the RBI Act and section 145 would have no role to play. Hence, the Assessing Officer has to follow the RBI Directions. 24. The Delhi High Court in Vasisth Chay Vyapar Ltd., (supra), has in the context of a similar issue arising in the case of a non-banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee. No doubt, in first blush, reading of the judgment gives an indication that the Court has held that RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr. Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of section 36 (1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i) (vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the Apex court centered around deductibility of provision for NPA. After analyzing the provisions of the RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank found that the Accounting Standard 19 for Lease issued by the ICAI provides that if there is an escalation clause in the lease agreement in the amount of rent, then the average of total lease rent payable over the lease period should be charged in the profit and loss account. In other words, the rent payable for the entire lease period should be charged on straight line method in the profit and loss account. It was explained by the assessee that the lease property will be used throughout the lease period consistently despite the variation in the market rate, therefore the average amount of total rent payable over the lease period should be charged to the profit and loss account on the basis of straight-line method. Accordingly the assessee worked out the additional amount of lease rent and debited the same in the books of accounts. 27.1 As per the assessee, additional amount of lease rent is tax neutral. As such the assessee, will claim more deduction in the initial years of the lease agreement whereas the same deduction will be reduced in the later years. In effect, there will not be any impact on the taxable income of the assessee over the lease period. 27.2 However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the recipient. The AO has noted that judgment of Delhi High Court in the case of Virtual Soft System Ltd 341 ITR 593 was on different issue and was not applicable. The appellant has mainly relied on AS- 19 and the case laws on Accounting Standards required to be followed. The appellant has submitted that Accounting Standard ('AS') -19 has mandated straight line basis (SLM) for accounting of lease expenses. The SLM mandated by AS-19 means that if the lease agreement provides for escalation clauses during the term of lease, the debit to P L a/c in each year must represent average of the total lease rentals payable over the lease term. The actual rent payment may vary based on lease terms but expense needs to be booked in P L a/c on SLM basis. It is further submitted that since the Bank is consistently making profits andpaying tax at the highest rate without claiming any tax holiday benefit, the method followed is revenue neutral. Reference is drawn to the following observations of jurisdictional Bombay HC (jurisdictional at the relevant time) in the case of CIT vs. Nagri Mills Co. Ltd (33 ITR 681) which has advocated a pragmatic approach in such matters. The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same. The AO has correctly stated that the appellant has debited notional expenditure, which has not been incurred by the appellant at all. Further, the recipient of such notional receipt will not show the said as income and it will not be and cannot be taxed in the hands of the recipient. This shows that the accounting system adopted by the appellant from this year is not in accordance with any accounting procedures approved by the Department. If the procedure adopted by the appellant is accepted, the books of accounts of the appellant will never show the true correct profit / income. In first three years, the expenditure is debited more than the actual expenditure incurred and in next three years, the appellant will debit less expenditure than the actual expenditure incurred. In such situation, it is doubtful that the books of accounts of the appellant will show true correct income /profit in any year. The appellant tried to explain the method with the help of the table mentioned above, but in the said table, the period of lease rent mentioned is static for six years, but the actual situation cannot remain same. Every year some new properties will be acquired on rent by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease expense/income to be recognized in a particular year. 41.1 Under the Accounting Standard 19, the assessee is required to recognise the operating lease expenses on a straight-line method unless another systematic and rational basis is more presentable of the time pattern in which the benefit is derived from the lease property. The relevant extract of AS 9 reads as under: Lease payments under an operating lease should be recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the user's benefit. 41.2 In the light of the above discussion, we have to see whether the lease rent expenses claimed by the assessee on SLM basis is allowable deduction under the provisions of the Act. The provisions of section 145(3) of the Act mandates to maintain the books of accounts either on mercantile system of accounting or cash system of accounting. Undeniably, the assessee is following mercantile/accrual system of accounting. Under mercantile system of accounting, the following concepts needs to be consider: (1) Under the mercantile system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed while working out the income under the provisions of the income tax Act. So far, the Income Tax Act has not notified the accounting standard 19 issued by the ICAI, though mandatory for the assessee to follow while preparing its books of accounts, but this is not the same under the Income Tax Act. Hence the ground of appeal of the assessee is dismissed. 31.1 At the time of hearing, the ld. DR has not brought anything contrary to the above finding of the ITAT in the own case of the assessee. Thus respectfully following the above finding in own case of the assessee, we hereby dismiss the grounds of appeal of the assessee. 32. The next issue raised by the assessee in ground no. 5 of its appeal is that the learned CIT (A) is erred in allowing the claim of deduction for Rs. 466.36 crores on account of ESOP. 33. At the outset we note that the learned AR for the assessee before us submitted that learned CIT(A) while confirming the disallowances followed the order of its predecessor for A.Y. 2014-15. The assessee against the order of the learned CIT(A) for the A.Y. 2014-15 was in appeal before this tribunal in ITA No. 521/Ahd/2018 where the issue was set aside to the file of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited vs. CIT, cited supra, has held as under :- Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be preven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... progress. (4) On the facts and circumstances of the case, the Id. CIT(A) ought to have upheld the order of the Assessing Officer. (5) It is therefore, prayed that the order of ld.CIT(A) may be set aside and that of the Assessing Officer be restored. 37. The first issue raised by the Revenue is that the learned CIT(A) erred in restricting the disallowances under section 14A r.w.r. 8D to the extent of Rs. 20,58,91,006/- out of total disallowances of Rs. 239,41,23,239/- 37.1 At the outset we note that the issue raised by the Revenue in its ground of appeal has been adjudicated along with ground no. 1 of the Assessee appeal in ITA No. 852/Ahd/2019. We have adjudicated the issue vide paragraphs number 9 of this order, where the issue was decided against the Revenue. For detail discussion please refer the aforementioned paragraphs of this order. Hence the ground of appeal of the Revenue is hereby dismissed. 38. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 1,47,53,606/- on account of annual technical fee. 39. The AO during the assessment proceedings found that the assessee has claimed annual t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer is deleted Considering the above, disallowance made by Hie assessing officer on the identical facts is deleted. facts remaining the same in the year under consideration, following the abovementioned order, impugned disallowance of prior-period expenditure of Rs. 59,73.681/- is deleted it is also seen that the CIT(A)'s decision on the issue in favour of the appellant in the A. Y. 2007-08 was accepted by the Revenue. This ground of appeal is allowed. As the issue is identical to the issue involved in A.Y. 2013-14 and A.Y. 2014-15, unc! us decided by the undersigned for those years, the additions of Rs. 1,47,53,606/~ is deleted. This ground of appeal is allowed. 41. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 42. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 43. We have heard the rival contention of both the parties and perused the material available on record. At the outset we note the Revenue has raised identical issue before us in own case of the assessee for A.Y. 2011-12 bearing ITA No. 2173/Ahd/2016, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the above finding of the ITAT in the own case of the assessee. Thus respectfully following the above finding in own case of the assessee, we hereby dismiss the grounds of appeal of the Revenue. 44. The last issue raised by the revenue in ground No. 3 is that the learned CIT (A) erred in deleting the disallowance made by the AO for Rs. 1,16,47,871/- on account of interest expenses incurred in respect of capital work in progress. 45. The AO during the assessment proceedings found that the assessee has shown capital work in progress of Rs. 101,26,11,000/- only. On question by the AO whether any interest-bearing fund has been utilized in such work in progress, the assessee submitted that capital WIP consist of amount paid in advance for supply of furniture, ATM, computer peripheral, computer hardware, air conditioner for existing or new branches. These expenses are regular capital expenses incurred in course of business but does not amount to extension of existing business. Further there was no specific borrowed fund used in the acquisition of these assets. Therefore question of diversion of interest bearing fund does not arise. There was also sufficient interest free fund was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 15,603.40 crores. The Bank has earned gross interest income of Rs. 35,479 crores and on the other hand has incurred gross interest expenses of Rs.21,254 crores. Thus, there is no net interest expense. The AR drew my attention and placed on record Bombay High Court judgment in Reliance Utilities 313 ITR 340 (Bombay) in respect of disallowance out of interest paid on borrowed capital u/s 36(1)(iii). it has been observed by the Hon'ble Court as under: If there ho interest-free funds available to an assesses sufficient to meet its investments and at the same time the assesseo had raised a loan, it can he presumed that the investments were from the interest-free funds available. The principle, therefore, would be that if there are funds available, both interest-free and overdraft and/or loans taken, then a presumption would also ilii.it investments would be out of the interest-free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then o presumption would arise that investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the records, there is valid legal presumption that such investment in capital advances have been made out of interest-free funds in absence of any specific contrary evidence brought out by the AO. The addition of Rs.73.03 lacs made u/s 36(1)(iii) is cancelled for the reasons mentioned above. This ground of appeal is allowed. Following the above findings and the fact that the appellant has sufficient interest froe funds to cover its cost of capital advances towards purchase of fixed assets , the disallowance made by Assessing Officer for Rs. 1,16,47,871/- is deleted. The ground of appeal is allowed. 47. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 48. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 49. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note the Revenue has raised identical issue before us in own case of the assessee for A.Y. 2012-13 bearing ITA No. 287/Ahd/2017, where it was observed as under: 77. We have heard the rival contentions of both the parties and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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