Andhra Bank, Hyderabad vs Assessee

2. Brief facts of the case are that the assessee bank filed its return of income on 22.09.2011 declaring income of

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Rs.746,69,40,774. During the assessment proceedings u/s 143(3) of the Act, the AO made certain disallowances and the consequential additions to the returned income of the assessee and brought it to tax. Assessee preferred an appeal before the CIT (A) who granted partial relief to the assessee. Against the relief granted by the CIT (A), Revenue is in appeal before us, while against the confirmation of certain additions by the CIT (A), assessee is in appeal before us. At the time of hearing the ld Counsel for the assessee has filed charts depicting the grounds raised by the Revenue in Revenue's appeal and also the grounds raised by the assessee in its appeal and as to how these grounds are covered in favour of or against the assessee. Taking the said charts into consideration and after hearing both the parties, we decide the issues as under:

ITA No.31/Hyd/2015 3. In the Revenue appeal, the first ground of appeal raised by the Revenue is against the deletion of the disallowance of broken period interest paid by the assessee on purchase of long term securities and claimed as expenditure by the assessee. The AO made the disallowance holding that the securities are purchased by the assessee as capital outlay and therefore interest element in the purchase is also capital in nature. On appeal, the CIT (A) had given relief by following the decision of the ITAT in assessee's own case for A.Ys 2005-06 to 2010-11, wherein the decision of Bombay High Court in the case of American Express International Ltd vs. CIT (285 ITR 601 (Bom.), was followed, wherein it was held that the securities which are held for

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complying with SLR (Statutory Liquidity Ratio) are to be held as stock-in-trade and the broken period interest included in the purchase price of such govt. securities is revenue in nature and is allowable. The ld DR relied upon the order of the AO while the ld AR supported the order of the CIT (A) and also placed reliance upon the orders of the Tribunal in earlier A.Ys as well as the decision of the Hon'ble Supreme Court in the case of CIT vs. Citi Bank reported in 2008 (8 TMI 766).

4. On consideration of the rival contentions and on perusal of the material on record, we find that this issue had arisen in the assessee's own case for the A.Y 2008-09 and the Tribunal has followed its decision in the assessee's own cases i.e. in ITA Nos.95 - 97 and 218/H/2010 dated 4.4.2013 for the A.Ys 2001- 02, 2003-04 and 2006-07 and ITA No.s.1592 & 1644/Hyd/2008 dated 30.04.2013 for the A.Y 2005-06 wherein the issue was decided in favour of the assessee and against the Revenue. Since the Revenue has not been able to bring any decision contrary to the above mentioned decisions in assessee's own case for the A.Y 2008-09, we do not find any reason to interfere with the order of the CIT (A). Accordingly, this ground of the Revenue is rejected.

5. The second issue is against the CIT (A) allowing the deduction of unrealized interest on NPA. The grievance of the Revenue is that the CIT (A) has ignored the decision of the Apex Court in the case of State Bank of Travancore vs. CIT (158 ITR

102) on a similar issue. It is seen that similar ground was raised by the Revenue in the assessee's own case for the A.Y 2008-09 in

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ITA No.244/Hyd/2014 and the Tribunal at Para 5 of its order held as as under:

"5. We heard both sides and perused the impugned orders of the Revenue authorities and other material available on record. We find that on this issue, the decision of the Tribunal in assessee's own case dated 30.4.2013 for the assessment year 2005-06 in ITA Nos. 1592 & 1644/Hyd/ 2008, is in favour of the assessee and against the Revenue, and the impugned order of the CIT(A) on this issue is in consonance with the said order of the Tribunal for the assessment year 2005-06. In this view of the matter, we find no merit in the above ground of the Revenue on this issue. We accordingly uphold the order of the CIT(A) on this issue and reject the above ground of the Revenue".

6. Respectfully following the decision of the Coordinate Bench, this ground of appeal of the Revenue is rejected.

7. Ground No.3 is against the order of the CIT (A) deleting the disallowance of claim of payment to LIC for Group Leave Encashment Scheme for the employees of the assessee. According to the Revenue, the CIT (A) has not appreciated the fact that the expenditure is hit by the provisions of section 40A(9) and 43B(f) of the Act. It is seen that this issue is also covered by the decision of the Tribunal in the assessee's own case for A.Y 2008-09 and the Tribunal at Para Nos.29 to 34 has held as under:

"29. The next effective grievance of the assessee in this appeal relates to disallowance of premium of Rs.148,36,49,516 paid to Life Insurance Corporation of India towards leave encashment policy taken by the assessee for its employees.

30. Facts of the case in brief relating to this issue are that the assessee claimed deduction in the computation of income of

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Rs.124.82 crores towards payment made to LIC group leave encashment scheme. During the course of assessment, the claim was revised to Rs.148.36 crores, as the claim for deduction of Rs.10.576 crores for Assessment year 2006-07 and Rs.12.97 crores for assessment year 2007-08 were not allowed by the Assessing Officer in those respective assessment years . The entire amount of Rs.148.36 crores was said to have been paid during the relevant previous year. The Assessing Officer did not allow the deduction claimed by the assessee for the following reasons-

a) The payment was not made directly by the assessee, rather the payment was made to LIC Group Leave Encashment Scheme and therefore, such payment is not allowable under S.43B(f) of the Act.

b) The payment made is not debited to Profit & Loss Account, but was made out of General Reserves

c) The LIC Group Leave encashment Scheme is not recognized/approved as per S.36(1)(vi)/(v) of the Act, and therefore, it is in violation of provisions of S.40A(9) of the Act.

31. On appeal, the CIT(A) sustained the disallowance made by the Assessing Officer. Hence, assessee is in second appeal on this issue.

32. We heard both sides and perused the impugned orders of the Revenue authorities and other material available on record. We find that on this issue, the decision of the Tribunal in assessee's own case for the assessment year 2006-07, viz. in ITA Nos.95 to 97 & 218/Hyd/2013 dated 4.4.2013, is in against the assessee, and the impugned order of the CIT(A) on this issue is in consonance with the said order of the Tribunal for the assessment years 2006-07. However, the recent decisions of the Uttarakhand High Court in the case of CIT V/s. Nainital Bank Ltd. (2014)8 Tax Corp(DT)56471; and of the Kerala High Court in the case of CIT V/s. Hindustan Latex Ltd. (2012)22 Taxmann.com 332, relied upon by the learned counsel for the assessee before us, duly furnishing copies thereof in the paper- book, are in favour of the assessee. It has been held by the Uttarakhand High Court in the case of Nainital Bank Ltd. (Supra) as follows-

"4.It is not in dispute that the payment of the premium in question is not an expenditure of the nature described in Sections 30 to 36. In order to show that the expenditure was not in the nature of capital expenditure or personal expenses

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of the assessee and had been spent wholly and exclusively for the purpose of business or profession, reference was drawn to Section 43B(f) of the Act. Inasmuch as, Section 43B contains non-obstante provision and there in Clause (f) payment by the assessee as employer in lieu of any leave to the credit of its employees has been recognized as a revenue expenditure and has been certified as an expenditure not for personal expenses of the assessee and that the same is wholly and exclusively for the purpose of business or profession of the assessee. A cover obtained to discharge such recognized obligation will not come under Section 37 of the Act is not accepted.

33. In the case of Hindustan Latex Ltd. (supra), which in fact was in the context of order of the Commissioner passed under S.263 of the Act, dealing with eligibility of deduction in respect of premia paid towards insurance cover, the Kerala High Court has held that what is intended by clause (f) of S.43B was to deny deduction for liabilities not actually incurred and to exclude provisions made against future liabilities from being granted as deduction. In the case of insurance premia paid, it was observed, the same was not a provision for future liability which was claimed as a deduction. The assessee had insured itself against the liabilities that may arise on account of the claims ITA No.167/Hyd/2014 & five others M/s. Andhra Bank, Hyderabad made by the employees towards leave encashment. The assessee being covered by a valid insurance policy and premium being regularly paid, incurs no liability towards leave encashment. The liability being covered by a valid insurance policy, is solely that of the insurer. Therefore, it was held that even if 43B (f) stands, in the case of the assessee, where the liability is borne by the insurer, there can be no situation wherein assessee could make a valid claim for deduction u/s 43B(f) since the actual liability is not incurred in any of the years. The premium paid towards the renewal and continued validity of the insurance policy necessarily becomes business expenditure wholly and exclusively incurred for the business purpose and allowable as a deduction u/s 37.

34. In view of the above, respectfully following the recent decisions of the Uttarakhand High Court in the case of CIT V/s. Nainital Bank Ltd. (supra); and of the Kerala High Court in the case of CIT V/s. Hindustan Latex Ltd. (supra), in preference to the earlier decision of the Tribunal in assessee's own case for assessment year 2006-07, we accept the contentions of the assessee on this issue, and delete the addition made by the

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Assessing Officer in this behalf. Assessee's grounds on this issue are allowed".

8. Respectfully following the decision of the Coordinate Bench in assessee's own case, this ground of appeal of the Revenue is rejected.

9. Ground No.4 is against the order of the CIT (A) deleting the disallowance u/s 14A of the Act. According to the Revenue, the CIT (A) has ignored the fact that the expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt. We find that this issue is also covered in favour of the assessee by the decision of the Coordinate Bench in ITA No.244/Hyd/2014 dated 18.07.2014, in assessee's own case for A.Y 2005-06 in which the Tribunal at Para 41 has held as under:

"41. We heard both sides and perused the impugned orders of the Revenue authorities and other material available on record. We find that the assessee itself has disallowed an amount of Rs.33,41,474, being two months' salary of officers and staff working in Investment Department under S.14A. We are of the opinion that the Assessing Officer has not properly appreciated the facts of the case and has mechanically applied Rule 8D in this case. The shares were held as stock-in-trade and not as 'investments'. Hence, profit or loss has to be considered under the head 'business or profession' and the claim of expenses are to be considered under the head 'business' and provisions of S.14A and Rule 8D are not applicable. The Cochin Bench of the tribunal in the case of State Bank of Travancore (318 ITR 17) held that any expenditure incurred by the assessee bank for investing in the bonds even tax- free was expenditure incurred for carrying on its business so as to maintain the required statutory liquidity ratio and tax free interest is just an incidence to it. Therefore, since the assessee has not incurred any expenditure to earn the said dividend

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income, the expenditure cannot be disallowed and the assessee is entitled to the benefit of deduction of the entire expenditure. We are of the opinion that there are no direct expenses attributable to the dividend income earned by the assessee, and the decision of the Karnataka High Court in the case of CCI Ltd. V/s. JCIT (212.TIOL.251) also supports this view. However, assessee itself has disallowed an amount of Rs.33,41,474, being two month's salary of officers and staff working in Investment Department under S.14A, and the said disallowance made by the assessee itself works out to almost 2% of the tax-free income received. The coordinate bench of the Tribunal in assessee's own case for the assessment year 2007- 08, vide its order dated 4.10.2013 in ITA No.630/Hyd/2012, has held disallowance 2% of the tax-free income earned by the assessee as reasonable. Taking into account, the total tax-free income of Rs.17,15,33,910 earned by the assessee, we find that the disallowance of Rs.33,41,474 offered by the assessee itself in terms of S.14A, working out to almost 2%, is quite reasonable and in consonance with the view taken by the Tribunal for the preceding year. In this view of the matter, we accept the grounds of the assessee on this issue, and delete the disallowance made by the Assessing Officer in terms of S.14A read with Rule 8D of the Act".

10. Respectfully following the decision of the Coordinate Bench on the very same issue in the earlier A.Y, the CIT (A) has allowed relief to the assessee. Therefore, we do not see any reason to interfere with the order of the CIT (A) and accordingly this ground of the appeal of the Revenue is rejected.

11. As regards Ground No.5 against the order of the CIT (A) deleting the disallowance of assessee's claim on account of Andhra Bank Rural Development Trust, the grievance of the Revenue is that the CIT (A) has ignored the fact that the corporation social responsibility, if any, incurred by the assessee should be met out of profit after tax and not profit before tax and further ignoring that the same was not wholly and exclusively

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used for the purpose of assessee's business. We find that this issue had arisen in assessee's own case for A.Y 2008-09 and the Tribunal at Para 12 to 17 of its order has held as under:

"12. Brief facts of the case relating to this issue are that the assessee claimed an amount of Rs.2,04,34,107 spent on Andhra Bank Rural Development Trust, which is engaged in conducting several trainings for providing self employment to rural youth. After the training, the bank also provided finance to the rural youth. This amount, claimed by the assessee was disallowed by the Assessing Officer, for the following reasons-

a) None of the activities/trainings conducted by the bank related to banking activity.

b) It is farfetched to state that amount spent on such activities was 'wholly and exclusively' for the purpose of business of the assessee.

c) As per the Corporate Social Responsibility Voluntary Loans 2009 published by the Ministry of Corporate Affairs, though not binding, companies should allocate specific amount from the budget for CSR activities. This amount may be related to profits after tax.

For the above reasons and observing further that the amount spent towards Corporate Social Responsibility are to be met out of profits and as such, cannot be deducted before arriving at taxable profits, the Assessing Officer disallowed the claim of the assessee and made an addition of Rs.2,04,34,107.

13. On appeal, the CIT(A) considering the objectives of the trust and details of the programmes conducted by the Trust observed that the Trust was formed with the noble objective of providing employment to the rural youth by way of providing training and also the required credit to help them to be self- employed. For these reasons and also for the reasons discussed in Para 13.4 of the impugned order, extracted hereunder, the CIT(A) deleted the addition made by the Assessing Officer in this behalf.

"13.4 The appellant also submitted the statistics as the number of candidates trained in each district and the number of candidates to whom credit was provided by the bank. During the financial year, the total numbers of candidates trained were 7,671 and number of candidates to whom credit facilities were given 2,744. In the

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process of providing credit facilities to unemployed to youth in rural areas, the bank is extending its activities. The project taken up by the bank is working on the principle of "symbiosis" that it is helping itself in the process of helping the rural youth. In this background, it cannot be said that the expenses are not incurred 'wholly and exclusively" for the purpose of business. Therefore, this ground of appeal is allowed. "

14. Aggrieved by the relief granted by the CIT(A), Revenue is in appeal before us on this issue.

15. Learned Departmental Representative strongly supporting the order of the Assessing Officer submitted that the CIT(A) is not justified in deleting the disallowance made by the Assessing Officer.

16. The learned counsel for the assessee, on the other hand, strongly supported the order of the CIT(A) and placed reliance on the decision of the Karnataka High Court in the case of CIT V/s, Infosys Ltd. (360 ITR 714)-Kar. The learned counsel further submitted that the assessee has a corporate social responsibility, by conducting training programmes for rural unemployed youth, and later on extending them credit facilities for starting their own enterprise. Hence, it is submitted that the expenditure in question has been laid out wholly land exclusively for the purpose of business, and as such is clearly allowable under S.37(1) of the Act.

17. We have considered the rival submissions and perused the orders of the Revenue authorities and other material available on record. Undisputedly, the expenditure in question relates to the training of unemployed rural youth by conducting training programmes, to whom it is submitted that credit facilities are extended for starting their own enterprises. The CIT(A) has noted the number of youth trained, and the number of persons to whom such credit facilities are extended during the year. The question for consideration before us is whether the expenditure incurred by the assessee in conducting such training programmes can be said to have been incurred wholly and exclusively for the purposes of banking business being conducted by the ITA No.167/Hyd/2014 & five others M/s. Andhra Bank, Hyderabad assessee, and even if it is not connected with the business of the assessee, can it be allowed by treating the same as having been incurred by the assessee in the discharge of its social responsibility. In the case of Infosys Technologies Ltd. (supra), Hon'ble Karnataka High Court considered the expenditure claimed by the assessee on installation of traffic signals at Bannerghata Circle, Bangalore,

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as expenditure having been incurred by the assessee in discharge of its corporate social responsibilities, which also facilitated the business of the assessee, and hence allowable as deduction under S.37(1) of the Act. Similarly, coordinate bench of the Tribunal in cross appeals of NMDC Ltd., Hyderabad for the assessment year 2008-09, vide order dated 28.2.2014 in ITA No.714 & 885/Hyd/2012, to which both of us are signatories, following the still earlier order of the Tribunal in that very case, held donation of Rs.5 crores made by the assessee therein to a Medical College, though not related to the business of the assessee, as having been incurred in furtherance of a corporate social responsibility and hence allowable as deduction under S.37 of the Act. In the facts of the present case, the amount spent by the assessee-bank, was not only in discharge of corporate social responsibility to train the rural youth, but also to indirectly to promote its own business, since the rural youth trained were its prospective clients, as the bank also intended to extended credit facilities to such unemployed youth for starting their own enterprises. In this view of the matter, following the decision of the Karnataka High Court noted above, consistent view taken by coordinate benches of this Tribunal, in similar circumstances, we find no infirmity in the order of the CIT(A). We accordingly uphold the same rejecting the ground of the Revenue on this issue".

12. Respectfully following the Coordinate Bench decision, the CIT (A) has decided this issue also in favour of the assessee and therefore, we do not see any reason to interfere with the same and the Revenue's ground of appeal is rejected.

13. In the result, appeal of the Revenue is dismissed.

ITA No. 42/Hyd/2015 14. In the assessee's appeal, assessee has raised as many as four grounds of appeal, but grounds No.1 and 4 are general in nature, hence needs no adjudication. The effective grounds are therefore only grounds 2 & 3 which are as follows:

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"2. The CIT (A) erred in law in confirming the action of the AO in considering Rs.1372,45,64,987 which represents provision for bad and doubtful debts claimed and allowed the appellant ove rthe last so many years as deduction u/s 36(1)(viia) of the Act as income.

2.1 The CIT (A) failed to appreciate the fact that there is no provision in the Income Tax Act under which such provision can be considered as income.

3. The CIT (A) erred in law in upholding the action of the AO in considering Rs.19,59,29,028 of interest credited by the LIC in leave encashment scheme as income of the appellant.

3.1 The CIT (A) failed to appreciate the fact that when only the net amount of premium paid by the assessee to the LIC i.e. gross amount of premium payable less interest accrued to the assessee from the scheme is allwoed as deduction instead of the gross amount of premium payable, addition of the interest amount of Rs.19,59,29,028 as income is indirectly leading to taxation of the same amount twice.

3.2 Without prejudice to the above and alternatively, amount of Rs.19,59,29,028 treated as income be allowed as deduction as the same is contributed back to the fund".

15. As regards ground No.3.1, the ld Counsel for the assessee has submitted that this issue is covered against the assessee by the decision of the Tribunal in ITA No.245/Hyd/2014 for A.Y 2008-09 dated 18.7.2014. However, he submitted that the alternate ground 3.2 is covered in favour of the assessee by the decision of the Coordinate Bench dated 18.7.2014 in ITA No.244/Hyd/2014. On perusal of the material on record, we find that the assessee had not raised this alternate ground before the

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authorities below, but has raised it for the first time before this Tribunal. Since it is an alternate and legal ground, we deem it fit and proper to remand this issue to the file of the AO with a direction to adjudicate the same de novo in accordance with the law.

16. In the result, ground No.3.1 raised by the assessee is rejected and Ground No.3.2 is treated as allowed for statistical purposes.

17. As regards Ground No.2, brief facts are that during the scrutiny proceedings, the AO directed the assessee to furnish the details of provisions on account of rural debts and the bad debts written off for the preceding year. Assessee submitted the required details and the AO observed that the opening balance of the provision u/s 36(1)(viia) was Rs.1373,47,97,236/- while the amount of rural and bad debts written off during A.Y 2011-12 is Rs.102,32,249. AO therefore, asked the assessee to show cause as to why the difference amounting to Rs.1037,245,69,987 should not be written back and brought to tax as an excess provision made. Assessee, vide letter dated 21.1.2014, submitted that the deduction u/s 36(1)(viia) is allowable in respect of any provision for bad and doubtful debts, of the amounts not exceeding 7.5% of the total income and 10% of the aggregate average of advances made by rural branch advances at the end of every year and on the total income of that year and that even though, the assessee bank is eligible for deduction of Rs.3424,14,86,915 u/s 36(1)(viia) of the Act over a number of years, only Rs.1439,25,73,562 was allowed by restricting the

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same to the provisions created in the books of accounts in those years. It was submitted that the balance of the provision for bad and doubtful debts as on 31.03.2011 would only be Rs.845,22,28,133 as against Rs.1372,45,64,987 stated in the notice. The assessee also submitted the working for the same. AO however, was not convinced by the argument of the assessee and held that as per AS-29, a provision is an estimate of certain future liability/expense, arising from the business carried out during the year and allowable u/s 37 and such provisions are normally adjusted/set-off against the actual expenses of the very next year and unadjusted or unutilized provision in excess of the actual expenses under the same head has to be written back as income. He, therefore, held that the unutilized provision has to be written back and brought to tax.

18. On appeal, the CIT (A) confirmed the addition by holding that the claim made by the scheduled bank u/s 36(1)(viia) should be restricted to the extent of provisions made in the books of accounts.

19. Aggrieved, the assessee is in appeal before us. The ld Counsel for the assessee demonstrated before us that the CIT (A) has confirmed the disallowance on a totally erroneous appreciation of facts. He submitted that the disallowance made by the AO was of the unutilized portion of the provision, whereas the addition confirmed by the CIT (A) is on the ground that the provision is to be restricted to the extent it is made in the books of accounts. Thus, according to him, the order of the CIT (A) as well as the AO is to be set aside.

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20. The ld DR however, supported the orders of the authorities below.

21. Having regard to the rival contentions, we find that the ground on which the AO has made the disallowances is different from the ground on which the CIT (A) has confirmed the addition. Thus, it is seen that there is no appreciation of facts by the CIT (A). Therefore, the order of the CIT (A) is set aside. Coming to the order of the AO, we find that the assessee has made a provision u/s 36(1)(viia) in accordance with the provisions of the Act and if the assessee is not able to set off the provisions during the relevant A.Y, it is entitled to carry it forward subject to the maximum provision allowed under section 36(1)(viia) and there is no time limit fixed for such utilization. There is no provision in the Act to bring the unutilised provision to tax during the year. The reliance of the AO on AS 29 is also misplaced. In view of the same, we set aside the order of the AO also on this issue and the assessee's ground of appeal is allowed.

22. In the result assessee's appeal is treated as partly allowed for statistical purposes.

23. To sum up, Revenue's appeal is rejected and that of the assessee is treated as partly allowed.

Order pronounced in the Open Court on 24th April, 2015.

Sd/- Sd/- (P.M. Jagtap) (P. Madhavi) Accountant Member Judicial Member Hyderabad, dated 24th April, 2015.

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ITA Nos.42 and 31 of 2015 Andhra Bank Hyderabad

Vnodan/sps Copy to:

1. Andhra Bank, 5-9-11 Head Office, Saifabad, Hyderabad 500004

2. Dy. Commissioner of Income Tax, Circle 1(1) Hyderabad

3. The CIT(A)-II Hyderabad

4. The CIT -I Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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