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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
PER BENCH:
These cross appeals of assessee are arising out of the orders of the Commissioner of Income Tax (Appeals)-XII, LTU, 24, Mumbai in appeals No. CIT(A)-XII/AC(3)(1)/IT-21/00-01 dated 25.02.2004, CIT(A)XII/AC(3)(1)/IT-26/02-03 dated 25.02.2004, CIT(A) XII/DC(3)(1)/IT- 19/02-03 dated 25.02.2004, CIT(A)XXVII/DC 3(1)/IT-86/03-04 dated 24.03.2005, CIT(A)XXVIII/ACIT 3(1)/IT 32/07-08 dated 19.06.2008, CIT(A)-XIII/Addl. CIT 3(1)/418/08-09 dated 31.03.2009, CIT(A)-XIII/Addl. CIT 3(1)/415/08-09 dated 31.03.2009, CIT(A)-XIII/Addl.CIT-3(1)/414/08-09 dated 31.03.2009, CIT(A)-LTU/ACIT LTU/419/08-09 dated 05.01.2010, CIT(A)-LTU/ACIT-LTU/132/2009-10 dated 15.10.2010, CIT(A)-LTU/Addl. CIT-LTU/57/2010-11 dated 23.12.2011, CIT(A)-LTU/ACIT-LTU/209/2011- 12 dated 02.01.2014, CIT(A)-LTU/Addl. CIT-LTU/58/12-13 dated 30.06.2014. The Assessments were framed by the Jt. Commissioner of Income Tax, Addl. CIT, LTU Range-19, Dy. Commissioner of Income Tax, Circle 3(1), Mumbai (in short ACIT/ DCIT/JCIT/ AO) for the A.Ys. 1997-98, 1999-00, 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006- 07, 2007-08, 2008-09, 2009-10, 2010-11 vide order dated 16.02.2001, 11.03.2002, 29.01.2003, 17.02.2004, 31.12.2004, 25.02.2005, 25.02.2005, 30.11.2007, 31.12.2008, 31.12.2009, 24.12.2010, 16.12.2011, 21.01.2013 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
4 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 2. The first common issue in these cross appeals in ITA Nos. 3371, 3372, 3373/Mum/2004, 4744/Mum/2005, 5962/Mum/2008 and 1105/Mum/2012 for AYs 1998-99 to 2002-03 & 2008-09, respectively is against the order of CIT(A) confirming the disallowance of depreciation in respect of assets given on lease. Assessee has raised identical grounds in all these years except quantum i.e. AYs 1998-99 to 2002-03 & 2008-09. Hence, we will take the facts from AY 2008-09 and will decide the issue accordingly. Grounds raised in AY 2008-09 is as under: -
―1. Claim of depreciation on assets given on lease: As per the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of the claim for depreciation made by the appellant in respect of assets given on lease under its equipment leasing business. He ought to have held that the claim for deduction in respect of depreciation allowance is allowable in respect of assets given on lease by the appellant.‖ 3. At the outset, the ld counsel for the assessee submitted that the issue involved in this ground is covered in favour of the assessee by the decision of the coordinate bench in assessee’s own case in ITA No.3626/Mum/2001 in Assessment year 1997-98 vide order dated 21.06.2019. The ld AR, therefore, prayed that the ground raised by the assessee may be allowed. The ld DR fairly agreed that the issue is covered as submitted by the ld AR, however relied on the orders of authorities below.
We have considered the contentions of both the parties and perused the orders of the authorities below. We note that similar issue has been adjudicated by the coordinate bench in ITA No.3626/Mum/2001 Assessment year 1997-98 vide order dated 21.06.2019, the operative part whereof is reproduced as under:
5 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, ―5. In this background, we have heard the rival stands, perused the relevant material and proceed to dispose of the issue in the following manner. As briefly noted by us earlier, the appellant is a public financial institution which is, inter-alia, engaged in the activity of providing finance including leasing also. In pursuance to such objects, the assessee had leased out assets to various entities and claimed depreciation on the value of such assets leased out. So far as the terms and conditions of the lease are concerned, both the lower authorities have converged that the same are on similar terms and conditions as was in the past years. In fact, there is a convergence between the two sides to the effect that the facts and circumstances of the dispute stand on an identical footing as was considered by the Tribunal in the earlier years, notably in Assessment Years 1994-95 to 1996-97 by way of a combined order dated 29.10.2014 (supra). We have perused the said decision and find that the Tribunal referred to various decisions, inter-alia, the judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd.Vs CIT [2013] 350 ITR 527 (SC), wherein Hon‘ble Court held that even in cases of ‗financial leases‘, the depreciation allowance contemplated under Section 32(1) of the Act is allowable to the lessor. It has not been shown by the Ld. CIT-DR that any of such precedents in assessee‘s own case has been altered by any higher authority. Therefore, so far as this aspect of the matter is concerned, we do not find any hesitation in directing the Assessing Officer to allow the claim of depreciation on lease of assets where it involves ‗financial lease‘.
Further, a perusal of the order of Tribunal dated 29.10.2014 (supra) shows that certain transactions of lease though not classified by the Assessing Officer as ‗financial lease‘, yet the depreciation was denied on some other ground, namely, lack of appropriate evidence, etc. On this aspect, wherein lease with four particular lessees were identified, namely, Kedia Group, REPL Engineering, Patheja Brothers Forging & Stamping Ltd and and Padma Alloys Casting Ltd, the matter was set- aside by the Tribunal to the file of the Assessing Officer for afresh adjudication as per law. It has been further explained that in Assessment Year 1995-96 as well as 1996-97 certain lease transactions were identified wherein depreciation was denied for similar reasons, such parties being Trudent Steels, Nathan Steels, Pathreja Brothers and Kedia Distilaries for assessment years 1995-96 and Suman Metals, Kedia galleon Ltd and Trident Steels for assessment years 1996-97. At the time of hearing, the Learned Representative for
6 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, the assessee pointed out that so far as depreciation claim in the instant year pertaining to said seven lease transactions is concerned, the same amounted to Rs. 2,09,04,638/-.
It has also been explained that subsequent to the setting aside of the matter by the Tribunal on this aspect for Assessment Years 1994- 95 to 1996-97, no further order has been passed by the Assessing Officer till date. Considering the aforesaid, we deem it fit and proper to direct the Assessing Officer to decide about the admissibility of depreciation of Rs. 2,09,04,638/- pertaining to the aforesaid seven lease arrangements in the light of decision in the earlier years following the order of Tribunal dated 29.10.2014 (supra). Needless to mention, on this aspect the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter recompute the depreciation allowable to the assessee keeping in mind the directions of the Tribunal in the earlier years, and as per law.
Accordingly, insofar as Ground of appeal nos. 1.1 to 1.3 are concerned, the same are allowed to the above extent.‖
Since the facts of the issue in the present case are identical to one as decided by the coordinate bench of the tribunal as discussed above, we, therefore, respectfully following the same set aside the order of CIT(A) on this issue and allow the ground raised by the assessee. Resultantly the ground raised by the assessee in all the above assessment years is allowed. The AO is directed accordingly.
The next common issue in these cross appeals being ITA Nos. 3371, 3372, 3373/Mum/2004, 4744/Mum/2005 and 5962/Mum/2008 filed by the assessee for AYs 1998-99 to 2002-03 respectively and ITA Nos. 5591/Mum/2008, 3759 to 3761/Mum/2009, 2612/Mum/2010 and 29/Mum/2011 filed by the Revenue for AYs 2002-03 to 2007-08 respectively is against the order of CIT(A) partly disallowing the expenditure claimed under Section 36(1)(iii) of the Act. The assessee is in appeal against partly sustaining the disallowance whereas the revenue
7 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, is in appeal for partly allowing the relief to the assessee. Both assessee as well as Revenue have raised identical grounds in their appeals except for the quantum. Hence, we will take the facts from Assessment year 2002-03 and will decide the issue. The Grounds raised by assessee and Revenue in Assessment year 2002-03 is as under: -
Grounds raised by assessee :-
―2. Disallowance of expenditure claimed u/s 36(1)(iii) 2.1 The CIT(A) erred in partly allowing the claim of the appellant in respect of the interest payable on borrowed capital u/s 36(1)(iii) of the Act. The Honorable Tribunal may hold that the interest expenditure claimed by the appellant, being interest payable on capital borrowed for the purposes of the appellant‘s business, is allowable in full under the said section. 2.2 The learned CIT(A) erred in disallowing interest expenditure claimed u/s 36(1)(iii) in proportion to the investments in various financial institutions, corporations, etc. 2.3 The learned CIT(A) failed to hold that the appellant‘s claim u/s 36(1)(iii) is fully allowable. The factum, the method, the manner and the conclusion with regard to this disallowance is totally contrary to law and is wholly unjustified.‖ Grounds raised by Revenue :-
―1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 36(1)(iii) of the I.T. Act in respect of interest paid on capital borrowed for the purpose of investment in joint stock company.‖
The brief facts are that the Assessing Officer in his assessment order has disallowed a proportionate interest attributable to the investment in shares and securities which has been shown as investment in the balance sheet of appellant during the year in the assessment order and not allowed as business expenditure u/s. 36(1)(iii) of the I.T. Act. The Appellant has explained that the investment in shares and securities and subscribed in share capital of banks and financial institution and
8 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, State Corporation is the business of the assesssee as per section 9 of IDBI Act 1964, therefore, the entire expenditure is allowable as business expenditure.
The ld Counsel of the assessee submitted that issue raised by the assessee as well as by the revenue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee’s own case in ITA No. 3626/Mum/2001 Assessment year 1997-98 vide order dated 21.6.2019 and, therefore, the ground raised by the assessee may kindly be allowed and that of the revenue may be dismissed. The ld. DR fairly agreed to the contentions of the assessee but relied on the grounds of appeals by the revenue.
We have considered the contentions of both the parties and perused the orders of the authorities below. We note that similar ground of appeal was raised by the assessee in ITA No. 3626/Mum/2001 Assessment year 1997-98 assessment year 1997-98 which was decided in favour of the assessee. The operative paras are reproduced as under:- ―11. In this background, we have heard the rival submissions. At the time of hearing, apart from canvassing that the utilisation of funds by the assessee for acquiring the securities of Central and State Government as well as shares and securities of other financial institutions is an activity undertaken in the course of business, the Learned Representative pointed to the position taken by the Assessing Officer in different assessment years on this very aspect. It is pointed out by the Learned Representative that so far as past assessments are concerned, similar investments were made by the assessee and there has been no disallowance under Section 36(1)(iii) of the Act. Further, it is pointed out that so far as interest relatable to the investments in State Financial Corporation is concerned, from Assessment Year 2003- 04 upto Assessment Year 2008-09, the disallowance made by the Assessing Officer was deleted by the CIT(A) and the Department has not contested the same in further appeal before the Tribunal except for
9 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, Assessment Year 2007-08. It is further pointed out that from Assessment Year 2009-10 onwards to Assessment Year 2012-13, there has been no disallowance under Section 36(1)(iii) of the Act meaning thereby that even with regard to investments made in State Financial Corporations, corresponding interest has not been disallowed under Section 36(1)(iii) of the Act.
The aforesaid has been mentioned before us to emphasise the inconsistency in the approach of the Revenue so far as Assessment Year 1997-98 and upto Assessment Year 2002-03 is concerned. Undoubtedly, the aforesaid factual position relating to the investments made in State Financial Corporations, bears out that there is lack of uniformity in the approach of the assessing authority on a similar issue. Be that as it may, even otherwise on merit, we do not find potency in the stand of the Assessing Officer that investments made in other State Financial Corporations are not in the line of assessee‘s business activity. In this context, we may quote Sec. 9(1) of IDBI Act, 1964 under which assessee operates, which reads as under :-
Business of Development Bank.— (1) The Development Bank shall function as the principal financial institution for co-ordinating the working of institutions engaged in financing, promoting or developing industry and for assisting the development of such institutions in such manner as it may deem appropriate and may] carry on and transact any of the following kinds of business, namely:— (a) granting loans and advances to— (i) the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf by way of refinance of any loans or advances granted to industrial concerns by such Corporation or institution which are repayable within a period not exceeding twenty-five years; 1[which may be approved by the Board in this behalf] by way of refinance of any loans or advances granted to industrial concerns by such Corporation or institution which are repayable within a period not exceeding twenty-five years, (ii) any scheduled bank or State Co-operative Bank, by way of refinance of any loans or advances granted to industrial concerns by such bank which are repayable within a period not exceeding
10 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, fifteen years; by such bank which are repayable 4[within a period not exceeding fifteen years; (iii) any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be notified by the Central Government in this behalf, by way of refinance of any loans or advances granted to industrial concerns or group of industrial concerns by such bank or institution which are for the purpose of, or in connection with, the export of capital goods, commodities or merchandise from India or the execution of any turnkey project outside India by any industrial concern as aforesaid or by any person in India, and, in any case, are repayable— (i) within a period not exceeding twelve years in the case of persons outside India, and (ii) within a period not exceeding fifteen years in the other cases;
(b) subject to such conditions as may be prescribed, accepting, discounting, or re-discounting bills of exchange and 7[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern]; 6[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern;" (c) subscribing to or purchasing stocks, shares, bonds or debentures of the Industrial Finance Corporation, any State Financial Corporation or any other financial institution whether within or outside India which may be approved by the Board in this behalf. (ca) granting letters of credit or loans and advances to the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf, for the purpose of any business of such Corporation or institution; (d) granting loans and advances to any industrial concern or subscribing to, or purchasing, or underwriting the issue of, stocks, shares, bonds or debentures of any industrial concern: Provided that nothing contained in this clause shall be deemed to preclude the Development Bank from granting loans or advances to, or subscribing to debentures of, industrial concern, the amounts outstanding thereon may be convertible at the option of
11 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, the Development Bank into stocks or shares of that concern within the period the loan, advance or debenture is repayable; the amounts outstanding thereon may be convertible at the option of the Development Bank] into stocks or shares of that concern within the period the loan, advance or debenture is repayable;" Explanation.—In this clause, the expression "the amounts outstanding thereon" used in relation to any loan or advance, shall mean the principal, interest and other charges payable on such loan or advance as at the time when the amounts are sought to be converted into stocks or shares. (da) granting loan and advances— (i) to any person exporting products of industrial concerns; or (ii) to any person outside India, in connection with the export of capital goods from India; or (iii) for the execution of turn-key projects outside India by any industrial concern or by any person in India; (db) transferring for consideration any instrument relating to loans and advances granted by it to industrial concerns; (dc) granting loans and advances to any person for purposes of investment in any industrial concern;] (e) guaranteeing deferred payments due from any industrial concern; (f) guaranteeing— (i) loans raised by industrial concerns which are floated in the public market; and (ii) loans raised by industrial concerns from any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf; which may be approved by the Board in this behalf; (g) guaranteeing the obligations of any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf arising out of, or in connection with, underwriting the issue of stocks, shares, bonds or debentures of any industrial concern; (ga) granting, opening, issuing, confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder; (gb) providing consultancy and merchant banking services in or outside India;
12 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, (gc) acting as the trustee for the holders of debentures or other securities; (gd) acquiring, with the approval of the Central Government, the undertaking, including the business, assets and liabilities of any institution the principal object of which is the promotion or development of industry in India, or the grant of financial assistance for such promotion or development;] (h) undertaking research and surveys for evaluating or dealing with marketing or investments and undertaking and carrying on techno-economic studies in connection with the development of industry; (i) providing technical, legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry; legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry;" (j) planning, promoting and developing industries to fill up gaps in the industrial structure in India; (k) promoting, forming or conducting or associating in the promotion, formation or conduct of companies, subsidiaries, societies, trusts or such other associations of persons as it may deem fit;] (ka) acting as agent of— (i) the Central Government or of the Reserve Bank, or (ii) such other Government or person as the Central Government in consultation with] the Reserve Bank, may authorise; in consultation with the Reserve Bank, may authorise; (l) performing functions entrusted to, or required of, the Development Bank by this Act or by any other law for the time being in force; (m) doing any other kind of business which the Central Government, may authorise; may authorise;" (n) generally doing such other acts and things as may be incidental to, or consequential upon, the exercise of its powers or the discharge of its duties under this Act or any other law for the time being in force including sale or transfer of any of its assets. (2) The Development Bank may receive in consideration of any of the services mentioned in sub-section (1) such commission, brokerage, interest, remuneration or fees as may be agreed upon.
13 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, (3) The Development Bank shall not grant any loan or advance or other financial accommodation on the security of its own bonds or debentures. 13. Shorn of other details, so far as is relevant for our purpose, a perusal of the aforesaid sub section (1) of section 9 of the IDBI Act, 1964 shows that granting of loans and advances, financing of or refinancing of State Financial Corporations is one of the primary objects of the assessee, as mandated by the Parliament. Therefore, on this very count itself, we are unable to subscribe to the stand of the income- tax authorities that the investments made for financing or refinancing of State Financial Corporations is not an activity undertaken in the course of assessee‘s business; in our view the interest expenditure relatable to such investments cannot be disallowed in terms of Sec. 36(1)(iii) of the Act having regard to the fact that such activity is in the tune of assessee‘s business objects.
The only other aspect which is left for determination is interest relatable to investments made in securities of Central and State Governments amounting to Rs.170 crores. On this aspect, it has been emphasized that in the earlier years, no such disallowance was made by the Assessing Officer. The rival stands on this aspect remain the same as it pertained to the interest relatable to investments made in State Financial Corporations. It was a common point between the parties that the assessing authority has not differentiated between the two items and the disallowance has been made on a consolidated basis in all the years, therefore, the assessing authority has disallowed the expenditure for similar reasoning as advanced for disallowing interest pertaining to investments in State Financial Corporations.
On this aspect, a pertinent point which has been brought out by the Learned Representative is that the interest income earned by the assessee on such Central and State Government securities have all along been assessed as ‗business income‘ and, therefore, there was no justification for disallowing the corresponding interest expenditure on the plea that that the investments are for non-business purpose. Even in the instant assessment year, a reference has been made to the assessment order to point out that the interest income from such securities is lying assessed as ‗business income‘.
Considering the aforesaid aspect, as also the fact that IDBI General Regulations, 1994 prescribe for making investments in
14 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, securities of Central and State Governments, we do not find any reason to uphold the stand of the income-tax authorities that such investments are not in the course of assessee‘s business. In fact, there is an apparent contradiction in the stand of the assessing authority inasmuch as the interest yielded by such investments is assessed as ‗business income‘ whereas the interest expenditure attributable to such investments has been sought to be treated as a non-business expenditure. Considering the aforesaid, we deem it fit and proper to set-aside the order of CIT(A) on this aspect and direct the Assessing Officer to allow the claim made by the assessee. Thus, on this aspect, assessee succeeds. In the result this ground of appeal is allowed.‖
Since the facts and circumstances during the assessment years under consideration are identical to that in assessment year 1997-98, we, therefore, respectfully following the decision of the co-ordinate bench in the assessee’s own case as discussed above, allow the ground raised by the assessee in all the above assessment years and dismiss the ground raised the revenue’s appeals. The AO is directed accordingly.
The next common issue in these appeals of assessee in ITA Nos. 3371, 3372, 3373/Mum/2004, 4744/Mum/2005 and 5962/Mum/2008 for AYs 1998-99 to 2002-03 respectively is against the order of CIT(A) holding that profit on sale of shares of joint stock companies is business income of assessee. Assessee has raised identical grounds in its appeals except for the quantum. Hence, we will take the facts from AY 2002-03 and will decide the issue. The Grounds raised by assessee in AY 2002-03 is as under: -
―3. Investment in Shares : 3.1 The learned CIT(A) erred in treating income by way of capital gains on sale of shares as business income the assessee holding that appellant‘s investments in shares of joint stock companies should be treated as business assets and not capital assets of the appellant‘s business.
15 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 3.2 The learned CIT(A)‘s action of enhancing the income without giving opportunity to the appellant to explain its case as statutorily required under section 250(2) of the Act is illegal and bad in law. 3.3 The learned CIT(A) did not have jurisdiction to decide on this issue as it did not arise out of grounds of appeal before him and his action on this issue is without any authority under the law.‖
The ld Counsel of the assessee submitted that issue raised by the assessee is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee own case in ITA No. 3626/Mum/2001 in Assessment year 1997-98 vide order dated 21.6.2019 and, therefore, the ground raised by the assessee may kindly be allowed. The ld DR fairly agreed to the contentions of the assessee but relied on the orders of the authorities below.
After hearing the rival contentions, we note that the issue is fully covered in favour of the assessee by the decision of the coordinate bench in Assessment year 1997-98, the operative part whereof is extracted below:
―23. We have considered the submission of the parties and perused the records. We have noted that the ld. A.R of the assessee vehemently submitted that the A.O taxed the income from sale of Joint Stock Company under the head Capital Gain. However, the ld. CIT(A) has treated the profit on sale of Joint Stock Company as Business Profit. We have further noted that the department has accepted the similar profit on sale of investment as a Capital Gain from A.Y. 2002-03 to 2012-13 as the same has not been disputed by ld. DR while making his submission. Considering the fact that similar profit is accepted as Capital Gain from the year 2002-03 till 2012-13, therefore, the revenue should follow the consistency when there is no variance in the facts. Hence, we direct the A.O to treat the profit on sale on investment as Capital Gain as has been accepted from A.Y. 2002-03 onwards. Therefore, the assessee also succeeded on this ground.‖
16 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, Since the facts and circumstances during these assessment years under consideration are identical to ones as involved in assessment year 1997- 98, we, therefore, respectfully following the decision of our co-ordinate bench in assessee’s own case above, direct the Assessing Officer to treat the profit on sale of investment as capital gains. Thus, assessee succeeds on this ground in all the above mentioned assessment years.
The next common issue in these appeals of assessee in ITA Nos. 3371, 3372, 3373/Mum/2004 for AYs 1998-99 to 2000-01 respectively is against the order of CIT(A) confirming the action of the Assessing Officer restricting the exemption under Section 10(23G) of the Act in respect of income from infrastructure business. Assessee has raised identical grounds in its appeals except for the quantum. Hence, we will take the facts from AY 2000-01 and will decide the issue. The Grounds raised by assessee in AY 2000-01 is as under: -
―4. Exemption u/s 10(23G) of the Income Tax Act The learned CIT(A) committed an error of fact in relying on the observation made by the CIT(A) in AY 1997-98, that ―the ground was not pressed………..‖. He ought to have decided the issue on merits. The learned CIT(A) ought to have allowed the claim u/s 10(23G) on gross basis as claimed in the grounds of appeal.‖ 15. After hearing the rival contentions, we observe that the issue is fully covered by the decision of the coordinate bench in Assessment year 1997-98, the operative part whereof is extracted as under:-
―27. We have considered the submission of the parties and gone through the orders of authorities below. We have noted that in the return of income, the assessee claimed income exempt under section 10(23G) of Rs. 8,36,34,794/-. The assessee claimed exemption under section 10(23G) on gross basis. During the course of assessment, the assessee furnished revised working, thereby reduced the claim under section 10(23G) to Rs.1,86,27,921/-. Before the ld. CIT(A), the assessee raised
17 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, additional ground of appeal regarding restructuring the assessee‘s claim under section 10(23G) in respect of infrastructure business to Rs. 1,86,27,921/- as against Rs.8,36,34,794/- claimed in the return of income. The ld. CIT(A) in para-114 of his order recorded that this ground was not pressed by assessee. Before us, ld. AR of the assessee vehemently submitted that the assessee has raised specific as well as additional ground of appeal and that the finding of ld. CIT(A) that the assessee has not pressed this ground, is factually incorrect. Before us, the ld. AR of the assessee submits that exemption under section 10(23G) is to be allowed on gross basis. The ld. AR strongly makes reliance on the decision of Tribunal in Reliance Industries vs. ACIT (supra). The co-ordinate bench of Tribunal in Reliance Industries vs. ACIT (supra) held as under: ―9.6 We have carefully considered the orders of authorities below and the submissions of ld. Representatives of the parties. We have also considered the earlier order of the Tribunal dated 28.5.2012 in the assessee's own case for preceding assessment year 2002-03. We observe that AO disallowed an estimated proportionate interest on borrowed funds in respect of investment made by assessee as income was exempt u/s 10(33) and 10(23G) of the Act. However, ld. CIT(A) deleted the said disallowance after stating that it had not been shown by the AO that borrowed funds were employed for making investment which yielded exempt interest income and in the absence of any nexus, disallowance made out of the interest expenses could not be sustained, particularly when own funds of the assessee company were far in excess of the total amount of investment made. We are of the considered view that similar facts are applicable in the assessment year under consideration and also for the reasons stated hereinabove in paras 7.2 and 7.3, we hold that proportionate disallowance of interest of Rs.22.25 crores made by ld. CIT(A) is not justified as the assessee's own I.T.A. No.4475/Mum/2007 12 and 7 other appeals funds are far in excess than the interest free advance given by assessee and the investment made, which is giving exempt interest income to the assessee.‖ 28 The co-ordinate bench of Tribunal in ADIT vs. Credit Agricole Indosuez (supra) also held that it is an undisputed proposition that exemption under section 10(15) on the gross interest and not on net interest. The co-ordinate bench followed the decision Dresdner Bank Ag (supra) and JCIT vs. American Express Bank Ltd. (24 taxmann.com
18 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 50 (Mum. Trib.). Considering the decision of co-ordinate bench of Tribunal, we direct the A.O. to allow the deduction on gross basis, ofcource after deducting the direct expenses attributable to earning such income. In the result, the assessee also succeeded on this ground.‖ 16. As the facts and circumstances during these assessment years under consideration are identical to those as in assessment year 1997- 98, we, therefore, respectfully following the decision of our co-ordinate bench in the assessee’s own case as stated above, allow the ground raised by the assessee in all the assessment years as stated above. The Assessing Officer is directed accordingly.
The next common issue is with respect to staff welfare expenses under Section 40A(9) of the Act. The assessee is in appeal against the disallowance of the expenses in AYs 1998-99 to 2001-02 vide ITA Nos. 3371, 3372, 3373/Mum/2004 and 4744/M/2005 respectively and the Revenue is in appeal against the allowance of the expenses by the CIT(A) in AYs 2002-03 to 2007-08 vide ITA Nos. 5591/Mum/2008, 3759 to 3761/Mum/2009, 2612/Mum/2010 and 29/Mum/2011 respectively. Assessee and the Revenue have raised the following identical grounds in their appeals for assessment year 2001-02 and 2007-08 respectively except for the quantum.
Grounds raised by assessee in assessment year 2001-02 :- ―4. Disallowance of staff welfare expenses u/s. 40A(9) The learned CIT(A) erred in confirming the disallowance u/s 40A(9) of the Act, of expenses amounting to Rs.2,90,00,285/- incurred by the appellant through various staff welfare schemes like voluntary health schemes, disability assistance fund, staff welfare fund and Dr. Ambedkar birth centenary fund which are allowable u/s 37 of the Income Tax Act. The Hon‘ble Tribunal may hold that these expenses are business expenses, allowable u/s 37 of the Income Tax Act.‖
19 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11,
Grounds raised by Revenue in assessment year 2007-08 :- ―2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing amounting to Rs.1,05,50,466/- and 1,25,06,565/- invoking the provisions of section 40A(9) of the I.T. Act.
The facts brief are that Assessing Officer during the course of assessment proceedings observed that assessee has expended towards various funds namely Voluntary Health Scheme Fund - Rs. 15,96,220/-, Disability Assistance Fund - Rs. 9,36,046/-, Staff Welfare Fund - Rs.1,52,40361/- and Dr Ambedkar B.C. Fund - Rs.1,00,200/- aggregating to Rs.1,78,72,827/-. The Assessing Officer noted that as per the provisions of Section 40A(9) of the Act, the said amounts are not allowable. The Assessing Officer also noted that there is nothing on records to show that the expenses were incurred under any law for the time being in force. Consequently, Rs.1,78,72,827/- was disallowed and added to the income of the assessee.
The ld CIT(A) dismissed the appeal of the assessee after considering the contentions raised by the assessee in the appellate proceedings by observing and holding that in Assessment year 1995-96 the said expenses were held to be not allowable and accordingly, the disallowance was upheld during the year also.
The ld AR vehemently argued before us that the authorities below had not appreciated the facts in the correct perspective as the assessee has written back in the computation of income, the contribution to various funds aggregating to Rs.1,78,72,827/-. The ld. AR submitted that the actual expenses incurred during the year were claimed under Section 37(1) of the Act. The ld. AR also argued that the CIT(A) has mechanically followed the order of his predecessor in assessment year
20 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 1995-96 wherein similar expenses were disallowed without application of mind. The ld. AR contended before the Bench that any expenditure incurred by the assessee in connection with the welfare of employees or by way of contribution to the fund for promotion of welfare is allowable expenditure as has been held by the Hon'ble Bombay High court in the case of PCIT vs State Bank of India in ITA No. 718 of 2017 vide order dated 18.06.2019. The ld. AR submitted that an identical issue has been decided by the Hon'ble Jurisdictional High Court and, therefore, the order of CIT(A) may kindly be reversed and the Assessing Officer be directed to allow the expenditure.
The ld. DR, on the other hand, relied on the orders of the authorities below by submitting that Section 40A(9) of the Act specifically provides for disallowance of an contribution made to funds which might promote staff welfare and thus prayed the Bench to dismiss the ground raised by the assessee.
After hearing both the parties and perusing the material on record, we find that undisputedly assessee has incurred the expenses to the tune of Rs.1,78,72,827/- towards four funds as noted above. The Assessing Officer observed that the said expenses are now allowable under Section 40A(9) of the Act, which was confirmed by the ld. CIT(A) also following the order in assessment year 1995-96 in which similar expenses were held to be disallowable. In the present case, we find merit in the arguments of the ld. AR that these were written back in the computation of income and actual expenses were claimed under Section 37(1) of the Act. Even the case of assessee is supported by the decision of Jurisdictional High Court in the case of PCIT vs State Bank of India (supra) wherein the following was substantial question of law :-
21 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, ―ii. Whether on the facts and in the circumstances of the case and in law, the tribunal was justified in allowing deduction of expenditure of Rs.50 lakhs incurred by the assessee towards contribution to retired employees benefit scheme ignoring the provision of section 40A(9) of the Act which provide for deduction only for payment to approved/recognized funds as referred to section 36(1)(iv) & (v) of the Income Tax Act, 1961?‖
The Hon'ble Bombay High Court while deciding the above substantial question of law referred to it by Revenue has held as under :-
―8. The very purpose of insertion of sub-section (9) of section 40A thus was to restrict the claim of expenditure by the employers towards contribution to funds, trust, association of persons etc. which was wholly discretionary and did not impose any restriction or condition for expanding such funds which had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. In plain terms, this provision was not meant to hit genuine expenditure by an employer for the welfare and the benefit of the employees. 9. In case of Commissioner of Income Tax Vs. Bharat Petroleum Corporation Limited, (2001) 252 ITR 43, Division Bench of this Court considered a similar issue when the assessee had claim deduction of contribution towards staff sports and welfare expenses. The revenue opposed the claim on the ground that the same was hit by section 40A(9) of the Act. The High Court allowed the assessee‘s appeal making following observations :- ―For the aforestated assessment year 1985-86, the Assessing Officer disallowed Rs.2,60,283 under section 40A(9) paid by the assessee for staff welfare activities. The assessee claimed that the entire amount was for staff welfare activity. That, the said amount was a grant for staff welfare activity and that the entire amount was for the benefit of the employees and, therefore, the assessee claimed deduction as business expenditure under section 28. However, the Department rejected the assessee‘s claim on the ground that a club known as Trombay Club was incorporated by the assessee for social, cultural and recreational activities of its members who were required to pay subscription fees. Hence, the Assessing Officer as also the Commissioner of Income-tax(Appeals) came to the conclusion that the said amount
22 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, constituted contribution to the club and, therefore, under section 40A(9), the claim for deduction was disallowed. Being aggrieved, the assessee went in appeal to the Tribunal which took the view that the aforestated amount represented reimbursement of expenses incurred by a society and, therefore, it did not constitute contribution under section 40A(9). Being aggrieved by the decision of the Tribunal, the Department has come in appeal. Findings on question No. 2 Bharat Petroleum Corporation is a Central Government undertaking. It has incorporated a club, essentially to carry on staff welfare activities. Under clause 28, Bharat Petroleum Corporation Limited had a right to issue directives to the club which were binding on the club. At times, the members of the club, who were the employees of Bharat Petroleum Corporation, took part in tournaments held outside the club premises like Times shield in cricket. On such occasions, the assessee-Corporation used to reimburse expenses incurred by the club. This is the finding of fact recorded by the Tribunal. In the circumstances, section 40A(9) is not applicable. No substantial question of law arises. Hence, our answer to the aforestated question No.2 is in the negative, i.e. in favour of the assessee and against the Department.‖ 10. In case of Commissioner of Income-tax-LTU Vs. Indian Petrochemicals Corporation Limited, (2019) 261 Taxman 251 (Bombay) Division Bench of Bombay High Court considered the case where the assessee-employer had contributed to various clubs meant for staff and family members and claimed such expenditure as deduction. Once again the revenue had resisted in the expenditure by citing section 40A(9) of the Act. This Court confirmed the view of the Tribunal and dismissed the revenue‘s appeal, in which the Tribunal had allowed the expenditure claimed by the assessee.
Once again in case of The Principal Commissioner of Income- Tax-14 Vs. Indian Oil Corporation reported in Income Tax Appeal No.1765 of 2016, revenue had raised such an issue when the assessee had spent certain amounts in either setting up or providing grant-in-aid made to Kendriya Vidyalaya Schools where the students of the assessee-Indian Oil Corporation would receive education. This Court referred to a judgment of Kerala High Court in case of P.Balakrishnan, Commissioner of Income-Tax Vs.Travancore Cochin
23 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, Chemicals Ltd., 243 ITR 284 and of the decision of this Court in case of Bharat Petroleum Corporation Limited (supra) held that the Tribunal had correctly allowed the assessee‘s claim of expenditure. In view of this discussion, this question is not entertained.‖ We, respectfully following the decision of the Hon'ble High Court, set aside the order of CIT(A) and direct the Assessing Officer to allow the expenditure. Thus, assessee succeeds on this issue in all the assessment years as stated above and ground raised by the Revenue is dismissed.
The next common issue in these appeals of assessee in ITA Nos. 3371, 3372, 3373/Mum/2004, 4744/Mum/2005 and 5962/Mum/2008 for AYs 1998-99 to 2002-03 respectively is against the order of CIT(A) holding that it is only the net dividend which is to be exempt u/s 10(33) of the Act. Similarly the assessee has raised identical grounds in its appeals except for the quantum. Hence, we will take the facts from Assessment year 1998-99 and will decide the issue accordingly. The Grounds raised by assessee in Assessment year 1998-99 is as under: -
―4. Claim of exemption u/s 10(33) : 4.1 The learned CIT(A) committed a gross error of law and facts in not accepting the claim of appellant u/s 10(33) of the Act, in the manner in which it was claimed. The appellant submits that its claim u/s 10(33) should be accepted in totality. The learned CIT(A) committed a gross error of law and fact in directing the Assessing Officer to disallow the interest expenditure in relation to investment in shares. Moreover, the learned CIT(A)‘s directions relating to section 36(1)(iii) are themselves contrary to law and unwarranted.‖ 24. Facts in brief are that during the year, assessee received gross dividend of Rs.143,12,37,003/- out of which Rs.4,36,35,000/- was received from the Unit Trust of India which was offered to tax under the head ‘income from other sources’. The remaining dividend of
24 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, Rs.138,76,02,003/- was claimed as exempt under Section 10(33) of the Act on gross basis. The Assessing Officer noted that the total borrowed funds at the end of the year stood at Rs.45,520 crores on which interest of Rs.4,733 crores was paid. The Assessing Officer attributed the interest of Rs. 300 crores to earning of exempt income and also attributed the management expenses equal to 1% of gross dividend, which works out to Rs.301,38,76,020/- and thus, computed the net dividend loss of Rs.162,62,74,017/- and consequently rejected the claim of exemption under Section 10(33) of the Act.
The CIT(A) has upheld the action of Assessing Officer in his order at para 5.6 as under :-
―5.6 I have carefully considered the reply of the appellant. The similar issue has been come up for consideration in A.Y. 2000-01 wherein my predecessor upheld the action of the Assessing Officer in computing deduction u/s. 10(33) on the net amount for which interest expenses attributable investment in dividend, yielding shares has been held to be deductable. This ground has been decided against the appellant. subject to the finding above on the same lines and for the same reasons as in A.Y. 1998-99. The appellant has claimed that the assessee itself has disallowed 1% administrative expenses u/s.14A therefore, no disallowance called for on account of interest attributable to the dividend income. The Assessing Officer no where find any direct nexus that borrowed fund, investment in shares giving rise to dividend income. The assessee is engaged in a finance business where the finances cannot be linked with the investment in shares therefore decision of Supreme Court in the case of Rajasthan Warehousing Corporation (242 ITR 450 SC) which follows earlier decision of S.C. therefore interest cannot be attributed against the dividend income.
5.7 The contention of the appellant cannot be accepted as the Hon'ble Mumbai ITAT in its recent decision in the Asst. C.I.T. vs City Corp. Finance 300 ITR 398 have held that expenses connected with exempt income can be disallowed. Therefore action of the Assessing Officer is justified and confirmed.‖
25 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 26. We have considered the rival contentions and perused the material on record. We observe that in this case clearly the assessee’s own funds are far more than the investments in shares and securities and, therefore, it can be presumed that the investments in shares and securities is made out of own and interest free funds available with the assessee. The case of assessee is squarely covered by the following decisions :-
i) CIT vs HDFC Bank Ltd., 366 ITR 505 (Bom.) ii) CIT vs Reliance Utilities & Power Ltd., 313 ITR 340 (Bom.)
Since the issue is squarely covered by the decisions of the Hon'ble Bombay High Court, we, therefore, are inclined to set aside the order of CIT(A) on this issue and direct the Assessing Officer to delete the disallowance. Since we have allowed the relief to the assessee on the plea that own funds are more than amount of investments, therefore, the other pleas raised by the assessee need not be adjudicated.
The next common issue in these appeals of assessee in ITA Nos. 3373/M/2004, 4744/M/2005, 5962/M/2008, 3907/M/2009 and 3908/M/2009 for AYs 2000-01 to 2004-05 respectively is against the order of CIT(A) upholding the order of Assessing Officer taxing the interest on sticky loans as per Section 43D of the Act. Assessee has raised identical grounds in its appeals except for the quantum. Hence, we will take the facts from AY 2004-05 and will decide the issue. The Grounds raised by assessee in AY 2004-05 is as under: -
― 3. Income prior to 01.04.1991 – Section 43D
3.1 The learned CIT(A) erred in holding that the interest on ‗sticky loans‘ credited to ―interest suspense account‖ prior to 1.4.91 was liable to tax on receipt basis u/s 43D of the Income Tax Act. As per the facts and circumstances of the case he ought to have held that section 43D was not
26 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, applicable and the Assessing Officer (AO) has wrongly invoked the said section. The Hon'ble Tribunal may hold that the provisions of section 43D are not applicable to the interest credited ―interest suspense account‖ of the appellant prior to 1.4.91 and the addition made by the AO is not in accordance with the law.‖
Facts in brief are that the interest received during the year in respect of sticky loans in respect of period which pertained prior to assessment year 1991-92 was not recognized as income during the year on the ground that the same was recognized in the earlier year in terms of the decision of Apex court in the case of CIT vs State Bank of Travancore, 158 ITR 102 (SC). It is pertinent to state that Section 43D of the Act was introduced by the Finance Act, 1991 w.e.f. 1.4.1991, i.e. 1991-92 whereby it has been provided that income by way of interest in relation to bad and doubtful debts shall be chargeable to tax in the previous year in which it was created by the public financial institution or bank or other institution as specified in the section when the same was credited in the Profit & Loss Account for the year or in which it was actually received by the institution, whichever is earlier. The assessee did not offer to tax the said amount on the ground that on accrual basis this was offered to tax in the earlier years when it accrued and, therefore, not liable to tax in the current year. However, the Assessing Officer was of the view that assessee never credited the interest on NPAs to Profit & Loss Account, but credited the same to the interest suspense account. The ld. AR noted that since assessee was brought under the tax net w.e.f. 1992-93 onwards, assessee never suffered any tax on accrual basis. According to the Assessing Officer, provisions of Section 43D of the Act are very clear and as the interest in relation to bad and doubtful debts/sticky loans is to be taxed in the year in which it is credited to the Profit & Loss Account or at the time of actual receipt, whichever is earlier, he added the same to the income of assessee.
27 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 29. The CIT(A) confirmed the addition made by the Assessing Officer following the orders of his predecessor in assessee’s case for assessment year 2003-04 by holding as under :-
―6.1 The A.O has discussed this issue from page 46 to 52 of the assessment order. The facts in brief were that the appellant‘s income was exempt from tax during the period prior to 1/4/1991. From 1/4/91 the appellant‘s income was made taxable under the I.T. Act. During the period before 1/4/1991 the appellant had some sticky loans on which the interest was worked out and credited in interest suspense account. During the period after 1/4/91, some of the interest amount on such sticky loans, which was earlier credited by appellant in interest suspense account, was received by the appellant in the period after 1/4/91. As per provisions of sec. 43-D inserted w.e.f. 1/4/91 the interest on sticky loans was taxable in the relevant period when such interest was credited to P&L account or actually received whichever was earlier. Appellant‘s claim was that interest on such sticky loans received during the year was already accounted for in the assessment years prior to 1/4/91 and therefore, the same interest amount could not be taxed in the year of receipt after 1/4/91. This issue was also there in earlier assessment years. In earlier assessment years the A.O had not accepted the appellant‘s claim and brought to tax the interest on sticky loans as per provisions of sec. 43-D of the Act. My predecessors have also confirmed the additions made by the A.O on this issue. In the immediately preceding assessment year i.e. A.Y 2003-04, I have also given finding against the appellant. Since this issue was also there in earlier assessment years, therefore, the discussion made by A.O in the assessment year under consideration was also more or less repetition of earlier assessment years. The appellant‘s arguments and submissions during assessment proceedings as well as appellate proceedings were also same as in the earlier assessment years. Respectfully following the orders of my predecessor and my own order in A.Y 2003-04, I hereby decided the issue against the appellant and confirmed the addition made by the A.O. This ground of appeal is dismissed.‖ 30. Aggrieved, assessee is in appeal before us. After hearing both the parties and perusing the material on record, we observe that Section 43D
28 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, of the Act was brought on the statute book by the Finance Act, 1991 and prior thereto, the interest on sticky loans was not to be offered to tax. Thereafter, specific provision was created by bringing this section in the statute that interest on sticky loans shall be taxed in the year in which it is credited in the Profit & Loss Account or in the year of realization of interest, whichever is earlier. Therefore, the dispute before us is whether the amount recovered by the assessee during the year out of sticky loans belonging to earlier years is liable to tax in the current year or not. After perusing the facts on record and the decision of Hon'ble Supreme Court in the case of State Bank of Travancore (supra), it has been held that where income has accrued in earlier year, the same income cannot be taxed twice; first in the year of accrual and thereafter on receipt basis. In the present case, income has accrued in earlier year and, according to the assessee, since assessee was not liable for taxation in the earlier years, therefore, it was not offered to tax. Undisputedly, income has accrued in the earlier years and since the provisions of Section 43D of the Act does not have any retrospective application, hence income prior to 1.4.1991 cannot be taxed. We find merit in the contentions of the assessee on this issue. Moreover, the case of assessee is squarely covered by the decision of Hon'ble Supreme Court of India in the case of State Bank of Travancore (supra), accordingly we direct the Assessing Officer to delete the addition on this count by setting aside the order of CIT(A).
Ground no. 1 in appeal of assessee bearing ITA No. 3907/M/2009 for AY 2003-04 is against the order of CIT(A) upholding the disallowance of deduction by Assessing Officer in respect of dividend income under Section 80M of the Act.
29 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 32. At the outset, the ld. AR submitted that the issue is squarely covered in assessee’s own case in ITA No. 3626/Mum/2001 for assessment year 1997-98 vide order dated 21.06.2019 and, therefore, the same may be decided in favour of assessee by following the decision of coordinate bench. The ld. DR, on the other hand, relied on the orders of the authorities below.
We have considered the contentions of both the parties and perused the orders of the authorities below. We note that similar ground of appeal was raised by the assessee in assessment year 1997-98 wherein the Tribunal has held as under :-
―19. We have considered the rival submission of the parties and gone through the orders of Tribunal for earlier years. During the assessment, the Assessing Officer asked to furnish the details of deduction under section 80M and issued show-cause notice as to why the deduction under this section should not be recalculated after deducting interest on money borrowed for investment in shares and after deducting other expenses wholly and exclusively for earning dividend. The Assessing Officer recorded that the assessee filed various submission and stated that as a part of their business the assessee advance loan and provides other financial facilities to various persons engaged in business. For this purpose, the assessee raised funds and loans by issuing bonds, debentures etc. on the borrowings, the assessee has paid interest and debited in Profit & Loss Account. Investments in shares are primarily done as part of assessee‘s lending activities. The Assessing Officer has not given any clear finding. However, the ld. CIT(A) recorded that perusal of assessment order reveals that decision on computation under section 80M is not clear. The ld. CIT(A) concluded his finding in the following manner:
―109. A perusal of the assessment order shows that the A.O.s decision and computation of deduction u/s. 80M is not clear. In the computation of income, on p.77, he has shown the deduction u/s. 80M to be Rs. 79,84,44,45/-, as per Annexure ‗A‘. In the Annexure ‗A‘, he has computed the deduction u/s.80M at Rs. 79,84,44,450/-. On the other hand, at page 75 of the assessment order, he states that ‗the claim of deduction u/s. 80M of Rs.
30 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 82,73,23,090/- is withdrawn‘. In view of this, the A.O. is directed to pass a clear, speaking order on the appellant‘s claim of deduction u/s. 80M. While doing so, he should keep note of, and give effect to, my directions relating to the appellant‘s claim of deduction u/s. 36(1)(iii).‖
We have noted that on similar disallowances in appeal for A.Y. 1995-96 in ITA No. 3369/M/2004, the co-ordinate bench of Tribunal by following the decision in assessee‘s own case for A.Y. 1992-93 in ITA No. 3249/Bom/1995 dated 24.12.2002, restricted the disallowances to 1% of dividend income. Therefore, respectfully following the decision of Tribunal, we direct the Assessing Officer to restrict the disallowance under section 80M to 1% of the dividend income. In the result, the assessee succeeded on this ground of appeal.‖ 34. As the facts and circumstances during the assessment year under consideration are identical to those as in assessment year 1997-98, respectfully following the decision of our co-ordinate bench in the assessee’s own case above, the Assessing Officer is directed to restrict the disallowance under Section 80M of the Act to 1% of the dividend income. Thus, assessee succeeds on this ground of appeal as stated above.
Ground no. 3 in appeal of Revenue bearing ITA No. 3761/M/2009 for AY 2005-06 is against the order of CIT(A) confirming the disallowance of claim of bad debt by Assessing Officer under Section 36(1)(vii) of the Act. The ground raised by the assessee reads as under :-
―3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the claim of bad debts claimed by the assessee amounting to Rs.2,01,48,33,112/- u/s 36(1)(vii) and disallowed by the A.O.‖ 36. Facts in brief are that assessee has written off an amount of Rs.201,48,33,112/- on account of bad and doubtful debts, the details whereof is given in para 8.1 of the assessment order. According to the
31 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, Assessing Officer, said debt has not become bad and accordingly, he added the same to the income of assessee.
The ld. CIT(A) allowed the claim of assessee by holding as under :-
8.3(a) I have considered the facts of the case. The appellant claimed deduction of Rs.201.48 crores as bad debts written off u/s. 36(1)(vii) of the Act. This bad debt was on account of loans advanced to various persons from which the recoveries became unrecoverable. First thing to be considered is as to whether the loans given by the appellant to all these parties was debt or not. Admittedly the appellant was in the business of money lending. In the course of money lending the appellant advanced loans to all these parties and therefore amount receivable/recoverable from these parties was a debt. It has been held by various courts that in the case of assesses who is in the business of money lending, the loans advanced to the debtors are debt and even if those debts have not gone through the P&L account of earlier years, the unrecoverable loans are allowable as bad debts. In the case of appellant the amount were advanced in the ordinary course of money lending business. The non recoveries include principal as well as interest there on. Though the interest component was duly considered in earlier years as income and therefore qualifies to be claimed as bad debts, but the principal amount also qualifies to be claimed as bad debts, since the appellant was in the business of money lending. Alternatively the component of principal amount was also allowable as business loss as held by Mumbai ITAT in the cases reported in (2008) 26 SOT 431 and (2008) 26 SOT 462. The Special Bench of Ahmedabad ITAT in the case of Gujarat Gas Financial Services reported in (2008) 14 DTR 481 also held that such amount are allowable as bad debts. In view of this legal position, the appellant correctly claimed the unrecoverable loans and advances as bad debts in the return of income.
8.3(b) The second question is as to whether the bad debt claimed by the appellant were allowable or not. The deduction of bad debt is allowable u/s 36(1)(vii) of the Act. There was a fundamental change in the provisions of Sec. 36(1)(vii) w.e.f. 1.4.89. Prior to amendment, the assesses was required to establish firstly that the unrecovered amount was a debt and secondly the assessee was required to establish that the debt became a bad debt. After amendment, the position was changed considerably. After amendment the assessee was not
32 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, required to prove that the debt became bad debt. It was the assessee's own decision in the facts and circumstances to decide as to whether the debt has become bad or not. The only requirement after amendment are that the unrecoverable amount should be a debt, the assessee has considered and decided to consider the same as bad debt and the bad debt is written off as irrecoverable in the accounts of assessee. Thus, every claim of bad debt is required to be looked into from these three parameters. During appellate proceedings, the appellant explained to the A.O that the parties have defaulted in making payment of loan amounts, the parties were registered with BIFR, BIFR has confirmed that the attempts for revival of the company has failed, official liquidator were appointed by courts, net worth of the company turned negative, the court appointed court receivers, suites have been filed with the Debt Recovery Tribunal, DRT has issued recovery certificates etc etc. In my considered view, all these reasons or any one of the reason were sufficient to classify a party as bad debt. The appellant also explained to the A.O that the bad debts were identified as per the guidelines of RBI and only after taking approval of the Board of Directors of the appellant company. Thus sufficient care was taken to classify the debt as bad debt. Though the appellant was not required to prove before the A.O, but still the appellant satisfactorily proved that there were valid reasons for classifying the parties as bad debts. In my considered opinion the A.O was not justified in not accepting those parties as bad debts by stating that various details were not filed, recovery likely to be made, security obtained, reasons for part write off, attempt to revive the company, the write off was premature etc etc. The A.O was not justified in disallowing appellant's claim on the basis of these general requirements, which were not the condition precedent for claiming a debt as bad debt.
8.3(c) It has been specifically mentioned in page 66 of the assessment order that the appellant produced computer print out of the accounts for the year ending 31.3.2005 maintained in the computer system which shows that the amounts were written off as bad debts and were also actually debited to P&L account. Thus, the appellant fulfilled the condition of writing off the bad debts in the books of accounts. However, the A.O in each case has mentioned in stereotype manner that appellant did not show that the debt were written off in the accounts of appellant and no ledger accounts of the parties were furnished. During appellate proceedings also, the appellant has vehemently argued that the bad debt claimed wore duly written off in
33 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, the books of accounts and concerned ledger accounts of the parties. The courts and benches of ITAT have held that when the amount is debited to P&L account and corresponding credit entry is made in concerned ledger account, the condition of writing off is fulfilled. The Special Bench of ITAT Mumbai in case of Oman International Bank 100 ITD 285 has held that amendment made w.e.f. 01.4.89 has liberalized the requirement of claiming deduction of bad debt by altogether doing away with the condition precedent of satisfaction of A.O that the debt has become bad. The Amended provision provide that a claim of bad debt is to be allowed in the year in which such bad debt has been written off as irrecoverable in the accounts of assessee. Amendment has done away with the requirement of establishing that the debt has become bad. This is also clear from the circular No.551 dated 23.1.1990. Rules regarding the deductibility of bad debt provided in amended section 36(1)(vii) is a statutory rule by itself. Therefore, there is no need for insisting for any other proof. Once that statutory rule is satisfied, no further obligation remains to be discharged by the assessee. The hon'ble Bombay High Court in case of Star Chemicals (2008) 11 DTR (Bom) 311 approved Mumbai Spl. Bench decision holding that once assessee has written off the debt as bad debt, requirement of Section 36(1)(vii) is satisfied. In my considered view, the appellant has fulfilled the condition of writing off bad debts in the books of accounts and concerned ledger accounts and therefore, the appellant's claim of bad debt was as per provisions of the Act. The A.O's holding, that it was unilateral decision of the appellant, was also not a correct holding because the decision is required to be made by the appellant only keeping in view the facts of each case.
8.3(d) In the facts and circumstances and taking into account the totality of facts, the appellant‘s claim of bad debt was as per provisions of the Act, since the appellant was in the business of money lending. The appellant explained the circumstances for which the debts became unrecoverable and the debts were actually written off in the books of accounts. Moreover, whenever such written off debts were realized in future, the same were offered as income u/s. 41(4) of the Act. Therefore, the A.O was not justified in disallowing appellant‘s claim. I hereby delete the disallowance made by A.O and direct him to allow appellant‘s claim.‖
Aggrieved, Revenue is in appeal before us. After hearing the rival parties and perusing the material on records including the impugned order, we
34 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, observe that ld CIT(A) has taken a correct view in the matter and do not require any interference on our part. The case of the assessee is squarely covered by the decision of the apex court in the case of T.R.F Ltd. Vs. CIT, 323 ITR 397 (SC) and accordingly we uphold the order of CIT(A) by dismissing the ground raised by the revenue.
Next common ground of appeal in the appeals of assessee bearing ITA Nos. 2290 & 5500/M/2014 for AYs 2009-10 and 2010-11 is against the order of CIT(A) holding that provisions of MAT are applicable to the assessee.
At the outset, the ld. AR submitted that assessee’s case is squarely covered in favour of the assessee by the decision of coordinate bench in assessment year 2004-05 and, therefore, prayed the Bench that the appeal may kindly be decided in favour of assessee by setting aside the order of authorities below. The ld. DR, on the other hand, fairly conceded that the issue is covered in favour of assessee, however, relied on the order of the authorities below.
We have considered the contentions of both the parties and perused the orders of the authorities below. We note that similar ground of appeal was raised by the assessee in assessment year 2004-05 wherein the Tribunal has held as under :-
―5. Now coming to the merits. Since the assessee is a banking company the provisions of section 115JB was not applicable to a banking company, hence no income is assessable u/s.115JB. The said section has been extended to other assessee‘s like banks, insurance companies, etc. also as per the amendment made by Finance Act, 2012. In the following cases, it has been held that ―Section 115JB is not applicable to Banks and other companies whose accounts are not made as per section 211 of the Companies Act‖.
35 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 1. Canara Bank vs. CIT (LTU), ITAT Bangalore [ITA No. 305/Bang/2011] 2. Dena Bank vs. ACIT (2)(3), ITAT Mumbai [ITA No. 4325/M/2011 & 1600/M/2012] 3. Krug Thai Bank PCL vs. JDIT (International Taxation) ITAT Mumbai [(2011) 16 taxmann.com] 4. Union Bank of India vs. ACIT, ITAT Mumbai [ITA No.4702 to 4706/Mum/2010] 5. Indusind Bank Ltd. vs. Addl. CIT, ITAT Mumbai [ITA No. 2921/Mum/2012]
In view of the above, we do not find any merit for the addition made u/s.115JB of the Act.‖ 41. As the facts and circumstances during the assessment year under consideration are identical to those in assessment year 2004-05, we respectfully following the decision of our co-ordinate bench in the assessee’s own case above, set aside the order of CIT(A) and assessee succeeds on this ground of appeal.
The next ground in the appeal of Revenue in ITA No. 29/Mum/2011 for assessment year 2007-08 is against the order of CIT(A) allowing the interest paid u/s 201(1A) on TDS on payment by assessee.
Facts in brief are that during the year, assessee has charged to the Profit & Loss Account interest on late deposit of TDS of Rs.1,11,602/- which was disallowed by the Assessing Officer on the ground that the same is not allowable in light of the provisions of Section 40(a)(i) of the Act.
The ld. CIT(A) allowed the appeal of assessee by holding that the said expense does not fall under the provisions of Section 40(a)(i) of the Act by observing as under :-
―11.1 The AO has disallowed an amount of Rs.1,11,602/- which represented the interest amount paid due to delay in payment of TDS.
36 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, It was pointed out by the appellant that the Hon Karnataka High Court has in the case of CIT vs. Oriental Insurance Company Ltd. (2009) 183 Taxman 186 Karnataka has held that Section 201(1A) is a provision to levy interest for late payment and it is in the nature of business expenditure. The expenditure in this regard is therefore allowable in the hands of the appellant.
11.2 The AO has failed to treat it as a part of business expenditure. He has not appreciated that it is not in the nature of an assessee‘s own tax liability arising, say, from interest payable on non-payment of advance tax., which is not allowable under the Act. I find that section 40(a)(ii) which deals with the matter covers any tax paid on profits and gains of business or profession of the assessee. This interest for delayed remittance of TDS not being so and besides not being in the nature of penalty it should not have been disallowed.
11.3 The appeal on this ground is allowed.‖ 45. Aggrieved, Revenue is in appeal before us. After hearing the rival submissions and perusing the material on record, we find that the CIT(A) has allowed the appeal of assessee following the decision of Hon'ble Karnataka High Court in the case of CIT vs. Oriental Insurance Company Ltd. (2009) 183 Taxman 186 wherein it has been treated as in the nature of interest and hence admissible. However, we find that the jurisdictional High Court in the case of Ferro Alloys Corporation Ltd. vs CIT, 196 ITR 406 (Bom) has decided the issue against the assessee. We, therefore, respectfully following the decision of the jurisdictional High Court in the case of Ferro Alloys Corporation Ltd. (supra), reverse the order of CIT(A). Accordingly, the ground raised by the Revenue is allowed.
The next ground in the appeal of Revenue in ITA No. 29/Mum/2011 for assessment year 2007-08 is against the order of CIT(A) allowing deduction u/s 36(1)(viii) of the Act on account of special reserve.
Facts in brief are that the Assessing Officer did not allow relief to the assessee in respect of Special Reserve created under Section
37 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, 36(1)(viii) of the Act. Assessee claimed deduction of Rs. 9,78,49,676/- under Section 36(1)(viii) of the Act though Special Reserve created for this purpose was Rs.50 crores. The said deduction was computed on net long term income arrived at after disallowing expenses in this regard. The Assessing Officer enhanced the returned income by making disallowance of various expenses and consequently, the Assessing Officer has not excluded the expenses while calculating the net long term income and the deduction allowable under Section 36(1)(viii) of the Act.
The CIT(A) allowed the deduction to the assessee by observing as under :-
―12.1 The assessee has claimed deduction of Rs.9,78,49,676/- u/s 36(1)(viii) of the Income Tax Act though the special reserve created for this purpose was Rs.50 Crore. The deduction is computed on the net long term income arrived at after disallowing the expenses in this regard. The AO has enhanced the returned income by making the disallowance of various expenses. He has not consequently excluded the expenses while calculating net long term income and the deduction allowable u/s 36(1)(viii). The appellant is therefore entitled to the higher amount of deduction u/s.36(1)(viii) which the AO ought to have allowed, taking into account the fact that the appellant had created reserve of Rs. 50 Crore u/s 36(1)(viii) in the relevant AY.
12.2 This is a straight forward matter where the AO has primarily committed a mistake in the calculation of the deduction. The AO is directed to take into account the reserve of Rs.50 Cr created by the appellant in this regard and allow the deduction afresh. Appeal on this ground is allowed, subject to this verification.‖
Aggrieved by the order of ld CIT(A),the revenue is in appeal before us. After hearing both the parties and perusing the material on record, we observe that the CIT(A) has passed a very reasoned and speaking order by sending back the issue to the file of Assessing Officer with the direction to take into account the reserve of Rs. 50 crores created by the
38 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, appellant as the Assessing Officer has committed mistake in this regard. Accordingly, we do not find any error in the order of CIT(A) and hence, appeal of Revenue on this ground is dismissed.
The assessee in ITA No. 1105/Mum/2012 for assessment year 2008-09 has by way of an additional ground prayed for direction to the Assessing Officer to grant deduction under Section 36(1)(viia) of the Act to the assessee. The assessee has also filed an application dated 03.08.2013 for admitting the additional ground of appeal which is reproduced as under:-
―i) On the facts and in the circumstances of the case and in law the Assessing Officer may be directed to grant eligible deduction under section 36(1)(viia) of the Income Tax Act to the appellant.‖
Facts in brief are that assessee has filed additional ground praying before the Bench to issue directions to the Assessing Officer to grant deduction to assessee under Section 36(1)(viia) of the Act in respect of provision for bad and doubtful debts in view of the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs CIT, Thrissur, 343 ITR 270 (SC) in which the Hon'ble Supreme Court has held that debt written off by urban branches of banks need not be adjusted against the provision for bad and doubtful debts in respect of rural branches under Section 36(1)(viia) of the Act. Accordingly, the ld. AR prayed before the Bench that assessee is entitled to claim both bad debts under Section 36(1)(vii) and provision for bad and doubtful debts under Section 36(1)(viia) of the Act. The ld. AR submitted that in the current assessment year, assessee had created provision for bad and doubtful debts in the books of account, however, same was not claimed as deduction under Section 36(1)(vii) of the Act towards provision for bad and doubtful debts in respect of rural branches. The ld. AR submitted
39 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, that after the above judgment was pronounced by the Hon'ble Supreme Court, assessee realized that it has not claimed deduction under Section 36(1)(viia) of the Act in respect of rural branches at 10% of the aggregate advances made by the rural branches. The ld. DR, on the other hand, strongly opposed admission of the additional ground filed by the assessee on the ground that it has never been filed before the Assessing Officer or CIT(A).
After hearing both the parties and perusing the material on record, we observe that the issue has cropped up following the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) that deduction under Section 36(1)(vii) and 36(1)(viia) of the Act are independent and assessee is entitled for both of them. Accordingly, we find merit in the legal contention of the assessee that assessee should be allowed deduction under Section 36(1)(viia) of the Act and are inclined to admit the additional ground raised by the assessee. However, the facts qua the said allowance needs to be examined at the level of the Assessing Officer as the Assessing Officer has not examined this issue in the assessment proceedings. Accordingly, we restore this issue back to the file of Assessing Officer to decide the same in terms of the Hon'ble Apex Court order. Thus, the additional ground raised by the assessee is admitted and allowed for statistical purposes.
The assessee has also challenged order of CIT(A) confirming the disallowance under Section 14A r.w.r. 8D in ITA Nos. 3909/Mum/2009, 2488/Mum/2020 and 13/Mum/2011 for assessment years 2005-06 to 2007-08 respectively. Since we have already decided this issue in para 26 of this order wherein we have held that assessee’s own funds was far more than the investments in shares and securities and, therefore, the
40 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, investments in shares and securities were made out of own funds available with the assessee and deleted the disallowance, our finding in the said para would apply to these three years also on the issue of disallowance under Section 14A of the Act. Accordingly, the Assessing Officer is directed to delete the addition and assessee succeeds on this ground of appeal.
In the Result, the appeals of assessee and Revenue are disposed off as under :- i) Appeal of assessee for assessment years 1998-99 to 2007-08, 2009-10 and 2010-11 are allowed; ii) Appeal of assessee for assessment year 2008-09 is partly allowed for statistical purpose; iii) Appeal of Revenue for assessment years 2002-03 to 2006-07 are dismissed; iv) Appeal of Revenue for assessment year 2007-08 is partly allowed. Order pronounced in the open court on 2nd January, 2020.
Sd/- Sd/- (याजेश कुभाय / RAJESH KUMAR) (भहावीय स िंह /MAHAVIR SINGH) (रेखा दस्म / ACCOUNTANT MEMBER) (न्मायमक दस्म/ JUDICIAL MEMBER) भुिंफई, ददनािंक/ Mumbai, Dated: 02.01.2020 स दीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS
41 | P a g e IDBI Bank Ltd.; AYs: 98-99 to 10-11, आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A) 3. आमकय आमुक्त / CIT 4. ववबागीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुिंफई / DR, ITAT, 5. Mumbai गार्ड पाईर / Guard file. 6.
आदेशाि सार/ BY ORDER, त्मावऩत प्रयत //True Copy// उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुिंफई / ITAT, Mumbai