STATE BANK OF MYSORE,BANGALORE vs. JCIT, BANGALORE

AI-generated summary — verify with the full judgment below

3 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore e) The learned CIT(A) has erroneously held that the Appellant can be deemed to have claimed deduction of the bad debts write off under the Act, to the extent of the bad debts written off and debited to the provision for bad and doubtful debts created under section 36(1)(viia) of the Act. f) The learned CIT(A) ought to have appreciated that the deduction of provision for bad and doubtful debts under section 36(1)(viia) is distinct and independent of deduction under section 36(1)(vii) relating to allowance of actual bad debts written off. g) The learned CIT(A) ought to have observed that the Appellate orders passed for the AY 2002-03 to AY 2004-05 in Appellant's own case by the office of the learned CIT(A) have examined and analyzed in detail the provisions of section 41(1) and 41(4) and concluded that the recoveries of bad debts shall not be subject to tax under the Act. h) The learned CIT(A) has erred in stating that the orders passed by the office of the learned CIT(A) in the case of the Appellant Bank for AY 2002-03 to AY 2004- 05 are erroneous mistakes apparent from the record and that the same have been passed in confusion. i) The learned CIT(A) has erred in concluding that the facts originating from the AO's order in AY 2002-03 to AY 2004-05 were not identical to AY 2005-06. j) The learned CIT(A) has erred in not relying on the Appellant's own cases in AY 2002-03 to AY 2004-05, where the CIT(A) held that the recovery of bad debts in the case of the Appellant cannot be taxed either under Section 41(1) or Section 41(4) as the said bad debts were not claimed as a deduction under the Act. k) The learned CIT(A) has erred in holding that the Honorable ITAT has merely relied on its earlier order in the case of the Appellant Bank for AY 2005-06 while passing the orders for AY 2002-03 to AΥ 2004-05.

2. Disallowance due to re-computation of deduction under section 36(1)(viia) of the Act

4 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore a) The learned CIT(A) erred in confirming that the Appellant has not determined the deduction under section 36(1)(viia), in accordance with the provisions of the Act. b) The learned CIT(A) erred in restricting the 10% of Aggregate Average Advances of rural branches to Rs. 13,62,61,143/- as against the sum of Rs. 250,84,10,590/- claimed by the Appellant while computing under deduction under section 36(1)(viia) of the Act. c) The learned CIT(A) ought to have appreciated that the Aggregate Average Advances were computed by the Appellant as per the Rule 6ABA of the Income Tax Rules, 1962 ('IT Rules') and accordingly no excess deduction was claimed under section 36(1)(viia) of the Act. d) The learned CIT(A) erred in confirming the interpretation of Rule 6ABA of the IT Rules, as made by the learned AO that only the incremental advances made by each rural branch of the Appellant and outstanding at the end of each month, should be considered in order to compute the Aggregate Average Advances. e) The learned CIT(A) ought to have appreciated that there is no provision to consider only the advances made during the year for the purpose of section 36(1)(viia) and that the interpretation of the provisions made by the AO not warranted by law. f) The learned CIT(A) ought to have observed that the bad debts or doubtful debts could arise to Appellant, both from the fresh advances made during the current year and advances made in the past years. Hence, restricting the deduction under section 36(1)(viia) by computing the Aggregate Average Advances based on the fresh/incremental advances alone, would produce absurd results, which is not the intent of section 36(1)(viia) of the Act and Rule 6ABA of the IT Rules. g) The learned CIT(A) erroneously interpreted the provisions of the Rule 6ABA of the IT Rules and stated that if the outstanding balance of advances is to be reckoned for calculating Aggregate Average Advances, then the denominator should also include the months of the preceding year in which the advances were outstanding.

5 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore h) The learned CIT(A) has erred in interpreting the words 'advances made" used in Rule 6ABA as 'made during the year' without having observed the decisions in the following cases,

• City Union Bank, ITA No. 1485/Mds/2007;

• Indian Overseas Bank, and • The Madurai District Central Co-operative Bank Limited, i) The learned CIT(A) ought to have observed that the term 'place' as explained under the Act, for the purpose of identifying the branch of a bank as a rural branch with reference to its location, can be construed to include wards/town panchayats, provided the population of that locality as a unit does not exceed ten thousand.

3. Disallowance of excess depreciation on Automated Teller Machines ("ATM") and other Computer peripherals by reclassifying as plant and machinery a) The learned CIT (A) has erred reclassifying ATMs as plant and machinery and restricting the depreciation to 15% under the Act. b) The learned CIT (A) ought to have observed that ATM performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses giving debit or credit cash and thereafter dispenses the cash and gives a printed receipt. c) The learned CIT(A) ought to have observed that an ATM is a computerized device automated with the aid of computer, computer peripherals, software and other hardware devices that provides the clients of the Banks with access to financial transactions in a public space without the need for a cashier, human cleark or bank teller. d) The Learned CIT(A) ought to have observed that if one disconnects the ATM from the Appellant's Network, it can function like a computer/laptop by installing other application software such as Microsoft Word/PowerPoint/ Microsoft Excel etc., since it already has the basic operating system.

6 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore e) The learned CIT (A) ought to have observed that since the ATM machine performs the functions of a computer along with other functions (such as dispending of cash at the time of withdrawal, deposit of cash etc..) and such other functions are wholly dependent upon the functions of the computer and hence the ATM would qualify to be computer. f) The learned CIT (A) ought to have observed that if the traditional standalone ATMs could be considered as computers under the Act, even the present networked ATMs would also qualify as computers as the only difference between them is that the standalone ATM contains the customers' account details in its entirety, while present networked ATMs get connected to the bank's server through internet connection from remote locations in order to complete the processing of the transaction. g) The learned CIT(A) erred in not relying upon the principles laid down by the judicial precedents including the jurisdictional Tribunal's ruling wherein it has been held that ATM machines are 'computers and are entitled to depreciation at the rate of 60%. h) Notwithstanding and without prejudice to the above, the learned CIT(A) ought to have observed that similar to a printer or scanner an ATM cannot function unless connected to other computers/server over the network through internet connectivity and hence, it should be entitled to 60% depreciation in line with printers, scanner and other peripheral devices.

B. UPS a) The learned CIT(A) has erred in reclassifying UPS as plant and machinery eligible for depreciation at the rate of 15% instead of treating them as computers eligible for depreciation at 60%. b) The learned CIT(A) ought to have appreciated that the UPS machine is being used only for the purpose of ensuring uninterrupted power supply to computer systems by regulating the flow of power in order to avoid any kind of damage to the computers and hence to be treated as part of computer system.

7 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore c) The learned CIT(A) has erred in not relying on the principles laid down by the judicial precedents which have held that UPS is 'computer peripheral" and entitled to depreciation at the rate of 60%.

C. Disallowance of depreciation on account of non-furnishing of invoices/bills for purchase of fixed assets a) The learned CIT (A) ought to have appreciated that the Appellant has already furnished more than 60% of the total invoices/bills in support of the additions to fixed assets under the block "computers and computer software". b) The learned CIT(A) erred in upholding the order of the learned AO disallowing depreciation on balance of the additions to fixed assets under the block "computers and computer software" for which the Appellant could not furnish bills/invoices. c) The learned CIT (A) ought to have placed reliance on the additions to fixed assets as per the Tax audit report and the audited financials and allowed depreciation @ 60% on those additions, conducted by external independent parties. d) The learned CIT (A) ought to have observed that the invoices for entire additions to fixed assets have been duly verified and confirmed by the external auditors during the audit of the books of accounts of the Appellant (including its branches spared across the country). e) The learned CIT(A) ought to have taken the management representation into cognizance to the effect that entire additions to fixed assets are genuine and accordingly allowed depreciation on the balance additions for which invoices could not be furnished by the Appellant.

1) Notwithstanding and without prejudice to the above, the learned CIT(A) ought to have accepted the quantum of evidences furnished hitherto in support of additions to fixed assets, as representative sample for the entire additions made during the year under the block "computers and computer software" and allowed the depreciation thereon.

8 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 4. Disallowance of certain liabilities by treating as contingent liabilities - Rs.6,20,70,000 A. Provision for Leave Fare Concession ("LFC")/ Home Travel Concession ("HTC")- Rx3,62,00,000 a) The learned CIT(A) has erred in disallowing the provision for LFC/HTC amounting to Rs. 3,62,00,000. b) The learned CIT(A) ought to have observed that the provision of LFC/HTC was reliably ascertained/estimated based on actuarial valuation and in accordance with the Accounting Standard 15- "Accounting for Retirement Benefits in the financial statements" issued by Institute of Chartered Accountants of India, the compliance of which is mandatory for the Appellant. c) The learned CIT(A) ought to have observed the fact that the liability would be discharged at a future date would not change the nature of liability in to that of contingent or unascertained so long as such liability can be quantified or estimated with reasonable certainty. d) The learned CIT(A) ought to have appreciated that the actuarial valuation process after considering the various inputs would certainly enables the Appellant to estimate its liability in respect of LFC/HTC with a greater level of accuracy and certainty, and thus the said provision would partake the nature of ascertained liability under the Act. e) The learned CIT(A) has erred in holding that a reliable estimate of the expense could not be made in spite of the Appellant's written submission that a reliable estimate of the liability was made based on the actuarial valuation.

B. Provision for resettlement expenses - Rs. 50,00,000 a) The learned CIT(A) has erred in disallowing the provision for resettlement expenses amounting to Rs.50,00,000. b) The learned CIT(A) ought to have observed that the provision for resettlement expenses was reliably ascertained/estimated based on actuarial valuation and in accordance with the Accounting Standard 15-"Accounting for Retirement

9 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Benefits in the financial statements" issued by Institute of Chartered Accountants of India, the compliance of which is mandatory for the Appellant Bank. c) The learned CIT(A) ought to have observed the fact that the liability would be discharged at a future date would not change the nature of liability in to that of contingent or unascertained so long as such liability can be quantified or estimated with reasonable certainty. d) The learned CIT(A) ought to have appreciated that the actuarial valuation process after considering the various inputs would certainly enables the Appellant to estimate its liability in respect of resettlement expenses with a greater level of accuracy and certainty, and thus the said provision would partake the nature of ascertained liability under the Act. e) The learned CIT(A) has erred in holding that a reliable estimate of the expense could not be made in spite of the Appellant's written submission that a reliable estimate of the liability was made based on the actuarial valuation.

C. Provision for silver jubilee awards. - Rs. 35,00,000 a) The learned CIT(A) has erred in disallowing provision for silver jubilee awards amounting to Rs. 35,00,000 6) The learned CIT(A) ought to have observed that the provision for silver jubilee awards expenses was reliably ascertained/estimated based on actuarial valuation and in accordance with the Accounting Standard 15-"Accounting for Retirement Benefits in the financial statements" issued by Institute of Chartered Accountants of India, the compliance of which is mandatory for the Appellant Bank. c) The learned CIT(A) ought to have observed the fact that the liability would be discharged at a future date would not change the nature of liability in to that of contingent or unascertained so long as such liability can be quantified or estimated with reasonable certainty. d) The learned CIT(A) ought to have appreciated that the actuarial valuation process after considering the various inputs would certainly enables the Appellant Bank to estimate its liability in respect of silver jubilee awards expenses with a 10 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore greater level of accuracy and certainty, and thus the said provision would partake the nature of ascertained liability under the Act. e) The learned CIT(A) has erred in holding that a reliable estimate of the expense could not be made in spite of the Appellant's written submission that a reliable estimate of the liability was made based on the actuarial valuation.

Notwithstanding and without prejudice to the above, D. Error in totaling of the disallowance The learned CIT(A) has erred in considering the adjustment amount for the total disallowance for the above mentioned contingent liabilities as Rs.6,20,70,000 instead of Rs.4,47,00,000.

5. Disallowance of the deduction under section 36(1)(viii) of the Act- Rs. 55,14,65,399/- a) The learned CIT(A) erred in confirming the disallowance of deduction of Rs. 55,14,65,399/- as claimed by the Appellant under section 36(1) (viii) of the Act. b) The learned CIT(A) failed to appreciate that the Appellant had claimed deduction only in respect of loans having a term not less than five years in accordance with section 36(1)(viii) of the Act. c) The learned CIT(A) ought to have given sufficient time and opportunity to the Appellant to produce evidence to substantiate that deduction was claimed only in respect of loans having a term not less than five years in accordance with section 36(1)(viii) of the Act.

Notwithstanding and without prejudice to the above. d) The learned CIT(A) ought to have appreciated that the provisions of section 36(1)(viii) do not provide any specific method/manner of computation of cligible profits thereunder and that the method adopted by the Appellant is appropriate. e) The learned CIT(A) ought to have observed that once the Appellant is allowed to provide the data substantiating its claim, turnover (interest income) should be 11 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore allowed to be considered as the correct allocation key for the purpose of determining the deduction under section 36(1)(viii) of the Act.

1) The learned CIT(A) ought to have observed that the Appellant has been computing the 'profits from eligible business for the purpose of section 36(1)(viii) based on the turnover (interest income) of the Appellant, which has been accepted by the revenue authorities for all the preceding assessment years. g) The learned CIT(A) ought to have appreciated that the AO's objection regarding allowability of deduction under section 36(1)(viii) to be dependent on maintenance of separate books of account is not in accordance with law. h) The learned CIT(A) ought to have observed that the deduction under section 36(1)(viii) of the Act needs to be recomputed consequent to the increase in Total Income due to the additions made in course of the assessment under section 143(3) of the Act and upheld during the subsequent appellate proceedings.

6. Disallowance of provision for loss in present value terms under debts relief scheme Rs. 5,55,00,000/- a) The learned CIT(A) erred in confirming the disallowance of provision made for loss in present value terms in respect of the debts (under the debt relief scheme) under section 36(1)(viia) of the Act. b) The learned CIT(A) ought to have appreciated that the above mentioned provision for bad and doubtful debts (under debt relief scheme) has been made by the Bank in accordance with the norms provided by the Reserve Bank of India (RBI), compliance with which is mandatory for the Appellant. c) The learned CIT(A) erred in stating (by reproducing a para from the assessment order) that the Appellant has contended before the learned AO that it has been directed to make the provision for loss in present value terms in respect of amounts to be recovered both from government and the farmers. d) The learned CIT(A) ought to have appreciated that given sufficient time, the Appellant would have produced necessary evidences to show that said provision for loss in present value terms, has been made only in relation to the amounts receivable from the farmers under debt relief scheme, as directed by the RBI.

12 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore e) The learned CIT(A) ought to have appreciated that the above mentioned provision was made towards the loss in present value terms, suffered by the Appellant, on the loans/advances given to the farmers, in the regular course of banking business and thus forms part of its total provisioning requirement for bad and doubtful debts for the year.

1) The learned CIT(A) ought to have appreciated that, in terms of the regulations of the RBI, there is no distinction made between the regular provision made on the Non-performing advances/loans and the provision made for loss in present value terms under debt relief scheme. Accordingly. the banks were directed to utilize the existing provision for NPA towards the creation of provision, if any, for the loss in present value terms, under debt relief scheme. g) The learned CIT(A) ought to have appreciated that the provision made towards loss in present value terms represents a permanent loss to the Appellant on account of delayed receipt of cash flow from farmers, as the Appellant is not allowed to charge any interest on the same. h) The learned CIT(A) erred in correlating the loss in present value terms on receivables from the farmers with the aspects of certainty/uncertainty of receipt of debts from the farmer vis-à-vis government.

7. Disallowance of expenses under section 40(a)(ia) of the Act 8,10,18,335/- a) The learned CIT(A) erred in confirming the disallowance of advertisement expenses, audit fees and law charges, aggregating to Rs.8,10,18,355/- /s 40(a)(ia) of Act for non-deduction of taxes. b) The learned CIT(A) ought to have appreciated that the Appellant and all its branches have duly deducted taxes at source and remitted to the Government, except in a few instances as reported in the tax audit report. c) The learned CIT(A) ought to have placed reliance on the tax audit report of the Appellant, wherein certain defaults in deduction/remittance of taxes were reported and the same have been correctly disallowed by the Appellant, in its return of income.

13 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore d) Notwithstanding the above, the learned CIT(A) ought to have restricted the amount of disallowance to the extent expenses payable at the end of the Financial Year under section 40(a)(ia) of the Act in line with the principles laid down by the following judicial precedents (including that of jurisdictional Tribunal):

Merilyn Shipping and Transports v. Addi CIT [2012] 16 ITR (Trib) 1 ITAT, Viskhapatnam (Spl Bench):

• CIT vs. M/s Vector Shipping Services (P) Ltd of 2013 dated 9.7.2013 (All HC) (SLP dismissed by SC on 2nd July,2014); • Capital Pharma v. ITO (ITAT Bang) (ITA No. 34/2013); • DCIT v. Ananda Marakala (ITAT Bang) (ITA No. 1584/2012); • Arcadia Share and Stock Brokers ITA 1871/Mum/2013; • S.S. Networks vs. ITO (ITAT Hyd) (ITA No.478/2013),

8. Addition on account of unexplained expenditure under section 69C- Rs. 6,98,56,399 a) The learned CIT(A) ought to have observed that the aforementioned expenditure is related to business and is of revenue nature and accordingly. the same should have been allowed under section 37(1) of the Act.”

2.1 The revenue has raised the following grounds: - “1. The order of Ld. CIT(A) is opposed to law and facts of the case.

2. The Ld. CIT(A) erred in allowing the relief in respect of deduction U/s.36(1)(viia).

14 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Considering this fact, each component needs to be taken separately and disallowance under one cannot be set off against the other.

The Ld. CIT(A) erred in allowing the relief in respect contingent liability of provision for Janatha Deposit Collector Gratuity.

4. The Ld. CIT(A) erred in allowing the relief in respect of addition made U/s. 14A.

6. For these and such other grounds that may be urged at the time of hearing.”

ITA 660/Bang/2015 (Assessee’s Appeal)

Ground No.1: Addition on account of recoveries made out of bad debt written off – Rs.13,01,85,558/-

3. The Ld. AR argued and filed the paper book which is placed in record. In argument of ground no.1 the Ld. AR stated that the disallowance of provision for bad and doubtful debts due to re-computation of deduction under section 36(1)(vii) related to bad and doubtful debts. The Ld.AO, during the assessment proceedings, added back under section 41(1) or 41(4) related to realization of the said bad and doubtful debts. The assesse claimed that the said realization is duly adjusted with the provision for bad and doubtful debts. In the impugned assessment year, the addition was duly confirmed by the Ld.AO amount to Rs.13,01,85,558/-. In the appeal, the Ld.CIT(A) had confirmed the impugned assessment order and the assesse filed the appeal before us.

15 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore own case, A.Y. 2008-09, date of order 03/02/2020. The relevant part of the said order is reproduced as below: - “90. We noted from the above arguments of both the sides and case law cited by the parties, that the issue is squarely covered by a decision of the Bangalore Bench of the Tribunal in the case of State Bank of Mysore Vs. DCIT [2009] 33 SOT 7 (Bangalore), now merged with assessee. We noted that the Tribunal in the case of State Bank of Mysore (supra) narrated the facts and the facts in the present case are exactly the same as in the case of State Bank of Mysore. In the case of State Bank of Mysore (supra), the assessee had claimed deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act. Accordingly, the Bangalore Tribunal has held that section 41(4) of the Act cannot be invoked. Sections 41(1), 41(2), 41(3) and 41(4) of the Act operate in different spheres. Each of the sub-sections to section 41 of the Act deals with different and distinct circumstances. Each of the sub-sections deals with different and distinct topics and one cannot read recoupment under one sub-section into another. We have considered the decision relied on in this regard of Supreme Court in the case of Nectar Beverages (P.) Ltd. vs. DCIT [2009] 314 ITR 314 (SC) wherein the Supreme Court has dealt with the specific section 41(2) of the Act for taxing balancing charge versus taxing the same under section 41(1) of the Act and has concluded that section 41(1) of the Act shall not be applicable.

16 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 5. The Ld. Special Counsel [for brevity, the “Ld. DR”] argued and fully relied on the order of the revenue authorities.

Ground 2: Disallowance due to re-computation of deduction u/s 36(1)(viia) of the Act. – Rs.13,01,85,558/- Ground 2(a) to 2(h): Deduction U/s 36(1)(vii) on the balance outstanding in respect of rural advance.

17 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore “12. We find that one of the reasons recorded by the Division Bench of the Tribunal for referring the issue to the Special Bench was "No decision of any higher authorities was brought to our notice by either of the parties". However, now decisions of two Hon'ble High Courts have been brought to our notice, wherein similar issue has been considered in favour of the taxpayer.

"8. We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of Courts" which exists in our country, "it is necessary for lower tier", including the High Court, "to accept loyally the decisions of the higher tiers". "It is inevitable in a hierarchical system of Courts that there are decisions of the supreme appellate tribunal which do not attract the unamimous approval of all members of the Judiciary.... But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted" (See observations of Lord Hailsham and Lord Diplock in Broome vs. Cassell). The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical Judicial system."

18 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 14. As regards the submission of the learned Departmental Representative that no substantial question of law was admitted by the Hon'ble Calcutta High Court, we are of the considered view that non-admission of a substantial question of law under section 260A of the Act by the Hon'ble High Court not render the decision of Hon'ble Court to be non-binding and the doctrine of merger would still be applicable. In any case, we find that the Hon'ble Madras High Court in the aforesaid decision concurred with the legal proposition laid down by the Hon'ble Calcutta High Court after admitting the question of law as proposed by the Revenue in its appeal on this issue. Thus, we find no merits in this plea raised by the learned Departmental Representative.

Ground 2(i): Deduction U/s 36(1)(vii) computed by taking ward as basis for identifying a rural branch: 10. Further, the assesse claimed deduction under section 36(1)(viia) taking ward as basis for identifying a rural branch. The Ld.AR stated that the said issue is 19 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore decided against the assessee by the decision of Hon’ble Kerala High Court in case of CIT vs Lord Krishna Bank (2010) 195 Taxman 57 (Kerala).

Ground 3: Disallowance of excess depreciation on Automated Teller Machies [‘ATM’] and other computer peripherals by reclassifying as plant and machinery – Rs.9,74,43,086/-

13. With respect to the disallowance of excess depreciation on UPS by reclassifying it as ‘plant and machinery’, we find that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench of the ITAT, Bengaluru ‘C’ Bench in the assessee’s own case for AY 2017-18 in dated 27.05.2016. The Ld. AR further submitted that the issue is also directly covered by the judgment of the Hon’ble Jurisdictional High Court in the case of CIT-10 v. Saraswat Infotech Ltd., ITA(L) No. 1243 of 2012, dated 15.01.2013. The relevant extract from paragraph 5 of the said judgment is reproduced below: “5. In second appeal, the Tribunal by its order dated 14/3/2012 held that UPS is an integral part of the computer system and regulate the flow of the power to avoid any kind of damage to the computer network due to fluctuation in power supply which could lead to loss of valuable data. The Tribunal relied upon the decision of the Delhi High Court dated 20/1/2011 in the matter of CIT v. Orient Ceramics and Industries Ltd. in which UPS was held to be the part of the computer system and depreciation at 60% was allowed. Similarly, so far as ATMs are concerned, the Tribunal on finding of fact concluded that ATM cannot function without the help of computer and would be a part of the computer used in the banking industry. Reliance was placed by the Tribunal

21 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore upon the decision of the Delhi Bench of Tribunal in the matter of DCIT v. Global Trust Bank (ITA No.474/D/09) wherein it has been held that ATM was a computer equipment and depreciation @ 60% was allowed. So far as the use of software is concerned, the Tribunal records a fact that the evidence of the use of the software on 31/3/2008 was produced before the Tribunal. Thus, the Tribunal held that depreciation @ 30% on software was rightly claimed.”

15. After considering the rival submissions and material placed on record, we are of the considered view that the disallowances made by the Ld. AO in respect of excess depreciation on UPS and ATMs are not justified. Both issues are directly covered by the decisions of the Hon’ble Karnataka High Court in CIT v. NCR Corporation Pvt. Ltd. (supra) and the Hon’ble Jurisdictional High Court in Saraswat Infotech Ltd. (supra). Accordingly, following the said binding precedents, we hold that the assessee is entitled to claim depreciation at the higher rate as claimed in its return of income.

Ground 4: Disallowance of liabilities by treating it as contingent liability amount to Rs.6,20,70,000/- 18. The assessee claimed provision for Leave Fare Concession amount to Rs.3,62,00,000/-, provisions for re-settlement expenses amount to Rs.50,00,000/- and provision for silver jubilee awards amount to Rs.35,00,000/-. The Ld.AR submits that the provision is duly created towards an ascertained liability based on actuarial valuation and hence, the same ought to be allowed as deduction under section 37(1) of the Act. Since the same are not contingent in nature, the reliance is placed by the assesse in the assessee’s own case for A.Y. 2008-09 in date of order 03/02/2020. The relevant para is extracted below:- “32. Provision for Leave Travel and Home Travel Concession represents provision towards actual payments to be made by the assessee to its employees for the travel costs incurred by them such as rail fare, air fare, etc. on availment of the leave the employees are entitled to. It is not towards any encashment of leave at the credit of the employee so as to fall within the scope of section 43B(f) of the Act. Further, provision for casual leave and sick leave represents provision for the loss of services of the employees for the period of such leave which the employees of the assessee are entitled to, but not availed during the year. The above category of leave can only be availed by them and cannot be encashed. Therefore, these provisions are also not in lieu of any leave, but in respect of services of the employees utilised in respect of the leave not availed by the employees and which leave will be availed in future.

23 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore

33. With respect to ground of appeal No. 2.1, the arguments put forth for ground of appeal No. 1 shall apply mutatis mutandis since the AO has disallowed Rs. 471.13 crore arising on account of transitional provisions of AS-15 in respect of other employee benefits on the same basis as for provision for pension. The CIT(A) however, has upheld the aforesaid disallowance by holding that provisions of section 43B(f) of the Act applies.

24 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 19. With respect to the claim of ‘Leave Fare Concession’ amounting to Rs. 3,62,00,000/-, we find that the issue under consideration is identical to the one adjudicated by the Tribunal in the assessee’s own case for Assessment Year 2008- 09 in ITA No. 3644/Mum/2016. Accordingly, following the principle of judicial discipline, we direct the Ld. AO to allow the deduction as claimed by the assessee.

20. With regard to ‘Provision for resettlement expenses’ and ‘Provision for Silver Jubilee awards’ we find that this issue is also decided by the Tribunal assessee’s own case for A.Y. 2008-09 in in favour of the assesse. The co-ordinate bench of the Tribunal, while dismissing revenue’s ground has observed as below: - “121. We noted that this ground is similar to ground nos. 2.1 to 2.3 of the Assessee’s appeal. The Department has filed an appeal against the CIT(A)’s order wherein deduction has been allowed in respect of provision towards silver jubilee award, resettlement allowance and retirement award on the basis that the same are not covered under section 43B of the Act. Accordingly, the CIT(A) had allowed transition provision amounting to Rs. 61.39 crore and net provision of Rs. 3.90 crore (after considering write back of retirement award of Rs. 1.05 crore). Silver jubilee award is a benefit payable to the employees as per the employment guidelines on completion of 25 years of service with the assessee. Resettlement allowance is payable to the employees as per the employment terms in cases where the employees are posted from one jurisdiction to other. Retirement award is a benefit payable to the employees as per the employment guidelines on retirement. The provision towards these employee benefits is created on the basis of actuarial valuation and in accordance with the Accounting Standards.

25 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore basis. Therefore, the contentions raised by the Department Representative on the basis of quantification are not justified and cannot be accepted. These costs are part of employee cost and, hence, should be allowed as deduction as normal business expenditure. These costs are incurred based on the employee guidelines and have been quantified on a scientific basis as per actuarial valuation. As submitted in Assessee’s appeal ground 2.1 to 2.3, the said provision is an ascertained liability, determined based on reasonable certainty and hence, clearly allowable. Reliance in this regard is placed on the decision of the Supreme Court in the case of Bharat Earth Movers Vs. CIT [2000] 245 ITR 428 (SC), wherein it is held that the liability is not a contingent one if the liability has been incurred during the accounting year and an estimate with reasonable certainty can be made, even if the liability is to be discharged at a future date. We accordingly, dismiss this issue of revenue’s appeal.”

21. Consistent with the decision taken by the co-ordinate bench of the Tribunal as also respecting the judicial discipline, we allow the ground raised by the assesse. Ground 4 of the assessee is allowed.

Ground 5: Disallowance of deduction u/s 36(1)(viii) – Rs.55,14,65,399/- 22. The Ld.AR submitted that deduction under section 36(1)(viii) of the Act is allowed in respect of the profits derived from the eligible business computed under the head Profits and Gains from Business and Profession. During the year under consideration the assesse transferred R.60,42,30,000/- to Special Reserve. The assessee claimed a deduction of Rs.55,14,65,399/- under section 36(1)(viii) of the Act, being 20% of the profits derived from specified business. The Ld. AO disallowed the claim of the assesse on the following grounds:- i. The assessee has not maintained and submitted a separate set of books of account in respect of the eligible business.

26 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore ii. The manner in which the eligible profits is computed by the assesse (turnover as allocation key) is against the provisions of the Act.

28 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore adopted by the assessee. However, we find merit in the submission of the Ld. AR that the Act does not mandate the maintenance of separate books of account for claiming deduction under section 36(1)(viii), nor does it prescribe any specific methodology for computing eligible profits. The method adopted by the assessee is reasonable, has been consistently followed since AY 2008–09, and has been accepted by the department in preceding years. In the absence of any change in facts or law, the principle of consistency, as upheld by the Hon’ble Supreme Court in Radhasoami Satsang, supports the assessee’s claim. No contrary judicial precedent or material has been brought on record by the revenue to rebut the position taken by the assessee. In view of the above and respectfully following the binding judicial precedents cited by the Ld. AR, we are of the considered opinion that the assessee is entitled to claim deduction under section 36(1)(viii) of the Act as computed. Accordingly, the disallowance made by the Ld. AO is directed to be deleted.

Ground 6: Disallowance of provision for loss in present value terms under debts relief scheme - Rs.5,55,00,000/-

29 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore extended to the farmers. It is the case of the assessee that this provision represents a permanent diminution in the value of receivables due to the time value of money and delayed recovery and has been made in accordance with RBI’s prudential guidelines prescribed under Circular RPCD No. PLFS.BC.72/05.04.02/2007-08 dated 23.05.2008. The assessee has further submitted that this provision has been made only for those debts which are already classified as NPAs, and hence the provision in substance is for bad and doubtful debts. The Ld. AO has disallowed the claim on the ground that the provision for loss in present value does not qualify as a provision for bad and doubtful debts under section 36(1)(viia) of the Act. However, it is not disputed that the underlying loans are NPAs, and the Debt Relief Scheme merely alters the recoverable value of such loans. The method of provisioning based on present value loss has been mandated by the RBI, and such provisioning has a direct nexus with the impaired recovery of principal, which squarely falls within the ambit of "bad and doubtful debts". It is a settled legal position that where the provision is made in accordance with RBI directions and is in respect of debts that have already become NPAs, the same is eligible for deduction under section 36(1)(viia) of the Act. The fact that such provision is disclosed separately in the notes to accounts does not alter its character. There is no material brought on record by the revenue to demonstrate that the provision is not in the nature of provision for bad and doubtful debts. In view of the above, we are of the considered opinion that the disallowance made by the Ld. AO is not sustainable in law. Accordingly, we direct the Ld. AO to allow the deduction of Rs. 5,55,00,000/- under section 36(1)(viia) of the Act as claimed by the assessee.

In the result, Ground No. 6 of the assessee’s appeal is allowed.

30 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Ground 7: Disallowance of expenses under section 40(a)(ia) of the Act – Rs.8,10,18,335/-

31 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore for verification. Considering the huge volume of documents of assessee, State Bank of India the assessee placed in sample basis for perusal of the Ld. AO.

32 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore This action demonstrates the bona fide conduct and good faith of the assessee in complying with statutory requirements. We find merit in the submissions of the Ld. AR that once the assessee has duly disclosed and disallowed amounts identified as non-compliant under section 40(a)(ia), and produced representative evidence for the balance, no further disallowance is warranted in absence of specific contrary findings. The Ld. DR has not brought any contrary material or evidence to rebut the submissions of the assessee or to demonstrate that the representative samples submitted were not reliable or that the voluntary disallowance was inadequate. In view of the above, and considering the scale of operations and the substantial compliance demonstrated by the assessee, we are of the considered view that the disallowance made by the Ld. AO is unwarranted. Accordingly, the disallowance of Rs. 8,10,18,335/- under section 40(a)(ia) of the Act is directed to be deleted. In the result, Ground No. 7 of the assessee’s appeal is allowed.

Ground 8 : Addition on account of unexplained expenditure under section 69C – Rs.6,98,56,399/- 30. The Ld. AR argued that the assessee has debited a sum of Rs. 1,29,81,18,821/- towards ‘Other expenditure’ under the head ‘Operating Expenses’ (Schedule 16 of Profit & Loss A/c). This is further included another sub-schedule called as ‘Other Expenses’ of Rs. 58,23,15,962/- representing various miscellaneous expenses. However, the break-up of the amount of the said 'Other expenses inadvertently shown Rs. 65,21,72,361/- instead the correct amount of Rs. 58,23,15,962/- and the differential amount of Rs. 6,96,56,399/-was added back

33 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore expenditure u/s. 69C of the Act. It was submitted before the CIT(A) that an old copy of the sub-schedule Other Expenses was inadvertently furnished during the course of the assessment proceedings and the correct Other expenses were submitted refer Page No.333 – 334 of the paper book. The CIT(A) vide his Order dated 27/02/2015 accepted the claim of the assessee and allowed this issue subject to a direction to the Ld. AO to examine the nature of the expenses contained in the said list and to accept only those which are related to the assessee’s business.

: A.Y. 2010-11 (Revenue’s Appeal) Ground 1 : Deduction under section 36(1)(viia) 34. This ground is identical to ground 2 of assessee’s appeal in , which we have already deliberated upon and decided in favour of the assessee. The facts and circumstances are stated to be identical; therefore, the decision arrived at therein shall apply mutatis mutandis to ground 1 in this appeal also. Ground 1 of the revenue is dismissed. Ground 2 : Allowing provision for Janatha Deposit Collector Gratuity 35. The Ld.AR submitted that in accordance with the guidelines issued by the Reserve Bank of India, as well as the judgement of the Supreme Court, the Indian Bank's Association [IBA] had vide its letter dated 22 January 2014 directed all the 35 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Banks to create a provision for payment of gratuity benefits for individuals who worked as Janatha Deposit Collectors. As per the letter dated 22 January 2014 issued by the IBA, it was clarified that such payments shall not be covered under the Payment of Gratuity Act, 1972, which is relevant for payment of gratuity under an employer-employee relationship only. According to the assessee, since the provision is for an ascertained liability and has been created by the assessee under the mandate of the Supreme Court, the same is eligible for deduction u/s. 37(1) of the Act. He placed reliance on the following decisions:

• Bharat Earth Movers v/s. CIT reported in [2000] 245 ITR 428 (Supreme Court); • CIT v/s. Sony India Pvt. Ltd. reported in [2007] 160 taxman 397 (Delhi High Court); • CIT v/s. Kerala State Financial Enterprises Ltd. reported in [2009] 219 CTR 147 (Kerala High Court); • Lawkim Ltd. v/s. JCIT reported in [2004] 1 SOT 907 (Mumbai-Tribunal); • Persepolis Construction Co. Pvt. Ltd/v/s. ACIT reported in [2005] 99 TT) 92 (Mumbai Tribunal) 36. The Ld. DR argued and stands in favour of the orders of the revenue.

36 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Accordingly, the Ground 2 of revenue is dismissed.

Ground 3 : Relief in respect of addition under section 14A

37 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore • Union Bank of India v/s. DCIT [ITA Nos. 1804 to 1807/Mum/2018 and 2227 to 2230/Mum2018] Tribunal); (Mumbai- • Central Bank of India v/s. DCIT [ITA Nos. 3739 & 3673/Mum/2018]

15.4 In view of the above discussion, I find no error in the appellant’s method of computing disallowance u/s 14A at 2% and the same is directed to be restored. This ground, therefore, succeeds.”

38 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 41. We have heard the rival submissions and perused the material available on record. It is undisputed that during the impugned assessment year, the assessee earned a total exempt income of Rs.25,72,77,401/-, comprising Rs.1,49,50,000/- from interest on tax-free bonds and Rs.24,23,27,401/- from dividends on shares and mutual funds. The assessee, on a reasonable basis, suo motu disallowed 2% of such exempt income, amounting to Rs.51,45,548/-, under section 14A of the Act. The Ld. AO, however, disregarded the assessee’s method of disallowance and mechanically invoked Rule 8D of the Rules. He proceeded to compute the disallowance under Rule 8D(2)(i) and (iii) by applying 0.5% of average investments, resulting in a higher disallowance of Rs.1,80,57,481/-, which was added back to the total income. The Ld. AR has relied on various judicial precedents, including the coordinate bench decision in assessee’s own cae in dated 06/06/2023 for A.Y. 2010–11, wherein it was held that for the purpose of disallowance under section 14A: Investments held as stock-in-trade should be excluded from the computation under Rule 8D; and only those investments which have yielded exempt income during the year should be considered. Furthermore, the Ld. AR has drawn our attention to decisions such as PCIT v. Punjab and Sind Bank (Del HC), MUFG Bank Ltd. (Del ITAT), Union Bank of India (Mum ITAT), and Central Bank of India v. DCIT (Mum ITAT), which have consistently held, even post-Maxopp Investment Ltd. (supra), that disallowance under section 14A is not warranted in respect of investments held as stock-in-trade, particularly in the case of banks and financial institutions.

39 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore We further note that the Ld. CIT(A) has elaborately examined this issue and found that the Ld. AO had not identified any specific defect in the assessee’s accounts or established any proximate nexus between the disallowed expenditure and the exempt income. The Ld. CIT(A) rightly emphasized that even after insertion of sub- sections (2) and (3) to section 14A and the introduction of Rule 8D, the foundational requirement of section 14A(1) that there must be a proximate connection between the expenditure incurred and the earning of exempt income continues to prevail. In view of the above facts and judicial position, we do not find any infirmity in the reasoned findings of the Ld. CIT(A) in accepting the assessee’s method of disallowance at 2% of exempt income. Accordingly, the disallowance made by the Ld. AO under Rule 8D is unsustainable. In the result, the appeal of the Revenue Ground-3 is dismissed.

Ground 4 : Relief in respect of addition under section 69C of the Act. 42. This ground is identical to ground 8 of assessee’s appeal in , which we have already deliberated upon and decided in favour of the assessee. The facts and circumstances are stated to be identical; therefore, the decision arrived at therein shall apply mutatis mutandis to ground 4 in this appeal also. Accordingly, Ground-4 of revenue is dismissed. 43. Accordingly, the appeal of revenue is dismissed.

40 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 44. In the result, assessee’s appeal