9911796707
TMI Blog2025 (2) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment/penalty order by Addl.CIT/ACIT/DCIT, Mumbai. Consolidated details of these appeals are tabulated below: Sr. No. ITA No. Order of CIT(A) Assessment order Assessment year Appeal by No. Date Passed by Date Passed u/s. 1. 4315/Mum/2007 CIT(A)-1/IT/210/04-05/32 10.03.2005 Addl. CIT Range 1(1), Mumbai 31.1.2005 143(3) 2002-03 Assessee 2. 4161/Mum2007 CIT(A)-1/IT/210/04-05/35 10.03.2005 Addl. CIT. Range 1(1), Mumbai 31.01.2005 143(3) 2002-03 Revenue 3. 4316/Mum/2007 CIT(A)-1/IT/62/05-06/76 26.04.2005 Addl. CIT, Range 1(1), Mumbai 23.03.2005 143(3) 2003-04 Assessee 4. 4162/Mum/2007 CIT(A)-1/IT/62/05-06/77 23.03.2007 Addl. CIT, Range 1(1), Mumbai 23.03.2005 143(3) 2003-04 Revenue 5. 3861/Mum/2009 CIT(A)-I/IT/276/05-06/399 & 400 23.03.2009 Addl CIT, Range 1(1), Mumbai 31.01.2006 143(3) 2004-05 Assessee 6. 3785/Mum/2009 CIT(A)-I/IT/276/05-06/399 & 400 23.03.2009 Addl. CIT, Range 1(1), Mumbai 31.01.2006 143(3) 2004-05 Revenue 7. 3862/Mum/2009 CIT(A)-I/IT/148/07-08/397 & 398 31.03.2009 Addl. CIT, Range 1(1), Mumbai 17.12.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITBA/APL/S/250/2023-24/1062378 628(1) 11.03.2024 DCIT, Range 1(1)(2), Mumbai 26.02.2018 143(3) r.w.s. 144C(3) 2014-15 Assessee 26 2980/Mum/2024 ITBA/APL/S/250/2023-24/1062378628(1) 11.03.2024 DCIT, Range1(1)(2),Mumbai 26.02.2018 143(3) r.w.s. 144C(3) 2014-15 Revenue 27 2665/Mum/2024 ITBA/APL/S/250/2023-24/1062378628(1) 11.03.2024 DCIT, Range 1(1)(2), Mumbai 26.02.2018 143(3) r.w.s. 144C(3) 2015-16 Assessee 28 2979/Mum/2024 ITBA/APL/S/250/2023-24/1062363228(1) 11.03.2024 DCIT, Range 1(1)(2), Mumbai 15.02.2019 143(3) r.w.s. 144C(3) 2015-16 Revenue 29 1890/Mum/2023 ITBA/NFAC/S/250/2022-23/1051775042(1) 31.03.2023 DCIT (TP)-2(1)(1), Mumbai 23.12.2019 143(3) 2016-17 Assessee 30 2049/Mum/2023 ITBA/NFAC/S/250/2022-23/1051775042(1) 31.03.2023 DCIT(TP)-2(1)(1), Mumbai 23.12.2019 143(3) 2016-17 Revenue 31 1891/Mum/2023 ITBA/NFAC/S/250/2022-23/1051775738(1) 31.03.2023 DCIT-1(1)(2), Mumbai 28.12.2019 143(3) 2017-18 Assessee 32 2046/Mum/2023 ITBA/NFAC/S/250/2022-23/1051775738(1) 31.03.2023 DCIT-1(1)(2), Mumbai 28.12.2019 143(3) 2017-18 Revenue 33 1892/Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 024 2014-15 Revenue 18 2. 2979/Mum/2024 2015-16 Revenue 18 3. 2049/Mum/2023 2016-17 Revenue 1 4. 2046/Mum/2023 2017-18 Revenue 1 5. 2047/Mum/2023 2018-19 Revenue 1 6. 2048/Mum/2023 2019-20 Revenue 1 7. 2597/Mum/2024 2020-21 Revenue 214 2.2. General facts common for dealing with these appeals are that Housing Development Finance Corporation Ltd. got amalgamated with HDFC Bank Ltd. vide order dated 17.03.2023 passed by ld. National Company Law Tribunal (NCLT) with effective date of 01.07.2023. Accordingly, name of the assessee is noted as HDFC Bank Ltd. (successor to Housing Development Finance Corporation Ltd.) for which necessary revision has been made in Form 36/ Form 36A placed on record. Assessee is a housing finance institution set up in 1977 with main object of providing loans for purchase or construction of residential houses in India. It is regulated by National Housing Bank, which is a wholly owned subsidiary of Reserve Bank of India (RBI) and satisfies all conditions stipulated by the National Housing Bank. Business activities of assessee include leasing and providing loans for the purposes other than for purchase or construction of reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of debt or such interest income earned by virtue of holding of Pass-Through Certificates (PTC) of Securitization Trusts where the underlying debts would otherwise qualify as long-term finance for development of housing in India. II. Disallowance u/s. 14A of the Act. III. Increasing the book profits computed u/s. 115JB by the amount disallowed u/s. 14A of the Act. IV. Discount on grant of stock options (ESOP/ESOS) to employees. V. Computation of amount eligible for deduction u/s. 80M of the Act. VI. Deduction of income by the amount credited to lease equalisation account. VII. Assessment of amount withdrawn from reserve created under section 36(1)(viii). VIII. Disallowance of entrance fees and subscriptions paid to clubs. IX. Exemption u/s. 54EC in respect of capital gains arising on depreciable assets. X. Disallowance of FCCB issue expenses. XI. Set-off of short-term capital loss. XII. Income from India Value Fund. XIII. Addition on account of receipts as per the ITS details not found recorded in the books of account of assessee. XIV. Capital gains in respect of sale of property. XV. Additional claim of the Assessee with regard to inadvertent suo-moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the business of providing long term finance for development of infrastructure facility in India. d. Whether assessee is entitled to deduction u/s. 36(1)(viii) of the Act in respect of interest income earned from securitization of debt or such interest income earned by virtue of holding of PTCs of Securitization Trusts where the underlying debts otherwise qualify as long-term finance for development of housing in India. 5. With respect of issues at Sr. No. 4(a) and 4(b) referred above, the assessment years in which the said issues arose including the respective grounds of appeal in the appeals both, by assessee and by revenue, are tabulated below: Assessment year Ground No. in appeals by Assessee Ground No. in appeals by Revenue 2002-03 1 - 2003-04 1 - 2004-05 3 - 2005-06 3 - 2006-07 1 - 2007-08 1 - 2008-09 1.1 to 1.5 & 1.7 to 1.10 - 2009-10 1.1 to 1.5 - 2010-11 1.1 to 1.3 & 1.5 to 1.6 - 2011-12 1.1 to 1.3 & 1.5 to 1.6 - 2012-13 1.1 to 1.3 & 1.5 to 1.6 - 2013-14 1.1 to 1.3 & 1.5 to 1.6 - 2014-15 1.1 to 1.3 - 2015-16 1.1 to 1.3 - 2016-17 1.1 to 1.3 & 1.5 to 1.6 - 2017-18 1.1 to 1.3 & 1.5 to 1.6 - 2018-19 1.1 to 1.3 & 1.5 to 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deployment of funds in treasury operations have already been dealt and decided by the Co-ordinate Bench of ITAT, Mumbai in assessee's own case for Assessment Year 1998-99 in ITA No.552/Mum/2004 dated 12.01.2024 as amended by order dated 24.07.2024 in MA No.115/Mum/2024. This order was followed in the Assessment Year 1999-2000 in ITA No.7532/Mum/2004, dated 05.07.2024 (with undersigned Accountant Member being its author). In this respect, ld. Counsel submitted that issue relating to interest income from housing finance for residential purposes for a period of less than 5 years and interest / discount, etc., income on temporary deployment of funds have been held in favour of the assessee by holding the same to be eligible in computing the profit eligible for deduction u/s. 36(1)(viii). However, issue relating to interest income from housing finance for non-residential purposes is held against the assessee and not eligible for computing the eligible profit for deduction u/s. 36(1)(viii). 5.3. Further, ld. Counsel on the issue relating to interest income held on temporary deployment of funds in investments and treasury operations for computing eligible profit for deduction u/s. 36(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee comprises of raising funds from various sources, inviting applications for grant of housing loans, scrutinising such applications based on identified criteria and if found fulfilling the same, then disbursal of loans followed by recovery of the loan so granted by way of equated monthly instalments. Same source of funds and infrastructure is used by the assessee for both, loans given for period of less than five years and for more than five years. Hence, the two cannot be regarded as two different businesses undertaken by the assessee. 5.5. On the aspect of profit derived from loans granted for non-residential purposes, Co-ordinate Bench had held that such income would not qualify for deduction u/s. 36(1)(viii) since main purpose of allowing deduction is to encourage financial corporations/approved public companies to lend for construction or purchase of residential houses. In respect of profits from temporary deployment of funds by way of treasury operations, Co-ordinate Bench accepted the factual position of there always being a gap between raising of funds and its deployment in the business of housing finance. Pending utilisation of such funds in the business of housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e note of the fact of no such ground raised by the Revenue, specific to the issues stated above. This state of affair strengthens the submissions made by the assessee about Revenue accepting the claim of the assessee. 6. With respect to the issue referred in paragraph 4(c) hereinabove, i.e., dealing with the Assessee's claim for deduction u/s. 36(1)(viii) of the Act on interest income derived by it from NTPC Limited, the assessment years in which the said issue is arising including the relevant grounds of appeal are as tabulated as under: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2008-09 1.6 - 2009-10 - 1 2010-11 - 1 2011-12 - 1 2012-13 - 1 2013-14 - 1 2014-15 - 3 2015-16 - 3 2018-19 - 1 2019-20 - 1 2020-21 - 3 6.1. Assessee had lent its funds to NTPC Ltd. for the development of infrastructure facility in India. The said loan was given in Assessment Year 2001-02. In this respect, upto Assessment Year 2006-07, assessee had claimed interest income from the said investment as exempt u/s. 10(23G) which was granted and not in dispute. The said section was omitted w.e.f. 01.04.2007 subsequent to which i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007-08 in respect of allowance granted by the ld. CIT(A) on the claim so made by the assessee. Furthermore, reference was made to first appellate order for Assessment Year 2009-10, wherein on identical issue, ld. CIT(A) in para 6.4, again after reproducing the findings of the predecessor had held that "Following the reasoning of my predecessor, the disallowance u/s. 36(1)(viii) is confirmed. But I direct the A.O. to allow deduction to the appellant on profit derived on infrastructure loan given. Ground No.1 is partly allowed." Thus, the inadvertent mistake so committed in Assessment Year 2008-09 was made good in Assessment Year 2009-10 by allowing the deduction on profit derived on the infrastructure loan given on the basis of the same reasoning given by the predecessor. This claim of the assessee has been allowed up to Assessment Year 2014-15 on identical basis. 6.4. We have perused the observations and findings of ld. CIT(A) in respect of Assessment Year 2007-08 which is reproduced by the ld. CIT(A) in his order for Assessment Year 2008-09 and 2009-10. Ld. CIT(A) has noted that deduction u/s. 36(1)(viii) is permitted on infrastructure loan also and has allowed the claim. Also, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s so raised by the assessee, ld. CIT DR placed on record a report from the ld. Assessing Officer who objected on the its admissibility by placing reliance on the decision of Hon'ble Supreme Court in the case of Goetze India Ltd. vs. CIT [2006] 284 ITR 323 (SC) since assessee did not file its revised return of income for this claim. 7.2. We have perused the material placed on record before us and note that deduction of income arising from securitisation transaction forms part of return of income filed by the assessee. Authorities below have considered the same while adjudicating on the issue. It is an inadvertent mistake on the part of assessee for not including a ground of appeal on this issue in Form 36 filed by it. Assessee claims its deduction by way of taking up additional grounds before us, which in our view is admitted for adjudication since Hon'ble Supreme Court in the case of Goetze India Ltd. (supra) has stated that "nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee". Thus, additional grounds raised by the assessee are admitted for adjudication. 7.3. First year on this issue is Assessment Year 2010-11. Assessee had inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee from long term housing loans disbursed by it for which it has received its discounted present value. Further, income earned by the assessee through PTC-B securitisation also represents loans originating from other housing finance companies, who also have their underlying assets in the form of long-term housing finance. In the given set of facts and in view of the decision of Co-ordinate Bench (supra), we allow the claim of deduction u/s. 36(1)(viii) on the aspect stated at Sr. No. 4(d) above, including raised by way of additional grounds. II. Disallowance u/s. 14A of the Act. 8. The said issue is arising both in the assessee and the Revenue's appeals, where, the details of the assessment years including the respective grounds in the appeal are tabulated below: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2002-03 2 & 3 1 & 2 2003-04 3 1 2004-05 1 & 2 1 2005-06 1 & 2 1 2006-07 2 - 2007-08 2 1 2008-09 2.1 & 2.2 - 2009-10 2.1 & 2.2 2 to 4 2010-11 2.1 & 2.2 2 to 4 2011-12 2.1 & 2.2 2 to 6 2012-13 2.1 & 2.2 2 to 6 2013-14 2.1 & 2.2 2 to 6 2014-15 2.1 & 2.2 4 to 8 2015-16 2.1 & 2.2 4 to 8 2016- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the ld. AO to compute disallowance u/s. 14A in the light of decision of Hon'ble jurisdictional High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. v/s. DCIT [2010] 328 ITR 81 (Bom). 8.4. Since, we are dealing with the disallowance made u/s. 14A for the period prior to the introduction of Rule 8D, we refer to the orders of Coordinate Bench in assessee's own case for Assessment Year 1998-99 and 1999-2000 wherein similar issue has been dealt with. It has been held that no disallowance could be made on account of interest expenditure in view of assessee having sufficient owned funds, details of which are already tabulated above. It is a settled position of law that when sufficient owned funds are available then the presumption is that such investments have been made out of the same and not out of borrowed funds. Contradictory stand taken by the ld. Assessing Officer has also been noted by the Co-ordinate Bench where, while computing the net income, both from the business of long-term finance for residential housing and income claimed exempt, ld. Assessing Officer has adopted contradictory position for the purpose of allowing deduction u/s. 36(1)(viii) and exemption u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of Rule 8D, i.e., Assessment Year 2002-03 to 2007-08. Accordingly, grounds raised by both assessee and revenue are partly allowed. 9. Now, we take up this issue for the period relating to post introduction of Rule 8D, i.e., for Assessment Year 2008-09 to 2020-21. For this, we refer to details pertaining to Assessment Year 2008-09. Assessee has made suo moto disallowance of Rs. 27,30,44,277/- u/s. 14A towards exempt income earned during the year, details of which is tabulated below: Particulars Rs. in crore a) Amount of expenditure directly related to exempted income Nil b) Interest expenditure excluding the one directly relating to housing activities (Interest expenditure * Average value of investments yielding tax free income/Average value of total assets)= (924.78 * 1,210.03/74,995.92) 14.92 c) Amount equal to 0.4% of average value of investments yielding exempt income (opening value of investment +closing value of investment)/2= 0.4% * (4,057.46 + 2,132.75)/2 12.38 Total 27.30 9.1. For the purpose of justifying the aforesaid suo moto disallowance, assessee submitted before the ld. Assessing Officer that said disallowance has not been made in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has derived tax-free interest from bonds and such instruments subscribed for maintaining the Statutory Liquidity Ratio (SLR) as prescribed by the Reserve Bank of India (RBI). The Assessing Officer made disallowance under section 144 in respect of such tax free interest. It was observed that the assessee - bank was statutorily bound to maintain the SLR norms as directed by the RBI from time to time. The tax-free bonds and instruments subscribed by the assessee - bank also qualified pari passu with cash and bullion for the purpose of acknowledging towards SLR. Accordingly, it was held as under; "The assessee has subscribed to the tax-free bonds not for the purpose of earning tax- free income as such but for meeting its statutory obligation of maintaining the required SLR. Therefore, any expenditure incurred by the assessee for investing in bonds, even for tax-free, are expenses incurred for the purpose of carrying on of its business. The expenses, if at all were expenses, they were incurred not for earning tax-free income but for maintaining the required SLR. The tax-free interest is only an incidence on fulfilment of SLR requirements. Therefore, we are of the considered view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % in year 2008. It may be noted that the Corporation is an efficiently managed company and thus the percentage of operating expenses to the total assets is as low as 0.37% in the year 2008. Considering this fact, it will be unreasonable to disallow 0.5% of average value of investments yielding tax free income as prescribed under Rule 8D(ill) of the Rules. Accordingly, the Corporation has disallowed 0.4% of average value of investments yielding tax free income. It may be noted that the Corporation has included the average value of investment made by the Corporation in its subsidiaries, HDFC Bank, etc in order to compute disallowance as per Rule 8D(iii) of the Income Tax Rules, 1962. I.22. Accordingly, the Corporation has worked out the disallowance under section 14A of the Act, at Rs 27.30 crore. I.23. Without prejudice to the above, it is submitted that if the disallowance is calculated in accordance with section 144 read with Rule 8D, then it would result into excess allocation of interest expenditure. The same has been explained as under: The total interest expenditure incurred during the AY 2008-09 amounts to Rs 5.142.88 crore. It is submitted that if disallowance is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted that expenditure has been incurred towards earning exempt income. Thus, the question before him is on ascertaining the quantum of such expense which should be disallowed u/s. 14A. He did not accept the contention of the assessee that Rule 8D is not applicable in the given case by listing as many as 11 reasons for his non acceptance as contained in para 4.3 (a) to (k) of his order which is extracted below: a) The Rule SD has been framed according to provisions of Sub-Sec. 2 & 3 of Section 14A of the Income Tax Act b) The Sub-Sec 2 & 3 of Section 14A are the procedural provisions for disallowance of the expenditure in relation to income not forming part of the total income. The sub-section provides the procedure for making the disallowance u/s 14A c) The Hon'ble ITAT Special Bench, Mumbai in the case of Daga Capital Management Pvt. Ltd. & Others in 119 TTJ 289/117 ITD 269 has held that disallowance under section14A read with rule 8D is attracted also in cases where no dividend or exempt income is actually earned. Hon'ble ITAT has held that it is not necessary that the investments should yield dividends in the relevant year which is in line with the words "shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnishing a reasonable opportunity to the assessee to place all germane material on the record. h) Further, it is pertinent to mention here that the Id CIT(A) in his order for the A.Y.2006-07 has upheld the disallowance u/s 14A r.w.s.8D in toto. Earlier for the A.Y.2005-06, the Id.CIT(A) had upheld the disallowance under Rule 8D in principle. However as regards disallowance of interest as per clause (ii) of Rule 8D, he held that no disallowance of interest could be made as the entire interest had been attributed to the business of housing finance. The facts of the present year are different. Interest of Rs. 5142.88 crores has been attributed both to the housing finance activities and other activities, out of which an amount of Rs. 3053.29 crores has been allocated to housing finance business. The remaining Interest is allocable to other activities including Investments generating exempt Income. Thus, interest has been incurred in relation to such investments also and Rule 8D is applicable. Once Rule 8D is applicable, the entire Interest of Rs. 5142.88 and total assets have to be considered. i) The assessee's argument that if disallowance of interest is made on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfactory. In this respect, ld. Counsel urged that position with respect to disallowance of administrative expenditure should continue to be adopted in the period, post Rule 8D introduction since the Co-ordinate Bench of ITAT has found it to be reasonable for the purpose of making disallowance. Ld. Counsel also emphasised that only when there is recording of objective dissatisfaction by the ld. Assessing Officer on the suo moto disallowance made by the assessee, Rule 8D can be invoked for the purpose of computing the disallowance. According to him, Assessing Officer has to record a dissatisfaction which must be on an objective basis. Such dissatisfaction, as recorded by ld. Assessing Officer can be subjected to judicial scrutiny by the appellate forum. On this line of contention, it was pressed by the ld. Counsel that whether the suo moto disallowance made by the assessee can be held to be not satisfactory when the manner in which the disallowance by ld. Assessing Officer made for the years under consideration was found to be reasonable by the Co-ordinate Bench in assessee's own case for Assessment Years 1998-99 to 2001-02. 9.4. Reliance was placed on the decision of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not relate to any specific activity but forms part of common borrowing since assessee had sufficient owned funds. We also place our reliance on the decision of Hon'ble Supreme Court in the case of South Indian Bank vs. CIT [2021] 438 ITR 1 (SC). 10.2. There are incidents in Assessment Years 2010-11 to 2013-14 where assessee has incurred interest expenditure directly relatable to earning of exempt income being interest on zero coupon non-convertible debentures since these were used for the purpose of making investment in shares of HDFC Bank Ltd. Assessee on this aspect has candidly submitted that disallowance of such direct interest expenditure be upheld. Accordingly, disallowance of interest expenditure to this extent is sustained, being direct in nature. 10.2.1. However, specific to Assessment Year 2011-12, it is pleaded by the assessee that the aggregate amount of disallowance be restricted to exempt income earned during the year, since disallowance otherwise so computed exceeds, the exempt income earned. On this plea, it is a settled position of law that disallowance u/s. 14A cannot exceed the exempt income earned by the assessee during the year. Hence, the plea so ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee of a previous year". Before us, ld. Counsel for the assessee has asserted that action of ld. Assessing Officer for disallowing administrative expenditure by applying Rule 8D(2)(iii) is not justified owing to non-recording of objective satisfaction, more particularly, when assessee had made a suo moto disallowance. He placed reliance on the decision of Tata Capital Ltd. (supra). We have perused the said decision and extracted its relevant portions in above paragraphs. In this decision, ld. Assessing Officer had merely stated that assessee's explanation is not acceptable without giving any reasons as to why it is not acceptable. In the present case before us, ld. Assessing Officer has listed as many as 11 reasons justifying his stand of applying Rule 8D though in the context of administrative expenses, he has merely noted that the said Rule does not specify any exception where a lower percentage than 0.50% can be adopted. Hence, applicability of this decision is distinguished. 10.5. On the 11 reasons listed by ld. Assessing Officer for justifying his stand on applying Rule 8D, ld. Counsel of the assessee has submitted his rejoinder explaining how they are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this position is again not disputed by the Assessee. However, it has no relevance to the requirement of recording of dis-satisfaction by the AO. In this regard, while upholding the constitutional validity of Rule 8D in paragraphs 57 and 58 at page 29 of the Report, the High Court has emphasized that recording of dis-satisfaction by the AO is a statutory safeguard against any arbitrary exercise of powers by the AO. That the AO should record reasons for his conclusion with respect to such dis-satisfaction. Further such dis-satisfaction recorded by the AO could be subject to judicial scrutiny by the appellate forum. This position has been followed by the Bombay High Court in PCIT v. Tata Capital Ltd. (2024) 298 Taxman 714 (Bombay) (copies separately handed over at the time of hearing). In paragraph (g), referring to the aforesaid judgment of Godrej & Boyce (supra) it has been observed that prior to AY 2008-09 i.e. Rule 8D becoming applicable, the AO must adopt a reasonable basis or method for computation of such disallowance. In the present case, it is submitted that the method for computation of disallowance which has been found by the Tribunal to be reasonable for AYs prior to A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcentage of 0.50% for the purpose of making disallowance. In the 11 reasons listed by ld. Assessing Officer, there is no whisper as to the correctness of the claim made by the assessee of adopting a lower percentage than the prescribed one, except at one place where he mentioned that the Rule does not specify any exception to adopt a lower percentage. Mandatory condition required u/s. 14A(2) r.w.r.8D(1) of "having regard to the accounts of the assessee of a previous year" remained to be fulfilled by the ld. Assessing Officer before invoking Rule 8D(2)(iii) to alter the percentage adopted by the assessee and apply the prescribed percentage of 0.50%. Accordingly, we hold that ld. Assessing Officer has erred in invoking the provisions of Rule 8D for making disallowance of administrative expenses in absence of recording of objective satisfaction "having regard to the accounts of the assessee" and therefore, the disallowance u/s. 14A is to be restricted to the amount of suo moto disallowance made by the assessee. It is important to note that the finding arrived here for these Assessment Years is not on the same footing of "reasonableness" applied in Assessment Years prior to introductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." [emphasis supplied by us by underline] 10.7.2. We also find that Hon'ble jurisdictional High Court of Bombay in the case of CIT v. M/s Asian Paints Ltd., in ITA No. 1564 of 2016, vide order dated 06.04.2019, for Assessment Year 2008-09, while dismissing the appeal filed by Revenue held that in absence of recording of satisfaction in terms of section 14A(2) of the Act, invocation of Rule 8D is not permissible. Relevant findings of the Hon'ble Court, are reproduced as under:- "4. Regarding question no.(c) :- (a) In its return of income, the respondent made a suo-moto disallowance of Rs. 15.21 lakhs being the expenditure incurred to earn exempt income under Section 14A of the Act. The Assessing Officer disregarded the same and proceeded to disallow an amount of Rs. 1.10 crores under Section 14A of the Act read with Rule 8D of the Rules as expenditure incurred to earn exempt income. Thus, adding Rs. 1.10 crores to the income of the respondent. (b) Being aggrieved, the respondent filed an appeal to the CIT(A) but without success. (c) On f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A read with Rule 8D of the Rules. Accordingly, the same is directed to be deleted. As a result, ground no. I raised in assessee's appeal is allowed." [emphasis supplied by us by underline] 10.8. In any event, in addition to the aforesaid findings, owing to settled position of law, ld. Assessing Officer is directed to take into account investments which have actually yielded exempt income during the year for the purpose of making disallowance u/s. 14A. For this purpose, we draw our force from the decision of Hon'ble Special Bench of ITAT in the case of ACIT vs. Vireet Investments Pvt. Ltd. [2017] 82 taxmann.com 415 (Del Trib) (SB). III. Increasing the book profits computed u/s. 115JB by the amount disallowed u/s. 14A of the Act. 11. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2014-15 - 6 to 8 2015-16 - 6 to 8 2016-17 - 3 2017-18 - 1 11.1. All the appeals on the aforesaid issues are by the Revenue since, ld. CIT(A) by following the decisions of Hon'ble High Court held that amount disallowed u/s. 14A r.w.r. 8D cannot be added to the book profit computed u/s. 115JB. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Co-ordinate Bench of ITAT Mumbai in assessee's own case for Assessment Years 2000-01 and 2001-02 in ITA Nos. 337 and 724/Mum/2005, dated 05.07.2024 (undersigned Accountant Member being its author) wherein claim of the assessee has been allowed after considering the judicial precedents listed below: i. CIT vs. Biocon Ltd. 430 ITR 151 (Kar.) ii. Biocon Ltd. vs. DCIT [2013] 144 ITD 21 (Bang) (SB) iii. PVR Ltd. vs. CIT [2022] 145 taxmann.com 331 (Del) 12.3. In view of the above, there being no material change in the facts and applicable law, ground taken by the assessee is allowed. V. Computation of amount eligible for deduction u/s. 80M of the Act. 13. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2003-04 2 2 13.1. For the year under consideration i.e., AY 2003-04, dividend income received from shares was chargeable to tax in the hands of the assessee who is entitled to claim deduction u/s. 80M of the Act. 13.2. Deduction u/s. 80M is allowed on net dividend income i.e. after reducing the income by the expenses relating to it and there is no dispute with respect to this principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata allocation of administrative expenses. 13.4. On the stated position of law and under the given set of facts as enumerated above, we have already held in the above paragraphs while dealing with disallowance u/s. 36(1)(viii) and 14A on the interest component relating to the investments in shares which yielded dividend income have been made out of owned funds and therefore, no part of such interest expenditure is allocable on this account. Our observations and findings on this aspect are not repeated here as already dealt elaborately in the above paragraphs. 13.5. With respect to allocation made towards administrative expenditure by the ld. Assessing Officer, the said amount has been determined by applying a pro-rata proportion to the income which would qualify for deduction u/s. 36(1)(viii) and other income which for which ld. CIT(A) has given partial relief. For such an action of pro-rata allocation, we refer to the provisions of Section 57(iii) and find that ld. Under the said section, Assessing Officer has no power to bifurcate on pro-rata basis and deduct a part of it from the gross dividend income. There is no scope for any estimation of expenditure and hence no scope for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first appellate order for Assessment Year 2002-03 on the same issue wherein the matter had been set aside to the file of ld. Assessing Officer, owing to rectification application pending before him in this respect. Ld. Assessing Officer was directed to decide the rectification application after verification of facts. In the year under appeal before us, i.e., Assessment Year 2003-04, ld. CIT(A) has relied upon the first appellate order for Assessment Year 2002-03 but denied the claim of assessee of reducing the taxable income by the amount credited to lease equalisation account. Considering the facts as stated above, for the purpose of consistency, we find it appropriate to remand this issue back to the file of ld. Assessing Officer for reconsideration as directed by ld. CIT(A) in Assessment Year 2002-03. Accordingly, ground raised by the assessee is allowed for statistical purposes. VII. Assessment of amount withdrawn from reserve created u/s. 36(1)(viii). 15. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2004-05 - 2 2006-07 - 3 2007-08 - 3 15.1. On this issue, ld. Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003] 261 ITR 708 (Ker), wherein the Hon'ble Court held that amendments were prospective and would be applicable for Assessment Year 1998-99 and thereafter and also that the same cannot be applied for the Assessment Years prior thereto. It thus, held that deduction which has been allowed in respect to amounts transferred to special reserve u/s. 36(1)(viii) prior to amendment and which amounts were subsequently withdrawn should not be subjected to tax. Before us, Revenue is in appeal on the relief so granted by ld. CIT(A). 15.5. From the audited financial statements of the assessee as extracted above, it is an admitted fact that assessee has bifurcated the creation of special reserve required u/s. 36(1)(viii) owing to the amendment brought in the said section along with corresponding amendment u/s. 41(1A) which are effective from Assessment Year 1998-99. Assessee had explained this aspect before the ld. Assessing Officer by clarifying that special reserve had been created over the years out of the profits and "Special Reserve No. I Account" relates to amount which had been transferred up to financial year 1997-98. Thus, it is not as though assessee has surreptitiously transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Groz Beckert Asia Ltd. [2013] 31 taxmann.com 155 (P&H), wherein it allowed the deduction of expenditure by holding it as not capital in nature. Relevant extract from the said decision is as under: "16. In the present case, the nature of the expenditure incurred by the assessee cannot be said to be a capital expenditure. The second test culled down in Assam Bengal Cement Co. Ltd.'s case (supra) is that expenditure should bring into existence an asset or an advantage for the enduring benefit of a trade. In the present case, the corporate membership of Rs. 6 lacs was for a limited period of 5 years. The corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee irrespective of the fact that computation of capital gains is done either u/s. 48 and 49 or u/s. 50. Legal fiction created by the statute is to deem capital gain as short-term capital gain and not to deem the asset as short-term capital asset. Therefore, it cannot be said that section 50 converts long-term capital asset into a short-term capital asset. 17.3. Facts on record on the above issue are undisputed as already stated above. The issue in hand is in respect of addressing the position of law for the claim made by the assessee u/s. 54EC on capital gain which has been deemed to be a short-term capital gain u/s. 50 of the Act. Ld. CIT(A) granted the relief by following the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Ace Builders (supra) as well as Assam Petroleum Industries Pvt. Ltd. (supra) by Hon'ble High Court of Guwahati. Before us, ld. Counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. V.S. Dempo Company Ltd. [2016] 74 taxmann.com 15 (SC), wherein by referring to the decision of Hon'ble High Court of Bombay in Ace Builders (Supra), the Hon'ble Apex Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its issue, it is a loan. Therefore, expenditure incurred thereon is revenue in nature." Reliance was also placed on the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Secure Meters Ltd., [2010] 321 ITR 611 (Raj) and Hon'ble Delhi Court in the case of CIT vs. Havells India Ltd., [2013] 352 ITR 376 (Del). 18.3. On the given set of facts and judicial precedents discussed above, Revenue could not submit any reason as to why a different view on this issue should be taken as taken by various Hon'ble High Courts. Accordingly, respectfully following the above referred judicial precedents including that of Hon'ble Jurisdictional High Court of Bombay, ground raised by the assessee is allowed. XI. Set-off of short-term capital loss. 19. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2007-08 4 - 2008-09 3 - 2010-11 - 7 2011-12 - 8 19.1. During the year, assessee reported its income under the head 'capital gains' which included short term capital gains/loss on shares/units of mutual funds, details of which is tabulated as under: Tax rate Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee shall be entitled" evidently gives the assessee an option as to decide on giving preference for set off of the short-term capital loss. Such an exercise of option by the assessee if results into higher benefits in terms of saving in tax as per law, the same cannot be denied. Ld. Assessing Officer has observed that it is an extreme case of tax planning which is not permissible as the proper way to tax such gains would be to first treat gains taxable at the special rate as a separate block and then set off losses under that block, if any, against another rate block. He thus, re-computed the short-term capital gain on shares/mutual funds to arrive at a net figure of Rs. 27,91,89,922/-, as short-term capital gain taxable at a rate of 33.66%, being non-STT paid. 19.5. On a specific query by the Bench on the use of the phrase "under a similar computation made for the Assessment Year" u/s. 70(2), we noted that income under the head 'capital gains' is determined as per section 45 to 55A. Section 48 provides for the computation mechanism for computing income chargeable under the head 'capital gains' which is to be computed by deducting from the full value of consideration received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to him was on account of cost incurred by the fund in relation to such income and the relevant investments in respect of which assessee had not passed entries in the books of account. 20.2. Brief facts in the present case are that India Value Fund had distributed an amount of Rs. 3,95,97,144 in relation to divestment of its investment in DQ Entertainment Ltd. After reducing the cost of investment of Rs. 2,02,15,532 and expenses incurred by the Fund of Rs. 58,37,201, profit being capital gains chargeable in the hands of the assessee was computed at Rs. 1,35,44,411. Computation details as per Form 64 for this as provided by India Value Fund vide letter dated 15.10.2010 is extracted below which also states that the said amount would be chargeable to tax as long-term capital gains on sale of shares (without STT): Particulars Date Amount (Rs.) (to the extent of HDFC's share) Gross Sales Proceeds Dec 18, 2007 43,322,663 Less: Carry 3,725,519 Amount Distributed 39,597,144 Less: Cost of acquisition and Expenses Cost of DQ Investment July 1, 2004 20,215,532 Fund Expenses Various 5,837,201 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is on account of cost incurred by India Value Fund for which assessee had not passed certain entries in its books of account. Assessee has reported the income as certified by India Value Fund in terms of Form 64 which is not in dispute. However, for the difference, assessee has expressed its inability to explain the same owing to passage of time. In the given set of facts and circumstances, what the assessee has returned is the correct amount of income as communicated by India Value Fund and nothing contrary has been placed on record to dis-prove the same except for the entry in the books of account. Income really accruing or arising to or received by the assessee as contained in section 115U(1) is of Rs. 1,35,44,411/- as long-term capital gain duly substantiated by communication received from India Value Fund as prescribed in Form 64. 20.6. While addressing the issue in hand, reference is made to the decision of Hon'ble Supreme Court in the case of Taparia Tools Ltd [2015] 55 taxmann.com 361 (SC) wherein it noted in para 19 that, "It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,368 21.2. In the assessee's appeal for Assessment Year 2008-09, ld. CIT(A) confirmed the said addition. However, similar nature of addition was deleted by the ld. CIT(A) in appeal for Assessment Year 2010-11 for which Revenue is in appeal. 21.3. In respect of addition for Assessment Year 2008-09, for the substantive amount of Rs. 39 lakhs appearing against Steel Authority of India Ltd. (SAIL), assessee had furnished a copy of letter dated 03.02.2011 before the ld. CIT(A) which did not find favour with the assessee. In the said letter, SAIL confirmed that a sum of Rs. 39 lakhs was estimated as a liability which was accounted for and provided in its books of accounts for the year ended on 31.03.2008 and applicable TDS was done. Against this estimation, assessee had not raised any bills for the relevant year which were done in parts only in the subsequent years. For the appreciation of correct factual position, contents of the letter from SAIL are extracted below: "Subject: Reference to your letter dated 14th January 2011 regarding details of transaction entered into as on 31.03.2008 This has reference to your letter dated 14th January 2011 seeking information regarding Tax De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no addition can be made solely based on information available on ITS/AIR. Reliance is placed on the judicial precedents including by Co-ordinate Bench of ITAT, Mumbai in the case of ANS Law Associates vs. ACIT in ITA No.5181/Mum/2012, wherein it was held as under: "It has been held time and again by this Tribunal that the additions made solely on the basis of AIR information are not sustainable in the eyes of the law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative. Reliance can be placed in this respect on the decision of the Tribunal in the case of "DCIT vs. Shree G Selva Kumar in ITA No. 868/Bang/2009 decided on 22.10.10 and another case in the case of "Aaarti Raman vs. DCIT in ITA No. 245/Bang/2012 decided on 05.10.12." 21.5. On the above facts, we note that assessee had discharged its onus by reconciling substantial amount of ITS/AIR data with its books of account. We note that no addition can be made solely on the basis of ITS/AIR information, more particularly when assessee denies receipt of such income and for which the onus lies on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity of the Property, the Lessor shall satisfy the Lessee prior to the Lessee purchasing the Property that the entire loan along with any interest accruing from it have been duly paid to the bank and that the title of the Property is clear of all encumbrances, liens, charges or any imputations whatsoever. The Lessor shall obtain and provide to the Lessee a certificate from the bank indicating that there are no further liabilities or dues arising from the said bank loan. In the event of any failure to make payment of the said bank loan by the Lessor, the Lessee shall have the right to make the payment to the bank on behalf of the Lessor and deduct the same, including interest thereon if any, paid to the bank, from the sale consideration payable to the Lessor for the purchase of the Property. In the event the Lessee exercises the Option to Purchase, the external maintenance of the Property would be carried out by the Promoter on the terms and conditions entered and otherwise to be mutually decided between the Parties hereto." c. Based on the above clause, assessee worked out the purchase cost per sq. ft. as tabulated below: Price as of Opening price Rs. per sq. ft. Escalation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion report dated 21.06.2016. Based thereon, ld. CIT(A) gave partial relief of Rs. 8,66,12,000/- to the assessee for which Revenue is not in appeal. 22.2. Before us, it was submitted that the third proviso to section 50C provides for an exception, according to which, where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 105% of the consideration received or accruing as a result of transfer, the consideration so received or accruing as a result of the transfer shall be deemed to be the full value of consideration. The said threshold of 105% was increased to 110% by the Finance Act, 2020 w.e.f. 01.04.2021. Assessee further submitted that the said amendment is curative and declaratory in nature and hence shall apply retrospectively. Assessee placed reliance, in this regard, on the following decisions of Co-ordinate benches wherein it is held that third proviso to section 50C(1) of the Act being curative and declaratory is retrospective in nature: i. Maria Fernandes Cheryl vs. ITO [2021] 187 ITD 738 (Mum) ii. Rajpal Mehta HUF vs. ACIT [2024] 159 taxmann.com 1587 (Mum) iii. Chandra Prakash Jhunjhunwala vs. DCIT [2020] 181 ITD 185 (Kol) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Goetze India Ltd. (supra) has stated that "nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee". Accordingly, ground raised by the Revenue is dismissed. XVI. Refund of excess dividend distribution tax. 24. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2011-12 - 9 2012-13 - 8 2013-14 - 8 24.1. In the present case, assessee paid excess dividend distribution tax (DDT) of Rs. 11,59,82,950/- for AY 2011-12 and claimed refund of the same in its return of income. There is similar excess DDT paid for AY 2012-13 and 2013-14 also. In Assessment Year 2011-12, assessee received dividend of Rs. 83,73,25,003/- from its subsidiaries. Assessee in reference to the provisions prescribed in section 115-O(1A), computed the amount of DDT payable by it, tabulated as under: Particulars Amount (in Rs. ) Dividend declared by assessee during the year 1047,42,46,908 Less: Dividend received from subsidiaries reduced in terms of section 115-O(1A) of the Act (83,73,25,003) Dividend subject to DDT in terms of section 115-O(1) of the Act 963,69,21,905 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution of India in terms of which it is a settled position of law that no tax can be levied / recovered without the authority of law. 24.4. In this respect, we also refer to the provisions of section 115-O(1A) which provides that the amount referred to in sub-section (1) shall be reduced by amount of dividend received by the domestic company during the year, if such dividend is received from its subsidiary and the subsidiary has paid the applicable DDT. It is important to note that receipt of dividend of Rs. 83,73,25,003/- from the subsidiaries is not in dispute as to fulfilment of conditions prescribed u/s. 115-O(1A). In the given set of facts and applicable provisions of the Act, as discussed above, as well as drawing force from the decision of Torrent India Pvt. Ltd. (supra), we do not find any infirmity in the findings arrived at by ld. CIT(A) of directing the ld. Assessing Officer to grant refund of the excess DDT paid by the assessee. Accordingly, ground raised the Revenue is dismissed. XVII. Transfer pricing adjustment in respect of specified domestic transactions covered by section 40A(2)(b). 25. This issue arises in the following appeals: Assessment year Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. in Revenue's appeal 2014-15 - 11 2015-16 - 11 2016-17 - 5 2017-18 - 3 2018-19 - 5 26.1. In respect of this issue, ld. Assessing Officer during the course of assessment proceedings, on examination of tax audit report in Form- 3CD noted qualification remark given by the tax auditor on clause 21(b) relating to amounts inadmissible u/s. 40(a). The said note is reproduced below for ready reference: "Note. Considering the diverse nature and the volume of transactions in respect of which tax is deductible at source on payments covered by the provisions of Section 40(a) of the Income-tax Act, 1961, in the case of the Corporation, the disclosure given in this clause is based on the exceptions noted in the course of verification by the auditors in accordance with the Auditing Standards generally accepted in India, which include test checks and the concept of materiality. The Corporation has represented that there are no exceptions for reporting under this clause. In the opinion of the Corporation, year-end provisions for expenses are made on the basis of Management's best estimates determined on an aggregate level and not at the level of individual payees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utralising effect for these year-end provisions for expenses since a reversal entry at the beginning of the year on the same account is made in the books of account, though with varying amounts. By placing reliance on certain judicial precedents, assessee submitted that TDS mechanism cannot be applied until identity of the person in whose hands it is includible as income, can be ascertained. 26.4. However, ld. Assessing Officer held that provisions made towards expenses represents pure ad-hoc provisions made at the end of the year which are contingent in nature. He thus, disallowed the same and added it to the total income. Ld. CIT(A) in first appeal deleted the additions so made. Ld. CIT(A) held that none of the provisions made represents ad-hoc provisions or are in respect of any unascertained liability. According to him, assessee is regularly following the practice of year end provision for various expenses, which is reversed on 1st April of next year and that expenses are considered on the basis of actual payment in the subsequent year. He placed reliance on the decision of Co-ordinate Bench of ITAT Mumbai in the case of DCIT vs. HDFC Sales Pvt. Ltd., in ITA No. 852/Mum/2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which invoices/full details were not received till the end of the month i.e. 318t of March, by considering the average one month expense. I am inclined to agree with the appellant's submission that these provisions cannot be held to be contingent expenditure since the expenditure have already been incurred and the provision has been made on a certain basis for each head of expense so that the account adopted by the appellant represent a true and, fair view of the state of affairs of the business, consistent with the accounting standards. In this regard, it is noted that the actual expenses incurred was Rs. 10,46,13,017/as against the provision of Rs. 10,24,36,819/-, Further, it is not a case where the expenditure would accrue on the happening of some subsequent event. In this regard, reliance is placed on the decision in the CIT Vs. Triveni Engineering and Industries Ltd. (2011) 196 Taxman 94 Delhi High Court. 6.1 1 find that the AO has also required the appellant to explain whether TDS was deducted on such provisions and if not, whether such provisions have been disallowed in the computation of income. In this regard, the appellant has submitted that no disallowances can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under section 40(a)(ia) as the assessee has not made TDS on provision of sundry creditor. The assessee claimed deduction of the same amount in subsequent AY. The Id. CIT(A) confirmed the disallowance by taking view that the assessee cannot claim double deduction of a very same amount on which assessee deducted and paid TDS. In the said case, the recipient was identifiable and the assessee has not pleaded that such obligation was a result of past events. We may further reiterate that in both the case law relied by Id. DR for the revenue a recipient was identifiable, however, in the case in hand, no such recipient were identifiable, moreover, the provisions were made for multiple purposes. The assessee made provision of Rs. 10.24 crore and ultimately made expenses of Rs. 10.46 crore, which clearly demonstrate that assessee made the provision after due diligence which cannot be said to be an adhoc provision. 9. In view of the aforesaid discussions, we do not find any merit in the grounds of appeal raised by revenue; hence we affirm the order passed by ld CIT(A). In the result Ground No.1 of appeal is dismissed. 26.5. In the given set of facts and judicial precedent referred abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken by ld. Assessing Officer of treating it as contingent liability. Accordingly, in the given set of facts and detailed discussion made hereinabove, we do not find any infirmity in the findings arrived at by ld. CIT(A) in this issue. Accordingly, grounds raised by the Revenue, including that by way of additional grounds are dismissed. XX. Deduction in respect of expenditure incurred on Employee Stock Option Scheme ('ESOS'). 28. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2013-14 Additional ground of appeal raised vide letter dated 13.09.2024 1 2014-15 - 12 2015-16 - 12 2016-17 3 7 & 8 2017-18 3 5 & 6 2018-19 3 7 & 8 2019-20 3 5 2020-21 - 6 28.1. Assessee granted stock option to its eligible employees under its ESOS. Upon exercise of the option, difference between the market price and the issue price is taxed as perquisite in the hands of the employee u/s. 17 of the Act read with Rule 3 of the Rules. Assessee claimed ESOS expenditure being incurred wholly and exclusively for the purpose of its business since it forms part of compensation cost to its employees, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf before the ld. Assessing Officer. 28.3. This issue is no longer res integra as has been dealt by Co-ordinate Bench in the case of HDFC Bank Ltd. (supra) with similar view taken by Hon'ble Special Bench, ITAT, Bangalore in the case of Biocon Ltd., vs. DCIT [2013] 144 ITD 21 (Bang)(SB), the same having been approved by Hon'ble Court of Karnataka reported in CIT vs. Biocon Ltd. [2021] 430 ITR 151 (Kar). 28.4. Considering the facts on record and the judicial precedents relied upon, claim made by the assessee by way of additional ground is allowed in respect of Assessment Year 2013-14. However, based on our reasoning given while admitting the additional ground raised by the assessee for Assessment Year 2013-14 in ITA No.4983/Mum/2017, being the original assessment u/s. 143(3) whereby we have observed that the scope of assessment for giving effect to the appellate order is limited to the extent of finding arrived at in the appeal, ground contested by Revenue is to be allowed. In other words, on the claim of expenditure towards ESOS expenditure, assessee gets a relief in its appeal against the original assessment made u/s. 143(3) by way of additional ground in ITA No.4983/Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee discussed and explained this issue but they reiterated same thing as discussed in earlier reply, nothing new were brought on record." On appeal by the assessee, ld. CIT(A), after taking into account the provisions of section 36(1)(viia)(d), facts of the case and material on record, allowed the claim. 29.3. We take note of the relevant provisions of the Act in respect of claim made by the assessee and are extracted for ease of reference. "The relevant extract of the section 36(1)(viia) is as follows: "Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (viia) in respect of any provision for bad and doubtful debts made by- (d) a non-banking financial company, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A). Explanation. For the purposes of this clause- (vii) "non-banking financial company" shall have the meaning assigned to it in clause (1) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);" 29.4. From the above, we note that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange or a Mutual Benefit company." [emphasis supplied by us by underline] 29.7. In view of the amendment made by the Finance Act, 2016 and RBI clarification, new section 36(1)(viia)(d) of the Act becoming applicable to the Housing Finance Company, assessee gets the eligibility for claiming deduction under the said amended section. Assessee having regards to the Prudential Norms as prescribed by National Housing Bank (NHB), made provision for bad and doubtful debts in its books of account of Rs. 652,35,70,210/- and capped the deduction towards provision for bad and doubtful debts to 5% of its total income Rs. 9659,77,24,048/- i.e. Rs. 482,98,86,202/- u/s. 36(1)(viia)(d) of the Act in its computation of income. During the course of assessment, assessee filed the basis of computation of deduction amount of Rs. 482,98,86,202/-. Ld. Assessing Officer rejected the said claim on the basis that no details have been placed on record as to what were the records maintained like provision for bad and doubtful debts, what were the balances brought on from the earlier years etc. 29.8. In this respect, assessee referred to Note No. 39.5.4 - 'Movement of NPA' from its Annual Report for the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake note of the relevant provisions of the Act. i. Section 36(1)(vii) provides that any bad debt or part thereof which is written off as irrecoverable, shall be allowed as deduction while computing the taxable income of the assessee. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. The provisions of section 36(1)(vii) of the Act are subject to the provisions of section 36(2) of the Act. ii. Section 36(2) lays down various conditions regarding the allowability of bad debts under section 36(1)(vii). It is obligatory upon the assessee to prove that its case satisfies the ingredients of section 36(1)(vii) on the one hand and that it satisfies the requirements stated in section 36(2) of the Act on the other. iii. The proviso to section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under section 36(1)(viia). The proviso to section 36(1)(vii) provides that for an assessee, to which section 36(1)(viia) of the Act applies, deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kant 50,86,767 Annexure7-1b 604674097 Borgohain Bolin 70,11,117 Annexure7-1c 612923033 Santhosh Kumar Cl 71,80,726 Annexure7-1d 606296050 Somashekar Channappa 50,99,651 Annexure7-1e 605886768 Naveen Kumar 79,40,682 Annexure7-1f 367152553 Dr. Ramesh Srinivasaiah Saligram 90,93,928 Annexure7-1g 5360196670 Tempus Infra Projects Private Limited 9,63,90,976 Annexure7-1h Various Loan Accounts Vikram Bakshi Group 24,62,30,970 Annexure7-11 609161380 Manish Bhargav 46,74,967 Annexure7-1j Total 39,47,57,651 30.7. In respect of ledger accounts of the concerned parties mentioned above, it is asserted by the assessee that data submitted of sample parties written off aggregates to Rs. 39,47,57,651/- which comes to nearly 70% of total cases amounting to 56,16,84,279/-, which ld. Assessing Officer did not consider. Assessee thus, claims for its allowance on the following assertions: i. Party-wise details submitted of bad debts cases written off was filed during the course of assessment proceedings but the same were not considered by the ld. Assessing Officer. ii. As per section 36(1)(vii) of the Act, while computing the business profit, an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 taking note of the above stated facts and allowed the deduction for the interest income which was earlier added by him. 31.2. In the light of above stated facts and rectification order already passed giving effect to the issue raised by the assessee in the aforesaid ground, the said grievance is addressed and hence the ground so raised has become infructuous. Accordingly, ground so raised for Assessment Year 2004-05 is dismissed as infructuous. 31.3. Similar fact pattern exists for Assessment Year 2007-08 and 2008-09 for which also rectification orders have been passed u/s. 154 by the ld. Assessing Officer giving relief to the assessee on account of interest income on income-tax refund. The said rectification orders have been perused. Considering the same, for these two years also, grounds raised by the assessee are rendered infructuous and dismissed accordingly. 31.4. For Assessment Year 2005-06, similar rectification was made by ld. Assessing Officer in respect of interest on income-tax refund pertaining to Assessment Year 2004-05, amounting to Rs. 4,26,57,786/- for which order u/s. 154 was passed on 15.02.2011. To the extent of Rs. 4,26,57,786/-, ground raised by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction u/s. 36(1)(viii), consequentially penalty to the extent imposed in respect of these components stands deleted. There are components in respect of claim of deduction u/s. 36(1)(viii) for which the disallowance has been sustained. For such sustenance of disallowance, the moot point is whether this tantamount to "furnishing of inaccurate particulars of income" for the purpose of imposing penalty u/s. 271(1)(c). 33.3. Before us, it was submitted that mere making of a claim, even if the same is not sustainable in law, by itself cannot amount to furnishing to inaccurate particulars of income. On this contention, Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. [2010] 322 ITR 158 (SC) held in para 10 that "Merely because the assessee had claimed the expenditure, which claim was not accepted or not acceptable to the Revenue, that, by itself, would not attract the penalty u/s. 271(1)(c). If the contention of the Revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty u/s. 271(1)(c). That is clearly not the intendment of the Legislature." 33.4 ..... 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