TMI Blog2018 (1) TMI 1600X X X X Extracts X X X X X X X X Extracts X X X X ..... ning exempt income u/s. 10(15)(iv)(c) (f), 10(15)(iv)(h), 10(23G) and 10(33) by applying the provisions of section 14A r.w.r. 8D - HELD THAT:- Various propositions which have been raised by the assessee in the context of the disallowance under section 14A of the Act which require specific determination by the AO. Therefore, following the earlier precedent, the matter relating to section 14A is remanded back to the file of AO, with the directions to allow the assessee an opportunity to make submissions, and the AO shall pass a speaking order giving determination on each of the propositions as per law. Thus, with these directions, the matter is restored back to the file of AO to adjudicate afresh as per law. Hence, this ground of appeal is allowed for statistical purpose. Disallowance of depreciation on leased assets - HELD THAT:- In assessee s own case for AY 1996-97 wherein similar ground of appeal was decided against the assessee. Unearned interest on doubtful advances as per section 43D not allowed as a deduction - HELD THAT:- This ground of appeal is restored to the file of AO with similar direction as per order .[ 2016 (4) TMI 1392 - ITAT MUMBAI] TDS u/s 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision made on the basis of RBI guidelines does not become allowable for deduction in contravention of the provision of section 36(1)(viia). It is pertinent to note that when the claim of deduction specifically provided u/s 36(1)(viia) then the same cannot be allowed by applying any other provision. Accordingly, we do not find any merit or substance in the claim of the assessee. Hence dismissed. Disallowance of provision in respect of foreign offices - HELD THAT:- Considering the decision of Tribunal in assessee s own case for AY 1998-99, wherein similar ground of appeal has been restored to the file of AO, hence, this ground of appeal is also restored to file of AO to decide it afresh in accordance with law. Staff Welfare expenses on account of payments made to educational institution for reservation of seat to the children of employees - Allowable revenue expenditure - HELD THAT:- We find that both the revenue sources have treated this expenditure as opposed to the public policy, however, in our view the same cannot be a valid reason for disallowing the expenditure because this aspect does not come within the provision of IT Act 1961. We are further of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese cross appeal under section 253 of the Income-Tax Act ( The Act ) is directed against the order ld. CIT(A)-5, Mumbai dated 23.10.2010 for Assessment Year (AY) 1999-2000. The assessee has raised the following grounds of appeal: The appellant objects to the order of the Commissioner of Income-tax (Appeals) 5, Mumbai ( CIT(A) ) dated 23 March 2010 for the aforesaid assessment year on the following among other grounds: 1. The learned CIT(A) erred in confirming the addition of ₹ 7,98,63,710/- under the head Deferred Payment Guarantee Commission . The learned CIT(A) erred in not following the decision of the Calcutta High Court in the case of Bank of Tokyo Ltd. (71 Taxman 85). 2. The learned CIT(A) erred in confirming the disallowance of ₹ 10,13,45,532 in respect of depreciation on securities which had fallen due for redemption during year ended 31 March 1999 but redemption proceeds were not received. 3. The learned CIT(A) erred in confirming the disallowance of ₹ 38,89,011/- in respect of payments for scientific research. 4. The learned CIT(A) erred in upholding the action of the Assessing Officer in disallowing expenditure of ₹ 4,48,16,70,145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 10. The learned CIT(A) erred in upholding the action of the Assessing Officer of not allowing the provisions made by the appellant in respect of its foreign offices. 11. Each one of the above grounds of appeal is without prejudice to the other. The assessees vide its application dated 16.09.2016 raised following additional ground of appeal: The appellant objects to the order of the Commissioner of Income-tax (Appeals)-5, Mumbai [CIT(A)] dated 23 March 2010 for the aforesaid assessment year on the following among other grounds: 1. The appellant submits that it is 'entitled to a deduction for write off of bad debts under section 36(1)(vii) as per the judgment of the Supreme Court in the case of Vijaya Bank Limited (323 ITR 166). It is submitted that necessary directions may be given to the Assessing Officer to allow the claim of write-off bad debts. 2. The appellant submits that the recovery of bad debts written off should not be liable to tax under section 41 (4) as the appellant had not claimed a deduction under section 36(1)(vii), as held by the Bangalore Tribunal in the case of State Bank of Mysore (ITA No. 647/Bang 2008). It is submitted that necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the CIT(A) has erred in not considering that the claim of the assessee for excluding such income from the total income was inconsistent with the method of accounting followed by the assessee itself. 4. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition made by the Assessing Officer on account of interest on securities on accrual basis even though the assessee followed the mercantile system of accounting in accordance with the Banking Regulation Act. 3. Brief facts of the case are that the assessee is Nationalized Bank, filed its return of income for relevant Assessment Year (AY) on 30.12.1999 declaring total income of ₹ 860,81,77,400/-. The assessment was completed under section 143(3) on 04.02.2002. The Assessing Officer (AO) while completing assessment made a number of additions/disallowances as per para-18 of the assessment order. On appeal before the ld. Commissioner of Income Tax (Appeals) [(CIT(A)], the assessee was granted partial relief on certain additions/disallowances in the impugned order. Being aggrieved by the order of ld. CIT(A), the assessee as well as revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 3(c). Further he submitted that the claim of the assessee is to be allowed in view of the decision of the Calcutta High Court in the case of Bank of Tokyo Ltd. (71 Taxman 85), and the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (225 ITR 802) (SC). It was further submitted that these two decisions were not available at the time when the ITAT decided similar issue in the assessee's appeals relating to earlier Assessment Years i.e., 1978-79 to 1963-84. The ld. Departmental Representative on the other hand, supported the orders of the authorities below. 5.2 After hearing both the parties and going through the material on record and also the decisions relied upon by the assessee, we find that undisputedly the assessee is a banking company. The assessee is following the mercantile system of accounting and therefrom, income is eligible to tax upon accrual. The system of accounting followed by the assessee is bona fide. The assessee receives the commission for the entire period of the debt repayment that it guarantees at the time when the guarantee agreement is entered into. The assessee had consistently followe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of assessee. 7. Ground No. 2 relates to Disallowance of Depreciation on Matured Investments of ₹ 10,13,43,332/-. The ld. AR of the assessee conceded that this ground of appeal is covered against the assessee by the order of Tribunal in assessee s own case for AY 1996-97, 1997-98 1998-99. The ld. AR of the assessee submits that the copy of decision of Tribunal dated 26.07.2013 in ITA No. 5470/Mum/2002 and in ITA No. 3823 24/Mum/2005 for AY 1997-98 198-99 dated 29.04.2016 is placed on record. On going through the order of Tribunal referred above, the ld. DR for the Revenue submits that the similar issue has already been decided against the assessee. Hence, this ground may be dismissed. 8. We have considered the contention of the parties and have gone through the orders of authorities below. We have noted that similar ground of appeal has been dismissed by the Tribunal in assessee s own case, with the following order: 38. Additional Ground No. 2 is regarding depreciation on matured securities. The assessee has claimed a sum of ₹ 2,23,86,418/- towards depreciation of investments. The AO disallowed the claim of the assessee and the CIT(A) has confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the amount receivable on redemption of securities which had matured and become due for payment before the close of the accounting year. This ground therefore fails. 39. The findings of the CIT(A) is based the on the various decisions of the Hon'ble Supreme Court as well Jurisdiction High Court. No contrary decisions has been brought before us accordingly we do not find any error or illegality in the impugned order of CIT(A) qua this issue. The same is upheld. 9. Again in appeal for AY 1997-98 1998-99, the Tribunal by following the decision of AY 1996-97 dismissed the identical ground of appeal by passing the following order: 11.Next additional ground pertains to disallowance of depreciation on matured investments ₹ 18,35,53,508/-.The AR fairly conceded that the issue is covered against the assessee by the decision of the Tribunal in its own case for assessment year 1996-97 (para 38 39) in ITA No.5470/M/2002 which reads as under :- 38. Additional Ground No. 4 is regarding depreciation on matured securities. The assessee has claimed a sum of ₹ 2,23,86,418/- towards depreciation of investments. The AO disallowed the claim of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Molasses Co. Pvt.Ltd. vs. CIT 37 ITR 66 (SC) Ltd. vs. CIT 37 ITR 66 (SC) and Standard Mills Ltd. vs. CIT 37 ITR 66 (SC) Standard Mills Co. Ltd. Vs.CIT 229 ITR 366(Bom Co. Ltd. Vs.CIT 229 ITR 366(Bom) CIT 229 ITR 366(Bom). Hence, no such ad hoc deduction could be allowed against the amount receivable on redemption of securities which had matured and become due for payment before the close of the accounting year. This ground therefore fails. 39.The findings of the CIT(A) is based the on the various decisions of the Hon ble Supreme Court as well Jurisdiction High Court. No contrary decisions has been brought before us accordingly we do not find any error or illegality in the impugned order of CIT(A) qua this issue. The same is upheld. Respectfully following the above additional ground No.4 is decided against the assessee. 10. Thus, respectfully following the decision of Tribunal in assessee s own case for AY 1996-97, 1997-98 1998-99 in ITAs No. 5470/Mum/2002 and ITA No. 3823-3824/Mum/2002, this ground of appeal is dismissed. 11. Ground No. 3 relates to Disallowance of ₹ 38,89,011/- in respect of payments for Scientific Research. The ld. AR of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) by applying the provisions of section 14A r.w.r. 8D. The ld. AR of the assessee argued that the assessee is one of the leading Bank of the Country and having sufficient own funds. The loans granted and the investment made are out of own interest free funds available with the assessee s Bank. No disallowance in relation to interest expenses was warranted as own interest free fund are far exceeding investment. The assessee has placed on record the financial statement of the assessee s Bank as per page no. 286 to 361 of Paper Book. In support of this submission, the ld. AR of the assessee relied upon the decision of various Hon ble High Court viz; Bombay High Court in CIT vs. HDFC Bank Ltd. (383 ITR 529), CIT vs. HDFC Bank Ltd. (366 ITR 505), decision of Hon ble Delhi High Court in CIT vs. Tin Box Co. (260 ITR 367), Gujarat State Fertilizers Chemicals Ltd. (Tax Appeal No. 82 of 2013(Gujarat HC), UTI Bank Ltd. (32 taxmann.com 370) (Guj HC). It was further argued that Rule 8D is not applicable for AY 1999-2000. On this submission the ld. AR of the assessee relied upon the decision of Hon ble Bombay High Court in Godrej Boyce Manufacturing Company Ltd. vs. DCIT (2010) 328 ITR 81. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to Administrative Expenses may be calculated on the basis of certain percentage of exempted income as has been held in a number of decision by various Tribunal and Hon ble High Courts. Reliance was made in case of Cheminvest Limited vs. CIT (378 ITR 33), ACB India Ltd. vs. ACIT (374 ITR 108). The ld. AR further conceded that similar ground was restored to the file of AO in assessee s own case for AY 1996-97 1998-99. It was submitted that the AO despite direction of Tribunal passed a non-speaking order and no relief was granted. It was finally prayed that the Tribunal may issue appropriate directions while setting aside the matter following the earlier precedent. On the other hand, the ld. DR for the Revenue relied upon the order of authorities below. 15. We have considered the rival submission of the parties and have gone through the orders of authorities below. At the time of hearing, the ld. representative for the assessee pointed out that earlier AYs 1997-98 1998-99 vide its order dated 29.04.2016 (supra), the issue relating to the disallowance under section 14A of the Act was remanded back by the Tribunal to the file of AO. He conceded that the circumstances which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 1996-97 to 1998-99. 17. We have considered the submission of the parties and have gone through the order of authorities below and the orders passed by co-ordinate bench of Tribunal in assessee s own case for AY 1996-97 wherein similar ground of appeal was decided against the assessee. Again in the appeal for AY 1997-98 1998-99, the similar grounds of appeal was dismissed by following the decision of Tribunal in AY 1996-97 with the following order: 6. Next Ground of appeal is about disallowance of depreciation of ₹ 61.75 crores on leased assets. During the course of hearing before us, the AR fairly conceded that identical issue has been decided against the assessee by the Tribunal. While adjudicating appeal for AY.1996-97 dt.26.7.13 in ITA No.5470/Mum/2002 the Tribunal held as under : 15. Ground No. 8 is regarding depreciation on lease assets given to Konkan Railway Corporation Ltd. The assessee has entered into an agreement dated 30.3.1996 with Konkan Railway Corporation Ltd. for leasing transaction with respect to the asset of ₹ 25,00,00,000/-. The assets have been categorised as plant and machinery in the shape of Railway Tracks comprising of rails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the surroundings circumstances under which the transaction took place. Undisputedly in the case in hand the asset in question is the railway track which is already owned by the lessee Konkan Railway Corporation Ltd. (KRCL) but because of the requirement of funds the KRCL decided to raise the funds by making the arrangement of sale and lease back of the asset. Thus, the real object as far as KRCL is concerned for entering into the transaction of sale and lease back is to raise/arrange the funds. The two transaction of sale of the asset in question to the assessee bank and lease back cannot be separated as there was no choice with either of the party to restrict the transaction of sale alone independently because it was neither possible nor permissible to sell out the asset in question by the Konkan Railway Corporation being the integral part of their railway system which is the very basis of the existence of the KRCL. Thus, we have not doubt that the sale transaction in question is merely on paper and to facilitate the financial arrangement by the assessee to the KRCL without involving any real intention of transfer of the asset in question. Even otherwise the transfer of asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghout the term of this Agreement against loss or damage by accident, lighting, fire, flood, storm, earthquake, tempest, falling aircraft, malicious damage, riot, strike, civil commotion, explosion, implosion and where necessary against third party claims in respect of Equipment used in hazardous industries and those requiring environmental protection as also for other risks usually covered by insurance in the type of business for which the Equipment is for the time being used to the satisfaction of the Lessor upto the full replacement value thereof under a Comprehensive Policy of Insurance, in the joint names of the Lessor and the Lessee with an endorsement showing the Lessor as the owner and Loss payee. 8. Lessor s Interest and Title: The Lessee agrees and undertakes that it will- 8.1 ensure that in so far as the Equipment is installed in or affixed to any land or building, such Equipment shall be capable of being removed without material injury to the said land or building and that all such steps shall be taken as are necessary to prevent title to the Equipment from passion to the Owner/Lessor/Occupier of the said land or building: 8.2 Keep the Equipment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement or for storage, installation, or use thereof, or in respect of any premises in which the Equipment form time to time may be placed or kept and produce to the Lessor, on demand, the latest receipts for all such payments and in the event of the Lessee making default under this sub-clause the Lessor shall be at liberty to make all or any of such payments and to recover the amount thereof from the Lessee forthwith. 8.8 not claim any relief by way of any deduction, allowance or grant available to the Lessor as the owner of the Equipment, under the Income Tax Act, 1961 or under any other Statute, rule, regulation or guideline issued or that may be issued by the Government of India or any Statutory Authority and not do or omit to do or be done any act, deed or thing whereby the Lessor is deprived, whether wholly or partly of such relief by way of deduction, allowance or grant. The Lessee shall at the end of each financial year of the Lessor provide to the Lessor such information as it may require to claim relief by way of any deduction allowance or grant as the owner of the Equipment under the Income Tax Act, 1961 and the Lessee undertakes to comply with and observe at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and as if the Agreement had not been terminated to the end and intent that the Lessee shall pay to the Lessor not only arrears of instalments of lease rentals upto the date of termination of this Agreement but also such further instalments for the then unexpired residue of the term which the Lessee would have been bound to pay to the Lessor had this Agreement continued. 14. Redelivery/Repossession of Equipment: 14.1 Upon the expiration of this Agreement if the Lessee does not propose to renew the lease for further fixed period or secondary period the Lessee shall if required by the Lessor deliver the Equipment to the Lessor at the address of the Lessor stated in this Agreement or at such other addresses as the Lessor may specify or if not so required shall hold the Equipment in trust for the lessor so as to make it available to the Lessor for collection by itself or by its employees or agents; the Lessor or its employees or agents shall be entitled to retake possession of the Equipment and may for that purpose enter upon any land or building Lessor or its employees or agents to be situated and if the Equipment or any part thereof is affixed to such land or buildings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly installments. Even in the schedule to the lease agreement the period of 84 months is a fixed non-concealable period. As per clause 5 of the agreement the lessee is required to take out the insurance on the asset in question and also bear all the damages, loss and risk attached to the leased asset, therefore, it is agreement between the parties that all the risk and reward attach to the lease asset shall be born and enjoyed by the lessee. The so-called restrictions on the sale, creating charge, lien by the lessee are necessary being a security against the funds provided by the assessee to the lessee. Even otherwise in case of simple finance, the asset which is being financed is always kept as a security/mortgage with the bank to protect the interest of the bank till the repayment of the finance. Therefore, the restrictions provided in the lease agreement are only to secure the interest of the bank till the recovery of the full amount along with the interest. Some of the terms of the agreement appear to be only for sake of the conditions as to protect to the interest of the bank but the same could not be given effect in practical. For instance, in case of default if the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the rentals, which are nothing but the return of his investment with interest. d. Operating lease is cancellable, whereas tinance lease is always non- cancellable. In a case of finance lease, the lessor is interested in lease rentals and not the asset. e. In the case of an operating lease, substantial risks and rewards of ownership of the asset remain with the lessor, whereas in the case of finance lease these ab initio vest with the lessee. f. In the case of an operating lease, the fixation of lease rental bear no symmetry with the economic life of the asset and the possibility of the asset reverting back to the lessor can never be ruled out. However in the case of a finance lease, the lease period is ordinarily equal to the economic life of the asset and lease rentals are fixed in such a way so as to recover the investment with interest during the lease peiod itself. The possibility of the asset reverting back to the lessor is never there. g. In the case of an operating lease, the asset is ordinarily common use utility whereas in case of finance lease the asset is normally selected by the lessee himself so as to suit his particular requirements h. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent users so that the lessor may make available to one lessee after another. 5.23 Now let us try to find out the substance of the extant lease agreement as to whether it predominantly satisfies the conditions of an operating lease. On reading the lease agreement as a whole, we find that except for naming the lessor as owner at some places in the agreement and inserting certain cosmetic clauses to give the colour of operating lease, there is nothing in substance which satisfies the inherent requisites of operating lease. It can be observed that the lease is not cancellable prior to the expiry period of seven years. The cost of repairs and insurance is to be borne by the lessee. Sum total of the lease rentals by the lessee recoups the amount invested by the lessor plus interest. There is a clause that after the expiry of seven years period, the boiler will be sold to the lessee at predetermined value. It is the lessee who has to bear the loss due to obsolescence. All the risks and rewards vest with the lessee. When we consider the cumulative effect of all the factors for and against the operating lease, it can be easily found out that if one has to choose between the finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d issuing of letters of credit, traveller s cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; (b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a 1[managing agent or secretary and treasurer] of a company; (c) contracting for public and private loans and negotiating and issuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in sub-section (1). 25. As it is clear from the sub-section 2 that no banking company shall engaged in any form of business other than those referred in subsection 1 of section 6. However, as per circular dated 19.2.1994 the Reserve Bank of India has allowed the banking companies to undertake the activities of equipment leasing but the same should be treated on par with the loan and advances. Therefore, the activity of equipment leasing permitted by the RBI vide said circular is only in the nature of finance lease. The said circular has also been considered and discussed by the Special Bench in para 5.24-5.27 as under: 5.24 Our view is fortified by the RBI Circular No. FSCBC 18/24- 01-001/93-94 dated 14.02.1994 which inter alia deals with equipment leasing. It is needless to say that this circular is binding on the assessee bank. Para 1(i) of it provides that the activities like equipment leasing, hire purchase and factoring services should be undertaken only by certain selected branches of the Bank. Para 1 (ii) which is relevant for our purpose reads as under: (ii) These activities should be treated on par with loans and advances and should accordingly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is .impermissible to read para 1 (vi) of the Circular in isolation to support the contention that the RBI permits claiming depreciation on the leased assets. It is in fact not so because the Circular as a whole treats the activity of equipment leasing as that of loans and advances and the reference to full depreciation in para 1 (vi) should be read in juxtaposition to para 1(v) which talks of the second component of the lease rental being the replacement cost of the asset. When we read this Circular in entirety, there remains no doubt that the activity of equipment leasing has to be considered by a bank on par with the loans and advances. 5.26 In view of the above circular we do not find any scope for argument that the instant lease agreement be treated as that of operating lease. Since the loans and advances encompass finance lease, naturally such type of equipment leasing cannot be given any name other than the finance lease. Here it is relevant to note that the assessee claimed depreciation on leased asset and also showed full amount of lease rental as income in contravention of para 1(v) of the afore noted RBI ITA No. 5470/M/2002 State Bank of India . 36 Circular. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in para 2 of the said decision as under: 2. The assessee is a public limited company, classified by the Reserve Bank of India (RBI) as a non-banking finance company. It is engaged in the business of hire purchase, leasing and real estate etc. The vehicles, on which depreciation was claimed, are stated to have been purchased by the assessee against direct payment to the manufacturers. The assessee, as a part of its business, leased out these vehicles to its customers and thereafter, had no physical affiliation with the vehicles. In fact, lessees were registered as the owners of the vehicles, in the certificate of registration issued under the Motor Vehicles Act, 1988 (hereinafter referred to as the MV Act ). 28. Therefore the Hon ble Supreme Court has decided the issue in the case of non banking financial company which is engage in the business of leasing whereas in the case of bank it is not permitted under the Banking Regulation Act to engage in the business of leasing of equipments. Following the decision of Special Bench of this Tribunal in case of IndusInd Bank Ltd., we hold that the transaction in question is finance lease and not operating lease. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival submissions and perused the material before us. We find that the claim made by the assessee of double disallowance of the same amount has not been considered. Therefore, in the interest of justice we are reverting back the issue to the file of the AO to decide the issue afresh after affording reasonable opportunity of hearing to the aa.Gr.No.7 stands partly allowed in favour of the assessee. 21. Thus, considering the decision of co-ordinate bench, this ground of appeal is restored to the file of AO with similar direction as per order dated 29.04.2016 in ITA No. 3823/Mum/2005. In the result, this ground of appeal is allowed for statistical purpose. 22. Ground No.7 relates to disallowance of expenses incurred in connection with issue of Resurgent India Bonds u/s. 40(a)(i) on account of non-deduction of tax at source u/s.195.In this context, the relevant facts are that during the year under consideration, the assessee-bank launched foreign currency denominated Resurgent India Bonds Scheme (RIBS). It was noticed by the AO that in the P LA/c, the assessee-bank had claimed various expenses in connection with the issue of RIBs. The AO noted that a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-residents in question have any business operation in India. Therefore, in the said background, the ratio of the judgment of Hon ble Supreme Court in case of CIT vs. Toshoku Ltd. (supra) is clearly attracted which lays down that commission earned by non-resident for services rendered abroad could not be construed as incomes accrued or arisen in India. Thus, on this point itself, we are inclined to uphold the stand of the assessee and accordingly the disallowance made by lower authorities by invoking section 40(a)(i) of the Act is hereby set-aside. On this ground assessee succeeds. Hence, this ground of appeal is allowed. 25. Ground No.8 relates to disallowance of contribution to SBI Retired Employees Medical Benefit Fund of ₹ 10,00,00,000/-. The ld. AR of the assessee submitted that this ground of appeal is covered in favour of the assessee as similar ground of appeal was allowed by the Tribunal in assessee s own case for AY 1997-98 1998-99. The ld. DR conceded that similar ground of appeal was allowed by Tribunal in assessee s own case in earlier years, but relied on the order of the authorities below. 26. We have considered the submission of the parties and peruse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds to such Trusts by way of contribution, that in those cases the investment of the trust corpus was also left to the complete discretion of theTrustees, that to avoid hardship in the case where Trust/Funds had been set up wholly and exclusively for the welfare of the employees prior to 1.4.1984 sub section (10) was also inserted to section 40A.The Tribunal was of the opinion that provisions of section 40A(9) should not make any harm to the expenditure incurred bonafide, that the contribution by the assessee bank was not disputed by the AO, stating that the same was not bonafide, that the funds were not controlled by the assessee banks, that the bonafide contribution made by the assessee as an employer was not hit by section 9 of section 40A of the Act. In the case under consideration, there is no doubt about genuineness of payment nor it is the case of the AO or FAA that Trust was not bonafide or the expenditure was not incurred wholly and exclusively for the employees. Considering these facts of the case and following the judgment of State Bank of Travancore (supra), Ground No.9 is decided in favour of the assessee. 27. Thus, considering the decision of Tribunal in assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has claimed deduction for provision for bad and doubtful debts u/s 36(1)(viia) amounting to ₹ 5,63,32,54,326/-. The said provision was stated to be made on the basis of RBI guidelines. The AO allowed a sum of ₹ 5,36,21,32,507/- u/s 36(1)(viia) of the Income Tax Act. On appeal, the CIT(A) has confirmed the action of the AO and held that the entire amount cannot be allowed as deduction merely on the basis of RBI guidelines. Before us the Ld. AR of the assessee has relied upon the decision of Chennai Bench of this Tribunal in case of Overseas Sanmar Financial Ltd. Vs JCIT 86 ITD 602. On the other hand, the Ld. DR has relied upon the order of the authorities below and submitted that the provisions of statute will prevail over the RBI guidelines for the purpose of deduction u/s 36(1)(viia). 33. We have considered the rival submissions as well as relevant material on record. There is no dispute regarding the claim allowed by the AO is proper as per the provisions of section 36(1)(viia). When the allowable claim has been accepted by the AO under the provision of section 36(1)(viia) then merely the provision made on the basis of RBI guidelines does not become allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed for statistical purpose. 34. Additional Ground No.1 relates to write- off of bad debts u/s. 36(1)(vii), Additional Ground No.2 relates to recovered of bad-debts written off should not be liable to tax u/s 41(4) and Additional Ground No. 3 relates to income earned from foreign branches should not be liable to tax in India. The ld. AR of the assessee argued that all additional grounds of appeal are purely legal in nature, the failure to raise these additional ground initially were neither intentional nor deliberate and prayed for consideration of all additional grounds of appeal. It was further argued that additional ground no.1 is covered by the decision of Hon ble Supreme Court in Vijaya Bank vs. CIT(323 ITR 166), Ground No.2 is covered by the decision of Bangalore Tribunal in State Bank of Mysore vs. DCIT (33 SOT 7) (Bang.) and Ground No.3 is covered by the decision of Mumbai Tribunal in Bank of India vs. DCIT in ITA No. 2781/Mum/2011 and similar grounds of appeal was remanded back to the file of AO for fresh examination and adjudication by the Tribunal for AY 1996-97 vide order dated 03.01.2014 in M.A No. 371/M/2014. On the other hand, the ld. DR for the Revenue submits th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 254(2) of the Income Tax Act. Since these issues were raised for the first time and remitted to the record of the AO for examination and adjudication, therefore, we modify our finding on the additional grounds no. 1-3 in para 37 which reads as under:- 37. Additional ground no. 1-3 are raised first time by the assessee and involves legal issue. Though the assessee has relied upon the following decision in support of its claim ;- 1. Covered by the decision of the Supreme Court in the case of Vijaya Bank Vs. CIT (2010) 323 ITR 166 2. Covered by the decision of the Bangalore Tribunal in the case of State Bank of India Mysore Vs. DCIT (2009) 33 SOT 7 (BANG.) 3. Covered in favour of the appellant by the decision of the Mumbai bench of Tribunal in the case of Bank of India Vs. DCIT (ITA No. 2781/Mum/2011) However since the issue has not been examined by the AO, therefore, in the interest of justice we remit these grounds to the record of the Assessing Officer for fresh examination and adjudication after considering the decisions relied upon by the assessee as well as after giving opportunity of hearing to the assessee. 6. In the result, miscellaneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank was subject to frequent transfer, hence, to avoid difficulty to them in getting admission for their children in good educational institution, the assessee had made a policy to contribute to few institution for some seats in various cities and, therefore, the expenditure incurred on this account was allowable as staff welfare expenses. The ld. counsel contended that it was available to all officers of the bank and not merely to some officers of the rank as held by the AO. The ld counsel contended that in AY 1987-88, this issue arose before the tribunal and was decided against the assessee for the reasons that assessee did not furnished details of expenditure before the revenue authorities, however, in the present year, the details of payments were available and referred to the relevant pages of compilation. Accordingly, he contended that the aforesaid decision of the tribunal was not applicable for the year under consideration. The ld counsel, therefore, placed strong reliance on the decision of the Hon ble jurisdictional High Court in case of Mahindra Mahindra as reported in (261 ITR 501) where the assessee provided donation to an education Society which ran a school in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. Thus, this ground of the assessee stands accepted. 40. Thus, considering the order of coordinate bench in assessee s own case for 1992-93, which was followed by the Tribunal in appeal for AY 1995-96 in ITA No. 3403/M/1999 dated 19.09.2009 and for AY 1996-97 in ITA No 5470/M/2002 dated 26.07.2013 and allowed the similar ground of appeal. Thus, respectfully following the order of Tribunal the ground of appeal raised by the revenue is dismissed. 41. Ground No.2 relates to deleting the exchange Gain on repatriation GDR issue proceeds of ₹ 165,55,18,946/-. The ld. DR for the revenue filed a written synopsis on this ground. In the written synopsis the ld. DR contended that assessee bank created Global Depository receipt (GDR), but later on remitted GDR issue receipts for utilizing the same in India for business. Hence, at the time of issue of remittance of GDR issue proceeds whatever gain on account of exchange is there, it is the additional benefit, not because of appreciation of GDR kept ideally but, while remitting the same, this gain came into account, which is incidental to the business. Therefore, such exchange gain is to be regarded as revenue income of a bankin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in value has taken place in a capital asset or in a trading asset or in other words in fixed capital or circulating capital. It was further held by ld CIT (A) that GDR s form part of the share capital of the bank and are not in the nature of loan. The exchange gain has arisen on account of holding of GDR proceed and their subsequent repatriation to India. Accordingly, the exchange gain is capital in nature and not liable to tax. Moreover, the assessing officer has not disputed those facts that the money raised by way of GDR was raised against capital equity. Thus, we find that the ld CIT (A) allowed the ground of appeal after considering the fact that GDR proceeds are part of capital receipt. Hence, do not find any illegality or infirmity in the order passed by CIT (A). In the result this ground of appeal is dismissed 43. Ground No3 relates to deleting of disallowance of interest on securities. The ld. DR for the revenue relied upon the order of assessing officer. On the other hand the ld AR of the assessee argued that this ground of appeal is covered in favour of assessee is in assessee s own case for assessment year 1991-92 by the order of Tribunal dated 19th May 2008, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was pointed out that the interest that is offered to tax in the return of income has also been assessed to tax by the A.O. In order to verify the submission, we directed the assessee to furnish the relevant statements to us. These were filed along with a covering letter which was taken on record. We find that in the profit loss account the year ended 31.12.1987, interest on Govt. securities amounting to ₹ 138,06,30,075/-has been included in the credit side. However, in the computation of total income for income tax purposes, the interest has been reduced from the net profit and interest of ₹ 138,06,30,075/- has been included in the coupon date basis. In the assessment order for the A.Y. 1988-89, a copy of which was also filed before us. The Assessing Officer has accepted the above computation made by the assessee. With regard to the contention that the assessee cannot set up a claim in the return of income which is altogether different from the manner in which entries are made in its accounts, we may notice the judgment of the Supreme Court in the case of United Commercial Bank in 240 ITR 355(SC). While reversing the judgment of the Calcutta High Court reported ..... X X X X Extracts X X X X X X X X Extracts X X X X
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