9911796707
TMI Blog2023 (6) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disallowing the appellant s claim in respect of provision for pension amounting to Rs. 1495,50,00,000. 2. Depreciation on matured securities of Rs. 53,14,55,386 The learned CIT(A) erred in confirming the disallowance of Rs. 53,14,55,386 in respect of depreciation on matured securities which had fallen due for redemption during year ended 31 March 2009 but redemption proceeds were not received. 3. Disallowance under section 14A The learned CIT(A) erred in not specifically directing the Assessing Officer to compute disallowance under section 14A in respect to tax-free bonds, shares (other than strategic investments) and units of mutual funds as nil, as these investments of the Bank are stock-in- trade. The learned CIT(A) erred in holding that the disallowance shall not be below the amount disallowed by the appellant himself in the computation of total income. Without prejudice to the above, the learned CIT(A) erred not accepting the claim of the appellant that only 1% of the exempt interest and dividend income is to be disallowed under section 14A. Without prejudice to the above, the learned CIT(A) erred in not appreciating that income not yielding any exempt income during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in not appreciating the fact that during the assessment year 2009. 10 the said sum was actually paid by the Bank to the Fund. 11. Double taxation relief ( DTR ) 11.1 The learned CIT(A) erred in not directing the Assessing Officer to grant the entire credit of DTR of Rs. 286,12,06,042. 11.2 Without prejudice, the learned CIT(A) erred in not directing the Assessing Officer to grant the credit of DTR relief to the extent of Rs. 268,29,87,342. 12. Payment for setting up a chair in London School of Economics 12.1 The learned CIT(A) erred in confirming the action of the Assessing Officer in not allowing the amount of Rs. 72,92,750 paid for setting up a chair in London School of Economics. 13. Recovery of bad-debts written off in earlier years 13.1 The learned CIT(A) erred in not allowing the claim of the Bank in respect of non- taxability of recovery of bad debts written off in earlier years. 13.2 The learned CIT(A) erred in not directing the Assessing Officer to not tax the recovery of bad debts written off in terms of section 41(4), as the appellant had not claimed a deduction under section 36(1)(vii). 13.3 The learned CIT(A) erred in not directing the Assessing Officer to verify an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 36. (b) Further, the provisions of Sec. 43B will also need to be applied before allowing expenses of above nature and accordingly, the provisions will become inadmissible. (c) without prejudice (a) and (b), the provision otherwise not admissible u/s. 37(1) of the Income Tax Act as the provision is in respect of contingent liabilities. 6. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue by placing reliance upon the directions issued by the Dispute Resolution Panel for the assessment year 2012-13. Being aggrieved, the assessee is in appeal before us. 7. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India v/s DCIT, in ITAs no. 3644 and 4563/Mum./2016, for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- 15. We have heard rival contentions on this issue and gone through facts and circumstances of the case. We have also perused the material placed before us including assessment order, order of CIT(A) and case laws. We noted that the assessee pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee explained this by an example stating that, if as per employee policy an amount of Rs. 250/- is payable to each employee towards pension and there are 10,000 employees, the total pension payable would be Rs. 25,00,000/-. However, based on actuarial valuation, which takes into consideration entry into service, length of service and date of retirement of all employees, attrition before retirement, etc. the pension liability amounts to Rs. 18,00,000/-. Accordingly, a provision of Rs. 18,00,000/- is required to be created in the books. Therefore, the pension liability has definitely arisen during the year as the services of the employees are already availed, and they are eligible for the said pension. It is also possible to estimate the pension liability with reasonable certainty. Hence, the provision made is for a present actual liability, payable in future, and not a contingent liability. It is clearly an ascertained liability and has been recognised in the books of account on a scientific basis, based on actuarial valuation. The Supreme Court in the case of Metal Box Co. of India (supra) and Bharat Earth Movers (supra) and several other cases, have held that if a busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Revised AS-15 relating to employee benefits issued by the ICAI. The allowability of such transitional provision has been upheld by the Hyderabad Bench of the Tribunal in the case of NMDC Ltd. vs. JCIT (2015) 56 taxmann.com 396 (Hyderabad - Trib.) and Chandigarh Bench of the Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd. vs. ADIT being order dated 2.04.2013 (ITA no. 1148/Chd/2011). Both the aforesaid cases were specifically concerned with similar provision created towards post retirement employee benefits on account of revision of AS-15. In both the cases the Tribunal has allowed a deduction for a liability which the revenue alleged did not pertain to the year, created as in consequence of an adoption of the revised accounting standard. 19. The fact that in year of change of accounting method there may be a distortion was accepted by the Bombay High Court in CIT vs. West Coast Paper Mills Ltd. [1992] 193 ITR 349 (Bombay). The Court was concerned with a case where the assessee changed its method of accounting for claiming deduction of bonus payments to employees from cash to mercantile. Consequently, in the year of change it claimed such deduction in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the above provisions are clearly not applicable in the present case. 21. It also requires consideration that this aspect of the matter has not been controverted by the Revenue in their submissions before the Tribunal. The aforesaid provision represents the liability arising on account of the availment of services during the tenure of the employment recognized as a consequence of the transitional provisions of AS-15. The aforesaid provision does not represent contribution to any pension fund, and hence, the provisions of sections 36(1)(iv)/36(1)(v) or 40A(7)/40A(9) or 43B of the Act are not applicable. 22. In CIT vs. Ranbaxy Laboratories Ltd. [2011] 334 ITR 341 (Delhi), the Delhi High Court was concerned with a case where the assessee had introduced a pension scheme for its managerial employees which was over and above the benefits available under the superannuation scheme of the company. The Delhi High Court held that the pension scheme of the assessee does not envisage any regular contribution to any fund or trust or any other entity and, therefore, allowed the deduction on the basis that liability in this regard accrues year on year. Further, reliance is placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(v) of the Act specifically deal with contribution to a recognized provident fund or an approved superannuation fund or an approved gratuity fund. The said sections do not deal with providing for a liability vis- -vis pension or any other retirement benefits. Thus, the aforesaid provision for pension made on the basis of an actuarial valuation ought to be allowed as a deduction under section 37(1) of the Act. Since there are specific provisions dealing with contribution to pension fund/ gratuity fund, etc., the provision for pension (which doesn t represent any contribution to fund) falls under the purview of section 37(1) of the Act and ought to be allowed as deduction. Reliance in this regard is placed on the decision of the Supreme Court in the case of CIT vs. Kalyanji Mavji Co. [1980] 122 ITR 49 (SC), wherein it was held that if expenditure incurred by the assessee was not covered by the specific provision under section 10(2)(v) of the Act, then, benefit should be given to the assessee under the residuary clause i.e. section 10(2)(xv) of the Act. Moreover, Instruction no. 17/2008 dated 26.11.2008, relied upon by the CIT DR is also not applicable to the facts of the case. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of securities which were due for redemption during the year ending 31/03/2009. It was further submitted that such provisions were made in line with NPA norms in respect of overdue debentures/bonds which matured but remain unpaid as on 31/03/2009 or the interest is not serviced regularly. It was further submitted that this provision for impairment on the valuation of investments is made in light of the RBI guidelines. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and disallowed the depreciation on matured securities claim by the assessee. The learned CIT(A), vide impugned order, following the finding of its predecessor in assessee s own case for the assessment years 2004-05 and 2005-06 dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 11. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India v/s DCIT, in ITA no. 5470/Mum./ 2002, for the assessment year 1996-97, vide order dated 26/07/2013, while deciding similar issue ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under the Income-tax Act as held in the case of Indian Molasses Co. Pvt. Ltd. vs. CIT 37 ITR 66 (SC) and Standard Mills Co. Ltd. Vs. CIT 229 ITR 366(Bom). Hence, 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. This ground therefore fails. 39. The findings of the CIT(A) is based the on the various decisions of the Hon ble Supreme Court as well Jurisdiction High Court. No contrary decisions has been brought before us accordingly we do not find any error or illegality in the impugned order of CIT(A) qua this issue. The same is upheld. 12. We further find that the Hon ble jurisdictional High Court in State Bank of India v/s DCIT, in ITA no. 271 of 2014 vide order dated 23/08/2016 upheld the aforesaid findings of the coordinate bench of the Tribunal. Since, a similar issue has already been decided in assessee s own case for the preceding assessment year, therefore, we see no reason to deviate from the view so taken, in the absence of any allegation of change in facts and law. Therefore, respectfully following the judicial precedent in asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as relevant material on record. The assessee has claimed that as per the lease agreement the assessee has entered into an operating lease of the asset in question. In order to determine the real nature of transaction and arrangement between the parties, the substance of the document intention of the parties and surroundings circumstances under which the parties have entered into the transaction are material and relevant to be considered. Therefore, mere nomenclature words used in the agreement cannot be looked into in isolation of the substance of the document, the real intentions of the parties and the surroundings circumstances under which the transaction took place. Undisputedly in the case in hand the asset in question is the railway track which is already owned by the lessee Konkan Railway Corporation Ltd. (KRCL) but because of the requirement of funds the KRCL decided to raise the funds by making the arrangement of sale and lease back of the asset. Thus, the real object as far as KRCL is concerned for entering into the transaction of sale and lease back is to raise/arrange the funds. The two transaction of sale of the asset in question to the assessee bank and lease back can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le hereto. 5. Insurance It is agreed by and between the Parties hereto that the Lessee shall, for and on behalf of the lessor. 5.1 Take out insurance on the Equipment against loss in transit, erection and installation risks, maritime risks, where necessary prior to the despatch of the Equipment, or alternatively to ensure that the insurance on the Equipment in respect of the said risks is effected by the Manufacturer/Supplier before delivery of the Equipment. 5.2 immediately after the delivery of the Equipment, insure the Equipment and keep the same insured throughout the term of this Agreement against loss or damage by accident, lighting, fire, flood, storm, earthquake, tempest, falling aircraft, malicious damage, riot, strike, civil commotion, explosion, implosion and where necessary against third party claims in respect of Equipment used in hazardous industries and those requiring environmental protection as also for other risks usually covered by insurance in the type of business for which the Equipment is for the time being used to the satisfaction of the Lessor upto the full replacement value thereof under a Comprehensive Policy of Insurance, in the joint names of the Lessor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, sub-lease, or other disposition as the case my be is made subject to the right of the Lessor to repossess the Equipment at any time(whether or not the same or any part thereof shall have become affixed to the said land or building) and for that purpose to enter upon such land or building and sever any Equipment affixed thereto: 8.7 punctually pay all registration charges, licence fees, rent, rates, taxes including in particular Sales Tax and other outgoings payable in respect of the Equipment under this Agreement or for storage, installation, or use thereof, or in respect of any premises in which the Equipment form time to time may be placed or kept and produce to the Lessor, on demand, the latest receipts for all such payments and in the event of the Lessee making default under this subclause the Lessor shall be at liberty to make all or any of such payments and to recover the amount thereof from the Lessee forthwith. 8.8 not claim any relief by way of any deduction, allowance or grant available to the Lessor as the owner of the Equipment, under the Income Tax Act, 1961 or under any other Statute, rule, regulation or guideline issued or that may be issued by the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used by any such detachment or removal of the Equipment. 13.3 Without prejudice to and in addition to the Lessor s rights provided in Clause 13.2 hereinabove the Lessor shall also be entitled to recover from the Lessee and the Lessee shall be bound to pay to the Lessor the following amounts viz: 13.3.1 The entire amount of the lease rentals for the fixed period of the lease computed in the manner set out in Part II of the First Schedule hereto on the footing and as if the Agreement had not been terminated to the end and intent that the Lessee shall pay to the Lessor not only arrears of instalments of lease rentals upto the date of termination of this Agreement but also such further instalments for the then unexpired residue of the term which the Lessee would have been bound to pay to the Lessor had this Agreement continued. 14. Redelivery/Repossession of Equipment: 14.1 Upon the expiration of this Agreement if the Lessee does not propose to renew the lease for further fixed period or secondary period the Lessee shall if required by the Lessor deliver the Equipment to the Lessor at the address of the Lessor stated in this Agreement or at such other addresses as the Lessor may specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or except on the default on the part of the lessee. Even in case of default and consequential termination of lease its is provided that the lessee shall pay the entire arrears of the lease as well the future instalment for the unexpired period of the lease term, therefore the lease agreement has been framed and constructed in such a way that the assessee recovers its entire cost along with the interest in equated monthly instalments. Even in the schedule to the lease agreement the period of 84 months is a fixed non-concealable period. As per clause 5 of the agreement the lessee is required to take out the insurance on the asset in question and also bear all the damages, loss and risk attached to the leased asset, therefore, it is agreement between the parties that all the risk and reward attach to the lease asset shall be born and enjoyed by the lessee. The so-called restrictions on the sale, creating charge, lien by the lessee are necessary being a security against the funds provided by the assessee to the lessee. Even otherwise in case of simple finance, the asset which is being financed is always kept as a security/mortgage with the bank to protect the interest of the bank till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and obsolescence of the asset leased, whereas in se of finance lease it is the lessee who always bears such loss. c. In the case of an operating lease, the lessor remains the owner of the asset throughout the lease period and thereafter also, whereas in a finance lease it is the lessee who becomes the real owner. The lessor s title over the asset is only symbolic to serve as security for the rentals, which are nothing but the return of his investment with interest. d. Operating lease is cancellable, whereas tinance lease is always noncancellable. In a case of finance lease, the lessor is interested in lease rentals and not the asset. e. In the case of an operating lease, substantial risks and rewards of ownership of the asset remain with the lessor, whereas in the case of finance lease these ab initio vest with the lessee. f. In the case of an operating lease, the fixation of lease rental bear no symmetry with the economic life of the asset and the possibility of the asset reverting back to the lessor can never be ruled out. However in the case of a finance lease, the lease period is ordinarily equal to the economic life of the asset and lease rentals are fixed in such a way so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e highlighted the broad features of operating lease such as, the lease is cancellable; the lessor provides services, maintenance and insurance; total of all the lease payments by the lessee does not provide for the recovery of the investment with interest. Further the operating lease generally covers the asset which can be needed by different users so that the lessor may make available to one lessee after another. 5.23 Now let us try to find out the substance of the extant lease agreement as to whether it predominantly satisfies the conditions of an operating lease. On reading the lease agreement as a whole, we find that except for naming the lessor as owner at some places in the agreement and inserting certain cosmetic clauses to give the colour of operating lease, there is nothing in substance which satisfies the inherent requisites of operating lease. It can be observed that the lease is not cancellable prior to the expiry period of seven years. The cost of repairs and insurance is to be borne by the lessee. Sum total of the lease rentals by the lessee recoups the amount invested by the lessor plus interest. There is a clause that after the expiry of seven years period, the boil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller s cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; (b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No banking company shall engage in any form of business other than those referred to in sub-section (1). 25. As it is clear from the sub-section 2 that no banking company shall engaged in any form of business other than those referred in sub- section 1 of section 6. However, as per circular dated 19.2.1994 the Reserve Bank of India has allowed the banking companies to undertake the activities of equipment leasing but the same should be treated on par with the loan and advances. Therefore, the activity of equipment leasing permitted by the RBI vide said circular is only in the nature of finance lease. The said circular has also been considered and discussed by the Special Bench in para 5.24-5.27 as under: 5.24 Our view is fortified by the RBI Circular no. FSCBC 18/24- 01-001/93-94 dated 14.02.1994 which inter alia deals with equipment leasing. It is needless to say that this circular is binding on the assessee bank. Para 1(i) of it provides that the activities like equipment leasing, hire purchase and factoring services should be undertaken only by certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for depreciation. Para 1 (vi) states that as a prudent measure full depreciation should be provided for during the preliminary lease period of the asset. It is impermissible to read para 1 (vi) of the Circular in isolation to support the contention that the RBI permits claiming depreciation on the leased assets. It is in fact not so because the Circular as a whole treats the activity of equipment leasing as that of loans and advances and the reference to full depreciation in para 1 (vi) should be read in juxtaposition to para 1(v) which talks of the second component of the lease rental being the replacement cost of the asset. When we read this Circular in entirety, there remains no doubt that the activity of equipment leasing has to be considered by a bank on par with the loans and advances. 5.26 In view of the above circular we do not find any scope for argument that the instant lease agreement be treated as that of operating lease. Since the loans and advances encompass finance lease, naturally such type of equipment leasing cannot be given any name other than the finance lease. Here it is relevant to note that the assessee claimed depreciation on leased asset and also showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee was leasing out the vehicles as the facts recorded by the Hon ble Supreme Court in para 2 of the said decision as under: 2. The assessee is a public limited company, classified by the Reserve Bank of India (RBI) as a non-banking finance company. It is engaged in the business of hire purchase, leasing and real estate etc. The vehicles, on which depreciation was claimed, are stated to have been purchased by the assessee against direct payment to the manufacturers. The assessee, as a part of its business, leased out these vehicles to its customers and thereafter, had no physical affiliation with the vehicles. In fact, lessees were registered as the owners of the vehicles, in the certificate of registration issued under the Motor Vehicles Act, 1988 (hereinafter referred to as the MV Act ). 28. Therefore the Hon ble Supreme Court has decided the issue in the case of nonbanking financial company which is engage in the business of leasing whereas in the case of bank it is not permitted under the Banking Regulation Act to engage in the business of leasing of equipments. Following the decision of Special Bench of this Tribunal in case of Indusind Bank Ltd.. we hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debts written off. However, it should be allowed deduction in respect of write offs of non-rural branch advances amounting to Rs. 1026 crore. Before us Revenue has emphasised that deduction under section 36(1)(viia) of the Act is available to both rural and nonrural debts and accordingly, the restriction as per the proviso to section 36(1)(vii) of the Act is also applicable. The learned Counsel argued that as per the provisions of section 36(1)(viia) of the Act, a bank is eligible to avail deduction in respect of provision made for bad and doubtful debts, of an amount not exceeding 7.5% of total income and of an amount not exceeding 10% of the aggregate average advances made by the rural branches of the bank. Accordingly, the assessee is eligible to claim deduction of an amount lower of the provision made for bad and doubtful debts or the amount calculated as per the prescribed methodology. As per the proviso to section 36(1)(vii) of the Act, deduction under section 36(1)(vii) of the Act is limited to excess of the amount written off over the credit balance in the provision for bad and doubtful debts accounts made under section 36(1)(viia) of the Act. Further, as per section 36(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2). 58. Reliance in this regard is also placed on the following decisions, wherein the aforesaid issue has been decided in favour of the assessee: CIT vs. City Union Bank Ltd. [2007] 291 ITR 144 (Madras); DCIT vs. Karnataka Bank Ltd. [2012] 349 ITR 705 (SC); Punjab Sind Bank vs. ACIT [2008] 23 SOT 103 (Delhi). 59. Further, it was contended that Explanation 2 to section 36(1)(vii) of the Act inserted w.e.f. 01.04.2014 which states that proviso to section 36(1)(vii) of the Act and section 36(2)(v) of the Act relates to all types of advances i.e. rural and non-rural advances, is Clarificatory in nature. In this regard, reliance is placed on the decision of the Supreme Court in case CIT vs. Vatika Township (P.) Ltd. [2014] 367 ITR 466 (SC), wherein it was held that one established rule for interpretation of legislation is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. In the present case, the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been valuing investments in Available for Sale (AFS) and Held for Trading (HFT) in books after netting off classification-wise depreciation and appreciation, computed scrip-wise and providing for net deprecation in each classification while ignoring net appreciation, as required by RBI guidelines. However, for tax purposes, investments in AFS and HFT categories are being consistently valued scrip wise and depreciation, if any, was provided scrip wise while ignoring appreciation. Valuation of investments in AFS and HFT categories has consistently been done scrip-wise for tax purposes in earlier years. The same has also been accepted by the AO upto assessment year 200405 i.e. prior to the change in the treatment given in books of account. Therefore, for tax purposes valuation is done on the basis of lower of cost or market value computed scrip-wise and providing for depreciation in each of the scrip, while ignoring any appreciation. The assessee has claimed a deduction on this account vide note 24 to the revised return of income. 63. We noted that revenue rejected the claim of the assessee following the decision of the Mumbai Tribunal in the case of Deutsche Bank AG. The CIT(A) uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting year and carried over to the following year s account in a business that is continuing are not brought into the charge as a matter of practice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually 26 stoppel. . Again, it is a misconception to think that any profit arises out of the valuation of the closing stock and the sites of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as the source of such profits. 64. The Supreme Court in the case of A.L.A. Firm vs. CIT (1991) (189 ITR 285) (SC) has observed that closing stock cannot be valued at a market value higher than the cost as that will result in taxation of the notional profits which the assessee has not realised. The relevant extract of the judgement of the Supreme Court is reproduced below: The valuation of the closing stock at market value invariably will create a problem. For if the market value is higher than cost, the accounts will reflect notional pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to adopt either the average cost for all the items or the market rate for all the items. Further, the Supreme Court in the case of United Commercial Bank vs. CIT [1999] 240 ITR 355 (SC) has held that there is no such question of following two different methods for valuing its stock-in-trade (investments) because bank was required to prepare balance sheet in the prescribed form and it had no option to change it and for the purpose of income-tax, what is taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee. In view of the above, it was claimed that the assessee be allowed a deduction in respect of depreciation on each securities, scrip wise, while ignoring the appreciation. 67. Further, the assessee claimed that it has consistently been following the method of valuation of lower of cost or market price in respect of securities. Accordingly, the method of valuation followed by the assessee is required to be accepted. Reliance in this regard is placed on the following decisions: CIT vs. Bank of Baroda [2003] 262 ITR 334 (Bombay) CIT vs. Corpn. Bank Ltd. [1988] 174 ITR 616 (Karnataka) Further, the issue was not di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 being lower than the cost. In year 2, the market price went upto Rs. 95. Accordingly, the stock was valued at market price of Rs. 95 being lower than the cost. However, suppose in year 3, the market value rises to Rs. 120, in such a situation, the stock would be valued at cost i.e Rs. 100, being lower than the market price. The Mumbai Tribunal held that excess of appreciation over the cost price would not be considered for valuing the closing stock. In the present case, we are not concerned with a scenario where in the later year the depreciation provided in earlier years is reduced. Further, the decision of the Mumbai Tribunal in the case of Deutsche Bank A.G vs. DCIT [2003] 86 ITD 431 (Mumbai), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision is made for standard assets by itself indicates that a part of standard assets are doubtful for recovery. Accordingly, the entire provisions made by the assessee including in respect of standard assets are for bad and doubtful debts as envisaged by provisions of section 36(1)(viia) of the Act. The AO, vide order passed under section 143(3) of the Act, did not agree with the submissions of the assessee and held that even as per the RBI guidelines, the assessee can make provisions on different categories of assets which does not mean that the provisions made for the standard asset is a provision for bad and doubtful assets. The AO further held that the provisions made on loans, assets, sub standard assets, and doubtful assets can only to be taken as provisions for bad and doubtful debts. Accordingly, the A.O. disallowed the deduction claimed under section 36(1)(viia) of the Act in respect of provisions on standard assets. 28. The learned CIT(A), vide impugned order dated 29/03/2016, after noting that this issue is recurring in nature dismissed, the appeal filed by the assessee ss by following the findings of its predecessor in office in assessee s own case for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard . Later on depending upon the problems arising, if any, and symptoms of sickness shown including delays in the repayment of the principal and interest, deterioration of security, etc., they may be shifted to other categories. A provision made on any loan assets is a provision for bad and doubtful debts irrespective of the category in which the loan falls. This is to provide for the inherent risk of loan losses which the bank may suffer in subsequent years. 73. We noted from the provision of Section 36(1)(viia) of the Act that the same allows a deduction to banks in respect of any provision made for bad and doubtful debts. It does not restrict the allowance to provision made on bad and doubtful debts. Even in respect of assets that are classified as standard assets, a part of the debts are doubtful of recovery. The fact that a provision is made for standard assets by itself indicates that a part of the standard assets are doubtful of recovery. Accordingly, the entire provision made by the assessee, including in respect of standard assets, is for bad and doubtful debts as envisaged by section 36(1)(viia) of the Act. Thus, in light of above, the assessee is eligible to claim d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e words not exceeding occurring in the section, and which stand highlighted for the purpose. We decide accordingly. 74. In view of the above discussion, arguments of both the sides, we are of the view that the 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 in ITA no. 3145/Mum/2004 vide order dated 06.09.2016. Hence, we allow this issue of assessee s appeal. 30. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedents in assessee s own case cited supra, we uphold the plea of the assessee and allow the claim of deduction on provisions for standard assets under section 36(1)(viia) of the Act. Accordingly, ground no. 7, raised in assessee s appeal is allowed. 31. The issue arising in ground no. 8, raised in assessee s appeal, is pertaining to the taxation of interest income from Non Performing Assets ( NPA ). 32. The brief facts of the case, pertaining to the issue, are: D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has upheld the disallowance made by the Assessing Officer following the directions of the DRP for the assessment year 2012-13. 79. The Revenue before the Tribunal has emphasized on the applicability of the criteria prescribed as per rule 6EA and that the interest on NPAs cannot fall under the exception provided in clause (e) of rule 6EA. But, the assessee argued that the action of the lower authorities cannot be sustained due to the following three reasons viz., a. section 43D of the Act would not apply in cases where interest is neither received nor credited to the profit and loss account; b. RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the rule should be framed having regard to the guidelines; c. without prejudice, a deduction should be allowed of such interest as bad debts. 80. In relation to the above, it was argued that the provisions of section 43D of the Act provide that the categories of bad or doubtful debts would be prescribed having regard to the guidelines issued by the RBI in relation to such debts. In other words, the Legislature envisages that the RBI guidelines are the primary criteria for determining whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 35. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedents in assessee s own case cited supra, we uphold the plea of the assessee, and the addition made by the AO on this issue is hereby deleted. Thus, ground no. 8, raised in assessee s appeal is allowed. 36. The issue arising in ground no. 9, raised in assessee s appeal, is pertaining to taxation of Non Performing Investment ( NPI ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performing securities also to be reckoned as income on realisation basis and the same has regularly been recognised in the books of account accordingly. The case law cited by the learned Counsel for the assessee before us in the case of CIT vs. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi), the Delhi High Court had to consider a case where the assessee, being a NBFC, treated the inter corporate deposits as an NPA, in terms of the directions of the RBI and, hence, did not recognise interest income in respect of the same. The Delhi High Court has recognised the real income theory and this was approved by the Supreme Court in the case of Sothern Technologies and held that provisions of other enactment which contain a non obstante clause, would override the provisions of the Act. In view of the above, the Delhi High Court held that the interest on inter corporate deposits recognised as NPA, in terms of the directions of RBI was not taxable. The aforesaid decision of Hon ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra) has been affirmed by Hon ble Supreme Court in thecase of CIT vs. Vasisth Chay Vyapar Ltd. [2019] 410 ITR 244 (SC). 86. In view of the above dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not agree with the submissions of the assessee and held that in terms of section 40A(9) of the Act no deduction for any sum paid by the assessee to any fund, etc., other than the fund set up under section 36(1)(iv) of the Act or section 36(1)(v) of the Act or any fund set up under any other law for the time being in force. The AO further held that under section 43B of the Act payment made to the statutory welfare fund is only covered. Thus, once the sum paid to a fund other than the statutory fund is not allowable under section 40A(9) of the Act. It is also not eligible for deduction under section 43B of the Act. Accordingly, the AO held that the assessee was not under any statutory obligation for contribution towards Retired Employees Medical Benefit Scheme, and disallowed the sum paid towards the said Scheme. 43. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue by placing reliance upon the directions issued by the Dispute Resolution Panel in assessee s own case for the assessment year 2012 13. Being aggrieved, the assessee is in appeal before us. 44. Having heard the submissions of both the sides and perused the material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedent in assessee s own case cited supra, we uphold the plea of the assessee and allow the contribution made to the Retired Employees Medical Benefit Scheme. Accordingly, ground no. 10, raised in assessee s appeal is allowed. 46. The issue arising in ground no. 12, raised in assessee s appeal, is pertaining to the allowance of amount paid for setting up a chair in London School of Economics ( LSE ). 47. The brief facts of the case, pertaining to this issue, are: During the assessment proceedings, from the perusal of Notes accompanying computation of income with the revised return, it was observed that the assessee has made a claim in respect of amount paid for setting up a chair in LSE from Research and Development Fund account, though in the computation of income, no such claim has been made. Accordingly, the assessee was asked to justify whether the expenses have been incurred wholly and exclusively for the purpose of business. In the absence of a satisfactory reply from the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 41(4) of the Act as it has not claimed deduction under section 36(1)(vii) of the Act. 51. The learned CIT(A), vide impugned order, in the absence of any facts being available on record, dismissed the ground of appeal following its decision rendered in assessee s own case for the assessment year 2007 08. Being aggrieved, the assessee is in appeal before us. 52. Having considered the submissions of both sides and perused the material available on record, we find that the Co ordinate Bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- 88. Brief facts are that during the year under consideration the assessee has recovered bad debts written off in earlier years, in respect of which no claim for deduction was made under section 36(1)(vii) of the Act in the past. The assessee raised an additional ground before the CIT(A) in this regard. But, the CIT(A) has dismissed the additional ground raised on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng balancing charge versus taxing the same under section 41(1) of the Act and has concluded that section 41(1) of the Act shall not be applicable. 91. As the aspects of bad and doubtful debts is dealt with specifically under section 41(4) of the Act, as laid down by the Supreme court in Nectar Beverages (supra), section 41(1) of the Act is not applicable in case of the assessee. Further, the primary condition to be satisfied for taxing an amount as deemed income under section 41(1) of the Act is that a deduction/allowance should have been claimed by the assessee in respect of a loss, expenditure or trading liability. A deduction under section 36(1)(viia) of the Act is not for a loss, expenditure or trading liability, but for a provision for bad and doubtful debts. We noted that the learned CIT Departmental Representative had raised a contention that the CIT(A) and AO have not perused the details and, hence, the matter may be restored back which was opposed. In relation to the above contention, without prejudice to the assessee s objection in the event the matter is proposed to be remanded back to the AO, a direction may be given to the AO to delete the addition, if the recovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced reliance upon the decision of the Hon ble jurisdictional High Court in CIT v/s Bank of India, [2015] 64 taxmann.com 215 (Bom.). Reliance was also placed upon the decision of the coordinate bench of the Tribunal rendered in assessee s own case in State Bank of India (supra), vide order dated 03/02/2020, for the assessment year 2008-09, wherein the coordinate bench observed as under:- 95. Now before us assessee claimed that income earned by the branches of the assessee located outside India is not to be taxed in India in light of the tax treaties between India and the countries where the branches are located, as the income has been subject to tax in foreign countries. The details of the income earned by foreign branches were submitted to the AO vide Annexure 1 of letter dated 19.02.2010 and now enclosed in assessee paper book 1 at page 325. It was contended that the assessee raised an additional ground before the CIT(A) in this regard. However, the CIT(A) dismissed the additional ground raised by the assessee on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 200708 and that the facts of this issue are not verified during the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny term which is not inconsistent with the provisions of the Income-tax Act, 1961 or the tax treaty. As the Supreme Court has already interpreted the meaning of the phrase may be taxed in the case of CIT v/s. PAVL Kulandagan Chettiar [267 ITR 654], the notification cannot give a meaning to may be taxed which is inconsistent with the views of the Supreme Court. The Notification cannot survive as it directly contradicts the judgment of the Supreme Court. 98. Without prejudice to the above argument made was that even if it held that the above notification is applicable, the same can be said to be applicable prospectively (i.e. from assessment 2009-10 onwards) and, hence, is not applicable for the year under consideration. Reliance in this regard, is placed on the decision of the Supreme Court in case CIT vs. Vatika Township (P.) Ltd. [2014] 367 ITR 466 (SC), wherein it was held that one established rule for interpretation of legislation is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. Similar view has been taken by the Madras High Court in V.R.S.M Firm[1994] 208 ITR 400 (Madras). 99. We noted from the above di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India for granting relief of tax or as the case may be, avoidance of double taxation, provides that any income of a resident of India may be taxed in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. 60. Therefore, as is evident from section 90(3) of the Act, the same refers to term used but not defined both in the Act as well as in the tax treaty. Thus, we find no basis in the submission made on behalf of the assessee that the aforesaid notification has no applicability to the tax treaty. Further, the word term used in section 90(3) of the Act not only means a word but also means a phrase and thus cannot be restricted to words such as salary, dividend, etc. as claimed by the assessee but also includes phrase such as may be taxed as used in the tax treaty. 61. We further find that the aforesaid notification as well as the aforesaid decision of the Hon ble jurisdictional High Court in Bank of India (supra) was considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the notice of the Dispute Resolution Panel. There is not even a whisper of a suggestion that the amendment in law in Section 90(3) and the post amendment notification was brought to the notice of the DRP. Learned counsel's arguments before the DRP simply proceeded on the basis that there was no change in statutory provisions after the Kulangadan Chettiar's judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee's representative before the DRP, as indeed before us, is, would really be oblivious of the correct legal position and it was anything less than a calculated ignorance, before the DRP, on the basic legal position. Advising the correct legal position and then making whatever aggressive claim one makes is one thing, but not explaining the correct legal position and then hoping to succeed with the claim, by keeping the adjudicator in dark about the statutory developments, is quite another. The path chosen by the assessee could have fallen in the first category if submissions were made before the DRP abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28th August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the decision of the Hon ble Supreme Court in the case of Vijaya Bank Vs. CIT [2010] 323 ITR 166 (SC). For this, assessee raised additional ground. 101. The assessee by this additional ground claimed that the deduction should be allowed on account of write-off of bad debts under section 36(1)(vii) of the Act in terms of the decision of the Hon ble Supreme Court in the case of Vijaya Bank (supra). During the year, the assessee has created a provision for non-performing assets of Rs. 2000.94 crore (excluding the provision for standard assets of Rs. 566.97 crore). The assessee filed these details vide note no 18.9(k) of the financial statements on page 81 of Assessee Paper Book I. The assessee had claimed a deduction under section 36(1)(viia) of the Act in the revised computation of total income amounting Rs. 2567 crore. The AO recomputed the deduction under section 36(1)(viia) of the Act on the basis of the assessed income to Rs. 3652 crore. 102. We noted that the assessee now raised an additional ground, to claim a deduction under section 36(1)(vii) of the Act in respect of the provision for bad debts of Rs. 2000.94 crore (excluding the provision for standard assets of Rs. 566.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court judgement in the case of Vijaya Bank (Supra). Further, we noted that this issue has been remanded back to the AO for fresh examination and adjudication by the Tribunal in the assessee s own case vide its Orders dated: 3.01.2014 (in MA. no. 371/M/14) for the assessment year 1996-97 (para no. 5), where the AO has allowed the deduction in the order giving effect to the Tribunal s order. 29.04.2016 for the assessment years 1997-98 and 1998-99 (refer para 10 and para 21), where the AO allowed the deduction in the order giving effect to the Tribunal s order. However, the CIT exercising power of revision under section 263 of the Act, set aside the matter. The appeal filed by the assessee before the Tribunal against the aforesaid order under section 263 of the Act is heard on 14 March 2019 and the Tribunal s order is awaited. 31.01.2018 for assessment year 1999-00 (refer para 34 to 36 on page 43 to 45), where the AO is yet to pass the order giving effect to the Tribunal s order. Moreover, the AO in the assessee s own case, while passing the assessment orders for Ays 2011-12 to 2015-16 has allowed the claim of deduction under section 36(1)(vii) as per Supreme Court s ruli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut appreciating the amount was not incurred wholly and exclusively for the purposes of its business. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that no disallowance under section 14A read with Rule 8D(2)(ii) is called for, thereby granting relief to the assessee, overlooking the fact that the AO had correctly made the disallowance, as the assessee could not establish the nexus between its own funds and investments made in tax free income. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to restrict the disallowance u/s. 14A r.w.r 8D(2)(iii) by excluding the long term investments in subsidiary/group concerns relying on the decision of ITAT in the case of Garware Wall Ropes Ltd. (65 SOT 86), without appreciating the fact that the decision of the ITAT has not been accepted by the department and appeal has been admitted by the Hon'ble High Court. 8. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in treating loss on account of depreciation of securities in HTM category/amortization of securities in HTM category without appreciating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary/different treatment to some items. Accordingly, the assessee was asked to explain as to why the interest accrued but not due claimed in the computation of income shall not be disallowed and added to its income. In response thereto, the assessee submitted that it is the practice of the assessee to account for the interest on securities on an accrual basis while arriving at the book profit, however, in the return of income, the interest on securities is taxed on due basis. It was further submitted that the right to receive interest on securities arises on the due date only which was after the accounting year and accordingly, it cannot be taxed in the accounting year itself. The AO vide order passed in section 143(3) of the Act did not agree with the submissions of the assessee and held that to arrive at a correct and undistorted profit, the method of accounting of interest on an accrual basis is correct and also falls in line with the RBI guidelines. Therefore, it was held that the assessee is totally incorrect in excluding interest accrued but not due for income tax purposes. The learned CIT(A), vide impugned order, after noting that this issue is recurring in nature, allowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led along with a covering letter which was taken on record. We find that in the profit loss account the year ended 31.12.1987, interest on Govt. securities amounting to 7 138,06,30,075/-has been included in the credit side. However, in the computation of total income for income tax purposes, the interest has been reduced from the net profit and interest of 138,06,30,075/- has been included in the coupon date basis. In the assessment order for the A.Y. 1988-89, a copy of which was also filed before us. The Assessing Officer has accepted the above computation made by the assessee. With regard to the contention that the assessee cannot set up a claim in the return of income which is altogether different from the manner in which entries are made in its accounts, we may notice the judgment of the Supreme Court in the case of United Commercial Bank in 240 ITR 355(SC). While reversing the judgment of the Calcutta High Court reported in 200 ITR 68 (Cal), wherein it was held that the assessee cannot prepare the computation of its income fro income tax purposes in a manner different form the method under which it keeps accounts. It was held by the Supreme court that preparation of the balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal, we decide this issue in favour of the assessee and against the revenue. 74. We further find that the Hon ble jurisdictional High Court vide order dated 01/08/2016 passed in ITA no. 254 of 2014, inter-alia, upheld the findings of the Tribunal. Further, the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020 also rendered similar findings. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding assessment years. Therefore, respectfully following the judicial precedent in assessee s own case cited supra, we find no infirmity in the impugned order passed on this issue. Accordingly, ground no. 2 raised in Revenue s appeal is dismissed. 75. The issue arising in ground no. 3, raised in Revenue s appeal, is pertaining to the allowability of broken period interest. 76. The brief facts of the case, pertaining to this issue, are: During the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , after noting that this issue is recurring in nature, allowed the appeal filed by the assessee on this issue following the judicial precedents in assessee s own case. Being aggrieved, the Revenue is in appeal before us. 77. Having heard the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- 117. We 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. 118. The Revenue before us emphasized on the fact that interest income is offered to tax on due basis and, hence, the corresponding expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has not made the claim in the revised return of income. The AO held that the claim made by the assessee by way of note cannot be allowed, being a contingent liability. The AO further noted that in this case the assessee has filed revised return still the above claim has not been made in the computation of income. Accordingly, following the decision of the Hon ble Supreme Court in Goetze India Ltd (284 ITR 323) rejected the claim for allowability of provision of wage revision made by the assessee only in the notes to computation of income. The learned CIT(A), vide impugned order, allowed the provision for wage revision following the decision of the Hon ble Delhi High Court in CIT v/s Bharat Heavy Electrical Ltd (2010) 26 taxmann.com 202. Being aggrieved, the Revenue is in appeal before us. 81. Having heard the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- 126. We noted that the assessee enters into agreements with its employees (officers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1990] 181 ITR 347 (Bombay) (Bom.) [last para page 3-4] 128. In fact on exact similar issue of deductibility of wage revision relating to the same Agreement, pending finalisation of wage settlement, is also decided in favour of the assessee by the Tribunal in the case of other Bank s. In the case of Bank of India vs. DCIT [ITA no. 3082/Mum/2015] [Mum. Trib]the assessee had claimed a deduction for provision created toward wage revision arrived at based on indicative increase for assessment year 2009-10. The Mumbai Bench of the Tribunal allowed the claim on the basis that the provision was for services rendered by the employees and there was no doubt that the assessee has to make payment once the negotiations were over. We may mention that Bank of India is also a part of the same Bipartite settlement as in the present case of the assessee. 129. Similarly, in the case of Bank of Baroda [ITA/4619/Mum/2012] [Mum. Trib] the Mumbai Tribunal held that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance upon the decisions rendered by the appellate authorities in its favour. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that payments are in the nature of outright grants or deposits and the same is not really for the welfare of the staff, what is meant to ensure is that only the Senior officers of the bank are able to secure the children admitted to the top-level schools. Accordingly, the AO disallowed the amount of Rs. 22,33,432 by holding that the same is not the expenditure incurred wholly and exclusively for the purpose of business. The learned CIT(A), vide impugned order, after following the decision of the coordinate bench of the Tribunal in assessee s own case for the assessment year 1996-97 allowed the appeal filed by the assessee on this issue. 85. Having heard the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra), vide order dated 26/07/2013, for the assessment year 1996-97, while deciding similar issue observed as under:- 9. Ground no. 5 is regarding staff welfare expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year, the details of payments were available and referred to the relevant pages of compilation. Accordingly, he contended that the aforesaid decision of the Tribunal was not applicable for the year under consideration. The Id. Counsel, thereafter, placed strong reliance on the decision of the Hon'ble jurisdictional High Court in the case of Mahindra Mahindra as reported in 261 ITR 501 where the assessee provided donation to an education society which ran a school in which children of the employees of the company were studying and the Hon'ble Court held the same allowable as expenditure incurred for business purposes. The Id. Counsel also contended that Mumbai Tribunal in the following two cases also held so. Indian Oil Corporation Ltd. (ITA Nos. 4923 6063/Mum/1989(Mum) pages 23 to 28 of the compilation. Nuclear Power Corporation of India Ltd. (ITA no. 336/Mum/1999 pages 29 to 32 of the compilation. The Id. Counsel also placed reliance on the following judicial decisions in this regard. Shri Venkatastayanarayana Rice Mills Vs CIT (223 ITR 101) (SC) CIT VS India Radiators Ltd. (236 ITR 719) (Mad) CIT Vs Emtici Engineering Ltd. (242 ITR 86) 33. The Id. D.R., on the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble jurisdictional High Court vide order dated 01/08/2016 passed in ITA no. 254 of 2014, inter-alia, upheld the findings of the Tribunal. Further, the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020 also rendered similar findings. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding assessment years. Therefore, respectfully following the judicial precedent in assessee s own case cited supra, we find no infirmity in the impugned order passed on this issue. Accordingly, ground no. 5 raised in Revenue s appeal is dismissed. 87. The issue arising in grounds no. 6 and 7, raised in Revenue s appeal, is pertaining to disallowance under section 14A r/w Rule 8D of the Income Tax Rules, 1962 ( the Rules ). 88. The brief facts of the case, pertaining to this issue, are: During the assessment proceedings, it was observed that the assessee has huge borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax free bonds, dividend income from domestic companies and mutual funds. Here appellant's share capital is Rs. 634.88 crs. and Reserves and Surplus is Rs. 57,312.81 crs. Total own fund of the appellant is share capital plus Rs. 57,947.69 crs and investment in earning exempt income is Rs. 6,559.24 crs. As here appellant's own funds are more than appellant's investment, here there should not be any disallowance of interest u/s 14A r.w.r. 8D(2)(ii) (iii), in view of Bombay High Court decision in the case of CIT v. HDFC Bank 330 ITR 221. With regard to disallowance under Rule 8D(2)(iii) ie. 0.5% of average investment for disallowance under administrative expenses, here AO has directed to compute ) 0.5% of average investment but from this AO has to exclude stock in trade of the appellant in view of the Bombay High Court decision in the case of CIT v. India Advantage Securities Ltd. I.T. Act, 1961 1131 of 2013. Further investment in subsidiaries which are strategic in nature and also fully owned subsidiaries are to be excluded in view of the Mumbai Tribunal's decision in the case of Gareware Wall Ropes Ltd. v. ACIT (2014) 46 Taxmann.com 18) and J M Financial Ltd. (IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dominant purpose test and therefore we find no merits in the direction of the learned CIT(A) to exclude strategic investment in subsidiaries and fully owned subsidiaries while computing disallowance under Rule 8D(2)(iii) of the Rules. 92. Further, 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 the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P) Ltd. (2017) 165 ITD 27 (Delhi-Trib.), 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. 93. It is further the plea of the assessee that if the submissions of the assessee regarding computation of disallowance under section 14A read with Rule 8D are accepted then the disallowance can even b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as investments, there is no question of allowance of any amount till such time as they are sold or redeemed. Even if the securities are held as stock in trade, as per RBI guidelines, the method of valuation of closing stock adopted in respect of securities in the HTM category is cost price which is one of the recognised methods of valuation. Since the cost price is constant, there is no question of deduction of any amount under the commercial principles even if HTM securities are accepted to be stock in trade of the assessee. The AO further held that whatever losses suffered on the sale of redemption of securities, will constitute the loss of the year in which they are sold or redeemed. Thus, in between no amount can be allowed under the provisions of section 145 of the Act. The AO further held that by claiming amortisation, the assessee seeks to neutralise the effect of valuing the securities in the HTM category on cost price which is one of the two recognised methods of valuation of the closing stock. Accordingly, the AO disallowed the amount of premium amortised in respect of HTM securities of Rs. 1123.06 crores. The learned CIT(A) vide impugned order allowed the appeal fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de its order dated 01.08.2016. 137. We noted that the facts in the year under consideration are same as the facts in the earlier years. In view of the above, this ground of appeal is covered in favour of the assessee vide the aforementioned orders of the Tribunal and Bombay High Court. This issue of Revenue s appeal is dismissed. 98. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding assessment years. Therefore, respectfully following the judicial precedent in assessee s own case cited supra, we find no infirmity in the impugned order passed on this issue. Accordingly, ground no. 8 raised in Revenue s appeal is dismissed. 99. The issue arising in ground no. 9, raised in Revenue s appeal, is pertaining to the allowance of depreciation on foreign assets. 100. The brief facts of the case, pertaining to this issue, are: During the assessment proceedings, the assessee was required to reconcile the amount of depreciation claimed in the books and as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed depreciation of Rs. 33,37,94,407 under section 32(1) of the Act. Being aggrieved, the Revenue is in appeal before us. 102. During the hearing, it was submitted that the assessee has filed a rectification application dated 01/11/2011 before the AO on this issue, which has still not been disposed off. It was further submitted that in the said application it has been claimed that the assessee is entitled to depreciation of Rs. 33,27,94,407. In this regard, the assessee has also furnished the working before the AO. Accordingly, in view of the above, we deem it appropriate to remand this issue to the file of the AO for de novo adjudication after verifying the details filed by the assessee. Accordingly ground no. 9 raised in Revenue s appeal is allowed for statistical purposes. 103. The issue arising in ground no. 10, raised in Revenue s appeal, is pertaining to the set off of loss of erstwhile State Bank of Saurashtra. 104. The brief facts of the case pertaining to this issue are: The assessee in its computation of original and revised return made the claim for adjustment of brought forward losses of erstwhile State Bank of Saurashtra, consequent on the merger, against the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO further held that the liability in addition to being contingent, is related to an increase in share capital. Accordingly, the AO disallowed the claim made by the assessee. The learned CIT(A), vide impugned order, following the decision of Special Bench of Tribunal in Biocon Ltd v/s CIT 35 Taxmann.com 335 allowed the claim of provision of Employee Stock Purchase Scheme. Being aggrieved, the Revenue is in appeal before us. 109. Having considered the submissions of both parties and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:- 140. We noted that the assessee during the year created a provision for Employee Stock Purchase Scheme amounting to Rs. 11 crore in accordance with SEBI Guidelines. The AO disallowed the claim of the assessee on the basis that the same is contingent in nature. The CIT(A) deleted the disallowance made by the AO. The Revenue before the Tribunal emphasised that the same is contingent in nature and that the deduction was claimed by way of a note by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
