IDBI BANK LTD.,MUMBAI vs. ACIT (LTU)-2, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “C”, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 3423/Mum/2018-(Assessment year: 2008-09) ITA No. 3424/Mum/2018-(Assessment year: 2011-12) ITA No. 3425/Mum/2018-(Assessment year: 2012-13) ITA No. 3426/Mum/2018-(Assessment year: 2013-14) IDBI Bank Ltd., DCIT-Cent. Large Tax Unit, 29th Floor, Centre -1, IDBI Tower, WTC Complex, 22nd Floor, Taxation Cell, WTC Complex, Cuffe Parade, Cuffe Parade, Vs Mumbai-400 005 Mumbai-400 005 PAN : AABCI 18842G APPELLANT RESPONDEDNT

ITA No. 4041/Mum/2018-(Assessment year: 2011-12) ITA No. 4042/Mum/2018-(Assessment year: 2012-13) ITA No. 4043/Mum/2018-(Assessment year: 2013-14) DCIT-Cent. Large Tax Unit, IDBI Bank Ltd., 29th Floor, Centre -1, IDBI Tower, WTC Complex, 22nd Floor, Taxation Cell, WTC Complex, Vs Cuffe Parade, Cuffe Parade, Mumbai-400 005 Mumbai-400 005 PAN : AABCI 18842G APPELLANT RESPONDEDNT

Assessee by Shri C. Naresh CA Revenue by Shri Awungshi CIT-DR Date of hearing 29 .08.2019 Date of pronouncement 03 .09.2019

Order under section 254(1) of Income tax Act PER PAWAN SINGH, JUDICIAL MEMBER:

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

Commissioner of income tax (Appeals)-2, Mumbai, hereinafter called,

learned CIT(A) for assessment years (AYs) 2008-09, 2011-12 to 2013-14,

out of which three set of Cross Appeals 2011-12 to 2013-14 and seventh

appeal by assessee for AY 2008-09. In all appeals the parties have raised

certain common grounds of appeals, therefore, all the appeals were

clubbed, heard together and are decided by common order for the sake of

brevity and to avoid the conflicting decision. The assessee in its appeal for

AY 2008-09 in ITA No. 3423/M/2018 has raised following grounds of

appeal:

(1) Validity of the reopening under section 147 of the assessment completed under section 143(3). (2) Reopening under section 147 based on the retrospective amendment. (3) Applicability of provisions of section 115JB of the Act. (4) Addition to the books profit loss on revaluation of securities and provision made for bad debt and doubtful debts which is reduced from the respective asset. 2. At the outset of hearing the learned authorised representative (AR) for the

assessee submits that the grounds of the appeal raised by the assessee are

covered in favour of the assessee and against the revenue. On the validity

of the reopening the ld AR for the assessee submits that notice was issued

on the ground that the amount of Rs.603.65 Crore debited to the profit and

loss account as “provisions and contingences” are unascertained liabilities 2

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not allowable as per Explanation 1(c) to Section 115JB (2). The learned

AR of the assessee submits that the reasons for reopening itself is not

correct, the above amounts represents provision made for bad and

doubtful debts, loss on revaluation of investments and other assets etc.,.

The said amount was provided in respect of assets and not for any liability

much less an unascertained liability. The issue whether a provision made

for assets will be covered under Explanation 1(c) was decided by Hon’ble

Apex Court in case of HCL Comnet System and Services Limited (305

ITR 409 SC) on 23 September 2008. The ld. AR assessee, therefore,

submits that reopening based on an issue which has already been settled

by Hon’ble Supreme Court, was without jurisdiction. The learned AR

further submits that when no addition was made in the reassessment order

passed under section 147/143(3), on the basis of reasons given in notice

under section 148, the entire reopening fails. In support of his submission

the learned AR of the assessee relied upon the decision of Bombay High

Court in case of Jet Airways (I) Limited (331 ITR 236 Bom). 3. On merits the learned AR for the assessee submits that on the applicability

of provisions of section 115JB, similar issue was decided by Hon’ble

Bombay High Court in case of Union Bank of India in ITA No. 1196 of 2013 dated 16th April 2019 and by Mumbai Tribunal in assessee’s own

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

case for AY 2004-5 in ITA No. 2193/Mum/2013. On the other addition

on account of book profits/ loss on revaluation of securities and provision

made for bad and doubtful debts which is reduced from the respective

assets, the learned AR submits that this issue is also covered in favour of

assessee by decision of Gujarat High Court in case of Vodafone Essar

(Gujarat) Ltd (397 ITR 55). Accordingly, the ld. AR for the assessee

submits that neither the reassessment order is valid nor the additions made

by the assessing officer are in the reassessment order is sustainable and

the assessee is liable to succeed on the validity of reassessment and on

merit as well. 4. On the other hand the learned Departmental representative (DR) for the

revenue after going through the chart furnish by learned AR of the

assessee on various grounds of appeal and the submission made, which

we have recorded hereinabove, submits that he relied upon the order of

lower authorities. 5. We have considered the rival submission of both the parties and gone

through the orders of authorities below, as well as through various

decisions relied by learned AR of the assessee. First addition as raised in

Ground No.3 relates to the applicability of provision of section 115JB.

The Hon’ble Bombay High Court in CIT Vs Union Bank of India (supra)

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held that provisions of section 115JB as it stood prior to its amendment by

virtue of Finance Act, 2012, would not be applicable to a banking

company governed by provisions of Banking Regulation Act, 1949.

Further, this bench of Tribunal in assessee’s own case for AY 2004-05 in

ITA No. 2193/Mum/2013 took the same view. Therefore, following the

principle of consistency this ground of appeal is allowed in favour of

assessee. 6. The other/ second addition as assailed in Ground No.4 relates to book

profits loss on revaluation of securities and provision made for bad and

doubtful debts which are reduced from the respective assets. We have

noted that this ground of appeal is also covered by the decision of Hon’ble

Gujarat High Court in CIT Vs Vodafone Essar (Gujarat) Ltd (supra)

wherein it is held that prior to the introduction of clause (i) to the

Explanation to section 115JB, as held by the Supreme Court in case of

HCL Comnet Systems & Services Ltd. (305 ITR 409 SC), the then existing

clause (c) did not cover a case where the assessee made a provision for

bad or doubtful debt. With insertion of clause (i) to the Explanation with

retrospective effect, any amount or amounts set aside for provision for

diminution in the value of the asset made by the assessee, would be added

back for computation of book profit under section 115JB. However, if this

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was not a mere provision made by the assessee by merely debiting the

Profit and Loss Account and crediting the provision for bad and doubtful

debt, but by simultaneously obliterating such provision from its accounts

by reducing the corresponding amount from the loans and advances on the

asset side of the balance sheet and consequently, at the end of the year

showing the loans and advances on the asset aside of the balance sheet as

net of the provision for bad debt, it would amount to a write off and such

actual write off would not be hit by clause (i) of the Explanation to

section 115JB. Considering the decision of Gujarat High Court in

Vodafone Essar, which is based on the decision of the Hon’ble Supreme

Court in HCL Comet system and services limited (supra), this ground of

appeal is also allowed in fewer of assessee. 7. Keeping in view fact that we have allowed the grounds of appeal on merit

related to the additions made in the reassessment order under section 143

(3) rws 147 dated 29 November 2013, therefore, the discussion on the

grounds related to the validity of reassessment order passed under section

147/143(3) have become academic. 8. In the result the appeal of the assessee is allowed.

ITA No. 3424/Mum/2018 by assessee (AY 2011-12). 9. The assessee has raised following grounds of appeals:–

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

(1) Disallowance of expenditure under section 14A: 1.1 The learned CIT(A) erred in law and facts in justifying the action of AO to disallow the expenses invoking the provisions of section14A for computation of income under normal provisions as well as under section 115 JB of the Act. 1.2 The learned CIT(A) was not justified in confirming the disallowance worked out under Rule 8(2)(ii) on his observation that all investments in the bank makes in earning exempt income has to be thoroughly justified that these investments were made out of interest free funds, is contrary to law being in total disregard to the decision of the jurisdictional High Court in Reliance Utilities and Power versus CIT and HDFC Bank Ltd versus DCIT, as per which the investments are presume to have been made out of interest free funds, if such funds existed at the time of investment. 1.3 The learned CIT(A) was grossly in error in going by the understanding that all the funds of the banks are interest-bearing, coming from the deposits or sale of Bonds. The observation totally ignored by the submission made by the assessee that an amount of ₹ 14567.58 Crore was existing with the assessee is interest free funds representing the share capital and reserves which are appearing in the published balance sheet. (2) Expenses for increase in paid up capital: 2.1 The ld CIT(A) erred in law and on facts in confirming the disallowances of ₹ 3,12,85,258/- made by AO and also rejecting the claim of amortization in total disregard to the amendment to section 35D brought by the Finance Act, 2008 extending the provision of section 35D of the Act, 1961 to the service sector and also ignoring the fact that sectors like bank also implies increased business activity in the form of increase in advance and to deposits, apart from the physical extension of Branch network etc. (3) Provision for diminution in value of investment-direction for relief subject to verification: 3.1 Having accepted that provision for diminution in value of investment is a requirement as per RBI direction, the investments are the stock in trade of

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the bank, the profit/loss on sale thereof is accounted for as business income and accordingly the disallowance is not called for, the learned CIT(A) was not justified to direct investigation to be carried out before granting relief in the case of the bank, whose accounts are audited a different levels including by the Statutory Auditors to ensure that the RBI directions have been complied with. 3.2 The investigation is to be carried out as directed by learned CIT(A) are not directly relevant to the issue of allowability of the provision and concern the profit/loss when these securities are sold. The learned CIT(A) has failed to take into consideration the practical problem involved in digging records of the period of decades back. (4) Application of MAT provisions to Banks 4.1 The learned CIT(A) erred in law and on facts in confirming that provisions of MAT are applicable to IDBI bank Ltd for AY 2011-12. 4.2 The learned CIT(A) was not legally justified in disagreeing with the decisions of the tribunals, including the jurisdictional ITAT Mumbai in assessee’s own case, holding that MAT provisions were not applicable to banks and thereby ignoring the legal sanctity of the system of hierarchical jurisdiction of the country. (5)Addition to book profit for provision of diminution in the value of investment: 5.1The learned CIT(A) was not legally justified in confirming addition of ₹190,39,69,186/-to the book profit computed under the provisions of section 115 JB without appreciating the real nature of the entry which represented loss in value of securities held at the stock in trade arising out of mark to market valuation which is an accepted method of valuation of stock in banking. 5.2 The learned CIT(A) erred in treating it as the amount set aside and thereby within the scope of clause (i) of explanation to section 115 JB(2) ignoring the fact that this is a present loss and not a provision for meeting future losses.

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5.3 In confirming the addition, the learned CIT(A) ignored his own finding given while considering its allowability on computation of taxable income under the normal provisions of law wherein they accepted the provision as a method of representing accounts as per RBI guideline. It was accepted that whenever sale of such securities take place, the appellant is reflecting the same as business income/loss. (6) Addition to book profit of the amount disallowed under section 14A: 6.1 The learned CIT(A) erred in law and facts in confirming the addition of ₹102,44,25,790/-, being the amount of disallowance under section 14A towards the book profit computed for the purpose of section 115 JB ignoring the legal position that the addition prescribed under explanation to section 115JB(2) is of actual amount debited to P&L account, whereas the disallowance under Rule 8D is a notional amount to be disallowed irrespective of actual expenses incurred in earning exempt income. 6.2 While confirming the addition, the learned CIT(A) ignored the decision of Special Bench of ITAT Delhi in case of ACIT versus Vireet investment Private Limited ITA No. 502/Delhi/2012 and CO No. 68/Delhi/2014 wherein Hon’ble Tribunal follow the decision of Delhi High Court in CIT Vs Bhusan Steel Limited (IT No. 593 and 494 of 2015) holding that computation under MAT provisions is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. The learned CIT(A) also failed to consider the decision of the jurisdictional High Court in CIT Versus JSW Engineering Ltd (60 taxmann.com 303) in deciding the issue. (7) Initiation of penalty proceedings under section 271 of the Act 1961 as mandatory provision which is likely to give a wrong message on finalization of penalty proceedings. 10. At the outset of hearing the learned AR of the assessee submits that all

grounds of appeal raised by assessee are covered in favour of assessee by

the decisions of various High Courts or by tribunal, either in assessee’s 9

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

own case or cases of other assessee’s / banks. The learned AR of the

assessee furnished the details chart are showing the narrations of grounds

of appeal and the submission in respect thereof along with the citations of

various decisions of Superior Courts and tribunal. 11. Ground No. 1 relates to disallowance under section 14A. The learned AR

of the assessee submits that the ld. CIT-(A) confirmed the disallowance

made by assessing officer under Rule 8(2)(ii) and (iii) but restricted the

disallowance made to exempt income earned. The ld AR for the assessee

submits that this issue is now covered by the decision of Hon’ble

Supreme court in Maxopp Investment P Ltd Vs CIT (91 taxmann.com

154 SC), wherein its is held that held that investments made by a banking

concern are part of the business or banking. Therefore, the income arising

from such investments is attributable to business of banking falling under

the head 'profits and gains of business and profession'. The learned AR of

the assessee further submits that no disallowance is warranted under

section 14A as held by Kolkata tribunal in UCO Bank (ITA No. 1615

/Kol/2016), Delhi tribunal in case of Punjab National Bank (ITA No.

5481 /Del/2014 and Nice Bombay Transport (P) Ltd reported vide (175

ITD 684).

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 12. In without prejudice submission, the learned AR submitted that no disallowance under Rule 8D(2)(ii) is warranted in assessee’s cases as the interest free funds of ₹14567.58 Crore are far exceed the securities from which tax free income was earned of ₹ 1598.60 Crore. In support of his submission the learned AR relied upon the decision of Bombay High Court in case of HDFC Bank (383 ITR 529) and Gujarat High Court in Syntax Industries Ltd (82 taxmann.com 171). It was submitted that the SLP filed against the order of Gujarat High Court has been dismissed by Hon’ble Supreme Court. 13. On the other head the learned DR for the revenue after going through digital furnished in the chart and decision relied by learned AR of the assessee, submits that he relied upon the order of lower authorities. 14. We have considered the rival submission of the parties and I want through the orders of lower authorities. During the assessment the assessing officer noted that the assessee claimed exempt income of ₹ 94,50,57,908/- under section 10 of the Act. The assessee apportioned 1% of dividend income towards administrative expenses incurred for earning this exempt income. The working provided by assessee was not accepted by assessing officer. The assessing officer asked to furnish the details of dividend income earned and expenses incurred as per Rule 8D. The assessee

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) furnished its reply dated 9th of December 2013. The assessee in its reply stated that the own funds of the assessee are in far excess for making investment for earning exempt income, no borrowing are attributed to exempt income, section 14A and Rule 8D are not applicable in case of assessee. The submission of assessee was not accepted by assessing officer. The assessing officer after invoking the provisions of section 14A read with Rule8D made a disallowance of ₹ 102,44,25,790/- and enhanced the total income computed under the normal provisions as well as income computed under section 115JB. The assessing officer worked out disallowance under Rule 8D(2)(i) and computed disallowance of ₹ 95,46,039/- @ 1% of exempt income, Rule 8D(2)(ii) of ₹ 94,44,95,944/-, and Rule 8D(2(iii) ₹7,99,29,846/-. On appeal before CIT(A) the disallowance under Rule 8D(2)(i) was deleted, however, other disallowance under Rule 8D(2)(ii) &(iii) was sustained. 15. The Hon’ble Supreme Court in Maxopp Investment P Ltd (supra) in para 36 of its decision observed that there is yet another aspect which still needs to be looked into. What happens when the shares are held as 'stock- in-trade' and not as 'investment', particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. Further in para 37 the Hon’ble Court further held that this

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

Circular takes note of the judgment of this Court in Nawanshahar case

wherein it is held that investments made by a banking concern are part of

the business or banking. Therefore, the income arises from such

investments is attributable to business of banking falling under the head

'profits and gains of business and profession'. On that basis, the Circular

contains the decision of the Board that no appeal would be filed on this

ground by the officers of the Department and if the appeals are already

filed, they should be withdrawn. A reading of this circular would make it

clear that the issue was as to whether income by way of interest on

securities shall be chargeable to income tax under the head 'income from

other sources' or it is to fall under the head 'profits and gains of business

and profession'. The Board, going by the decision of this Court in

Nawanshahar case, clarified that it has to be treated as income falling

under the head 'profits and gains of business and profession'.

following the decision of Maxopp Investment P Ltd (supra) on similar set

of facts passed the following order:

“11. Having considered the submissions of the parties, we find that the issue involved in the Revenue's appeal is squarely covered in assessee's favour by the judgment of the Hon'ble Bombay High Court in the case of CIT Vs HDFC Bank Ltd (383 ITR 529). In that case also the issue before the 13

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

Hon'ble Bombay High Court was whether any part of the interest paid by the Bank could be disallowed u/s 14A read with Rule 8D(2)(ii). On appeal this Tribunal and thereafter the Hon'ble Bombay High Court held that since the Bank's own funds were substantially more than the cost of investments yielding tax free income, no part of the interest paid was liable for disallowance. The view of the Hon'ble Bombay High Court was followed with approval by the jurisdictional Calcutta High Court in the case of CIT Vs Rasoi Ltd (ITA No. 109 of 2016).

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of State Bank of Patiala arising from the decision of the Hon'ble & Haryana High Court reported in 391 ITR 218. In the said judgment the Hon'ble Punjab & Haryana High Court had taken note of the fact that the banking companies in the course of carrying on their banking business were required to hold shares & securities and the expenses were incurred in connection with such banking business and the income therefrom was assessable under the head "Profits & Gains of Business". The Hon'ble High Court had taken note of the Board's Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head "Profits & Gains of Business" and not under the head "Other Sources". The High Court had also taken note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs Nawanshahar Central Co-operative Bank Ltd (289 ITR 6).Applying the ratio in the said decision the Hon'ble Punjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon'ble Punjab & Haryana High Court therefore held that in assessing the income of the assessee engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its banking business and not in relation to earning any tax free income. The Revenue's appeal against the judgment of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supreme Court. We therefore find that qua the assessee is engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO to delete the disallowance of Rs.2,90,37,490/- made under Rule 8D(2)(iii).

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 17. In view of the aforesaid discussion we are of the view that no

disallowance under 14A is permissible in terms of Rule 8D in case of

assessee is engaged in banking business. Therefore, respectfully following

the judgment of the Supreme Court in case of Maxopp investment Ltd we

direct the Ld. AO to delete the disallowance of Rule 8D(2)(iii). Similarly,

no disallowance under rule 8D((2)(ii) is permissible as the reserve and

surplus of assessee which is a banking company, is more than the

investment made for earning exempt income. Therefore, the assessing

officer is also directed to delete the disallowance of Rule 8D(ii). 18. In the result ground No. 1 of the appeal is allowed. 19. Ground No. 2 relates to expenses incurred for increase in capital

allowable under section 35D. The learned AR of the assessee submits that

claim of assessee was not allowable the reasons that assessee had not

established that there was extension of undertaking or setting up of new

unit. The assessee submits that as evident from Annual Report, additions

were made to branches, ATM and Retail Asset Centers which proves that

there was extension of undertaking/setting up of new units and

accordingly, deduction claimed should have been allowed. The learned

AR of the assessee also furnished a copy of relevant pages of Annual

Report showing the additions of 107 branches during the financial year

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

2010-11 including Specialized Corporate Branches, thereby total No. of

domestic branches increased up to 815 as on 31 March 2011. Further, 169

ATM’s at key locations to improve the growing client is added thereby

making total ATMs to 1370 as on 31 March 2011. Further, 9 new Retail

Asset Centre’s during the year were added. Accordingly, the learned AR

of the assessee would submit that the expenses incurred by assessee in

setting up of new units (branches/ ATM’s and Retail asses) are allowable

under section 35D of the Act.

lower authorities.

of the lower authorities. In the return of income the assessee claimed

expenses of Rs.3,12,85,258/- incurred in connection with increase in paid

up capital. The assessee claimed the expenditure as revenue in nature. The

assessee furnished the following breakup of the expenses:

Sl No. Particulars Expenses in Rs. 1 Processing fees to CSDL 11,030/- 2 Stamp duty 3,11,90,400/- 3 Processing fees to NSE 27,575/- 4 Processing fees to BSE 55,150/- 5 Corporate action fees 1,103/- Total 3,12,85,258/-

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 22. In without prejudice and alternative submission, the assessee claimed that

if expenditure incurred is proposed to be disallowed, then the

proportionate deduction under section 35D may be allowed. The

submission of assessee was not accepted by assessing officer. The

assessing officer held that claim of amortization is not acceptable as there

is no extension of undertaking or setting up a new unit which is necessary

condition for amortization of such expenses. An alternative and without

prejudice claim of assessing under section 35D, the assessing officer

concluded that there must be extension of undertaking or setting up of a

new unit. The assessee has not furnished supported documentary evidence

to show that increase in paid a share capital were for extension of

undertaking or setting up of new units. Before learned CIT(A) the

assessee furnished the details of setting up of new units with factual data.

The assessee also stated that they have added 107 new branches, 169

ATMs and 9 Retail Asset Centers. The learned CIT(A) confirmed the

action of assessing officer holding that to avail the benefit of amortization,

the assessee has to substantiate with the factual data that new units were

established, cost incurred towards that and if the infused share capital

have been diverted for such setting up of new units. The assessee has not

brought out any such information either at the time of assessment or

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

during the hearing before him. Before us the learned AR of the assessee

vehemently submitted that all the expenses incurred by assessee as

evident from the Annual Reports, which clearly establishes the facts that

expenses were incurred for setting up of new branch, ATMs and asset

management centers. We have noted that the lower authorities have not

disputed the addition of new ATMs, new branches and Retail Asset

Centre. The lower authorities denied the expenditure on the ground that

no documentary evidences furnished. Considering the fact that all details

of new assets which consist of ATMs, no branches and retail asset Centre

are part of Annual Report. The annual report is prepared by statutory

auditors. Hence, we are of the view that the assessee has added new unit,

however for limited purpose, we deem it appropriate to restore this issue

to the file of assessing officer to verify the facts and allow necessary relief

to the assessee in accordance with law. Needless to say that before

passing the order the assessing officer shall grant opportunity to the

assessee to further substantiate its claim and to allow filing further details

along with documentary evidence to prove its claim. 23. In the result this ground of appeal is allowed for statistical purpose. 24. Ground No. 3 relates to allowability of diminution in value of securities.

The learned AR of the assessee submits that this ground of appeal is

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covered in favour of assessee by various decision of superior courts including the decision of Supreme Court in case of UCO Bank (240 ITR 355), Bombay High Court in case of Bank of Baroda (262 ITR 334 Bom),

HDFC Bank (366 ITR 505 Bom) and also by the decision of tribunal in Bank of India Vs ACIT in ITA No. 1013/Mum/2013 dated 27.08.2018. The learned AR further submits that the learned CIT(A) should have

deleted the disallowance instead of directing assessing officer to verify and allow. 25. On the other hand the learned AR for the revenue submits that learned

CIT(A) have already granted relief to the assessee, therefore the assessee should not have any grievances in verification of fact at the end of assessing officer. 26. We have considered the submission of both the parties and have perused the record. In the return of income the assessee claimed deduction of ₹190,39,69,109/- towards diminution in value of business assets. The assessing officer issued show cause notice to the assessee to explain the

allowability of diminution in value of business assets. The assessee filed its reply dated 6th February 2014. In the reply the assessee stated that for the purpose of income tax, consistently the bank has been treating

investment in equity and preference shares as ‘capital assets’ and other

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investments as ‘business assets’. The account from sale of equity and preferential shares has been offered to tax under the head ‘capital gains’. Similarly, income from sales of other investments has been offered to tax

under the head ‘profit and gains of business and profession’. This has been accepted in the assessment of the bank. In the return of income the assessee claimed deduction in respect of diminution in value of business assets of ₹ 190,39,69,106/-. The assessee also furnished the details of breakups. The assessee claimed that diminution had arised in on account of marking to market the closing balance of business assets. The income

from sale of these business assets has been offered to tax as ‘business income’. Accordingly, diminution of value of business assets of ₹ 190,39,69,106/- recognised in the books of account be allowed as

business expenditure. The reply of assessee was not accepted by the assessing officer. The assessing officer took his view that assessee has made provision for diminution in value of assets which is not allowable expenditure as per Income tax Act. The detailed furnished by assessee

shows that it is provision for diminution in value of business assets primarily comprises of marked to market losses. Marked to market in substance a methodology of assessing value to apportion held in a

financial instrument based on its market price on the closing day of

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accounting or reporting record. This is a concept under which financial

instrument are valued at market rate so as to report their actual value on

the reporting date. The learned assessing officer conclude that since the

loss to marked to market basis has resulted in reduction of book profit of

the assessee, such notional loss is contingent in nature and cannot be

allowed to be set off against the taxable income and thereby added to the

total income of the assessee. The learned CIT(A) after considering the

submission of the assessee concluded that the assessee bank are statutorily

bound to maintain certain part of their asset in government securities to

meet with the statutory requirement of Banking Regulation and RBI

guidelines. The banks continues to trade in government security for

investment purpose and to maximize their profit from time to time, they

are required to classify them as investment and disclose profit on

sales/interest as business income and provide for the diminution in value

of securities which accrues due to declaration of interest on securities, as

on the last day of financial year in the books of account to arrive at a true

picture of financial state of affair of the bank. The learned CIT (A)

accepted that bank provide for diminution of value as on last day of

financial year by making a provision in books as these are held as

investment in books and reverse the entries next year or the sale of the

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

government securities from time to time and accordingly book profit on

sale and interest on securities as its business income, this methodology is

followed from year to year in all banks as per RBI guidelines. The learned

CIT(A) also accepted this provision for diminution in value securities as

on last day of financial year represents the difference between the

purchase price of the stock of securities on the date of purchase and

market value of these securities on the last day of financial year, which

would have been reflected at lower value if normal system of accounting

of the stock at market price in the profit and loss account for the

guidelines issued by Reserve Bank of India under Banking Regulation

Act. The learned CIT(A) after accepting legal position concluded that

basic information provided by assessee required thorough examination of

fact and directed the assessing officer to examine the assessee’s claim on

merit. 27. The Hon’ble Bombay High Court in CIT Vs Bank of Baroda (supra)

while relying on the decision of Supreme Court in case of UCO Bank v.

CIT [1999] 240 ITR 355/106 Taxman 601, held that where the market

value of shares and securities had fallen below the cost before the date of

valuation and where on the date of valuation, the market value is less than

the actual cost, then the assessee was entitled to value the articles at

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

market price and the assessee was entitled to claim the loss which the

assessee would probably incur at the time of sale of shares and securities.

That, whichever method the assessee adopts, it should disclose the true

picture of profits and gains. That, for determining the real income, the

entries in the balance sheet was required to be maintained in the statutory

form. However, such entries in the balance sheet were not decisive or

conclusive. In such cases it was open to the ITO and the assessee to

ascertain true and proper income, while submitting income-tax returns.

For valuing the closing stock, it was open to the assessee to value the

stock at cost or market price, whichever is lower. We have noted that

similar view was taken by Mumbai Tribunal in Bank of India Vs ACT

(supra). 28. In view of the aforesaid legal position we are of the view that this issue is

covered in favour of the assessee, hence, direct the assessing officer to

delete the disallowance. In the result this ground of appeal is allowed. 29. Ground No. 5 relates to applicability of provision of section 115 JB. The

learned AR of the assessee submits that this ground of appeal is covered

in favour of assessee by the decision of Bombay High Court in case of

Union Bank of India (ITA No. 1196 of 2013) dated 16 April 2019 and by

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

the decision of tribunal in assessee’s own case for AY 2004-05 (ITA No.

2193/Mum/2013). 30. On the other hand the learned AR for the revenue supported the order of

lower authorities. 31. We have considered the rival submission of the parties and gone through

the orders of authorities below and the various decision relied by learned

AR of the assessee. We have noted that this ground is identical to the

ground No. 3 of appeal raised by assessee in appeal for AY 2008-09,

which we have allowed, therefore following the principle of consistency

this ground of appeal legal also allowed with similar directions. 32. Ground No. 5 relates to addition of book profit on revaluation of

securities and ground No. 6 relates to addition to book profit of

disallowance made under section 14A. Considering the fact that we have

allowed the relief to the assessee on diminution/revaluation of securities

and on disallowance under section 14A, therefore the discussion on these

grounds of appeal have become academic. 33. Ground No. 7 relates to initiation of penalty. This ground of appeal is

premature and therefore, resultantly dismissed. 34. In the result appeal of the assessee is allowed.

ITA No. 3425/Mum/2018 by assessee for AY 2012-13.

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 35. We have noted that the assessee has raised identical grounds of appeal, as

raised in appeal for AY 2011 -12, the facts of the year under consideration

is also similar, therefore considering the principle of consistency all the

grounds of appeal raised by assessee for the year under consideration are

also allowed with similar direction.

ITA No. 3426/Mum/2018 by assessee for AY 2013-14 36. We have noted that the ground No. 1 and 2 of the appeal for this year is

identical to the ground No.1 & 2 as raised in appeal for AY 2011-12 and

2012-13, which we have allowed, therefore following the principle of

consistency on same set of fact these grounds of appeal are allowed with

similar directions. 37. Ground No. 3 relates to addition to book profit of tax on non-monetary

perquisites. The learned AR of the assessee submits that the assessing

officer and the learned CIT-A consider the amount of tax paid on behalf

of employees on non-monetary perquisites as amount of income tax paid

or payable and provision therefore following under Explanation 1(a) to

section 115 JB(2) without appreciating the it is a part of employee cost for

the assessee and cannot be treated as falling under the above Explanation.

In support of his submission the learned AR of the assessee relied upon

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

the decision of Mumbai tribunal in case of Rashtriya Chemical and

Fertilizer Ltd (91 taxmann.com 104). 38. On the other hand the learned DR for the revenue relied upon the order of

lower authorities. 39. We have considered the submission of both the parties and perused the

orders of lower authorities. During the assessment, from the assessing

officer found that assessee while computing income under normal provision added back ₹ 8,21,24,338/- being taxes on nonmonetary

perquisites to employees under section 40 (a)(v), however while

computing income under section 115 JB the same has not been added

back to the book profit. The assessee was asked to show cause as to why

this amount should not be added back in the MAT income computed

under section 115 JB. On which no tax was deducted. The assessee was

asked to give details of the year end provision and also justify its

allowability. The assessee filed its reply wide reply dated 20.10. 2016.

The assessing officer has extracted the contents of reply in para 9.2 of the

assessment order. The assessee in its reply besides the other contention

contended that the perquisites should not be disallowed under the MAT

computation, as per section 40 (a) (v), the amount of tax paid by

employers on perquisites is not allowed as business expenses under

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

normal provisions. The said the time of computation of income under

normal provision this amount is bedded back in the profits. The assessee

also explained the provision of explanation 1 to subsection 2 of section

115 JB. The contention of assessee was not accepted by assessing officer.

The assessing officer concluded that Explanation to section 115 JB

specifically provides for increased in book profit by the amount of income

tax paid, payable or provision made thereof. Further, section 40(a)(v) of

the Act clearly provides that the tax paid by the employer on perquisites

to the employee is not deductible from the income of the employer. The

assessing officer also had that tax on perquisite is also not taxable in the

hand of employees as per section 10 (10 CC) of the act and hence the

same cannot be construed as akin to TDS/ fringe benefits tax and

accordingly added back to the MAT income of assessee. The learned

CIT(A) confirmed the action of assessing officer holding that the

provision of section 40(a)(v) clearly provides that the taxes paid by the

employer on perquisite to the employees is not deductible from the

income of an employer. The alternative action under section 10(10 CC)

was also upheld. 40. The learned AR of the assessee vehemently relied upon the decision of

coordinate bench of tribunal in Rashtriya Chemical and Fertilizers Ltd.

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

(supra) wherein on similar ground of appeal the coordinate bench held the

taxes borne by the assessee on non-monetary perquisites provided to

employees forms part of Employee Benefit cost and akin to Fringe Benefit

Tax since they are certainly not 'below the line' items since the same are

expressively disallowed under section 40(a)(v), the same do not constitute

Income Tax for the assessee in terms of Explanation-2. Therefore, without

there being any corresponding amendment in the definition of Income Tax

as provided in Explanation-2 to Section 115JB, Fringe Benefit Tax was

not required to be added back while arriving at Book Profits u/s. 115JB. In

our view the ratio of the decision is squarely applicable on the facts of the

present case. 41. In the result this ground of appeal is allowed. 42. Ground No. 5 relates to addition to book profits the disallowance made

under section 14A. We are noted that this ground of appeal is identical to

the ground No. 6 in appeal for AY 2011- 12, which we have allowed

therefore considering our decision on similar set of fact this ground of

appeal is allowed with similar direction. 43. Ground No. 6 relates to initiation of penalty. This ground of appeal is

premature and needs no adjudication, resultantly dismissed. 44. In the result appeal of the assessee is allowed.

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

ITA No. 4041/Mum/2018 by revenue for AY 2011-12.

(1) (i) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the suo moto disallowance made by assessee, when Rule 8D(2)(i) of the Income tax Rules 1962, clearly warrants the disallowance of such direct expenses while computing the disallowance under section 14A read with Rule 8D. (ii) On the facts and in the circumstances of the case and in law, the learned CIT-A erred in restricting the disallowance made under section 14A rwr Rule 8D to the extent of exempt income, when no such provision exist in Rule8D of the Income tax Rules 1962. (2) (i) on the facts and in the circumstances of the case and in law, learned CIT-A erred in deleting the suo moto disallowance made by assessee, when Rule8D2 (i) of the Income tax Rules 1962 and clearly warrants the disallowance of such direct expenses while computing the disallowance under section 14A read with rule 8D under MAT provision. (ii) On the facts and in the circumstances of the case the learned CIT-A erred in restricting the disallowance made under section 14A r.w. Rule 8D(2) to the extent of exempt income, when no such provision of just in Rule8D of income tax Rule , 1962 under MAT provisions. 3. The appellant prays that the order of the ld CIT(A)on the above grounds be set aside and that of assessing officer restored. 46. We have noted that the assessee has challenged the deletion of

disallowance under clause (i) of Rule 8D(2) and also in restricting the

disallowance under clause (iii) of Rule 8D(2) to the extent of exempt

income. While discussing the corresponding grounds of appeal in cross

appeal of the assessee we have noted that no disallowance u/s 14A was

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

warranted in case of assessee being engaged in banking business. We

have further noted the Hon'ble Supreme Court in Maxopp Investment P

Ltd (supra) upheld the judgment of the Hon'ble Punjab & Haryana High

Court in the case of Pr. CIT Vs State Bank of Patiala (supra), wherein it

was held that no disallowance u/s 14A is permissible in terms of Rule 8D

in case of assessee is engaged in banking business. Similar view was

taken by the coordinate bench of the Kolkata Tribunal in UCO Bank

(supra). Therefore in view of aforesaid legal discussion, we do not find

any merit in the ground of appeal raised by revenue. 47. In the result the appeal of the revenue is dismissed.

ITA No. 4042/Mum/2018 by revenue for AY 2012-13. 48. The revenue has raised identical ground of appeal as raised in appeal for

assessment year 2011-12, which we are dismissed. No various in the facts

for the year under consideration are brought to our notice. Therefore,

following the principle of consistency the grounds of appeal raised by

revenue in the year under consideration are also dismissed with similar

directions.

ITA No. 4043/Mum/2018 by revenue for AY 2013-14. 49. The revenue has raised following grounds of appeal:–

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14)

(1) Deleting the suo moto disallowance under section 14A and further restricting the disallowance under section 14A r.w. Rule 8D to the extent of exempt income. (2) Deleting the disallowance of ₹ 65,77,57,062/- on account of provisions for expenses on which TDS was not deducted under section 40(a)(ia). 50. We have noted that ground No. 1 of the appeal is identical to the ground

No. 1 & 2 in the appeal for AY 2012 -13, which we have already

dismissed. No variation of fact for the year under consideration is brought

to notice, therefore, this ground of appeal is also dismissed with similar

directions. 51. Ground No. 2 relates to deleting the disallowance under section 40(a)(ia).

The ld. AR for the assessee submits that the assessee is a banking

company and following mercantile system of accounting on due basis.

The assessee made estimate of such liability for expenses not on adhoc

basis but on realistic basis evaluation taking into account the pending and

the past liability. Such outstanding expenses were reverse in the

subsequent years upon receipt of bills and deducting tax when the liability

crystallized on receipt of invoices. On the question of TDS, the ld AR

submits that accounting entry was made by creating a provision for such

expenses, the fact remain that creditor was not known and in most of the

cases receiver is not identifiable.

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 52. On the other hand the ld. DR for the revenue relied on the order of the

lower authorities. 53. We have considered the rival submissions of the parties and gone through

the orders of the authorities below. During the assessment the assessing

officer from the tax Audit report noted that the assessee has made

provision for expenses on which no tax was deducted. The assessee was

asked to justify its allowability. The assessee filed its reply dated

08.12.2016 and again on 22.12.2016. In the reply the assessee states that

the assessee has made a provision of expenses of Rs. 65,77,57,062/-. The

provisions were made for those bills which were not received and which

are subject to reversal in the subsequent year upon final bills and therefore

no TDS was made. The provisions were made only for the purpose

preparation of annual financial statement in accordance with accounting

slandered. The reply of the assessee is extracted in verbatim by assessing

officer in para 4 of his order. The reply of the assessee was not accepted

by the assessing officer. The assessing officer concluded that as per

section 40(a)(ia), any expenses on which tax is deductable at source under

the relevant provision of the Act, and as such said tax is not deducted or

after deduction not paid, no deduction can be allowed for such expenses.

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 54. Before, ld CIT(A) the assessee made similar submissions as made before

us and also furnished the submissions in writing. The ld CIT(A) after

appreciating the submissions of the assessee concluded that the expenses

were relatable to the previous year and therefore, to be provided under

mercantile system of accounting on due basis, which is the requirement of

this system of accounting to take in to account of expenses which has

become due but could not be paid by reasons of non receipt of bills. It was

further concluded that the TDS provisions are applicable to the payees

who are clearly identifiable by the assessee. The TDS made has to be

linked with PAN of the payee’s. Further the payer has to issue a

certificate to that effect. The payee’s were not identifiable at that time. No

contrary material that the assessee made such liability not on adhoc basis

but a realistic evaluation based on the pending past liability. It was

further concluded that outstanding expenses were reversed in the

subsequent year upon receipt of bill and deducted tax when the liability

was crystallized on receipt of bill. There is no loss of revenue in such

cases. On the basis of the above conclusion the ld CIT(A) directed to

delete the disallowances. No contrary facts or material or law is brought

to our notice to take other view. In the result this ground of appeal is

dismissed.

ITA No. 3423 to 3426 & 4041to 4043/M/18 IDBI Bank Ltd (AY’s 2008-09, 2011-12 to 2013-14) 55. In the result appeal of the revenue is dismissed Order pronounced in the open court on 03.09.2019.

Sd/- Sd/- (R.C.Sharma) (Pawan Singh) Accountant Member Judicial Member

Mumbai, Date : 03 September, 2019 PS:Sk Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order

Asstt. Registrar, ITAT, Mumbai