BANK OF INDIA,MUMBAI vs. ASST CIT CIR 2(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "B" Bench, Mumbai Before Shri R.C. Sharma, Accountant Member and Shri Amarjit Singh, Judicial Member ITA No. 1013/Mum/2013 (Assessment Year: 2005-06) Bank of India A C I T - 2(1) C-5, G Block, Star House Aayakar Bhavan 8th Floor, Taxation Deptt. Vs. M.K Road BKC, Bandra (E) Mumbai 400020 Mumbai 400051 PAN – AAACB0472C Appellant Respondent ITA No. 1153/Mum/2013 (Assessment Year: 2005-06) D C I T - 2(1) Bank of India Room No. 561, 5th Floor C-5, G Block, Star House Aayakar Bhavan, M.K Road Vs. 8th Floor, Taxation Deptt. Mumbai 400020 BKC, Bandra (E) Mumbai 400051 PAN – AAACB0472C Appellant Respondent Assessee by: Shri C. Naresh Revenue by: Shri Purushottam Tripuri Date of Hearing: 09.07.2018 Date of Pronouncement: 27.08.2018 O R D E R Per R.C. Sharma, AM These are cross appeals filed by the assessee and Revenue against the order of the CIT(A)-4, Mumbai dated 27.11.2012 for A.Y. 2005-06 in the matter of order passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter “the Act”).

2 ITA Nos. 1013&1153/Mum/2013 Bank of India chart indicating that the issues are covered either in favour or against the assessee.

3 ITA Nos. 1013&1153/Mum/2013 Bank of India The AO estimated adhoc amount of expense towards this exempt income at Rs. 56,15,05,000/-. 22. At the outset, the learned Counsel for the assessee stated that exactly identical issue in AY 2001-02 was decided partly in favour of assessee in ITA No. 1498/Mum/2011 order dated 09-04-2014 wherein, disallowed was restricted at 1% of the exempt income. The learned Counsel for the assessee also drew our attention to Para 4.4. and 4.5 of the Tribunal’s order in assessee’s own case which reads as under: - “4.4 Having considered the rival submissions as well as relevant material on record. We note that the CIT(A) has accepted the fact that the assessee has purchased the securities in question by using its own fund and, therefore, there is no interest expenditure in respect of these securities. However for disallowance of administrative expenses u/s 14A, CIT(A) has directed the AO to compute the disallowance at .5% of the average investment earning tax free income. It is pertinent to note that .5% of the average investment is clearly given under Rule 8D which is not applicable for the year under consideration. Further the securities are maintained by the assessee as stock in trade and the income arising from the sale and purchase of securities is taxable as business income of the assessee, therefore, the expenditure if any incurred on account of administrative expenses for maintaining these securities the whole of the said expenditure cannot be attributed to the dividend income when the income arising from the sale and purchase of the securities is taxable. Accordingly only a reasonable estimate has to be made for disallowance of expenditure u/s 14A in respect of earning of dividend income and tax free interest. The Coordinate Bench of this Tribunal in the case of DCIT Vs. HDFC Bank Ltd. (supra) in para 7.1 and 7.2 has considered an identical issue as under:- 7.1 In the case in hand, the CIT(A) considered the facts and pointed out that the assessee is maintaining the treasury department which looks after the day to day investment portfolio of the bank including tax free investments. Having regard to the said factual proposition, the administrative expenses relatable to the income not forming part of the total income can be attributable to the expenditure of special treasury department maintained by the assessee; but it seems the assessee has not filed the exact detail of the operating expenses and therefore, no option was left but to estimate the disallowance. 7.2 Even otherwise, the overall administration of the bank looks after all the department including the treasury department; therefore, in the absence of the exact expenditure incurred in relation to the activity relating to tax free investment and earning the income not forming part of the total income, in our considered opinion, the CIT(A) is justified in restricting the said disallowance to 1%. Accordingly, we do not find any reason to interfere with the order of the ld CIT(A) on this issue of disallowance of administrative expenditure u/s 14A. Accordingly, the ground raised by the revenue as well as the

4 ITA Nos. 1013&1153/Mum/2013 Bank of India assessee in the respective appeal and cross objection are liable to be dismissed. 4.5 Accordingly, we are of the considered view that 1% of the exempt income will be a reasonable disallowance on account of administrative expenses u/s 14A.” 23. In view of the above the learned Counsel for the assessee requested for restricting the disallowance at 1% of the exempted income. The learned DR has not objected to the same. 24. After hearing both the sides and going through the facts of the case, we direct the AO to restrict the disallowance on exempt income at 1% and this issue of assessee’s appeal is partly allowed.” 4. As the facts and circumstances during the year under consideration are same, respectfully following the order above we direct the AO to restrict the disallowance on exempt income at 1%. We direct accordingly.

“6. The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of payments made to liquidators of BCCI, interest and legal expenses. For this assessee has raised following grounds: - “2.1 The CIT (A) erred in confirming the disallowance of compensation of Rs.364,64,32,957/-paid to the liquidators of BCCI as per the orders of courts in UK contrary to law and facts and circumstances of the case. 2.1 The CIT (A) erred in confirming the disallowance of compensation of Rs.364,64,32,957/- paid to the liquidators of BCCI as per the orders of courts in UK contrary to law and facts and circumstances of the case. 2.2 The CIT(A) failed to note that the compensation was required to be paid in deference to a court order and as a matter of business expediency since non-payment would prejudice continuation of banking business in U.K. and therefore is allowable in full. Reliance is placed on the decision of Apex Court in CIT V Udaypur Distillery Co. Ltd. 314 ITR 181.

5 ITA Nos. 1013&1153/Mum/2013 Bank of India 2.3 The CIT (A) ought not to concluded that the appellant hank was a party to the fraud committed by BCCJ against its creditors and hence the payment of compensation did not arise in the course of carrying on its banking business over-looking the fact that the order of court is in connection with a civil proceeding against the appellant and the payment was only a compensation as by the court order itself. 2.4 Without prejudice to the above, the CIT(A) ought to have allowed in any case the interest paid amounting to Rs.173.65 lacs and legal charges amounting to Rs. 17.19 Lacs being / expenses incurred for delayed payment of compensation and for defending the suit filed against the appellant.” 7. Briefly stated facts are that the AO disallowed the payment made to liquidator’s Bank of Credit and Commerce International SA and Bank of Credit and Consumers International (overseas Ltd.) amounting to Rs. 364,64,32,957/- and also legal charges paid for defending suit filed by the liquidators of BCCI amounting to Rs. 17,19,52,641/-. The assessee made certain advances at its London and Cayman Island Branch to certain customers of BCCI and subsequently, BCCI went into liquidation in 1991 and these advances were made on the guarantee of BCCI as claimed by the assessee. The liquidators claimed compensation from certain banks including the assessee bank holding that BCCI was involved in a fraud and the other banks including assessee’s bank connived with BCCI in this fraudulent agenda for the reason that the assessee bank made these advances to certain customers identified by BCCI, which has resulted in a false hope about BCCI and its financial position and results. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the action of the AO vide para 15 to 18 as under: - “15. From the above mentioned judgment it is clear that the practice of giving such loan has been held as highly artificial and BOl knowingly participated in the carrying on of the business of the BCCI SA and BCCI Overseas with intent to defraud the creditors of those companies or for the fraudulent purpose. Therefore, it is clear that assessee made loan to the customers of BCCI knowingly for conniving with a fraud to be committed by BCCI and, therefore, on liquidation of BCCI any damages which have been claimed from the assessee are for the reasons that the assessee was a part of the fraud committed by the BCCI and the compensation was not for the normal business of the assessee. Though the assessee has claimed that it was during the course of normal business but the court has held that such a claim was artificial. In any case the loss is not because of the business activity because as submitted by the assessee entire loan amount had been recovered and assessee also earned certain net interest on such loans. But the compensation had to be paid because of the fraud committed by BCCI and because the assessee was a party who connived with the BCCI in the fraud. Therefore, the A.O. has rightly disallowed the claim of the assessee holding it as expenditure

6 ITA Nos. 1013&1153/Mum/2013 Bank of India incurred on account of fraud not relating to the normal business of the assessee. The claim of the assessee relating to the interest on the compensation and litigation expenses regarding the said claim are also not allowable for the same reasons because they are also related to the fraudulent activity and compensation for that. 16. The A.O. has also disallowed the claim of the assessee on the basis that expenditure does not pertain to the year under consideration, which has also been disputed by the assessee. But once it has been held that it is relating to a fraud, the relevant year will not make any difference. But in any case if at any sage it is found as allowable business expenditure then it can be considered under the year under consideration in view of the decision of Saurashtra Cement and Chemical Industries Ltd. vs. CIT 213 ITR 523 (Gui) and Toyo Engg. India Ltd. vs. JCIT 100 TTJ 373, ITAT, Mumbai, both the judgments are relied upon by the assessee. To this limited extent the ground of appeal of the assessee is treated as allowed for statistical purposes. 17. Another ground on which disallowance has been made is that it relates to a foreign branch, the income of which is not includable in the income of the assessee in view of section 90 and the DTAA. Whereas the assessee has claimed that the more beneficial provisions between DTAA and I.T. Act will apply to the assessee. The ground is academic only because the claim has already been rejected as relating to a fraud but in any case treatment of loss of a foreign branch has to be given as per section 90 read with DTAA and notification No.91/2008 dated 28/812008. 18. The assessee has made an alternative claim vide Ground No. 3(c) that in case the claim for loss on account of payment to BCCI is not allowable then it will result in having net profit in London branch which assessee has claimed to be excludable from the income of the assessee assessable in India. In such a situation if assessee has paid taxes abroad in London then the-relief is allowed as per section 90. In this regard a separate decision has been given against Gr6und No. 11 where the income of foreign branches where DTAA is applicable and assessee is having a permanent establishment, the assessee is allowed in terms of section 90 and notification No.91/2008 dated 28/8/2008. Accordingly, the A.O. is directed against Ground No 3(c) also to follow the decision against Ground No. 11(a) for allowing relief to the assessee against the income taxed in London/Britain. In the result the ground of appeal is treated as partly allowed. Aggrieved, now assessee is in second appeal before us. 7. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee argued that the disallowance of payments made to liquidators of Bank of Credit and Commerce International SA and Bank of Credit and Commerce International (Overseas) Ltd - Rs.

7 ITA Nos. 1013&1153/Mum/2013 Bank of India 364,64,82,9571- and law charges paid by the assessee for defending the suit filed by the liquidators of BCCI-Rs. 17,19, 52,641/- are legitimate business expenses. He explained that the AO had disallowed the above loss on the ground that the loss pertained to London branch and any loss of London branch cannot be allowed as deduction since the assessee had claimed the income from foreign branches as "exclusion" from total income and therefore the loss sustained by a foreign branch cannot be allowed as deduction. He argued that as per the provisions of section 90(2) of the Act, the provisions of the Indian Income Tax Act shall apply to the extent they are more beneficial to the assessee and in respect of London branch where there was a loss, the income should be taxed in accordance with the normal provisions of the Act. Hence the above loss should be reduced in computing the total income. He further explained that the AO disallowed the above sum on the ground that it does not relate to the current assessment year since the transactions took place during financial years 1981 to 1986. He submitted that the liability to pay has crystallized arose and became payable only in the current year based on the orders of High Court of Justice, Chancery Division, Companies Court, UK dated 19/03/2004 and 26/03/2004 and therefore cannot be disallowed for the current assessment year. He placed reliance on the decisions in support of its contention of Hon’ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd Vs CIT 213 ITR 177 523 (Guj) and ITAT Mumbai Tribunal in the case of Toyo Engineering India Limited Vs JCIT 100 TTJ 373 (ITAT Mum). 8. He further argued that another reason given by the AO for disallowance of the above amount is that it is expenses incurred for fraud and not a normal business expenses. He explained that assessee is engaged in the business of the banking and as per the Banking Regulation Act, one of the main objects of a banking company is to accept deposits from various depositors and lend money to various borrowers. He cited Section 6(1)('a) of Banking Regulation Act, which states as under: “A Banking Company may engage in one or more of the following business namely :- The borrowing, raising or taking up of money, the lending or advancing of money either upon or without security." In respect to this he argued that in pursuance of the above objects the assessee in the ordinary course of carrying on its main business accepted deposits from Bank of Credit and Commerce International SA BCCI and advanced loans to various borrowers as introduced by BCCI in its London Branch. Further the repayments of the loans introduced by BCCI were also guarantee by BCCI. In the banking business, both acceptance of deposits and lending require proper introduction from the persons acceptable to the bank in order to ensure that the deposits and advances represent genuine business

8 ITA Nos. 1013&1153/Mum/2013 Bank of India transactions. This is insisted by the various regulators in respective countries to ensure that the banks engage in genuine business transactions and dealings and to prevent fraudulent or bogus transactions. The London branch of the assessee has duly followed the above guidelines and the transactions were entered into with BCCI for a very long time much before the transactions under present appeal which took place from 1981 to 1986. The deposits of BCCI accepted by London Branch were duly repaid by the assessee on the due dates and the loans granted to parties introduced were also recovered in full by the London Branch. In view of these facts mentioned above, he stated that it is clear beyond doubt that assessee had carried on its normal banking business permitted by section 6(1)(a) of Banking Regulation Act and the said transactions have not resulted in any loss or damage. However out of the above transactions, one of the parties to whose transactions viz. BCCI have acted in a manner which resulted in the liquidation proceedings and its ultimate winding up. The assessee had absolutely no control or supervision of the management whatsoever on the transactions entered into by BCCI, which is a separate and distinct and legal entity from the assessee. Hence the said BCCI was ultimately held liable for payment of certain sums, consequent on which the assessee was also required to pay compensation. Further even under normal proceedings of law present in India, the banks incur huge losses in respect of loans and advances granted by them in normal course of banking due to fraudulent practices followed by the borrowers, and not utilizing loans for the purpose for which it was sanctioned, large scale diversion of bank loans for personnel use, not having sufficient stock or other securities and utilizing the bank funds for speculative purposes, as a result of which the banks are unable to realize their dues in full. In such circumstances the banks usually write off such debts either as bad debts or trading loss and no questions are raised about the misuse of the banks funds by the borrowers and the losses are allowed in full even though the borrowers had cheated or defrauded the banks in such cases resulting in criminal proceedings against the borrowers. 9. On the other hand before us, the learned Sr. DR argued that on the issue of fraudulent transactions Hon’ble High Court justice Chancellery Division the Commence Court London has recorded this fact that how BCCI and these parties collided and the relevant portion of the judgments reads as under:- '"This application is concerned with six transactions involving the Bank of India (BOI and BCCI which took place between 1981 and 1986. In each of five successive years, BCCI approached BOI and requested them to enter into an arrangement under which BCCI would deposit monies with BOI for a fixed term, usually of three months. With the assistance of the finance provided by these deposits BOI would then grant to a company nominated by BCCI a loan for the same period. No formal lien was granted in favour of BOI over the

9 ITA Nos. 1013&1153/Mum/2013 Bank of India deposits, hut BCCI provided a guarantee for the repayment of the principal of the loan and accrued interest. No payments of interest were made on either side during the currency of the deposits and the loans. These arrangements came to be referred to in BOI's internal documentation as BCCI's usual deal They were said by those dealing with these matters at the London branch of BOI at the time to be motivated solely by a desire on the part of BCCI to improve what was described as its earnings to advances ratio by recording in its accounts a decrease in the amounts outstanding on loan to borrowers and thereby producing a corresponding increase in the amount of interest received relative to the sums lent as at the year end. This practice was on any view highly artificial and was referred to by BOl, both in contemporaneous documents and during the course of the oral evidence, as a form of window dressing by BCCI. It was for this reasons that in each of the five years in question the arrangements were timed to coincide with BCCI'S year end and the preparation of its balance-sheet and accounts. In 1984 (the fourth transaction) there was also a similar transaction which coincided with the period in late September when BCCI'S auditors were carrying out their circularization procedures. The liquidators of Bank of Credit and Commerce International SA (BCCI SA") and Bank of Credit and Commerce International (Overseas) Limited ("BCCI Overseas'2, who are the applicants in these proceedings, allege two things. The first is that each of the transactions was entered into by BCCI SA and BCCI Overseas to assist them and their holding company, BCCI Holdings (Luxembourg) SA ("BCCI Holdings"), to maintain the concealment of serious had debts and losses incurred by the group on a number of customer accounts and as a result of metal trading carried out for their own account There is no dispute about this. The conduct of BCCI (by which I refer to the group as a whole) was undoubtedly fraudulent and this is now common ground between the parties to this application. The second allegation is that BOI, by entering into these six transactions under review, knowingly participated in the carrying on of the business of BCCI SA and BCCI Overseas with intent to defraud the creditors of those companies or for a fraudulent purpose. If this allegation (which is denied) is made out, then I have jurisdiction u/s. 213 of the Insolvency Act 1986 to order BOI to pay compensation to the liquidators for the losses to creditors which have been sustained.” 10. We have gone through the argument of both the sides and noted that the transactions of the London Branch of the assessee were perfectly legal and no losses were incurred on such transactions. However the assessee was called upon to pay compensation to the liquidators of BCCI for the losses sustained by creditors and bank in respect of the transactions of BCCI for which the assessee was not a party at all. However as the compensation regarding contribution to liquidator under UIC insolvency Act was made to fulfil its statutory liability consequent on the decision of

10 ITA Nos. 1013&1153/Mum/2013 Bank of India judicial authorities, the said compensation takes the character of the normal business expenditure which is allowable in full both under section 28 of Act. We find from the case law relied by assessee of Hon’ble Supreme Court in the case of DR. TA Quresi Vs CIT 287 ITR 547 SC held that the explanation to Section 37 has really nothing to do with the present case, as it is not a case of business expenditure but of business loss. Business losses are allowable on ordinary commercial principles in computing profit and once it is established that the items seized, whether contraband, formed part of the stock in trade, it follows that the seizure and confiscation of such stock in trade is to be allowed as business loss. Hon’ble Supreme Court held as under: - “No doubt, it was initially contented by the assessee before the Income Tax authorities that the apparatus for manufacturing heroin from opium did not belong to the assessee but belonged to one V. T. Madan. However, the Assessing Officer did not agree with this contention and the Tribunal in its earlier order dated 31.3.1993 has recorded a finding (in paragraph 7 of its order) that the assessee was involved in the manufacture and selling of heroin for material gain. Thus, it has been held by the Income Tax authorities that the appellant was engaged in manufacture of heroin and selling it for material gain. No doubt, the assessee had contended that he was only earning income from his medical profession and was not doing any illegal activity of manufacturing and selling of heroin. However, the finding of fact of the Tribunal in its order dated 31.3.1993 is that the assessee was engaged in manufacture and selling of heroin. Thus the Income Tax authorities themselves have recorded a finding that the assessee was engaged in manufacture and selling of heroin. No doubt the order of the Tribunal dated 31.3.1993 was subsequently recalled by the Tribunal, but since with ultimate order dated 14.10.1998 the Tribunal has held that the heroin seized was the assessee's stock in trade it is implicit that the Tribunal reiterated to view that the assessee was doing the business of manufacture and sale of heroin. Once the Income Tax authorities records such a finding of fact, it follows that any loss from such a business is a business loss. The facts of this case are squarely covered by the decision of this Court in CIT vs. Piara Singh AIR 1980 SC 1271 which was a case of an assessee carrying on smuggling activity and this Court held that the loss arising out of confiscation of currency notes must be allowed as a business loss. In the order of the Tribunal dated 14.10.1998 there is a finding of fact in paragraph 8 to the effect that the heroin forms part of the stock in trade of the assessee. In view of this finding, the Tribunal allowed the assessee's claim of deducting the loss of 5 kg. of heroin whose value was assessed by the Tribunal at Rs. 2 lacs as a business loss.

11 ITA Nos. 1013&1153/Mum/2013 Bank of India We fully agree with the view taken by the Tribunal. The High Court, however, in paragraph 10 of its judgment observed: "The assessee in this case was engaged in profession of doctor. He had nothing to do with the contraband article Heroin for carrying on his profession. It is an admitted fact that possession of Heroin is an offence under NDPS Act. In this view, the rigour of explanation to Section 37 was fully satisfied and hence the question claiming any deduction for the value of seized article did not arise nor was an assessee entitled to claim any such deduction who was bound in indulging in such heinous and illegal business unconnected with his pious professional activity. Indeed, it was disgrace for a doctor community where one doctor was found indulging in doing such kind of activities against the humanity". In our opinion, the High Court has adopted an emotional and moral approach rather than a legal approach. We fully agree with the High Court that the assessee was committing a highly immoral act in illegally manufacturing and selling heroin. However, cases are to be decided by Court on legal principles and not on one's own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed out. As already observed above, the facts of the case are squarely covered by the decision of this Court in CIT vs. Piara Singh (supra). The explanation to Section 37 has really nothing to do with the present case as it is not a case of a business expenditure, but of business loss. Business losses are allowable on ordinary commercial principles in computing profits. Once it is found that the heroin seized formed part of the stock in trade of the assessee, it follows that the seizure and confiscation of such stock in trade has to be allowed as a business loss. Loss of stock in trade has to be considered as a trading loss vide Commissioner of Income- Tax vs. S.N.A.S.A. Annamalai Chettiar AIR 1973 SC 1032.” 11. Alternative submissions were also made by Ld Counsel for the assessee that Without prejudice to the above contention, at least the following amounts should be allowed in full:- a) Interest paid Rs. 173,65,21,485/- b) Legal Charges in defending the suit Rs. 17,19,52,641/- The above sums were incurred based on the order of court on the amount of compensation payable against which the assessee had denied its liability in the legal proceeding before the High Court and Supreme Court, on account of passage of time and the claim is in the nature of interest allowable u/s 28 of the Act in computing the total income. Further, the legal expenses incurred to defend the suit against the bank to avoid the full compensation should be allowed as deduction in computing the total income u/s 28 of the Act, since the same was incurred in the ordinary course of carrying on the banking

12 ITA Nos. 1013&1153/Mum/2013 Bank of India business to contest a substantial original demand of USD 10 Billion against the assessee which was reduced substantially in the appeal. 12. In view of the above facts of the case, we are of the view that the compensation paid in term of judgment of Hon’ble High Court of Justice Chanclry Division, Companies Court, London is allowable deduction in view of the commercial expediency. Respectfully following Hon’ble Supreme Court, we allow the claim of assessee. This issue of assessee’s appeal is allowed.” 7. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal we do not find any justification for disallowing payment to liquidator of BCCI. The AO is directed to delete the same.

ITA No. 1153/Mum/2013 (Revenue’s appeal) 12. In ground No. 2 Revenue is aggrieved for deleting part of disallowance made under Section 14A of the Act. We have already dealt with this issue while deciding ground No. 1 of assessee’s appeal. Following

13 ITA Nos. 1013&1153/Mum/2013 Bank of India the reasoning given therein above, the ground raised by the Revenue is dismissed and we restrict the disallowance to 1% of the exempt income.

14 ITA Nos. 1013&1153/Mum/2013 Bank of India 15. We have heard the rival contentions and carefully gone through the orders of the Authorities below as well as the order of the Hon'ble Karnataka High Court in the case of Canara Bank (supra). We find that as per the finding recorded by the CIT(A) the issue has been decided in A.Y. 1999-2000 as well as in A.Y. 2004-05 in favour of the assessee. However, the Department has not come in appeal before the Tribunal. Moreover the issue is covered by the decision in the case of Canara Bank (supra). Accordingly, we do not find any reason to interfere with the order of CIT(A) for allowing the write off on redemption of D-2 Plus funds.

15 ITA Nos. 1013&1153/Mum/2013 Bank of India expenditure and there is no requirement of any separate contractual obligation because Mutual Fund was sponsored by the bank itself. Therefore, respectfully following the decision of my predecessor for A.Y. 99-00 against the similar other ground, the addition is deleted and the ground of appeal is allowed”. 19. Rival contentions have been heard and record perused. Following the reasoning given with respect to ground No. 3, we uphold the order of the CIT(A) for deleting the disallowance of loss on account of amount written off.

16 ITA Nos. 1013&1153/Mum/2013 Bank of India impugned order the CIT(A) deleted the addition after having detailed finding at para 18 of his order.

“25. The next issue in this appeal of Revenue in ITA No. 6016/Mum/2011 against the order of CIT(A) in deleting/ excluding the income of foreign branches. For this Revenue has raised following ground No. 1: - “On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in directing the A.O. to exclude the income of foreign branches in violation to Central Government Notification No. S.O. 2123(E) dt. 28.8.2008 which clearly indicates its inclusion while arriving at the total income.” 26. At the outset it is noticed that this issue has already been deliberated by the Tribunal in assessee’s own case for AY 2003-04 in ITA No. 3534/Mum/2011 vide order dated 15-06-2012 and has allowed the claim of the assessee vide Para 34 and 35 as under: - “34. The next two grounds are interlinked, wherein the assessee has sought relief of Rs. 90,63,29,812/- in respect of profit in foreign branches. The AR submitted that complete and comprehensive submissions made before the CIT(A), who after considering the submissions, allowed the assessee’s appeal. The AR, thus pointed out the relevant portion of the written submissions also placed before us. “The respondent had excluded the income from foreign branches based on Double Tax Avoidance Agreement entered into between the Govt. of India and the Govt. of the respective countries. The AO had granted relief only in respect of branches at Singapore and Japan and in respect of the other branches denied the benefit to the appellant. The CIT (A) allowed the claim of the respondent based on the decision of Hon’ble ITAT in appellant’s own case. The respondent submits that this issue has been decided in favour of the assessee by Supreme Court of India in CIT Vs PV.AL.Kulandagan Chettiar, reported in 267 ITR 654 which upheld the decision of ITAT Chennai in the case of PV.AL.Kulandagan Chettiar Vs ITO (3 ITD 426). The ITAT had held that “So the argument that the agreement must be so interpreted as to retain the taxation powers with the Government of India in order to prevent fiscal evasion has only to be rejected. The agreement is mainly for avoidance of double taxation. That means the income shall not be taxed at the same time in both the countries in India and Malaysia. So, if we interpret the agreement to mean that the Indian Government and the Malaysian Government both still retain even after the execution of the agreement the power to tax at the same time the same income it will only frustrate the object with which the agreement is executed”. The ITAT had therefore concluded, “As

17 ITA Nos. 1013&1153/Mum/2013 Bank of India regards business profits paragraph I of Article 7 provides that the profits of an enterprise of a contracting state shall be taxable only in that contracting state. We will take it that the assessee being a resident of India, the enterprise is an Indian enterprise. So the Profits are taxable in India. But this power of India to tax, as further provided in the Article, exists only when the enterprise does not carry on business in Malaysia through a permanent establishment situated in Malaysia. This is an undisputed fact. So the right of the Indian Government to levy tax in respect of business profits of these types of Indian Enterprise as provided in opening paragraph of Article 7 is taken away because a permanent establishment is situated in Malaysia.” In the appellant’s case also in all the foreign countries the operation is carried out through its branches which is a permanent establishment situated outside India. Hence the income attributable to these branches cannot be taxed in India. This issue has also been decided in favour of the appellant by ITAT in appellant’s own case in ITA No. 1679/Mum/2001 dated 27/03/2008 for the AY 1997-98, wherein the coordinate Bench has held, “.The Learned CIT(A) after examining articles 23, 24 and 25 of the different DTAAs found that the laws in force in either of the contracting states would govern the taxation of income in the respective contracting states, i.e. credit of tax paid in one state would be given in the other state. He also found that Article 7 stated that if enterprise of one State carries on business in another State through permanent establishment then the State where the business is carried out would levy tax on the profits attributable to the permanent establishment. On analysis of these provisions the learned CIT(A) found that Article 7 of the different DTAAs are specific provision while Articles 23, 24 and 25 are general provisions. The coordinate Bench in the case of the assessee, in the earlier year’s case held, “As a result he also found that the issue already decided by the Tribunal in assessee’s own case for the earlier years have to be followed. We do not find any infirmity in the above finding of the CIT(A). Therefore consistent with the earlier finding of the Tribunal in assessee’s own case for the earlier years case, we do not see any merit in the ground taken by the Revenue”. The AR submitted that in the instant case also, the view should be taken in the assessee’s favour.” Even Hon’ble Bombay High Court also confirmed the decision of Tribunal in Income Tax Appeal No. 1630/Mum/2012 vide order dated 07-01-2015, wherein Hon’ble High Court has dismissed the Revenues contention by observing in Para 4 as under: - “4. With the assistance of Mr. Suresh Kumar and Sanjiv Shah, we have perused the memo of Appeal. The Assessing Officer was satisfied that the benefit of the Double Taxation Avoidance Agreement is admissible provided the proof is produced in relation to payment of taxes by the Assessee abroad. In other words, if the Assessee has permanent establishment abroad, then, the Assessee would have to produce evidence regarding payment of taxes pertaining to the income

18 ITA Nos. 1013&1153/Mum/2013 Bank of India of these establishments abroad. On production of such evidence, the Assessee would be entitled to the benefit. That evidence was always available and as noted by the Commissioner of Income Tax (Appeals) and the Tribunal. In the circumstances, the authorities did nothing but follow their earlier orders based on identical facts and circumstances. The finding of fact, therefore, cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The Appeal does not raise any substantial question of law. It is devoid of merits and is, accordingly, dismissed. No costs.” 27. As the issue is squarely covered in favour of assessee in assessee’s own case, respectfully following the Hon’ble Bombay High Court and co-ordinate Bench decision, we confirm the action of the CIT(A) and deleing the addition. This issue of Revenue’s appeal is dismissed.” 24. As the facts and circumstances are same, respectfully following decision of the Tribunal in assessee’s own case as stated above, we do not find any reason to interfere with the order of the CIT(A) for excluding the income of foreign branches from assessee’s income.

19 ITA Nos. 1013&1153/Mum/2013 Bank of India and the said expenditure of ₹80.54 crore has been charged to Profit & Loss Account in the books of account.

“40. I have considered the facts of the case and submissions of the assessee. This issue has already been decided by my learned predecessor in A.Y. 2003-04 in favour of the assessee and the Hon'ble ITAT in 1998-99 in ITA No. 5347/Mum/2007 dated 31.10.2007 in the case of Union Bank of India. My learned predecessor allowed the claim of the assessee in A.Y. 2003-04 as follows:- "Decision” 29. I agree with the submissions of the A.R. that interest on Government securities do not arise on day-to-day basis but only on specified dates. Hence the income of the assessee has not accrued on the closing date of the assessment year. Therefore, the appellant has rightly excluded the interest income on Government securities from the total income of the assessee. Reliance is placed on the decision of ITAT, Mumbai, in the case of Union Bank of India in ITA No.5347/Mum/2007 dated 31/10/2007. SLP filed by the Department has been rejected. Accordingly, I direct the A. O. to allow the claim of the appellant and delete the addition of Rs. 457,86,49,040/. This ground of appeal is allowed." Therefore, respectfully following the decision of Hon'ble ITAT and that of my predecessor, the ground of appeal is allowed.” 28. It is clear from the above order of the CIT(A) that he has followed the order of the Tribunal on this issue. We have also carefully gone through the order of the Tribunal in assessee’s own case for A.Y. 2008-09 and A.Y. 2009-10 dated 08.11.2013 wherein the issue has been dealt with at pages 1 and 2. The learned D.R. fairly agreed that the issue is covered by the order of the Tribunal. Respectfully following the same, we do not find any reason to interfere in the order of the CIT(A) for deleting the disallowance made for provision for wage arrears.

20 ITA Nos. 1013&1153/Mum/2013 Bank of India and also in the case of CITG vs. Indus Bank 373 ITR 170. The SLP filed against this order by the Department has been dismissed by the Hon'ble Supreme Court in the case of Federal Bank Ltd. 310 ITR 9. Respectfully following the order of the Hon'ble Bombay High Court and other Hon'ble High Courts as referred above, we do not find any reason to interfere in the order of the CIT(A) for deleting the disallowance of interest accrued but not due on securities.

“50. I have considered the facts of the case and submissions of the assessee. The issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of UCO Bank 240 ITR 355 and by the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Bank of Baroda 262 ITR 334 (Bom) and by the decision of Hon'ble ITAT in assessee’s own case in A.Y. 97-98 ITA No.l680/M/2001 where Hon'ble ITAT has held as below: 'With regard to the first ground after hearing rival contentions we find that the first appellate authority has dealt with the issue at para 3 on page 2 of his order. The first appellate authority observed that the assessee's case is that the securities constituted stock-in-trade and holding loss which occurred to the assessee on account of valuation of securities on the last accounting day should be allowed as a deduction. The first appellate authority further observed that this argument of the assessee was accepted in the assessment years 1992-93 to 1995-96, We agree with the line of reasoning given by the first appellate authority. As long as the securities in question constitute stock in trade, the loss incurred by the assessee due to valuation of securities on the last day of the accounting period should be allowed as a deduction. In the result we uphold the order of the CIT(A) and dismiss the first ground taken by the Revenue."

21 ITA Nos. 1013&1153/Mum/2013 Bank of India 51. Therefore, in view of the above mentioned decisions of Hon'ble Supreme Court, High Court and that of Hon'ble ITAT the issue is squarely covered in favour of the assessee because the securities under consideration constitute the stock-in-trade in the year under consideration also and the same have been valued as per cost or market price whichever is lower and this method is consistently followed by the assessee. Hence the disallowance made by the A.O. is deleted and the ground of appeal of the assessee is allowed.” 33. We have carefully gone through the orders of the Authorities below and find that the issue is covered by the decision of the ITAT in assessee’s own case for A.Y. 2008-09 vide order dated 13.07.2016 and also by the Hon'ble Bombay High Court in the case of HDFC Bank 366 ITR 505. Respectfully following the same we do not find any reason to interfere in the order of the CIT(A) for deleting the addition made on account of diminution of value of investment.

22 ITA Nos. 1013&1153/Mum/2013 Bank of India 37. In the result, the appeal filed by the assessee is allowed in part while the appeal filed by Revenue is dismissed.

Order pronounced in the open court on 27th August, 2018.

Sd/- Sd/- (Amarjit Singh) (R.C. Sharma) Judicial Member Accountant Member Mumbai, Dated: 27th August, 2018 Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -4, Mumbai 4. The CIT - 2, Mumbai 5. The DR, “B” Bench, ITAT, Mumbai By Order //True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.