Income Tax Appellate Tribunal - Mumbai
Icici Bank Ltd,Mumbai vs Dcit 2(3)(2), Mumbai on 21 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
"H" BENCH, MUMBAI
SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER
SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER
ITA No.7027/Mum/2016 ITA No.5382/Mum/2017
(Assessment Year: 2011-2012) (Assessment Year: 2012-2013)
ICICI Bank Limited
ICICI Bank Towers, Bandra Kurla Complex,
Bandra, Mumbai - 400051. Maharashtra.
[PAN: AAACI1195H] ............. Appellant
Vs
The Deputy Commissioner of Income-tax,
2(3)(2) (earlier assessed with Deputy
Commissioner, Circle 3(1), Mumbai)
Earnest House, Nariman Point
Mumbai - 400021. Maharashtra ............. Respondent
&
ITA No.7292/Mum/2016 ITA No.5512/Mum/2017
(Assessment Year: 2011-2012) (Assessment Year: 2012-2013)
Assistance Commissioner of Income Tax
2(3)(2), Mumbai
R. No.552, 5th Floor, Aayakar Bhavan,
M.K.Road, Mumbai - 400020. Maharashtra ............. Appellant
Vs
ICICI Bank Limited
ICICI Bank Towers, Bandra Kurla Complex,
Bandra, Mumbai - 400051. Maharashtra.
[PAN: AAACI1195H] ............. Respondent
Appearance
For the Appellant/Assessee : Ms. Arati Vissanji, Ms. Stuti Jindal
& Mr. Ankit Harsora
For the Respondent/Department : Shri Ajay Chandra
Date
Conclusion of hearing : 18.03.2026
Pronouncement of order : 21.05.2026
[
ORDER
Per Bench:
1. This is a batch of four appeals consisting of a set of 2 cross-appeals pertaining to Assessment Years 2011-2012 and 2012-2013. Since common issues were raised in the appeals, the same were heard ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 together and are, therefore, being disposed off by way of a common order.
Assessment Year 2011-2012 ITA No.7027/Mum/2016 [Assessee's Appeal] & ITA No.7292/Mum/2016 [ Revenue's Appeal]
2. We would first take up cross-appeals for Assessment Year 2011- 2012 arising from order dated, 31/08/2016, passed by the Commissioner of Income Tax (Appeals)-56, Mumbai [hereinafter referred to as the 'CIT(A)'] whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 25/03/2015, passed under Section 143(3) read with Section 144(C)(3) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'].
3. The relevant facts in brief are that the Assessee, a commercial bank, filed its original return of income for Assessment Year 2011-2012 on 28/11/2011 declaring the total income of INR.6269,23,75,570/- which was revised on 29/03/2013 declaring total income of INR.5456,09,08,140/-. The case of the Assessee was selected for regular scrutiny. During the assessment proceedings, a reference under Section 92CA(1) of the Act was made to the Transfer Pricing Officer (the 'TPO') on 22/10/2013 for determination of Arm's Length Price (ALP) in relation to the International Transactions with Associated Enterprises (AEs). The TPO, vide Order, dated 29/01/2015, passed under Section 92CA(3) of the Act made upwards adjustment of INR.1,65,65,575/- in the ALP of the following International Transaction with AEs:
SNo. Particulars Amount
(in INR.)
(a) Adjustment on account of Back 1,34,15,865/-
office support services
(b) Adjustment on account of issue of 31,49,710/-
Comfort Letter
The Assessing Officer incorporated by the above transfer pricing 2 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 adjustments in the Draft Assessment Order, dated 27/02/2015, and proposed additional corporate tax additions and disallowances.
4. Since, the Assessee opted not to file objections before the Dispute Resolution Panel against the Draft Assessment Order, the Assessing Officer passed the Assessment Order, dated 25/03/2015 under Section 143(3) read with Section 144(C)(3) of the Act.
5. The Assessee challenged the additions/disallowances made by the Assessing Officer in appeal before the Learned CIT(A) which was disposed off as partly allowed vide Order, dated 31/08/2016.
6. Now, both, the Assessee and the Revenue are in appeal before the Tribunal against the above order passed by the Learned CIT(A).
7. We have heard both the sides and have perused the material on record.
ASSESSMENT YEAR 2011-2012
8. We would first take up the grounds raised by the Revenue along with the connected grounds raised by the Assessee in appeal for the Assessment Year 2011-2012.
ITA No.7292/Mum/2016 [ Revenue's Appeal]Ground No. 1 raised by Assessee Ground No. 1 raised by Revenue
9. Ground No. 1 raised by the Revenue and Ground No. 1 raised by the Assessee pertain to transfer pricing additions and are, therefore, taken up together.
9.1. Ground No.1 raised by the Revenue reads as under:
"1. Whether on the facts and circumstances of the case, the Ld.CIT(A) erred in holding that the comfort letter/corporate guarantee given to the Monetary Authority of Singapore on behalf of its AE does not constitute to be an international transaction, without appreciating the amended provisions of section 92B(1) Explanation(c) of the Income Tax Act."3
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 9.2. Ground No.1 raised by the Assessee reads as under:
"1. Adjustment as per Transfer Pricing Order under section 92CA(3) - INR.1,34,15,865 On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the comparables taken by the Transfer Pricing Officer [TPO] vide his order dated January 29, 2015 passed under section 92CA(3) of the Act and confirming the adjustment made to the arm's length price in respect of back office support services."
10. The relevant facts in brief are that transfer pricing addition of INR.1,65,65,575/- was made in the Assessment Order as per Order, dated 29/01/2015, passed by the TPO under Section 92CA(3) of the Act which consisted of the following:
(a) TP Addition of INR.1,34,15,865/- on account of upwards adjustment of service fee charged by the Assessee to ICICI Bank, UK and ICICI Bank, Canada for back office support services determining ALP markup at 24.26% as against 10% adopted by the Assessee.
(b) TP Addition of INR.31,49,710/- on account of commission/fee in respect of Letter of Comfort issued by the Assessee to Monetary Authority of Singapore (MAS) for benefit of ICICI Securities Inc, USA treated it akin to a guarantee transaction.
TPO determined ALP commission rate of 0.89% and computed commission amount @0.89% of exposure amount of INR.35,59,00,000/- charged based on rate charged by the Assessee to external unrelated parties.
11. In appeal the Learned CIT(A) granted partial relief by deleting the TP addition in respect of Letter of Comfort while the TP addition in respect of bank office support services was confirmed. As a result, the Revenue has challenged the above relief granted by the Learned CIT(A) while the Assessee has confirmation of TP addition related to back officer support services.
4ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 Back Office Support Services
12. We have given thoughtful consideration to the rival submissions and have perused the material on record in relation to Ground No.1 raised by the Assessee in its appeal.
12.1 It emerges that the Assessee provided back office support services in the nature of treasury support for processing treasury related transactions, back office account, processing & related activities and technology support services to ICICI Bank UK and Canada. For the aforesaid services the Assessee charged service fee of INR.10,34,88,441/- at cost plus a markup of 10%. The Assessee used Transaction Net Margin Method (TNMM) to benchmark the back office support services taking the Operating Profit/Total Cost (OP/TC) as Profit level indicator (PLI). Since no internal comparable were available, the Assessee identified external comparable applying certain filter to arrive at a list of 8 comparables. Since margin of 10% charged by the Assessee was more than the margin earned by the comparable selected, it was contended on behalf of the Assessee that the international transaction relating to provision of Back Office Support Services was at arm's length and no Transfer Pricing addition was warranted.
12.2 During the assessment proceedings TPO rejected the approach adopted by the Assessee while selecting the comparables and ask the Assessee vide Order Sheet, dated 17/12/2014 as to why the following set of seven companies cannot be considered as comparable for the purpose of determining the ALP of the international transaction relating to back office support services provided by the Assessee for AY 2011-12.
Sr. No. Name of the Company
1. Accentia Technologies Limited
2. Acropetal Technologies Limited
3. Crossdomain Solutions Private Limited
4. Infosys BPO Limited 5 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013
5. eClerx Services Limited
6. E4e Healthcare Business Services Pvt. Ltd. (Nittany Outstanding Services Private Limited)
7. Cosmic Global 12.3 Vide Submission, dated 27/01/2015, the Assessee objected to inclusion of the above comparables on account of functional dissimilarities, and different scale/area of operations. It was contended on behalf of the Assessee that the Assessee is an Indian banking company is closely regulated by Reserve Bank of India and its activities and operations are governed by the provisions of the Banking Regulations Act 1949. As per regulatory restrictions outlined above the Assessee has not rendered such services to any of the bank's customers on a commercial scale. The Assessee is not in the business of providing back office support functions services on a commercial basis. The activities performed for the Assessee are primarily for the administrative convenience and incidental and ancillary to the control and supervision purposes. The Assessee needs to standardize the process and practices at the group level to provide uniform banking services to its customers. The Assessee submitted that comparables selected by the TPO are not appropriate keeping in view the functions performed and the services provided by the Assessee-bank to its AE with respect to the back office support functions. The comparables selected by the TPO were in different line of business and hence, are not comparable. Additionally, the Assessee submitted that the amount recovered from the AE with respect to the back office activities was minuscule (less than 1% of the other income of the Assessee) and on materiality point of view it is not significant. However, the TPO rejected the objections raised by the Assessee making following observations:
Sr. Name of the Objections of the assessee Observations No. comparable
1. Acropetal Technologies Acropetal is engaged in The comparable is functionally (Seg.) software development and similar to the assessee and engineering design services passed all the filters proposed by 6 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 and hence should not be the assessee as well ΤΡΟ and considered as comparable to hence accepted as comparable.
assessee re different from the services provided by assessee.
Acropetal is engaged in
product development and
software development
activities which are very
different from the services
rendered by the assessee
2. Accentia Technologies Accentia renders KPO The comparable is functionally
Ltd (Seg.) services in the healthcare similar to the assessee and
sector by way of offering passed all the filters proposed by software as a service model the assessee as well TPO and "SaaS". The software helps in hence, accepted as a managing all the healthcare comparable.
documentation needs, receivables management needs, performance tracking and reporting and hence not comparable to assessee Accentia possesses brand value/IPR's which will tend to influence the business model including the pricing policy followed by the company and thereby directly impacting the margins earned by Accentia Presence of Intellectual Property rights (IPR's)
3. Crossdomain Solutions Crossdresain is engaged in Since the final information is not Ltd. the business of KPO services. available on public domain. The The assessee submitted that PLI of the company is not KPO services are high end available and hence, rejected. services which cannot be compared with the low and service provided by the assessee to its AE.
Financial information for
Crossdomain is not available
on public domain
4. Infosys BPO Ltd. Infosys BPO is backed by The comparable is functionally
Infosys Technologies Limited, similar to the assessee and the parent company which passed all the filters proposed by 7 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 supports Infosys BPO to offer the assessee as well TPO and an integrated IT-BPO delivery hence, accepted as a model designed for 'one stop comparable.
shop' solution model which
helps managing the entire
outsourcing operational chain
of IT and process
management services.
Presence of brand
Extraordinary events
Turnover greater than 34
times of Assessee.
5. eClerx Services Limited eClerx is a leading Indian The comparable is functionally
provider of KPO services. similar to the assessee and Eclerx provides high end data passed all the filters proposed by analytics and customized the assessee as well TPO and process solutions to a host of hence, accepted as a global clients comparable.
Abnormal Growth Extraordinary events
6. e4e Healthcare e4e is functionally not The comparable is functionally Business Services Pvt. comparable as it is engaged similar to the assessee and Ltd. (Nittany in providing healthcare passed all the filters proposed by Outsourcing Services outsourcing services. the assessee as well TPO and Private Limited) hence, accepted as a comparable.
12.4 Thus, the TPO finalized a set of following seven comparables and computed ALP mark-up at 24.26% as against 10% charged by the Assessee.
Sr. Name of the Company PLI
No.
1. Accentia Technologies Limited 28.89%
2. Acropetal Technologies Limited 22.06%
3. Cosmic Global 9.81%
4. Crossdomain Solutions Private Limited NA
5. Infosys BPO Limited 18.50%
6. Eclerx Services Limited 56.86%
7 Nittany Outstanding Services Private Limited 9.46%
Average 24.26%
12.5 Accordingly, the TPO proposed Transfer Pricing addition of
INR.1,34,15,865/- in respect of back office support services.
Operating Cost (INR) 9,40,80,401
Mark-up @ 24.26% 2,28,23,905
ALP (INR) 11,69,04,306
Price actually charges (INR) 10,34,00,441
Adjusted Amount (INR) 1,34,15,865
8
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 12.6 The Learned CIT(A) declined to grant any relief to the Assessee.
Therefore, the Assessee carried the issue in appeal before this Tribunal.
12.7 Before us the Learned Authorized Representative for the Assessee sought exclusion of following 5 comparables. It was submitted that comparables at Sr. No.1, 2, 3, and 6 (in table in Paragraph 12.4 above) should be excluded on account of functional dissimilarities since the companies had different area of operation and the Tribunal had in the Assessee's own case for the Assessment Years 2007- 2008, 2008-2009, 2009-2010 and 2010-2011 excluded the same accepting the aforesaid contention of the Assessee. As regards comparable at Sr. No. 4 (in table in Paragraph 12.4 above) (i.e. Infosys BPΡΟ Ltd.) is concerned, it was contended that the Co- ordinate Bench of the Tribunal directed exclusion of the said comparables for the Assessment Year 2007-2008, 2008-2009, 2009- 2010 and 2010-2011 on account of high turnover. In support of her contention the Learned Authorized Representative for the Assessee furnished a chart. The relevant extract of which reads as under:
Sr. Name of the Net Cost Reason for rejection by Assessee No. Company Plus Margin (%)
1. Accentia 28.89% Company is functionally different as company is providing Technologies Limited medical transcription, coding and billing and collection.
2. Acropetal 22.06% Company is functionally different as company is engaged Technologies Limited in engineering design services, healthcare, enterprise solutions and IT Infrastructure solutions Company is functionally different as company is engaged in development of computer software (Company's onsite development expense is INR.55.78 crore out of total expense on staff of INR.62.9 crore i.e.88.68%.
3. Cosmic Global 9.81% Company is functionally different as company mainly provides medical transcription and translation (company's employee cost to sales is 36.43% and has paid translation charges of 41.30% of sales. Hence, it is shows it is outsourcing its activity and it is not a pure ITES company)
4. Infosys BPO Limited 18.50% Turnover of the company - INR.1129 Cr 9 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 In Bombay HC - Pentair Water India P. Ltd. Company was excluded on the basis of high turnover.
5. Eclerx Services 56.86% Company is functionally different as company is providing Limited data analytics and process solutions.
They are third party data analytics KPO company.
Net cost plus margin amounting to 56.86%, is unusually high in comparison to other companies selected by the TPO.
Average 24.26% 12.8 Per contra the Learned Departmental Representative upon the Order passed by the Learned CIT(A) and the decisions of the Tribunal cited by CIT(A).
12.9 Having given thoughtful consideration to the rival submissions and on perusal of the record, we find merit in the contention advanced on behalf of the Assessee. We note that the Co-ordinate benches of the Tribunal had directed exclusion of the 4 (i.e. Accentia Technologies Limited, Acropetal Technologies Limited, Cosmic Global, and Eclerx Services Limited) comparable under consideration in Assessee's own case for the Assessment Year 2007-2008, 2008- 2009, 2009-2010 and 2010-2011. The Tribunal had consistently taken a view that the aforesaid comparables are to be excluded on account of functional dissimilarities. The Revenue has failed to bring on record any material to show that there was change in the functional profile of the Assessee or comparables so as to make the 4 comparables under consideration to be functionally similar to the Assessee. Therefore, keeping in view of the decision of the Tribunal in the case of the Assessee for the preceding assessment years and taking note of the fact that there was no change in the functional profile, we direct the exclusion of the 4 comparables. As regards 5th comparable (i.e. Infosys BPΡΟ Ltd.) is concerned, we find that the Co-ordinate Bench of the Tribunal has directed exclusion of the said comparables for the Assessment Year 2007-2008, 2008-2009, 2009- 2010 and 2010-2011 on account of high turnover. Since, there is no change in facts and circumstances we direct exclusion of Infosys BPΡΟ Ltd. from the list of comparables. Our view also supports the 10 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 decision of the Tribunal in the case of DCIT Vs. Daiwa Capital Markets India (P) Ltd. [2020] [113 taxmann.com 337]. Thus, in terms of aforesaid Ground No.1 raised by the Assessee is allowed.
Letter of comfort
13. Next we will take up Ground No.1 raised by the Revenue.
13.1. We noted that for the Assessment Year 2010-2011 the Co-ordinate Bench of the Tribunal concluded that the transaction of issuance of Letter of Comfort constitutes an international transaction. However, the ALP of the guarantee commission for issuance of Letter of Comfort was restricted to 0.04% in view of the decision of the Co-ordinate Bench of the Tribunal in the case of the Assessee for the Assessment Year 2009-2010 and the decision of the Mumbai Bench of the Tribunal in the case of Asian Paints Ltd. [2024] 160 taxmann.com 214 (Mum). The Revenue has failed to bring on record any material to show that aforesaid decision would not apply to the assessment year before us. Accordingly, we hold that the issuance of Letter of Comfort constitutes an international transaction. However, the Transfer Pricing adjustment in respect of commission for issuance of Letter of Comfort is restricted to 0.04%. The TPO/Assessing Officer is directed accordingly. Ground No.1 raised by the Revenue is partly allowed.
Ground No.2
14. Ground No.2 raised by the Revenue pertains to disallowance of Mark to Market (MTM) losses on forex derivatives which reads as under:
"2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing assessee's appeal on market to market loss ignoring the facts that on similar Issue for A.Y. 2008-09, the Ld. CIT(A) had dismissed the appeal"
14.1. The relevant facts in brief are that during the relevant previous year the Assessee entered into derivative transactions in the course of its 11 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 banking and treasury business. The Assessee consistently followed policy of accounts for the mark to market (MTM) gains/losses for such derivative contracts in accordance with the relevant Accounting Standard and the guidelines issued by RBI. As per the consistent method of accounting followed by the Assessee, the positive MTM on derivatives were consistently accounted for and considered as part of income. Similarly, the loss suffered on account of the negative MTM on derivatives was claimed as deduction under Section 37(1) of the Act. For the Assessment Year 2011-2012, the forex derivatives MTM Gain/(Loss) for the aforesaid assessment year are as under:
Particulars INR in Crores
Currency Derivatives (675)
Interest rate Derivatives (148)
Forex Derivatives 211
Credit Derivatives 8
Total MTM Gain/(Loss) (604)
14.2. The Assessing Officer disallowed the amount of INR.604,00,00,000 being MTM losses on derivative transactions on the ground that the same were notional losses and being in the nature of contingent liability cannot be considered as deductible expenditure under the Act. However, the Assessing Officer allowed the reversal of losses of the preceding Assessment Year 2010-2011 to the extent of the loss of the current assessment year of INR.604,00,00,000 resulting in a net addition/disallowance of 'Nil' in the aforesaid assessment year.
14.3. In appeal preferred by the Assessee, the Learned CIT(A) deleted the disallowance by placing reliance upon the orders passed in the preceding Assessment Years 2009-2010 and 2010-2011 by the First Appellate Authority.
14.4. Being aggrieved, the Revenue has carried the issue in appeal before this Tribunal.
14.5. We note that identical issue had come up for consideration before 12 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 the Mumbai Bench of the Tribunal in the case of the Assessee. Vide Common order, dated 20/02/2026 [ITA No.1446/Mum/2016 and IT(TP)A No.1560/Mum/2016, for the Assessment Year 2010-2011], the Tribunal decided the issue in favour of the Assessee MTM losses under Section 37(1) of the Act holding as under:
11. Ground No.5 of revenue: Disallowance of mark to market loss on forex derivatives.
11.1 On the aforesaid issue an addition of Rs. 81.50/- crore was made by ld. AO. The assessee is involved into derivatives transactions in the course of its banking and treasury business in accordance with the guidelines by Reserve Bank of India (RBI). The ld. AO had made the disallowance with the conviction that mark to market losses are contingent liability and hence are not deductible as expenditure under the provisions of the Act. The assessee carried the matter before the ld. CIT(A) and have submitted that losses on forward contract on the last date of accounting period is allowable as deduction, even though the date of maturity of those forward contracts did not fall within the same accounting period.
Reliance was placed on the decision of Hon'ble Supreme Court in the case of Woodward Governor (312 ITR 254) and the decision of Special Bench of Mumbai Tribunal in the case of Bank of Bahrain & Kuait (41 SOT 290) and CIT's order for earlier AY 2009-10, Ld. CIT allowed the issue in favour of assessee. The revenue raised the objection against the aforesaid decision of ld. CIT(A) in allowing the relief to the assessee, the matter is taken up before the Tribunal. At the outset the ld. Counsel of the assessee submitted that the issue is squarely covered by the decision of ITAT in assessee's own case for AY 2009-10 wherein it is held that Mark to Market Loss / Gain is not contingent and allowable under section 37 of the Act. The relevant findings of the Tribunal on the aforesaid issue in assessee's own case for AY 2009-10 are extracted as under:
"17. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities. We find that on similar issue in A.Y. 2007-08 and 2008-09, similar disallowance on account of MTM loss was disallowed, however, on appeal before Tribunal the similar loss was allowed on the basis of decision of Hon'ble Supreme Court in CIT vs Woodward Governor India (P) Ltd. (supra). Thus, respectfully following 13 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 the same we do not find any informative in the order of ld. CIT(A) which we affirmed. No contrary fact or law is brought to our notice to take other view. In the result, ground no. 7 of the appeal of revenue is dismissed."
11.2 Ld. CIT-DR supported the order of ld. AO.
11.3 We have considered the rival submissions and perused the material available on record and case laws relied by the assessee. As apprised by ld. AR that the issue is identical with the issues in assessee's own case for AY 2007-08, 2008-09 and 2009-10, wherein the disallowance on account of Mark to Market Loss on forex derivatives was directed to be deleted by the ITAT following the decision of Hon'ble Supreme Court in the case of CIT vs. Woodward Governor (supra), therefore in the present case also in absence of any deviating fact, circumstances and decision, it would justify to be decided it in favour of assessee. The ld. CIT(A) in the impugned order has followed the decision of Hon'ble Apex Court in Woodward Governor (supra), we thus do not see any infirmity in the order of ld. CIT(A) to interfere with the same.
11.4 In result, Ground No.5 of the revenue, thus stands dismissed."
14.6. Since the Revenue has failed to bring on record any material to show that the above decision of the Co-ordinate Bench of the Tribunal is distinguishable either on facts or in law. Therefore, respectfully following the above decision of the Tribunal in the case of the Assessee we declined to interfere with the order passed by the Learned CIT(A) on this issue. Accordingly, Ground No.2 raised by the Revenue is dismissed.
Ground No.3 raised by the Revenue Ground No. 2 raised by the Assessee
15. Ground No.3 raised by the Revenue and Ground No.2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 14A of the Act and the same read as under:
15.1. Ground No.3 raised by the Revenue reads as under:14
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 "3. Whether on the facts and circumstances of the case and in law, whether Ld. CIT(A) was justified in deleting the disallowance under Rule 8D(2)(ii) ignoring the facts brought out in the assessment order that expenses of Rs. 486.02 Crores were attributable to earning of exempt income."
15.2. Ground No.2 raised by the Assessee reads as under:
"2. Expenses apportioned against income exempted under section 10(15) 10(34) and 10(35) - Disallowance under Section.14A: INR.45,38,14,712 On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the apportionment of expenses of INR.55,15,00,000 as against INR.9,76,85,288 made by the Appellant to the income exempt under section 10(15), 10(34) and 10(35) of the Act by applying provision of Rule 8D(2)(iii) of the Income-tax Rules, 1962."
15.3. In the return of income for the Assessment Year 2011-2012 the Assessee-bank had claimed exemption under Section 10 of the Act in respect of income aggregating to INR.976,85,28,796/-.
Therefore, during the assessment proceedings the Assessee was required to explain as to why disallowance should not be made under Section 14A of the Act in respect of expenses pertaining to the earning of the aforesaid exempt income. In response, the Assessee took a stand that no expenses other than administrative expenses (estimated at the rate of 1% of gross dividend/interest income) have been incurred for earning the said exempt income as the investments have been made out of interest free funds of the Bank. The Assessee also filed following working to substantiate the aforesaid contention:
Particulars Mar - 11 (INR)
Share Capital 11,51,82,00,000
ESOP 29,29,000
Reserves & Surplus 539,38,82,44,000
Total Net Worth 5,50,90,93,73,000
Current Account Deposits 3,47,77,52,90,000
Total non-Interest bearing fund - A 8,98,68,46,63,000
Incremental Non-Interest bearing fund 72,52,63,68,000
Investment in India
i. Share held as Investment 28,13,40,73,340
ii. Subsidiaries and/or joint ventures 64,79,69,26,850
iii. Other (CPs, Mutual Fund Units, etc.) 54,06,56,92,577
15
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 iv. Interest free Bond 33,11,76,448 Total Investment in India - B 1,47,32,78,69,215 Incremental Investment 7,29,18,89,215 Net A - B 7,51,35,67,93,785 15.4. The Assessing Officer was not convinced. The Assessing Officer rejected the contention of the Assessee that no other expenses were incurred for earning exempt income. The Assessee was directed to furnish working of disallowance as per Rule 8D of the Income Tax Rules, 1962. After considering the same the Assessing Officer made a further disallowance of INR.486.02 Crores under Section 14A read with Rule 8D2(ii) and INR.45.39 Crores (INR.55.16 Crore Less INR.9.77 Crores) under Section 14A read with Rule 8D2(iii) of the IT Rules.
15.5. In appeal preferred by the Assessee, the Learned CIT(A) deleted the disallowance of INR 486.02 Crores made by the Assessing Officer under Section 14A read with Rule 8D2(ii) of the IT Rules on the ground that Assessee had adequate interest free funds and is therefore, was entitle to benefit of presumption that its investment yielding tax free income were sourced from such interest free funds available with it. However, the Learned CIT(A) upheld the additional disallowance of INR.45.39 Crores made by the Assessing Officer under Section 14A read with Rule 8D2(iii) of the IT Rules in relation to administrative expenses.
15.6. Now, being aggrieved by the above action of the Learned CIT(A) both the sides are in appeal before this Tribunal.
15.7. We have given thoughtful consideration to rival submissions and have perused the material on record. We find that disallowance under Section 14A read with Rule 8D of the IT Rules in a recurring issue. Similar issue had come up for consideration before the Co- ordinate Bench of the Tribunal. Vide Common order, dated 20/02/2026 [ITA No.1446/Mum/2016 and IT(TP)A 16 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 No.1560/Mum/2016, for the Assessment Year 2010-2011], the Tribunal disposed off the issue in the following manner:
"9. Ground No.2 of assessee's appeal: regarding disallowance under section 14A of the Act.
9.1 The aforesaid disallowance for Rs. 37,99,40,048/- was made by the ld. AO, invoking the provisions of section 14A r.w.r. 8D. The original disallowance made by ld. AO was for Rs. 506,17,00,000/- reduced by Rs. 10,32,59,952/-, as already suo-motu disallowed by the assessee in its computation of total income.
9.1 Aggrieved by the calculations and final disallowance by ld. AO under section 14A r.w.r. 8D, the assessee preferred an appeal before the ld. CIT(A) who had reduced the disallowance to Rs. 37.99/- crore with the following observations:
"4.5 As regards the administrative expenses attributable to the earning of the exempt incomes, the Appellant has offered the same at 1% of the gross exempt incomes received. However, in terms of the provisions of Rule 8D(2)(iii), an amount equal to half percent of the average value of investments, the income from which does not or shall not form a part of the total income, is to be taken as the expenditure incurred in relation to the earning of such tax free incomes. The Appellant itself in the course of the assessment proceedings had given a without prejudice computation under Rule 8D wherein the administrative expenses relatable to the earning of tax free incomes has been computed at Rs.48.32 crores. As the Appellant had offered only Rs.10.33 crore in its return of income as the administrative expenses disallowable under section 14A of the Act, the balance of Rs.37.99 crores has been correctly added to the returned income by the AO. The same is hereby upheld. The appeal filed by the Appellant on this ground relating to the total addition made to the returned income by the AO under section 14A of the Act may be treated as partly allowed."
9.2 As the assessee remain dissatisfied, even after a substantial relief by the first appellate authority as per the aforesaid findings, therefore had raised the issue in present appeal. Ld. AR having concern with the working of disallowance which according to her had not been carried out by the revenue in 17 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 accordance with the settled principles, had furnished a revised working at page no. 843 of the assessee's Paper Book (PB), the same is culled hereunder for batter appreciation of fact and adjudication of the issue:
Computation of disallowance of exempt income u/s 14A as per Formula prescribed by Rule 8D Particulars March, 2010 (Amt. in cr.) Opening Investment Shares (equity and preference) 847.18 Subsidiaries and/or joint ventures 2,519.35 Venture funds 1,264.16 Total-a 4,630.69 Closing Investment Shares (equity and preference) 998.09 Subsidiaries and/or joint ventures 2,619.35 Venture funds 1,167.06 Total-b 4,784.49 Average Investment [(a+b)/2] 4,707.59 Section 14A Disallowances
c) Administrative Expenses 23.54 Total 23.54 9.3 The ld. AR further placed her reliance on the following decisions:
1. Delhi High Court in Cargo Motors (P.) Ltd. v. DCIT [2022] (145 taxmann.com 641)
2. Delhi Tribunal Special bench in ACIT vs. Vireet Investment P. Ltd. [2017] (82 taxmann.com 415)
3. Mumbai Tribunal in Sajjan India Ltd. v. Addl. CIT [2018] (89 taxmann.com 21) 14A not applicable on stock-in-trade 1 Supreme Court in Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640 (SC) 2 Delhi High Court in PCT v. PNB Housing Finance Ltd.
[2023] 146 taxmann.com 445 (SLP dismissed by Hon'ble Supreme Court- [2023] 157 taxmann.com 465) 18 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 ITAT order in own case for A.Y. 2009-10 and earlier years 9.4 It is submitted that the identical issue, when came up before the ITAT, Mumbai in assessee's own case, the ITAT has held as under:
"21. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. So far as grounds of appeal raised by revenue is concerned, we find that it has been consistently held by jurisdictional High Court right from Reliance Utilities and Power Ltd. (supra) and in CIT vs HDFC 366 ITR 505 that when interest free funds available with the assessee are sufficient to meet its investment that yielded tax free income, it can be safely presumed that such investment were from interest free funds available with it. The ld. CIT(A) followed this principle while allowing relief to the assessee. Thus, we do not find any infirmity in his finding, which we affirmed. So far as, grounds of appeal in assesse's appeal is concerned. We find that on similar disallowances in appeal for A.Y. 2008-09 in ITA No. 4249 & 4951/M/2014, in para 11.3, the co-ordinate bench on furnishing fresh disallowance of rule 8D(2)(iii) restored the matter to assessing officer to consider such suo moto disallowance. Before us the ld. AR of the assessee has furnished the following fresh working of disallowance on account of administrative expenses as per rule 8D(2)(iii).
Particulars March, 2009
Opening Investment
Shares (equity and preference) 957.66
Subsidiaries and/or joint ventures 1129.27
Venture funds 1177.23
Total -a 3264.16
Closing Investment
Shares (equity and preference) 850.07
Subsidiaries and/or joint ventures 1423.43
Venture funds 1256.07
Total -b 3529.56
Average Investment (a+b)/2 3396.86
Section 14A disallowances
c) Administrative expenses (0.5&) 16.98
Total 16.98
9.5 Per contra, ld. CIT-DR vehemently supported the orders of ld.19
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 CIT(A).
9.6 We have considered the rival submissions and perused the material available on record and case laws relied upon by the assessee. The aforesaid issue is squarely covered by the findings of ITAT, Mumbai in assessee's own case for AY 2009-
10. The facts and circumstances in the present matter are also at parity to the facts and circumstances for the earlier year, the workings furnished by the assessee reproduced (supra) are prima facie found to be in accordance with the decisions referred to (supra), however for the purpose of verification are being set-aside to the file of ld. AO for verification of the working submitted by the assessee and re-computation of the disallowance under section 14A r.w.r. 8D in terms of decision of Special Bench of Delhi Tribunal in ACIT vs Vireet Investment P. Ltd..
9.7 In result, Ground No.2 of the assessee's appeal stands allowed for statistical purposes. "
15.8. On perusal of the above we find that the Tribunal has remitted the issue of computation of disallowance under Section 14A read with Rule 8D(2)(iii) of the IT Rules back to the file of the Assessing Officer for verification of computation of administrative expenses in terms of filed by the Assessee. We note that identical computation has been filed by the Assessee for the Assessment Year 2011-2012 and the same is set out herein under:
Particulars March, 2011
Opening Investment
Shares (equity and preference) 1,144.00
Subsidiaries and/or joint ventures 2,619.35
Venture funds 1,167.06
Total -a 4,930.41
Closing Investment
Shares (equity and preference) 1,081.64
Subsidiaries and/or joint ventures 2,870.95
Venture funds 977.65
Total -b 4,930.23
Average Investment (a+b)/2 4,930.32
20
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 Section 14A disallowances
c) Administrative expenses (0.5&) 24.65 Total 24.65 Notes:
1. Securities not earning exempt income is not included above
2. Securities in nature of stock in trade (Mutual funds) are not above. The profit/loss on the transfer of stock in trade is offered to tax as business income which is being accepted.
15.9. Given the parity in facts we find no reason to depart from the approach adopted by the Co-ordinate Bench of the Tribunal in the case of the Assessee for the Assessment Year 2009-2010 and 2010-2011. Accordingly, for the Assessment Year 2011-
2012 we remit the issue of computation of disallowance under Section 14A read with Rule 8D(2)(iii) of the IT Rules back to the file of Assessing Officer for verification. All the rights and contentions of the Assessee in this regard are left open. The Assessee would be at liberty to raise factual/legal contentions for inclusion/exclusion of investments for the purpose of the above computation. Accordingly Ground No.2 raised by Assessee is partly allowed.
15.10. As regards the order passed by Learned CIT(A) deleting the disallowance of INR.486.02 Crores made by the Assessing Officer under Section 14A read with Rule 8D2(ii) of the IT Rules is concerned, we find no infirmity in the order passed by Learned CIT(A) as the Revenue has failed to controvert the finding returned by the Learned CIT(A) that the Assessee had sufficient interest free funds. We concur with the Learned CIT(A) that in the present case the Assessee is entitle to benefit of presumption that its investment yielding tax free income were sourced from such interest free funds available with it. Accordingly Ground No.3 raised by Revenue is dismissed.
21ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 Ground No.4 to 6
16. Ground No.4 to 6 raised by the Revenue relate to Assessee's claim of depreciation on leased assets amounting to INR.16,02,19,025/- and the same read as under:
"4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance on account of depreciation of leased assets when the assets were not actually owned by the assessee and leased out, but the transaction was in the nature of finance only.
5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in disregarding the ratio decided in the case of Damodar valley Corporation vs. State of Bihar (12STC
102) and Sundram Finance Ltd vs. State of Kerala (1996 AIR SC 1178) in its true spirit as decided by the Hon'ble SC.
6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the depreciation on leased assets without appreciating the fact that the said transaction being a financial lease transaction, the assessee did not satisfy the legal requirement of ownership of the assets for the purpose of Section 32(1) of the IT Act 1961 and therefore not entitled for claim of depreciation on the leased assets."
16.1. For the relevant assessment years the Assessee had claimed depreciation of INR.16,02,19,025/- on leased assets which was disallowed by the Assessing Officer. However, in appeal preferred by the Assessee the Learned CIT(A) deleted the aforesaid disallowance made by the Assessing Officer holding as under:
"5.4 As regards the allowability of depreciation on leased assets, the Apex Court in the case of ICDS vs CIT (350 ITR 266) had decided in principle that depreciation allowance would be allowable to the lessor in a bona fide lease transaction. With reference to the facts of the Appellant's case, the Mumbai Tribunal in its own case for A.Ys. 1996-97 to 2002-03 and in the case of the erstwhile ICICI Personal Financial Services Ltd. (that has since been amalgamated with the Appellant company) for A.Ys.1998-99 and 2001-02 had allowed the depreciation claim on leased assets. Similar issue had arisen in the preceding assessment years 2009-10 and 2010-11 wherein the AO had been directed to allow depreciation on leased assets to the Appellant. Since the issue of allowability of depreciation 22 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 allowance on leased assets to the lessor having been decided in principle by the Apex Court in favour of the claim being made by the Appellant and the Hon'ble Tribunal, which is the highest fact finding authority, having determined in the facts of the Appellant's own case for earlier years that such depreciation allowance was permissible to it on the assets used in its leasing business, the disallowance made by the AO is found to be not justified and the same is hereby directed to be deleted. Appeal filed by the Appellant on this ground may accordingly be treated as allowed."
16.2. Being aggrieved, the Revenue has carried the issue in appeal before this Tribunal.
16.3. During the course of hearing both the sides agreed that on identical issue had come up for consideration before the Co-ordinate Bench of the Tribunal. Vide Common order, dated 20/02/2026 [ITA No.1446/Mum/2016 and IT(TP)A No.1560/Mum/2016, for the Assessment Year 2010-2011], the Tribunal decided the issue in favour of the Assessee and accepted Assessee's claim of depreciation on leased assets holding as under:
"13. Ground No. 7 & 8 of revenue's appeal: regarding depreciation on leased assets 13.1 An addition of Rs. 21,43,84,938/- was made by ld. AO disallowing the claim for depreciation on leased assets, which was deleted by ld. CIT(A) by allowing the claim of assessee following the order of Hon'ble Apex Court in the case of ICDS vs. CIT (350 ITR 266) and the order for preceding AYs, as the facts of the case are identical.
13.2 Before us the ld. CIT-DR supported the orders of ld. AO whereas the ld. AR representing the assessee submitted that the issue is expressly covered by the decision in ITAT in assessee's own case for AY 2009-10 wherein the relevant observations are reiterated and extracted hereunder for the same of completeness:
"25. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully as well as the order of Tribunal on this issue in earlier years. We find that 23 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 ld. CIT(A) while allowing relief to the assessee followed the order of Hon'ble Supreme Court in ICDS vs CIT (supra). Further, similar relief was allowed in assessee's group case in ICICI Personal Financial Services Ltd., which was later on amalgamated with the assessee. We find that on similar issue the assessee have been consistently allowed relief on similar issue including in appeal for A.Y. 2008-09 wherein order of earlier years was followed. Thus, we do not find any merit in the grounds of appeal no. 9 & 10 revenue's appeal. In the result, ground no. 9 & 10 of revenue's appeal are dismissed."
13.3 Since the facts of the present issue are identical to the facts of appeal in assessee's own case for AY 2009-10 and relief is granted by ld. CIT(A) following the decision of Hon'ble Supreme Court in case of ICDS vs.CIT (supra), therefore the decision of ld. CIT(A) cannot be found at fault so as to revisit the same. We, thus do not find any substance in the ground of appeal no. 7 & 8 raised by the revenue in the present appeal, the same are accordingly dismissed."
16.4. We find that the Tribunal has granted relief to the Assessee in appeal for the Assessment Year 2010-2011 and has allowed depreciation claimed by the Assessee on leased assets by following the judgment of Hon'ble Supreme Court in the case of I.C.D.S. Ltd. vs. Commissioner of Income-tax, Mysore [2013] 29 taxmann.com 129 (SC)/[2013] 212 Taxman 550 (SC)/[2013] 350 ITR 527 (SC)/[2013] 255 CTR 449 (SC)[14-01-2013] and the decisions of Mumbai Bench of the Tribunal in the Assessee's own case for the Assessment Year 2009-2010. Since the Revenue has failed to bring on record any material to show that the aforesaid judicial precedents are distinguishable either on facts or in law. Therefore, respectfully following the same, we declined to interfere with the order passed by the Learned CIT(A) on this issue. Accordingly, Ground No.4 to 6 raised by the Revenue are dismissed.
Ground No.7 to 9
17. Ground No.7 to 9 raised by the Revenue relate to disallowance of 24 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 depreciation on goodwill of INR.8,04,39,00,264/- and the same read as under:
"7. Whether on appointed date 'Bank of Rajasthan did not have any asset and property as goodwill or such intangible asset in its accounts which could become a subject matter of transfer or vesting of asset to assessee
8. Further whether, while giving direction for amalgamation, High Court was not shown to have ordered to pay any specific amount for such goodwill, it could not be accepted that assessee incurred any additional cost on account of goodwill
9. Whether claim made by assessee with regard to goodwill, which was only a fictitious asset in hands of assessee, and also claim of depreciation were neither bona fide nor tenable."
17.1. In revised return of income filed on 29/03/2013 the Assessee claimed depreciation on goodwill/intangible rights acquired on merger with The Bank of Rajasthan Limited (BOR) and Anagram Finance Limited. As per scheme of merger the Assessee acquired the entire assets and liabilities (net assets) of BOR amounting to INR.90,44,18,575/- for a consideration of INR.3292,95,63,759/-. The excess consideration paid over net assets of BOR by the Assessee of INR.3202,51,45,184/- was considered as goodwill and depreciation @ 25% was claimed in the revised return of income. Further, the Assessee also claimed depreciation @ 25% on the WDV of the block of assets being in the nature of the business and commercial rights acquired at the time of merger of Anagram Finance Limited. The rights were in the nature of branch network and retail business. Thus, the total depreciation claimed by the Assessee on goodwill/intangible rights was INR.804,39,00,264/- working of which is as under:
I. On merger with The Bank of Rajasthan (BOR) Amount (INR.) Market value of shares allotted to shareholders 3292,95,63,759 Net assets taken over 90,44,18,575 Goodwill 3202,51,45,184 II On merger with Anagram Finance Limited INR.25
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 WDV as in Books (As per Tax Audit Report) 15,04,55,872 Total Goodwill 3217,56,01,056 Depreciation @ 25% 804,39,00,264 WDV as on March 31, 2011 2413,17,00,792 17.2. The Assessing Officer disallowed the depreciation of INR.804,39,00,264/- claimed on goodwill/intangible rights acquired by the Assessee on the ground that goodwill is not an asset falling under Explanation 3 to Section 32(1) of the Act.
17.3. In appeal preferred by the Assessee, the Learned CIT(A) accepted the contention of the Assessee and allowed Assessee's claim for depreciation on goodwill as per provisions of Section 32(1)(ii) of the Act by following the judgment of the Hon'ble Supreme Court in case of Commissioner of Income Tax, Kolkata Vs. Smifs Securities Ltd [348 ITR 302 (SC)].
17.4. Being aggrieved the Revenue has raised Ground No.7 to 9 in the present appeal challenging the relief granted by Learned CIT(A) in respect of depreciation on goodwill/intangible rights acquired by the Assessee on merger with BOR.
17.5. On perusal of the Assessment Order we find that the Assessing Officer denied the depreciation claimed by the Assessee on the goodwill solely on the ground that the Assessing Officer was of the view that the goodwill did not fall within the ambit of Explanation 3 to Section 32 of the Act. The relevant extract of the Assessment Order reads as under:
"13.3 The claim of the assessee is not accepted as goodwill is not an asset falling under Explanation 3 to Section 32(1) of the IT Act. The claim of the assessee of depreciation on goodwill and commercial right amounting to 804,39,00,264/- is disallowed and added to the total income of the assessee. Since the assessee has erroneously claimed depreciation on goodwill, the assessee has furnished 26 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 inaccurate particulars of income thereby concealing the income and therefore this is a fit case for initiation of penalty proceedings u/s.271(1)(c) which are separately initiated. (Addition: 804,39,00,264/-)"
17.6. Before the Learned CIT(A) the Assessee had raised the following ground of appeal:
"8. Disallowance of depreciation on goodwill/intangible assets acquired on merger-804,39,00,264 [Para 13, page 61 and 62 of the Assessment order] 8.1 On the facts and circumstances of the case and in law, the Assessing Officer erred in disallowing the amount of ₹804,39,00,264 being depreciation claimed on goodwill/intangible rights acquired by the Appellant on merger with the Bank of Rajasthan Limited and Anagram Finance Limited on the ground that goodwill is not an asset falling under Explanation 3 to section 32(1) of the Act."
17.7. The Learned CIT(A) allowed the above ground in favour of the Assessee and concluded that "goodwill is an asset falling within the ambit of Explanation 3 to Section 32(1) of the Act and therefore, the Assessee we entitled to claim depreciation on goodwill. WE note that while overturning the decision of the Assessing Officer the Learned CIT(A) had relied upon the judgment of Hon'ble Supreme Court in the case of Commissioner of Income Tax, Kolkata Vs. Smifs Securities Ltd. : [2012] 348 ITR 302 (SC). On perusal of the aforesaid judgment, we find that the Hon'ble Supreme Court had held that goodwill is an asset falling under Explanation 3(b) of the Section 32(1) of the Act. The relevant extract of the judgment of the Hon'ble Supreme Court reads as under:
"2. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele.27
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013
3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short].
We quote herein below Explanation 3 to Section 32(1) of the Act:
"Explanation 3.-- For the purposes of this sub- section, the expressions 'assets' and 'block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture;
[b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature."
4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).
5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act.
6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee- Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also 28 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding.
7. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove.
8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee."
17.8. In view of the above we do not find any infirmity in the order passed by the Learned CIT(A) on this issue. As regards, the contention of the Revenue that there was no intangible asset, we note that no such reasoning was given by the Assessing Officer while rejecting the Assessee's claim for depreciation on goodwill. In any case we note that the BoR was merged with the Assessee pursuant to the provision of Section 44A of the Banking Regulations Act and was approved by the Reserve Bank of India. Bank of Rajasthan was having branches all over India with prominent presence in Rajasthan having specialised forex and industrial finance branch. As per the valuation report there were 468 branches and office of BoR in India. At the time of merger the business of BoR was intended to be continued on a 'going concern' basis. The Assessee has taken a position that the goodwill was attributable, inter alia, to this branch network. For the aforesaid reasons that the RBI has approved the exchange ratio after considering the valuation report. Therefore, we do not find any merit in the contentions advanced by the Revenue in this regard.
17.9. In view of the above Ground No. 7 to 9 raised by the Revenue are dismissed.
Ground No.10
18. Ground No.10 raised by the Revenue relate to Employees Stock Option Scheme (ESOS) Expenses amounting to 29 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 INR.1,35,19,99,939/- and the same read as under:
"10. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to allow the amount of Rs. 134,90,71,300/- Being the difference between the exercise price and the market value of the ESOS, when the same is not an ascertained liability, is contingent in nature, quantum cannot be worked out precisely and is capital in nature and hence not allowable."
18.1. In the return filed by the Assessee for the Assessment Year 2011- 2012, the Assessee had claim deduction for INR.29,28,639/- in relation to Employee Stock Options Scheme [ESOS] being the difference between the exercise price and the market price of ESOS given to its employees on grant of option. Further, during the assessment proceedings the Assessee claimed deduction for INR.134,90,71,300/- by placing reliance upon the decision of the Special Bench of the Tribunal in the case of Biocon Limited v. CIT [25 ITR (Trib) 602, 144 ITD 21). However, the Assessing Officer did not allow the claim for deduction of INR.135,19,99,939/- on the ground that the same was neither a real expenditure nor an actual loss. Hence, deduction for the same was not allowable as per provisions of Section 37 of the Act. The Assessing Officer observed that the claim for deduction of INR.134,90,71,300/- was not made by way of revised return and therefore, the same could not have been entertain by the Assessing Officer as per the judgment of the Hon'ble Supreme Court in the case of Goetze India Pvt Limited (284 ITR 323).
18.2. In appeal preferred by the Assessee the Learned CIT(A) concluded that the additional claim made by the Assessee during the assessment proceeding could be entertain by the First Appellate Authority. Following the decision of Special Bench of the Tribunal in the case of Biocon Limited v. CIT [25 ITR (Trib) 602, the Learned CIT(A) accepted Assessee's claim for deduction of INR.135,19,99,939/- (INR.29,28,639/- + INR.134,90,71,300/-) in 30 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 relation to ESOS expenses. As a result, the Revenue has carried the issue in appeal before this Tribunal.
18.3. We note that identical issue had come up for consideration before the Mumbai Bench of the Tribunal in the case of the Assessee in the preceding assessment year. Vide Common order, dated 20/02/2026 passed in ITA No.1446/Mum/2016 and IT(TP)A No.1560/Mum/2016, for the Assessment Year 2010-2011, the Tribunal decided the issue in favour of the Assessee and accepted Assessee's claim for deduction of ESOS expenses holding as under:
"15. Ground No.10 of revenue's appeal: Disallowance of Employees Stock Option Cost (ESOS) Expenses.
15.1 During the assessment proceedings the assessee vide letter dated 21.02.2014 had claimed a deduction of Rs. 79.21/- Crore, being the difference between exercise price and market value of the stock options offered by it to its employees. As the claim has been made during the course of assessment proceedings, the ld. AO denied the same following the decision of Hon'ble Apex Court in the case of Goetze India Pvt. Ltd. [284 ITR 323].
15.2 The issue was raised before the FAA relying upon the decision of Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT [187 ITR 688] and Hon'ble Bombay High Court in the case of Pruthvi Brokers & Shareholders [2012] 349 ITR 336. Such claim of assessee was allowed by the ld. CIT(A) following the decision of ITAT, Bangalore in the case of Biocon Ltd. reported in (2013) 25 ITR (Trib.) 602. In the case of M/s Biocon Ltd. (supra), it was held that the difference between the exercise price and market price of the ESOS can be claimed as deductible expenditure by the tax payer.
15.3 The ld. CIT-DR on the aforesaid issue have placed his reliance on the order of ld. AO and has submitted that the assessee has the option to make such claim by way of revising its return, which was not done by the assessee, therefore the ld. CIT(A) was not right in his decision to delete such addition accordingly the decision of ld. CIT(A) is liable to be reversed. The ld. CIT- DR also submitted that the decision of ld. CIT(A) was erroneous so far as the difference between the exercise price 31 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 and the market value of ESOC and the same is not unascertained liability, is contingent in nature, quantum cannot be worked out precisely, thus capital in nature, hence not allowable.
15.4 Per contra, the ld. AR of the assessee submitted that the assessee has granted ESOP at the market price of the previous day of grant of option. The difference between the exercise price and market price is treated as perquisite in the hands of employee and is claimed as expenses under section 37 of the Act by the assessee. The ld. AR referred to the letter dated 21.02.2024 addressed to the ld. AO claiming therein the ESOS claim. The details of ESOS claim proced before the AO are also furnished at page no. 923 to 937 of PB, consisting of serial number, grant date, exercise date, allotment date, options exercised, exercise price/grant price, FMB (Average NSE Price) on date of exercise, difference (FMB and Exercise Price). It was the submission that all the aforesaid documents were furnished before the ld. AO, however the ld. AO has denied the claim of assessee based on the decision of Hon'ble Apex Court in the case of Goetze India Pvt. Ltd. (supra), whereas there were favorable decisions for the assessee also, according to which such claim of assessee should have been allowed. Reliance was placed on the following decisions:
1. Karnataka High Court in case of CIT,LTU v. Biocon Ltd [2020][121 taxmann.com 351]
2. Bangalore Tribunal (SB) in case of Biocon Limited v. DCIT, LTU [2013][35 taxmann.com 335)
3. Mumbai ITAT in Kotak Mahindra Bank Ltd. vs. Dy.
CIT [2025] (171 taxmann.com 420) (ITA No.3754,4104/Mum/2023)
4. Mumbai ITAT in HDFC Bank Ltd. vs. Addl. CIT/ Dy.
CIT [2025] (171 taxmann.com 47) 15.5 We have considered the rival submissions and perused the material available on record and the judicial pronouncements relied upon by the assessee. In the context of aforesaid ground raised by the revenue, we find that the identical issue has come up before Mumbai Tribunal in the case of Kotak Mahindra Bank vs. DCIT (supra), wherein it is categorically held that the discount of issuance of ESOPs is allowable business expenditure under section 37 of the Act. The relevant findings from the said decision are culled out as under:
"27. Rewarding employees through share-based benefit 32 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 schemes has been an effective tool for the companies to not just recognize their contribution to the company but also retain them by imbibing a sense of belonging and ownership. One such scheme, popular among the companies for almost last two decades, has been to grant of Employee Stock Option Plans ("ESOPs"). In simple terms, an ESOP is an option and not an obligation, provided by a company to its employees, to purchase its shares at a future date at a pre-determined price, which is ordinarily less than the market price, on satisfaction of certain prescribed conditions. Recently, the Karnataka High Court affirmed the ruling of the special bench of the Bangalore Income Tax Appellate Tribunal in the case of Biocon Ltd., wherein it was held that discount on issuance of ESOPs is an allowable business expenditure under Section 37(1) of the Act, 1961 for the employer. CIT, LTU v. Biocon Ltd. [2020] 121 taxmann.com 351/276 Taxman 1/(2021] 430 ITR 151 (Karnataka); Biocon Ltd. v. Dy. CIT (LTU) [2013] 35 taxmann.com 335/144 ITD 21/[2013] 25 ITR(T) 602 (Bangalore Trib.) (SB).
27.1 In view of the foregoing, considering the fact that issue in hand is identical and recurring in nature and is also being consistently decided in favour of the assessee, respectfully following the decisions referred above, the disallowance made is accordingly deleted."
15.6 Further, ITAT Mumbai in the case of HDFC Bank Ltd. vs. Addl. CIT, [2025] 171 taxmann.com 47 dated 28.01.2025 has held as under:
"28.3. This issue is no longer res integra as has been dealt by Co-ordinate Bench in the case of HDFC Bank Lid (supra) with similar view taken by Hon'ble Special Bench, ITAT, Bangalore in the case of Biocon Ltd. (supra). the same having been approved by Hon'ble Court of Karnataka Biocon Ltd. (supra)"
15.7 As evident from the aforesaid decision that the claim of assessee for ESOS expenses in terms of decisions of Hon'ble Karnataka High Court in the case of CIT(LTU) vs. Biocon Ltd., would be allowable, further since the claim was made during the assessment proceedings, the ld. AO on account of his limitations had not allowed the claim, but the FAA/CIT(A) has rightly allowed as the claim as held in Goetze India Pvt. Ltd. (supra). We therefore convince with the decision arrived 33 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 at by the ld. CIT(A), so we approve the same.
15.8 In result, ground no. 10 of the revenue stands dismissed.
18.4. The Revenue has failed to bring on record any material to show that the above decision of the Tribunal is distinguishable either on facts or in law. Therefore, respectfully following the same, we decline to interfere with the order passed by the Learned CIT(A) on this issue. Accordingly, Ground No. 10 raised by the Revenue is dismissed.
Ground No.11
19. Ground No.11 raised by the Revenue relates to disallowance of expense on issue and discount of rupee and foreign currency bonds amounting to INR.6,00,410/- and the same read as under:
"11. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to allow the claim for expenses on issue and discount of Rupee & Foreign currency bonds amounting to Rs.6,00,410/-, When appeal against the issue has been filed before the ITAT and the issue has not reached finality."
19.1. The Assessing Officer in Assessment Year 2002-03 had disallowed expenses on issue and discount of rupee and foreign currency bonds on the ground that the discount on rupee and foreign currency loan is to be spread over the period of the debentures/bonds as per decision of the Supreme Court in case of Madras Industrial Investment Corporation (225 ITR 802). The Assessee had accordingly claimed INR.6,00,410/- in the current assessment year following the said decision. The Assessing Officer did not allow the claim of the Assessee of expenses on issue and discount of rupee and foreign currency bonds of the current year amounting to INR.6,00,410/- on the ground that that since the Appellant is in appeal in the Assessment Year 2002-03 the claim cannot be allowed at this stage. In appeal Learned CIT(A) overturn the decision of the Assessing Officer and allowed deduction for INR.6,00,410/- claimed by the Assessee in respect of expenses on issue and discount of 34 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 rupee and foreign currency bonds.
19.2. Being aggrieved, the Revenue has preferred the appeal before this Tribunal.
19.3. Both the sides agreed that on identical issue has come for consideration before the Mumbai Bench of the Tribunal vide Common order, dated 20/02/2026 [ITA No.1446/Mum/2016 and IT(TP)A No.1560/Mum/2016, for the Assessment Year 2010-2011], the Tribunal decided the issue in favour of the Assessee holding as under:
16. Ground No.11- disallowance of expenses on issue and discount of rupees and foreign currency bonds.
16.1 This issue is squarely covered by the decision of ITAT, Mumbai in assessee's own case for AY 2009-10 the relevant findings are culled out as under:
"35. We have considered the rival submissions of parties and also perused the order of Tribunal on similar issue in earlier years. We find that discount expenses of bonds was claimed in AY 2002-03, which was disallowed by assessing officer in that year on the ground that such expenses should be amortised over the tenure of the bonds. However, on appeal before Tribunal it was allowed in ITA No. 836/Mum/2008 wherein the assessing officer was directed to allow proportionate expenditure on the issue of discount bonds. This is the 8th year of bonds, following the decision of Tribunal prorate expenses is allowable in the current year. As recorded that similar relief was allowed to the assessee in AY 2007-08 & 2008-09. Thus, the assessing officer is directed to follow the order of Tribunal in A.Y. 2007-08 and 2008-09. Resultantly, this ground of appeal is also dismissed."
16.2 In terms of identical facts and circumstances, without any contrary material to dislodge the aforesaid findings by the Tribunal in the assessee's own case for earlier years, we find that the ld. CIT(A) had rightly allowed the claim of assessee qua the expenses on issue and discount of rupees and foreign currency bonds, we therefore concur with the decision of ld.
35ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 CIT(A).
16.3 In result, ground no. 11 of the revenue in absence of any substantial material to convince us to deviate from the decisions of Tribunal stands rejected.
19.4. The Revenue has failed to bring on record any material to show that the above decision of the Tribunal is distinguishable either on facts or in law. Therefore, respectfully following the same, we decline to interfere with the order passed by the Learned CIT(A) on this issue. Accordingly, Ground No. 11 raised by the Revenue is dismissed.
Ground No.12
20. Ground No.12 raised by the Revenue relates to disallowance of club expenses amounting to INR.37,04,712/- and the same read as under:
"12. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of payment of membership fees to clubs without appreciating the fact that the benefit of the above expenses are enduring in nature and hence cannot be treated as revenue expenses."
20.1. The contention of the Revenue is that the club membership fees amounting to INR.37,04,713/- is capital in nature and the Assessing Officer was correct in disallowing deduction for the same as capital expenditure.
20.2. We note that identical issue had come up for consideration before the Co-ordinate Bench of the Tribunal in appeal pertaining to Assessment Year 2010-2011. Vide Common order, dated 20/02/2026 [ITA No.1446/Mum/2016 and IT(TP)A No.1560/Mum/2016, for the Assessment Year 2010-2011], the Tribunal decided identical issue in favour of the Assessee and allowed deduction for club expenses holding the same to be revenue expenditure. The relevant decision extract of the decision of the Tribunal reads as under:
36ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 "17. Ground No. 12: disallowance of Club Expenses.
17.1 Claim for such expenses are covered by assessee's own case for AY 2009-10 and earlier years. During the year under consideration, the ld. AO has made a disallowance of Rs.
25,43,423/- which is deleted by the ld. CIT(A) following the ld. CIT(A)'s earlier order for AY 2009-10, taking support from the principle emerging from the judgment by Hon'ble Supreme Court in the case of CIT vs. United Glass Manufacturing Company Ltd. (Appeal No. 6449 of 2012).
17.2 At the outset, the ld. CIT-DR vehemently supported the order of ld. AO and request to sustain the same. Whereas, the ld. AR placed reliance on assessee's own case decided by ITAT for earlier years.
17.3 We have considered the rival submissions and perused the material available on record and find that the similar issue was dealt with by the Tribunal in assessee's own case for AY 2008- 09 wherein the Club Membership Fees paid by the assessee was allowed following the decision of Tribunal for AY 2007-08 in terms of the ratio laid down by the Hon'ble Bombay High Court in the case of Otis Elevators Co. Ltd. reported in 195 ITR 682. The abstract of relevant findings of Tribunal for the AY 2008-09, are extracted as under
"25. Ground number 2 raised by the revenue is against the club membership fees being allowed as expenditure under section 37 of the act by the Ld. CIT(A).
25.1. During assessment proceedings are Ld.AO noted that assessee claimed Rs. 49,81,062/- towards club membership. Assessee was called upon to explain as to why the said expenditure should not be treated as capital expenditure. In response assessee submitted that membership fees peter the club is allowable as business expenditure since it is incurred to promote the business interest of the assessee. Assessee also relied on the decision of Hon'ble Bombay High Court in case of Otis elevators company India Ltd reported in 195 ITR 682. The Ld.AR however dismissed the claim of the assessee by treating the expenditure to be capital in nature.
25.2. On an appeal before the Ld. CIT(A) the claim of the assessee was allowed by following the order of the preceding assessment years on similar facts and 37 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 circumstances.
Aggrieved by the order of the Ld. CIT(A) revenue is in appeal before this Tribunal.
25.3. The Ld. DR relied on orders passed by the Ld.AO.
25.4. The Ld.AR on the contrary relied on coordinate of this Tribunal in assessee's own case for assessment year 2007-08 (supra) as well as observations of the Ld. CIT(A) for the year under consideration.
We have submissions advanced by both sides in the light of the records placed before us.
26. In assessee's own case for assessment in 2007-08 (supra), this Tribunal followed the ratio of Hon'ble Bombay Court in case of Otis elevators company India Ltd (supra). We therefore do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld."
17.4 Since the aforesaid issue has been discussed and decided in favour of the assessee, thus sans any new fact, material or decision to contravene the aforesaid finding of Tribunal, which is followed by the ld. CIT(A), we do not find any infirmity in the decision of ld. CIT(A) in deleting the Club Expenses incurred and claimed by the assessee, so as to disturb the same. Accordingly Ground No. 12 of the revenue in present appeal stands dismissed."
20.3. Therefore, respectfully following the above decision of the Tribunal in the case of the Assessee we declined to interfere with the order passed by the Learned CIT(A) on this issue. Accordingly, Ground No.12 raised by the Revenue is dismissed.
Ground No.13
21. Ground No.13 raised by the Revenue relates to disallowance of broken period interest paid of INR.2,02,51,21,256/- which reads as under:
"13. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the broken period interest is allowable on matching principles, without realizing that the same has not been incurred for realizing the interest on 38 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 securities as enunciated by the Apex Court in Vijaya Bank Ltd. (57 Taxman 152)(SC)."
21.1. The facts in brief are that Investments held by the Assessee are classified into 'Held to Maturity' (HTM), 'Available for Sale' (AFS) and Held for Trading' (AFT). Under each classification, the investments are further categorized as (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures, (e) subsidiaries and joint ventures and (f) others.
21.2. The Assessee acquired Government of India securities (GOI secs) which are classified as stock in trade by the Assessee. The Assessee as per RBI norms has to keep certain securities in order to main its SLR (statutory liquidity ratio) and CRR (cash reserve ratio) in order to protect the bank from an unexpected huge amount of withdrawal from the depositors. These securities were held as stock-in-trade and not as investments. Broken period interest paid/received on purchase /sale of these securities was treated by the Assessee as revenue income and expenditure respectively. The interest income resulting from the Assessee's business of trading in securities has been consistently assessed under Section 28 of the Act. The Assessee during the course of assessment proceedings submitted that if broken period interest paid on purchase of HTM securities to the tune of INR.202,51,21,256/- is treated as capital then the broken period interest received of INR.197,61,81,444/- on sale of HTM securities during the above-mentioned assessment year should be treated as a capital receipt and not brought to tax. The Assessing Officer without considering the aforesaid submission of the Assessee disallowed the broken period interest paid on HTM securities amounting to INR.202,51,21,256/- treating the same as capital expenses and taxed the interest received on sale of such securities of INR.197,61,81,444/-.
21.3. In appeal preferred by the Assessee the Learned CIT(A) overturned the decision of the Assessing Officer and allowed deduction for 39 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 broken period interest as claimed by the Assessee.
21.4. Being aggrieved, the Revenue has carried the issue in appeal before this Tribunal by way of Ground No.13.
21.5. On perusal of the order passed by Learned CIT(A) we find that the had made following observations while allowing the grounds raised by the Assessee and accepting Assessee's claim for deduction for broken period interest on HTM securities amounting to INR.202,51,21,256/- treating the same as revenue expenses. The relevant extract of the decision of the Learned CIT(A) reads as under:
"6.2 The Assessing Officer during the course of assessment proceedings required the Appellant to show cause as to why broken period interest paid in respect of "Held to Maturity (HTM) securities should not be disallowed. According to the Assessing Officer since the department has preferred an SLP in the case of HDFC Bank the issue of broken period interest had not reached the stage of finality.
The Assessing Officer disallowed the broken period interest paid on HTM securities of INR.202,51,21,256 on the ground that since the securities were held till maturity the same constitute investments and not stock in trade as contended by the Appellant. However the AO taxed the broken period interest received on sale of securities amounting to INR.197,61,81,444 which was offered to tax by the Appellant.
6.3 The Assessee during the course of appellate proceedings, submitted vide letter dated 19.08.2016 which is reproduced as under:
"5.11. xx xx 5.12 The interest income resulting from the Assessee's business of trading in securities has been consistently assessed under Section 28 of the Act. Under Section 145(1) of the Act it was mandatory to compute income chargeable under the head "Profits & Gains of business" in accordance with the method of accounting regularly employed by the assessee. The choice of method of accounting lies with the 40 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 assessee and the valid method regularly followed by the assessee cannot be rejected. The method of accounting followed by the Appellant can be disregarded only if the same does not disclose the true and proper income. The Supreme Court in the case of United Commercial Bank v. CIT (240 ITR 355) has held that the method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities.
5.13 The Kerala High Court in the case of CIT v. Nedungadi Bank Limited [264 ITR 545] has held that "section 6 of the Banking Regulation Act, 1949, makes it clear that banks can engage in the business of buying and selling securities. As per section 24 of the Act banks have to maintain a percentage of the securities to meet the statutory liquidity requirement. It is now settled by a series of decisions of the High Courts and the Supreme Court that the securities held by the banks constitute their stock-in-trade or investment and consequently the loss claimed by the banks on the valuation of their securities should be allowed as a deduction in computing the taxable profits."
5.14 xx xx.
5.15 The Bombay High Court in American Express International Banking Corporation us. CIT (258 ITR
601) has distinguished the Supreme Court decision in the case of Vijaya Bank and relying upon the Apex Court decision in the case of Cocanada Radhaswami Bank Limited (57 ITR 306) has allowed the claim of deduction of broken period interest. The Honourable High Court has held as under:
The assessee's method of accounting does not result in loss of tax revenue for the department. There was no need to interfere with the method of accounting adopted by the assessee bank.
The judgement in case of Vijaya Bank (supra) had no application to the facts of the case.
Having assessed the income under section 28 of the Act, the department ought to have taxed interest for broken period received and the department ought to have allowed deduction for broken period interest paid.
5.16 The following decisions in the Appellant's own case and other cases support the contentions of the Appellant Bank 41 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 that broken period interest is to be allowed as a revenue expenditure.
ICICI Bank Limited vs. JCIT in ITA No.4979/M/99 for AY 1995-96 (Mum ITAT) ICICI Bank Limited for AY 1996-97 and AY 1997-98 (Mum ITAT) 40 CCH 175 DCIT US. ICICI Bank Limited for AY 1998-99 (Mum ITAT) in ITA No.3414/M/2004 ICICI Bank Limited for AY 1999-00 in ITA No.3415/M/2004 ICICI Bank Limited for AY 2000-01 in ITA No.3416/M/2004 CIT vs. Citi Bank NA (SC) in civil no.1549 of 2006 CIT vs. Citi Bank NA (Bom) 264 ITR 18 - SLP rejected CIT v. Deutsche Bank 266 ITR (St) 106 - SLP rejected CIT v. Union Bank of India 268 ITR (St) 216 - SLP rejected American International Banking Corpn. Vs. CIT (Bom) 258 ITR 601 CIT 15. HDFC Bank Limited (Bom) 366 ITR 505 CIT vs. South Indian Bank Ltd. (Ker) 241 ITR 374 5.17 In view of the aforesaid, the Assessing Officer in the Appellant's own case has not made any disallowance in respect of broken period interest from AY 2002-03 till AY 2010-11.
5.18 In view of the same we reiterate that broken period interest on HTM securities has been rightly treated by the Appellant Bank as revenue expenses and the disallowance made by the Assessing Officer ought to be deleted.
5.19 Without prejudice, we submit that in the event your Honour proposes to sustain the disallowance of broken period interest paid on HTM securities amounting to Rs.202,51,21,256 treating the same as capital expenses, then the interest received of Rs.197,61,81,444 offered to tax also ought to be excluded from the computation of total income and consequentially included in the sale price." 6.4 I have considered the AO's order as well as Appellant's AR submission. The AO has rejected the Appellant's explanation and has treated the government securities held under the HTM category as a part of investments of the Appellant since these securities are held till maturity. Accordingly, the interest paid of Rs. 202,51,21,256 on purchase of these securities has been treated as a part of the capital outlay and not as revenue 42 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 expense. The AO has also taxed the interest received on sale of securities amounting to Rs.197,61,81,444 which was offered to tax by the Appellant resulting in an inconsistent stand taken by him on the said issue.
6.5 As per Section 6 of the Banking Regulation Act, 1949, banks can engage in the business of buying and selling securities, however the banking company is under the legal obligation to keep certain percentage of the securities to meet its Statutory Liquidity Requirements (SLR) It is now settled by the Supreme Court and a series of High Court decisions that the securities held by banks constitute their stock in trade and consequently the loss claimed by the banks should be allowed as a deduction from the taxable profits. The Hon'ble Supreme Court in CIT vs. South India Bank Ltd. 249 ITR 304 has affirmed the decision of the Kerala High Court and has held that the interest paid for the broken period would constitute an allowable outgo in the hands of the assessee bank and is an admissible deduction in the computation of total income of the bank under the head "profits and gains of business or profession". The Bombay High Court in the case of American International Banking Corpn. Vs. CIT reported 258 ITR 601 has distinguished the Supreme Court decision relied upon by the AO in the case of Vijaya Bank Ltd. and has allowed the broken period interest paid as a revenue expense.
The Supreme Court has also rejected SLPs filed by the Department on the said issue in the case of CIT vs. Citi Bank NA (Bom) 264 ITR 18, CIT v. Deutsche Bank 266 ITR (St) 106 and CIT v. Union Bank of India 268 ITR (St) 216.
6.6 I find that in the Assessee's own case the Hon'ble Mumbai Tribunal for the assessment years 1995-96 to 2000-01 has allowed the Appellant Bank's claim of broken period interest as a revenue expense following the jurisdictional High Court decision in the case of American International Bank Corpn. (supra).
6.7 In view of the above mentioned decisions including the decisions of the Hon'ble Mumbai Tribunal in the Appellant's own case, I direct the AO to delete the disallowance of Rs.202,51,21,256 made on account of broken period interest. Since the main ground is decided in the favour of the Appellant, the without prejudice claim of excluding the broken period interest received from the total income is not adjudicated upon." (Emphasis Supplied) 43 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 21.6. We note that the Learned CIT(A) has allowed deduction for broken period interest following decision of Hon'ble Bombay High Court in the case of the Assessee and in the case of American International Banking Corpn. Vs. CIT reported 258 ITR 601 which have also been followed by the Co-ordinate Benches of the Tribunal in the case of Assessee. Therefore, we do not find any infirmity in the order passed by the learned CIT(A) and therefore, decline to interfere with the order passed by the Learned CIT(A) on this issue. Accordingly Ground No. 13 raised by the Revenue is dismissed.
Ground No.14 to 16
22. Ground No.14 to 16 raised by the Revenue relates to disallowance of State and city tax paid by New York branch amounting to INR.1,84,07,597/- which reads as under:
"14. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in allowing the claim of deduction u/s. 37 of state and city paid by New York Branch of the assessee while disregarding the provisions of explanation 1 to Sec. 40(a)(ii) and ratio laid down by the Hon'ble ITAT Mumbai in ITA No. 4978/Mum/04 in the case of Tata Sons Ltd. v/s. DCIT- 2(3), Mumbai
15. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to examine the claim of the assessee as per Section 90/91 of the Act, when under the I.T. Act, 1961 and DTA, the local taxes paid in foreign country with which India has entered into an agreement is not allowed.
16. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to examine the claim of the assessee as per Section 90/91 of the Act relying on the decision of Karnataka High Court in the case of Wipro Ltd. (341 ITR 385) which the department has not accepted."
22.1. The Assessing Officer did not allow the deduction claimed by the Assessee under Section 37 of the Act in respect of state and city taxes paid by its USA Branch on the ground that the said claim was made vide revised computation filed during the course of assessment proceedings and not made vide a revised return and hence not permissible as per decision of the Supreme Court in the 44 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 case of Goetze India Pvt. Limited (284 ITR 323). In appeal preferred by the Assessee, the Learned CIT(A) admitted the additional claim of the Assessee and restore the issue back to the file of Assessing Officer with certain directions. The relevant extract of decision of Learned CIT(A) reads as under:
"13.3. The Appellant during the course of appellate proceedings, submitted vide letter dated 19.08.2016 which is reproduced as under:
12.3. xx xx 12.4. xx xx 12.5 The Bombay High Court in Pruthvi Brokers & Shareholders in ITA No.3908 of 2010 has held that the jurisdiction of the Appellate Authorities to entertain an additional claim has not been negated by the Supreme Court in Goetze India Pvt. Ltd. and in fact the Supreme Court has made it clear that the issue in the case was limited to the power of the Assessing Authority and that the judgement does not impinge on the power of the Tribunal under section 254.
12.6 On merits of the case, the Appellant submits that the State and City taxes paid by its New York branch has been incurred as a business expense. The Almedabad Tribunal in the case of Mastek Ltd. vs. DCIT (supra) has held that all taxes and rates are allowed under section 37 of the Act irrespective of the place where they are levied i.e. whether in India or in the foreign country with the exception of the Indian Income-tax which is not deductible as per provisions of section 40(a)(ii).
12.7 We would also like to bring to your Honour's attention the recent decision of the Karnataka High Court in the case of Wipro Limited where in the Hon'ble Court has allowed the claim of the Appellant viz. Wipro in respect of taxes paid in countries outside India as per provisions of section 90/91 of the Act. In the said case too, the claim was made by Wipro vide a letter and not by way of a revised return. The Hon'ble Court held that the Assessing Authority was not justified in rejecting the said claim on the ground that no revised return was filed.45
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 12.8 In view of the aforesaid, we request your Honour to please give necessary directions to the Assessing Officer to consider and allow our claim of State and City taxes paid by our New York branch under section 90/91 of the Act.
13.4 I have gone through the facts of the case and the submissions of Appellant. With respect to whether a claim can be made after filing of the return of income, the Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT (187 ITR 688) has held that the power of the AAC is co-terminus with that of the ITO and the Appellate Authority while hearing appeal against the order of the subordinate authority has all powers which the original authority may have in deciding the question before it. Following the said decision as well as the decision of the Bombay High Court in the case of Pruthvi Brokers and Shareholders in ITA No.3908 of 2010, I hereby permit the additional ground regarding deduction claimed on State and City taxes paid by the USA branch of the Appellant.
13.5 In context with merits of the case, the AO is directed to examine and allow the claim of the Appellant as per provisions of section 90/91 of the Act following the decision of the Karnataka High Court in the case of Wipro Limited."
22.2. On perusal of the above, we find that the Learned CIT(A) has restore the issue to the file of the Assessing Officer with the directions to examination. Therefore, we do not find any infirmity in the directions issued by Learned CIT(A). It is clarified that the Assessing Officer would be at liberty to adjudicate the issue as per law. In view of the aforesaid, Ground No. 14 to 16 raised by the Revenue are partly allowed.
In result appeal preferred by the Revenue is partly allowed.
ITA No.7027/Mum/2016Ground No.1&2
23. Ground No.1 & 2 raised by the Assessee have already been disposed while adjudicating Ground No.1 and 3 raised by the Revenue, respectively, hereinabove.
Ground No.3
24. Ground No.3 raised by the Assessee relates to disallowance of 46 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 provision for expenses amounting to INR.1,76,66,18,765/- which reads as under:
"3. Disallowance of Provision for expenses -
INR.176,66,18,765 On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of the amount of INR.176,66,18,765 in respect of provision for expenses created in March 2011 on which no tax was deducted at source on the ground that the same was contingent and unascertained in nature and hence not allowable as a deduction ."
24.1. The relevant facts in brief are during the course of assessment proceedings the Assessee had explained that as per the regular method of accounting followed by the Assessee, provision for expenses like conveyance, courier, staff welfare, printing and stationary, professional fees etc is required to be created in March which is reversed on April 1 of the subsequent assessment year and actual payments made subsequently are debited to the expenses account. No tax was deducted at source on the said provision for expenses by the Appellant as it was not possible to determine the applicable TDS rate in absence of details of nature of expenses, type of payee and applicable amount in respect of each payee at the time of creation of the provision but the Appellant has deducted tax at source on the actual payments made as and where applicable in the subsequent Financial Year 2010-11. This method of accounting is consistently followed by the Appellant and has been accepted by the Department in earlier years. The Assessing Officer disallowed the amount of INR.176,66,18,765/- being provision for expenses created in March 2011 on which no tax was deducted at source on the ground that the same was contingent and unascertained in nature and hence not allowable as a deduction. The Assessing Officer has however allowed the reversal of the preceding assessment year 2010-11 provision of INR.133,74,36,609/- which was disallowed in the preceding assessment year resulting in an addition/disallowance of INR.42,91,82,156/- in the aforesaid assessment year. In appeal preferred by the Assessee, the Learned 47 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 CIT(A) reversed the decision of the Assessing Officer and allowed deduction for provisions of expenses. As a result, the Revenue has carried the issue in appeal before this Tribunal.
24.2. We note that identical issue had come up for consideration before the Co-ordinate Bench of the Tribunal. Vide Common order, dated 20/02/2026 [ITA No.1446/Mum/2016 and IT(TP)A No.1560/Mum/2016, for the Assessment Year 2010-2011], the Co- ordinate Bench of the Tribunal decided the issue in favour of the Assessee and allowed Assessee's claim for deduction for provision for expenses by, inter-alia, relying upon the judgment of Hon'ble Karanataka High Court in Subex Ltd. vs. DCIT in ITA No. 787/2017 holding as under:
"10. Ground No.3 of assessee's appeal regarding disallowance of provisions for expenses.
10.1 On this issue the provision for expenses on which no tax has been deducted at source were considered to be non-entitled for deduction by the ld. AO and accordingly an addition of Rs. 133,74,36,609/- was made. The issue was carried before the First Appellate Authority (FAA), who had coincided with the findings of ld. AO, stating that as the provisions are for contingent and uncertain liabilities also no TDS is deducted, therefore the disallowances liable to be upheld. The issue is raised by the assessee before us, which was there before this Tribunal in the earlier years also. A breakup of such expenses was furnished before us at page 843A of the PB, the same is extracted as under:
Nature Amount (Rs.)
Advertisement/promotional 35,43,80,177
expense/marketing
Annual Maintenance Expenses 37,06,53,940
Courier Charges 2,03,11,959
DMA Fee Sharing Expense 1,63,60,283
DST Expenses - Credit Card 1,85,15,052
Electricity 2,64,00,983
Expenses on Outsourcing 1,83,12,617
Activities
Leased Line Expenses 11,00,71,493
Others 1,34,20,168
48
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 Postage & Telegram 52,63,354 Printing & Stationery 1,57,86,705 Professional fees 9,29,968 Recruitment Expenses 1,91,06,948 Repairs & Maintenance 23,16,23,124 Security Charges 7,21,21,892 Stationery & consumables 11,60,249 Subscription to Databases & 87,66,430 Market Feed Telephone expenses 2,85,88,537 Travelling/conveyance/motor car 56,62,730 TOTAL 1,33,74,36,609 10.2 Referring to the aforesaid details of expenses for which the assessee has made the provisions at the end of year, it is argued that such provisions are as per regular practice of the assessee, claimed as per the mercantile system of accounting. It is further clarified that TDS is not applicable on the year end provisions. Further, the ld. AR drew our attention to the decision of ITAT, Mumbai in assessee's own case for AY 2009-10 and earlier years, wherein such adjustment was found to be correct as per consistent accounting practices followed by the assessee, which has been approved by the ITAT in assessee's own case for AY 2008-09 also, following the decision of Hon'ble Karnataka High Court in Subex Ltd. vs. DCIT in ITA No. 787/2017. The relevant findings of the Tribunal for AY 2009-10 are culled hereunder for the sake of completeness:
"45. We have considered the rival submissions of both the parties and gone through the orders of lower authorities. We find merit on the submissions of ld. AR of the assessee that the assessee was following mercantile system of accounting regularly and making provision for expenses incurred during the year as has been claimed as at 31st March of relevant financial year. If the liability is arisen in the accounting year, deduction should be allowed although the liability may have to be quantified and discharged at future days. It should be capable of being estimated with reasonable certainty though actual quantification may not be possible. We further find in assessee's own case for A.Y. 2008-09 (supra), similar relief was allowed to the assessee on the basis of decision of Karnataka High Court in Subex Ltd. vs DCIT in ITA No. 787 of 2017 and held that provision was made at the year end on estimate basis cannot be denied. We find that 49 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 assessee is in a business of banking and all such provision are integral part of business activities. Thus, following the order of co-ordinate bench in A.Y. 2008- 09 and the decision of Karnataka High Court in Subex Ltd. (supra), we direct the assessing officer to delete the entire addition. In the result, ground no. 3 of appeal of assessee is allowed."
10.3 The ld. CIT-DR per contra vehemently supported the orders of revenue authorities.
10.4 We have considered the rival submissions, perused the material available on record and case laws relied upon by the assessee. Admittedly, the issue is no more res-integra, which is already decided by the Co-ordinate Bench of ITAT, Mumbai in assessee's own case for AY 2008-09 and 2009-10 following the decision of Hon'ble Karnataka High Court in the case of Subex Ltd. (supra), we therefore in absence of any new material on the issue brought on record by the revenue found it appropriate to decide the issue, following the earlier decision of ITAT, Mumbai in assessee's own case, directing to delete the entire disallowance.
10.5 In result, Ground No.3 of the appeal of assessee stands allowed."
24.3. In view of the above, the disallowance of INR.176,66,18,765/- made by the Assessing Officer in respect of provision for expenses is deleted and Ground No.3 raised by the Assessee allowed.
In result appeal preferred by the Assessee is partly allowed.
ASSESSMENT YEAR 2012-2013 ITA No.5382/Mum/2017 [Assessee's Appeal] & ITA No.5512/Mum/2017 [ Revenue's Appeal]
25. Now we would take up cross-appeals for Assessment Year 2012- 2013 arising from order dated, 25/01/2016, passed by the Deputy Commissioner of Income Tax [Transfer Pricing] Range 2(3)(2), Mumbai [hereinafter referred to as the 'CIT(A)'] whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 16/03/2016, passed under Section 143(3) read with Section 144(C)(3) of the Act.
50ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 25.1. During the course of hearing both the sides had agreed that there is no change in the facts and circumstances. Therefore, our finding and adjudication on the grounds raised in cross-appeal for the Assessment Year 2011-2012 shall apply mutatis mutandis to corresponding grounds raised in cross-appeals for the Assessment Year 2012-2013.
ITA No.5382/Mum/201726. We would first take up the grounds raised by the Assessee along with the connected grounds raised by the Revenue in appeal for the Assessment Year 2012-2013.
Ground No. 1 raised by Assessee Ground No. 1 raised by Revenue
27. Ground No.1 raised by the Assessee is related to adjustment as per Transfer Pricing Order under Section 92CA(3) back office support services of INR.1,34,15,865/- which reads as under:
27.1. The Revenue has raised the following Ground of appeal:
"1. GROUNDS OF APPEAL
1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) erred in holding that the comfort letter/corporate guarantee given to the Monetary Authority of Singapore on behalf of its AE does not constitute to be an International Transaction, without appreciating the amended provisions of Section 92B(1) Explanation (c) of the Income tax Act."
27.2. The Assessee has raised the following grounds of appeal:
"1. Adjustment as per Transfer Pricing Order under section 92CA(3) - INR.3,15,29,990 [Paras 2 to 2.80, pages 2 to 8 of the CIT(A) order] On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the comparables taken by the Transfer Pricing Officer [TPO] vide his order dated January 29, 2016 passed under section 92CA(3) of the Act and confirming the adjustment made to the arm's length price in respect of back office support services."51
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 27.3. On account of parity for facts and adopting the reasoning given while disposing off the corresponding grounds raised in appeal for the Assessment Year 2011-2012 in paragraph 9 to 13.1 above, and (a) Ground No.1 raised by the Revenue is partly allowed and (b) Ground No.1 raised by the Assessee the Assessee is allowed.
Ground No. 2 raised by Assessee Ground No. 2 raised by Revenue
28. Ground No.2 raised by the Assessee and Ground No.2 raised Revenue relate to disallowance under Section 14A made by the Assessing Officer under Section 14A of the Act and the same read as under:
28.1. The Assessee has raised the following Ground of appeal:
"2. Expenses apportioned against income exempted under section 10(15) 10(34) and 10(35) -
Disallowance under Section.14A: INR.42,21,95,459 [Para 3.5, pages 19 of the CIT(A) order] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the apportionment of expenses of INR.53,58,00,000 as against INR.11,36,04,541 made by the Appellant to the income exempt under section 10(15), 10(34) and 10(35) of the Act by applying provision of Rule 8D(2)(iii) of the Income-tax Rules, 1962."
28.2. The Revenue has raised the following Ground of appeal:
"2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance under Rule 8D(2)(ii) ignoring the facts brought out in the assessment order that expenses of Rs.597.74 Crores were attributable to earning of exempt income."
28.3. On account of parity for facts and adopting the reasoning given in Paragraph 15 to 15.10 above, while disposing Ground No.2 raised in Assessee's appeal and Ground No.3 raised by the Revenue in appeal for the Assessment Year 2011-2012, Ground No.2 raised by the Assessee in the present appeal is partly allowed and Ground No.2 raised in Revenue's in the present is dismissed.
52ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 Ground No.3
29. Ground No.3 raised by the Assessee is related to disallowance of provision for expenses for amounting to INR.1,76,66,18,765/- which reads as under:
"3. Disallowance of Provision for expenses -
INR.127,17,20,600 [Para 7, pages 29 to 31 of the CIT(A) order] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of the amount of INR.127,17,20,600 in respect of provision for expenses created in March 2012 on which no tax was deducted at source on the ground that the same was contingent and unascertained in nature and hence not allowable as a deduction ."
29.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding ground raised by the Assessee in appeal for the Assessment Year 2011-2012 in paragraph 24 to 24.3 above, Ground No.3 raised by the Assessee in appeal for the Assessment Year 2012-2013 is allowed.
In result appeal preferred by the Assessee is partly allowed.
ITA No.5512/Mum/2017Ground No.1&2
30. Ground No.1 & 2 raised by the Revenue have already been disposed while adjudicating Ground No.1 and 2 raised by the Assessee, respectively, hereinabove.
Ground No.3 to 5
31. Ground No.3 to 5 raised by the Revenue are related disallowance of depreciation on leased assets of INR.13,30,29,555/- which read as under:
"3. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) was justified in deleting the disallowance on account of Depreciation of Leased Assets when the assets were not actually owned by the assessee and leased out, but the transaction was in the nature of finance only.53
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in disregarding the ratio decided in the case of Damodar Valley Corporation vs. State of Bihar (12 STC 102) and Sundram Finance Ltd vs. State of Kerala (1996 AIR SC 1178) in its true spirit as decided by the Hon'ble SC.
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in allowing the depreciation on leased assets without appreciating the fact that the said transaction being a financial lease transaction, the assessee did not satisfy the legal requirement of ownership of the assets for the purpose of Section 32/1) of the I.T. Act 1961 and therefore not entitled for claim of depreciation on the leased assets."
31.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding grounds raised by the Revenue in appeal for the Assessment Year 2011-2012 in paragraph 16 to 16.4 above, Ground No. 3 to 5 raised by the Revenue in the present appeal are dismissed.
Ground No.6
32. Ground No.6 raised by the Revenue is related disallowance of broken period interest of INR.2,32,04,68,775/- which read as under:
"6. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the broken period interest is allowable on matching principles, without realizing that the same has not been incurred for realizing the interest on securities as enunciated by the Apex Court in Vijaya Bank Ltd. (57 Taxman 152)(SC)."
32.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding ground raised by the Revenue in appeal for the Assessment Year 2011-2012 in paragraph 21 to 21.6 above, Ground No.6 raised by the Revenue in the present appeal.
Ground No.7
33. Ground No.7 raised by the Revenue is related disallowance of club expenses of INR.75,13,906/- which read as under:
"7. Whether on the facts and in the circumstances of the case and in law, the Ld. CITA) has erred in deleting the addition made on account of payment of membership fees to clubs without 54 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 appreciating the fact that the benefit of the above expenses are enduring in nature and hence cannot be treated as revenue expenses."
33.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding ground raised by the Revenue in appeal for the Assessment Year 2011-2012 in paragraph 20 to 20.3 above, Ground No. 7 raised by the Revenue in the present appeal is dismissed.
Ground No.8 to 10
34. Ground No.8 to 10 raised by the Revenue are related disallowance of depreciation on goodwill of INR.6,03,29,25,198/-.
"8. Whether on the facts and circumstances of the case and in law the Ld.CIT appointed date Bank of Rajasthan' did not have any asset and property as goodwill or such intangible asset in its accounts which could become a subject matter of transfer or vesting of asset to assessee.
9. Further whether, while giving direction for amalgamation, High Court was not shown to have ordered to pay any specific amount for such goodwill, it could not be accepted that assessee incurred any additional cost on account of goodwill.
10. Whether claim made by assessee with regard to goodwill, which was only a fictitious asset in hands of assessee, and also claim of depreciation were neither bona fide nor tenable."
34.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding grounds raised by the Revenue in appeal for the Assessment Year 2011-2012 in paragraph 17 to 17.9 above, Ground No. 8 to 10 raised by the Revenue in the present appeal are dismissed.
Ground No.11
35. Ground No.11 raised by the Revenue is related to disallowance of expense on issue and discount of rupee and foreign currency bonds INR.3,14,841/- which read as under:
"11. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to allow the 55 ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 claim for expenses on issue and discount of Rupee & Foreign currency bonds amounting to Rs.3,14,841/-, When appeal against the issue has been filed before the ITAT and the issue has not reached finality."
35.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding ground raised by the Revenue in appeal for the Assessment Year 2011-2012 in paragraph 19 to 19.4 above , Ground No. 11 raised by the Revenue in the present appeal is dismissed.
Ground No.12
36. Ground No.12 raised by the Revenue relates to Employees Stock Option Cost (ESOS) Expenses amounting to INR.40,68,65,132/- which reads as under:
"12. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to allow the amount of Rs. 40,68,65,132/ Being the difference between the exercise price and the market value of the ESOS, when the same is not an ascertained liability, is contingent in nature, quantum cannot be worked out precisely and is capital in nature and hence not allowable."
36.1. On account of parity for facts and adopting the reasoning given while disposing off the corresponding ground raised by the Revenue in appeal for the Assessment Year 2011-2012 in paragraph 18 to 18.4 above, Ground No. 12 raised by the Revenue in the present appeal is dismissed.
Ground No.13 & 14
37. Ground No.13 & 14 raised by the Revenue relates to disallowance of additional claim made under Section 90/91 of INR.71,16,279/- which read as under:.
"13. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to examine the claim of the assessee as per Section 90/91 of the Act, when under the I.T. Act, 1961 and DTA, the local taxes paid in foreign country with which India has entered into an agreement is not allowed.56
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013
14. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to examine the claim of the assessee as per Section 90/91 of the Act relying on the decision of Karnataka High Court in the case of Wipro Ltd. (341 ITR 385) which the department has not accepted."
37.1. The Assessee during the course of assessment proceedings vide letter dated 12/02/2016 revised its claim of relief under Section 90/91 to INR.156,38,21,979/- as against INR.155,67,05,700/- claimed in the revised return of income. The Appellant also revised its TDS claim as per the latest Form 26AS and TDS certificates to INR.127,80,88,932/- as against INR.127,78,89,442/- claimed in the revised return of income. The Assessing Officer did not consider the revised claim of TDS and relief under Section 90/91 of the Assessee by placing reliance on the decision of the Supreme Court in the case of Goetze India Pvt Limited (284 ITR 323).
37.2. In appeal preferred by the Assessee, the Learned CIT(A) admitted the additional claim of the Assessee and restore the issue back to the file of Assessing Officer with certain directions. The relevant extract of decision of Learned CIT(A) reads as under:
"11.4 I have gone through the facts of the case and the submissions of Appellant. With respect to whether a claim can be made after filing of the return of income, the Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT (187 ITR 688) has held that the power of the ACC is co-terminus with that of the ITO and the Appellate Authority while hearing appeal against the order of the subordinate authority has all powers which the original authority may have in deciding the question before it. Following the said decision as well as the decision of the Bombay High Court in the case of Pruthvi Brokers and Shareholders in ITA No.3908 of 2010, I hereby permit the additional ground regarding revised TDS claim and revised relief u/s 90/91 claimed on account of State and City taxes paid by the USA branch of the Appellant.
11.5 In context with merits of the case, the AO is directed to allow the revised TDS claimed by the Appellant. The AO is also directed to allow the claim of the Appellant as per provisions of section 90/91 of the Act following the decision of the Karnataka High Court in the case of Wipro Limited. This ground is accordingly decided in favour of the Appellant."57
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 37.3. On perusal of the above, we find that the Learned CIT(A) has restored the issue to the file of the Assessing Officer with the directions for examination. Therefore, we do not find any infirmity in the directions issued by Learned CIT(A). It is clarified that the Assessing Officer would be at liberty to adjudicate the issue as per law. In view of the aforesaid, Ground No. 13 & 14 raised by the Revenue are partly allowed.
In result appeal preferred by the Revenue is partly allowed.
Conclusion
38. All the four appeals are partly allowed.
Order pronounced on 21.05.2026.
Sd/- Sd/-
(Vikram Singh Yadav) (Rahul Chaudhary)
Accountant Member Judicial Member
मुंबई Mumbai; दिन ुं क Dated : 21.05.2026
Milan,LDC
58
ITA No.7027&7292/Mum/2016,5382&5512/Mum/2017 Assessment Year 2011-2012 & 2012-2013 आदे श की प्रतितिति अग्रे तिि/Copy of the Order forwarded to :
1. अपील र्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयक्त/ The CIT
4. प्रध न आयकर आयक्त / Pr.CIT
5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,मुं बई / DR, ITAT, Mumbai
6. ग र्ड फ ईल / Guard file.
आिे श नस र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, मुं बई / ITAT, Mumbai 59