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Facts
The revenue filed an appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi, who had deleted certain disallowances made by the Assessing Officer (AO). The appeal was related to the Assessment Year 2020-21.
Held
The Tribunal, by relying on various co-ordinate bench decisions and High Court/Supreme Court pronouncements, held that the disallowances made by the AO on various grounds, including disallowance under section 14A, amortization of premium, interest expenses on IPDI bonds, and capital loss, were not sustainable. The disallowance of broken period interest was also held to be not warranted.
Key Issues
The main issues revolved around the correctness of the disallowances made by the AO concerning Section 14A, amortization of premium, interest on perpetual debt instruments, capital loss, and broken period interest.
Sections Cited
14A, Rule 8D, 115JB, 36(1)(iii)
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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI. ANIKESH BANERJEE & SMT. RENU JAUHRI
Instant appeal of the revenue was filed against the order of theNational Faceless Appeal Centre (NFAC), Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2020-21,date of order16.08.2024. The impugned orderwas emanated from the order of the National Assessment Unit, Income-tax Department (in brevity, ‘the Ld.AO’)passed under section 143(3) read with section 144Bof the Act, date of order 23/09/2022.
The revenue has taken the following grounds:-
“(i)"Whether on the facts and in the circumstances of the case and in law, the CJT(A) erred in deleting the addition of disallowance of Rs. 8, 75, 69, 605/ - made u/s. 14 A r.w, Rule 8D while computing income under normal provisions and bookprofit u/s, 115JB of the Act without appreciating the fact that clause {/) of 'explanation 1 to 11 SJB which provide that net profit shall be increased by the amount of expenditure incurred for earning exempt income?”
(ii)" Whether, on the facts and in the circumstances of the case and in law, the Ld, CFT(A) is justified in deleting the Disallowances of amortization of premium amounting to Rs. 112,88,01,190 /- in respect of securities in HTM category? iii)Whether, on the facts and in the circumstances of the case and in law, the Ld C!T(A) is justified in deleting the Disallowance of interest expenses of Rs, 1,14,88,28,130/- incurred in respect of Innovative Perpetual Debt Instrument without appreciating the fact that interest paid on them does not fall under the purview of section 36(l)(iii) as the issuing of Innovative Perpetual Debt Instrument lacks the concept of borrowing?
(iv)"Whether, on the facts and in the circumstances of the case one? in law, the Ld. CIT{A) is justified in deleting the Disallowance capital loss amounting to Rs. 8,04,15,79,747/- instead of restoring the issue for proper verification of the material to substantiate the claim made by the assesses?" (v)Whether on the facts and in the circumstances of the case case and in law, the Ld, CTT(A) erred in deleting the disallowance of claim of deduction of Broken Interest Period without appreciating the fact that the Broken Period Interest forms a part of capital layout and cannot he claimed as Revenue expenditure?"
The Ld.DR argued and fully relied on the order of the revenue authorities. Only related to ground No.4, the Ld.AR prayed for setting aside the matter for further verification before the Ld.AO.
IDBI Bank Ltd The Ld.AR vehemently argued and placed that all the grounds are duly covered by the order of the co-ordinate bench of the ITAT bearing &2919/Mum/2022 for A.Y. 2017-18, date of pronouncement 11/05/2023 in assessee’s own case.
We heard the rival submission and considered the documents available in the record.
Ground no 1: Related to disallowance under section 14A of the Act amount to Rs. 8,75,69,605/-. The addition was based on Total annual average of monthlyaverages of the opening & closingbalance of investments exclusivelyyielding tax free income. But the Ld.CIT(A) had considered the issue and observed that the assessee’s own fund is more than the invested fund in tax free income. The issue is discussedin impugned appeal order para 5.1 by respectfully relying on the order of the co-ordinate bench of ITAT-Mumbai, where the co-ordinate bench has taken a view in assessee’s own case & 2919/Mum/2022(supra)vide paragraphs 8 to 12 on pages 8 to 15, which is extracted below: - “8. With regard to Ground No. 2 which is in respect of disallowance u/s. 14A of the Act, Ld. DR relied on the order of the Assessing Officer and submitted as under: - “The AO disallowed the expenses amounting to Rs.41,86,49,994/- u/s. 14A read with Rule 8D as against Rs. 2,55,51,954/- for the reason elaborated in the assessment order.
Decision of the Ld.CIT(A):
The assessee challenged the disallowance of Rs. 41,86,49,994/- u/s 14A of the Act and adding the same to Total Income when it is computed u/s 115JB (i.e., under MAT IDBI Bank Ltd and not under normal provisions of the Act.). The CIT(A) has observed that the Hon'ble ITAT has already given decision in its favour in ITA 3394/MUM/2019 and later by First Appellate Authority for immediately preceding year i.e. 2016-17.
The ld. CIT(A) held that there is no such occasion to confirm action of Ld. A.O. in making disallowance of Rs. 41,86,49,994/-. The Ld. CIT(A) has held that the amount of addition being only a result of misapplication of case Laws by the Ld. AO and misappreciation of facts of the case and directed to be deleted. With respect to disallowance u/s 14A r.w.r. 8D is added with Book profit u/s 115JB of the Act, the Ld. CIT(A) deleted the disallowance.
Arguments of the department: Assessee claimed that it held sufficient own funds to make investments and, therefore, the exempt investments have been made from own funds. However, the bank is in no position to show that the entire investment in exempt investments has come only from own funds. Actually, the bank has common mix of borrowed funds which have been used for making exempt investment also. The claim of assessee having sufficient reserve and surplus in hand is also not tenable as those reserves are shown on the liability side of the balance sheet and represented by a variety of assets on the asset side. These assets could be fixed or non-liquid assets and hence not investible. Alternatively, assessee has submitted that when there is a mixed fund consisting of own funds and borrowed funds, it cannot be assumed that a payment for investment purpose has come out of borrowed funds and not out of own fund. It is fact that the provision of Sec 14A are applicable to the assessee, as it has incurred expenditure in relation to income which does not form part of total income under the head. Further, it is not possible to exactly find out the amount of expenditure incurred to earn income which does not form part of total income. In view of the above and relying on the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd.v/s. CIT [2018] 402 ITR 640 (SC), it is requested that the addition made by the AO may kindly be upheld.”
On the other hand, Ld. AR of the assessee with regard to normal computation submitted that this issue is decided in favour of the assessee in assessee’s own case by the Coordinate Bench in ITA.No. 3423 to 3426/Mum/2018 dated 03.09.2019. Further, with regard to book profit IDBI Bank Ltd computation be submitted that this issue is decided in favour of the assessee in assessee’s own case by the Co-ordinate Bench of this tribunal in assessee’s own case in ITA.No. 3394/Mum/2019 dated 09.02.2021. Copies of the orders are placed on record.
Considered the submissions and material placed on record, we observe from the record that identical issue with regard to disallowance u/s. 14A of the Act, the Coordinate Bench in ITA.No. 3424/Mum/2018 for the A.Y. 2011-12 decided in favour of the assessee. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 3424/Mum/2018, held as under: - “11. Ground No. 1 relates to disallowance under section 14A. The learned AR of the assessee submits that the ld. CIT-(A) confirmed the disallowance made by assessing officer under Rule 8(2)(ii) and (iii) but restricted the disallowance made to exempt income earned. The ld AR for the assessee submits that this issue is now covered by the decision of Hon’ble Supreme court in Maxopp Investment P Ltd Vs CIT (91 taxmann.com 154 SC), wherein its is held that held that investments made by a banking concern are part of the business or banking. Therefore, the income arising from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. The learned AR of the assessee further submits that no disallowance is warranted under section 14A as held by Kolkata tribunal in UCO Bank (ITA No. 1615 /Kol/2016), Delhi tribunal in case of Punjab National Bank (ITA No. 5481 /Del/2014 and Nice Bombay Transport (P) Ltd reported vide (175 ITD 684)
In without prejudice submission, the learned AR submitted that no disallowance under Rule 8D(2)(ii) is warranted in assessee’s cases as the interest free funds of ₹14567.58 Crore are far exceed the securities from which tax free income was earned of ₹ 1598.60 Crore. In support of his submission the learned AR relied upon the decision of Bombay High Court in case of HDFC Bank (383 ITR 529) and Gujarat High Court in Syntax Industries Ltd (82 taxmann.com 171). It was submitted that the SLP filed against the order of Gujarat High Court has been dismissed by Hon’ble Supreme Court.
On the other head the learned DR for the revenue after going through digital furnished in the chart and decision relied by learned AR of the assessee, submits that he relied upon the order of lower authorities.
IDBI Bank Ltd 14 We have considered the rival submission of the parties and I want through the orders of lower authorities. During the assessment the assessing officer noted that the assessee claimed exempt income of ₹ 94,50,57,908/- under section 10 of the Act. The assessee apportioned 1% of dividend income towards administrative expenses incurred for earning this exempt income. The working provided by assessee was not accepted by assessing officer. The assessing officer asked to furnish the details of dividend income earned and expenses incurred as per Rule 8D. The assessee furnished its reply dated 9th of December 2013. The assessee in its reply stated that the own funds of the assessee are in far excess for making investment for earning exempt income, no borrowing are attributed to exempt income, section 14A and Rule 8D are not applicable in case of assessee. The submission of assessee was not accepted by assessing officer. The assessing officer after invoking the provisions of section 14A read with Rule8D made a disallowance of ₹ 102,44,25,790/- and enhanced the total income computed under the normal provisions as well as income computed under section 115JB. The assessing officer worked out disallowance under Rule 8D(2)(i) and computed disallowance of ₹ 95,46,039/- @ 1% of exempt income, Rule 8D(2)(ii) of ₹ 94,44,95,944/-, and Rule 8D(2(iii) ₹7,99,29,846/-. On appeal before CIT(A) the disallowance under Rule 8D(2)(i) was deleted, however, other disallowance under Rule 8D(2)(ii) &(iii) was sustained.
The Hon’ble Supreme Court in Maxopp Investment P Ltd (supra) in para 36 of its decision observed that there is yet another aspect which still needs to be looked into. What happens when the shares are held as 'stockin-trade' and not as 'investment', particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. Further in para 37 the Hon’ble Court further held that this Circular takes note of the judgment of this Court in Nawanshahar case wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under IDBI Bank Ltd the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'.
The coordinate bench of Kolkata Tribunal in UCO bank (supra) after following the decision of Maxopp Investment P Ltd (supra) on similar set of facts passed the following order:
“11. Having considered the submissions of the parties, we find that the issue involved in the Revenue's appeal is squarely covered in assessee'sfavour by the judgment of the Hon'ble Bombay High Court in the case of CIT Vs HDFC Bank Ltd (383 ITR 529). In that case also the issue before the Hon'ble Bombay High Court was whether any part of the interest paid by the Bank could be disallowed u/s 14A read with Rule 8D(2)(ii). On appeal this Tribunal and thereafter the Hon'ble Bombay High Court held that since the Bank's own funds were substantially more than the cost of investments yielding tax free income, no part of the interest paid was liable for disallowance. The view of the Hon'ble Bombay High Court was followed with approval by the jurisdictional Calcutta High Court in the case of CIT Vs Rasoi Ltd (ITA No. 109 of 2016).
We also find merit in the assessee's alternate contention that no disallowance out of interest paid was warranted because after netting off interest paid against interest received, the assessee had made net interest gain of Rs.3902.10 crores. The Hon'ble Gujarat High Court in its recent judgment in the case of Pr. CIT Vs Nirma Credit & Capital Pvt Ltd (supra) has held that the expression used in Rule 8D(2)(ii) is "interest expenditure" and not "interest paid" and accordingly the expenditure in this context must mean interest paid minus taxable interest earned. Applying the ratio laid down in this judgment to the facts of the present case, we find no infirmity in the order of the Ld. CIT(Appeals) deleting the interest disallowance made under Rule 8D(2)(ii).
In so far as disallowance of Rs.2,90,37,490/- under Rule 8D(2)(iii) is concerned, we find that before the lower authorities the assessee had raised the plea that no disallowance u/s 14A was warranted since the assessee was a dealer in shares although in its Balance Sheet, shares were disclosed under the head "Investments".
IDBI Bank Ltd We find that the Hon'ble Supreme Court in its recent judgment dated 12.02.2018 in the case of Maxopp Investment Ltd Vs CIT (supra) did not uphold this line of argument and held that even in the case of a dealer in shares, earning dividend income from its stockin-trade, may expose his to the rigors of Section 14A of the Act. We however find merit in the Ld. AR's submissions that in the said judgment, the Hon'ble Supreme Court also extensively dealt with the Revenue's appeal in the case of State Bank of Patiala arising from the decision of the Hon'ble & Haryana High Court reported in 391 ITR 218. In the said judgment the Hon'ble Punjab & Haryana High Court had taken note of the fact that the banking companies in the course of carrying on their banking business were required to hold shares & securities and the expenses were incurred in connection with such banking business and the income therefrom was assessable under the head "Profits & Gains of Business". The Hon'ble High Court had taken note of the Board's Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head "Profits & Gains of Business" and not under the head "Other Sources". The High Court had also taken note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs Nawanshahar Central Co-operative Bank Ltd (289 ITR 6).Applying the ratio in the said decision the Hon'ble Punjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon'ble Punjab & Haryana High Court therefore held that in assessing the income of the assessee engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its banking business and not in relation to earning any tax free income. The Revenue's appeal against the judgment of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supreme Court. We therefore find that qua the assessee is engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra),
In view of the aforesaid discussion we are of the view that no disallowance under 14A is permissible in terms of Rule 8D in case of assessee is engaged in banking business. Therefore, respectfully following the judgment of the Supreme Court in case of Maxopp investment Ltd we direct the Ld. AO to delete the disallowance of Rule 8D(2)(iii). Similarly, no disallowance under rule 8D((2)(ii) is permissible as the reserve and surplus of assessee which is a banking company, is more than the investment made for earning exempt income. Therefore, the assessing officer is also directed to delete the disallowance of Rule 8D(ii).
In the result ground No. 1 of the appeal is allowed.”
Further, in assessee’s own case in ITA.No. 3394/Mum/2019 dated 09.02.2021 for the A.Y. 2015-16 with regard to book profit computation, Coordinate Bench, held as under: - “23. The related issue connected with the above ground of appeal relates to the order of the Ld. CIT (A) in respect of disallowance made u/s 14A r.w. Rule BD to earn dividend income in computing book profit u/s 115JB of the Act. We find that similar issue arose before the Hon'ble Bombay High Court in the case of CIT v. M/s Bengal Finance & Investments Pvt. Ltd. (ITA No. 337 of 2013). The question of law before the High Court inter alia was the following:
"(b) Whether on the facts and in the circumstances of the case, and in law the ITAT is justified in deleting the addition of Rs.78,84,387/- under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 SOT 101 (Dei), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?" The Hon'ble High Court held that: 4 So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in to hold that an amount disallowed under Section 14A of the Act IDBI Bank Ltd cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.43B of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law."
Facts being identical, we follow the above order of the Hon'ble Bombay High Court and confirm the order of the Ld. CIT(A). Thus the 1st ground of appeal is dismissed.”
12. Respectfully following the above decisions and following the principle of consistency, the view taken by the Tribunal is respectfully followed, accordingly, ground raised by the revenue is dismissed.”
The facts and circumstances being identical, consistent with the precedent, we do not see a reason to arrive at a different conclusion than the one arrived at by the Ld.CIT(A). The ld. DR unable to rebut by submitting any contrary order.Ground no. 1 of the revenue fails.
Ground no. 2 relates to ‘Amortisation of premium of HTM securities’ the assessee has claimed a sum of Rs. Rs.112,88,01,190 in this account. The ld. AO did not allow the same and added back with total income. This issue also stands decided in favour of the assessee by the decision of the co-ordinate bench in & 2919/Mum/2022 for A.Y. 2017-18. The relevant paragraphs 13 to 17 of the order of ITATare as below:-
“13. With regard to Ground No. 3 which is in respect of amortization of premium of HTM securities, Ld. DR relied on the order of the Assessing Officer and submitted its written submissions, for the sake of clarity it is reproduced below: - “The AO disallowed the amortization of premium amounting to Rs. 170,49,95,007/- in respect of securities in HTM category for the reason as discussed elaborately in the assessment order.
IDBI Bank Ltd Decision of the Ld. CIT(A): The Ld. CIT(A) deleted the disallowance made by the AO in respect of amortization of premium on HTM securities. Arguments of the department: “It cannot be the effect of the RBI guidelines that the total income for the purpose of Income Tax has to be computed in accordance with the enjoinment of these guidelines. These are only meant as guiding factors to determine the commercial profit for various purposes on conservative principles. The total income has to be computed under the mandate of the Income Tax Act and a recognized system of accounting has to be followed u/s. 145 of the Act. The specific clause in RBI circular which clearly mentions that the prescribed accounting treatment does not take into account the applicability of I.T. law and decision of Hon'ble Supreme Court in a recent judgment delivered in January, 2010 in the case of M/s. Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 577 (SC) makes it very clear that RBI Guidelines themselves will not decide taxability of the income. Accordingly, the amount of premium amortized in respect of HTM securities of Rs.155,78,68,968/- is disallowed and added back to the total income. In view of the above discussion the hon'ble ITAT is requested to uphold the addition made by the AO.”
On the other hand, Ld. AR of the assessee submitted that this issue is decided in favour of assessee by decision of Hon'ble Jurisdictional High Court in case of HDFC Bank Ltd (366 ITR 505). This issue was also decided in favour of the assessee by Hon'ble ITAT Mumbai in case of State Bank of India in ITA.No. 3644 and 4563/Mum/2016. Copy of the order is placed on record. Further, he placed reliance on decision of ITAT in case of State Bank of India (Successor to State Bank of Bikaner and Jaipur) in ITA.No. 3033 & 2873/Mum/2019. Copy of the order is placed on record.
Considered the submissions and material placed on record, we observe from the record that identical issue is decided by the Coordinate Bench in favour of the assessee in ITA.No. 3644 & 4563/MUM/2019 dated 03.02.2020. While deciding the issue, the Coordinate Bench of the Tribunal held as under: - “134. The next issue in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of disallowing the depreciation IDBI Bank Ltd provided for investments classified under the HTM category. For this revenue has raised the following Ground No. 9:- "9. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in treating loss on account of depreciation of securities in HTM category without appreciating that no depreciation is to be provided for investment classified under the HTM category.” "135. Brief facts are that during the year the assessee has provided Rs.1020,21,51,476 being loss on account of amortisation of premium paid on investments held under HTM category. The above provision is made in accordance with the RBI guidelines, wherein it has been stated that investments in HTM category should be carried at acquisition cost. In case the purchase price is higher than the face value, the premium should be amortised over the remaining period of maturity of the security. The AO disallowed the aforesaid provision on the basis that RBI guidelines do not decide taxability. The CIT(A) deleted the disallowance made by the AO following the Tribunal order in assessee's own case for AYS 1995-96 to 1996- 97 and the CIT(A) order for AYS 2002-03 to 2007-08. The Revenue before the Tribunal emphasised that there is no section under the Act that allows deduction for such amortisation of premium on securities.
It was contended that the issue is squarely covered in favour of the assessee by assessee's own case for assessment year 1995-96 by the order of Tribunal dated 17.09.2009, which was followed by the Tribunal in subsequent assessment year 1996-97 vide order dated 26.07.2013. Further, the Bombay High Court on the appeal by revenue in assessment year 1996- 97, has upheld the decision of Tribunal, vide its order dated 01.08.2016.
We noted that the facts in the year under consideration are same as the facts in the earlier years. In view of the above, this ground of appeal is covered in favour of the assessee vide the aforementioned orders of the Tribunal and Bombay High Court. This issue of Revenue's appeal is dismissed.”
16. Further, in the case of DCIT v. M/s. State Bank of India in ITA.No. 3033 & 2873/Mum/2019 dated 29.09.2022 A.Y. 2015-16 the Coordinate Bench held as under: - “26. Before us, both the parties agreed that issue in dispute is covered in favour of the assessee by the order of the Tribunal in the earlier years including the order dated 22/03/2022 for A.Y.2005-06 in and 4951/Mum/2013. The relevant part of the decision of the Tribunal (supra) is reproduced as under: Revenue has challenged the allowance of assessee's appeal by Ld. CIT(A) by IDBI Bank Ltd holding the security as stock in trade and loss on revaluation as revenue expenditure. The Ld. A.R. for the assessee contended that this issue has already been decided in favour of the assessee by the co-ordinate Bench of the Tribunal from A. Y. 1996- 97 to A.Y. 2004-05 and order passed by the Tribunal in A.Y. 1996-97 and A. Y. 1997-98 has been confirmed by the Hon'ble Bombay High Court in favour of the assessee. We have perused the order passed by the co-ordinate Bench of the Tribunal dated 30.09.2021 for A.Y. 2003- 04 which is on identical issue and has been decided in favour of the assessee by returning the following findings: "We have heard rival submissions and perused the materials available on record. Both the parties mutually agreed that this issue is already covered by the order of this Tribunal in assessee's own case for A. Yrs. 2001-02 and 2002-03 vide order dated 12/07/2021. The relevant operative portion of the said order is reproduced hereunder: "During the course of hearing, both the parties agree before us that identical issue has been consistently decided in favour of the assessee and against the Revenue by the Tribunal in assessee's own case for the assessment year 1992-93, 1995-96 1996-97, 1999- 2000, 2000-01 and 2008-09. The Tribunal in assessee's own case in 'State Bank of India v/s DCIT, & 4563/Mum./2016, order dated 3rd February 2020, for the A.Y. 2008-09, has decided this issue in favour of the assessee and against the Revenue. Consistent with the view taken by the Tribunal in assessee's own case as cited supra, we uphold the order of the learned CIT(A) on this issue and decline to interfere in the order as such. While concluding, we place on record that the appeal filed by the Revenue in assessee's own case before the Hon'ble Jurisdictional High Court for the assessment year 1996-97, the said appeal was also dismissed vide its order dated 1st August 2016. Thus, ground no. 1, raised by the Revenue is dismissed." Respectfully following the same, the ground No.2 raised by the Revenue is dismissed." Since this issue has already been decided in favour of the assessee since A.Y. 1996-97, which order has been confirmed by the Hon'ble Bombay High Court, we find no scope to interfere into the findings returned by the Ld. CIT(A) by IDBI Bank Ltd holding the securities as stock in trade and loss on revaluation as revenue expenditure. Hence, grounds No.6(a) 6(b) are determined against the Revenue, 27. The Ld. Counsel also submitted that issue in dispute has also been decided in favour of the assessee by the Hon'ble jurisdictional High Court vide order dated 01/08/2016 on the appeal filed by the Income-Tax Department for A.Y. 1996-97. We find that Tribunal (supra) has considered the decision of the Hon'ble jurisdictional High Court for assessment and 96-97. Respectfully following the finding of the Tribunal (supra), we do not find any error in the order of the Ld. CIT (A) on the issue in dispute, and accordingly, we uphold the same. The ground No.4 of the appeal of the Revenue is accordingly dismissed.”
17. Respectfully following the above decisions, we do not find any infirmity in the order of the Ld. CIT (A) on the issue in dispute, accordingly, ground raised
by the revenue is dismissed.”
7. Facts and circumstances being identical for this assessment year also, consistent with the precedent, we do not see a reason to arrive at a different conclusion than the one arrived at by the Ld.CIT(A). The ld. DR unable to bring any contrary judgment against the order of the coordinate bench.Ground no 2 of the revenue fails.
8. Ground no. 3 pertains to interest on IPDI bonds.The assessee company has claimed an amount of Rs. 114,88,28,130/- beinginterest on Interest on Innovative Perpetual Instruments(IPDI). Regarding itsallowability, the ld. AO has accepted that Ld. CIT(A) has deleted similaraddition in AY:2016-17. But the revenue has filed appeal before the ITAT. The issue is not yet reached finality. So, the addition is confirmed. Upon hearing the parties, we find that this issue also stands decided in favour of the assessee by the decision of the co-ordinate bench in & 2919/Mum/2022 for A.Y. 2017-18. The relevant paragraphs 18-22 of the ITAT order are as below:-
IDBI Bank Ltd 18. With regard to Ground No. 4 which is in respect of interest paid on IPDI bonds, Ld. DR relied on the order of the Assessing Officer and filed written submissions, for the sake of clarity it is reproduced below: - “The AO disallowed the interest expenses of Rs. 160,93,50,169/- incurred in respect of Innovative Perpetual Debt Instruments as discussed elaborately in the assessment order. The Assessing Officer relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of Pepsu Road transport Corpn v CIT, reported in 130 ITR 18 (P&H) and held that in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, the said amount cannot be held as 'borrowing' and, hence, the interest on such bonds is not admissible as deduction u/s 36(1)(iii).. The Ld. CIT(A) held that Perpetual bonds cannot be compared to the equity/share capital of the banks. Accordingly, the Ld. CIT(A) allowed the appeal of the assessee. Arguments of the department: Perpetual Bonds or Debt instruments are in nature of debt instruments or bonds with no maturity date. The RBI guidelines have allowed treating the perpetual bond as tier I capital subject to certain conditions. The investors do not get the right to redeem the bonds at any given point of time. Only the issuing bank can buy back the bonds from the investors. Therefore, even if subsequently borrower buys back these bonds, it will not alter the nature and character of these bonds because it is the borrower and not the lender who has every right in such bonds to redeem it. Once the bond is sold, the rights of future interest passes to the new bond holder. To sum up the perpetual bonds are quasi equity and they have following equity like features: a. Perpetual in nature; b. High loss absorption capacity: Provisions for write down of principal or conversion to equity on trigger; c. Discretionary pay-out with existence of full coupon discretion As per the provisions of section 36(1)(iii), deduction is allowed in respect of the amount of interest in respect of capital borrowed for the business and profession. However, reference may be made to the decision of the Hon'ble Punjab & Haryana High Court in the case of Pepsu Road transport Corpn v CIT (1981) 130 ITR 18 (P&H), IDBI Bank Ltd that an element of refund or repayment is a must in the concept of borrowing. If there is no obligation to refund the capital provided, interest on such capital is not deductible under section 36(1)(iii). Therefore, in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, the said amount cannot be held as 'borrowing' and, hence, the interest on such bonds is not admissible as deduction u/s 36(1)(iii). In view of the above the amount of Rs. 160,93,50,169/- being interest expenses claimed on account of IPDI Bonds added to total income of the assesse by the AO may kindly be upheld.”
On the other hand, Ld. AR of the assessee submitted that the IPDI bonds issued by the banks are in nature of borrowings only as Interest on these bonds are paid at pre fixed rate which is evident from the disclosure document for issue of such bonds. A copy of disclosure documents issued are enclosed in Paper Book. The interest so paid is classified only under schedule -15- Interest expended in the financial statements. Further, he submitted that interest paid on these bonds are also subjected to TDS. It is also submitted that even though the bonds are stated to be perpetual, the bank has an option of issuing call option after a period of 10 years. Further these bonds are being repaid which is evident from the borrowings schedule as per the Annual Report for March 2022 which establishes the fact that these are only borrowings and not capital. Ld. AR of the assessee submitted that the interest paid on these bonds are to be treated only as interest paid on borrowings and thereby is allowable as deduction while computing total income. Ld.AR of the assessee submitted that the issue under consideration is decided in favour of the assessee and against the department by the Coordinate Bench in the case of relied on the decision of State Bank of India (Successor to State Bank of Bikaner and Jaipur) in ITA.No. 3033, 2873/Mum/2019) and in the case of ICICI Bank Ltd in ITA.No. 3215 & 3864/Mum/2019. Copies of the order is placed on record.
Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided by the Coordinate Bench in favour of the assessee in the case of DCIT v. M/s. State Bank of India in ITA.No. 3033 & 2873/MUM/2019 dated 29.09.2002. While deciding the issue, the Coordinate Bench of the Tribunal held as under: - “16. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as argument of rule of consistency is concerned, the Ld. CIT(A) has rejected the contention of the assessee following the decision of the Hon'ble Delhi High Court in the case of Krishak Bharati cooperative IDBI Bank Ltd Ltd (supra). The said finding being based on the precedent, we concur with the finding of the Ld. CIT(A). 16.1 The assessee has distinguished the decision of Hon'ble Punjab Haryana High Court in the case of Pepsu Road transport Corporation (supra) on the ground that in said case capital was provided by the Union of India under a statutory obligation which had no provision of repayment. Further in the event of the liquidation of Pepsu Road transport Corporation after meeting the liabilities if any, the assets were to be divided among Central Government and the State Government and such other parties, if any as may have subscribed to the capital in proportion to the contribution made by each of them to the total capital. However in the instant case there was no statutory obligation on the investors to subscribe to IPDS and further the claim of the investor of the IPD bonds is superior to that of equity investor and subordinate to other creditors. Further, it was submitted that interest paid on IPD cannot be equated with the dividend as dividend is not mandatory to be paid each year and it has to be paid if there is profit during the any financial year and on approval of the proposal of the Board of Directors by the shareholders in the annual general meeting. Whereas in the case of the IPD, it is mandatory to pay interest irrespective of the availability of the profit and no approval of the Board of Directors or shareholders was required. In view of the above discussion, we concur with the contention of the assessee that ratio in the case of Pepsu Road transport Corporation Ltd (supra) cannot be applied or the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perpetual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under: Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr. CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 IDBI Bank Ltd to 160 of the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission videetter dated 16.12.2016 stating that it has issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities is payable @ 11.40% per annum. The assessee has also specifically explained in line with accounting standard, the aforesaid interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of Rs.142.03 crores for FY 2010-11. But the same was charged to Rs.113.61 crores after netting off taxes [142.03-28.42]. The amount of tax impact of Rs.28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs. 18.63 crores on issue of 10.75% debenture of Rs. 1500 crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also supplied to the Assessing Officer detailed offer document issued for unsecured perpetual debentures of Rs.1500 crores during the course of assessment proceedings. In the offer document the terms and conditions of issuing perpetual debentures, basis of allotment, creation of debenture redemption reserves along with object of the issue were clearly mentioned. As per the copy of object of the issue placed at page 67 of the paper book, it is mentioned that utilization of funds to be raised through this private placement will be for general business purpose and at page no. 62 issue size was mentioned of 15000 debentures of face value of Rs. 10 lac each aggregating to Rs.1500 crores. It is demonstrated from the detailed submission and copies. of documents placed in the paper book that assessing officer has made detailed inquiry/verification during the course of assessment proceedings that assessee has borrowed funds for business use by issue of debentures. The borrowed fund were payable on call option exercising by company after the 10th year or any at the end of every year thereafter. It was also explained that the lenders were not entitled to share any surplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts IDBI Bank Ltd and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non- convertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CITduring the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting this undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consider that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal
of the assessee. 16.3. Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Ld. AO to delete the disallowance of interest amounting to Rs. 18,00,00,000/-, which was made U/s 36(1)(iii) of the Act. The ground no. 4 of the appeal of the assessee is accordingly allowed. “
21. Further, in the case of DCIT v. ICICI Bank Limited in ITA.No.3864/Mum/2019 dated 22.08.2022, the Coordinate Bench held as under: “10. Heard both the sides and perused the material on record. The A.O has disallowed the claim of interest made u/s 36(1)(iii) by treating the perpetual bond as equity in nature. In support of his finding the A.O has placed reliance on the observation of the Pr. CIT made in the order u/s 263 in the case of the assessee for A.Y. 2013-14. These observations are as under: (i) Perpetual bond with no maturity date; (ii) right to redeem that assessee not with the Investors; (iii) showing in the balance sheet as debt or borrowings. However, it is observed that A.O has failed to controvert the undisputed fact that ass essee has issued innovative perpetual debt instruments (IPDI) which carry a fixed rate of interest. The holder of these instruments had no right in management of the assessee bank. The assessee had paid interest to the bond holder after deducting tax at source. We have also perused the schedule 4 of the balance sheet placed in the paper book wherein at serial no. (vi) Innovative IDBI Bank Ltd Perpetual Debt Instruments was placed under the head borrowings. The interest payment on these debt instruments was paid before computing profit of the assessee bank. We have also perused the detail of the redemption of perpetual debt instrument made by the assessee placed in the paper book reproduced as under: Sr. Series Allotment Date of Principle amount Interest for the No. Date redemption period FY 2009-10 1. DAG06RRB 09.08.2006 09.08.2016 Rs.233, 00,00,000 23,53,30,000 2. DSP06RRB 13.09.2006 13.09.2016 RS. 550,00,00,000 54,89,00,000 3. DJA07RB1 15.01.2007 30.04.2017 Rs. 18,00,00,000 1,79,63,998 4. DJA08RB1 10.01.2008 30.04.2018 Rs. 500,00,00,000 50,75,00,000 5. BHSTN 24.06.2006 31.10.2016 USD 34,00,00,000 1,16,68,81,013 7.25% 2,47,65,45,011 It is further noticed that the assessee had demonstrated from the submission that these debt instruments were also redeemed. We also find that facts of the case of Pepsu Road Transport Corporation Vs. CIT 130 ITR 18 (P & H) relied upon by the ld. D.R. are distinguishable from the case of the assessee. In that case the capital was not borrowed but the same was provided by the Government as per the provisions of the Road Transport Corporation Act, 1950 whereas in the case of the assessee bank it had borrowed the money from the lenders. Similarly the fact of the case of Bank of India Vs. ACIT vide 122 taxman.com 247 (Mum ITAT) are also distinguishable from the case of the assessee. In that case the revenue had not discussed about the terms on which perpetual bond were issued. Therefore, the issue was remained back to the ld. CIT(A) for fresh adjudication. We have also perused the decision of Kerala Road Transport Corporation Vs. ITO 34 TTJ 101 Cochin, ITAT, wherein held that payment of interest was not made to the corporation but it was the payment made to the third parties. In the light of the above facts and circumstances merely that RBI recognizes to treat the said debt instruments as additional Tier/Capital would not change the nature of Innovative Perpetual Debt Instruments which were of the nature of long term borrowings and the interest paid was debited to the profit and loss account. These debt instruments were also redeemed on different dates as discussed supra in this order, therefore, we don't find any reason to interfere in the decision of Id. CIT(A), accordingly, this ground of appeal of the revenue is dismissed.”
IDBI Bank Ltd 22. Respectfully following the above decisions, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute under consideration, accordingly, ground raised by the revenue is dismissed.”
9. The facts and circumstances being identical, consistent with the precedent, we do not see a reason to arrive at a different conclusion than the one arrived at by the Ld.CIT(A). Ground no 3 of the revenue is dismissed.
Ground no 4 pertains to disallowance of capital loss amount to Rs. 804,15,79,747/. The facts governing this issue are that the assessee claimed short term capital loss of Rs.658,30,39,996/-. During the course of assessment proceedings,the Ld.AO noticed that it was only a letter regarding redemption of I, II&III Series of Cumulative Redeemable Preference Shares 1(CRPS). According to the Ld.AO, it did not contain any quantification of loss. Therefore, the Ld.AO held that the claim of STCL of Rs 658,30,39,996/- and Rs. 50,89,83,968/- remains unsubstantiated. Furthermore, the ld. AR contended that two submissions dated 05/09/2022 & 12/09/2022 were filed with details calculation of loss to substantiate the claim of total capital loss of Rs. 804,15,79,747/-. On appeal, the Ld.CIT(A) decided the issue in favour of the assessee by observing as under: - “5.12 Having considered the above submission of the appellant and documents available on records, I don’t find any merit in the impugned addition made by the AO. Appellant has submitted all the details in respect of the STCL claimed during the year under consideration which has duly been substantiated with the documents available on record. Therefore, the addition amounting to Rs. 8,04,15,79,747/- made on account of disallowance of capital loss is hereby deleted. Thus, Ground no. 5 of the appeal raised on the issue is allowed.”
We have heard the parties on the above issue. We find the Ld.AO abruptly brushed aside the evidence submitted by the assessee by holding that the claim was not substantiated. Whereas the Ld.CIT(A) has accepted the documents of the IDBI Bank Ltd assessment unit, filed by the assessee. During the course of hearing, the Ld.AR submitted evidence related claim of loss which was filed before the ld. AO on 05/09/2022 & 12/09/2022. The Ld.DR prayed for setting aside the matter before the ld. AO as there no verification on part of the ld. AO related claim of loss. The ld. CIT(A) was also not able to bring any evidence related the verification of said loss. In view of the proposition, we restore this issue to the file of the Ld.AO. the Ld.AO is directed to decide the issue in accordance with law after giving adequate opportunity of hearing to the assessee and also to take cognizance the documents filed by the assessee during assessment proceeding. As a result, this ground raised by the revenue is treated as allowed for statistical purpose.
Accordingly. Ground no. 4 of the revenue is allowed for statistical purposes.
Ground no. 5 pertains to disallowance of Broken Period Interestamounting to Rs. 30,56,00,000/-. Upon hearing the parties, we found that this issue also stands covered in favour of the assessee by the order of the co-ordinate bench of the ITAT-Mumbai bearing for A.Y. 2017-18, date of pronouncement 11/05/2023 in assessee’s own case. The issue is squarely covered by the order of the Hon’ble Supreme Courtin the case Bank of Rajasthan Ltd. v. Commissioner of Income-tax. 167 taxmann.com 430. The Hon’ble Apex Court observed as follows: - “25. Now, we come to other appeals which are part of this group. In Civil Appeal @Special Leave Petition (C) Nos.1445-1446 of 2021, the assessing officer held that the respondent Bank was liable to pay the broken period of interest as part of the price paid for the securities. Hence, a deduction on the said amount was disallowed. The assessee could not succeed before the CIT (Appeals). Before the Appellate Tribunal, reliance was placed on the decision of this Court in the case of Vijaya Bank Ltd. (supra). The Tribunal observed that the assessing officer had treated the interest income earned by the respondent Bank on securities as income from other sources. The IDBI Bank Ltd Tribunal observed that the investments in securities are in stock-in-trade, and this fact has been accepted in the past by the Income Tax department. It was held that the securities in the category of HTM were also held as stock-in-trade, and income/loss arising out of such securities, including HTM securities, has been treated as business income/loss. The Appellate Tribunal held that the interest for the broken period would be admissible as a deduction, and the High Court confirmed the same. We may note here that the Tribunal followed the decision of the Bombay High Court in the case of HDFC Bank Ltd. v. CIT [2014] 49 taxmann.com 335/226 Taxman 132/366 ITR 505 (Bombay). We find no error in the view taken in this case. The facts and circumstances being identical, consistent with the precedent, we respectfully relied on the order Bank of Rajasthan Ltd(supra) and we do not find any reason to arrive at a different conclusion than the one arrived at by the Ld.CIT(A). The ld. DR argued and relied on impugned assessment order. We find no reason to interfere in impugned appeal order.
Accordingly, ground no 5 of the revenue fails.
Order pronounced in the open court on 14th day of November 2024. Sd/- sd/- (RENU JAUHRI) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 14/11/2024 Pavanan