ALLAHABAD BANK,KOLKATA vs. ADD.CIT,RANGE-6, KOLKATA, KOLKATA

The Assessee is a nationalised bank. In the return of income filed for AY 2008-09, the Assessee claimed a sum of Rs. 544,78,26,226 being deduction for provision for bad and doubtful debts under section 36(1 )(viia)(a) of the Income Tax Act, 1961 (Act). Sec.36(1)(viia) (a) provides as follows: Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28- ( 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 laws of a country outside India or a non- scheduled bank or a co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter 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 prescribed manner :

The amount of deduction claimed has been worked out as below: Rs. The aggregate average advances 4511,62,74,000 made by the rural branches 10% of aggregate average advances 451,16,27,400 made by the rural branches 7.5% of total income (computed 93,61,98,826 before making any deduction under Chapter VI-A) 544,78,26,226

Before CIT(A), the Assessee contended that it is a misconception that deduction under section 36(1 )(viia) is related to the provision made by the assessee for bad and doubtful debts in the books of account. It was submitted that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entitled to a deduction which is quantified not with respect to the amount provided in the accounts, but with respect to certain percentage of the total income (before making this deduction and deduction under chapter VI-A) and also a certain percentage of aggregate average advances made by the rural branches. In other words, there is a specific deduction given by the statute irrespective of the quantum provided by the assessee in the accounts towards provision for bad and doubtful debts. The Assessee relied on the decision of the Hon'ble ITA T, Bangalore Bench in Syndicate Bank Vs. Deputy CIT (2001) 78 ITD 103 (BANG) in support of its contention wherein the stand taken by the Assessee as above was accepted by the Tribunal.

The CIT(A) upheld the order of the AO by following the decision of the Hon’ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), wherein it was held that the claim for deduction u/s.36(1)(viia)(a) of the

Aggrieved by the order of the CIT(A), the Assessee has raised ground No.1 & 2 before the Tribunal. At the time of hearing it was agreed by the parties that identical issue was decided against the Assessee by the Tribunal in Assessee’s case for AY 2005-06 & 2006-07 in ITA No.2175& 2176/Kol/2009 order dated 16.3.2016 by following the decision in the case of State Bank of Patiala (supra). Following the said orders, we uphold the order of CIT(A) and dismiss Ground No.1 & 2 raised by the Assessee.

Ground Nos. 3 and 4 raised by the assessee reads as follows :- “3. That, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the application of provision of Rule 8D read with Section 14A(1 )&(2) of the Income tax Act, 1961 without bringing on record any cogent reason for disregarding and rejecting the estimate including the manner of making estimate of disallowance amounting to Rs.46,20,484 offered by the Appellant itself in the revised return of Income filed by the Appellant. 4. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeal) - VI, Kol has erred in upholding the disallowances under section 14A by invoking Rule 8D amounting to Rs 4,20,90,323 in total disregard of order of his Learned predecessor in the Appeal No.1 014/CIT(A)-VI/2009-10/Cir-6/Kol dated 15.11.2010 relating Assessment Year 2007-08 and orders of Jurisdictional ITAT in the case of ITO Vs B.P.S. Securities Pvt. Ltd., Kolkata (ITA No.123/KoI/2010) and Civil Engineers Enterprises (P) Ltd. Vs DCIT, Kol (ITA No.859/Kol/2010)”.

The Assessee earned income which does not form part of the total income under Chapter-III of the Act. In accordance with the provisions of Sec.14-A of the Act which provides that any expenditure incurred in earning income which does not form part of the total income under the Act, should be excluded in arriving at the total income, the Assessee was bound to compute the disallowance of expenditure u/s.14A of the Act. The Assessee filed its original return of income on 27.09.2008 without any addition in respect of disallowances under section 14A of the Act. Subsequently revised return was filed on 31.03.2010 offering disallowances of Rs.46,20,484 under ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

The AO was of the view that the Assessee has not denied that it had incurred expenditure in earning exempt income and proceeded to compute the disallowance u/s.14A of the Act by applying Rule 8D of the Income Tax Rules, 1961 (Rules). The AO has not in his order explained the reasons why the aforesaid amount of disallowance under section 14A as offered by the Assessee in its revised return of income should not be accepted. The AO has however expressed the view that the calculation of disallowance was clearly made on the basis of estimation. As a consequence, by applying Rule 8D the AO made a disallowance under Section 14A of the Act of Rs.54,50,26,415.

The AO computed the disallowance under Rule 8D(2)(ii) of the Rules by considering the interest paid as shown in schedule-15 of Annual Accounts amounting to Rs.4498,87,95,000 for the purpose of calculation of the said disallowance. The said calculatiion was made as follows: Interest paid X average value of investment average value of assets ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

The AO computed disallowance under Rule 8D(2)(iii) of the Rules as follows: ½% of the average investments of Rs.8418,06,46,657= Rs.4,20,90,323/-.

Before CIT(A), with regard to disallowance under Rule 8D(2)(ii) of the Rules, the Assessee pointed out that no part of the borrowed funds were utilized in making investment in shares, bonds and unit of mutual funds which yield the tax free income. The Assessee pointed out that it's owned funds i.e. aggregate of capital and reserve and surplus as on 31.03.2008 amounted to Rs.5,221.04 crores. The total investment in shares, units of mutual funds and tax free bonds as on 31st March 2008 was only Rs.885.89 crores (i.e. Rs.376.19 crores + Rs.224.12 crores + Rs.285.58 crores). Thus, the investment in tax free instruments was much less than the bank's owned fund as on 31.03.2008. The Assessee pointed out that this fact was very relevant and has not been considered by the AO. Since, the investment in tax free instruments did not exceed the owned fund, there cannot be any presumption that whole or part of such tax free investment was made out of the borrowed fund. If the investment made in the tax free instrument does not exceed the assessee owned fund, the onus is on the Assessing Officer to prove that the assessee has made investment out of borrowed fund. It was therefore submitted that proportionate amount of interest cost amounting to Rs.50,29,36,092 as part of the disallowance under section 14A read with Rule 8D has to be deleted.

It was submitted by the Assessee that Section 14A(2) of the Act provides that the Assessing Officer is empowered to determine the correct amount of expenditure incurred in relation to exempt income in the following situations: (a) Where the Assessing Officer, having regard to the account, is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income. (b) Where the assessee claims that no expenditure has been incurred by him in relation to exempt income. It was argued that as the Assessee had claimed a sum of Rs.46,20,484 as expenditure incurred in relation to exempt income, the AO cannot invoke blindly sub- section (2) of section 14A without controverting the claim of the bank. He should first bring on record the reason why the claim of the assessee should not be considered as incorrect. It was submitted that whatever amount was offered by the Assessee as disallowance u/s.14A of the Act was reasonable and realistic estimate. The basis of calculation was clearly conveyed to the AO and the AO has not brought on record any deficiency in the estimate of the amount of disallowance offered by the Assessee and therefore, disallowance of Rs.54,50,26,415 under section 14A by invoking Rule 8D of the Rules is not sustainable.

Reference was made to the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited 328 ITR 81 (Bom) wherein it was held that the provisions of Rule 8D of the Rules apply with effect .from the assessment year 2008-09 provided all the conditions prescribed in section 14A(2) are complied with. The Assessee thus prayed that the amount of Rs.46,20,484 as offered by the Assessee as disallowance under section 14A should be accepted instead of Rs.54,50,26,415 as computed by the AO.

The CIT(A) did not agree with the submissions made by the assessee and he confirmed the order of AO. The CIT(A) firstly held in paragraphs-26 & 27 of his order that from AY 2008-09 Rule 8D of the rules was applicable and since the ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Aggrieved by the order of CIT(A) the assessee has raised ground Nos. 3 and 4 before the Tribunal. The assessee has also raised the following additional grounds on the disallowance u/s 14A of the Act : "That on facts and circumstances and also on law, the Learned CIT (A) and the Learned AO have failed to appreciate that shares, securities, bonds etc., being held as stock-in- trade, the provisions of Rule 8D(2)(ii) and (iii) are not applicable to the appellant bank and only the amount of expenditure directly relating to exempt income can be disallowed under Rule 8D(i)". In view of the additional ground being urged, the appellant prays for modifying the Ground Nos. 3 and 4 in the Memorandum of Appeal as follows: Ground No.3: Without prejudice to the Additional Ground of appeal as above, that, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the application of provision of Rule 80 read with Section 14A(1) & (2) of the Income tax Act, 1961 without bringing on record any cogent reason for disregarding and rejecting the estimate including the manner of making estimate of disallowance amounting to Rs. 46,20,484 offered by the Appellant itself in the revised return of Income filed by the Appellant. Ground No.4: Without prejudice to the Additional Ground of appeal as above, that, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in upholding the disallowances under section 14A by invoking Rule 8D amounting to Rs. ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Since the additional grounds of appeal is a legal argument in support of ground No.3 and 4 originally raised by the assesse in the grounds of appeal, we permit the assessee to raise the additional ground and modify grounds No.3 & 4 as prayed for by the Assessee.

The ld. Counsel for the assessee submitted before us that the Hon’ble Supreme Court in the case of United Commercial Bank vs CIT 240 ITR 355 (SC) has taken a view that all investment held by a bank are stock in trade of business of the assesee. He drew our attention to the decision of the Hon’ble ITAT, Kolkata Bench in the case of Gulshan Investment Co. Ltd wherein this Tribunal took a view that when the shares, units of mutual funds or bonds which yield tax free income are not shown as investment they should not be considered while applying the formula under Rule 8D(2)(ii)& (iii) of the Rules. The following observations of the ITAT in this regard were brought to our notice :- “6. A plain look at the above rule shows that 8D(2)(ii) and (iii) can only be applied in the situations in which shares are held as investments, and that this rule will not have any application when the shares are held as stock in trade It is so for the elementary reason that the one of the variables on the basis of which disallowance under rules 8D(2)(ii) and (iii) is to be computed is the value of "Investments, income from which does not or shall not form part of total income", and, when there are no such investments, the rule cannot have any application. When no amount can be computed in the light of the formula given in rule 8 D(ii) and (iii), no disallowance can be made under rule 8D (2)(ii) and (iii) either. As held by Hon'ble Supreme Court in the case of CIT Vs B C Srinivas Shetty ( 128 ITR 294), when computation provisions fail, the charging provisions cannot be applied, and by the same logic, when the computation provisions under rule 8 D (2) (ii) and (iii) fail, disallowance under the said provisions cannot be made either as the said provision is rendered unworkable.

The ld. Counsel accordingly submitted that the disallowance under Rule 8D(ii) &(iii) should be deleted as indicated in the decisions referred to above and the Assessee’s computation of disallowance accepted. Without prejudice to the above submission it was submitted by him that the basis of disallowance u/s 14A made by the assessee has not been rejected by the AO by adducing cogent reasons and prayed that the disallowance as made by the assessee should be accepted. The ld. DR relied on the conclusions of CIT(A). 21. We have given a very careful consideration to the rival submissions. The provisions of section 14A as originally introduced and as amended from time to time as well as the insertion of Rule 8D was subject-matter of several decisions rendered by various Benches of the ITAT as well as the Hon’ble High Courts. The Hon’ble Delhi High Court in the case of Maxopp Investments Ltd. v. CIT 2011) 203 Taxman 364 (Del) and the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81 (Bom) have taken a view that Rule 8D of the I.T. Rules will apply only for A.Ys. 2008-09 and subsequent assessment years. It has also been laid down that the assessee has to make a claim (including a claim that no expenditure was incurred) with regard to expenditure incurred for earning income which is not chargeable to tax. Such a claim has to be examined by the AO and only if on an objective satisfaction arrived at by the AO that the claim made by the assessee is not ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

In the present case, the assessee has taken a stand that a particular amount has to be disallowed as expenditure incurred in earning exempt dividend income. The AO did not agree with the claim of the Assessee and he estimated the disallowance on a different basis. The question is whether it is mandatory for the AO to apply Rule 8D of the Rules, the moment he rejects the basis of disallowance as made by the AO. We are of the view that even in a case where the AO rejects the claim of the assessee that no expenses were incurred to earn the exempt income, it is not mandatory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. If Rule 8D of the Rules is blindly by the AO sometimes it will lead to absurd results. The AO examining the claim of the assessee regarding expenditure incurred in earning the exempt income, is bound to take note of such absurdities and refrain from invoking the method of disallowance of expenses as prescribed by Rule 8D(2) of the Rules. In other words, it is only when no reasonable and proper parameters for making disallowance can be arrived at, that resort to Rule 8D(2) can be had by the AO. Rule 8D(2) will thus be a last resort when it becomes impossible to arrive at a just conclusion on the amount of expenses that has to be disallowed as attributable or incurred in earning exempt income. The AO, u/s 14A of the Act has the discretion to substitute the computation of disallowance u/s 14A as made by the assessee is under estimation. The satisfaction contemplated u/.s 14A (2) of the Act is not merely restricted to rejecting the claim made by the assessee and the disallowance to be made u/s 14A of the Act but also includes substituting the claim made by the assessee on any other reasonable basis as the AO deems it fit. In such circumstances the correctness of the AO’s judgment can be reviewed but it cannot be said that the AO had no jurisdiction to do so and AO ought to resort only to the provision of Rule 8D of the Rules. In other words Rule 8D is not automatic and can be resorted to by the AO only as a measure of last resort.

For the reasons given above, we are of the view that the conclusions of the CIT(A) that rule 8D of the rules has to be mandatorily applied in cases relating to AY 2008-09 and subsequent AYs is not correct. We hold accordingly.

With regard to the disallowance under Rule 8D(2)(ii) of the Rules on interest expenditure, the Revenue does not dispute the facts with regard to availability of own funds of the Assessee i.e. aggregate of capital and reserve and surplus as on 31.03.2008 amounting to Rs.5,221.04 crores. The Revenue also does not dispute that the total investment in shares, units of mutual funds and tax free bonds as on 31st March 2008 was only Rs.885.89 crores (i.e. Rs.376.19 crores + Rs.224.12 crores + Rs.285.58 crores). Thus, the investment in tax free instruments was much less than the bank's own fund as on 31.03.2008. Reference in this regard was made to the following decisions for the proposition that overall availability of interest free funds have to be seen before making disallowance u/s.14A of the Act read with Rule 8D(2)(ii) of the rules. (i) CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 (Bom); (ii) CIT Vs. UTI Bank (2013) 32 Taxmann.com 370 and (iii) CIT Vs. Gujarat Power Corporation 352 ITR 583 (Guj.) laying down identical proposition. In the light of the aforesaid decisions, we are of the view that the disallowance of interest expenses under rule 8D(2)(ii) of the Rules of Rs.50,29,36,092 cannot be sustained and the same is directed to be deleted. The conclusions to the contrary by the CIT(A) are not sustainable in view of the judicial pronouncements referred to above.

With regard to disallowance under rule 8D(2)(iii) of the Rules is concerned, we find that neither the AO nor the CIT(A) have disputed the correctness of the claim of disallowance as computed by the Assessee but have proceeded to compute the disallowance by applying Rule 8D(2)(iii) of the Rules without objectively examining the claim made by the Assessee. The AO without doing so, disregarded the claim of the assessee and in invoked Rule 8D of the IT Rules without recording the satisfaction as required by Sec.14A(2) of the Act. The law is well settled by now that with regard to expenditure in relation to exempt income, AO has to indicate cogent reasons as to ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Ground No.5 raised by the assessee reads as follows :- “5. That, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the disallowance of the claim of the Appellant made under Section 40 (a)(ia) amounting to Rs.2,20,94,366 on the basis of deposit of TDS.”

The Assessee claimed deduction of Rs. 3,17,32,734/- on the basis of payment of TDS done during the previous year on the amounts which were disallowed in earlier years u/s 40(a)(ia) of the Act for non-deposit of TDS. In the return of income the ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Before CIT(A), the Assessee submitted that out of Rs. 3,17,32,734/- in respect of disallowances under section 40(a)(ia), the Assessee is able to produce the necessary challans in respect of amount of expenditure of Rs. 96,38,368/-. The Assessee was however unable to produce the TDS challans in respect of payment of Rs. 2,20,94,366 ( Rs. 3,17,32,734 - Rs. 96,38,368).

The CIT(A) allowed claim of the Assessee to the extent the Assessee produced challans evidencing payment of TDS. The following were the relevant observations of the CIT(A) in this regard: “49. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The appellant has produced necessary challans in respect of Rs.96,38,368/-. The appellant has further submitted - at it could not ,produce the balance challans amounting to Rs.2,20,94,366/-. Therefore, the amount of disallowance is restricted to Rs.2,20,94,366/- only and the appellant gets relief of Rs.96,38,366/-. This ground of appeal is partly allowed.”

Aggrieved by the order of the CIT(A), the Assessee has raised Gr.No.5 before the Tribunal. The limited prayer of the ld. Counsel for the assesse before us was to remand the matter to the AO to enable the Assessee to produce the balance challans to enable the assessee to claim deduction on actual payment basis. We are of the view that the request made on behalf of the assessee is reasonable and accordingly we set aside this issue to the file of AO for fresh consideration. The assessee is at liberty to file necessary challans to show that actual payment were made during the previous year and to claim deduction on such sum. 31. Ground Nos. 6 and 7 raised by the assessee read as follows :- “6. That, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the application of provision of Section 115JB of the Income Tax Act to the case of the Appellant in disregard of the ratios laid down by the Hon'ble Kerala High Court in Kerala State Electricity Board vs Dy. CIT (2010) 329 ITR 91 (ker), Hon'ble ITAT, Mumbai in Maharashtra State Electricity Board vs JCIT 82 ITD 422, Krung Thai Bank PCL vs Joint DIT, International Taxation (ITA No.3390/Mum/09), Union Bank of India Vs ACIT, LTU, Mumbai (ITA No.4702 to 4706/Mum/2010 dated 30.06.2011) and Hon'ble ITAT, Chennai in the case of Indian Bank Vs. Additional CIT, Chennai (ITA No 469/Md/2010 dated 03.08.2011). 7. Without prejudice to the Appellant’s claim in Ground No.6 above, the Learned Commissioner of Income Tax (Appeal)-VI, Kolkata has erred in confirming the disallowance of Rs.4,20,90,323 instead of Rs.46,20,484 as offered by the Appellant itself under section 14A in computation of the ‘Book Profit’ under section 115JB.”

Sec.115JB(1) of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent. Sec.115JB(2) provides for the purpose of the provisions of Sec.115JB of the Act every company shall prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Explanation 1 to Sec.115JB provides that for the purposes of ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

The AO as well as the CIT(A) however did not agree with the submissions made on behalf of the Assesse. The CIT(Appeals) after making a reference to the legislative history of the provisions of Sec.115JB of the Act was of the view that in the light of the purpose for which provisions of Sec.115JB of the Act were introduced, it cannot be said that the provisions of Sec.115JB of the Act are not applicable to banking companies. The CIT(A) referred to the purpose of introduction of Sec.115JB as explained in CBDT Circular No.794 dated 9.8.2000 which is as follows: “Minimum Alternate Tax on companies 43.1 In recent years, as the number of zero tax companies and companies paying marginal tax had grown, Minimum Alternate Tax was levied under section 115JA of the Income-tax Act from the assessment year 1997-98. The efficacy of the existing provision, however, declined in view of the exclusions of various sectors from the operation of MAT and the credit system. The Act has, therefore, modified the scheme of MAT. The existing section 115JA has been made inoperative w.e.f. 1-4-2001. In its place, the Act inserts a new provision, 115JB of the Income-tax Act. 43.2 The new provisions provide that all companies having book profits under the Companies Act, prepared in accordance with Part II and Part III of Schedule VI to the Companies Act, shall be liable to pay a minimum alternate ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Aggrieved by the order of the CIT(A), the Assessee has raised ground No.6 raised before the Tribunal. We have heard the submissions of the learned counsel for the Assessee and the learned DR and find that identical issue arose in Assessee’s case and it has been held that provisions of Sec.115JB of the Act are not applicable to Banking companies. The following are the relevant observations of the Tribunal in ITA No.1460/Kol/13 for AY 2003-04, in Assessee’s own case: “15. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated submissions as were made before the learned CIT(A). The learned counsel for the Assessee also submitted that the provisions of Sec.115JB of the Act were amended with effect from 01.04.2013 making it obligatory, inter alia, for banks to prepare P & L account in accordance with the Banking Regulation Act is clearly indicative of legislative understanding that upto and including A.Y. 2012-13, section 115JB had no application to banks and insurance companies. It was so held by ITAT, Hyderabad in the case of State Bank of Hyderabad dated 07.09.2013 in ITA No. 578/Hyd/2010 and ITAT Mumbai in the case of ICICI Lombard General Insurance Co. Ltd. dated 10.10.2012 in ITA No.2398/Mum/2009. The learned DR relied on the order of the CIT(A).

The decision rendered in the case of Krung Thai Bank referred to above was rendered by Order dated 30.09.2010 in ITA No.3390/2009 passed by ITAT ‘G’ Bench, Mumbai. The Hon'ble ITAT, Mumbai in Maharashtra State Electricity Board vs JCIT 82 ITD 422(mum) took the view that provisions of Sec.115JB of the Act are not applicable to electricity generation companies governed by the provisions of Electricity Act. The Hon'ble Kerala High Court in Kerala State Electricity Board vs Dy. CIT (2010) 329 ITR 91 (ker), has also taken the same view. In view of the above ground No.6 raised by the assessee is allowed. In view of the decisions in ground no.6 no adjudication is required on ground no.7 raised by the assessee.

In the result the appeal of the assessee is partly allowed.

The Assessing Officer in his assessment order dated 30.12.2010 disallowed an amount of Rs.108,45,17,830/- on account of amortisation of premium paid for purchase of securities by observing in the assessment order as follows:- "The assessee bank debited a sum of Rs. 108,45,17,830/- as amortisation of premium paid for purchase of securities. The said amortisation in the accounts was made following guideline of RBI. However, for income tax return, all ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Before CIT(A), the Assessee submitted that Investments in bank are classified into three categories - (a) Held To Maturity (HTM), (b) Held For Trading (HFT) and (C) Available For Sale (AFS). As per the guidelines of Reserve Bank of India in respect of HTM category of investment, if the purchase cost of securities is more than the face value such excess called premium, is required to be amortized by debiting the bank's Profit and Loss Account for the period till maturity. It was further pointed out that the AO did not dispute the fact that the accounting treatment for amortization is in conformity with the guidelines of Reserve Bank of India. The AO went by the fact that for the purpose of Income Tax Return all securities of the bank are held as trading stock and full depreciation on securities held as trading stock as marked to market on 31st March 2008 has been allowed as per the investment trading account submitted along with the return of income. It was argued that the AO was under impression that full purchase consideration of all the securities was included in the said investment trading account and amortization amount is charged separately in the Profit and Loss Account held that the claim of the Assessee cannot be allowed in computation of total income of the bank. It was contended that premium paid at the time of purchase of investments was not show as purchase cost of the investment and it has always been the consistent practice of the Assessee that premium paid on purchase of investments is amortized and claimed as a deduction separately over the life of the investments in the profit and loss account and this practice is followed by all nationalized banks. It was pointed out that it can be seen from the details of the investment trading account filed by the Assessee that the premium in respect of purchase of investments under HTM category has not been included. The Assessee also pointed out that the Ld. ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

On considering the above submissions, the learned CIT(A) deleted the addition made by the AO, observing as follows: “7. I have carefully considered the observations of the Assessing Officer in the assessment order, submissions of the appellant and the order of my learned predecessor i.e. Commissioner of Income-tax (Appeals)-VI, Kolkata. The Finance Act, 2012 has inserted an Explanation 3 under Sub-section 2 of Section ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Aggrieved by the order of the CIT(A), the revenue has raised ground No.1 & 2 before the Tribunal. We have heard the submission of the learned DR who relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A). ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

We have considered the rival submissions. The assessee while computing its total income claimed deduction under the head amortization of premium on purchase of securities held to maturity. The assessee in the course of its banking business, to meet the statutory liquidity ratio requirements prescribed by the RBI, has to make investments in Central and State Government securities. As per RBI directions such investments are classified into three categories as under :

Ground No.3 raised by the revenue reads as follows :- “3. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in entertaining and allowing the fresh claim of deduction u/s.80G in respect of donations of Rs.7,38,900/- made by the assessee relying on the judgement of Hon'ble Supreme Court in the case of Goetz (India) Ltd. -vs- CIT 284 ITR 323. “

The Assessing Officer disallowed an amount of Rs.7,38,9001- holding that the same was not claimed in the income tax return u/s 80G and 35AC of the Income-tax Act, 1961, by observing as follows:- "The assessee included a sum of Rs.7,38,900/- paid as donation under the head 'other expenditures '. The assessee bank did not clam deduction u/s 80G either in the original return or in the revised re{urn. During the course of hearing. the assessee bank has informed that the donation of Rs. 7,38,900/- comprises of donation to Kalyanam Karoti, Rs. 88,900/- donation to Urivi Vikram Charitable Trust of Rs. 2,50,000/-, donation to Lalaji Memorial Education Society and donation to the West Bengal National University of Juridical Sciences Rs. 2,00,0001-, In respect of donation to Urivi Vikram Charitable Trust, the assessee bank has claimed the amount as 100% deduction under section 35AC of the Income-tax Act as the donee institution is recognized under section 35AC. The submission of the assessee has been carefully considered. In view of the judgement of the Hon 'ble Supreme Court in the case of Goetze (India) Ltd Vs CIT 284 ITR 323 any new claim in respect to any deduction which is not made in the return of income cannot be allowed without filing a revised return. Deduction u/s 35AC or 80G cannot be allowed at this stage as the assessee has not made any such claim either in the original return or in the revised return. Accordingly, the donation of Rs. 7,38,900/- is added back. "

On appeal by the CIT(A) vide paragraph 11 of his order held that the deduction had been claimed by the Assessee at 100% not u/s.80G of the Act but as other expenses in the profit and loss account and therefore the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) will not apply to the case of the Assessee. The CIT(A) found that the deduction claimed was otherwise allowable and to the extent it was allowable, the AO was directed to allow the claim for deduction. In the grounds of appeal, the revenue does not dispute the fact that the ITA No.1199/Kol/2012 &1282/Kol/2012- Allahabad Bank A.Y.2008-09

Ground No.4 raised by the revenue reads as follows :- “4. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in reducing the addition of Rs.54,50,26,415/- made under clause (f) of Explanation 1 to Section 115JB to Rs.4,20,90,323/-.”

In view of the conclusions in ground no.6 raised by the assessee in its appeal that provision of section 115JB of the Act are not applicable in the nationalised bank, we are of the view that there is no merit in Ground No.4 raised by the revenue and the same is dismissed.

Ground No.5 raised by the revenue reads as follows :- “5. That on the facts and circumstances of the case, Ld. CIT(A) erred in law and on facts in allowing the deduction in respect of club membership fees of Rs.6,78,655/-

The Assessing Officer disallowed an amount of Rs.6,78,655/- paid to Saturday Club regarding renewal of membership subscription for 4 executives for five years. The Assessee submitted that the membership is not in the individual name but it is a corporate membership. The Assessee relied on the decision in the case of Willard India Ltd. vs. Deputy Commissioner Of Income Tax (2004) 87 TT J (Del) 102 wherein it was held that Subscription/membership fee of employees paid by assessee to clubs is allowable business expenditure observed as under:- "30. In ground No. 4 the assessee had challenged disallowance of a sum of Rs. 16,959 on account of payment made to clubs by way of subscription/membership fee for various employees of the company.

On appeal by the Assessee, the CIT(A) allowed the claim of the Assessee. The CIT(A) held that the membership in question was a corporate membership and the sum in question of Rs.6,78,655/- was paid to Saturday Club Ltd., for renewal of subscription for four executives for five years. The CIT(A) found that the membership is a corporate membership and not in the name of any individual and that the membership is to be allowed till the persons are in job and it will shift in the name of next executive on the superannuation of the earlier executive and was paid for renewal of membership for five years and has not been paid as initial capital membership fee. Taking note of these aspects, the CIT(A) allowed the claim for deduction, holding that the expenditure was revenue expenditure. 51. Aggrieved by the order of the CIT(A) the revenue has raised Ground No.5 before the Tribunal. We have heard the rival submissions. The following judicial pronouncements support the claim of the Assessee that the expenditure in question is revenue in nature. 1. COMMISSIONER OF INCOME TAX vs. INFOSYS TECHNOLOGIES LTD. 349 ITR 610 (Karn); wherein it was held that the amount paid by assessee—company towards subscription for obtaining corporate membership in club is allowable as revenue expenditure 2. CIT VS. THE SANDUR MANGANESE & IRON ORES LTD. ITA NO. 13 TO 24 /2002 DATED 21.3.2005; in which the Hon’ble Karnataka High Court agreed with the view expressed by the Hon’ble Gujarat High Court in the case of Gujarat State Corporation Ltd. Vs. CIT 209 ITR 649 (Guj.) that getting membership of sports club cannot be termed as capital expenditure but is allowable as revenue expenditure.

In the result the appeal of the assessee is partly allowed and the appeal of the revenue is dismissed. Order pronounced in the Court on 01.06.2016.