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Income Tax Appellate Tribunal, BENCH “I”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI PAWAN SINGH
Assessee by : Sh. C. Naresh - AR Revenue by : Ms. S. Padmaja (CIT-DR) Date of hearing : 06.03.2018 Date of Pronouncement : 20.04.2018 Order Under Section 254(1) of Income Tax Act PER BENCH: 1. This group of eight appeal filed under section 253 of Income Tax Act are directed against the orders of Ld. Commissioner of Income-Tax (Appeals)- 4, Mumbai, [for short the ld. CIT(A)] passed for assessment years 2010-11 to 2013-14. In all appeals both the parties have raised common grounds of appeal and hence all the appeals are clubbed and heard together and are decided by this consolidated order, for the sake of convenience. The ld. representatives of the parties agreed to treat the appeals filed by them for assessment year 2011-12 as lead appeals.
2. In , the revenue has raised the following grounds of appeal for assessment year 2011-12:
1. The order of the CIT(A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in directing the Assessing Officer to exclude the income of foreign branches in violation to Central Government notification No. SO 2123 (e) dt. 3 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda
28.08.2008 which clearly indicates its inclusion while arriving at the total Income. 3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the disallowance of broken period interest paid, inspite of the decision of Hon'ble Supreme Court in the case of CIT vs Vijaya Bank (187 ITR 541).
Ground No.1 is general in nature and needs no specific adjudication. Ground No.2 relates to exclusion of income of Foreign branches. The ld. DR for the Revenue supported the order of Assessing Officer. The ld. DR for the Revenue further submits that income from foreign branch should be considered for the purpose of income-tax. The ld DR submits that on similar ground in appeal filed for assessment year 2009-10, the Tribunal has allowed the appeal of the revenue, vide its order dated 17.02.2017 passed in ITA No.2480/M/2015. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). The ld. AR of the assessee further submits that the assessee excluded the income from foreign branches on the basis of Double Taxation Avoidance Agreement (DTAA) with respective countries and the income arising from those branches situated in contracting state cannot be taxed in India. The Ld A.R further submitted that the Government of India has issued the Notification, which has been relied upon by the Tribunal in the earlier years, after the decision rendered by Hon’ble Supreme Court in the case of Turquiso Investments in the context of taxability of dividend income. Hence the said notification should be construed as relating to dividend income and its meaning should not be 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda extended to Business income. He submitted that so far as business income is concerned, the decision rendered by Hon’ble Supreme Court in the case of Kulandagan Chettiar should be considered.
We have considered the submission of ld. representative of the parties and perused the order of authorities below. The Assessing Officer while relying upon the Notification No. S 2123(e) dated 28.08.2008 treated the income of foreign branches as taxable in India. The ld. CIT(A) on the basis of decision of Tribunal in assessee’s own case for Assessment Year 2005-06 to 2007-08 in 2928, 5735/Mum/2011 dated 25.07.2014 held that as per the Notification, the income which is to be included in the total income is such income of foreign branch that was taxed in the foreign country, the relief of tax will be allowed based on the taxed paid in the foreign country and thereby granted part relief to the assessee. We have noted that similar ground of appal was raised by Revenue in appeal for A.Y. 2009-10 and the co-ordinate bench of the Tribunal in ITA No. 2480/Mum/2015 dated 17.02.2017 passed the following order:
We have carefully considered the submission and perused the record we find that the ITAT in the aforesaid decision has duly considered the said notification referred by the Ld. Counsel of the assessee. We may carefully refer to the contents of the said notification as under; "In exercise of the powers conferred by sub-section (3) of section 90 of the Income-Tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief to tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in 5 , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda accordance with the provisions of the Income-Tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement."
25. We find that after taking into account the aforesaid notification the Tribunal in the aforesaid order has concluded as under. "In view of the aforesaid findings/conclusion, we hold that the income of the branches of the assessee shall also taxable in India i.e., it would be included 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."
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.2 of 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.
6. Ground No.3 relates to broken period interest expenses. The ld. DR for the Revenue supported the order of Assessing Officer and argued that the 6 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda assessee is not entitled for deduction on account of broken period interest expenses. In support of her submissions, the ld. DR relied upon the decision of Hon’ble Supreme Court in case of CIT vs. Vijaya Bank (197 ITR 541).
On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A) and submits that the Hon’ble Supreme Court in case of CIT vs. Citi Bank in C.A. No. 1549 of 2006 dated 12.08.2008 has allowed the broken period interest expenses. The ld. AR of the assessee further submits that similar ground of appeal was raised by Revenue in appeal for A.Y. 2008-09 & 2009-10 which has been decided against the revenue in 5604/Mum/2016 dated 01.03.2018.
We have considered the submission of the parties and find that identical
ground of appeal was raised by Revenue in appeal for A.Y. 2008-09
& 2009-10 has been decided against the revenue in ITA No. 5605,
5604/Mum/2016 dated 01.03.2018 and the decision rendered by the Tribunal is extracted below:-
“4. We have considered the rival submission of the parties and have gone through the order of lower authorities. The Assessing Officer made the disallowance on the basis of decision of Vijaya Bank Ltd. vs. ACIT [197 ITR 541 SC)] on his observation that broken period interest is a part of capital outlet for acquisition of securities and also on the basis of decision of CIT vs. Bank of Rajasthan that expenses made by Bank towards broken period interest on securities purchased by it is not allowable business deduction. The Assessing Officer also concluded that assessee is not a trader in security and not entitled for claim of broken period interest expenses.
The Hon’ble Bombay High Court in CIT Vs. HDFC Bank Ltd 366 ITR 505 (Bom), while relying on the ratio laid down in its earlier decision in American Express International Banking Corporation Vs. CIT reported in 258 ITR 601 (Bom), which in turn, had distinguished the ratio laid down by the Hon’ble Supreme Court in Vijaya Bank Vs. CIT (supra) and the Hon’ble High Court of , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda Rajasthan In CIT Vs. Bank of Rajasthan Ltd (supra) and had held that broken period interest is allowable as deduction. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of broken period interest.
We have also noted that the Hon’ble Apex Court in case of CIT vs. Citi Bank (supra) held that broken period interest expenses are allowable expenses. We have noted that the order passed by ld. CIT(A) is based on the decision of Hon’ble Bombay High Court in American Express International Banking Corporation (supra) and the decision of Hon’ble Supreme Court in Citi Bank (supra). The decision relied by ld. DR was distinguished by Hon’ble Apex Court in Citi Bank (supra). No other contrary decision is brought to our notice. Thus, we do not find any illegality or infirmity in the order passed by ld. CIT(A) in deleting the disallowance of broken period expenses. In the result, grounds of appeal raised by Revenue are dismissed.
Consistent with the view taken by the co-ordinate bench in assessee’s own case (authored by this combination) on identical ground of appeal, we dismiss this ground of appeal raised by Revenue.
In the result, appeal filed by Revenue is partly allowed.
In for assessment year 2011-12, the assessee has raised the following grounds of appeal:
1.1. The ld CIT (A) erred in confirming the disallowance u/s 14A computed as per rule 8D at Rs.75.16 crore on a tax free income of Rs. 57.04 crore over looking fact that the appellant ad himself quantified the disallowance at Rs.0.88 crore being proportionate expenditure of treasury branch which controls and monitors the securities from which the tax free income was earned. The CIT (A) should have appreciated as all the assets from which the tax free income has been earned are stock in trade, as held in the case of India Advantage Securities (380 ITR 471). 1.2 Without prejudice to the above contention, even if rule 8D is to be applied, the disallowance can only be nil since the appellant does not hold any investment the income from which does not or shall not form part of total income and the appellant only holds stock in trade. 1.3 Without prejudice to the above contention, the question of disallowance of interest expenditure under rule 8D does not arise since the interest free funds held by the appellant far exceed the amount of investments in assets earning tax free income. The CIT(A) ought to have followed the ratio laid down by Jurisdictional High Court in the case of Reliance Utilities and Power Ltd 313 ITR 340 and held that no disallowance of interest as contemplated in rule 8D was warranted. 8 , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda 1.4 Without prejudice to the above contention, as held in various judicial decisions, the disallowance in no case can exceed the tax free income earned by the appellant and in any case the disallowance cannot exceed the tax free income earned of Rs. 57.04 crore.
2. The CIT (A) erred in restricting the deduction u/s 36(1)(viia) to the extent of provision made for bad and doubtful debts in the books instead of allowing the same based on eligible deduction as per the said section.
3. The CIT (A) ought to have allowed the appellants claim in respect of exclusion of income of foreign branches situated in countries where there is a Double tax Avoidance Agreement based on Article 7 of the respective agreements which provides that the business profits is to be taxed in the respective countries. The CIT (A) failed to note that notification 91 of 2008 relied upon by Hon'ble ITAT does not apply to business profits but only to other sources of income.
Ground No.1 relates to disallowance under section 14A. The ld. AR of the assessee argued that no disallowance under section 14A is warranted as the assessee hold all its securities as stock-in-trade. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in case of India Advantage Securities 381 ITR 471, HDFC vs. CIT 383 ITR 529 (Bom.) and decision of Hon’ble Punjab & Haryana High Court in PCIT Vs State Bank of Patiala (391 ITR 218). The ld. AR of the assessee further submits that the similar issues was partly allowed in favour of assessee in assessee’s own case for A.Y. 2009-10 in Assessing Officer to consider various decision. On the other hand, the ld. DR for the Revenue supported the order of authorities below.
We have considered the submission of both the parties and have gone through the orders of authorities below. We have noted that the assessee has raised similar ground of appeal in appeal for assessment year 2009-10 in 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda ITA No. 3081/M/2015. The co-ordinate bench of Tribunal in appeal for A.Y. 2009-10 has restored the similar issue to the file of Assessing Officer to pass the order afresh by following various decision with the following direction:
“We find that facts and circumstances of the case in the present year are similar except that learned counsel of the assessee has submitted that several more decisions have come which have upheld the view that disallowance under section 14A is not required when the investment is held as stock in trade. In our considered opinion we should follow the doctrine of stare decisis. Accordingly following the same directions as above we remit this issue to the file of the assessing officer. Assessing Officer is directed to consider the issue in light of the directions as above after giving the assessee adequate opportunity of being heard. Assessee is at liberty to canvas further case laws as it deems appropriate. ”
We have further noted that recently the Hon’ble Apex Court in Maxopp Investment Ltd. Vs Commissioner of Income-tax [2018] 91 taxmann.com 154 (SC) has held that in cases, where shares are held as stock-in-trade, main purpose is to trade in those shares and earn profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on theory of apportionment of expenditure between taxable and non-taxable income. Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned. Thus, considering the decision of Hon’ble Apex Court and the decision of co-ordinate bench in assessee’s own case for earlier years i.e. 2009-10 this ground of appeal
is restored to the file of Assessing Officer for deciding the issue afresh after considering the decision of Hon’ble Apex Court in Maxopp Investment Ltd. (supra) and 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda the other decisions and pass the order in accordance with laws. Needless to say that Assessing Officer shall grant adequate opportunity to the assessee before passing the order.
14. In the result, the Ground No. 1 of the assessee’s appeal is allowed for statistical purpose.
15. Ground No.2 relates to provision for bad and doubtful debts u/s 36(1) (viia) to the extent of provision made in books during the previous year instead of the eligible amount as per the said section. The ld. AR of the assessee submits that this ground of appeal is covered in favour of assessee by the decision of Delhi Tribunal in case of ACIT Vs Pratima Bank (58 ITR (Trib.)
1, Del.). The ld. AR of the assessee further submits that the provision held in books should be the basis and not the provision made during the previous year as held by Ahmadabad Tribunal in case of DCIT Vs Sarvodaya Sahkari Bank Ltd. 48 taxmann.com 82 (Ahd.). On the other hand, the ld. DR for the Revenue supported the order of authorities below.
We have considered the rival submission of the parties and have gone through the orders of authorities below. The Assessing Officer restricted the deduction under section 36(1)(viia) to the extent of provision made for bad and doubtful debts holding that in earlier years (i.e. in A.Y.2010-11) doubtful debt is more than claim for write off of bad debts for the current year. The ld. CIT(A) while considering the contention of the assessee observed that similar issue was subject matter in appeal for preceding year, 11 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda wherein the claim related to bad-debts written of non-rural branch was allowed and the Assessing Officer was directed to verify the claim in respect of non-rural branch and allow the same. The ld. AR of the assessee relied upon the decision of Prathma Bank (supra) and submitted that the Provision for bad and doubtful held by the assessee as at the year end should be considered for allowing deduction u/s36(1)(viia) of the Act.
We find merits in the said contentions. Under the accounting principles, there are two methods of accounting for Provision for bad and doubtful debts. The first method is to reverse the Opening balance standing under the head “Provision for bad and doubtful debts” by crediting to the Profit and Loss account and then create fresh “Provision for Bad and Doubtful debts” by debiting the Profit and loss account. If this method had been followed, then the revenue might not have objected to allow the amount debited to Profit and loss account u/s 36(1)(viia) of the Act. The second method is to retain the Opening balance of “Provision for bad and doubtful debts” in the Balance sheet and create provision for incremental amount alone by debiting Profit and Loss account. The incremental amount is added to the opening balance of “Provision for bad and doubtful debts”. If second method is followed, then the closing balance of “Provision for bad and doubtful debts” has to be considered for the purposes of sec. 36(1)(viia) of the Act. Hence, if the assessee has followed the second method, then there is merit in the claim of the assessee. Accordingly we set aside the order passed by Ld 12 ITA No. 4355, 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the method followed by the assessee and if the assessee has debited its Profit and Loss account with incremental amount of provision only, then the AO is directed to take the closing balance of Provision for bad and doubtful debts as the amount for the purpose of working out allowance u/s 36(1)(viia) of the Act.
In the result, ground no. 2 of the appeal is treated as allowed.
Ground No. 3 relates to exclusion of income of foreign branches. The ld. AR of the assessee conceded that this ground of appeal is decided against the assessee in appeal for A.Y. 2009-10. Considering the contention of the ld. AR of the assessee that similar ground of appeal was decided against the assessee this ground of appeal is dismissed. Moreover, we have already allowed the similar ground in the cross appeal of revenue in Ground No. 2 vide para 4&5 (supra), on the basis of decision of Tribunal for A.Y.2009-10.
In the result, Ground No.3 of the appeal is dismissed.
In the result, appeal of the assessee is partly allowed.
In for assessment year 2012-13, the assessee has raised the following grounds of appeal:
1.1. The ld CIT (A) erred in confirming the disallowance u/s 14A computed as per rule 8D at Rs.98.87 crore on a tax free income of Rs. 60.77 crore over looking fact that the appellant ad himself quantified the disallowance at Rs.0.62 crore being proportionate expenditure of treasury branch which controls and monitors the securities from which the tax free income was earned. The CIT (A) should have appreciated as all the assets from which the tax free income has been earned are stock in trade, as held in the case of India Advantage Securities (380 ITR 471). 13 , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda 1.2 Without prejudice to the above contention, even if rule 8D is to be applied, the disallowance can only be nil since the appellant does not hold any investment the income from which does not or shall not form part of total income and the appellant only holds stock in trade. 1.3 Without prejudice to the above contention, the question of disallowance of interest expenditure under rule 8D does not arise since the interest free funds held by the appellant far exceed the amount of investments in assets earning tax free income. The CIT(A) ought to have followed the ratio laid down by Jurisdictional High Court in the case of Reliance Utilities and Power Ltd 313 ITR 340 and held that no disallowance of interest as contemplated in rule 8D was warranted. 1.4 Without prejudice to the above contention, as held in various judicial decisions, the disallowance in no case can exceed the tax free income earned by the appellant and in any case the disallowance cannot exceed the tax free income earned of Rs. 60.77 crore.
The CIT (A) erred in restricting the deduction u/s 36(1)(viia) to the extent of provision made for bad and doubtful debts in the books instead of allowing the same based on eligible deduction as per the said section.
3. The CIT (A) ought to have allowed the appellants claim in respect of exclusion of income of foreign branches situated in countries where there is a Double tax Avoidance Agreement based on Article 7 of the respective agreements which provides that the business profits is to be taxed in the respective countries. The CIT (A) failed to note that notification 91 of 2008 relied upon by Hon'ble ITAT does not apply to business profits but only to other sources of income.
Ground No.1 of the appeal raised by assessee relates to the disallowance under section 14A. We have noted that this ground of appeal is identical to the Ground No.1 of the appeal for Assessment Years 2011-12, which we have already restored to the file of assessing officer. Thus, following the principal of consistency this ground of appeal is also restored to the file of assessing officer with similar direction. In the result, Ground No.1 is allowed for statistical purpose.
Ground No.2 relates to provision for bad and doubtful debts. We have noted that this ground of appeal is identical to the Ground no.2 of the appeal for A.Y. 2011-12, which we have restored to the file of the AO with certain directions and accordingly the said ground was treated as allowed. Thus, 14 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda following the principal of consistency this ground of appeal is restored to the file of the AO with similar direction and accordingly treated as allowed.
24. Ground No.3 relates to exclusion of income of foreign branches. This Ground of appeal is identical to the Ground No.2 of appeal for A.Y. 2011- 12, which we have already dismissed. Thus, following the principle of consistency, this ground of appeal is dismissed with similar observation.
In the result, appeal of the assessee is partly allowed.
26. In for assessment year 2012-13, the Revenue has raised the following grounds of appeal:
1. The order of the CIT(A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in directing the Assessing Officer to exclude the income of foreign branches in violation to Central Government notification No. SO 2123 (e) dt. 28.08.2008 which clearly indicates its inclusion while arriving at the total Income. 3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the disallowance of broken period interest paid, inspite of the decision of Hon'ble Supreme Court in the case of CIT vs Vijaya Bank (187 ITR 541).
27. Ground No.1 of the appeal is general in nature and needs no adjudication.
Ground No.2 of the appeal is identical to the Ground No.2 of the appeal for A.Y. 2011-12, which we have already allowed in favour of revenue, thus, considering the principle of consistency, the Ground No.2 of the appeal is allowed with similar observation.
Ground No.3 relates to broken period interest. We have noted that this ground of appeal is identical to the Ground No.3 of appeal by revenue for A.Y. 2011-12, which we have already dismissed. Considering the principle 15 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda of consistency, Ground No.3 of the appeal is dismissed with similar observation.
In the result, appeal of the Revenue is partly allowed.
In for assessment year 2013-14 the Revenue has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in directing the AO to allow the claim u/s 36(1)(viia) on the total income including income from capital gain & income from other sources which is not envisaged in the said sub-section.
2. On the facts and in the circumstances of the case and in Law, the Ld CIT(A) has erred in directing the Assessing Officer to include only the foreign branch income taxed in the foreign country but remained silent on the foreign branch income that has not been taxed (treated as exempt in the foreign country. 3. On the facts and in the circumstances of the case and in Law, the Ld CIT(A) has erred in holding that the broken period interest is allowable on matching principles, without realizing that the same has not been incurred for realizing the interest on securities as enunciated by the Apex Court in Vijaya Bank Ltd. (57 Taxman 1582)(SC). 4. On the facts and in the circumstances of the case and in Law, the Ld CIT(A) has erred in relying on the ratio of the Apex Court in the case of Citi Bank (Civil Appeal No. 1549 of 2006) where the income from securities were treated as business income which was not the same in the present case. 5. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the restored. 31. Ground No1 relates to disallowance under section 36(1)(viia)
(Erroneously mentioned as 36(1)(vii)). We have noted that this ground of appeal is identical to ground No2 of appeal by revenue in for AY 2011-12, which we have already restored to the file of assessing officer. Thus, following the principal of consistency this ground of appeal is also restored to the file of assessing officer with similar direction. In the result this ground of appeal is allowed for statistical purpose. , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda
Ground No.2 relates to exclusion of income from foreign branches. We have noted that this ground of appeal is identical to the ground No.2 of the appeal by revenue in appeal for assessment year 2011-12 in which we have allowed on the basis of order of Tribunal in Assessment Year 2009-10 dated 17.02.2017. Thus, following the principle of consistency, this ground of appeal is allowed with similar observation.
Ground No.3 and 4 relates to broken period interest expenses. We have noted that this ground of appeal is identical to the ground no.3 of appeal by Revenue in appeal for Assessment Year 2011-12 in which we have already dismissed. Thus, keeping in view the principle of consistency, this ground of appeal is dismissed.
In the result, appeal of Revenue is partly allowed.
In for assessment year 2013-14 the assessee has raised the following grounds of appeal:
1.1. The ld CIT (A) erred in confirming the disallowance u/s 14A computed as per rule 8D at Rs.115.17 crore on a tax free income of Rs. 69.82 crore over looking fact that the appellant ad himself quantified the disallowance at Rs.0.72 crore being proportionate expenditure of treasury branch which controls and monitors the securities from which the tax free income was earned. The CIT (A) should have appreciated as all the assets from which the tax free income has been earned are stock in trade, as held in the case of India Advantage Securities (380 ITR 471). 1.2 Without prejudice to the above contention, even if rule 8D is to be applied, the disallowance can only be nil since the appellant does not hold any investment the income from which does not or shall not form part of total income and the appellant only holds stock in trade. 1.3 Without prejudice to the above contention, the question of disallowance of interest expenditure under rule 8D does not arise since the interest free funds 17 , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda held by the appellant far exceed the amount of investments in assets earning tax free income. The CIT(A) ought to have followed the ratio laid down by Jurisdictional High Court in the case of Reliance Utilities and Power Ltd 313 ITR 340 and held that no disallowance of interest as contemplated in rule 8D was warranted. 1.4 Without prejudice to the above contention, as held in various judicial decisions, the disallowance in no case can exceed the tax free income earned by the appellant and in any case the disallowance cannot exceed the tax free income earned of Rs. 69.82 crore.
2. The CIT (A) ought to have allowed the appellants claim in respect of exclusion of income of foreign branches situated in countries where there is a Double tax Avoidance Agreement based on Article 7 of the respective agreements which provides that the business profits is to be taxed in the respective countries. The CIT (A) failed to note that notification 91 of 2008 relied upon by Hon'ble ITAT does not apply to business profits but only to other sources of income.
Ground No.1 relates to disallowance under section 14A. We have noted that this ground of appeal is identical to the Ground No.1 in appeal for A.Y. 2011-12 & 2012-13, which we have already restored to the file of Assessing Officer. Considering the principle of consistency, this ground of appeal is also restored to the file of Assessing Officer with similar observation.
Ground No.2 relates to exclusion of income of foreign branches. We have noted that this ground of appeal is identical to the Ground No.3 of the appeal for A.Y. 2011-12, which we have already dismissed. Considering the principle of consistency, Ground No.2 of the appeal is dismissed with similar observation.
In the result, appeal of the assessee is partly allowed.
In for assessment year 2010-11 the Revenue has raised the following grounds of appeal:
1. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in directing the Assessing Officer to exclude income of foreign branches , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda 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." 2. "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting .the disallowance of broken period interest paid, inspite of the decision of Hon'ble Supreme Court in the case of CIT vs Vijaya Bank (187 ITR 541)."
3. On the facts and in the circumstances of the case, the ld CIT(A) has erred in holding that the provisions of section 115JB of the Income Tax Act, 1961 are not applicable to assessees to whom proviso to sub-section (2) of section 211 of the Companies Act, 1956 applies i.e. companies which are not required to prepare its profit & loss account in accordance with Part-II &.III of Schedule VI of the Companies Act, 1956 without appreciating that under section 115JB(2) of the Income Tax Act, 1961, every company is mandatorily required to prepare profit & loss account in accordance with the provisions of Part-II & III of Schedule VI of the Companies Act, 1956 for Income Tax purposes." 4. "On the facts and in the circumstances of the case, the ld. CIT(A)'s has erred in holding that the amendment to section 115JB of the Income Tax Act, 1961, to bring all the companies (including companies to whom proviso to sub- section (2) of section 211 of the Companies Act, 1956 applies) in its ambit, vide Finance act, 2012, with effect from 01.04.2013 is not applicable in the assessment year under consideration without appreciating that the said amendment is clarificatory in nature and thus, retrospective in effect." 5. “On the facts and circumstances of the case and in law the CIT(A) has erred in directing the A.O. not to apply 115JB and thus not to make addition of disallowance u/s 14A to the book profits computed.”
Ground No. 1 relates to the income of foreign branches. We have noted that this ground of appeal is identical to the ground No. 2 of the revenues appeal for assessment year 2011-12, which we have already decided in favour of the revenue, hence, following the principle of consistency this ground of appeal is allowed with similar direction. In the result this ground of appeal is allowed.
Ground No. 2 relates to broken period interest. We have noted that this ground of appeal
is identical to the ground No.3 raised by revenue in appeal for assessment year 2011-12. We have already dismissed the identical ground of appeal in appeal for assessment year 2011-12 in earlier paras of 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda this order. Thus, following the principle of consistency this ground of appeal is dismissed with similar direction.
42. Ground No. 3 to 5 relates to applicability of section 115JB of the Act. The ld. DR for the revenue relied on the order of the assessing officer. On the other hand the ld. AR for the assessee submits that the provisions of section 115JB are not applicable to the banking company since their accounts are prepared as per schedule III of Banking Regulation Act and no in accordance with Schedule VI of the Companies Act. In support of his submissions the ld AR for the assessee relied on the decisions of Mumbai Tribunal in the case of Bank of India Vs ACIT ITA No.1498/M/2011 dated 09.04.2014, Bank Of India Vs DCIT in ITA 3002/M/2014 and Delhi Tribunal in Oriental Insurance Co. Ltd Vs DCIT [2017] 84 taxmann.com 312(Delhi).
43. We have considered the rival submissions of the parties and perused the order of the authorities below. The assessing officer applied the provision of section 115JB on his observation that every assessee which is company, has to prepare its account as per part II and III of schedule VI of Companies Act. However, the ld CIT(A) allowed the relief to the assessee on the basis of decision of Mumbai Tribunal in case of Bank of India Vs ACIT (supra) and in case of Union Bank of India Vs ACIT (ITA No.6631/M/2010 dated 18.01.2013, wherein the Tribunal held that provisions of section 115JB are not applicable in case of assessee bank. No contrary decision is brought to 20 ITA No. 4355, 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda our notice. Thus, we do not find any reason to interfere to the finding of the ld. CIT (A). In the result, ground no. 3 to 5 of appeal raised by the revenue is dismissed.
In the result the appeal of the revenue is partly allowed.
In for assessment year 2010-11, the assessee has raised the following grounds of appeal:
1.1 The Ld CIT(A) erred in confirming the disallowance of provision towards liability arising on of wage revision payable to employees. The Ld CIT(A) failed to appreciate that provision had been made based on a reasonable estimate of the imminent liability consequent on the bipartite settlement talks that were being held between the Indian Bank's Association (IBA) and various Employee Unions. 1.2 The Ld CIT(A) failed to appreciate that once liability for an expenditure which is contractual in nature is foisted on appellant the same is allowable as deduction though the same could be quantified based on reasonable estimate only. Reliance is placed on the decision of Jurisdictional ITAT Mumbai in ITAT Communications Ltd. V JCIT (ITA 3062/Mum/2003 dated 05-12-2(12) and other decisions. 2.1 The Id CIT (A) erred in confirming the disallowance u/s 14A computed as per rule 8D at Rs.100.47 crore on a tax free income of Rs. 56.71 crore over looking fact that the appellant had himself quantified the disallowance at Rs.1.08 crore 'being 0.5% of average investments earning tax free income. The CIT(A) should have appreciated as all the assets from which the tax free income has been earned are stock in trade, as held in the case of CCI Ltd (250 CTR 291). 2.2 Without prejudice to the above contention, even if rule 8D is to be applied, the disallowance can only be nil since the appellant does not hold any investment the income from which does not or shall not form part of total income and the appellant only holds stock in trade. 2.3 Without prejudice to the above contention, the question of disallowance of interest expenditure under rule 8D does not arise since the interest free funds held by the appellant far exceed the amount of investments in assets earning tax free income. The CIT(A) ought to have followed the ratio laid down by Jurisdictional High Court in the case of Reliance Utilities and Power Ltd 313 ITR 340 and held that no disallowance of interest as contemplated in rule 8D was warranted. 2.4 Without prejudice to the above contention, as held in various judicial decisions, the disallowance in no case can exceed the tax free income earned by the appellant and in any case the disallowance cannot exceed the tax free income earned of Rs. 56.71 crore.
3. The CIT (A) ought to have allowed the appellants claim in respect of exclusion of income of foreign branches situated in countries where there is a 21 , 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda
Double tax Avoidance Agreement based on Article 7 of the respective agreements which provides that the business profits is to be taxed in the respective countries. The CIT (A) failed to note that notification 91 of 2008 relied upon by Hon'ble IT AT does not apply to business profits but only to other sources of income. 3.1 (Ground No. 4) The Ld CIT (A) erred in confirming the taxability of net un-reconciled entries in NOSTRO accounts outstanding for more than 5 years credited to P&L a/c. The CIT (A) ought to have noted that the said sum is not exigible to tax under any of the provisions of the Act.
Ground No.1 relates disallowance of provision for wage arrears. The ld. AR for the assessee submits that this ground of appeal is covered in favour of the assessee by the decision of Tribunal in assessee’s own case for assessment year 2009-10 in ITA. No. 2480/M/2015. The ld. DR for the revenue fairly conceded the submissions of the ld. AR for the assessee.
We have considered the submissions of the ld. representatives of the parties and perused the record. We have noted that the assessee raised the identical ground of appeal in assessment year 2009-10 and the Tribunal vide order dated 17.02.2017 in ITA 2480/M/2015 deleted the similar disallowance. The coordinate bench deleted the similar disallowance by following the decision in earlier year in and 4873/M/2012. Thus, considering the consistent view taken by the Tribunal, the ground of appeal raised by the assessee is allowed.
Ground No.2 relates to the disallowance under section 14A of the Act. We have noted that this ground of appeal
is identical to the Ground No.1 in appeal for A.Y. 2011-12 & 2012-13, which we have already restored to the file of Assessing Officer. Considering the principle of consistency, this 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda ground of appeal is also restored to the file of Assessing Officer with similar observation. In the result this ground of appeal is allowed for statistical purpose.
49. Ground No. 3 relates to the income of the foreign Branches. We have noted that identical ground of appeal was raised by the assessee in appeal for assessment year 2011-12, which we have decided against the assessee on the basis of decision of Tribunal in assessment year 2009-10. Thus, following the principle of consistency this ground of appeal is dismissed with similar observation.
50. Ground No. 4 (As shown Ground No. 3.1 by assessee) relates to taxability of notional credit on account of unrecorded entries in NOSTRO account.
The ld. AR for the assessee submits that NOSTRO account represents dealings with foreign banks. The long pending unreconciled entries (about more than 10 years) were advised to be closed by RBI by transferring the credit entries to Profit and Loss account. The Circular of RBI specifically states that the amount so credited to Profit and Loss account will not be available for declaration of dividend and hence to be transferred to General Reserve Account. He submitted that those credits were not claimed as expenditure in the earlier years and hence the provisions of sec. 41(1) shall not apply. Accordingly he submitted that the impugned amount is not taxable.
The ld DR, however, supported the order passed by Ld CIT(A). 23 4504, 4356, 5602, 5366/M/16 & 5082 & 5020/Mum/2015- M/s Bank of Baroda