YES BANK LIMITED,MUMBAI vs. DCIT - 2(2)(2), MUMBAI

PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM

These cross appeals by the assessee These cross appeals by the assessee and Revenue are directed and Revenue are directed against order dated 31.01.2018 passed by the Ld. Commissioner of against order dated 31.01.2018 passed by the Ld. Commissioner of against order dated 31.01.2018 passed by the Ld. Commissioner of Income-tax (Appeals) tax (Appeals)-5, Mumbai [in short ‘the Ld. CIT(A)’] for 5, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014 assessment year 2014-15. The grounds raised by the assessee are 15. The grounds raised by the assessee are reproduced as under: reproduced as under:

GROUND NO. I: SET GROUND NO. I: SETTING ASIDE THE GROUND TO THE FILE TING ASIDE THE GROUND TO THE FILE OF THE AO 1. On the facts and circumstances of the case and in law, 1. On the facts and circumstances of the case and in law, 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in effectively setting aside Grounds of Hon'ble CIT(A) erred in effectively setting aside Grounds of Hon'ble CIT(A) erred in effectively setting aside Grounds of appeal no. III, VIlI appeal no. III, VIlI and X to the file of the AO for re and X to the file of the AO for re- examination/ re examination/ re-verification, which is beyond the powers verification, which is beyond the powers conferred under section 251 of conferred under section 251 of the Act. 2. The Appellant prays that it be held that the order of the 2. The Appellant prays that it be held that the order of the 2. The Appellant prays that it be held that the order of the CIT(A) is void ab CIT(A) is void ab-initio and/or otherwise bad-in-law. law. GROUND NO. II: DISREGARDING THE DIRECTION OF THE O. II: DISREGARDING THE DIRECTION OF THE O. II: DISREGARDING THE DIRECTION OF THE TRIBUNAL WITH RESPECT TO DISALLOWANCE U/S 14A OF TRIBUNAL WITH RESPECT TO DISALLOWANCE U/S 14A OF TRIBUNAL WITH RESPECT TO DISALLOWANCE U/S 14A OF THE ACT: On the facts and circumstances of the case and in law, On the facts and circumstances of the case and in law, On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in going beyond the order of the Hon'ble Hon'ble CIT(A) erred in going beyond the order of the Hon'ble Hon'ble CIT(A) erred in going beyond the order of the Hon'ble ITAT in the Appellant's own case for an ITAT in the Appellant's own case for an earlier year and earlier year and directing the AO to re directing the AO to re-examine the entire claim made by the examine the entire claim made by the Appellant. WITHOUT PREJUDICE TO GROUND NOS. I AND II, WITHOUT PREJUDICE TO GROUND NOS. I AND II, WITHOUT PREJUDICE TO GROUND NOS. I AND II, GROUND NO. III: DISALLOWANCE UNDER SECTION 14A OF GROUND NO. III: DISALLOWANCE UNDER SECTION 14A OF GROUND NO. III: DISALLOWANCE UNDER SECTION 14A OF THE ACT:

M/s Yes Bank Ltd. 3 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 4 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

GROUND NO. VI: DISALLOWANCE OF QIP EXPENSES BY GROUND NO. VI: DISALLOWANCE OF QIP EXPENSES BY GROUND NO. VI: DISALLOWANCE OF QIP EXPENSES BY INVOKING SECTION40(a)(i)/(ia) OF THE ACT: INVOKING SECTION40(a)(i)/(ia) OF THE ACT: 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in disallowing the expenses in Hon'ble CIT(A) erred in disallowing the expenses in Hon'ble CIT(A) erred in disallowing the expenses in connection with QIP on the ground that the expense may not ction with QIP on the ground that the expense may not ction with QIP on the ground that the expense may not be allowable in view of section 40(a)(j/ (ia) of the Act. be allowable in view of section 40(a)(j/ (ia) of the Act. be allowable in view of section 40(a)(j/ (ia) of the Act. 2. The Appellant prays that the A be directed to allow the 2. The Appellant prays that the A be directed to allow the 2. The Appellant prays that the A be directed to allow the expenses in connection with expenses in connection with GROUND NO. VII: SETTING ASIDE TO THE AO THE ISSUE GROUND NO. VII: SETTING ASIDE TO THE AO THE ISSUE GROUND NO. VII: SETTING ASIDE TO THE AO THE ISSUE OF ALLOWANCE WANCE WANCE OF OF OF BROKERAGE BROKERAGE BROKERAGE PAID PAID PAID ON ON ON HIM HIM HIM SECURITIES: SECURITIES: On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in directing the AO to verify the Hon'ble CIT(A) erred in directing the AO to verify the Hon'ble CIT(A) erred in directing the AO to verify the bifurcation of securities under different categories when all bifurcation of securities under different categories when all bifurcation of securities under different categories when all the details were available on record the details were available on record and no further and no further verification was required. verification was required. WITHOUT PREJUDICE TO GROUND NOS. I AND VII WITHOUT PREJUDICE TO GROUND NOS. I AND VII WITHOUT PREJUDICE TO GROUND NOS. I AND VII GROUND NO. VILI DISALLOWANCE OF BROKERAGE PAID GROUND NO. VILI DISALLOWANCE OF BROKERAGE PAID GROUND NO. VILI DISALLOWANCE OF BROKERAGE PAID ON ACOUISITION OF HIM INVESTMENTS: ON ACOUISITION OF HIM INVESTMENTS: 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in par Hon'ble CIT(A) erred in partly confirming the action of the A of tly confirming the action of the A of disallowing the brokerage paid on HTM securities even disallowing the brokerage paid on HTM securities even disallowing the brokerage paid on HTM securities even though all the securities are held by the Appellant as stock though all the securities are held by the Appellant as stock though all the securities are held by the Appellant as stock- in-trade. 2. The Appellant prays that the disallowance of brokerage 2. The Appellant prays that the disallowance of brokerage 2. The Appellant prays that the disallowance of brokerage paid on HTM securities be deleted. paid on HTM securities be deleted. GROUND NO. IX: SETTING ASIDE TO THE AO THE GROUND GROUND NO. IX: SETTING ASIDE TO THE AO THE GROUND GROUND NO. IX: SETTING ASIDE TO THE AO THE GROUND ON SECTION 36(1)(viia) OF THE ACT: ON SECTION 36(1)(viia) OF THE ACT: 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in directing the AO to verify whether the CIT(A) erred in directing the AO to verify whether the CIT(A) erred in directing the AO to verify whether the Appellant had rural branches within the meaning of section Appellant had rural branches within the meaning of section Appellant had rural branches within the meaning of section 36(1) (via) when all the relevant details were available on 36(1) (via) when all the relevant details were available on 36(1) (via) when all the relevant details were available on record.

M/s Yes Bank Ltd. 5 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 6 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

GROUND NO. XIII: ALTERNATIVE PLEA ON DEDUCTION U/S GROUND NO. XIII: ALTERNATIVE PLEA ON DEDUCTION U/S GROUND NO. XIII: ALTERNATIVE PLEA ON DEDUCTION U/S 36(1) (vii) SET ASIDE ) SET ASIDE 1. On the facts and in the circumstances of the case and in 1. On the facts and in the circumstances of the case and in 1. On the facts and in the circumstances of the case and in law, Hon'ble CIT(A) erred in setting aside to the AO the , Hon'ble CIT(A) erred in setting aside to the AO the , Hon'ble CIT(A) erred in setting aside to the AO the alternative plea that since the Appellant was not allowed alternative plea that since the Appellant was not allowed alternative plea that since the Appellant was not allowed deduction u/s 36(1) (via) in A.Y. 2013 deduction u/s 36(1) (via) in A.Y. 2013-14 bad debts written 14 bad debts written off in the current financial year ought to be allowed without off in the current financial year ought to be allowed without off in the current financial year ought to be allowed without adjusting the opening adjusting the opening balance of provision of bad and balance of provision of bad and doubtful debts u/s. 36(1)(via). doubtful debts u/s. 36(1)(via). 2. The Appellant prays that the AO be directed to allow bad 2. The Appellant prays that the AO be directed to allow bad 2. The Appellant prays that the AO be directed to allow bad debts written off u/s 36(1)(vi) consistent with his own stand debts written off u/s 36(1)(vi) consistent with his own stand debts written off u/s 36(1)(vi) consistent with his own stand that the provision for bad debts was for non that the provision for bad debts was for non-rural branches. rural branches. WITHOUT PREJUDICE TO GROUND NOS. X, XI AND XII: REJUDICE TO GROUND NOS. X, XI AND XII: REJUDICE TO GROUND NOS. X, XI AND XII: GROUND NO. XIV: ALTERNATIVE PLEA ON HIGHER GROUND NO. XIV: ALTERNATIVE PLEA ON HIGHER GROUND NO. XIV: ALTERNATIVE PLEA ON HIGHER DEDUCTION U/S 36(1)(vi) IN SUBSEQUENT YEAR SET DEDUCTION U/S 36(1)(vi) IN SUBSEQUENT YEAR SET DEDUCTION U/S 36(1)(vi) IN SUBSEQUENT YEAR SET ASIDE 1. On the facts and in the circumstances of the case and in 1. On the facts and in the circumstances of the case and in 1. On the facts and in the circumstances of the case and in law, Hon'ble CIT(A) erred in setting aside to the AO the law, Hon'ble CIT(A) erred in setting aside to the AO the law, Hon'ble CIT(A) erred in setting aside to the AO the alternative plea that the bad debts in A.Y. 2015 rnative plea that the bad debts in A.Y. 2015 rnative plea that the bad debts in A.Y. 2015-16 be correspondingly allowed on a higher side by reducing the correspondingly allowed on a higher side by reducing the correspondingly allowed on a higher side by reducing the opening balance of provision for bad and doubtful debts for opening balance of provision for bad and doubtful debts for opening balance of provision for bad and doubtful debts for A. Y. 2015-16. 16. 2. The Appellant prays that the AO be directed to allow bad 2. The Appellant prays that the AO be directed to allow bad 2. The Appellant prays that the AO be directed to allow bad debts in A.Y. debts in A.Y. 2015-16 on a higher side by reducing the 16 on a higher side by reducing the opening balance of provision for bad and doubtful debts opening balance of provision for bad and doubtful debts opening balance of provision for bad and doubtful debts forA.Y. 2015 forA.Y. 2015-16. GROUND NO. XV: NON ADMISSION OF ADDITIONAL GROUND NO. XV: NON ADMISSION OF ADDITIONAL GROUND NO. XV: NON ADMISSION OF ADDITIONAL GROUND OF APPEAL: GROUND OF APPEAL: 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) err Hon'ble CIT(A) erred in rejecting the Additional ground raised ed in rejecting the Additional ground raised by the Appellant, in respect of discount on issue of shares by the Appellant, in respect of discount on issue of shares by the Appellant, in respect of discount on issue of shares under the employee stock option plan ("ESOP"), without under the employee stock option plan ("ESOP"), without under the employee stock option plan ("ESOP"), without appreciating the fact that the appellate authorities can admit appreciating the fact that the appellate authorities can admit appreciating the fact that the appellate authorities can admit and adjudicate the additional cla and adjudicate the additional claim raised by the assessee im raised by the assessee during the course of Appellate proceeding. during the course of Appellate proceeding.

M/s Yes Bank Ltd. 7 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 8 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 9 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 10 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 11 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

relevant computation of disallowance reproduced by the Assessing relevant computation of disallowance reproduced by the Assessing relevant computation of disallowance reproduced by the Assessing Officer on page 16 to 18 of the assessment Officer on page 16 to 18 of the assessment order is extracted as order is extracted as under:

“In this connection, Yes Bank submits that it has identified In this connection, Yes Bank submits that it has identified In this connection, Yes Bank submits that it has identified certain expenses actually incurred in connection with the certain expenses actually incurred in connection with the certain expenses actually incurred in connection with the activity of buying and selling of securities/equities/tax free activity of buying and selling of securities/equities/tax free activity of buying and selling of securities/equities/tax free instruments/ servicing of pass through certi instruments/ servicing of pass through certificates issued ficates issued by securitisation trust and has offered the same for by securitisation trust and has offered the same for by securitisation trust and has offered the same for disallowance u/s. 14A of the Act. The details of such disallowance u/s. 14A of the Act. The details of such disallowance u/s. 14A of the Act. The details of such expenses are as under: expenses are as under: Certain direct expenditure which are incurred solely for the Certain direct expenditure which are incurred solely for the Certain direct expenditure which are incurred solely for the purpose of earning exempt income are fully purpose of earning exempt income are fully disallowed. disallowed. Such expenditure is fully disallowed us 14A of the Act. Such expenditure is fully disallowed us 14A of the Act. Such expenditure is fully disallowed us 14A of the Act. Details of such expenditure is as below. Details of such expenditure is as below. Custody charges Custody charges 10,240 10,240 100% 100% 10,240 Brokerage on Equity Brokerage on Equity 11,723 11,723 100% 100% 11,723 Sec Transaction tax Sec Transaction tax 22,695 22,695 100% 100% 22,695 Total 44,658 In so far as indirect expenses in relation to earing income In so far as indirect expenses in relation to earing income In so far as indirect expenses in relation to earing income from dividend income from equity or preference share, from dividend income from equity or preference share, from dividend income from equity or preference share, interest income from tax free instruments and maintenance interest income from tax free instruments and maintenance interest income from tax free instruments and maintenance of PT deals are concerned, Yes Bank has, based on its of PT deals are concerned, Yes Bank has, based on its of PT deals are concerned, Yes Bank has, based on its internal records such internal records such as the books of accounts and the as the books of accounts and the number of equity deals/tax free/PTC deals to the total number of equity deals/tax free/PTC deals to the total number of equity deals/tax free/PTC deals to the total number of treasury deals done in the financial year, has number of treasury deals done in the financial year, has number of treasury deals done in the financial year, has computed the disallowance under section 14A of the Act as computed the disallowance under section 14A of the Act as computed the disallowance under section 14A of the Act as under: Name Total Cost Treasury % Distribution (Amt % Distribution in Rs.) Salary 7,843,990,647 361,442,070 0.07% 0.07% 246,071 Rent – Corporate Corporate 38,567,489 5,449,196 0.07% 0.07% 3,710 Office Rent – IFC 1,838,645,861 74,131,200 0.07% 0.07% 50,469 Electricity – Corp Corp 6,540,202 726,689 0.07% 0.07% 495 Office Electricity – Branch 228,832,431 9,129,022 0.07% 0.07% 6,215 Telephone 38,515,087 1,028,766 0.07% 0.07% 700 Other Other Operation Operation 4,111,173,324 43,245,820 0.07% 0.07% 29,442

M/s Yes Bank Ltd. 12 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

Expenses 17,498,673,623 Total Total 337,102 4.4.6 Other Operating cost Cost 4.4.6 Other Operating cost Cost has been allocated based has been allocated based on no. of employees in treasury department to the total on no. of employees in treasury department to the total on no. of employees in treasury department to the total number of employees of the Bank number of employees of the Bank Note 1 : Deals Made in Financial Year 2013-14 Deals Made in Financial Year 2013 Nos. Deals in tax free instruments (including PTCs Deals in tax free instruments (including PTCs 177,731 where tax is paid by Secu trust) in FY 2013-14 where tax is paid by Secu trust) in FY 2013 % of tax free deals (including PTC deals where % of tax free deals (including PTC deals where 0.07% tax is paid by Secu trust) to Total Deals tax is paid by Secu trust) to Total Deals  The Treasury Department ('TD*) of Yes Bank is the The Treasury Department ('TD*) of Yes Bank is the The Treasury Department ('TD*) of Yes Bank is the Department which is exclusively engaged in the Department which is exclusively engaged in the Department which is exclusively engaged in the buying and selling of securities. The TD is engaged in buying and selling of securities. The TD is engage buying and selling of securities. The TD is engage buying buying buying and and and selling selling selling of of of Government Government Government Securities, Securities, Securities, Treasury Bills, Corporate /PSU Bonds, Equity, Treasury Bills, Corporate /PSU Bonds, Equity, Treasury Bills, Corporate /PSU Bonds, Equity, Mutual Funds and other investments. Hence, Yes Mutual Funds and other investments. Hence, Yes Mutual Funds and other investments. Hence, Yes Bank has considered the expenses of the TD for the Bank has considered the expenses of the TD for the Bank has considered the expenses of the TD for the purpose of computation of the disallowances under purpose of computation of the disallowances under purpose of computation of the disallowances under section 14A section 14A of the Act. The TD of Yes Bank operates of the Act. The TD of Yes Bank operates from its office in India Bulls Financial Centre which from its office in India Bulls Financial Centre which from its office in India Bulls Financial Centre which also has its Back Office ('Back Office"). The locations also has its Back Office ('Back Office"). The locations also has its Back Office ('Back Office"). The locations is in situated in Mumbai. is in situated in Mumbai.  As the first step, Yes Bank has identified the specific As the first step, Yes Bank has identified the specific As the first step, Yes Bank has identified the specific expenses of the TD which expenses of the TD which are incurred in relation to are incurred in relation to the buying and selling activities of Government the buying and selling activities of Government the buying and selling activities of Government Securities, Treasury Bills, Corporate / PSU Bonds Securities, Treasury Bills, Corporate / PSU Bonds Securities, Treasury Bills, Corporate / PSU Bonds and Shares. and Shares.  These specific expenses are salary expense of TDs, These specific expenses are salary expense of TDs, These specific expenses are salary expense of TDs, Rent of the corporate office, rent of Back Office, Rent of the corporate office, rent of Back Office, Rent of the corporate office, rent of Back Office, electricity and electricity and telephone expenses of TD.  Other expenses from the total operating expenses Other expenses from the total operating expenses Other expenses from the total operating expenses incurred by Yes Bank for the assessment year under incurred by Yes Bank for the assessment year under incurred by Yes Bank for the assessment year under consideration are also considered on the basis of the consideration are also considered on the basis of the consideration are also considered on the basis of the employee strength of the TD to the total employee employee strength of the TD to the total employee employee strength of the TD to the total employee strength on a strength on a conservative basis.  Since the TD is involved in buying and selling of Since the TD is involved in buying and selling of Since the TD is involved in buying and selling of different types of securities (i.e. shares and other different types of securities (i.e. shares and other different types of securities (i.e. shares and other securities), ratio of equity deals to the total deal is securities), ratio of equity deals to the total deal is securities), ratio of equity deals to the total deal is used on the expenses referred to in the earlier used on the expenses referred to in the earlier used on the expenses referred to in the earlier

M/s Yes Bank Ltd. 13 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

paragraphs TD to finally comp paragraphs TD to finally compute the disallowance ute the disallowance under 14A of the Act. under 14A of the Act.  Expenses Expenses Expenses (such (such (such as as as Custody Custody Custody charges) charges) charges) which which which specifically pertain to the equity deals are identified specifically pertain to the equity deals are identified specifically pertain to the equity deals are identified and disallowed completely. and disallowed completely. Expenses incurred for Pass Through Certificates Expenses incurred for Pass Through Certificates Expenses incurred for Pass Through Certificates In addition to treasury expenses, for investments in Pass In addition to treasury expenses, for investments in Pass In addition to treasury expenses, for investments in Pass through certificates issued by securitisation trust, 9 through certificates issued by securitisation trust, 9 through certificates issued by securitisation trust, 9 employees of the of Corporate Finance department (CF) and employees of the of Corporate Finance department (CF) and employees of the of Corporate Finance department (CF) and 4 employees of Indian Financial Instution (IFI) group are 4 employees of Indian Financial Instution (IFI) group are 4 employees of Indian Financial Instution (IFI) group are involved in the activity of involved in the activity of sourcing and servicing the the sourcing and servicing the the PTs. Both these departments are based in Mumbai in PTs. Both these departments are based in Mumbai in PTs. Both these departments are based in Mumbai in IndiaBulls Finance Centre, Mumbai. IndiaBulls Finance Centre, Mumbai. Based on the management estimate of the time spent (50% Based on the management estimate of the time spent (50% Based on the management estimate of the time spent (50% for corporate Finance) and (15% of Indian Financial for corporate Finance) and (15% of Indian Financial for corporate Finance) and (15% of Indian Financial Institution group) we have com Institution group) we have computed and allocated the puted and allocated the salary and administrative administrative cost which are given below in the cost which are given below in the table. Working for disallowance of administrative cost u/s 14A for the period of Apr 13 – Mar 14 Working for disallowance of administrative cost u/s 14A for the period of Apr 13 Working for disallowance of administrative cost u/s 14A for the period of Apr 13 (Amt in Rs.) Name Corporate Corporate Finance/Indian Finance/Indian Cost Rationale Financials Institution Financials Institution group allocated Salary 15,055,508 15,055,508 15,055,508 Actual at 50% for Corporate Finance and 15% for IFI. Rent – India Bulls 3,093,525 3,093,525 3,093,525 Actuals Finance Centre Electricity – Branch 374,613 374,613 374,613 Actuals Telephone 39,093 39,093 39,093 Actuals Other Operating 3,426,006,452 3,426,006,452 1,997,786 No of Employees Expenses 20,560,525

Employee Database Employee Database IFI CF CF CF/IFI Employees 4 9 Total no of employees Total no of employees 8,746 8,746 Cost allocation % of the employees Cost allocation % of the employees 15% 50% 235,034 1,762,752 1,762,752 Total 1,997,786 1,997,786 Accordingly, Accordingly, Accordingly, Yes Yes Yes Bank Bank Bank calculated calculated calculated total total total sum sum sum of of of Rs.20,942,284/ Rs.20,942,284/- for for the the assessment assessment year year under under

M/s Yes Bank Ltd. 14 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

consideration and disallowed the same under section 14A consideration and disallowed the same under section 14A consideration and disallowed the same under section 14A of the Act.” 7. The Assessing Officer however was not satisfied with the The Assessing Officer however was not satisfied with the The Assessing Officer however was not satisfied with the computation of the suo motu disal computation of the suo motu disallowance and therefore after lowance and therefore after recording dissatisfaction as to the computation of the assessee in dissatisfaction as to the computation of the assessee in dissatisfaction as to the computation of the assessee in para 4.8.2 to 4.8.9 of the assess para 4.8.2 to 4.8.9 of the assessment order, , computed the disallowance in terms of Rule 8D disallowance in terms of Rule 8D as under :

“4.4.10 The provisions of Sec 14A, inserted by Finance Act, 4.4.10 The provisions of Sec 14A, inserted by Finance Act, 4.4.10 The provisions of Sec 14A, inserted by Finance Act, 2001 w.e.f. 1.04.1962 reads as follows: 'No deduction shall 2001 w.e.f. 1.04.1962 reads as follows: 'No deduction shall 2001 w.e.f. 1.04.1962 reads as follows: 'No deduction shall be allowed in respect of expenditure incurred by assessee be allowed in respect of expenditure incurred by assessee be allowed in respect of expenditure incurred by assessee in relation to income, which does not form part of the total in relation to income, which does not form part of the total in relation to income, which does not form part of the total income under this income under this Act'. Further, Rule 8D of the I.T. Rule is Act'. Further, Rule 8D of the I.T. Rule is also applicable retrospectively.Therefore, disallowance of also applicable retrospectively.Therefore, disallowance of also applicable retrospectively.Therefore, disallowance of expenditure under Sec 14A is as follows: expenditure under Sec 14A is as follows: Disallowance working u/s 14A of Income Disallowance working u/s 14A of Income-tax Act for AY 2013-14 Closing balance Closing balance INR (‘000s) INR (‘000s) Investment in shares/tax free bonds as on 31 shares/tax free bonds as on 31-Mar- 3,218,715 3,218,715 2013 Investment in shares /tax free bonds/Pass through Investment in shares /tax free bonds/Pass through 55,254,609 55,254,609 certificates as on 31-Mar Mar-2014 Average Investment for FY 2013 Average Investment for FY 2013-14 29,236,662 29,236,662 (A) Interest cost for FY 2011 Interest cost for FY 2011-12 72,650,918 72,650,918 (B) Total Assets as on 31 Assets as on 31-Mar-2013 991,041,273 991,041,273 Total Assets as on 31 Total Assets as on 31-Mar-2014 1,090,157,899 1,090,157,899 Average total asset for FY 2013 Average total asset for FY 2013-14 1,040,599,586 1,040,599,586 (C) Interest to be disallowed (A*B/C) Interest to be disallowed (A*B/C) 2,041,199 2,041,199 Add:1/2 % of total investment Add:1/2 % of total investment 146,183 Total disallowance Rs. Total disallowance Rs. 2,187,382 2,187,382 The disallowance u/s. 14A of the Act has to be read in The disallowance u/s. 14A of the Act has to be read in The disallowance u/s. 14A of the Act has to be read in consonance with Rule 8D of I.T. Rules which has been consonance with Rule 8D of I.T. Rules which has been consonance with Rule 8D of I.T. Rules which has been made effective w.e.f. A.Y. 2008 made effective w.e.f. A.Y. 2008-09. The working of the 09. The working of the disallowance given in the table above clearly shows that disallowance given in the table above clearly shows that disallowance given in the table above clearly shows that there are elements of ex there are elements of expenditure which the assessee has penditure which the assessee has incurred and which are relatable to the investment made in incurred and which are relatable to the investment made in incurred and which are relatable to the investment made in

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shares, etc, the income from which is not includible in the shares, etc, the income from which is not includible in the shares, etc, the income from which is not includible in the total works out to Rs. 2,187,382,000/ total works out to Rs. 2,187,382,000/- is required to be is required to be made, however as the assessee has already made made, however as the assessee has already made made, however as the assessee has already made disallowance of Rs. 20,942,284/ disallowance of Rs. 20,942,284/- in computation balance in computation balance amount of Rs. 2,166,439,716/ amount of Rs. 2,166,439,716/- is therefore added to the is therefore added to the income of the assessee u/s 14A of the Act. income of the assessee u/s 14A of the Act.” 7.1 The The Assessing Assessing Officer Off icer after after reducing reducing the the suo suo moto moto disallowance made balance disallowance made balance addition of Rs.2,166,430,716/ of Rs.2,166,430,716/-. On further appeal before the Ld. CIT(A), the assessee challenged the further appeal before the Ld. CIT(A), the assessee challenged the further appeal before the Ld. CIT(A), the assessee challenged the addition mainly on the ground that,firstly, Rule 8D of the Rules is addition mainly on the ground that Rule 8D of the Rules is not automatic, secondly secondly, no disallowance could be made u/s 14A no disallowance could be made u/s 14A e held in stock in trade, thirdly, if of r.w. Rule 8D if securities securities are held in stock in trade own funds and interest free funds are more than tax free own funds and interest free funds are more than tax free own funds and interest free funds are more than tax free investments, no disallowance u/s 14A r.w. Rule 8D should be no disallowance u/s 14A r.w. Rule 8D should be no disallowance u/s 14A r.w. Rule 8D should be made, fourthly, no disallowance no disallowance can be made in respect of made in respect of hares, fifthly,only investment converted converted from loans to equity shares, securities yielding exempt exempted income should be considered income should be considered for computing disallowance ,sixthly, no disallowance u/s 14A computing disallowance , disallowance u/s 14A of the Act can be made where investments are can be made where investments are strategic in nature, strategic in nature, seventhly, investments made to investments made to comply with the statutory comply with the statutory requirement should not be included while computing disallowance should not be included while computing disallowance should not be included while computing disallowance u/s 14A of the Act. The Ld. CIT(A) after considering submission of u/s 14A of the Act. The Ld. CIT(A) after considering submission of u/s 14A of the Act. The Ld. CIT(A) after considering submission of the assessee given a detailed finding in the assessee given a detailed finding in para-No. 3.4 No. 3.4 of the impugned order, however restored the however restored the matter to the Assessing matter to the Assessing Officer for reexamining the entire Officer for reexamining the entire case from factual case from factual angle and worked out for quantum worked out for quantum of interest relatable to tax free income tax free income yielding security and disallow the same. No finding was given in yielding security and disallow the same. No finding was given in yielding security and disallow the same. No finding was given in

M/s Yes Bank Ltd. 16 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

respect of disallowance for administrati respect of disallowance for administrative expenses, which was expenses, which was suo moto computed by the assessee. The relevant finding of the Ld. moto computed by the assessee. The relevant finding of the Ld. moto computed by the assessee. The relevant finding of the Ld. CIT(A) is reproduced as para 3.4 as under: CIT(A) is reproduced as para 3.4 as under:

“3.4 Decision: “3.4 Decision: I have carefully considered the facts of the case and I have carefully considered the facts of the case and I have carefully considered the facts of the case and examined all the submissions, details and documents examined all the submissions, details and documents examined all the submissions, details and documents furnished by the assessee while adjudicating the appeal. rnished by the assessee while adjudicating the appeal. rnished by the assessee while adjudicating the appeal. Assessee in its submissions has admitted following facts: Assessee in its submissions has admitted following facts: Assessee in its submissions has admitted following facts: 1) It earned tax free dividends of Rs. 38,77,418/ 1) It earned tax free dividends of Rs. 38,77,418/ 1) It earned tax free dividends of Rs. 38,77,418/- on investments in shares of Rs.93,24,79,619/ investments in shares of Rs.93,24,79,619/- and Rs. 29,42,88,685/ 29,42,88,685/- on tax free interest bonds of Rs. 544.20 on tax free interest bonds of Rs. 544.20 Crores and Rs. 188,56,84,686/ Crores and Rs. 188,56,84,686/- on investments in pass on investments in pass through certificates (PTC) of Rs. 4869.00 through certificates (PTC) of Rs. 4869.00 Crores. 2) It had incurred certain administrative expenses which 2) It had incurred certain administrative expenses which 2) It had incurred certain administrative expenses which were directly and/or indirectly relatable to the earning of were directly and/or indirectly relatable to the earning of were directly and/or indirectly relatable to the earning of tax free dividend and tax free interest income during the tax free dividend and tax free interest income during the tax free dividend and tax free interest income during the year, 3) It had invested in Shares, Tax Free Bonds andPass 3) It had invested in Shares, Tax Free Bonds andPass 3) It had invested in Shares, Tax Free Bonds andPass ThroughCertif ThroughCertificates (PTs) of several companies/ trust icates (PTs) of several companies/ trust during the year. during the year. Assessee is engaged in the business of banking in India is engaged in the business of banking in India is engaged in the business of banking in India and is governed by the Banking regulation act and RBI Act and is governed by the Banking regulation act and RBI Act and is governed by the Banking regulation act and RBI Act and as part and parcel of its business requirements and and as part and parcel of its business requirements and and as part and parcel of its business requirements and strategy and as the statutory guidelines issued byRBI, it strategy and as the statutory guidelines issued byRBI, it strategy and as the statutory guidelines issued byRBI, it invests in securities and shares and invests in securities and shares and thus made several thus made several investments in shares and securities in earlier assessment investments in shares and securities in earlier assessment investments in shares and securities in earlier assessment years and during the year and derived tax free income from years and during the year and derived tax free income from years and during the year and derived tax free income from these investments. Now, the investments require funds and these investments. Now, the investments require funds and these investments. Now, the investments require funds and these funds have to come from somewhere and that is the these funds have to come from somewhere and that is the these funds have to come from somewhere and that is the moot point for debate in the case. It is observed from the point for debate in the case. It is observed from the point for debate in the case. It is observed from the records that assessee's Investments yielding tax free records that assessee's Investments yielding tax free records that assessee's Investments yielding tax free incomes and Interest bearing borrowings went up during incomes and Interest bearing borrowings went up during incomes and Interest bearing borrowings went up during the year simultaneously and its position as on 31/3/2013 the year simultaneously and its position as on 31/3/2013 the year simultaneously and its position as on 31/3/2013 and 31/3/2014 was as follows: and 31/3/2014 was as follows: INR (‘000s) INR (

M/s Yes Bank Ltd. 17 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

Investment in shares/tax free bonds as on 31 Investment in shares/tax free bonds as on 31-03-2013 3,218,715 3,218,715 Investment in shares /tax free bonds/Pass through Investment in shares /tax free bonds/Pass through 55,254,609 55,254,609 certificates as on 31 certificates as on 31-03-2014

Schedule 4 – Borrowings March 31, 2014 March 31, 2013 1. Innovative perpetual debt instruments Innovative perpetual debt (IPDI) and tier II debt A. Borrowing in India i. IPDI 7,410,000 7,510,000 ii. Upper tier II Borrowings ii. Upper tier II Borrowings 19,367,000 19,367,000 iii. Lower tier II Borrowings iii. Lower tier II Borrowings 30,255,000 31,255,000 Total (A) 57,032,000 58,132,000 B. Borrowing outside India outside India i. IPDI 299,575 271,425 ii. Upper tier II Borrowings ii. Upper tier II Borrowings 20,382,401 9,334,984 iii. Lower tier II Borrowings iii. Lower tier II Borrowings - - Total (B) 10,681,976 9,606,409 Total (A+B) 67,713,976 67,738,409 2. Other borrowings A. Borrowing in India i. Reserve Bank of India . Reserve Bank of India 35,020,000 48,958,900 ii. Other Banks 26,610,000 30,832,500 iii. Other Institution and agencies iii. Other Institution and agencies 31,554,417 24,759,375 Total (A) 93,184,417 104,550,775 B. Borrowing outside India (B) B. Borrowing outside India (B) 52,244,469 36,932,288 Total (A+B) 145,428,886 141,483,063 Total(1+2) 213,142,862 209,221,472 This is the main reason why the interest expenditure went This is the main reason why the interest expenditure went This is the main reason why the interest expenditure went up from Rs.607.52 Crores to Rs.726.50 Crores during the up from Rs.607.52 Crores to Rs.726.50 Crores during the up from Rs.607.52 Crores to Rs.726.50 Crores during the F.Y 2013-14 relevant to A.Y2014 14 relevant to A.Y2014-15. Assessee 15. Assessee has admitted that it has earned tax free interest on tax free admitted that it has earned tax free interest on tax free admitted that it has earned tax free interest on tax free bonds and if the bank account had been checked, it would bonds and if the bank account had been checked, it would bonds and if the bank account had been checked, it would have revealed that there is a direct nexus between the have revealed that there is a direct nexus between the have revealed that there is a direct nexus between the borrowings and the investments from time to time since borrowings and the investments from time to time since borrowings and the investments from time to time since borrowings by way of loans borrowings by way of loans and deposits were made from and deposits were made from time to time, month to month, week to week, and may be time to time, month to month, week to week, and may be time to time, month to month, week to week, and may be day to day depending on various factors. It may be day to day depending on various factors. It may be day to day depending on various factors. It may be mentioned here that whether the shares and securities mentioned here that whether the shares and securities mentioned here that whether the shares and securities were held as investments or stock were held as investments or stock-in-trade or investments trade or investments treated as stock in trade as per RBI norms, each one of s stock in trade as per RBI norms, each one of s stock in trade as per RBI norms, each one of these purchases required funds and these could have come these purchases required funds and these could have come these purchases required funds and these could have come from a basket of deposits and/or loans and/or own funds from a basket of deposits and/or loans and/or own funds from a basket of deposits and/or loans and/or own funds by way of share capital/premium. Basically it is a question by way of share capital/premium. Basically it is a question by way of share capital/premium. Basically it is a question of fact and then law, and hence basi of fact and then law, and hence basic facts have not been c facts have not been highlighted under the highlighted highlighted under under the the weight weight weight of legal submissions. of of legal submissions. legal submissions.

M/s Yes Bank Ltd. 18 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

Moreover, assessee has meticulously worked out expenses Moreover, assessee has meticulously worked out expenses Moreover, assessee has meticulously worked out expenses relating to administrative wing of the treasury department relating to administrative wing of the treasury department relating to administrative wing of the treasury department and newly created wing of the industrial finance wing of and newly created wing of the industrial finance wing of and newly created wing of the industrial finance wing of the assessee bank during the year. e bank during the year. In this regard, assessee has come up with several alternate In this regard, assessee has come up with several alternate In this regard, assessee has come up with several alternate arguments as to why interest should not be disallowed arguments as to why interest should not be disallowed arguments as to why interest should not be disallowed notwithstanding the fact that it has itself offered "direct notwithstanding the fact that it has itself offered "direct notwithstanding the fact that it has itself offered "direct expenses expenses of of Rs. Rs. 209,42,284/-out 209,42,284/ out of of administrative administrative expenses of its treasury wing and newly set up industrial of its treasury wing and newly set up industrial of its treasury wing and newly set up industrial finance department for disallowance in the computation of finance department for disallowance in the computation of finance department for disallowance in the computation of total income computed by it. It is worth noting here that the total income computed by it. It is worth noting here that the total income computed by it. It is worth noting here that the figure figure of of Rs. Rs. 209,42,284/- 209,42,284/ has has been been worked worked out out meticulously by the assessee, however, meticulously by the assessee, however, it has not worked it has not worked out any interest and bill discounting charges allocable to out any interest and bill discounting charges allocable to out any interest and bill discounting charges allocable to the activity of the Treasury Wing especially when the the activity of the Treasury Wing especially when the the activity of the Treasury Wing especially when the auditors of the company and the directors of the company auditors of the company and the directors of the company auditors of the company and the directors of the company have themselves admitted in annual accounts that the have themselves admitted in annual accounts that the have themselves admitted in annual accounts that the treasury wing h treasury wing had segmented liabilities and hence ad segmented liabilities and hence segmented expenses including interest and bill discounting segmented expenses including interest and bill discounting segmented expenses including interest and bill discounting charges allocable to the Tax Free Income yielding charges allocable to the Tax Free Income yielding charges allocable to the Tax Free Income yielding investments even though rule 8D of the IT. Rules 1962 investments even though rule 8D of the IT. Rules 1962 investments even though rule 8D of the IT. Rules 1962 mandates it. It is important to note that assessee has cit mandates it. It is important to note that assessee has cit mandates it. It is important to note that assessee has cited numerous decisions of the High court/ITAT favoring numerous decisions of the High court/ITAT favoring numerous decisions of the High court/ITAT favoring it,however, the matter is not ultimately decided by the it,however, the matter is not ultimately decided by the it,however, the matter is not ultimately decided by the Supreme Court of India and even the ITATHC decisions Supreme Court of India and even the ITATHC decisions Supreme Court of India and even the ITATHC decisions cited by the assessee have also reiterated the issue that "It cited by the assessee have also reiterated the issue that "It cited by the assessee have also reiterated the issue that "It is a question of fact and wheth is a question of fact and whether there was a direct and/or er there was a direct and/or indirect nexus between the borrowings" on which interest indirect nexus between the borrowings" on which interest indirect nexus between the borrowings" on which interest had been paid and the investments on which tax free had been paid and the investments on which tax free had been paid and the investments on which tax free interest/dividends/any other income has been carned or interest/dividends/any other income has been carned or interest/dividends/any other income has been carned or not. These decisions show beyond doubt that in facts and not. These decisions show beyond doubt that in facts and not. These decisions show beyond doubt that in facts and circumstances of the case "rule and provisions will apply or stances of the case "rule and provisions will apply or stances of the case "rule and provisions will apply or not" and not otherwise. So, if the facts are clear, then the not" and not otherwise. So, if the facts are clear, then the not" and not otherwise. So, if the facts are clear, then the rule and the law will apply.Moreover, legislature had rule and the law will apply.Moreover, legislature had rule and the law will apply.Moreover, legislature had already envisaged all such eventualities and decided in its already envisaged all such eventualities and decided in its already envisaged all such eventualities and decided in its wisdom to frame the law an wisdom to frame the law and formulate the rules. Various d formulate the rules. Various issues raised in the matter. issues raised in the matter. Assessee's business operations are governed by the B.R. Assessee's business operations are governed by the B.R. Assessee's business operations are governed by the B.R. Act 1949 and RBI Guidelines issued from time to time. As Act 1949 and RBI Guidelines issued from time to time. As Act 1949 and RBI Guidelines issued from time to time. As per B.R. Act 1949, every bank operating in India is required per B.R. Act 1949, every bank operating in India is required per B.R. Act 1949, every bank operating in India is required to maintain certain pe to maintain certain percentage of its deposits in Government rcentage of its deposits in Government Securities and assessee, being a bank and in the banking Securities and assessee, being a bank and in the banking Securities and assessee, being a bank and in the banking

M/s Yes Bank Ltd. 19 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

business in India, was required to comply with the same as business in India, was required to comply with the same as business in India, was required to comply with the same as well. Assessee has submitted that it was complying with well. Assessee has submitted that it was complying with well. Assessee has submitted that it was complying with the the the statutory statutory statutory requirements requirements requirements of of of maintaining maintaining maintaining certain cer cer percentage of its deposits received from public, by percentage of its deposits received from public, by percentage of its deposits received from public, by depositing certain percentage of it in Government Securities depositing certain percentage of it in Government Securities depositing certain percentage of it in Government Securities and Bonds to comply with RBI Guidelines. Now, deposits and Bonds to comply with RBI Guidelines. Now, deposits and Bonds to comply with RBI Guidelines. Now, deposits made by the customers vary from day to day, week to made by the customers vary from day to day, week to made by the customers vary from day to day, week to week, month to month, depending week, month to month, depending on various needs of the on various needs of the customers and yet a bank is required to comply with RBI customers and yet a bank is required to comply with RBI customers and yet a bank is required to comply with RBI guidelines strictly so as not to invite penal clauses of the guidelines strictly so as not to invite penal clauses of the guidelines strictly so as not to invite penal clauses of the B.R.Act. Thus assessee was complying with the statutory B.R.Act. Thus assessee was complying with the statutory B.R.Act. Thus assessee was complying with the statutory provisions applicable to it and hence it made investments provisions applicable to it and hence it made investments provisions applicable to it and hence it made investments in tax free income yielding securities totaling Rs. 5507 Crores tax free income yielding securities totaling Rs. 5507 Crores tax free income yielding securities totaling Rs. 5507 Crores which yielded tax freedeposits bearing interest received by which yielded tax freedeposits bearing interest received by which yielded tax freedeposits bearing interest received by the assessee during the year" since the assessee was the assessee during the year" since the assessee was the assessee during the year" since the assessee was complying with statutory requirements and had invested in complying with statutory requirements and had invested in complying with statutory requirements and had invested in tax free investments. tax free investments. There is another advantage of There is another advantage of investing in such securities in as much as "the income by investing in such securities in as much as "the income by investing in such securities in as much as "the income by way of interest and dividends was tax free.' Thus, prima way of interest and dividends was tax free.' Thus, prima way of interest and dividends was tax free.' Thus, prima face it would appear that borrowed funds by way of face it would appear that borrowed funds by way of face it would appear that borrowed funds by way of interest bearing savings and other deposits were utilized b interest bearing savings and other deposits were utilized b interest bearing savings and other deposits were utilized by the assessee in investing in tax free income yielding the assessee in investing in tax free income yielding the assessee in investing in tax free income yielding securities and there is direct nexus between the two by securities and there is direct nexus between the two by securities and there is direct nexus between the two by way of statutory compliance requirement since the assessee way of statutory compliance requirement since the assessee way of statutory compliance requirement since the assessee is a Bank governed by the provisions of the B.R.Act 1949 is a Bank governed by the provisions of the B.R.Act 1949 is a Bank governed by the provisions of the B.R.Act 1949 and RBI Act. It is therefore and RBI Act. It is therefore held that the'borrowed funds held that the'borrowed funds were utilized for investing in tax free income yielding were utilized for investing in tax free income yielding were utilized for investing in tax free income yielding securities and hence provisions of section 14A of the IT Act securities and hence provisions of section 14A of the IT Act securities and hence provisions of section 14A of the IT Act 1961 and rules 8D of the ITRules 1962 will squarely apply 1961 and rules 8D of the ITRules 1962 will squarely apply 1961 and rules 8D of the ITRules 1962 will squarely apply to the facts of the case. However, the assesseein i to the facts of the case. However, the assesseein i to the facts of the case. However, the assesseein its submissions cited that 'the ITAT, Mumbai in assessee's own submissions cited that 'the ITAT, Mumbai in assessee's own submissions cited that 'the ITAT, Mumbai in assessee's own case for AY2008 case for AY2008-09 vide order dated 1/1/2016 has held as 09 vide order dated 1/1/2016 has held as follows: "4.We heard the rival contentions on this issue and perused "4.We heard the rival contentions on this issue and perused "4.We heard the rival contentions on this issue and perused the record. We agree with the contention of the assessee the record. We agree with the contention of the assessee the record. We agree with the contention of the assessee that no disallowance under Rule 8D(@)G) and (i) is required allowance under Rule 8D(@)G) and (i) is required allowance under Rule 8D(@)G) and (i) is required to be made, if the non to be made, if the non-interest bearing funds available with interest bearing funds available with the assessee are more than the amount of investment which the assessee are more than the amount of investment which the assessee are more than the amount of investment which generate tax free income, since the said view has been generate tax free income, since the said view has been generate tax free income, since the said view has been upheld by the Hon'ble Bombay High upheld by the Hon'ble Bombay High Court in the case of CIT Court in the case of CIT Vs. HDFC Bank Ltd. (2014)366 IT 505 (Bom). However, the Vs. HDFC Bank Ltd. (2014)366 IT 505 (Bom). However, the Vs. HDFC Bank Ltd. (2014)366 IT 505 (Bom). However, the fund position of the assessee is required to be examined at fund position of the assessee is required to be examined at fund position of the assessee is required to be examined at

M/s Yes Bank Ltd. 20 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

the end of the AO. Accordingly, we set aside the order of Ld. the end of the AO. Accordingly, we set aside the order of Ld. the end of the AO. Accordingly, we set aside the order of Ld. CIT(A) on this issue and restore the same to the fil CIT(A) on this issue and restore the same to the fil CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue by following the AO with the direction to examine this issue by following the AO with the direction to examine this issue by following the ratio rendered in the case of HDFC Bank Ltd. (Supra) and ratio rendered in the case of HDFC Bank Ltd. (Supra) and ratio rendered in the case of HDFC Bank Ltd. (Supra) and also any other decision that may be relied upon by the also any other decision that may be relied upon by the also any other decision that may be relied upon by the assessee and take appropriate decision in açeordance with assessee and take appropriate decision in açeordance with assessee and take appropriate decision in açeordance with the law. 5. With regard to the expenditure with requires to be regard to the expenditure with requires to be regard to the expenditure with requires to be disallowed under Rule 8D(2)(iii), the Id. AR submitted that disallowed under Rule 8D(2)(iii), the Id. AR submitted that disallowed under Rule 8D(2)(iii), the Id. AR submitted that there is no requirement to make any disallowance during there is no requirement to make any disallowance during there is no requirement to make any disallowance during the year under consideration, since the assessee has not the year under consideration, since the assessee has not the year under consideration, since the assessee has not received any exempt income. However, received any exempt income. However, when it was pointed when it was pointed out that the assessee would have spent some portion of out that the assessee would have spent some portion of out that the assessee would have spent some portion of expenses for the purpose of purchase, maintenance and expenses for the purpose of purchase, maintenance and expenses for the purpose of purchase, maintenance and sale of investments and hence a portion of administrative sale of investments and hence a portion of administrative sale of investments and hence a portion of administrative expenses is required to be disallowed even if no dividend expenses is required to be disallowed even if no dividend expenses is required to be disallowed even if no dividend income is received, the Ld. AR agreed that the disallowance received, the Ld. AR agreed that the disallowance received, the Ld. AR agreed that the disallowance may be restricted to Rs. 2,09,42,284/ may be restricted to Rs. 2,09,42,284/- as computed by the as computed by the assessee before the tax authorities. assessee before the tax authorities. 6. We find merit in the said submissions, since the object of 6. We find merit in the said submissions, since the object of 6. We find merit in the said submissions, since the object of the assessee in making investment is to hold them the assessee in making investment is to hold them the assessee in making investment is to hold them as stock in trade.Accordingly, we are of the view that the in trade.Accordingly, we are of the view that the in trade.Accordingly, we are of the view that the methodology prescribed under Rule 8D(2)(iii) cannot be methodology prescribed under Rule 8D(2)(iii) cannot be methodology prescribed under Rule 8D(2)(iii) cannot be applied to the facts and circumstances of the instant case. applied to the facts and circumstances of the instant case. applied to the facts and circumstances of the instant case. Accordingly, we modify the order of the Ld. CIT(A) and Accordingly, we modify the order of the Ld. CIT(A) and Accordingly, we modify the order of the Ld. CIT(A) and direct the AO to restrict direct the AO to restrict the addition under Rule 8D(2)(ji) to the addition under Rule 8D(2)(ji) to Rs.2,09,42,284/ Rs.2,09,42,284/- It would thus appear that 'the two main issues raised in the It would thus appear that 'the two main issues raised in the It would thus appear that 'the two main issues raised in the appeal relating to the quantum of disallowance u/s. 144 appeal relating to the quantum of disallowance u/s. 144 appeal relating to the quantum of disallowance u/s. 144 relating to interest on borrowed funds and disallowance relating to interest on borrowed funds and disallowance relating to interest on borrowed funds and disallowance vis-à-vis the tax free securities held as stock in trade are vis the tax free securities held as stock in trade are vis the tax free securities held as stock in trade are already decided in thi already decided in this appeal'. Keeping in view the orders s appeal'. Keeping in view the orders of the ITAT dated 1/1/2016 in assessee's own case for AY of the ITAT dated 1/1/2016 in assessee's own case for AY of the ITAT dated 1/1/2016 in assessee's own case for AY 2008-09, it is directed that the AO will follow the directions 09, it is directed that the AO will follow the directions 09, it is directed that the AO will follow the directions of the ITAT, Mumbai for AY 2008 of the ITAT, Mumbai for AY 2008-09 for AY2014- -15 also in the spirit of various decisions quoted in the spirit of various decisions quoted in the ITAT decision the ITAT decision and also in light of subsequent decision and direction of and also in light of subsequent decision and direction of and also in light of subsequent decision and direction of Bombay High Court in the case of HDFC Ltd. v/s. DCIT 368 Bombay High Court in the case of HDFC Ltd. v/s. DCIT 368 Bombay High Court in the case of HDFC Ltd. v/s. DCIT 368 IT 529 vis-@ @-vis the facts of the assessee'scase and re vis the facts of the assessee'scase and re- examine the entire case from factual angle and work out the examine the entire case from factual angle and work out the examine the entire case from factual angle and work out the quantum of interest relatable to these tax free income m of interest relatable to these tax free income m of interest relatable to these tax free income

M/s Yes Bank Ltd. 21 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

yielding securities and disallow the same to enable the AO yielding securities and disallow the same to enable the AO yielding securities and disallow the same to enable the AO to verify the facts of the case as per ITAT's directions. In to verify the facts of the case as per ITAT's directions. In to verify the facts of the case as per ITAT's directions. In nutshell, assessee's appeal is partly allowed subject to nutshell, assessee's appeal is partly allowed subject to nutshell, assessee's appeal is partly allowed subject to verification.” ” 8. Before us, the assessee by way of ground NO. 1 has challenged he assessee by way of ground NO. 1 has challenged he assessee by way of ground NO. 1 has challenged the direction of the Ld. CIT(A) for restoring the matter for re- the direction of the Ld. CIT(A) for restoring the matter for re the direction of the Ld. CIT(A) for restoring the matter for re the assessee is examination/re-verification verification, which according to the assessee is beyond the powers conferred u/s 254 of the Act. It is the contention beyond the powers conferred u/s 254 of the Act. It is the contention beyond the powers conferred u/s 254 of the Act. It is the contention of the assessee in ground No. 2 that said direction of the Ld. CIT(A) sessee in ground No. 2 that said direction of the Ld. CIT(A) sessee in ground No. 2 that said direction of the Ld. CIT(A) is beyond the direction of the ITAT in the assessee’s own case for is beyond the direction of the ITAT in the assessee’s own case for is beyond the direction of the ITAT in the assessee’s own case for earlier years. Alternatively, in ground No. 3, the assessee has earlier years. Alternatively, in ground No. 3, the assessee has earlier years. Alternatively, in ground No. 3, the assessee has prayed for relief for disallowance on proportionate interest prayed for relief for disallowance on proportionate interest prayed for relief for disallowance on proportionate interest expenses, no disallowance if securities as stock in trade and also no disallowance if securities as stock in trade and also no disallowance if securities as stock in trade and also submitted for deleting the suo moto disallowance also. The Ld. deleting the suo moto disallowance also. The Ld. deleting the suo moto disallowance also. The Ld. Counsel appeared before us Counsel appeared before us and made various propositions praying made various propositions praying deletion of the addition. Regarding deletion of the addition. Regarding the, first proposition proposition, that no interest disallowance could be made to the extent of interest free interest disallowance could be made to the extent of interest free interest disallowance could be made to the extent of interest free funds available with the assessee funds available with the assessee, the assessee submitted as under he assessee submitted as under :

“The Assessee Bank submits that when own funds and The Assessee Bank submits that when own funds and The Assessee Bank submits that when own funds and interest free funds are more than tax free investments, no interest free funds are more than tax free investments, no interest free funds are more than tax free investments, no disallowance of interest w/s 144 r.w.r. 8D(fi) be made. The owance of interest w/s 144 r.w.r. 8D(fi) be made. The owance of interest w/s 144 r.w.r. 8D(fi) be made. The said proposition is supported with the position of own funds said proposition is supported with the position of own funds said proposition is supported with the position of own funds and tax-free investments as on March 31, 2014, tabulated free investments as on March 31, 2014, tabulated free investments as on March 31, 2014, tabulated below for reference: below for reference: Details of Owned funds and other non- Details of Owned funds and other non Amount (Rs. In Lacs) As on Amount (Rs. In Lacs) As on interest bearing funds interest bearing funds March 31, 2014 March 31, 2014 Share Capital (a) (Pg. 8 of FPB) Share Capital (a) (Pg. 8 of FPB) 36,063 Reserves and Surplus (b) (Pg. 8 of FPB) Reserves and Surplus (b) (Pg. 8 of 6,76,110 Current Account Deposits Current Account Deposits

M/s Yes Bank Ltd. 22 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

- From Banks (c) From Banks (c) 23,469 - From Others (d) From Others (d) 6,78,246 Total current account deposits (e=c+d) Total current account deposits (e=c+d) 7,01,715 (Pg. 9 of FPB) of FPB) Total own funds (a+b+e) Total own funds (a+b+e) 14,13,888 14,13,888 Tax free investments Tax free investments 5,53,525 Reliance is placed on various judicial precedents listed in Reliance is placed on various judicial precedents listed in Reliance is placed on various judicial precedents listed in the index of Legal Paper Book running from pg. no. 1 the index of Legal Paper Book running from pg. no. 1 the index of Legal Paper Book running from pg. no. 1-343 ("LPB-I) under proposition 1, including the decision of Hon' I) under proposition 1, including the decision of Hon' I) under proposition 1, including the decision of Hon' ble ITAT in Assessee's own case for AY 2008 ble ITAT in Assessee's own case for AY 2008-09 at LPB 09 at LPB-I pg. no. 2, para 4. pg. no. 2, para 4. 8.1 Regarding the second second proposition that the Assessing Officer that the Assessing Officer has not recorded dissatisfaction as to the claim of the assessee, the has not recorded dissatisfaction as to the claim of the assessee, the has not recorded dissatisfaction as to the claim of the assessee, the Ld. Counsel submitted as under: Ld. Counsel submitted as under:

“Proposition 2: Satisfaction not recorded Proposition 2: Satisfaction not recorded The AO while rejecting the suo The AO while rejecting the suo-moto working failed moto working failed to record satisfaction (Pg. no. 22 of AOOrder) as to how the working satisfaction (Pg. no. 22 of AOOrder) as to how the working satisfaction (Pg. no. 22 of AOOrder) as to how the working is wrong but states a generic reason as to why Rule 8D is wrong but states a generic reason as to why Rule 8D is wrong but states a generic reason as to why Rule 8D should be applied. should be applied. The AO needs to record 'satisfaction having regard to the The AO needs to record 'satisfaction having regard to the The AO needs to record 'satisfaction having regard to the accounts of the Assessee as to how he is not satisfied accounts of the Assessee as to how he is not satisfied accounts of the Assessee as to how he is not satisfied about correctness of the claim of Assessee before applying Rule correctness of the claim of Assessee before applying Rule correctness of the claim of Assessee before applying Rule 8D Reliance is placed on various judicial precedents filed in Reliance is placed on various judicial precedents filed in Reliance is placed on various judicial precedents filed in LPB-I at Pg. no. 6 I at Pg. no. 6-109 under Proposition 2, including the 109 under Proposition 2, including the decision of Hon'ble ITAT in Assessee's own case for AY decision of Hon'ble ITAT in Assessee's own case for AY decision of Hon'ble ITAT in Assessee's own case for AY 2011-12 to AY 13 12 to AY 13-14 (Refer LAB-I Pg. No. 17, Para 17 for AY I Pg. No. 17, Para 17 for AY 2011-12).” 8.2 Regarding the other other propositions that no disallowance u/s that no disallowance u/s 14A of the Act could be made when securities were held as stock in 14A of the Act could be made when securities were held as stock in 14A of the Act could be made when securities were held as stock in trade business etc., the Ld. Counsel submitted as under: the Ld. Counsel submitted as under: the Ld. Counsel submitted as under:

M/s Yes Bank Ltd. 23 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

“No disallowance No disallowance us 14A of the Act when securities are us 14A of the Act when securities are held as stock held as stock-in-trade of the business The Assessee Bank being in the business of banking, holds The Assessee Bank being in the business of banking, holds The Assessee Bank being in the business of banking, holds all its investments as stock all its investments as stock-in-trade.Any income/loss from income/loss from sale of such investments is offered for tax under the head sale of such investments is offered for tax under the head sale of such investments is offered for tax under the head "Income from Business or Profession". Kindly note that no "Income from Business or Profession". Kindly note that no "Income from Business or Profession". Kindly note that no income under the head Capital Gains is offered by the income under the head Capital Gains is offered by the income under the head Capital Gains is offered by the Assessee in its COI (Pg. no. 60 of FPB). Any exempt income Assessee in its COI (Pg. no. 60 of FPB). Any exempt income Assessee in its COI (Pg. no. 60 of FPB). Any exempt income earned out of such investments is only incidental. ut of such investments is only incidental. Reliance is placed on various case laws filed in LPB Reliance is placed on various case laws filed in LPB Reliance is placed on various case laws filed in LPB-I at Pg. no. 1-204 under Proposition 3 including the decision of 204 under Proposition 3 including the decision of 204 under Proposition 3 including the decision of Hon'ble ITAT in Assessee's own case for AY 2008 Hon'ble ITAT in Assessee's own case for AY 2008- -09 (LPB-1 Pg. No. 3, Para 6). Out of the above decisions, the following No. 3, Para 6). Out of the above decisions, the following No. 3, Para 6). Out of the above decisions, the following judicial precedents, after considering the decision of Hon'ble judicial precedents, after considering the decision of Hon'ble judicial precedents, after considering the decision of Hon'ble SC in Maxopp Investments Ltd. v. CIT (402 ITR 640) have SC in Maxopp Investments Ltd. v. CIT (402 ITR 640) have SC in Maxopp Investments Ltd. v. CIT (402 ITR 640) have held that no 144 disallowance is warranted with respect to held that no 144 disallowance is warranted with respect to held that no 144 disallowance is warranted with respect to investments held as investments held as stock-in-trade:  Nice Bombay Transport (P) Ltd vs. ACIT (20191 175 Nice Bombay Transport (P) Ltd vs. ACIT (20191 175 Nice Bombay Transport (P) Ltd vs. ACIT (20191 175 ITD 684 (Delhi ITD 684 (Delhi-Trib.)  Punjab Punjab Punjab National National National Bank Bank Bank vs. vs. vs. ACIT ACIT ACIT ITA ITA ITA No. No. No. 1519/Del/2016 & ITA No. 7106/Del/2017] (Delhi- 1519/Del/2016 & ITA No. 7106/Del/2017] (Delhi 1519/Del/2016 & ITA No. 7106/Del/2017] (Delhi Trib.)  ACIT vs. UCO Bank [ITA No. 1615/Kol/2016| ACIT vs. UCO Bank [ITA No. 1615/Kol/2016| ACIT vs. UCO Bank [ITA No. 1615/Kol/2016| (Kolkata (Kolkata-Trib.)  Bank of Maharashtra Bank of Maharashtra v. DCIT (ITA No. 1370 v. DCIT (ITA No. 1370 /Pun/2014) /Pun/2014) Proposition 4: Only those investments yielding exempt Proposition 4: Only those investments yielding exempt Proposition 4: Only those investments yielding exempt income to be considered for calculating disallowance us income to be considered for calculating disallowance us income to be considered for calculating disallowance us 14A Without Prejudice to proposition 1, 2, 3 & 4 Without Prejudice to proposition 1, 2, 3 & 4 Proposition 5: Only net interest expenditure after setting off Proposition 5: Only net interest expenditure after setting off Proposition 5: Only net interest expenditure after setting off interest income should be considered for the purpose of interest income should be considered for the purpose of interest income should be considered for the purpose of interest disallowance u/s 14A r.w.r. 8D interest disallowance u/s 14A r.w.r. 8D

M/s Yes Bank Ltd. 24 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

The Assessee has earned an amount of Rs. 9.981/ The Assessee has earned an amount of Rs. 9.981/ The Assessee has earned an amount of Rs. 9.981/- crores as interest and incurred interest expenditure of Rs. 7,265/ as interest and incurred interest expenditure of Rs. 7,265/ as interest and incurred interest expenditure of Rs. 7,265/- crores. The Assessee prays that since the i The Assessee prays that since the interest income earned is nterest income earned is higher than the interest expense incurred, no disallowance higher than the interest expense incurred, no disallowance higher than the interest expense incurred, no disallowance u/s 14A r.w.r. 8D is warranted. u/s 14A r.w.r. 8D is warranted. As for propositions 2 to 5 are concerned, the Assessee As for propositions 2 to 5 are concerned, the Assessee As for propositions 2 to 5 are concerned, the Assessee submits that if the Assessee under a mistake or submits that if the Assessee under a mistake or submits that if the Assessee under a mistake or misconception, has over assessed inco misconception, has over assessed income in the return, me in the return, relief ought to be given as per provisions of law. Reliance is relief ought to be given as per provisions of law. Reliance is relief ought to be given as per provisions of law. Reliance is placed on various judgements attached at LPB placed on various judgements attached at LPB placed on various judgements attached at LPB-II Pg. Nos.344 to 382 under Proposition 5. Nos.344 to 382 under Proposition 5.” 8.3 However, the Ld. Counsel proposed that only investment However, the Ld. Counsel proposed that only investment However, the Ld. Counsel proposed that only investment yielding exempted income sh yielding exempted income should be considered for ould be considered for calculating disallowance u/s 14A. Further, the Ld. Counsel in 5th propositions disallowance u/s 14A. Further, the Ld. Counsel in 5 disallowance u/s 14A. Further, the Ld. Counsel in 5 submitted in the net interest expenditure submitted in the net interest expenditure after setting off interest setting off interest income should be considered for the purpose of interest income should be considered for the purpose of interest income should be considered for the purpose of interest disallowance u/s 14A r.w.r. 8 disallowance u/s 14A r.w.r. 8D.

M/s Yes Bank Ltd. 25 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

M/s Yes Bank Ltd. 26 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

the assessee. The ground No the assessee. The ground Nos. 1 to 3 of the appeal of appeal of assessee and ground No. 1 of the appeal of the Revenue ground No. 1 of the appeal of the Revenue, are accordingly allowed are accordingly allowed for statistical purposes. for statistical purposes.

M/s Yes Bank Ltd. 27 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

13.1 Before us, the Ld. Counsel of the assessee submitted that Before us, the Ld. Counsel of the assessee submitted that Before us, the Ld. Counsel of the assessee submitted that order of the Tribunal for assessme order of the Tribunal for assessment year 2011-12 to AY 2013 12 to AY 2013-14 should be ignored and order for and order for assessment year 2010 assessment year 2010-11 should followed.

M/s Yes Bank Ltd. 28 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

“09. However, claim of the assessee is that the decision of the “09. However, claim of the assessee is that the decision of the “09. However, claim of the assessee is that the decision of the coordinate bench in A.Y. 2010 coordinate bench in A.Y. 2010-11 has categorically decided that 11 has categorically decided that assessee is entitled to deduction under Section 35D of the Act and is entitled to deduction under Section 35D of the Act and is entitled to deduction under Section 35D of the Act and therefore, the decision cannot be revisited and the Tribunal has to therefore, the decision cannot be revisited and the Tribunal has to therefore, the decision cannot be revisited and the Tribunal has to follow the same. Coordinate bench has decided this issue as follow the same. Coordinate bench has decided this issue as follow the same. Coordinate bench has decided this issue as under :-

"031. We have carefully considered rival contentions and pe "031. We have carefully considered rival contentions and pe "031. We have carefully considered rival contentions and perused the orders of the lower authorities. According to provisions of the orders of the lower authorities. According to provisions of the orders of the lower authorities. According to provisions of section 35D (2) (c) (iv) of the act companies are allowable following section 35D (2) (c) (iv) of the act companies are allowable following section 35D (2) (c) (iv) of the act companies are allowable following deduction:- c) Where the assessee is a company, also expenditure c) Where the assessee is a company, also expenditure c) Where the assessee is a company, also expenditure (iv) in connection with the issue, for public subsc (iv) in connection with the issue, for public subscription, of shares ription, of shares in or debentures of the company, being underwriting commission, in or debentures of the company, being underwriting commission, in or debentures of the company, being underwriting commission, brokerage, and charges for drafting, typing, printing, and brokerage, and charges for drafting, typing, printing, and brokerage, and charges for drafting, typing, printing, and advertisement of the prospectus; advertisement of the prospectus;

M/s Yes Bank Ltd. 29 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

also in “Public Issue”. 033. We find that issue is decided in favour also in “Public Issue”. 033. We find that issue is decided in favour also in “Public Issue”. 033. We find that issue is decided in favour of the assessee in assessee”s own case for Assessment Year of the assessee in assessee”s own case for Assessment Year of the assessee in assessee”s own case for Assessment Year 2010-11 in ITA NO. 3497/Mum/2018 dated 14 July 2020 so far ITA NO. 3497/Mum/2018 dated 14 July 2020 so far ITA NO. 3497/Mum/2018 dated 14 July 2020 so far the issue was whether QIB is “Public” or not . The co the issue was whether QIB is “Public” or not . The co the issue was whether QIB is “Public” or not . The co-ordinate Bench in that case considered whether theallottees Qualified Bench in that case considered whether theallottees Qualified Bench in that case considered whether theallottees Qualified Institutional Buyers is “ public” or not. The coordinate Bench Institutional Buyers is “ public” or not. The coordinate Bench Institutional Buyers is “ public” or not. The coordinate Bench following the decisio following the decision of ITAT in Deccan Chronicle Holdings Ltd. n of ITAT in Deccan Chronicle Holdings Ltd. (supra) hold that QIB is “ Public” so deduction under Section 35D (supra) hold that QIB is “ Public” so deduction under Section 35D (supra) hold that QIB is “ Public” so deduction under Section 35D of the Act is allowable. It held as under: of the Act is allowable. It held as under:-

“6. We have heard the rival submissions and perused the relevant “6. We have heard the rival submissions and perused the relevant “6. We have heard the rival submissions and perused the relevant materials on record. The reasons for materials on record. The reasons for our decisions are given below. our decisions are given below. The appellant is a banking company. It filed its revised return of The appellant is a banking company. It filed its revised return of The appellant is a banking company. It filed its revised return of income for the AY 2010 income for the AY 2010-11 on March 30, 2012 declaring total 11 on March 30, 2012 declaring total income at ₹ 7,90,10,18,157/ ₹ 7,90,10,18,157/-.

As mentioned earlier, the question involved in this appeal is As mentioned earlier, the question involved in this appeal is As mentioned earlier, the question involved in this appeal is whether QIB can be regarded as “public” and whether the offer er QIB can be regarded as “public” and whether the offer er QIB can be regarded as “public” and whether the offer made to them can be regarded as “offer made to public” for the made to them can be regarded as “offer made to public” for the made to them can be regarded as “offer made to public” for the purpose of section 35D of the Act. purpose of section 35D of the Act.

In Deccan Chronicle Holdings Limited (supra), the Tribunal has In Deccan Chronicle Holdings Limited (supra), the Tribunal has In Deccan Chronicle Holdings Limited (supra), the Tribunal has held as under : held as under :

“6. With respect to g “6. With respect to ground No. 4 for the assessment year 200809, round No. 4 for the assessment year 200809, we find that the Assessing Officer has not disallowed for the we find that the Assessing Officer has not disallowed for the we find that the Assessing Officer has not disallowed for the assessment years 2006 assessment years 2006-07 and 2007- 08.

However, the Assessing Officer has disallowed the expenditure on However, the Assessing Officer has disallowed the expenditure on However, the Assessing Officer has disallowed the expenditure on the issue of qualified institutional buyers f the issue of qualified institutional buyers for the assessment year or the assessment year 2008-09 which has been allowed by the Commissioner of Income 09 which has been allowed by the Commissioner of Income 09 which has been allowed by the Commissioner of Income- tax (Appeals) holding as under : tax (Appeals) holding as under :

M/s Yes Bank Ltd. 30 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

"5. I have gone through the factual and legal contentions of the "5. I have gone through the factual and legal contentions of the "5. I have gone through the factual and legal contentions of the appellant in support of its argument that the deduction was appellant in support of its argument that the deduction was appellant in support of its argument that the deduction was claimed under claimed under section 35D read with section 37 i.e., both under section 35D read with section 37 i.e., both under sections 35D and 37. I agree with the argument of the appellant sections 35D and 37. I agree with the argument of the appellant sections 35D and 37. I agree with the argument of the appellant that the language used in section 35D is so plain and that the language used in section 35D is so plain and that the language used in section 35D is so plain and unambiguous that the only condition laid down in that section is unambiguous that the only condition laid down in that section is unambiguous that the only condition laid down in that section is that the issue should b that the issue should be offered for public subscription and the e offered for public subscription and the mode of placement is immaterial. Thus, the only issue for mode of placement is immaterial. Thus, the only issue for mode of placement is immaterial. Thus, the only issue for consideration is whether QIB can be called 'public' or not. After a consideration is whether QIB can be called 'public' or not. After a consideration is whether QIB can be called 'public' or not. After a careful and comprehensive consideration of the relevant provisions careful and comprehensive consideration of the relevant provisions careful and comprehensive consideration of the relevant provisions of the Company Law, S of the Company Law, Securities Contract (Regulation) Rules, SEBI ecurities Contract (Regulation) Rules, SEBI Guidelines/Instructions, I am of the considered opinion that QIBs Guidelines/Instructions, I am of the considered opinion that QIBs Guidelines/Instructions, I am of the considered opinion that QIBs constitute 'public' and accordingly, the subscription made by the constitute 'public' and accordingly, the subscription made by the constitute 'public' and accordingly, the subscription made by the amount to public subscription. In this view of the matter and also amount to public subscription. In this view of the matter and also amount to public subscription. In this view of the matter and also considering the facts with regard to the utility of funds raised considering the facts with regard to the utility of funds raised he facts with regard to the utility of funds raised through QIB issue, I hold that the issue expenditure, to the extent through QIB issue, I hold that the issue expenditure, to the extent through QIB issue, I hold that the issue expenditure, to the extent attributable to the funds utilised for extension of the appellant's attributable to the funds utilised for extension of the appellant's attributable to the funds utilised for extension of the appellant's undertakings, is eligible for deduction under section 35D. So far as undertakings, is eligible for deduction under section 35D. So far as undertakings, is eligible for deduction under section 35D. So far as the remaining funds, utilised for modernisation and working the remaining funds, utilised for modernisation and working the remaining funds, utilised for modernisation and working capital requirements of the appellant's business are concerned, I capital requirements of the appellant's business are concerned, I capital requirements of the appellant's business are concerned, I have considered both factual and legal submissions of the have considered both factual and legal submissions of the have considered both factual and legal submissions of the applicant, in support of its contention that the expenditure was in applicant, in support of its contention that the expenditure was in applicant, in support of its contention that the expenditure was in the nature of revenue expenditure since the primary objectand nature of revenue expenditure since the primary objectand nature of revenue expenditure since the primary objectand intent of raising these funds was to meet the operational intent of raising these funds was to meet the operational intent of raising these funds was to meet the operational requirements, in order to run the business more efficiently and requirements, in order to run the business more efficiently and requirements, in order to run the business more efficiently and profitably. The hon'ble High Court of Delhi, after analysing profitably. The hon'ble High Court of Delhi, after analysing profitably. The hon'ble High Court of Delhi, after analysing plethora of ca plethora of case law on this subject, had laid down certain broad se law on this subject, had laid down certain broad guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR 371 (Delhi), to decide whether a particular expenditure is capital or 371 (Delhi), to decide whether a particular expenditure is capital or 371 (Delhi), to decide whether a particular expenditure is capital or revenue in nature. Tested against these broad legal principles, revenue in nature. Tested against these broad legal principles, revenue in nature. Tested against these broad legal principles, I am of the opinion that there is considerable force in the arguments am of the opinion that there is considerable force in the arguments am of the opinion that there is considerable force in the arguments of the appellantcompany that the expenditure claimed by it clearly of the appellantcompany that the expenditure claimed by it clearly of the appellantcompany that the expenditure claimed by it clearly

M/s Yes Bank Ltd. 31 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

falls in the revenue field. These guidelines were impliedly falls in the revenue field. These guidelines were impliedly falls in the revenue field. These guidelines were impliedly approved by the hon'ble Supreme Court, in view of the fact approved by the hon'ble Supreme Court, in view of the fact approved by the hon'ble Supreme Court, in view of the fact that the special leave petition filed against this decision was dismissed. special leave petition filed against this decision was dismissed. special leave petition filed against this decision was dismissed. There is also merit in the argument of the appellant There is also merit in the argument of the appellant-company that company that the facts of its case are distinguishable from those in the case of the facts of its case are distinguishable from those in the case of the facts of its case are distinguishable from those in the case of Brooke Bond, for the detailed reasons submitted Brooke Bond, for the detailed reasons submitted by it, and therefore its claim cannot be denied by relying on that decision. It therefore its claim cannot be denied by relying on that decision. It therefore its claim cannot be denied by relying on that decision. It was further claimed that though the entire expenditure was was further claimed that though the entire expenditure was was further claimed that though the entire expenditure was allowable in one year under section 37, the same was treated as allowable in one year under section 37, the same was treated as allowable in one year under section 37, the same was treated as deferred revenue expenditure and claimed over five y deferred revenue expenditure and claimed over five years, starting ears, starting from the assessment year 2007 from the assessment year 2007-08. The concept of deferred 08. The concept of deferred revenue expenditure is now legally recognised by various judicial revenue expenditure is now legally recognised by various judicial revenue expenditure is now legally recognised by various judicial authorities and in fact, this was upheld even in the case of the authorities and in fact, this was upheld even in the case of the authorities and in fact, this was upheld even in the case of the appellant by my predecessor, while deciding the appe appellant by my predecessor, while deciding the appe appellant by my predecessor, while deciding the appeal for assessment year 2006 assessment year 2006-07. In view of the above facts, I hold that 07. In view of the above facts, I hold that the expenditure of the expenditure of ₹ 2,07,00,112 claimed for assessment year ₹ 2,07,00,112 claimed for assessment year 2008-09 is allowable under sections 35D and 37. As the claim of 09 is allowable under sections 35D and 37. As the claim of 09 is allowable under sections 35D and 37. As the claim of this expenditure under section 35D read with section 37 is this expenditure under section 35D read with section 37 is this expenditure under section 35D read with section 37 is in order, the disallowance on this account is deleted." order, the disallowance on this account is deleted."

M/s Yes Bank Ltd. 32 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

companies sought for QIB issues because the funds can be raised companies sought for QIB issues because the funds can be raised companies sought for QIB issues because the funds can be raised within a short span. This is an extremely important investment for within a short span. This is an extremely important investment for within a short span. This is an extremely important investment for larger investors and since the buyers are only a class of in larger investors and since the buyers are only a class of in larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. the issue of shares to QIB have been considered as public issue. the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or The expenses in connection with public issue of shares or The expenses in connection with public issue of shares or debentures of the company are allowable. Reliance is placed on debentures of the company are allowable. Reliance is placed on debentures of the company are allowable. Reliance is placed on CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence o CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence o CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the merits of the issue, theQIB expenditure can be treated as revenue merits of the issue, theQIB expenditure can be treated as revenue merits of the issue, theQIB expenditure can be treated as revenue expenditure and eligible for deduction under section 35D of the expenditure and eligible for deduction under section 35D of the expenditure and eligible for deduction under section 35D of the Income-tax Act is confirmed. Hence on merits of the issue as well tax Act is confirmed. Hence on merits of the issue as well tax Act is confirmed. Hence on merits of the issue as well as the fact that the same issue has been allowed in th as the fact that the same issue has been allowed in th as the fact that the same issue has been allowed in the earlier years and the Department cannot come upon in appeals in the years and the Department cannot come upon in appeals in the years and the Department cannot come upon in appeals in the subsequent subsequent subsequent years years years would would would be be be the the the reason reason reason to to to dismiss dismiss dismiss the the the Departmental appeal. We confirm the order of the Commissioner of Departmental appeal. We confirm the order of the Commissioner of Departmental appeal. We confirm the order of the Commissioner of Income-tax (Appeals) with respect to qualified institutional buyers tax (Appeals) with respect to qualified institutional buyers tax (Appeals) with respect to qualified institutional buyers expenses and dismiss the Departmental appeal on this issue. In xpenses and dismiss the Departmental appeal on this issue. In xpenses and dismiss the Departmental appeal on this issue. In the result, the Departmental appeal for the assessment years the result, the Departmental appeal for the assessment years the result, the Departmental appeal for the assessment years 2007-08 and 2008 08 and 2008-09 are dismissed.”

6.1 A perusal of the above order of the Tribunal clearly indicates 6.1 A perusal of the above order of the Tribunal clearly indicates 6.1 A perusal of the above order of the Tribunal clearly indicates that the present issue is dir that the present issue is directly covered in favour of the appellant. ectly covered in favour of the appellant.

6.2 Further, we find that the appellant being a listed company is 6.2 Further, we find that the appellant being a listed company is 6.2 Further, we find that the appellant being a listed company is bound by “Listing Agreement”, which provides for the disclosure bound by “Listing Agreement”, which provides for the disclosure bound by “Listing Agreement”, which provides for the disclosure requirements for the share holding pattern of a listed company. As requirements for the share holding pattern of a listed company. As requirements for the share holding pattern of a listed company. As can be seen ther can be seen therefrom, there are only two categories of efrom, there are only two categories of shareholders- - “promoter/promoter group” and “public”. For the “promoter/promoter group” and “public”. For the definition of these terms in Clause 35, reference is made to Clause definition of these terms in Clause 35, reference is made to Clause definition of these terms in Clause 35, reference is made to Clause 40A of the Listing Agreement. As can be seen therefrom, Mutual 40A of the Listing Agreement. As can be seen therefrom, Mutual 40A of the Listing Agreement. As can be seen therefrom, Mutual Funds/Financial Institu Funds/Financial Institutions which are QIBs are classified under tions which are QIBs are classified under “public shareholding”. The terms are defined in Clause 40A of the “public shareholding”. The terms are defined in Clause 40A of the “public shareholding”. The terms are defined in Clause 40A of the SEBI Listing Agreement. Further, the listing agreement takes us to SEBI Listing Agreement. Further, the listing agreement takes us to SEBI Listing Agreement. Further, the listing agreement takes us to

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Securities Contracts (Regulation) Rules, 1957 (in short “SCRR”). Securities Contracts (Regulation) Rules, 1957 (in short “SCRR”). Securities Contracts (Regulation) Rules, 1957 (in short “SCRR”). Also Rule 19(2)( Also Rule 19(2)(b) and Rule 19A of the SCRR provide that b) and Rule 19A of the SCRR provide that companies are required to maintain minimum public shareholding companies are required to maintain minimum public shareholding companies are required to maintain minimum public shareholding of 25% in case of first time listing and in case of continuous listing of 25% in case of first time listing and in case of continuous listing of 25% in case of first time listing and in case of continuous listing agreement respectively. In this context, we may refer to section agreement respectively. In this context, we may refer to section agreement respectively. In this context, we may refer to section 2(d) of SCRR def 2(d) of SCRR defining the term “public”. It (public) is defined to ining the term “public”. It (public) is defined to mean any person other than the promoter, promoter group, mean any person other than the promoter, promoter group, mean any person other than the promoter, promoter group, subsidiaries and associates of the company. Thus any person subsidiaries and associates of the company. Thus any person subsidiaries and associates of the company. Thus any person other than these four qualify to be considered as public. As can be other than these four qualify to be considered as public. As can be other than these four qualify to be considered as public. As can be seen from the list o seen from the list of QIBs to whom shares are issued, the shares f QIBs to whom shares are issued, the shares are not issued to any of the aforesaid category. Thus QIBs, not are not issued to any of the aforesaid category. Thus QIBs, not are not issued to any of the aforesaid category. Thus QIBs, not being promoters, promoter group, subsidiaries and associates of being promoters, promoter group, subsidiaries and associates of being promoters, promoter group, subsidiaries and associates of the company would qualify as “public”. the company would qualify as “public”.

As specified in clause 40A(ii) of the listi As specified in clause 40A(ii) of the listing agreement, public ng agreement, public shareholding can be increased by any of the modes specified shareholding can be increased by any of the modes specified shareholding can be increased by any of the modes specified therein to comply with Rule 19(2) and 19A of SCRR. One such note therein to comply with Rule 19(2) and 19A of SCRR. One such note therein to comply with Rule 19(2) and 19A of SCRR. One such note is the issue of IIP in accordance with Chapter VIIIA of the SEBI is the issue of IIP in accordance with Chapter VIIIA of the SEBI is the issue of IIP in accordance with Chapter VIIIA of the SEBI- ICDR. Chapter VIIIA has been included to prov ICDR. Chapter VIIIA has been included to provide for fresh issue of ide for fresh issue of shares to comply with minimum shareholding requirement in Rule shares to comply with minimum shareholding requirement in Rule shares to comply with minimum shareholding requirement in Rule 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public offer made only to QIBs. These regulations provide that when a offer made only to QIBs. These regulations provide that when a offer made only to QIBs. These regulations provide that when a company has a public shareholding lower tha company has a public shareholding lower than the requirements n the requirements specified, then the company may issue IPP to QIBs and raise the specified, then the company may issue IPP to QIBs and raise the specified, then the company may issue IPP to QIBs and raise the public shareholding to the required levels. Itthus implies that QIBs public shareholding to the required levels. Itthus implies that QIBs public shareholding to the required levels. Itthus implies that QIBs form part of public. Further, even Reg. 82 which gives conditions form part of public. Further, even Reg. 82 which gives conditions form part of public. Further, even Reg. 82 which gives conditions for QIP, provides that the same must b for QIP, provides that the same must be in compliance with the e in compliance with the requirements of public shareholding. requirements of public shareholding.

That “a section of public qualifies as public” has been clarified in That “a section of public qualifies as public” has been clarified in That “a section of public qualifies as public” has been clarified in Nitta Gelatine India Limited (supra) and Andhra Chamber of Nitta Gelatine India Limited (supra) and Andhra Chamber of Nitta Gelatine India Limited (supra) and Andhra Chamber of Commerce (supra). Commerce (supra).

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M/s Yes Bank Ltd. 35 ITA Nos.3501 & 3239/M/2018 ITA Nos.3501 & 3239/M/2018

the expenses were in connection with the issue for ' Public he expenses were in connection with the issue for ' Public he expenses were in connection with the issue for ' Public Subscription' or not. The coordinate bench in earlier year Subscription' or not. The coordinate bench in earlier year Subscription' or not. The coordinate bench in earlier year allowed claim of the assessee holding that whether QIP is allowed claim of the assessee holding that whether QIP is allowed claim of the assessee holding that whether QIP is public or not. It did not decide whether it is a 'public public or not. It did not decide whether it is a 'public public or not. It did not decide whether it is a 'public subscription' or not. subscription' or not.

14.1 Thus, following the following the finding of the Tribunal for AY 2011 finding of the Tribunal for AY 2011-12 to 2013-14 in ITA No. 3498 to 3500/Mum/ 14 in ITA No. 3498 to 3500/Mum/2018,the issue in dispute the issue in dispute u/s 35D of the Act is restored to the of claim of 1/5th of the of the expense u/s 35D of the Act is restored to the file of the Assessing Officer to be decided in accordance with file of the Assessing Officer to be decided in accordance with file of the Assessing Officer to be decided in accordance with direction of the Tribunal in 3498 to 3500/Mum/2018 for AYs 2011- direction of the Tribunal in 3498 to 3500/Mum/2018 for AYs 2011 direction of the Tribunal in 3498 to 3500/Mum/2018 for AYs 2011 . 4, 5 and 6 of the appeal of the 12 to 13-14. The ground No 14. The ground Nos. 4, 5 and 6 of the appeal of the assessee are accordingly allo assessee are accordingly allowed for statistical purposes. wed for statistical purposes.

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for AY 2011-12 to 13 12 to 13-14 has held that said investment are stock in 14 has held that said investment are stock in trade of the assessee and brokerage expenses in relation to same trade of the assessee and brokerage expenses in relation t trade of the assessee and brokerage expenses in relation t ought to be allowed. The relevant finding of the Tribunal (supra) is ought to be allowed. The relevant finding of the Tribunal ought to be allowed. The relevant finding of the Tribunal reproduced as under: reproduced as under:

“024. We have carefully considered the rival contentions and 024. We have carefully considered the rival contentions and 024. We have carefully considered the rival contentions and perused the orders of the lower authorities. On appreciation of perused the orders of the lower authorities. On appreciation of perused the orders of the lower authorities. On appreciation of facts, we find that assessee offer facts, we find that assessee offers profit and loss on sale of s profit and loss on sale of securities as business income and not as capital gain. This fact securities as business income and not as capital gain. This fact securities as business income and not as capital gain. This fact has also been accepted by theLD AO. Therefore the securities has also been accepted by theLD AO. Therefore the securities has also been accepted by theLD AO. Therefore the securities purchased and sold by assessee are its stock in trade. purchased and sold by assessee are its stock in trade. purchased and sold by assessee are its stock in trade. Therefore, all necessary expenditure incurred Therefore, all necessary expenditure incurred by assessee for by assessee for purchase of stock in trade, like, commission/ brokerage are purchase of stock in trade, like, commission/ brokerage are purchase of stock in trade, like, commission/ brokerage are revenue expenditure only. It is not the case of revenue that, revenue expenditure only. It is not the case of revenue that, revenue expenditure only. It is not the case of revenue that, despite these securities being stock in trade, it needs to value despite these securities being stock in trade, it needs to value despite these securities being stock in trade, it needs to value at cost or market value whichever is less at the end at cost or market value whichever is less at the end at cost or market value whichever is less at the end of the year, and commission or brokerage incurred on its acquisition should and commission or brokerage incurred on its acquisition should and commission or brokerage incurred on its acquisition should have formed part of cost of such securities, subject to available have formed part of cost of such securities, subject to available have formed part of cost of such securities, subject to available market rate. Ld AO has held that commission or brokerage as market rate. Ld AO has held that commission or brokerage as market rate. Ld AO has held that commission or brokerage as far as it relates to unsold stock in trade is not allo far as it relates to unsold stock in trade is not allo far as it relates to unsold stock in trade is not allowable during the year of incurring such expenditure, but would be taken in to the year of incurring such expenditure, but would be taken in to the year of incurring such expenditure, but would be taken in to consideration when securities are sold. The Central Board of consideration when securities are sold. The Central Board of consideration when securities are sold. The Central Board of Direct Taxes has issued a circular no. 18 of 2015 provides that Direct Taxes has issued a circular no. 18 of 2015 provides that Direct Taxes has issued a circular no. 18 of 2015 provides that in view of the decision of Hon'ble Supreme Court in in view of the decision of Hon'ble Supreme Court in in view of the decision of Hon'ble Supreme Court in Nawanshahar cooperative bank Ltd (supra), wherein it has awanshahar cooperative bank Ltd (supra), wherein it has awanshahar cooperative bank Ltd (supra), wherein it has been held that the investment made by banking companies are been held that the investment made by banking companies are been held that the investment made by banking companies are part of the banking business which is chargeable to tax under part of the banking business which is chargeable to tax under part of the banking business which is chargeable to tax under the head profit and gains of business and profession and the head profit and gains of business and profession and the head profit and gains of business and profession and therefore, therefore, expenses expenses r relatable elatable to to investment investment cannot cannot be be disallowed under section 57(i) of the Act.The applicability of disallowed under section 57(i) of the Act.The applicability of disallowed under section 57(i) of the Act.The applicability of deduction of expenditureunder section 28 is also to be treated deduction of expenditureunder section 28 is also to be treated deduction of expenditureunder section 28 is also to be treated on the same parameters. When it is not the claim of the Id AO on the same parameters. When it is not the claim of the Id AO on the same parameters. When it is not the claim of the Id AO that valuation of securities held a that valuation of securities held as stock in trade at the end of s stock in trade at the end of the year is not valued higher to the extent of commission and the year is not valued higher to the extent of commission and the year is not valued higher to the extent of commission and brokerage incurred on these securities to determine "at cost" brokerage incurred on these securities to determine "at cost" brokerage incurred on these securities to determine "at cost" valuation, we do not find any reasonto uphold disallowance valuation, we do not find any reasonto uphold disallowance valuation, we do not find any reasonto uphold disallowance made by the Id AO. In view of this, we do made by the Id AO. In view of this, we do not find any infirmity not find any infirmity in the order of the learned CIT(A) in deleting the above in the order of the learned CIT(A) in deleting the above in the order of the learned CIT(A) in deleting the above disallowance.Accordingly,ground no. 2 of the appeal of learned disallowance.Accordingly,ground no. 2 of the appeal of learned disallowance.Accordingly,ground no. 2 of the appeal of learned Assessing Officer is dismissed. Assessing Officer is dismissed.”

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16.1 Following the finding of the Tribunal (supra) , Following the finding of the Tribunal (supra) , the ground Nos. the ground Nos. 7 and 8 of the appeal of the assessee are allowed whereas ground 7 and 8 of the appeal of the assessee are allowed whereas ground 7 and 8 of the appeal of the assessee are allowed whereas ground No. 2 of the appeal of Revenue is dismissed. No. 2 of the appeal of Revenue is dismissed.

17.1 Briefly stated facts qua the issue in dispute are that the Briefly stated facts qua the issue in dispute are that the Briefly stated facts qua the issue in dispute are that the ground pertains to disallowance of provision of bad and doubtful ground pertains to disallowance of provision of bad and doubtful ground pertains to disallowance of provision of bad and doubtful debts claimed by the assessee u/s 36(1)(viia) of Rs.135,21,64,723/- debts claimed by the assessee u/s 36(1)(viia) of Rs.135,21,64,723/ debts claimed by the assessee u/s 36(1)(viia) of Rs.135,21,64,723/ with respect to non-performing assets (NPA). The Assessing Officer performing assets (NPA). The Assessing Officer performing assets (NPA). The Assessing Officer disallowed the same on the premises that the same pertain to disallowed the same on the premises that the same pertain to disallowed the same on the premises that the same pertain to Standard Assets and hence should not be allowed. The Ld. CIT(A) Standard Assets and hence should not be allowed. The Ld. CIT(A) Standard Assets and hence should not be allowed. The Ld. CIT(A) remanded the issue back to the file of the AO remanded the issue back to the file of the AO for examin examining whether claim pertain to Rural v. non pertain to Rural v. non-rural branches. Before us, the Ld. rural branches. Before us, the Ld. Counsel of the assessee submitted that the claim pertains to only Counsel of the assessee submitted that the claim pertains to only Counsel of the assessee submitted that the claim pertains to only NPA and not standard assets. He submitted that provision for NPA and not standard assets. He submitted that provision for NPA and not standard assets. He submitted that provision for standard advances is a separate line standard advances is a separate line of item in item in computation of income (COI) and the claim u/s 36(1)(viia) of the assessee purely the claim u/s 36(1)(viia) of the assessee purely the claim u/s 36(1)(viia) of the assessee purely pertains to NPAs and claim has s and claim has not been made for standard been made for standard advances. He further submitted the there is no such requirement advances. He further submitted the there is no such requirement advances. He further submitted the there is no such requirement that under section 36(1)(viia) 36(1)(viia) of the Actdeduction can be claimed only with respect to rural branches. The Ld. Counsel further only with respect to rural branches. The Ld. Counsel further only with respect to rural branches. The Ld. Counsel further submitted that the issue in dispute is cover submitted that the issue in dispute is covered in assessee’s own ed in assessee’s own

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case for AY 2011-12 to 2013 12 to 2013-14. The Ld. DR also could not 14. The Ld. DR also could not controvert this fact.

“085. We have carefully considered the rival contention and 5. We have carefully considered the rival contention and 5. We have carefully considered the rival contention and perused the orders of the lower authorities. The only reason perused the orders of the lower authorities. The only reason perused the orders of the lower authorities. The only reason why the deduction is disallowed to the assessee is that why the deduction is disallowed to the assessee is that why the deduction is disallowed to the assessee is that assessee does not have any rural branches. we find that assessee does not have any rural branches. we find that assessee does not have any rural branches. we find that deduction u/s 36 (1) (viia deduction u/s 36 (1) (viia) of the act is not restricted to the ) of the act is not restricted to the banks only having the rural branches. This has been dealt with banks only having the rural branches. This has been dealt with banks only having the rural branches. This has been dealt with in 42 taxmann.com 303 as under : in 42 taxmann.com 303 as under :- “34. It can be seen from the history of Sec.36(1)(viia) of “34. It can be seen from the history of Sec.36(1)(viia) of “34. It can be seen from the history of Sec.36(1)(viia) of the Act that at stage the Act that at stage-I the deduction was allowed in I the deduction was allowed in respect respect of any provision for bad and doubtful debts made of any provision for bad and doubtful debts made by a scheduled bank in relation to the advances made by by a scheduled bank in relation to the advances made by by a scheduled bank in relation to the advances made by its rural branches. At this stage the PBDD had to be its rural branches. At this stage the PBDD had to be its rural branches. At this stage the PBDD had to be linked to the advances made by Bank's rural branches. linked to the advances made by Bank's rural branches. linked to the advances made by Bank's rural branches. At stage At stage-II of Sec.36(1)(viia), the deductio II of Sec.36(1)(viia), the deduction while computing the taxable profits was allowed of an amount computing the taxable profits was allowed of an amount computing the taxable profits was allowed of an amount not exceeding ten per cent of the total income (computed not exceeding ten per cent of the total income (computed not exceeding ten per cent of the total income (computed before making any deduction under the proposed new before making any deduction under the proposed new before making any deduction under the proposed new provision) or two per cent of the aggregate average provision) or two per cent of the aggregate average provision) or two per cent of the aggregate average advances made by rural branches o advances made by rural branches of such banks, f such banks, whichever is higher. At this stage also the PBDD had to whichever is higher. At this stage also the PBDD had to whichever is higher. At this stage also the PBDD had to be created and debited to the profit and loss account but be created and debited to the profit and loss account but be created and debited to the profit and loss account but it was not required to be done in relation to advances it was not required to be done in relation to advances it was not required to be done in relation to advances made by Bank's rural branches and can be in relation to made by Bank's rural branches and can be in relation to made by Bank's rural branches and can be in relation to any debt. PBDD ne any debt. PBDD need not be in relation to rural advances ed not be in relation to rural advances but can be in relation to any advances both rural and but can be in relation to any advances both rural and but can be in relation to any advances both rural and non-rural advances. The two percent AAA made by rural rural advances. The two percent AAA made by rural rural advances. The two percent AAA made by rural branches of such banks had to be computed and the branches of such banks had to be computed and the branches of such banks had to be computed and the PBDD made in books has to be in relation to rural PBDD made in books has to be in relation to rural PBDD made in books has to be in relation to rural

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advances advances. The other eligible sum which can be . The other eligible sum which can be considered for deduction u/s.36(1)(viia) of the Act viz., considered for deduction u/s.36(1)(viia) of the Act viz., considered for deduction u/s.36(1)(viia) of the Act viz., ten per cent of the total income (computed before making ten per cent of the total income (computed before making ten per cent of the total income (computed before making any deduction under the proposed new provision) does any deduction under the proposed new provision) does any deduction under the proposed new provision) does not require computation in relation to rural advances. not require computation in relation to rural advan not require computation in relation to rural advan Nevertheless the debit of PBDD to Profit and Loss account Nevertheless the debit of PBDD to Profit and Loss account Nevertheless the debit of PBDD to Profit and Loss account is necessary of the higher of the two sums to claim is necessary of the higher of the two sums to claim is necessary of the higher of the two sums to claim deduction u/s.36(1)(viia) of the Act. If the concerned bank deduction u/s.36(1)(viia) of the Act. If the concerned bank deduction u/s.36(1)(viia) of the Act. If the concerned bank does not have rural branches then they could not claim does not have rural branches then they could not claim does not have rural branches then they could not claim the deduction. Therefore t the deduction. Therefore the deduction was confined only he deduction was confined only to banks that had rural branches. to banks that had rural branches. 35. At Stage 35. At Stage-III of the provisions of Sec.36(1)(viia) of the III of the provisions of Sec.36(1)(viia) of the Act, the deduction allowed earlier was enhanced. The Act, the deduction allowed earlier was enhanced. The Act, the deduction allowed earlier was enhanced. The enhancement of the deduction was consequent to enhancement of the deduction was consequent to enhancement of the deduction was consequent to representation to the Governm representation to the Government that the existing ceiling ent that the existing ceiling in this regard i.e. 10% of the total income or 2% of the in this regard i.e. 10% of the total income or 2% of the in this regard i.e. 10% of the total income or 2% of the aggregate average advances made by the rural branches aggregate average advances made by the rural branches aggregate average advances made by the rural branches of Indian banks, whichever is higher, should be modified. of Indian banks, whichever is higher, should be modified. of Indian banks, whichever is higher, should be modified. Accordingly, by the Amending Act, the deduction Accordingly, by the Amending Act, the deduction Accordingly, by the Amending Act, the deduction presently presentlyavailable under cl. (viia) of sub-s. (1) of s. 36 of s. (1) of s. 36 of the IT Act has been split into two separate provisions. the IT Act has been split into two separate provisions. the IT Act has been split into two separate provisions. One of these limits the deduction to an amount not One of these limits the deduction to an amount not One of these limits the deduction to an amount not exceeding 2% (as it existed originally, now it is 10%) of exceeding 2% (as it existed originally, now it is 10%) of exceeding 2% (as it existed originally, now it is 10%) of the aggregate average advances made by the aggregate average advances made by rural branches rural branches of the banks concerned. This will imply that all scheduled of the banks concerned. This will imply that all scheduled of the banks concerned. This will imply that all scheduled or non or non-scheduled banks having rural branches would be scheduled banks having rural branches would be allowed the deduction (a) upto 2% (now 10%) of the allowed the deduction (a) upto 2% (now 10%) of the allowed the deduction (a) upto 2% (now 10%) of the aggregate average advances made by such branches aggregate average advances made by such branches aggregate average advances made by such branches and (b) a further deduction and (b) a further deduction upto 5% of their total income upto 5% of their total income in respect of provision for bad and doubtful debts. The in respect of provision for bad and doubtful debts. The in respect of provision for bad and doubtful debts. The further deduction of 5% of total income was available to further deduction of 5% of total income was available to further deduction of 5% of total income was available to banks which did not have rural branches. banks which did not have rural branches. 36. Therefore after 1.4.1987, scheduled or non-scheduled 36. Therefore after 1.4.1987, scheduled or non 36. Therefore after 1.4.1987, scheduled or non banks having banks having rural branches were allowed deduction., rural branches were allowed deduction., (a) upto 2% (now 10%) of the aggregate average advances (a) upto 2% (now 10%) of the aggregate average advances (a) upto 2% (now 10%) of the aggregate average advances made by such branches and (b) Schedule or non- made by such branches and (b) Schedule or non made by such branches and (b) Schedule or non scheduled banks whether it had rural branches or not a scheduled banks whether it had rural branches or not a scheduled banks whether it had rural branches or not a deduction upto 5% of their total income in respect of deduction upto 5% of their total income in respect of deduction upto 5% of their total income in respect of provision for bad and doubtful debts. Even under the sion for bad and doubtful debts. Even under the sion for bad and doubtful debts. Even under the new provisions creating a PBDD in the books of accounts new provisions creating a PBDD in the books of accounts new provisions creating a PBDD in the books of accounts is necessary. is necessary.

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“056. Ground number 6 has also another subsidiary ground, 056. Ground number 6 has also another subsidiary ground, 056. Ground number 6 has also another subsidiary ground, alternatively raised for claim of deduction of discount on issue alternatively raised for claim of deduction of discount on issue alternatively raised for claim of deduction of discount on issue of shares Under ESOP scheme. As we have held that, the of shares Under ESOP scheme. As we have held that, the of shares Under ESOP scheme. As we have held that, the learned CIT learned CIT – A should have admitted additional ground of the should have admitted additional ground of the assessee, we do not find it appropriate here to allow the claim assessee, we do not find it appropriate here to allow the claim assessee, we do not find it appropriate here to allow the claim of the assessee for the simple reason that deduction is required of the assessee for the simple reason that deduction is required of the assessee for the simple reason that deduction is required to be verified with respect to its quantum by the lower to be verified with respect to its quantum by the lower to be verified with respect to its quantum by the lower authorities. Accordingly, authorities. Accordingly, we setaside the alternative ground of we setaside the alternative ground of allowability of discount on issue of shares Under the employee allowability of discount on issue of shares Under the employee allowability of discount on issue of shares Under the employee stock option plan of stock option plan of ₹ 1,432,422,420/– back to the file of the back to the file of the learned assessing officer to examine the claim of the assessee learned assessing officer to examine the claim of the assessee learned assessing officer to examine the claim of the assessee and allow it in accordance w and allow it in accordance with the law. The assessee is ith the law. The assessee is directed to produce the requisite details before the learned directed to produce the requisite details before the learned directed to produce the requisite details before the learned assessing officer. If the AO, on examination of such details, is assessing officer. If the AO, on examination of such details, is assessing officer. If the AO, on examination of such details, is not satisfied with the claim of the assessee, a reasonable not satisfied with the claim of the assessee, a reasonable not satisfied with the claim of the assessee, a reasonable opportunity of hearing is required to be g opportunity of hearing is required to be given. iven.Accordingly, alternative claim of the assessee is restored back to the file of alternative claim of the assessee is restored back to the file of alternative claim of the assessee is restored back to the file of the learned AO. Accordingly, ground number 6 of the appeal is the learned AO. Accordingly, ground number 6 of the appeal is the learned AO. Accordingly, ground number 6 of the appeal is partly allowed. partly allowed.” 20.1 Respectfully following the finding of the Tribunal (supra) the Respectfully following the finding of the Tribunal (supra) the Respectfully following the finding of the Tribunal (supra) the additional ground in the year under consideration is also admitted additional ground in the year under consideration is also admitted additional ground in the year under consideration is also admitted

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and restored back to the file of the Assessing Officer to be decided and restored back to the file of the Assessing Officer to be decided and restored back to the file of the Assessing Officer to be decided in accordance with the direction given by the Tribunal in AY 2011- in accordance with the direction given by the Tribunal in in accordance with the direction given by the Tribunal in 12 to 2013-14. The ground of appeal is accordingly allowed for 14. The ground of appeal is accordingly allowed for 14. The ground of appeal is accordingly allowed for statistical purposes.

“0121. Ground number 7 0121. Ground number 7 – 8 are with respect to the taxability 8 are with respect to the taxability of broken period interest in held to maturi of broken period interest in held to maturity investments. We ty investments. We find that identical issue has been dealt with in the appeal of find that identical issue has been dealt with in the appeal of find that identical issue has been dealt with in the appeal of the parties for assessment year 2012 the parties for assessment year 2012 – 13 wherein we 13 wherein we following the decision of the honourable High Court decided the following the decision of the honourable High Court decided the following the decision of the honourable High Court decided the issue in favour of the assessee. Therefore, ground number issue in favour of the assessee. Therefore, ground number issue in favour of the assessee. Therefore, ground number 7 and 8 are dismissed. and 8 are dismissed.” 22.1 Respectfully following the above finding of the Tribunal Respectfully following the above finding of the Tribunal Respectfully following the above finding of the Tribunal (supra), the ground No (supra), the ground Nos. 7 and 8 of the appeal of the Revenue are . 7 and 8 of the appeal of the Revenue are dismissed.

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“093. Ground number 2 and 3 is with respect to the allowance 093. Ground number 2 and 3 is with respect to the allowance 093. Ground number 2 and 3 is with respect to the allowance of revaluation loss arising on HTM securities by the learned CIT of revaluation loss arising on HTM securities by the learned CIT of revaluation loss arising on HTM securities by the learned CIT – A. We find that this issue is linked with ground number 7 of A. We find that this issue is linked with ground number 7 of A. We find that this issue is linked with ground number 7 of the appeal of the assessee. Ground number 7 is with respect to the appeal of the assessee. Ground number 7 is with respect to the appeal of the assessee. Ground number 7 is with respect to the amortization of premium paid for acquisition of held to mortization of premium paid for acquisition of held to mortization of premium paid for acquisition of held to maturity securities. maturity securities. 094. The learned authorised representative stated that that this 094. The learned authorised representative stated that that this 094. The learned authorised representative stated that that this issue is now squarely covered in favour of the assessee by the issue is now squarely covered in favour of the assessee by the issue is now squarely covered in favour of the assessee by the decision of the honourable Bombay High Court in cas decision of the honourable Bombay High Court in cas decision of the honourable Bombay High Court in case of CIT versus HDFC bank Ltd 366 ITR 505 wherein loss on versus HDFC bank Ltd 366 ITR 505 wherein loss on versus HDFC bank Ltd 366 ITR 505 wherein loss on revaluation of securities classified as held till maturity is a revaluation of securities classified as held till maturity is a revaluation of securities classified as held till maturity is a revenue expenditure. revenue expenditure. 095. The learned departmental representative vehemently 095. The learned departmental representative vehemently 095. The learned departmental representative vehemently supported the order of the learned assessing officer. supported the order of the learned assessing officer. supported the order of the learned assessing officer. 096. We have carefully considered the rival contention and 096. We have carefully considered the rival contention and 096. We have carefully considered the rival contention and perused the orders of the lower authorities. We fully agree with perused the orders of the lower authorities. We fully agree with perused the orders of the lower authorities. We fully agree with the learned authorised representative that identical issue has the learned authorised representative that identical issue has the learned authorised representative that identical issue has been decided by the honourable Bombay High Court in favour been decided by the honourable Bombay High Court in favour been decided by the honourable Bombay High Court in favour of theassessee in CIT versus HDFC bank Ltd 366 ITR 505 while ssee in CIT versus HDFC bank Ltd 366 ITR 505 while ssee in CIT versus HDFC bank Ltd 366 ITR 505 while deciding the issue number ( C ) , the issue being (C) Whether the deciding the issue number ( C ) , the issue being (C) Whether the deciding the issue number ( C ) , the issue being (C) Whether the ITAT is right in law in holding that the assessee is entitled for ITAT is right in law in holding that the assessee is entitled for ITAT is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of the deduction with respect to the diminution in value of the deduction with respect to the diminution in value of the investment and a investment and amortization of premium on investment held to mortization of premium on investment held to maturity on the ground of mandate by RBI guidelines thereby maturity on the ground of mandate by RBI guidelines thereby maturity on the ground of mandate by RBI guidelines thereby ignoring the decision of the Supreme Court in the case of ignoring the decision of the Supreme Court in the case of ignoring the decision of the Supreme Court in the case of Southern Technologies v. CIT (320 ITR 577) ?" The honourable Southern Technologies v. CIT (320 ITR 577) ?" The honourable Southern Technologies v. CIT (320 ITR 577) ?" The honourable High Court held as Under : High Court held as Under : 7. As far as question (C) is concerned, we find that an far as question (C) is concerned, we find that an identical question of law was framed and answered in identical question of law was framed and answered in identical question of law was framed and answered in favour of the Assessee by this Court in its judgement favour of the Assessee by this Court in its judgement favour of the Assessee by this Court in its judgement dated 4 dated 4-7-2014 in Income Tax Appeal No.1079 of 2012, 2014 in Income Tax Appeal No.1079 of 2012, CIT-2 v. Lord Krishna Bank Ltd. (now merged w 2 v. Lord Krishna Bank Ltd. (now merged with HDFC 2 v. Lord Krishna Bank Ltd. (now merged w Bank Ltd.). Mr Suresh Kumar fairly stated that question Bank Ltd.). Mr Suresh Kumar fairly stated that question Bank Ltd.). Mr Suresh Kumar fairly stated that question (C) reproduced above is covered by the said order. In (C) reproduced above is covered by the said order. In (C) reproduced above is covered by the said order. In view thereof, we are of the view that even question (C) view thereof, we are of the view that even question (C) view thereof, we are of the view that even question (C) does not raise any substantial question of law that does not raise any substantial question of law that does not raise any substantial question of law that requires an answer from us. requires an answer from us. 097. In view of this, ground number 2, 3 and 7 of the appeal of 097. In view of this, ground number 2, 3 and 7 of the appeal of 097. In view of this, ground number 2, 3 and 7 of the appeal of the AO are dismissed. the AO are dismissed.”

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24.1 Respectfully following the above finding of the Tribunal Respectfully following the above finding of the Tribunal Respectfully following the above finding of the Tribunal (supra), the ground No. 9 of the appeal of the Revenue is (supra), the ground No. 9 of the appeal of the Revenue is (supra), the ground No. 9 of the appeal of the Revenue is accordingly dismissed. accordingly dismissed.

Order pronounced in the open Court on nounced in the open Court on 30/06/2023. /06/2023. Sd/- Sd/ Sd/- (KAVITHA RAJ KAVITHA RAJAGOPAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/06/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai