IDBI BANK LTD., MUMBAI V. ACIT (LTU)-2, MUMBAI

ITA 3423/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5588 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI
• Keywords: Business income; Business expenditure; Rule of consistency; Earning of tax free income; Retrospective amendment; Initiation of penalty proceedings; Bad and doubtful debts; TDS; Rule 8D; Set aside; Capital Gains
• Section: 14A; 115JB; 147; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, MU MBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3423/MUM/2018-(ASSESSMENT YEAR: 2008-09) ITA NO. 3424/MUM/2018-(ASSESSMENT YEAR: 2011-12) ITA NO. 3425/MUM/2018-(ASSESSMENT YEAR: 2012-13) ITA NO. 3426/MUM/2018-(ASSESSMENT YEAR: 2013-14) IDBI BANK LTD., IDBI TOWER, WTC COMPLEX, 22 ND FLOOR, TAXATION CELL, CUFFE PARADE, MUMBAI-400 005 PAN : AABCI 18842G VS DCIT-CENT. LARGE TAX UNIT, 29 TH FLOOR, CENTRE -1, WTC COMPLEX, CUFFE PARADE, MUMBAI-400 005 APPELLANT RESPONDEDNT ITA NO. 4041/MUM/2018-(ASSESSMENT YEAR: 2011-12) ITA NO. 4042/MUM/2018-(ASSESSMENT YEAR: 2012-13) ITA NO. 4043/MUM/2018-(ASSESSMENT YEAR: 2013-14) DCIT-CENT. LARGE TAX UNIT, 29 TH FLOOR, CENTRE -1, WTC COMPLEX, CUFFE PARADE, MUMBAI-400 005 VS IDBI BANK LTD., IDBI TOWER, WTC COMPLEX, 22 ND FLOOR, TAXATION CELL, CUFFE PARADE, MUMBAI-400 005 PAN : AABCI 18842G APPELLANT RESPONDEDNT ASSESSEE BY SHRI C. NARESH CA REVENUE BY SHRI AWUNGSHI CIT-DR DATE OF HEARING 29 .08.2019 DATE OF PRONOUNCEMENT 03 .09.2019 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 2 1. THIS GROUP OF SEVEN APPEALS ARE DIRECTED AGAINST TH E SEPARATE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2, MUMBAI, HER EINAFTER CALLED, LEARNED CIT(A) FOR ASSESSMENT YEARS (AYS) 2008-09, 2011-12 TO 2013-14, OUT OF WHICH THREE SET OF CROSS APPEALS 2011-12 TO 2013-14 AND SEVENTH APPEAL BY ASSESSEE FOR AY 2008-09. IN ALL APPEALS T HE PARTIES HAVE RAISED CERTAIN COMMON GROUNDS OF APPEALS, THEREFORE, ALL T HE APPEALS WERE CLUBBED, HEARD TOGETHER AND ARE DECIDED BY COMMON O RDER FOR THE SAKE OF BREVITY AND TO AVOID THE CONFLICTING DECISION. THE ASSESSEE IN ITS APPEAL FOR AY 2008-09 IN ITA NO. 3423/M/2018 HAS RAISED FOLLOW ING GROUNDS OF APPEAL: (1) VALIDITY OF THE REOPENING UNDER SECTION 147 OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3). (2) REOPENING UNDER SECTION 147 BASED ON THE RETROSPECT IVE AMENDMENT. (3) APPLICABILITY OF PROVISIONS OF SECTION 115JB OF TH E ACT. (4) ADDITION TO THE BOOKS PROFIT LOSS ON REVALUATION OF SECURITIES AND PROVISION MADE FOR BAD DEBT AND DOUBTFUL DEBTS WHICH IS REDUC ED FROM THE RESPECTIVE ASSET. 2. AT THE OUTSET OF HEARING THE LEARNED AUTHORISED REP RESENTATIVE (AR) FOR THE ASSESSEE SUBMITS THAT THE GROUNDS OF THE APPEAL RAI SED BY THE ASSESSEE ARE COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. ON THE VALIDITY OF THE REOPENING THE LD AR FOR THE ASSESSEE SUBMITS THAT NOTICE WAS ISSUED ON THE GROUND THAT THE AMOUNT OF RS.603.65 CRORE DE BITED TO THE PROFIT AND LOSS ACCOUNT AS PROVISIONS AND CONTINGENCES ARE U NASCERTAINED LIABILITIES ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 3 NOT ALLOWABLE AS PER EXPLANATION 1(C) TO SECTION 11 5JB (2). THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE REASONS FOR REO PENING ITSELF IS NOT CORRECT, THE ABOVE AMOUNTS REPRESENTS PROVISION MAD E FOR BAD AND DOUBTFUL DEBTS, LOSS ON REVALUATION OF INVESTMENTS AND OTHER ASSETS ETC.,. THE SAID AMOUNT WAS PROVIDED IN RESPECT OF ASSETS A ND NOT FOR ANY LIABILITY MUCH LESS AN UNASCERTAINED LIABILITY. THE ISSUE WHE THER A PROVISION MADE FOR ASSETS WILL BE COVERED UNDER EXPLANATION 1(C) W AS DECIDED BY HONBLE APEX COURT IN CASE OF HCL COMNET SYSTEM AND SERVICES LIMITED (305 ITR 409 SC) ON 23 SEPTEMBER 2008. THE LD. AR ASSESS EE, THEREFORE, SUBMITS THAT REOPENING BASED ON AN ISSUE WHICH HAS ALREADY BEEN SETTLED BY HONBLE SUPREME COURT, WAS WITHOUT JURISDICTION. THE LEARNED AR FURTHER SUBMITS THAT WHEN NO ADDITION WAS MADE IN T HE REASSESSMENT ORDER PASSED UNDER SECTION 147/143(3), ON THE BASIS OF RE ASONS GIVEN IN NOTICE UNDER SECTION 148, THE ENTIRE REOPENING FAILS. IN SUPPORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UPON THE DECI SION OF BOMBAY HIGH COURT IN CASE OF JET AIRWAYS (I) LIMITED (331 ITR 2 36 BOM). 3. ON MERITS THE LEARNED AR FOR THE ASSESSEE SUBMITS T HAT ON THE APPLICABILITY OF PROVISIONS OF SECTION 115JB, SIMILAR ISSUE WAS D ECIDED BY HONBLE BOMBAY HIGH COURT IN CASE OF UNION BANK OF INDIA IN ITA NO. 1196 OF 2013 DATED 16 TH APRIL 2019 AND BY MUMBAI TRIBUNAL IN ASSESSEES OW N ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 4 CASE FOR AY 2004-5 IN ITA NO. 2193/MUM/2013. ON THE OTHER ADDITION ON ACCOUNT OF BOOK PROFITS/ LOSS ON REVALUATION OF SECURITIES AND PROVISION MADE FOR BAD AND DOUBTFUL DEBTS WHICH IS REDUCED FR OM THE RESPECTIVE ASSETS, THE LEARNED AR SUBMITS THAT THIS ISSUE IS A LSO COVERED IN FAVOUR OF ASSESSEE BY DECISION OF GUJARAT HIGH COURT IN CASE OF VODAFONE ESSAR (GUJARAT) LTD (397 ITR 55). ACCORDINGLY, THE LD. AR FOR THE ASSESSEE SUBMITS THAT NEITHER THE REASSESSMENT ORDER IS VALI D NOR THE ADDITIONS MADE BY THE ASSESSING OFFICER ARE IN THE REASSESSMENT OR DER IS SUSTAINABLE AND THE ASSESSEE IS LIABLE TO SUCCEED ON THE VALIDITY O F REASSESSMENT AND ON MERIT AS WELL. 4. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESEN TATIVE (DR) FOR THE REVENUE AFTER GOING THROUGH THE CHART FURNISH BY LE ARNED AR OF THE ASSESSEE ON VARIOUS GROUNDS OF APPEAL AND THE SUBMI SSION MADE, WHICH WE HAVE RECORDED HEREINABOVE, SUBMITS THAT HE RELIE D UPON THE ORDER OF LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW, AS WELL AS THROUGH VARIOUS DECISIONS RELIED BY LEARNED AR OF THE ASSESSEE. FIR ST ADDITION AS RAISED IN GROUND NO.3 RELATES TO THE APPLICABILITY OF PROVISI ON OF SECTION 115JB. THE HONBLE BOMBAY HIGH COURT IN CIT VS UNION BANK OF INDIA (SUPRA) ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 5 HELD THAT PROVISIONS OF SECTION 115JB AS IT STOOD P RIOR TO ITS AMENDMENT BY VIRTUE OF FINANCE ACT, 2012, WOULD NOT BE APPLICABL E TO A BANKING COMPANY GOVERNED BY PROVISIONS OF BANKING REGULATIO N ACT, 1949. FURTHER, THIS BENCH OF TRIBUNAL IN ASSESSEES OWN C ASE FOR AY 2004-05 IN ITA NO. 2193/MUM/2013 TOOK THE SAME VIEW. THEREFORE , FOLLOWING THE PRINCIPLE OF CONSISTENCY THIS GROUND OF APPEAL IS A LLOWED IN FAVOUR OF ASSESSEE. 6. THE OTHER/ SECOND ADDITION AS ASSAILED IN GROUND NO .4 RELATES TO BOOK PROFITS LOSS ON REVALUATION OF SECURITIES AND PROVI SION MADE FOR BAD AND DOUBTFUL DEBTS WHICH ARE REDUCED FROM THE RESPECTIV E ASSETS. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS ALSO COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN CIT VS VODAFONE ESSAR (GUJARA T) LTD (SUPRA) WHEREIN IT IS HELD THAT PRIOR TO THE INTRODUCTION O F CLAUSE ( I ) TO THE EXPLANATION TO SECTION 115JB, AS HELD BY THE SUPREME COURT IN CASE OF HCL COMNET SYSTEMS & SERVICES LTD. (305 ITR 409 SC), THE THEN EXISTING CLAUSE ( C ) DID NOT COVER A CASE WHERE THE ASSESSEE MADE A PR OVISION FOR BAD OR DOUBTFUL DEBT. WITH INSERTION OF CLAUSE ( I ) TO THE EXPLANATION WITH RETROSPECTIVE EFFECT, ANY AMOUNT OR AMOUNTS SET ASI DE FOR PROVISION FOR DIMINUTION IN THE VALUE OF THE ASSET MADE BY THE AS SESSEE, WOULD BE ADDED BACK FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 1 15JB. HOWEVER, IF THIS ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 6 WAS NOT A MERE PROVISION MADE BY THE ASSESSEE BY ME RELY DEBITING THE PROFIT AND LOSS ACCOUNT AND CREDITING THE PROVISION FOR BAD AND DOUBTFUL DEBT, BUT BY SIMULTANEOUSLY OBLITERATING SUCH PROVI SION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM THE LOANS AND ADVANCES ON THE ASSET SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, A T THE END OF THE YEAR SHOWING THE LOANS AND ADVANCES ON THE ASSET ASIDE O F THE BALANCE SHEET AS NET OF THE PROVISION FOR BAD DEBT, IT WOULD AMOUNT TO A WRITE OFF AND SUCH ACTUAL WRITE OFF WOULD NOT BE HIT BY CLAUSE (I) OF THE EXPLANATION TO SECTION 115JB. CONSIDERING THE DECISION OF GUJARAT HIGH COURT IN VODAFONE ESSAR, WHICH IS BASED ON THE DECISION OF T HE HONBLE SUPREME COURT IN HCL COMET SYSTEM AND SERVICES LIMITED (SUP RA), THIS GROUND OF APPEAL IS ALSO ALLOWED IN FEWER OF ASSESSEE. 7. KEEPING IN VIEW FACT THAT WE HAVE ALLOWED THE GROUN DS OF APPEAL ON MERIT RELATED TO THE ADDITIONS MADE IN THE REASSESSMENT O RDER UNDER SECTION 143 (3) RWS 147 DATED 29 NOVEMBER 2013, THEREFORE, THE DISCUSSION ON THE GROUNDS RELATED TO THE VALIDITY OF REASSESSMENT ORD ER PASSED UNDER SECTION 147/143(3) HAVE BECOME ACADEMIC. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED . ITA NO. 3424/MUM/2018 BY ASSESSEE (AY 2011-12). 9. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEA LS: ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 7 (1) DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A : 1.1 THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN JUSTIF YING THE ACTION OF AO TO DISALLOW THE EXPENSES INVOKING THE PROVISIONS OF SE CTION14A FOR COMPUTATION OF INCOME UNDER NORMAL PROVISIONS AS WE LL AS UNDER SECTION 115 JB OF THE ACT. 1.2 THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE WORKED OUT UNDER RULE 8(2)(II) ON HIS OBSERVATION T HAT ALL INVESTMENTS IN THE BANK MAKES IN EARNING EXEMPT INCOME HAS TO BE T HOROUGHLY JUSTIFIED THAT THESE INVESTMENTS WERE MADE OUT OF INTEREST FR EE FUNDS, IS CONTRARY TO LAW BEING IN TOTAL DISREGARD TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN RELIANCE UTILITIES AND POWER VERSUS CIT AND HDFC BANK LTD VERSUS DCIT, AS PER WHICH THE INVESTMENTS ARE PRESUME TO H AVE BEEN MADE OUT OF INTEREST FREE FUNDS, IF SUCH FUNDS EXISTED AT THE T IME OF INVESTMENT. 1.3 THE LEARNED CIT(A) WAS GROSSLY IN ERROR IN GOING BY THE UNDERSTANDING THAT ALL THE FUNDS OF THE BANKS ARE INTEREST-BEARING, CO MING FROM THE DEPOSITS OR SALE OF BONDS. THE OBSERVATION TOTALLY IGNORED BY T HE SUBMISSION MADE BY THE ASSESSEE THAT AN AMOUNT OF 14567.58 CRORE WAS EXISTING WITH THE ASSESSEE IS INTEREST FREE FUNDS REPRESENTING THE SH ARE CAPITAL AND RESERVES WHICH ARE APPEARING IN THE PUBLISHED BALANCE SHEET. (2) EXPENSES FOR INCREASE IN PAID UP CAPITAL : 2.1 THE LD CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING THE DISALLOWANCES OF 3,12,85,258/- MADE BY AO AND ALSO REJECTING THE CL AIM OF AMORTIZATION IN TOTAL DISREGARD TO THE AMENDMENT TO SECTION 35D BRO UGHT BY THE FINANCE ACT, 2008 EXTENDING THE PROVISION OF SECTION 35D OF THE ACT, 1961 TO THE SERVICE SECTOR AND ALSO IGNORING THE FACT THAT SECT ORS LIKE BANK ALSO IMPLIES INCREASED BUSINESS ACTIVITY IN THE FORM OF INCREASE IN ADVANCE AND TO DEPOSITS, APART FROM THE PHYSICAL EXTENSION OF BRAN CH NETWORK ETC. (3) PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT-DIR ECTION FOR RELIEF SUBJECT TO VERIFICATION : 3.1 HAVING ACCEPTED THAT PROVISION FOR DIMINUTION I N VALUE OF INVESTMENT IS A REQUIREMENT AS PER RBI DIRECTION, THE INVESTMENTS A RE THE STOCK IN TRADE OF ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 8 THE BANK, THE PROFIT/LOSS ON SALE THEREOF IS ACCOUN TED FOR AS BUSINESS INCOME AND ACCORDINGLY THE DISALLOWANCE IS NOT CALLED FOR, THE LEARNED CIT(A) WAS NOT JUSTIFIED TO DIRECT INVESTIGATION TO BE CARRIED OUT BEFORE GRANTING RELIEF IN THE CASE OF THE BANK, WHOSE ACCOUNTS ARE AUDITED A DIFFERENT LEVELS INCLUDING BY THE STATUTORY AUDITORS TO ENSURE THAT THE RBI DIRECTIONS HAVE BEEN COMPLIED WITH. 3.2 THE INVESTIGATION IS TO BE CARRIED OUT AS DIREC TED BY LEARNED CIT(A) ARE NOT DIRECTLY RELEVANT TO THE ISSUE OF ALLOWABILITY OF T HE PROVISION AND CONCERN THE PROFIT/LOSS WHEN THESE SECURITIES ARE SOLD. THE LEARNED CIT(A) HAS FAILED TO TAKE INTO CONSIDERATION THE PRACTICAL PROBLEM IN VOLVED IN DIGGING RECORDS OF THE PERIOD OF DECADES BACK. (4) APPLICATION OF MAT PROVISIONS TO BANKS 4.1 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THAT PROVISIONS OF MAT ARE APPLICABLE TO IDBI BANK LTD FOR AY 2011 -12. 4.2 THE LEARNED CIT(A) WAS NOT LEGALLY JUSTIFIED IN DISAGREEING WITH THE DECISIONS OF THE TRIBUNALS, INCLUDING THE JURISDICT IONAL ITAT MUMBAI IN ASSESSEES OWN CASE, HOLDING THAT MAT PROVISIONS WE RE NOT APPLICABLE TO BANKS AND THEREBY IGNORING THE LEGAL SANCTITY OF TH E SYSTEM OF HIERARCHICAL JURISDICTION OF THE COUNTRY. (5) ADDITION TO BOOK PROFIT FOR PROVISION OF DIMINUTION IN THE VALUE OF INVESTMENT : 5.1THE LEARNED CIT(A) WAS NOT LEGALLY JUSTIFIED IN CONFIRMING ADDITION OF 190,39,69,186/-TO THE BOOK PROFIT COMPUTED UNDER TH E PROVISIONS OF SECTION 115 JB WITHOUT APPRECIATING THE REAL NATURE OF THE ENTRY WHICH REPRESENTED LOSS IN VALUE OF SECURITIES HELD AT THE STOCK IN TRADE ARISING OUT OF MARK TO MARKET VALUATION WHICH IS AN ACCEPTED ME THOD OF VALUATION OF STOCK IN BANKING. 5.2 THE LEARNED CIT(A) ERRED IN TREATING IT AS THE AMOUNT SET ASIDE AND THEREBY WITHIN THE SCOPE OF CLAUSE (I) OF EXPLANATION TO SE CTION 115 JB(2) IGNORING THE FACT THAT THIS IS A PRESENT LOSS AND NOT A PROV ISION FOR MEETING FUTURE LOSSES. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 9 5.3 IN CONFIRMING THE ADDITION, THE LEARNED CIT(A) IGNORED HIS OWN FINDING GIVEN WHILE CONSIDERING ITS ALLOWABILITY ON COMPUTA TION OF TAXABLE INCOME UNDER THE NORMAL PROVISIONS OF LAW WHEREIN THEY ACC EPTED THE PROVISION AS A METHOD OF REPRESENTING ACCOUNTS AS PER RBI GUIDEL INE. IT WAS ACCEPTED THAT WHENEVER SALE OF SUCH SECURITIES TAKE PLACE, T HE APPELLANT IS REFLECTING THE SAME AS BUSINESS INCOME/LOSS. (6) ADDITION TO BOOK PROFIT OF THE AMOUNT DISALLOWED UN DER SECTION 14A : 6.1 THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN CO NFIRMING THE ADDITION OF 102,44,25,790/-, BEING THE AMOUNT OF DISALLOWANCE U NDER SECTION 14A TOWARDS THE BOOK PROFIT COMPUTED FOR THE PURPOSE OF SECTION 115 JB IGNORING THE LEGAL POSITION THAT THE ADDITION PRES CRIBED UNDER EXPLANATION TO SECTION 115JB(2) IS OF ACTUAL AMOUNT DEBITED TO P&L ACCOUNT, WHEREAS THE DISALLOWANCE UNDER RULE 8D IS A NOTIONAL AMOUNT TO BE DISALLOWED IRRESPECTIVE OF ACTUAL EXPENSES INCURRED IN EARNING EXEMPT INCOME. 6.2 WHILE CONFIRMING THE ADDITION, THE LEARNED CIT( A) IGNORED THE DECISION OF SPECIAL BENCH OF ITAT DELHI IN CASE OF ACIT VERSUS VIREET INVESTMENT PRIVATE LIMITED ITA NO. 502/DELHI/2012 AND CO NO. 6 8/DELHI/2014 WHEREIN HONBLE TRIBUNAL FOLLOW THE DECISION OF DEL HI HIGH COURT IN CIT VS BHUSAN STEEL LIMITED (IT NO. 593 AND 494 OF 2015 ) HOLDING THAT COMPUTATION UNDER MAT PROVISIONS IS TO BE MADE WITH OUT RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D. THE LEARNED CIT(A) ALSO FAILED TO CONSIDER THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT VERSUS JSW ENGINEERING LTD (60 TA XMANN.COM 303) IN DECIDING THE ISSUE. (7) INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 OF THE ACT 1961 AS MANDATORY PROVISION WHICH IS LIKELY TO GIVE A WRONG MESSAGE ON FINALIZATION OF PENALTY PROCEEDINGS . 10. AT THE OUTSET OF HEARING THE LEARNED AR OF THE ASSE SSEE SUBMITS THAT ALL GROUNDS OF APPEAL RAISED BY ASSESSEE ARE COVERED IN FAVOUR OF ASSESSEE BY THE DECISIONS OF VARIOUS HIGH COURTS OR BY TRIBUNAL , EITHER IN ASSESSEES ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 10 OWN CASE OR CASES OF OTHER ASSESSEES / BANKS. THE LEARNED AR OF THE ASSESSEE FURNISHED THE DETAILS CHART ARE SHOWING TH E NARRATIONS OF GROUNDS OF APPEAL AND THE SUBMISSION IN RESPECT THEREOF ALO NG WITH THE CITATIONS OF VARIOUS DECISIONS OF SUPERIOR COURTS AND TRIBUNAL. 11. GROUND NO. 1 RELATES TO DISALLOWANCE UNDER SECTION 14A. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE LD. CIT-(A) CONFIR MED THE DISALLOWANCE MADE BY ASSESSING OFFICER UNDER RULE 8(2)(II) AND ( III) BUT RESTRICTED THE DISALLOWANCE MADE TO EXEMPT INCOME EARNED. THE LD A R FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS NOW COVERED BY THE DECIS ION OF HONBLE SUPREME COURT IN MAXOPP INVESTMENT P LTD VS CIT (9 1 TAXMANN.COM 154 SC), WHEREIN ITS IS HELD THAT HELD THAT INVESTM ENTS MADE BY A BANKING CONCERN ARE PART OF THE BUSINESS OR BANKING. THEREF ORE, THE INCOME ARISING FROM SUCH INVESTMENTS IS ATTRIBUTABLE TO BUSINESS O F BANKING FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND PROFESS ION'. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITS THAT NO DISALLOWANCE I S WARRANTED UNDER SECTION 14A AS HELD BY KOLKATA TRIBUNAL IN UCO BANK (ITA NO. 1615 /KOL/2016), DELHI TRIBUNAL IN CASE OF PUNJAB NATION AL BANK (ITA NO. 5481 /DEL/2014 AND NICE BOMBAY TRANSPORT (P) LTD RE PORTED VIDE (175 ITD 684). ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 11 12. IN WITHOUT PREJUDICE SUBMISSION, THE LEARNED AR SUB MITTED THAT NO DISALLOWANCE UNDER RULE 8D(2)(II) IS WARRANTED IN A SSESSEES CASES AS THE INTEREST FREE FUNDS OF 14567.58 CRORE ARE FAR EXCEED THE SECURITIES FROM WHICH TAX FREE INCOME WAS EARNED OF 1598.60 CRORE. IN SUPPORT OF HIS SUBMISSION THE LEARNED AR RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN CASE OF HDFC BANK (383 ITR 529) AND GUJARA T HIGH COURT IN SYNTAX INDUSTRIES LTD (82 TAXMANN.COM 171). IT WAS SUBMITTED THAT THE SLP FILED AGAINST THE ORDER OF GUJARAT HIGH COURT H AS BEEN DISMISSED BY HONBLE SUPREME COURT. 13. ON THE OTHER HEAD THE LEARNED DR FOR THE REVENUE AF TER GOING THROUGH DIGITAL FURNISHED IN THE CHART AND DECISION RELIED BY LEARNED AR OF THE ASSESSEE, SUBMITS THAT HE RELIED UPON THE ORDER OF LOWER AUTHORITIES. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND I WANT THROUGH THE ORDERS OF LOWER AUTHORITIES. DURING THE ASSESSM ENT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE CLAIMED EXEMPT INCO ME OF 94,50,57,908/- UNDER SECTION 10 OF THE ACT. THE ASSESSEE APPORTION ED 1% OF DIVIDEND INCOME TOWARDS ADMINISTRATIVE EXPENSES INCURRED FOR EARNING THIS EXEMPT INCOME. THE WORKING PROVIDED BY ASSESSEE WAS NOT AC CEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICER ASKED TO FURNISH THE DETAILS OF DIVIDEND INCOME EARNED AND EXPENSES INCURRED AS PER RULE 8D. THE ASSESSEE ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 12 FURNISHED ITS REPLY DATED 9 TH OF DECEMBER 2013. THE ASSESSEE IN ITS REPLY STATED THAT THE OWN FUNDS OF THE ASSESSEE ARE IN FA R EXCESS FOR MAKING INVESTMENT FOR EARNING EXEMPT INCOME, NO BORROWING ARE ATTRIBUTED TO EXEMPT INCOME, SECTION 14A AND RULE 8D ARE NOT APP LICABLE IN CASE OF ASSESSEE. THE SUBMISSION OF ASSESSEE WAS NOT ACCEPT ED BY ASSESSING OFFICER. THE ASSESSING OFFICER AFTER INVOKING THE P ROVISIONS OF SECTION 14A READ WITH RULE8D MADE A DISALLOWANCE OF 102,44,25,790/- AND ENHANCED THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIONS AS WELL AS INCOME COMPUTED UNDER SECTION 115JB. THE ASSESSI NG OFFICER WORKED OUT DISALLOWANCE UNDER RULE 8D(2)(I) AND COMPUTED D ISALLOWANCE OF 95,46,039/- @ 1% OF EXEMPT INCOME, RULE 8D(2)(II) O F 94,44,95,944/-, AND RULE 8D(2(III) 7,99,29,846/-. ON APPEAL BEFORE CIT(A) THE DISALLOWANCE UNDER RULE 8D(2)(I) WAS DELETED, HOWEV ER, OTHER DISALLOWANCE UNDER RULE 8D(2)(II) &(III) WAS SUSTAI NED. 15. THE HONBLE SUPREME COURT IN MAXOPP INVESTMENT P LT D (SUPRA) IN PARA 36 OF ITS DECISION OBSERVED THAT THERE IS YET ANOTH ER ASPECT WHICH STILL NEEDS TO BE LOOKED INTO. WHAT HAPPENS WHEN THE SHAR ES ARE HELD AS 'STOCK- IN-TRADE' AND NOT AS 'INVESTMENT', PARTICULARLY, BY THE BANKS? ON THIS SPECIFIC ASPECT, CBDT HAS ISSUED CIRCULAR NO. 18/20 15 DATED NOVEMBER 02, 2015. FURTHER IN PARA 37 THE HONBLE COURT FURT HER HELD THAT THIS ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 13 CIRCULAR TAKES NOTE OF THE JUDGMENT OF THIS COURT I N NAWANSHAHAR CASE WHEREIN IT IS HELD THAT INVESTMENTS MADE BY A BANKI NG CONCERN ARE PART OF THE BUSINESS OR BANKING. THEREFORE, THE INCOME ARIS ES FROM SUCH INVESTMENTS IS ATTRIBUTABLE TO BUSINESS OF BANKING FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND PROFESSION'. ON THAT BASIS, THE CIRCULAR CONTAINS THE DECISION OF THE BOARD THAT NO APPEAL W OULD BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT AND IF THE APPEALS ARE ALREADY FILED, THEY SHOULD BE WITHDRAWN. A READING OF THIS CIRCULAR WOULD MAKE IT CLEAR THAT THE ISSUE WAS AS TO WHETHER INCOME BY WA Y OF INTEREST ON SECURITIES SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES' OR IT IS TO FALL UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS AND PROFESSION'. THE BOARD, GOING BY THE DECISION O F THIS COURT IN NAWANSHAHAR CASE, CLARIFIED THAT IT HAS TO BE TREATED AS INCOME FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND P ROFESSION'. 16. THE COORDINATE BENCH OF KOLKATA TRIBUNAL IN UCO BAN K (SUPRA) AFTER FOLLOWING THE DECISION OF MAXOPP INVESTMENT P LTD ( SUPRA) ON SIMILAR SET OF FACTS PASSED THE FOLLOWING ORDER: 11. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTI ES, WE FIND THAT THE ISSUE INVOLVED IN THE REVENUE'S APPEAL IS SQUARELY COVERE D IN ASSESSEE'S FAVOUR BY THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS HDFC BANK LTD (383 ITR 529). IN THAT CASE ALSO THE ISSUE BEFORE THE ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 14 HON'BLE BOMBAY HIGH COURT WAS WHETHER ANY PART OF T HE INTEREST PAID BY THE BANK COULD BE DISALLOWED U/S 14A READ WITH RULE 8D(2)(II). ON APPEAL THIS TRIBUNAL AND THEREAFTER THE HON'BLE BOMBAY HIG H COURT HELD THAT SINCE THE BANK'S OWN FUNDS WERE SUBSTANTIALLY MORE THAN T HE COST OF INVESTMENTS YIELDING TAX FREE INCOME, NO PART OF THE INTEREST P AID WAS LIABLE FOR DISALLOWANCE. THE VIEW OF THE HON'BLE BOMBAY HIGH C OURT WAS FOLLOWED WITH APPROVAL BY THE JURISDICTIONAL CALCUTTA HIGH C OURT IN THE CASE OF CIT VS RASOI LTD (ITA NO. 109 OF 2016). 12. WE ALSO FIND MERIT IN THE ASSESSEE'S ALTERNATE CONTENTION THAT NO DISALLOWANCE OUT OF INTEREST PAID WAS WARRANTED BEC AUSE AFTER NETTING OFF INTEREST PAID AGAINST INTEREST RECEIVED, THE ASSESS EE HAD MADE NET INTEREST GAIN OF RS.3902.10 CRORES. THE HON'BLE GUJARAT HIGH COURT IN ITS RECENT JUDGMENT IN THE CASE OF PR. CIT VS NIRMA CREDIT & C APITAL PVT LTD (SUPRA) HAS HELD THAT THE EXPRESSION USED IN RULE 8D(2)(II) IS 'INTEREST EXPENDITURE' AND NOT 'INTEREST PAID' AND ACCORDINGLY THE EXPENDI TURE IN THIS CONTEXT MUST MEAN INTEREST PAID MINUS TAXABLE INTEREST EARNED. A PPLYING THE RATIO LAID DOWN IN THIS JUDGMENT TO THE FACTS OF THE PRESENT C ASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(APPEALS) DELETING THE I NTEREST DISALLOWANCE MADE UNDER RULE 8D(2)(II). 13. IN SO FAR AS DISALLOWANCE OF RS.2,90,37,490/- U NDER RULE 8D(2)(III) IS CONCERNED, WE FIND THAT BEFORE THE LOWER AUTHORITIE S THE ASSESSEE HAD RAISED THE PLEA THAT NO DISALLOWANCE U/S 14A WAS WARRANTED SINCE THE ASSESSEE WAS A DEALER IN SHARES ALTHOUGH IN ITS BALANCE SHEET, S HARES WERE DISCLOSED UNDER THE HEAD 'INVESTMENTS'. WE FIND THAT THE HON'BLE SU PREME COURT IN ITS RECENT JUDGMENT DATED 12.02.2018 IN THE CASE OF MAX OPP INVESTMENT LTD VS CIT (SUPRA) DID NOT UPHOLD THIS LINE OF ARGUMENT AN D HELD THAT EVEN IN THE CASE OF A DEALER IN SHARES, EARNING DIVIDEND INCOME FROM ITS STOCK-IN-TRADE, MAY EXPOSE HIS TO THE RIGORS OF SECTION 14A OF THE ACT. WE HOWEVER FIND MERIT IN THE LD. AR'S SUBMISSIONS THAT IN THE SAID JUDGMENT, THE HON'BLE SUPREME COURT ALSO EXTENSIVELY DEALT WITH THE REVEN UE'S APPEAL IN THE CASE ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 15 OF STATE BANK OF PATIALA ARISING FROM THE DECISION OF THE HON'BLE & HARYANA HIGH COURT REPORTED IN 391 ITR 218. IN THE SAID JUD GMENT THE HON'BLE PUNJAB & HARYANA HIGH COURT HAD TAKEN NOTE OF THE F ACT THAT THE BANKING COMPANIES IN THE COURSE OF CARRYING ON THEIR BANKIN G BUSINESS WERE REQUIRED TO HOLD SHARES & SECURITIES AND THE EXPENSES WERE I NCURRED IN CONNECTION WITH SUCH BANKING BUSINESS AND THE INCOME THEREFROM WAS ASSESSABLE UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS'. THE HON'BLE HIGH COURT HAD TAKEN NOTE OF THE BOARD'S CIRCULAR NO. 18 DATED 02.11.201 5 WHEREIN THE BOARD HAD DIRECTED THE AOS TO ASSESS THE INCOME DERIVED FROM SECURITIES HELD IN THE COURSE OF CARRYING ON BANKING BUSINESS UNDER THE HE AD 'PROFITS & GAINS OF BUSINESS' AND NOT UNDER THE HEAD 'OTHER SOURCES'. T HE HIGH COURT HAD ALSO TAKEN NOTE OF THE JUDGMENT OF THE HON'BLE SUPREME C OURT IN THE CASE OF CIT VS NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD (289 I TR 6).APPLYING THE RATIO IN THE SAID DECISION THE HON'BLE PUNJAB & HAR YANA HIGH COURT HELD THAT THE INVESTMENTS HELD BY THE ASSESSEE BANK WAS PART OF ITS BANKING BUSINESS AND INCOME ARISING FROM TRADING IN SECURIT IES WAS ATTRIBUTABLE TO BANKING BUSINESS OF THE ASSESSEE. THE HON'BLE PUNJA B & HARYANA HIGH COURT THEREFORE HELD THAT IN ASSESSING THE INCOME O F THE ASSESSEE ENGAGED IN BANKING BUSINESS, NO DISALLOWANCE U/S 14A WAS WARRA NTED BECAUSE IN SUCH CASES THE EXPENDITURE WAS INCURRED IN RELATION TO I TS BANKING BUSINESS AND NOT IN RELATION TO EARNING ANY TAX FREE INCOME. THE REVENUE'S APPEAL AGAINST THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT WAS DISMISSED BY THE HON'BLE SUPREME COURT. WE THEREFORE FIND THAT Q UA THE ASSESSEE IS ENGAGED IN THE BANKING BUSINESS, THE HON'BLE SUPREM E COURT UPHELD THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PR. CIT VS STATE BANK OF PATIALA (SUPRA) AS PER WHICH N O DISALLOWANCE U/S 14A IS PERMISSIBLE IN TERMS OF RULE 8D IN CASE OF ASSES SEES ENGAGED IN BANKING BUSINESS. RESPECTFULLY FOLLOWING THE JUDGMENT OF TH E SUPREME COURT IN CASE OF STATE BANK OF PATIALA (SUPRA), WE DIRECT THE LD. AO TO DELETE THE DISALLOWANCE OF RS.2,90,37,490/- MADE UNDER RULE 8D (2)(III). ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 16 17. IN VIEW OF THE AFORESAID DISCUSSION WE ARE OF THE V IEW THAT NO DISALLOWANCE UNDER 14A IS PERMISSIBLE IN TERMS OF R ULE 8D IN CASE OF ASSESSEE IS ENGAGED IN BANKING BUSINESS. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN CASE OF MAXOPP INVESTMENT LTD WE DIRECT THE LD. AO TO DELETE THE DISALLOWANCE OF RUL E 8D(2)(III ). SIMILARLY, NO DISALLOWANCE UNDER RULE 8D((2)(II) IS PERMISSIBL E AS THE RESERVE AND SURPLUS OF ASSESSEE WHICH IS A BANKING COMPANY, IS MORE THAN THE INVESTMENT MADE FOR EARNING EXEMPT INCOME. THEREFOR E, THE ASSESSING OFFICER IS ALSO DIRECTED TO DELETE THE DISALLOWANCE OF RULE 8D(II). 18. IN THE RESULT GROUND NO. 1 OF THE APPEAL IS ALLOWED . 19. GROUND NO. 2 RELATES TO EXPENSES INCURRED FOR INCRE ASE IN CAPITAL ALLOWABLE UNDER SECTION 35D. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT CLAIM OF ASSESSEE WAS NOT ALLOWABLE THE REASONS THA T ASSESSEE HAD NOT ESTABLISHED THAT THERE WAS EXTENSION OF UNDERTAKING OR SETTING UP OF NEW UNIT. THE ASSESSEE SUBMITS THAT AS EVIDENT FROM ANN UAL REPORT, ADDITIONS WERE MADE TO BRANCHES, ATM AND RETAIL ASSET CENTERS WHICH PROVES THAT THERE WAS EXTENSION OF UNDERTAKING/SETTING UP OF NE W UNITS AND ACCORDINGLY, DEDUCTION CLAIMED SHOULD HAVE BEEN ALL OWED. THE LEARNED AR OF THE ASSESSEE ALSO FURNISHED A COPY OF RELEVAN T PAGES OF ANNUAL REPORT SHOWING THE ADDITIONS OF 107 BRANCHES DURING THE FINANCIAL YEAR ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 17 2010-11 INCLUDING SPECIALIZED CORPORATE BRANCHES, T HEREBY TOTAL NO. OF DOMESTIC BRANCHES INCREASED UP TO 815 AS ON 31 MARC H 2011. FURTHER, 169 ATMS AT KEY LOCATIONS TO IMPROVE THE GROWING CLIEN T IS ADDED THEREBY MAKING TOTAL ATMS TO 1370 AS ON 31 MARCH 2011. FURT HER, 9 NEW RETAIL ASSET CENTRES DURING THE YEAR WERE ADDED. ACCORDIN GLY, THE LEARNED AR OF THE ASSESSEE WOULD SUBMIT THAT THE EXPENSES INCU RRED BY ASSESSEE IN SETTING UP OF NEW UNITS (BRANCHES/ ATMS AND RETAIL ASSES) ARE ALLOWABLE UNDER SECTION 35D OF THE ACT. 20. ON THE OTHER HAND THE LEARNED AR FOR THE REVENUE SU PPORTED THE FINDING OF LOWER AUTHORITIES. 21. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IN THE RETURN OF INCOME T HE ASSESSEE CLAIMED EXPENSES OF RS.3,12,85,258/- INCURRED IN CONNECTION WITH INCREASE IN PAID UP CAPITAL. THE ASSESSEE CLAIMED THE EXPENDITURE AS REVENUE IN NATURE. THE ASSESSEE FURNISHED THE FOLLOWING BREAKUP OF THE EXP ENSES: SL NO. PARTICULARS EXPENSES IN RS. 1 PROCESSING FEES TO CSDL 11,030/- 2 STAMP DUTY 3,11,90,400/- 3 PROCESSING FEES TO NSE 27,575/- 4 PROCESSING FEES TO BSE 55,150/- 5 CORPORATE ACTION FEES 1,103/- TOTAL 3,12,85,258/- ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 18 22. IN WITHOUT PREJUDICE AND ALTERNATIVE SUBMISSION, TH E ASSESSEE CLAIMED THAT IF EXPENDITURE INCURRED IS PROPOSED TO BE DISALLOWE D, THEN THE PROPORTIONATE DEDUCTION UNDER SECTION 35D MAY BE AL LOWED. THE SUBMISSION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSIN G OFFICER. THE ASSESSING OFFICER HELD THAT CLAIM OF AMORTIZATION I S NOT ACCEPTABLE AS THERE IS NO EXTENSION OF UNDERTAKING OR SETTING UP A NEW UNIT WHICH IS NECESSARY CONDITION FOR AMORTIZATION OF SUCH EXPENSES. AN ALT ERNATIVE AND WITHOUT PREJUDICE CLAIM OF ASSESSING UNDER SECTION 35D, THE ASSESSING OFFICER CONCLUDED THAT THERE MUST BE EXTENSION OF UNDERTAKI NG OR SETTING UP OF A NEW UNIT. THE ASSESSEE HAS NOT FURNISHED SUPPORTED DOCUMENTARY EVIDENCE TO SHOW THAT INCREASE IN PAID A SHARE CAPITAL WERE FOR EXTENSION OF UNDERTAKING OR SETTING UP OF NEW UNITS. BEFORE LEAR NED CIT(A) THE ASSESSEE FURNISHED THE DETAILS OF SETTING UP OF NEW UNITS WITH FACTUAL DATA. THE ASSESSEE ALSO STATED THAT THEY HAVE ADDED 107 N EW BRANCHES, 169 ATMS AND 9 RETAIL ASSET CENTERS. THE LEARNED CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER HOLDING THAT TO AVAIL T HE BENEFIT OF AMORTIZATION, THE ASSESSEE HAS TO SUBSTANTIATE WITH THE FACTUAL D ATA THAT NEW UNITS WERE ESTABLISHED, COST INCURRED TOWARDS THAT AND IF THE INFUSED SHARE CAPITAL HAVE BEEN DIVERTED FOR SUCH SETTING UP OF NEW UNITS . THE ASSESSEE HAS NOT BROUGHT OUT ANY SUCH INFORMATION EITHER AT THE TIME OF ASSESSMENT OR ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 19 DURING THE HEARING BEFORE HIM. BEFORE US THE LEARN ED AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THAT ALL THE EXPENSES INCURRED BY ASSESSEE AS EVIDENT FROM THE ANNUAL REPORTS, WHICH CLEARLY ESTA BLISHES THE FACTS THAT EXPENSES WERE INCURRED FOR SETTING UP OF NEW BRANCH , ATMS AND ASSET MANAGEMENT CENTERS. WE HAVE NOTED THAT THE LOWER AU THORITIES HAVE NOT DISPUTED THE ADDITION OF NEW ATMS, NEW BRANCHES AND RETAIL ASSET CENTRE. THE LOWER AUTHORITIES DENIED THE EXPENDITUR E ON THE GROUND THAT NO DOCUMENTARY EVIDENCES FURNISHED. CONSIDERING THE FACT THAT ALL DETAILS OF NEW ASSETS WHICH CONSIST OF ATMS, NO BRANCHES AN D RETAIL ASSET CENTRE ARE PART OF ANNUAL REPORT. THE ANNUAL REPORT IS PRE PARED BY STATUTORY AUDITORS. HENCE, WE ARE OF THE VIEW THAT THE ASSESS EE HAS ADDED NEW UNIT, HOWEVER FOR LIMITED PURPOSE, WE DEEM IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO VERIFY THE FACT S AND ALLOW NECESSARY RELIEF TO THE ASSESSEE IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT BEFORE PASSING THE ORDER THE ASSESSING OFFICER SHALL GRANT OPPORTUNITY TO THE ASSESSEE TO FURTHER SUBSTANTIATE ITS CLAIM AND TO A LLOW FILING FURTHER DETAILS ALONG WITH DOCUMENTARY EVIDENCE TO PROVE ITS CLAIM. 23. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 24. GROUND NO. 3 RELATES TO ALLOWABILITY OF DIMINUTION IN VALUE OF SECURITIES. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THIS GR OUND OF APPEAL IS ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 20 COVERED IN FAVOUR OF ASSESSEE BY VARIOUS DECISION O F SUPERIOR COURTS INCLUDING THE DECISION OF SUPREME COURT IN CASE OF UCO BANK (240 ITR 355), BOMBAY HIGH COURT IN CASE OF BANK OF BARODA ( 262 ITR 334 BOM), HDFC BANK (366 ITR 505 BOM) AND ALSO BY THE DECISIO N OF TRIBUNAL IN BANK OF INDIA VS ACIT IN ITA NO. 1013/MUM/2013 DATE D 27.08.2018. THE LEARNED AR FURTHER SUBMITS THAT THE LEARNED CIT (A) SHOULD HAVE DELETED THE DISALLOWANCE INSTEAD OF DIRECTING ASSES SING OFFICER TO VERIFY AND ALLOW. 25. ON THE OTHER HAND THE LEARNED AR FOR THE REVENUE SU BMITS THAT LEARNED CIT(A) HAVE ALREADY GRANTED RELIEF TO THE ASSESSEE, THEREFORE THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCES IN VERIFICATION OF F ACT AT THE END OF ASSESSING OFFICER. 26. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE PERUSED THE RECORD. IN THE RETURN OF INCOME THE ASSESSEE CL AIMED DEDUCTION OF 190,39,69,109/- TOWARDS DIMINUTION IN VALUE OF BUSI NESS ASSETS. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE A SSESSEE TO EXPLAIN THE ALLOWABILITY OF DIMINUTION IN VALUE OF BUSINESS ASS ETS. THE ASSESSEE FILED ITS REPLY DATED 6 TH FEBRUARY 2014. IN THE REPLY THE ASSESSEE STATED TH AT FOR THE PURPOSE OF INCOME TAX, CONSISTENTLY THE BANK HA S BEEN TREATING INVESTMENT IN EQUITY AND PREFERENCE SHARES AS CAPI TAL ASSETS AND OTHER ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 21 INVESTMENTS AS BUSINESS ASSETS. THE ACCOUNT FROM SALE OF EQUITY AND PREFERENTIAL SHARES HAS BEEN OFFERED TO TAX UNDER T HE HEAD CAPITAL GAINS. SIMILARLY, INCOME FROM SALES OF OTHER INVESTMENTS H AS BEEN OFFERED TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PR OFESSION. THIS HAS BEEN ACCEPTED IN THE ASSESSMENT OF THE BANK. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF DIMINUTION IN VALUE OF BUSINESS ASSETS OF 190,39,69,106/-. THE ASSESSEE ALSO FURNISHED THE D ETAILS OF BREAKUPS. THE ASSESSEE CLAIMED THAT DIMINUTION HAD ARISED IN ON ACCOUNT OF MARKING TO MARKET THE CLOSING BALANCE OF BUSINES S ASSETS. THE INCOME FROM SALE OF THESE BUSINESS ASSETS HAS BEEN OFFERED TO TAX AS BUSINESS INCOME. ACCORDINGLY, DIMINUTION OF VALUE OF BUSINE SS ASSETS OF 190,39,69,106/- RECOGNISED IN THE BOOKS OF ACCOUNT BE ALLOWED AS BUSINESS EXPENDITURE. THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER TOOK HIS V IEW THAT ASSESSEE HAS MADE PROVISION FOR DIMINUTION IN VALUE OF ASSETS WH ICH IS NOT ALLOWABLE EXPENDITURE AS PER INCOME TAX ACT. THE DETAILED FUR NISHED BY ASSESSEE SHOWS THAT IT IS PROVISION FOR DIMINUTION IN VALUE OF BUSINESS ASSETS PRIMARILY COMPRISES OF MARKED TO MARKET LOSSES. MAR KED TO MARKET IN SUBSTANCE A METHODOLOGY OF ASSESSING VALUE TO APPOR TION HELD IN A FINANCIAL INSTRUMENT BASED ON ITS MARKET PRICE ON T HE CLOSING DAY OF ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 22 ACCOUNTING OR REPORTING RECORD. THIS IS A CONCEPT U NDER WHICH FINANCIAL INSTRUMENT ARE VALUED AT MARKET RATE SO AS TO REPOR T THEIR ACTUAL VALUE ON THE REPORTING DATE. THE LEARNED ASSESSING OFFICER C ONCLUDE THAT SINCE THE LOSS TO MARKED TO MARKET BASIS HAS RESULTED IN RED UCTION OF BOOK PROFIT OF THE ASSESSEE, SUCH NOTIONAL LOSS IS CONTINGENT IN N ATURE AND CANNOT BE ALLOWED TO BE SET OFF AGAINST THE TAXABLE INCOME AN D THEREBY ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE LEARNED CIT(A) AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE CONCLUDED THAT THE ASSES SEE BANK ARE STATUTORILY BOUND TO MAINTAIN CERTAIN PART OF THEIR ASSET IN GO VERNMENT SECURITIES TO MEET WITH THE STATUTORY REQUIREMENT OF BANKING REGU LATION AND RBI GUIDELINES. THE BANKS CONTINUES TO TRADE IN GOVERNM ENT SECURITY FOR INVESTMENT PURPOSE AND TO MAXIMIZE THEIR PROFIT FRO M TIME TO TIME, THEY ARE REQUIRED TO CLASSIFY THEM AS INVESTMENT AND DIS CLOSE PROFIT ON SALES/INTEREST AS BUSINESS INCOME AND PROVIDE FOR T HE DIMINUTION IN VALUE OF SECURITIES WHICH ACCRUES DUE TO DECLARATION OF I NTEREST ON SECURITIES, AS ON THE LAST DAY OF FINANCIAL YEAR IN THE BOOKS OF A CCOUNT TO ARRIVE AT A TRUE PICTURE OF FINANCIAL STATE OF AFFAIR OF THE BANK. T HE LEARNED CIT (A) ACCEPTED THAT BANK PROVIDE FOR DIMINUTION OF VALUE AS ON LAST DAY OF FINANCIAL YEAR BY MAKING A PROVISION IN BOOKS AS TH ESE ARE HELD AS INVESTMENT IN BOOKS AND REVERSE THE ENTRIES NEXT YE AR OR THE SALE OF THE ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 23 GOVERNMENT SECURITIES FROM TIME TO TIME AND ACCORDI NGLY BOOK PROFIT ON SALE AND INTEREST ON SECURITIES AS ITS BUSINESS INC OME, THIS METHODOLOGY IS FOLLOWED FROM YEAR TO YEAR IN ALL BANKS AS PER RBI GUIDELINES. THE LEARNED CIT(A) ALSO ACCEPTED THIS PROVISION FOR DIMINUTION IN VALUE SECURITIES AS ON LAST DAY OF FINANCIAL YEAR REPRESENTS THE DIFFER ENCE BETWEEN THE PURCHASE PRICE OF THE STOCK OF SECURITIES ON THE DA TE OF PURCHASE AND MARKET VALUE OF THESE SECURITIES ON THE LAST DAY OF FINANCIAL YEAR, WHICH WOULD HAVE BEEN REFLECTED AT LOWER VALUE IF NORMAL SYSTEM OF ACCOUNTING OF THE STOCK AT MARKET PRICE IN THE PROFIT AND LOSS ACCOUNT FOR THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA UNDER BA NKING REGULATION ACT. THE LEARNED CIT(A) AFTER ACCEPTING LEGAL POSIT ION CONCLUDED THAT BASIC INFORMATION PROVIDED BY ASSESSEE REQUIRED THO ROUGH EXAMINATION OF FACT AND DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ASSESSEES CLAIM ON MERIT. 27. THE HONBLE BOMBAY HIGH COURT IN CIT VS BANK OF BA RODA (SUPRA) WHILE RELYING ON THE DECISION OF SUPREME COURT IN C ASE OF UCO BANK V. CIT [1999] 240 ITR 355/106 TAXMAN 601, HELD THAT W HERE THE MARKET VALUE OF SHARES AND SECURITIES HAD FALLEN BELOW THE COST BEFORE THE DATE OF VALUATION AND WHERE ON THE DATE OF VALUATION, THE M ARKET VALUE IS LESS THAN THE ACTUAL COST, THEN THE ASSESSEE WAS ENTITLED TO VALUE THE ARTICLES AT ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 24 MARKET PRICE AND THE ASSESSEE WAS ENTITLED TO CLAIM THE LOSS WHICH THE ASSESSEE WOULD PROBABLY INCUR AT THE TIME OF SALE O F SHARES AND SECURITIES. THAT, WHICHEVER METHOD THE ASSESSEE ADOPTS, IT SHOU LD DISCLOSE THE TRUE PICTURE OF PROFITS AND GAINS. THAT, FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BALANCE SHEET WAS REQUIRED TO BE MAI NTAINED IN THE STATUTORY FORM. HOWEVER, SUCH ENTRIES IN THE BALANCE SHEET WE RE NOT DECISIVE OR CONCLUSIVE. IN SUCH CASES IT WAS OPEN TO THE ITO AN D THE ASSESSEE TO ASCERTAIN TRUE AND PROPER INCOME, WHILE SUBMITTING INCOME-TAX RETURNS. FOR VALUING THE CLOSING STOCK, IT WAS OPEN TO THE A SSESSEE TO VALUE THE STOCK AT COST OR MARKET PRICE, WHICHEVER IS LOWER. WE HAVE NOTED THAT SIMILAR VIEW WAS TAKEN BY MUMBAI TRIBUNAL IN BANK O F INDIA VS ACT (SUPRA). 28. IN VIEW OF THE AFORESAID LEGAL POSITION WE ARE OF T HE VIEW THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE, HENCE, DIRECT TH E ASSESSING OFFICER TO DELETE THE DISALLOWANCE. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 29. GROUND NO. 5 RELATES TO APPLICABILITY OF PROVISION OF SECTION 115 JB. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF BOMBAY HIG H COURT IN CASE OF UNION BANK OF INDIA (ITA NO. 1196 OF 2013) DATED 16 APRIL 2019 AND BY ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 25 THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05 (ITA NO. 2193/MUM/2013). 30. ON THE OTHER HAND THE LEARNED AR FOR THE REVENUE SU PPORTED THE ORDER OF LOWER AUTHORITIES. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND THE VARIOUS DEC ISION RELIED BY LEARNED AR OF THE ASSESSEE. WE HAVE NOTED THAT THIS GROUND IS IDENTICAL TO THE GROUND NO. 3 OF APPEAL RAISED BY ASSESSEE IN APPEAL FOR AY 2008-09, WHICH WE HAVE ALLOWED, THEREFORE FOLLOWING THE PRIN CIPLE OF CONSISTENCY THIS GROUND OF APPEAL LEGAL ALSO ALLOWED WITH SIMIL AR DIRECTIONS. 32. GROUND NO. 5 RELATES TO ADDITION OF BOOK PROFIT ON REVALUATION OF SECURITIES AND GROUND NO. 6 RELATES TO ADDITION TO BOOK PROFIT OF DISALLOWANCE MADE UNDER SECTION 14A. CONSIDERING TH E FACT THAT WE HAVE ALLOWED THE RELIEF TO THE ASSESSEE ON DIMINUTION/RE VALUATION OF SECURITIES AND ON DISALLOWANCE UNDER SECTION 14A, THEREFORE TH E DISCUSSION ON THESE GROUNDS OF APPEAL HAVE BECOME ACADEMIC. 33. GROUND NO. 7 RELATES TO INITIATION OF PENALTY. THIS GROUND OF APPEAL IS PREMATURE AND THEREFORE, RESULTANTLY DISMISSED. 34. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 3425/MUM/2018 BY ASSESSEE FOR AY 2012-13. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 26 35. WE HAVE NOTED THAT THE ASSESSEE HAS RAISED IDENTICA L GROUNDS OF APPEAL, AS RAISED IN APPEAL FOR AY 2011 -12, THE FACTS OF THE YEAR UNDER CONSIDERATION IS ALSO SIMILAR, THEREFORE CONSIDERING THE PRINCIPL E OF CONSISTENCY ALL THE GROUNDS OF APPEAL RAISED BY ASSESSEE FOR THE YEAR U NDER CONSIDERATION ARE ALSO ALLOWED WITH SIMILAR DIRECTION. ITA NO. 3426/MUM/2018 BY ASSESSEE FOR AY 2013-14 36. WE HAVE NOTED THAT THE GROUND NO. 1 AND 2 OF THE AP PEAL FOR THIS YEAR IS IDENTICAL TO THE GROUND NO.1 & 2 AS RAISED IN APPEA L FOR AY 2011-12 AND 2012-13, WHICH WE HAVE ALLOWED, THEREFORE FOLLOWING THE PRINCIPLE OF CONSISTENCY ON SAME SET OF FACT THESE GROUNDS OF AP PEAL ARE ALLOWED WITH SIMILAR DIRECTIONS. 37. GROUND NO. 3 RELATES TO ADDITION TO BOOK PROFIT OF TAX ON NON-MONETARY PERQUISITES. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER AND THE LEARNED CIT-A CONSIDER THE AMOUNT O F TAX PAID ON BEHALF OF EMPLOYEES ON NON-MONETARY PERQUISITES AS AMOUNT OF INCOME TAX PAID OR PAYABLE AND PROVISION THEREFORE FOLLOWING UNDER EXPLANATION 1(A) TO SECTION 115 JB(2) WITHOUT APPRECIATING THE IT IS A PART OF EMPLOYEE COST FOR THE ASSESSEE AND CANNOT BE TREATED AS FALLING UNDER THE ABOVE EXPLANATION. IN SUPPORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UPON ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 27 THE DECISION OF MUMBAI TRIBUNAL IN CASE OF RASHTRIY A CHEMICAL AND FERTILIZER LTD (91 TAXMANN.COM 104). 38. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE RE LIED UPON THE ORDER OF LOWER AUTHORITIES. 39. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE ORDERS OF LOWER AUTHORITIES. DURING THE ASSESSMENT, FROM THE ASSESSING OFFICER FOUND THAT ASSESSEE WHILE COMPUTING INCOME UNDER NORMAL PROVISION ADDED BACK 8,21,24,338/- BEING TAXES ON NONMONETARY PERQUISITES TO EMPLOYEES UNDER SECTION 40 (A)(V), H OWEVER WHILE COMPUTING INCOME UNDER SECTION 115 JB THE SAME HAS NOT BEEN ADDED BACK TO THE BOOK PROFIT. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THIS AMOUNT SHOULD NOT BE ADDED BACK IN THE MAT INC OME COMPUTED UNDER SECTION 115 JB. ON WHICH NO TAX WAS DEDUCTED . THE ASSESSEE WAS ASKED TO GIVE DETAILS OF THE YEAR END PROVISION AND ALSO JUSTIFY ITS ALLOWABILITY. THE ASSESSEE FILED ITS REPLY WIDE REP LY DATED 20.10. 2016. THE ASSESSING OFFICER HAS EXTRACTED THE CONTENTS OF REPLY IN PARA 9.2 OF THE ASSESSMENT ORDER. THE ASSESSEE IN ITS REPLY BESIDES THE OTHER CONTENTION CONTENDED THAT THE PERQUISITES SHOULD NOT BE DISALL OWED UNDER THE MAT COMPUTATION, AS PER SECTION 40 (A) (V), THE AMOUNT OF TAX PAID BY EMPLOYERS ON PERQUISITES IS NOT ALLOWED AS BUSINESS EXPENSES UNDER ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 28 NORMAL PROVISIONS. THE SAID THE TIME OF COMPUTATION OF INCOME UNDER NORMAL PROVISION THIS AMOUNT IS BEDDED BACK IN THE PROFITS. THE ASSESSEE ALSO EXPLAINED THE PROVISION OF EXPLANATION 1 TO SU BSECTION 2 OF SECTION 115 JB. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICER CONCLUDED THAT EXPLANATION TO SECTION 115 JB SPECIFICALLY PROVIDES FOR INCREASED IN BOOK PROFIT BY THE AMOUNT OF INCOME TAX PAID, PAYABLE OR PROVISION MADE THEREOF. FURTHE R, SECTION 40(A)(V) OF THE ACT CLEARLY PROVIDES THAT THE TAX PAID BY THE E MPLOYER ON PERQUISITES TO THE EMPLOYEE IS NOT DEDUCTIBLE FROM THE INCOME O F THE EMPLOYER. THE ASSESSING OFFICER ALSO HAD THAT TAX ON PERQUISITE I S ALSO NOT TAXABLE IN THE HAND OF EMPLOYEES AS PER SECTION 10 (10 CC) OF THE ACT AND HENCE THE SAME CANNOT BE CONSTRUED AS AKIN TO TDS/ FRINGE BEN EFITS TAX AND ACCORDINGLY ADDED BACK TO THE MAT INCOME OF ASSESS EE. THE LEARNED CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER HO LDING THAT THE PROVISION OF SECTION 40(A)(V) CLEARLY PROVIDES THAT THE TAXES PAID BY THE EMPLOYER ON PERQUISITE TO THE EMPLOYEES IS NOT DEDU CTIBLE FROM THE INCOME OF AN EMPLOYER. THE ALTERNATIVE ACTION UNDER SECTION 10(10 CC) WAS ALSO UPHELD. 40. THE LEARNED AR OF THE ASSESSEE VEHEMENTLY RELIED U PON THE DECISION OF COORDINATE BENCH OF TRIBUNAL IN RASHTRIYA CHEMICAL AND FERTILIZERS LTD. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 29 (SUPRA) WHEREIN ON SIMILAR GROUND OF APPEAL THE COO RDINATE BENCH HELD THE TAXES BORNE BY THE ASSESSEE ON NON-MONETARY PERQUIS ITES PROVIDED TO EMPLOYEES FORMS PART OF EMPLOYEE BENEFIT COST AND AKIN TO FRINGE BENEFIT TAX SINCE THEY ARE CERTAINLY NOT 'BELOW THE LINE' ITEM S SINCE THE SAME ARE EXPRESSIVELY DISALLOWED UNDER SECTION 40( A )( V ), THE SAME DO NOT CONSTITUTE INCOME TAX FOR THE ASSESSEE IN TERMS OF EXPLANATION -2. THEREFORE, WITHOUT THERE BEING ANY CORRESPONDING AMENDMENT IN THE DEFI NITION OF INCOME TAX AS PROVIDED IN EXPLANATION-2 TO SECTION 115JB, FRINGE BENEFIT TAX W AS NOT REQUIRED TO BE ADDED BACK WHILE ARRIVING AT BOOK PROFITS U/S. 115JB. IN OUR VIEW THE RATIO OF THE DECISION IS SQUARELY APPL ICABLE ON THE FACTS OF THE PRESENT CASE. 41. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 42. GROUND NO. 5 RELATES TO ADDITION TO BOOK PROFITS TH E DISALLOWANCE MADE UNDER SECTION 14A. WE ARE NOTED THAT THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO. 6 IN APPEAL FOR AY 2011- 12, WHICH W E HAVE ALLOWED THEREFORE CONSIDERING OUR DECISION ON SIMILAR SET O F FACT THIS GROUND OF APPEAL IS ALLOWED WITH SIMILAR DIRECTION. 43. GROUND NO. 6 RELATES TO INITIATION OF PENALTY. THIS GROUND OF APPEAL IS PREMATURE AND NEEDS NO ADJUDICATION, RESULTANTLY DI SMISSED. 44. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 30 ITA NO. 4041/MUM/2018 BY REVENUE FOR AY 2011-12 . 45. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE SUO MOTO DISAL LOWANCE MADE BY ASSESSEE, WHEN RULE 8D(2)(I) OF THE INCOME TAX RULE S 1962, CLEARLY WARRANTS THE DISALLOWANCE OF SUCH DIRECT EXPENSES W HILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT-A ERRED IN RESTRICTING THE DISALLOWANC E MADE UNDER SECTION 14A RWR RULE 8D TO THE EXTENT OF EXEMPT INCOME, WHE N NO SUCH PROVISION EXIST IN RULE8D OF THE INCOME TAX RULES 1962. (2) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LEARNED CIT-A ERRED IN DELETING THE SUO MOTO DISALLOWANCE M ADE BY ASSESSEE, WHEN RULE8D2 (I) OF THE INCOME TAX RULES 1962 AND C LEARLY WARRANTS THE DISALLOWANCE OF SUCH DIRECT EXPENSES WHILE COMPUTIN G THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D UNDER MAT PROVI SION. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT-A ERRED IN RESTRICTING THE DISALLOWANCE MADE UNDER SE CTION 14A R.W. RULE 8D(2) TO THE EXTENT OF EXEMPT INCOME, WHEN NO SUCH PROVISION OF JUST IN RULE8D OF INCOME TAX RULE , 1962 UNDER MAT PROVISIO NS. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF ASSESSING OFFICER RESTORED . 46. WE HAVE NOTED THAT THE ASSESSEE HAS CHALLENGED THE DELETION OF DISALLOWANCE UNDER CLAUSE (I) OF RULE 8D(2) AND ALS O IN RESTRICTING THE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2) TO TH E EXTENT OF EXEMPT INCOME. WHILE DISCUSSING THE CORRESPONDING GROUNDS OF APPEAL IN CROSS APPEAL OF THE ASSESSEE WE HAVE NOTED THAT NO DISALL OWANCE U/S 14A WAS ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 31 WARRANTED IN CASE OF ASSESSEE BEING ENGAGED IN BANK ING BUSINESS. WE HAVE FURTHER NOTED THE HON'BLE SUPREME COURT IN MAX OPP INVESTMENT P LTD (SUPRA) UPHELD THE JUDGMENT OF THE HON'BLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF PR. CIT VS STATE BANK OF PATIA LA (SUPRA), WHEREIN IT WAS HELD THAT NO DISALLOWANCE U/S 14A IS PERMISSIBL E IN TERMS OF RULE 8D IN CASE OF ASSESSEE IS ENGAGED IN BANKING BUSINESS. SIMILAR VIEW WAS TAKEN BY THE COORDINATE BENCH OF THE KOLKATA TRIBUN AL IN UCO BANK (SUPRA). THEREFORE IN VIEW OF AFORESAID LEGAL DISCU SSION, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY REVENUE . 47. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 4042/MUM/2018 BY REVENUE FOR AY 2012-13. 48. THE REVENUE HAS RAISED IDENTICAL GROUND OF APPEAL A S RAISED IN APPEAL FOR ASSESSMENT YEAR 2011-12, WHICH WE ARE DISMISSED. NO VARIOUS IN THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE BROUGHT TO OUR NOTICE. THEREFORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY THE GROUNDS OF APPEAL RAISED BY REVENUE IN THE YEAR UNDER CONSIDERATION ARE ALSO DI SMISSED WITH SIMILAR DIRECTIONS. ITA NO. 4043/MUM/2018 BY REVENUE FOR AY 2013-14. 49. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 32 (1) DELETING THE SUO MOTO DISALLOWANCE UNDER SECTION 14A AND FURTHER RESTRIC TING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME . (2) DELETING THE DISALLOWANCE OF 65,77,57,062/- ON ACCOUNT OF PROVISIONS FOR EXPENSES ON WHICH TDS WAS NOT DEDUCTED UNDER SECTIO N 40(A)(IA). 50. WE HAVE NOTED THAT GROUND NO. 1 OF THE APPEAL IS ID ENTICAL TO THE GROUND NO. 1 & 2 IN THE APPEAL FOR AY 2012 -13, WHICH WE H AVE ALREADY DISMISSED. NO VARIATION OF FACT FOR THE YEAR UNDER CONSIDERATION IS BROUGHT TO NOTICE, THEREFORE, THIS GROUND OF APPEAL IS ALSO DISMISSED WITH SIMILAR DIRECTIONS. 51. GROUND NO. 2 RELATES TO DELETING THE DISALLOWANCE UNDER SECTION 40(A)(IA). THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE ASSESS EE IS A BANKING COMPANY AND FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG ON DUE BASIS. THE ASSESSEE MADE ESTIMATE OF SUCH LIABILITY FOR EX PENSES NOT ON ADHOC BASIS BUT ON REALISTIC BASIS EVALUATION TAKING INTO ACCOUNT THE PENDING AND THE PAST LIABILITY. SUCH OUTSTANDING EXPENSES WERE REVERSE IN THE SUBSEQUENT YEARS UPON RECEIPT OF BILLS AND DEDUCTIN G TAX WHEN THE LIABILITY CRYSTALLIZED ON RECEIPT OF INVOICES. ON THE QUESTI ON OF TDS, THE LD AR SUBMITS THAT ACCOUNTING ENTRY WAS MADE BY CREATING A PROVISION FOR SUCH EXPENSES, THE FACT REMAIN THAT CREDITOR WAS NOT KNO WN AND IN MOST OF THE CASES RECEIVER IS NOT IDENTIFIABLE. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 33 52. ON THE OTHER HAND THE LD. DR FOR THE REVENUE RELIE D ON THE ORDER OF THE LOWER AUTHORITIES. 53. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE ASS ESSMENT THE ASSESSING OFFICER FROM THE TAX AUDIT REPORT NOTED THAT THE AS SESSEE HAS MADE PROVISION FOR EXPENSES ON WHICH NO TAX WAS DEDUCTED . THE ASSESSEE WAS ASKED TO JUSTIFY ITS ALLOWABILITY. THE ASSESSEE FIL ED ITS REPLY DATED 08.12.2016 AND AGAIN ON 22.12.2016. IN THE REPLY TH E ASSESSEE STATES THAT THE ASSESSEE HAS MADE A PROVISION OF EXPENSES OF RS . 65,77,57,062/-. THE PROVISIONS WERE MADE FOR THOSE BILLS WHICH WERE NOT RECEIVED AND WHICH ARE SUBJECT TO REVERSAL IN THE SUBSEQUENT YEAR UPON FINAL BILLS AND THEREFORE NO TDS WAS MADE. THE PROVISIONS WERE MADE ONLY FOR THE PURPOSE PREPARATION OF ANNUAL FINANCIAL STATEMENT IN ACCORD ANCE WITH ACCOUNTING SLANDERED. THE REPLY OF THE ASSESSEE IS EXTRACTED I N VERBATIM BY ASSESSING OFFICER IN PARA 4 OF HIS ORDER. THE REPLY OF THE AS SESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER CON CLUDED THAT AS PER SECTION 40(A)(IA), ANY EXPENSES ON WHICH TAX IS DED UCTABLE AT SOURCE UNDER THE RELEVANT PROVISION OF THE ACT, AND AS SUCH SAID TAX IS NOT DEDUCTED OR AFTER DEDUCTION NOT PAID, NO DEDUCTION CAN BE ALLOW ED FOR SUCH EXPENSES. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 34 54. BEFORE, LD CIT(A) THE ASSESSEE MADE SIMILAR SUBMIS SIONS AS MADE BEFORE US AND ALSO FURNISHED THE SUBMISSIONS IN WRITING. T HE LD CIT(A) AFTER APPRECIATING THE SUBMISSIONS OF THE ASSESSEE CONCLU DED THAT THE EXPENSES WERE RELATABLE TO THE PREVIOUS YEAR AND THEREFORE, TO BE PROVIDED UNDER MERCANTILE SYSTEM OF ACCOUNTING ON DUE BASIS, WHICH IS THE REQUIREMENT OF THIS SYSTEM OF ACCOUNTING TO TAKE IN TO ACCOUNT OF EXPENSES WHICH HAS BECOME DUE BUT COULD NOT BE PAID BY REASONS OF NON RECEIPT OF BILLS. IT WAS FURTHER CONCLUDED THAT THE TDS PROVISIONS ARE APPLI CABLE TO THE PAYEES WHO ARE CLEARLY IDENTIFIABLE BY THE ASSESSEE. THE TDS MADE HAS TO BE LINKED WITH PAN OF THE PAYEES. FURTHER THE PAYER HAS TO ISSUE A CERTIFICATE TO THAT EFFECT. THE PAYEES WERE NOT ID ENTIFIABLE AT THAT TIME. NO CONTRARY MATERIAL THAT THE ASSESSEE MADE SUCH LIABI LITY NOT ON ADHOC BASIS BUT A REALISTIC EVALUATION BASED ON THE PENDING PAS T LIABILITY. IT WAS FURTHER CONCLUDED THAT OUTSTANDING EXPENSES WERE RE VERSED IN THE SUBSEQUENT YEAR UPON RECEIPT OF BILL AND DEDUCTED T AX WHEN THE LIABILITY WAS CRYSTALLIZED ON RECEIPT OF BILL. THERE IS NO LO SS OF REVENUE IN SUCH CASES. ON THE BASIS OF THE ABOVE CONCLUSION THE LD CIT(A) DIRECTED TO DELETE THE DISALLOWANCES. NO CONTRARY FACTS OR MATE RIAL OR LAW IS BROUGHT TO OUR NOTICE TO TAKE OTHER VIEW. IN THE RESULT THI S GROUND OF APPEAL IS DISMISSED. ITA NO. 3423 TO 3426 & 4041TO 4043/M/18 IDBI BANK LTD (AYS 2008-09, 2011-12 TO 2013-14) 35 55. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 03.09.2019. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE : 03 SEPTEMBER, 2019 PS:SK COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI