YES BANK LTD.,,MUMBAI vs. DCIT(2)(2)(2), MUMBAI

PER OM PRAKASH KANT, AM

These cross appeals by the assessee and Revenue are directed against order dated 26/02/2019 passed by the Ld. Commissioner of Income-tax (Appeals)-5, Mumbai [in short ‘he Ld. CIT(A)’] for

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assessment year 2015 assessment year 2015-16. The grounds raised by the assessee 16. The grounds raised by the assessee reproduced as under: reproduced as under:

GROUND NO. I: DISALLOWANCE UNDER SECTION 14A OF THE ACT GROUND NO. I: DISALLOWANCE UNDER SECTION 14A OF THE ACT GROUND NO. I: DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R 8D(2)(iii) of the INCOME TAX RULES, 19 R.W.R 8D(2)(iii) of the INCOME TAX RULES, 1962 ("the Rules"): 62 ("the Rules"): 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the AO of upholding the CIT(A) erred in confirming the action of the AO of upholding the CIT(A) erred in confirming the action of the AO of upholding the disallowance under Rule 8D(2)(iii) of the Rules. disallowance under Rule 8D(2)(iii) of the Rules. 2. The Appellant prays that the AO be deleted to the d 2. The Appellant prays that the AO be deleted to the disallowance isallowance u/s. 14A r.w.r. u/s. 14A r.w.r. 8D(2)(iii). GROUND NO. II: SETTING ASIDE THE ISSUE TO THE FILE OF THE GROUND NO. II: SETTING ASIDE THE ISSUE TO THE FILE OF THE GROUND NO. II: SETTING ASIDE THE ISSUE TO THE FILE OF THE AO: 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in directing the AO to verify the accounts of the Appellant CIT(A) erred in directing the AO to verify the accounts of the Appellant CIT(A) erred in directing the AO to verify the accounts of the Appellant to verify if the Appellant had interest free funds, which direction is f the Appellant had interest free funds, which direction is f the Appellant had interest free funds, which direction is beyond the powers conferred on CIT(A) under section 251 of the Act, beyond the powers conferred on CIT(A) under section 251 of the Act, beyond the powers conferred on CIT(A) under section 251 of the Act, even after Hon'ble CIT(A) has deleted the disallowance of interest. even after Hon'ble CIT(A) has deleted the disallowance of interest. even after Hon'ble CIT(A) has deleted the disallowance of interest. WITHOUT PREJUDICE TO GROUNDS 1: WITHOUT PREJUDICE TO GROUNDS 1: GROUND NO. III: RULE 8D IS N GROUND NO. III: RULE 8D IS NOT AUTOMATIC: 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in holding that there is no substance in the claim of the CIT(A) erred in holding that there is no substance in the claim of the CIT(A) erred in holding that there is no substance in the claim of the Appellant that the AO has not passed a speaking order in recording Appellant that the AO has not passed a speaking order in recording Appellant that the AO has not passed a speaking order in recording his satisfaction. his satisfaction. 2. He erred in u 2. He erred in upholding the action of the AO of computing the pholding the action of the AO of computing the disallowance as per Rule disallowance as per Rule 8D of the Rules when the AO has not recorded his satisfaction for 8D of the Rules when the AO has not recorded his satisfaction for 8D of the Rules when the AO has not recorded his satisfaction for rejecting the suo rejecting the suo-moto disallowance computed by the Appellant. moto disallowance computed by the Appellant. 3. The Appellant prays that the AO be directed to delet 3. The Appellant prays that the AO be directed to delet 3. The Appellant prays that the AO be directed to delete the disallowance u/s. 14A r.w.r. disallowance u/s. 14A r.w.r. 8D. WITHOUT PREJUDICE TO GROUNDS I & III: WITHOUT PREJUDICE TO GROUNDS I & III: GROUND NO. IV: NO DISALLOWANCE UNDER SECTION 14A OF THE GROUND NO. IV: NO DISALLOWANCE UNDER SECTION 14A OF THE GROUND NO. IV: NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE WHEN SECURITIES ARE HELD AS STOCK ACT CAN BE MADE WHEN SECURITIES ARE HELD AS STOCK ACT CAN BE MADE WHEN SECURITIES ARE HELD AS STOCK-IN- TRADE: 1. On the facts and circumstances of the case and in law, the H 1. On the facts and circumstances of the case and in law, the H 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the disallowance us. 14A of the Act even CIT(A) erred in confirming the disallowance us. 14A of the Act even CIT(A) erred in confirming the disallowance us. 14A of the Act even when the securities are held as stock when the securities are held as stock-in-trade.

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3,44,94,634/ - - claimed us 35D in respect of expenses incurred in claimed us 35D in respect of expenses incurred in connection with the QIP on the alleg connection with the QIP on the alleged ground that the issue of shares ed ground that the issue of shares to QIP does not tantamount to public subscription and such capital to QIP does not tantamount to public subscription and such capital to QIP does not tantamount to public subscription and such capital expenses are not eligible for deduction u/s. 35D of the Act. expenses are not eligible for deduction u/s. 35D of the Act. 2. On the facts and circumstances of the case and in law, the Hon'ble 2. On the facts and circumstances of the case and in law, the Hon'ble 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in holding CIT(A) erred in holding that the facts in the year under consideration that the facts in the year under consideration are same and thereby relying on the order of his predecessor for are same and thereby relying on the order of his predecessor for are same and thereby relying on the order of his predecessor for confirming the disallowance u/s. 35D without considering the facts in confirming the disallowance u/s. 35D without considering the facts in confirming the disallowance u/s. 35D without considering the facts in the captioned year. the captioned year. 3. The Appellant prays that the AO be directed to all 3. The Appellant prays that the AO be directed to all 3. The Appellant prays that the AO be directed to allow Rs. 3,44,94,634/- as a deduction u/s. 35D of the Act. as a deduction u/s. 35D of the Act. WITHOUT PREJUDICE TO GROUND NOS. VII AND VIII: WITHOUT PREJUDICE TO GROUND NOS. VII AND VIII: GROUND NO. VII: DISALLOWANCE OF QIP EXPENSES BY INVOKING GROUND NO. VII: DISALLOWANCE OF QIP EXPENSES BY INVOKING GROUND NO. VII: DISALLOWANCE OF QIP EXPENSES BY INVOKING SECTION 40(a) (i)/(ia) OF THE ACT: 40(a) (i)/(ia) OF THE ACT: 1. On the facts and circumstances of the case and in law, th 1. On the facts and circumstances of the case and in law, th 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in observing that the expenses in connection with QIP CIT(A) erred in observing that the expenses in connection with QIP CIT(A) erred in observing that the expenses in connection with QIP may not be allowable in view of section 40(a) (i)/ (ia) of the Act. may not be allowable in view of section 40(a) (i)/ (ia) of the Act. may not be allowable in view of section 40(a) (i)/ (ia) of the Act. 2. The appellant appellant prays that the AO be directed to allow the expenses to allow the expenses in connection with in connection with QIP. GROUND NO. IX: SE GROUND NO. IX: SETTING ASIDE TO THE AO THE ISSUE OF TTING ASIDE TO THE AO THE ISSUE OF ALLOWANCE OF BROKERAGE PAID ON HTM SECURITIES: ALLOWANCE OF BROKERAGE PAID ON HTM SECURITIES: 1. On the facts and circumstances of the case and in law, the Hon' ble 1. On the facts and circumstances of the case and in law, the Hon' ble 1. On the facts and circumstances of the case and in law, the Hon' ble CIT(A) erred in directing the AO to verify the bifurcation of securities CIT(A) erred in directing the AO to verify the bifurcation of securities CIT(A) erred in directing the AO to verify the bifurcation of securities under different categories whe under different categories when all the details were available on n all the details were available on record and no further verification was required record and no further verification was required WITHOUT PREJUDICE TO GROUND NO. IX WITHOUT PREJUDICE TO GROUND NO. IX GROUND NO. X: DISALLOWANCE OF BROKERAGE PAID ON GROUND NO. X: DISALLOWANCE OF BROKERAGE PAID ON GROUND NO. X: DISALLOWANCE OF BROKERAGE PAID ON ACQUISITION OF HTM INVESTMENTS: ACQUISITION OF HTM INVESTMENTS: 1. On the facts and circumstances of the case and in law, 1. On the facts and circumstances of the case and in law, the Hon'ble the Hon'ble CIT(A) erred in partly confirming the action of the AO of disallowing the CIT(A) erred in partly confirming the action of the AO of disallowing the CIT(A) erred in partly confirming the action of the AO of disallowing the brokerage paid on HTM securities even though all the securities are brokerage paid on HTM securities even though all the securities are brokerage paid on HTM securities even though all the securities are held by the Appellant as stock held by the Appellant as stock-in-trade. The Appellant prays that the AO be directed to delete the di The Appellant prays that the AO be directed to delete the disallowance sallowance of brokerage paid on HTM securities. of brokerage paid on HTM securities. GROUND GROUND GROUND NO. NO. NO. XI: XI: XI: ASSESSING ASSESSING ASSESSING INTEREST INTEREST INTEREST INCOME INCOME INCOME ON ON ON HTM HTM HTM INVESTMENTS AS INCOME FROM OTHER SOURCES: INVESTMENTS AS INCOME FROM OTHER SOURCES: 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the action of the AO o CIT(A) erred in upholding the action of the AO of assessing the interest f assessing the interest income on HTM investments as income from other sources and not as income on HTM investments as income from other sources and not as income on HTM investments as income from other sources and not as

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profits and gains of business and profession even though all the profits and gains of business and profession even though all the profits and gains of business and profession even though all the securities are held by the Appellant as stock securities are held by the Appellant as stock-in-trade. 2. The Appellant prays that the interest inc The Appellant prays that the interest income on HTM securities be ome on HTM securities be held to be assessable under the head profits and gains of business held to be assessable under the head profits and gains of business held to be assessable under the head profits and gains of business and profession. and profession. GROUND GROUND GROUND NO. NO. NO. XII: XII: XII: ADDITION ADDITION ADDITION OF OF OF COMMISSION COMMISSION COMMISSION ON ON ON BANK BANK BANK GUARANTEE: 1. On the facts and circumstances of the case and in law, the Hon'ble On the facts and circumstances of the case and in law, the Hon'ble On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in addi CIT(A) erred in adding the amount of Rs. 28,31,72,647/ ng the amount of Rs. 28,31,72,647/-, being difference arising on account of change in the method of recognizing difference arising on account of change in the method of recognizing difference arising on account of change in the method of recognizing guarantee commission from anniversary date to a more scientific time guarantee commission from anniversary date to a more scientific time guarantee commission from anniversary date to a more scientific time proportionate basis, on the ground that there was there was no proportionate basis, on the ground that there was there was no proportionate basis, on the ground that there was there was no necessity for such a change. r such a change. 2. He further erred in holding that there is neither any basis of change He further erred in holding that there is neither any basis of change He further erred in holding that there is neither any basis of change in accounting nor was such change required by any accounting in accounting nor was such change required by any accounting in accounting nor was such change required by any accounting standard. 3. The Appellant prays that the AO be directed to delete the addition of The Appellant prays that the AO be directed to delete the addition of The Appellant prays that the AO be directed to delete the addition of Rs. 28,31,72,647 / Rs. 28,31,72,647 / - of commission income on bank guarantee. f commission income on bank guarantee. GROUND NO XIII: NOT ADMITTING CLAIM FOR DEDUCTION OF GROUND NO XIII: NOT ADMITTING CLAIM FOR DEDUCTION OF GROUND NO XIII: NOT ADMITTING CLAIM FOR DEDUCTION OF DISCOUNT ON ISSUE OF SHARES UNDER EMPLOYEE STOCK OPTION DISCOUNT ON ISSUE OF SHARES UNDER EMPLOYEE STOCK OPTION DISCOUNT ON ISSUE OF SHARES UNDER EMPLOYEE STOCK OPTION SCHEMES (ESOPs) MADE IN THE COURSE OF THE ASSESSMENT SCHEMES (ESOPs) MADE IN THE COURSE OF THE ASSESSMENT SCHEMES (ESOPs) MADE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS: PROCEEDINGS: 1. On the facts and circumstances of the c 1. On the facts and circumstances of the case and in law, the Hon'ble ase and in law, the Hon'ble CIT(A) erred in not admitting and allowing the claim of the Appellant CIT(A) erred in not admitting and allowing the claim of the Appellant CIT(A) erred in not admitting and allowing the claim of the Appellant by stating that the Appellant is making such claims only as an by stating that the Appellant is making such claims only as an by stating that the Appellant is making such claims only as an additional claim and not in the ROI without considering that the claim additional claim and not in the ROI without considering that the claim additional claim and not in the ROI without considering that the claim for ESOPs is a legal cla for ESOPs is a legal claim and that there are no restrictions provided im and that there are no restrictions provided in law for putting forth a legal claim at any stage of appellate in law for putting forth a legal claim at any stage of appellate in law for putting forth a legal claim at any stage of appellate proceedings. The Appellant prays that the claim for discount on ESOP be admitted The Appellant prays that the claim for discount on ESOP be admitted The Appellant prays that the claim for discount on ESOP be admitted and allowed in accordance with the Act. and allowed in accordance with the Act. WITHOUT PREJUDICE TO GR WITHOUT PREJUDICE TO GROUND NO. XIII: GROUND NO. XIV: DISALLOWANCE OF DEDUCTION OF DISCOUNT GROUND NO. XIV: DISALLOWANCE OF DEDUCTION OF DISCOUNT GROUND NO. XIV: DISALLOWANCE OF DEDUCTION OF DISCOUNT ON ISSUE OF SHARES UNDER THE EMPLOYEE STOCK OPTION PLAN ON ISSUE OF SHARES UNDER THE EMPLOYEE STOCK OPTION PLAN ON ISSUE OF SHARES UNDER THE EMPLOYEE STOCK OPTION PLAN ("ESOP"): 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not allowing the claim for deductio CIT(A) erred in not allowing the claim for deduction in respect of n in respect of discount on issue of shares under the ESOP made during the course of discount on issue of shares under the ESOP made during the course of discount on issue of shares under the ESOP made during the course of the assessment proceedings, amounting to Rs. the assessment proceedings, amounting to Rs. 138,52,00,738/ 138,52,00,738/- 2. The Appellant prays that the AO be directed to allow the claim for 2. The Appellant prays that the AO be directed to allow the claim for 2. The Appellant prays that the AO be directed to allow the claim for deduction in respect deduction in respect of discount on issue of shares under ESOP. e of shares under ESOP.

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GROUND NO. XV: ADDITION OF INTEREST INCOME ON NON GROUND NO. XV: ADDITION OF INTEREST INCOME ON NON GROUND NO. XV: ADDITION OF INTEREST INCOME ON NON PERFORMING ASSETS ("NPAs") U/S. 43D R.W.R 6EA OF THE RULES PERFORMING ASSETS ("NPAs") U/S. 43D R.W.R 6EA OF THE RULES PERFORMING ASSETS ("NPAs") U/S. 43D R.W.R 6EA OF THE RULES AMOUNTING TO RS. AMOUNTING TO RS. 1,62,47,886/-: 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confi CIT(A) erred in confirming the action of the AO of adding the notional rming the action of the AO of adding the notional interest income purportedly u/s Rule 6EA, amounting to Rs. interest income purportedly u/s Rule 6EA, amounting to Rs. interest income purportedly u/s Rule 6EA, amounting to Rs. 1,62,47,886/- on NPAs on accrual basis of accounting ignoring the RBI on NPAs on accrual basis of accounting ignoring the RBI on NPAs on accrual basis of accounting ignoring the RBI Directives on Income Recognition. Directives on Income Recognition. 2. On the facts and circumstances of the ca On the facts and circumstances of the case and in law, the Hon'ble se and in law, the Hon'ble CIT(A) erred in ignoring the settled legal position that it is only the real CIT(A) erred in ignoring the settled legal position that it is only the real CIT(A) erred in ignoring the settled legal position that it is only the real income that can be taxed under the Act. income that can be taxed under the Act. 3. He further erred in ignoring that rules, being subordinate legislature 3. He further erred in ignoring that rules, being subordinate legislature 3. He further erred in ignoring that rules, being subordinate legislature cannot override the provisions of the cannot override the provisions of the Act. 4. The Appellant prays that the AO be directed to delete the interest 4. The Appellant prays that the AO be directed to delete the interest 4. The Appellant prays that the AO be directed to delete the interest income on NPAs income on NPAs amounting to Rs. 1,62,47,886/- GROUND NO. XVI: DISALLOWANCE ON ACCOUNT OF PROVISION OF GROUND NO. XVI: DISALLOWANCE ON ACCOUNT OF PROVISION OF GROUND NO. XVI: DISALLOWANCE ON ACCOUNT OF PROVISION OF RURAL RURAL RURAL ADVANCES ADVANCES ADVANCES CLAIMED CLAIMED CLAIMED U/S U/S U/S 36(1)(viia) 36(1)(viia) 36(1)(viia) OF OF OF THE THE THE ACT ACT ACT AMOUNTING TO RS. AMOUNTING TO RS. 24,91,43,645/-: 1. On the facts and the circumstances of the case and in law, the Hon' 1. On the facts and the circumstances of the case and in law, the Hon' 1. On the facts and the circumstances of the case and in law, the Hon' ble CIT(A) erred in disallowing 10% of aggregate average rural ble CIT(A) erred in disallowing 10% of aggregate average rural ble CIT(A) erred in disallowing 10% of aggregate average rural advances made by the Appellant on the ground that the Appellant has advances made by the Appellant on the ground that the Appellant has advances made by the Appellant on the ground that the Appellant has not made a separate provision in its books in resp not made a separate provision in its books in respect of the rural ect of the rural advances. 2. The Appellant prays that the AO be directed to delete the The Appellant prays that the AO be directed to delete the The Appellant prays that the AO be directed to delete the disallowance on account of provision of rural advances. disallowance on account of provision of rural advances. GROUND NO. XVII: DISALLOWANCE OF INTEREST PAID ON GROUND NO. XVII: DISALLOWANCE OF INTEREST PAID ON GROUND NO. XVII: DISALLOWANCE OF INTEREST PAID ON INNOVATIVE PERPETUAL DEBT INSTRUMENTS ("IPDI") U/S. 36(1)(iti) INNOVATIVE PERPETUAL DEBT INSTRUMENTS ("IPDI") U/S. 36(1)(iti) INNOVATIVE PERPETUAL DEBT INSTRUMENTS ("IPDI") U/S. 36(1)(iti) OF THE ACT: 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the AO of disallowing the CIT(A) erred in confirming the action of the AO of disallowing the CIT(A) erred in confirming the action of the AO of disallowing the interest amounting to Rs. interest amounting to Rs. 17,53,20,737/- paid on the IPDIs issued by paid on the IPDIs issued by the Appellant, u/s. 36(1) iii) of the the Appellant, u/s. 36(1) iii) of the Act on the ground that these IPDIs Act on the ground that these IPDIs are capital in nature. are capital in nature. 2. He erred in considering the IPDIs as Tier I capital thereby treating He erred in considering the IPDIs as Tier I capital thereby treating He erred in considering the IPDIs as Tier I capital thereby treating them at par with paid up capital, statutory reserves, other free them at par with paid up capital, statutory reserves, other free them at par with paid up capital, statutory reserves, other free reserves, perpetual non reserves, perpetual non - cumulative preference shares and c cumulative preference shares and capital reserves, when the IPDIs are classified as Additional Tier I capital reserves, when the IPDIs are classified as Additional Tier I capital reserves, when the IPDIs are classified as Additional Tier I capital which includes various debt instruments. which includes various debt instruments. 3. He further erred in equating the IPDIs with the preference share 3. He further erred in equating the IPDIs with the preference share 3. He further erred in equating the IPDIs with the preference share capital of a Company. capital of a Company.

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fact that such expenditure is in the nature of capital expenditure and fact that such expenditure is in the nature of capital expenditure and fact that such expenditure is in the nature of capital expenditure and forms a part of cost of assets?" forms a part of cost of assets?" 3. "Whether on the facts and in the circumstances of the case and in "Whether on the facts and in the circumstances of the case and in "Whether on the facts and in the circumstances of the case and in law, Ld.CIT (A) was right in directing to delete BPI without law, Ld.CIT (A) was right in directing to delete BPI without law, Ld.CIT (A) was right in directing to delete BPI without appreciating the fact that the HTM category of Securities are long term ing the fact that the HTM category of Securities are long term ing the fact that the HTM category of Securities are long term securities held till maturity and forming a part of investment and not a securities held till maturity and forming a part of investment and not a securities held till maturity and forming a part of investment and not a stock in trade hence BPI on HTM Securities is a capital outlay and stock in trade hence BPI on HTM Securities is a capital outlay and stock in trade hence BPI on HTM Securities is a capital outlay and hence not an allowable deduction?" hence not an allowable deduction?" 4. "Whether on the "Whether on the facts and in the circumstances of the case and in facts and in the circumstances of the case and in law, Ld. CIT (A) was right in directing to delete BP| without law, Ld. CIT (A) was right in directing to delete BP| without law, Ld. CIT (A) was right in directing to delete BP| without considering the decision of honorable supreme court in the case of considering the decision of honorable supreme court in the case of considering the decision of honorable supreme court in the case of Vijaya Bank Ltd. v/s Addl. CIT Vijaya Bank Ltd. v/s Addl. CIT (1991) 187 ITR 547(S. C.) wherein it is (1991) 187 ITR 547(S. C.) wherein it is held that BPl is a part of capital outlay for acquisition of securities and that BPl is a part of capital outlay for acquisition of securities and that BPl is a part of capital outlay for acquisition of securities and hence not an allowable deduction?" hence not an allowable deduction?" 5. "Whether on the facts and in the circumstances of the case and in "Whether on the facts and in the circumstances of the case and in "Whether on the facts and in the circumstances of the case and in law, Ld. CIT (A) was right in directing to delete premium amortized law, Ld. CIT (A) was right in directing to delete premium amortized law, Ld. CIT (A) was right in directing to delete premium amortized without appreciating the fact that the HTM category of Securities are ciating the fact that the HTM category of Securities are ciating the fact that the HTM category of Securities are held as investment i.e. a capital asset and hence amortization of held as investment i.e. a capital asset and hence amortization of held as investment i.e. a capital asset and hence amortization of premium paid on such securities will form part of cost of acquisition of premium paid on such securities will form part of cost of acquisition of premium paid on such securities will form part of cost of acquisition of HTM securities and hence not an allowable deduction?" HTM securities and hence not an allowable deduction?" 6. "Whether on the facts and in the circumstances of the case and in ether on the facts and in the circumstances of the case and in ether on the facts and in the circumstances of the case and in law, Ld. CIT (A) was right in directing to delete the addition made on law, Ld. CIT (A) was right in directing to delete the addition made on law, Ld. CIT (A) was right in directing to delete the addition made on account account account of of of deferred deferred deferred payment payment payment guarantee guarantee guarantee commission commission commission without without without appreciating the fact that the right to received the commission a appreciating the fact that the right to received the commission a appreciating the fact that the right to received the commission and actual receipt of the same occur during the relevant accounting period actual receipt of the same occur during the relevant accounting period actual receipt of the same occur during the relevant accounting period as also no corresponding charges or expense will arise in the later as also no corresponding charges or expense will arise in the later as also no corresponding charges or expense will arise in the later years?" 2.1 Before us, the assessee filed following additional ground Before us, the assessee filed following additional ground Before us, the assessee filed following additional ground as under:

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raised by the assessee being purely of the legal nature, without raised by the assessee being purely of the legal nature raised by the assessee being purely of the legal nature requiring investigation of the fresh facts, same is admitted for requiring investigation of the fresh facts, same is admitted for requiring investigation of the fresh facts, same is admitted for adjudication. 4. The briefly stated facts of The briefly stated facts of the case are that the assessee bank that the assessee bank filed return of income on 28/11/2015 of income on 28/11/2015, which were subsequently which were subsequently revised at total income of revised at total income of ₹ 2790,15,01,072/-. The return of income The return of income filed by the assessee was selected for scrutiny assessment and filed by the assessee was selected for scrutiny assessment and filed by the assessee was selected for scrutiny assessment and statutory notices under th statutory notices under the Income-tax Act, 1961 ( in short the Act) tax Act, 1961 ( in short the Act) were issued and complied with. The assessment under section were issued and complied with. The assessment under se were issued and complied with. The assessment under se 143(3) of the Act was completed on 31/12/2017. On further appeal, ct was completed on 31/12/2017. On further appeal, ct was completed on 31/12/2017. On further appeal, the Ld. CIT(A) allowed part relief to the assessee. Aggrieved, the the Ld. CIT(A) allowed part relief to the assessee. the Ld. CIT(A) allowed part relief to the assessee. assessee and the R and the Revenue are in appeal before the enue are in appeal before the Income-tax Appellate Tribunal (in short the ‘T Appellate Tribunal (in short the ‘Tribunal’) by way of raising by way of raising respective grounds. 5. Before us the learned counsel for the assessee filed a paper Before us the learned counsel for the assessee filed a paper Before us the learned counsel for the assessee filed a paper book containing pages 1 to 515. The learned counsel also filed a book containing pages 1 to 515. The learned counsel also filed a book containing pages 1 to 515. The learned counsel also filed a copy of the decisions relied upon. py of the decisions relied upon. 6. The ground Nos. I to VII of the appeal of the assessee and The ground Nos. I to VII of the appeal of the assessee and The ground Nos. I to VII of the appeal of the assessee and ground No. 1(one) of the appeal of the Revenue relate to evenue relate to disallowance under section 14A of the Act, disallowance under section 14A of the Act, i.e. disallowance of expenditure in relation to earning of e expenditure in relation to earning of exempted income. xempted income. The assessee has also raised additional ground in relation to assessee has also raised additional ground in relation to assessee has also raised additional ground in relation to disallowance under section 14A of the A wance under section 14A of the Act.

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6.1 In the case in hand, the assessee bank In the case in hand, the assessee bank has has three types of instruments appearing appearing in its balance sheet, the income earned from , the income earned from which has been claimed as exempted under the provisions of the has been claimed as exempted under the provisions of the has been claimed as exempted under the provisions of the Act. It has been claimed by the assessee that all It has been claimed by the assessee that all instruments like instruments like securities, bonds etc. c. have been held as stock-in-trade and income trade and income received from sale of sale of those securities etc. has been offered to offered to tax as business income except incidental exempted income except incidental exempted income. . The first kind of instrument is ‘equity/preference shares equity/preference shares’ 6.2 The first kind of which amounted to ₹ ₹ 60,13,70,322/- as on balance sheet date i.e. balance sheet date i.e. 31/3/2015 and on which dividend income of 31/3/2015 and on which dividend income of ₹ 2,8 88,08,493/- has been earned during the year under consideration, which was been earned during the year under consideration been earned during the year under consideration claimed as exempt u/s as exempt u/s 10(34) of the Act. The Assessing Officer has The Assessing Officer has produced a detailed produced a detailed list of such investments in Para 3.2 of the in Para 3.2 of the assessment order. The assessee claimed that tho r. The assessee claimed that those securities were se securities were not purchased by the assessee but same by the assessee but same had resulted resulted due to into equity/preference shares under converting of corporate debt converting of corporate debt into equity/preference shares under the corporate debt res the corporate debt restructuring plan. 6.3 The second kind of The second kind of instrument is ‘interest free bonds interest free bonds’ which amounted to Rs.180,56,03, amounted to Rs.180,56,03,200/- as 31/3/2015 and on which as 31/3/2015 and on which interest earned of of ₹23,39,96,110/- during the year under during the year under consideration has been claimed as exempt u/s 10(15) of the Act. nsideration has been claimed as exempt u/s 10(15) of the Act. A nsideration has been claimed as exempt u/s 10(15) of the Act. list of such instrument instruments has been reproduced by the Assessing has been reproduced by the Assessing Officer on page 3 of the assessment order page 3 of the assessment order. The assessee claimed The assessee claimed that those instruments/ instruments/investments were only incidental to the nvestments were only incidental to the

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banking business of assessee of assessee, therefore, no expenses were incurred no expenses were incurred in relation to earning of such tax in relation to earning of such tax-free income. instrument is Pass Through Certificates (PTC) Pass Through Certificates (PTC) 6.4 Third kind of instrument on which the assessee on which the assessee bank earned income of Rs.237,66,81, ome of Rs.237,66,81,445/-, which has been distributed by the distributed by the ‘securitization trust securitization trusts’ and claimed that tax was paid by the respective claimed that tax was paid by the respective securitization trust securitization trust , thus the income distributed by said trust is exempted the income distributed by said trust is exempted the income distributed by said trust is exempted income in the hands of the assessee u/s 10(35A hands of the assessee u/s 10(35A) of the Act, being being received as investor of securitization securitization trust. A pass through certificate (PTC) is a A pass through certificate (PTC) is a certificate that is given to an investor against certain mortgaged- certificate that is given to an investor against certain mortgaged certificate that is given to an investor against certain mortgaged backed securities that lie with the issuer. The certificate can be backed securities that lie with the issuer. The certificate can be backed securities that lie with the issuer. The certificate can be compared to securities (like bonds and debentures) that may be ties (like bonds and debentures) that may be ties (like bonds and debentures) that may be issued by banks and other companies to investors. The only issued by banks and other companies to investors. The only issued by banks and other companies to investors. The only difference being that they are issued against underlying securities. difference being that they are issued against underlying securities. difference being that they are issued against underlying securities. The interest that is paid to the issuer on these securities comes to The interest that is paid to the issuer on these securities comes to The interest that is paid to the issuer on these securities comes to A list of such investments the investor in the form of a fixed income. n the form of a fixed income. A list of such investment and income earned has been reproduced by the Assessing Officer and income earned has been reproduced by the Assessing Officer and income earned has been reproduced by the Assessing Officer on page 4 of the assessment order. of the assessment order. The additional ground raised by The additional ground raised by the assessee is in respect of the investment made in PTCs. the assessee is in respect of the investment made in PTCs. the assessee is in respect of the investment made in PTCs. 6.5 Before the Assessing Officer, the assessee the Assessing Officer, the assessee suo- -motu submitted details of expenditure incurred for earning above exempted income details of expenditure incurred for earning above exempted income details of expenditure incurred for earning above exempted income of Rs 3, 03,13,068/ 3, 03,13,068/- including disallowance of Rs. 2,96,81,323/ including disallowance of Rs. 2,96,81,323/- towards PTCs. The relevant part of the submission of the assessee The relevant part of the submission of the assessee The relevant part of the submission of the assessee

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reproduced by the Assessing Officer on page 13 to 15 of the produced by the Assessing Officer on page 13 to 15 of the produced by the Assessing Officer on page 13 to 15 of the assessment order is extracted as under: is extracted as under:

“In this connection, Yes Bank submits that it has identified certain In this connection, Yes Bank submits that it has identified certain In this connection, Yes Bank submits that it has identified certain expenses actually incurred in connection with the activity of buying and expenses actually incurred in connection with the activity of buying and expenses actually incurred in connection with the activity of buying and selling of secur selling of securities/ equities/ tax free instruments/ servicing of pass ities/ equities/ tax free instruments/ servicing of pass through certificates issued by securitisation trust and has offered the through certificates issued by securitisation trust and has offered the through certificates issued by securitisation trust and has offered the same for disallowance u/s. 14A of the Act. The details of such expenses same for disallowance u/s. 14A of the Act. The details of such expenses same for disallowance u/s. 14A of the Act. The details of such expenses are as under: Certain direct expenditure which are incu Certain direct expenditure which are incurred solely for the purpose of rred solely for the purpose of earning exempt income are fully disallowed. Such expenditure is fully earning exempt income are fully disallowed. Such expenditure is fully earning exempt income are fully disallowed. Such expenditure is fully disallowed us 14A of the Act. Details of such expenditure is as below disallowed us 14A of the Act. Details of such expenditure is as below disallowed us 14A of the Act. Details of such expenditure is as below: Expense head Total Cost (Rs.) Total Cost (Rs.) Treasury Cost % % Distribution Cost Distribution considered (Rs.) (See Note 1) u/s 14A (Rs.) Custody charges 8,206 8,206 100% 8,206 100% Brokerage on 9,105 9,105 9,105 Equity 100% Sec transaction 12,135 12,135 12,135 tax Total 29,446

In so far as indirect expenses in relation to earing income from dividend In so far as indirect expenses in relation to earing income from dividend In so far as indirect expenses in relation to earing income from dividend income from equity or preference share, interest income from tax free rom equity or preference share, interest income from tax free rom equity or preference share, interest income from tax free instruments and maintenece of PTC deals are concerned, Yes Bank has, instruments and maintenece of PTC deals are concerned, Yes Bank has, instruments and maintenece of PTC deals are concerned, Yes Bank has, based on its internal records such as the books of accounts and the based on its internal records such as the books of accounts and the based on its internal records such as the books of accounts and the number of equity deals/ tax free/PTC deals to the total n number of equity deals/ tax free/PTC deals to the total n number of equity deals/ tax free/PTC deals to the total number of treasury deals done in the financial year, has computed the disallowance treasury deals done in the financial year, has computed the disallowance treasury deals done in the financial year, has computed the disallowance under section 14A of the Act as under: under section 14A of the Act as under:

Name Total Cost Total Cost Treasury % distribution Cost Rs. Salary 9,796,635,402 9,796,635,402 420,241,000 0.10% 440,783 0.10% Rent - India Bulls 1,940,486,074 ,940,486,074 89,023,968 93,376 Finance Centre 0.10% Electricity 329,440,644 329,440,644 12,053,394 12,643 0.10% Telephone 36,696,467 36,696,467 1,639,717 1,720 0.10% Other Operation 5,964,872,642 5,964,872,642 51,272,326 53,779 expenses 17,498,673,623 17,498,673,623 Total 602,299 Other Operating cost Cost has Other Operating cost Cost has been allocated based on no. of employees been allocated based on no. of employees in treasury department to the total number of employees of the Bank in treasury department to the total number of employees of the Bank in treasury department to the total number of employees of the Bank Note 1:

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Nos. Deals made in Financial Year 2014 Deals made in Financial Year 2014-15 Deals in tax free instruments (including PCs where tax is paid by Secu trust) in FY 199 Deals in tax free instruments (including PCs where tax is paid by Secu trust) in FY Deals in tax free instruments (including PCs where tax is paid by Secu trust) in FY 2014-15 Total No of Treasury Deals in FY 2014 Total No of Treasury Deals in FY 2014-15 189,726 % of tax free deals including PTC deals where tax is paid by Secu trust) to Total 0.10% % of tax free deals including PTC deals where tax is paid by Secu trust) to Total % of tax free deals including PTC deals where tax is paid by Secu trust) to Total Deals

 The Treasury Department ("TD") of Yes Bank is the Department which is The Treasury Department ("TD") of Yes Bank is the Department which is The Treasury Department ("TD") of Yes Bank is the Department which is exclustely engaged in the buying and se exclustely engaged in the buying and selling of securities. The TD is lling of securities. The TD is engaged in buying and selling of Government Securities, Treasury Bills, engaged in buying and selling of Government Securities, Treasury Bills, engaged in buying and selling of Government Securities, Treasury Bills, Corporate /PSU Bonds, Equity, Mutual Funds and other investments. Corporate /PSU Bonds, Equity, Mutual Funds and other investments. Corporate /PSU Bonds, Equity, Mutual Funds and other investments. Hence, Yes Bank has considered the expenses of the TD for the purpose Hence, Yes Bank has considered the expenses of the TD for the purpose Hence, Yes Bank has considered the expenses of the TD for the purpose of computation of of computation of the disallowances under section 14A of the Act. The TD the disallowances under section 14A of the Act. The TD of Yes Bank operates from its office in india Bulls Financial Centre which of Yes Bank operates from its office in india Bulls Financial Centre which of Yes Bank operates from its office in india Bulls Financial Centre which also has its Back Office ("Back Office"). The locations is in situated in also has its Back Office ("Back Office"). The locations is in situated in also has its Back Office ("Back Office"). The locations is in situated in Mumbai.  As the first step, Yes Bank has identified As the first step, Yes Bank has identified the specific expenses of the TD the specific expenses of the TD which are incurred in relation to the buying and selling activities of which are incurred in relation to the buying and selling activities of which are incurred in relation to the buying and selling activities of Government Securities, Treasury Bills, Corporate / PSU Bonds and Government Securities, Treasury Bills, Corporate / PSU Bonds and Government Securities, Treasury Bills, Corporate / PSU Bonds and Shares. These specific expenses are salary expense of TDs, Rent of the Shares. These specific expenses are salary expense of TDs, Rent of the Shares. These specific expenses are salary expense of TDs, Rent of the corporate office, corporate office, rent of Back Office, electricity and telephone expenses of rent of Back Office, electricity and telephone expenses of TD.  • Other expenses from the total operating expenses incurred by Yes Bank • Other expenses from the total operating expenses incurred by Yes Bank • Other expenses from the total operating expenses incurred by Yes Bank for the assessment year under consideration are also considered on the for the assessment year under consideration are also considered on the for the assessment year under consideration are also considered on the basis of the employee strength of the TD to the t basis of the employee strength of the TD to the total employee strength on otal employee strength on a conservative basis. a conservative basis.  • Since the TD is involved in buying and selling of different types of • Since the TD is involved in buying and selling of different types of • Since the TD is involved in buying and selling of different types of securities /i.e. shares and other securities), ratio of equity deals to the securities /i.e. shares and other securities), ratio of equity deals to the securities /i.e. shares and other securities), ratio of equity deals to the total deal is used on the expenses referred to in the earlier total deal is used on the expenses referred to in the earlier total deal is used on the expenses referred to in the earlier paragraphs TD to finally compute the disallowance under 14A of the Act. TD to finally compute the disallowance under 14A of the Act. TD to finally compute the disallowance under 14A of the Act.  • Expenses (such as Custody charges) which specifically pertain to the • Expenses (such as Custody charges) which specifically pertain to the • Expenses (such as Custody charges) which specifically pertain to the equity deals are identified and disallowed completely. equity deals are identified and disallowed completely. Expenses incurred for Pass Through Certificates Expenses incurred for Pass Through Certificates In addition to treasury expenses, for investments in Pass through on to treasury expenses, for investments in Pass through on to treasury expenses, for investments in Pass through certificates issued by securitisation trust, 9 employees of the of Corporate certificates issued by securitisation trust, 9 employees of the of Corporate certificates issued by securitisation trust, 9 employees of the of Corporate Finance department (CF) and 4 employees of Indian Financial Institution Finance department (CF) and 4 employees of Indian Financial Institution Finance department (CF) and 4 employees of Indian Financial Institution (IFI) group are involved in the activity of sourci (IFI) group are involved in the activity of sourcing and servicing the PTCs. ng and servicing the PTCs. Both these departments are based in Mumbai in India Bulls Finance Both these departments are based in Mumbai in India Bulls Finance Both these departments are based in Mumbai in India Bulls Finance Centre, Mumbai. Centre, Mumbai. Based on the management estimate of the time spent (50% for corporate Based on the management estimate of the time spent (50% for corporate Based on the management estimate of the time spent (50% for corporate Finance) and (15% of Indian Financial Institution group we have Finance) and (15% of Indian Financial Institution group we have Finance) and (15% of Indian Financial Institution group we have computed and computed and allocated the salary and administrative cost which are allocated the salary and administrative cost which are given below in the table. given below in the table. Working for disallowance of administrative cost u/s 14A for the period Apr 14-Mar 15 Working for disallowance of administrative cost u/s 14A for the period Apr 14 Working for disallowance of administrative cost u/s 14A for the period Apr 14

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(Amt. in Rs.) Name Corporate Corporate Cost allocated Rationale Finance/Indian Finance/Indian Financial Financial Institution Institution group group Salary 9,796,635,402 9,796,635,402 20,982,220 Actual at 50% for Corporate Finance and 15% for IFI. Rent - India Bulls 1,940,486,074 1,940,486,074 4,810,185 Actuals Finance Centre Actuals Electricity - Branch 329,440,644 329,440,644 684,852 Actuals Telephone 36,696,467 36,696,467 93,166 Other Operating 5,964,864,436 5,964,864,436 3,110,901 No of employees Expenses 29,681,323 Employee database IFI CF CF / IFI Emplyoes 15 6 Total no of Employees 10,354 10,354 Cost allocation % of the employees Cost allocation % of the employees 0.14% 0.06% 518,483 2,592,417 2,592,417 Total 3,110,901 3,110,901 Accordingly, Yes Bank calculated total sum of Rs. 29,681,323/ Accordingly, Yes Bank calculated total sum of Rs. 29,681,323/ Accordingly, Yes Bank calculated total sum of Rs. 29,681,323/ - for the assessment year under consideration and disallowed the same under assessment year under consideration and disallowed the same under assessment year under consideration and disallowed the same under section 14A of the Act. section 14A of the Act.”

6.6 Thus, the assessee itself assessee itself identified direct cost of identified direct cost of ₹ 29,446/-and indirect cost of ₹ 2,96,81, 6,81,323/-towards earning of exempted income towards earning of exempted income and disallowed the same and disallowed the same for the purpose of section 14A of the A for the purpose of section 14A of the Act, while computing its income for the purpose of filing return of while computing its income for the purpose of filing return of while computing its income for the purpose of filing return of income.

6.7 The Assessing Officer, however expressed his dissatisfaction The Assessing Officer, however expressed his dissatisfaction The Assessing Officer, however expressed his dissatisfaction on the claim of the assessee of claim of the assessee of suo-motu disallowance of expenses disallowance of expenses computed under section 14A under section 14A of the Act and invoked R of the Act and invoked Rule 8D of Income-tax Rules, 1962 Rules, 1962 (in short the ‘Rules’).The disallowance The disallowance computed by the Assessing Officer is reproduced as under: computed by the Assessing Officer is reproduced as under: computed by the Assessing Officer is reproduced as under:

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“3.4.6 Further, Rule 8D of the I.T. Rule is also applicable retrospectively. , Rule 8D of the I.T. Rule is also applicable retrospectively. , Rule 8D of the I.T. Rule is also applicable retrospectively. Therefore, disallowance of expenditure under Sec 14A is as follows: Therefore, disallowance of expenditure under Sec 14A is as follows: Therefore, disallowance of expenditure under Sec 14A is as follows: Investment in shares / tax free bonds as on 31 Investment in shares / tax free bonds as on 31 55,254,608,626 55,254,608,626 Investment in shares / tax free bonds as on 31 Investment in shares / tax free bonds as on 31 35,045,395,311 35,045,395,311 Average Investment for FY 2014 Average Investment for FY 2014 45,150,001,968 45,150,001,968

Interest cost for FY 2014-15 Interest cost for FY 2014 80,841,692,265 80,841,692,265

Total Assets as on 31 1,090,157,899,000 1,090,157,899,000 Total Assets as on 31 1,361,704,098,000 1,361,704,098,000 Average total asset for FY 2014-15 Average total asset for FY 2014 1,225,930,998,500 1,225,930,998,500

Interest to be disallowed (A*B/C) allowed (A*B/C) 2,977,331,162 2,977,331,162 Add: 1/2 % of total investment Add: 1/2 % of total investment 225,750,010 225,750,010 Total disallowance Rs. 320,30,81,172 320,30,81,172

3.4.3. The disallowance u/s. 14A of the Act has to be read in consonance 3.4.3. The disallowance u/s. 14A of the Act has to be read in consonance 3.4.3. The disallowance u/s. 14A of the Act has to be read in consonance with Rule 8D of I.T. Rules, which has been made effective w.e.f. A.Y. with Rule 8D of I.T. Rules, which has been made effective w.e.f. A.Y. with Rule 8D of I.T. Rules, which has been made effective w.e.f. A.Y. 2008- 09. The working of the disallowance given in the table above clearly shows 09. The working of the disallowance given in the table above clearly shows 09. The working of the disallowance given in the table above clearly shows that there are elements of expenditure which the assessee has incurred that there are elements of expenditure which the assessee has incurred that there are elements of expenditure which the assessee has incurred and which are relatable to the and which are relatable to the investment made in shares, tax free bonds PTC etc, the income from which investment made in shares, tax free bonds PTC etc, the income from which investment made in shares, tax free bonds PTC etc, the income from which is not includible in the total works out to Rs 3,203,081,172/ is not includible in the total works out to Rs 3,203,081,172/ is not includible in the total works out to Rs 3,203,081,172/- is required to be made, however as the assessee has already made disallowance of Rs. be made, however as the assessee has already made disallowance of Rs. be made, however as the assessee has already made disallowance of Rs. 30,313,068 /- in computation balance amount of Rs. 317,27,68,104 / in computation balance amount of Rs. 317,27,68,104 /- is therefore added to the income of the therefore added to the income of the assessee u/s 14A of the Act. assessee u/s 14A of the Act.” 6.8 We e e note note note that that that Assessing Assessing Assessing Officer Officer Officer has has has only only only computed computed computed disallowance of ₹ 320, 320,30,81,172/- under Rule 8D(2)(ii) and 8D(2)(iii under Rule 8D(2)(ii) and 8D(2)(iii) of the ‘Rules’ and omitted to include and omitted to include suo-motu disallowance by the disallowance by the assessee for expenses incurred directly towards earning exempted assessee for expenses incurred directly towards earning exempted assessee for expenses incurred directly towards earning exempted income, which is an expense an expense covered under rule 8D(2)(i) of the red under rule 8D(2)(i) of the ‘Rules’. The Assessing Officer reduced . The Assessing Officer reduced suo-motu disallowance of ₹3,03,13,068/- and made net addition of and made net addition of ₹ 317,27,68, 7,27,68,104/-in terms of section 14A of the A of section 14A of the Act.

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On further appeal, the Ld. CIT(A) firstly firstly, rejected the 6.9 On further appeal, the Ld. CIT(A) contention of the assessee that Assessing Off contention of the assessee that Assessing Officer has not passed a icer has not passed a speaking order for recording his dissatisfaction on the claim of the speaking order for recording his dissatisfaction on the claim of the speaking order for recording his dissatisfaction on the claim of the disallowance under section 14A of the Act. Secondly, assessee of disallowance under section 14A of the A disallowance under section 14A of the A the Ld. CIT(A) rejected the assessee’s contention that he Ld. CIT(A) rejected the assessee’s contention that he Ld. CIT(A) rejected the assessee’s contention that disallowance exempted income. Thirdly, he under section 14A cannot exceed cannot exceed exempted income rejected that for computation of disallowance under section 1 computation of disallowance under section 14A computation of disallowance under section 1 read with rule 8D, the only investment which have yielded read with rule 8D, the only investment which have yielded read with rule 8D, the only investment which have yielded exempted income during the year under con exempted income during the year under consideration should be sideration should be considered. But, as far as the disallowance far as the disallowance under Rule 8D(2)(ii) of under Rule 8D(2)(ii) of the Rules is concerned, the Ld. CIT(A) directed the Assessing Officer ules is concerned, the Ld. CIT(A) directed the Assessing Officer ules is concerned, the Ld. CIT(A) directed the Assessing Officer to verify the claim of the assessee of availability of sufficient to verify the claim of the assessee of availability of sufficient to verify the claim of the assessee of availability of sufficient ‘interest-free funds’ to cover the investment made, following the to cover the investment made, following the decision of the Hon’ble juris decision of the Hon’ble jurisdictional High Court in the case of CIT dictional High Court in the case of CIT Vs Reliance Utilities and Power Vs Reliance Utilities and Power Ltd 313 ITR 340 and CIT vs HDFC Ltd 313 ITR 340 and CIT vs HDFC bank Ltd 366 ITR 505 (bom). bank Ltd 366 ITR 505 (bom). 6.10 Regarding disallowance Regarding disallowance in terms of Rule 8D(2)(iii) of R in terms of Rule 8D(2)(iii) of Rules, the Ld. CIT(A) followed the finding of third member of the Tribunal Ld. CIT(A) followed the finding of third member of th Ld. CIT(A) followed the finding of third member of th bench in the case of DH securities Private Limited reported in 41 DH securities Private Limited reported in 41 DH securities Private Limited reported in 41 taxmann.com 352 and upheld the disallowance of and upheld the disallowance of ₹ 22,57,50, being 0.5% of the average value of the investments. The 010/-being 0.5% of the average value of the investment being 0.5% of the average value of the investment relevant finding of the Ld. CIT(A) is reproduced as under: nding of the Ld. CIT(A) is reproduced as under: nding of the Ld. CIT(A) is reproduced as under: “As discussed above, the Hon'ble ITAT in appellant's own case for AY As discussed above, the Hon'ble ITAT in appellant's own case for AY As discussed above, the Hon'ble ITAT in appellant's own case for AY 2008-09, which have been followed by my Ld. Predecessors in 09, which have been followed by my Ld. Predecessors in 09, which have been followed by my Ld. Predecessors in appellant's own case for AY 2014 appellant's own case for AY 2014-15, while considering the disallowance 15, while considering the disallowance under Rule 8D(2)i has held that there is no requirement under Rule 8D(2)i has held that there is no requirement to make any

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disallowance during the year under consideration, since the assessee disallowance during the year under consideration, since the assessee disallowance during the year under consideration, since the assessee has not received any exempt income and also that the object of appellant has not received any exempt income and also that the object of appellant has not received any exempt income and also that the object of appellant is to hold the investment as stock in trade. As discussed above the is to hold the investment as stock in trade. As discussed above the is to hold the investment as stock in trade. As discussed above the Hon'ble Supreme Court in the abov Hon'ble Supreme Court in the above referred case of Maxopp Investments e referred case of Maxopp Investments Ltd. has rejected the dominant purpose of making the investments and Ltd. has rejected the dominant purpose of making the investments and Ltd. has rejected the dominant purpose of making the investments and also has held that where the securities are held as stock in trade the also has held that where the securities are held as stock in trade the also has held that where the securities are held as stock in trade the applicability of section 14A would trigger. In view of above discussions applicability of section 14A would trigger. In view of above discussions applicability of section 14A would trigger. In view of above discussions and respectfully following above referred decisions of Hon'ble Supreme espectfully following above referred decisions of Hon'ble Supreme espectfully following above referred decisions of Hon'ble Supreme Court and that of Hon'ble ITAT Amritsar who has rendered the above Court and that of Hon'ble ITAT Amritsar who has rendered the above Court and that of Hon'ble ITAT Amritsar who has rendered the above referred decision after considering the said decision of Hon'ble Supreme referred decision after considering the said decision of Hon'ble Supreme referred decision after considering the said decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd., with Court in the case of Maxopp Investment Ltd., with due respect to the due respect to the Hon'ble ITAT Mumbai, in the appellant own case for 2008 Hon'ble ITAT Mumbai, in the appellant own case for 2008-09, I am of the 09, I am of the considered opinion that the propositions laid down there in cannot be considered opinion that the propositions laid down there in cannot be considered opinion that the propositions laid down there in cannot be applied in the present assessment year, as therein said decision of applied in the present assessment year, as therein said decision of applied in the present assessment year, as therein said decision of Hon'ble Supreme Court in th Hon'ble Supreme Court in the case of Maxopp Investment Lid has not e case of Maxopp Investment Lid has not been considered. In view of the above, no fault can be found with the been considered. In view of the above, no fault can be found with the been considered. In view of the above, no fault can be found with the action of the Ld. AO in making disallowance under Rule 8D (2) (iii). action of the Ld. AO in making disallowance under Rule 8D (2) (iii). action of the Ld. AO in making disallowance under Rule 8D (2) (iii). Hence, disallowance made under Rule 8D(2 (i) at Rs. 22,57,50,010/ Hence, disallowance made under Rule 8D(2 (i) at Rs. 22,57,50,010/ Hence, disallowance made under Rule 8D(2 (i) at Rs. 22,57,50,010/-, being 0.5% of the average value of investment is CONFIRMED. % of the average value of investment is CONFIRMED. % of the average value of investment is CONFIRMED. Accordingly, the Ground No. I raised in appeal is PARTLY ALLOW Accordingly, the Ground No. I raised in appeal is PARTLY ALLOW Accordingly, the Ground No. I raised in appeal is PARTLY ALLOWED, subject to above directions.” subject to above directions.” 6.11 Before us, the assessee is aggrieved against confirmation of us, the assessee is aggrieved against confirmation of us, the assessee is aggrieved against confirmation of the disallowance under rule 8D(2)(iii) allowance under rule 8D(2)(iii), whereas the R reas the Revenue is aggrieved with the deletion of disallowance made by the AO in terms aggrieved with the deletion of disallowance made by the AO in aggrieved with the deletion of disallowance made by the AO in of rule 8D(2)(ii) of the R of rule 8D(2)(ii) of the Rules.

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8.1 We have heard rival submissions of the parties on the issue in We have heard rival submissions of the parties on the issue in We have heard rival submissions of the parties on the issue in dispute and perused the relevant materia dispute and perused the relevant material on record. We find that l on record. We find that Ld. CIT(A) has rejected arguments made by the assessee on this Ld. CIT(A) has rejected arguments made by the assessee on this Ld. CIT(A) has rejected arguments made by the assessee on this issue observing as under: issue observing as under:

“6.4.2 The appellant's first contention is that the application of Rule 8D is “6.4.2 The appellant's first contention is that the application of Rule 8D is “6.4.2 The appellant's first contention is that the application of Rule 8D is not automatic and the same cannot be invoked until and unless t not automatic and the same cannot be invoked until and unless t not automatic and the same cannot be invoked until and unless the Ld. AO records the cogent reasons for disregarding the claim of the appellant. AO records the cogent reasons for disregarding the claim of the appellant. AO records the cogent reasons for disregarding the claim of the appellant. It is an admitted fact that while framing the assessment the Ld. AO has It is an admitted fact that while framing the assessment the Ld. AO has It is an admitted fact that while framing the assessment the Ld. AO has taken into account the suo moto disallowance made by the appellant in taken into account the suo moto disallowance made by the appellant in taken into account the suo moto disallowance made by the appellant in relation to earning exempt incom relation to earning exempt income and had requested the appellant to e and had requested the appellant to furnish the details regarding the expenses attributable furnish the details regarding the expenses attributable to earning exempt to earning exempt income. From the assessment order, it is observed that the Ld. AO has income. From the assessment order, it is observed that the Ld. AO has income. From the assessment order, it is observed that the Ld. AO has discussed the facts of the assessment ord reit i othe judicial precedence, discussed the facts of the assessment ord reit i othe judicial precedence, discussed the facts of the assessment ord reit i othe judicial precedence, as detailed therein. as detailed therein. The Hon'ble Gujarat High Court in the case of Hon'ble Gujarat High Court in the case of Devarsons Industries P Ltd, reported Devarsons Industries P Ltd, reported in 84 taxmann.com 244 has held in 84 taxmann.com 244 has held that mere fact that the Assessing Officer did that the Assessing Officer did not arrive at satisfaction in a not arrive at satisfaction in a particular manner while making disallowanc particular manner while making disallowance would not per se destroy would not per se destroy mandate of sec 14A of the Act. For the sake of convenience, the finding of mandate of sec 14A of the Act. For the sake of convenience, the finding of mandate of sec 14A of the Act. For the sake of convenience, the finding of the Hon'ble Gujarat High Court in the above refer the Hon'ble Gujarat High Court in the above referred case is reproduced red case is reproduced as under: "8. To give effect to the provision of Section 14A and in particular "8. To give effect to the provision of Section 14A and in particular "8. To give effect to the provision of Section 14A and in particular sub-section section (2) thereof, Rule 8D of the Rules provides the method (2) thereof, Rule 8D of the Rules provides the method for determining the amount of expenditure in relation to the for determining the amount of expenditure in relation to the for determining the amount of expenditure in relation to the income not includable in the total income. Sub income not includable in the total income. Sub-rule (1) echoes the rule (1) echoes the provision of sub provision of sub-sections (2) and (3) of Section 14A where it sections (2) and (3) of Section 14A where it provides that if the Assessing Officer having regard to the ides that if the Assessing Officer having regard to the ides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of accounts of the assessee is not satisfied with the correctness of accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or the claim made is that no the claim of the expenditure or the claim made is that no the claim of the expenditure or the claim made is that no expenditure has been incurred in relation to the income which expenditure has been incurred in relation to the income which expenditure has been incurred in relation to the income which does not form does not form part of the total income, he would determine the part of the total income, he would determine the amount of expenditure in relation to such income in accordance amount of expenditure in relation to such income in accordance amount of expenditure in relation to such income in accordance with the provisions of sub with the provisions of sub-rule (2). Sub-rule (2) of Rule 8D prior to rule (2) of Rule 8D prior to its amendment with effect from 02.06.2016 provided a formula to its amendment with effect from 02.06.2016 provided a formula to its amendment with effect from 02.06.2016 provided a formula to apportion apportion the expenditure in connection with the tax free income. the expenditure in connection with the tax free income. Section 14A as well as Rule 8D require the Section 14A as well as Rule 8D require the Assessing Officer to Assessing Officer to arrive at a satisfaction that the claim of the arrive at a satisfaction that the claim of the expenditure made by expenditure made by the assessee is not correct. It is only then he can apply the the assessee is not correct. It is only then he can apply the the assessee is not correct. It is only then he can apply the formula formula under sub-rule (2) of Rule 8D. However, these statutory rule (2) of Rule 8D. However, these statutory provisions do not require that such satisfaction must be arrived at provisions do not require that such satisfaction must be arrived at provisions do not require that such satisfaction must be arrived at in a particular manner. As long as there is sufficient material to in a particular manner. As long as there is sufficient material to in a particular manner. As long as there is sufficient material to enable the Assessing Officer to arrive at such a satisfaction an enable the Assessing Officer to arrive at such a satisfaction an enable the Assessing Officer to arrive at such a satisfaction and which is also recorded by him in the order of assessment, the which is also recorded by him in the order of assessment, the which is also recorded by him in the order of assessment, the requirements of the statute would be satisfied. In the present requirements of the statute would be satisfied. In the present requirements of the statute would be satisfied. In the present case, we have noted that the Assessing Officer has given detailed case, we have noted that the Assessing Officer has given detailed case, we have noted that the Assessing Officer has given detailed reasons for discarding the assessee's theory that to earn the reasons for discarding the assessee's theory that to earn the reasons for discarding the assessee's theory that to earn the assessable income the assessee incurred no expenditure ssessable income the assessee incurred no expenditure ssessable income the assessee incurred no expenditure

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whatsoever. The Tribunal confirmed such view. Decision of the whatsoever. The Tribunal confirmed such view. Decision of the whatsoever. The Tribunal confirmed such view. Decision of the Assessing Officer to apply the formula under Rule 8D was Assessing Officer to apply the formula under Rule 8D was Assessing Officer to apply the formula under Rule 8D was therefore correct. Tax appeal is accordingly dismissed." therefore correct. Tax appeal is accordingly dismissed." therefore correct. Tax appeal is accordingly dismissed." From the provisions of sec From the provisions of sec 14A wr8D, it is evident that it is sufficient it is sufficient if the Ld. AO comes t the Ld. AO comes to the conclusion that the claim of the assessee in this of the assessee in this regard is not correct and it is not necessary for him to decide the extent or regard is not correct and it is not necessary for him to decide the extent or regard is not correct and it is not necessary for him to decide the extent or quantum of the incorrect claim. Under similar circumst quantum of the incorrect claim. Under similar circumstances, the Hon'ble ances, the Hon'ble Punjab & Haryana High Court in the case of Punjab Tractors Ltd reported Punjab & Haryana High Court in the case of Punjab Tractors Ltd reported Punjab & Haryana High Court in the case of Punjab Tractors Ltd reported in 78 taxmann.com 65 has held as under. in 78 taxmann.com 65 has held as under. "33. In our view it is sufficient if the Assessing Officer comes to the "33. In our view it is sufficient if the Assessing Officer comes to the "33. In our view it is sufficient if the Assessing Officer comes to the conclusion that the claim of the assessee in this reg conclusion that the claim of the assessee in this regard is not correct. It is ard is not correct. It is not necessary for him to decide the extent or the quantum of the incorrect not necessary for him to decide the extent or the quantum of the incorrect not necessary for him to decide the extent or the quantum of the incorrect claim. He must, however, correctly conclude that the claim of the claim. He must, however, correctly conclude that the claim of the claim. He must, however, correctly conclude that the claim of the assessee is incorrect. It is necessary for the Assessing Officer to rightly assessee is incorrect. It is necessary for the Assessing Officer to rightly assessee is incorrect. It is necessary for the Assessing Officer to rightly come to the conclusion that the claim of the assessee is incorrect. The onclusion that the claim of the assessee is incorrect. The onclusion that the claim of the assessee is incorrect. The language of Section 14(2) is "is not satisfied with the correctness of the language of Section 14(2) is "is not satisfied with the correctness of the language of Section 14(2) is "is not satisfied with the correctness of the claim" and not 'reasonably doubts it" or "has reasons to doubt the claim" and not 'reasonably doubts it" or "has reasons to doubt the claim" and not 'reasonably doubts it" or "has reasons to doubt the correctness of the claim". correctness of the claim". 34. Mrs. Suri's reliance upo 34. Mrs. Suri's reliance upon the word "determine" in sub section (2) of n the word "determine" in sub section (2) of Section 14A as regards the second part of her 14A as regards the second part of her submission is misplaced. submission is misplaced. The term "determination" in Section 14(2) applies to the computation of "determination" in Section 14(2) applies to the computation of "determination" in Section 14(2) applies to the computation of the expenditure incurred in relation to exempt income by resorting t the expenditure incurred in relation to exempt income by resorting t the expenditure incurred in relation to exempt income by resorting to the method as may be prescribed. The method is prescribed by Rule 8D. method as may be prescribed. The method is prescribed by Rule 8D. method as may be prescribed. The method is prescribed by Rule 8D. Under section 14A(2) where the Assessing Officer is not satisfied with the Under section 14A(2) where the Assessing Officer is not satisfied with the Under section 14A(2) where the Assessing Officer is not satisfied with the correctness of the claim in respect of the expenditure in relation to exempt correctness of the claim in respect of the expenditure in relation to exempt correctness of the claim in respect of the expenditure in relation to exempt income or the assessee's claim t income or the assessee's claim that no expenditure has been incurred in hat no expenditure has been incurred in relation to such income, 'he shall' determine the amount of such relation to such income, 'he shall' determine the amount of such relation to such income, 'he shall' determine the amount of such expenditure in accordance with the method prescribed, namely, Rule 8D. expenditure in accordance with the method prescribed, namely, Rule 8D. expenditure in accordance with the method prescribed, namely, Rule 8D. The word 'determine' in Section 14(2), therefore, is in respect of the The word 'determine' in Section 14(2), therefore, is in respect of the The word 'determine' in Section 14(2), therefore, is in respect of the exercise to be undertaken for the purpose of computing the expenditure in to be undertaken for the purpose of computing the expenditure in to be undertaken for the purpose of computing the expenditure in relation to exempt income in accordance with the method as may be relation to exempt income in accordance with the method as may be relation to exempt income in accordance with the method as may be prescribed. The Assessing Officer is not required to quantify the amount prescribed. The Assessing Officer is not required to quantify the amount prescribed. The Assessing Officer is not required to quantify the amount prior to the invocation of Rule 8D. prior to the invocation of Rule 8D. 35. For an Asses 35. For an Assessing Officer not to be satisfied with the correctness of the sing Officer not to be satisfied with the correctness of the claim of the assessee, it is not necessary for him to determine the claim of the assessee, it is not necessary for him to determine the claim of the assessee, it is not necessary for him to determine the expenditure incurred for earning the exempt income. Indeed, if that were expenditure incurred for earning the exempt income. Indeed, if that were expenditure incurred for earning the exempt income. Indeed, if that were so, Rule 8D would be redundant. It is sufficient for t so, Rule 8D would be redundant. It is sufficient for the Assessing Officer he Assessing Officer to come to the conclusion that the claim of the assessee is not correct. It is to come to the conclusion that the claim of the assessee is not correct. It is to come to the conclusion that the claim of the assessee is not correct. It is not necessary, however, for him to determine the extent to which it is not necessary, however, for him to determine the extent to which it is not necessary, however, for him to determine the extent to which it is incorrect in order to resort to Rule 8D incorrect in order to resort to Rule 8D 36. There would be several instances where an 36. There would be several instances where an Assessing Officer can Assessing Officer can come to the conclusion that the claim is incorrect but would be unable to come to the conclusion that the claim is incorrect but would be unable to come to the conclusion that the claim is incorrect but would be unable to assess the extent of the inaccuracy. That is precisely the purpose of Rule assess the extent of the inaccuracy. That is precisely the purpose of Rule assess the extent of the inaccuracy. That is precisely the purpose of Rule 8D. For instance in the present case, the Assessing Officer was entitled to 8D. For instance in the present case, the Assessing Officer was entitled to 8D. For instance in the present case, the Assessing Officer was entitled to presume that a part of the expenses from the common fund are that a part of the expenses from the common fund are that a part of the expenses from the common fund are attributable to the expenditure incurred for earning the exempt income. attributable to the expenditure incurred for earning the exempt income. attributable to the expenditure incurred for earning the exempt income. He was entitled to resort to Rule 8D without determining the amount He was entitled to resort to Rule 8D without determining the amount He was entitled to resort to Rule 8D without determining the amount expended by the assessee towards earning the exempt income. Ind expended by the assessee towards earning the exempt income. Ind expended by the assessee towards earning the exempt income. Indeed if

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he could have done so, it would not have been necessary for him to resort he could have done so, it would not have been necessary for him to resort he could have done so, it would not have been necessary for him to resort to Rule 8D at all. to Rule 8D at all. 37. It follows, therefore, that Mrs. Suri's submission that a determination 37. It follows, therefore, that Mrs. Suri's submission that a determination 37. It follows, therefore, that Mrs. Suri's submission that a determination means an actual quantification of the expenditure incurred for earning means an actual quantification of the expenditure incurred for earning means an actual quantification of the expenditure incurred for earning exempt income is erroneous. As Mr.Klar rightly pointed out an Assessing come is erroneous. As Mr.Klar rightly pointed out an Assessing come is erroneous. As Mr.Klar rightly pointed out an Assessing Officer can on the basis of inferences, adverse inferences and reasonable Officer can on the basis of inferences, adverse inferences and reasonable Officer can on the basis of inferences, adverse inferences and reasonable presumptions come to the conclusion that the claim of the assessee in presumptions come to the conclusion that the claim of the assessee in presumptions come to the conclusion that the claim of the assessee in relation to such expenditure is not correct. relation to such expenditure is not correct. 38. In the case before us, In the case before us, the Assessing Officer cannot be faulted for not the Assessing Officer cannot be faulted for not being satisfied with the claim of the assessee. As we noted earlier the being satisfied with the claim of the assessee. As we noted earlier the being satisfied with the claim of the assessee. As we noted earlier the Assessing Officer was entirely justified in presuming that the assessee Assessing Officer was entirely justified in presuming that the assessee Assessing Officer was entirely justified in presuming that the assessee had incurred expenditure had incurred expenditure exempt income. If the towards administrative towards administrative activities necessary to earn the activities necessary to earn the presumption or inference is correct, as we presumption or inference is correct, as we have held it is, the Assessing Officer is entitled to resort to Rule 8D. have held it is, the Assessing Officer is entitled to resort to Rule 8D. have held it is, the Assessing Officer is entitled to resort to Rule 8D. 39. We are, however, unable to agree with Mr.Klar that the assessee is 39. We are, however, unable to agree with Mr.Klar that the assessee is 39. We are, however, unable to agree with Mr.Klar that the assessee is estopped from challenging the Assessing Officer's application of Rule 8D, d from challenging the Assessing Officer's application of Rule 8D, d from challenging the Assessing Officer's application of Rule 8D, as the assessee had itself furnished its working under Rule 8D. The as the assessee had itself furnished its working under Rule 8D. The as the assessee had itself furnished its working under Rule 8D. The assessee furnished a calculation only to show that the Assessing assessee furnished a calculation only to show that the Assessing assessee furnished a calculation only to show that the Assessing Officer's calculation is in any event incorrect. That is Officer's calculation is in any event incorrect. That is not an admission by not an admission by the assessee that Rule 8D was validly invoked. It was only an the assessee that Rule 8D was validly invoked. It was only an the assessee that Rule 8D was validly invoked. It was only an alternative case assuming that Rule 8D was validly invoked or ought to alternative case assuming that Rule 8D was validly invoked or ought to alternative case assuming that Rule 8D was validly invoked or ought to be invoked. 40. The Assessing Officer on not being satisfied with the correctness of 40. The Assessing Officer on not being satisfied with the correctness of 40. The Assessing Officer on not being satisfied with the correctness of the claim by the the claim by the assessee in respect of the expenditure incurred to earn assessee in respect of the expenditure incurred to earn exempt income ought to have applied Rule 8D which he did not. Instead exempt income ought to have applied Rule 8D which he did not. Instead exempt income ought to have applied Rule 8D which he did not. Instead he made an estimate on the basis that he considered to be reasonable. he made an estimate on the basis that he considered to be reasonable. he made an estimate on the basis that he considered to be reasonable. This he was not entitled to do. Where an Assessing Officer i This he was not entitled to do. Where an Assessing Officer is not satisfied s not satisfied with the correctness of the claim of the assessee, in this regard, he is with the correctness of the claim of the assessee, in this regard, he is with the correctness of the claim of the assessee, in this regard, he is bound by the provisions of sub section (2) of Section 14A to follow the bound by the provisions of sub section (2) of Section 14A to follow the bound by the provisions of sub section (2) of Section 14A to follow the prescribed method which at the relevant time was Rule 8D." prescribed method which at the relevant time was Rule 8D." prescribed method which at the relevant time was Rule 8D." In view of the above discussions, th In view of the above discussions, there is no substance in the claim of the ere is no substance in the claim of the appellant that before invoking the provisions of sec 14A wr 8D, the Ld. appellant that before invoking the provisions of sec 14A wr 8D, the Ld. appellant that before invoking the provisions of sec 14A wr 8D, the Ld. AO has not passed a speaking order on the claim of the appellant and AO has not passed a speaking order on the claim of the appellant and AO has not passed a speaking order on the claim of the appellant and hence the same is herewith rejected. hence the same is herewith rejected.” 8.2 We further note that the Assessin further note that the Assessing Officer in para 3.4.1 and g Officer in para 3.4.1 and 3.4.2 of the assessment order has expressed his dissatisfaction as 3.4.2 of the assessment order has expressed his dissatisfaction as 3.4.2 of the assessment order has expressed his dissatisfaction as to the claim of the assessee regarding to the claim of the assessee regarding disallowance under section disallowance under section 14A of the Act towards earning of the exempted income. The ct towards earning of the exempted income. The ct towards earning of the exempted income. The contention of the assessee that Asse contention of the assessee that Assessing Officer has invoked rule ssing Officer has invoked rule 8D of the rules without recording dissatisfaction to the accounts of 8D of the rules without recording dissatisfaction to the accounts of 8D of the rules without recording dissatisfaction to the accounts of

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the assessee, is not tenable and accordingly the contention of the the assessee, is not tenable and accordingly the contention of the the assessee, is not tenable and accordingly the contention of the assessee are rejected. rejected. The Hon’ble Delhi high Court in the case of The Hon’ble Delhi high Court in the case of India bulls Financial India bulls Financial services Ltd vs CIT ( ITA 470/2016) in ITA 470/2016) in decision dated 21/11/2016 decision dated 21/11/2016 observed that the AO the AO made elaborate analysis indicating three important steps and in such a case it can’t analysis indicating three important steps and in such a case it can’t analysis indicating three important steps and in such a case it can’t be held that AO did not expressly record AO did not expressly recorded dissatisfaction or did not dissatisfaction or did not record cogent reasons for dissatisfaction easons for dissatisfaction. Accordingly, we don’t find . Accordingly, we don’t find any infirmity in the finding of Ld CIT(A) on the issue in dispute and any infirmity in the finding of Ld CIT(A) on the issue in dispute and any infirmity in the finding of Ld CIT(A) on the issue in dispute and uphold the same. The ground No. The ground No. III of the appeal of the assessee is of the appeal of the assessee is accordingly dismissed. accordingly dismissed.

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relevant submissions of the assessee for the proposition that no submissions of the assessee for the proposition that no submissions of the assessee for the proposition that no interest disallowance could be made to the extent of interest free interest disallowance could be made to the extent of interest free interest disallowance could be made to the extent of interest free funds available with the assessee, ar funds available with the assessee, are reproduced as under: e reproduced as under:

Proposition 1: No interest disallowance can be made to the extent of Proposition 1: No interest disallowance can be made to the extent of Proposition 1: No interest disallowance can be made to the extent of interest free funds available with the Assessee interest free funds available with the Assessee The Assessee Bank submits that when own funds and interest free The Assessee Bank submits that when own funds and interest free The Assessee Bank submits that when own funds and interest free funds are more than tax free investments, no disall funds are more than tax free investments, no disallowance of owance of interest u/s 14A r.w.r. 8D(i) be made. The said proposition is interest u/s 14A r.w.r. 8D(i) be made. The said proposition is interest u/s 14A r.w.r. 8D(i) be made. The said proposition is supported with the position of own funds and tax supported with the position of own funds and tax-free investments free investments as on March 31, 2015, tabulated below for reference: as on March 31, 2015, tabulated below for reference: Details of Owned funds and other non Details of Owned funds and other non-interest- Amount (Rs. in lacs) as nt (Rs. in lacs) as Amount (Rs. in lacs) as bearing funds on March 31, 2014 on March 31, 2015 Share Capital (a) (Pg. 8 of FPB) 41,773 36,063 Reserves and Surplus (b) (Pg. 8 of FPB) Reserves and Surplus (b) (Pg. 8 of FPB) 11,26,224 6,76,110 Current Account Deposits - From Banks (c) (Pg. 9 of FPB) 37,561 23,469 - From Others (d) (Pg. 9 of FPB) 8,12,383 6,78,246 Total Current Account Deposits (e=c+d) (Pg. 9 of Total Current Account Deposits (e=c+d) (Pg. 9 of 8,49,944 7,01,715 FPB) Total non-interest bearing funds (a+b+e) interest bearing funds (a+b+e) 20,17,941 14,13,888 Tax free investments (Pg. 18 of AO order) Tax free investments (Pg. 18 of AO order) 3,50,453 5,52,546 For this proposition, reliance is placed on various judicial precedents For this proposition, reliance is placed on various judicial precedents For this proposition, reliance is placed on various judicial precedents listed in the index of Legal Paper Book ("LPB") running from pg. no. 1 listed in the index of Legal Paper Book ("LPB") running from pg. no. 1 listed in the index of Legal Paper Book ("LPB") running from pg. no. 1- 67 under proposition 1, including the decision of Hon'ble Tribunal in 67 under proposition 1, including the decision of Hon'ble Tribunal in 67 under proposition 1, including the decision of Hon'ble Tribunal in Assessee's own case for AY 2008 Assessee's own case for AY 2008-09 at LPB pg. no. 2, para 4. t LPB pg. no. 2, para 4. Further, the availability of own funds and interest Further, the availability of own funds and interest-free funds is to be free funds is to be considered in the context of the balance sheet date. Reliance in this considered in the context of the balance sheet date. Reliance in this considered in the context of the balance sheet date. Reliance in this regard is placed on the following decisions: regard is placed on the following decisions:  HDFC Bank Limited v. ACIT (ITA no. 5672/Mum/ HDFC Bank Limited v. ACIT (ITA no. 5672/Mum/2017) (Refer pg. 2017) (Refer pg. no. 63 of LPB, para 16) no. 63 of LPB, para 16) 16………………………………………………………………………………… 16………………………………………………………………………………… 16………………………………………………………………………………… As regards the point of time on which the availability of own funds As regards the point of time on which the availability of own funds As regards the point of time on which the availability of own funds and interest free funds with the assessee for making of investments and interest free funds with the assessee for making of investments and interest free funds with the assessee for making of investments in exempt income yielding securities was to b in exempt income yielding securities was to be looked into, we concur e looked into, we concur with the claim of the Id. A.R that as observed by the Hon'ble High with the claim of the Id. A.R that as observed by the Hon'ble High with the claim of the Id. A.R that as observed by the Hon'ble High Court of Bombay in the case of CIT Vs. Reliance Utility & Power Ltd. Court of Bombay in the case of CIT Vs. Reliance Utility & Power Ltd. Court of Bombay in the case of CIT Vs. Reliance Utility & Power Ltd. (2009) 313 ITR 340 (Bom), the same has to be considered in context (2009) 313 ITR 340 (Bom), the same has to be considered in context (2009) 313 ITR 340 (Bom), the same has to be considered in context of the date of the of the date of the 'balance sheet', and not otherwise. We thus, finding sheet', and not otherwise. We thus, finding no infirmity in the view taken by the CIT(A) who had after dislodging no infirmity in the view taken by the CIT(A) who had after dislodging no infirmity in the view taken by the CIT(A) who had after dislodging the claim of the revenue qua the drawing of presumption as regards the claim of the revenue qua the drawing of presumption as regards the claim of the revenue qua the drawing of presumption as regards utilization of the own funds and interest free funds out of the mixed utilization of the own funds and interest free funds out of the mixed utilization of the own funds and interest free funds out of the mixed

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funds available with the assessee for making of investments in available with the assessee for making of investments in available with the assessee for making of investments in exempt exempt exempt income income income yielding yielding yielding securities securities securities had had had rightly rightly rightly vacated vacated vacated the the the disallowance of the interest expenditure disallowance of the interest expenditure made by the A.0 us 14A mw made by the A.0 us 14A mw Rule 8D(2)(ii, uphold the same. The Ground of appeal No. 4 raised by Rule 8D(2)(ii, uphold the same. The Ground of appeal No. 4 raised by Rule 8D(2)(ii, uphold the same. The Ground of appeal No. 4 raised by the revenue is dismissed. revenue is dismissed. (Underlined for emphasis) (Underlined for emphasis)  HDFC Bank Limited v. DCIT (ITA no. 374/Mum/2012) (Refer pg. HDFC Bank Limited v. DCIT (ITA no. 374/Mum/2012) (Refer pg. HDFC Bank Limited v. DCIT (ITA no. 374/Mum/2012) (Refer pg. no. 40-41 of LPB, para 32 41 of LPB, para 32-33) "32. One more contention raised by the learned counsel for the "32. One more contention raised by the learned counsel for the "32. One more contention raised by the learned counsel for the revenue is, all the decisions cited by the learned coun revenue is, all the decisions cited by the learned counsel for the sel for the assessee including the decision of the Hon'ble Supreme Court in case assessee including the decision of the Hon'ble Supreme Court in case assessee including the decision of the Hon'ble Supreme Court in case of South Indian Bank Ltd vs CIT (supra) were in respect of of South Indian Bank Ltd vs CIT (supra) were in respect of of South Indian Bank Ltd vs CIT (supra) were in respect of assessment years prior to assessment year 2008 assessment years prior to assessment year 2008-09 wherein Rule 09 wherein Rule 8D was introduced. We are of the view that even if th 8D was introduced. We are of the view that even if the decisions are e decisions are prior to introduction of Rule 8D; however, it will not make any prior to introduction of Rule 8D; however, it will not make any prior to introduction of Rule 8D; however, it will not make any difference as the legal principle laid down in the decisions discussed difference as the legal principle laid down in the decisions discussed difference as the legal principle laid down in the decisions discussed herein before would apply even to assessment years subsequent to herein before would apply even to assessment years subsequent to herein before would apply even to assessment years subsequent to introduction of Rule 8D. In fact, in cas introduction of Rule 8D. In fact, in case of PCIT vs Ashok Apparels P e of PCIT vs Ashok Apparels P Ltd (supra), even in respect of assessment years 2008 Ltd (supra), even in respect of assessment years 2008-09 and 2009 09 and 2009- 10, which are post introduction of Rule 8D, the Hon'ble jurisdictional 10, which are post introduction of Rule 8D, the Hon'ble jurisdictional 10, which are post introduction of Rule 8D, the Hon'ble jurisdictional High Court has reiterated the theory of presumption regarding High Court has reiterated the theory of presumption regarding High Court has reiterated the theory of presumption regarding availability of interest fr availability of interest free funds being utilized for the purpose of ee funds being utilized for the purpose of investment in fact, in assessee's own case in assessment year 2011 investment in fact, in assessee's own case in assessment year 2011 investment in fact, in assessee's own case in assessment year 2011- 12 12 in in ITA ITA No.6173/Mum/2016 No.6173/Mum/2016 dated dated 08-07-2020 08 2020 and and for for assessment year 2012 assessment year 2012-13 in ITA No.5672/Mum/2017 dated 16 13 in ITA No.5672/Mum/2017 dated 16-07- 2021 the Tribunal has expressed id 2021 the Tribunal has expressed identical view that if on the date of entical view that if on the date of balance-sheet the assessee had sufficient interest free funds sheet the assessee had sufficient interest free funds sheet the assessee had sufficient interest free funds available with it, the presumption would be, the investments were available with it, the presumption would be, the investments were available with it, the presumption would be, the investments were made out of such interest free funds. The aforesaid decisions of the made out of such interest free funds. The aforesaid decisions of the made out of such interest free funds. The aforesaid decisions of the Hon'ble superior Courts Hon'ble superior Courts as well as the co-ordinate benches are ordinate benches are binding precedents qua the issue arising for consideration before us. binding precedents qua the issue arising for consideration before us. binding precedents qua the issue arising for consideration before us. That being the case, adhering to the norms of judicial discipline and That being the case, adhering to the norms of judicial discipline and That being the case, adhering to the norms of judicial discipline and decorum, we are bound to follow them. decorum, we are bound to follow them. 33. In view of the aforesaid, having f 33. In view of the aforesaid, having found that the assessee had ound that the assessee had sufficient interest free funds available to take care of the investment sufficient interest free funds available to take care of the investment sufficient interest free funds available to take care of the investment made, we hold that no disallowance of interest expenditure under made, we hold that no disallowance of interest expenditure under made, we hold that no disallowance of interest expenditure under rule 8D(2)(ii) can be made. Accordingly, we delete the disallowance rule 8D(2)(ii) can be made. Accordingly, we delete the disallowance rule 8D(2)(ii) can be made. Accordingly, we delete the disallowance made under rule 8D(2)(ii made under rule 8D(2)(ii)." (Underlined for emphasis) (Underlined for emphasis) The above two decisions of the Hon'ble Mumbai Tribunal were The above two decisions of the Hon'ble Mumbai Tribunal were The above two decisions of the Hon'ble Mumbai Tribunal were specifically referred to at the time of hearing to emphasize that the specifically referred to at the time of hearing to emphasize that the specifically referred to at the time of hearing to emphasize that the availability of own funds and interest availability of own funds and interest-free funds has to be seen as free funds has to be seen as on the balance sheet date an on the balance sheet date and one need not go into a fishing d one need not go into a fishing expedition of finding out the position on which date the investment expedition of finding out the position on which date the investment expedition of finding out the position on which date the investment was made. As held by the Learned Assessing Officer ("the Ld. AO"), was made. As held by the Learned Assessing Officer ("the Ld. AO"), was made. As held by the Learned Assessing Officer ("the Ld. AO"), the first referred decision relies upon the decision of the Hon'ble the first referred decision relies upon the decision of the Hon'ble the first referred decision relies upon the decision of the Hon'ble

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Bombay High Court in Bombay High Court in CIT v. Reliance Utilities & Power Limited (313 CIT v. Reliance Utilities & Power Limited (313 ITR 340). Indeed, a cursory look at the decision of Reliance Utility & ITR 340). Indeed, a cursory look at the decision of Reliance Utility & ITR 340). Indeed, a cursory look at the decision of Reliance Utility & Power Limited (supra) very clearly makes a reference to the position Power Limited (supra) very clearly makes a reference to the position Power Limited (supra) very clearly makes a reference to the position as on the balance sheet date. The second as on the balance sheet date. The second-mentioned decision refers mentioned decision refers to and follows the Hon'ble Supreme Court in South Indian Bank Ltd o and follows the Hon'ble Supreme Court in South Indian Bank Ltd o and follows the Hon'ble Supreme Court in South Indian Bank Ltd (438 ITR 1). The Hon'ble Supreme Court, in turn, has quoted with The Hon'ble Supreme Court, in turn, has quoted with The Hon'ble Supreme Court, in turn, has quoted with approval, inter alia, the decision of the approval, inter alia, the decision of the Hon'ble Bombay High Court in Hon'ble Bombay High Court in the case of Bombay Dyeing & Mfg. Co. Ltd (ITA No. 2182 the case of Bombay Dyeing & Mfg. Co. Ltd (ITA No. 2182 the case of Bombay Dyeing & Mfg. Co. Ltd (ITA No. 2182 & 2140/ Mum/ 2000) (see para 17 of the said decision on running pg. no. 11 Mum/ 2000) (see para 17 of the said decision on running pg. no. 11 Mum/ 2000) (see para 17 of the said decision on running pg. no. 11 of LPB). The Hon'ble Bombay HC in Bombay dyeing case (supra), in of LPB). The Hon'ble Bombay HC in Bombay dyeing case (supra), in of LPB). The Hon'ble Bombay HC in Bombay dyeing case (supra), in turn, has followed the decision of the Hon'ble Supreme Court in turn, has followed the decision of the Hon'ble Supreme Court in turn, has followed the decision of the Hon'ble Supreme Court in Reliance Utility & Power Limited (supra). Thus, the Reliance Utility & Power Limited (supra). Thus, the Hon'ble Supreme Hon'ble Supreme Court has impliedly approved the proposition that the position is to Court has impliedly approved the proposition that the position is to Court has impliedly approved the proposition that the position is to be seen on the balance sheet date. Besides, the Hon'ble Supreme be seen on the balance sheet date. Besides, the Hon'ble Supreme be seen on the balance sheet date. Besides, the Hon'ble Supreme Court in South Indian Bank's case (supra) has also cited with Court in South Indian Bank's case (supra) has also cited with Court in South Indian Bank's case (supra) has also cited with approval the decision of the Hon'ble Bombay H approval the decision of the Hon'ble Bombay High Court in case of igh Court in case of HDFC Bank Ltd. (383 ITR 529) (see para 19 of the decision on HDFC Bank Ltd. (383 ITR 529) (see para 19 of the decision on HDFC Bank Ltd. (383 ITR 529) (see para 19 of the decision on running pg. no.11 of LPB). running pg. no.11 of LPB). The said HDFC bank's case also, in turn, relies on and has followed The said HDFC bank's case also, in turn, relies on and has followed The said HDFC bank's case also, in turn, relies on and has followed the earlier decision of the Hon'ble Bombay High Court in Reliance the earlier decision of the Hon'ble Bombay High Court in Reliance the earlier decision of the Hon'ble Bombay High Court in Reliance Utility & Power Limited's case (supra). er Limited's case (supra). In view of the above, it is abundantly clear that the Hon'ble Supreme In view of the above, it is abundantly clear that the Hon'ble Supreme In view of the above, it is abundantly clear that the Hon'ble Supreme Court in South India Bank's case has impliedly approved the Court in South India Bank's case has impliedly approved the Court in South India Bank's case has impliedly approved the proposition that own funds and interest proposition that own funds and interest-free funds have to be seen free funds have to be seen on the balance sheet date. on the balance sheet date. Without prejudice to the above, it was also submitted that in the case ut prejudice to the above, it was also submitted that in the case ut prejudice to the above, it was also submitted that in the case of Appellant Assessee, the sum of Capital, Reserves and current of Appellant Assessee, the sum of Capital, Reserves and current of Appellant Assessee, the sum of Capital, Reserves and current account balance as on opening balance sheet as well as on closing account balance as on opening balance sheet as well as on closing account balance as on opening balance sheet as well as on closing balance sheet date are significantly higher than the investm balance sheet date are significantly higher than the investm balance sheet date are significantly higher than the investments in tax-free securities on these two dates. Indeed, therefore, even if an free securities on these two dates. Indeed, therefore, even if an free securities on these two dates. Indeed, therefore, even if an academic exercise is done to find out the position in the middle of the academic exercise is done to find out the position in the middle of the academic exercise is done to find out the position in the middle of the year to find out the investment balance, there is zero probability of year to find out the investment balance, there is zero probability of year to find out the investment balance, there is zero probability of the position being different at any the position being different at any time during the middle of the time during the middle of the year.” 10.1 On the contrary, the learned DR submitted that availability of the contrary, the learned DR submitted that availability of the contrary, the learned DR submitted that availability of the interest free funds should be considered on the date of the the interest free funds should be considered on the date of the the interest free funds should be considered on the date of the investment as held by the Hon’ble Supreme Court in the case of investment as held by the Hon’ble Supreme Court in the case of investment as held by the Hon’ble Supreme Court in the case of Maxopp investment ltd ltd(supra). The relevant submission of learned submission of learned DR is reproduced as under: reproduced as under:

“7.5 Further, it is submitted that while computing the disallowance Further, it is submitted that while computing the disallowance Further, it is submitted that while computing the disallowance under section 14 A of the Act, the date of investment on which the under section 14 A of the Act, the date of investment on which the under section 14 A of the Act, the date of investment on which the investment is made which is earned exempted income i investment is made which is earned exempted income is important s important

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and not the balance sheet date. This principle has been affirmed by and not the balance sheet date. This principle has been affirmed by and not the balance sheet date. This principle has been affirmed by the Hon'ble Apex Court in the case of M/s Maxopp Investment as the Hon'ble Apex Court in the case of M/s Maxopp Investment as the Hon'ble Apex Court in the case of M/s Maxopp Investment as mentioned supra. For the sake of reference the same is reproduced mentioned supra. For the sake of reference the same is reproduced mentioned supra. For the sake of reference the same is reproduced as under- "9. In our opinion, the mere fact tha "9. In our opinion, the mere fact that those shares were old t those shares were old ones and not acquired recently is immaterial. It is for the ones and not acquired recently is immaterial. It is for the ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by assessee to show the source of acquisition of those shares by assessee to show the source of acquisition of those shares by production of materials that those were acquired from the production of materials that those were acquired from the production of materials that those were acquired from the funds available in the hands of the assessee at the funds available in the hands of the assessee at the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those point of time without taking benefit of any loan. If those point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even shares were purchased from the amount taken in loan, even shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to for instance, five or ten years ago, it is for the assessee to for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such show by the production of documentary evidence that such show by the production of documentary evidence that such loaned amo loaned amount had already been paid back and for the unt had already been paid back and for the relevant assessment year, no interest is payable by the relevant assessment year, no interest is payable by the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of assessee for acquiring those old shares. In the absence of assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opimon, any such materials placed by the assessee, in our opimon, any such materials placed by the assessee, in our opimon, the authorities below rightly held that the authorities below rightly held that proportionate amount proportionate amount should be disallowed having regard to the total income and should be disallowed having regard to the total income and should be disallowed having regard to the total income and the income from the exempt source. In the absence of any the income from the exempt source. In the absence of any the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which material disclosing the source of acquisition of shares which material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the is within the special knowledge of the assessee, the is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in ssing authority took a most reasonable approach in ssing authority took a most reasonable approach in assessment." assessment." 7.6 This view is also confirm by the Hon'ble Tribunal, Mumbai Bench This view is also confirm by the Hon'ble Tribunal, Mumbai Bench This view is also confirm by the Hon'ble Tribunal, Mumbai Bench in the case of M/s HDFC Bank Ltd dated 12.11.2014 where; in it is in the case of M/s HDFC Bank Ltd dated 12.11.2014 where; in it is in the case of M/s HDFC Bank Ltd dated 12.11.2014 where; in it is held by the Hon'ble Tribunal that the assessee has to show held by the Hon'ble Tribunal that the assessee has to show held by the Hon'ble Tribunal that the assessee has to show with material available that on the date of investment the material available that on the date of investment the assessee has assessee has used its own fund for investment from which the exempted income is used its own fund for investment from which the exempted income is used its own fund for investment from which the exempted income is earned by the assessee and not as on the balance sheet date. earned by the assessee and not as on the balance sheet date. earned by the assessee and not as on the balance sheet date. Also, it is noteworthy that the Hon'ble Bombay High Cou Also, it is noteworthy that the Hon'ble Bombay High Court has not rt has not reversed or stayed the said order of the Hon'ble Tribunal till today. reversed or stayed the said order of the Hon'ble Tribunal till today. reversed or stayed the said order of the Hon'ble Tribunal till today. Only, the Hon'ble Bombay High Court has stayed the order giving Only, the Hon'ble Bombay High Court has stayed the order giving Only, the Hon'ble Bombay High Court has stayed the order giving effect to the order of Hon'ble Tribunal and pursuant recovery of effect to the order of Hon'ble Tribunal and pursuant recovery of effect to the order of Hon'ble Tribunal and pursuant recovery of demand vide its order dated 26th April, 2018 i demand vide its order dated 26th April, 2018 in ITA No.340,342 and n ITA No.340,342 and 746 of 2015. 7.7 Further, it may be appreciated that the reliance placed by the Further, it may be appreciated that the reliance placed by the Further, it may be appreciated that the reliance placed by the assessee on the decision of Hon'ble Bombay High Court in the case assessee on the decision of Hon'ble Bombay High Court in the case assessee on the decision of Hon'ble Bombay High Court in the case of CIT Vs M/s Reliance Utilities and Power Ltd. (303 ITR 340 Bom.) is of CIT Vs M/s Reliance Utilities and Power Ltd. (303 ITR 340 Bom.) is of CIT Vs M/s Reliance Utilities and Power Ltd. (303 ITR 340 Bom.) is devoid of any legal devoid of any legal merit. In the case of M/s Reliance Utilities the merit. In the case of M/s Reliance Utilities the Hon'ble Bombay High Court is given a clear cut finding that assessee Hon'ble Bombay High Court is given a clear cut finding that assessee Hon'ble Bombay High Court is given a clear cut finding that assessee M/s Reliance Utilities generated its own funds while investing and M/s Reliance Utilities generated its own funds while investing and M/s Reliance Utilities generated its own funds while investing and therefore come to the conclusion that the assesse has used its own therefore come to the conclusion that the assesse has used its own therefore come to the conclusion that the assesse has used its own funds. There is no such finding, in the case of the assessee that it ds. There is no such finding, in the case of the assessee that it ds. There is no such finding, in the case of the assessee that it has generated and used its own funds. has generated and used its own funds.

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For the sake of ready reference the relevant paragraphs from the For the sake of ready reference the relevant paragraphs from the For the sake of ready reference the relevant paragraphs from the decision of Hon'ble Bombay High Court in the case of M/s Reliance decision of Hon'ble Bombay High Court in the case of M/s Reliance decision of Hon'ble Bombay High Court in the case of M/s Reliance Utilities is reproduc Utilities is reproduced as under - "8. We have heard learned counsel for both the parties. In our "8. We have heard learned counsel for both the parties. In our "8. We have heard learned counsel for both the parties. In our opinion the very basis on which the revenue had sought to contend opinion the very basis on which the revenue had sought to contend opinion the very basis on which the revenue had sought to contend or argue their case that the shareholder funds to the tune of over Rs. or argue their case that the shareholder funds to the tune of over Rs. or argue their case that the shareholder funds to the tune of over Rs. 172 crores was utilised for the purpose of 172 crores was utilised for the purpose of fixed assets in terms of the fixed assets in terms of the balance sheet as on 31st March, 1999, is fallacious. Firstly, we are balance sheet as on 31st March, 1999, is fallacious. Firstly, we are balance sheet as on 31st March, 1999, is fallacious. Firstly, we are not concerned with the balance sheet as of 31 not concerned with the balance sheet as of 31-3-1999. What would 1999. What would be relevant would be balance sheet as on 31 be relevant would be balance sheet as on 31-3-2000. Apart from 2000. Apart from that, the learned counsel has that, the learned counsel has been unable to point out to us from the been unable to point out to us from the balance sheet that the balance sheet as on 31 balance sheet that the balance sheet as on 31-3-1999 showed that 1999 showed that the shareholders funds were utilized for the purpose of fixed assets. the shareholders funds were utilized for the purpose of fixed assets. the shareholders funds were utilized for the purpose of fixed assets. To our mind the profit and loss account and the balance sheet would To our mind the profit and loss account and the balance sheet would To our mind the profit and loss account and the balance sheet would not show whe not show whether shareholders funds have been utilised for ther shareholders funds have been utilised for investments. The argument has to be rejected on this count also. investments. The argument has to be rejected on this count also. investments. The argument has to be rejected on this count also. 9. Apart from that we have noted earlier that both in the order of the 9. Apart from that we have noted earlier that both in the order of the 9. Apart from that we have noted earlier that both in the order of the CIT (Appeals) as also the Appellate Tribunal, a clear finding is CIT (Appeals) as also the Appellate Tribunal, a clear finding is CIT (Appeals) as also the Appellate Tribunal, a clear finding is recorded that the assessee had interest that the assessee had interest-free funds of its own which free funds of its own which had been generated in the course of the year commencing from 1 had been generated in the course of the year commencing from 1 had been generated in the course of the year commencing from 1-4- 1999. Apart from that in terms of the balance sheet there was a Apart from that in terms of the balance sheet there was a Apart from that in terms of the balance sheet there was a further availability of Rs. 398.19 crores including Rs. 180 crores further availability of Rs. 398.19 crores including Rs. 180 crores further availability of Rs. 398.19 crores including Rs. 180 crores of share capital. In this context, in our opinion, the finding of fact share capital. In this context, in our opinion, the finding of fact share capital. In this context, in our opinion, the finding of fact recorded by CIT (Appeals) and ITAT as to availability of interest recorded by CIT (Appeals) and ITAT as to availability of interest recorded by CIT (Appeals) and ITAT as to availability of interest-free funds really cannot be faulted" funds really cannot be faulted" 7.8 It may be appreciated that the assessee is a bank and receiving It may be appreciated that the assessee is a bank and receiving It may be appreciated that the assessee is a bank and receiving money in the f money in the form of deposits or otherwise from the regular orm of deposits or otherwise from the regular customers. The assessee is not owner of these funds. The assessee customers. The assessee is not owner of these funds. The assessee customers. The assessee is not owner of these funds. The assessee is only a custodian of such amount. The assessee pays interest to is only a custodian of such amount. The assessee pays interest to is only a custodian of such amount. The assessee pays interest to the depositors. Therefore, the funds constantly raised from the depositors. Therefore, the funds constantly raised from the depositors. Therefore, the funds constantly raised from depositors are int depositors are interest-bearing funds for the assessee. Therefore, bearing funds for the assessee. Therefore, wherever such funds are invested by the assessee to earn exempted wherever such funds are invested by the assessee to earn exempted wherever such funds are invested by the assessee to earn exempted income, the interest paid or payable to the depositors or otherwise income, the interest paid or payable to the depositors or otherwise income, the interest paid or payable to the depositors or otherwise qualifies for applicability of section 14 qualifies for applicability of section 14-A. 7.9 Further, it may be appre Further, it may be appreciated that the above views are also ciated that the above views are also confirm by the Hon'ble Tribunal in assessee's own case in ITA No. confirm by the Hon'ble Tribunal in assessee's own case in ITA No. confirm by the Hon'ble Tribunal in assessee's own case in ITA No. 3249/2018 and 3501 of 2018. For the 3249/2018 and 3501 of 2018. For the sake of ready reference the sake of ready reference the decision of Hon'ble Tribunal in assessee's own case is reproduced as decision of Hon'ble Tribunal in assessee's own case is reproduced as decision of Hon'ble Tribunal in assessee's own case is reproduced as under- " 10. We have " 10. We have heard rival submission of the parties on the heard rival submission of the parties on the issue in dispute and perused the relevant material on record. issue in dispute and perused the relevant material on record. issue in dispute and perused the relevant material on record. It is evident that the Ld. CIT(A) has not adjudicated the issue It is evident that the Ld. CIT(A) has not adjudicated the issue It is evident that the Ld. CIT(A) has not adjudicated the issue in dispute in support of disallowance of expenses related to in dispute in support of disallowance of expenses related to in dispute in support of disallowance of expenses related to exempted income u/s 14A exempted income u/s 14A r.w.r. 8D of the Rules and directed r.w.r. 8D of the Rules and directed the Assessing Officer for re the Assessing Officer for re-examination/re-verification of the verification of the disallowance of interest component related to investment in disallowance of interest component related to investment in disallowance of interest component related to investment in assets yielding exempted income. In our opinion, under the assets yielding exempted income. In our opinion, under the assets yielding exempted income. In our opinion, under the

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provisions of section 251 of the Act provisions of section 251 of the Act the power of the Ld. the power of the Ld. CIT(A) for restoring the matter back has been withdrawn and CIT(A) for restoring the matter back has been withdrawn and CIT(A) for restoring the matter back has been withdrawn and issuing direction for re issuing direction for re-examination or re- verification of the verification of the facts and then decide the issue, is beyond the power of the facts and then decide the issue, is beyond the power of the facts and then decide the issue, is beyond the power of the Ld. CIT(A). In the facts and circumstances of the Ld. CIT(A). In the facts and circumstances of the Ld. CIT(A). In the facts and circumstances of the case, the finding of the Ld. CIT(A) being beyond his authority, finding of the Ld. CIT(A) being beyond his authority, finding of the Ld. CIT(A) being beyond his authority, therefore, the matter need to be restored back to the file of the therefore, the matter need to be restored back to the file of the therefore, the matter need to be restored back to the file of the Ld. CIT(A) for deciding afresh. Further, as far as the Ld. CIT(A) for deciding afresh. Further, as far as the Ld. CIT(A) for deciding afresh. Further, as far as the contention of the assessee that funds and interest free funds contention of the assessee that funds and interest free funds contention of the assessee that funds and interest free funds are more are more than the investment in tax free assets, the Ld. than the investment in tax free assets, the Ld. Counsel of the assessee was asked to provide the position of Counsel of the assessee was asked to provide the position of Counsel of the assessee was asked to provide the position of the availability of the own funds and interest free funds at the availability of the own funds and interest free funds at the availability of the own funds and interest free funds at the time of investment in those funds rather than availability the time of investment in those funds rather than availability the time of investment in those funds rather than availability of the funds in the yea of the funds in the year under consideration. However, no r under consideration. However, no such details could be made available during the course of the such details could be made available during the course of the such details could be made available during the course of the hearing. In the circumstances, the proposition by the Ld. hearing. In the circumstances, the proposition by the Ld. hearing. In the circumstances, the proposition by the Ld. Counsel of the assessee cannot be adjudicated. Accordingly, Counsel of the assessee cannot be adjudicated. Accordingly, Counsel of the assessee cannot be adjudicated. Accordingly, we restore this issue of disallowance u/s we restore this issue of disallowance u/s 14A of the Act to 14A of the Act to the file of the Ld. CIT(A) for deciding afresh after taking into the file of the Ld. CIT(A) for deciding afresh after taking into the file of the Ld. CIT(A) for deciding afresh after taking into consideration submissions of the assessee. The ground Nos. consideration submissions of the assessee. The ground Nos. consideration submissions of the assessee. The ground Nos. 1 to 3 of the appeal of assessee and ground No. 1 of the 1 to 3 of the appeal of assessee and ground No. 1 of the 1 to 3 of the appeal of assessee and ground No. 1 of the appeal of the Revenue, are accordingly allowed for stati appeal of the Revenue, are accordingly allowed for stati appeal of the Revenue, are accordingly allowed for statistical purposes". purposes". Therefore, considering the facts and circumstances of the case, Therefore, considering the facts and circumstances of the case, Therefore, considering the facts and circumstances of the case, judicial precedence on this issue, the addition made by Assessing judicial precedence on this issue, the addition made by Assessing judicial precedence on this issue, the addition made by Assessing Officer may be sustained Officer may be sustained.” 10.2 In the rejoinder, the learned counsel for the assessee n the rejoinder, the learned counsel for the assessee has n the rejoinder, the learned counsel for the assessee submitted that observation of the Tribunal servation of the Tribunal (supra) referred by the ld referred by the ld DR, is merely orbiter dic orbiter dicta and not the ratio of the said decision. The the said decision. The relevant submission of the submission of the ld counsel is reproduced as under: reproduced as under:

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5…………………………………………………………………………………… 5…………………………………………………………………………………… 5…………………………………………………………………………………… It was also pointed out that considering the balance sheet for the year It was also pointed out that considering the balance sheet for the year It was also pointed out that considering the balance sheet for the year ending 31st January, 2000 the availability of interest January, 2000 the availability of interest-free fund was as free fund was as under : Share capital Share capital 180.00 Reserves & Surplus Reserves & Surplus 120.80 Depreciation reserves Depreciation reserves 95.39 Total interest-free fund Total interest 398.19

It was, therefore, submitted that from the analysis of balance sheet as It was, therefore, submitted that from the analysis of balance sheet as It was, therefore, submitted that from the analysis of balance sheet as on 31-3-2000 the respondent had enough interest 2000 the respondent had enough interest-free funds at its free funds at its disposal for making investment. disposal for making investment. In the light of the above material the the above material the CIT (Appeals) held that it agreed with the contention advanced by the CIT (Appeals) held that it agreed with the contention advanced by the CIT (Appeals) held that it agreed with the contention advanced by the assessee that they had enough interest assessee that they had enough interest-free fund at its disposal for free fund at its disposal for investment and accordingly deleted the addition of Rs. 4,40,00,000 investment and accordingly deleted the addition of Rs. 4,40,00,000 investment and accordingly deleted the addition of Rs. 4,40,00,000 made by the Assessing Offic made by the Assessing Officer and directed him to allow the same er and directed him to allow the same under section 36(1)(iti) of the Income under section 36(1)(iti) of the Income-tax Act." In Para 7.9, the Ld. DR has made reference to para 10 of Hon'ble In Para 7.9, the Ld. DR has made reference to para 10 of Hon'ble In Para 7.9, the Ld. DR has made reference to para 10 of Hon'ble Tribunal's order in ITA no. 3249/2018 and 3501/2018. The following Tribunal's order in ITA no. 3249/2018 and 3501/2018. The following Tribunal's order in ITA no. 3249/2018 and 3501/2018. The following portion in the para 10 of Hon'ble Tri portion in the para 10 of Hon'ble Tribunal's order is highlighted by the bunal's order is highlighted by the Ld. DR: "Further, as far as the contention of the Assessee that funds and "Further, as far as the contention of the Assessee that funds and "Further, as far as the contention of the Assessee that funds and interest free funds are more than the investment in tax free interest free funds are more than the investment in tax free interest free funds are more than the investment in tax free assets, the Ld. Counsel of the Assessee was asked to provide assets, the Ld. Counsel of the Assessee was asked to provide assets, the Ld. Counsel of the Assessee was asked to provide the position of the avai the position of the availability of the own funds and interest free lability of the own funds and interest free funds at the time of investment in those funds rather than funds at the time of investment in those funds rather than funds at the time of investment in those funds rather than availability of the funds in the year under consideration. availability of the funds in the year under consideration. availability of the funds in the year under consideration. However, no such details could be made available during the However, no such details could be made available during the However, no such details could be made available during the course of the hearing. " course of the hearing. " In this behalf the Assessee most humbly submits that these are mere ehalf the Assessee most humbly submits that these are mere ehalf the Assessee most humbly submits that these are mere observations of the Hon'ble Tribunal not emanating at all from the observations of the Hon'ble Tribunal not emanating at all from the observations of the Hon'ble Tribunal not emanating at all from the orders of the lower authorities because in those years, the question orders of the lower authorities because in those years, the question orders of the lower authorities because in those years, the question whether the figures as on 'Balance Sheet date' or 'investment whether the figures as on 'Balance Sheet date' or 'investment whether the figures as on 'Balance Sheet date' or 'investment date' should be taken, was not before the Hon'ble Tribunal at all. These should be taken, was not before the Hon'ble Tribunal at all. These should be taken, was not before the Hon'ble Tribunal at all. These observations are mere obiter dicta and not the ratio of the said decision observations are mere obiter dicta and not the ratio of the said decision observations are mere obiter dicta and not the ratio of the said decision and therefore cannot be followed in the year under consideration and therefore cannot be followed in the year under consideration and therefore cannot be followed in the year under consideration especially when the issue is settled by the especially when the issue is settled by the Hon'ble Supreme Hon'ble Supreme Court in South Indian Bank (supra) as elaborately explained in our Limited South Indian Bank (supra) as elaborately explained in our Limited South Indian Bank (supra) as elaborately explained in our Limited Written Submissions. Written Submissions.” 10.3 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute. We agree with the contention of the learned counsel for the dispute. We agree with the contention of the learned counsel dispute. We agree with the contention of the learned counsel

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assessee that Ld. CIT(A) is not authorised for restoring the matter ee that Ld. CIT(A) is not authorised for restoring the matter ee that Ld. CIT(A) is not authorised for restoring the matter back to the Assessing Office back to the Assessing Officer as per the provisions of the A r as per the provisions of the Act. We note that in identical circumstances the T in identical circumstances the Tribunal ribunal in ITA No. 3249/2018 and 3501/2018 3249/2018 and 3501/2018 for AY 2014-15, where the Ld. CIT(A) , where the Ld. CIT(A) directed the Assessing Officer for verification of the availability of cted the Assessing Officer for verification of the availability of cted the Assessing Officer for verification of the availability of the interest free funds , the interest free funds , has set-aside the finding of ld CIT(A) and aside the finding of ld CIT(A) and restored the matter back to the file o matter back to the file of the Ld. CIT(A) for deciding f the Ld. CIT(A) for deciding afresh . Therefore, respectfull , respectfully following the finding of the T ing of the Tribunal (supra), we feel it appropriate to restore this issue back to the file of we feel it appropriate to restore this issue back to the file of we feel it appropriate to restore this issue back to the file of the Ld. CIT(A) for verifyi the Ld. CIT(A) for verifying availability of the interest ng availability of the interest-free funds in the light of the decisions of the Hon’ble jurisdiction High Court in the light of the decisions of the Hon’ble jurisdiction High Court in the light of the decisions of the Hon’ble jurisdiction High Court in the case of CIT Vs Reliance Utilities and Power Ltd 313 ITR 340 and eliance Utilities and Power Ltd 313 ITR 340 and eliance Utilities and Power Ltd 313 ITR 340 and CIT vs HDFC bank Ltd 366 ITR 505 (bom) and decision of the CIT vs HDFC bank Ltd 366 ITR 505 (bom) and decision of the CIT vs HDFC bank Ltd 366 ITR 505 (bom) and decision of the Hon’ble Supreme Court in the case of Maxo Hon’ble Supreme Court in the case of Maxopp p investment Ltd (supra) and other decisions of the Hon’ble Supreme Court. The (supra) and other decisions of the Hon’ble Supreme Court. (supra) and other decisions of the Hon’ble Supreme Court. ground No. II of the appeal of the appeal of the assessee is allowed for statistical allowed for statistical purposes. 11. In ground no. IV, IV, the assessee has raised the issue that no the assessee has raised the issue that no could be made in respect of the disallowance under section 14A disallowance under section 14A could be made in respect of the securities held as stock as stock-in-trade. 11.1 The submissions of the assessee submissions of the assessee in relation to above relation to above propositions are reproduced as under: reproduced as under: “The Appellant Assessee being in the business of banking, holds all its The Appellant Assessee being in the business of banking, holds all its The Appellant Assessee being in the business of banking, holds all its investments as stock investments as stock-in-trade. Any income/loss from sale of such trade. Any income/loss from sale of such investments is charged to tax by the Ld. AO under the head "Pro investments is charged to tax by the Ld. AO under the head "Pro investments is charged to tax by the Ld. AO under the head "Profits

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and gains from Business or Profession". Kindly note that no portion of and gains from Business or Profession". Kindly note that no portion of and gains from Business or Profession". Kindly note that no portion of profits is charged to tax under the head 'Capital Gains'. profits is charged to tax under the head 'Capital Gains'. Reliance is placed on various case laws filed in LPB at Pg. no. 1 Reliance is placed on various case laws filed in LPB at Pg. no. 1 Reliance is placed on various case laws filed in LPB at Pg. no. 1-217 under Proposition 3 including the decision of Hon'bl under Proposition 3 including the decision of Hon'ble Tribunal in e Tribunal in Assessee's own case for AY 2008 Assessee's own case for AY 2008-09 (LPB Pg. No. 3, Para 6). Out of the above decisions, special attention of the No. 3, Para 6). Out of the above decisions, special attention of the No. 3, Para 6). Out of the above decisions, special attention of the Hon'ble Bench was drawn at the time of hearing to the following Hon'ble Bench was drawn at the time of hearing to the following Hon'ble Bench was drawn at the time of hearing to the following judicial precedents, which after considering the decision of Hon' judicial precedents, which after considering the decision of Hon' judicial precedents, which after considering the decision of Hon'ble SC in Maxopp Investments Ltd. v. CIT (402 ITR 640), have held that no in Maxopp Investments Ltd. v. CIT (402 ITR 640), have held that no in Maxopp Investments Ltd. v. CIT (402 ITR 640), have held that no 14A disallowance is warranted with respect to investments held as 14A disallowance is warranted with respect to investments held as 14A disallowance is warranted with respect to investments held as stock-in-trade: HDFC Bank Ltd vs. ACIT (ITA No. 6173/Mum/16) (Decision of AY HDFC Bank Ltd vs. ACIT (ITA No. 6173/Mum/16) (Decision of AY HDFC Bank Ltd vs. ACIT (ITA No. 6173/Mum/16) (Decision of AY 2011-12) (Mum 12) (Mum T) (Pg. 194 of LPB, Para 3.6) Punjab National Bank vs. ACIT [ITA No. 1519/Del/2016 & ITA No. Punjab National Bank vs. ACIT [ITA No. 1519/Del/2016 & ITA No. Punjab National Bank vs. ACIT [ITA No. 1519/Del/2016 & ITA No. 7106/Del/2017] 7106/Del/2017] (Delhi-Trib.) (Pg 212 of LPB, Para 8) It will not be out of place to also point out other decisions cited in the It will not be out of place to also point out other decisions cited in the It will not be out of place to also point out other decisions cited in the ground-wise chart or mentioned during the hearing wherein a wise chart or mentioned during the hearing wherein a similar wise chart or mentioned during the hearing wherein a view has been taken by the co view has been taken by the co-ordinate bench of the Hon'ble Tribunal. ordinate bench of the Hon'ble Tribunal. HDFC HDFC HDFC Bank Bank Bank Limited Limited Limited v. v. v. ACIT ACIT ACIT (ITA (ITA (ITA No.5672/MUM/2017 No.5672/MUM/2017 No.5672/MUM/2017 & & & 5660/MUM/2017) (Pg 5660/MUM/2017) (Pg 45-67 of LPB) "8..... At the same time, we find substantial force in the claim of the ld. "8..... At the same time, we find substantial force in the claim of the ld. "8..... At the same time, we find substantial force in the claim of the ld. A.R that as the ass A.R that as the assessee is a bank, therefore, investments that are essee is a bank, therefore, investments that are held as stock-in in-trade cannot be subjected to disallowance u/s 14A of trade cannot be subjected to disallowance u/s 14A of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble the Act. Our aforesaid view is fortified by the judgment of the Hon'ble the Act. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (201 Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (201 Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (2018) 402 ITR 640 (SC). In its said order, it was observed by the Hon"ble 402 ITR 640 (SC). In its said order, it was observed by the Hon"ble 402 ITR 640 (SC). In its said order, it was observed by the Hon"ble Apex Court that in case of a bank the investments that are held as Apex Court that in case of a bank the investments that are held as Apex Court that in case of a bank the investments that are held as stock-in-trade cannot be a subject matter of disallowance u/s 14A of trade cannot be a subject matter of disallowance u/s 14A of trade cannot be a subject matter of disallowance u/s 14A of the Act. As pointed out by the Id. A.R, and right the Act. As pointed out by the Id. A.R, and rightly so, the Tribunal in ly so, the Tribunal in the the assessee"s assessee"s own own case case for for A.Y. A.Y. 2011-12 2011 12 in in ITA ITA No. No. 6173/Mum/2016, dated 08.07.2020 after relying on the judgment of 6173/Mum/2016, dated 08.07.2020 after relying on the judgment of 6173/Mum/2016, dated 08.07.2020 after relying on the judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Limited the Hon'ble Supreme Court in the case of Maxopp Investments Limited the Hon'ble Supreme Court in the case of Maxopp Investments Limited (supra), had observed that as the assessee was a (supra), had observed that as the assessee was a bank, therefore, bank, therefore, investments held as stock in investments held as stock in- trade were not to be considered for the trade were not to be considered for the purpose of working of disallowance us 14A of the Act, irrespective of purpose of working of disallowance us 14A of the Act, irrespective of purpose of working of disallowance us 14A of the Act, irrespective of the fact that any exempt income was derived from such investments or the fact that any exempt income was derived from such investments or the fact that any exempt income was derived from such investments or not. For the sake clarity the not. For the sake clarity the observations of the Tribunal are culled out observations of the Tribunal are culled out as under: "3.7 To sum up, we direct the ld. A. O as under: "3.7 To sum up, we direct the ld. A. O as under: a. Since, assessee being a bank, investments held as , stock in trade" Since, assessee being a bank, investments held as , stock in trade" Since, assessee being a bank, investments held as , stock in trade" could not be considered for the purpose of working of disallowance could not be considered for the purpose of working of disallowance could not be considered for the purpose of working of disallowance u/s 14A of the Act irrespective of the fact whether exempt income was Act irrespective of the fact whether exempt income was derived from such investments or not." derived from such investments or not."

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Accordingly, on the same terms we herein direct that the investments Accordingly, on the same terms we herein direct that the investments Accordingly, on the same terms we herein direct that the investments that were held by the assessee bank as stock that were held by the assessee bank as stock-in-trade shall not be trade shall not be considered by the A.O for considered by the A.O for the purpose of working of disallowance us the purpose of working of disallowance us 14A of the Act, irrespective of the fact whether exempt income was 14A of the Act, irrespective of the fact whether exempt income was 14A of the Act, irrespective of the fact whether exempt income was derived from such investments or not." derived from such investments or not." ACIT v. UCO Bank (ITA No. 1615/Kol/2016) (Kolkata Trib.) ACIT v. UCO Bank (ITA No. 1615/Kol/2016) (Kolkata Trib.) "13.... The Revenue's appeal against the judgment "13.... The Revenue's appeal against the judgment of Hon'ble Punjab & of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supreme Court. Haryana High Court was dismissed by the Hon'ble Supreme Court. Haryana High Court was dismissed by the Hon'ble Supreme Court. We therefore find that qua the assessees engaged in the banking We therefore find that qua the assessees engaged in the banking We therefore find that qua the assessees engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the business, the Hon'ble Supreme Court upheld the judgment of the business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the cas Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State e of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/s 14A is Bank of Patiala (supra) as per which no disallowance u/s 14A is 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 permissible in terms of Rule 8D in case of assessees engaged in permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme banking business. Respectfully following the judgment of the Supreme banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patial Court in case of State Bank of Patiala (supra), we direct the Ld. AO a (supra), we direct the Ld. AO to delete the disallowance of Rs.2,90,37,490/ delete the disallowance of Rs.2,90,37,490/- made under Rule 8D(2) made under Rule 8D(2) (iii). Ground No. 2 of the Revenue's appeal is therefore dismissed and Ground No. 2 of the Revenue's appeal is therefore dismissed and Ground No. 2 of the Revenue's appeal is therefore dismissed and the grounds of assessee's CO are allowed. s of assessee's CO are allowed." > Bank of Maharashtra v. DCIT (ITA No. 13 > Bank of Maharashtra v. DCIT (ITA No. 1370/Pun/2014) "8.3 Both sides heard. The first contention of the assessee is that the "8.3 Both sides heard. The first contention of the assessee is that the "8.3 Both sides heard. The first contention of the assessee is that the investments were held by the assessee as stock in trade, therefore, no investments were held by the assessee as stock in trade, therefore, no investments were held by the assessee as stock in trade, therefore, no disallowance u/s. 14A was required to be made in respect of exempt disallowance u/s. 14A was required to be made in respect of exempt disallowance u/s. 14A was required to be made in respect of exempt income earned on shares held as income earned on shares held as "Stock in trade". The Hon "ble Punjab and Haryana High Court in the Stock in trade". The Hon "ble Punjab and Haryana High Court in the Stock in trade". The Hon "ble Punjab and Haryana High Court in the case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala case of Pr. Commissioner of Income Tax Vs. State Bank of Patiala (supra) has decided the issue of disallowance us. 14A in respect of (supra) has decided the issue of disallowance us. 14A in respect of (supra) has decided the issue of disallowance us. 14A in respect of expenditure in earning exempt income from shares held as expenditure in earning exempt income from shares held as expenditure in earning exempt income from shares held as stock in trade. The Hon "ble High Court after The Hon "ble High Court after placing reliance on the decision of placing reliance on the decision of Hon"ble Apex Court in the case of Commissioner of Income Tax Vs. Hon"ble Apex Court in the case of Commissioner of Income Tax Vs. Hon"ble Apex Court in the case of Commissioner of Income Tax Vs. Walfort Share & Stock Brokers (P) Ltd. reported as 326 ITR 1 held that Walfort Share & Stock Brokers (P) Ltd. reported as 326 ITR 1 held that Walfort Share & Stock Brokers (P) Ltd. reported as 326 ITR 1 held that that no disallowance u/s. 14A is to b that no disallowance u/s. 14A is to be made where the shares are e made where the shares are held as stock in trade. For the sake of completeness relevant extract of held as stock in trade. For the sake of completeness relevant extract of held as stock in trade. For the sake of completeness relevant extract of the judgment is reproduced here the judgment is reproduced here-in-below : "26. What is of vital importance in the above judgment are the "26. What is of vital importance in the above judgment are the "26. What is of vital importance in the above judgment are the observations emphasised by us. Each of them expre observations emphasised by us. Each of them expressly states that ssly states that what is disallowed is expenditure incurred to "earn" exempt income. what is disallowed is expenditure incurred to "earn" exempt income. what is disallowed is expenditure incurred to "earn" exempt income. The words "in relation to" in section 14A must be construed The words "in relation to" in section 14A must be construed The words "in relation to" in section 14A must be construed accordingly. Thus, the words "in relation to" apply to earning exempt Thus, the words "in relation to" apply to earning exempt Thus, the words "in relation to" apply to earning exempt income. The importance of the observation income. The importance of the observation is this. We have held that is this. We have held that the securities in question constituted the assessee's stockin the securities in question constituted the assessee's stockin- - trade and the income that arises on account of the purchase and sale of the the income that arises on account of the purchase and sale of the the income that arises on account of the purchase and sale of the securities is its business income and is brought to tax as such. That securities is its business income and is brought to tax as such. That securities is its business income and is brought to tax as such. That income is not exemp income is not exempt from tax and, therefore, the expenditure incurred t from tax and, therefore, the expenditure incurred in relation thereto does not fall within the ambit of section 14A. Now, in relation thereto does not fall within the ambit of section 14A. Now, in relation thereto does not fall within the ambit of section 14A. Now, the dividend and interest are income. The question then is whether the the dividend and interest are income. The question then is whether the the dividend and interest are income. The question then is whether the

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assessee can be said to have incurred any expenditure at all assessee can be said to have incurred any expenditure at all assessee can be said to have incurred any expenditure at all or any part of the said expenditure in respect of the exempt income viz. part of the said expenditure in respect of the exempt income viz. part of the said expenditure in respect of the exempt income viz. dividend and interest that arose out of the securities that constituted dividend and interest that arose out of the securities that constituted dividend and interest that arose out of the securities that constituted the assessee's stockin the assessee's stockin-trade. The answer must be in the negative. The trade. The answer must be in the negative. The purpose of the purchase of the said secur purpose of the purchase of the said securities was not to earn income ities was not to earn income arising therefrom, namely, dividend and interest, but to earn profits arising therefrom, namely, dividend and interest, but to earn profits arising therefrom, namely, dividend and interest, but to earn profits from trading in i.e. purchasing and selling the same. It is axiomatic, from trading in i.e. purchasing and selling the same. It is axiomatic, from trading in i.e. purchasing and selling the same. It is axiomatic, therefore, that the entire expenditure including administrative costs therefore, that the entire expenditure including administrative costs therefore, that the entire expenditure including administrative costs was incurred for was incurred for the purchase and sale of the stock-in-trade and, -trade and, therefore, towards earning the business income from the trading therefore, towards earning the business income from the trading therefore, towards earning the business income from the trading activity of purchasing and selling the securities. activity of purchasing and selling the securities. Irrespective of Irrespective of whether the securities yielded any income arising therefrom, such as, whether the securities yielded any income arising therefrom, such as, whether the securities yielded any income arising therefrom, such as, dividend or interest, no expenditure was incurred in relation to the end or interest, no expenditure was incurred in relation to the end or interest, no expenditure was incurred in relation to the same." 8.4 The Hon"ble Apex Court in the case of Maxopp Investment Ltd. Vs. 8.4 The Hon"ble Apex Court in the case of Maxopp Investment Ltd. Vs. 8.4 The Hon"ble Apex Court in the case of Maxopp Investment Ltd. Vs. Commissioner of Income Tax (supra) has approved the judgment Commissioner of Income Tax (supra) has approved the judgment Commissioner of Income Tax (supra) has approved the judgment rendered in the case of Pr. Commissioner of Income Tax rendered in the case of Pr. Commissioner of Income Tax Is. State Bank Is. State Bank of Patiala (supra). of Patiala (supra). Therefore, in view of the law settled by the Hon"ble Therefore, in view of the law settled by the Hon"ble Aper Court, no disallowance w/s. 144 is warranted in respect of Aper Court, no disallowance w/s. 144 is warranted in respect of Aper Court, no disallowance w/s. 144 is warranted in respect of shares held by the assessee as stock in trade." shares held by the assessee as stock in trade." M/s. The Karur Vysya Bank Ltd. v. ACIT (ITA No. 902, 903 M/s. The Karur Vysya Bank Ltd. v. ACIT (ITA No. 902, 903 M/s. The Karur Vysya Bank Ltd. v. ACIT (ITA No. 902, 903, 905 & 907/Chny/2010 and ITA No. 930 & 931/Chny/2011) 907/Chny/2010 and ITA No. 930 & 931/Chny/2011) "5. The Ld.DR, Mr. AR.V.Sreenivasan, Addi. CIT, referring to the "5. The Ld.DR, Mr. AR.V.Sreenivasan, Addi. CIT, referring to the "5. The Ld.DR, Mr. AR.V.Sreenivasan, Addi. CIT, referring to the decision of the Hon'ble Supreme Court in the case of Maxopp decision of the Hon'ble Supreme Court in the case of Maxopp decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT; reported in [2018/ 91 taxman.com 154 (SC), Investment Ltd. v. CIT; reported in [2018/ 91 taxman.com 154 (SC), Investment Ltd. v. CIT; reported in [2018/ 91 taxman.com 154 (SC), more particularly, Para Nos. 38 icularly, Para Nos. 38-41 of the said judgment, submitted 41 of the said judgment, submitted that the Hon'ble Supreme Court clearly held that even if in a case of that the Hon'ble Supreme Court clearly held that even if in a case of that the Hon'ble Supreme Court clearly held that even if in a case of investments held as stock in trade, the moment assessee earns investments held as stock in trade, the moment assessee earns investments held as stock in trade, the moment assessee earns exempt income proportionate expenses relatable to exempt income an exempt income proportionate expenses relatable to exempt income an exempt income proportionate expenses relatable to exempt income and taxable income needs to be apportioned. Although, the Hon'ble taxable income needs to be apportioned. Although, the Hon'ble taxable income needs to be apportioned. Although, the Hon'ble Supreme Court in the above case held that proportionate expenses Supreme Court in the above case held that proportionate expenses Supreme Court in the above case held that proportionate expenses need to be disallowed, in a case, dividend income earned from need to be disallowed, in a case, dividend income earned from need to be disallowed, in a case, dividend income earned from investments, which are held as stock in trade in the case of late investments, which are held as stock in trade in the case of late investments, which are held as stock in trade in the case of latest judgment of the Hon'ble Supreme Court in the case of South Indian judgment of the Hon'ble Supreme Court in the case of South Indian judgment of the Hon'ble Supreme Court in the case of South Indian Bank Ltd. v. CIT (supra), this issue has not been considered, and thus, Bank Ltd. v. CIT (supra), this issue has not been considered, and thus, Bank Ltd. v. CIT (supra), this issue has not been considered, and thus, argued that even in case of banking companies, provisions of Sec. 144 argued that even in case of banking companies, provisions of Sec. 144 argued that even in case of banking companies, provisions of Sec. 144 of the Act, are applicable and accordingly, e of the Act, are applicable and accordingly, expenses relatable to xpenses relatable to exempt income needs to be disallowed. exempt income needs to be disallowed. 6. We have heard both the parties, perused the materials available on 6. We have heard both the parties, perused the materials available on 6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The solitary record and gone through orders of the authorities below. The solitary record and gone through orders of the authorities below. The solitary issue that came up for our consideration from all these a issue that came up for our consideration from all these appeals filed ppeals filed by the assessee relates to disallowance of expenditure relatable to by the assessee relates to disallowance of expenditure relatable to by the assessee relates to disallowance of expenditure relatable to exempt income us. 144 of the Act. We find that the issue is squarely exempt income us. 144 of the Act. We find that the issue is squarely exempt income us. 144 of the Act. We find that the issue is squarely covered in favour of the assessee by the decision of ITAT, Chennai covered in favour of the assessee by the decision of ITAT, Chennai covered in favour of the assessee by the decision of ITAT, Chennai Benches in the assessee's own case for Benches in the assessee's own case for AY 2013-14, where the 14, where the Tribunal by following the decision of the Hon'ble Supreme Court in the Tribunal by following the decision of the Hon'ble Supreme Court in the Tribunal by following the decision of the Hon'ble Supreme Court in the case of South Indian Bank Ltd. v. CIT (supra) held that shares d case of South Indian Bank Ltd. v. CIT (supra) held that shares d case of South Indian Bank Ltd. v. CIT (supra) held that shares d securities held by the bank or guarantor and income received for such securities held by the bank or guarantor and income received for such securities held by the bank or guarantor and income received for such shares & securities must be shares & securities must be considered as business income, and considered as business income, and

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consequently, provisions of Sec. 144 of the Act, would not be attracted consequently, provisions of Sec. 144 of the Act, would not be attracted consequently, provisions of Sec. 144 of the Act, would not be attracted to such income. " to such income. " In view of the above, it is most humbly submitted that, the view of the In view of the above, it is most humbly submitted that, the view of the In view of the above, it is most humbly submitted that, the view of the Learned Commissioner of Income Learned Commissioner of Income-tax (Appeal) [(*the Ld. CIT( tax (Appeal) [(*the Ld. CIT(A)"] is contrary to the above well contrary to the above well-settled law. All the above Tribunal Benches settled law. All the above Tribunal Benches have decided the issue after duly considering the decision of the have decided the issue after duly considering the decision of the have decided the issue after duly considering the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd Hon'ble Supreme Court in Maxopp Investment Ltd (402 ITR 640), South (402 ITR 640), South Indian Bank Ltd. (438 ITR 1), Nawanshahar C Indian Bank Ltd. (438 ITR 1), Nawanshahar Central Co-op op Bank Ltd (289 ITR 6) and Hon'ble Punjab and Haryana High Court in case of (289 ITR 6) and Hon'ble Punjab and Haryana High Court in case of (289 ITR 6) and Hon'ble Punjab and Haryana High Court in case of State Bank of Patiala (391 ITR 218), and other relevant case laws. State Bank of Patiala (391 ITR 218), and other relevant case laws. State Bank of Patiala (391 ITR 218), and other relevant case laws. The Appellant Assessee, therefore, submits that disallowance u/s 14A The Appellant Assessee, therefore, submits that disallowance u/s 14A The Appellant Assessee, therefore, submits that disallowance u/s 14A of the Act be deleted in its enti of the Act be deleted in its entirety as the Appellant Assessee is a rety as the Appellant Assessee is a Bank that holds all securities as stock Bank that holds all securities as stock-in-trade.” 11.2 The learned DR however has The learned DR however has opposed the submission of the the submission of the assessee and stated that assessee and stated that in view of the decision of the Hon’ble in view of the decision of the Hon’ble Supreme Court in the case of Maxopp investm Supreme Court in the case of Maxopp investment ltd (supra), the dominant purpose theory purpose theory has been rejected and where both taxable rejected and where both taxable and non-taxable income has been earned taxable income has been earned from securities including from securities including stock-in-trade, expenses have expenses have to be apportioned toward taxable and apportioned toward taxable and non taxable income earned from such se non taxable income earned from such securities in proportion of the in proportion of the taxable and non-taxable income earned. The relevant submission of taxable income earned. The relevant submission of taxable income earned. The relevant submission of the learned DR reproduced as under: the learned DR reproduced as under:

7.3 It may be appreciated that the reliance placed by the assessee on 7.3 It may be appreciated that the reliance placed by the assessee on 7.3 It may be appreciated that the reliance placed by the assessee on the decision of Hon'ble apex court in the case of M/s the decision of Hon'ble apex court in the case of M/s the decision of Hon'ble apex court in the case of M/s Maxopp Investment as mentioned supra is completely misplaced. Investment as mentioned supra is completely misplaced. In such decision, the Hon'ble apex Court as made it clear that" the In such decision, the Hon'ble apex Court as made it clear that" the In such decision, the Hon'ble apex Court as made it clear that" the dominant intention" of assessee to hold the investment whether dominant intention" of assessee to hold the investment whether dominant intention" of assessee to hold the investment whether business asset or otherwise is not definite factor for applicab business asset or otherwise is not definite factor for applicab business asset or otherwise is not definite factor for applicability of section 14-A. For the sake of reference the inference drawn by the A. For the sake of reference the inference drawn by the A. For the sake of reference the inference drawn by the Hon'ble apex court in the case of M/s Maxopp Investment as Hon'ble apex court in the case of M/s Maxopp Investment as Hon'ble apex court in the case of M/s Maxopp Investment as mentioned supra is reproduced as under mentioned supra is reproduced as under- "34. Having clarified the aforesaid position, the first and foremost "34. Having clarified the aforesaid position, the first and foremost "34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant alls for consideration is as to whether the dominant alls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would purpose test, which is pressed into service by the assessees would purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the apply while interpreting Section 14A of the Act or we have to go by the apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant theory of apportionment. We are of the opinion that the dominant theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee purpose for which the investment into shares is made by an assessee purpose for which the investment into shares is made by an assessee

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may not be relevant. No doubt, the assessee like Maxopp Investment may not be relevant. No doubt, the assessee like Maxopp Investment may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the Limited may have made the investment in order to gain control of the Limited may have made the investment in order to gain control of the investee company. However, that does not appear to investee company. However, that does not appear to be a relevant be a relevant factor in determining the issue at hand. Fact remains that such factor in determining the issue at hand. Fact remains that such factor in determining the issue at hand. Fact remains that such dividend income is non dividend income is non-taxable. In this scenario, if expenditure is taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure incurred on earning the dividend income, that much of the expenditure incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend in which is attributable to the dividend income has to be disallowed and come has to be disallowed and cannot be treated as business expenditure. Keeping this objective cannot be treated as business expenditure. Keeping this objective cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be behind Section14A of the Act in mind, the said provision has to be behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income' that does interpreted, particularly, the word 'in relation to the income' that does interpreted, particularly, the word 'in relation to the income' that does not form part of to not form part of total income. Considered in this hue, the principle of tal income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle apportionment of expenses comes into play as that is the principle apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort which is engrained in Section 14A of the Act. This is so held in Walfort which is engrained in Section 14A of the Act. This is so held in Walfort Share & Stock Brokers (P.) Ltd., relevant passage whereof is al Share & Stock Brokers (P.) Ltd., relevant passage whereof is al Share & Stock Brokers (P.) Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would reproduced above, for the sake of continuity of discussion, we would reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. like to quote the following few lines therefrom. "The next phrase is, "in relation to income which does not form part of "The next phrase is, "in relation to income which does not form part of "The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does total income under the Act". It means that if an income does total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit part of total income, then the related expenditure is outside the ambit part of total income, then the related expenditure is outside the ambit of the applicability of section 14A.. of the applicability of section 14A.. ** The theory of apportionment of expenditure between taxable and non The theory of apportionment of expenditure between taxable and non The theory of apportionment of expenditure between taxable and non- taxable has, in principle, been now widened under section 14A." taxable has, in principle, been now widened under section 14A." taxable has, in principle, been now widened under section 14A." 35. The Delhi High Court, therefore, correctly observed that prior to . The Delhi High Court, therefore, correctly observed that prior to . The Delhi High Court, therefore, correctly observed that prior to introduction of Section 14A of the Act, the law was that when an introduction of Section 14A of the Act, the law was that when an introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had assessee had a composite and indivisible business which had assessee had a composite and indivisible business which had elements of both taxable and non elements of both taxable and non-taxable income, the entire taxable income, the entire expenditure in respect of said business eleets of both taxible and enditure in respect of said business eleets of both taxible and enditure in respect of said business eleets of both taxible and nonse, the rinciple of apportionment of the expenditure relating to the nonse, the rinciple of apportionment of the expenditure relating to the nonse, the rinciple of apportionment of the expenditure relating to the non-taxable income did no apply. The principle of apportionment was taxable income did no apply. The principle of apportionment was taxable income did no apply. The principle of apportionment was made aralable oure where the business was divisible. made aralable oure where the business was divisible. It is to find a It is to find a cure to the aforesaid problem that the Legislature has not only cure to the aforesaid problem that the Legislature has not only cure to the aforesaid problem that the Legislature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also inserted Section 14A by the Finance (Amendment) Act, 2001 but also inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came made it retrospective, i.e., 1962 when the Income Tax Act itself came made it retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was e into force. The aforesaid intent was expressed loudly and clearly in xpressed loudly and clearly in the Memorandum explaining the provisions of the Finance Bill, the Memorandum explaining the provisions of the Finance Bill, the Memorandum explaining the provisions of the Finance Bill, 2001. We, thus, agree with the view taken by the Delhi High Court, and are We, thus, agree with the view taken by the Delhi High Court, and are We, thus, agree with the view taken by the Delhi High Court, and are not inclined to accept the opinion of Punjab & Haryana High Court not inclined to accept the opinion of Punjab & Haryana High Court not inclined to accept the opinion of Punjab & Haryana High Court which went by dominant which went by dominant purpose theory. The aforesaid reasoning purpose theory. The aforesaid reasoning would be applicable in cases where shares are held as investment in would be applicable in cases where shares are held as investment in would be applicable in cases where shares are held as investment in the investee company, may be for the purpose of having controlling the investee company, may be for the purpose of having controlling the investee company, may be for the purpose of having controlling interest therein. On that reasoning, appeals of Maxopp Investment interest therein. On that reasoning, appeals of Maxopp Investment interest therein. On that reasoning, appeals of Maxopp Investment Limited as well as similar cases where shares were purchased by the l as similar cases where shares were purchased by the l as similar cases where shares were purchased by the assessees to have controlling interest in the investee companies have assessees to have controlling interest in the investee companies have assessees to have controlling interest in the investee companies have to fail and are, therefore, dismissed. to fail and are, therefore, dismissed. 36. There is yet another aspect which still needs to be looked into. 36. There is yet another aspect which still needs to be looked into. 36. There is yet another aspect which still needs to be looked into. What happens when the sh What happens when the shares are held as 'stock-in-trade' and not as trade' and not as

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'investment', particularly, by the banks? On this specific aspect, CBDT 'investment', particularly, by the banks? On this specific aspect, CBDT 'investment', particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. has issued circular No. 18/2015 dated November 02, 2015. has issued circular No. 18/2015 dated November 02, 2015. 37. This Circular has already been reproduced in Para 19 above. This 37. This Circular has already been reproduced in Para 19 above. This 37. This Circular has already been reproduced in Para 19 above. This Circular takes note of the judgment of this Court in Nawanshahar case s note of the judgment of this Court in Nawanshahar case s note of the judgment of this Court in Nawanshahar case wherein it is held that investments made by a banking concern are wherein it is held that investments made by a banking concern are wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from part of the business or banking. Therefore, the income arises from part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling un such investments is attributable to business of banking falling un such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the head 'profits and gains of business and profession'. On that basis, the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would the Circular contains the decision of the Board that no appeal would 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 be filed on this ground by the officers of the Department and if the be filed on this ground by the officers of the Department and if the appeals are already filed, they should be appeals are already filed, they should be withdrawn. A reading of this withdrawn. A reading of this circular would make it clear that the issue was as to whether income circular would make it clear that the issue was as to whether income 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 by way of interest on securities shall be chargeable to income tax 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 the under the head'income from other sources' or it is to fall under the under the head'income from other sources' or it is to fall under the head'profits and gains head'profits and gains of business and profession'. The Board, going of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it by the decision of this Court in Nawanshahar case, clarified that it 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 has to be treated as income falling under the head 'profits and gains has to be treated as income falling under the head 'profits and gains of business and profession'. of business and profession'. The Board also went to the extent of The Board also went to the extent of saying that this ng that this would not be limited only to co-operative ng that this would not be limited only to co would not be limited only to co societies/Banks claiming deduction under Section 80P(2)(a)(i) of the societies/Banks claiming deduction under Section 80P(2)(a)(i) of the societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/commercial banks, to Act but would also be applicable to all banks/commercial banks, to Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. which Banking Regulation Act, 1949 applies. 38. From this, Punjab 38. From this, Punjab and Haryana High Court pointed out that this and Haryana High Court pointed out that this circular carves out a distinction between 'stock circular carves out a distinction between 'stock-in-trade' and trade' and 'investment' and provides that if the motive behind purchase and sale 'investment' and provides that if the motive behind purchase and sale 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading of shares is to earn profit, then the same would be treated as trading of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the and if the object is to derive income by way of dividend then the and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, profit would be said to have accrued from investment. To this extent, profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the High Court may be correct. At the same time, we do not agree with the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Pun the test of dominant intention applied by the Punjab and Haryana jab and Haryana High Court, which we have already discarded. In that event, the High Court, which we have already discarded. In that event, the High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where question is as to on what basis those cases are to be decided where question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as the shares of other companies are purchased by the assessees as the shares of other companies are purchased by the assessees as 'stock-in-trade' and not as 'investment'. We trade' and not as 'investment'. We proceed to discuss this proceed to discuss this aspect hereinafter. aspect hereinafter. 39. In those cases, where shares are held as stock 39. In those cases, where shares are held as stock-in-trade, the main trade, the main purpose is to trade in those shares and earn profits therefrom. purpose is to trade in those shares and earn profits therefrom. purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would However, we are not concerned with those profits which would However, we are not concerned with those profits which would naturally be tre naturally be treated as 'income' under the head 'profits and gains from ated as 'income' under the head 'profits and gains from business and profession'. business and profession'. What happens is that, in the process, when What happens is that, in the process, when the shares are held as 'stock the shares are held as 'stock-in-trade', certain dividend is also earned, trade', certain dividend is also earned, though incidentally, which is also an income. However, by though incidentally, which is also an income. However, by though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend Section 10 (34) of the Act, this dividend income is not to be included in income is not to be included in the total income and is exempt from tax. the total income and is exempt from tax. This triggers the applicability This triggers the applicability of Section 14A of the Act which is based on the theory of of Section 14A of the Act which is based on the theory of of Section 14A of the Act which is based on the theory of apportionment of expenditure between tax apportionment of expenditure between taxable and non able and non-taxable income as held in Walfort Share & Stock Brokers (P.) Ltd. case. income as held in Walfort Share & Stock Brokers (P.) Ltd. case. income as held in Walfort Share & Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the Therefore, to that extent, depending upon the facts of each case, the Therefore, to that extent, depending upon the facts of each case, the

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expenditure incurred in acquiring those shares will have to be expenditure incurred in acquiring those shares will have to be expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the fact 40. We note from the facts in the State Bank of Patiala cases that the s in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the AO, while passing the assessment order, had already restricted the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by disallowance to the amount which was claimed as exempt income by disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding applying the formula contained in Rule 8D of the Rules and holding applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this n 14A of the Act would be applicable. In spite of this n 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) exercise of apportionment of expenditure carried out by the AO, CIT(A) exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. T was clearly untenable and rightly set aside by the ITAT. Therefore, on herefore, on facts, the Punjab and Haryana High Court has arrived at a correct facts, the Punjab and Haryana High Court has arrived at a correct facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not conclusion by affirming the view of the ITAT, though we are not conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High subscribing to the theory of dominant intention applied by the High subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those Court. It is to be kept in mind that in those cases where shares are cases where shares are held as 'stock-in in-trade', it becomes a business activity of the assessee trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is to deal in those shares as a business proposition. Whether dividend is to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate earned or not becomes immaterial. In fact, it would be a quirk of fate earned or not becomes immaterial. In fact, it would be a quirk of fate that when the inv that when the investee company declared dividend, those shares are estee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade held by the assessee, though the assessee has to ultimately trade held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, those shares by selling them to earn profits. The situation here is, those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where therefore, different from the case like Maxopp Investment Ltd. where therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain e assessee would continue to hold those shares as it wants to retain e assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is control over the investee company. In that case, whenever dividend is control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned declared by the investee company that would necessarily be earned declared by the investee company that would necessarily be earned by the assessee and the assessee alone. by the assessee and the assessee alone. Therefore, even at the time of even at the time of investing into those shares, the assessee knows that it may generate investing into those shares, the assessee knows that it may generate investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is dividend income as well and as and when such dividend income is dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where generated that would be earned by the assessee. In contrast, where generated that would be earned by the assessee. In contrast, where the shares are held as stock the shares are held as stock-in-trade, this may not be necessarily a e, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the situation. The main purpose is to liquidate those shares whenever the situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals share price goes up in order to earn profits. In the result, the appeals share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and filed by the Revenue challenging the judgment of the Punjab and filed by the Revenue challenging the judgment of the Punjab and Haryana High Cou Haryana High Court in State Bank of Patiala also fail, though law in rt in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove" this respect has been clarified hereinabove" 7.4 It may be appreciated that in the case of M/s Maxopp Investment It may be appreciated that in the case of M/s Maxopp Investment It may be appreciated that in the case of M/s Maxopp Investment as mentioned supra, the Hon ble Apex Court has made it very clear in as mentioned supra, the Hon ble Apex Court has made it very clear in as mentioned supra, the Hon ble Apex Court has made it very clear in an ambiguous terms th an ambiguous terms that the actual expenditure incurred by the at the actual expenditure incurred by the assessee which is debited to the profit and loss account and related to assessee which is debited to the profit and loss account and related to assessee which is debited to the profit and loss account and related to the exempted income earned, qualifies for disallowance under section the exempted income earned, qualifies for disallowance under section the exempted income earned, qualifies for disallowance under section 14-A. Also, it is inferred by the Hon'ble Supreme Court that even if the A. Also, it is inferred by the Hon'ble Supreme Court that even if the A. Also, it is inferred by the Hon'ble Supreme Court that even if the expenditure actually incurred by the assessee has a casual connection expenditure actually incurred by the assessee has a casual connection expenditure actually incurred by the assessee has a casual connection with respect to the exempted income earned, the same qualifies for with respect to the exempted income earned, the same qualifies for with respect to the exempted income earned, the same qualifies for disallowance under section 14 disallowance under section 14-A. For the sake of reference the sake of reference the relevant paragraphs from the order of the Hon'ble Suprem relevant paragraphs from the order of the Hon'ble Supreme Court are e Court are reproduced as under reproduced as under- "17. Likewise, explaining the meaning of'expenditure incurred', the "17. Likewise, explaining the meaning of'expenditure incurred', the "17. Likewise, explaining the meaning of'expenditure incurred', the High Court agreed that this expression would mean incurring of actual High Court agreed that this expression would mean incurring of actual High Court agreed that this expression would mean incurring of actual expenditure and not to some imagined expenditure. At the same time, expenditure and not to some imagined expenditure. At the same time, expenditure and not to some imagined expenditure. At the same time, observed the High observed the High Court, the 'actual' expenditure that is in Court, the 'actual' expenditure that is in

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contemplation under section 14A(1) of the said Act is the 'actual' contemplation under section 14A(1) of the said Act is the 'actual' contemplation under section 14A(1) of the said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt expenditure in relation to or in connection with or pertaining to exempt expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in income. The corollary to this is that if no expenditure is incurred in income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under elation to the exempt income, no disallowance can be made under elation to the exempt income, no disallowance can be made under section 14A of the said Act. On the basis of the aforesaid discussion, section 14A of the said Act. On the basis of the aforesaid discussion, section 14A of the said Act. On the basis of the aforesaid discussion, the High Court answered the question formulated by it in the the High Court answered the question formulated by it in the the High Court answered the question formulated by it in the affirmative. *** 32. In the first instance, it needs to be r 32. In the first instance, it needs to be recognised that as per section ecognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed 14A(1) of the Act, deduction of that expenditure is not to be allowed 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee "in relation to income which which has been incurred by the assessee "in relation to income which which has been incurred by the assessee "in relation to income which does not form part of the total income under this Act". Axiomatically, it does not form part of the total income under this Act". Axiomatically, it does not form part of the total income under this Act". Axiomatically, it is that expenditure alone which has been incurred in relation to the diture alone which has been incurred in relation to the diture alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If income which is includible in total income that has to be disallowed. If income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted an expenditure incurred has no causal connection with the exempted an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated income, then such an expenditure would obviously be treated income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure related to the income that is exempted from tax, and such expenditure related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such would be allowed as business expenditure. To put it differently, such would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other expenditure would then be considered as incurred in respect of other expenditure would then be considered as incurred in respect of other income which is to be treated as part of income which is to be treated as part of the total income.” 11.3 In the rejoinder, the learned counsel for the assessee the rejoinder, the learned counsel for the assessee the rejoinder, the learned counsel for the assessee submitted as under:

“1. As regards Para 7.2 to 7.4 of the Department's reply: As regards Para 7.2 to 7.4 of the Department's reply: In Para 7.2 to 7.4, the Ld. DR has objected to the Assessee' s In Para 7.2 to 7.4, the Ld. DR has objected to the Assessee' s In Para 7.2 to 7.4, the Ld. DR has objected to the Assessee' s Proposition no. 3 Proposition no. 3 - 'No disallowance u/s. 14A of the Act when e u/s. 14A of the Act when securities are held as stock securities are held as stock-in-trade of the business'. While this issue While this issue has been extensively argued, without repeating the arguments, suffice has been extensively argued, without repeating the arguments, suffice has been extensively argued, without repeating the arguments, suffice to say that Ld. DR has nothing to say on the decisions cited by the to say that Ld. DR has nothing to say on the decisions cited by the to say that Ld. DR has nothing to say on the decisions cited by the Assessee, which ha Assessee, which have held that section 14A does not apply to Stock ve held that section 14A does not apply to Stock- in-trade, and that too after considering the decision of Hon'ble trade, and that too after considering the decision of Hon'ble trade, and that too after considering the decision of Hon'ble Supreme Court in case of Maxopp Investments Ltd. v. CIT (402 ITR Supreme Court in case of Maxopp Investments Ltd. v. CIT (402 ITR Supreme Court in case of Maxopp Investments Ltd. v. CIT (402 ITR 640). Kindly refer submissions on Proposition no. 3 on pg. no. 5 of the Kindly refer submissions on Proposition no. 3 on pg. no. 5 of the Kindly refer submissions on Proposition no. 3 on pg. no. 5 of the Limited Written submissions made by the Assessee. In addition to the ed Written submissions made by the Assessee. In addition to the ed Written submissions made by the Assessee. In addition to the said submissions, reliance is also placed on the following judicial said submissions, reliance is also placed on the following judicial said submissions, reliance is also placed on the following judicial precedents:  Central Bank of India Vs AO (NFAC) (ITA No. 235/Mum./2023 dated Central Bank of India Vs AO (NFAC) (ITA No. 235/Mum./2023 dated Central Bank of India Vs AO (NFAC) (ITA No. 235/Mum./2023 dated 25/08/2023) (Mumbai Tribunal) 25/08/2023) (Mumbai Tribunal)  PCIT v. Punjab Nat PCIT v. Punjab National Bank [2022] 140 taxmann.com 131 (Delhi ional Bank [2022] 140 taxmann.com 131 (Delhi High Court) Therefore, if for any reason, Hon'ble Tribunal decides to take a Therefore, if for any reason, Hon'ble Tribunal decides to take a Therefore, if for any reason, Hon'ble Tribunal decides to take a contrary view despite the Tribunal having taken favorable view in contrary view despite the Tribunal having taken favorable view in contrary view despite the Tribunal having taken favorable view in Assessee* s own case, the issue will have to be referred to the Spec Assessee* s own case, the issue will have to be referred to the Spec Assessee* s own case, the issue will have to be referred to the Special Bench.”

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11.4 We have heard rival submission of the parties on the issue in have heard rival submission of the parties on the issue in have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The Hon’ble dispute and perused the relevant material on record. dispute and perused the relevant material on record. Supreme Court in the case of Maxopp I Supreme Court in the case of Maxopp Investment Ltd(supra) has nvestment Ltd(supra) has specifically decided the applicability of the prov specifically decided the applicability of the provisions of section 14A isions of section 14A in case of securities held in case of securities held as stock in trade. The Hon’ble Supreme stock in trade. The Hon’ble Supreme Court rejected the dominant purpose theory and held that expenses Court rejected the dominant purpose theory and held that expenses Court rejected the dominant purpose theory and held that expenses incurred in relation to securities held in stock in trade, have to be incurred in relation to securities held in stock in trade, have to be incurred in relation to securities held in stock in trade, have to be apportioned in the ratio of the apportioned in the ratio of the taxable and non- -taxable income earned. The relevant finding of Hon’ble Supreme Court (supra) is earned. The relevant finding of Hon’ble Supreme Court (supra) earned. The relevant finding of Hon’ble Supreme Court (supra) reproduced as under: as under:

“36) There is yet another aspect which still needs to be looked into. What 36) There is yet another aspect which still needs to be looked into. What 36) There is yet another aspect which still needs to be looked into. What happens when the shares are held as ‘stock happens when the shares are held as ‘stock-in-trade’ and not as trade’ and not as ‘investment’, particularly, by the banks? On this specific aspect, CBDT has ‘investment’, particularly, by the banks? On this specific aspect, CBDT has ‘investment’, particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. issued circular No. 18/2015 dated November 02, 2015. 37) This Circular has already been reproduced in Para 19 above. This 37) This Circular has already been reproduced in Para 19 above. This 37) This Circular has already been reproduced in Para 19 above. This Circular takes note of the judgment of this Court in Nawa Circular takes note of the judgment of this Court in Nawa 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 wherein it is held that investments made by a banking concern are part of wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such the business or banking. Therefore, the income arises from such the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head investments is attributable to business of banking falling under the head investments is attributable to business of banking falling under the head ‘profits and gains of business ‘profits and gains of business and profession’. On that basis, the Circular and profession’. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this contains the decision of the Board that no appeal would be filed on this 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 ground by the officers of the Department and if the appeals are already ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would filed, they should be withdrawn. A reading of this circular would 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 clear that the issue was as to whether income by way of interest on 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 securities shall be chargeable to income tax under the head ‘income from securities shall be chargeable to income tax under the head ‘income from other sources’ or it is to fall under the head ‘profits and gains of other sources’ or it is to fall under the head ‘profits and gains of other sources’ or it is to fall under the head ‘profits and gains of http://www.itatonline.org 37 business http://www.itatonline.org 37 business and profession’. The Board, going and profession’. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to by the decision of this Court in Nawanshahar case, clarified that it has to 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 be treated as income falling under the head ‘profits and gains of business be treated as income falling under the head ‘profits and gains of business and profession’. The Board also went to the extent of saying that this and profession’. The Board also went to the extent of saying that this and profession’. The Board also went to the extent of saying that this would not be limited only to co would not be limited only to co-operative societies/Banks claiming operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable deduction under Section 80P(2)(a)(i) of the Act but would also be applicable deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 to all banks/commercial banks, to which Banking Regulation Act, 1949 to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 38) From this, Punjab and Haryana 38) From this, Punjab and Haryana High Court pointed out that this High Court pointed out that this circular carves out a distinction between ‘stock circular carves out a distinction between ‘stock-in-trade’ and ‘investment’ trade’ and ‘investment’ and provides that if the motive behind purchase and sale of shares is to and provides that if the motive behind purchase and sale of shares is to and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the earn profit, then the same would be treated as trading profit and if the earn profit, then the same would be treated as trading profit and if the

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object is to derive income by way of dividend then the profit would be said object is to derive income by way of dividend then the profit would be said object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be to have accrued from investment. To this extent, the High Court may be to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant correct. At the same time, we do not agree with the test of dominant correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Hary intention applied by the Punjab and Haryana High Court, which we have ana High Court, which we have already discarded. In that event, the question is as to on what basis those already discarded. In that event, the question is as to on what basis those already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are cases are to be decided where the shares of other companies are cases are to be decided where the shares of other companies are purchased by the assessees as ‘stock purchased by the assessees as ‘stock-in-trade’ and not as ‘investment’. trade’ and not as ‘investment’. We proceed to discuss this aspect hereinafter. discuss this aspect hereinafter. 39) In those cases, where shares are held as stock 39) In those cases, where shares are held as stock 39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits main purpose is to trade in those shares and earn profits main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which therefrom. However, we are not concerned with those profits which therefrom. However, we are not concerned with those profits which would naturally be treated as ‘in would naturally be treated as ‘income’ under the head ‘profits and come’ under the head ‘profits and gains from business and profession’. What happens is that, in the gains from business and profession’. What happens is that, in the gains from business and profession’. What happens is that, in the process, when the shares are held as ‘stock process, when the shares are held as ‘stock-in-trade’, certain trade’, certain dividend is also earned, though incidentally, which is also an dividend is also earned, though incidentally, which is also an dividend is also earned, though incidentally, which is also an income. However, by virtue of income. However, by virtue of Section 10 (34) of the Act, this Section 10 (34) of the Act, this dividend income is not to be included in the total income and is dividend income is not to be included in the total income and is dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of exempt from tax. This triggers the applicability of Section 14A of exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of the Act which is based on the theory of apportionment of the Act which is based on the theory of apportionment of expenditure between taxable and no expenditure between taxable and non-taxable income as held in taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that Walfort Share and Stock Brokers P Ltd. case. Therefore, to that Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure extent, depending upon the facts of each case, the expenditure extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. incurred in acquiring those shares will have to be apportioned. incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the St 40) We note from the facts in the State Bank of Patiala cases that the AO, ate Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the while passing the assessment order, had already restricted the while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by disallowance to the amount which was claimed as exempt income by disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that applying the formula contained in Rule 8D of the Rules and holding that applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of In spite of this exercise of section 14A of th apportionment of expenditure carried out by the AO, CIT(A) apportionment of expenditure carried out by the AO, CIT(A) apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. disallowed the entire deduction of expenditure. That view of the That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct n facts, the Punjab and Haryana High Court has arrived at a correct n facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not conclusion by affirming the view of the ITAT, though we are not conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. subscribing to the theory of dominant intention applied by the High Court. subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases wher It is to be kept in mind that in those cases where shares are held as ‘stock e shares are held as ‘stock- in-trade’, it becomes a business activity of the assessee to deal in those trade’, it becomes a business activity of the assessee to deal in those trade’, it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not shares as a business proposition. Whether dividend is earned or not shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the becomes immaterial. In fact, it would be a quirk of fate that when the becomes immaterial. In fact, it would be a quirk of fate that when the investee compa investee company declared dividend, those shares are held by the ny declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by assessee, though the assessee has to ultimately trade those shares by assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from selling them to earn profits. The situation here is, therefore, different from selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee the case like Maxopp Investment Ltd. where the assessee the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee to hold those shares as it wants to retain control over the investee to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company. In that case, whenever dividend is declared by the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the company that would necessarily be earned by the assessee and the company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the assessee alone. Therefore, even at the time of investing into those shares, time of investing into those shares, the assessee knows that it may generate dividend income as well and as the assessee knows that it may generate dividend income as well and as the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the and when such dividend income is generated that would be earned by the and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock assessee. In contrast, where the shares are held as stock assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those not be necessarily a situation. The main purpose is to liquidate those not be necessarily a situation. The main purpose is to liquidate those

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shares whenever the share price goes up in order to earn profits. In the shares whenever the share price goes up in order to earn profits. In the shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the result, the appeals filed by the Revenue challenging the judgment of the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Punjab and Haryana High Court in State Bank of Patiala also fail, though Bank of Patiala also fail, though law in this respect has been clarified hereinabove.” law in this respect has been clarified hereinabove. 11.5 However, according to the assessee, the according to the assessee, the Coordinate bench oordinate bench of Tribunal in the case of in the case of HDFC Bank Ltd Vs ACIT (ITA No. Ltd Vs ACIT (ITA No. 6173/Mum/2016) and Punjab National Bank Vs ACIT ( ITA No. 6173/Mum/2016) and Punjab National Bank Vs ACIT 6173/Mum/2016) and Punjab National Bank Vs ACIT 1519/Del/2016) has concluded that inve 1519/Del/2016) has concluded that investment that are held as a stment that are held as a stock-in-trade cannot be subjected to trade cannot be subjected to disallowance under section disallowance under section 14A of the Act in view of the decision of the Hon’ble Supreme Court ct in view of the decision of the Hon’ble Supreme Court ct in view of the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd(supra). in the case of Maxopp Investment Ltd(supra). The The ld Counsel contended that conclusi conclusion of the Tribunal (supra) ribunal (supra) is that disallowance in respect of the stock lowance in respect of the stock-in-trade is not not applicable in case of the banks. The learned counsel before us therefore case of the banks. The learned counsel before us therefore case of the banks. The learned counsel before us therefore submitted that in case the submitted that in case the Bench is not agreed with his propo with his proposal, than matter might be referred to the Special B might be referred to the Special Bench. However ench. However, we do not agree with the above proposition of the learned counsel for the not agree with the above proposition of the learned counsel for the not agree with the above proposition of the learned counsel for the assessee as the theory of the dominant purpose for which the the theory of the dominant purpose for which the the theory of the dominant purpose for which the securities were held has been rejected by the securities were held has been rejected by the Hon’ble S Hon’ble Supreme Court the case of Maxopp investment Ltd Court the case of Maxopp investment Ltd (supra) in unambiguous in unambiguous terms and clearly laid down that in c and clearly laid down that in case of securities held as stock ase of securities held as stock- in-trade, theory of apportionment of expenses apportionment of expenses has to be applied and to be applied and according to which the expenses for incurring non according to which the expenses for incurring non- -taxable income from such securities are only to be subjected to disallowance under from such securities are only to be subjected to disallo from such securities are only to be subjected to disallo section 14A of the A section 14A of the Act and not the expenses incurred for earnin ct and not the expenses incurred for earning taxable business income. The Coordinate bench of the Tribunal in taxable business income. The Coordinate bench of the T taxable business income. The Coordinate bench of the T the case of Gajanand Gajanand Enterprises in ITA No.5599/Mum/2018 .5599/Mum/2018 for

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Assessment Year: 2014 Assessment Year: 2014-15 has following the decision of the Hon’ble 15 has following the decision of the Hon’ble Supreme Court in the case of Supreme Court in the case of Maxopp investment Ltd (supra) has Maxopp investment Ltd (supra) has held that

“7. We have heard the authorized representatives for both the parties, 7. We have heard the authorized representatives for both the parties, 7. We have heard the authorized representatives for both the parties, perused the orders of the perused the orders of the lower authorities and the material available on lower authorities and the material available on record, as well as the judicial P a g e |4 ITA No.5599/Mum/2018 A.Y. record, as well as the judicial P a g e |4 ITA No.5599/Mum/2018 A.Y. record, as well as the judicial P a g e |4 ITA No.5599/Mum/2018 A.Y. 2014-15 Gajanan Enterprises Vs. ACIT, Circle 17(1) pronouncements relied 15 Gajanan Enterprises Vs. ACIT, Circle 17(1) pronouncements relied 15 Gajanan Enterprises Vs. ACIT, Circle 17(1) pronouncements relied upon by them. Admittedly, the exempt income yielding shares were h upon by them. Admittedly, the exempt income yielding shares were h upon by them. Admittedly, the exempt income yielding shares were held by the assessee as „stock by the assessee as „stock-in-trade‟. Although, the opening stock of ‟. Although, the opening stock of inventories as on 01.04.2013 was reflected at Rs. 21,46,64,955/ inventories as on 01.04.2013 was reflected at Rs. 21,46,64,955/ inventories as on 01.04.2013 was reflected at Rs. 21,46,64,955/-, however, the same as on 31.03.2014 stood reduced to nil. In sum and however, the same as on 31.03.2014 stood reduced to nil. In sum and however, the same as on 31.03.2014 stood reduced to nil. In sum and substance, the stock of shares which were held by substance, the stock of shares which were held by the assessee as on the assessee as on 01.04.2013 were liquidated during the year under consideration, and no 01.04.2013 were liquidated during the year under consideration, and no 01.04.2013 were liquidated during the year under consideration, and no part of the same was reflected in its „closing stock part of the same was reflected in its „closing stock‟ as on 31.03.2014. ‟ as on 31.03.2014. However, in our considered view, the aforesaid factual position would However, in our considered view, the aforesaid factual position would However, in our considered view, the aforesaid factual position would principally have no bear principally have no bearing on the computing of the disallowance under ing on the computing of the disallowance under Sec. 14A r.w. Rule 8D. We find that it is the claim of the Ld. A.R that as the Sec. 14A r.w. Rule 8D. We find that it is the claim of the Ld. A.R that as the Sec. 14A r.w. Rule 8D. We find that it is the claim of the Ld. A.R that as the exempt dividend income yielding shares were held by the assessee exempt dividend income yielding shares were held by the assessee exempt dividend income yielding shares were held by the assessee company as „stock company as „stock-in- trade‟, therefore, no disallowance under Se ‟, therefore, no disallowance under Sec. 14A r.w. Rule 8D was called for in its case. In our considered view, the r.w. Rule 8D was called for in its case. In our considered view, the r.w. Rule 8D was called for in its case. In our considered view, the aforesaid contention of the Ld. A.R is absolutely misconceived and cannot aforesaid contention of the Ld. A.R is absolutely misconceived and cannot aforesaid contention of the Ld. A.R is absolutely misconceived and cannot be accepted. On a perusal of judgment of the Hon'ble Supreme Court in the be accepted. On a perusal of judgment of the Hon'ble Supreme Court in the be accepted. On a perusal of judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. V case of Maxopp Investment Ltd. Vs. CIT, New Delhi, we find, that the s. CIT, New Delhi, we find, that the Hon‟ble Apex Court had disapproved the dominant purpose test that was ‟ble Apex Court had disapproved the dominant purpose test that was ‟ble Apex Court had disapproved the dominant purpose test that was pressed into service by the assessee for the purpose of interpreting the pressed into service by the assessee for the purpose of interpreting the pressed into service by the assessee for the purpose of interpreting the scope and gamut of Sec. 14 scope and gamut of Sec. 14A of the Act. Infact, the Hon‟ble Court had ‟ble Court had subscribed to the theory of the apportionment which was made available subscribed to the theory of the apportionment which was made available subscribed to the theory of the apportionment which was made available by the legislature by inserting Sec. 14A vide the by the legislature by inserting Sec. 14A vide the Finance (Amendment) Act Finance (Amendment) Act, 2001 with retrospective affect from 01.04.1962. In the aforesaid judgment, rospective affect from 01.04.1962. In the aforesaid judgment, rospective affect from 01.04.1962. In the aforesaid judgment, the Hon‟ble Apex Court had inter alia observed that where shares are ‟ble Apex Court had inter alia observed that where shares are ‟ble Apex Court had inter alia observed that where shares are held by an assessee as stock held by an assessee as stock-in-trade, the earning of exempt dividend trade, the earning of exempt dividend income on the same would trigger the applicability of S income on the same would trigger the applicability of Sec. 14 ec. 14A of the Act. Accordingly, the Hon Accordingly, the Hon‟ble Apex Court had „set aside‟ the dominant ‟ble Apex Court had „set aside‟ the dominant purpose test which was relied upon by the High Court. For the sake of purpose test which was relied upon by the High Court. For the sake of purpose test which was relied upon by the High Court. For the sake of clarity, the observations of the Hon clarity, the observations of the Hon‟ble Supreme Court in the case of Court in the case of Maxopp Investment Ltd. (supra) are reproduced as under : Maxopp Investment Ltd. (supra) are reproduced as under : "39. In those cases, where shares are held as stock "39. In those cases, where shares are held as stock-in-trade, the main trade, the main purpose is to trade in those shares and earn profits therefrom. However, purpose is to trade in those shares and earn profits therefrom. However, purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those pr we are not concerned with those profits which would naturally be treated ofits which would naturally be treated as „income‟ under the head „profits and gains from business and ‟ under the head „profits and gains from business and ‟ under the head „profits and gains from business and profession‟. What happens is that, in the process, when the shares are ‟. What happens is that, in the process, when the shares are ‟. What happens is that, in the process, when the shares are held as „stock held as „stock-in-trade‟, certain dividend is also earned, though ‟, certain dividend is also earned, though incidentally, wh incidentally, which is also an income. However by virtue of Section 10(34) ich is also an income. However by virtue of Section 10(34) of the Act, this dividend income is not to be included in the total income of the Act, this dividend income is not to be included in the total income of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the and is exempt from tax. This triggers the applicability of Section 14A of the and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportio Act which is based on the theory of apportionment of expenditure between nment of expenditure between taxable and non taxable and non-taxable income as held in Walfort Share and Stock taxable income as held in Walfort Share and Stock

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Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to each case, the expenditure incurred in acquiring those shares will have to each case, the expenditure incurred in acquiring those shares will have to be opportioned." oned." Accordingly, in terms of our aforesaid observations, we are of the Accordingly, in terms of our aforesaid observations, we are of the Accordingly, in terms of our aforesaid observations, we are of the considered view that no infirmity emerges from the order the CIT(A) who idered view that no infirmity emerges from the order the CIT(A) who idered view that no infirmity emerges from the order the CIT(A) who after relying on the judgment of the Hon after relying on the judgment of the Hon‟ble Supreme Court in the case of ‟ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 402 ITR 640(SC), had Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 402 ITR 640(SC), had Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 402 ITR 640(SC), had rightly concluded that the shares which were rightly concluded that the shares which were held by the assessee as held by the assessee as stock-in-trade were to be considered for the purpose of computing the trade were to be considered for the purpose of computing the trade were to be considered for the purpose of computing the disallowance under Sec. 14 disallowance under Sec. 14A of the Act. As regards the reliance placed by . As regards the reliance placed by the Ld. A.R on the order of a coord the Ld. A.R on the order of a coordinate bench of the ITAT, Delhi in the case inate bench of the ITAT, Delhi in the case of Nice Bombay Transport (P) Ltd. Vs. ACIT(OSD), New Delhi (2019) 175 of Nice Bombay Transport (P) Ltd. Vs. ACIT(OSD), New Delhi (2019) 175 of Nice Bombay Transport (P) Ltd. Vs. ACIT(OSD), New Delhi (2019) 175 ITD 684 (Del), the same in our considered view, not being consistent with ITD 684 (Del), the same in our considered view, not being consistent with ITD 684 (Del), the same in our considered view, not being consistent with the view taken by the Hon the view taken by the Hon‟ble Apex Court in the case of Maxopp ‟ble Apex Court in the case of Maxopp Investment Ltd. (supra), would thus not be binding as a judicial precedent. ment Ltd. (supra), would thus not be binding as a judicial precedent. ment Ltd. (supra), would thus not be binding as a judicial precedent. Insofar the reliance placed by the Ld. A.R on the judgment of the Hon Insofar the reliance placed by the Ld. A.R on the judgment of the Hon Insofar the reliance placed by the Ld. A.R on the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Alpha G. Corp. Development Ltd. High Court of Delhi in the case of CIT Vs. Alpha G. Corp. Development Ltd. High Court of Delhi in the case of CIT Vs. Alpha G. Corp. Development Ltd. (ITA No. 599/2018, dated 25.04.2019), (ITA No. 599/2018, dated 25.04.2019), the same being distinguishable on the same being distinguishable on facts would not assist the case of the assessee before us. Also, the order of facts would not assist the case of the assessee before us. Also, the order of facts would not assist the case of the assessee before us. Also, the order of the ITAT "F" Bench, Mumbai in the case of M/s Vora Financial Services P. the ITAT "F" Bench, Mumbai in the case of M/s Vora Financial Services P. the ITAT "F" Bench, Mumbai in the case of M/s Vora Financial Services P. Ltd. Vs. ACIT-2(3)(1), Mumbai, wherein an adhoc disallowance had been 2(3)(1), Mumbai, wherein an adhoc disallowance had been 2(3)(1), Mumbai, wherein an adhoc disallowance had been preferred as against that worked out under Sec. 14A r.w. Rule 8D(2), preferred as against that worked out under Sec. 14A r.w. Rule 8D(2), preferred as against that worked out under Sec. 14A r.w. Rule 8D(2), having been rendered without considering the aforesaid judgment of the having been rendered without considering the aforesaid judgment of the having been rendered without considering the aforesaid judgment of the Hon‟ble Apex Court in the case of Maxopp Investment Ltd. (supra) would ‟ble Apex Court in the case of Maxopp Investment Ltd. (supra) would ‟ble Apex Court in the case of Maxopp Investment Ltd. (supra) would also not be binding. We thus finding no infir also not be binding. We thus finding no infirmity in the order of the CIT(A) mity in the order of the CIT(A) who had rightly sustained the disallowance computed by the A.O under who had rightly sustained the disallowance computed by the A.O under who had rightly sustained the disallowance computed by the A.O under Sec. 14A r.w. Rule 8D(2)(iii), therein uphold the same. Sec. 14A r.w. Rule 8D(2)(iii), therein uphold the same. 8. Resultantly, the appeal filed by the assessee is dismissed. 8. Resultantly, the appeal filed by the assessee is dismissed. 8. Resultantly, the appeal filed by the assessee is dismissed.” 11.6 The Coordinate bench oordinate bench (supra) in the above case has rejected n the above case has rejected the decision of the other benches of T cision of the other benches of Tribunal, which are ribunal, which are inconsistent with the ratio of Hon’ble Supreme Court in the case of inconsistent with the ratio of Hon’ble Supreme Court in the case of inconsistent with the ratio of Hon’ble Supreme Court in the case of Maxopp investment Ltd(supra). The decision cited by the learned Maxopp investment Ltd(supra). The decision cited by the learned Maxopp investment Ltd(supra). The decision cited by the learned counsel for the assessee before us al counsel for the assessee before us also being inconsistent with the so being inconsistent with the ratio of the Hon’ble Supreme Court in the case of Maxopp ratio of the Hon’ble Supreme Court in the case of Maxopp ratio of the Hon’ble Supreme Court in the case of Maxopp investment Ltd(supra), same are investment Ltd(supra), same are per-incuriam to that extent and to that extent and therefore, we are not required t we are not required to follow the same as precedent. o follow the same as precedent. Accordingly, the prayer of the learned c the prayer of the learned counsel for the assessee to ounsel for the assessee to refer the matter to the special bench is rejected. refer the matter to the special bench is rejected.

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11.7 In view of the above, the assessee has to provide details of In view of the above, the assessee has to provide details of In view of the above, the assessee has to provide details of taxable and non-taxable income earned from taxable income earned from the securities held as the securities held as stock-in-trade and thereafter apportion the e trade and thereafter apportion the expenses incurred in xpenses incurred in relation to such securities in the ratio of taxable and non-taxable relation to such securities in the ratio of taxable and non relation to such securities in the ratio of taxable and non income earned from those securities and thereafter to consider the income earned from those securities and thereafter to consider the income earned from those securities and thereafter to consider the proportion of the expenses related to non proportion of the expenses related to non-taxable or exempted taxable or exempted income for disallowance under section 1 wance under section 14A of the Act. Therefore, we ct. Therefore, we feel it appropriate to restore this issue back to the file of the feel it appropriate to restore this issue back to the file of the feel it appropriate to restore this issue back to the file of the Assessing Officer for necessary verification and deciding afresh. The Assessing Officer for necessary verification and deciding afresh. The Assessing Officer for necessary verification and deciding afresh. The ground No. IV of the appeal of the assessee is accordingly allowed ground No. IV of the appeal of the assessee is accordingly allowed ground No. IV of the appeal of the assessee is accordingly allowed for statistical purposes for statistical purposes.

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securities appearing in the balance sheet of the assessee. The securities appearing in the balance sheet of the assessee. The securities appearing in the balance sheet of the assessee. The ground no. V of the appeal of the assessee is accordingly, allowed V of the appeal of the assessee is accordingly, allowed V of the appeal of the assessee is accordingly, allowed for statistical purposes. for statistical purposes.

13.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute. We are of the opinion that with e dispute. We are of the opinion that with effect from assessment ffect from assessment year 2008-09, once the Asses , once the Assessing Officer is dissatisfied with the sing Officer is dissatisfied with the computation of claim of disallowance of expenses in terms of computation of claim of disallowance of expenses computation of claim of disallowance of expenses section 14A of the A section 14A of the Act, the Assessing Officer is required to invoke required to invoke rule 8D of ‘Rules’. Since in the case, Assessing Officer after . Since in the case, Assessing Officer after . Since in the case, Assessing Officer after recording dissatisfaction satisfaction to the claim of the assessee to the claim of the assessee, has invoked rule 8D of the ‘Rules’ ’, , therefore we do not find any infirmity in the therefore we do not find any infirmity in the same and the prayer of the assessee for restricting the disallowance same and the prayer of the assessee for restricting the disallowance same and the prayer of the assessee for restricting the disallowance to the extent of suo- -motu disallowance is rejected. The ground No. is rejected. The ground No. VI of the assessee is accordingly dismissed. the assessee is accordingly dismissed. 14. In Additional ground, the assessee has raised contention that In Additional ground, the assessee has raised contention that In Additional ground, the assessee has raised contention that Income-tax has already been paid by the securitisation trust on the tax has already been paid by the securitisation trust on the tax has already been paid by the securitisation trust on the income from PTC, which has been distributed which has been distributed to the assessee as pe to the assessee as per the provisions of section 115TA of the of section 115TA of the Act, therefore provisions of therefore provisions of section 14A cannot apply to PTC. section 14A cannot apply to PTC.

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14.1 The written submissions filed by the learned counsel for the The written submissions filed by the learned counsel for the The written submissions filed by the learned counsel for the assessee on the issue in dispute are reproduced as under: assessee on the issue in dispute are reproduced as under: assessee on the issue in dispute are reproduced as under:

“The Assessee has received income of Rs. 237,6 “The Assessee has received income of Rs. 237,66,81,445/ 6,81,445/- on the PTCs where tax on the same was paid by the securitization trust u/s 115TA and where tax on the same was paid by the securitization trust u/s 115TA and where tax on the same was paid by the securitization trust u/s 115TA and hence no tax liability arises in the hands of the Appellant Assessee as per hence no tax liability arises in the hands of the Appellant Assessee as per hence no tax liability arises in the hands of the Appellant Assessee as per section 10(35A) of the Act. section 10(35A) of the Act. A Securitization trust is a trust that is set up for the A Securitization trust is a trust that is set up for the purposes of acquiring purposes of acquiring receivables from banks/financial institutions. The money required for the receivables from banks/financial institutions. The money required for the receivables from banks/financial institutions. The money required for the acquisition of such receivables is collected from various investors by the acquisition of such receivables is collected from various investors by the acquisition of such receivables is collected from various investors by the trustee by way of issuance of a security known as Pass trustee by way of issuance of a security known as Pass-Through certificate Through certificate (PTC). These investors are themselves the beneficiaries of the trust in as ese investors are themselves the beneficiaries of the trust in as ese investors are themselves the beneficiaries of the trust in as much as all income received by the trust is for the benefit of these much as all income received by the trust is for the benefit of these much as all income received by the trust is for the benefit of these investors in the ratio in which they have made investments in the PTCs. investors in the ratio in which they have made investments in the PTCs. investors in the ratio in which they have made investments in the PTCs. The Appellant Assessee, in the course of its norm The Appellant Assessee, in the course of its normal banking business, al banking business, acquires PCs from such securitization trust. A PTC is essentially a acquires PCs from such securitization trust. A PTC is essentially a acquires PCs from such securitization trust. A PTC is essentially a securitized debt instrument whereby the investor in PTC gets an undivided securitized debt instrument whereby the investor in PTC gets an undivided securitized debt instrument whereby the investor in PTC gets an undivided interest in the underlying receivable acquired by the trust from a bank/ interest in the underlying receivable acquired by the trust from a bank/ interest in the underlying receivable acquired by the trust from a bank/ financial instrument financial instrument. During the captioned year, the Appellant Assessee has received certain During the captioned year, the Appellant Assessee has received certain During the captioned year, the Appellant Assessee has received certain income by way of distribution of its share of income by the securitization income by way of distribution of its share of income by the securitization income by way of distribution of its share of income by the securitization trust. Under the scheme of the Act, the income of the securitization trust is trust. Under the scheme of the Act, the income of the securitization trust is trust. Under the scheme of the Act, the income of the securitization trust is taxed in the hands of the trus taxed in the hands of the trustee u/s 115TA of the Act and is not taxed in tee u/s 115TA of the Act and is not taxed in the hands of the beneficiary. the hands of the beneficiary. The Ld. AO has considered PTC as an investment yielding exempt income The Ld. AO has considered PTC as an investment yielding exempt income The Ld. AO has considered PTC as an investment yielding exempt income and thereby included the same in computing disallowance u/s 14A r.w.r and thereby included the same in computing disallowance u/s 14A r.w.r and thereby included the same in computing disallowance u/s 14A r.w.r 8D of the Act. It is the Appellant Assess It is the Appellant Assessee's submission that PTC is an instrument which ee's submission that PTC is an instrument which signifies the undivided interest of the investor in the underlying receivable signifies the undivided interest of the investor in the underlying receivable signifies the undivided interest of the investor in the underlying receivable acquired by the securitization trust and that the income from such acquired by the securitization trust and that the income from such acquired by the securitization trust and that the income from such receivable is duly taxed in the hands of the trustee and only t receivable is duly taxed in the hands of the trustee and only t receivable is duly taxed in the hands of the trustee and only the net amount is distributed to the investor (beneficiary). Since the underlying amount is distributed to the investor (beneficiary). Since the underlying amount is distributed to the investor (beneficiary). Since the underlying income has suffered tax, the Appellant Assessee submits that PTC cannot suffered tax, the Appellant Assessee submits that PTC cannot suffered tax, the Appellant Assessee submits that PTC cannot be regarded as an investment yielding exempt income and therefore the be regarded as an investment yielding exempt income and therefore the be regarded as an investment yielding exempt income and therefore the same cannot be included as an exe same cannot be included as an exempt investment for the purpose of mpt investment for the purpose of section 14A r.w.r 8D of the Act. The basis on which Appellant Assessee section 14A r.w.r 8D of the Act. The basis on which Appellant Assessee section 14A r.w.r 8D of the Act. The basis on which Appellant Assessee contends as above is as follows: contends as above is as follows:  Section 115TA of the Act provides that any income distributed to an Section 115TA of the Act provides that any income distributed to an Section 115TA of the Act provides that any income distributed to an investor by a securitization trust shall be liable investor by a securitization trust shall be liable to levy of additional to levy of additional income tax in the hands of the securitization trust at the rate of income tax in the hands of the securitization trust at the rate of income tax in the hands of the securitization trust at the rate of 25% of the distributed income if such income is paid to a person 25% of the distributed income if such income is paid to a person 25% of the distributed income if such income is paid to a person being an individual or Hindu undivided family. The additional being an individual or Hindu undivided family. The additional being an individual or Hindu undivided family. The additional income tax shall be levied at the rate income tax shall be levied at the rate of 30%, if such distributed of 30%, if such distributed income is paid to a person other than an individual or Hindu income is paid to a person other than an individual or Hindu income is paid to a person other than an individual or Hindu

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undivided family. However, no additional income tax shall be undivided family. However, no additional income tax shall be undivided family. However, no additional income tax shall be levied if the distributed income is paid to any person who is exempt levied if the distributed income is paid to any person who is exempt levied if the distributed income is paid to any person who is exempt under the Act. under the Act.  Assessee being a Bank, Assessee being a Bank, the additional income tax shall be levied at the additional income tax shall be levied at the rate of 30%. It can be seen that the Section 115TA of the Act the rate of 30%. It can be seen that the Section 115TA of the Act the rate of 30%. It can be seen that the Section 115TA of the Act provides for different rates for different Assessees, which provides for different rates for different Assessees, which provides for different rates for different Assessees, which substantiates that the tax paid by trust u/s 115TA of the Act is the substantiates that the tax paid by trust u/s 115TA of the Act is the substantiates that the tax paid by trust u/s 115TA of the Act is the tax paid on beh tax paid on behalf of the Assessee. The taxability in the hands of alf of the Assessee. The taxability in the hands of the Securitisation trust. the Securitisation trust.  Thus, the interest income of the Assessee, though not taxed in the Thus, the interest income of the Assessee, though not taxed in the Thus, the interest income of the Assessee, though not taxed in the hands of the Assessee (investor) directly, is taxed in the hands of hands of the Assessee (investor) directly, is taxed in the hands of hands of the Assessee (investor) directly, is taxed in the hands of the Trust. Since the income has suffered ta the Trust. Since the income has suffered tax, the same cannot be x, the same cannot be termed as exempt income, rendering the provisions of section 14A termed as exempt income, rendering the provisions of section 14A termed as exempt income, rendering the provisions of section 14A inapplicable. inapplicable.  Further, the Assessee is aware of the argument that when a Further, the Assessee is aware of the argument that when a Further, the Assessee is aware of the argument that when a company pays Dividend Distribution Tax, it pays tax as a company company pays Dividend Distribution Tax, it pays tax as a company company pays Dividend Distribution Tax, it pays tax as a company and not on behalf of the shareh and not on behalf of the shareholder. Since, a company and older. Since, a company and shareholder are different entities, a shareholder cannot claim that shareholder are different entities, a shareholder cannot claim that shareholder are different entities, a shareholder cannot claim that dividend has suffered tax. It has been held by Hon'ble SC in case dividend has suffered tax. It has been held by Hon'ble SC in case dividend has suffered tax. It has been held by Hon'ble SC in case of Bacha F. Guzdar (104 of 1954) that shareholder does not have of Bacha F. Guzdar (104 of 1954) that shareholder does not have of Bacha F. Guzdar (104 of 1954) that shareholder does not have interest in any of the assets interest in any of the assets of the company. That being the legal of the company. That being the legal position, a shareholder cannot claim tax payable on dividend as position, a shareholder cannot claim tax payable on dividend as position, a shareholder cannot claim tax payable on dividend as his tax triggering the provisions of section 14A of the Act. his tax triggering the provisions of section 14A of the Act. his tax triggering the provisions of section 14A of the Act.  Assessee's case being that of Trust, the above argument does not Assessee's case being that of Trust, the above argument does not Assessee's case being that of Trust, the above argument does not apply. A Trustee is a mere Re apply. A Trustee is a mere Representative Assessee of a Trust as presentative Assessee of a Trust as per the provisions of section, 160(iv) of the Act. A Trustee pays tax per the provisions of section, 160(iv) of the Act. A Trustee pays tax per the provisions of section, 160(iv) of the Act. A Trustee pays tax as a Representative Assessee of the beneficiary. However, a as a Representative Assessee of the beneficiary. However, a as a Representative Assessee of the beneficiary. However, a Company is not a representative Assessee of a shareholder. Company is not a representative Assessee of a shareholder. Company is not a representative Assessee of a shareholder. Therefore, the argument that wh Therefore, the argument that where dividend which is exempt in ere dividend which is exempt in the hands of the shareholder has already suffered DDT was not the hands of the shareholder has already suffered DDT was not the hands of the shareholder has already suffered DDT was not accepted and applicability of section 14A was rightly upheld. accepted and applicability of section 14A was rightly upheld. accepted and applicability of section 14A was rightly upheld. However, the said argument cannot be applied in case of the However, the said argument cannot be applied in case of the However, the said argument cannot be applied in case of the Assessee where trustee pays tax as a Rep Assessee where trustee pays tax as a Representative Assessee. resentative Assessee.  It is true that section 10(35A) of the Act apparently provides an It is true that section 10(35A) of the Act apparently provides an It is true that section 10(35A) of the Act apparently provides an exemption on income distributed by the trust and therefore, at first exemption on income distributed by the trust and therefore, at first exemption on income distributed by the trust and therefore, at first blush, the income distributed by the securitization trust to a blush, the income distributed by the securitization trust to a blush, the income distributed by the securitization trust to a beneficiary, is an exempt income. Ho beneficiary, is an exempt income. However, as mentioned above, a wever, as mentioned above, a trustee is a mere representative assessee of the beneficiary and trustee is a mere representative assessee of the beneficiary and trustee is a mere representative assessee of the beneficiary and therefore any tax paid by the trustee is a tax paid on behalf of the therefore any tax paid by the trustee is a tax paid on behalf of the therefore any tax paid by the trustee is a tax paid on behalf of the beneficiary as submitted above. It is a settled law that the same beneficiary as submitted above. It is a settled law that the same beneficiary as submitted above. It is a settled law that the same income can never be taxed t income can never be taxed twice. Once an income is taxed in the wice. Once an income is taxed in the hand of the trustee it can never be taxed again in the hands of the hand of the trustee it can never be taxed again in the hands of the hand of the trustee it can never be taxed again in the hands of the beneficiary. This has been made clear in the law itself by a beneficiary. This has been made clear in the law itself by a beneficiary. This has been made clear in the law itself by a statutory enactment u/s 166 of the Act. It is also held in several statutory enactment u/s 166 of the Act. It is also held in several statutory enactment u/s 166 of the Act. It is also held in several decisions that if an in decisions that if an income is taxed in the hands of the trustee, the come is taxed in the hands of the trustee, the income distributed to the beneficiary can never be taxed once income distributed to the beneficiary can never be taxed once income distributed to the beneficiary can never be taxed once again. This is against the rule which prohibits double taxation of again. This is against the rule which prohibits double taxation of again. This is against the rule which prohibits double taxation of the same income. See for e.g. the following decisions: the same income. See for e.g. the following decisions: the same income. See for e.g. the following decisions:  Trustees of Chaturbhuj R Trustees of Chaturbhuj Raghavji Trust v. CIT (50 ITR 693) (Bom. aghavji Trust v. CIT (50 ITR 693) (Bom. HC)  CIT v. Smt. Indramma (25 taxmann.com 259) (Kar. HC) CIT v. Smt. Indramma (25 taxmann.com 259) (Kar. HC) CIT v. Smt. Indramma (25 taxmann.com 259) (Kar. HC)  CIT v. Alfred Herbert (India) (P.) Ltd. (159 ITR 583) (Cal. HC) CIT v. Alfred Herbert (India) (P.) Ltd. (159 ITR 583) (Cal. HC) CIT v. Alfred Herbert (India) (P.) Ltd. (159 ITR 583) (Cal. HC)

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 Barium Chemicals Ltd. v. ITO (100 ITR 637) (Andhra. HC) Barium Chemicals Ltd. v. ITO (100 ITR 637) (Andhra. HC) Barium Chemicals Ltd. v. ITO (100 ITR 637) (Andhra. HC)  CIT v. Dr. David Joseph (214 ITR 658) (K CIT v. Dr. David Joseph (214 ITR 658) (Ker: HC) In view of the above In view of the above-mentioned legal position, the provision of mentioned legal position, the provision of section 10(35A) of the Act can be regarded as merely clarificatory section 10(35A) of the Act can be regarded as merely clarificatory section 10(35A) of the Act can be regarded as merely clarificatory in nature and it is submitted that even in absence of section in nature and it is submitted that even in absence of section in nature and it is submitted that even in absence of section 10(35A) of the Act, the position would have been the sa 10(35A) of the Act, the position would have been the sa 10(35A) of the Act, the position would have been the same, namely that the income is taxed in the hands of the trustee u/s 115TA of that the income is taxed in the hands of the trustee u/s 115TA of that the income is taxed in the hands of the trustee u/s 115TA of the Act, therefore the beneficiary should not have been taxed in the Act, therefore the beneficiary should not have been taxed in the Act, therefore the beneficiary should not have been taxed in law. It is not unknown in the Indian tax history that certain tax law. It is not unknown in the Indian tax history that certain tax law. It is not unknown in the Indian tax history that certain tax provisions are held to be made out of abundant c provisions are held to be made out of abundant c provisions are held to be made out of abundant caution to allay fears in the minds of taxpayers as regards taxability of certain fears in the minds of taxpayers as regards taxability of certain fears in the minds of taxpayers as regards taxability of certain income. See for example one of the early decisions was that of as income. See for example one of the early decisions was that of as income. See for example one of the early decisions was that of as held in Madurai Mills Co. Ltd (89 ITR 45) (SC) wherein the provision held in Madurai Mills Co. Ltd (89 ITR 45) (SC) wherein the provision held in Madurai Mills Co. Ltd (89 ITR 45) (SC) wherein the provision of section 12B of the Act was held to be of section 12B of the Act was held to be merely clarificatory and merely clarificatory and enacted by the legislature only to allay fears as regards to enacted by the legislature only to allay fears as regards to enacted by the legislature only to allay fears as regards to taxability of income. taxability of income. In view of the foregoing, income on PTs is not be considered for the In view of the foregoing, income on PTs is not be considered for the In view of the foregoing, income on PTs is not be considered for the purpose of section 14A of the Act since the same has already purpose of section 14A of the Act since the same has already purpose of section 14A of the Act since the same has already suffered tax in t suffered tax in the hands of the Trustee on behalf of the beneficiary he hands of the Trustee on behalf of the beneficiary and hence cannot be said to be exempt in the hands of the and hence cannot be said to be exempt in the hands of the and hence cannot be said to be exempt in the hands of the Assessee. Assessee.” 14.2 The learned departmental representative on the other hand learned departmental representative on the other hand learned departmental representative on the other hand submitted as under:

“In this regard, it is submitted that the provision In this regard, it is submitted that the provisions of section 14 s of section 14-A mandate that any expenditure incurred by the assessee relating to mandate that any expenditure incurred by the assessee relating to mandate that any expenditure incurred by the assessee relating to the income not forming part of the income not forming part of total income shall be disallowed. total income shall be disallowed. There is no distinction between business income or otherwise. There is no distinction between business income or otherwise. There is no distinction between business income or otherwise. There is also no distinction with respect of There is also no distinction with respect of the incidence of taxes by the incidence of taxes by the payer to the payee. Onley one condition is prescribed by the the payer to the payee. Onley one condition is prescribed by the the payer to the payee. Onley one condition is prescribed by the Income tax Act viz., the expenditure incurred by the assessee shall Income tax Act viz., the expenditure incurred by the assessee shall Income tax Act viz., the expenditure incurred by the assessee shall be related to or attributable to the 'income not forming part of total be related to or attributable to the 'income not forming part of total be related to or attributable to the 'income not forming part of total income. income. Also, it is admitt Also, it is admitted that the impugned income claimed by the ed that the impugned income claimed by the assessee from passthrough certificates is 'income not forming part assessee from passthrough certificates is 'income not forming part assessee from passthrough certificates is 'income not forming part of total income' under section 10(35 A) and such factual matrix is of total income' under section 10(35 A) and such factual matrix is of total income' under section 10(35 A) and such factual matrix is not disputed. Therefore, it is not material whether such income is not disputed. Therefore, it is not material whether such income is not disputed. Therefore, it is not material whether such income is earned by th earned by the assessee during the course of normal banking e assessee during the course of normal banking business or from the investments. business or from the investments. Further, it is an admitted fact that the securitization trust is a Further, it is an admitted fact that the securitization trust is a Further, it is an admitted fact that the securitization trust is a distinct entity, it has it own, PAN and it is also legally bound to file distinct entity, it has it own, PAN and it is also legally bound to file distinct entity, it has it own, PAN and it is also legally bound to file its return of income. its return of income. Therefore, th Therefore, the Appellant assessee is not related to the income of the e Appellant assessee is not related to the income of the trust directly and it the trust has distributed the income accrued to trust directly and it the trust has distributed the income accrued to trust directly and it the trust has distributed the income accrued to assessee on its investment. It is admitted fact that the trust has assessee on its investment. It is admitted fact that the trust has assessee on its investment. It is admitted fact that the trust has distributed income to the assessee on investment made by the distributed income to the assessee on investment made by the distributed income to the assessee on investment made by the assessee in the respective trust. Therefore, the income received by ssessee in the respective trust. Therefore, the income received by ssessee in the respective trust. Therefore, the income received by the assessee is exempted in the hands of the assessee. As such, the assessee is exempted in the hands of the assessee. As such, the assessee is exempted in the hands of the assessee. As such, the expenditure incurred by the assessee in relation to the the expenditure incurred by the assessee in relation to the the expenditure incurred by the assessee in relation to the

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investment made in the securitisation trust attracts provisions o investment made in the securitisation trust attracts provisions o investment made in the securitisation trust attracts provisions of section 14 section 14 -A of the act.” 14.3 We have heard rival submission of the parties have heard rival submission of the parties have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The PTCs are dispute and perused the relevant material on record. dispute and perused the relevant material on record. securities issued to investors against mortgaged securities issued to investors against mortgaged backed loans of backed loans of non-banking finance companies banking finance companies and banks. These loans are and banks. These loans are securitized and sold to an investment entity, such as a mutual fund and sold to an investment entity, such as a mutual fund and sold to an investment entity, such as a mutual fund etc, thereby transferring the future cash flows to the buyer of the , thereby transferring the future cash flows to the buyer of the , thereby transferring the future cash flows to the buyer of the security for a price.

14.4 Prior to 01/06/2016, income distributed by a securitisation Prior to 01/06/2016, income distributed by a securitisation Prior to 01/06/2016, income distributed by a securitisation trust was taxable in the hands of the trust in terms of section 115 t was taxable in the hands of the trust in terms of section 115 t was taxable in the hands of the trust in terms of section 115 TA of the Act, however, w.e.f 1/4/2017, it has been made taxable TA of the Act, however, w.e.f 1/4/2017, it has been made taxable TA of the Act, however, w.e.f 1/4/2017, it has been made taxable only in the hand of the investor in terms of section 115 TCA of the only in the hand of the investor in terms of section 115 TCA of the only in the hand of the investor in terms of section 115 TCA of the Act. For ready reference, said sections are reproduced as under: Act. For ready reference, said sections are reproduced as u Act. For ready reference, said sections are reproduced as u

“115TA. Tax Tax Tax on on on distributed distributed distributed income income income to to to investors.—(1) investors. investors. Notwithstanding anything contained in any other provisions of the Notwithstanding anything contained in any other provisions of the Notwithstanding anything contained in any other provisions of the Act, any amount of income distributed by the securitisation trust to Act, any amount of income distributed by the securitisation trust to Act, any amount of income distributed by the securitisation trust to its investors shall be chargeable to tax and such securitisatio its investors shall be chargeable to tax and such securitisatio its investors shall be chargeable to tax and such securitisation trust shall be liable to pay additional income shall be liable to pay additional income-tax on such distributed tax on such distributed income at the rate of income at the rate of— (i) twenty- -five per cent on income distributed to any person five per cent on income distributed to any person being an individual or a Hindu undivided family; being an individual or a Hindu undivided family; (ii) thirty per cent on income distributed to any other per thirty per cent on income distributed to any other per thirty per cent on income distributed to any other person: Provided that nothing contained in this sub that nothing contained in this sub-section shall apply in section shall apply in respect of any income distributed by the securitisation trust to any respect of any income distributed by the securitisation trust to any respect of any income distributed by the securitisation trust to any person in whose case income, irrespective of its nature and source, person in whose case income, irrespective of its nature and source, person in whose case income, irrespective of its nature and source, is not chargeable to tax under the Act. is not chargeable to tax under the Act. (2) The person responsible for making payment of the income person responsible for making payment of the income person responsible for making payment of the income distributed by the securitisation trust shall be liable to pay tax to distributed by the securitisation trust shall be liable to pay tax to distributed by the securitisation trust shall be liable to pay tax to the credit of the Central Government within fourteen days from the the credit of the Central Government within fourteen days from the the credit of the Central Government within fourteen days from the date of distribution or payment of such income, whichever is date of distribution or payment of such income, whichever is date of distribution or payment of such income, whichever is earlier. (3) The person responsible for making payment of the income (3) The person responsible for making payment of the income (3) The person responsible for making payment of the income distributed by the securitisation trust shall, on or before the 15th distributed by the securitisation trust shall, on or before the 15th distributed by the securitisation trust shall, on or before the 15th day of September in each year, furnish to the prescribed income day of September in each year, furnish to the prescribed income day of September in each year, furnish to the prescribed income-tax

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authority, a statement in the prescribed form and verif authority, a statement in the prescribed form and verified in the ied in the prescribed manner, giving the details of the amount of income prescribed manner, giving the details of the amount of income prescribed manner, giving the details of the amount of income distributed to investors during the previous year, the tax paid distributed to investors during the previous year, the tax paid distributed to investors during the previous year, the tax paid thereon and such other relevant details, as may be prescribed. thereon and such other relevant details, as may be prescribed. thereon and such other relevant details, as may be prescribed. (4) No deduction under any other provisions of this Act (4) No deduction under any other provisions of this Act shall be shall be allowed to the securitisation trust in respect of the income which allowed to the securitisation trust in respect of the income which allowed to the securitisation trust in respect of the income which has been charged to tax under sub has been charged to tax under sub-section (1). (5) Nothing contained in this section shall apply in respect of any (5) Nothing contained in this section shall apply in respect of any (5) Nothing contained in this section shall apply in respect of any income distributed by a securitization to its investors on or aft income distributed by a securitization to its investors on or aft income distributed by a securitization to its investors on or after the 1st day of June, 2016.” day of June, 2016.” "115TCA. Tax Tax Tax on on on income income income from from from securitisation securitisation securitisation trusts.—(1) trusts. trusts. Notwithstanding anything contained in this Act, any income Notwithstanding anything contained in this Act, any income Notwithstanding anything contained in this Act, any income accruing or arising to, or received by, a person, being an investor of accruing or arising to, or received by, a person, being an investor of accruing or arising to, or received by, a person, being an investor of a securitisation trust, out of investmen a securitisation trust, out of investments made in the securitisation ts made in the securitisation trust, shall be chargeable to income trust, shall be chargeable to income-tax in the same manner as if it tax in the same manner as if it were the income accruing or arising to, or received by, such person, were the income accruing or arising to, or received by, such person, were the income accruing or arising to, or received by, such person, had the investments by the securitisation trust been made directly had the investments by the securitisation trust been made directly had the investments by the securitisation trust been made directly by him. (2) The income paid or credited by the securitisation trust shall be e paid or credited by the securitisation trust shall be e paid or credited by the securitisation trust shall be deemed to be of the same nature and in the same proportion in the deemed to be of the same nature and in the same proportion in the deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub hands of the person referred to in sub-section (1), as if it had been section (1), as if it had been received by, or had accrued or arisen to, the securitisation tru received by, or had accrued or arisen to, the securitisation tru received by, or had accrued or arisen to, the securitisation trust during the previous year. during the previous year. (3) The income accruing or arising to, or received by, the (3) The income accruing or arising to, or received by, the (3) The income accruing or arising to, or received by, the securitisation trust, during a previous year, if not paid or credited to securitisation trust, during a previous year, if not paid or credited to securitisation trust, during a previous year, if not paid or credited to the person referred to in sub the person referred to in sub-section (1), shall be deemed to have section (1), shall be deemed to have been credited to the account been credited to the account of the said person on the last day of of the said person on the last day of the previous year in the same proportion in which such person the previous year in the same proportion in which such person the previous year in the same proportion in which such person would have been entitled to receive the income had it been paid in would have been entitled to receive the income had it been paid in would have been entitled to receive the income had it been paid in the previous year. the previous year. (4) The person responsible for crediting or making payment of the (4) The person responsible for crediting or making payment of the (4) The person responsible for crediting or making payment of the income on behalf of securitisation trust and the securitisation trust ome on behalf of securitisation trust and the securitisation trust ome on behalf of securitisation trust and the securitisation trust shall furnish, within such period, as may be prescribed, to the shall furnish, within such period, as may be prescribed, to the shall furnish, within such period, as may be prescribed, to the person who is liable to tax in respect of such income and to the person who is liable to tax in respect of such income and to the person who is liable to tax in respect of such income and to the prescribed income prescribed income-tax authority, a statement in such form an tax authority, a statement in such form and verified in such manner, giving details of the nature of the income verified in such manner, giving details of the nature of the income verified in such manner, giving details of the nature of the income paid or credited during the previous year and such other relevant paid or credited during the previous year and such other relevant paid or credited during the previous year and such other relevant details, as may be prescribed. details, as may be prescribed. (5) Any income which has been included in the total income of the (5) Any income which has been included in the total income of the (5) Any income which has been included in the total income of the person referred to in s person referred to in sub-section (1), in a previous year, on account section (1), in a previous year, on account of it having accrued or arisen in the said previous year, shall not be of it having accrued or arisen in the said previous year, shall not be of it having accrued or arisen in the said previous year, shall not be included in the total income of such person in the previous year in included in the total income of such person in the previous year in included in the total income of such person in the previous year in which such income is actually paid to him by the securitisation which such income is actually paid to him by the securitisation which such income is actually paid to him by the securitisation trust.". 14.5 In the year under consideration, the income distributed under year under consideration, the income distributed under year under consideration, the income distributed under the provision of section 115TA was exempted the provision of section 115TA was exempted in the hands of in the hands of

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recipient as per the provis as per the provisions of section 10(35A) of the A ions of section 10(35A) of the Act. For ready reference, said provision is reproduced as under: ready reference, said provision is reproduced as under: ready reference, said provision is reproduced as under:

“(35A) any income by way of distributed income referred to in any income by way of distributed income referred to in any income by way of distributed income referred to in section 115TA received from a securitisation trust by any person section 115TA received from a securitisation trust by any person section 115TA received from a securitisation trust by any person being an investor of the said trust : being an investor of the said trust : [Provided that nothing contained in this clause shall apply to any [Provided that nothing contained in this clause shall apply to any [Provided that nothing contained in this clause shall apply to any income by way of distribute income by way of distributed income referred to in the said section, d income referred to in the said section, received on or after the 1st day of June, 2016.] received on or after the 1st day of June, 2016.] Explanation.-For the purposes of this clause, the expressions For the purposes of this clause, the expressions For the purposes of this clause, the expressions "inves-tor" and "securitisation trust" shall have the meanings tor" and "securitisation trust" shall have the meanings tor" and "securitisation trust" shall have the meanings respectively assigned to them in the Exp respectively assigned to them in the Explanation below "[section lanation below "[section 115 TCA):]” 14.6 Before us, the learned counsel us, the learned counsel for the assessee is seeking the assessee is seeking exclusion of the investment under the PTC for the purpose of the exclusion of the investment under the PTC for the purpose of the exclusion of the investment under the PTC for the purpose of the disallowance under section 14A disallowance under section 14A of the Act, for various reas , for various reasons. Firstly, according to him , according to him, tax at the rate of 30% on income from , tax at the rate of 30% on income from such PTCs has been taxed in the hands of the securitisation trust such PTCs has been taxed in the hands of the securitisation trust such PTCs has been taxed in the hands of the securitisation trust and therefore PTCs are and therefore PTCs are tax exempted investment. Since the income Since the income has already suffered tax same suffered tax same in the hand of securitisation trust securitisation trust, same cannot be termed as exempted income for the med as exempted income for the med as exempted income for the purpose of section 14A of the Act. ct. Secondly, he has distinguished the status of , he has distinguished the status of a trust with that of a company and submitted that in the case of the a trust with that of a company and submitted that in the case of the a trust with that of a company and submitted that in the case of the company, the company and the shareholder company, the company and the shareholder are different different entities, therefore the shareholder cannot claim he shareholder cannot claim that the dividend has the dividend has suffered tax, whereas in the case of the trust, the trustee pays tax, suffered tax, whereas in the case of the trust, the trustee pays tax, suffered tax, whereas in the case of the trust, the trustee pays tax, as representative assessee of as representative assessee of the beneficiary i.e. assessee. the beneficiary i.e. assessee. Thirdly, he submits that section 10(35A) is only cla he submits that section 10(35A) is only clarificatary in nature an ry in nature and it is settled law that same income can never be taxed twice. is settled law that same income can never be taxed twice. is settled law that same income can never be taxed twice.

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14.7 The above contentions of the learned counsel are not The above contentions of the learned counsel are not The above contentions of the learned counsel are not acceptable for the reason that in case of normal trust, it is the acceptable for the reason that in case of normal trust, it is the acceptable for the reason that in case of normal trust, it is the settler of the trust , who , who contribute the trust property for the ben contribute the trust property for the benefit of beneficiary and trustee beneficiary and trustee(s) are manager of the trust. In the are manager of the trust. In the securitisation trust, the investors are making investment in the securitisation trust, the investors are making investment in the securitisation trust, the investors are making investment in the securitisation trust, and in turn they are receiving the returns in securitisation trust, and in turn they are receiving the returns in securitisation trust, and in turn they are receiving the returns in proportion to their investment and thus it is the investment of the proportion to their investment and thus it is the inves proportion to their investment and thus it is the inves investor which is earning them income. For avoiding the same investor which is earning them income. For avoiding the same investor which is earning them income. For avoiding the same income from taxing twice, the Hon’ble Parliament, has specifically taxing twice, the Hon’ble Parliament, has specifically taxing twice, the Hon’ble Parliament, has specifically treated the same income as exempted from tax in the hands of the treated the same income as exempted from tax in the hands of the treated the same income as exempted from tax in the hands of the investor under the provis investor under the provisions of section 10(35A) o ions of section 10(35A) of the Act. The identical situation in case of partnership firms, where as the profit identical situation in case of partnership firms, where as the profit identical situation in case of partnership firms, where as the profit earned by the partnership firm is taxable, earned by the partnership firm is taxable, but the share of said but the share of said profit is exempted in the hands of partner under the provisions of profit is exempted in the hands of partner under the provisions of profit is exempted in the hands of partner under the provisions of section 10(2A) of the section 10(2A) of the Act. The learned counsel submits submits same income cannot be taxed twice. We may like to clear that for the purpose of cannot be taxed twice. We may like to clear that for the purpose of cannot be taxed twice. We may like to clear that for the purpose of disallowance under section 14A of the disallowance under section 14A of the Act, the expenses which are , the expenses which are incurred by the assessee for earning such income are disallowed incurred by the assessee for earning such income are disallowed incurred by the assessee for earning such income are disallowed being the said income exempted being the said income exempted in and of the assessee and said in and of the assessee and said income is not taxed twice in the hands of the assessee. The income is not taxed twice in the hands of the assessee. The income is not taxed twice in the hands of the assessee. The expenses incurred towards receiving share of distribution from incurred towards receiving share of distribution from incurred towards receiving share of distribution from securitisation trust i.e. income from PTC are embedded in total securitisation trust i.e. income from PTC are embedded in total securitisation trust i.e. income from PTC are embedded in total expenses debited in profit and loss expenses debited in profit and loss account of the assessee, which account of the assessee, which are therefore not eligible for deduction against the taxable income of are therefore not eligible for deduction against the taxable income of are therefore not eligible for deduction against the taxable income of the assessee, and therefore need to be excluded as per the formula the assessee, and therefore need to be excluded as per the formula the assessee, and therefore need to be excluded as per the formula

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provided under rule 8D of the rules. In view of the aforesaid provided under rule 8D of the rules. In view of the aforesaid provided under rule 8D of the rules. In view of the aforesaid discussion, we reject the discussion, we reject the contention of the assessee for not contention of the assessee for not considering the investment in PTC for the purpose of disallowance considering the investment in PTC for the purpose of disallo considering the investment in PTC for the purpose of disallo under section 14A of the A under section 14A of the Act. The additional ground raised by the ground raised by the assessee is accordingly dismissed. assessee is accordingly dismissed.

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Officer. We find that identical issue has been decided by the Officer. We find that identical issue has been d Officer. We find that identical issue has been d Tribunal in assessment year 2014 ribunal in assessment year 2014-15 in ITA No. 3239 and 15 in ITA No. 3239 and 3501/mum/2018, observing as under: observing as under:

“14. We have heard the rival submission of the parties on the issue in dispute We have heard the rival submission of the parties on the issue in dispute We have heard the rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that the issue in dispute is and perused the relevant material on record. We find that the issue in dispu and perused the relevant material on record. We find that the issue in dispu squarely covered by the order of the Tribunal for AY 2011 squarely covered by the order of the Tribunal for AY 2011-12 to 2013 12 to 2013-14 in ITA No. 3498 to 3500/Mum/2018 and the Miscellaneous Application filed against No. 3498 to 3500/Mum/2018 and the Miscellaneous Application filed against No. 3498 to 3500/Mum/2018 and the Miscellaneous Application filed against that order has also been rejected by the Tribunal and therefore, the Tribunal that order has also been rejected by the Tribunal and therefore, the Tribunal that order has also been rejected by the Tribunal and therefore, the Tribunal (supra) has duly considered the order of the Tribunal for assessment year 2010 nsidered the order of the Tribunal for assessment year 2010 nsidered the order of the Tribunal for assessment year 2010- 11, therefore, this order is a binding precedent. The relevant finding of the 11, therefore, this order is a binding precedent. The relevant finding of the 11, therefore, this order is a binding precedent. The relevant finding of the Tribunal (supra) in MA No. 442 to 444 of 2022 are reproduced as under: Tribunal (supra) in MA No. 442 to 444 of 2022 are reproduced as under: Tribunal (supra) in MA No. 442 to 444 of 2022 are reproduced as under: “09. However, claim of the assessee is that the “09. However, claim of the assessee is that the decision of the decision of the coordinate bench in A.Y. 2010 coordinate bench in A.Y. 2010-11 has categorically decided that 11 has categorically decided that assessee is entitled to deduction under Section 35D of the Act and assessee is entitled to deduction under Section 35D of the Act and assessee is entitled to deduction under Section 35D of the Act and therefore, the decision cannot be revisited and the Tribunal has to therefore, the decision cannot be revisited and the Tribunal has to therefore, the decision cannot be revisited and the Tribunal has to follow the same. Coordinate bench has de follow the same. Coordinate bench has decided this issue as cided this issue as under :- "031. We have carefully considered rival contentions and perused "031. We have carefully considered rival contentions and perused "031. We have carefully considered rival contentions and perused the orders of the lower authorities. According to provisions of the orders of the lower authorities. According to provisions of the orders of the lower authorities. According to provisions of section 35D (2) (c) (iv) of the act companies are allowable following section 35D (2) (c) (iv) of the act companies are allowable following section 35D (2) (c) (iv) of the act companies are allowable following deduction:- c) Where the as c) Where the assessee is a company, also expenditure sessee is a company, also expenditure (iv) in connection with the issue, for public subscription, of shares (iv) in connection with the issue, for public subscription, of shares (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, in or debentures of the company, being underwriting commission, in or debentures of the company, being underwriting commission, brokerage, and charges for drafting, typing, printing, and brokerage, and charges for drafting, typing, printing, and brokerage, and charges for drafting, typing, printing, and advertisement of the pros advertisement of the prospectus; 032. So the only issue is whether the issue of shares made by 032. So the only issue is whether the issue of shares made by 032. So the only issue is whether the issue of shares made by assessee to QIB is “Public subscription of shares” or not. Allotment assessee to QIB is “Public subscription of shares” or not. Allotment assessee to QIB is “Public subscription of shares” or not. Allotment of shares to QIB can be permitted on “Private Placement basis “or of shares to QIB can be permitted on “Private Placement basis “or of shares to QIB can be permitted on “Private Placement basis “or also in “Public Issue”. 033. We find that issue is also in “Public Issue”. 033. We find that issue is decided in favour decided in favour of the assessee in assessee”s own case for Assessment Year of the assessee in assessee”s own case for Assessment Year of the assessee in assessee”s own case for Assessment Year 2010-11 in ITA NO. 3497/Mum/2018 dated 14 July 2020 so far 11 in ITA NO. 3497/Mum/2018 dated 14 July 2020 so far 11 in ITA NO. 3497/Mum/2018 dated 14 July 2020 so far the issue was whether QIB is “Public” or not . The co the issue was whether QIB is “Public” or not . The co the issue was whether QIB is “Public” or not . The co-ordinate Bench in that case considered whether theallottees Quali Bench in that case considered whether theallottees Quali Bench in that case considered whether theallottees Qualified Institutional Buyers is “ public” or not. The coordinate Bench Institutional Buyers is “ public” or not. The coordinate Bench Institutional Buyers is “ public” or not. The coordinate Bench following the decision of ITAT in Deccan Chronicle Holdings Ltd. following the decision of ITAT in Deccan Chronicle Holdings Ltd. following the decision of ITAT in Deccan Chronicle Holdings Ltd. (supra) hold that QIB is “ Public” so deduction under Section 35D (supra) hold that QIB is “ Public” so deduction under Section 35D (supra) hold that QIB is “ Public” so deduction under Section 35D of the Act is allowable. It held as under: of the Act is allowable. It held as under:- “6. We have h “6. We have heard the rival submissions and perused the relevant eard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. materials on record. The reasons for our decisions are given below. materials on record. The reasons for our decisions are given below. The appellant is a banking company. It filed its revised return of The appellant is a banking company. It filed its revised return of The appellant is a banking company. It filed its revised return of

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income for the AY 2010 income for the AY 2010-11 on March 30, 2012 declaring total 11 on March 30, 2012 declaring total income at ₹ 7,90,10,18,157/ 7,90,10,18,157/-. As mentioned earlier, the question involved in this appeal is As mentioned earlier, the question involved in this appeal is As mentioned earlier, the question involved in this appeal is whether QIB can be regarded as “public” and whether the offer whether QIB can be regarded as “public” and whether the offer whether QIB can be regarded as “public” and whether the offer made to them can be regarded as “offer made to public” for the made to them can be regarded as “offer made to public” for the made to them can be regarded as “offer made to public” for the purpose of section 35D of the Act. purpose of section 35D of the Act. In Deccan Chronicle Holdings Limited (supra), the Tribunal has hronicle Holdings Limited (supra), the Tribunal has hronicle Holdings Limited (supra), the Tribunal has held as under : held as under : “6. With respect to ground No. 4 for the assessment year 200809, “6. With respect to ground No. 4 for the assessment year 200809, “6. With respect to ground No. 4 for the assessment year 200809, we find that the Assessing Officer has not disallowed for the we find that the Assessing Officer has not disallowed for the we find that the Assessing Officer has not disallowed for the assessment years 2006 assessment years 2006-07 and 2007- 08. However, the Assessin However, the Assessing Officer has disallowed the expenditure on g Officer has disallowed the expenditure on the issue of qualified institutional buyers for the assessment year the issue of qualified institutional buyers for the assessment year the issue of qualified institutional buyers for the assessment year 2008-09 which has been allowed by the Commissioner of Income 09 which has been allowed by the Commissioner of Income 09 which has been allowed by the Commissioner of Income- tax (Appeals) holding as under : tax (Appeals) holding as under : "5. I have gone through the factual and legal cont "5. I have gone through the factual and legal contentions of the entions of the appellant in support of its argument that the deduction was appellant in support of its argument that the deduction was appellant in support of its argument that the deduction was claimed under section 35D read with section 37 i.e., both under claimed under section 35D read with section 37 i.e., both under claimed under section 35D read with section 37 i.e., both under sections 35D and 37. I agree with the argument of the appellant sections 35D and 37. I agree with the argument of the appellant sections 35D and 37. I agree with the argument of the appellant that the language used in section 35D is so plain and that the language used in section 35D is so plain and that the language used in section 35D is so plain and unambiguous that the only condition laid down in that section is unambiguous that the only condition laid down in that section is unambiguous that the only condition laid down in that section is that the issue should be offered for public subscription and the that the issue should be offered for public subscription and the that the issue should be offered for public subscription and the mode of placement is immaterial. Thus, the only issue for mode of placement is immaterial. Thus, the only issue for mode of placement is immaterial. Thus, the only issue for consideration is whether QIB can be called 'public' or not. After a consideration is whether QIB can be called 'public' or not. After a consideration is whether QIB can be called 'public' or not. After a careful and comprehensive consideration of the relevant provisions careful and comprehensive consideration of the relevant provisions careful and comprehensive consideration of the relevant provisions of the Company Law, Securities Contract (Regulation) Rules, SEBI of the Company Law, Securities Contract (Regulation) Rules, SEBI of the Company Law, Securities Contract (Regulation) Rules, SEBI Guidelines/Instructions, I am of the considered opinion that QIBs Guidelines/Instructions, I am of the considered opinion that QIBs Guidelines/Instructions, I am of the considered opinion that QIBs constitute 'public' and accordingly, the subscription mad constitute 'public' and accordingly, the subscription mad constitute 'public' and accordingly, the subscription made by the amount to public subscription. In this view of the matter and also amount to public subscription. In this view of the matter and also amount to public subscription. In this view of the matter and also considering the facts with regard to the utility of funds raised considering the facts with regard to the utility of funds raised considering the facts with regard to the utility of funds raised through QIB issue, I hold that the issue expenditure, to the extent through QIB issue, I hold that the issue expenditure, to the extent through QIB issue, I hold that the issue expenditure, to the extent attributable to the funds utilised for extensio attributable to the funds utilised for extension of the appellant's n of the appellant's undertakings, is eligible for deduction under section 35D. So far as undertakings, is eligible for deduction under section 35D. So far as undertakings, is eligible for deduction under section 35D. So far as the remaining funds, utilised for modernisation and working the remaining funds, utilised for modernisation and working the remaining funds, utilised for modernisation and working capital requirements of the appellant's business are concerned, I capital requirements of the appellant's business are concerned, I capital requirements of the appellant's business are concerned, I have considered both factual and legal s have considered both factual and legal submissions of the ubmissions of the applicant, in support of its contention that the expenditure was in applicant, in support of its contention that the expenditure was in applicant, in support of its contention that the expenditure was in the nature of revenue expenditure since the primary objectand the nature of revenue expenditure since the primary objectand the nature of revenue expenditure since the primary objectand intent of raising these funds was to meet the operational intent of raising these funds was to meet the operational intent of raising these funds was to meet the operational requirements, in order to run the business more ef requirements, in order to run the business more efficiently and requirements, in order to run the business more efficiently and profitably. The hon'ble High Court of Delhi, after analysing profitably. The hon'ble High Court of Delhi, after analysing profitably. The hon'ble High Court of Delhi, after analysing plethora of case law on this subject, had laid down certain broad plethora of case law on this subject, had laid down certain broad plethora of case law on this subject, had laid down certain broad guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR

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371 (Delhi), to decide whether a particular e 371 (Delhi), to decide whether a particular expenditure is capital or xpenditure is capital or revenue in nature. Tested against these broad legal principles, I revenue in nature. Tested against these broad legal principles, I revenue in nature. Tested against these broad legal principles, I am of the opinion that there is considerable force in the arguments am of the opinion that there is considerable force in the arguments am of the opinion that there is considerable force in the arguments of the appellantcompany that the expenditure claimed by it clearly of the appellantcompany that the expenditure claimed by it clearly of the appellantcompany that the expenditure claimed by it clearly falls in the revenue field. Th falls in the revenue field. These guidelines were impliedly ese guidelines were impliedly approved by the hon'ble Supreme Court, in view of the fact that the approved by the hon'ble Supreme Court, in view of the fact that the approved by the hon'ble Supreme Court, in view of the fact that the special leave petition filed against this decision was dismissed. special leave petition filed against this decision was dismissed. special leave petition filed against this decision was dismissed. There is also merit in the argument of the appellant There is also merit in the argument of the appellant-company that company that the facts of its case are the facts of its case are distinguishable from those in the case of distinguishable from those in the case of Brooke Bond, for the detailed reasons submitted by it, and Brooke Bond, for the detailed reasons submitted by it, and Brooke Bond, for the detailed reasons submitted by it, and therefore its claim cannot be denied by relying on that decision. It therefore its claim cannot be denied by relying on that decision. It therefore its claim cannot be denied by relying on that decision. It was further claimed that though the entire expenditure was was further claimed that though the entire expenditure was was further claimed that though the entire expenditure was allowable in one year under allowable in one year under section 37, the same was treated as section 37, the same was treated as deferred revenue expenditure and claimed over five years, starting deferred revenue expenditure and claimed over five years, starting deferred revenue expenditure and claimed over five years, starting from the assessment year 2007 from the assessment year 2007-08. The concept of deferred 08. The concept of deferred revenue expenditure is now legally recognised by various judicial revenue expenditure is now legally recognised by various judicial revenue expenditure is now legally recognised by various judicial authorities and in fact, thi authorities and in fact, this was upheld even in the case of the s was upheld even in the case of the appellant by my predecessor, while deciding the appeal for appellant by my predecessor, while deciding the appeal for appellant by my predecessor, while deciding the appeal for assessment year 2006 assessment year 2006-07. In view of the above facts, I hold that 07. In view of the above facts, I hold that the expenditure of ₹ 2,07,00,112 claimed for assessment year the expenditure of essment year 2008-09 is allowable under sections 35D and 37. As the claim of 09 is allowable under sections 35D and 37. As the claim of 09 is allowable under sections 35D and 37. As the claim of this expenditure under section 35D read with section 37 is in this expenditure under section 35D read with section 37 is in this expenditure under section 35D read with section 37 is in order, the disallowance on this account is deleted." order, the disallowance on this account is deleted." 7. We find that during the year 200 7. We find that during the year 2007-08, the company incurred 08, the company incurred debenture expenses of debenture expenses of ₹ 2.07 crores and QIB issue expenditure of 2.07 crores and QIB issue expenditure of ₹ 8.28 crores, both totalling to 8.28 crores, both totalling to ₹ 10.35 crores. The expenditure 10.35 crores. The expenditure referred to above of referred to above of ₹ 10.35 crores was adjusted against the share 10.35 crores was adjusted against the share premium account as per the provi premium account as per the provision of the Companies Act. sion of the Companies Act. However, the expenditure being deferred revenue expenditure falls wever, the expenditure being deferred revenue expenditure falls wever, the expenditure being deferred revenue expenditure falls within the ambit of section 35D read with section 37 of the Income within the ambit of section 35D read with section 37 of the Income within the ambit of section 35D read with section 37 of the Income- tax Act which is eligible to be charged to profit and loss account. tax Act which is eligible to be charged to profit and loss account. tax Act which is eligible to be charged to profit and loss account. Accordingly as per the provi Accordingly as per the provisions of section 35D of the Income sions of section 35D of the Income-tax Act, onefifth of the QIB issue expenditure i.e., ₹ 207 lakhs was Act, onefifth of the QIB issue expenditure i.e., 207 lakhs was written off. Qualified Institutional Buyers (QIBs) are a class of written off. Qualified Institutional Buyers (QIBs) are a class of written off. Qualified Institutional Buyers (QIBs) are a class of investors as a part of the large investor community and the investors as a part of the large investor community and the investors as a part of the large investor community and the companies sought for QIB issues because the funds can b companies sought for QIB issues because the funds can b companies sought for QIB issues because the funds can be raised within a short span. This is an extremely importan within a short span. This is an extremely important investment for t investment for larger investors and since the buyers are only a class of investors, larger investors and since the buyers are only a class of investors, larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. the issue of shares to QIB have been considered as public issue. the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or The expenses in connection with public issue of shares or The expenses in connection with public issue of shares or debentures of the company are allowable. Relian debentures of the company are allowable. Reliance is placed on ce is placed on CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the merits of the issue, theQIB expenditure can be treated as revenue merits of the issue, theQIB expenditure can be treated as revenue merits of the issue, theQIB expenditure can be treated as revenue expenditure and eligible for deduction under section 35D of the expenditure and eligible for deduction under section 35D of the expenditure and eligible for deduction under section 35D of the Income-tax Act is confirmed. Hence on merit tax Act is confirmed. Hence on merits of the issue as well s of the issue as well as the fact that the same issue has been allowed in the earlier as the fact that the same issue has been allowed in the earlier as the fact that the same issue has been allowed in the earlier

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years and the Department cannot come upon in appeals in the years and the Department cannot come upon in appeals in the years and the Department cannot come upon in appeals in the subsequent subsequent subsequent years years years would would would be be be the the the reason reason reason to to to dismiss dismiss dismiss the the the Departmental appeal. We confirm the order of the Commissi Departmental appeal. We confirm the order of the Commissi Departmental appeal. We confirm the order of the Commissioner of Income-tax (Appeals) with respect to qualified institutional buyers tax (Appeals) with respect to qualified institutional buyers tax (Appeals) with respect to qualified institutional buyers expenses and dismiss the Departmental appeal on this issue. In expenses and dismiss the Departmental appeal on this issue. In expenses and dismiss the Departmental appeal on this issue. In the result, the Departmental appeal for the assessment years the result, the Departmental appeal for the assessment years the result, the Departmental appeal for the assessment years 2007-08 and 2008 08 and 2008-09 are dismissed.” 6.1 A perusal of th 6.1 A perusal of the above order of the Tribunal clearly indicates e above order of the Tribunal clearly indicates that the present issue is directly covered in favour of the appellant. that the present issue is directly covered in favour of the appellant. that the present issue is directly covered in favour of the appellant. 6.2 Further, we find that the appellant being a listed company is 6.2 Further, we find that the appellant being a listed company is 6.2 Further, we find that the appellant being a listed company is bound by “Listing Agreement”, which provides for the disclosure bound by “Listing Agreement”, which provides for the disclosure bound by “Listing Agreement”, which provides for the disclosure requirements for the share holding pattern of a listed company. As ements for the share holding pattern of a listed company. As ements for the share holding pattern of a listed company. As can be seen therefrom, there are only two categories of can be seen therefrom, there are only two categories of can be seen therefrom, there are only two categories of shareholders- - “promoter/promoter group” and “public”. For the “promoter/promoter group” and “public”. For the definition of these terms in Clause 35, reference is made to Clause definition of these terms in Clause 35, reference is made to Clause definition of these terms in Clause 35, reference is made to Clause 40A of the Listing Agreement. As can be seen therefrom, Mutual e Listing Agreement. As can be seen therefrom, Mutual e Listing Agreement. As can be seen therefrom, Mutual Funds/Financial Institutions which are QIBs are classified under Funds/Financial Institutions which are QIBs are classified under Funds/Financial Institutions which are QIBs are classified under “public shareholding”. The terms are defined in Clause 40A of the “public shareholding”. The terms are defined in Clause 40A of the “public shareholding”. The terms are defined in Clause 40A of the SEBI Listing Agreement. Further, the listing agreement takes us to SEBI Listing Agreement. Further, the listing agreement takes us to SEBI Listing Agreement. Further, the listing agreement takes us to Securities Contracts (Regulation) Rules, 1957 (in short “SCRR”). rities Contracts (Regulation) Rules, 1957 (in short “SCRR”). rities Contracts (Regulation) Rules, 1957 (in short “SCRR”). Also Rule 19(2)(b) and Rule 19A of the SCRR provide that Also Rule 19(2)(b) and Rule 19A of the SCRR provide that Also Rule 19(2)(b) and Rule 19A of the SCRR provide that companies are required to maintain minimum public shareholding companies are required to maintain minimum public shareholding companies are required to maintain minimum public shareholding of 25% in case of first time listing and in case of continuous listing of 25% in case of first time listing and in case of continuous listing of 25% in case of first time listing and in case of continuous listing agreement respectively. In this context, we may refer to section ement respectively. In this context, we may refer to section ement respectively. In this context, we may refer to section 2(d) of SCRR defining the term “public”. It (public) is defined to 2(d) of SCRR defining the term “public”. It (public) is defined to 2(d) of SCRR defining the term “public”. It (public) is defined to mean any person other than the promoter, promoter group, mean any person other than the promoter, promoter group, mean any person other than the promoter, promoter group, subsidiaries and associates of the company. Thus any person subsidiaries and associates of the company. Thus any person subsidiaries and associates of the company. Thus any person other than these four qualify to be considered as public. As can be these four qualify to be considered as public. As can be these four qualify to be considered as public. As can be seen from the list of QIBs to whom shares are issued, the shares seen from the list of QIBs to whom shares are issued, the shares seen from the list of QIBs to whom shares are issued, the shares are not issued to any of the aforesaid category. Thus QIBs, not are not issued to any of the aforesaid category. Thus QIBs, not are not issued to any of the aforesaid category. Thus QIBs, not being promoters, promoter group, subsidiaries and associates of being promoters, promoter group, subsidiaries and associates of being promoters, promoter group, subsidiaries and associates of the company would qualify as “public”. mpany would qualify as “public”. As specified in clause 40A(ii) of the listing agreement, public As specified in clause 40A(ii) of the listing agreement, public As specified in clause 40A(ii) of the listing agreement, public shareholding can be increased by any of the modes specified shareholding can be increased by any of the modes specified shareholding can be increased by any of the modes specified therein to comply with Rule 19(2) and 19A of SCRR. One such note therein to comply with Rule 19(2) and 19A of SCRR. One such note therein to comply with Rule 19(2) and 19A of SCRR. One such note is the issue of IIP in accordance is the issue of IIP in accordance with Chapter VIIIA of the SEBI with Chapter VIIIA of the SEBI- ICDR. Chapter VIIIA has been included to provide for fresh issue of ICDR. Chapter VIIIA has been included to provide for fresh issue of ICDR. Chapter VIIIA has been included to provide for fresh issue of shares to comply with minimum shareholding requirement in Rule shares to comply with minimum shareholding requirement in Rule shares to comply with minimum shareholding requirement in Rule 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public offer made only to QIBs. Thes offer made only to QIBs. These regulations provide that when a e regulations provide that when a company has a public shareholding lower than the requirements company has a public shareholding lower than the requirements company has a public shareholding lower than the requirements specified, then the company may issue IPP to QIBs and raise the specified, then the company may issue IPP to QIBs and raise the specified, then the company may issue IPP to QIBs and raise the public shareholding to the required levels. Itthus implies that QIBs public shareholding to the required levels. Itthus implies that QIBs public shareholding to the required levels. Itthus implies that QIBs form part of public. Furthe form part of public. Further, even Reg. 82 which gives conditions r, even Reg. 82 which gives conditions

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for QIP, provides that the same must be in compliance with the for QIP, provides that the same must be in compliance with the for QIP, provides that the same must be in compliance with the requirements of public shareholding. requirements of public shareholding. That “a section of public qualifies as public” has been clarified in That “a section of public qualifies as public” has been clarified in That “a section of public qualifies as public” has been clarified in Nitta Gelatine India Limited (supra) and Andhra Nitta Gelatine India Limited (supra) and Andhra Chamber of Commerce (supra). Commerce (supra). 7. Facts being identical, we follow the order of the Tribunal in the 7. Facts being identical, we follow the order of the Tribunal in the 7. Facts being identical, we follow the order of the Tribunal in the case of Deccan Chronicle Holdings Limited (supra) and in view of case of Deccan Chronicle Holdings Limited (supra) and in view of case of Deccan Chronicle Holdings Limited (supra) and in view of the discussion hereinabove at para 6.2 , hold that the appellant is the discussion hereinabove at para 6.2 , hold that the appellant is the discussion hereinabove at para 6.2 , hold that the appellant is eligible for deduction eligible for deduction u/s 35D of the Act. Thus we set aside the u/s 35D of the Act. Thus we set aside the order of the Ld. CIT(A) and allow the 1st , 2nd and 3rd ground order of the Ld. CIT(A) and allow the 1st , 2nd and 3rd ground order of the Ld. CIT(A) and allow the 1st , 2nd and 3rd ground filed by the assessee.” filed by the assessee.” 034. For Deduction u/s 35 D (2) ( C ) (iv), allottees of shares and 034. For Deduction u/s 35 D (2) ( C ) (iv), allottees of shares and 034. For Deduction u/s 35 D (2) ( C ) (iv), allottees of shares and Debentures are immaterial , those may be QIB, FII, DII, Ot Debentures are immaterial , those may be QIB, FII, DII, Ot Debentures are immaterial , those may be QIB, FII, DII, Other Investors Individuals etc, but only issue to be seen is whether the Investors Individuals etc, but only issue to be seen is whether the Investors Individuals etc, but only issue to be seen is whether the expenditure is “ in connection with the issue for public subscription expenditure is “ in connection with the issue for public subscription expenditure is “ in connection with the issue for public subscription “ or not. 035. Therefore, as we have already held that if the issue of shares 035. Therefore, as we have already held that if the issue of shares 035. Therefore, as we have already held that if the issue of shares is through “ public Subscription” a is through “ public Subscription” assessee is eligible for deduction ssessee is eligible for deduction u/s 35 D, conversely, if the issue of shares are not “ Public u/s 35 D, conversely, if the issue of shares are not “ Public u/s 35 D, conversely, if the issue of shares are not “ Public Subscription” i.e. such as Private Placement etc, assessee is not Subscription” i.e. such as Private Placement etc, assessee is not Subscription” i.e. such as Private Placement etc, assessee is not eligible for deduction u/s 35 D of the Act . These facts are not on eligible for deduction u/s 35 D of the Act . These facts are not on eligible for deduction u/s 35 D of the Act . These facts are not on record whether shares issu record whether shares issued to QIB are issued in “Public ed to QIB are issued in “Public Subscription “or otherwise. Therefore, the matter needs to be set Subscription “or otherwise. Therefore, the matter needs to be set Subscription “or otherwise. Therefore, the matter needs to be set aside to the file of the ld AO for fresh examination, to show before aside to the file of the ld AO for fresh examination, to show before aside to the file of the ld AO for fresh examination, to show before him that the issue was a public subscription and not otherwise, him that the issue was a public subscription and not otherwise, him that the issue was a public subscription and not otherwise, onus lies on assessee. Ld onus lies on assessee. Ld AO may examine the same; if shares are AO may examine the same; if shares are issued in “Public Subscription”, deduction may be allowed. 036. issued in “Public Subscription”, deduction may be allowed. 036. issued in “Public Subscription”, deduction may be allowed. 036. Accordingly, ground no. 3 and 4 of the appeal of assessee are Accordingly, ground no. 3 and 4 of the appeal of assessee are Accordingly, ground no. 3 and 4 of the appeal of assessee are allowed with above directions." allowed with above directions." 010. Coordinate bench while deciding the issue has clearl 010. Coordinate bench while deciding the issue has clearl 010. Coordinate bench while deciding the issue has clearly considered the decision in case of assessee in first year. We do not considered the decision in case of assessee in first year. We do not considered the decision in case of assessee in first year. We do not find there is any finding in the order in the coordinate bench for find there is any finding in the order in the coordinate bench for find there is any finding in the order in the coordinate bench for earlier year whether it was an issue of public subscription or not. earlier year whether it was an issue of public subscription or not. earlier year whether it was an issue of public subscription or not. This is the basic requirement of that section. As no evidence was no evidence was This is the basic requirement of that section. put forth, the issue was set aside for verification whether put forth, the issue was set aside for verification whether put forth, the issue was set aside for verification whether the expenses were in connection with the issue for ' Public the expenses were in connection with the issue for ' Public the expenses were in connection with the issue for ' Public Subscription' or not. The coordinate bench in earlier year Subscription' or not. The coordinate bench in earlier year Subscription' or not. The coordinate bench in earlier year allowed claim of the assessee holding that whether QIP is allowed claim of the assessee holding that whether QIP is allowed claim of the assessee holding that whether QIP is public or not. It did not decide whether it is a 'public lic or not. It did not decide whether it is a 'public lic or not. It did not decide whether it is a 'public subscription' or not. subscription' or not. 011. Any way in these proceedings, we cannot go in to the merits 011. Any way in these proceedings, we cannot go in to the merits 011. Any way in these proceedings, we cannot go in to the merits of the case as held by Hon Sc in case of CIT V Reliance Telecom of the case as held by Hon Sc in case of CIT V Reliance Telecom of the case as held by Hon Sc in case of CIT V Reliance Telecom

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Limited2021] 133 taxmann.com 41 (SC). Further, as w Limited2021] 133 taxmann.com 41 (SC). Further, as w Limited2021] 133 taxmann.com 41 (SC). Further, as we have restored the issue to the file of the LD AO, our observation on the restored the issue to the file of the LD AO, our observation on the restored the issue to the file of the LD AO, our observation on the merits, even otherwise, may influence the order of the LD AO in set merits, even otherwise, may influence the order of the LD AO in set merits, even otherwise, may influence the order of the LD AO in set aside proceedings. Therefore, these grounds of all these MA are aside proceedings. Therefore, these grounds of all these MA are aside proceedings. Therefore, these grounds of all these MA are dismissed, as on this issue there is no mistake i dismissed, as on this issue there is no mistake in the order. n the order.” 14.1 Thus, following the finding of the Tribunal for AY 2011 Thus, following the finding of the Tribunal for AY 2011-12 to 2013 12 to 2013-14 in ITA No. 3498 to 3500/Mum/2018,the issue in dispute of claim of 1/5th of the expense No. 3498 to 3500/Mum/2018,the issue in dispute of claim of 1/5 No. 3498 to 3500/Mum/2018,the issue in dispute of claim of 1/5 u/s 35D of the Act is restored to the file of the Assessing Officer to be decided in u/s 35D of the Act is restored to the file of the Assessing Officer to be decide u/s 35D of the Act is restored to the file of the Assessing Officer to be decide accordance with direction of the Tribunal in 3498 to 3500/Mum/2018 for AYs 2011- accordance with direction of the Tribunal in 3498 to 3500/Mum/2018 for AYs 2011 accordance with direction of the Tribunal in 3498 to 3500/Mum/2018 for AYs 2011 12 to 13-14. The ground Nos. 4, 5 and 6 of the appeal of the assessee are 14. The ground Nos. 4, 5 and 6 of the appeal of the assessee are 14. The ground Nos. 4, 5 and 6 of the appeal of the assessee are accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.” 15.2 Thus, respectfully following the finding of respectfully following the finding of the T he Tribunal the issue in dispute is restored to the file of the Assessing Officer to be issue in dispute is restored to the file of the Assessing Officer to be issue in dispute is restored to the file of the Assessing Officer to be decided as per the direction of decided as per the direction of the Tribunal in assessment year ribunal in assessment year 2014-15 as reproduced above. The ground No s reproduced above. The ground Nos. VII . VII and VIII of the appeal of the assessee appeal of the assessee are accordingly allowed for statistical allowed for statistical purposes.

16.1 Before us the learned counsel for the assessee submitted that Before us the learned counsel for the assessee submitted that Before us the learned counsel for the assessee submitted that the Ld. CIT(A) has not decided this issue in dispute and therefore the Ld. CIT(A) has not decided this issue in dispute and therefore the Ld. CIT(A) has not decided this issue in dispute and therefore same might be sent back to the Assessing Officer for deciding a same might be sent back to the Assessing Officer for deciding a same might be sent back to the Assessing Officer for deciding a fresh. However, we find that the Assessing Officer made no we find that the Assessing Officer made no we find that the Assessing Officer made no disallowance of QIP expenses on account of non disallowance of QIP expenses on account of non-deduction of tax at deduction of tax at source and therefore there was no occasion for the Ld. CIT(A) to source and therefore there was no occasion for the Ld. CIT(A) to source and therefore there was no occasion for the Ld. CIT(A) to adjudicate on the issue. Accordingly, this ground of the appeal of adjudicate on the issue. Accordingly, this ground of the appeal of adjudicate on the issue. Accordingly, this ground of the appeal of the assessee being infructuous, it is being infructuous, it is dismissed.

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offered under the head capital gain, then brokerage for acquisition offered under the head capital gain, then brokerage for acquisition offered under the head capital gain, then brokerage for acquisition of those securities, would be allowable at the time of sale of those of those securities, would be allowable at the time of sale of those of those securities, would be allowable at the time of sale of those securities and not at the time of purchase of those securities. Thus, securities and not at the time of purchase of those securities. securities and not at the time of purchase of those securities. whether the HTM securities have been treated by the assessee as whether the HTM securities have been treated by the assessee as whether the HTM securities have been treated by the assessee as investment or stock-in in-trade, is a subject matter of verification from is a subject matter of verification from the books of accounts and financi the books of accounts and financial statements of the assessee, al statements of the assessee, matter is restored back to the file of the Assessing Officer. The matter is restored back to the file of the Assessing Of matter is restored back to the file of the Assessing Of ground Nos. IX and X . IX and X of the appeal of assessee assessee are accordingly allowed for statistical purposes. allowed for statistical purposes. 18. The ground No. 2 of appeal of R The ground No. 2 of appeal of Revenue is related to the ground evenue is related to the ground No. IX and X of the No. IX and X of the appeal of assessee. Since we have already assessee. Since we have already restored the ground No. IX and X of the appeal of the assessee No. IX and X of the appeal of the assessee to the file of Assessing Officer the file of Assessing Officer, the ground No. 2 of the appeal of the , the ground No. 2 of the appeal of the revenue being connected, same is also restored to the file of the revenue being connected, same is also restored to the file of the revenue being connected, same is also restored to the file of the Assessing Officer for deciding afresh. The ground No. 2 of the Assessing Officer for deciding afresh. The ground Assessing Officer for deciding afresh. The ground accordingly allowed for statistical purposes. Revenue is accordingly allowed for statistical purposes. accordingly allowed for statistical purposes. 19. The ground XI of the appeal of the assessee relate to assessing The ground XI of the appeal of the assessee relate to assessing The ground XI of the appeal of the assessee relate to assessing interest income on HTM investment as income from other sources. interest income on HTM investment as income from other sources. interest income on HTM investment as income from other sources. 19.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute. The contention of the ass The contention of the assessee is that the HTM essee is that the HTM investment have been held by the assessee as a stock have been held by the assessee as a stock-in-trade and therefore trade and therefore interest earned thereon is part of the business income, whereas the interest earned thereon is part of the business income, whereas the interest earned thereon is part of the business income, whereas the Assessing Officer has held the HTM securities as capital investment Assessing Officer has held the HTM securities as capital investme Assessing Officer has held the HTM securities as capital investme and therefore the interest earned thereon has been assessed by him and therefore the interest earned thereon has been assessed by him and therefore the interest earned thereon has been assessed by him

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under the head ‘income from other sources income from other sources’. We find that Ld. CIT(A) . We find that Ld. CIT(A) has followed finding of his predecessor in assessment year 2014-15, has followed finding of his predecessor in assessment year 2014 has followed finding of his predecessor in assessment year 2014 wherein he observed that the Assessing Officer him observed that the Assessing Officer himself treated the observed that the Assessing Officer him interest income under the head interest income under the head ‘business’ and therefore the ground and therefore the ground of the assessee was dismissed as infructuous. In the year under of the assessee was dismissed as infructuous. In the year under of the assessee was dismissed as infructuous. In the year under consideration also the Ld. CIT(A) has dismissed the ground of the consideration also the Ld. CIT(A) has dismissed the ground of the consideration also the Ld. CIT(A) has dismissed the ground of the assessee followed finding of the Ld. CIT assessee followed finding of the Ld. CIT(A) in assessment year 2014 ) in assessment year 2014- 15, therefore, we are of the opinion that the Ld. CIT(A) has not herefore, we are of the opinion that the Ld. CIT(A) has not herefore, we are of the opinion that the Ld. CIT(A) has not upheld the finding of the Assessing Officer that interest income upheld the finding of the Assessing Officer that interest income upheld the finding of the Assessing Officer that interest income from HTM securities is assessable under the head income from from HTM securities is assessable under the head income from from HTM securities is assessable under the head income from other sources. However, for removing an other sources. However, for removing any doubt on t y doubt on the issue in dispute, we restore this matter back to the file of the this matter back to the file of the Assessing Officer for verification, whether in the year under consideration the for verification, whether in the year under consideration the for verification, whether in the year under consideration the income from interest on HTM securities income from interest on HTM securities has treated under the head has treated under the head ‘income from other sources income from other sources’ and if the answer is yes, then he may d if the answer is yes, then he may decide the issue in dispute, otherwise if the answer is no, then decide the issue in dispute, otherwise if the answer is no, then decide the issue in dispute, otherwise if the answer is no, then decision will be in favour of the assessee and no adjudication will be decision will be in favour of the assessee and no adjudication will be decision will be in favour of the assessee and no adjudication will be required on the issue in dispute. The ground of the appeal of the required on the issue in dispute. The ground of the appeal of the required on the issue in dispute. The ground of the appeal of the assessee is accordingly allowed for statistical purposes. ingly allowed for statistical purposes. ingly allowed for statistical purposes. 20. The ground No. XII of the appeal is in relation to addition of The ground No. XII of the appeal is in relation to addition of The ground No. XII of the appeal is in relation to addition of commission on bank commission on bank Guarantee. 20.1 The facts qua the issue in dispute are facts qua the issue in dispute are that during the year that during the year under consideration under consideration, the assessee changed the method the method of recognizing ‘guaranty commission uaranty commission’ from ‘anniversary anniversary date’ to the

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‘specific period of guaranty uaranty’ during the year under considera during the year under consideration and therefore part of the g and therefore part of the guaranty commission received was uaranty commission received was deferred for tax purposes. According to the assessee apportionment deferred for tax purposes. According to the assessee apportion deferred for tax purposes. According to the assessee apportion of the basis of the No. of days for which Guaranty was given in the of the basis of the No. of days for which Guaranty was given in of the basis of the No. of days for which Guaranty was given in year of the issue of such g year of the issue of such guaranty, is based on scientifi scientific method for computation of guaranty commission accrued to the assessee for uaranty commission accrued to the assessee for uaranty commission accrued to the assessee for the year under consideration. The Assessing Officer however the year under consideration. The Assessing Office the year under consideration. The Assessing Office rejected the said contention. According to the Assessing Officer, the rejected the said contention. According to the Assessing Officer rejected the said contention. According to the Assessing Officer commission has been received by the bank upfront during the year commission has been received by the bank upfront during the year commission has been received by the bank upfront during the year under consideration which is received or deem under consideration which is received or deemed to be received as to be received as assessable to tax and there is nothing in the ax and there is nothing in the Act, which permits the Act, which permits the assessee to distribute distribute revenue across the years revenue across the years, when the expenditure related to that revenue has not been deferred. On expenditure related to that revenue has not been deferred. On expenditure related to that revenue has not been deferred. On further appeal, the Ld. CIT(A) further appeal, the Ld. CIT(A), though in principle agreed that bank though in principle agreed that bank guaranty commission cannot be taxed in enti guaranty commission cannot be taxed in entirety in the year in rety in the year in which the guaranty agreements entered which the guaranty agreements entered and same should spread same should spread over the period to which the guaranty commission relates and which the guaranty commission relates and should be taxed proportionately. However, observed that the should be taxed proportionately. However, observed that the should be taxed proportionately. However, observed that the assessee did not provided any valid reason for change in method of assessee did not provided any valid reason for change assessee did not provided any valid reason for change the accounting of guaranty commission from the accounting of guaranty commission from ‘anniversary anniversary’ basis to ‘actual on No. of days No. of days’ and therefore, the Ld. CIT(A) directed the and therefore, the Ld. CIT(A) directed the Assessing Officer to verify the records and amount of guaranty Assessing Officer to verify the records and amount of guaranty Assessing Officer to verify the records and amount of guaranty commission according to the commission according to the earlier method of recognising g ecognising guaranty commission on anniversary date, which according to the assessee commission on anniversary date, which according to the assessee commission on anniversary date, which according to the assessee was of ₹28,31,72,647/ 647/-.

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20.2 We have heard rival submission of the parties rd rival submission of the parties and perused the and perused the relevant material on record. relevant material on record. The issue in dispute in the case is The issue in dispute in the case is whether the guaranty commission received by the assessee for anty commission received by the assessee for anty commission received by the assessee for guaranty agreement spreading over for more than the year under guaranty agreement spreading over for more than the year under guaranty agreement spreading over for more than the year under consideration, accrue to the assessee or not and whether the consideration, accrue to the assessee or not and whether the consideration, accrue to the assessee or not and whether the corresponding expenses have also been the spread by the assessee corresponding expenses have also been the spread by the assessee corresponding expenses have also been the spread by the assessee for the period of guar the period of guaranty or not. We find that assessee is following anty or not. We find that assessee is following mercantile system of method and therefore any income which is mercantile system of method and therefore any income which is mercantile system of method and therefore any income which is accrued or deemed to accrue is liable for assessing in the year or deemed to accrue is liable for assessing in the year or deemed to accrue is liable for assessing in the year under consideration in the hands of the assessee. In the case the under consideration in the hands of the assessee. In the case the under consideration in the hands of the assessee. In the case the Ld. CIT(A) has referred to decision of his predecessor in the case of eferred to decision of his predecessor in the case of eferred to decision of his predecessor in the case of State Bank of India for assessment year 2014 State Bank of India for assessment year 2014-15, wherein the 15, wherein the learned ‘first appellate authority first appellate authority’ in that case has held that bank in that case has held that bank guaranty commission cannot be taxed in entirety in the year in guaranty commission cannot be taxed in entirety in the year in guaranty commission cannot be taxed in entirety in the year in which guaranty agreements entered anty agreements entered and same should be spread same should be spread over the period to which the guaranty commission relates and to which the guaranty commission relates and to which the guaranty commission relates and should be taxed proportionately. In our opinion, the issue need should be taxed proportionately. In our opinion, the issue should be taxed proportionately. In our opinion, the issue examination whether the assessee whether the assessee was required to render services required to render services in relation to guarantee guarantee only at the time of entering into guaranty only at the time of entering into guaranty agreement or it was required to render services over over the period of the guaranty, therefore it needs to be seen whether the entire the guaranty, therefore it needs to be seen whether the entire the guaranty, therefore it needs to be seen whether the entire expenses in relation to income from guaranty commission have expenses in relation to income from guaranty commission have expenses in relation to income from guaranty commission have been claimed by the assessee in the year of entering into guaranty by the assessee in the year of entering into guaranty by the assessee in the year of entering into guaranty agreement or same have been spread agreement or same have been spread over the period of the the period of the guaranty to the customers. We find that Ld. CIT(A) restored this guaranty to the customers. We find that Ld. CIT(A) restored this guaranty to the customers. We find that Ld. CIT(A) restored this

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issue in dispute back to the learner Assessing Officer for verification issue in dispute back to the learner Assessing Officer for verification issue in dispute back to the learner Assessing Officer for verification of the facts. We are of the opinion th facts. We are of the opinion that under the provisions of the at under the provisions of the Act Ld. CIT(A) is not empowered to restore the matter back to the ct Ld. CIT(A) is not empowered to restore the matter back to the ct Ld. CIT(A) is not empowered to restore the matter back to the file of the Assessing Officer, and therefore we set aside the direction file of the Assessing Officer, and therefore we set aside the direction file of the Assessing Officer, and therefore we set aside the direction of the Ld. CIT(A) and restore the ma of the Ld. CIT(A) and restore the matter back to him fo tter back to him for deciding afresh keeping in view our observations above and in accordance fresh keeping in view our observations above and in accordance fresh keeping in view our observations above and in accordance with law. The ground of the appeal of the assessee is accordingly with law. The ground of the appeal of the assessee is accordingly with law. The ground of the appeal of the assessee is accordingly allowed for statistical purposes. allowed for statistical purposes. 21. The ground No. 6 (six) of the appeal of the R . 6 (six) of the appeal of the Revenue also relate evenue also relate to the issue of guaranty commission. Since the issue of of guaranty commission. Since the issue of of guaranty commission. Since the issue of the guaranty commission raised guaranty commission raised in the appeal of the assessee in ground the appeal of the assessee in ground No. XII has been restored back to the file of the No. XII has been restored back to the file of the Assessing Officer for Assessing Officer for deciding afresh, this ground of the appeal of the R is ground of the appeal of the R is ground of the appeal of the Revenue is also allowed for statistical purposes. wed for statistical purposes. 23. The ground No. XIII and XIV The ground No. XIII and XIV relate to not admitting of the admitting of the claim for deduction of discount on shares under employee stock claim for deduction of discount on shares under employee stock claim for deduction of discount on shares under employee stock option scheme by the Ld CIT(A) tion scheme by the Ld CIT(A). 23.1 We have heard the rival submission of the parties on the issu We have heard the rival submission of the parties on the issu We have heard the rival submission of the parties on the issue in dispute and perused the relevant material on record. We find in dispute and perused the relevant material on record. We find in dispute and perused the relevant material on record. We find that identical additional claim of the assessee was rejected by the that identical additional claim of the assessee was rejected by the that identical additional claim of the assessee was rejected by the Ld. CIT(A) in assessment year 2014 ssment year 2014-15, but the Tribunal (supra) in ribunal (supra) in assessment year 2014 assessment year 2014-15 admitted said claim and restore 15 admitted said claim and restored the matter back to the Ld. CIT(A) for deciding in the light of the matter back to the Ld. CIT(A) for deciding in the light of the matter back to the Ld. CIT(A) for deciding in the light of the direction of the Tribunal Tribunal in assessment year 2011- -12 to 2013-14.

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The relevant finding of the T inding of the Tribunal in assessment year 2014 ribunal in assessment year 2014-15 is reproduced as under: reproduced as under:

“20. We have heard rival submissio We have heard rival submission of parties on the issue in dispute n of parties on the issue in dispute and perused the relevant material on record. We find that under similar and perused the relevant material on record. We find that under similar and perused the relevant material on record. We find that under similar facts, the Tribunal in assessee’s own case for AY 2011 facts, the Tribunal in assessee’s own case for AY 2011-12 to 2013 12 to 2013-14 has admitted the additional ground and restored the matter back to the has admitted the additional ground and restored the matter back to the has admitted the additional ground and restored the matter back to the file of the Assessing Officer for examination of the claim in accordance the Assessing Officer for examination of the claim in accordance the Assessing Officer for examination of the claim in accordance with law. The relevant finding of the Tribunal (supra) is reproduced as with law. The relevant finding of the Tribunal (supra) is reproduced as with law. The relevant finding of the Tribunal (supra) is reproduced as under: “056. Ground number 6 has also another subsidiary ground, “056. Ground number 6 has also another subsidiary ground, “056. Ground number 6 has also another subsidiary ground, alternatively raised for claim of deduction of discou alternatively raised for claim of deduction of discou alternatively raised for claim of deduction of discount on issue of shares Under ESOP scheme. As we have held that, the learned shares Under ESOP scheme. As we have held that, the learned shares Under ESOP scheme. As we have held that, the learned CIT – A should have admitted additional ground of the assessee, A should have admitted additional ground of the assessee, A should have admitted additional ground of the assessee, we do not find it appropriate here to allow the claim of the we do not find it appropriate here to allow the claim of the we do not find it appropriate here to allow the claim of the assessee for the simple reason that deduction is require assessee for the simple reason that deduction is require assessee for the simple reason that deduction is required to be verified with respect to its quantum by the lower authorities. verified with respect to its quantum by the lower authorities. verified with respect to its quantum by the lower authorities. Accordingly, we setaside the alternative ground of allowability of Accordingly, we setaside the alternative ground of allowability of Accordingly, we setaside the alternative ground of allowability of discount on issue of shares Under the employee stock opti discount on issue of shares Under the employee stock opti discount on issue of shares Under the employee stock option plan of ‟ 1,432,422,420/ ‟ 1,432,422,420/– back to the file of the learned assessing back to the file of the learned assessing officer to examine the claim of the assessee and allow it in officer to examine the claim of the assessee and allow it in officer to examine the claim of the assessee and allow it in accordance with the law. The assessee is directed to produce the accordance with the law. The assessee is directed to produce the accordance with the law. The assessee is directed to produce the requisite details before the learned assessing officer. If requisite details before the learned assessing officer. If requisite details before the learned assessing officer. If the AO, on examination of such details, is not satisfied with the claim of the examination of such details, is not satisfied with the claim of the examination of such details, is not satisfied with the claim of the assessee, a reasonable opportunity of hearing is required to be assessee, a reasonable opportunity of hearing is required to be assessee, a reasonable opportunity of hearing is required to be given.Accordingly, alternative claim of the assessee is restored given.Accordingly, alternative claim of the assessee is restored given.Accordingly, alternative claim of the assessee is restored back to the file of the learned AO. Accordingly, back to the file of the learned AO. Accordingly, ground number 6 ground number 6 of the appeal is partly allowed.” of the appeal is partly allowed.” 20.1 Respectfully following the finding of the Tribunal (supra) the Respectfully following the finding of the Tribunal (supra) the Respectfully following the finding of the Tribunal (supra) the additional ground in the year under consideration is also admitted and additional ground in the year under consideration is also admitted and additional ground in the year under consideration is also admitted and restored back to the file of the Assessing Officer to be decided i restored back to the file of the Assessing Officer to be decided i restored back to the file of the Assessing Officer to be decided in accordance with the direction given by the Tribunal in AY 2011 accordance with the direction given by the Tribunal in AY 2011 accordance with the direction given by the Tribunal in AY 2011-12 to 2013-14. The ground of appeal is accordingly allowed for statistical 14. The ground of appeal is accordingly allowed for statistical 14. The ground of appeal is accordingly allowed for statistical purposes.” 23.2 Issue in dispute being identical to assessment year 2014 in dispute being identical to assessment year 2014 in dispute being identical to assessment year 2014-15, respectfully following the finding respectfully following the finding of the Tribunal(supra), the issue in ribunal(supra), the issue in dispute is restored back to the file of the Assessing Officer for dispute is restored back to the file of the Assessing Officer for dispute is restored back to the file of the Assessing Officer for deciding in accordance w deciding in accordance with the direction given by the T ith the direction given by the Tribunal in assessment year 2011 assessment year 2011-12 to AY 2013-14. The ground No 14. The ground Nos. XIII and XIV of the appeal are acc XIV of the appeal are accordingly allowed for statistical purposes. ordingly allowed for statistical purposes.

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24.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The dispute is dispute and perused the relevant material on record. The dispute dispute and perused the relevant material on record. The dispute regarding considering recognition of interest income on non- regarding considering recognition of interest income on non regarding considering recognition of interest income on non performing assets. According to the R rming assets. According to the Reserve Ba eserve Bank of India guidelines interest on non guidelines interest on non-performing assets beyond beyond the period of 90 days need not to be offered on 90 days need not to be offered on accrual basis, whereas according basis, whereas according to Income-tax rule 6EA read with section 43D of the Act, this period tax rule 6EA read with section 43D of the Act, this period tax rule 6EA read with section 43D of the Act, this period should be beyond 180 days. The Ld. CIT(A) should be beyond 180 days. The Ld. CIT(A) following the decision of following the decision of Tribunal in the case of state Bank of India (supra), upheld the in the case of state Bank of India (supra), upheld the in the case of state Bank of India (supra), upheld the addition made by the Assessing Officer. The relevant finding of the addition made by the Assessing Officer. The relevant finding of the addition made by the Assessing Officer. The relevant finding of the Ld. CIT(A) is reproduced as under: Ld. CIT(A) is reproduced as under:

“15.4 Decision- - 15.4.11 have considered the submissions made by 15.4.11 have considered the submissions made by the appellant and the appellant and have perused the materials available on records. The appellant has have perused the materials available on records. The appellant has have perused the materials available on records. The appellant has requested to delete the requested to delete the impugned addition of Rs. 1,62,47.886/ impugned addition of Rs. 1,62,47.886/-, being interest income assessed as per provisions of section 43D r.w. being interest income assessed as per provisions of section 43D r.w. being interest income assessed as per provisions of section 43D r.w. Rule 6EA. The appellant has made deta Rule 6EA. The appellant has made detailed submissions, as above iled submissions, as above and the same have been considered carefully. The appellant has and the same have been considered carefully. The appellant has and the same have been considered carefully. The appellant has submitted that the Ld. AO has erred in taxing said interest income on submitted that the Ld. AO has erred in taxing said interest income on submitted that the Ld. AO has erred in taxing said interest income on NPA which have been recognized as per RBI guidelines. NPA which have been recognized as per RBI guidelines. From perusal of record it is observed that From perusal of record it is observed that similar issue had come up similar issue had come up for consideration in the case of State Bank of India for AY 2014 for consideration in the case of State Bank of India for AY 2014 for consideration in the case of State Bank of India for AY 2014-15, wherein my Ld. Predecessor, vide his order dated 28.02.2018 in wherein my Ld. Predecessor, vide his order dated 28.02.2018 in wherein my Ld. Predecessor, vide his order dated 28.02.2018 in Appeal No. CIT(A) Appeal No. CIT(A) -5/ACIT-2(2) (1)/IT-113/16-17 has held as under. 17 has held as under. "15.3 Decision: "15.3 Decision:

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I have conside I have considered the appellant's submissions. Similar issue red the appellant's submissions. Similar issue was decided against the Bank by the DRP for AY 2012 was decided against the Bank by the DRP for AY 2012 was decided against the Bank by the DRP for AY 2012-13. The key observations of the DRP are reproduced as under: The key observations of the DRP are reproduced as under: The key observations of the DRP are reproduced as under: "6.12.3 We have carefully considered this issue. It is noted "6.12.3 We have carefully considered this issue. It is noted "6.12.3 We have carefully considered this issue. It is noted that section 43D was introduced by that section 43D was introduced by Finance Act 1991 with a Finance Act 1991 with a view to improve the viability of the banks, public financial view to improve the viability of the banks, public financial view to improve the viability of the banks, public financial institutions; and as per that section the interest on sticky institutions; and as per that section the interest on sticky institutions; and as per that section the interest on sticky loans has to be charged only in the year in which interest is loans has to be charged only in the year in which interest is loans has to be charged only in the year in which interest is actually received or charged to profit and loss actually received or charged to profit and loss actually received or charged to profit and loss account, whichever is earlier. As per that section the category of bad whichever is earlier. As per that section the category of bad whichever is earlier. As per that section the category of bad or doubtful debts stick loans were to be prescribed in the IT or doubtful debts stick loans were to be prescribed in the IT or doubtful debts stick loans were to be prescribed in the IT Rules having regard to the guidelines issued by the RBI in Rules having regard to the guidelines issued by the RBI in Rules having regard to the guidelines issued by the RBI in relation to such debts. In 1992, the Rule 6EA was framed relation to such debts. In 1992, the Rule 6EA was framed relation to such debts. In 1992, the Rule 6EA was framed wherein wherein the norms for six months was provided. In that year the norms for six months was provided. In that year as per the RBI guidelines, the norms for categorizing NPA as per the RBI guidelines, the norms for categorizing NPA as per the RBI guidelines, the norms for categorizing NPA were more than 6 months. In 1993 the specified period was were more than 6 months. In 1993 the specified period was were more than 6 months. In 1993 the specified period was two years. In 1994 it was 1.5 years; from 1995 till two years. In 1994 it was 1.5 years; from 1995 till two years. In 1994 it was 1.5 years; from 1995 till 31.03.2004 it remained 6 months. Th 31.03.2004 it remained 6 months. Thus it is very clear the us it is very clear the norms of 6 months provided in Rule 6EA was not equal to the norms of 6 months provided in Rule 6EA was not equal to the norms of 6 months provided in Rule 6EA was not equal to the period provided in RBI guidelines from when the rule was period provided in RBI guidelines from when the rule was period provided in RBI guidelines from when the rule was framed till 2004. The section 43D provided from the norms by framed till 2004. The section 43D provided from the norms by framed till 2004. The section 43D provided from the norms by framing the rules in view the RBI guidelines but does framing the rules in view the RBI guidelines but does framing the rules in view the RBI guidelines but does not mean that the norms were to be adopted. Admittedly, the mean that the norms were to be adopted. Admittedly, the mean that the norms were to be adopted. Admittedly, the norms as per RBI guidelines have been further reduced to norms as per RBI guidelines have been further reduced to norms as per RBI guidelines have been further reduced to ninety days. But the Rule 6EA still continues with the norms ninety days. But the Rule 6EA still continues with the norms ninety days. But the Rule 6EA still continues with the norms of 6 months. Thus the benefit of section 43D would be of 6 months. Thus the benefit of section 43D would be of 6 months. Thus the benefit of section 43D would be available to the assesse available to the assesse bank only in those cases in which bank only in those cases in which interest or principal remained unpaid for the period of 6 interest or principal remained unpaid for the period of 6 interest or principal remained unpaid for the period of 6 months or more. The assessee bank had not recognized the months or more. The assessee bank had not recognized the months or more. The assessee bank had not recognized the interest in respect of the default acceding ninety days and interest in respect of the default acceding ninety days and interest in respect of the default acceding ninety days and therefore the AO has rightly added the interes therefore the AO has rightly added the interest on that t on that category of loans were default period was between ninety category of loans were default period was between ninety category of loans were default period was between ninety days to six months. After having considered the facts of the days to six months. After having considered the facts of the days to six months. After having considered the facts of the case, the addition made by the AO is the addition made by the AO is confirmed." 15.4 The above decision of the DRP is considered. It is seen 15.4 The above decision of the DRP is considered. It is seen 15.4 The above decision of the DRP is considered. It is seen that the above fac that the above facts are similar in this year also. Therefore, ts are similar in this year also. Therefore, the above decision is followed and the claim of the appellant the above decision is followed and the claim of the appellant the above decision is followed and the claim of the appellant is reject ted. This ground of appeal is dismissed." is reject ted. This ground of appeal is dismissed." The facts and circumstance of the issue under consideration The facts and circumstance of the issue under consideration The facts and circumstance of the issue under consideration are similar as that of decided by my are similar as that of decided by my Ld. Predecessor in the Ld. Predecessor in the case of State Bank of India for AY 2014 case of State Bank of India for AY 2014-15. It is also an 15. It is also an admitted fact that the appellant has explained that Rule 6EA admitted fact that the appellant has explained that Rule 6EA admitted fact that the appellant has explained that Rule 6EA of the Rules provides for recognition of non viable or sticky of the Rules provides for recognition of non viable or sticky of the Rules provides for recognition of non viable or sticky advances which are outstanding for more than six mon advances which are outstanding for more than six mon advances which are outstanding for more than six months on receipt basis whereas the RBI guidelines considers advances receipt basis whereas the RBI guidelines considers advances receipt basis whereas the RBI guidelines considers advances outstanding for more than 90 days as NP As on which outstanding for more than 90 days as NP As on which outstanding for more than 90 days as NP As on which interest is recognized on receipt basis. It is setfled law that interest is recognized on receipt basis. It is setfled law that interest is recognized on receipt basis. It is setfled law that the RBi guidelines would not override the provisions of the the RBi guidelines would not override the provisions of the the RBi guidelines would not override the provisions of the Act, as held Act, as held by the Hon'ble Supreme Court in the case of by the Hon'ble Supreme Court in the case of

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Southern Technologies Lid reported in 187 Taxman 346. Southern Technologies Lid reported in 187 Taxman 346. Southern Technologies Lid reported in 187 Taxman 346. Similar law has been laid down by the Hon'ble Karnataka Similar law has been laid down by the Hon'ble Karnataka Similar law has been laid down by the Hon'ble Karnataka High Court in the case of Karnataka Bank Ltd, reported in 59 High Court in the case of Karnataka Bank Ltd, reported in 59 High Court in the case of Karnataka Bank Ltd, reported in 59 taxmann.com 93, wherein the Hon'ble Court taxmann.com 93, wherein the Hon'ble Court has held as has held as under. "13. When the legislature has expressly used the words "13. When the legislature has expressly used the words "13. When the legislature has expressly used the words "income by way of interest" in Section 43D of the Act, if we "income by way of interest" in Section 43D of the Act, if we "income by way of interest" in Section 43D of the Act, if we had to include in that Section the unrealized rentals from had to include in that Section the unrealized rentals from had to include in that Section the unrealized rentals from equipment leasing activity, it would amount to the Court equipment leasing activity, it would amount to the Court equipment leasing activity, it would amount to the Court rewriting the Section, which is impermissible in law. In fact, iting the Section, which is impermissible in law. In fact, iting the Section, which is impermissible in law. In fact, the authorities have not carefully read the aforesaid statutory the authorities have not carefully read the aforesaid statutory the authorities have not carefully read the aforesaid statutory provision. It is a case of misreading the provision. A liability provision. It is a case of misreading the provision. A liability provision. It is a case of misreading the provision. A liability under the Income Tax Act cannot under the Income Tax Act cannot - be foisted on the basis of be foisted on the basis of analogy analogy. Unless the statute provides, no tax to be levied. . Unless the statute provides, no tax to be levied. Similarly, Similarly, when the stafute expressly provides how when the stafute expressly provides how the income received is to be taxed and in which year, strictly in received is to be taxed and in which year, strictly in accordance with the statutory provision, the tax has to be accordance with the statutory provision, the tax has to be accordance with the statutory provision, the tax has to be levied. The language employe levied. The language employed in the aforesaid Section is d in the aforesaid Section is simple. There is no ambiguity. We have to follow the words simple. There is no ambiguity. We have to follow the words simple. There is no ambiguity. We have to follow the words used in that Section. There is no scope for interpretation at used in that Section. There is no scope for interpretation at used in that Section. There is no scope for interpretation at all. Hence, the impugned order passed by the Appellate all. Hence, the impugned order passed by the Appellate all. Hence, the impugned order passed by the Appellate Authorities cannot be sustained. Accordingly, the Authorities cannot be sustained. Accordingly, the Authorities cannot be sustained. Accordingly, the fifth substantial question of law is answered in favour of the substantial question of law is answered in favour of the substantial question of law is answered in favour of the Revenue and against the assessee. To that extent, the Revenue and against the assessee. To that extent, the Revenue and against the assessee. To that extent, the appeals succeed and the impugned order on that aspect only appeals succeed and the impugned order on that aspect only appeals succeed and the impugned order on that aspect only is hereby set aside." is hereby set aside." Further, the Hon'ble Delhi High Court, while adjudicating Further, the Hon'ble Delhi High Court, while adjudicating Further, the Hon'ble Delhi High Court, while adjudicating similar issue, in the case of Housing & Urban Development similar issue, in the case of Housing & Urban Development similar issue, in the case of Housing & Urban Development Corporation Ltd reported in 83 taxmann.com 292 has held as Corporation Ltd reported in 83 taxmann.com 292 has held as Corporation Ltd reported in 83 taxmann.com 292 has held as under. "23. Section 43D of the Act read with Rule 6EB is a complete "23. Section 43D of the Act read with Rule 6EB is a complete "23. Section 43D of the Act read with Rule 6EB is a complete Code in itself. Code in itself. There is an element of discretion for the rule There is an element of discretion for the rule making a making authority to follow or not to follow the NHB guidelines uthority to follow or not to follow the NHB guidelines as and when they are revised. The purpose of classification as and when they are revised. The purpose of classification as and when they are revised. The purpose of classification of debts as NPA by the NHB and the purpose for non of debts as NPA by the NHB and the purpose for non of debts as NPA by the NHB and the purpose for non- recognition of income for the purposes of the Act are different. recognition of income for the purposes of the Act are different. recognition of income for the purposes of the Act are different. Given the wording of the Given the wording of the relevant provisions of the Act and relevant provisions of the Act and the NHB Act, it is not possible to agree to HUDCO's the NHB Act, it is not possible to agree to HUDCO's the NHB Act, it is not possible to agree to HUDCO's proposition that with every change in the NHB guidelines proposition that with every change in the NHB guidelines proposition that with every change in the NHB guidelines there would be a corresponding automatic change in Rule there would be a corresponding automatic change in Rule there would be a corresponding automatic change in Rule 6EB." In view of above discussions, I am of the conside In view of above discussions, I am of the considered opinion red opinion that the appellant's contentions in this respect are devoid of that the appellant's contentions in this respect are devoid of that the appellant's contentions in this respect are devoid of any merits and hence herewith rejected. Hence, the any merits and hence herewith rejected. Hence, the any merits and hence herewith rejected. Hence, the impugned addition of Rs. 1,62,47,886/ impugned addition of Rs. 1,62,47,886/- is CONFIRMED. is CONFIRMED. Accordingly, the Ground No. X raised in appeal is Accordingly, the Ground No. X raised in appeal is Accordingly, the Ground No. X raised in appeal is DISMISSED. DISMISSED.”

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24.2 Before us, the learned counsel for the assessee however has the learned counsel for the assessee however has the learned counsel for the assessee however has relied on the decision of the T relied on the decision of the Tribunal coordinate bench in the case ribunal coordinate bench in the case of ICICI Bank Ltd in IT No. 3215/Mum/2019 and ITA No. of ICICI Bank Ltd in IT No. 3215/Mum/2019 and ITA No. of ICICI Bank Ltd in IT No. 3215/Mum/2019 and ITA No. 3864/Mum/2019 for assessment year 2010 3864/Mum/2019 for assessment year 2010-11. The relevant 1. The relevant finding of the Tribunal is r ribunal is reproduced as under:

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disputed by the revenue, the recognition of income is to be done only on disputed by the revenue, the recognition of income is to be done only on disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In receipt basis which is in consonance with the real income theory. In receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of Hon'ble these circumstances and respectfully following the decisions of Hon'ble these circumstances and respectfully following the decisions of Hon'ble Delhi High Court in 330 ITR 440 and various other decisions refered to Delhi High Court in 330 ITR 440 and various other decisions refered to Delhi High Court in 330 ITR 440 and various other decisions refered to supra, we hold that the interest income on NPA accounts should not be supra, we hold that the interest income on NPA accounts should not be supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only on assessed on mercantile basis and the same is to be taxed only on assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the grounds raised by receipt basis. Accordingly, the grounds raised by the assessee are the assessee are allowed.” We have also perused the provision of Sect. 43D of the Act which are We have also perused the provision of Sect. 43D of the Act which are We have also perused the provision of Sect. 43D of the Act which are reproduced as under: reproduced as under: “43D. Notwithstanding anything to the contrary contained in any other “43D. Notwithstanding anything to the contrary contained in any other “43D. Notwithstanding anything to the contrary contained in any other pro vision of this Act, pro vision of this Act,- (a) in the case of a public financial inst (a) in the case of a public financial institution or a scheduled bank or "[a itution or a scheduled bank or "[a cooperative bank other than a primary agricultural credit society or a cooperative bank other than a primary agricultural credit society or a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or] a operative agricultural and rural development bank or] a operative agricultural and rural development bank or] a State financial corporation or a State industrial investment corporation State financial corporation or a State industrial investment corporation State financial corporation or a State industrial investment corporation "[or a deposit taking non osit taking non-banking financial company or a systemically banking financial company or a systemically important non important non-deposit taking non-banking financial company] the banking financial company] the income by way of interest" in relation to such categories of bad or income by way of interest" in relation to such categories of bad or income by way of interest" in relation to such categories of bad or doubtful debts as may be prescribed" having regard to the guidel doubtful debts as may be prescribed" having regard to the guidel doubtful debts as may be prescribed" having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, issued by the Reserve Bank of India in relation to such debts, issued by the Reserve Bank of India in relation to such debts, (b) in the case of a public company, the income by way of interest" in (b) in the case of a public company, the income by way of interest" in (b) in the case of a public company, the income by way of interest" in relation to such categories of bad or doubtful debts as may be relation to such categories of bad or doubtful debts as may be relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by prescribed having regard to the guidelines issued by the National the National Housing Bank in relation to such debts, Housing Bank in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by shall be chargeable to tax in the previous year in which it is credited by shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or "[a co the public financial institution or the scheduled bank or "[a co the public financial institution or the scheduled bank or "[a co-operative bank other than a primary agricultural credit societ bank other than a primary agricultural credit society or a primary co y or a primary co- operative agricultural and rural development bank or] the State financial operative agricultural and rural development bank or] the State financial operative agricultural and rural development bank or] the State financial corporation or the State industrial investment corporation or "[a deposit corporation or the State industrial investment corporation or "[a deposit corporation or the State industrial investment corporation or "[a deposit taking non-banking financial company or a systemically important non banking financial company or a systemically important non- banking financial company or a systemically important non deposit taking non deposit taking non-banking financial company or] the public company to nking financial company or] the public company to its profit and loss account for that year or as the case may be, in which its profit and loss account for that year or as the case may be, in which its profit and loss account for that year or as the case may be, in which it is actually received by that institution or bank or corporation or it is actually received by that institution or bank or corporation or it is actually received by that institution or bank or corporation or company, whichever is earlier.” company, whichever is earlier.” It is categorically provided i It is categorically provided in the provisions of section 43D that income n the provisions of section 43D that income by way of interest in relation to bad and doubtful debts to be prescribed by way of interest in relation to bad and doubtful debts to be prescribed by way of interest in relation to bad and doubtful debts to be prescribed in accordance with guidelines issued by the RBI. The section 43D was in accordance with guidelines issued by the RBI. The section 43D was in accordance with guidelines issued by the RBI. The section 43D was introduced by the Finance Act, 1991 as per the section the category o introduced by the Finance Act, 1991 as per the section the category o introduced by the Finance Act, 1991 as per the section the category of bad and doubtful debts to be prescribed in the Income Tax Rules having bad and doubtful debts to be prescribed in the Income Tax Rules having bad and doubtful debts to be prescribed in the Income Tax Rules having regard to the guidelines issued by the RBI in relation to such debts. In regard to the guidelines issued by the RBI in relation to such debts. In regard to the guidelines issued by the RBI in relation to such debts. In 1992 the Rules 6E was framed and as per RBI guidelines the norms for 1992 the Rules 6E was framed and as per RBI guidelines the norms for 1992 the Rules 6E was framed and as per RBI guidelines the norms for categorization of advances as NPA were th categorization of advances as NPA were those advances which ose advances which remained over due for more than 6 months. The RBI has revised the remained over due for more than 6 months. The RBI has revised the remained over due for more than 6 months. The RBI has revised the guideline from time to time and made changes in the period of overdue guideline from time to time and made changes in the period of overdue guideline from time to time and made changes in the period of overdue of advances for categorization of NPA. During the year under of advances for categorization of NPA. During the year under of advances for categorization of NPA. During the year under consideration the RBI has reduced the pe consideration the RBI has reduced the period to 90 days for riod to 90 days for

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categorization of interest on sticky loan as NPA, however, similar categorization of interest on sticky loan as NPA, however, similar categorization of interest on sticky loan as NPA, however, similar changes was not made to Rule 6EA. After considering the provisions of changes was not made to Rule 6EA. After considering the provisions of changes was not made to Rule 6EA. After considering the provisions of Sec. 43D and judicial findings as supra we consider that norms for Sec. 43D and judicial findings as supra we consider that norms for Sec. 43D and judicial findings as supra we consider that norms for categorization of bad and doubtf categorization of bad and doubtful debts had to be prescribed ul debts had to be prescribed considering the guidelines issued by the RBI. Therefore, the ld. CIT(A) is considering the guidelines issued by the RBI. Therefore, the ld. CIT(A) is considering the guidelines issued by the RBI. Therefore, the ld. CIT(A) is not justified in substituting the limit for recognizing of interest on not justified in substituting the limit for recognizing of interest on not justified in substituting the limit for recognizing of interest on account of NPA to 180 days from 90 days in view of the clear provisions account of NPA to 180 days from 90 days in view of the clear provisions account of NPA to 180 days from 90 days in view of the clear provisions of Sec. 43D(a) that in the case of public financial institutions or schedule 43D(a) that in the case of public financial institutions or schedule 43D(a) that in the case of public financial institutions or schedule bank or a state financial corporation or a State Industrial Investment bank or a state financial corporation or a State Industrial Investment bank or a state financial corporation or a State Industrial Investment Corporation, the income by way of interest in relation to such categories Corporation, the income by way of interest in relation to such categories Corporation, the income by way of interest in relation to such categories of bad and doubtful debt as may be prescri of bad and doubtful debt as may be prescribed having regard to the bed having regard to the guidelines issued by the RBI in relation to such debts. Therefore, both guidelines issued by the RBI in relation to such debts. Therefore, both guidelines issued by the RBI in relation to such debts. Therefore, both the ground of appeals of the assessee are allowed. the ground of appeals of the assessee are allowed.” 24.3 We find that Tribunal in the case of the state Bank of India ribunal in the case of the state Bank of India ribunal in the case of the state Bank of India has relied on the decision of the Hon’ble has relied on the decision of the Hon’ble Delhi High Court in the i High Court in the case of Housing and urban development Corporation Ltd (supra) ousing and urban development Corporation Ltd (supra) ousing and urban development Corporation Ltd (supra), where specific issue of NHB guidelines vis where specific issue of NHB guidelines vis-à-vis Rule 6E vis Rule 6EA read with section 43D of the A section 43D of the Act was involved, which being a decision of s involved, which being a decision of higher appellate forum forum, therefore, keeping in view the judicial eping in view the judicial discipline, we are bound are bound to follow the decision of the Tribunal in the to follow the decision of the Tribunal in the case of State Bank of India (supra). We accordingly tate Bank of India (supra). We accordingly tate Bank of India (supra). We accordingly, uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground No. XV finding of the Ld. CIT(A) on the issue in dispute. The ground No. XV finding of the Ld. CIT(A) on the issue in dispute. The ground No. XV of the appeal of the asse of the appeal of the assessee is accordingly dismissed. ssee is accordingly dismissed.

25.1 The brief facts qua the issue in dispute are that un e brief facts qua the issue in dispute are that un e brief facts qua the issue in dispute are that under section 36(1)(viia) of the Act , the , the assessee has claimed deduction in respect assessee has claimed deduction in respect of of of provision provision provision for for for bad bad bad and and and doubtful doubtful doubtful debts debts debts amounting amounting amounting to to to

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₹129,79,83,400/- and for provision against the ru and for provision against the rural advances and for provision against the ru amounting to Rs. 24,91,43,645/ 24,91,43,645/-. According to the assessee . According to the assessee, the deduction for provision of rural advances is allowable under section deduction for provision of rural advances is allowable under section deduction for provision of rural advances is allowable under section 36(1)(viia) separately other than the deduction for provision of bad 36(1)(viia) separately other than the deduction for provision of bad 36(1)(viia) separately other than the deduction for provision of bad and doubtful debt which is subjected to limit of 7.5% of total and doubtful debt which is subjected to limit of 7.5% of tota and doubtful debt which is subjected to limit of 7.5% of tota income before claiming dedu income before claiming deduction under chapter VIA of the A ction under chapter VIA of the Act. It is stated by the assessee that 7.5% of the total income before claiming stated by the assessee that 7.5% of the total income before claiming stated by the assessee that 7.5% of the total income before claiming deduction ction under under chapter chapter VIA VIA of of the the A Act ct works works out out to to ₹221,14,18,694/-, but the assessee’s book provision was lower than but the assessee’s book provision was lower than but the assessee’s book provision was lower than 7.5% of the total income and therefore the assessee restricted its 7.5% of the total income and therefore the assessee restricted its 7.5% of the total income and therefore the assessee restricted its claim under section 36(1)(viia) to the extent of claim under section 36(1)(viia) to the extent of ₹12 129,79,83,437/- and the claim for 10% of rural advances amounting to and the claim for 10% of rural advances amounting to and the claim for 10% of rural advances amounting to ₹24,91,43,645/--was made was made separately. According to the AO, separately. According to the AO, however the deduction under section 36(1)(viia) cannot exceed the however the deduction under section 36(1)(viia) cannot exceed the however the deduction under section 36(1)(viia) cannot exceed the total provision for bad and doubtful made by the assessee. On total provision for bad and doubtful made by the assessee. On total provision for bad and doubtful made by the assessee. On further appeal, the Ld. CIT(A) following the decision of the Hon’ble further appeal, the Ld. CIT(A) following the decision of the Hon’ble further appeal, the Ld. CIT(A) following the decision of the Hon’ble Punjab and Haryana High Court in the case of S yana High Court in the case of State Bank of Patiala tate Bank of Patiala Vs CIT (supra) , upheld the finding of the Assessing Officer. The Vs CIT (supra) , upheld the finding of the Assessing Officer. The Vs CIT (supra) , upheld the finding of the Assessing Officer. The relevant finding of Ld. CIT(A) is reproduced as under: relevant finding of Ld. CIT(A) is reproduced as under: relevant finding of Ld. CIT(A) is reproduced as under:

“16.4.1 l have considered the submissions made by the appellant and 16.4.1 l have considered the submissions made by the appellant and 16.4.1 l have considered the submissions made by the appellant and have perused the material available on record. The appellant has perused the material available on record. The appellant has perused the material available on record. The appellant has requested to allow the claim of Rs. 24,91,43,645/ requested to allow the claim of Rs. 24,91,43,645/- made u/s 36(1)(viia) made u/s 36(1)(viia) in respect of provision made for Rural Advances. The appellant's main in respect of provision made for Rural Advances. The appellant's main in respect of provision made for Rural Advances. The appellant's main contentions are that the provision of Rural Advances contentions are that the provision of Rural Advances was inserted under was inserted under section 36(1) (viia) to promote Rural Banking and thus provided an section 36(1) (viia) to promote Rural Banking and thus provided an section 36(1) (viia) to promote Rural Banking and thus provided an incentive to Banks who advance credit to the Rural Sector. On placing incentive to Banks who advance credit to the Rural Sector. On placing incentive to Banks who advance credit to the Rural Sector. On placing reliance of the CBDT circular 464 dated 18.07.1986, the appellant has reliance of the CBDT circular 464 dated 18.07.1986, the appellant has reliance of the CBDT circular 464 dated 18.07.1986, the appellant has submitted that the amendment u submitted that the amendment u/s 36(1)(viia) was made to split the 36(1)(viia) was made to split the deduction into two separate provisions, one related to the prescribed deduction into two separate provisions, one related to the prescribed deduction into two separate provisions, one related to the prescribed percentage of aggregate average advance made by Rural Branches and percentage of aggregate average advance made by Rural Branches and percentage of aggregate average advance made by Rural Branches and

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the other was in respect of prescribed percentage of total income. The the other was in respect of prescribed percentage of total income. The the other was in respect of prescribed percentage of total income. The appellant has further submitted that it maintains only one account in as further submitted that it maintains only one account in as further submitted that it maintains only one account in respect of provisions of advances and which is in tune with the respect of provisions of advances and which is in tune with the respect of provisions of advances and which is in tune with the Explanation to section 36(1)(vii) of the Act. The contentions of the Explanation to section 36(1)(vii) of the Act. The contentions of the Explanation to section 36(1)(vii) of the Act. The contentions of the appellant have been considered carefully. The provisions of sect appellant have been considered carefully. The provisions of sect appellant have been considered carefully. The provisions of section 36(1)(viia) of the Act as it stood in the relevant assessment year, 36(1)(viia) of the Act as it stood in the relevant assessment year, 36(1)(viia) of the Act as it stood in the relevant assessment year, stipulates as under. stipulates as under. [(viia) [in respect of any provision for bad and doubtful debts made by [(viia) [in respect of any provision for bad and doubtful debts made by [(viia) [in respect of any provision for bad and doubtful debts made by— (a) a scheduled bank [not being [*] a bank incorporated by or under the (a) a scheduled bank [not being [*] a bank incorporated by or under the (a) a scheduled bank [not being [*] a bank incorporated by or under the laws of a country laws of a country outside Indial or a non- scheduled bank lor a co scheduled bank lor a co- operative bank other than a primary agricultural credit society or a operative bank other than a primary agricultural credit society or a operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an operative agricultural and rural development bank], an operative agricultural and rural development bank], an amount [not exceeding seven and one amount [not exceeding seven and one-half per cent] of the total income half per cent] of the total income (computed before making any deduction under this clause and Chapter computed before making any deduction under this clause and Chapter computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average VIA) and an amount not exceeding [ten] per cent of the aggregate average VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the advances made by the rural branches of such bank computed in the advances made by the rural branches of such bank computed in the prescribed manner :" prescribed manner :" From the above it is evident t From the above it is evident that for claiming any deduction u/s 36(1) hat for claiming any deduction u/s 36(1) (viia) creation of provision for bad doubtful debt is sine (viia) creation of provision for bad doubtful debt is sine-qua qua-none and once the provision for the same has been made therein, the same is once the provision for the same has been made therein, the same is once the provision for the same has been made therein, the same is required to be restricted to an amount not exceeding seven and one required to be restricted to an amount not exceeding seven and one required to be restricted to an amount not exceeding seven and one-half per cent of the total income, computed before making any deduction cent of the total income, computed before making any deduction cent of the total income, computed before making any deduction under this section & under this clause and Chapter VIA, and an amount under this section & under this clause and Chapter VIA, and an amount under this section & under this clause and Chapter VIA, and an amount not exceeding 10% of the aggregate average advances made by the Rural not exceeding 10% of the aggregate average advances made by the Rural not exceeding 10% of the aggregate average advances made by the Rural Branches of such Bank computed in the manner prescrib Branches of such Bank computed in the manner prescrib Branches of such Bank computed in the manner prescribed therein. Hence, it is evident that under no circumstances the claim of deduction Hence, it is evident that under no circumstances the claim of deduction Hence, it is evident that under no circumstances the claim of deduction u/s 36(1)(viia) can exceed the provision for bad and doubtful debt created u/s 36(1)(viia) can exceed the provision for bad and doubtful debt created u/s 36(1)(viia) can exceed the provision for bad and doubtful debt created therein. In the present case it is an admitted fact that the appellant has therein. In the present case it is an admitted fact that the appellant has therein. In the present case it is an admitted fact that the appellant has made provision for bad made provision for bad and doubtful debt u/s 36(1)(viia) at Rs. debt u/s 36(1)(viia) at Rs. 129,79,83,437/ 129,79,83,437/-. The appellant has also admitted that 7.5% of total . The appellant has also admitted that 7.5% of total income before claiming any deduction under chapter VIA works out to Rs. income before claiming any deduction under chapter VIA works out to Rs. income before claiming any deduction under chapter VIA works out to Rs. 221,14,18,694/ 221,14,18,694/- and since the appellant's book's provision was lower and since the appellant's book's provision was lower than 7.5% of total income, the appellant has restricted its claim u/s 7.5% of total income, the appellant has restricted its claim u/s 7.5% of total income, the appellant has restricted its claim u/s 36(1)(viia) of the Act to Rs. 129,79,83,437/ 36(1)(viia) of the Act to Rs. 129,79,83,437/-. Having claimed the . Having claimed the deduction u/s deduction u/s 36(1) (via) by restricting 7.5% of total income to the 36(1) (via) by restricting 7.5% of total income to the provisions made in the books, provisions made in the books, surprisingly in its computation of income ation of income the appellant has made separate claim u/s 36(1)(viia) of the Act in the appellant has made separate claim u/s 36(1)(viia) of the Act in the appellant has made separate claim u/s 36(1)(viia) of the Act in respect of Rural Advances. The appellant's contention that it is eligible to respect of Rural Advances. The appellant's contention that it is eligible to respect of Rural Advances. The appellant's contention that it is eligible to claim of deduction u/s 36(1) (viia) separately for Rural Advances, without claim of deduction u/s 36(1) (viia) separately for Rural Advances, without claim of deduction u/s 36(1) (viia) separately for Rural Advances, without any provision for ba any provision for bad and doubtful debt made in books in respect of d and doubtful debt made in books in respect of same is contrary to provisions of sec 36(1)(viia) of the Act. As discussed same is contrary to provisions of sec 36(1)(viia) of the Act. As discussed same is contrary to provisions of sec 36(1)(viia) of the Act. As discussed above, the first step to claim deduction u/s above, the first step to claim deduction u/s 36(1)(viia) is to create 36(1)(viia) is to create provisions for bad and doubtful advances in books and then the provisions for bad and doubtful advances in books and then the provisions for bad and doubtful advances in books and then the same has to be restricted to prescribed percentage of total income and rural has to be restricted to prescribed percentage of total income and rural has to be restricted to prescribed percentage of total income and rural advances made. The appellant has already claimed deduction u/s advances made. The appellant has already claimed deduction u/s advances made. The appellant has already claimed deduction u/s 36(1)(viia) to the extent of provisions made in the books and hence any 36(1)(viia) to the extent of provisions made in the books and hence any 36(1)(viia) to the extent of provisions made in the books and hence any further claim of deduction u/s 36(1)(viia) o further claim of deduction u/s 36(1)(viia) of the Act in respect of rural f the Act in respect of rural advances, over and above the provisions made in book is not as per the advances, over and above the provisions made in book is not as per the advances, over and above the provisions made in book is not as per the provisions of the Act. The Hon'ble Punjab and Haryana High court in the provisions of the Act. The Hon'ble Punjab and Haryana High court in the provisions of the Act. The Hon'ble Punjab and Haryana High court in the

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case of State Bank of Patiala vs CIT reported in 143 Taxman 196, case of State Bank of Patiala vs CIT reported in 143 Taxman 196, case of State Bank of Patiala vs CIT reported in 143 Taxman 196, considered similar considered similar issue and has held as under. 5. Section 36(1) (viia) of the Act as applicable to the assessment year 5. Section 36(1) (viia) of the Act as applicable to the assessment year 5. Section 36(1) (viia) of the Act as applicable to the assessment year 1985-86, reads as under: 86, reads as under: "in respect of any provision for bad and doubtful debts made by a "in respect of any provision for bad and doubtful debts made by a "in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Govern scheduled bank [not being a bank approved by the Central Govern scheduled bank [not being a bank approved by the Central Government for the purposes of clause (vilia) or a bank incorporated by or under the for the purposes of clause (vilia) or a bank incorporated by or under the for the purposes of clause (vilia) or a bank incorporated by or under the laws of a country outside India] or a non laws of a country outside India] or a non-scheduled bank, an amount not scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any exceeding ten per cent of the total income (computed before making any exceeding ten per cent of the total income (computed before making any deduction under this clause and Ch deduction under this clause and Chapter VI-A) or an amount not A) or an amount not exceeding two per cent of the aggregate average advances made by the exceeding two per cent of the aggregate average advances made by the exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, rural branches of such bank, computed in the prescribed manner, rural branches of such bank, computed in the prescribed manner, whichever is higher." whichever is higher." 6. A bare perusal of the above shows that the deduction allowable under 6. A bare perusal of the above shows that the deduction allowable under 6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, the above provisions is in respect of the provision made. Therefore, the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount making of a provision for bad and doubtful debt equal to the amount making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction. The mentioned in this section is a must for claiming such deduction. The mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue s Tribunal has rightly pointed out that this issue stands further clarified tands further clarified from the proviso to clause (vii) of section 36(1) of the Act, which reads as from the proviso to clause (vii) of section 36(1) of the Act, which reads as from the proviso to clause (vii) of section 36(1) of the Act, which reads as under: "Provided that in the case of an assessee to which clause (viia) applies, "Provided that in the case of an assessee to which clause (viia) applies, "Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof the amount of the deduction relating to any such debt or part thereof the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds l be limited to the amount by which such debt or part thereof exceeds l be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account the credit balance in the provision for bad and doubtful debts account the credit balance in the provision for bad and doubtful debts account made under that clause." made under that clause." 7. This also clearly shows that making of provision equal to the amount 7. This also clearly shows that making of provision equal to the amount 7. This also clearly shows that making of provision equal to the amount claimed as deducti claimed as deduction in the account books is necessary for claiming on in the account books is necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has under section 36(1)(viia) of the Act. The Tribunal has under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein distinguished various authorities relied upon by the assessee wherein distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also deductions had been allowed under various provisions which also deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve d creation of reserve after the assessee had created such reserve d creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been in the account books before the completion of the assessment. It has been in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had correctly pointed out that in all those cases, reserves/provisions had correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same been made in the books of account of the same assessment year and not assessment year and not of the subsequent assessment year. of the subsequent assessment year. 8. In the present case, the assessee has not made any provision in the 8. In the present case, the assessee has not made any provision in the 8. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration, i.e., 1985 books of account for the assessment year under consideration, i.e., 1985 books of account for the assessment year under consideration, i.e., 1985- 86, by making supplementary entries and by revising 86, by making supplementary entries and by revising its balance its balance-sheet. The provision has been made in the books of account of the subsequent The provision has been made in the books of account of the subsequent The provision has been made in the books of account of the subsequent year. 9. We are, therefore, satisfied that the Tribunal was right in holding that 9. We are, therefore, satisfied that the Tribunal was right in holding that 9. We are, therefore, satisfied that the Tribunal was right in holding that since the assessee had made a provision of Rs. 1, 19,36,000 for bad and since the assessee had made a provision of Rs. 1, 19,36,000 for bad and since the assessee had made a provision of Rs. 1, 19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1)(viia) of the Act s, its claim for deduction under section 36(1)(viia) of the Act s, its claim for deduction under section 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute had to be restricted to that amount only. Since the language of the statute had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied is clear and is not capable of any other interpretation, we are satisfied is clear and is not capable of any other interpretation, we are satisfied

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that no substantial question of law arises that no substantial question of law arises in this appeal for consideration in this appeal for consideration by this court." Similar law has been laid down by the Hon'ble ITAT, Bangalore in the Similar law has been laid down by the Hon'ble ITAT, Bangalore in the Similar law has been laid down by the Hon'ble ITAT, Bangalore in the case of Karnataka Vikas Grameen Bank wherein the Hon'ble Tribunal, case of Karnataka Vikas Grameen Bank wherein the Hon'ble Tribunal, case of Karnataka Vikas Grameen Bank wherein the Hon'ble Tribunal, vide its order dated 25.04.2018 in ITA Nos. 673 & 674/Bang/2014 and vide its order dated 25.04.2018 in ITA Nos. 673 & 674/Bang/2014 and vide its order dated 25.04.2018 in ITA Nos. 673 & 674/Bang/2014 and 684/Bang/2014 has held as under. 4/Bang/2014 has held as under. "8. We have considered the rival submission. The provisions of Section "8. We have considered the rival submission. The provisions of Section "8. We have considered the rival submission. The provisions of Section 36(1) (viia) (a) of the Act lays down as follows: 36(1) (viia) (a) of the Act lays down as follows: "viia) in respect of any provision for bad and doubtful debts made by "viia) in respect of any provision for bad and doubtful debts made by "viia) in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank not being a (a) a scheduled bank not being a bank incorporated by or under the laws bank incorporated by or under the laws of a country outside India] or a co of a country outside India] or a co-operative bank other than a primary operative bank other than a primary agricultural credit society or a primary co agricultural credit society or a primary co- operative agricultural and rural operative agricultural and rural development bank, an amount not exceeding seven and one development bank, an amount not exceeding seven and one development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this of the total income (computed before making any deduction under this of the total income (computed before making any deduction under this clause and Chapter VI clause and Chapter VI-A) and an amount not exceeding ten per cent of A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such the aggregate average advances made by the rural branches of such the aggregate average advances made by the rural branches of such bank computed in the prescribed manner; bank computed in the prescribed manner; Provided that a scheduled bank or a non that a scheduled bank or a non-scheduled bank referred to in scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant clause shall, at its option, be allowed in any of the relevant clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for assessment years, deduction in respect of any provision made by it for assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India any assets classified by the Reserve Bank of India as doubtful assets or as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, loss assets in accordance with the guidelines issued by it in this behalf, loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets for an amount not exceeding five per cent of the amount of such assets for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous shown in the books of account of the bank on the last day of the previous shown in the books of account of the bank on the last day of the previous year." 9. In the case of Syndicate Bank (supra) 78 TD 103 (Bang.), the he case of Syndicate Bank (supra) 78 TD 103 (Bang.), the he case of Syndicate Bank (supra) 78 TD 103 (Bang.), the Bangalore Bench of ITAT took the view that irrespective of the debit to the Bangalore Bench of ITAT took the view that irrespective of the debit to the Bangalore Bench of ITAT took the view that irrespective of the debit to the profit and loss account on account of provision for bad and doubtful debts account on account of provision for bad and doubtful debts (PBDD), an Assessee is entitled to 10 percent of (PBDD), an Assessee is entitled to 10 percent of the AARA as deduction the AARA as deduction u/s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the u/s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the u/s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the aforesaid decision was as follows: aforesaid decision was as follows: "20. The learned CIT has also acted under the misconception that "20. The learned CIT has also acted under the misconception that "20. The learned CIT has also acted under the misconception that deduction under cl. (viia) is related to the actual amou deduction under cl. (viia) is related to the actual amount of provision nt of provision made by the assessee for bad and doubtful debts. The true meaning of made by the assessee for bad and doubtful debts. The true meaning of made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and the clause, as indicated earlier, is that once a provision for bad and the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the doubtful debts is made by a scheduled bank having rural branches, the doubtful debts is made by a scheduled bank having rural branches, the assessee is entifled to a dedu assessee is entifled to a deduction which is quantified not with respect to ction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain the amount provided for in the accounts, but with respect to a certain the amount provided for in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the percentage of the total income and also a certain percentage of the percentage of the total income and also a certain percentage of the aggregate average advances made by the rural branches of the bank. In aggregate average advances made by the rural branches of the bank. In aggregate average advances made by the rural branches of the bank. In other words, this is a specific deduction given by the statute irrespective ther words, this is a specific deduction given by the statute irrespective ther words, this is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts towards of the quantum provided by the assessee in its accounts towards of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts." provision for bad and doubtful debts." 10. However the Bangalore Bench of ITAT in the case of Syndicate Bank 10. However the Bangalore Bench of ITAT in the case of Syndicate Bank 10. However the Bangalore Bench of ITAT in the case of Syndicate Bank (supra) 150 ITD 103 (Bang.) noticed that the ITAT Bangalore Bench in the 150 ITD 103 (Bang.) noticed that the ITAT Bangalore Bench in the 150 ITD 103 (Bang.) noticed that the ITAT Bangalore Bench in the

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case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 considered in the case of Canara Bank in ITA No.58/Bang/2004 dated considered in the case of Canara Bank in ITA No.58/Bang/2004 dated considered in the case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 considered the decision of the 9.6.2006 considered the decision of the ITAT in the case of Syndic ITAT in the case of Syndicate Bank 78 ITD 103(Bang) and the decision of the Hon'ble Punjab and Bank 78 ITD 103(Bang) and the decision of the Hon'ble Punjab and Bank 78 ITD 103(Bang) and the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra) and held Haryana High Court in the case of State Bank of Patiala (supra) and held Haryana High Court in the case of State Bank of Patiala (supra) and held that the decision rendered by the Hon'ble High Court has to be followed. that the decision rendered by the Hon'ble High Court has to be followed. that the decision rendered by the Hon'ble High Court has to be followed. The above decision though of a non jurisd The above decision though of a non jurisdiction High Court was followed iction High Court was followed as the said decision of the Hon'ble High Court was rendered after the as the said decision of the Hon'ble High Court was rendered after the as the said decision of the Hon'ble High Court was rendered after the decision in the case of Syndicate Bank 78 ITD 103 (Bang.). The Tribunal decision in the case of Syndicate Bank 78 ITD 103 (Bang.). The Tribunal decision in the case of Syndicate Bank 78 ITD 103 (Bang.). The Tribunal held that Judicial discipline demands that the Tribunal should follow the held that Judicial discipline demands that the Tribunal should follow the held that Judicial discipline demands that the Tribunal should follow the later decision which has considered both the decisions on the issue. The ision which has considered both the decisions on the issue. The ision which has considered both the decisions on the issue. The Tribunal following the said decision held deduction on account of Tribunal following the said decision held deduction on account of Tribunal following the said decision held deduction on account of Provision for Bad and Doubtful Debts u/s.36(1) (viia) of the Act has to be Provision for Bad and Doubtful Debts u/s.36(1) (viia) of the Act has to be Provision for Bad and Doubtful Debts u/s.36(1) (viia) of the Act has to be allowed only to the extent such provision is actual allowed only to the extent such provision is actually debited in the Profit ly debited in the Profit & Loss Account by the Assessee for the relevant previous year. We & Loss Account by the Assessee for the relevant previous year. We & Loss Account by the Assessee for the relevant previous year. We therefore respectfully following the decision of the Tribunal in the case of therefore respectfully following the decision of the Tribunal in the case of therefore respectfully following the decision of the Tribunal in the case of Canara Bank (supra), allow Gr. No.2 to 4 raised by the Revenue and hold Canara Bank (supra), allow Gr. No.2 to 4 raised by the Revenue and hold Canara Bank (supra), allow Gr. No.2 to 4 raised by the Revenue and hold that the disallo that the disallowance made by the AO was proper and the Assessee is wance made by the AO was proper and the Assessee is entitled to deduction only to the extent PBDD is debited to the P & L A/c. entitled to deduction only to the extent PBDD is debited to the P & L A/c. entitled to deduction only to the extent PBDD is debited to the P & L A/c. Thus Gr. No.2 to 4 3 raised by the revenue are allowed. Thus Gr. No.2 to 4 3 raised by the revenue are allowed. 11. As far as the decision of the Hon'ble Karnataka High Court in the 11. As far as the decision of the Hon'ble Karnataka High Court in the 11. As far as the decision of the Hon'ble Karnataka High Court in the case of Patil Vijayakumar (supra) cited by the learned counsel for the se of Patil Vijayakumar (supra) cited by the learned counsel for the se of Patil Vijayakumar (supra) cited by the learned counsel for the Assessee is concerned, We find that the issue in the aforesaid case was Assessee is concerned, We find that the issue in the aforesaid case was Assessee is concerned, We find that the issue in the aforesaid case was as to whether the Income as to whether the Income-tax Act 1961 being all India statute, the view tax Act 1961 being all India statute, the view expressed by one High Court should be follo expressed by one High Court should be followed by the other High Courts wed by the other High Courts of different state. The Hon'ble Karnataka High Court took the view that of different state. The Hon'ble Karnataka High Court took the view that of different state. The Hon'ble Karnataka High Court took the view that decision rendered by the High Court is binding only on the authorities decision rendered by the High Court is binding only on the authorities decision rendered by the High Court is binding only on the authorities and Courts subordinate to the said High Court and will not be binding on and Courts subordinate to the said High Court and will not be binding on and Courts subordinate to the said High Court and will not be binding on the High Court of another state and Courts and Tribunals functioning in urt of another state and Courts and Tribunals functioning in urt of another state and Courts and Tribunals functioning in that other State. The Tribunal in the case of in the case of Canara Bank that other State. The Tribunal in the case of in the case of Canara Bank that other State. The Tribunal in the case of in the case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006 considered the decision of the in ITA No.58/Bang/2004 dated 9.6.2006 considered the decision of the in ITA No.58/Bang/2004 dated 9.6.2006 considered the decision of the ITAT in the case of Syndicate Bank 78 ITD 103(Bang) a ITAT in the case of Syndicate Bank 78 ITD 103(Bang) and the decision of nd the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of the Hon'ble Punjab and Haryana High Court in the case of State Bank of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra and held. that the decision rendered by the Hon'ble High Patiala (supra and held. that the decision rendered by the Hon'ble High Patiala (supra and held. that the decision rendered by the Hon'ble High Court has to be followed. The Hon'ble Karnataka High Court in the case Court has to be followed. The Hon'ble Karnataka High Court in the case Court has to be followed. The Hon'ble Karnataka High Court in the case of Patil Vijayakumar (s of Patil Vijayakumar (supra) dealt with argument that decision of one upra) dealt with argument that decision of one High Court of a State is not binding on the High Court of another State. In High Court of a State is not binding on the High Court of another State. In High Court of a State is not binding on the High Court of another State. In the present case the only decision of Hon'ble High Court available on the the present case the only decision of Hon'ble High Court available on the the present case the only decision of Hon'ble High Court available on the issue whether u/s.36 (1) (viia) of the Act has to be allowe issue whether u/s.36 (1) (viia) of the Act has to be allowe issue whether u/s.36 (1) (viia) of the Act has to be allowed only on the basis of actual debit towards PBDD in the profit & Loss Account by the basis of actual debit towards PBDD in the profit & Loss Account by the basis of actual debit towards PBDD in the profit & Loss Account by the Assessee, is the decision of the Hon'ble Punjab & Haryana High Court in Assessee, is the decision of the Hon'ble Punjab & Haryana High Court in Assessee, is the decision of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra). The question therefore is as to the case of State Bank of Patiala (supra). The question therefore is as to the case of State Bank of Patiala (supra). The question therefore is as to whether the co whether the co-ordinate Tribunal decision has to be followed in Tribunal decision has to be followed in preference to a non jurisdictional High Court decision. The Honible preference to a non jurisdictional High Court decision. The Honible preference to a non jurisdictional High Court decision. The Honible Karnataka High Court in the case of Patil Vijayakumar (supra) has not Karnataka High Court in the case of Patil Vijayakumar (supra) has not Karnataka High Court in the case of Patil Vijayakumar (supra) has not dealt with any such issue. Going by the hierarchical system in our dealt with any such issue. Going by the hierarchical system in our dealt with any such issue. Going by the hierarchical system in our country, this Tribunal in the case of Canara Bank ITA No. 58/Bang/2004 is Tribunal in the case of Canara Bank ITA No. 58/Bang/2004 is Tribunal in the case of Canara Bank ITA No. 58/Bang/2004 dated 9.6.2006, after considering the decision rendered in the case of dated 9.6.2006, after considering the decision rendered in the case of dated 9.6.2006, after considering the decision rendered in the case of Syndicate Bank 78 ITD 103(Bang.) preferred to follow the decision of Syndicate Bank 78 ITD 103(Bang.) preferred to follow the decision of Syndicate Bank 78 ITD 103(Bang.) preferred to follow the decision of Hon'ble Punjab & Haryana High Court in the case of State Hon'ble Punjab & Haryana High Court in the case of State Hon'ble Punjab & Haryana High Court in the case of State Bank of

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Patiala (supra) though of a non jurisdictional High Court than the decision Patiala (supra) though of a non jurisdictional High Court than the decision Patiala (supra) though of a non jurisdictional High Court than the decision of co-ordinate Bench in the case of Syndicate Bank 78 ITD 103 (Bang.). In ordinate Bench in the case of Syndicate Bank 78 ITD 103 (Bang.). In ordinate Bench in the case of Syndicate Bank 78 ITD 103 (Bang.). In our view therefore the decision of the Hon'ble Karnataka High Court in our view therefore the decision of the Hon'ble Karnataka High Court in our view therefore the decision of the Hon'ble Karnataka High Court in the case of Patil Vijayaku the case of Patil Vijayakumar (supra), does not support the plea of the mar (supra), does not support the plea of the assessee. We, therefore hold that the relief allowed by the CIT(A) in the assessee. We, therefore hold that the relief allowed by the CIT(A) in the assessee. We, therefore hold that the relief allowed by the CIT(A) in the matter of allowing deduction for provision for bad and doubtful debts matter of allowing deduction for provision for bad and doubtful debts matter of allowing deduction for provision for bad and doubtful debts was not in accordance with law. The addition made by the AO is, was not in accordance with law. The addition made by the AO is, was not in accordance with law. The addition made by the AO is, therefore, restored. The ground Nos. 2 and 4 raised by the Revenue are erefore, restored. The ground Nos. 2 and 4 raised by the Revenue are erefore, restored. The ground Nos. 2 and 4 raised by the Revenue are allowed." In view of above discussions and respectfully following the above In view of above discussions and respectfully following the above In view of above discussions and respectfully following the above referred decisions of the Hon'ble Punjab & Haryana High Court and that referred decisions of the Hon'ble Punjab & Haryana High Court and that referred decisions of the Hon'ble Punjab & Haryana High Court and that of Hon'ble ITAT, Bangalore, I am of the of Hon'ble ITAT, Bangalore, I am of the considered opinion that the considered opinion that the contentions of the appellant in this respect are devoid of merits and contentions of the appellant in this respect are devoid of merits and contentions of the appellant in this respect are devoid of merits and hence hence hence herewith herewith herewith rejected. rejected. rejected. The The The impugned impugned impugned disallowance disallowance disallowance of of of Rs. Rs. Rs. 24,91,43,645/- - being claim of deduction u/s 36(1)(viia) in respect of being claim of deduction u/s 36(1)(viia) in respect of Rural Advances is CONFIRMED. Rural Advances is CONFIRMED. Accordingly Ground No. XI raised in ccordingly Ground No. XI raised in appeal is DISMISSED. appeal is DISMISSED.” 25.2 We have heard rival submissions of the parties eard rival submissions of the parties eard rival submissions of the parties and perused the relevant material on record. In our opinion, Ld. CIT(A) has the relevant material on record. In our opinion, Ld. CIT(A) has the relevant material on record. In our opinion, Ld. CIT(A) has followed a precedent on the issue in dispute and the learned followed a precedent on the issue in dispute and the learned followed a precedent on the issue in dispute and the learned counsel for the assessee has not brought on record any decision of r the assessee has not brought on record any decision of r the assessee has not brought on record any decision of any High Court or jurisdiction High Court in its favour and any High Court or jurisdiction High Court in its favour and any High Court or jurisdiction High Court in its favour and therefore, we do not find any infirmity in the order of the Ld. CIT(A) therefore, we do not find any infirmity in the order of the Ld. CIT(A) therefore, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly on the issue in dispute and accordingly, we uphold the same. The uphold the same. The ground No. XVI of the und No. XVI of the appeal of the assessee is appeal of the assessee is accordingly dismissed.

26.1 The issue in disput The issue in dispute is whether the IPDI bonds issued by the bonds issued by the assessee are in the nature of equity capital or deb assessee are in the nature of equity capital or debt. According to the t. According to the assessee those are in the nature of the debt taken for the purpose of se are in the nature of the debt taken for the purpose of se are in the nature of the debt taken for the purpose of

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business of the assessee, whereas according to the lower business of the assessee, whereas according to the lower business of the assessee, whereas according to the lower authorities, the said instruments are akin to shares and therefore said instruments are akin to shares and therefore said instruments are akin to shares and therefore the expenditure incurred in relation to them is in the nature of the the expenditure incurred in relation to them is in the nature of the the expenditure incurred in relation to them is in the nature of the capital expenditure directly related to expansion of the capital base capital expenditure directly related to expansion of the capital base capital expenditure directly related to expansion of the capital base of the company and of the company and thus, not allowable. The relevant finding of th not allowable. The relevant finding of the Ld. CIT(A) is reproduced as under: . CIT(A) is reproduced as under:

“17.4.1 I have considered the submissions made by the appellant and 17.4.1 I have considered the submissions made by the appellant and 17.4.1 I have considered the submissions made by the appellant and have perused the materials available on record. The appellant has have perused the materials available on record. The appellant has have perused the materials available on record. The appellant has requested to delete the impugned disallowance of Rs. 77,53,20,737/ requested to delete the impugned disallowance of Rs. 77,53,20,737/ requested to delete the impugned disallowance of Rs. 77,53,20,737/-, being the claim being the claim of interest paid on Innovative Perpetual Debt Instrument of interest paid on Innovative Perpetual Debt Instrument (IPDI). The appellant has made elaborate submissions as detailed above (IPDI). The appellant has made elaborate submissions as detailed above (IPDI). The appellant has made elaborate submissions as detailed above and the same have been considered carefully. Before deciding the issue it and the same have been considered carefully. Before deciding the issue it and the same have been considered carefully. Before deciding the issue it is worthwhile to examine the nature of Instrument unde is worthwhile to examine the nature of Instrument under consideration. r consideration. The appellant has issued Innovative Perpetual Debt Instrument (IPDI) The appellant has issued Innovative Perpetual Debt Instrument (IPDI) The appellant has issued Innovative Perpetual Debt Instrument (IPDI) which by nature is perpetual and the investor has no right to ask for which by nature is perpetual and the investor has no right to ask for which by nature is perpetual and the investor has no right to ask for refund at any time. It is the discretion of the appellant as to decide refund at any time. It is the discretion of the appellant as to decide refund at any time. It is the discretion of the appellant as to decide whether such IPDI is to be ca whether such IPDI is to be called back or not. The Wikipedia defines the lled back or not. The Wikipedia defines the "Perpetual Bond" as under. "Perpetual Bond" as under. "Perpetual bond, which is also known as a perpetual or just a perp, is a "Perpetual bond, which is also known as a perpetual or just a perp, is a "Perpetual bond, which is also known as a perpetual or just a perp, is a bond with no maturity date. Therefore, it may be treated as equity not as bond with no maturity date. Therefore, it may be treated as equity not as bond with no maturity date. Therefore, it may be treated as equity not as debt. Issuers pay coupons on perpetual debt. Issuers pay coupons on perpetual bonds forever, and they do not bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore. have to redeem the principal. Perpetual bond cash flows are, therefore. have to redeem the principal. Perpetual bond cash flows are, therefore. those of a perpetuity." those of a perpetuity." Similarly the Black Dictionary defines the Perpetual Bond as "a bond Similarly the Black Dictionary defines the Perpetual Bond as "a bond Similarly the Black Dictionary defines the Perpetual Bond as "a bond with no maturity date and investor receives coupon but the with no maturity date and investor receives coupon but the with no maturity date and investor receives coupon but the principle is never paid. Conceptually, with the perpetual bonds, never paid. Conceptually, with the perpetual bonds, the agreed the agreed-upon period of time over which interest will be paid, i.e. in perpetuity and in time over which interest will be paid, i.e. in perpetuity and in time over which interest will be paid, i.e. in perpetuity and in this respect the perpetual bonds function similarly to dividend this respect the perpetual bonds function similarly to dividend this respect the perpetual bonds function similarly to dividend-paying stocks or certain preferred stocks or certain preferred securities. Just as owners of such stock securities. Just as owners of such stock receive dividend payment for the entire time the stock is held, perpetual receive dividend payment for the entire time the stock is held, perpetual receive dividend payment for the entire time the stock is held, perpetual bond owners receive interest payments, for as long as they hold onto the bond owners receive interest payments, for as long as they hold onto the bond owners receive interest payments, for as long as they hold onto the bond. 17.4.2 The RBI Master Circular related to Prudential Norms on 17.4.2 The RBI Master Circular related to Prudential Norms on 17.4.2 The RBI Master Circular related to Prudential Norms on Capital Adequacy dated 01.07.2015 in DBR.No.BP.BC.3/21.01.002/2015 Adequacy dated 01.07.2015 in DBR.No.BP.BC.3/21.01.002/2015 Adequacy dated 01.07.2015 in DBR.No.BP.BC.3/21.01.002/2015-16, while defining the Components of Capital Funds, stipulates that the while defining the Components of Capital Funds, stipulates that the while defining the Components of Capital Funds, stipulates that the capital funds would include the components Tier I capital and Tier ll capital funds would include the components Tier I capital and Tier ll capital funds would include the components Tier I capital and Tier ll capital. It further provides that Elements of T capital. It further provides that Elements of Tier I capital include ier I capital include (i) Paid-up capital (ordinary shares), statutory reserves, and other up capital (ordinary shares), statutory reserves, and other up capital (ordinary shares), statutory reserves, and other disclosed free reserves, if any; disclosed free reserves, if any;

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(i) Perpetual Non (i) Perpetual Non-cumulative Preference Shares (PNCPS) eligible for cumulative Preference Shares (PNCPS) eligible for inclusion as Tier I capital inclusion as Tier I capital - subject to laws in force from time subject to laws in force from time to time; (ill Innovative Perpetual Debt Instruments (IPDI) eligible for inclusion as (ill Innovative Perpetual Debt Instruments (IPDI) eligible for inclusion as (ill Innovative Perpetual Debt Instruments (IPDI) eligible for inclusion as Tier I capital; and capital; and (iv) Capital reserves representing surplus arising out of sale proceeds of (iv) Capital reserves representing surplus arising out of sale proceeds of (iv) Capital reserves representing surplus arising out of sale proceeds of assets. From the above, it is evident that the RBI guidelines recognize and From the above, it is evident that the RBI guidelines recognize and From the above, it is evident that the RBI guidelines recognize and require the IPDI to be classified as Tier I capital and it has been treated require the IPDI to be classified as Tier I capital and it has been treated require the IPDI to be classified as Tier I capital and it has been treated at par with the Paid up capital (ordinary shares), statutory reserves, at par with the Paid up capital (ordinary shares), statutory reserves, at par with the Paid up capital (ordinary shares), statutory reserves, other free reserves, Perpetual Non other free reserves, Perpetual Non-cumulative Preference Shares (PNCPS) cumulative Preference Shares (PNCPS) and capital reserves representing su and capital reserves representing surplus arising out of sale proceeds of rplus arising out of sale proceeds of assets. The said Master Circular of RBI also provides that the term of assets. The said Master Circular of RBI also provides that the term of assets. The said Master Circular of RBI also provides that the term of maturity of IPDI shall be maturity of IPDI shall be "perpetual" and the same shall not be issued "perpetual" and the same shall not be issued with a 'Put Option' or a 'Step with a 'Put Option' or a 'Step-up option'. However, the same can be issued up option'. However, the same can be issued with a call option subject to strict compliance with the conditions ith a call option subject to strict compliance with the conditions ith a call option subject to strict compliance with the conditions prescribed therein. The RBI further stipulates that IPDI shall not be prescribed therein. The RBI further stipulates that IPDI shall not be prescribed therein. The RBI further stipulates that IPDI shall not be subjected to a progressive discount for capital adequacy since these are subjected to a progressive discount for capital adequacy since these are subjected to a progressive discount for capital adequacy since these are perpetual. Though the claims of the investors perpetual. Though the claims of the investors are superior to the claims of are superior to the claims of investors in equity shares but it is subordinate to the claims of all investors in equity shares but it is subordinate to the claims of all investors in equity shares but it is subordinate to the claims of all creditors.” 26.2 We have heard rival submission of the parties and perused the have heard rival submission of the parties and perused the have heard rival submission of the parties and perused the relevant material on record. We find that identical issue has been relevant material on record. We find that identical issue has been relevant material on record. We find that identical issue has been decided by the coordinate the coordinate bench of Tribunal in the case of state ribunal in the case of state Bank of India in ITA 3033 & 2873/Mum/2019 for assessment year Bank of India in ITA 3033 & 2873/Mum/2019 for assessment year Bank of India in ITA 3033 & 2873/Mum/2019 for assessment year 2015-16. The relevant finding of the T 6. The relevant finding of the Tribunal is reproduced as ribunal is reproduced as under:

“13 The ground No. 4 of the appeal of the assessee relates to The ground No. 4 of the appeal of the assessee relates to owance of Rs. 18,00,00,000/- for interest paid on Innovative Perpetual disallowance of interest paid on Innovative Perpetual Debt Instruments (IPDI Bonds). The IPD bonds issued by the assessee Debt Instruments (IPDI Bonds). The IPD bonds issued by the assessee Debt Instruments (IPDI Bonds). The IPD bonds issued by the assessee qualify as Tier I capital of bank and book value of such bonds was qualify as Tier I capital of bank and book value of such bonds was qualify as Tier I capital of bank and book value of such bonds was reported by the assessee Rs. 160,00,00000/-at the end of the relevant reported by the assessee end of the relevant previous year corresponding to the A.Y. under consideration. Before the previous year corresponding to the A.Y. under consideration. Before the previous year corresponding to the A.Y. under consideration. Before the Ld. A.O., the assessee claimed deduction on account of the interest Ld. A.O., the assessee claimed deduction on account of the interest Ld. A.O., the assessee claimed deduction on account of the interest paid/payable on those bonds u/s 36 (1)(iii) of the Act. According to the paid/payable on those bonds u/s 36 (1)(iii) of the Act. According to the paid/payable on those bonds u/s 36 (1)(iii) of the Act. According to the assessee these bonds ar assessee these bonds are in the nature of the debentures carrying a e in the nature of the debentures carrying a fixed interest rate and the interest is paid out of the distributable profit fixed interest rate and the interest is paid out of the distributable profit fixed interest rate and the interest is paid out of the distributable profit of the previous year or current year. It was further claimed that interest of the previous year or current year. It was further claimed that interest of the previous year or current year. It was further claimed that interest paid to bondholders unlike dividend income is not exempt as paid to bondholders unlike dividend income is not exempt as paid to bondholders unlike dividend income is not exempt as per the provisions of the Act and the bondholders would have accordingly provisions of the Act and the bondholders would have accordingly provisions of the Act and the bondholders would have accordingly offered the same to the income in their respective returns and therefore offered the same to the income in their respective returns and therefore offered the same to the income in their respective returns and therefore disallowance of said interest would result in double taxation of the disallowance of said interest would result in double taxation of the disallowance of said interest would result in double taxation of the

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same income. The Ld. A.O. however reject same income. The Ld. A.O. however rejected the contention of the ed the contention of the assessee and held that the perpetual bonds are the bonds with no assessee and held that the perpetual bonds are the bonds with no assessee and held that the perpetual bonds are the bonds with no maturity date. The investor don’t get the right to redeem the bonds at maturity date. The investor don’t get the right to redeem the bonds at maturity date. The investor don’t get the right to redeem the bonds at any point of the time and only the issuing bank can buy back the bonds any point of the time and only the issuing bank can buy back the bonds any point of the time and only the issuing bank can buy back the bonds from the investor, there from the investor, therefore even if subsequently borrower buyback fore even if subsequently borrower buyback these bonds, it will not alter the nature and character of these bonds. these bonds, it will not alter the nature and character of these bonds. these bonds, it will not alter the nature and character of these bonds. The Ld. A.O. summarized that perpetual bonds are quasi equity and The Ld. A.O. summarized that perpetual bonds are quasi equity and The Ld. A.O. summarized that perpetual bonds are quasi equity and they have equity they have equity-features like perpetual nature, high loss absorption features like perpetual nature, high loss absorption capacity and discretionary payout with existence of full coupon ity and discretionary payout with existence of full coupon ity and discretionary payout with existence of full coupon discretion. The Ld. A.O. relied on the decision of Hon’ble Punjab and discretion. The Ld. A.O. relied on the decision of Hon’ble Punjab and discretion. The Ld. A.O. relied on the decision of Hon’ble Punjab and Haryana High Court in the case of Haryana High Court in the case of Pepsu Road transport Pepsu Road transport Corporation versus CIT reported in 130 ITR 18 (P& H) Corporation versus CIT reported in 130 ITR 18 (P& H) wherein it is held that an element of refund or repayment is a must in case of that an element of refund or repayment is a must in case of that an element of refund or repayment is a must in case of concept of borrowing and if there is no obligation to refund the capital concept of borrowing and if there is no obligation to refund the capital concept of borrowing and if there is no obligation to refund the capital provided, the interest on such capital is not deductible u/s 36(1)(iii) of provided, the interest on such capital is not deductible u/s 36(1)(iii) of provided, the interest on such capital is not deductible u/s 36(1)(iii) of the Act. Accordingly, the Ld. A.O. held that in the Act. Accordingly, the Ld. A.O. held that in case of perpetual bonds, case of perpetual bonds, where the lender does not have authority to claim refund of the amount where the lender does not have authority to claim refund of the amount where the lender does not have authority to claim refund of the amount given, said amount cannot be held as borrowing and interest on such given, said amount cannot be held as borrowing and interest on such given, said amount cannot be held as borrowing and interest on such bonds was held disallowable u/s 36(1)(iii) of the Act. bonds was held disallowable u/s 36(1)(iii) of the Act. 14 On further appeal, the Ld. CIT(A) ) also also upheld upheld disallowance of the interest paid/payable in respect of perpetual bond disallowance of the interest paid/payable in respect of perpetual bond disallowance of the interest paid/payable in respect of perpetual bond holding them analogous to preference shares. The relevant finding of holding them analogous to preference shares. The relevant finding of holding them analogous to preference shares. The relevant finding of the the the Ld.CIT(A) Ld.CIT(A) Ld.CIT(A) is is is reproduced reproduced reproduced as as as under: under: under:

I have considered the submissions made by the appellant and hav I have considered the submissions made by the appellant and hav I have considered the submissions made by the appellant and have perused the materials available on record. The appellant has requested perused the materials available on record. The appellant has requested perused the materials available on record. The appellant has requested to delete the impugned disallowance of Rs. 18,00,00,000/ to delete the impugned disallowance of Rs. 18,00,00,000/ to delete the impugned disallowance of Rs. 18,00,00,000/-, being the claim of interest paid on Innovative Perpetual Debt Instrument (IPDI). claim of interest paid on Innovative Perpetual Debt Instrument (IPDI). claim of interest paid on Innovative Perpetual Debt Instrument (IPDI). The appellant has made elaborate submission The appellant has made elaborate submissions as detailed above and s as detailed above and the same have been considered carefully. The appellant has submitted the same have been considered carefully. The appellant has submitted the same have been considered carefully. The appellant has submitted that the IPDI under considerations were issued in the year 2009 that the IPDI under considerations were issued in the year 2009 that the IPDI under considerations were issued in the year 2009-10 and since then the interest was paid by the bank consistently by debiting to since then the interest was paid by the bank consistently by debiting to since then the interest was paid by the bank consistently by debiting to the Profit and Loss the Profit and Loss account and the department has regularly allowed it account and the department has regularly allowed it as an expenditure in the past years. The appellant has further as an expenditure in the past years. The appellant has further as an expenditure in the past years. The appellant has further submitted that in none of these year department has made any submitted that in none of these year department has made any submitted that in none of these year department has made any disallowance on account of interest paid on IPDI Bonds. The said disallowance on account of interest paid on IPDI Bonds. The said disallowance on account of interest paid on IPDI Bonds. The said contentions of the appellant have been considered carefully. It is settled the appellant have been considered carefully. It is settled the appellant have been considered carefully. It is settled law that rule of res law that rule of res-judicata does not apply to the Income Tax judicata does not apply to the Income Tax proceedings and an erroneous or mistaken view cannot fetter the proceedings and an erroneous or mistaken view cannot fetter the proceedings and an erroneous or mistaken view cannot fetter the authorities into repeating them by application of rule such as estop authorities into repeating them by application of rule such as estop authorities into repeating them by application of rule such as estoppel, for the reason that being an equitable principle, it has to be yield to the for the reason that being an equitable principle, it has to be yield to the for the reason that being an equitable principle, it has to be yield to the mandate of law. Similar law has been laid down by the Hon'ble Delhi mandate of law. Similar law has been laid down by the Hon'ble Delhi mandate of law. Similar law has been laid down by the Hon'ble Delhi High Court in the case of Krishak Bharati Cooperative Ltd reported in High Court in the case of Krishak Bharati Cooperative Ltd reported in High Court in the case of Krishak Bharati Cooperative Ltd reported in 23 taxmann.com 265, wherein the Hon'b 23 taxmann.com 265, wherein the Hon'ble Court held as under. le Court held as under. It is now necessary to take up the submission that the Tribunal erred in It is now necessary to take up the submission that the Tribunal erred in It is now necessary to take up the submission that the Tribunal erred in departing from the "consistency" rule. This is based on the fact that for departing from the "consistency" rule. This is based on the fact that for departing from the "consistency" rule. This is based on the fact that for the period of about 15 years, the income tax authorities had accepted the period of about 15 years, the income tax authorities had accepted the period of about 15 years, the income tax authorities had accepted the assessee's the assessee's submissions and permitted annual amortization of the submissions and permitted annual amortization of the initial lease consideration, as advance rent. The assessee here relied on initial lease consideration, as advance rent. The assessee here relied on initial lease consideration, as advance rent. The assessee here relied on

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the "consistency" rule enunciated in Radhasaami Satsang (supra). The the "consistency" rule enunciated in Radhasaami Satsang (supra). The the "consistency" rule enunciated in Radhasaami Satsang (supra). The Supreme Court observed, in that case that: Supreme Court observed, in that case that: "...where a funda "...where a fundamental aspect permeating through the different mental aspect permeating through the different assessment years has been found as a fact one way or the other and assessment years has been found as a fact one way or the other and assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging parties have allowed that position to be sustained by not challenging parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to b the order, it would not be at all appropriate to allow the position to b the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. changed in a subsequent year. On these reasonings in the absence of any material change justifying On these reasonings in the absence of any material change justifying On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter the Revenue to take a different view of the matter-and if there was not and if there was not change it was in support of the assesses change it was in support of the assesses-we do not think the question we do not think the question should have been reopened and contrary to what had been decided by been reopened and contrary to what had been decided by been reopened and contrary to what had been decided by the Commissioner of Income the Commissioner of Income-Tax in the earlier proceedings, a different Tax in the earlier proceedings, a different and contradictory stand should have been taken." and contradictory stand should have been taken." This Court notices that there cannot be a wide application of the rule of This Court notices that there cannot be a wide application of the rule of This Court notices that there cannot be a wide application of the rule of consistency. In Radhasomi Satsang's case (supra) itself, the Supreme ency. In Radhasomi Satsang's case (supra) itself, the Supreme ency. In Radhasomi Satsang's case (supra) itself, the Supreme Court acknowledged that there is no res judicata, as regards Court acknowledged that there is no res judicata, as regards Court acknowledged that there is no res judicata, as regards assessment orders, and assessments for one year may not bind the assessment orders, and assessments for one year may not bind the assessment orders, and assessments for one year may not bind the officer for the next year. This is consistent with the view of the S officer for the next year. This is consistent with the view of the S officer for the next year. This is consistent with the view of the Supreme Court that "there is no such thing as res judicata in income Court that "there is no such thing as res judicata in income- -tax matters" Raja Bahadur Visheshwara Singh v. CIT AIR 1961 SC 1062. Similarly, Raja Bahadur Visheshwara Singh v. CIT AIR 1961 SC 1062. Similarly, Raja Bahadur Visheshwara Singh v. CIT AIR 1961 SC 1062. Similarly, erroneous or mistaken views cannot fetter the authorities into repeating erroneous or mistaken views cannot fetter the authorities into repeating erroneous or mistaken views cannot fetter the authorities into repeating them, by application of a rule such them, by application of a rule such as estoppel, for the reason that as estoppel, for the reason that being an equitable principle, it has to yield to the mandate of law. A being an equitable principle, it has to yield to the mandate of law. A being an equitable principle, it has to yield to the mandate of law. A deeper reflection would show that blind adherence to the rule of deeper reflection would show that blind adherence to the rule of deeper reflection would show that blind adherence to the rule of consistency would lead to anomalous results, for the reason that it consistency would lead to anomalous results, for the reason that it consistency would lead to anomalous results, for the reason that it would engender the would engender the unequal application of laws, and direct the tax unequal application of laws, and direct the tax authorities to adopt varied interpretations, to suit individual assesses, authorities to adopt varied interpretations, to suit individual assesses, authorities to adopt varied interpretations, to suit individual assesses, subjective to their convenience, subjective to their convenience, - a result at once debilitating and a result at once debilitating and destructive of the rule of law. A previous Division Bench of thi destructive of the rule of law. A previous Division Bench of thi destructive of the rule of law. A previous Division Bench of this Court, in Rohitasava Chand v. CIT [2008] 306 ITR 242/ 171 Taxman 147 had Rohitasava Chand v. CIT [2008] 306 ITR 242/ 171 Taxman 147 had Rohitasava Chand v. CIT [2008] 306 ITR 242/ 171 Taxman 147 had held that the rule of consistency cannot be of inflexible application." held that the rule of consistency cannot be of inflexible application." held that the rule of consistency cannot be of inflexible application." 15 Before us, the Ld. Counsel of the assessee submitted Before us, the Ld. Counsel of the assessee submitted that disallowance needs to be deleted on two grounds that disallowance needs to be deleted on two grounds. Firstly, it was . Firstly, it was submitted that the IPD bonds under consideration were issued in the submitted that the IPD bonds under consideration were issued in the submitted that the IPD bonds under consideration were issued in the year 2009 and since then interest paid on such bond was claimed year 2009 and since then interest paid on such bond was claimed year 2009 and since then interest paid on such bond was claimed deduction and allowed by the Revenue, therefore no disallowance is to deduction and allowed by the Revenue, therefore no disallowance is to deduction and allowed by the Revenue, therefore no disallowance is to be made on account of principle of c be made on account of principle of consistency. Secondly, it was onsistency. Secondly, it was submitted that in view of the decision of the coordinate bench of the submitted that in view of the decision of the coordinate bench of the submitted that in view of the decision of the coordinate bench of the Tribunal in the case of Tata Power Co Ltd versus PCIT (in ITA Nos. 2710 Tribunal in the case of Tata Power Co Ltd versus PCIT (in ITA Nos. 2710 Tribunal in the case of Tata Power Co Ltd versus PCIT (in ITA Nos. 2710 and 2711/MUM/2018, wherein it has been principally accepted that and 2711/MUM/2018, wherein it has been principally accepted that and 2711/MUM/2018, wherein it has been principally accepted that IPD bonds are in the IPD bonds are in the nature of the borrowing/debt and not equity, the nature of the borrowing/debt and not equity, the addition need to be deleted. The Ld. DR on the other hand relied on the addition need to be deleted. The Ld. DR on the other hand relied on the addition need to be deleted. The Ld. DR on the other hand relied on the order of the lower authorities. order of the lower authorities. 16 We have heard rival submission of the parties on the We have heard rival submission of the parties on the issue in dispute and perused the relevant mat issue in dispute and perused the relevant material on record. As far as erial on record. As far as argument of rule of consistency is concerned, the Ld. CIT(A) has rejected argument of rule of consistency is concerned, the Ld. CIT(A) has rejected 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 the contention of the assessee following the decision of the Hon’ble the contention of the assessee following the decision of the Hon’ble Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra). Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra). Delhi High Court in the case of Krishak Bharati cooperative Ltd (supra).

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The said finding being based on the precedent, we concur with the ing being based on the precedent, we concur with the ing being based on the precedent, we concur with the finding of the Ld. CIT(A). finding of the Ld. CIT(A). 16.1 The assessee has distinguished the decision of Hon’ble The assessee has distinguished the decision of Hon’ble Punjab Haryana High Court in the case of Pepsu Road transport Punjab Haryana High Court in the case of Pepsu Road transport Punjab Haryana High Court in the case of Pepsu Road transport Corporation (supra) on the ground that in said case Corporation (supra) on the ground that in said case capital was capital was provided by the Union of India under a statutory obligation which had provided by the Union of India under a statutory obligation which had provided by the Union of India under a statutory obligation which had no provision of repayment. Further in the event of the liquidation of no provision of repayment. Further in the event of the liquidation of no provision of repayment. Further in the event of the liquidation of Pepsu Road transport Corporation after meeting the liabilities if any, the Pepsu Road transport Corporation after meeting the liabilities if any, the Pepsu Road transport Corporation after meeting the liabilities if any, the assets were to be divided amo assets were to be divided among Central Government and the State ng Central Government and the State Government and such other parties, if any as may have subscribed to Government and such other parties, if any as may have subscribed to 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 the capital in proportion to the contribution made by each of them to the 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 total capital. However in the instant case there was no statutory total capital. However in the instant case there was no statutory obligation on the investors to subscribe to IPDs and further the claim of n the investors to subscribe to IPDs and further the claim of n 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 the investor of the IPD bonds is superior to that of equity investor and the investor of the IPD bonds is superior to that of equity investor and subordinate to other creditors. Further, it was submitted that interest subordinate to other creditors. Further, it was submitted that interest subordinate to other creditors. Further, it was submitted that interest paid on IPD cannot be equated with the dividend a paid on IPD cannot be equated with the dividend as dividend is not s dividend is not mandatory to be paid each year and it has to be paid if there is profit mandatory to be paid each year and it has to be paid if there is profit 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 during the any financial year and on approval of the proposal of the during the any financial year and on approval of the proposal of the Board of Directors by the shareholders in the annual general meeting. Board of Directors by the shareholders in the annual general meeting. Board of Directors by the shareholders in the annual general meeting. Whereas in the case of the Whereas in the case of the IPD, it is mandatory to pay interest IPD, it is mandatory to pay interest irrespective of the availability of the profit and no approval of the Board irrespective of the availability of the profit and no approval of the Board irrespective of the availability of the profit and no approval of the Board of Directors or shareholders was required. In view of the above of Directors or shareholders was required. In view of the above of Directors or shareholders was required. In view of the above discussion, we concur with the contention of the assessee that ratio in discussion, we concur with the contention of the assessee that ratio in discussion, we concur with the contention of the assessee that ratio in the case of Pepsu Road transport Corporation Ltd (supra) cannot be e of Pepsu Road transport Corporation Ltd (supra) cannot be e of Pepsu Road transport Corporation Ltd (supra) cannot be applied or the instant case. applied or the instant case. 16.2 However as far as finding of the Coordinate bench of Tribunal in However as far as finding of the Coordinate bench of Tribunal in 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 the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in the case of Tata Power Co Ltd (supra) is concerned, the Tribunal has in principle held that perp principle held that perpetual bond are not in the nature of equity and etual bond are not in the nature of equity and therefore quashed the revision proceedings passed by the Ld. PCIT, The therefore quashed the revision proceedings passed by the Ld. PCIT, The therefore quashed the revision proceedings passed by the Ld. PCIT, The relevant finding of the Tribunal (supra) is reproduced as under: relevant finding of the Tribunal (supra) is reproduced as under: relevant finding of the Tribunal (supra) is reproduced as under: Heard both the sides and perused the material on record. Assessment Heard both the sides and perused the material on record. Assessment 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 e case of the assessee was completed by the Assessing Officer u/s e 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 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr.CIT 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 has held vide order u/s 263(3) of the Act, dated 28.03.2018 that 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) a assessment order passed u/s 143(3) r.w.s 144C(13) a 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 insofar as it was prejudicial to the interest of revenue holding that the insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual Assessing Officer was not correct in allowing the interest on perpetual Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of debt instruments without examining and verifying the allowability of debt instruments without examining and verifying the allowability of such expenditure. With the as such expenditure. With the assistance of ld. representatives we have sistance of ld. representatives we have gone through the copies of documents and detailed submission made gone through the copies of documents and detailed submission made gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page before the A.O during the course of assessment proceedings as per page before the A.O during the course of assessment proceedings as per page no. 1 to 160 of the paper book filed by the assessee. It is noticed that no. 1 to 160 of the paper book filed by the assessee. It is noticed that no. 1 to 160 of the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated ing officer has specifically asked the assessee vide notice dated ing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of 24.11.2016 to provide the detail of income tax reversal on distribution of 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given unsecured perpetual securities. In this regard assessee has given unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 detailed submission vide letter dated 16.12.2016 stating that it has stating that it has issued 11.4% unsecured perpetual securities (bonds) for the purpose of issued 11.4% unsecured perpetual securities (bonds) for the purpose of issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities is payable @ 11.40% per business use. Interest of such securities is payable @ 11.40% per business use. Interest of such securities is payable @ 11.40% per annum. The assessee has also specifically explained in line with annum. The assessee has also specifically explained in line with annum. The assessee has also specifically explained in line with

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accounting standard, the aforesaid accounting standard, the aforesaid interest is charged to reserve and interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of surplus. The gross amount of interest of aforesaid securities was of surplus. The gross amount of interest of aforesaid securities was of Rs.142.03 crores for F.Y. 2010 Rs.142.03 crores for F.Y. 2010-11. But the same was charged to 11. But the same was charged to Rs.113.61 crores after netting off taxes [142.03 Rs.113.61 crores after netting off taxes [142.03 - 28.42]. The amount of 28.42]. The amount of tax impact of R tax impact of Rs.28.42 crores has been charged to reserve and surplus s.28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has during the year. Thereafter again on 23.12.2016 the assessee has during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has explained to the assessing officer that during the year the company 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. 150 incurred Rs.18.63 crores on issue of 10.75% debenture of Rs. 150 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 crores. This amount being expenditure of capital nature has not been crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also claimed by the assessee in its return of income. The assessee has also claimed by the assessee in its return of income. The assessee has also supplied to the Assessing Officer detailed offer document issued for supplied to the Assessing Officer detailed offer document issued for supplied to the Assessing Officer detailed offer document issued for unsecured perpetual debentures of Rs.1500 cro unsecured perpetual debentures of Rs.1500 crores during the course of res during the course of assessment proceedings. In the offer document the terms and assessment proceedings. In the offer document the terms and assessment proceedings. In the offer document the terms and conditions of issuing perpetual debentures, basis of allotment, creation conditions of issuing perpetual debentures, basis of allotment, creation conditions of issuing perpetual debentures, basis of allotment, creation of debenture redemption reserves along with object of the issue were of debenture redemption reserves along with object of the issue were of debenture redemption reserves along with object of the issue were clearly mentioned. As per the clearly mentioned. As per the copy of object of the issue placed at page copy of object of the issue placed at page 67 of the paper book, it is mentioned that utilization of funds to be 67 of the paper book, it is mentioned that utilization of funds to be 67 of the paper book, it is mentioned that utilization of funds to be raised through this private placement will be for general business raised through this private placement will be for general business raised through this private placement will be for general business purpose and at page no. 62 issue size was mentioned of 15000 purpose and at page no. 62 issue size was mentioned of 15000 purpose and at page no. 62 issue size was mentioned of 15000 debentures of debentures of face value of Rs. 10 lac each aggregating to Rs.1500 face value of Rs. 10 lac each aggregating to Rs.1500 crores. It is demonstrated from the detailed submission and copies of crores. It is demonstrated from the detailed submission and copies of crores. It is demonstrated from the detailed submission and copies of documents placed in the paper book that assessing officer has made documents placed in the paper book that assessing officer has made documents placed in the paper book that assessing officer has made detailed detailed detailed inquiry/verification inquiry/verification inquiry/verification during during during the the the course course course of of of assessment assessment assessment proceedings that assessee has borrowed funds for business use by eedings that assessee has borrowed funds for business use by eedings that assessee has borrowed funds for business use by issue of debentures. The borrowed fund were payable on call option issue of debentures. The borrowed fund were payable on call option 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 exercising by company after the 10th year or any at the end of every exercising by company after the 10th year or any at the end of every year thereafter. It was also explained that the lenders wer year thereafter. It was also explained that the lenders were not entitled e not entitled to share any surplus or bear any loss like shareholders. Debentures to share any surplus or bear any loss like shareholders. Debentures to share any surplus or bear any loss like shareholders. Debentures trustee were appointed to safeguard interest of the lenders. The trustee were appointed to safeguard interest of the lenders. The trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion assessee company had also stated on the basis of aforesaid discussion assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purp that it had borrowed fund for the purpose of its business and the ose of its business and the interest on debenture was deductible in computing the income from interest on debenture was deductible in computing the income from interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above profit and gains from business and profession. In the light of the above profit and gains from business and profession. In the light of the above facts and after considering the detailed material furnished by the facts and after considering the detailed material furnished by the facts and after considering the detailed material furnished by the assessee during the co assessee during the course of assessment proceedings before the urse of assessment proceedings before the assessing officer we observe that the assessee has categorically assessing officer we observe that the assessee has categorically assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that explained to the assessing officer with relevant supporting material that explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non it has issued unsecured perpetual non-convertible debentures and such convertible debentures and such lenders were not entitled to share any surplus or bear any loss like rs were not entitled to share any surplus or bear any loss like rs were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest shareholders. These debentures were entitled for fixed interest shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and @11.40% along with redemption after the 10th year. These facts and @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CIT submissions were also brought to the notice of the ld. Pr.CIT submissions were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting these undisputed fact held that assessment order without controverting these undisputed fact held that assessment order without controverting these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. was erroneous so far it was prejudicial to the interest of Revenue. was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consider that the order p Therefore, we consider that the order passed by the ld. Pr.CIT u/s 263 assed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground is unjustified and we quash the same. Therefore, we allow the ground is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee. of appeal of the assessee. 16.3 Respectfully, following the finding of the Tribunal (supra), we set Respectfully, following the finding of the Tribunal (supra), we set Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dis aside the finding of the Ld. CIT(A) on the issue in dispute and direct the pute and direct the Ld. A.O. to delete the disallowance of interest amounting to Rs. Ld. A.O. to delete the disallowance of interest amounting to Rs. Ld. A.O. to delete the disallowance of interest amounting to Rs.

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18,00,00,000/- -, which was made u/s 36(1)(iii) of the Act. The ground , which was made u/s 36(1)(iii) of the Act. The ground No. 4 of the appeal of the assessee is accordingly allowed. No. 4 of the appeal of the assessee is accordingly allowed.” 26.3 Thus, respectfull respectfully following the finding of the T ding of the Tribunal(supra), we set aside the finding of the Ld. CIT(A) and delete the we set aside the finding of the Ld. CIT(A) and delete the we set aside the finding of the Ld. CIT(A) and delete the disallowance of interest in respect of IPDI , which was made under disallowance of interest in respect of IPDI , which was made u disallowance of interest in respect of IPDI , which was made u section 36(1)(iii) of the A section 36(1)(iii) of the Act. The ground of appeal of the assessee is ct. The ground of appeal of the assessee is accordingly allowed. 27. The ground No. XVIII has been raised as an alternative to round No. XVIII has been raised as an alternative to round No. XVIII has been raised as an alternative to ground No. XVII of the appeal, which we have already allowed in XVII of the appeal, which we have already allowed in XVII of the appeal, which we have already allowed in favour of the assessee and therefore this ground is rendered merely favour of the assessee and therefore this ground is rendered merely favour of the assessee and therefore this ground is rendered merely academic and hence dismissed as infructuous. academic and hence dismissed as infructuous. 28. In ground No.XIX and ground No.XIX and XX, the assessee has raised the issue of XX, the assessee has raised the issue of levy of interest under section 234A and 234D of the A r section 234A and 234D of the Act. r section 234A and 234D of the A 28.1 We find that Ld. CIT(A) directed the Assessing Officer to verify We find that Ld. CIT(A) directed the Assessing Officer to verify We find that Ld. CIT(A) directed the Assessing Officer to verify the claim of the assessee as in the assessment order no details of the claim of the assessee as in the assessment order no details of the claim of the assessee as in the assessment order no details of computation of inter computation of interest under section 234A or section 234D was or section 234D was provided. In the grounds raised the assessee n the grounds raised the assessee has submitted with regard to interest under section 234A of the A to interest under section 234A of the Act that return of ct that return of income was filed within the statutory Limit as specified under income was filed within the statutory Limit as spec income was filed within the statutory Limit as spec section 139 of the Act ct. Regarding interest levied under section 234D . Regarding interest levied under section 234D of the Act, it has been submitted that the assessee had not received it has been submitted that the assessee had not received it has been submitted that the assessee had not received any refund for captioned Year before the date of the Regular refund for captioned Year before the date of the Regular refund for captioned Year before the date of the Regular Assessment. In our opinion, computation of the interest under Assessment. In our opinion, computation of the interest under Assessment. In our opinion, computation of the interest under section 234A and 234D is a matter of verification from the record 234D is a matter of verification from the record 234D is a matter of verification from the record

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and in absence of details of computation, the Ld. CIT(A) is justified n absence of details of computation, the Ld. CIT(A) is justified n absence of details of computation, the Ld. CIT(A) is justified in directing the Assessing Officer for verification in accordance with in directing the Assessing Officer for verification in accordance with in directing the Assessing Officer for verification in accordance with law. We therefore, feel it appropriate to direct the Assessing Officer law. We therefore, feel it appropriate to direct the Assessing Off law. We therefore, feel it appropriate to direct the Assessing Off that if he had not complied with the direction of the Ld. CIT(A) than that if he had not complied with the direction of the Ld. CIT(A) than that if he had not complied with the direction of the Ld. CIT(A) than he may verify the claim of the assessee in accordance with law and he may verify the claim of the assessee in accordance with law and he may verify the claim of the assessee in accordance with law and compute the interest accordingly. The ground Nos. XIX and XX of compute the interest accordingly. The ground Nos. XIX and XX of compute the interest accordingly. The ground Nos. XIX and XX of the appeal are accordingly allowed for statistical accordingly allowed for statistical purposes. purposes.

29.1 The Ld. CIT(A) deleted the addition following the finding of his The Ld. CIT(A) deleted the addition following the finding of his The Ld. CIT(A) deleted the addition following the finding of his predecessor in assessment year 2014 decessor in assessment year 2014-15. The relevant finding of Ld. 15. The relevant finding of Ld. CIT(A) reproduced as under: CIT(A) reproduced as under:

“9.4.1 l have considered the submissions made by the appellant and 9.4.1 l have considered the submissions made by the appellant and 9.4.1 l have considered the submissions made by the appellant and perused the materials available on record. The appellant has requested perused the materials available on record. The appellant has requested perused the materials available on record. The appellant has requested to delete impugned disall to delete impugned disallowance of Rs. 68,06,37,940/- being claim of being claim of Broken Period Interest on HTM securities. The appellant has made Broken Period Interest on HTM securities. The appellant has made Broken Period Interest on HTM securities. The appellant has made detailed submissions as above and the same detailed submissions as above and the same have been considered have been considered carefully. While disallowing the said broken period interest, the Ld. AO y. While disallowing the said broken period interest, the Ld. AO y. While disallowing the said broken period interest, the Ld. AO has given the finding that the interest on securities does not fall under has given the finding that the interest on securities does not fall under has given the finding that the interest on securities does not fall under the head 'Profits and Gains of Business and Profession' and the same the head 'Profits and Gains of Business and Profession' and the same the head 'Profits and Gains of Business and Profession' and the same has to be brought to tax under the head 'Income has to be brought to tax under the head 'Income from Other Sources'. from Other Sources'. However, from computation of total income it appears that apparently However, from computation of total income it appears that apparently However, from computation of total income it appears that apparently the Ld. AO has not taxed the same under the head 'Income from Other the Ld. AO has not taxed the same under the head 'Income from Other the Ld. AO has not taxed the same under the head 'Income from Other Sources'. Further, in the appellants own case for AY 2014 Sources'. Further, in the appellants own case for AY 2014 Sources'. Further, in the appellants own case for AY 2014-15, my Ld. Predecessor, vide his above r Predecessor, vide his above referred order dated 31.01.2018 has held eferred order dated 31.01.2018 has held that prima-facie the bank is classifying the securities under the facie the bank is classifying the securities under the facie the bank is classifying the securities under the categories AFS, HFT and HTM as stock in trade and hence it's claim for categories AFS, HFT and HTM as stock in trade and hence it's claim for categories AFS, HFT and HTM as stock in trade and hence it's claim for broken period interest in respect of the same is allowable as a revenue broken period interest in respect of the same is allowable as a revenue broken period interest in respect of the same is allowable as a revenue deductions. Further, the Hon'ble Supreme Court in the case of CIT vs. ons. Further, the Hon'ble Supreme Court in the case of CIT vs. ons. Further, the Hon'ble Supreme Court in the case of CIT vs. Nawanshahar Central Nawanshahar Central Cooperative Bank Ltd, reported in 160 Taxman Cooperative Bank Ltd, reported in 160 Taxman 48 has held that the investments made by a banking concern are part 48 has held that the investments made by a banking concern are part 48 has held that the investments made by a banking concern are part of the business of banking. of the business of banking. The CBDT has recognized the said The CBDT has recognized the said laws pronounced by the Hon'ble Apex Court and vide Circular No. 18/2015 pronounced by the Hon'ble Apex Court and vide Circular No. 18/2015 pronounced by the Hon'ble Apex Court and vide Circular No. 18/2015

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dated 02.11.2015 has brought the same to the notice of the field dated 02.11.2015 has brought the same to the notice of the field dated 02.11.2015 has brought the same to the notice of the field formations and the same stipulates as under. formations and the same stipulates as under. "CIRCULAR NO. 18/2015 [F.NO.279/MISC./ 140/2015/ITJ], DATED 2 "CIRCULAR NO. 18/2015 [F.NO.279/MISC./ 140/2015/ITJ], DATED 2 "CIRCULAR NO. 18/2015 [F.NO.279/MISC./ 140/2015/ITJ], DATED 2- 11-2015 It has been brought to the notice of the Board that in the case of Banks, has been brought to the notice of the Board that in the case of Banks, has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, 'expenses relatable to investment in field officers are taking a view that, 'expenses relatable to investment in field officers are taking a view that, 'expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest SLR securities need to be disallowed u/s 57(i) of the Act as interest SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income fro SLR securities is income from other sources." 2. Clause (id) of sub 2. Clause (id) of sub-section (1) of Section 56 of the Act provides that section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income income by way of interest on securities shall be chargeable to income income by way of interest on securities shall be chargeable to income- tax under the head "Income from Other Sources", if the income is not head "Income from Other Sources", if the income is not chargeable to income chargeable to income-tax under the head "Profits and Gains of Business nder the head "Profits and Gains of Business and Profession". and Profession". 3. The matter has been examined' in light of the judicial decisions on 3. The matter has been examined' in light of the judicial decisions on 3. The matter has been examined' in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Cooperative Bank this issue. In the case of CIT v. Nawanshahar Central Cooperative Bank this issue. In the case of CIT v. Nawanshahar Central Cooperative Bank Ltd. 2007] 160 Taxman 48(SC), the Apex Court held th 2007] 160 Taxman 48(SC), the Apex Court held that the investments at the investments made by a banking concern are part of the business of banking. made by a banking concern are part of the business of banking. made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to Therefore, the income arising from such investments is attributable to Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of the business of banking falling under the head "Profits and Gains of the business of banking falling under the head "Profits and Gains of Business and Profession". Business and Profession". 3.2 Even though the abovementioned decision was in the context of co though the abovementioned decision was in the context of co- though the abovementioned decision was in the context of co operative societies/Banks societies/Banks claiming 80P (2)(a) (i)of the Act, the principle is deduction under under section equally applicable to all banks/commercial banks/commercial banks, to which Banking Regulation Act, 1949 appli banks, to which Banking Regulation Act, 1949 applies. 4. In the light of the Supreme Court's decision in the matter, the issue is 4. In the light of the Supreme Court's decision in the matter, the issue is 4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, well settled. Accordingly, the Board has decided that no appeals may the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and henceforth be filed on this ground by the officers of the Department and henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on appeals already filed, if any, on this ground before Courts/Tribunals this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice may be withdrawn/not pressed upon. This may be brought to the notice may be withdrawn/not pressed upon. This may be brought to the notice of all concerned." of all concerned." Further, it is observed that the issue of allowance of above referred Further, it is observed that the issue of allowance of above referred Further, it is observed that the issue of allowance of above referred broken period interest was decided by my Ld. predecessor in broken period interest was decided by my Ld. predecessor in broken period interest was decided by my Ld. predecessor in appellant's own case for AY 2014 pellant's own case for AY 2014-15, vide his above referred order 15, vide his above referred order dated 31.01.2018, and therein it has been held as under. dated 31.01.2018, and therein it has been held as under. "7.3 Decision I have considered the facts of the issue and submissions of the I have considered the facts of the issue and submissions of the I have considered the facts of the issue and submissions of the appellant. The only issue in this Ground of appeal is th appellant. The only issue in this Ground of appeal is that the AO has at the AO has classified AFs and HIF securities as 'stock in trade' and HTM securities classified AFs and HIF securities as 'stock in trade' and HTM securities classified AFs and HIF securities as 'stock in trade' and HTM securities as 'investments' and hence allowed claim for broken period interest as 'investments' and hence allowed claim for broken period interest as 'investments' and hence allowed claim for broken period interest (BPI) for AFS and HFT categories of securities and disallowed (BPI) for AFS and HFT categories of securities and disallowed (BPI) for AFS and HFT categories of securities and disallowed assessee's claim for deduction of inter assessee's claim for deduction of interest relatable to HTM category of est relatable to HTM category of securities. Prima facie it appears from the records that assessee has Prima facie it appears from the records that assessee has Prima facie it appears from the records that assessee has

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been treating all the three categories of securities as 'stock in trade' for been treating all the three categories of securities as 'stock in trade' for been treating all the three categories of securities as 'stock in trade' for income tax purposes irrespective of the fact that these were classified income tax purposes irrespective of the fact that these were classified income tax purposes irrespective of the fact that these were classified as 'investments' for books purposes as per RBI guidelines. This method investments' for books purposes as per RBI guidelines. This method investments' for books purposes as per RBI guidelines. This method of accounting has been consistently and regularly followed by the of accounting has been consistently and regularly followed by the of accounting has been consistently and regularly followed by the assessee for the last several years and appears to have been accepted assessee for the last several years and appears to have been accepted assessee for the last several years and appears to have been accepted by the department for earlier assessment years as wel by the department for earlier assessment years as well. Prima facie the l. Prima facie the HTM securities are 'stock in trade' of the assessee as per the regular HTM securities are 'stock in trade' of the assessee as per the regular HTM securities are 'stock in trade' of the assessee as per the regular system of accounting followed by the assessee for the last several system of accounting followed by the assessee for the last several system of accounting followed by the assessee for the last several years and hence its claim for broken period interest (BPI) in respect of years and hence its claim for broken period interest (BPI) in respect of years and hence its claim for broken period interest (BPI) in respect of the same is allowable as a the same is allowable as a revenue deduction. In this connection, it may revenue deduction. In this connection, it may e mentioned here that the AO had dealt with only one aspect of treating e mentioned here that the AO had dealt with only one aspect of treating e mentioned here that the AO had dealt with only one aspect of treating the HTM securities as capital assets, but had not dealt with other the HTM securities as capital assets, but had not dealt with other the HTM securities as capital assets, but had not dealt with other consequential issues of taxability of income arising from the sale of consequential issues of taxability of income arising from the sale of consequential issues of taxability of income arising from the sale of securities as capital gains and other relevant issues under section 45 to securities as capital gains and other relevant issues under section 45 to securities as capital gains and other relevant issues under section 45 to 55 of the I.T. Act 1961. 55 of the I.T. Act 1961. Anyhow, assessee's diam for deduction of Anyhow, assessee's diam for deduction of broken period interest of Rs. 49,96,29,21 1/ broken period interest of Rs. 49,96,29,21 1/-is aliowed. In this is aliowed. In this connections, reliance is also "placed on the decisi connections, reliance is also "placed on the decisions of Bombay High ons of Bombay High Court in the case of HDFC vs CIT Court in the case of HDFC vs CIT -366/ITR/505 and Bombay ITAT in 366/ITR/505 and Bombay ITAT in the case of KBC Bank vs JCIT the case of KBC Bank vs JCIT-34/TAXMAN.COM/26. In nutshell, 34/TAXMAN.COM/26. In nutshell, assessee's appeal is allowed." assessee's appeal is allowed." The facts and circumstances of the issue under consideration remain The facts and circumstances of the issue under consideration remain The facts and circumstances of the issue under consideration remain same as that in AY 2014 in AY 2014-15 and hence respectfully following the said 15 and hence respectfully following the said decision of my Ld. Predecessor in appellant's own case for AY 2014 decision of my Ld. Predecessor in appellant's own case for AY 2014 decision of my Ld. Predecessor in appellant's own case for AY 2014-15 the impugned disallowance of Rs 68,06,37,940/ the impugned disallowance of Rs 68,06,37,940/- is DELETED. is DELETED. Accordingly, the Ground No. IV raised in appeal is ALLOWED. Accordingly, the Ground No. IV raised in appeal is ALLOWED. Accordingly, the Ground No. IV raised in appeal is ALLOWED.” 29.2 Before us the learned counsel for the assessee refer us the learned counsel for the assessee refer us the learned counsel for the assessee referred to the decision of the coordinate bench of the T coordinate bench of the Tribunal in the case of the ribunal in the case of the assessee in assessment year 2011 assessee in assessment year 2011-12 to 2013-14 in ITA No.3498 to 14 in ITA No.3498 to 3500 & 3296 to 3238/ Mum/2018 and submitted that issue in 3500 & 3296 to 3238/ Mum/2018 and submitted that issue in 3500 & 3296 to 3238/ Mum/2018 and submitted that issue in dispute is covered in favour of the assessee. The relevant finding of is covered in favour of the assessee. The relevant finding of is covered in favour of the assessee. The relevant finding of the Tribunal is reproduced as under: is reproduced as under:

“099. Ground number 5 and 6 with relation to the broken period interest Ground number 5 and 6 with relation to the broken period interest Ground number 5 and 6 with relation to the broken period interest allowable as a deduction. The learned authorised representative stated allowable as a deduction. The learned authorised representative stated allowable as a deduction. The learned authorised representative stated that the honourable Bombay High Court in CIT versus HDFC bank Ltd urable Bombay High Court in CIT versus HDFC bank Ltd urable Bombay High Court in CIT versus HDFC bank Ltd has decided the issue while deciding ground number (b) before them. has decided the issue while deciding ground number (b) before them. has decided the issue while deciding ground number (b) before them. The learned departmental representative supported the order of the AO. The learned departmental representative supported the order of the AO. The learned departmental representative supported the order of the AO. 100. We find that this issue squarely covered in favour of the a We find that this issue squarely covered in favour of the assessee We find that this issue squarely covered in favour of the a by the decision of the honourable Bombay High Court in CIT versus by the decision of the honourable Bombay High Court in CIT versus by the decision of the honourable Bombay High Court in CIT versus HDFC bank Ltd 366 ITR 505 wherein while HDFC bank Ltd 366 ITR 505 wherein while deciding issue number (b) deciding issue number (b) i.e.

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B) Whether the ITAT was correct in law in holding that the broken B) Whether the ITAT was correct in law in holding that the broken B) Whether the ITAT was correct in law in holding that the broken period interest is allowable as a deduction, period interest is allowable as a deduction, inspite of the Hon'ble inspite of the Hon'ble Supreme Court's decision in the case of CIT v. Vijay Bank (187 ITR 541) Supreme Court's decision in the case of CIT v. Vijay Bank (187 ITR 541) Supreme Court's decision in the case of CIT v. Vijay Bank (187 ITR 541) and the Rajasthan High Court's decision in the case of Bank of and the Rajasthan High Court's decision in the case of Bank of and the Rajasthan High Court's decision in the case of Bank of Rajasthan (316 TR 391) ? Rajasthan (316 TR 391) ? Honourable High Court held as Under: Honourable High Court held as Under:- "6. Even as far as question (B) is "6. Even as far as question (B) is concerned, we find no infirmity in the concerned, we find no infirmity in the orders passed by the CIT (Appeals) or the ITAT. In deciding this issue, orders passed by the CIT (Appeals) or the ITAT. In deciding this issue, orders passed by the CIT (Appeals) or the ITAT. In deciding this issue, CIT (Appeals) and the ITAT have merely followed the judgment of this CIT (Appeals) and the ITAT have merely followed the judgment of this CIT (Appeals) and the ITAT have merely followed the judgment of this Court in the case of American Express International Banking Corpn. v. Court in the case of American Express International Banking Corpn. v. Court in the case of American Express International Banking Corpn. v. CIT [2002] 258 ITR 601/125 Taxman 488. On going through the said 002] 258 ITR 601/125 Taxman 488. On going through the said 002] 258 ITR 601/125 Taxman 488. On going through the said judgment, we find that question judgment, we find that question (B) reproduced above and projected as substantial by Mr Suresh Kumar (B) reproduced above and projected as substantial by Mr Suresh Kumar (B) reproduced above and projected as substantial by Mr Suresh Kumar is squarely answered by the judgment of is squarely answered by the judgment of this Court in the case of this Court in the case of American Express International American Express International Banking Corpn. (supra). In view thereof, Banking Corpn. (supra). In view thereof, we do not find that even question (B) gives rise to any substantial we do not find that even question (B) gives rise to any substantial we do not find that even question (B) gives rise to any substantial question of law that need question of law that needs to be answered by this Court.” 29.3 We have heard rival submissions of the parties on the issue in have heard rival submissions of the parties on the issue in have heard rival submissions of the parties on the issue in dispute and perused dispute and perused the relevant material on record. The issue in the relevant material on record. The issue in dispute is whether the broken period interest in relation to HTM dispute is whether the broken period interest in relation to HTM dispute is whether the broken period interest in relation to HTM securities is allowable as business expenditure. securities is allowable as business expenditure. Since the issue Since the issue whether the HTM securities in the case of the assessee are in the whether the HTM securities in the case of the assessee whether the HTM securities in the case of the assessee nature of the stock-in in-trade or investment, has been , has been raised in the appeal of the assessee in ground No appeal of the assessee in ground Nos. IX and X , which has been , which has been restored back to the file of the Ld. restored back to the file of the Ld. AO, we feel it appropriate to , we feel it appropriate to restore this issue also to the file o restore this issue also to the file of the Ld. AO for deciding a f the Ld. AO for deciding afresh in the light of decision of the coordinate bench decision of the coordinate bench (supra). The ground (supra). The ground Nos. 3(three) and and 4(four) of the appeal of the revenue of the appeal of the revenue are accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.

29.4 The issue of amortisation of premium in relation to HTM The issue of amortisation of premium in relation to HTM The issue of amortisation of premium in relation to HTM categories of securiti categories of securities raised in ground No. 5 (fiv) of the appeal of ) of the appeal of the Revenue is also dependent on whether the same are i also dependent on whether the same are in the also dependent on whether the same are i

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nature of stock-in-trade or investment. Since that issue has already trade or investment. Since that issue has already trade or investment. Since that issue has already been restored to the file of the Ld. been restored to the file of the Ld. AO in ground No. IX and X of the ground No. IX and X of the appeal of the assessee and therefore the ground No. five of the of the assessee and therefore the ground No. five of the of the assessee and therefore the ground No. five of the appeal of the revenue is also restored to the file of the Ld. AO for appeal of the revenue is also restored to the file of the Ld. appeal of the revenue is also restored to the file of the Ld. deciding afresh. The ground No. fresh. The ground No. 5 (five) of the appeal of revenue of the appeal of revenue is accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.

Order pronounced in the open Court on nced in the open Court on 05/02 /02/2024. Sd/ Sd/- Sd/ Sd/- (KAVITHA RAJAGOPAL KAVITHA RAJAGOPAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 05/02/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai