ACIT 3(4), MUMBAI, MUMBAI vs. IDBI BANK LIMITED, MUMBAI

3. We have carefully perused the facts on record and have also gone into the cited decisions above and find that the issue n hand is squarely covered by the above decisions in favour of the assessee. Relevant para of the decision of hon’ble Supreme Court in the case of Bank of Rajasthan is extracted below for ready reference: “25. Now, we come to other appeals which are part of this group. In Civil Appeal @Special Leave Petition (C) Nos.1445 1446 of 2021, the assessing officer held that the respondent Bank was liable to pay the broken period of interest as part of the price paid for the securities. Hence, a deduction on the said amount was disallowed. The assessee could not succeed before the CIT (Appeals). Before the Appellate Tribunal, reliance was placed on the decision of this Court in the case of Vijaya Bank Ltd.. The Tribunal observed that the assessing officer had treated the interest income earned by the respondent Bank on securities as income from other sources. The Tribunal observed that the investments in securities are in stock in trade, and this fact has been 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. accepted in the past by the Income Tax department. It was held that the securities in the category of HTM were also held as stock in trade, and income/loss arising out of such securities, including HTM securities, has been treated as business income/loss. The Appellate Tribunal held that the interest for the broken period would be admissible as a deduction, and the High Court confirmed the same. We may note here that the Tribunal followed the decision of the Bombay High Court in the case of HDFC Bank Ltd. v. CIT11. We find no error in the view taken in this case.” 3.1 Respectfully following the above decision on identical facts and consistent with the precedent, we do not find any reason to take a contrary view of the matter and accordingly, the decision on the ld.CIT(A) in favour of the assessee is upheld dismissing the ground in all the above AYs 2013- 14/2018-19 and 2021-22.

4. Amortization of premium (Common ground in AYs 2013-14,2018-19 and 2021-22) ii) "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 in respect of securities in HTM category?"

5. According to the assessee, as per the directions of RBI had amortised the premium paid on purchase of securities over the remaining period to maturity. The AO had disallowed the sum of Rs. 181.80 crore on the ground that Income Tax Income cannot be computed based on RBI guidelines by placing reliance on the decision of Hon'ble Supreme Court in case of M/s. Southern Technologies Ltd. According to him as per the provisions of section 145, the said loss cannot be claimed. The ld.CITA) has allowed appeal of the assessee by placing reliance on his own predecessors orders as also the decisions of Hon’ble Income-tax Appellate Tribunal (ITAT) for earlier years wherein ITAT has upheld the order of the 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. CIT(A) wherein disallowance of amortization of premium in respect of securities in HTM category made by the AO was deleted.

6. In this regard, the assessee submitted that the above claim was made in accordance with the mandatory Income Computation and Disclosure Standards (ICDS) - VIII, Part B, dealing with securities held by scheduled banks, the Classification, Recognition and Measurement of Securities in accordance with the guidelines of RBI. Relevant extract of the same is as under: “3. Securities shall be classified, recognised and measured in accordance with the extant guidelines issued by the Reserve Bank of India in this regard and any claim for deduction in excess of the said guidelines shall not be taken into account. To this extent, the provisions of Income Computation and Disclosure Standard VI on the effect of changes in foreign exchange rates relating to forward exchange contracts shall not apply.” 6.1 The assessee submitted that it had strictly followed the guidelines issued by RBI in this regard. Further, when the securities are sold the cost is computed after reducing the amount of amortisation and hence the profit offered to tax at the time of sale is higher to that extent. Accordingly, the said amortisation has to be allowed as deduction. Further the treatment is also in accordance with CBDT instruction no. 17 dated 26.11.2008 which is binding on the department.This issue has been decided in favour of the assessee by Jurisdictional High Court of Bombay in the case of HDFC Bank (366 ITR 505). Further,this issue was specifically decided in favour of the assessee by the co-ordinate bench in and 2919/Mum/20222 and 5250/Mumb/2024 and also for AY 2017-18 in ITA 2937/MUM/2022 & 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. 2919/MUM/2022 dated May 11, 2023. The ld.CIT,DR vide has relied on the assessment order.

Innovative Perpetual Debt Instrument 8. Common ground in AYs 2013-14,2018-19 and 2021-22) iii)"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 incurred in respect of Innovative Perpetual Debt Instrument without appreciating the fact that interest paid on them does not fall under the purview of section 36(1)(iii) as the issuing of Innovative Perpetual Debt Instrument lacks the concept of borrowing?"

5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd.

5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. "……………………………… It is seen from the financials that the assessee is performing redemption and investment activities on a regular basis which in turn yields exempt income. In working of the suo-moto disallowances the assessee has only included expenses which according to it can be categorized as expenses directly relatable to earning exempt income. Further, the assessee has not maintained any separate books of accounts for income relating to exempt income and expenditure incurred therein ……… " 19.1 It is submitted that the AO failed to note that assessee made disallowance of the estimated amount by considering the expenses incurred by the department which was handling the business of investing in securities. The AO erred in concluding that it is the direct expenditure incurred without appreciating that no direct expenses were incurred by appellant in earning of tax-free income. Further, the other reason is that no separate books of accounts are maintained. The AO failed to appreciate that the Act nowhere requires separate books of accounts to be maintained and the same has been elaborately discussed and appellants claim allowed by Hon'ble Supreme Court in case of South Indian Bank (438 ITR 1). Therefore, it is respectfully submitted that the very basis of recording of satisfaction was not correct and hence as held by Hon'ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd (81 taxmann.com 111), the entire disallowance made needs to be deleted. 19.2 Without prejudice to the above, the issue of disallowance u/s 14A will arise only if any expenditure is incurred to earn the tax-free income. There should be a live link between the earning of income and incurring of expenditure. The assessee had incurred expenditure only for buying and selling of securities, profit/loss on sale of which is offered to 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. tax. It had not incurred any expenditure to earn tax free income and accordingly no disallowance u/s 14A is warranted on the facts of our case.Reliance is placed on the decision of Hon'ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd (81 taxmann.com 111), where it was held that incurring of actual expenditure is required to make disallowance u/s 14A. Since no actual expenditure is incurred by the appellant, provisions of section 14A cannot be invoked in appellant's case. The assessee submitted that right from inception, it has been treating its securities as Stock in Trade which has also been accepted by department and offers to tax the Profit or Loss on sale of all such securities and interest earned only as Business Income. Therefore, the provisions of section 14A are not applicable in its case. 19.3 It is further stated that the AO had made the disallowance u/s 14A for the reason that the Hon 'ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd.(supra)held that section 14A would apply to dividend income on which tax is payable under section 115-O of the Act. 5.6. Further, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. Commissioner of Income Tax, New Delhi [2018] 91 taxmann.com 154 (SC) held that the dominant purpose for which investment into shares is made by assessee may not be relevant as section 14A applies irrespective of whether shares are held to gain control or as stock-in-trade.Furthermore, as per the CBDT Circular No. 5/2014, dated 11.02.2014, legislative intent is to allow only that 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not.In this regard,it is pleaded that it never contended that provisions of section 14A would not apply to dividend income on which tax is paid u/s 115O. The submission is that in the absence of any expenditure having been incurred to earn tax free income, the question of making any disallowance u/s 14A will not arise.The assessee submits that the NFAC had disallowed the above sum u/s 14A by misinterpreting the decision in case of Maxopp Investments Ltd and holding that in appellants case where securities are held as stock in trade, disallowance u/s 14A is still warranted. However, in the latest decision, the Hon'ble Supreme Court in case of South Indian Bank (438 ITR 1), had also discussed the above decision in case of Maxopp Investments Ltd. and held that no disallowance u/s 14A is warranted in cases where the securities are held as stock in trade. Reliance is placed on binding decision of Hon'ble ITAT Mumbai in appellants own case for AY 2015-16 in ITA 3394 and 3849/Mum/2019 where it was held that no disallowance is warranted in respect of interest free income earned on stock in trade. 19.4 It is further contented that the interest free funds available amounts to Rs.56186.72 crore as against which the investment in 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. securitie's earning tax free income is only Rs.951.67 crore which accounted for only 1.69% of the interest free funds available and in such case no disallowance u/s 14A is warranted. Reliance is placed on the decision of Hon'ble Supreme Court in case of South Indian Bank Ltd V CIT (supra) where it was clearly held that if non-interest-bearing funds is larger than the investments made in tax- free securities, disallowance under Section 14A cannot be made. In the assessment order, the AO had mentioned the average value of investment Rs.3923.19 crore, however as per assessee, the average value of investment generated tax free income should be Rs.990.91 crore which was also given in its submissions made during the assessment. 19.5 Without prejudice to above, it is submitted that the assessee had computed the proportionate expenditure of treasury department which handles these securities and disallowed the same as a matter of abundant caution and without prejudice to its claim that no amount can be disallowed. The AO had considered the said amount as expenses directly relating to exempt income without appreciating the fact that the said amount was itself an estimate based on proportionate expenses. Accordingly, it is submitted that the said sum cannot be disallowed as direct expenses and no disallowance u/s 14A of any amount is warranted.This issue was decided in favour of the appellant by Hon'ble ITAT Mumbai in appellant's own case for AY 2015-16 in 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. ITA 3394 and 3849/Mum/2019 and for AY 2017-18 in ITA - 2937/MUM/2022 & 2919/MUM/2022).

is regarding addition of disallowance made u/s 14A r.w.r. 8D in determining the book profit computed u/s 115JB. In this regard,the assessee submitted that the AO failed to note that the provisions of Rule 8D cannot be invoked while computing the disallowance u/s 14A since there is no specific provision in section 115JB for invoking the same. Hence, the disallowance made by NFAC is not correct. Reliance for the same is placed on the decision of Hon'ble Jurisdictional Bombay High Court in case of Bengal Finance and Investments Pvt. Ltd (TTA 337 of 2013). This issue was decided in favour of the appellant by Hon'ble ITAT in appellant's 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. own case in ITA 3394 and 3849/Mum/2019 and for AY 2017-18 ITA 2937/MUM/2022 & 2919/MUM/2022 dated May 11, 2023. 21.1 The ld.CIT(A) observed that Hon’ble ITAT, Mumbai “C” Bench in the order cited (supra) for A.Y. 2016-17 has given the finding in favour of the appellant that different treatment for same head of expenses cannot be given while computing total income under normal provision and book profit u/s 115JB. Alternatively, also as per the decision of Hon’ble Jurisdictional Bombay High Court in the case of The Commissioner of Income Tax-8 v/s. M/s. Bengal Finance & Investments Pvt. Ltd., disallowance made u/s 14A cannot be added to arrive at book profit for the purpose of Section 115JB of the Act. The finding of the Hon’ble Jurisdictional Mumbai High Court on the issue has reproduced as under:-

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 to held 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. 438 of 2012 rendered on 7 th August, 2014. In view of the above, question (b) does not arise any substantial question of law.” 21.2 Following the judicial pronouncements on the issue, it was held that the disallowance made u/s 14A r.w.r. 8D cannot be added while determining the book profit u/s 115JB of the Act. Thus, Ground no. 4 of the appeal raised was allowed. The ld.CIT,DR vide has relied on the assessment order.

22. On careful consideration of the above facts,we do not find any reason for interference in the conclusion drawn by the 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. ld.CIT(A) who deleted both the additions made u/s 14A based on the findings and observation in the appellate order after taking cognizance of the replies and submissions made before him. Respectfully following the cited decisions,we endorse the conclusion drawn by the ld.CIT(A).Thus,the ground is dismissed. Rule 6EA IN RESPECT OF NPA 23. (Common ground in AYs 2013-14 and 2018-19) u. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not relying on rule 6EA for computing the accrued interest on account of NPA?"

24. It is submitted that the AO disallowed a sum of Rs. 98.99 crore by invoking the provision of Rule 6EA and has stated that as per Rule 6EA interest on non-viable or sticky advances where irregularities are noticed for a period of 6 months need not be offered to tax. According to him, since the assessee follows the guidelines of RBI which provide for 90 days long for classification of NPA, the above amount is chargeable to tax. 5.2 In this connection, it is pleaded that it has strictly followed the guidelines of RBI and had not recognised income in respect of accounts classified as non-performing assets. In all these cases, there was uncertainty of recovery of interest and accordingly the assessee had not recognised interest in respect of these accounts. It has been held in various decisions that even in the absence of specific provision like 43D and Rule 6EA interest not recognised based on RBI guidelines cannot be taxed. Reference may be had to the decision of SC in the case of CIT v Vashist 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. Chay Vyapar Limited 301 CTR 263 and the Bombay High Court in the case of Deogiri Nagari Sahakari Bank Limited 379 ITR 24. This issue is covered in its favour by the Jurisdictional ITAT Mumbai in case of State Bank of India (ITA 3644 and 4563/Mum/2016), Mumbai ITAT in the case of ICICI Bank Ltd (ITA 3215/Mum/2019),State Bank of Bikaner and Jaipur (ITA 3033/Mum/2019) and ITAT Kolkata in case of Royal Bank of Scotland (ITA Nos. 36 & 1885/Kol/2017). The ld.CIT,DR vide has relied on the assessment order.

TDS u/s 40a(ia) 26. (Ground in AY 2018-19) vii. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. 95,74,99,623/- towards year end provision for expenses on which TDS was not deducted, when Section 40(a)(ia) of the Act clearly warrants the disallowance of such sum on which TDS is not deducted." viii. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not taking into account the decision of Hon'ble ITAT, Bangalore in case of IBM Ltd. (ITA No.305/Bang/2015), wherein the Tribunal held that it is clear from the statutory provision that the liability to deduct tax at source exist when the amount is credited to a 'suspense account' or 'any other account' by whatever name called which wil l also include a 'provision' created in the book of accounts."

, facts of the case, assessment order passed by the AO, written submission uploaded as well the oral contentions of the assessee. On careful consideration of the above facts,we do not find any reason for interference in the conclusion drawn by the ld.CIT(A) who deleted the additions based on the findings and observations in the appellate order after taking cognizance of the replies and submissions made before him.With regard to the ground no.viii above, it is noticed that the issue of Suspense account has been decided against the asessee in earlier years appeal and the 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. decision in the case of IBM(supra) has been distimguhed and find not applicable to the facts of the case relating to the assessee. Respectfully following the cited decisions of this Bench(supra), we endorse the conclusion drawn by the ld.CIT(A).Thus,the ground is dismissed. CLUB FEES

29. (Ground in AY 2018-19) ix. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 37(1) amounting to Rs. 12,74,672/-towards amount of entrance fees and subscription paid to clubs by the directors of the bank and not considering these expenses as personal expenses?"

30. According to the assessee ,the AO disallowed the amount of entrance fee and subscription paid to clubs of Rs. 12.74 lacs by treating the same as personal expenditure even when in tax audit report no amount was shown under the head personnel expenditure. It disallowed the above amount only for the reason that the details and justification for making the payment were not furnished. It is submitted that the AO never required any details to be furnished by appellant and hence, disallowing the same only in the ground that the details and justification were not furnished is not warranted. The details of the amounts paid and the justification for the same have been furnished. It may be seen from the said annexure that the expenses are incurred only for business purpose and there is no personal element involved in respect of the expenditure incurred. The club fees paid were not paid with the intention to benefit the employees and, therefore, the payment of such club fees should be 5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd. considered to have been made for promoting the business of the assessee as it could not be disassociated from the assessee's business. The amounts were paid in the normal course of carrying on banking business and accordingly should be allowed. Reliance is placed on the binding decision of Bombay High Court in case of Otis Elevator (195 ITR 682),Hindalco Industries Ltd 165 Taxmann.com 606(Mumbai- ITAT).The ld.CIT,DR vide has relied on the assessment order and also on Balrajsingh Jagjit Singh 153 Taxmann.com 642(Mumbai-ITAT) which is distinguishable as related to individual club membership and not of corporate membership.

by appellant on the validity of reopening of assessment by holding that since all substantive grounds have been decided in favour of bank, the ground is academic.

2. On the facts and in the circumstances of the case and in law the ld. CIT(A) ought to have decided the jurisdictional ground on reopening made after 4 years from the end of the assessment year even when there was no failure on part of appellant to fully and truly disclose all particulars required for assessment.

3. On the facts and in the circumstances of the case and in law the ld. CIT (A) ought to have noted that the approval given by PCIT within 1 day was mechanical and accordingly the reopening should have been held to be bad in law.

5958 & 5959/Mum/2024 CO.No.28/Mum/2024 IDBI Bank Ltd.