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TMI Blog2025 (2) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... oth dated 30/09/2022. 2. Since, the appeals carry identical facts and issues, for the sake of convenience, they were clubbed together, heard together and are being disposed of by this consolidated order. ITA No. 2149/Mum/2024 is taken as lead case. The following are the grounds taken by the revenue: - ITA No. 2149/Mum/2024 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) erred in allowing the deduction claimed u/s 36(1)(viia) of the Act amounting to Rs. 1836,21,78,882/- without appreciating that this provision was made by the assessee for NPA as per RBI guidelines which cannot be equated with provision for bad and doubtful debts as required to be made as per the provisions of section 36(1)(viia)? (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) ought to have appreciated that the disallowance of the above provision was made by the AO based on the specific findings that the provision for NPA made by the assessee include the NPA cases relating to corporates and those located in Metro, Urban and semi urban areas and therefore did not satisfy the working as per Rule 6ABA? (iii) Whether on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting a sum of Rs. 4,27,73,538/- towards disallowance u/s 14A in computing the book profit u/s 115 JB of the Act?" (xii) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the Education Cess & Secondary & Higher Education Cess paid ignoring the fact that Explanation 3 to section 40(a)(ii) inserted by Finance Act, 2022 with effect from 1-4-2005 makes it clear that any surcharge or cess forms part of 'tax' and same cannot be allowed as deduction while computing profits and gains of business of assessee? 4. Brief facts of the case are that the assessee is a banking company. The original return of income was electronically filed on 12.02.2021 declaring total income as NIL under normal provisions after setting off losses of earlier years and Rs. 136,23,32,185/- under Section 115JB provision. Subsequently, the case was selected for Scrutiny under CASS and notice u/s 143(2) of the Act was issued. The Ld. AO had passed the order u/s 143(3) of the Act, after making following additions: (i) Disallowance u/s 36(1)(viia) of the Act Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omenclature of the provision, though referred to as NPAs, in essence and substance, constitutes a provision for bad and doubtful debts, as recognized by the Hon'ble Karnataka High Court. Accordingly, the revenue's grounds of appeal, Ground Nos. (i) to (iii) are dismissed. 7. Disallowance under section 14A 7.1 The Ld. AO made an addition of Rs. 4,27,73,538/- on the ground that the assessee had not allocated expenses related to the earning of exempt income as required under Section 14A of the Act read with Rule 8D of the Income Tax Rules 1962.The Ld. CIT(A) considered the submissions made by the assessee and found that the assessee had incurred efforts to earn the exempt income. Further, the Ld. CIT(A) noted that the shares in question were treated as stock-in-trade. The Ld. CIT(A) relied on the judgment of the Hon'ble Supreme Court in South Indian Bank Ltd vs CIT, 438 ITR 1 (SC) and the decision of the ITAT Hyderabad in the case of Andhra Bank vs. DCIT [2015 (5) TMI 478]. Additionally, the Ld. CIT(A) observed that in the assessee's own case for the A.Y. 2015-16, the issue was similarly decided in favor of the assessee. This decision was consistent with the ITAT Hyderabad Bench&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied solely on the judicial precedents and allowed the issue in favor of the assessee without duly considering the relevant facts. As per the ratio laid down by above cited case laws, the disallowance u/s 14A is required to be made, when the assessee has earned any exempt income. In the instant case, it is submitted that the interest free funds available with the assessee is more than the value of investments. In that case, no disallowance out of interest expenses is called for. However, disallowance may be called for from out of administrative expenses in terms of sec.14A of the Act. For this purpose, we are of the view that the assessee may be provided with an opportunity to present the relevant facts before the AO. Accordingly, we set aside the order passed by Ld CIT(A) and restore this issue to his file for examining this issue afresh. After providing adequate opportunity of being heard to the assessee, the AO may take appropriate decision. We also direct the assessee to present its working of expenses, if any, relating to exempt income. Accordingly, Ground No. (iv) the revenue's appeal is allowed for statistical purposes. 8. Deduction under section 36(1)(vii) of the Act 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of civil liability is prescribed and there is no criminal prosecution prescribed in respect of these violations. Under these circumstances, it is submitted that the penalty is not for infraction of any law and hence these are allowable deductions u/s 37. Therefore, the Appellant Bank submits that the addition of Rs. 25,00,000/- being disallowance u/s 37 be deleted." The Ld.CIT(A) considered the submission of the assessee and found that penalty is not sustainable as it is not against the infraction of law and same issue has already been taken care in the appeal order for A.Y. 2017-18 where the Ld.CIT(A) allowed the claim of the assessee. The Ld. CIT(A) followed the precedence in the earlier year and doctrine of consistency was followed. Further, the Ld.AR relied on the order in the case CIT vs M/s Stock & Bond Trading Co (2011) 10 TMI 172 (Bom) and the relevant of the said order is reproduced as below:- "1 Two questions of law raised by the Revenue in this Appeal read thus: A Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the additions made by the Assessing Officer under section 40(a)(ia) of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal; or conversion of equity on tracker and (c) discretionary pay out with existence of full coupon discretion. The issue was brought before the Ld.CIT(A). The Ld.CIT(A) considering the judicial precedence and relied on the order of the coordinate bench of ITAT Mumbai in ICICI Bank Ltd vs DCIT,2022 (12)TMI 1373 ITAT Mumbai the issue was squarely covered. Further, the same issue was decided in assessee's own case by the co-ordinate bench of ITAT, Mumbai Bench ITA Nos.1440,1819,1441 & 1818/Mum/2023, date of order 27/09/2024. Relevant paragraph is reproduced as below:- "Disallowance of interest paid on IPDI Bonds 7. The assessee has incurred interest expenditure of Rs. 100,89,00,000/- against issue of Innovative Perpetual Debt Instruments (IPDI) Bonds. The AO held that the said interest is not admissible as a deduction u/s 36(1)(iii) for the reason that the bonds are (a) Perpetual nature (b) High Loss Absorption Capacity - Provisions for write down of principal or conversion to equity on trigger (c) Discretionary pay out with existence of full coupon discretion. We heard the parties and perused the material on record. We notice that the Co-ordinate Bench in the case of DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant finding of the Tribunal (supra) is reproduced as under: Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr.CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives, we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 to 160 of the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 stating that it has issued 11.4% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and profession. In the light of the above facts and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual nonconvertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @11.40% along with redemption after the 10th year. These facts and submissions were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting this undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consider that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee. 16.3 Respectfully, following the finding of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Ld. A.O. to delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant change in law or facts. In this case, the Ld. CIT(A) and the ITAT Mumbai Bench have consistently upheld the deductibility of interest on IPDI in the assessee's earlier cases. There is no deviation in facts or legal principles in the current year, making the addition uncalled for. Considering the consistent judicial precedents and the principle of consistency, the addition of interest on IPDI under Section 36(1)(iii) of the Act is unwarranted. The view taken by the Ld. CIT(A) is upheld, as the interest expense on IPDI qualifies as a legitimate business expenditure. Accordingly, we dismiss the revenue's grounds on this issue and uphold the order of the CIT(A). Accordingly, ground No. (viii) of the revenue is rejected. 13. The issues raised in Ground Nos. (ix), (x), (xi), and (xii), which pertain to the applicability of Section 115JB, the addition to book profits by invoking Section 14A of the Act, and the allowability of education cess, are consequential in nature. Therefore, these grounds do not require separate adjudication. 13. Accordingly, the appeal of the revenue bearing ITA No. 2149/Mum/2024 is partly allowed. ITA No.1228/Mum/2024 14. All the grounds in this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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