DCIT-3(4), MUMBAI vs. M/S IDBI BANK LTD , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI

BEFORE SHRI KULDIP SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER

ITA NO. 2937/MUM/2022 (A.Y: 2017-18) DCIT- 3(4) v. M/s. IDBI Bank Ltd 29th Floor, Center-1 Central Processing Unit (TDS) World Trade Center, Cuffe Parade Plot No. 82/83, Elemach Bldg Mumbai- 400005 Road No. 7, Street No. 15 MIDC, Andheri (E) Mumbai- 400093 PAN: AABCI8842G (Appellant) (Respondent)

ITA NO. 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd v. ACIT/DCIT-LTU 22nd Floor, IDBI Tower 29th floor, Centre No. 1 WTC Complex, Cuffe Parade World Trade Centre, Cuffe Parade Mumbai- 400005 Mumbai- 400005 PAN: AABCI8842G (Appellant) (Respondent)

Assessee Represented by : Mr. C. Naresh Department Represented by : Mr. K.C. Selvamani

Date of conclusion of Hearing : 13.02.2023 Date of Pronouncement : 11.05.2023

ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd O R D E R PER S. RIFAUR RAHMAN (AM)

ITA NO.2937/MUM/2022 (A.Y: 2017-18) – REVENUE APPEAL

“1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance of broken period Interest? “2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowances of expenses u/s 14A r.w.r. 8D while computing income under normal provision of Act?" 2.1 Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowances of expenses u/s 14A r.w.r. 8D while computing book profit u/s.115JB of the Act?" "3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowances of amortization of premium amounting to Rs. 170,49,95,007/- in respect of securities in HTM category?" 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowance of interest expenses of Rs. 160,93,50,169/- incurred in respect of Innovative Perpetual Debt Instrument?

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd 3. With regard to Ground No. 1 which is in respect of broken period interest, Ld. DR brought to our notice relevant facts and relied on the order of the Assessing Officer. He submitted its written submissions, for the sake of clarity it is reproduced below: -

“The AO disallowed the Broken Period Interest amounting to Rs.43,15,60,415/- for the reason elaborately discussed in the assessment order. Decision of the Ld.CIT(A): The ld. CIT(A) has deleted the addition made by the AO. The Ld. CIT(A) observed that the AO made the said disallowance on the basis of decision of Hon'ble Supreme Court in the case of VIJAYA BANK. The Ld. CIT(A) has held that that the decision in the case of Hon'ble Supreme Court in the case of Vijaya Bank is not applicable to the Appellant's case, since in that case the interest paid pertained to acquisition of securities on merger of another bank. Further in that case, the issue was decided based on the then existing provisions of Section 18 of the Income Tax Act. However, in the Appellant's case all the securities were held as stock in trade and the income was offered and assessed as business income only. Further, the said Broken Period Interest had not arisen on account of any merger but on account of purchases of securities carried out in the normal course of carrying the banking business. In the light of such facts and position the ld. CIT(A) has held that there is no such occasion to confirm action of the AO in making the impugned addition of Rs.43,15,60,415/- and relief has been given to the assessee. Arguments of the department: The Broken Period Interest(BPI) paid by the assessee is nothing but part of the price paid for the securities for acquiring the securities. Whatever be the reason that prompted the assessee to purchase the securities, the price paid for them is in the nature of capital outlay only. No part of it can be set off as expenditure against interest accruing on these securities. In view of the above discussion, the BPI claim of the assessee is considered as part of the cost price of the securities acquired by the assessee bank and the deduction of Rs 43,15,60,415/- claimed was rightly disallowed.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd The Hon'ble Supreme Court of India in the case of Vijaya Bank Ltd. vs. Addl.CIT. (1991) 187 ITR 541 (SC) in which it has been clearly stated that BPI is part of capital outlay for acquisition of securities. Further, the Rajasthan High Court in the case of CIT vs. The Bank of Rajasthan Ltd.(2009) 316 ITR 391 (Rajasthan) came to the conclusion that the amount paid by the bank towards BPI on securities purchased by it is not an allowable business deduction but has to be considered as the purchase price paid for acquiring the securities after considering the case of American Express International Banking vs. CIT (258 ITR 601) in detail. In view of the above discussion the hon'ble ITAT is requested to uphold the addition made by the AO of BPI.”

“2. This appeal raises the following four question of law for our consideration :- (a) Whether, on the facts and in the circumstance of the case, the Tribunal was right in law in allowing the Broken Period

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Expenses, whereas the same is in the nature of Capital outlay towards acquiring investments, given that the main business of he assessee is that of banking and therefore the ratio laid down by the Apex Court in the case of Vijaya Bank (57 Taxmann 152) is squarely applicable in the case of assessee ? ….. ….. 3. Re:- Question (a) : (i) It is an agreed position between parties that the decision of this Court in American Express International Banking Corporation vs. C.I.T. 258 ITR 601 covers the issue raised herein. (ii) In view of the above, question(a) as formulated does not give rise to any substantial question of law. Therefore not entertained.”

“Before going further we may mention at the very outset that the security in this case was of the face value of Rs. 5 lakhs. It was bought for a lesser amount of Rs. 4,92,000. The difference was of Rs. 8,000. The assessee has revalued the security. The assessee offered the notional profit for taxation, as explained hereinabove, on accrual basis in the appropriate assessment year during which the assessee held the security. This difference could have been treated by the Department as interest on securities under section 18. However, in the instant case, the Department has assessed the said difference under section 28 under the head "Business" and not under the head "Interest on securities". Having treated the difference under the head "Business", the Assessing Officer disallowed the broken period interest payment, which gave rise to the dispute. It was open to the Department to assess the above

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd difference under assess the interest under the head "Business" and, while doing so, the Depart- the head "Interest on securities" under section 18. However, they chose to ment taxed broken period interest received, but disallowed broken period interest payment. It is in this light that one has to read the judgment of the Karnataka High Court and the Supreme Court in Vijaya Bank Ltd.'s case [1991] 187 ITR 541. In that case, the facts were as follows. During the assessment year under consideration, Vijaya Bank entered into an agreement with Jayalakshmi Bank Limited, whereby Vijaya Bank took over the liabilities of Jayalakshmi Bank. They also took over assets belonging to Jayalakshmi Bank These assets consisted of two items, viz., Rs. 58,568 and Rs. 11,630.00. The said amount of Rs. 58,568 represented interest, which accrued on securities taken over by Vijaya Bank from Jayalakshmi Bank and Rs. 11,630 was the interest which accrued up to the date of purchase of securities by the assessee-bank from the open market. These two amounts were brought to tax by the Assessing Officer under section 18 of the Income-tax Act. The assessee-bank claimed that these amounts were deductible under sections 19 and 20. This was on the footing that the Department had brought to tax, the aforestated two amounts as interest on securities under section 18. It is in the light of these facts that one has to read the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC). In the light of the above facts, it was held that the outlay on purchase of income-bearing asset was in the nature of capital outlay and no part of the capital outlay can be set off as expenditure against income accruing from the asset in question. In our case, the amount which the assessee received has been brought to tax under the head "Business" under section 28. The amount is not brought to tax under section 18 of the Income-tax Act. After bringing the amount to tax under the head "Business", the Department taxed the bro- ken period interest received on sale, but at the same time, disallowed broken period interest payment at the time of purchase and this led to the dispute. Having assessed the amount received by the assessee under section 28, the only limited dispute was-whether the impugned adjustments in the method of accounting adopted by the assessee-bank should be discarded. Therefore, the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) has no application to the facts of the present case. If the Department had brought to tax, the amounts received by the assessee-bank under section 18, then Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) was applicable. But, in the present case, the Department brought to tax such amounts under section 28 right from the inception. Therefore, the Tribunal was right in coming to the conclusion that the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) did not apply to the facts of the present case. However, before us, it was argued on behalf of the Revenue, that in view of the judgment

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC), even if the securities were treated as part of the trading assets, the income therefrom had to be assessed under section 18 of the Act and not under section 28 of the Act as income from securities can only come within section 18 and not under section 28. We do not find any merit in this argument. Firstly, as stated above, Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) has no application to the facts of this case. Secondly, in the present case, the Tribunal has found that the securities were held as trading assets. Thirdly, it has been held by the Supreme Court in the subsequent decision reported in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306, that income from securities can also come under section 28 as income from business. This judgment is very important. It analyses the judgment of the Supreme Court in United Commercial Bank Ltd.'s case [1957] 32 ITR 688, which has been followed by the Supreme Court in Vijaya Bank Ltd.'s case [1991] 187 ITR 541. It is true that once an income falls under section 18, it cannot come under section 28. However, as laid down by the Supreme Court in Cocanada Radhaswami Bank Ltd.'s case [1965] 57 ITR 306, income from securities treated as trading assets can come under section 28. In the present case, the Departent has treated income from securities under section 28. Lastly, the facts in the case of United Commercial Bank Ltd. [1957] 32 ITR 688 (SC), also support our view in the present case. In United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the assessee-bank claimed a set-off under section 24(2) of the Indian Income-tax Act, 1922 (section 71(1) of the present Act), against its income from interest on securities under section 8 of the 1922 Act (similar to section 18 of the present Act). It was held that United Commercial Bank was not entitled to such a set-off as the income from interest on securities came under section 8 of the 1922 Act. Therefore, even in United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the Department had assessed income from interest on securities right from the inception under section 8 of the 1922 Act and, therefore, the set-off was not allowed under section 24(2) of the Act. Therefore, United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), has also no application to the facts of the present case in which the assessee's income from interest on securities is assessed under section 28 right from inception. In fact, in United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the matter was remitted back as it was contended on behalf of United Commercial Bank that the securities in question were a part of the trading assets held by the assessee in the course of its business and the income by way of interest on such securities was assessable under section 10 of the Indian Income-tax Act, 1922 (similar to section 28 of the present Act). It is for this reason that in the subsequent judgment of the Supreme Court in the case of Cocanada Radha- Swami Bank Ltd.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd [1965] 57 ITR 306, the Supreme Court has observed, after reading United Commercial Bank Ltd.'s case (1957) 32 ITR 688 (SC), that where securities were part of trading assets, income by way of interest on such securities could come under section 10 of the Indian Income-tax Act, 1922. In the light of what we have discussed hereinabove, we find that the asses- see's method of accounting does not result in loss of tax/revenue for the Department. That, there was no need to interfere with the method of accounting adopted by the assessee- bank. That, the judgment in the case of Vijaya Bank Ltd. [1991] 187 ITR 541 (SC), had no application to the facts of the case. That, having assessed the income under section 28, the Department ought to have taxed interest for the broken period interest received and the Department ought to have allowed deduction for the broken period interest paid.”

“The AO disallowed the expenses amounting to Rs.41,86,49,994/- u/s. 14A read with Rule 8D as against Rs. 2,55,51,954/- for the reason elaborated in the assessment order. Decision of the Ld.CIT(A): The assessee challenged the disallowance of Rs. 41,86,49,994/- u/s 14A of the Act and adding the same to Total Income when it is computed u/s 115JB (i.e., under MAT and not under normal provisions of the Act.). The CIT(A) has observed that the Hon'ble ITAT has already given decision in its favour in ITA 3394/ MUM/2019 and later by First Appellate Authority for immediately preceding year i.e. 2016-17.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd The ld. CIT(A) held that there is no such occasion to confirm action of Ld. A.O. in making disallowance of Rs. 41,86,49,994/-. The Ld. CIT(A) has held that the amount of addition being only a result of misapplication of case Laws by the Ld. AO and misappreciation of facts of the case and directed to be deleted. With respect to disallowance u/s 14A r.w.r. 8D is added with Book profit nder u/s 115JB of the Act, the Ld. CIT(A) deleted the disallowance. Arguments of the department: Assessee claimed that it held sufficient own funds to make investments and, therefore, the exempt investments have been made from own funds. However, the bank is in no position to show that the entire investment in exempt investments has come only from own funds. Actually, the bank has common mix of borrowed funds which have been used for making exempt investment also. The claim of assessee having sufficient reserve and surplus in hand is also not tenable as those reserves are shown on the liability side of the balance sheet and represented by a variety of assets on the asset side. These assets could be fixed or non-liquid assets and hence not investible. Alternatively, assessee has submitted that when there is a mixed fund consisting of own funds and borrowed funds, it cannot be assumed that a payment for investment purpose has come out of borrowed funds and not out of own fund. It is fact that the provision of Sec 14A are applicable to the assessee, as it has incurred expenditure in relation to income which does not form part of total income under the head. Further, it is not possible to exactly find out the amount of expenditure incurred to earn income which does not form part of total income. In view of the above and relying on the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd.v/s. CIT [2018] 402 ITR 640 (SC), it is requested that the addition made by the AO may kindly be upheld.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd book profit computation he submitted that this issue is decided in favour of the assessee in assessee’s own case by the Co-ordinate Bench of this tribunal in assessee’s own case in ITA.No. 3394/Mum/2019 dated 09.02.2021. Copies of the orders are placed on record.

“11. Ground No. 1 relates to disallowance under section 14A. The learned AR of the assessee submits that the ld. CIT-(A) confirmed the disallowance made by assessing officer under Rule 8(2)(ii) and (iii) but restricted the disallowance made to exempt income earned. The ld AR for the assessee submits that this issue is now covered by the decision of Hon’ble Supreme court in Maxopp Investment P Ltd Vs CIT (91 taxmann.com 154 SC), wherein its is held that held that investments made by a banking concern are part of the business or banking. Therefore, the income arising from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. The learned AR of the assessee further submits that no disallowance is warranted under section 14A as held by Kolkata tribunal in UCO Bank (ITA No. 1615 /Kol/2016), Delhi tribunal in case of Punjab National Bank (ITA No. 5481 /Del/2014 and Nice Bombay Transport (P) Ltd reported vide (175 ITD 684). 12. In without prejudice submission, the learned AR submitted that no disallowance under Rule 8D(2)(ii) is warranted in assessee’s cases as the interest free funds of ₹14567.58 Crore are far exceed the securities from which tax free income was earned of ₹ 1598.60

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Crore. In support of his submission the learned AR relied upon the decision of Bombay High Court in case of HDFC Bank (383 ITR 529) and Gujarat High Court in Syntax Industries Ltd (82 taxmann.com 171). It was submitted that the SLP filed against the order of Gujarat High Court has been dismissed by Hon’ble Supreme Court. 13. On the other head the learned DR for the revenue after going through digital furnished in the chart and decision relied by learned AR of the assessee, submits that he relied upon the order of lower authorities. 14 We have considered the rival submission of the parties and I want through the orders of lower authorities. During the assessment the assessing officer noted that the assessee claimed exempt income of ₹ 94,50,57,908/- under section 10 of the Act. The assessee apportioned 1% of dividend income towards administrative expenses incurred for earning this exempt income. The working provided by assessee was not accepted by assessing officer. The assessing officer asked to furnish the details of dividend income earned and expenses incurred as per Rule 8D. The assessee furnished its reply dated 9th of December 2013. The assessee in its reply stated that the own funds of the assessee are in far excess for making investment for earning exempt income, no borrowing are attributed to exempt income, section 14A and Rule 8D are not applicable in case of assessee. The submission of assessee was not accepted by assessing officer. The assessing officer after invoking the provisions of section 14A read with Rule8D made a disallowance of ₹ 102,44,25,790/- and enhanced the total income computed under the normal provisions as well as income computed under section 115JB. The assessing officer worked out disallowance under Rule 8D(2)(i) and computed disallowance of ₹ 95,46,039/- @ 1% of exempt income, Rule 8D(2)(ii) of ₹ 94,44,95,944/-, and Rule 8D(2(iii) ₹7,99,29,846/-. On appeal before CIT(A) the disallowance under Rule 8D(2)(i) was deleted, however, other disallowance under Rule 8D(2)(ii) &(iii) was sustained. 15. The Hon’ble Supreme Court in Maxopp Investment P Ltd (supra) in para 36 of its decision observed that there is yet another aspect which still needs to be looked into. What happens when the shares are held as 'stockin-trade' and not as 'investment', particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. Further in para 37 the Hon’ble Court further held that this Circular takes note of the judgment of this Court in Nawanshahar case wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. 16. The coordinate bench of Kolkata Tribunal in UCO bank (supra) after following the decision of Maxopp Investment P Ltd (supra) on similar set of facts passed the following order: “11. Having considered the submissions of the parties, we find that the issue involved in the Revenue's appeal is squarely covered in assessee's favour by the judgment of the Hon'ble Bombay High Court in the case of CIT Vs HDFC Bank Ltd (383 ITR 529). In that case also the issue before the Hon'ble Bombay High Court was whether any part of the interest paid by the Bank could be disallowed u/s 14A read with Rule 8D(2)(ii). On appeal this Tribunal and thereafter the Hon'ble Bombay High Court held that since the Bank's own funds were substantially more than the cost of investments yielding tax free income, no part of the interest paid was liable for disallowance. The view of the Hon'ble Bombay High Court was followed with approval by the jurisdictional Calcutta High Court in the case of CIT Vs Rasoi Ltd (ITA No. 109 of 2016). 12. We also find merit in the assessee's alternate contention that no disallowance out of interest paid was warranted because after netting off interest paid against interest received, the assessee had made net interest gain of Rs.3902.10 crores. The Hon'ble Gujarat High Court in its recent judgment in the case of Pr. CIT Vs Nirma Credit & Capital Pvt Ltd (supra) has held that the expression used in Rule 8D(2)(ii) is "interest expenditure" and not "interest paid" and accordingly the expenditure in this context must mean interest paid minus taxable interest earned. Applying the ratio laid down in this judgment to the facts of the present case, we find no infirmity in the order of the Ld. CIT(Appeals)

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd deleting the interest disallowance made under Rule 8D(2)(ii). 13. In so far as disallowance of Rs.2,90,37,490/- under Rule 8D(2)(iii) is concerned, we find that before the lower authorities the assessee had raised the plea that no disallowance u/s 14A was warranted since the assessee was a dealer in shares although in its Balance Sheet, shares were disclosed under the head "Investments". We find that the Hon'ble Supreme Court in its recent judgment dated 12.02.2018 in the case of Maxopp Investment Ltd Vs CIT (supra) did not uphold this line of argument and held that even in the case of a dealer in shares, earning dividend income from its stock- in-trade, may expose his to the rigors of Section 14A of the Act. We however find merit in the Ld. AR's submissions that in the said judgment, the Hon'ble Supreme Court also extensively dealt with the Revenue's appeal in the case of State Bank of Patiala arising from the decision of the Hon'ble & Haryana High Court reported in 391 ITR 218. In the said judgment the Hon'ble Punjab & Haryana High Court had taken note of the fact that the banking companies in the course of carrying on their banking business were required to hold shares & securities and the expenses were incurred in connection with such banking business and the income therefrom was assessable under the head "Profits & Gains of Business". The Hon'ble High Court had taken note of the Board's Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head "Profits & Gains of Business" and not under the head "Other Sources". The High Court had also taken note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs Nawanshahar Central Co-operative Bank Ltd (289 ITR 6).Applying the ratio in the said decision the Hon'ble Punjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon'ble Punjab & Haryana High Court therefore held that in assessing the income of the assessee engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its banking business and not in relation to earning any tax free income. The

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Revenue's appeal against the judgment of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supreme Court. We therefore find that qua the assessee is engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO to delete the disallowance of Rs.2,90,37,490/- made under Rule 8D(2)(iii). 17. In view of the aforesaid discussion we are of the view that no disallowance under 14A is permissible in terms of Rule 8D in case of assessee is engaged in banking business. Therefore, respectfully following the judgment of the Supreme Court in case of Maxopp investment Ltd we direct the Ld. AO to delete the disallowance of Rule 8D(2)(iii). Similarly, no disallowance under rule 8D((2)(ii) is permissible as the reserve and surplus of assessee which is a banking company, is more than the investment made for earning exempt income. Therefore, the assessing officer is also directed to delete the disallowance of Rule 8D(ii). 18. In the result ground No. 1 of the appeal is allowed.”

“23. The related issue connected with the above ground of appeal relates to the order of the Ld. CIT (A) in respect of disallowance made u/s 14A r.w. Rule BD to earn dividend income in computing book profit u/s 115JB of the Act. We find that similar issue arose before the Hon'ble Bombay High Court in the case of CIT v. M/s Bengal Finance & Investments Pvt. Ltd. (ITA No. 337 of 2013). The question of law before the High Court inter alia was the following:

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd "(b) Whether on the facts and in the circumstances of the case, and in law the ITAT is justified in deleting the addition of Rs.78,84,387/- under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 SOT 101 (Dei), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?" The Hon'ble High Court held that: 4 So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in ITA No. 3850/Mum/2010 to hold that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.43B of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law." 24. Facts being identical, we follow the above order of the Hon'ble Bombay High Court and confirm the order of the Ld. CIT(A). Thus the 1st ground of appeal is dismissed.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd “The AO disallowed the amortization of premium amounting to Rs. 170,49,95,007/- in respect of securities in HTM category for the reason as discussed elaborately in the assessment order. Decision of the Ld. CIT(A): The Ld. CIT(A) deleted the disallowance made by the AO in respect of amortization of premium on HTM securities. Arguments of the department: It cannot be the effect of the RBI guidelines that the total income for the purpose of Income Tax has to be computed in accordance with the enjoinment of these guidelines. These are only meant as guiding factors to determine the commercial profit for various purposes on conservative principles. The total income has to be computed under the mandate of the Income Tax Act and a recognized system of accounting has to be followed u/s. 145 of the Act. The specific clause in RBI circular which clearly mentions that the prescribed accounting treatment does not take into account the applicability of I.T. law and decision of Hon'ble Supreme Court in a recent judgment delivered in January, 2010 in the case of M/s. Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 577 (SC) makes it very clear that RBI Guidelines themselves will not decide taxability of the income. Accordingly, the amount of premium amortized in respect of HTM securities of Rs.155,78,68,968/- is disallowed and added back to the total income. In view of the above discussion the hon'ble ITAT is requested to uphold the addition made by the AO.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd (Successor to State Bank of Bikaner and Jaipur) in ITA.No. 3033 & 2873/Mum/2019. Copy of the order is placed on record.

“134. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of disallowing the depreciation provided for investments classified under the HTM category. For this revenue has raised the following Ground No. 9:- "9. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in treating loss on account of depreciation of securities in HTM category without appreciating that no depreciation is to be provided for investment classified under the HTM category." 135. Brief facts are that during the year the assessee has provided Rs.1020,21,51,476 being loss on account of amortisation of premium paid on investments held under HTM category. The above provision is made in accordance with the RBI guidelines, wherein it has been stated that investments in HTM category should be carried at acquisition cost. In case the purchase price is higher than the face value, the premium should be amortised over the remaining period of maturity of the security. The AO disallowed the aforesaid provision on the basis that RBI guidelines do not decide taxability. The CIT(A) deleted the disallowance made by the AO following the Tribunal order in assessee's own case for AYS 1995-96 to 1996-97 and the CIT(A) order for AYS 2002-03 to 2007-08. The Revenue

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd before the Tribunal emphasised that there is no section under the Act that allows deduction for such amortisation of premium on securities. 136. It was contended that the issue is squarely covered in favour of the assessee by assessee's own case for assessment year 1995-96 by the order of Tribunal dated 17.09.2009, which was followed by the Tribunal in subsequent assessment year 1996-97 vide order dated 26.07.2013. Further, the Bombay High Court on the appeal by revenue in assessment year 1996- 97, has upheld the decision of Tribunal, vide its order dated 01.08.2016. 137. We noted that the facts in the year under consideration are same as the facts in the earlier years. In view of the above, this ground of appeal is covered in favour of the assessee vide the aforementioned orders of the Tribunal and Bombay High Court. This issue of Revenue's appeal is dismissed.”

“26. Before us, both the parties agreed that issue in dispute is covered in favour of the assessee by the order of the Tribunal in the earlier years including the order dated 22/03/2022 for A.Y.2005-06 in ITA No. 3685 and 4951/Mum/2013. The relevant part of the decision of the Tribunal (supra) is reproduced as under: Revenue has challenged the allowance of assessee's appeal by Ld. CIT(A) by holding the security as stock in trade and loss on revaluation as revenue expenditure. The Ld. A.R. for the assessee contended that this issue has already been decided in favour of the assessee by the co-ordinate Bench of the Tribunal from A. Y. 1996- 97 to A.Y. 2004-05 and order passed by the Tribunal in A.Y. 1996-97 and A. Y. 1997-98 has been confirmed by

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd the Hon'ble Bombay High Court in favour of the assessee. We have perused the order passed by the co-ordinate Bench of the Tribunal dated 30.09.2021 for A.Y. 2003- 04 which is on identical issue and has been decided in favour of the assessee by returning the following findings: "We have heard rival submissions and perused the materials available on record. Both the parties mutually agreed that this issue is already covered by the order of this Tribunal in assessee's own case for A. Yrs. 2001-02 and 2002-03 vide order dated 12/07/2021. The relevant operative portion of the said order is reproduced hereunder: "During the course of hearing, both the parties agree before us that identical issue has been consistently decided in favour of the assessee and against the Revenue by the Tribunal in assessee's own case for the assessment year 1992-93, 1995-96 1996-97, 1999- 2000, 2000-01 and 2008-09. The Tribunal in assessee's own case in 'State Bank of India v/s DCIT, ITA no.3644 & 4563/Mum./2016, order dated 3rd February 2020, for the A.Y. 2008-09, has decided this issue in favour of the assessee and against the Revenue. Consistent with the view taken by the Tribunal in assessee's own case as cited supra, we uphold the order of the learned CIT(A) on this issue and decline to interfere in the order as such. While concluding, we place on record that the appeal filed by the Revenue in assessee's own case before the Hon'ble Jurisdictional High Court for the assessment year 1996-97, the said appeal was also dismissed vide its order dated 1st August 2016. Thus, ground no. 1, raised by the Revenue is dismissed." Respectfully following the same, the ground No.2 raised by the Revenue is dismissed." Since this issue has already been decided in favour of the assessee since A.Y. 1996-97, which order has been confirmed by the Hon'ble Bombay High Court, we find no scope to interfere into the findings returned by the Ld. CIT(A) by holding the securities as stock in trade and loss on revaluation as revenue expenditure. Hence, grounds No.6(a) 6(b) are determined against the Revenue,

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd 27. The Ld. Counsel also submitted that issue in dispute has also been decided in favour of the assessee by the Hon'ble jurisdictional High Court vide order dated 01/08/2016 on the appeal filed by the Income-Tax Department for A.Y. 1996-97. We find that Tribunal (supra) has considered the decision of the Hon'ble jurisdictional High Court for assessment and 96-97. Respectfully following the finding of the Tribunal (supra), we do not find any error in the order of the Ld. CIT (A) on the issue in dispute, and accordingly, we uphold the same. The ground No.4 of the appeal of the Revenue is accordingly dismissed”

“The AO disallowed the interest expenses of Rs. 160,93,50,169/- incurred in respect of Innovative Perpetual Debt Instruments as discussed elaborately in the assessment order. The Assessing Officer relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of Pepsu Road transport Corpn v CIT, reported in 130 ITR 18 (P&H) and held that in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, the said amount cannot be held as 'borrowing' and, hence, the interest on such bonds is not admissible as deduction u/s 36(1)(iii).. The Ld. CIT(A) held that Perpetual bonds cannot be compared to the equity/share capital of the banks. Accordingly, the Ld. CIT(A) allowed the appeal of the assessee.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Arguments of the department: Perpetual Bonds or Debt instruments are in nature of debt instruments or bonds with no maturity date. The RBI guidelines have allowed treating the perpetual bond as tier I capital subject to certain conditions. The investors do not get the right to redeem the bonds at any given point of time. Only the issuing bank can buy back the bonds from the investors. Therefore, even if subsequently borrower buys back these bonds, it will not alter the nature and character of these bonds because it is the borrower and not the lender who has every right in such bonds to redeem it. Once the bond is sold, the rights of future interest passes to the new bond holder. To sum up the perpetual bonds are quasi equity and they have following equity like features: a. Perpetual in nature; b. High loss absorption capacity: Provisions for write down of principal or conversion to equity on trigger; c. Discretionary pay-out with existence of full coupon discretion. As per the provisions of section 36(1)(iii), deduction is allowed in respect of the amount of interest in respect of capital borrowed for the business and profession. However, reference may be made to the decision of the Hon'ble Punjab & Haryana High Court in the case of Pepsu Road transport Corpn v CIT (1981) 130 ITR 18 (P&H), that an element of refund or repayment is a must in the concept of borrowing. If there is no obligation to refund the capital provided, interest on such capital is not deductible under section 36(1)(iii). Therefore, in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, the said amount cannot be held as 'borrowing' and, hence, the interest on such bonds is not admissible as deduction u/s 36(1)(iii). In view of the above the amount of Rs. 160,93,50,169/- being interest expenses claimed on account of IPDI Bonds added to total income of the assesse by the AO may kindly be upheld.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd documents issued are enclosed in Paper Book. The interest so paid is classified only under schedule -15- Interest expended in the financial statements. Further, he submitted that interest paid on these bonds are also subjected to TDS. It is also submitted that even though the bonds are stated to be perpetual, the bank has an option of issuing call option after a period of 10 years. Further these bonds are being repaid which is evident from the borrowings schedule as per the Annual Report for March 2022 which establishes the fact that these are only borrowings and not capital. Ld. AR of the assessee submitted that the interest paid on these bonds are to be treated only as interest paid on borrowings and thereby is allowable as deduction while computing total income. Ld.AR of the assessee submitted that the issue under consideration is decided in favour of the assessee and against the department by the Coordinate Bench in the case of relied on the decision of State Bank of India (Successor to State Bank of Bikaner and Jaipur) in ITA.No. 3033, 2873/Mum/2019) and in the case of ICICI Bank Ltd in ITA.No. 3215 & 3864/Mum/2019. Copies of the order is placed on record.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd State Bank of India in ITA.No. 3033 & 2873/MUM/2019 dated 29.09.2002. While deciding the issue, the Coordinate Bench of the Tribunal held as under: -

“16. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as argument of rule of consistency is concerned, the Ld. CIT(A) has rejected the contention of the assessee following the decision of the Hon'ble Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra). The said finding being based on the precedent, we concur with the finding of the Ld. CIT(A). 16.1 The assessee has distinguished the decision of Hon'ble Punjab Haryana High Court in the case of Pepsu Road transport Corporation (supra) on the ground that in said case capital was provided by the Union of India under a statutory obligation which had no provision of repayment. Further in the event of the liquidation of Pepsu Road transport Corporation after meeting the liabilities if any, the assets were to be divided among Central Government and the State Government and such other parties, if any as may have subscribed to the capital in proportion to the contribution made by each of them to the total capital. However in the instant case there was no statutory obligation on the investors to subscribe to IPDS and further the claim of the investor of the IPD bonds is superior to that of equity investor and subordinate to other creditors. Further, it was submitted that interest paid on IPD cannot be equated with the dividend as dividend is not mandatory to be paid each year and it has to be paid if there is profit during the any financial year and on approval of the proposal of the Board of Directors by the shareholders in the annual general meeting. Whereas in the case of the IPD, it is mandatory to pay interest irrespective of the availability of the profit and no approval of the Board of Directors or shareholders was required. In view of the above discussion, we concur with the contention of the assessee that ratio in the case of Pepsu Road transport Corporation Ltd (supra) cannot be applied or the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perpetual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under:

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr. CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 to 160 of the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 stating that it has issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities is payable @ 11.40% per annum. The assessee has also specifically explained in line with accounting standard, the aforesaid interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of Rs.142.03 crores for FY 2010-11. But the same was charged to Rs.113.61 crores after netting off taxes [142.03-28.42]. The amount of tax impact of Rs.28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs. 18.63 crores on issue of 10.75% debenture of Rs. 1500 crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also supplied to the Assessing Officer detailed offer document issued for unsecured perpetual debentures of Rs.1500 crores during the course of assessment proceedings. In the offer document the

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd terms and conditions of issuing perpetual debentures, basis of allotment, creation of debenture redemption reserves along with object of the issue were clearly mentioned. As per the copy of object of the issue placed at page 67 of the paper book, it is mentioned that utilization of funds to be raised through this private placement will be for general business purpose and at page no. 62 issue size was mentioned of 15000 debentures of face value of Rs. 10 lac each aggregating to Rs.1500 crores. It is demonstrated from the detailed submission and copies. of documents placed in the paper book that assessing officer has made detailed inquiry/verification during the course of assessment proceedings that assessee has borrowed funds for business use by issue of debentures. The borrowed fund were payable on call option exercising by company after the 10th year or any at the end of every year thereafter. It was also explained that the lenders were not entitled to share any surplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non-convertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd consider that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee. 16.3 Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Ld. A.O. to delete the disallowance of interest amounting to Rs. 18,00,00,000/-, which was made u/s 36(1)(iii) of the Act. The ground No. 4 of the appeal of the assessee is accordingly allowed.”

“10. Heard both the sides and perused the material on record. The A.O has disallowed the claim of interest made u/s 36(1)(iii) by treating the perpetual bond as equity in nature. In support of his finding the A.O has placed reliance on the observation of the Pr. CIT made in the order u/s 263 in the case of the assessee for A.Y. 2013-14. These observations are as under: (i) Perpetual bond with no maturity date; (ii) right to redeem that assessee not with the Investors; (iii) showing in the balance sheet as debt or borrowings. However, it is observed that A.O has failed to controvert the undisputed fact that assessee has issued innovative perpetual debt instruments (IPDI) which carry a fixed rate of interest. The holder of these instruments had no right in management of the assessee bank. The assessee had paid interest to the bond holder after deducting tax at source. We have also perused the schedule 4 of the balance sheet placed in the paper book wherein at serial no. (vi) Innovative Perpetual Debt Instruments was placed under the head borrowings. The interest payment on these debt instruments was paid before computing profit of the assessee bank. We have also perused the detail of the

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd redemption of perpetual debt instrument made by the assessee placed in the paper book reproduced as under: Interest for Sr. Allotment Date of Principle Series the period FY. No, date redemption amount 2009-10 1. DAG06RRB 09.08.2006 09.08.2016 Rs. 233, 00,00,000 23,53,30,000 DSP06RRB 13.09.2006 13.09.2016 RS. 550,00,00,000 54,89,00,000 2. 3. DJA07RB1 15.01.2007 30.04.2017 Rs. 18,00,00,000 1,79,63,998 4. DJA08RB1 10.01.2008 30.04.2018 Rs. 500,00,00,000 50,75,00,000 5. BHSTN7.25% 24.06.2006 31.10.2016 USD 34,00,00,000 1,16,68,81,013 2,47,65,45,011 It is further noticed that the assessee had demonstrated from the submission that these debt instruments were also redeemed. We also find that facts of the case of Pepsu Road Transport Corporation Vs. CIT 130 ITR 18 (P & H) relied upon by the ld. D.R. are distinguishable from the case of the assessee. In that case the capital was not borrowed but the same was provided by the Government as per the provisions of the Road Transport Corporation Act, 1950 whereas in the case of the assessee bank it had borrowed the money from the lenders. Similarly the fact of the case of Bank of India Vs. ACIT vide 122 taxman.com 247 (Mum ITAT) are also distinguishable from the case of the assessee. In that case the revenue had not discussed about the terms on which perpetual bond were issued. Therefore, the issue was remained back to the ld. CIT(A) for fresh adjudication. We have also perused the decision of Kerala Road Transport Corporation Vs. ITO 34 TTJ 101 Cochin, ITAT, wherein held that payment of interest was not made to the corporation but it was the payment made to the third parties. In the light of the above facts and circumstances merely that RBI recognizes to treat the said debt instruments as additional Tier/Capital would not change the nature of Innovative Perpetual Debt Instruments which were of the nature of long term borrowings and the interest paid was debited to the profit and loss account. These debt instruments were also redeemed on different dates as discussed supra in this order, therefore, we don't find any reason to interfere in the decision of Id. CIT(A), accordingly, this ground of appeal of the revenue is dismissed.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd 22. Respectfully following the above decisions, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute under consideration, accordingly, ground raised by the revenue is dismissed.

ITA.NO. 2919/MUM/2022 (A.Y. 2017-18) - (ASSESSEE APPEAL)

“1. On the facts and in the circumstances of the case and in law, the ld.CIT(A), NFAC has erred in not granting opportunity to the Appellant Bank to present the case through video conferencing as specified under faceless appeal scheme, 2020 provided u/s. 250(6B) of the Income Tax Act, 1961 ("the Act"). 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) NFAC erred in not granting relief on the disallowance made by AO in respect of the estimated amounts included u/s 43B in the provision made for wage arrears without giving any independent reasons. 3. On the facts and in the circumstances of the case and in law, the CIT(A) NFAC failed to appreciate that in accounts where there was uncertainty of recovery of amounts, the interest not recognized as income cannot be taxed. The CIT(A) NFAC erred in relying on rule 6EA without appreciating that the chargeability to tax will arise only when there is certainty of recovery. 3.1 Without prejudice to above, the ld. CIT(A) NFAC failed to appreciate that the claim of appellant that the amounts disallowed in the previous year based on rule 6EA should have been allowed in the current year as they satisfy all the conditions prescribed under the said rule. 4. On the facts and in the circumstances of the case and in law, the CIT(A) NFAC erred in confirming the disallowance u/s 40a(ia) of provision for expenses made during the end of the year

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd and reversed on the first day of the next year and on which tax was deducted at the time of payment. 5. On the facts and in the circumstances of the case and in law, the CIT (A) NFAC erred in confirming the order of AO on disallowance of provision made for expenses in computing book profits u/s 115JB by incorrectly treating the same as income-tax paid or payable or provision thereof. 6. On the facts and in the circumstances of the case and in law, the CIT (A) NFAC erred in confirming the order of AO on disallowance of tax on non-monetary perquisites in computing the book profits u/s 115JB by invoking the provisions of section 10(10CC) which has no application to book profits.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd of section 43B cannot be invoked. Even otherwise it is submitted that in respect of New Pension Scheme there is no due date prescribed and accordingly no disallowance u/s 43B is warranted. Copies of wage settlements are placed in Paper Book. Further, Ld. AR submitted that this issue was decided in favour of assessee by ITAT Mumbai Bench in the case of Adithya Birla Nuvo Ltd in ITA.No. 4220 and 4704/Mum/2015 dated 24.02.2020. Copy of the order is placed on record.

“28. Both sides heard. The Co-ordinate Bench of the Tribunal in assessee's own case in appeal by the Revenue in ITA No.3033/Mum/2012 for assessment year 2008-09(supra) has decided the issue in favour of the assessee by observing as under:- "7. Next ground is about disallowance of Rs.2.07 crores u/s.43B(f), being provision made for leave salary. The AR and the DR agreed that identical issue was stands decided in favour of the assessee by the Tribunal by earlier years orders. We find that the Tribunal had dealt

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd the issue as under, while deciding the appeal for the AY 2006-07(ITA/8427 & 8483/Mum/10 dt.17/09/2014): "4. Ground no.4 deals with disallowance of Rs. 1.73 crores, made u/s.43B(f) of the Act, being provision made for leave salary. We find that similar issue had arisen in the AY 2002-03, 2003-04, 2004- 05 and 2005- 06 also. While deciding the appeal for the last three AY.s., the Tribunal had dealt the issue as under: 4. Second common Ground is about disallowance of provisions made for the leave salary u/s.. 43f of the Act and the amount involved are Rs. 2.48 crores, 1.76 crores and 2.6 crores. During the course of hearing before us, Representatives of both the sides conceded that issue was decided by the Tribunal in the year 2002-03 (supra). 4.1.We find that Tribunal in its order has decided the issue as under: "15.7. We have carefully perused the orders of the lower authorities and the claim of the assessee vis-à-vis Sec.43B(f) A perusal of Sec. 43B(f) shows that the explanation to Sec. 43B referring to the amendment of the word any sum payable is applicable only for clause (a) of Sec.43B which means that it is not applicable for clause (f).Hon'ble Andhra Pradesh High Court in the case of Srikakollu Shubbarao & Co.173 ITR 708 has held that in order to apply the provisions of Sec. 43B not only should be the liability to pay the tax or duty be incurred in the accounting year but also should be statutorily payable in the accounting year. In our considered opinion, the provision for leave salary is not a statutory liability but only a contractual liability which is payable only if the employees resigns or retired from the services. We also find that the Hon'ble Calcutta High Court in the case of Excide Industries Ltd. (supra) has struck down Sec. 43B(f) being arbitrary, unconscionable and dehors the Apex Court decision in the case of Bharat Earth Movers 245 ITR 428. It is relevant to state that the Tribunal in the case of CIT Vs Universal Medicare in ITA No. 6191/M/08, has followed the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers and directed the AO to allow the amounts so claimed. Respectfully following the afore discussed decisions, we direct the AO to allow the claim of provisions for leave salary. Ground No. 6 is

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd accordingly allowed." Respectfully following the above,grounds no.4,2 and 2 for the AY.s.under appeal are decided in favour of the assessee-company. In view of the above,ground no.4 is decided in favour of the assessee." Respectfully, following the above decision, Ground no.3 is decided in favour of the assessee." . 29. Thereafter this issue had again come up in assessment year 2009-10.The Tribunal restored this issue back to the file of Assessing Officer with following observations:- "4. We have heard rival submissions. Both the parties fairly agreed that this issue is covered by the order of this Tribunal in assessee's own case in ITA No.3033/Mum/2012 dated 09/12/2015 for A.Y.2008-09. But we find that though the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of Section 43B Clause (f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon'ble Supreme Court which initially in Special Leave to appeal (Civil) CC12060/2008 dated 08/09/2008 had held as under:- "The petition was called on for hearing today. Upon hearing the Counsel, the Court made following order. Issue Notice In the meantime, there shall be stay of the impugned judgment, until further orders." 4.1. Later, the Hon'ble Supreme Court in Special Leave to Appeal (Civil) No.(s) CC22889/2008 dated 08/05/2009 had held as under:- "The petition was called on for hearing today. Upon hearing the Counsel, the Court made following order. Delay condoned Leave granted. Upon hearing the final disposal of the Civil Appeal, the department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as on date is concerned, it would be open to the department to recover that amount in case civil appeal of the department is allowed. We further make it clear that the assessee would during the pendency of this civil appeal pay tax as if Section 43B(f) is on the statute

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd book but at the same time it would be entitled to make a claim in its returns 4.2 Hence, from the aforesaid Hon'ble Supreme Court judgment, it can be inferred that the Hon'ble Supreme Court in the subsequent order had not stayed the judgement of Hon'ble Calcutta High Court. We find that the Hon'ble Supreme Court had passed an interim order giving the aforesaid observations. Hence, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the Id. AO to pass orders based on the outcome of the main appeal on merits by the Hon'ble Supreme Court as stated supra. Accordingly, the ground No.3 of original grounds of appeal raised by the assessee is allowed for statistical purposes." 30. We observed that that the Co-ordinate Bench of the Tribunal while deciding the appeal of the assessee for assessment year 2008-09 decided the issue on merits in turn by placing reliance on Tribunal order for A.Y. 2008-09. The Tribunal allowed relief to the assessee by following the decision of the Hon'ble Apex Court in the case of Bharat Earth Movers vs. CIT reported as 245 ITR 428(SC). Dehors the issue of constitutional validity of clause(f) to section 43B of the Act, the Co-ordinate Bench after considering the issue on merits has deleted the addition. Taking into consideration, entirety of facts we respectfully follow the decision of Tribunal in assessee's own case for assessment year 2008-09 and confirm the findings of CIT(A) in deleting the disallowance. Consequently, ground No.4 of the appeal by the Revenue is dismissed.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd performing assets for a period between 90 to 180 days which was confirmed by Ld.CIT(A). Further, Ld. AR submitted that since the recovery of principal itself was doubtful in such case interest cannot be charged to tax. In support of the above contentions, Ld. AR of the assessee relied on following case law: -

(i) State Bank of India (ITA 3644 and 4563/Mum/2016) (ii) ICICI Bank Ltd (ITA 3215, 3864/Mum/2019) (iii) State Bank of India (Successor to State Bank of Bikaner and Jaipur (ITA 3033,2873/Mum/2019) (iv) ITAT kolkata in case of Royal Bank of Scotland (ITA Nos. 36 & 1885/Kol/2017) (v) ITAT Chennai in case of The Karur Vysya Bank Ltd (ITA Nos.2433 & 2649/Mds/2016) (vi) ITAT Pune in case of Bank of Maharashtra (ITA No.634/PUN/2017 and others.) (vii) Reliance is also placed on the decision of Supreme Court in the case of CIT v Vashist CHAY Vyapar Limited 410 ITR 244 (viii) Deogiri Nagari Sahakari Bank Limited 379 ITR 24.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd than 180 days if they continued as NPA or have been credited and offered to tax in case they are realized, the amount disallowed in A.Y.2016-17 should have been allowed by Assessing Officer assessment year as all these accounts satisfy the conditions prescribed under Rule 6EA even as per Assessing Officer.

“6. Heard both the sides and perused the material on record. The asesssee has recognized the amount of interest attributable on sticky advances as NPA for a period of 90 days or more as per the guidelines issued by the RBI in accordance with Sec. 43D of the Act. However, the A.O was of the view that as per Rule 6E, interest is not to be offered for taxation with respect to advances which become Non Performing Assets for a period of 180 days or more. With the assistance of ld. representative we have perused the decision of ITAT, Mumbai in the case of Union Bank of India VS. ACIT, 16 taxman.com 304 wherein on identical issue and similar facts held that bank had no option but follow the RBI guidelines to make a provision for unrealized interest on the NPA by debiting profit and loss account. In the case of DCIT Vs. Karur Vysya Bank ITA No. 2433 & 2467 of ITAT Chennai dated 29.03.2017 held that it becomes necessary to read down such rules so that it is in

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd consonance with the RBI regulation or prudential norms for recognizing income. In Royal Bank of Scotland Vs. DCIT vide ITA No. 477/Kal/2015 ITAT Kolkata held as under: “2.6 We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute before the lower authorities that the loan accounts had become sticky and doubtful of recovery. The only contention of the revenue is that section 43D of the Act read with Rule 6BA of the Rules permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three months but less than six months as on 31.3.2010. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon'ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards 'Provision for NPA. We find that the same decision clearly stated that the interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI prudential norms for income recognition. This fine distinction has been duly considered in the decision of the Hon'ble Delhi High Court in the case of CIT vs Vasisth Chay Vyapar Ltd supra. When the account becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of Hon'ble Delhi High Court in 330 ITR 440 and various other decisions refered to supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only.” We have also perused the provision of Sect. 43D of the Act which are reproduced as under: “43D. Notwithstanding anything to the contrary contained in any other pro vision of this Act,-

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd (a) in the case of a public financial institution or a scheduled bank or "[a cooperative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank or] a State financial corporation or a State industrial investment corporation "[or a deposit taking non- banking financial company or a systemically important non-deposit taking non-banking financial company] the income by way of interest" in relation to such categories of bad or doubtful debts as may be prescribed" having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, (b) in the case of a public company, the income by way of interest" in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or "[a co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or] the State financial corporation or the State industrial investment corporation or "[a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company or] the public company to its profit and loss account for that year or as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier.” It is categorically provided in the provisions of section 43D that income by way of interest in relation to bad and doubtful debts to be prescribed in accordance with guidelines issued by the RBI. The section 43D was introduced by the Finance Act, 1991 as per the section the category of bad and doubtful debts to be prescribed in the Income Tax Rules having regard to the guidelines issued by the RBI in relation to such debts. In 1992 the Rules 6E was framed and as per RBI guidelines the norms for categorization of advances as NPA were those advances which remained over due for more than 6 months. The RBI has revised the guideline from time to time and made changes in the period of overdue of advances for categorization of NPA. During the year under consideration the RBI has reduced the period to 90 days for categorization of interest on sticky loan as NPA, however, similar changes was not made to Rule 6EA. After considering the provisions of Sec. 43D and judicial findings as supra we consider that norms for categorization of bad

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd and doubtful debts had to be prescribed considering the guidelines issued by the RBI. Therefore, the ld. CIT(A) is not justified in substituting the limit for recognizing of interest on account of NPA to 180 days from 90 days in view of the clear provisions of Sec. 43D(a) that in the case of public financial institutions or schedule bank or a state financial corporation or a State Industrial Investment Corporation, the income by way of interest in relation to such categories of bad and doubtful debt as may be prescribed having regard to the guidelines issued by the RBI in relation to such debts. Therefore, both the ground of appeals of the assessee are allowed.”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd 37. On the other hand, Ld. DR relied on the order of the lower authorities.

“29. We have heard the rival submissions and perused the relevant materials on record. In the instant case, the assessee vide reply dated 29.11.2017 has stated before the AO that as per Tax Audit report for AY 2015-16, on the year end provision for expenses of Rs.99,33,30,984/- for which bills were not received and which are reversible in the subsequent years upon receipt of final bills, no tax at source was deducted. Further, relying on various orders of the Tribunals mentioned at para 4.1 of the assessment order, it was stated by the assessee that : "since the payee is not identifiable at the time of making of provision and further the entire provision has been written back in the next year and the actual amounts paid/credited were subjected to TDS as and when liability was crystallized or the payment were made.” At this moment we discuss here the judgment of the Hon’ble Gujarat High Court in PCIT v. Sanghi Infrastructure Ltd. (R/TAX Appeal no. 404 of 2018). During the Assessment Year (AY) 2009- 10, the taxpayer made provision for expenses under the head ‘repairs and maintenance’ amounting to Rs. 6 million on which tax was not deducted at source. The taxpayer also made provision for ‘operation and maintenance charges’ amounting to Rs.7 million on which tax was not deducted at source. The Assessing Officer observed that these expenditures were a contingent liability and the same is not allowed under Section 37(1) of the Act. Further, no tax was deducted at the time of credit of expenses and therefore, the said provisions were disallowed under Section 40(a)(ia) of the

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Act. The taxpayer claimed that these provisions were part of the block provision related to unascertained liabilities and tax on the same had been deducted in the following year on submission of bills. The CIT(A) deleted the additions and held that bills in respect of the provision for expenses were not received during the year. The bills were received by the taxpayer in the next financial year and, therefore, the expenses could not be claimed on an actual basis. Since the taxpayer had a fair idea about the quantum of the expenditure, which was pertaining to the current financial year as the bills were received before finalisation of the accounts, the taxpayer made a provision for those expenditures. Therefore, these provisions were made not on estimate basis but were made on the basis of actual estimation of the liability. The expenditure had already been incurred, but the exact quantification was not known before the end of the financial year. Therefore, it cannot be said that the provisions were in the nature of contingent liability. The contingent liability is dependent on a subsequent event, whereas in the present case, the expenditure had already been incurred. The CIT(A) observed that the taxpayer maintained the books of accounts on the mercantile basis and shown the income and expenditure on an accrual basis. Therefore, the provisions which were made on the basis of properly ascertaining the liability was to be allowed under Section 37(1) of the Act. Further, the taxpayer had only made the provisions in the account but had not credited the same in the accounts of concerned parties and, therefore, the provisions of Section 40(a)(ia) of the Act would not be applicable. The Tribunal upheld the order of the CIT(A). Aggrieved, the tax department filed an appeal before the High Court. The Hon’ble Gujarat High Court observed that the tax was not deducted on the aforesaid expenses since the same were a contingent liability and for which bills were not issued. Subsequently, as and when the final bills were received/issued, the tax was deducted. Accordingly, the High Court deleted the disallowance under Section 40(a)(ia) of the Act and upheld the orders of the Tribunal as well as the CIT(A). Thus following the above decision of the Hon’ble Gujarat High Court and order of the Tribunal in assessee’s own case for earlier year, we affirm the order of the Ld. CIT(A) and dismiss the 2nd ground of appeal. However, following the above order of the Hon’ble Gujarat High Court, we direct the AO to examine and verify that “Subsequently, as and when the final bills were received/issued, the tax was deducted”

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd own case for the A.Y. 2015-16, we allow the ground raised by the assessee.

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd 43. Considered the submissions and material placed on record, we observed that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y. 2015-16 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: -

“16 We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the Tribunal in Rashtriya Chemicals & Fertilizers Ltd. (supra). The Tribunal held that taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not ‘below the line’ items, since the same are expressly disallowed u/s 40(a)(v), the same do not constitute Income Tax for the assessee in terms of Explanation-2 to section 115JB ; therefore, without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s 115JB of the Act. Further, the Tribunal held that : “Computation of book profits under section 115JB has to be made in the manner as provided in Explanation-1 to section 115JB. The Minimum Alternate Tax [MAT] provisions as contained in section 115JB, as per well- settled law, are a complete code in itself and creates a deeming fiction which is to be construed strictly and therefore, whatever computations/adjustments are to be made, they are to be made strictly in accordance with the provisions provided in the code itself. The clause (a) of Explanation-1 envisages add-back of the amount of Income Tax paid or payable and the provision therefor while arriving at book profits. Further, in terms of Explanation-2 to section 115JB, the amount of Income Tax specifically includes the following components any tax on distributed profits under section 115-O or on distributed income under section 115R; any interest

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd charged under this Act; surcharge, if any, as levied by the Central Acts from time to time; Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.” 16.1 Facts being identical, following the above order of the Tribunal we set aside the order of the Ld. CIT(A) and delete the addition of Rs.12,16,10,651/- made by the AO of tax on non-monetary perquisites provided to the employees to the book profit u/s 115JB of the Act. Thus the 3rd ground of appeal is allowed”

Order pronounced in the open court on 11th May, 2023

Sd/- Sd/- (KULDIP SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 11/05/2023 Giridhar, Sr.PS

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ITA NO. 2937 & 2919/MUM/2022 (A.Y: 2017-18) M/s. IDBI Bank Ltd Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

//True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum

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