BANK OF INDIA,MUMBAI vs. ACIT-2(1)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER

ITA No.1451/MUM/2023 ITA No.1452/MUM/2023 Assessment Year : 2016-17 Assessment Year : 2018-19

Bank of India, 8th Floor, Taxation Department, Star House, C-5, G-Block, Bandra – Kurla Complex, Bandra (East) ……………. Appellant Mumbai – 400051 PAN: AAACB0472C v/s Assistant Commissioner of Income Tax – 2(1)(2), Aayakar Bhavan, Maharishi Karve Road, ……………. Respondent Mumbai – 400020

ITA No.1547/MUM/2023 ITA No.1548/MUM/2023 Assessment Year : 2016-17 Assessment Year : 2018-19

Assistant Commissioner of Income Tax – 2(1)(2), Aayakar Bhavan, Maharishi Karve Road, Mumbai – 400020 ……………. Appellant v/s Bank of India, 8th Floor, Taxation Department, Star House, C-5, G-Block, Bandra – Kurla Complex, Bandra (East) ……………. Respondent Mumbai – 400051 PAN: AAACB0472C

Assessee by : Shri C. Naresh Revenue by : Shri Satya Pal Kumar, CIT (DR)

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Date of Hearing – 11/12/2025 Date of Order – 30/01/2026

O R D E R PER BENCH :

The present cross-appeals have been filed by the assessee and the Revenue challenging the separate impugned order of even date 28/02/2023 passed under section 250 of the Income-tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”] for the assessment years 2016-17 and 2018- 19.

ITA No. 1451/Mum./2023 Assessee’s appeal – A.Y. 2016-17 3. In the appeal, the assessee has raised the following grounds: - “1. On the facts and in the circumstances of the case and in law, the learned Assistant Commissioner of Income-Tax 2(1)(1) ["ACIT*) has erred in disallowing Rs.57,84,37,239 u/s. 14A of the Income-tax Act, 1961 ("the Act") read with Rule 8D(ii) towards expenditure incurred in relation to income claimed exempt u/s. 10 and the Hon'ble CIT(A) has erred in confirming the said disallowance by restricting it up to Rs.12,94,13,414 u/s. 14A read with Rule 8D(iii). The learned ACIT be directed to delete the disallowance made u/s. 14A read with Rule 8D(iii) of Rs.12,94,13,414 and reduce the total income accordingly.

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1A. Without prejudice to Ground no. 1 above, on the facts and in circumstances of the case and in law, assuming without accepting that the contention of the Appellant Bank is not acceptable, in such case, the learned ACIT be directed to restrict the disallowance u/s. 14A in respect of expenses (other than interest) incurred by the Treasury Division of the Bank to Rs.25,64,566 (being proportionate expenses) and reduce the total income accordingly. 1B. Without prejudice to Ground no. 1 above, on the facts and in circumstances of the case and in law, assuming without accepting that the proportionate disallowance of expenses is not considered a reasonable allowance, then in such case, the learned ACIT be directed to restrict the disallowance u/s. 14A in respect of expenses (other than interest) incurred by the Treasury Division of the Bank to the extent of 1% of exempt income being Rs.57,84,372 and reduce the total income accordingly. 2. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing claim for amortization of lease premium paid in respect of various leasehold properties of Rs.4,08,67,975 and the Hon'ble CIT(A) has erred in confirming the disallowance made by learned ACIT. The learned ACIT be directed to allow the claim for amortization of lease premium paid in respect of various leasehold properties of RS.4,08,67,975 and reduce the total income accordingly. 2A. Without prejudice to Ground no. 2 above, on the facts and in the circumstances of the case and in law, assuming without accepting that amortization of lease premium of Rs.4,08,67,975 is in the nature of capital expenditure, the learned ACIT be directed to allow depreciation u/s. 32 of the Act on the same and reduce the total income accordingly. 3. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing the exclusion of profits of branches in countries with whom India has entered into a Double Taxation Avoidance Agreement (DTAA) namely United Kingdom (UK), France, Belgium, Kenya, Japan, USA, Singapore, China, United Arab Emirates (UAE) and South Africa amounting to Rs.1440,17,71,495 u/s. 90 of the Act and the Hon'ble CIT(A) has erred in upholding the decision of the learned ACIT. The learned ACIT be directed to exclude the profits of aforesaid foreign branches amounting to Rs.1440,17,71,495 u/s. 90 of the Act and reduce the total income accordingly. 3A. Without prejudice to the contention that income of foreign branches is to be excluded in computing total be the Income computed as per provisions of income-tax laws of respective countries and not the income computed as per provisions of Income-tax Act, 1961. The Hon'ble CIT(A) has erred in not considering the same. The learned ACIT be directed to consider the same and reduce the total income accordingly. 3B. Without prejudice to Ground no. 3 above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs.1440,17,71,495 is not allowed and therefore, taxed in India, then the Appellant Bank prays that the credit for taxes paid by the said branches in their respective countries be allowed while determining tax liability in India in accordance with Sec. 90 and Sec. 91 of the Act.

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of banking and other related financial activities. The business and operations of the assessee are governed by the guidelines issued by the Reserve Bank of India (“RBI”) from time to time. For the year under consideration, the assessee filed its return of income on 30/11/2016, declaring a total loss of Rs.844,76,92,620 and book loss of Rs.8,106,24,94,032. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the year under consideration, the assessee earned income total amounting to Rs.57,84,37,239, which is exempt under section 10 of the Act. The assessee also incurred an amount of Rs.30,071.84 crore as interest on the borrowed funds as against receipts of Rs.41,796.64 crore under the same head. Since the investment yielding the exempt income was quite sizeable in the case of the assessee, the Assessing Officer (“AO”), vide order dated 14/03/2019 passed under section 143(3) of the Act, held that it is unreasonable to assume that the assessee would not have invested any part of the borrowed capital in tax-free investments. Accordingly, the assessee was asked to explain as to why the provisions of section 14A read with Rule 8D of the Rules be not applied. In response, the assessee submitted that the securities held by it as stock-in-trade and the income arising therefrom are not exempt from tax. Further, dividend/interest income is incidental to holding such securities and hence, disallowance under section 14A of the Act is not warranted. In support of its contention, the assessee, inter-alia, placed reliance upon the decision of the Hon’ble Supreme Court in Maxopp Investment Ltd vs. CIT, reported in [2018] 91 taxmann.com 154 (SC). The AO vide order passed under section 143(3) of the Act disagreed with the

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submissions of the assessee and computed a disallowance of Rs.57,84,37,239 under section 14A read with Rule 8D of the Rules.

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"38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as 'stock-in-trade' and not as investment. We proceed to discuss this aspect hereinafter. 39. In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as income' under the head profits and gains from business and profession. What happens is that, in the process, when the shares are held as 'stock-in-trade", certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10(34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share & Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade, it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove." 7. The Hon'ble Delhi High Court in the case of PCIT vs. Punjab & Sind Bank (supra) after considering the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra) has upheld the decision of Tribunal in deleting disallowance made u/s. 14A of the Act in respect of exempt income earned on shares held as stock-in-trade. Similar view has been expressed by Hon'ble Delhi High Court in the case of PCIT vs. Punjab National Bank, 140 taxman.com 131

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following the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra). The relevant extract of the judgment reads as under: "19. The Supreme Court in this judgment upheld the decision of the High Court of Punjab and Haryana arising under section 14A of the Act with respect to an assessee bank. It further held that when the shares were held as stock-in-trade and not as investment particularly by banks, the main purpose was to trade in those shares and earn profits there from and therefore section 14A of the Act was notattracted and the expenditure could not be disallowed. The judgment of Maxopp Investment Ltd. (supra) has been duly noted by the Tribunal in its impugned order and in our opinion the Tribunal has correctly disallowed the disallowance under rule 8D(2)(iii) of the Rules." 8. Thereafter, in the case of PCIT vs. PNB Housing Finance Ltd.(supra) the Hon'ble Delhi High Court again following the decision rendered in the case Maxopp Investment Ltd. vs. CIT(supra) and the decision of Hon'ble Apex Court in the case of South Indian Bank Ltd. (supra) held that no disallowance u/s. 14A of the Act is warranted where shares are held as stock-in-trade. The relevant extract of the decision rendered by Hon'ble Apex Court reads as under: "6. With respect to the challenge of the deletion of the disallowance made under section 14A of the Act, this issue is no longer res integra. It is an admitted fact that the exempt income was earned by the assessee from the investment held by it as stock-in-trade. This issue has been conclusively determined by the Supreme Court in Maxopp Investment Ltd. v. CIT [2018) 91 taxmann.com 154/254 Taxman 325/402 ITR 640/[201815 SCC 523. In this matter, the Supreme Court was concerned with a batch of appeals which also included a challenge to the judgment of the Punjab and Haryana High Court Pr. CIT v. State Bank of Patiala [2017) 78 taxmann.com 3/245 Taxman 273/391 ITR 218 and the facts of the said case are para materia to the case in hand. In the case of State Bank of Patiala, (supra) the AO restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule 8-D and holding that section 14A of the Act would be applicable. The CIT(A) issued a notice of enhancement under section 251 of the Act and disallowed the entire expenditure claimed by the assessee therein instead of restricting the disallowance to the amount which was claimed as exempt income. The ITAT set aside the order of the AO as well as CIT(A). The High Court upheld the order of the ITAT and dismissed the appeal filed by the Revenue. The Supreme Court after deliberating on the object and purpose of section 14A, conclusively held that in cases where shares are held by assessee as stock-in-trade, the dividend earned on the said shares is incidental and would not attract the provisions of section 14A of the Act. In this regard, the following paragraphs of the judgment are apposite:- "49. We note from the facts in State Bank of Patiala case that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule 8-D of the Rules and holding that section 14-A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. 50. It is to be kept in mind that in those cases where shares are held as "stock-in-trade", it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to

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retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove." 7. The judgment of the Punjab and Haryana Court in the case of State Bank of Patiala (supra) was also cited with approval by the Supreme Court in a subsequent judgment South Indian Bank Ltd. v. CIT [2021] 130 taxmann.com 178/283 Taxman 178/438 ITR 1 and held as under:- "25. ...The Punjab and Haryana High Court, in the case of Pr CIT v. State Bank of Patiala [2017) 88 taxmann.com 667/393 ITR 476 (Puni. & Har.) while adverting to the CBDT Circular, concluded correctly that shares and securities held by a bank are stock-in-trade, and all income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income." (Emphasis Supplied) 7.1 The law settled by the aforesaid judgments of the Supreme Court is squarely applicable facts of the present case as there is no dispute that the exempt income was earned from stock-in-trade." Thus, in light of various decisions rendered by Hon'ble Delhi High Court after considering the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra) deleting disallowance u/s. 14A where shares are held asstock-in- trade, we are of considered view that disallowance u/s. 14A of the Act is unsustainable in the instant case. Thus, the assessee succeeds on ground No.1 of the appeal.”

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deduction from the total income. The AO further noted that a similar disallowance was made by the Tribunal in the assessee’s own case in the preceding years. Accordingly, following the approach adopted in preceding years, the amount of Rs.4,08,87,975 was disallowed and added to the total income of the assessee.

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capital expenditure, then the learned ACIT be directed to allow depreciation u/s. 32 of the Act on the same and reduce the total income accordingly. 46. Learned counsel for the assessee fairly submits that, as on now, the issue is covered, against the assessee, by decisions of the coordinate benches, and he does not, therefore, press the issue any further. Obviously, however, he retains his right to carry the matter further in appeal, if so advised. Learned Departmental Representative does not oppose the submissions of the learned counsel. 47. In view of the above, and subject to the rider that this matter not being pressed before us should not be construed as prejudicial to the interests of the assessee for carrying the matter in further appeal before Hon'ble Courts above, these grounds of appeal are dismissed as not pressed.”

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precedents inasmuch as reasoning adopted therein does not hold good any longer in the light of the decision in the case of Technimont (supra), admirable grace. It is not clear to us whether this approach is to preempt a detailed discussion on merits of the matter, or whether this approach is indeed bonafide stand of the assessee. That does not, however, matter much at this stage, as all the facets of this matter are covered above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28* August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The notification deals with connotations of the expression "may be taxed", appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor to do we see any justification for inferring the same. Learned counsel does not have any material whatsoever in support of the proposition canvassed by him, nor does this proposition make any sense on the first principles- inasmuch as once the notification is issued without any such specific restriction for application to business income, we cannot infer a restriction in its application. We, therefore, reject the plea of the assessee, and thus decline to interfere in the matter. We uphold the action of the Assessing Officer in including the profits of the assessee's overseas branches, amounting to Rs1,408.32 crores, in its taxable income in India.”

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in the return of income filed by the assessee in India and whatever taxed have been paid by the Branches in the other contracting States i.e., the source country, credit of such taxes shall be given." 26. A reading of the above makes it clear the Tribunal had held that the income of the foreign branches of the assessee shall also be taxable in India, that is, it would be included in the return income filed by the assessee in India and whatever taxes have been paid by the branches in the other countries credit of such taxes shall be given. We find that the Tribunal as above has not held that it is only that income of the foreign branches which was taxed in that foreign country which is to be included in the return of income filed by the assessee. Hence, we are in agreement with the revenue plea that Ld. CIT-A has not properly followed the Tribunal decision as referred by him. A reading of the notification canvassed by the Ld. Counsel by the assessee also does not help the case of assessee. The notification also does not support the direction of Ld. CIT- A. The doctrine of stare decisis mandates that we follow the coordinate bench decision as above and hold that the income of the branches of assessee situated abroad shall also be taxable in India and whatever tax have been paid by the branches in the foreign country, credit of such taxed shall be given. Accordingly, we allow the ground raised by the revenue. 5. Considering the decision of co-ordinate bench in assessee's own case, the ground of appeal raised by Revenue is allowed mutatis mutandis as per order dated 17.02.2017 for A. Y. 2009-10. In the result, Ground No.2of appeal of the Revenue is allowed. Since the notification issued by the Government does not differentiate between dividend income and business income, we are unable to agree with the interpretation given by Ld A.R on the notification issued by the Government. Accordingly, we set aside the order of learned CIT(A).”

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assessee has claimed a deduction of Rs 46,96,14,034 in connection with the taxes paid abroad which has been granted by the Assessing Officer, though under section 91. It is not clear whether this tax credit is in respect of the income of the overseas branches in question of the assessee, or in respect of some other income. We, therefore, direct that in case the assessee furnishes the requisite details of the taxes paid abroad in respect of the profits of these branches, no tax credit has been claimed in respect of the same so far, and in case the claim so made is admissible in terms of the provisions of the related double taxation avoidance agreement, the Assessing Officer will allow the tax credit, to the extent admissible, for the taxes so paid abroad on incomes of the branches abroad earned in tax jurisdictions with which India has entered into double taxation avoidance agreement. While granting the tax credit, the Assessing Officer will examine the provisions of the respective tax treaty, and compute the admissible tax credit separately for each jurisdiction in accordance with the scheme of related treaty. With these directions, the matter stands restored, for the limited purposes of granting tax credit, in terms of the related double taxation avoidance agreements, if, and to the extent, admissible.”

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claiming the amount of Rs.3.58 crore as a reduction from the net profit in the computation of income. Accordingly, the AO added the amount of Rs.3.58 crore to the total income of the assessee.

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of its claim. As a result, Ground No.4, raised in assessee’s appeal, is allowed for statistical purposes.

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under specific provision of income-tax Act are not just accounting entries but in effect allowance of claim. 8. As per CBDT Instruction No. 17 of 2008 clarifying first proviso to Section 36(1)(vii), opening credit balance of provision for bad and doubtful debt account is to be considered for reducing bad debts and the excess amount of bad debts written off is to be claimed u/s 36(1)(vii). As per section 36(2)(v) only that part of bad debt is to be debited to the provision account for which there is a credit balance available in the account. The amount exceeding the credit balance is allowed as deduction u/s 36(1)(vii) directly, and it cannot be debited to the PBDD account, which otherwise will result in double deduction effectively. In each case when bad debt written off exceeds credit balance of provision for bad and doubtful debt account, the account will become nil and the excess amount is directly accounted for as loss or expense allowable u/s 36(1)(vii). It cannot remain debited to the provision for bad and doubtful debt account defying the accounting principles. Following this principle. the claim u/s 36(1) (viia) allowed in the year end will at least still remain as closing balance in PBDD account and the opening credit balance for next year. This is so because closing allowance u/s 36(1)(viia) is to be utilized only next year. If assessee's logic is accepted, then the bad debt which is already allowed as deduction u/s 36(1)(vii) is again adjusted against the closing allowance u/s 36(1)(viia) in that year. This methodology of computation followed by assessee results in negative or debit balance in PBDD account which in effect results in double allowance u/s 36(1)(viia) and 36(1) (vii). Such unintended benefit or double deduction cannot be allowed. 9. Since in the case of banks, claim of bad debt is allowed to the extent of section 36(1)(viia) as provision even before the actual write off, given the peculiarity of the banking business. Therefore the law has prescribed that claim of bad debt write off is allowed in case of banks only if it exceeds the accumulated provision allowed. The adjustment is to be done every year. The assessee is eligible to claim provision for bad and doubtful debt u/s 36(1)(viia) and excess claim of bad debt u/s 36(1)(vii) over and above provisions already allowed u/s 36(1)(viia). The use of word ‘credit balance' in proviso to section 36(1)(vii) and 'debited' in section 36(2)(v), has been stretched too far by the assessee and its learned advisors, to give an absurd meaning to the provisions itself. The basic concept of allowing any claim only once is negated by assessee's interpretation. A very simple concept of allowing provision u/s 36(1)(viia), and bad debt over and above such provision as bad debt written off u/s 36(1)(vii), is made complicated by creating debit balance in PBDD account which is never possible as discussed above. Balance in PBDD account can be positive, or at most be Nil, but not debit or negative. This is so because one can use the allowance up to 100% and once it is done, the balance will become zero. Therefore, claiming negative balance by even reducing / debiting amounts claimed in 36(1)(vii) is not correct. 10. As mentioned earlier, the claim allowed u/s 36(1)(viia) in any year cannot be adjusted against the bad debt written off allowed u/s 36(1)(vii) of the same year. Therefore, at least that much credit balance will always be there in the PBDD a/c at the year end, which will be opening balance of PBDD credit balance next year.”

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u/s 36(1)(viia), particularly when the bad debts are more than the provision, leading to debit balance in this account. This debit balance had been considered as opening balance in this account in next year, against which the provision created u/s36(1)(viia) of next had been adjusted and the actual bad debts had been claimed u/s36(1)(vii). Thus by this process, the appellant is creating debit balance in this account in the year by debiting the amounts claimed even u/s36(1)(vii) and then again this debit balance representing the amount claimed u/s36(1) (vii) is claimed against provision u/s 36(1)(viia) for next year. I concur with the discussion made by AO in para 15.5 of the assessment order, the redrawn provision account in para15.6 of the assessment order and the conclusion (para 15.9 & 15.10) of the AO on this issue. 16.5.1 In these facts & circumstances of the case, I concur, in principle, with the discussion, conclusions and the figure work done by the AO in para 15.3 to 15.10 on this issue. Accordingly, the addition made by the AO on this issue is confirmed subject to the modification in figures of addition on account of decision on the issue of loss on sale of assets to ARC decided above. This ground of appeal is dismissed.” Being aggrieved, the assessee is in appeal before us.

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crore claimed during the year under section 36(1)(vii) of the Act. On the other hand, the AO objected to the methodology of preparing the bad debt provision account and the amounts claimed under section 36(1)(viia) and section 36(1)(vii) of the Act. As per the AO, the methodology of the assessee leads to double deduction of bad debts. Accordingly, the AO recomputed the provision account and recalculated the bad debts allowable to the assessee under section 36(1)(vii) out of the provision credit balance under section 36(1)(viia) of the Act.

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regards the deduction for bad debts, it is also relevant to note the provisions of section 36(2)(v) of the Act, which reads as follows: -

“(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— …………… (v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.” 36. Therefore, the proviso to section 36(1)(vii) requires maintenance of the provision of bad and doubtful debt account under section 36(1)(viia) of the Act. Further, the deduction in respect of provision for bad and doubtful debt accounts allowable under section 36(1)(viia) of the Act is required to be credited to this account by the bank. Section 36(2)(b) of the Act requires bad debts written off by the bank to be debited to the provision for bad and doubtful debts account under section 36(1)(viia) of the Act. Further, as noted in the foregoing paragraphs, bad debts written off in excess of the opening credit balance in this account shall be allowable as a deduction under section 36(1)(vii) of the Act. Vide Instruction No.17 of 2008, dated 26/11/2008 issued by the CBDT provided the clarity regarding the manner of computation of deduction under section 36(1)(vii) of the Act as follows: -

“INSTRUCTION NO. 17/2008, DATED 26-11-2008 In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession', deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to

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below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the Income-tax Act, 1961 : (i) Under section 36(1)(vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debts to the provision for bad and doubtful debt account under section 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. (ii) While considering the claim for bad debts under section 36(1)(vii), the Assessing Officer should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad and doubtful debt account created under section 36(1)(viia) of the Act. The credit balance for this purpose will be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year. …………………………….”

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AY Opening Claim u/s. Bad Debts Closing Balance Balance 36(1)(viia) written off 2015-16 (6,086.40) 2,926.41 2,619.63 (5,779.62) 2016-17 (5,779.62)

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“1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in holding that if there are funds available both interest free and loans fund then presumption would arise that investment is made out of interest free fund for calculation of disallowance w/s.14Arwr8D2(ii) when the issue of mixed fund as pending before larger Bench of Supreme Court. More so when no nexus is established by the assessee to prove that own ie. interest free funds were initiated to make the investment? (Tax Effects: Rs.15,53,98,165/-@ 34.61% of Rs. 44,90,23,825/-) 2. Whether on the facts and in the circumstances of the case and in law: the Ld. CITA) was justified in holding that disallowance us. 144 is to be restricted to the exempt income, where as in Finance Act 2022, explanation to Section 14A has been inserted which provides for applicability of the said section even in the absence of exempt income, which being clarificatory in nature has retrospective effect? (Tax Effects: Rs. 1,56,73,70,902/- of Rs. Rs.452,89,26,555/-) 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction of taxes paid abroad from business income even though the provisions of section 40aii) of the Act are pery clear for not granting the amounts covered us 90 or 91 as allowable expenditure? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing relief on the issue of broken period interest without appreciating the fact that the assessee cannot follow receipt basis of accounting for some items of income and follow accrual basis of accounting for other items of income? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that broken period interest is a revenue expenditure. ignoring that the issue is decided in favour of Revenue by Apex Court in the case of Vijaya Bank Ltd. (1991) 187/ITR 541 (SC)? (Tax effect: Rs.10,52,11,529 @ 34.61% of Rs. 30.40,09,273) 6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance of premium on HTM securities of Rs 231.78,68,424/- without appreciating the fact that RBI circular dated 12th July 2015 clearly mentions that the prescribed accounting treatment doesn't take into account the applicability of Income Tax Law and the decision of Hon'ble Supreme Court in the case of Southern Technologies Limited u/s JCIT in Civil Appeal Number 1337 of 2003 making it very clear that the RBI guidelines themselves will not decide the taxability of income? (Tax effect: Rs.80,21,67,904/- @ 34.61% of Rs.231,78,68,424/-) 7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance of losses written off of Rs 8,22,59,119/, without appreciating the fact that the same did not fulfill the conditions of deduction of s.36(1)(vii) r.w.s. 36(2)(v) of the Act? (Tax Effect: Rs. 2,71,97,333/- @34.61% Rs. 8,22,59,119/-) 8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of interest on Perpetual Bonds as Perpetual Bonds cannot be are not borrowed funds as per settled

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legal position in the decision of Hon'ble Punjab & Haryana High Court in the case of Pepsu Road Transport Corps CIT (130 ITR 18 (P&H)? (Tax Effect: Rs. 55.63.92.816/- @ 34.61% of Rs. 160,77,00,000/-) 9. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition of Rs.443,40,00,000/- on account of commission received on deferred payment bank guarantee when in fact the commission income has accrued and arisen and further the income is not contingent in nature? (Tax Effect of Rs.1,53,45.18,720/- @34.61% of Rs. 443,40,00,000/-) 10. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was correct in deleting the addition of Rs. 1.95.41.06, 729/- of unrealized interest income on NAs holding that the limit of time for classification of NPAs as per RBI guidelines had to be followed as per section 43D of the Act? (Tax effect: Rs. 67,62,77,257 @ 34.61% of Rs. 195,41,06,729/-) 11. Whether on the facts and in the circumstances of the case and in law, the Ld. CITYA) was correct in deleting the disallowance of Rs. 772, 70.00.000/- being loss on sale of financial assets to ARC which is only a notional loss and assessee had not suffered real loss? (Tax effect Rs.2.67,41.60,160/- @ 34.61% of Rs.772,70,00,000/-) 12. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was erred in allowing relief to the assessee relying on the decision of Hon'ble Special Bench of ITAT Delhi in the case of Vireet Investment (P) Ltd.. without appreciating the facts that the issue has not reached to its finality as the Hon'ble Delhi High Court in its decision in the case of Goetz India Ltd., reported in 361 ITR 505 held that while computing Book Profit disallowance us HA is required to be made. However, in its later judgment the Hon'ble Delhi High Court in the case of Bhushan Steel Ltd. (ITA No. 593 & 594/2015) has taken a contrary view? (Tax effect Rs. 10,70,10,889/- @ 18.5% of Rs.57,84,37,239/-) 13. Whether on the facts and in the circumstances of the case and in law. the Ld. CIT(A) was erred in directing to exclude the adjustment made by adding the provision for bad and doubtful debts of Rs.11745.47,65,380/- while calculating book profit us 115JB? (Tax effect: Rs.2172,91,31.595/-@18.5% Rs. 11745,47,65,380/-) 14. The Ld. CIT (4)'s order is contrary in law and on facts and deserves to be set aside. 15. The appellant prays that the order of CIT (A) on the above grounds be set aside and that of the 40 restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary at the time of hearing.” 45. Grounds No.1 and 2 raised in Revenue’s appeal pertain to the disallowance under section 14A read with Rule 8D of the Rules.

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purchase of the securities. The assessee submitted that the interest from the last due date till the date of purchase is referred to as a broken period interest. It was also submitted that its clients treat the investment in Government Securities as stock-in-trade. The AO, vide order passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the broken period interest paid by the assessee is nothing but part of the price paid for the securities for acquiring the securities and therefore whatever may be the reason that prompted the assessee to purchase the securities, the price paid for them is in the nature of capital outlay only. Accordingly, the AO held that the broken period interest claimed by the assessee is part of the cost price of the securities acquired by it, and therefore, the deduction of Rs. 30,40,09,273 on account of broken period interest was disallowed. The learned CIT(A), vide impugned order, following the decision of the Coordinate Bench of the Tribunal rendered in assessee’s own case for the assessment year 2015-16, allowed the ground raised by the assessee on this issue and held that the broken period interest paid by the assessee is revenue expenditure. Being aggrieved, the Revenue is in appeal before us.

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of the matter. Respectfully following the esteemed views of the coordinate bench, and particularly as no contrary view by a higher judicial forum, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 57. Ground no. 1 is thus dismissed.”

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percentage of its asset in form of security at any given date. Accordingly, the investment, inter alia, in HTM securities is made in the course of business and constitutes stock-in-trade. In its submission, the assessee also placed reliance upon the decision rendered in its own case by the Tribunal, wherein it was held that the investment in securities constitutes stock-in-trade of the assessee, and therefore, valuation loss on securities should be allowed as a deduction. In this regard, the assessee placed reliance upon various other judicial pronouncements, wherein similar loss was allowed. The AO, vide order passed under section 143(3) of the Act, disagreed with the submission of the assessee and disallowed the loss on account of amortisation on investment held in HTM category, by observing as follows: - “7.3 The contention of the assessee is considered but found untenable. In this regard the following details may be considered. As per the circular dated 12-07-2005 of the Reserve Bank of India, the investments in the HTM category should be carried at acquisition cost. In case, the purchase price is higher than the face value, the premium should be amortised over the remaining period of maturity of the security. The loss on revaluation of permanent securities reflected in the bank's P&L A/c. is on account of amortization of the premium paid while purchasing the securities. HTM securities are those which banks intend to hold till maturity. The banks were permitted to hold upto 25% of their securities in the HTM category, in the current year. The Banks were allowed to exceed the limit of 25% subject to meeting the prescribed guidelines. The Banks were also allowed to interchange the investment from one category to another with the prior authorization of the Board of Directors. Thus, it is clear that the securities under the HTM category till they are interchanged from the HTM to other categories, are to be held purely as investment and not as stock-in-trade. These securities are not meant for sale but only for redemption on the date of maturity. 7.4 There is no dispute that this amortization in regard to securities held in the HTM category is made as per guidelines of the RBI contained in their Master Circular dated 12.07.2005 which also permit to ignore the difference in case the cost price is less than the face value. However, the question arises under which provision of the Act such amortization can be allowed as deduction. In respect of HTM securities, the assesse follows two different systems which are inconsistent with each other. When the purchase price is less than the face value at which the security is ultimately sold, the difference is booked as profit only in the year of sale. But when the cost price is more than the face value, the loss is not booked in the year of sale but is spread

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over the period of holding. If the securities are held as investment, there is no question of allowance of any amount till such time as they are sold or redeemed. Even if these securities are held as stock-in-trade, as per RBI's guidelines, the method of valuation of closing stock adopted in respect of securities in HTM category is cost price which is one of the two recognized methods of valuation. Since the cost price is constant, there is no question of deduction of any amount under the commercial principles even if HTM securities are accepted to be stock-in-trade of the assesse. Whatever loss is suffered on sale of redemption of securities, that will constitute the loss of the year in which they are sold or redeemed. In between, no amount can be allowed under the provisions of section 145. By claming amortization, the assesse seeks to neutralize the effect of valuing the securities in HTM category on cost price which is one of the two recognized methods of valuation of the closing stock. 7.5 It cannot be the effect of the RBI guidelines that the total income for the purpose of Income Tax has to be computed in accordance with the enjoinment of these guidelines. These are only meant as guiding factors to determine the commercial profit for various purposes on conservative principles. The total income has to be computed under the mandate of the Income Tax Act and a recognized system of accounting has to be followed u/s. 145 of the Act. 7.6 It may be worthwhile to mention that in the DBOD circular dt. 6.9.2001, cited above, it has been clearly mentioned that "It is to be noted that the above accounting treatment does not taken into account taxation implications and hence the banks should comply with the requirements of Income Tax authorities in the manner prescribed by them. The findings given by Hon'ble Supreme Court in a very recent judgment delivered in January, 2010 in the case of M/s. Southern Technologies Ltd. vs. JCIT in Civil Appeal No. 1337/ 2003 which were referred earlier also in the order, are also very relevant. In this case, the assessee which is an NBFC had created a provision for NPA, which in terms of RBI guidelines was debited to Profit & Loss Account and was claimed in the Income Tax Return. 7.7 The Hon'ble Supreme Court has held that the above provision is not allowable. With regard to RBI Guidelines, it has been observed by Hon'ble Supreme Court that; "We need to emphasize that the RBI Guidelines has nothing to do with the accounting treatment or taxability of "Income" under the Income Tax Act. The two i.e. I.T. Act and RBI Guidelines operate in different fields. Ultimately, the nature of transaction has to be examined in each case. The authority has to examine the nature of expense / loss. Such examination and finding thereof will not depend upon presentation of expense/ loss in the financial statement. In our view, the RBI directions and I.T. Act operate in different fields." 7.8 The above reference to the specific clause in RBI circular clearly mentions that the prescribed accounting treatment does not take into account the applicability of I.T. law. and decision of Hon'ble Supreme Court makes it very clear that RBI Guidelines themselves will not decide taxability of the income. Therefore, the assessee's arguments that the bank should be allowed full claim of amortization of HTM category as per Instruction No.17 dt. 26.11.2008 is not accepted. Accordingly, the amount of premium amortized in respect of HTM securities of Rs. 231,78,68,424/- is disallowed and added

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back to the total income. Penalty proceedings u/s.271(1)(c) are initiated for filing of inaccurate particulars of income. Addition: Rs. 231,78,68,424/-” 55. The learned CIT(A), vide impugned order, following the decision of the Tribunal rendered in assessee’s own case for the assessment year 2015-16, deleted the addition made by the AO on this issue and allowed the loss on account of amortisation of investment held in HTM category. Being aggrieved, the Revenue is in appeal before us.

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explanation regarding the aforesaid aspect of the assessee, the AO vide order passed under section 143(3) of the Act added these losses while computing the business income of the assessee.

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that the said amount cannot be held “borrowing” and hence the interest on such bonds is not admissible as a deduction under section 36(1)(iii) of the Act. Accordingly, the AO disallowed the amount of Rs.160,77,00,000 claimed as deduction and added the same to the total income of the assessee.

“10.4.1 It is observed that the nature of IPBs had remained same over the period of time from AY 2010-11 to 2016-17. In the case of the appellant the terms & conditions of these bonds are similar to Bonds issued by other banks governed by the RBI rules. The facts of the case of the appellant are identical to facts of the case of ICICI bank cited above. These bonds:  carry fixed rate of interest  can be called by the appellant only after the predefined period (say 10 years) and no right to bond holder to recall, but can trade in the listed stock market for exit  are shown under the head “borrowings”  TDS is deducted on the interest paid and interest is debited to P&L account  the bond holders have no right to participate in management of the bank  The appellant had submitted that the bonds of Rs. 1,680 Crores outstanding as on 31.03.2016 have been redeemed as under: Perpetual Bonds – IPDI Series I 400.00 24-07-2017 Perpetual Bonds – IPDI Series II 100.00 25-09-2017 Perpetual Bonds – IPDI Series III 155.00 11-10-2017 Perpetual Bonds – IPDI Series IV 400.00 11-02-2019 Perpetual Bonds – IPDI Series V 325.00 09-12-2019 Perpetual Bonds – IPDI Series VI 300.00 09-09-2020 Total 1,680.00 The mere recognition by RBI of these bonds as capital for the purpose of capitalization of bank coupled with other features raised by the AO will not make it in the nature of equity. The nature of these bonds had to be looked in totality. These are borrowed from the market, carry fixed rate of interest and are being redeemed by the appellant from time to time after expiry period, are listed & tradable in debt market, non-participative in profits/voting/shareholder register etc. In such circumstances, these cannot be called to be in the nature of equity which carries right in management, cannot be redeemed normally, may or may not get fixed quantum of dividend return on investment etc. Thus, the characteristics of these IPB instruments are in the nature of Debt and not equity. The above decision of Hon’ble ITAT Mumbai is a later date decision, wherein the relevant case laws had also been considered. In these facts & circumstances of the case, it is held that the interest on IPBs is deductible u/s 36(1)(iii) of the IT Act. Accordingly, this addition of Rs 160,77,00,000/- made by the AO is hereby deleted and this ground of appeal is "allowed".”

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Being aggrieved, the Revenue is in appeal before us.

“16 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as argument of rule of consistency is concerned, the Ld. CIT(A) has rejected the contention of the assessee following the decision of the Hon'ble Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra). The said finding being based on the precedent, we concur with the finding of the Ld. CIT(A). 16.1 The assessee has distinguished the decision of Hon'ble Punjab Haryana High Court in the case of Pepsu Road transport Corporation (supra) on the ground that in said case capital was provided by the Union of India under a statutory obligation which had no provision of repayment. Further in the event of the liquidation of Pepsu Road transport Corporation after meeting the liabilities if any, the assets were to be divided among Central Government and the State Government and such other parties, if any as may have subscribed to the capital in proportion to the contribution made by each of them to the total capital. However in the instant case there was no statutory obligation on the investors to subscribe to IPDs and further the claim of the investor of the IPD bonds is superior to that of equity investor and subordinate to other creditors. Further, it was submitted that interest paid on IPD cannot be equated with the dividend as dividend is not mandatory to be paid each year and it has to be paid if there is profit during the any financial year and on approval of the proposal of the Board of Directors by the shareholders in the annual general meeting. Whereas in the case of the IPD, it is mandatory to pay interest irrespective of the availability of the profit and no approval of the Board of Directors or shareholders was required. In view of the above discussion, we concur with the contention of the assessee that ratio in the case of Pepsu Road transport Corporation Ltd (supra) cannot be applied or the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perpetual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under:

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Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr.CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 to 160 of the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 stating that it has issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities is payable @ 11.40% per annum. The assessee has also specifically explained in line with accounting standard, the aforesaid interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of Rs.142.03 crores for F.Y. 2010- 11. But the same was charged to Rs.113.61 crores after netting off taxes [142.03 28.42]. The amount of tax impact of Rs.28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs. 18.63 crores on issue of 10.75% debenture of Rs. 1500 crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also supplied to the Assessing Officer detailed offer document issued for unsecured perpetual debentures of Rs.1500 crores during the course of assessment proceedings. In the offer document the terms and conditions of issuing perpetual debentures, basis of allotment, creation of debenture redemption reserves along with object of the issue were clearly mentioned. As per the copy of object of the issue placed at page 67 of the paper book, it is mentioned that utilization of funds to be raised through this private placement will be for general business purpose and at page no. 62 issue size was mentioned of 15000 debentures of face value of Rs. 10 lac each aggregating to Rs.1500 crores. It is demonstrated from the detailed submission and copies of documents placed in the paper book that assessing officer has made detailed inquiry/verification during the course of assessment proceedings that assessee has borrowed funds for business use by issue of debentures. The borrowed fund were payable on call option exercising by company after the 10th year or any at the end of every year thereafter. It was also explained that the lenders were not entitled to share any surplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non-convertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consider that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee.

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16.3 Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Ld. A.O. to delete the disallowance of interest amounting to Rs. 18,00,00,000/-, which was made u/s 36(1)(iii) of the Act. The ground No. 4 of the appeal of the assessee is accordingly allowed.”

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that the commission received is like a fee for issuing the guarantee and is not a contingent receipt or advance, which is returnable at the end of the guarantee period. Thus, the assessee submitted that the amount of commission receipt is an income having accrued at the time of bank issues the guarantee. Accordingly, the commission of Rs.443.40 crore received by the assessee on guarantee issued was added to the total income of the assessee.

“12.3.1 Thus, it is observed from the internal guidelines submitted by the appellant that the guarantees in different categories are charged differently either on quarterly basis or on annual basis. In some of the guarantees, the commission in earlier redemptions is also paid back at certain percentage of unexpired period. Further, the appellant had submitted the instances where there had been refund of Guarantee Charges. Thus, it can be said that these amounts received are contingent and not ascertained for unexpired period. The appellant had not considered, the received but not accrued, portion of the commission as income in the year under consideration and treated it as advance receipt for the unexpired period of guarantee. The appellant had consistently followed this method for accounting of these receipts. In view of the above case laws cited on the issue coupled with the fact that the guarantees commission of unexpired period is not an ascertained but contingent liability, the whole of the commission received does not accrue to the appellant in the year of receipt, the addition made by the AO is not sustainable. Accordingly, the addition of Rs. 443,40,00,000/- made by the AO on account of advance guarantee commission is hereby "deleted" and this ground of appeal is "allowed".” Being aggrieved, the Revenue is in appeal before us.

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“4. So far as question (c) is concerned, the issue is whether the commission received by the respondent from its client to provide Guarantee is to be taxed in the year of the agreement (the year of the receipt) to provide the guarantee or to be spread over the period for which the guarantee is provided. In the present facts, CIT(A) has come to a finding of fact that the guarantee which has been issued for a certain period of time are cancelled by the client before the expiry of the tenure of the guarantee, resulting into the respondent- assessee returning to its clients the part of the guarantee commission attributable to the unexpired period of the guarantee. This finding of fact was upheld by the Tribunal while following the decision of the Calcutta High Court in the matter of CIT v. Bank of Tokyo Ltd. [1993] 71 Taxman 85 wherein it has been held that the income earned from deferred guarantee commission did not accrue or arise to an assessee in the year in which the guarantee agreements were entered into but should be spread over the period of the guarantee proportionally. In these circumstances, the decision of the Tribunal in upholding the order of the CIT(A) is a conclusion based on a finding of fact and hence, we do not see any reason to entertain question (c).”

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order, passed under section 143(3) of the Act, made an addition on account of interest on NPA by observing as follows: -

“12.2 Thus, the provisions of Rule 6EA read with section 43D are very clear that irregularity of the nature referred in Rule 6EA (a)(ii) should be noticed for a period of 6 months or more. The benefit of non-recognition of interest in NPAs can be granted to the assessee as per the provisions of Rule 6EA read with section 43D only when the irregularities exist for a period of 6 months or more. 1. On this issue, what has been disputed by the assessee is that the guidelines of Reserve Bank of India prescribed recognition of the assets being NPA when the period of default is 90 days or more and that the provisions of section 43D of the Act which stipulates recognition of income by way of interest in relation to such categories of all bad or doubtful debts having regard to the guidelines issued by the RBI in relation to such debts. The assesse mainly seeks to contend that what would prevail is RBI guidelines in relation to section 43D of the Act and not the Rule 6EA of the Rules. In regard to such contention of the assesse, it is stated that the provisions of section 43D stipulates that "the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts." Therefore, what can be seen from the provisions of section 43D of the Act is that the income by way of interest has to be considered "as may be prescribed" and such stipulation has been prescribed in Rule 6A of I.T. Rules, 1962 for the said purposes. It is to be understood that the rule may be prescribed having regard to the guidelines issued by the Reserve Bank of India and such stipulation in section 43D only warrants the authorities to prescribe the rules in view and in reference to the guidelines issued by the Reserve Bank of India. It therefore has to be understood that while the guidelines issued by the Reserve Bank of India are essential point for recognition, having regard to them and keeping a reference of the same, the rules have to be prescribed, but it would be the rules which have to be followed. Even if for any reason, rules have been prescribed by the Government having regard to the guidelines of RBI which may subsequently have changed, then too, it has to be considered and taken that the rules which are in force are such which have been prescribed having regard to such guidelines and no change in the rules having regard to the guidelines of RBI have been considered necessary. The phrase as appearing in the provisions of section 43D "as may be prescribed" cannot be read in any other manner and certainly cannot be ignored. The contention of the assesse that the mention in section 43D of "having regard to the guidelines issued by the RBI" would warrant necessarily to follow the guidelines superseding the prescribed rules in I.T. Rules, 1962 is therefore, clearly flawed. The Hon'ble Delhi High Court in the case of CIT vs. Vashisth Chay Vyapar Ltd. 330 ITR 440 have clearly mentioned the observation of Hon'ble Apex Court that in so far as the permissible deductions or exclusions under the Acts are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated there for under the Act. It was also observed by the Hon'ble Court that the prudential norms do not override the provisions of

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the Act. Such observations were made by the Hon'ble Apex Court in the case of Southern Technologies Ltd. vs. JCIT. The assesse, in their submission, have sought to contend that in their case it is the recognition of income and not the claim of deduction/exclusion. In regard to such contention, it is stated that the case of the assessee would fall under the expression "exclusion of recognizable income under the Act". The assesse has further placed reliance on the decision of Hon'ble Supreme Court in the case of UCO Bank vs. CIT. The said decision is in respect of recognition of income on receipt basis on the sticky loans. The same has no reference to either Rule 6EA or corresponding or related guidelines of RBI in this regard. The assesse has also placed reliance on the decision of Hon'ble Mumbai Tribunal in the case of American Express Bank Ltd. vs. ACIT. In respect of such reliance placed, it is stated that the same is in respect of proviso to section 5 of the Interest Act r.w.s.43D of the Act and the same does not deal with Rule 6EA of the Rules. 2. The assesse has further contended that Rule 6EA cannot expand the scope of section 43D. In this regard, it is stated that Rule 6EA has been prescribed so as to apply the provision of section 43D correctly 3. In view of the facts and circumstances of the case and discussion hereinabove, interest on NPA not provided amounting to 195,41,06,729 is being added back to the income of the assesse bank. Penalty proceedings u/s.271(1)(c) are initiated for filing of inaccurate particulars of income. Addition: Rs. 195,41,06,729/-.” 73. The learned CIT(A), vide impugned order, following the decisions on this issue rendered by the Tribunal, held that the interest on NPAs classified by the RBI for 90 days for non-payment has to be considered for section 43D of the Act and accordingly, the unrealised interest on such classified NPAs cannot be added to the income of the assessee. Being aggrieved, the Revenue is in appeal before us.

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“34. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under: - "78. We noted that the assessee does not offer to tax, the interest income on NPAs, classified in terms of RBI guidelines, on accrual basis. The same is offered to tax in the year in which the same is received and credited to the profit and loss account in terms of the RBI guidelines. Presently, the period to recognise an advance as a NPA as per RBI guidelines is where interest and/ or instalment of principal remained overdue for 90 days whereas as per Rule 6EA, the same is 180 days. The AO has brought to tax the notional interest on sticky advances having irregularities for the period between 90 days to 180 days on accrual basis, relying on section 43D of the Act and rule 6EA of the Rules. The CIT(A) has upheld the disallowance made by the Assessing Officer following the directions of the DRP for the assessment year 2012-13. 79. The Revenue before the Tribunal has emphasized on the applicability of the criteria prescribed as per rule 6EA and that the interest on NPAs cannot fall under the exception provided in clause (e) of rule 6EA. But, the assessee argued that the action of the lower authorities cannot be sustained due to the following three reasons viz., a. section 43D of the Act would not apply in cases where interest is neither received nor credited to the profit and loss account; b. RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the rule should be framed having regard to the guidelines; c. without prejudice, a deduction should be allowed of such interest as bad debts. 80. In relation to the above, it was argued that the provisions of section 43D of the Act provide that the categories of bad or doubtful debts would be prescribed having regard to the guidelines issued by the RBI in relation to such debts. In other words, the Legislature envisages that the RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the categories prescribed in rule 6EA necessarily have to follow the RBI guidelines. Accordingly, rule 6EA operates in a very narrow scope and has to be read in conjunction with RBI guidelines. 81. We have gone through the case law in American Express Bank Ltd. vs. Addl. CIT [2012] 25 taxmann.com 572 (Mumbai), wherein the Mumbai Tribunal was considering a case where the loans on which interest/principal remained unpaid for 90 days were classified as no-accrual loans. The unpaid interest in respect of such loans was reversed to an account called Reserve for Doubtful Interest (RFDI) account. All subsequent interest accruals of such loans were credited to RFDI account and not to the profit and loss account. The assessee offered to tax the net amount credited to the RFDI account i.e. the interest accruals in the RFDI account net of recoveries. However, it was argued that such tax treatment leads to offering interest on non-accrual loans to tax on accrual basis, even if the same is not credited to the profit and loss account. The Mumbai Tribunal held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said

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interest could be charged to tax. The aforesaid decision has been affirmed by the Bombay High Court in the case of DIT vs. American Express Bank Ltd [2015] 235 Taxman 85 (Bombay). In the present case the assessee argued that there is no credit entry in the books of the account in respect of the interest on such NPAs and, accordingly, the addition made cannot be sustained. Hence according to assessee the issue stood covered by the first proposition in terms of the Bombay High Court in assessee's favour and hence, no further submissions were made on other two propositions. 82. We noted that this issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of American Express Bank Ltd (supra), wherein it is held that there is no credit entry in the books of the account in respect of the interest on such NPAs, no addition can be made. Further, even the Mumbai Tribunal in the case of American Express Bank Ltd. (supra) has considered this issue and held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Hence, we delete the addition of interest income and allow this issue of assessee's appeal." 35. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee's own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedents in assessee's own case cited supra, we uphold the plea of the assessee, and the addition made by the AO on this issue is hereby deleted. Thus, ground no.8, raised in assessee's appeal is allowed.”

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similar issue in favour of the assessee, the Coordinate Bench of the Tribunal in assessee’s own case in Bank of India vs. DCIT, in ITA No.2833/Mum/2015, for the assessment year 2009-10, vide order dated 08/11/2017 observed as follows: -

“13.3. We have heard the rival submissions and perused the material before us. We find the assessee had sold NPA.s to ARCIL, that as per the RBI instructions it did not claim the loss in the profit and loss account, that the claim was made before the Department authorities that it had suffered a loss on sale of NPA.s. that the AO and the FAA held that the assessee had not suffered real loss i.e. it was notional loss only. There is no doubt about selling of assets to ARCIL, that ARRIL is not a fake or bogus entity, that the sale has not been doubted by the AO/FAA, that the entry in the books of accounts have been made as per the instructions of the RBI. In our opinion, following of RBI instruction by a banking company cannot be basis for denying or allowing any claim. It is said that the entries in the books of accounts are not conclusive proof of taxability of any income. What has to be seen is the substance of the transaction. Considering the fact that the assessee had suffered loss while carrying out normal business activity i.e. selling its assets. Therefore, we hold that there was no justification for disallowing the loss suffered in the transaction. Reversing the order of the FAA, we decide Ground no.8 in favour of the assessee.”

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ITA No. 1452/Mum./2023 Assessee’s appeal – A.Y. 2018-19 81. In the appeal, the assessee has raised the following grounds: - “1. (A) On the facts and in the circumstances of the case and in law, the FAC has erred in making disallowance of Rs.32,79,58,949 u/s. 14A of the Income- tax Act, 1961 ("the Act") read with Rule 8D of the Income-tax Rules, 1962 ("the Rules") towards expenditure incurred in relation to income claimed exempt u/s. 10 of the Act and the Hon'ble CIT(A) has erred in confirming the said disallowance u/s. 14A r.w.r 8D by restricting it up to exempt income of Rs. 27,63,18,249. The NFAC be directed to delete disallowance u/s. 14A read with Rule 8D of Rs.32,79,58,949 towards expenditure incurred in relation to income claimed exempt u/s. 10 of the Act and reduce the total income accordingly. (B) Without prejudice to Ground no. 1(A) above, on the facts and in the circumstances of the case and in law, the Appellant Bank prays that the disallowance u/s. 14A read with Rule 8D towards expenditure incurred in relation to income claimed exempt u/s. 10 of the Act of Rs.32,79,58,949 made by the NFAC and restricted to Rs.27,63,18,249 by the Hon'ble CIT(A) is excessive and unreasonable. The NFAC be directed to restrict disallowance u/s. 14A to 1% of exempt income earned during the year and reduce the total income accordingly. 2. (A) On the facts and in the circumstances of the case and in law, the FAC has erred in disallowing claim for amortization of lease premium paid in respect of various leasehold properties of Rs.4,37,76,998 and the Hon'ble CIT(A) has erred in confirming the disallowance made by NFAC. The NFAC be directed to allow the claim for amortization of lease premium paid in respect of various leasehold properties of Rs.4,37,76,998 and reduce the total income accordingly. (B) Without prejudice to Ground no.2(A) above, on the facts and in the circumstances of the case and in law, assuming without accepting that amortization of lease premium of Rs.4,37,76,998 is in the nature of capital expenditure, the NFACbe directed to allow depreciation u/s. 32 of the Act on the same and reduce the total income accordingly. 3. (A) On the facts and in the circumstances of the case and in law, the NFAC has erred in disallowing the exclusion of profits of branches in countries with whom India has entered into a Double Taxation Avoidance Agreement (DTAA) namely United Kingdom (UK), Belgium, Kenya, Japan, USA, Singapore, China, UAE and South Africa amounting to Rs.965,85,86,196 u/s. 90 of the Act and the Hon'ble CIT(A) has erred in upholding the decision of the FAC. The NFAC be directed to exclude the profits of the aforesaid foreign branches amounting

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to Rs.965,85,86,196 u/s. 90 of the Act and reduce the total income accordingly. (B) Without prejudice to Ground no.3(A) above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs.965,85,86,196 is not allowed and therefore, taxed in India, then the Appellant Bank prays that the income which is to be included in total income will be the Income computed as per provisions of Income-tax laws of respective countries and not the income computed as per provisions of Income-tax Act, 1961. (C) Without prejudice to Ground no.3(A) above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs.965,85,86,196 is not allowed and therefore, taxed in India, then the Appellant Bank prays that credit for taxes paid by the said branches in their respective countries amounting to Rs.255,58,45,663 be allowed as per section 90 of the Act while determining tax liability. (D) The NFAC has erred in not granting credit us. 90 of the Act for taxes withheld on dividend income received from foreign subsidiaries & associate of the Appellant Bank in Uganda, Tanzania and Zambia amounting to Rs.1,28,14,551 while determining tax liability in the Computation Sheet annexed to assessment order u/s. 143(3) r.w.s. 144B dated 28-09-2021. The NFAC be directed to grant credit u/s. 90 for taxes withheld on dividend income received from foreign subsidiaries & associate of the Appellant Bank in Uganda, Tanzania demand accordingly and Zambia amounting to Rs.1,28,14,551 while determining tax liability in India and reduce the income-tax demand accordingly. (E) The NFAC has erred in not granting credit u/s. 91 of the Act for taxes paid by Hong Kong and Jersey branches and State Taxes paid by Japan branch amounting to Rs.20,16,88,106 while determining tax liability in the Computation Sheet annexed to assessment order u/s. 143(3) r.w.s. 144B dated 28-09-2021. The NFAC be directed to grant credit u/s. 91 for taxes paid by Hong Kong and Jersey branches and State Taxes paid by Japan branch amounting to Rs.20,16,88,106 while determining tax liability in India and reduce the income-tax demand accordingly. 4. On the facts and in the circumstances of the case and in law, the NAChas erred in disallowing bad debts written off amounting to Rs.2620,31,00,000 u/s. 36(1)(vii) of the Act and the Hon'ble CIT(A) has erred in confirming the disallowance made by NFAC without appreciating that the Provision for Bad and Doubtful Debts (PBDD) account maintained us. 36(1)(viia) has a debit balance. The NFAC be directed to allow the bad debts written off amounting to Rs.2620,31,00,000 and reduce the total income accordingly. 5. (A) On the facts and in the circumstances of the case and in law, the NFAC has erred in invoking the provisions of Section 115JB of the Act while determining tax liability for AY 2018-19 and the Hon'ble CIT(A) has erred in confirming the same. The Appellant Bank prays that the FAC be directed not to invoke the provisions of Section 115JB of the Act and determine the total income and tax liability thereon in accordance with normal provisions of the Act only.

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Without prejudice to Ground no. 5(A) above, assuming without accepting that the provisions of Section 115JB are applicable to the Appellant Bank for the year under appeal, then on the facts and in the circumstances of the case and in law: (B) The NFAC has erred in disallowing exclusion of book profits of branches in countries with whom India has entered into a DAA namely Kenya, Japan, Singapore, China and South Africa amounting to Rs.270,31,40,630 u/s. 90 of the Act and the Hon'ble CIT(A) has erred in confirming the disallowance made by NFAC without appreciating that the provisions of Sec. 90 override the provisions of Sec. 115JB of the Act. The NFAC be directed to exclude the book profits of the aforesaid foreign branches amounting to Rs.270,31,40,630 while computing Book Profit and reduce the Book Profit accordingly. Without prejudice to above, assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to Rs.270,31,40,630 is not allowed while computing Book Profit u/s.115JB and therefore, taxed in India, then the Appellant Bank prays that the credit for taxes paid by the said branches in their respective countries be allowed in accordance with Sec. 90 & 91 of the Act while determining tax liability in India.”

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rendered therein shall apply mutatis mutandis to this ground. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this issue, and the same are upheld. As a result, Grounds No.2A and 2B, raised in assessee’s appeal, are dismissed.

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year 2016-17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Accordingly, this issue is restored to the file of the AO for de novo adjudication in compliance with the directions as rendered by the Tribunal in assessee’s own case, for the assessment year 2015-16, in ITA No. 1767/Mum/2019. As a result, Grounds No. 3C and 3D, raised in assessee’s appeal, are allowed for statistical purposes.

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similar issue has already been adjudicated in assessee’s appeal for the assessment year 2016-17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Accordingly, respectfully following the decision of the Special Bench of the Tribunal in Union Bank of India v. DCIT, in ITA No. 424/Mum/2020, for the assessment year 2015-16, Ground No.5A raised in assessee’s appeal is allowed.

ITA No. 1548/Mum./2023 Revenue’s appeal – A.Y. 2018-19 92. In the appeal, the Revenue has raised the following grounds: - “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance w/s 144 rule 8D(ii), being 1% of average investments of Rs. 32,79,58,949/- to the exempt income Rs. 27,63,18,249/-ignoring the clarificatory amendment brought in by Finance Act. 2022? Tax Effect: Rs. 1,78.72.846/- @34.61% of Rs.5.16.40,700/-) 2. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing assessee's claim of payment of taxes abroad as deduction against business income even though the provisions of section Oafii) of the Act are very clear in mandating non-allowing of the amounts covered u/s. 90 or 91 as business expenditure? Tax Effect: Rs.95.87,62,147/- @34.61% of Rs.277,03,48,321/-) 3. Whether on the facts and circumstances of the case and in law; the Ld. CIT(A) was right in deleting the disallowance of premium on HTM securities of Rs. 3,74,18,00,000/-, without appreciating the fact that RBl circular dated 12th July 2015 clearly mentions that the prescribed accounting treatment doesn't take into account the applicability of Income Tax Law and the decision of Hon'ble Supreme Court in the case of Southern Technologies Limited w/s

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JCIT in Civil Appeal Number 1337 of 2003 making very clear that the RBI guidelines themselves will not decide the taxability of income? (Tax Effect: Rs./29,49,62,144/- @34.61% of Rs.374,18,00,000/-) 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of interest on Perpetual Bonds as Perpetual Bonds are not borrowed funds as per settled legal position in the decision of Hon'ble Punjab & Haryana High Court in the case of Pepsu Road Transport Corp vS CIT (130 ITR 18 (P&H)? (Tax Effect : Rs.227,39,58,906/- @34.61% of Rs.657,06, 16,348/-) 5. Whether on the facts and circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition made on account of interest on NPA amounting to Rs. 733,98,20, 787/-not recognized by the assessee in its books of accounts on the ground that the same is not in line with the provisions of section 43D of the Act r.w.r. 6EA of the Income Tax Rules, 1962? (Tax Effect : Rs.254.01.65,178/- @34.61% of Rs.733,98,20, 787/-) 6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of payment of penalty and charges levied by RBI for non-compliance with RBI norms being, Penalty charged under scheme of incentive and penalties on account of counterfeit mutilated shortage. Penalty charged towards delay in reporting. Penalty charged towards forged / fake notes. Penalty for non-supply of coin/fresh notes. Shortage in soiled notes remittances. Shortage detected by RBI on soiled notes remittances etc. treating the same as not falling under Explanation 1 to section 37(1) without appreciating that the payment was penal and punitive and was for infraction of public policy? (Tax Effect: Rs.8,90,11,776/- @34.61% of Rs.25,72,00,000/-) 7. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee relying on the decision of Hon'ble Special Bench of ITAT Delhi in the case of Vireet Investment (P) Ltd., without appreciating the facts that the issue has not reached to its finality as the Hon'ble Delhi High Court in its decision in the case of Goetz India Ltd., reported in 361 IT 505 held that while computing Book Profit disallowance w/s 14A is required to be made. However, in its later judgment the Hon'ble Delhi High Court in the case of Bhushan Steel Lid. (ITA No. 593 & 594/2015) has taken a contrary view? (Tax Effect: Rs.6,99,91,687/-@ 21.34% of Rs.32,79,58,949/-) 8. Whether on the facts and circumstances of the case and in law, The Ld. CIT(A) erred in directing to exclude the adjustment made by adding the provision for had and doubtful debts of Rs. 72,06,43,97,437/- while calculating book profit u/s 115JB? (Tax Effect: Rs. 1537,96,95,443/- @21.34% of Rs.7206,43,97,437/-) 9. The Ld. CIT (A)'s order is contrary in law and on facts and deserves to be set aside. 10. The appellant prays that the order of CIT (A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or

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alter any ground or add a new ground that may be necessary at the time of hearing.”

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been adjudicated in Revenue’s appeal for the assessment year 2016-17, in the absence of any change in material facts or law, our findings rendered therein shall apply mutatis mutandis to this ground. Accordingly, the impugned order on this issue is upheld. As a result, Ground No.4, raised in Revenue’s appeal, is dismissed.

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allowable as a deduction under section 37 of the Act. The AO, vide order,

passed under section 143(3) of the Act, disagreed with the submissions of the

assessee and held that the penalty levied on the assessee is penal in nature

and is not due to procedural lapses. Accordingly, the AO disallowed the claim

of the assessee and added an amount of Rs.25.72 crore to the total income

of the assessee.

Coordinate Bench of the Tribunal in IDBI Bank Ltd. vs. DCIT, ITA

No.9934/Mum/2019, held that these penalties are not in the nature of

offences, which are prohibited by the law and, therefore, are compensatory

in nature. Accordingly, the learned CIT(A) held that the payment is not hit by

Explanation–1 to section 37(1) of the Act. Consequently, the addition made

by the AO was deleted. Being aggrieved, the Revenue is in appeal before us.

material available on record. In the present case, a penalty of Rs.25.72 crore

was levied on the assessee, and the same was claimed as expenditure under

section 37(1) of the Act. During the hearing, in response to the query raised,

the learned AR filed the following details of the penalty levied on the assessee:

S.No Branch / Penalty levied Rs. In Lakhs Reasons for levy of penalty . Subsidiary of by Authority Bank 1 PT Bank of Bank 2.77 Failure to comply with internal regulation of Indonesia exchange India Indonesia Indonesia - regulation, delay in statement submission and Input error in (Subsidiary) Local commercial bank daily report Regulator 2 Singapore Monetary 2,164.50 Breaches in respect of MAS Notice 626 which lays down internal Branch Authority of guidelines towards prevention of Money Laundering by following (Foreign Singapore KYC and other guidelines such as failure to record customer's Branch) (MAS) - Local existing residential address, registered or business address and Regulator nationalities, to take reasonable measures to understand the ownership and control structure of the customer, to monitor on an ongoing basis, the business relations with customers, to suspend or terminate the business relations with the customer when the bank is unable to complete Customer due diligence

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measures, to implement appropriate internal policies, procedures and controls to determine if a customer or beneficial owner is a politically exposed person 3 Bank of India - Reserve Bank 405.22 Penal interest for delayed reporting of currency chest Domestic of India (RBI) transactions, incorrect reporting of data, discrepancies in branches - processing of specified bank notes, Shortages in soiled note Penalty levied remittances, Counterfeit notes detected in soiled note on Currency remittances, Mutilated notes detected in soiled note remittances, Chest Non-compliance with operational guidelines by currency chests detected by RBI officials, Non-compliance of some of the terms of agreement with RBI (for opening and maintaining currency chests) or deficiency in service in providing exchange facilities, as detected by RBI officials Total 2,572.49

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the penalty levied on the assessee’s Indian and Foreign branches, during the year under consideration, which has been claimed as a deduction under section 37(1) of the Act.

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Attention: Mr C.G. Chaitanya, Chief Executive Officer Dear Sir BREACHES OF MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM ISSUED PURSUANT TO SECTION 27B OF THE MONETARY AUTHORITY OF SINGAPORE ACT (CAP. 186) ("MAS ACT") OFFER OF COMPOSITION FOR OFFENCE UNDER SECTION 41A OF THE MAS ACT We refer to the regulatory breaches noted in the following reports (collectively the "Reports"): i) the Monetary Authority of Singapore's ("MAS") inspection report on Bank of India, Singapore Branch, as enclosed in MAS' letter to Bank of India, Singapore Branch dated 10 December 2013; and ii) the written reports issued by the independent consultants Deloitte & Touche Financial Advisory Services Pte Ltd's ("DTFSA") dated 4 October 2013 and 30 January 2014. The Reports were finalised only after taking into account Bank of India, Singapore Branch's explanations, acknowledgements and remedial steps. 2 Based on the Reports, MAS found Bank of India, Singapore Branch to be in breach of section 27B(2) of the MAS Act by virtue of its contravention of paragraphs 4.3 read with 4.4 (c) and 4.4 (e), 4.8, 4.10 (b), 4.15, 4.16, 4.20 4.21, 4.22, 4.26, 4.29(a), 4.34, 6.2(a), 6.3 read with 6.2(a), 7.1(a), 10.1(c), 10.2(b), 11.2, and 12.2 of MAS Notice 626 on the Prevention of Money Laundering and Countering the Financing of Terrorism (Version of 2 July 2007) ("MAS Notice 626"). The brief particulars of a total of 1,765 offences committed by Bank of India, Singapore Branch are set out in Annex 1. 3 The maximum prescribed fine for an offence under section 27B(2) of the MAS Act is a fine of S$1,000,000 per offence. In the exercise of its power under section 41A of the MAS Act read with regulation 2 of the Monetary Authority of Singapore (Composition of Offences) Regulations 2007, MAS is prepared to compound forty-five (45) offences of the 1,765 offences under section 27B(2) of the MAS Act, as set out in Annex 1, and take no further action for the remaining 1,720 offences, for a total sum of S$4,500,000, provided Bank of India, Singapore Branch furnishes to MAS within fourteen (14) days of this letter, i.e. by 5pm on 10 August 2017: (a) Bank of India, Singapore Branch's written admission of having committed the said 1,765 offences and its written acceptance of MAS's offer of composition (in the form set out in Annex 2) on Bank of India, Singapore Branch's letterhead; and (b) full payment by Bank of India, Singapore Branch in settlement of the composition sum of $4,500,000 on or after five (5) business days

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but no later than ten (10) business days from the date of the Bank of India, Singapore Branch's acceptance letter referred to in paragraph 3(a) via any of the means set out in Annex 2. 4 Please note that if MAS's composition offer is not accepted in accordance with paragraph 3 above by 5pm on 10 August 2017, MAS's composition offer shall be taken to have lapsed and prosecution in respect of the said offences may be instituted against Bank of India, Singapore Branch without further notice to Bank of India, Singapore Branch. 5 For the avoidance of doubt, please note that MAS may in its sole discretion publish any information pertaining to Bank of India, Singapore Branch's contravention and all other matters relating thereto, at such time and in such form or manner as MAS thinks fit. 6 If you have queries on this matter, please contact Wee Jun Wei at (65) 6422 5486 (WEE_Jun_Wei@mas.gov.sg). 7 Please acknowledge receipt of this letter.

Yours faithfully

TAN KENG HENG EXECUTIVE DIRECTOR BANKING DEPARTMENT II” 107. From the perusal of the said order, as reproduced above, it is evident that the penalty equivalent to Rs.21.64 crore was levied on the assessee’s Singapore Branch for breach of MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism, issued pursuant to section 27B of the MAS Act. In paragraph 3 of the aforesaid order, it is mentioned that as per section 27B(2) of the MAS Act, a fine of USD 1,000,000 per offence is prescribed. However, in exercise of the powers granted under the MAS Act, 45 offences out of a total of 1765 offences were compounded, and the decision was taken not to take any action against the remaining 1720 offences, if the assessee pays a sum of USD 4,500,000 within 14 days. In paragraph 4, it is further stated that upon non-acceptance of the aforesaid

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proposal, a prosecution in respect of the said offences may be instituted against the assessee’s Singapore Branch. Along with the aforesaid order, the list of 45 offences, which were compounded by the authority has been enclosed, which includes offences such as failure to record customer’s existing residential address; failure to verify identity of the customers using reliable, independent sources; failure to verify the natural persons that act on behalf of the customer; failure to identify and verify the identities of the beneficial owner; failure to establish and verify the identity of the customer if the business relationship exceeds the transaction value of USD 20,000; failure to pay special attention to unusually large transaction that have no apparent or visible economic or lawful purpose; failure to implement the internal policy if business relation of the customer present higher risk for money laundering and terror financing, etc.

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 Record keeping.  Suspicious transaction reporting.  Internal policies, compliance, audit and training. 109. It is pertinent to note that India being a part of Financial Action Task Force, which is a Global Anti Money Laundering and Anti-Terror Financing Body, has taken various measures to combat terrorism financing through a multi-faceted approach of legislative frameworks, such as Unlawful Activities (Prevention) Act, 1967, Prevention of Money Laundering Act, 2002 and Foreign Contribution (Regulation), apart from dedicated intelligence units. It is pertinent to note that Singapore is also an active member of the Financial Action Task Force and has been recognised to have a strong, sophisticated Anti-Money Laundering and Counter-Terror Financing System in place. Therefore, it is evident that the penalty of Rs.21.64 crore was levied on the assessee’s Singapore Branch for violation of regulations that have been laid down in Singapore to prevent a serious cause of global concern. Therefore, having regard to the nature of offences committed by the assessee’s Singapore Branch, in the light of the order under the provisions of MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism, we are of the considered view that the penalty was levied on assessee’s Singapore Branch for an offence which is prohibited by law and the same cannot be said to be merely compensatory in nature.

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exchange of bonds and small denomination notes and mutilated notes. Thus, having carefully perused the said decision, we are of the considered view that the nature of non-compliance for which the penalty was levied in the said decision is nowhere similar to the nature of non-compliance for which the penalty is levied on the assessee’s Singapore Branch, i.e. for violation of rules/regulations on Prevention of Money Laundering and Countering the Financing of Terrorism. Therefore, the reliance placed on the decision of the Coordinate Bench in IDBI Bank Ltd. (supra) by the learned CIT(A) is completely misplaced. Accordingly, we are considered view that the penalty of Rs.21.64 crore levied on the assessee’s Singapore Branch falls within the ambit of provisions of Explanation-1 to section 37(1) of the Act and, therefore, cannot be allowed as deduction to the assessee while computing its income chargeable under the head “profits and gains of business or profession” and, therefore, the same is sustained. Accordingly, Ground No.6, raised in Revenue’s Appeal, is partly allowed.

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ITA No. 1451/Mum./2023 Partially allowed for statistical Assessee’s appeal – A.Y. 2016-17 purposes ITA No. 1547/Mum./2023 Dismissed Revenue’s appeal – A.Y. 2016-17 ITA No. 1452/Mum./2023 Partially allowed for statistical Assessee’s appeal – A.Y. 2018-19 purposes ITA No. 1548/Mum./2023 Partly allowed Revenue’s appeal – A.Y. 2018-19 Order pronounced in the open Court on 30/01/2026

Sd/- Sd/- VIKRAM SINGH YADAV SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30/01/2026 Prabhat

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai