STATE BANK OF MYSORE,BANGALORE V. JCIT, BANGALORE

ITA 660/BANG/2015

AI Insights

The case involves multiple appeals by the State Bank of India against the orders of the Deputy Commissioner of Income-tax, primarily concerning the assessment year 2010-11. The appeals addressed issues such as the addition of recoveries made out of bad debts written off, disallowance due to re-computation of deduction under section 36(1)(viia), and the classification of Automated Teller Machines (ATMs) and other computer peripherals for depreciation purposes. The Tribunal examined the arguments and evidence presented, including previous judgments and the application of specific sections of the Income-tax Act, 1961, to arrive at its decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714464 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2010-2011
• Other Referred Cases: State Bank of Mysore Vs. DCIT, Nectar Beverages (P.) Ltd. vs. DCIT, Bharat Earth Movers Vs. CIT, CIT vs. Sony India Pvt. Ltd., CIT vs. Kerala State Financial Enterprises Ltd., Lawkim Ltd. vs. JCIT, Persepolis Construction Co. Pvt. Ltd vs. ACIT, PCIT vs. Punjab and Sind. Bank, MUFG Bank Ltd. vs. ACIT, Union Bank of India vs. DCIT, Central Bank of India vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: P.C. CHHOTARAY; SPL. COUNSEL
• Assessee Lawyers: KETAN VED; NINAD PATADE
• Keywords: Opportunity of being heard; Business expenditure; Question of law; Bad and doubtful debts; Unexplained expenditure; Depreciation; Rule of consistency; TDS; Earning of tax free income; Deemed to accrue or arise in india; Rule 8D; Non-deduction of tax
• Section: 143(3); 32; 69C; 14A; 43B; 37(1); 40(a)(ia); 260A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No.660/Bang/2015 (Assessment Year: 2010-11) State Bank of India (Erstwhile State Bank of Mysore prior to merger) Local Head Office Compliance Department, 4th Floor, 65, St. Marks Road, Bangalore-560 001 PAN: AACCS0155P vs Joint Commissioner of Income-tax, Large Tax Payers Unit, Bangalore APPELLANT RESPONDENT ITA No.683/Bang/2015 (Assessment Year: 2010-11) Deputy Commissioner of Income-tax, LTU, Circle-1, Bangalore vs State Bank of Mysore Head Office, Finance & Accounts Department, KG Road, Bangalore- 560 009 PAN: AACCS0155P APPELLANT RESPONDENT Assessee by : Shri Ketan Ved & Ninad Patade Revenue by : Shri P.C. Chhotaray, Spl. Counsel Date of hearing : 15/07/2025 Date of pronouncement : 05/08/2025 Printed from counselvise.com 2 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore O R D E R Per Anikesh Banerjee (JM): The instant appeals of the assesse and the revenue were filed against the order of the Ld. Commissioner of Income-tax (Appeal)-14, LTU, Bangalore, [for brevity, the “Ld. CIT(A)”] order passed under section 250 of the Income-tax, 1961 [for brevity, the “Act”] date of order 27/02/2015 for assessment year 2010-11. The impugned order emanated from the order of the Learned Joint Commissioner of Income-tax, LTU, Bangalore [for brevity, the “Ld.AO”], passed under section 143(3), date of order 28/03/2013. 2. The assessee has raised the following grounds of appeal: - ITA No. 660/Bang/2015 “1. Addition on account of recoveries made out of bad debts written off but not offered as income Rs. 13,01,85,558/- a) The learned Commissioner of Income-tax (Appeals) [\"CIT(A)\"] erred in upholding the addition of the recoveries from bad debts written off in earlier years amounting to Rs. 13,01,85,558 under section 41(1) of the Income-tax Act, 1961 ('the Act'). b) The learned CIT(A) ought to have appreciated that the Appellant bank has not claimed bad debts written off to which recovery pertains as an allowable expenditure in its return of income in the past years. c) The learned CIT(A) ought to have appreciated that in order to tax the recovery of the bad debts under section 41(1) of the Act, the condition ought to be satisfied is that the said bad debts should have been claimed as deduction (in the year in which they were written off) from the taxable income of the bank. d) The learned CIT(A) erred in holding that the bad debts written off (to which the present recoveries pertain) have been enjoyed by the Appellant as an allowance or deduction in the past years. Printed from counselvise.com 3 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore e) The learned CIT(A) has erroneously held that the Appellant can be deemed to have claimed deduction of the bad debts write off under the Act, to the extent of the bad debts written off and debited to the provision for bad and doubtful debts created under section 36(1)(viia) of the Act. f) The learned CIT(A) ought to have appreciated that the deduction of provision for bad and doubtful debts under section 36(1)(viia) is distinct and independent of deduction under section 36(1)(vii) relating to allowance of actual bad debts written off. g) The learned CIT(A) ought to have observed that the Appellate orders passed for the AY 2002-03 to AY 2004-05 in Appellant's own case by the office of the learned CIT(A) have examined and analyzed in detail the provisions of section 41(1) and 41(4) and concluded that the recoveries of bad debts shall not be subject to tax under the Act. h) The learned CIT(A) has erred in stating that the orders passed by the office of the learned CIT(A) in the case of the Appellant Bank for AY 2002-03 to AY 2004- 05 are erroneous mistakes apparent from the record and that the same have been passed in confusion. i) The learned CIT(A) has erred in concluding that the facts originating from the AO's order in AY 2002-03 to AY 2004-05 were not identical to AY 2005-06. j) The learned CIT(A) has erred in not relying on the Appellant's own cases in AY 2002-03 to AY 2004-05, where the CIT(A) held that the recovery of bad debts in the case of the Appellant cannot be taxed either under Section 41(1) or Section 41(4) as the said bad debts were not claimed as a deduction under the Act. k) The learned CIT(A) has erred in holding that the Honorable ITAT has merely relied on its earlier order in the case of the Appellant Bank for AY 2005-06 while passing the orders for AY 2002-03 to AΥ 2004-05. 2. Disallowance due to re-computation of deduction under section 36(1)(viia) of the Act Printed from counselvise.com 4 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore a) The learned CIT(A) erred in confirming that the Appellant has not determined the deduction under section 36(1)(viia), in accordance with the provisions of the Act. b) The learned CIT(A) erred in restricting the 10% of Aggregate Average Advances of rural branches to Rs. 13,62,61,143/- as against the sum of Rs. 250,84,10,590/- claimed by the Appellant while computing under deduction under section 36(1)(viia) of the Act. c) The learned CIT(A) ought to have appreciated that the Aggregate Average Advances were computed by the Appellant as per the Rule 6ABA of the Income Tax Rules, 1962 ('IT Rules') and accordingly no excess deduction was claimed under section 36(1)(viia) of the Act. d) The learned CIT(A) erred in confirming the interpretation of Rule 6ABA of the IT Rules, as made by the learned AO that only the incremental advances made by each rural branch of the Appellant and outstanding at the end of each month, should be considered in order to compute the Aggregate Average Advances. e) The learned CIT(A) ought to have appreciated that there is no provision to consider only the advances made during the year for the purpose of section 36(1)(viia) and that the interpretation of the provisions made by the AO not warranted by law. f) The learned CIT(A) ought to have observed that the bad debts or doubtful debts could arise to Appellant, both from the fresh advances made during the current year and advances made in the past years. Hence, restricting the deduction under section 36(1)(viia) by computing the Aggregate Average Advances based on the fresh/incremental advances alone, would produce absurd results, which is not the intent of section 36(1)(viia) of the Act and Rule 6ABA of the IT Rules. g) The learned CIT(A) erroneously interpreted the provisions of the Rule 6ABA of the IT Rules and stated that if the outstanding balance of advances is to be reckoned for calculating Aggregate Average Advances, then the denominator should also include the months of the preceding year in which the advances were outstanding. Printed from counselvise.com 5 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore h) The learned CIT(A) has erred in interpreting the words 'advances made\" used in Rule 6ABA as 'made during the year' without having observed the decisions in the following cases, • City Union Bank, ITA No. 1485/Mds/2007; • Indian Overseas Bank, ITA No. 2130/Mds/2013 and • The Madurai District Central Co-operative Bank Limited, ITA No 1714/Mds/2014 i) The learned CIT(A) ought to have observed that the term 'place' as explained under the Act, for the purpose of identifying the branch of a bank as a rural branch with reference to its location, can be construed to include wards/town panchayats, provided the population of that locality as a unit does not exceed ten thousand. 3. Disallowance of excess depreciation on Automated Teller Machines (\"ATM\") and other Computer peripherals by reclassifying as plant and machinery a) The learned CIT (A) has erred reclassifying ATMs as plant and machinery and restricting the depreciation to 15% under the Act. b) The learned CIT (A) ought to have observed that ATM performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses giving debit or credit cash and thereafter dispenses the cash and gives a printed receipt. c) The learned CIT(A) ought to have observed that an ATM is a computerized device automated with the aid of computer, computer peripherals, software and other hardware devices that provides the clients of the Banks with access to financial transactions in a public space without the need for a cashier, human cleark or bank teller. d) The Learned CIT(A) ought to have observed that if one disconnects the ATM from the Appellant's Network, it can function like a computer/laptop by installing other application software such as Microsoft Word/PowerPoint/ Microsoft Excel etc., since it already has the basic operating system. Printed from counselvise.com 6 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore e) The learned CIT (A) ought to have observed that since the ATM machine performs the functions of a computer along with other functions (such as dispending of cash at the time of withdrawal, deposit of cash etc..) and such other functions are wholly dependent upon the functions of the computer and hence the ATM would qualify to be computer. f) The learned CIT (A) ought to have observed that if the traditional standalone ATMs could be considered as computers under the Act, even the present networked ATMs would also qualify as computers as the only difference between them is that the standalone ATM contains the customers' account details in its entirety, while present networked ATMs get connected to the bank's server through internet connection from remote locations in order to complete the processing of the transaction. g) The learned CIT(A) erred in not relying upon the principles laid down by the judicial precedents including the jurisdictional Tribunal's ruling wherein it has been held that ATM machines are 'computers and are entitled to depreciation at the rate of 60%. h) Notwithstanding and without prejudice to the above, the learned CIT(A) ought to have observed that similar to a printer or scanner an ATM cannot function unless connected to other computers/server over the network through internet connectivity and hence, it should be entitled to 60% depreciation in line with printers, scanner and other peripheral devices. B. UPS a) The learned CIT(A) has erred in reclassifying UPS as plant and machinery eligible for depreciation at the rate of 15% instead of treating them as computers eligible for depreciation at 60%. b) The learned CIT(A) ought to have appreciated that the UPS machine is being used only for the purpose of ensuring uninterrupted power supply to computer systems by regulating the flow of power in order to avoid any kind of damage to the computers and hence to be treated as part of computer system. Printed from counselvise.com 7 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore c) The learned CIT(A) has erred in not relying on the principles laid down by the judicial precedents which have held that UPS is 'computer peripheral\" and entitled to depreciation at the rate of 60%. C. Disallowance of depreciation on account of non-furnishing of invoices/bills for purchase of fixed assets a) The learned CIT (A) ought to have appreciated that the Appellant has already furnished more than 60% of the total invoices/bills in support of the additions to fixed assets under the block \"computers and computer software\". b) The learned CIT(A) erred in upholding the order of the learned AO disallowing depreciation on balance of the additions to fixed assets under the block \"computers and computer software\" for which the Appellant could not furnish bills/invoices. c) The learned CIT (A) ought to have placed reliance on the additions to fixed assets as per the Tax audit report and the audited financials and allowed depreciation @ 60% on those additions, conducted by external independent parties. d) The learned CIT (A) ought to have observed that the invoices for entire additions to fixed assets have been duly verified and confirmed by the external auditors during the audit of the books of accounts of the Appellant (including its branches spared across the country). e) The learned CIT(A) ought to have taken the management representation into cognizance to the effect that entire additions to fixed assets are genuine and accordingly allowed depreciation on the balance additions for which invoices could not be furnished by the Appellant. 1) Notwithstanding and without prejudice to the above, the learned CIT(A) ought to have accepted the quantum of evidences furnished hitherto in support of additions to fixed assets, as representative sample for the entire additions made during the year under the block \"computers and computer software\" and allowed the depreciation thereon. Printed from counselvise.com 8 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 4. Disallowance of certain liabilities by treating as contingent liabilities - Rs.6,20,70,000 A. Provision for Leave Fare Concession (\"LFC\")/ Home Travel Concession (\"HTC\")- Rx3,62,00,000 a) The learned CIT(A) has erred in disallowing the provision for LFC/HTC amounting to Rs. 3,62,00,000. b) The learned CIT(A) ought to have observed that the provision of LFC/HTC was reliably ascertained/estimated based on actuarial valuation and in accordance with the Accounting Standard 15- \"Accounting for Retirement Benefits in the financial statements\" issued by Institute of Chartered Accountants of India, the compliance of which is mandatory for the Appellant. c) The learned CIT(A) ought to have observed the fact that the liability would be discharged at a future date would not change the nature of liability in to that of contingent or unascertained so long as such liability can be quantified or estimated with reasonable certainty. d) The learned CIT(A) ought to have appreciated that the actuarial valuation process after considering the various inputs would certainly enables the Appellant to estimate its liability in respect of LFC/HTC with a greater level of accuracy and certainty, and thus the said provision would partake the nature of ascertained liability under the Act. e) The learned CIT(A) has erred in holding that a reliable estimate of the expense could not be made in spite of the Appellant's written submission that a reliable estimate of the liability was made based on the actuarial valuation. B. Provision for resettlement expenses - Rs. 50,00,000 a) The learned CIT(A) has erred in disallowing the provision for resettlement expenses amounting to Rs.50,00,000. b) The learned CIT(A) ought to have observed that the provision for resettlement expenses was reliably ascertained/estimated based on actuarial valuation and in accordance with the Accounting Standard 15-\"Accounting for Retirement Printed from counselvise.com 9 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Benefits in the financial statements\" issued by Institute of Chartered Accountants of India, the compliance of which is mandatory for the Appellant Bank. c) The learned CIT(A) ought to have observed the fact that the liability would be discharged at a future date would not change the nature of liability in to that of contingent or unascertained so long as such liability can be quantified or estimated with reasonable certainty. d) The learned CIT(A) ought to have appreciated that the actuarial valuation process after considering the various inputs would certainly enables the Appellant to estimate its liability in respect of resettlement expenses with a greater level of accuracy and certainty, and thus the said provision would partake the nature of ascertained liability under the Act. e) The learned CIT(A) has erred in holding that a reliable estimate of the expense could not be made in spite of the Appellant's written submission that a reliable estimate of the liability was made based on the actuarial valuation. C. Provision for silver jubilee awards. - Rs. 35,00,000 a) The learned CIT(A) has erred in disallowing provision for silver jubilee awards amounting to Rs. 35,00,000 6) The learned CIT(A) ought to have observed that the provision for silver jubilee awards expenses was reliably ascertained/estimated based on actuarial valuation and in accordance with the Accounting Standard 15-\"Accounting for Retirement Benefits in the financial statements\" issued by Institute of Chartered Accountants of India, the compliance of which is mandatory for the Appellant Bank. c) The learned CIT(A) ought to have observed the fact that the liability would be discharged at a future date would not change the nature of liability in to that of contingent or unascertained so long as such liability can be quantified or estimated with reasonable certainty. d) The learned CIT(A) ought to have appreciated that the actuarial valuation process after considering the various inputs would certainly enables the Appellant Bank to estimate its liability in respect of silver jubilee awards expenses with a Printed from counselvise.com 10 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore greater level of accuracy and certainty, and thus the said provision would partake the nature of ascertained liability under the Act. e) The learned CIT(A) has erred in holding that a reliable estimate of the expense could not be made in spite of the Appellant's written submission that a reliable estimate of the liability was made based on the actuarial valuation. Notwithstanding and without prejudice to the above, D. Error in totaling of the disallowance The learned CIT(A) has erred in considering the adjustment amount for the total disallowance for the above mentioned contingent liabilities as Rs.6,20,70,000 instead of Rs.4,47,00,000. 5. Disallowance of the deduction under section 36(1)(viii) of the Act- Rs. 55,14,65,399/- a) The learned CIT(A) erred in confirming the disallowance of deduction of Rs. 55,14,65,399/- as claimed by the Appellant under section 36(1) (viii) of the Act. b) The learned CIT(A) failed to appreciate that the Appellant had claimed deduction only in respect of loans having a term not less than five years in accordance with section 36(1)(viii) of the Act. c) The learned CIT(A) ought to have given sufficient time and opportunity to the Appellant to produce evidence to substantiate that deduction was claimed only in respect of loans having a term not less than five years in accordance with section 36(1)(viii) of the Act. Notwithstanding and without prejudice to the above. d) The learned CIT(A) ought to have appreciated that the provisions of section 36(1)(viii) do not provide any specific method/manner of computation of cligible profits thereunder and that the method adopted by the Appellant is appropriate. e) The learned CIT(A) ought to have observed that once the Appellant is allowed to provide the data substantiating its claim, turnover (interest income) should be Printed from counselvise.com 11 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore allowed to be considered as the correct allocation key for the purpose of determining the deduction under section 36(1)(viii) of the Act. 1) The learned CIT(A) ought to have observed that the Appellant has been computing the 'profits from eligible business for the purpose of section 36(1)(viii) based on the turnover (interest income) of the Appellant, which has been accepted by the revenue authorities for all the preceding assessment years. g) The learned CIT(A) ought to have appreciated that the AO's objection regarding allowability of deduction under section 36(1)(viii) to be dependent on maintenance of separate books of account is not in accordance with law. h) The learned CIT(A) ought to have observed that the deduction under section 36(1)(viii) of the Act needs to be recomputed consequent to the increase in Total Income due to the additions made in course of the assessment under section 143(3) of the Act and upheld during the subsequent appellate proceedings. 6. Disallowance of provision for loss in present value terms under debts relief scheme Rs. 5,55,00,000/- a) The learned CIT(A) erred in confirming the disallowance of provision made for loss in present value terms in respect of the debts (under the debt relief scheme) under section 36(1)(viia) of the Act. b) The learned CIT(A) ought to have appreciated that the above mentioned provision for bad and doubtful debts (under debt relief scheme) has been made by the Bank in accordance with the norms provided by the Reserve Bank of India (RBI), compliance with which is mandatory for the Appellant. c) The learned CIT(A) erred in stating (by reproducing a para from the assessment order) that the Appellant has contended before the learned AO that it has been directed to make the provision for loss in present value terms in respect of amounts to be recovered both from government and the farmers. d) The learned CIT(A) ought to have appreciated that given sufficient time, the Appellant would have produced necessary evidences to show that said provision for loss in present value terms, has been made only in relation to the amounts receivable from the farmers under debt relief scheme, as directed by the RBI. Printed from counselvise.com 12 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore e) The learned CIT(A) ought to have appreciated that the above mentioned provision was made towards the loss in present value terms, suffered by the Appellant, on the loans/advances given to the farmers, in the regular course of banking business and thus forms part of its total provisioning requirement for bad and doubtful debts for the year. 1) The learned CIT(A) ought to have appreciated that, in terms of the regulations of the RBI, there is no distinction made between the regular provision made on the Non-performing advances/loans and the provision made for loss in present value terms under debt relief scheme. Accordingly. the banks were directed to utilize the existing provision for NPA towards the creation of provision, if any, for the loss in present value terms, under debt relief scheme. g) The learned CIT(A) ought to have appreciated that the provision made towards loss in present value terms represents a permanent loss to the Appellant on account of delayed receipt of cash flow from farmers, as the Appellant is not allowed to charge any interest on the same. h) The learned CIT(A) erred in correlating the loss in present value terms on receivables from the farmers with the aspects of certainty/uncertainty of receipt of debts from the farmer vis-à-vis government. 7. Disallowance of expenses under section 40(a)(ia) of the Act 8,10,18,335/- a) The learned CIT(A) erred in confirming the disallowance of advertisement expenses, audit fees and law charges, aggregating to Rs.8,10,18,355/- /s 40(a)(ia) of Act for non-deduction of taxes. b) The learned CIT(A) ought to have appreciated that the Appellant and all its branches have duly deducted taxes at source and remitted to the Government, except in a few instances as reported in the tax audit report. c) The learned CIT(A) ought to have placed reliance on the tax audit report of the Appellant, wherein certain defaults in deduction/remittance of taxes were reported and the same have been correctly disallowed by the Appellant, in its return of income. Printed from counselvise.com 13 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore d) Notwithstanding the above, the learned CIT(A) ought to have restricted the amount of disallowance to the extent expenses payable at the end of the Financial Year under section 40(a)(ia) of the Act in line with the principles laid down by the following judicial precedents (including that of jurisdictional Tribunal): Merilyn Shipping and Transports v. Addi CIT [2012] 16 ITR (Trib) 1 ITAT, Viskhapatnam (Spl Bench): • CIT vs. M/s Vector Shipping Services (P) Ltd ITA No. 122 of 2013 dated 9.7.2013 (All HC) (SLP dismissed by SC on 2nd July,2014); • Capital Pharma v. ITO (ITAT Bang) (ITA No. 34/2013); • DCIT v. Ananda Marakala (ITAT Bang) (ITA No. 1584/2012); • Arcadia Share and Stock Brokers ITA 1871/Mum/2013; • S.S. Networks vs. ITO (ITAT Hyd) (ITA No.478/2013), 8. Addition on account of unexplained expenditure under section 69C- Rs. 6,98,56,399 a) The learned CIT(A) ought to have observed that the aforementioned expenditure is related to business and is of revenue nature and accordingly. the same should have been allowed under section 37(1) of the Act.” 2.1 The revenue has raised the following grounds: - ITA No. 683/Bang/2015 “1. The order of Ld. CIT(A) is opposed to law and facts of the case. 2. The Ld. CIT(A) erred in allowing the relief in respect of deduction U/s.36(1)(viia). 3. The assessee has a practice of trifurcating the provision created as per RBI norms into provision of rural advances, provision for 7.5% of total income and reserve for bad debts. These are separate ledger accounts in the books of the assessee. Printed from counselvise.com 14 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Considering this fact, each component needs to be taken separately and disallowance under one cannot be set off against the other. The Ld. CIT(A) erred in allowing the relief in respect contingent liability of provision for Janatha Deposit Collector Gratuity. 4. The Ld. CIT(A) erred in allowing the relief in respect of addition made U/s. 14A. 5. The Ld. CIT(A) erred in allowing the relief in respect of addition made U/s. 69C under other expenditure. 6. For these and such other grounds that may be urged at the time of hearing.” ITA 660/Bang/2015 (Assessee’s Appeal) Ground No.1: Addition on account of recoveries made out of bad debt written off – Rs.13,01,85,558/- 3. The Ld. AR argued and filed the paper book which is placed in record. In argument of ground no.1 the Ld. AR stated that the disallowance of provision for bad and doubtful debts due to re-computation of deduction under section 36(1)(vii) related to bad and doubtful debts. The Ld.AO, during the assessment proceedings, added back under section 41(1) or 41(4) related to realization of the said bad and doubtful debts. The assesse claimed that the said realization is duly adjusted with the provision for bad and doubtful debts. In the impugned assessment year, the addition was duly confirmed by the Ld.AO amount to Rs.13,01,85,558/-. In the appeal, the Ld.CIT(A) had confirmed the impugned assessment order and the assesse filed the appeal before us. 4. The Ld.AR stated that the said issue is duly covered by the order in assessee’s own case reported in (2009) 33 SOT 7 (Bang) for A.Y. 2005-06. The Ld. AR respectfully relied on the order of coordinate bench ITAT-Mumbai in assessee’s Printed from counselvise.com 15 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore own case, ITA No.3644/Mum/2016 A.Y. 2008-09, date of order 03/02/2020. The relevant part of the said order is reproduced as below: - “90. We noted from the above arguments of both the sides and case law cited by the parties, that the issue is squarely covered by a decision of the Bangalore Bench of the Tribunal in the case of State Bank of Mysore Vs. DCIT [2009] 33 SOT 7 (Bangalore), now merged with assessee. We noted that the Tribunal in the case of State Bank of Mysore (supra) narrated the facts and the facts in the present case are exactly the same as in the case of State Bank of Mysore. In the case of State Bank of Mysore (supra), the assessee had claimed deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act. Accordingly, the Bangalore Tribunal has held that section 41(4) of the Act cannot be invoked. Sections 41(1), 41(2), 41(3) and 41(4) of the Act operate in different spheres. Each of the sub-sections to section 41 of the Act deals with different and distinct circumstances. Each of the sub-sections deals with different and distinct topics and one cannot read recoupment under one sub-section into another. We have considered the decision relied on in this regard of Supreme Court in the case of Nectar Beverages (P.) Ltd. vs. DCIT [2009] 314 ITR 314 (SC) wherein the Supreme Court has dealt with the specific section 41(2) of the Act for taxing balancing charge versus taxing the same under section 41(1) of the Act and has concluded that section 41(1) of the Act shall not be applicable. 91. As the aspects of bad and doubtful debts is dealt with specifically under section 41(4) of the Act, as laid down by the Supreme court in Nectar Beverages (supra), section 41(1) of the Act is not applicable in case of the assessee. Further, the primary condition to be satisfied for taxing an amount as deemed income under section 41(1) of the Act is that a deduction/allowance should have been claimed by the assessee in respect of a loss, expenditure or trading liability. A deduction under section 36(1)(viia) of the Act is not for a loss, expenditure or trading liability, but for a provision for bad and doubtful debts. We noted that the learned CIT Departmental Representative had raised a contention that the CIT(A) and AO have not perused the details and, hence, the matter may be restored back which was opposed. In relation to the above contention, without prejudice to the assessee’s objection in the event the matter is proposed to be remanded back to the AO, a direction may be given to the AO to delete the addition, if the recovery of the amount is in respect of a write off claimed and allowed as a deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act in the earlier years. 92. In view of the above discussion, we are of the view that principally the assessee is entitled for claim of deduction under section 36(1)(viia) of the Act, which has rightly been claimed. The assessee has not made claim under section 36(1)(vii) of the Act in this regard. Hence, we allow the claim of assessee but the matter is restored back to the file the AO for verification purposes. This issue of assessee’s appeal is allowed for statistical purposes.” Printed from counselvise.com 16 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 5. The Ld. Special Counsel [for brevity, the “Ld. DR”] argued and fully relied on the order of the revenue authorities. 6. In our considered view, we find that the said issue is duly covered by the order of co-ordinate bench of ITAT, Mumbai Bench in assessee’s own case, which has been quoted above. So, following the judicial precedent in assessee’s own case cited supra, we hold that the provisions of section 41(1) or 41(4) is applicable only when recoveries of bad debts in relation to debts, for which deduction under section 36(1)(vii) is allowed. However, the issue is restored to the file of the Ld.AO to verify if the recovery of the amount, in the present case is in respect of write off of claim allowed as a deduction under section 36(1)(viia) or section 36(1)(vii) of the Act, in earlier years. Accordingly, ground No.1 raised by the assesse is allowed for statistical purpose. Ground 2: Disallowance due to re-computation of deduction u/s 36(1)(viia) of the Act. – Rs.13,01,85,558/- Ground 2(a) to 2(h): Deduction U/s 36(1)(vii) on the balance outstanding in respect of rural advance. 7. The issue is inter-connected with Ground 1; so the issue is covered in favour of the assesse in consolidated order dated 10/11/2022 passed by the Special Bench of ITAT, Mumbai Bench-G in case of State Bank of India, Patiala for A.Ys 2013-14 to 2015-16, ITA No. 510, 538 & 1259/Chandi/2017 wherein it has been held that deduction under section 36(1)(viia) read with rule 6ABA has to be allowed on total outstanding advance at the end of each month considering the opening balance. The relevant part of the order of Special Bench is reproduced as below:- Printed from counselvise.com 17 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore “12. We find that one of the reasons recorded by the Division Bench of the Tribunal for referring the issue to the Special Bench was \"No decision of any higher authorities was brought to our notice by either of the parties\". However, now decisions of two Hon'ble High Courts have been brought to our notice, wherein similar issue has been considered in favour of the taxpayer. 13. As noted above, the Hon'ble Calcutta High Court, vide aforesaid decision, has affirmed the findings rendered by the Division Bench of the Tribunal in Uttar Banga Kshetriya Gramin Bank vs ACIT, in ITA No. 846 and 1745/Kol/2012, wherein the Division Bench of the Tribunal vide order dated 08/07/2015 held that for the purpose of section 36(1)(viia), to compute the aggregate monthly average advance made by the rural branch of scheduled Bank, the amount of advances by each rural branch as outstanding at the end of the last day of each month comprised in the previous year be taken into consideration. The Hon'ble Madras High Court, vide aforesaid decision, has concurred with the decision of the Hon'ble Calcutta High Court. Thus, once two Hon'ble High Courts of the country have expressed their opinion in respect of the issue which arose before us, in absence of contradictory view by any other Hon'ble Court of equivalent or higher judicial hierarchy being brought to our notice, we as a matter of judicial propriety are bound to follow the view so expressed by the Hon'ble High Courts in decisions cited supra. In this regard, it is also relevant to note the following observations of the Hon'ble Supreme Court in ACCE vs Dunlop India Ltd., [1985] 154 ITR 172 (SC): \"8. We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that \"in the hierarchical system of Courts\" which exists in our country, \"it is necessary for lower tier\", including the High Court, \"to accept loyally the decisions of the higher tiers\". \"It is inevitable in a hierarchical system of Courts that there are decisions of the supreme appellate tribunal which do not attract the unamimous approval of all members of the Judiciary.... But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted\" (See observations of Lord Hailsham and Lord Diplock in Broome vs. Cassell). The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical Judicial system.\" Printed from counselvise.com 18 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 14. As regards the submission of the learned Departmental Representative that no substantial question of law was admitted by the Hon'ble Calcutta High Court, we are of the considered view that non-admission of a substantial question of law under section 260A of the Act by the Hon'ble High Court not render the decision of Hon'ble Court to be non-binding and the doctrine of merger would still be applicable. In any case, we find that the Hon'ble Madras High Court in the aforesaid decision concurred with the legal proposition laid down by the Hon'ble Calcutta High Court after admitting the question of law as proposed by the Revenue in its appeal on this issue. Thus, we find no merits in this plea raised by the learned Departmental Representative. 15. Therefore, respectfully following the aforesaid decisions passed by Hon'ble Calcutta High Court and Hon'ble Madras High Court, we decide the question referred for our adjudication in favour of the assessee and held that the deduction under section 36(1) (viia) r/w Rule 6 ABA is to be allowed on the total outstanding advances at the end of each month considering the opening balances. Since other issues arising in the appeals are still pending adjudication, therefore, we send the matter back to the Division Bench for disposing of the appeals in the above terms.” 8. The Ld. DR stands in favour of the orders of the revenue authorities. 9. In our considered view, the issue stands duly adjudicated by the Special Bench of the Tribunal at Mumbai in favour of the assessee, and the binding precedent laid down by the higher judicial forum prevails. Accordingly, ground No.2 (a) to (h) of the assesse is succeeded. Ground 2(i): Deduction U/s 36(1)(vii) computed by taking ward as basis for identifying a rural branch: 10. Further, the assesse claimed deduction under section 36(1)(viia) taking ward as basis for identifying a rural branch. The Ld.AR stated that the said issue is Printed from counselvise.com 19 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore decided against the assessee by the decision of Hon’ble Kerala High Court in case of CIT vs Lord Krishna Bank (2010) 195 Taxman 57 (Kerala). 11. The Ld.DR conceded to the submission of the Ld.AR. Accordingly, the ground 2(i) of assessee related deduction in relation to rural branch is duly rejected. Ground 3: Disallowance of excess depreciation on Automated Teller Machies [‘ATM’] and other computer peripherals by reclassifying as plant and machinery – Rs.9,74,43,086/- 12. On this issue, the assessee claimed depreciation under section 32 of the Act at 60% by treating the ATMs and the UPS as a part of the computer machinery. The Ld.AR stated that both ATM and UPS will not be functional without the help of computer. But the Ld.AO has treated these items in category of plant and machinery and rejected the assessee’s claim of depreciation @60%. The Ld. AR stated that the issue is duly covered by the decision of the Hon’ble Karnataka High Court in the case of CIT vs NCR Corporation Pvt Ltd (2020) 117 taxmann.com 252 (Kar). The relevant paragraph 8 of the order of Hon’ble Karnataka High Court is extracted as below: - “8. This takes us to the second substantial question of law whether ATMs are computers and are eligible for 60% depreciation. It is pertinent to note that provisions of the Karnataka Sales Tax Act, 1957 and provisions of Income-tax Act, 1961 are not pari materia provisions. The classification of goods has been provided only for the purposes of sales tax whereas, the provisions of the income tax levy tax on income. It is pertinent to mention here that Appendix 1 to Income-tax Rules, the computer has been treated as plant and machinery. Therefore, the decision relied upon by the revenue in Diebold Systems (P) Ltd. supra has no application to the Printed from counselvise.com 20 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore fact situation of the case. The tribunal by placing reliance on the decision of Bombay High Court in Dy, CIT v. Datacraft India Ltd. [2010] 40 SOT 295 (SB) has held that so long as functions of the computers are performed with other functions and other functions are dependent on the functions of the computer, ATMs are to be treated as computers and are entitled to higher rate of depreciation. It has further been held that computer is integral part of ATM machine and on the basis of information processed by the computer in ATM machine only, the mechanical function of the dispensation of cash or deposit of cash is done. Therefore, it was held that ATMs are computers and are entitled to higher rate of depreciation. The aforesaid finding of fact has been recorded on correct analysis of the material available on record and by placing reliance on decision of the Bombay High Court.” 13. With respect to the disallowance of excess depreciation on UPS by reclassifying it as ‘plant and machinery’, we find that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench of the ITAT, Bengaluru ‘C’ Bench in the assessee’s own case for AY 2017-18 in ITA No. 1063/Bang/2014 dated 27.05.2016. The Ld. AR further submitted that the issue is also directly covered by the judgment of the Hon’ble Jurisdictional High Court in the case of CIT-10 v. Saraswat Infotech Ltd., ITA(L) No. 1243 of 2012, dated 15.01.2013. The relevant extract from paragraph 5 of the said judgment is reproduced below: “5. In second appeal, the Tribunal by its order dated 14/3/2012 held that UPS is an integral part of the computer system and regulate the flow of the power to avoid any kind of damage to the computer network due to fluctuation in power supply which could lead to loss of valuable data. The Tribunal relied upon the decision of the Delhi High Court dated 20/1/2011 in the matter of CIT v. Orient Ceramics and Industries Ltd. in which UPS was held to be the part of the computer system and depreciation at 60% was allowed. Similarly, so far as ATMs are concerned, the Tribunal on finding of fact concluded that ATM cannot function without the help of computer and would be a part of the computer used in the banking industry. Reliance was placed by the Tribunal Printed from counselvise.com 21 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore upon the decision of the Delhi Bench of Tribunal in the matter of DCIT v. Global Trust Bank (ITA No.474/D/09) wherein it has been held that ATM was a computer equipment and depreciation @ 60% was allowed. So far as the use of software is concerned, the Tribunal records a fact that the evidence of the use of the software on 31/3/2008 was produced before the Tribunal. Thus, the Tribunal held that depreciation @ 30% on software was rightly claimed.” 14. The Ld. DR, on the other hand, relied entirely upon the orders of the revenue authorities. 15. After considering the rival submissions and material placed on record, we are of the considered view that the disallowances made by the Ld. AO in respect of excess depreciation on UPS and ATMs are not justified. Both issues are directly covered by the decisions of the Hon’ble Karnataka High Court in CIT v. NCR Corporation Pvt. Ltd. (supra) and the Hon’ble Jurisdictional High Court in Saraswat Infotech Ltd. (supra). Accordingly, following the said binding precedents, we hold that the assessee is entitled to claim depreciation at the higher rate as claimed in its return of income. 16. The Ld. DR also submitted that the disallowance of depreciation on account of non-furnishing of invoices or bills for the purchase of fixed assets was already considered by the ITAT, Bengaluru Bench in the assessee’s own case in ITA No. 1063/Bang/2014 dated 27.05.2016. Considering the same, we direct the assessee to produce the relevant bills and invoices before the Ld. AO for verification, limited to the classification of assets. However, in respect of the rate of depreciation, we have already held that the claim of the assessee is allowable. The matter is remanded to the file of the Ld. AO for the limited purpose of verification, and the Printed from counselvise.com 22 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore assessee shall be afforded a reasonable opportunity of being heard in the set-aside proceedings. 17. In the result, Ground No. 3 of the assessee’s appeal is allowed in the terms indicated above. Ground 4: Disallowance of liabilities by treating it as contingent liability amount to Rs.6,20,70,000/- 18. The assessee claimed provision for Leave Fare Concession amount to Rs.3,62,00,000/-, provisions for re-settlement expenses amount to Rs.50,00,000/- and provision for silver jubilee awards amount to Rs.35,00,000/-. The Ld.AR submits that the provision is duly created towards an ascertained liability based on actuarial valuation and hence, the same ought to be allowed as deduction under section 37(1) of the Act. Since the same are not contingent in nature, the reliance is placed by the assesse in the assessee’s own case for A.Y. 2008-09 in ITA No.3644/Mum/2016, date of order 03/02/2020. The relevant para is extracted below:- “32. Provision for Leave Travel and Home Travel Concession represents provision towards actual payments to be made by the assessee to its employees for the travel costs incurred by them such as rail fare, air fare, etc. on availment of the leave the employees are entitled to. It is not towards any encashment of leave at the credit of the employee so as to fall within the scope of section 43B(f) of the Act. Further, provision for casual leave and sick leave represents provision for the loss of services of the employees for the period of such leave which the employees of the assessee are entitled to, but not availed during the year. The above category of leave can only be availed by them and cannot be encashed. Therefore, these provisions are also not in lieu of any leave, but in respect of services of the employees utilised in respect of the leave not availed by the employees and which leave will be availed in future. Printed from counselvise.com 23 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 33. With respect to ground of appeal No. 2.1, the arguments put forth for ground of appeal No. 1 shall apply mutatis mutandis since the AO has disallowed Rs. 471.13 crore arising on account of transitional provisions of AS-15 in respect of other employee benefits on the same basis as for provision for pension. The CIT(A) however, has upheld the aforesaid disallowance by holding that provisions of section 43B(f) of the Act applies. 34. We noted that Section 43B(f) of the Act seeks to allow on cash basis any sum payable by an assessee as an employer in lieu of any leave at the credit of his employee i.e. it covers a provision for leave salary which is only encashable by the employees. Hence, we are of the view that the provision for leave can be discharged in two manners i.e. one by availing the leave and other by way of encashment. In so far as availment of leave is concerned, the salary paid to the employee is known as leave with pay and it does not amounts to salary paid in lieu of leave and, hence, the provisions of section 43B(f) of the Act to that extent do not apply. Leave fare concession/Leave travel concession is in respect of actual payment made to the employees for the travel cost incurred by them on availment of the leave entitled to employees. The same is not towards any leave encashment, and hence it cannot be considered as a sum payable in lieu of any leave to which alone section 43B(f) of the Act applies. As stated above, the provision in respect of unavailed casual leave and sick leave is not encashable and, hence, is not covered by section 43B(f) of the Act. Reliance in this regard is placed by the assessee on the decision of the Bangalore Bench of the Tribunal in the case of Robert Bosch Engineering & Business Solutions Ltd. v/s. DCIT [ITA No. 336/Bang/2014 dated 21.04.2017. Further, the provision made is for an ascertained liability based on an actuarial valuation and is to be allowed as a deduction under section 37(1) of the Act while computing the total income. It is provided towards an ascertained liability, based on actuarial valuation, on a scientific basis and is not contingent in nature. In view of the above factual discussion, legal position based on various decisions, we are of the view that this deduction claimed by the assessee is allowable and hence, allowed. This issue of assessee’s appeal is allowed and that of the revenue is dismissed.” Printed from counselvise.com 24 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 19. With respect to the claim of ‘Leave Fare Concession’ amounting to Rs. 3,62,00,000/-, we find that the issue under consideration is identical to the one adjudicated by the Tribunal in the assessee’s own case for Assessment Year 2008- 09 in ITA No. 3644/Mum/2016. Accordingly, following the principle of judicial discipline, we direct the Ld. AO to allow the deduction as claimed by the assessee. 20. With regard to ‘Provision for resettlement expenses’ and ‘Provision for Silver Jubilee awards’ we find that this issue is also decided by the Tribunal assessee’s own case for A.Y. 2008-09 in ITA No.3644/Mum/2016, in favour of the assesse. The co-ordinate bench of the Tribunal, while dismissing revenue’s ground has observed as below: - “121. We noted that this ground is similar to ground nos. 2.1 to 2.3 of the Assessee’s appeal. The Department has filed an appeal against the CIT(A)’s order wherein deduction has been allowed in respect of provision towards silver jubilee award, resettlement allowance and retirement award on the basis that the same are not covered under section 43B of the Act. Accordingly, the CIT(A) had allowed transition provision amounting to Rs. 61.39 crore and net provision of Rs. 3.90 crore (after considering write back of retirement award of Rs. 1.05 crore). Silver jubilee award is a benefit payable to the employees as per the employment guidelines on completion of 25 years of service with the assessee. Resettlement allowance is payable to the employees as per the employment terms in cases where the employees are posted from one jurisdiction to other. Retirement award is a benefit payable to the employees as per the employment guidelines on retirement. The provision towards these employee benefits is created on the basis of actuarial valuation and in accordance with the Accounting Standards. 122. The Revenue before the Tribunal emphasised that these expenses are contingent in nature and questioned the basis of quantification of these expenses. 123. Assessee argued that the department in its appeal has only contested that the said expenses are contingent in nature. It is not the case of the AO that the said provision is not on a reasonable Printed from counselvise.com 25 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore basis. Therefore, the contentions raised by the Department Representative on the basis of quantification are not justified and cannot be accepted. These costs are part of employee cost and, hence, should be allowed as deduction as normal business expenditure. These costs are incurred based on the employee guidelines and have been quantified on a scientific basis as per actuarial valuation. As submitted in Assessee’s appeal ground 2.1 to 2.3, the said provision is an ascertained liability, determined based on reasonable certainty and hence, clearly allowable. Reliance in this regard is placed on the decision of the Supreme Court in the case of Bharat Earth Movers Vs. CIT [2000] 245 ITR 428 (SC), wherein it is held that the liability is not a contingent one if the liability has been incurred during the accounting year and an estimate with reasonable certainty can be made, even if the liability is to be discharged at a future date. We accordingly, dismiss this issue of revenue’s appeal.” 21. Consistent with the decision taken by the co-ordinate bench of the Tribunal as also respecting the judicial discipline, we allow the ground raised by the assesse. Ground 4 of the assessee is allowed. Ground 5: Disallowance of deduction u/s 36(1)(viii) – Rs.55,14,65,399/- 22. The Ld.AR submitted that deduction under section 36(1)(viii) of the Act is allowed in respect of the profits derived from the eligible business computed under the head Profits and Gains from Business and Profession. During the year under consideration the assesse transferred R.60,42,30,000/- to Special Reserve. The assessee claimed a deduction of Rs.55,14,65,399/- under section 36(1)(viii) of the Act, being 20% of the profits derived from specified business. The Ld. AO disallowed the claim of the assesse on the following grounds:- i. The assessee has not maintained and submitted a separate set of books of account in respect of the eligible business. Printed from counselvise.com 26 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore ii. The manner in which the eligible profits is computed by the assesse (turnover as allocation key) is against the provisions of the Act. 20. It is submitted by the Ld.AR that the assessee has worked out the profits derived from the eligible business based on the total profits and gains of business and profession [before allowing deduction under section 36(1)(viii)] as apportioned based on the ratio of interest income from eligible business to the gross total income. It is submitted that there is no requirement of maintaining a separate set of books of accounts for the purpose of claiming a deduction u/s 36(1)(viii) of the Act in respect of the eligible business. The rule of literal interpretation says that when there is no ambiguity in the language of the section then the letter and the spirit of law is to be followed. Thus, applying the rule of literal Interpretation, it can be said that the assessee is eligible for deduction u/s 36(1)(vii) of the Act since it satisfies all the conditions laid out therein since no such condition is laid out in Section 36(1)(vii) and the assessee cannot be required to abide by a condition not expressly mentioned in the Act. Further, as regards the Assessing Officer's claim that the turnover ratio adopted by the assessee to compute the eligible profits is contrary to the provisions of the Act, it is submitted that the Act or Rules made thereunder does not prescribe any method of computing the eligible profits. Hence, a reasonable method can be adopted by the assessee while determining the deduction u/s 36(1) (vii) of the Act. 21. Further, it is also pointed out that this is not the first year of claim for deduction u/s. 36(1)(vii) as the assessee has been claiming the said deduction since AY 2008-09, the assessee has claimed deduction u/s. 36(1)(viii) since AY 2008-09 by Printed from counselvise.com 27 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore consistently using the same method by using the turnover / gross income as the same allocation key. The revenue authorities in past years as well have examined the said method / ratio and have accepted the claim of the Bank and accordingly, it is also submitted that the assessee has been consistently following this method, which has been accepted by the revenue and ought not to be disturbed. Reliance in this regard is placed on the following decisions: • Decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT reported in [1992] 193 ITR 321. • Decision of the Hon'ble Patna High Court in the case of Alok Nursing Home v. CIT reported in [2010] 322 ITR 171 (Pat.) • Decision of the Hon'ble High Court in the case of CIT v. Sood Harvester reported in [2008] 304 ITR 279 (P & H) 22. The Ld. DR stands in favour of the orders of revenue authorities. But unable to rebut by submitting any contrary judgment against the submission of the Ld. AR. 23. We have heard the rival submissions and perused the material available on record. The assessee has claimed deduction under section 36(1)(viii) of the Act amounting to Rs. 55,14,65,399/-, being 20% of the profits derived from the specified eligible business. The assessee has consistently followed the method of apportionment of profits based on the ratio of interest income from eligible business to the gross total income and has accordingly transferred Rs. 60,42,30,000/- to the Special Reserve. The Ld. AO disallowed the deduction primarily on two grounds: (i) absence of a separate set of books of account for the eligible business, and (ii) alleged infirmity in the method of profit computation Printed from counselvise.com 28 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore adopted by the assessee. However, we find merit in the submission of the Ld. AR that the Act does not mandate the maintenance of separate books of account for claiming deduction under section 36(1)(viii), nor does it prescribe any specific methodology for computing eligible profits. The method adopted by the assessee is reasonable, has been consistently followed since AY 2008–09, and has been accepted by the department in preceding years. In the absence of any change in facts or law, the principle of consistency, as upheld by the Hon’ble Supreme Court in Radhasoami Satsang, supports the assessee’s claim. No contrary judicial precedent or material has been brought on record by the revenue to rebut the position taken by the assessee. In view of the above and respectfully following the binding judicial precedents cited by the Ld. AR, we are of the considered opinion that the assessee is entitled to claim deduction under section 36(1)(viii) of the Act as computed. Accordingly, the disallowance made by the Ld. AO is directed to be deleted. 24. In the result, Ground No. 5 of the assessee’s appeal is allowed. Ground 6: Disallowance of provision for loss in present value terms under debts relief scheme - Rs.5,55,00,000/- 25. We have considered the rival submissions and perused the material on record. The assessee has made a provision of Rs. 5,55,00,000/- in respect of loss in present value terms arising from receivables under the Agriculture Debt Relief Scheme announced by the Government of India. The said amount relates to the debts recoverable from farmers under the Debt Relief component of the scheme, where banks are entitled to recover 75% of the eligible debt, with a 25% waiver Printed from counselvise.com 29 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore extended to the farmers. It is the case of the assessee that this provision represents a permanent diminution in the value of receivables due to the time value of money and delayed recovery and has been made in accordance with RBI’s prudential guidelines prescribed under Circular RPCD No. PLFS.BC.72/05.04.02/2007-08 dated 23.05.2008. The assessee has further submitted that this provision has been made only for those debts which are already classified as NPAs, and hence the provision in substance is for bad and doubtful debts. The Ld. AO has disallowed the claim on the ground that the provision for loss in present value does not qualify as a provision for bad and doubtful debts under section 36(1)(viia) of the Act. However, it is not disputed that the underlying loans are NPAs, and the Debt Relief Scheme merely alters the recoverable value of such loans. The method of provisioning based on present value loss has been mandated by the RBI, and such provisioning has a direct nexus with the impaired recovery of principal, which squarely falls within the ambit of \"bad and doubtful debts\". It is a settled legal position that where the provision is made in accordance with RBI directions and is in respect of debts that have already become NPAs, the same is eligible for deduction under section 36(1)(viia) of the Act. The fact that such provision is disclosed separately in the notes to accounts does not alter its character. There is no material brought on record by the revenue to demonstrate that the provision is not in the nature of provision for bad and doubtful debts. In view of the above, we are of the considered opinion that the disallowance made by the Ld. AO is not sustainable in law. Accordingly, we direct the Ld. AO to allow the deduction of Rs. 5,55,00,000/- under section 36(1)(viia) of the Act as claimed by the assessee. In the result, Ground No. 6 of the assessee’s appeal is allowed. Printed from counselvise.com 30 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Ground 7: Disallowance of expenses under section 40(a)(ia) of the Act – Rs.8,10,18,335/- 26. During the year under consideration, the assessee Bank incurred and claimed Advertisement Expenses, Audit Fees and Law charges u/s. 37(1) of the Act since the same were incurred wholly and exclusively for the purpose of the business of the assessee. During the course of the assessment proceedings, the Ld. AO called for evidence to substantiate that necessary taxes were deducted at source and remitted by the assessee on the expenses shown under the heads of the above expenses. However, since the assessee could not produce the complete details, the Ld. AO disallowed the said sum of Rs. 8,10,15,335/-for non-furnishing of evidence for deduction and remittance of tax at source. It was submitted that during the course of the assessment proceedings, out of the total expenses of Rs. 16,43,60,000/-, the assessee produced evidence of TDS as representative sample for an amount of Rs. 8,33,41,665/- and the same were accepted by the Ld. AO. 27. The Ld.AR further argued that each branch is audited and verified and thereafter any default captured in the Tax Audit report and the same has been duly added back in the computation of total income. Therefore, the Ld. AO ought to have placed reliance on Clause 27 of Form No. 3CD of the Tax Audit Report wherein the details of non-compliance with respect to non-deduction/non-payment of tax at source has been duly disclosed by the respective branch auditors of the assessee. It is submitted that in accordance with the Tax Audit Report, the assessee has voluntarily disallowed Rs. 2,36,72,707/-in its computation of total income. The Ld. AR further stated that the assessee submitted the sample copies before the Ld. AO Printed from counselvise.com 31 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore for verification. Considering the huge volume of documents of assessee, State Bank of India the assessee placed in sample basis for perusal of the Ld. AO. 28. The Ld. DR argued and relied on the order of the revenue authorities. But he had not made any strong objection against the submission of the Ld. AR. 29. We have carefully considered the rival submissions and perused the material available on record. The assessee, a branch of the State Bank of India, claimed various expenses including Advertisement Expenses, Audit Fees, and Legal Charges under section 37(1) of the Act, aggregating to Rs. 16,43,60,000/-. The Ld. AO disallowed an amount of Rs. 8,10,18,335/- on the ground that the assessee failed to produce complete documentary evidence for deduction and remittance of tax at source as required under section 40(a)(ia) of the Act. It is, however, not in dispute that the assessee submitted evidence of TDS deduction and remittance on a substantial portion of these expenses (amounting to Rs. 8,33,41,665/-) by way of representative samples, which were accepted by the Ld. AO. It is further submitted that given the voluminous nature of transactions and the scale of operations of the assessee, it was not feasible to submit all supporting documents branch-wise. Nonetheless, the assessee provided sufficient representative documentation to substantiate its compliance with TDS provisions. Importantly, the Tax Audit Report in Form No. 3CD, specifically Clause 27, disclosed details of non-compliance, if any, with respect to TDS provisions at the branch level. The assessee has also suo motu disallowed an amount of Rs. 2,36,72,707/- in its computation of income, based on the disclosures made in the Tax Audit Report. Printed from counselvise.com 32 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore This action demonstrates the bona fide conduct and good faith of the assessee in complying with statutory requirements. We find merit in the submissions of the Ld. AR that once the assessee has duly disclosed and disallowed amounts identified as non-compliant under section 40(a)(ia), and produced representative evidence for the balance, no further disallowance is warranted in absence of specific contrary findings. The Ld. DR has not brought any contrary material or evidence to rebut the submissions of the assessee or to demonstrate that the representative samples submitted were not reliable or that the voluntary disallowance was inadequate. In view of the above, and considering the scale of operations and the substantial compliance demonstrated by the assessee, we are of the considered view that the disallowance made by the Ld. AO is unwarranted. Accordingly, the disallowance of Rs. 8,10,18,335/- under section 40(a)(ia) of the Act is directed to be deleted. In the result, Ground No. 7 of the assessee’s appeal is allowed. Ground 8 : Addition on account of unexplained expenditure under section 69C – Rs.6,98,56,399/- 30. The Ld. AR argued that the assessee has debited a sum of Rs. 1,29,81,18,821/- towards ‘Other expenditure’ under the head ‘Operating Expenses’ (Schedule 16 of Profit & Loss A/c). This is further included another sub-schedule called as ‘Other Expenses’ of Rs. 58,23,15,962/- representing various miscellaneous expenses. However, the break-up of the amount of the said 'Other expenses inadvertently shown Rs. 65,21,72,361/- instead the correct amount of Rs. 58,23,15,962/- and the differential amount of Rs. 6,96,56,399/-was added back Printed from counselvise.com 33 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore expenditure u/s. 69C of the Act. It was submitted before the CIT(A) that an old copy of the sub-schedule Other Expenses was inadvertently furnished during the course of the assessment proceedings and the correct Other expenses were submitted refer Page No.333 – 334 of the paper book. The CIT(A) vide his Order dated 27/02/2015 accepted the claim of the assessee and allowed this issue subject to a direction to the Ld. AO to examine the nature of the expenses contained in the said list and to accept only those which are related to the assessee’s business. 31. The Ld. DR argued and stands in favour of the order of the revenue authority. 32. We have considered the rival submissions and examined the material on record. The assessee debited a sum of Rs.1,29,81,18,821/- under the head ‘Operating Expenses’ in Schedule 16 of the Profit & Loss Account, which included a sub-head titled ‘Other Expenses’ amounting to Rs. 58,23,15,962/-. However, due to an inadvertent error, the assessee furnished an earlier version of the sub- schedule before the Ld. AO, reflecting an inflated figure of Rs. 65,21,72,361/-. The differential amount of Rs. 6,98,56,399/- was treated by the Ld. AO as unexplained expenditure and disallowed under section 69C of the Act. During appellate proceedings, the assessee clarified the inadvertent error and submitted the correct sub-schedule of ‘Other Expenses’, which reconciled the figures with the audited accounts. The revised details were placed at Page Nos. 333–334 of the paper book. The Ld. CIT(A), after considering the explanation, accepted the assessee’s contention and allowed the ground in principle, subject to verification by the Ld. AO as to whether the expenses were incurred wholly and exclusively for the purpose of business. We find that the addition made under Printed from counselvise.com 34 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore section 69C arose solely due to a clerical error in furnishing the breakup of expenses and not on account of any unexplained or unaccounted expenditure. The error has since been rectified with corroborative documents placed on record. The revenue has not brought any contrary material to demonstrate that the expenses were not incurred for business purposes or that they were fictitious. In view of the above, we hold that the addition under section 69C of Rs.6,98,56,399/- is not justified. The assessee has satisfactorily explained the discrepancy and placed all relevant documents on record. Hence, no disallowance is warranted on this account. In the result, Ground 8 of the assessee’s appeal is allowed. 33. In the result, the appeal of the assessee is allowed in part. ITA No.683/Bang/2015: A.Y. 2010-11 (Revenue’s Appeal) Ground 1 : Deduction under section 36(1)(viia) 34. This ground is identical to ground 2 of assessee’s appeal in ITA No.660/Bang/2015, which we have already deliberated upon and decided in favour of the assessee. The facts and circumstances are stated to be identical; therefore, the decision arrived at therein shall apply mutatis mutandis to ground 1 in this appeal also. Ground 1 of the revenue is dismissed. Ground 2 : Allowing provision for Janatha Deposit Collector Gratuity 35. The Ld.AR submitted that in accordance with the guidelines issued by the Reserve Bank of India, as well as the judgement of the Supreme Court, the Indian Bank's Association [IBA] had vide its letter dated 22 January 2014 directed all the Printed from counselvise.com 35 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Banks to create a provision for payment of gratuity benefits for individuals who worked as Janatha Deposit Collectors. As per the letter dated 22 January 2014 issued by the IBA, it was clarified that such payments shall not be covered under the Payment of Gratuity Act, 1972, which is relevant for payment of gratuity under an employer-employee relationship only. According to the assessee, since the provision is for an ascertained liability and has been created by the assessee under the mandate of the Supreme Court, the same is eligible for deduction u/s. 37(1) of the Act. He placed reliance on the following decisions: • Bharat Earth Movers v/s. CIT reported in [2000] 245 ITR 428 (Supreme Court); • CIT v/s. Sony India Pvt. Ltd. reported in [2007] 160 taxman 397 (Delhi High Court); • CIT v/s. Kerala State Financial Enterprises Ltd. reported in [2009] 219 CTR 147 (Kerala High Court); • Lawkim Ltd. v/s. JCIT reported in [2004] 1 SOT 907 (Mumbai-Tribunal); • Persepolis Construction Co. Pvt. Ltd/v/s. ACIT reported in [2005] 99 TT) 92 (Mumbai Tribunal) 36. The Ld. DR argued and stands in favour of the orders of the revenue. 37. In our considered view we find that the issue is squarely covered by the order of Hon’ble Apex Court. Further the Ld. CIT(A) noted in order that JD Collector Gratuity is found to involved identical facts as considered for AY 2006-07 order dated 2006-07 in favour of the assessee. We respectfully follow the order of the higher legal wisdom. There is no reason to intervein in the issue stated in appellate order. So, the ground of the revenue fails. Printed from counselvise.com 36 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore Accordingly, the Ground 2 of revenue is dismissed. Ground 3 : Relief in respect of addition under section 14A 38. During impugned assessment year the assessee earned Rs. 1,49,50,000/- on interest earned on tax free bonds and Rs. 24,23,27,401/- on dividends from shares and mutual funds which comes total amount to Rs. 25,72,77,401/-. The assessee suo moto disallowed @2% of exempted income which comes to Rs. 51,45,548/-. The Ld. AO is assessment proceeding rejected the assessee argument and calculated @.5% on indirect expenses of Average Investment U/R 8D(2)(iii) & 8D(2)(i) of the Rule which comes total amount to Rs. 1,80,57,481/- which added back with total income. The Ld.AR submitted that the Tribunal vide Order dated 06/06/2023 passed in the case of State Bank of India for A.Y. 2010-11, ITA No. 3645/Mum/2016 for the purpose of computing disallowance u/s. 14A has: • directed the Assessing Officer to exclude investments stock-in-trade; and • directed the Assessing Officer to consider only those investments which have yielded exempt Income during the year. In this regard, the Ld.AR drew our attention to the following illustrative list of decisions which, after considering the decision of the Apex Court in the case of Maxopp Investment Ltd. v/s. CIT reported in [2018] 402 ITR 640 have held that section 14A is not applicable to Banks where investments are held as stock in trade: • PCIT v/s. Punjab and Sind. Bank [ITA Nos. 904 and 906/2019] (Delhi High Court); • MUFG Bank Ltd. v/s. ACIT [ITA Nos. 7895/Del/2019] (Delhi-Tribunal); Printed from counselvise.com 37 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore • Union Bank of India v/s. DCIT [ITA Nos. 1804 to 1807/Mum/2018 and 2227 to 2230/Mum2018] Tribunal); (Mumbai- • Central Bank of India v/s. DCIT [ITA Nos. 3739 & 3673/Mum/2018] 39. The Ld. AR respectfully relied on the observation of the Ld. CIT(A) related addition U/s 14A of the Act. The relevant paragraph is reproduced as below:- “15.3. I have considered the objections as above. The suo motto disallowance of 2% of exempt income has been upheld in the case of the assessee for AY 2003-04 and 2004-05 by the Hon'ble ITAT, Bangalore in ITA nos. 1242 & 1243 (BNG)/2011 in order dt. 28.02.2013. The AO has mentioned in his order that all the decisions relied upon by the appellant in its own case pertained to years prior to AY 2008-09 when Rule 8D was brought into the statute. The AO's observation is erroneous since the undersigned has respectfully followed the ITAT decision even for AY 2008-09. In the present matter, I find that specific weaknesses in the appellant's accounts relating to exempt income have not been pointed out nor any nexus established between the amount sought to be disallowed and the exempt income. I am in agreement with the appellant that even after introduction of sub-section (2) and (3) to Section 14A, the provisions of Section 14A(1) must be complied with i.e., nexus theory must be satisfied, in order for the AO to disallow any expense under the provisions of Section 14A of the Act. This position remains unchanged even after introduction of the Rule 8D as the thrust is still on the relation of the expenditure with the exempt income as evidenced by the language of Sec.14A. 15.4 In view of the above discussion, I find no error in the appellant’s method of computing disallowance u/s 14A at 2% and the same is directed to be restored. This ground, therefore, succeeds.” 40. The Ld. DR argued and stands in favour of the impugned assessment order. Printed from counselvise.com 38 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 41. We have heard the rival submissions and perused the material available on record. It is undisputed that during the impugned assessment year, the assessee earned a total exempt income of Rs.25,72,77,401/-, comprising Rs.1,49,50,000/- from interest on tax-free bonds and Rs.24,23,27,401/- from dividends on shares and mutual funds. The assessee, on a reasonable basis, suo motu disallowed 2% of such exempt income, amounting to Rs.51,45,548/-, under section 14A of the Act. The Ld. AO, however, disregarded the assessee’s method of disallowance and mechanically invoked Rule 8D of the Rules. He proceeded to compute the disallowance under Rule 8D(2)(i) and (iii) by applying 0.5% of average investments, resulting in a higher disallowance of Rs.1,80,57,481/-, which was added back to the total income. The Ld. AR has relied on various judicial precedents, including the coordinate bench decision in assessee’s own cae in ITA No. 3645/Mum/2016 dated 06/06/2023 for A.Y. 2010–11, wherein it was held that for the purpose of disallowance under section 14A: Investments held as stock-in-trade should be excluded from the computation under Rule 8D; and only those investments which have yielded exempt income during the year should be considered. Furthermore, the Ld. AR has drawn our attention to decisions such as PCIT v. Punjab and Sind Bank (Del HC), MUFG Bank Ltd. (Del ITAT), Union Bank of India (Mum ITAT), and Central Bank of India v. DCIT (Mum ITAT), which have consistently held, even post-Maxopp Investment Ltd. (supra), that disallowance under section 14A is not warranted in respect of investments held as stock-in-trade, particularly in the case of banks and financial institutions. Printed from counselvise.com 39 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore We further note that the Ld. CIT(A) has elaborately examined this issue and found that the Ld. AO had not identified any specific defect in the assessee’s accounts or established any proximate nexus between the disallowed expenditure and the exempt income. The Ld. CIT(A) rightly emphasized that even after insertion of sub- sections (2) and (3) to section 14A and the introduction of Rule 8D, the foundational requirement of section 14A(1) that there must be a proximate connection between the expenditure incurred and the earning of exempt income continues to prevail. In view of the above facts and judicial position, we do not find any infirmity in the reasoned findings of the Ld. CIT(A) in accepting the assessee’s method of disallowance at 2% of exempt income. Accordingly, the disallowance made by the Ld. AO under Rule 8D is unsustainable. In the result, the appeal of the Revenue Ground-3 is dismissed. Ground 4 : Relief in respect of addition under section 69C of the Act. 42. This ground is identical to ground 8 of assessee’s appeal in ITA No.660/Bang/2015, which we have already deliberated upon and decided in favour of the assessee. The facts and circumstances are stated to be identical; therefore, the decision arrived at therein shall apply mutatis mutandis to ground 4 in this appeal also. Accordingly, Ground-4 of revenue is dismissed. 43. Accordingly, the appeal of revenue is dismissed. Printed from counselvise.com 40 ITA 660 & 683/Bang /2015 State Bank of India / State Bank of Mysore 44. In the result, assessee’s appeal ITA No. 660/Bang/2015 is partly allowed and revenue’s appeal ITA No. 683/Bang/2015 is dismissed. Order pronounced in the open court on 05th day of August 2025. Sd/- sd/- (NARENDRA KUMAR BILLAIYA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: 05/08/2025 Pavanan Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकर आयु\u0014 CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 5. गाड फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai Printed from counselvise.com "