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Facts
The assessee claimed a deduction under Section 35D for expenses incurred in connection with a Qualified Institutional Placement (QIP). The Assessing Officer (AO) disallowed the claim as it was not made in the original return of income. The assessee also raised grounds related to ESOP expenses and broken period interest on securities.
Held
The Tribunal, following its own previous decisions and those of the High Court and Supreme Court, decided the issues related to ESOP expenses and broken period interest in favour of the assessee. For the QIP expenses deduction claim, the matter was remitted back to the AO for fresh examination.
Key Issues
Whether expenses incurred for QIP are deductible under Section 35D when not claimed in the return. Whether ESOP discount and broken period interest on securities are allowable as business expenditure.
Sections Cited
35D, 37(1), 43D, Rule 6EA
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Income Tax Appellate Tribunal, MUMBAI “E” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI SANDEEP SINGH KARHAIL
BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. A.Y. Appellant Respondent Kotak Mahindra Bank Limited, DCIT-2(3)(1), 27 BKC, G Block, 552, 4501/Mum/2025 2022-23 Bandra Kurla Complex, Aayakar Bhavan, Bandra (East), Maharshi Karve Road, Mumbai-400051. Mumbai-400020. [PAN: AAACK4409J] Kotak Mahindra Bank DCIT, Limited, 552, 5th Floor, C-27, G Block, 4829/Mum/2025 2022-23 Aayakar Bhavan, 27 BKC, M.K.Road, Bandra Kurla Complex, Mumbai-400020. Bandra (East), Mumbai-400051. [PAN: AAACK4409J] For Assessee : Shri Madhur Agrawal a/w. Shri Bhargav Parekh For Revenue : Shri Ritesh Misra, CIT-DR Date of Hearing : 24-11-2025 Date of Pronouncement : 26-11-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : These are cross-appeals filed by the assessee and Revenue against the order(s) of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 14-05-2025, pertaining to Assessment Year (AY) 2022-23, wherein the respective grounds of appeal read as under:
& 4829/Mum/2025 Grounds raised by the assessee: 1.The Commissioner of Income-Tax (Appeals)-National Faceless Appeal Centre ('NFAC), Delhi (hereinafter referred to as "the CIT(A)") erred in not granting deduction of Rs. 9,25,58,697/- expenses incurred in connection with the QIP on the ground that the claim u/s 35D has not been made by the Appellant in the ROI filed, the same cannot be allowed during the assessment proceedings.
2. The issue of shares to QIP does not tantamount to public subscription and such expenses are eligible for deduction under section 35D of the Act.
3. The CIT(A) failed to appreciate the fact and ought to have held that: a. During FY 20-21 [AY 21-22] the Appellant had has made QIP issue where It had raised Rs. 7,442.50 crore in which it placed its share capital with qualified institutional buyers (QIB). b. In connection with issue of shares to QIB, the appellant has incurred expenses in aggregate of Rs. 46.28cr on account of payments to lead managers of the issue and payments to legal consultants and auditors for the finalization of placement document for the purpose of QIP. c. QIB are a class of investors which forms a part of the larger investor community and the QIB falls in the category of offer made to the public and accordingly would be considered as public for the purpose of section 35D. d. Also, the shares issued to QIB is included in the category of "public shareholding" under Clause 40A of the Listing Agreement. e. The issue of shares made by the Appellant to QIB is "Public subscription of shares" and Appellant is eligible for deduction under Section 35D of Income Tax Act. f. Section 35D of the Income Tax Act allows deduction of 1/5th of the expenses incurred in connection with the issue for public subscription of shares in or debentures of the company. g. However, during assessment proceeding, the Appellant claimed 1/5th of those expenses amounting to Rs.9,25,58,697/- made through its written submission. h. An assessing officer when confronted with the valid claim, though not made in the return of income or the revised return of income, is required to consider the same on merits and not reject simply on the ground that the claim was made outside the return of income. i. The CBDT in its Circular No:14 (XL-35) dated April 11, 1955 clearly directed that the Department must not take advantage of ignorance of an assessee as to his rights and it is one of their duties to assist a taxpayer & 4829/Mum/2025 in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him.
4. The Appellant prays that the AO be directed to allow Rs. 9,25,58,697/- as a deduction u/s 35D of the Act.
5. The Appellant prays that Appellant is entitled to make a fresh claim for deduction or relief before the appellate authorities, during the course of the appellate proceedings, irrespective of the claim not being made by revising the return of income or before the assessing officer during the course of the assessment proceedings. The Appellant craves leave to add, amend, alter or delete any of the above grounds of appeal as may be advised in due course.”
Grounds raised by the Revenue: “1.Whether on the facts and circumstances of the case and in law, Ld.CIT(A) has failed to appreciate that ESOP discount represents notional OR contingent expenditure linked to share capital transactions and does not qualify as an allowable business expenditure under section 37(1) of the Act? 2.Whether on the facts and circumstances of the case and in law, Ld.CIT(A) erred in concluding that the addition was contrary to the real income theory, without appreciating that Rule 6EA mandates recognition of accrued interest on specified NPAs, even in the absence of actual receipt, for computing income under the Act? 3.Whether on the facts and circumstances of the case and in law, Ld.CIT(A) failed to appreciate that the securities under the HTM category are capital assets and not stock-in-trade, and therefore, the broken period interest paid at the time of purchase of such securities forms part of the capital cost of acquisition and is not allowable as a revenue expenditure?
4. The appellant craves the leave to add, amend, alter and/or delete any of the grounds of appeal as above.”
2. The relevant findings of the Ld.CIT(A) which are under challenge reads as under: “6.4 In ground No.2 relates to disallowance of ESOP amounting to Rs.74,43,23,147/-. During the appellate proceedings, the appellant has submitted that this issue has been decided in favour of the appellant from A.Y. 2012-13 to 201-21 by the CIT(A) and for A.Y. 2012-13 to 2014-15 by the & 4829/Mum/2025 Jurisdiction Mumbai ITAT. In the preceding A.Y. 2021-22, the CIT(A) has held as under: 8. Ground No.2 is relating to disallowance of ESOP claim of Rs. 134,78,02,336/-. The AO has disallowed the claim of the expenditure made by the appellant on account of Employee Stock Option Plan (ESOP). During the appellate proceedings, the AR of the appellant submitted that the CIT(A) in the appellant's own case for AY. 2012-13 to 2018-19 on identical facts has allowed the appellant's appeal on ESOP and the orders of CIT(A) were confirmed by an Hon'ble ITAT, Mumbai. I have gone through the order of the Hon'ble ITAT in to 3269/MUM/2019 dated 16.02.2023 and it is found that Hon'ble ITAT have upheld the relief given by CIT(A) following their own orders for the AY 2009-10 to 2012-13 (ITA No.698/MUM/2016 dated 20.12.2017 & dated 28.02.2018). As the issue in question is on identical facts and has already been decided in favour of the appellant by Hon'ble ITAT, the addition made by the AO of Rs. 134,78,02,336/- stands deleted. Ground No.2 is allowed 6.4.1 Respectfully following the decision of Hon'ble Jurisdictional ITAT in appellant's own case for A.Y. 2012-13 to 2014-15 and also the CIT(A) for A.Y. 2012-13 to 2021-22, the disallowance of Rs.74,43,23,147/- on account of Employee Stock Option Plan (ESOP) made by the AO is deleted. The ground No.2 is allowed. 6.5 In ground No.3 relates to addition of interest income, u/s 43D r.w.Rule 6EA of Rs. 16,76,38,790/-. During the appellate proceedings, the appellant has submitted that this issue has been decided in favour of the appellant from A.Υ. 2012-13 to 201-21 by the CIT(A) and for A.Y. 2012-13 to 2014-15 by the Jurisdiction Mumbai ITAT. In the preceding A.Y. 2021-22, the CIT(A) has held as under: 9. Ground No.3 is relating to disallowance u/s.43D of the Act r.w.r 6EA of the IT Rule of Rs.53,15,30,629/-. According to the AO, the appellant could not submit exact details of interest accrued as per Rule 6EA of the IT Rules and only produced details of interest income on NPA account of 0 to 180 days as per RBI guidelines which was Rs. 106,30,61,258/-. Accordingly, the AO disallowed 50% of such interest calculated by the appellant. 9.1 During the assessment year 2019-20, CIT(A) in appellant's own case in appeal dated 30.08.2023 no NFAC/2018-19/10184563 [ITBA/NFAC/S/250/2023-24/1055594672(1)) has allowed appellant's appeal following the order of the CIT(A) for AY 2017-18 & 2018-19 and the order of the Hon'ble ITAT for AY 2013-14 & 2014-15 in appellant's own case. 9.2 Accordingly, the AO is directed to allow the interest income u/s.43D of the Act r.w.r 6EA of the IT Rule of Rs.53,15,30, 629/- Ground No.3 is allowed. 6.5.1 Respectfully following the decision of Hon'ble Jurisdictional ITAT in appellant's own case for A.Y. 2012-13 to 2014-15 and also the CIT(A) for A.Y. 2012-13 to 2021-22, the addition of Rs. 16,76,38,790/- on account of interest income made by the AO is deleted. The ground No.3 is allowed.
& 4829/Mum/2025 6.6 In ground No.4 relates to disallowance of Broken period Interest of Rs.8,73,25,611/-in respect of HTM securities. During the appellate proceedings, the appellant has submitted that this issue has been decided in favour of the appellant from A.Y. 2012-13 to 201-21 by the CIT(A) and for A.Y. 2013-14 to 2015-16 by the Jurisdiction Mumbai ITAT in ITA Nos. 3267/3268/369/Mumbai/2019. In the preceding A.Y. 2021-22, the CIT(A) has held as under: 10. Ground No.4 is relating to the disallowance of broken period interest of Rs. 1,98,86,474/-, According to the AO, the interest on broken period paid on acquisition of Government and other securities should be forming part of cost of acquisition of the securities. The AO's contention is that the investments held by the appellant are capital assets of the bank and not trading assets and hence, the broken period interest should be the part of the cost of acquisition of the securities. 10.1 During appellate proceedings, it was pleaded that the CIT(A) had allowed the said interest in the order for AY 2015-16, 2017-18 & 2018-19 in appellant's own case. It was further pleaded that Hon'ble ITAT had decided the said issue in favour of the appellant in the order for AY 2013-14 & 2014-15. The finding of the Hon'ble ITAT on the issue is reproduced below:-
“42. The relevant paragraph of the decision of the Tribunal is as under.- “14. We have considered the submissions of the parties and perused the other of lower authorities and the various case laws relied by the Ld.AR for the assessee. During the assessment the AO required the details of the broken period interest expenses. The assessee furnished such interest on broken period expenses of Rs. 88,41,69,624/. The AO disallowed the same holding that the securities are held till maturity which constitute the investment of the bank and cannot be considered as stock in trade. Before ld. CIT(A) the assessee contended that all the investments were made in accordance with RBI guidelines. The closing balance has been shown in the Balance Sheet. The interest income on Government securities and the profit/loss has been offered in the return of income for the current years. The assessee also relied on the CBDT Circular No. 18/2015 dated 02.11.2015. The Ld. CIT(A) accepted the contention of the assesee granted relied to the assessee by relying on the CBDT circular and on the decision of Hon'ble Supreme Court in CIT vs. CITI Bank NA in Civil Appeal No.1549 of 2006) and Bombay High Court in American Express International Banking Corporation vs. CIT (125) Taxman 488 Bom). We have noted that this issue is also covered in favour of the assessee, hence, we affirm the order of the Ld. CIT(A) and accordingly dismissed the ground of appeal raised by the revenue.
43. Following the decision of the co-ordinate bench as above, we do not find any infirmity in the order of the Ld. CIT(A). Therefore, the ground raised by the Revenue is dismissed."
10.2 As the issue in question is covered in favour of the appellant, the AO is directed to allow the interest on securities for broken period amounting to Rs. 1,98,86,474/-. Ground No.4 is allowed.
& 4829/Mum/2025 6.6.1 Respectfully following the decision of Hon'ble Jurisdictional ITAT in appellant's own case for A.Y. 2013-14 to 2015-16 and also the CIT(A) for A.Y. 2012-13 to 2021-22, the disallowance broken interest of Rs. 8,73,25,611/- in respect of HTM securities made by the AO is deleted. The ground No.4 is allowed. 6.7 In ground No.5 relates to non-granting of deduction of Rs.9,25,58,697/- amortization claimed u/s 35D on expenses incurred in connection with the QIP (Qualified Institutional Placement). The claim of deduction u/s 35D of the Act was not made in the return of income filed u/s 139 of the Act. However, the appellant made additional claim before the AO during the assessment proceedings. The AO did not admitted the additional claim u/s 35D of the Act on the ground that the appellant did not made any such claim in the return of income filed on 29.11.2022 or filed any revised return claiming the said deduction. The AO placed reliance on the judgement of Hon'ble Apex Court in the case of Goetze (India) Ltd. (TS-21-SC-2006-0). Accordingly, the AO disallowed the claimed made u/s 35D of the Act and made an addition of Rs.9,25,58,697/- to the total income. 6.7.1 During the appellate proceedings, the appellant has submitted that the issue of allowability of deduction u/s 350 on QIP made in 2014, the issue has already been held in favour of the company by CIT(A) of NFAC in AY 14-15 vide para 6 (page 23 of the order) vide DIN no. ITBA/NFAC/S/250/2023- 24/1055426420(1) dated 25/08/23. Copy of the order is enclosed in Page Nos. 187 to 216 of the Paper Book. On the same issue the CIT(A) has held that the deduction is not only allowable only in respect of expenditure incurred in connection with the issue of public subscription of shares or debentures of the company for expansion of business but also expenses incurred on QIBs are allowable u/s 35D. The decision of the CIT(A) as relied upon by the appellant appears to be not acceptable for the reason that from the order it is not clear whether the appellant made the claim u/s 35D of the Act in the return of income filed u/s 139(1) or in the revised return of income or before the AO during the assessment proceedings. In the preceding A.Y. 2021-22, the CIT(A) had decided the issue against the appellant by denying the claim made u/s 35D of the Act, holding as under.
Ground No.5 is relating to the non-grant of deduction of amortization claimed u/s.35D of the Act on expenses incurred in connection with the Qualified Institutional Placement (QIP) amounting to Rs.9,25,58,697/- being 1/5th of the total expenditure incurred. This expenditure was not claimed by the appellant in the return of income and made a claim of it before the AO during the assessment proceedings. It was pleaded before the AO that the appellant on 31.05.2020 had concluded a QIP of 6,50,00,000 equity shares at price of Rs.1,155 per share aggregating to Rs.7,442.50 crore. The share capital of the appellant was increased by Rs.32.5 crore and share premium was increased by Rs.7,410 crore. In the said process there was share issue expenses of Rs. 46.28 crores which was reduced from the share premium account. But such expenditure was claimed to be eligible for deduction u/s.35D of the Act. Due to Covid pandemic, this claim was inadvertently not made while filing the original retum on 11.03.2022 and as it is beneficial deduction, it was claimed that the same was being claimed as additional claim during the assessment proceedings. The AO did not accept the contention of the appellant as the appellant failed to make the claim of the said deduction in the original retum nor appellant filed any revised return making the said claim. Accordingly, the AO disallowed the said claim. 11.1 During appellate proceedings, the AR of the appellant relied upon circular no. No. 14(XL-35) of 1955, dated 11-4-1955 to emphasize that the appellate authority being the Officer of the Department should allow the claim of the deduction u/s 35D of the Act. The Circular in question is reproduced below for the sake of clarity:- “Claim for depreciation Department not to take benefit of assessee's ignorance Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessees on whom it is imposed by law, officers should- (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other, (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs." 11.2 This circular is relating to assisting the tax payer and make him aware about the Provisions of the Act and more relating to refunds and reliefs. The circular in question is more applicable for individual assessees who do have the help of the professions. The circular in question does not say that the claim not made in the retum/P&L A/c. also should be allowed if made before the appellate authority. The appellant is a commercial bank and they have decided to reduce this expenditure on QIP from the share premium received and accordingly, it is accounted as such in the books of accounts. No claim has been made for this expenditure in the P&L A/c. and accordingly, no claim is made in the return of income. Now this claim cannot be made either during assessment proceedings or appellate proceedings. The Jurisdictional High Court in the case of EBR Enterprises vs. Union of India 415 ITR 139 (Bom) held that if the claim is not made in the return of income for deduction, the same cannot be allowed in the proceedings u/s.264 of the Act. Even in the case of Goetz India Ltd. vs. CIT reported in 284 ITR 323 (SC), the Hon'ble Supreme Court held that the assessee can amend the return filed for making a claim of deduction only by filing revised return and cannot make such claim before the assessing authority. Further, the appellant is a commercial bank having the support of professionals for preparing and filing the retum. The retum in question is filed availing the extended time limit due to covid shows that not claiming this deduction has nothing to do with the problems related to covid. It is change of opinion of initially claiming against the share premium and subsequently making a claim in the assessment proceedings. The appellant has not made the claim in the return of income even of AY 2022-23 as well which clearly shows that it is & 4829/Mum/2025 change of opinion and appellant never intended to claim the said expenditure as revenue expenditure. 11.3 In view of the above Judicial pronouncements and the facts brought on record, I am of the opinion that the appellant cannot change its decision by Initially claiming the deduction of expenditure against share premium and subsequently making claim before the assessing authority, when there is no claim in the P&L A/c as well as in the return of income. Accordingly, the action of the AO in disallowing the claim made during assessment proceedings u/s.35D of the Act of Rs.925,58,697/- is sustained. Ground No. 5 is dismissed." 6.7.2 Respectfully following the decision of the CIT(A) for A.Y. 2021-22, the claim of deduction u/s 35D of the Act amounting of Rs. 9,25,58,697/- is sustained. The ground No.5 is dismissed.”
During the course of hearing, both the parties fairly submitted that the matter is squarely covered by the decisions of the Co-ordinate Bench of the Tribunal in assessee‟s own case for the earlier assessment years and in this regard, our reference was drawn to the findings of the Co-ordinate Bench of the Tribunal in & 4946/Mum/2024 (AYs. 2020-21 & 2021-22) and 5075/Mum/2024 & 5110/Mum/2024 (AYs. 2020-21 & 2021-22), dt. 11-06-2025, wherein the relevant findings read as under:
“7. The first grievance of the revenue is in respect of ESOP expenditure, which was allowed as deduction in computing the income by the CIT(A). 7.1 This issue was considered by the coordinate bench in and 4103//Mum/2023 for AY 2019-20. The relevant findings of the coordinate bench read as under: "25. It may be stated here that similar issue has come for adjudication in assessment and subsequent appeals in the case of assessee itself. Moreover, following the decision of Special Bench of Bangalore Tribunal in case of Biocon Ltd (ITA No. 368 to 371 &1206/Bang/2010), the respondent has claimed the deduction based on the principle laid down therein and the ld.CIT(A) has followed this decision. On the other hand, the Id.AO has stated that the Department has not accepted the decision of Special Bench in Biocon and appeal has been filed with Hon'ble Karnataka High Court which has been subsequently decided in favour of the assessee and claim of the Assessee made in accordance with the principles laid down in Biocon (supra) is not accepted.
It is further claimed that case of the assessee is identical to the case of Biocon, It is submitted before us that based on favourable decision in Respondent's own case by CIT(A) for AY 2013-14, 2014-15 & 2015-16 and the Hon'ble ITAT Mumbai in & 782/M/2018 dated 27.08.2019, the disallowance was deleted by CTT(A). Besides, the same is allowed in favour in respondent's own case by ITAT Mumbai in & others/Mum/2023,ITA No. 3267 to 3269/Mum/2019,ITANo. 781/782/mum/2018, ITA No. 2817/Mum/2016 and 168 ITD 529(Mum).
Rewarding employees through share-based benefit schemes has been an effective tool for the companies to not just recognise their contribution to the company but also retain them by imbibing a sense of belonging and ownership. One such scheme, popular among the companies for almost last two decades, has been to grant of Employee Stock Option Plans ("ESOPs"). In simple terms, an ESOP is an option and not an obligation, provided by a company to its employees, to purchase its shares at a future date at a pre-determined price, which is ordinarily less than the market price, on satisfaction of certain prescribed conditions. Recently, the Karnataka High Court affirmed the ruling of the special bench of the Bangalore Income Tax Appellate Tribunal in the caseof Biocon Ltd., wherein it was held that discount on issuance of ESOPS is an allowable business expenditure under Section 37(1) of the Act, 1961 for the employer.Commissioner of Income Tax v. Biocon Ltd., of 2013 (Karnataka HC); (2013) 35 taxmann.com 335 (Bangalore - ITAT) (SB). 27.1 In view of the foregoing, considering the fact that issue in hand is identical and recurring in nature and is also being consistently decided in favour of the assessee, respectfully following the decisions referred above, the disallowance made is accordingly deleted. 7.2 Respectfully following the findings of the coordinate bench (supra), we decline to interfere with the findings of the CIT(A). Ground No. 1 is dismissed.
The third grievance of the revenue relates to the deletion of the addition in respect of NPA. 9.1 An identical issue was considered by the coordinate bench in for AY 2019-20. The relevant findings read as under: “29. The assessee has pleaded that having regard to RBI Guidelines which are binding upon it, has treated accounts which are delinquent for more than 90 days as NPAs and has accordingly not offered interest thereon, relying upon the provisions of Section 43D of the Act. The AO, however, has adopted the criterion of 180 days mentioning Rule 6EA, to regard the accounts as delinquent and has taxed the interest for the differential period of 90 days (180 days as per the AO minus 90 days-as per the RBI Guidelines as discussed by him on page 41/ and last para of the order. 29.1 It is further stated that the Id.CIT(A) has followed decision of ITAT Mumbai in ICICI V ACIT (ITA No. 3215/M/19) dated 22.08.2022 and allowed the claim of the Assessee. Therefore, relying upon favourable decision of ITAT Mumbai in Respondent's oun case in & others/2023 vide order dated 08.08.2024 and ITA No. 3267 to 3260/M/2019 vide order dated 16.02.2023 and in the case of ICICI Bank (ITA No. 3215/Mum/2019), the interest on NPA shall be taxed based on RBI Guidelines as mentioned under section 43D of the Act. Reliance is placed on the decision of hon 'ble Supreme Court in the case of CIT us Vasistht Chay Vyapar Ltd 410 ITR 244 which confirmed the findings of hon ble Delhi High Court in this case that since as per prudential norms issued by RBI, ICD had become NPA on which no interest was received and possibility of recovery was almost nil, it could not be treated to have accrued to the assessee.
In view of the foregoing, considering the fact that issue in hand is recurring in nature and is being consistently decided in favour of the assessee, respectfully following the decision referred above, the disallowance made is accordingly deleted." 9.2 Respectfully following the findings of the coordinate bench, ground No. 3 is dismissed.
Ground No. 4 relates to the allowance of interest in relation to the broken period of securities held to maturity as revenue expenditure. 10.1. An identical issue was considered by the coordinate bench in for AY 2019-20. The relevant findings read as under: "32. Relying upon decision of CIT(A) for AY 2013-14, AY 2014-15 & AY 2015-16, in assessee's own case, it is contented by the Id.AR that the issue has been allowed in favour of the assessee by the Id.CIT(A). Before us, it is submitted relying upon favourable decisions of ITAT Mumbai in Respondent's own case in & others/M/2023 vide order dated 08.08.2024, to 3269/M/2019 vide order dated 16-02-2023 and ITA No. 781 &782/M/2018vide order dated 27-08-2019 that once the investments in Gout. Securities are stock-in- trade, the broken period interest paid on purchase of such securities are on revenue account and the same be allowed as deduction. Morover, as per recent decision of Hon'ble Supreme Court in the case of Bank of Rajasthan v CIT in CA No. 3291- 3294 of 2009-dated 16.10.2024, Broken Period Interest is allowed as deduction to Banks as all the securities including HTM securities are held by bank as stock in trade. It is further submitted that hon'ble Supreme Court has dismissed the SLP filed by the Department in the case of ICICI Bank Ltd SLP Diary no. 19414/2018 dated 19.10.2019 on a reference as to whether broken period interest on HTM Securities should be disallowed as revenue expenditure and should be capitalized to the cost of the securities.
We have carefully considered all the relevant facts of the case and the legal position emerging from various judicial decisions relating to the issue in hand.In a recent judgment of Bank of Rajasthan Ltd. v. Commissioner of Income Tax, 2024 SCC OnLine SC 2877, dated October 16, 2024, the Hon'ble Supreme Court of India has allowed banks to claim tax deductions for broken period interest on Held to Maturity (HTM) government securities, provided they are classified as stock-in-trade. The decision clarifies the tax treatment for banks regarding interest paid for the period between the last coupon date and the date of purchase of securities, resolving a long-standing issue between banks and tax authorities. The appellant, Bank of Rajasthan, was engaged in purchasing and selling government securities, particularly those held to meet statutory liquidity ratio (SLR) obligations under the Banking Regulation Act, 1949. The dispute arose over whether broken period interest, i.e., the interest accrued between the last coupon date and the date of purchase of government securities, could be deducted as a business expense when computing taxable income. The Commissioner of Income Tax disallowed the deduction for broken period interest, relying on the Supreme Court's ruling in Vijaya Bank Ltd. v. Additional Commissioner of Income Tax, Bangalore, 1991 Supp (2) SCC 147, dated September 19, & 4829/Mum/2025 1990, where broken period interest was classified as capital expenditure and hence not deductible as a business expense. 33.1 In view of the foregoing, considering the fact that issue here is identical, recurring in nature and is being consistently decided in favour of the assessee, respectfully following the decision referred above, the disallowance made is accordingly deleted." 10.2 Respectfully following the findings of the coordinate bench, ground No. 4 is also dismissed.
The first grievance of the assessee relates to the non-grant of the deduction of amortisation u/s 35D on expenses incurred in connection with the Qualified Institutional Placement (QIP) - Rs. 9,25,58,697/- 12.1 Briefly stated, the facts of the case are that during the year under consideration, the assessee has made QIP issue, where it had raised Rs. 7442.0 cr., in which it placed its share capital with qualified institutional buyers. In connection with the issue of shares to QIP, the assessee incurred expenses of Rs. 46.28 cr. on account of payments to lead managers of the issue and. payments to legal consultants and auditors for the finalisation of the placement document for the purpose of QIP. The assessee claimed 1/5th of the expenses incurred in connection with the issue for public subscription of shares in or debentures of the company u/s 35D of the Act. However, the claim of deduction was made during the assessment proceedings, but the AO did not entertain the claim of deduction, stating that the same should have been claimed by way of a revised return of income. The action of the AO was confirmed by the CIT(A). 12.2 After carefully perusing the order of authorities below, we are of the considered view that the AO should examine the claim of deduction afresh after affording a reasonable and adequate opportunity of being heard to the assessee. The assessee is directed to furnish complete details for its claim of deduction u/s 35D of the Act, and the AO is directed to examine the same and decide the issue as per the relevant provisions of the law. Ground No. 1 is allowed for statistical purposes.”
Heard both the parties and perused the material available on record. As far as matter relating to claim of deduction u/s 35D is concerned, being the second year of such claim, following the aforesaid decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case for the earlier assessment year, the matter is remitted to the file of the AO to examine the said claim afresh as per law after providing reasonable opportunity to the
As far as the appeal of the Revenue is concerned, admittedly, all the grounds of appeal are covered in favour of the assessee by earlier decisions of the Co-ordinate Benches. The Ld.DR has fairly submitted that the AO has made the addition in order to keep the matter alive as the Revenue has not accepted the earlier decisions of the Co-ordinate Benches and the matter is currently pending adjudication before the Hon‟ble Bombay High Court. In light of the same, following the above decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case for the earlier assessment year, we are of the considered opinion that there is no reason to interfere with the findings so given by the Ld.CIT(A) and the grounds so taken by the Revenue are hereby dismissed.
To sum-up, the appeal of the assessee is allowed for statistical purposes and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 26-11-2025.