BANK OF BARODA(E-DENA BANK),MUMBAI vs. THE PR. CIT - 2, MUMBAI

ORDER

PER VIKAS AWASTHY, JM:

(i) Contribution to Pension Fund; (ii) Disallowance u/s. 14A of the Act; (iii) Depreciation in value of investment reduced while computing book profit u/s. 115JB of the Act; (iv) Interest on Non Performing Assets (NPA); (v) Deferred payment receipt of guarantee commission; (vi) Loss on sale of assets to Assets Reconstruction Company (ARC); and (vii) Interest paid on Perpetual Bonds. The assessee gave a detailed reply to the notice issued under section 263 of the Act meeting each and every reason for invoking revisional jurisdiction in respect of the issue mentioned above. The reply of the assessee dated 06/03/2020 is at page-6 to 118 of the Paper Book. The reasons given in reply were duly supported by the documentary evidences. Despite the fact that the Assessing Officer had carried out detailed enquiry during the course of assessment proceedings and the extensive reply given by the assessee to the show cause notice issued under section 263 of the Act, the PCIT passed the impugned order. The ld. Authorized Representative for the assessee made following submissions on each of the points raised by PCIT in revisional proceedings.

(i) Contribution to Pension Fund: The ld. Authorised Representative for the assessee submitted that during assessment proceedings the Assessing Officer made detailed enquiry regarding pension fund. He referred to the show cause notice issued u/s. 142(1) of the Act dated 19/12/2017 by the Assessing Officer at page 27/28 of the paper book. The ld. Authorised Representative for the assessee pointed that at Sl.No.9 of the show cause notice a specific query with regard to payments made to pension fund was raised by the Assessing Officer. The assessee gave detailed reply to the said show cause notice on 22/12/2017. The same is at page 29 to 38 of the paper book. He further referred to the Tax Audit Report relevant to then assessment year 2015-16 at page 121 of the paper book. The ld. Authorised Representative for the assessee submitted that the assessee was required to contribute to the Pension Fund for the retirement liability of its employees. The fact that Bank has paid Rs.72.15 crores as contribution to pension fund during the Financial Year 2014-15 relevant to assessment year 2015-16 and has been reflected in the books as per Accounting Standard -15 (AS-15) has been mentioned in the Tax Audit Report in the form of Note. Therefore, the said amount is eligible for deduction u/s. 43B of the Act on payment basis. The Assessing Officer after examining the issue accepted the contentions of the assessee and made no addition.

(ii) Disallowance u/s. 14A of the Act: The ld. Authorised Representative for the assessee submitted that the assessee has earned exempt income of Rs.12.00 Crores. The assessee has suo-motu made disallowance of Rs.9.00 lakhs. The Assessing Officer during assessment proceedings vide notice u/s. 142(1) of the Act(supra) raised a specific query with regard to the disallowance u/s. 14A r.w.r. 8D. A query was also raised by the Assessing Officer vide another notice u/s. 142(1) of the Act dated 16/11/22017 with regard to disallowance u/s. 14A r.w.r 8D. The assessee in response to the said show cause notice gave detailed reply on 22/12/2017. The assessee had given a detailed reply to the Show Cause Notice dated 16/11/2017 as well (at page 39 of the paper book) alongwith the working of disallowance u/s. 14A r.w.r. 8D. The Assessing Officer after considering the same, made disallowance of Rs.24.59 Crores u/s.14A of the Act. Hence, the observations of the PCIT that the Assessing Officer has failed to examine the issue of disallowance u/s. 14A r.w.r. 8D is contrary to the facts and documents on record.

(iii) Depreciation in Value of investments: The ld. Authorised Representative for the assessee submitted that in notice u/s. 263 of the Act, the PCIT has mentioned about depreciation in value of investment reduced while computing book profit u/s. 115JB, however, while passing the order u/s. 263 this issue was not taken up for adjudication.

(iv) Interest on NPA: The ld. Authorised Representative for the assessee submitted that the issue with regard to interest on NPA was also enquired into by the Assessing Officer during assessment proceedings. He referred to the query made in this regard vide notice u/s. 142(1) of the Act at page 27 of the paper book and referred to the reply at page 38 of the paper book. The ld. Representative for the assessee submitted that this issue is squarely covered by the decision of Pune Bench of the Tribunal in the case of DCIT vs. Bank of Maharashtra reported as 2019(6) TMI 1456 - (ITAT Pune) and the decision of Hon’ble Supreme Court of India in the case of CIT vs. Vasisth Chay Vyapar Ltd. reported as 410 ITR 244(SC). The Assessing Officer after considering reply of the assessee, made no addition in respect of interest on NPA.

(v) Deferred payment on guarantee commission: The ld. Authorised Representative for the assessee fairly admitted that during assessment proceedings no enquiry on this issue was made by the Assessing Officer, however, in reply to the notice issued u/s. 263 of the Act it was submitted that as per the policy of the Bank the payments are recognized on realization basis. The ld. Authorised Representative for the assessee referred to revenue recognition policy in the Annual Report of the Bank for the Financial Year 2014- 15 at page 120 of the paper book. Thus, in view of the position explained by the assessee there was no reason for the PCIT to refer this issue for re- examination by the Assessing Officer.

(vi) Loss on sale of asset to ARC: The ld. Authorised Representative for the assessee submitted that during assessment proceedings this issue was examined by the Assessing Officer. He referred to the query raised by the Assessing Officer vide notice dated 16/11/2017 at Sl.No.33 of the said notice. The ld. Representative for the assessee asserted that during the period relevant to the assessment under appeal there was no loss on sale of Asset to ARC. On the contrary, the assessee had gained and the same was offered to tax. The ld. Authorised Representative for the assessee referred to the details of asset sold to ARC at page 51 of the paper book. This fact was brought to the notice of PCIT in reply to the show cause notice as well.

(vii) Interest on perpetual bonds: The ld. Authorised Representative for the assessee submitted that during assessment proceedings the Assessing Officer had raised specific query with regard to interest expenses claimed as deduction including broken period expenses vide notice dated 16/11/2017. The assessee made detailed submissions and hence, Assessing Officer made no addition. The objection raised by the PCIT is that the interest amount is not shown in the Balance Sheet as debit or borrowings. The ld. Authorised Representative for the assessee referred to Balance Sheet as on 31/03/2015 at page 52 of the paper book and pointed that perpetual bonds are shown under the head Borrowings. He further referred to Schedule -4 at page 53 of the paper book to substantiate his contention.

2.1. Finally, the ld. Authorised Representative for the assessee concluded his submissions assailing the finding of PCIT that it is not a case of lack of enquiry, infact, the findings of the PCIT are factually incorrect and contrary to the records. The Assessing Officer made enquiries in respect of all the issue raised by the PCIT except one i.e. deferred payment guarantee commission. The ld. Authorised Representative for the assessee contended that where enquiries have been made and the Assessing Officer having examined the issue has taken a conscious call in accepting the submissions of the assessee and the view taken by the Assessing Officer is one of the possible view supported by judicial precedents, the assessment order cannot be held to be erroneous. The ld. Authorised Representative for the assessee in support of his submissions placed reliance on the following decisions:

(i) CIT vs. Neerav Modi, 390 ITR 292; (ii) CIT vs. Sunbeam Auto Ltd., 189 Taxaman 436 (Del); (iii) Shruti Rahul Mane vs. PCIT, 2019(7) TMI 79 - ITAT Pune.

(i) Contribution to Pension Fund: We find that this issue was examined by the Assessing Officer during the assessment proceedings. A specific query was raised by way of notice u/s. 142(1) dated 19/12/2017. In reply to the notice, the assessee made detailed reply, reference has also been made to the Tax Audit Report (at page 121 of the paper book), where the Auditors have made note that the Bank has paid Rs.72.15 Crores as contributing to Pension Fund during the FY 2014-15 which has not been debited to P & L account and carried as prepaid liability as per AS-15. As is evident from the documents on record and notice issued u/s 142(1) of the Act, this issue was examined by the Assessing Officer. The payment of Pension Fund was allowed on payment basis. The assessee has been able to demonstrate that amount has been accounted in the books as per AS-15. We find no infirmity in the findings of Assessing Officer making no addition on this issue.

(ii) Disallowance u/s. 14A r.w.r 8D: The Assessing Officer vide notice dated 16/11/2017 as well as notice dated 19/12/2017 made enquiries in respect of disallowance u/s. 14A r.w.r. 8D. After having examined replies of the assessee and also suo-motu disallowance made by the assessee, the Assessing Officer enhanced disallowance u/s. 14A of the Act by Rs.24,50,86,581/-. Therefore, it cannot be said that the Assessing Officer has made no enquiries on this issue. The findings of the PCIT on this issue are contrary to facts and documents on record.

(iii) Depreciation in value of investments: The PCIT while passing the impugned order has not touched this issue.

(iv) Interest on NPA: We find this issue was also examined by the Assessing Officer during assessment proceedings. The Assessing Officer vide notice dated 19/12/2017 raised a query. The same was answered by the assessee vide its reply dated 22/12/2017. The assessee had given a specific reply that interest income is offered to tax on accrual basis in line with Rule 6EA of the Income Tax Rules. We further find that the Hon’ble Apex Court in the case of CIT vs. Vasisth Chya Vyapar Ltd. (supra) has held that NPA on which no interest was received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of assessee and was therefore not exigible to tax. This issue was also considered by Pune Bench of the Tribunal in the case of DCIT vs. Bank of Maharashtra. The Co-ordinate Bench following the ratio laid down in the case of CIT vs. Vasisth Chay Vyapar (supra) decide the issue in favour of the assessee Bank. The issue was enquired into by the Assessing Officer during assessment proceedings. Even otherwise on merits the issue is squarely covered in favour of the assessee by the decision of Hon’ble Supreme Court of India render in the case of Vasisth Chay Vyapar (supra). The PCIT without pointing queries that the Assessing Officer has failed to make while passing the assessment order, has erred in racking up this issue in revision proceedings.

(v) Deferred payment guarantee commission: The ld. AR of the assessee has fairly stated that this is the only issue raised in revisional proceedings which was not examined by the Assessing Officer. However, in reply to the notice u/s. 263 of the Act, the assessee has explained that the guarantee commission is recorded in the books on realization. The ld. Authorised Representative for the assessee referred to the Revenue Recognition Policy of the assessee Bank. A perusal of the same reveals that bank guarantee commission is recognized on realization basis. The relevant extract of Revenue Recognition policy from the Annual Report of the assessee is reproduced for the sake of completeness:

“Commission on Letters of Credit/Bank Guarantees/Government Business/Distribution of Insurance Policies/Mutual Fund Products/ASBA, Locker Rent,Interest on Refund of Taxes, Dividend Income on units of Mutual Funds, Rental Income and Service Charges on various Deposit Accounts are recognized on realization basis.” Thus, from the above it is evident that the Guarantee Commission are recorded in the books on the basis of realization. The query raised by the PCIT with regard to deferred payment receipt on Guarantee Commission is merely on surmises and conjectures, hence, without any merit.

(vi) Loss on Sale of Asset to ARC: The ld. Authorised Representative for the assessee has pointed that there is no loss on sale of asset to ARC during the relevant period. In fact, what emerges from the perusal of Annual accounts of the assessee for FY 2014-15 is that during the relevant period only single NPA property was sold to ARC on which the assessee has earned profit. Therefore, the observations made by PCIT in the impugned order are contrary to the facts.

(vii) Interest on Perpetual Bonds: In the notice u/s 263 the PCIT pointed that interest amount is not shown in the Balance Sheet as debit or borrowings. The PCIT in the impugned order further observed that the assessee has not made any submission with regard to interest paid on perpetual bonds. The ld. Authorised Representative for the assessee has pointed that a specific query was raised by the Assessing Officer vide notice dated 16/11/2017 (supra). After examining the notice dated 16/11/2017, we find that the Assessing Officer had made enquiry about details of interest expenses. The assessee in submissions before the PCIT has categorically stated that the interest paid on bonds is debited to Profit & Loss Account. The assessee has substantiated that Bonds are reflected in the Balance Sheet under the head Borrowings. The details of the borrowings are given in Schedule-4 to the Balance Sheet. The assessee in an unequivocal manner had stated before the PCIT that interest paid on bonds is wholly and exclusively for the purpose of business and allowable as deduction u/s. 36(1)(iii) or Sec. 37 of the Act. It is relevant to note that the assessee is a nationalised Bank, there is no question of assessee investing in perpetual Bonds other than for Banking business. Hence, the objection raised by the PCIT is absolutely unfounded.

“9. …………Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of "no enquiry." It is well settled that the jurisdiction under Section 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry.” Hence, the PCIT has wrongly assumed jurisdiction u/s. 263 in the present case.

6. We are of considered view that the Assessing Officer after having examined the issues was satisfied with the submissions of the assessee and has taken one of the possible legally sustainable view. Merely for the reason that the view taken by the Assessing Officer does not result in generating revenue or the view taken by the Assessing Officer does not find favour with the PCIT will not make the assessment order erroneous. The Hon’ble Supreme Court of India in the case of Malabar Industries Co. Ltd. vs. CIT 243 ITR 66 has held: “9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.”

In the present case twin conditions for exercising revisionary powers i.e. (i) the assessment order is erroneous, and (ii) prejudicial to the interest of revenue, are not satisfied concurrently. Hence, the impugned order is liable to be set aside on this ground alone.

Order pronounced in the open court on Monday the 11th day of April, 2022.