CANARA BANK vs. CIT,

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BENGALURU

BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

ITA No.743/Bang/2013 (Assessment year: 2008-09)

M/s.Canara Bank, BSCA Section, Head Office, J C Road, Bengaluru-560 002. PAN: AAACC 6106 G … Appellant Vs. Commissioner of Income-tax, LTU, Bengaluru. … Respondent

Appellant by : Shri G.Sarangan, Sr. Advocate Shri Ananathan, CA. Respondent by : Shri Pramod Singh, CIT(DR)

Date of hearing : 10/08/2017 Date of pronouncement : 06/11/2017 O R D E R Per INTURI RAMA RAO, AM : This is an appeal filed by the assessee-company directed against the order of the Commissioner of Income-tax, LTU [CIT] dated 22/03/2017 passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short].

“1. The order of the learned Commissioner of Income-Tax, Bangalore, LTU, Bangalore u/s 263 dated 22/03/2013 is opposed to law and facts.

ITA No.743/Bang/2013 Page 2 of 25 2. On the facts and in the circumstances of the case the learned Commissioner of Income-Tax erred in invoking jurisdiction u/s. 263 for setting aside the assessment order dated 17/3/2010 for the relevant assessment year. 3. The learned Commissioner erred in directing the Assessing Officer to compute the deduction under Section 36(1)(viii) based on the assessed income. 3.1 The learned Commissioner erred in directing the Assessing Officer to allow the deduction under Section 36(1)(viii) incorrectly interpreting the provisions of Section 36(1)(viii) and the term 'profit and gains from eligible business' whereas the Act has not specified any specific method of Computation of the profit under the section. The action of the Ld. CIT was wholly unreasonable and bad in law. 4. The learned Commissioner erred in directing the Assessing Officer to disallow the transitional liability in respect of contribution to employees Gratuity fund and Pension fund arising on account of adopting the Accounting Standard 15 (Revised). 4.1.The learned Commissioner erred in directing the Assessing Officer to disallow the transitional liability as the same is not covered by the provisions of Section 43B, since the liability is not debited to Profit & loss account. The action of the learned CIT was wholly unreasonable and bad in law. 5. The learned Commissioner erred in directing the Assessing Officer to disallow the depreciation on overseas branch investments at par with domestic investments. The learned CIT has erred in understanding the domestic and overseas depreciation are allowable under different situations of the law and the learned CIT erred in taking shelter on non availability of its past records of assessment to take a quasi-judicial decision. 6. The learned Commissioner erred in directing the Assessing Officer to capitalize and disallow the non-existent expenditure incurred towards 'new logo' during the assessment year. The action of the Ld. CIT was wholly unreasonable and bad in law.

ITA No.743/Bang/2013 Page 3 of 25 7. The learned Commissioner erred in directing the Assessing Officer to levy interest u/s 115P exceeding his jurisdiction u/s 263 and revise the assessment proceedings. 8. The learned Commissioner erred in directing that certain issues (for which notices were issued) has to be dealt in by the Assessing Officer without adducing any specific reason, but which are already subject matter of the departmental appeal before the Income tax Appellate Tribunal. 9. The learned Commissioner exercising jurisdiction u/s 263 is otiose and redundant, since the Assessing Officer has reopened the assessment by the notice u/s 147/148 dated 20th March 2013 and has the whole of the assessment before him for examination and corrective action. 10. For these and other grounds that may be urged before this Hon'ble Tribunal, the appellant prays that the appeal may be allowed.”

ITA No.743/Bang/2013 Page 4 of 25 the interests of revenue on account of following issues had not been examined by AO during the course of assessment proceedings: i. Excess allowance of deduction u/s 36(1)(viii) of Rs.181.52 crores. ii. Wrong disallowance of liability in respect of contribution to gratuity fund and pension fund of Rs.59.72 crores and Rs.66.99 crores respectively. iii. Allowance of provision for depreciation on investments of Rs.19,70,96,145/-. iv. Interest u/s 115P of Rs.5,38,130/- was not levied on the delay in payment of dividend tax. v. Allowance of expenditure incurred on new logo was allowed as deduction.

Therefore, the CIT issued a show cause notice dated 20/10/2011 u/s 263 calling upon the assessee to show cause as to why the assessment order should not be treated as erroneous and prejudicial to the interests of the revenue. In response to show cause notice, the assessee submitted reply and the CIT’s remarks on the submissions made by the assessee are as under:-

“2.1 Deduction under sec 36(1)(viii): On verification of records it was noticed that the assessee had claimed excess deduction under sec 36(1)(viii) in respect of long term finance business to the extent of Rs 181.52 crore. The assessee submitted its reply on this issue as under: Income from Long term finance- deduction u/s 36(1)(Viii) of Income Tax Act, 1961: In your notice, you have alleged that the income computed by the assessee at Rs. 1828.89 crore being the income from Long Term Finance exceeds the net profit of the bank which was Rs. 1565.00 crore as well as the business income of the appellant bank which was Rs. 1674.60 crore. It is on this basis you came to the conclusion that it was improbable to compute an income from the business of long term finance. This allegation is purely based

ITA No.743/Bang/2013 Page 5 of 25 on surmises and conjunctures and without appreciating the facts. Firstly, though the net profit of the bank was Rs. 1565.00 crore, the same was arrived at after making various provision including provision for taxation, investment depreciation etc., which amounted to Rs. 1394.37 crore. If these provisions are added back, the gross profit of the bank was Rs. 2959.37 crore and therefore, the profit from the business of Long term finance was well within this amount. Further, the profit before tax of the bank itself was Rs. 1905.00 crore (ie., 1565.00 + Rs. 340.00)which is also more than the income from the long term finance. The second observation was that the income from Business of long term finance was more than the income from business declared by the bank. This is also based on the wrong appreciation of the facts. The income from business has been arrived at after deducting a sum of Rs. 300.00 crore under this clause and Rs. 722.71 crore being the actual contribution claimed u/s 43B of the Income-tax Act, 1961, without debiting the profit & Loss account. If these items are added back, the income under the head business would have been Rs.2697.31 crore. In fact, there are other adjustments which are also to be carried out which will increase this figure. Therefore, the income computed from the business of ling term finance lesser than the gross business income. In view of the above, the allegation that the income computed is improbable is not correct based on the actual facts. It has been made based on surmises and conjunctures. Therefore, this cannot from the basis for exercising the powers of revision u/s 263 of the Income Tax Act, 1961. The bank had in fact, computed the income from long term finance as we compute the income under the head Business or Profession by considering the income from the business and after deducting the allowable expenditure under the Act. This was given to the Learned Assessing Officer at the time of Assessment. The Act does not prescribe any method of computation. What is prescribed is the income taxable under the head Business / Profession and expenses allowable under the head Business / Profession. Therefore, the allegation that the business income computed u/s 28 of the Act in respect of providing long term finance was not available in the assessment records is again based on wrong appreciation of facts. The entire working was submitted to the learned Assessing Officer vide our letter Ref. No. FMSW: BSCA: AY 2008 09: 979: SPS dated 18th November 2010 who scrutinized the same and allowed the deduction after due

ITA No.743/Bang/2013 Page 6 of 25 deliberation. Therefore, this item cannot be a subject matter of revision u/s 263 of the Income Tax Act, 1961.

Without prejudice to the above, it is alleged in your notice that the computation based on the available record resulted in excess allowance of deduction amounting to Rs. 181.52 crore. However, you have not mentioned how this amount has been arrived at. In the absence of the reasoning for the same, we are not able to give our specific reply. Therefore, before exercising the right u/s 263, we request you to give us the reasoning for the same and an opportunity to give our reply. The issue was discussed with the Assessee's AR. The details of the profits based on which the deduction was arrives was already included in the notice which was appraised. Further the assessee has submitted the following reply as under: As per the provisions of Section 36(1)(viii) as amended by the Finance Act 2007 with effect from Assessment year 2008 09, our bank is eligible to claim deduction in respect of 'Eligible business viz. The business of providing long-term finance for- (a) industrial or agriculture development.; (b) development of infrastructure facility in India; industries (c) development of housing in India Accordingly, we have worked out the eligible amount to Rs.365.78 crore. We have created a Reserve of Rs.300.00 crore. Hence we have claimed Rs, 300 crore in the Return of income. The details of working is enclosed. CALCULATION OF PROFIT EARNED FROM LONG TERM FINANCE U/S 36(1)(Viii)OF THE YEAR ENDED 31/03/2008 DETAILS OF INCOME EARNED FROM LONG TERM LOANS TYPES OF LOANS INTEREST OTHER RECEIVED CHARGES INDUSTRIES 1484.14 18.05 AGRICULTURAL 1137.59 13.91 ACTIVITY INFRASTRUCTURE 1318.4 4.18

ITA No.743/Bang/2013 Page 7 of 25 HOUSING LOAN 1010.21 12.29 TOTAL 4950.34 48.43 CALCULATION OF PROFIT EARNED FROM LONG TERM FINANCE U/S 36(1) (Viii) 1. INCOME INCOME FROM LONG TERM FINANCE 4998.77 LESS: INTEREST EXPENDITURE 3039.51 NET INCOME 1959.27 2. LESS OPERATIVE EXPENDITURE 130.38 proportional to other expenditure and total business PROFIT FROM LONG TERM FINANCE A 1828.89 20% of profits of Rs.1828.89 B 365.78 RESERVE CREATED IN BOOKS 300.00 LIMITED TO TWICE THE AMOUNT OF 410.00 CAPITAL & RESERVES CAPITAL GENERAL RESERVE TOTAL 8253.89 8663.89 2 TIMES ABOVE C 17327.78 AMOUNT ELIGIBLE UNDER SECTION 36(1)(Viii) 300.00 ……………..> higher of A OR B, limited to C

The reply of the assessee is perused. The assessee has claimed Rs 300/-crores as deduction U/s 36(1)(viii) in respect of profits from long term finance activities and submitted the working of the said deduction. On verification of the submission made by the assessee, it is found that the assessee has arrived at the profits of long term finance without considering the other deductions claimed in the computation of the income. Hence the profits worked out for the purpose of the deduction is more than the profits arrived at in the computation of taxable income which has resulted in excess allowance of the deduction U/s 36(1)(viii). This is not acceptable. The proportionate of the other deductions claimed in the computation of income needs to be allocated to the profits of the long term finance also. This is done as under: Assessed business income Rs 1674,60,24,556 Add: Deduction allowed U/s 36(1)(viii) Rs 300,00,00,000 Total Rs 1,974,60,24,556 (being proportionate eligible

ITA No.743/Bang/2013 Page 8 of 25 business income) . 20% of the above Rs 118,47,61,473 Deduction U/s 36(1)(viii) allowable Rs118.48 crores Hence there is an excess deduction of Rs 181.52 crores (300-118.48) allowed under this section 36(1)(viii). The assessing Officer is directed to disallow the same and bring the difference to tax.

2.2 Transitional liability in respect of contributions to Gratuity fund and pension fund due to introduction of revised Accounting Standard 15: The assessee bank has claimed the following deductions in the computation of income namely a) Transitional Liability of Gratuity fund contribution - Rs 59,72,08,907/- b) Transitional Liability of pension Fund - Rs.66,99,48,297/- ------------------------ Total Rs. 722,71,57,204/- The above expenditure are the contributions made towards Pension Fund amounting to Rs 662.99 crores and the contributions made towards gratuity Fund amounting to Rs 59.72 crores which is in respect of the transitional liability arising due to the change in the Accounting Standard AS 15 which was revised from 1-4-2006. This is due to the change in the method of making the valuation in the contributions to be made to these employee funds. This is over and above the actual contributions to the Fund made during the year amounting to Rs 260,20,51,703/- towards Pension Fund and Rs. 50,87,58,1791- made towards Gratuity fund which have been claimed as expenses and allowed. The assessee made its submission on various dates on this issue as under

ITA No.743/Bang/2013 Page 9 of 25 employed by the bank and as such, the provisions of section 438 does not apply to the case. b) Provision made in respect of Gratuity is not covered by the provisions of section43B and since the same was not debited to Profit & Loss account, the provision made was not covered by section 40A(7) and 40A(9) either. The above allegations have been made without appreciating the facts of the case and the law in this regard. First of all, there was no change in the method of accounting regularly employed by the bank. The liability with regard to Pension as well as Gratuity has been arrived on the basis of actuarial valuation. The sum has been contributed to the respective. Funds which were also based on this actuarial valuation. This has been the method followed by the bank even in the past years and even during the current year; the same method has been followed. Therefore, there was no change in the method of accounting regularly employed by the bank. The actuarial valuation and the accounting of the liability are based on the provision of Accounting Standard-15 (AS-15) issued by the premier Accounting body the institute of Chartered Accountants of India (ICAI). This is a mandatory standard as per the direction of the regulator viz Reserve Bank of India which the bank has to follow in the past, the bank had followed this standard only. Even during the financial year 2007-08, relevant to the asst year 2008-09, the bank followed this standard only. However, the AS-15 was revised by the ICAI w.e.f. 01-04-2007 and as such, the bank had to recomputed its liability towards pension and gratuity. It was on account of this recomputation, the liability increased substantially Therefore, the increased liability was purely on account of re- computation of liability based on the revised Accounting Standard and not on account of change in the method of accounting regularly employed by the bank. The additional liability arising on account of pension and gratuity as explained above was allowed by the Reserve Bank of India (RBI) either to debit the reserve or to amortize over a period of 5 years by way of debit to Profit & Loss account. The bank exercised the first option and debited the liability to reserves and surplus. The reserves are built out of sums transferred from Profit & Loss account and they are taxed funds of the Bank. This is purely an accounting exercise and has no bearing on the allowability of the deduction as per the provision of the income Tax Act, 1961.

ITA No.743/Bang/2013 Page 10 of 25 The deduction with respect to contribution to pension fund and gratuity fund are governed by the provisions of section 43B of the Income Tax Act, 1961. Section 43B of the Income Tax Act, 1961 over rides all other provisions of the Act, it is a settled position that this section is a code by itself. Therefore, the allowability of the sums mentioned in that section is purely governed by the provision of that section and not by any other provisions of the Act, In that section, there is no reference to the method of accounting or debit to Profit & Loss Account. The Section only requires that the payment should be made within the time stipulated in the section, in respect of the items mentioned therein. In respect of the contribution to Pension Fund and Gratuity Fund, the payment should have been made before the due date for filing the return of income. In respect of the contribution to Pension Fund and Gratuity Fund, the payment should have been made before the due date for filing the return of income. In our case, the payment has been made before the due date for filing the Income tax returns and the same is not disputed. It is also a settled position of law that the entries in the books of accounts are not the only conclusive evidence to allow a deduction. The decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mills Case 821 ITR 363 (1971) laying down this principle of law is ruling the field even today. The Courts have consistently held that a deduction available under the Act to an assessee is not based on the entries passed in the books. Therefore, whether a sum is debited to Profit & Loss account or not, where an assessee is otherwise eligible for the deduction, will always be allowed the same irrespective of the entries in the books of accounts. In this case also, the liability is a liability arising on account of a revenue expenditure laid out or expended wholly for the purpose of business / profession and hence, allowable as a deduction. The case Jaw referred in the notice, CIT v/s Commonwealth Trust [269 (TR 290 .Kerala] has no relevance to the facts of the present Bank case. In that case, question was allowability of deduction in respect of provision made for gratuity. In fact, the Court after analyzing both section 40A(7) & section 438 allowed even a provision towards the contribution to an approved fund as an allowable deduction. In our case, the claim is not based on the provision in the books but which is based on the actual payment, which governed by the provisions of section 438. Therefore, the case laws relied on in your notice is not applicable to the facts of the case.

ITA No.743/Bang/2013 Page 11 of 25 Therefore, there was no error in the order passed by the Learned Assessing Officer and as such, the same cannot be revised u/s 263 of the Income Tax Act, 1961.

Transitional liability in respect Gratuity and Pension of Rs. 713,87,06,476/-. Further to our earlier submissions, please find enclosed copies of the following details as required by you: Annexure IV - Actuarial Valuation Report- Gratuity and Pension Annexure V - Office notes for payment of Gratuity and Pension to the Funds account Annexure VI - Gratuity and Pension funds pass sheet showing credit to the funds account In continuation of our personal appearance at your Office on 23rd November 2011 to your notice under Section 263 and also written submission vide our letter Ref. No.: FMSW:BSCA: IT 263:2008 09: 725: SPS: 2011 dated 23rd November 2011, we enclosed the journal entry and pass sheet copies in respect of payment of Pension and Gratuity contributions to our Employees Pension Fund Current account and Employees Gratuity Fund Current account for the year ended 31.03.2008. The assessee's submission in this aspect is perused. The copy of the account extracts were also verified. The deduction claimed in respect of this transitional liability is held to be of contingent nature and not allowable for the following reasons namely i) The liability has arisen due to the change in the method adopted by the assessee for making contribution to these employee funds. The change in method is due to the Revised Accounting Standard AS15 introduced with effect from 1-4-2006. This is held to be against the provisions of Sec 145 (1) wherein it is stated that - Income Chargeable under the head " profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of Sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. During the year 2007-08, the assessee has adopted the Revised AS15 which is introduced with effect from

ITA No.743/Bang/2013 Page 12 of 25 1-4-2006 due to which the transitional liability has been worked out which refer to the liability for the prior period not recognised till that date. This relates to the prior period and takes place in the opening balance of the obligation. The current period liability of Rs 260.20 crores for Pension fund and Rs 50.87 crores for gratuity fund is already allowed which has been debited to P/L account. However, the transitional liability of Rs 662.99 crores for Pension fund and Rs 59.72 crores for gratuity fund is not allowable which has arisen due to change in the method of accounting regularly followed by the assessee. As per Sec 145(1), the assessee should follow the same accounting policy which is regularly followed. In this case, the accounting method has changed due to Revised accounting standard. Hence it is held that the assessee has not maintained the consistency in following the accounting policy from one period to another which is mandatory as per Sec 145(1) & (2) of the Income Tax Act. This is also an extraordinary item arising due to the adoption of the revised AS 15 and hence held to be not allowable applying the provisions of Sec 145. ii) The expenditure is only a provision and is held to be contingent in nature and is not actually paid to the beneficiaries. Accordingly, the deduction is not allowable as per sec 40A(7)(a). It is to be noted that sec 40A(7)(a) &(b) holds applicable to gratuity fund only and in respect of Pension fund the provision is not allowable even in case the same is a approved fund. Hence the transitional liability is held to bee prior period liability which the assessee itself has debited to the opening balance of the Revenue Reserve and is a liability which becomes payable only in a future date and hence is only contingent in nature. iii) The Revised Accounting Standard AS15 on employee benefit specifies the valuation of the benefits payable to the employees in future due to their services rendered at present. However, as per the Revised Accounting standard, the transitional liability on such provision to be made needs to be treated as under. Extracts from the text of Accounting Standard AS 15(Revised) issued by CA Institute Transitional Provisions Employee Benefits other than Defined Benefit Plans and Termination Benefits

ITA No.743/Bang/2013 Page 13 of 25 142: Where an enterprise first adopts this Statement for employee benefits, the difference (as adjusted by any related deferred tax) between the liability in respect of employee benefits other than defined benefit plans and termination benefits, as per this statement, existing on the date of adopting this Statement and the liability that would have been recognised at the same date under the enterprise's previous accounting policy, should be adjusted against opening balance of revenue reserves and surplus. Defined Benefit Plans 143: On first adopting this Statement, an enterprise should determine its transitional liability for defined benefit plans at that date as: (a) the present value of the obligation (See paragraph 65) at the date of adoption; (b) minus the fair value, at the date of adoption, of plan assets (if any) out of which the obligations are to be settled directly (see paragraphs 100-102); (c) minus any past service cost that, under paragraph 94, should be recognised in later periods. 144: The difference (as adjusted by any related deferred tax) between the transitional liability and the liability that would have been recognised at the same date under the enterprise's previous accounting policy, should be adjusted immediately, against opening balance of revenue reserves and surplus . Further while concluding theText it is clearly brought out that The revised AS 15 (2005), on the other hand, provides no choice in this regard, and requires that the difference between the transition a/liability as per this Statement and the liability that would have been recognised under the enterprise's previous accounting policy, should be adjusted against the opening balance of revenue reserves and surplus. This treatment is in line with the transitional provisions provided in other Indian Accounting Standards. This goes to show that the transitional liability is not a liability which can be claimed by the assessee as expenditure. The liability can only be taken out of the opening Reserves and Surplus. This liability is a prior period liability which cannot be claimed in the year when

ITA No.743/Bang/2013 Page 14 of 25 the method is changed. This is very clear in the Accounting Standard. The Assessee needs to adopt and follow the Accounting Standard as specified and cannot deviate from its application to suit to its convenience. The AS15 (Revised) has specifically stated that the transitional liability has to be debited towards its opening balance of reserves in the balance sheet, which the assessee has followed in its accounts and annual reports. However, for the purpose of income tax, the assessee has claimed this expense in the computation of income which has resulted in the reduced income offered to tax. There is no provision either in the Accounting Standard or in the Income Tax Act to make such a claim contrary to the ACC0unting Standard. Hence form the meaning and the method of the Accounting Standard also, the expenses is not allowable. iv) The Assessee itself has mentioned that the deduction is claimed U/s 43B of the Income Tax Act which is applicable for the actual payments made towards some of the expenses specified therein. It is to be noted that the provisions of Sec 43B is applicable in respect of the liability which has accrued during the year and which is not paid during the year and the same is made before the due date for filing the return, However in the present case the expenditure has not accrued and has not been claimed in the P/L a/c. The amount claimed in the profit and loss account has already been allowed as deduction which amounted to Rs 260,20 crores for Pension fund and Rs 50.87 crores for gratuity fund which has been debited to P/L account. The assessee has recognised the transitional liability in its books of accounts by debiting to its Reserves and Surplus as per the Method of Accounting Standard 15(Revised) during the previous year 2007~08 (relevant to AY 2008-09). That means the liability has not been debited to profit and loss account and hence it is held that the provisions of Sec 43B are not applicable to the expenditure. However, the contribution made to the respective funds is on 20-8-2008 which include both the amount debited to P/L account and that debited to Reserves and surplus account. After such making of the payment, the assessee contends that the same is claimed as deduction U/s 438. The provisions of Sec 43B states 43B. Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of-

ITA No.743/Bang/2013 Page 15 of 25 (a) (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, (c) to (f) shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which the sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. It is clear from the section 438 that the deduction for falling under the provisions of the section should have become payable by the assessee during the year ie the liability should have accrued for payment. In other words, in the present case the liability has neither accrued for payment to the beneficiaries nor has accrued as a liability for payment towards the contribution to the fund. The liability has arisen due to the change in the method of recognizing the liability for future as per the Accounting Standard AS 15(Revised) which was introduced from 14- 2006. However, in the present case, the transitional liability has not accrued to the assessee for payment as the Accounting Standard specifies that the liability needs to be adjusted towards the reserves and surplus. This needs a strict compliance when an Accounting Standard is followed and adopted. Hence the transitional liability is held to be not accrued to the assessee for payment as expenditure and hence cannot be claimed as deduction from its income. The accrual of the expenditure can be made more clear by reading the Explanation 2 to the said sec 43B(1) wherein it is stated that "Explanation 2 -For the purposes of clause (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law" wherein the statute excludes the taxes and cess from the concept of accrual of the liability. Hence

ITA No.743/Bang/2013 Page 16 of 25 for all other payments, the expenditure should have accrued for payment for claiming deduction U/s 43B. Hence the deduction is not allowable under sec 438 of the Act as claimed by the assessee, since the liability has not accrued and has not been debited to profit and loss account which fact has been admitted by the assessee himself. However, it is to be mentioned that the actual liability accrued amounting to Rs 260.20 crores for Pension fund and Rs 50.87 crores for gratuity fund is already allowed which has been debited to P/L account. This transitional liability is held as not accrued and hence not allowable even after payment is made as the same do not fall under the provisions of Sec 43B. v) Further the assessee has placed reliance on the Supreme Court Judgement of Kedarnath Jute Mills in 82 ITR 363 which is in respect of the Sales tax liability. The Sales tax liability arises when the assessee makes a sales and no demand notice from the concerned Tax Department is required for claiming the deduction. This is also true with respect to the Income Tax Liability as per Explanation 2 to Sec 438(1) which excludes the taxes and cess from the concept of accrual for claiming the deduction as brought out above. However, for any other expenditure to be accrued, the same should have become payable during the year and the liability should have been debited to the profit and loss account as per the mercantile system of accounting followed by the assessee regularly. Hence this case law is not applicable to the present case of contribution to employee funds as there is not express mention of the same in the Explanation to Sec 43B as is done in the case of taxes. Hence it is held that the liability has not been accrued or has become payable for claiming deduction u/s. 43B. Hence the deduction does not fall under the provisions of Sec 43B. Hence for the above reasons it is held that the transitional liability arising on account of adopting the Accounting Standard 15(Revised) in respect of pension fund and gratuity fund amounting to Rs 662.99 crores for Pension fund and Rs 59.72 crores for Gratuity fund which has been wrongly claimed by the assessee is to be disallowed and added to the taxable income and brought to tax. The Assessing Officer is directed accordingly.

ITA No.743/Bang/2013 Page 17 of 25 2.3 Difference in the provision for depreciation on investments added back- Rs 19,70,96,175/-: In the Profit and loss ale an amount of Rs. 137,99,67,570/- has been debited being provision for depreciation on investments which has to be added back to the income to arrive at the Business Income. However, in its computation of income statement, the assessee has considered only an amount of Rs.118,28,71,435/- being Provision made depreciation on investments for adding back leaving a difference of Rs.19,70,96,145/- which needed to be added back. Failure to add back the same resulted in short computation of income amounting to RS.19,70,96, 145. This has to be brought to tax. The assessee's submission in this regard is as under Depreciation on Investments Rs. 19,70,96,145/- The allegation in your notice that .there was short computation of income amounting to Rs. 19,70,96,145/- on account of omission to add back the provision made for depreciation on investment is again based on wrong appreciation of facts and law. In the Profit and Loss account an amount of Rs. 137,67,570/- has been debited in respect of total Depreciation on investment and only depreciation on Investment held in India amounting to Rs. 118,28,71,435/- has been added and the depreciation on investments held by our London branch has not been added. The Investments held in India, are classified under three different categories in the books of accounts and the depreciation on HTM category of investment is not Provided in the books. However, for purpose of income Tax, the entire stock of investments is treated as stock in trade and accordingly the adjustments are carried out. However, the investments held by the London Branch are valued at lower of cost or market value in the books also and the deprecation has been accounted as such. Therefore, since there was a. difference in the treatment for the purpose of income tax and accounting the depreciation relating to the investments in India the deduction was added back to carry 'out' the adjustments. However, there was no such difference' in respect of investments held by London Branch, it was not added back. In view of the same, there was no need to add back the same. It is also to be noted that even if it has to be added back, the same should also be allowed as deduction since even under

ITA No.743/Bang/2013 Page 18 of 25 the income tax, it is an allowable deduction based on the valuation. Therefore, there was no short computing of income. Without prejudice to the above, this item can a matter u/s 263 of the income tax Act, 1961 since in the assessee's own in 597/B/99, the Hon'ble Bangalore Branch of ITAT vide its order dated 24thApril 2013allowed the depreciation on the investment held by the London Branch. The decision can be found in para 5.3 of the order of the ITAT is enclosed as Annexure. Since depreciation on investments held by London Branch is an allowable deduction, there no requirement to add the same while computing the total income. Since there was no error in the order passed by the Learned Assessing Officer, the power of revision u/s 263 of the income Tax, 1961 cannot be exercised in respect of this item. The assessee's submission is perused. The assessee in its submission has stated that the amount not added back' refers to the Provision made on depreciation on investments pertaining to the London Branch and hence has not been added back as per the decision of ITAT in assessee's own case for AY 199,6-97 &,1997-98 in ITA No. 597/B/99. However, the contention of the assessee is not acceptable as there cannot be two different treatment on the same issue. The details of the acceptance of such decision of the ITAT by the Department are not available on record. Hence the Assessing Officer is directed to verify whether the decision of the ITAT as stated above has been accepted by the Department. However, it is to be noted that the decision has to be accepted on merits and not otherwise, ie due to low tax effect, or COD not according permission etc. Since the appeals filed by the Department were subjected to COD approval, the possibility of ascertaining the acceptance of the decision may be difficult. Hence the decision of the ITAT is not acceptable and the depreciation in respect of the investment of foreign branch is held to be in par with the domestic investment and is therefore held to be not deductible and the AO is directed to disallow the same and add back. 2.4 INTEREST U/S 115P IN RESPECT OF DIVIDEND TAX PAYMENT: On verification of the records it was observed that during the year dividend is declared on 18 June 2008 and the dividend tax payable at Rs.39,88,72,650/- was paid as follows:

ITA No.743/Bang/2013 Page 19 of 25 (i) On 30/06/2008 Rs.34,76,21,280 (ii) On 03/07/2008 Rs. 4,86,89,700 (iii) On 19/09/2008 Rs. 25,61,670 As there is a delay in remittance of dividend tax in respect of the (ii) and (iii) above, interest u/s 115P is attracted which works out to RS.5,38,130/-. The assessee's submission in this regard is as under:- The order sought to be revised is passed u/s 143(3) of the income Tax Act, 1961. Under this section, the assessing office is empowered to determine the ‘Total income' of the assessee and the sum payable / refundable by/to him on the basis of such assessment. Therefore, this section deals with only the computation of total income. This section does not deal with the amount payable under any other provisions of the Act. For eg., if there is a short deduction / non deduction of Tax by the assessee, an order passed vis 143(3) cannot deal with the same. It is dealt with separately under provisions of the Act. like wise, if there is a short payment of tax u/s 115O, the action has to be taken as provided u/s115O of the income Tax Act, 1961. therefore, an order passed u/s 143(3) cannot deal with these issues. Therefore, no error can attributed in respect of this item in the order sought to be revised and no revision as such is possible u/s 263 of the income Tax Act, 1961. The assessee's above objection for considering the same under revisionary proceedings initiated on an order passed U/s 143(3) is perused. However, though the tax on distributed profits is payable by the assessee U/S 115O, the same is verifiable during the income tax proceedings which has not carried out in this case. Hence there is an error in not levying interest chargeable U/s 115P. The Assessing Officer is directed to pass an order raising the said demand towards the interest payable under sec 115P which is mandatory in nature. 2.5 Expenses incurred towards new logo: In the Annual Report under Special Initiatives, page 47 it is stated that a new logo to reorient itself is launched during the year and presently has a new brand identity since 29/12/2007. As a new logo is in the form of a Trademark, which is an intangible asset, the expenses incurred in this regard is to be capitalized and appreciated u/s 32 of IT Act, 1961. The adoption of a new logo is held

ITA No.743/Bang/2013 Page 20 of 25 to be having lifelong effect and hence is a capital expenditure. Hence the expenses incurred in this aspect is held required to be capitalized and treated as intangible asset and amortised or depreciated over the years. The assessee has submitted its remarks as under The allegation in this regard also is without appreciating the facts and law in this regard. As stated in the Annual report, the Bank devised a new logo to reorient them to the changing times. The bank has changed to a new 'logo' for the fourth time. The bank has been in existence for more than 100 years. The name of the bank and the brand associated with it are well established. Therefore, a mere change in the logo has not brought in any new asset to the bank. Infact, the bank had logo even in the past. Therefore, it has not acquired any new asset in the form of trade mark. It is also a matter of a fact that the new logo was not registered during relevant period. The term trade mark refers to a registered trade mark. Though the bank had made an application of registering that trade mark by paying fee of Rs.30,000/-,the same was not registered during the previous year 2007-08 relevant to the asst year 2008-09. Therefore, the same can not be treated as the trade mark being an intangible asset. Without prejudice to the above, it has been held various decisions that the expenditure incurred in registering the trade. mark has to be treated as revenue expenditure. We rely on the following decisions in this regard: - CIT vs. Finaly Mills Ltd (1951) 20 ITR 475 (Se) - CIT vs. Century Spng. Wvg. And Mfg.co.ltd (1947) 151TR 105 (Bom) - Erode Transporters (p) Ltd vs. CIT (1969) 711TR 283 (Madras) From the above, it can be seen that the registration of a trade mark does not give raise to capital expenditure. Since two views are possible, the view adopted by the Learned Assessing Officer can not be treated as erroneous and as such, the order can not be revised u/s 263 of the Income Tax Act, 1961. In view of the above circumstances, we request you to kindly drop the revisionary proceedings initiated u/s 263. The assessee's submission is perused. The assessee is a leading Public sector bank and the change in the logo must have been made keeping the future developments of competition and expansion of business to new heights. This is a method adapted to create impact on the public at

ITA No.743/Bang/2013 Page 21 of 25 large and attract them for the business. Hence the change in the logo has enduring benefit for long period until any changes is effected. Hence the expenses in this connection cannot be attributed to one year in which it is incurred.' Hence due to the enduring benefit to the assessee, the expense is treated as capital in nature. The assessee has stated in its submission that the registration of the trade mark was not carried out during this period: Hence the Assessing Officer is directed to verify the period of the expenses incurred in this regard. Also the total expenditure incurred and claimed by the assessee may be ascertained from the assessee and brought to tax for the relevant year treating the same as capital expenditure. Depreciation if any to be allowed may be considered on the said capital expenditure.”

ITA No.743/Bang/2013 Page 22 of 25 revenue. Reliance in this regard was placed on the decision of the Hon’ble Gujarat High Court in the case of Rayon Silk Mills vs. CIT (221 ITR 155).

ITA No.743/Bang/2013 Page 23 of 25 The bank had exercised option of debiting to reserves account. This accounting treatment has no bearing on the allowability or otherwise of the expenditure as these payments were governed by the provisions of section 43B and the additional liability had been paid before due date for filing of return of income and therefore, irrespective of the accounting treatment given in the books of account same is allowable. As regards depreciation on investments in overseas London branch, he submitted that when the entire profit of the branch is merged with Indian business there is no need of adding back the expenditure of overseas for computing taxable income in India. He also brought to our notice the orders passed by the Tribunal for earlier years in favour of assessee on this issue.

ITA No.743/Bang/2013 Page 24 of 25 and prejudicial to interest of revenue. Undisputedly, in the present case, the issues which are subject matter of revision are decided in favour of the assessee-bank by the Tribunal. It goes to prove that the AO has adopted one of the possible views in law. Though the ld. CIT has set aside the issue to the file of the AO to examine the issue, even after examination of the issue by the AO, a different conclusion is not possible in the light of binding decisions of jurisdictional Tribunal on the issues. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd v. CIT (2000) 243 ITR 83 (SC) and CIT v. Max India Ltd., 295 ITR 282 (SC) has clearly held that where the AO has taken one of the possible views, it cannot be said that the order passed by the AO is an erroneous order prejudicial to the interests of the revenue. Even the Hon’ble Madras High Court in the case of CIT v. Sakthi Charities, 244 ITR 216 (Mad) has held that the power of revision should not be exercised if the final conclusion arrived by the AO would not be different, even after considering a particular fact which the CIT has directed to consider.

Order pronounced in the open court on 06th November, 2017 Sd/- sd/- (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Bengaluru Date : 06/11/2017 srinivasulu,sps/Desai Smurthy

ITA No.743/Bang/2013 Page 25 of 25 Copy to : 1 Appellant 2 Respondent 3 CIT(A) 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file

By order Senior Private Secretary Income-tax Appellate Tribunal Bangalore