STATE BANK OF INDIA, MUMBAI v. ADDL CIT RG 2(2), MUMBAI

2. The assessee has filed the present appeal against the order dated 21.07.2010 passed by the Commissioner of Income Tax (Appeals)-05, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the A.Y.2000-

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3. The assessee has raised the following grounds: -

"1. The Ld. CIT(A) erred in confirming the addition of Rs.1,37,00,813/- under the head „Deferred Payment Guarantee Commission".

2. The Ld. CIT(A) erred in confirming the disallowance of Rs.15,13,81,119 in respect of depreciation on securities which had fallen due for redemption during year ended

31 March 2000 but redemption proceeds were not received.

3. The Ld. CIT(A) erred in confirming the disallowance of Rs.48,06,293/- in respect of payments for scientific research.

4. The Ld. CIT(A) erred in upholding the action of the AO in disallowing expenditure to the extent of Rs.540,33,97,488/- by applying the provisions of section 14A read with rule 8D.

The Ld. CIT(A) erred in not appreciating that the appellant has not specifically borrowed any funds for making investment in tax free bonds, the appellant has sufficient own funds to make investment in tax free bonds and that only the actual expenditure could be considered for disallowance and not the notional expenditure. The Ld. CIT(A) erred in not that the Bank"s investment in securities yields two streams of income viz. business income which is taxable and dividend income which is exempt and accordingly the expenditure (if any) to be disallowed can be only in relation to exempt dividend income.

5. The Ld. CIT(A) erred in upholding the action of the AO in disallowing the appellant"s claim in respect of depreciation of Rs.168,81,45,689/- on leased assets. The ld. CIT(A) erred in holding that the so called lease transactions are noting but finance transactions.

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6. The Ld. CIT(A) erred in upholding the action of the AO in disallowing a sum of Rs.125,96,48,926/- paid to SBI Mutual Fund in respect of shortfall arising on redemption of Magnum Triple Scheme 1991 as business expenditure.

The Ld. CIT(A) erred in observing that the appellant apparently has not discharged the onus of establishing that the expenditure was incurred wholy and exclusively for the purpose of its business and that there was neither direct of indirect business expediency on its part to incur such expenditure.

The Ld. CIT(A) erred in upholding the observation of the AO that the expenditure is nowhere related to or was incidental to the business of the appellant rather the expenditure was incidental to the business of another person viz. SBI Mutual Fund which was not an income earning apparatus for the appellant and therefore, the expenditure incurred for an on behalf of SBI Mutual Fund could not be treated as expenditure during the course of the business of the assessee.

7. The Ld. CIT(A) erred in not accepting the claim of the appellant that the interest of Rs.11,22,91,234/- was in the nature of unearned income on non- performing assets as envisaged by section 43D of the Act and that the write-off of the same was allowable as a deduction.

8. The Ld. CIT(A) erred in holding that the claim that the deduction was claimed before the AO is not fully verifiable as the assessment order is completely silent on such a claim, it at all made during assessment proceedings.

The Ld. CIT(A) erred in holding that the clam that the claim that the deduction was claimed before the AO is not fully verifiable as the assessment order is completely silent on such a claim it all made during assessment proceedings.

9. The Ld .CIT(A) erred in confirming the addition in respect of contribution of Rs.10,00,00,000/- to SBI Retired Employees Medical Benefit Fund. The Ld. CIT(A) erred in not following the decision of the Cochin Tribunal in the case of State Bank of Travancore (306 ITR(AT) 128)

10. The Ld. CIT(A) erred in upholding the action of the AO of granting deduction for Rs.925,67,73,295/- under section 36(1)(viia) instead of the entire provisions of Rs.1318,46,27,950.

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11. The Ld. CIT(A) erred in upholding the action of the AO of not allowing the provisions made by the appellant in respect of its foreign offices.

12. Each one of the above grounds of appeal is without prejudice to the other.

13. The appellant reserves the right to amend, alter or add to the grounds of appeal."

4. The brief facts of the case are that the assessee filed its return of income showing total income of Rs.24,27,86,96,230/- on 30.11.2000 along with computation of Income, Profit & Loss Account and Balance Sheet and Audit Report in form 3CA and 3CD. The return was processed on 27.03.2002 for the same total income. Thereafter, the case of the assessee was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is a Public Sector Bank carrying on the business of banking for the last many years. After considering the various issues, the AO assessed the total income to the tune of Rs.35,399,283,940/-. The deduction for provisions for bad debts u/s 36(1)(viia) of the Act was allowed in sum of Rs.925,67,73,295/-. The book profit u/s 115JB of the Act was assessed in sum of Rs.872,98,93,062/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee, therefore, the assessee has filed the present appeal before us.

ISSUE NO.1

5. Under this issue the assessee has challenged the disallowance of „Deferred Payment Guarantee Commission" in sum of Rs.1,37,00,813/-. At the outset, the Ld. Representative of the assessee

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has argued that the issue has squarely been covered by the decision of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 bearing ITA. No.4736/M/2010 & 4598/M/2010 dated 31.01.2018. The relevant finding is hereby reproduced as under.:-

"4. We have heard the ld. Authorized Representative of assessee and ld. Departmental Representative (DR) for the Revenue and perused the orders of authorities below and the various decisions relied by ld. representatives. First we are taking appeal filed by assessee in ITA No. 4736/Mum/2010.

6. On appraisal of the above mentioned finding, we noticed that the Hon"ble ITAT has allowed the claim of the assessee on the basis of the earlier decision of the assessee"s own case for the A.Y. 1994-95 & 1996-97. Nothing came into noticed that the finding has been changed and varied. Nothing contrary to the said finding has been produced before us, therefore, by following the decision of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018, the claim of the assessee has been allowed. Accordingly, this issue is decided in favour of the assessee against the revenue.

ISSUE NO.2

7. Under this issue the assessee has challenged the disallowance of depreciation on matured investments in sum of Rs.15,13,81,119/-. At the very outset, the Ld. Representative of the assessee has argued that this issue has been covered against the assessee in the assessee"s own case bearing ITA. No. bearing ITA. No. 4736/M/2010 &

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4598/M/2010 dated 31.01.2018 for the A.Y. 1999-2000. The relevant finding has been given in para no. 8 to 10 which is hereby reproduced as under.:-

"8. We have considered the contention of the parties and have gone through the orders of authorities below. We have noted that similar ground of appeal has been dismissed by the Tribunal in assessee"s own case, with the following order: 38. Additional Ground No. 2 is regarding depreciation on matured securities. The assessee has claimed a sum of Rs. 2,23,86,418/- towards depreciation of investments. The AO disallowed the claim of the assessee and the CIT(A) has confirmed the action of the AO. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The CIT(A) has decided the issue in para 9 as under: "9. The ninth effective ground of appeal is against the disallowance of Rs.2,23,86,418/- being the provision for diminution in the value of securities which had matured and become due for redemption during the year but were not redeemed. It was contended before the A.O. that in some cases, the companies or the State Governments who had issued the relevant securities were not able to pay the amount due on redemption. The appellant treats these securities as non- performing assets and a provision is made at a certain percentage for diminution in their value as in the case of other non-performing assets. There may be some delay on the part of the companies or the State Governments in paying the redemption amount. But, whenever the payment would be made it cannot be expected to be less than the face value. On the date of maturity, the whole of the amount of redemption money becomes due under the mercantile system of accounting followed by the appellant unless a portion of this amount is written off as bad debt. It is a real income and hence has to be taxed as such under the mercantile system followed by the appellant. Reliance in this regard is placed on State Bank of Travancore vs. CIT 158 ITR 102, 155 (SC) which was followed in Western India Oil Distributing Co. Ltd. Vs. CIT 206 ITR 359 (Bom). It was held in this decision that the concept of real income should not be so read as to defeat the provisions of the Act. Extension of the concept of real income to a field so as to negate accrual after the amount had become receivable is contrary to the postulates of the Act, the Supreme Court held (p. 146 of 158 ITR). Moreover, as held in the case of Navin R. Karnani Karnani vs. CIT 185 ITR 408 (Bom),

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(Bom) it was not possible to waive any amount of income which had accrued under the mercantile system of accounting on the ground of diminished hope of recovery. Furthermore, any liability de futuro is not an ascertained liability in praesenti and cannot be allowed as deduction under the Income-tax Act as held in the case of Indian Molasses Co. Pvt. Ltd. vs. CIT 37 ITR 66 (SC) and Standard Mills Co. Ltd. Vs.CIT Vs.CIT 229 ITR 366(Bom) 366(Bom). Hence, no such ad hoc deduction could be allowed against the amount receivable on redemption of securities which had matured and become due for payment before the close of the accounting year. This ground therefore fails.

" 39. The findings of the CIT(A) is based the on the various decisions of the Hon'ble Supreme Court as well Jurisdiction High Court. No contrary decisions has been brought before us accordingly we do not find any error or illegality in the impugned order of CIT(A) qua this issue. The same is upheld. 9. Again in appeal for AY 1997-98 & 1998-99, the Tribunal by following the decision of AY 1996-97 dismissed the identical ground of appeal by passing the following order: 11.Next additional ground pertains to disallowance of depreciation on matured investments Rs.18,35,53,508/-.The AR fairly conceded that the issue is covered against the assessee by the decision of the Tribunal in its own case for assessment year 1996-97 (para 38 & 39) in ITA No.5470/M/2002 which reads as under :- "38. Additional Ground No. 4 is regarding depreciation on matured securities. The assessee has claimed a sum of Rs. 2,23,86,418/- towards depreciation of investments. The AO disallowed the claim of the assessee and the CIT(A) has confirmed the action of the AO. We have heard the Ld. AR as well as Ld. DR and ITA No. 4736 & 4598/M/2010- State Bank of India 10 considered the relevant material on record. The CIT(A) has decided the issue in para 9 as under: "9.The ninth effective ground of appeal is against the disallowance of Rs.2,23,86,418/- being the provision for diminution in the value of securities which had matured and become due for redemption during the year but were not redeemed. It was contended before the A.O. that in some cases, the companies or the State Governments who had issued the relevant securities were not able to pay the amount due on redemption. The appellant treats these securities as nonperforming assets and a provision is made at a certain percentage for diminution in their value as in the case of other non-performing assets. There may be some delay on the part of the companies or the State Governments

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in paying the redemption amount. But, whenever the payment would be made it cannot be expected to be less than the face value. On the date of maturity, the whole of the amount of redemption money becomes due under the mercantile system of accounting followed by the appellant unless a portion of this amount is written off as bad debt. It is a real income and hence has to be taxed as such under the mercantile system followed by the appellant. Reliance in this regard is placed on State Bank of tate Bank of Travancore vs. CIT 158 ITR 102, 155 (SC) which was Travancore vs. CIT 158 ITR 102, 155 (SC) followed in Western India Oil Distributing Co. Ltd. Vs. CIT 206 ITR 359 (Bom). ITR 359 (Bom). It was held in this decision that the concept of real income should not be so read as to defeat the provisions of the Act. Extension of the concept of real income to a field so as to negate accrual after the amount had become receivable is contrary to the postulates of the Act, the Supreme Court held (p. 146 of 158 ITR). Moreover, as held in the case of Navin R. avin R. Karnani vs. CIT 185 ITR 408 (Bom) Karnani vs. CIT 185 ITR 408 (Bom) ani vs. CIT 185 ITR 408 (Bom), it was not possible to waive any amount of income which had accrued under the mercantile system of accounting on the ground of diminished hope of recovery. Furthermore, any liability de futuro is not an ascertained liability in praesenti and cannot be allowed as deduction under the Income-tax Act as held in the case of Indian Molasses Co. Pvt. Molasses Co. Pvt.Ltd. vs. CIT 37 ITR 66 (SC) Ltd. vs. CIT 37 ITR 66 (SC) and Standard Mills Ltd. vs. CIT 37 ITR 66 (SC) Standard Mills Co. Ltd. Vs.CIT

229 ITR 366(Bom Co. Ltd. Vs.CIT 229 ITR 366(Bom) CIT 229 ITR 366(Bom). Hence, no such ad hoc deduction could be allowed against the amount receivable on redemption of securities which had matured and become due for payment before the close of the accounting year. This ground therefore fails." 39.The findings of the CIT(A) is based the on the various decisions of the Hon"ble Supreme Court as well Jurisdiction High Court. No contrary decisions has been brought before us accordingly we do not find any error or illegality in the impugned order of CIT(A) qua this issue. The same is upheld." Respectfully following the above additional ground No.4 is decided against the assessee.

10. Thus, respectfully following the decision of Tribunal in assessee"s own case for AY 1996-97, 1997-98 & 1998-99 in ITAs No. 5470/Mum/2002 and ITA No. 3823-3824/Mum/2002, this ground of appeal is dismissed."

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8. On appraisal of the above mentioned finding, we find that this issue has already decided against the assessee by Hon"ble ITAT in the assessee"s own case for the A.Y. 1996-97, 1997-98 & 1998-99 bearing ITA. No.5470/M/2002, 3823 & 3824/M/2002. Nothing came into noticed that the finding has been changed or varied at this stage. Therefore, by reliance upon the decision of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 (supra). We decide this issue in favour of the revenue against the assessee.

ISSUE NO.3

9. Under this issue the assessee has challenged the disallowance of payments for scientific research. The Ld. Representative of the assessee has admitted that this issue has been decided against the assessee by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 Bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018. The relevant finding has been given in para no. 11 to 13 which is hereby reproduced as under.:-

"11. Ground No. 3 relates to Disallowance of Rs. 38,89,011/- in respect of payments for Scientific Research. The ld. AR of the assessee conceded that this ground of appeal is covered against the assessee in assessee"s own case for AY 1997-98 & 1998-99. On going through the decision of Tribunal, the ld. DR for the Revenue submits that this ground of appeal may be dismissed.

12. We have considered the submission of the ld. representative and have gone through the orders of authorities below. We have noted that the similar ground of appeal was decided against the assessee by the Tribunal in assessee"s own case for AY 1997-98 and 1998-99 in ITA No. 3823- 3824/Mum/2005 dated 29.04.2016 with the following order:

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3. Third Ground is about disallowance of Rs.26,44,876/- in respect of payment for scientific research. During the assessment proceedings, the AO found that payment of Rs.26,44,876/- had been made out of a fund established by the ITA No. 4736 & 4598/M/2010- State Bank of India 12 assessee for scientific research assistance, that the fund was set up out of surplus fund in earlier years, that the payment was not out of the income of the year under consideration. Following the earlier years order the AO disallowed the claim. 3.1. Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submission of the assessee and the assessment order he held that his predecessor disallowed the claim made by the assessee while deciding the appeal for AY 1996-97. Following the order of his predecessor for the earlier year he upheld the order of the AO.

3.2. During the course of hearing before us, the AR agreed that assessee had not challenged the order for the year 1996-97 before the Tribunal. As the assessee had accepted the order of the FAA for the earlier year, we are of the opinion that there is no need to disturb the order of the CIT(A) for the current year as facts for both the years are identical- except that the amounts involved are different. Confirming the order of the FAA Ground No.3 is decided against assessee. 13. We have noted that the similar ground of appeal was rejected by the Tribunal in assessee"s own case for AY 1998-99 in ITA No. 3824/Mum/2005. Thus, considering the decision of Tribunal in assessee"s own case in earlier years, this ground of appeal is dismissed."

10. On appraisal of the above mentioned finding, we find that the issue has been decided by the CIT(A) on the basis of the decision of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1998-99 bearing ITA. No.3824/M/2005. Nothing came into noticed that the finding has been changed and varied. No law has been produced before us in support of any contention raised by assessee. Taking into account all the facts and circumstances and by relying upon the decision of the Hon"ble ITAT in the assessee"s own case for the A.Y.

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1999-2000, we decide this issue in favour of the revenue against the assessee.

ISSUE NO.4

11. Under this issue the assessee has challenged the disallowance of expenses in sum of Rs.540,33,97,488/- by applying the provisions of Section 14A r.w. Rule 8D. We find that the issue has already been remanded by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 by giving certain directions and to follow the certain law as mentioned in the order. The Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 4736/M/2010 & 4598/M/2010 dated 31.01.2018 has decided the issue. The relevant finding has been given as under.:-

"14. Ground No. 4 relates to disallowance of expenses of Rs. 4,48,16,70,145/- for earning exempt income u/s. 10(15)(iv)(c) & (f), 10(15)(iv)(h), 10(23G) and 10(33) by applying the provisions of section 14A r.w.r. 8D. The ld. AR of the assessee argued that the assessee is one of the leading Bank of the Country and having sufficient own funds. The loans granted and the investment made are out of own interest free funds available with the assessee"s Bank. No disallowance in relation to interest expenses was warranted as own interest free fund are far exceeding investment. The assessee has placed on record the financial statement of the assessee"s Bank as per page no. 286 to 361 of Paper Book. In support of this submission, the ld. AR of the assessee relied upon the decision of various Hon"ble High Court viz; Bombay High Court in CIT vs. HDFC Bank Ltd. (383 ITR 529), CIT vs. HDFC Bank Ltd. (366 ITR 505), decision of Hon"ble Delhi High Court in CIT vs. Tin Box Co. (260 ITR 367), Gujarat State Fertilizers & Chemicals Ltd. (Tax Appeal No. 82 of 2013(Gujarat HC), UTI Bank Ltd. (32 taxmann.com 370) (Guj HC). It was further argued that Rule 8D is not applicable for AY 1999-2000. On this submission the ld. AR of the assessee relied upon the decision of

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Hon"ble Bombay High Court in Godrej Boyce Manufacturing Company Ltd. vs. DCIT (2010) 328 ITR 81. The ld. AR of the assessee further argued that no disallowance under section 14A is warranted, if investments are held as stock-in-trade. In support of his submission, the ld. AR relied upon the decision of CIT vs. India Advantage Securities Ltd. (2016 380 ITR 471) (Bombay High Court), State Bank of Patiala (78 taxmann.com 3) (Punjab and Haryana High Court), CCI Ltd. vs. JCIT (2012 206 taxman 563) (Karnataka High Court), Oasis Securities Ltd. vs. DCIT (59 SOT

302) (Mumbai Tribunal), Ganjam Trading Co. Pvt. Ld. vs. DCIT (ITA No. 3724/Mum/2005 and others) (Mumbai Tribunal), State Bank of Hyderabad (63 taxmann.com (Hyderabad ITAT) & Gulshan Investment Co. Ltd. (ITA No. 666/Kol/2012). In alternative submission, it was submitted that the assessee made investment in subsidiary and investment is strategic investment in support of his submission, the ld. AR relied upon the ITA No. 4736 & 4598/M/2010- State Bank of India 14 decisions of CIT vs. Rajeeva Lochan Kanoria (1994] (208 ITR 616) Calcutta High Court, Garware Wall Repes Ltd. vs. ACIT [2014] taxmann.com

18) Mumbai Tribunal, JM Financial Limited (ITA No. 4521/Mum/2012) (Mumbai Tribunal), Interglobe Enterprises Ltd. Vs. DCIT (ITA No. 1362 & 1032/Del/2013) (Delhi Tribunal, EIH Associated Hotels Ltd. vs. DCIT (ITA No. 1503/Mds/2012) (Chennai Tribunal), CIT vs. Oriental Structural Engineers (P.) Ltd. (35 taxmann.com 210) (2013) (Delhi HC), CCI Ltd. vs. JCIT

(250) CTR 291) (Karnataka HC), CIT vs. Delite Enterprises (ITA No. 110 of 2009 (Bombay HC), CIT vs. Shivam Motors (P.) Ltd. (ITA No. 88 of 2014) (All HC) (2014). It was further submitted that section 14A applies only when expenditure is actually incurred and there are numerous judicial decision in favour of assessee"s Bank viz. CIT vs. Central Bank of India 264 ITR 522(Bom), CIT vs. General Insurance Corpn. Of India 254 ITR 203(Bom), Eicher Ltd. (101 TTJ 369) (Del), Dhanlakshmi Bank Ltd. vs. ACIT 12 SOT 625 (Cochin), CIT vs. Hero Cycles Ltd. 323 ITR 518) (Punjab & Haryana High Court). The ld. AR further argued that as per guidelines laid down by Reserve Bank of India, the bank has to invest interest free securities to maintain Statutory Liquidity Ratio (SLR). The rate of return on tax free deployment of funds lower in view of the tax exemption available. The Borrowings and interest expenses incurred in the normal course of banking business. Without prejudice, it was argued that disallowance under section 14A in relation to Administrative Expenses may be calculated on the basis of certain percentage of exempted income as has been

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held in a number of decision by various Tribunal and Hon"ble High Courts. Reliance was made in case of Cheminvest Limited vs. CIT (378 ITR 33), ACB India Ltd. vs. ACIT (374 ITR 108). The ld. AR further conceded that similar ground was restored to the file of AO in assessee"s own case for AY 1996-97 & 1998-99. It was submitted that the AO despite direction of Tribunal passed a non- speaking order and no relief was granted. It was finally prayed that the Tribunal may issue appropriate directions while setting aside the matter following the earlier precedent. On the other hand, the ld. DR for the Revenue relied upon the order of authorities below.

15. We have considered the rival submission of the parties and have gone through the orders of authorities below. At the time of hearing, the ld. representative for the assessee pointed out that earlier AYs 1997-98 & 1998-99 vide its order dated 29.04.2016 (supra), the issue relating to the disallowance under section 14A of the Act was remanded back by the Tribunal to the file of AO. He conceded that the circumstances which prevailed with the Tribunal to remand the matter with the file of AO continued to prevail in this year too. It is pointed out that when the impugned assessment was finalized, the jurisprudence on the implication of section 14A was not developed but by the time, the matter travelled to the Tribunal, law had considerably developed on the subject. By noticing this, the Tribunal restored the matter back to the file of AO for fresh adjudication so that the benefit of the later developed law could be available to the AO. So, however, it is pointed out that in the order giving effect to the directions of the ITAT for AY 1997-98, the AO vide order dated 27.03.2017 had cryptically disposed of the matter. For the said purpose our attention was drawn to paragraph-6 of the order of AO which merely says that he agrees "with the contentions raised in the earlier assessment order and maintain the disallowance in this regard at Rs. 45,51,91,557/- as detailed in 143(3) order of the said year". Quite clearly, the aforesaid manner of determination by the AO leaves much to be desired. In fact in the earlier part of this order, we have enumerated in some detail, the various propositions which have been raised by the assessee in the context of the disallowance under section 14A of the Act which require specific determination by the AO. Therefore, following the earlier precedent, the matter relating to section 14A is remanded back to the file of AO, with the directions to allow the assessee an opportunity to make submissions, and the AO shall pass a speaking order giving

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determination on each of the propositions as per law. Thus, with these directions, the matter is restored back to the file of AO to adjudicate afresh as per law. Hence, this ground of appeal is allowed for statistical purpose."

12. On appraisal of the above mentioned finding, we set aside the finding of the CIT(A) on this issue and direct the AO to decide the matter of controversy afresh in view of the observation made by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 (supra). Accordingly, this issue is decided in favour of the assessee against the revenue.

ISSUE NO.5

13. Under this issue the assessee has challenged the disallowance of depreciation of Rs.168,81,45,689/- on leased assets. The Ld. Representative of the assessee has voluntary admitted this fact that this issue has been decided against assessee in the assessee"s own case bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018. The relevant finding has been given in para no. 16 to 18 which are hereby reproduced as under.:-

"16. Ground No.5 relates to disallowance of depreciation of Rs. 443,22,69,791/- on leased assets. The ld. AR of the assessee submitted that similar groundof appeal was decided against the assessee by the Tribunal in assessee"s own case for AY 1996-97 and again in AY 1997-98 & 1998-99 and the assessee"s appeal has been admitted by the Hon"ble Bombay High Court against the order of Tribunal for AY 1996-97 dated 23.08.2016. The ld. DR for the Revenue submits that this ground of appeal may be dismissed as similar ground of appeal has already been admittedly dismissed by the Tribunal for AY 1996-97 to 1998-99.

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17. We have considered the submission of the parties and have gone through the order of authorities below and the orders passed by co-ordinate bench of Tribunal in assessee"s own case for AY 1996-97 wherein similar ground of appeal was decided against the assessee. Again in the appeal for AY 1997-98 & 1998-99, the similar grounds of appeal was dismissed by following the decision of Tribunal in AY 1996-97 with the following order: 6. Next Ground of appeal is about disallowance of depreciation of Rs.61.75 crores on leased assets. During the course of hearing before us, the AR fairly conceded that identical issue has been decided against the assessee by the Tribunal. While adjudicating appeal for AY.1996-97 dt.26.7.13 in ITA No.5470/Mum/2002 the Tribunal held as under:

15. Ground No. 8 is regarding depreciation on lease assets given to Konkan Railway Corporation Ltd. The assessee has entered into an agreement dated 30.3.1996 with Konkan Railway Corporation Ltd. for leasing transaction with respect to the asset of Rs. 25,00,00,000/-. The assets have been categorised as plant and machinery in the shape of Railway Tracks comprising of rails, sleepers and associated fitting. The assessee claimed depreciation on these assets at the rate of 12.5% as used for less than 180 days. The assets in question were originally acquired by Konkan Railway Corporation Ltd. and thereafter to arrange the funds the same were sold to the assessee Bank and taken back on lease for a period of 84 months against the lease rental payable at monthly instalment. The Assessing Officer held that the transaction is in the nature of loan or financial assistance provided to the Konkan Railway Corporation Ltd. (KRCL) by the assessee Bank. The transaction has been given the shape of lease transaction only in order to enable the bank to claim depreciation and reduce its taxable income. Accordingly, the AO held that the sale and lease back transaction is in the nature of financial transaction, therefore, the claim of depreciation was disallowed. On appeal, the CIT(A) confirm the action of the AO and held that the so-called lease agreement is only a finance lease on which the depreciation can be allowed to a person who vests the dominion over the property/asset, who is entitled to use it in his own right and using the same for the purpose of his business or profession. The CIT(A) has observed that in the present case the lessee retained the asset in its own dominion at the exclusion of others including the assessee because the lessee has constructed the equipments and uses it as integral part of railway system. In order to get finance

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KRCL made an arrangement to issue a sale invoice but retained the asset for itself. However, the CIT(A) while confirming the disallowance of depreciation directed the AO to exclude the capital recovery component from the lease rentals assessed to tax

20. We have considered the rival submissions as well as relevant material on record. The assessee has claimed that as per the lease agreement the assessee has entered into an operating lease of the asset in question. In order to determine the real nature of transaction and arrangement between the parties, the substance of the document intention of the parties and surroundings circumstances under which the parties have entered into the transaction are material and relevant to be considered. Therefore, mere nomenclature words used in the agreement cannot be looked into in isolation of the substance of the document, the real intentions of the parties and the surroundings circumstances under which the transaction took place. Undisputedly in the case in hand the asset in question is the railway track which is already owned by the lessee Konkan Railway Corporation Ltd. (KRCL) but because of the requirement of funds the KRCL decided to raise the funds by making the arrangement of sale and lease back of the asset. Thus, the real object as far as KRCL is concerned for entering into the transaction of sale and lease back is to raise/arrange the funds. The two transaction of sale of the asset in question to the assessee bank and lease back cannot be separated as there was no choice with either of the party to restrict the transaction of sale alone independently because it was neither possible nor permissible to sell out the asset in question by the Konkan Railway Corporation being the integral part of their railway system which is the very basis of the existence of the KRCL. Thus, we have not doubt that the sale transaction in question is merely on paper and to facilitate the financial arrangement by the assessee to the KRCL without involving any real intention of transfer of the asset in question. Even otherwise the transfer of asset in question is impossible in the facts and circumstances of the case and therefore it was not the real intention of the parties even reflected from the lease agreement. Some of the relevant clauses of the agreement are as under: "1.5 The Acquisition Cost of the equipment shall be the Invoice Value of the Equipment inclusive of levies on important of the Equipment, Customs Duty, Central Excise Duty, Sales Tax, Additional Tax, Surcharge on Sales Tax, Interest Tax, where applicable, Turnover Tax, where payable and all other costs and expenses, as the case may be such as Freight, Octroi, Entry Tax, Erection and

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Installation \Charges, Commissioning Charges, Testing Charges paid or payable in respect of the Equipment or value assessed by the valuers as per clause 2.2. Below whichever is lower. In case the Lessee proposes to avail MODVAT on the specified Excise Duty paid in terms of the Central Excise Rules, 1944, of which due intimation will be given by the Lessee to the Lessor, the acquisition cost will not include Excise duty payable on the equipment. 1.6 The Lessee hereby takes on lease the Equipment for the Fixed period from the Commencement Date as hereinafter referred to subject to the terms, conditions, covenants and stipulations contained herein and in the Schedules hereto. The Fixed period or the primary period of the Lease as defined in Part II of the First Schedule hereto is noncancellable by the Lessee and/or the Lessor except as provided in Clause 13 hereof. The fixed period of the lease may be renewed for a further fixed term referred to as "the secondary period" at the option of the Lessee on the same terms and conditions as are contained in this agreement subject to payment by the Lessee of lease rentals in advance as stipulated in Part II of the First Schedule hereto. 5. Insurance It is agreed by and between the Parties hereto that the Lessee shall, for and on behalf of the lessor.

5.1 Take out insurance on the Equipment against loss in transit, erection and installation risks, maritime risks, where necessary prior to the despatch of the Equipment, or alternatively to ensure that the insurance on the Equipment in respect of the said risks is effected by the Manufacturer/Supplier before delivery of the Equipment.

5.2 immediately after the delivery of the Equipment, insure the Equipment and keep the same insured throughout the term of this Agreement against loss or damage by accident, lighting, fire, flood, storm, earthquake, tempest, falling aircraft, malicious damage, riot, strike, civil commotion, explosion, implosion and where necessary against third party claims in respect of Equipment used in hazardous industries and those requiring environmental protection as also for other risks usually covered by insurance in the type of business for which the Equipment is for the time being used to the satisfaction of the Lessor upto the full replacement value thereof under a Comprehensive Policy of Insurance, in the joint names of the Lessor and the Lessee with an endorsement showing the Lessor as the owner and Loss payee.

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8. Lessor"s Interest and Title: The Lessee agrees and undertakes that it will8.1 ensure that in so far as the Equipment is installed in or affixed to any land or building, such Equipment shall be capable of being removed without material injury to the said land or building and that all such steps shall be taken as are necessary to prevent title to the Equipment from passion to the Owner/Lessor/Occupier of the said land or building:

8.2 Keep the Equipment at all times in the possession and control of the Lessee at the Lessee"s Factory or Premises as indicated in the Proposal and at the address as specified in Part II of the First Schedule hereto and not remove the same from the place so specified where it is installed without the consent in writing of the Lessor: 8.3 notify the Lessor of any change in the Lessee"s address and upon request by the Lessor promptly inform the Lessor of the whereabouts of the Equipment:

8.4 not do or omit to do any act which may result in seizure and/or confiscation of the Equipment by the Central or State Government or Local Authority or any Public Officer or Authority under any law for the time being in force.

8.5 not sell, assign, sub-let, pledge, mortgage, charge, encumber, or part with possession of or otherwise deal with the Equipment or any interest therein nor create or allow to be created any lien on the Equipment whether for repairs or otherwise and in the event of any breach of this sub-clause by the Lessee, the Lessor shall be entitled to call upon the Lessee to have the lien or charge or other encumbrance lifted at its cost and in the event of the Lessee failing to do so within a reasonable time, the Lessor shall be entitled (but shall not be bound) to pay to any third party such sum as is necessary to procure the release of the Equipment from any lien charge or encumbrance and shall be entitled to recover from the Lessee forthwith all such expenses as might have been incurred for such release:

8.6 not sell, mortgage, charge, demise, sub-let or otherwise dispose of any land or building on or in which the Equipment are kept or enter into any contract to do any of the aforesaid things without giving to the Lessor at least six weeks prior notice in writing and the Lessee shall in any event ensure that any such sale, mortgage, charge, demise, sublease, or other disposition as the case my be is made subject to the right of the Lessor to repossess the Equipment at any time(whether or not the same or any part

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thereof shall have become affixed to the said land or building) and for that purpose to enter upon such land or building and sever any Equipment affixed thereto: 8.7 punctually pay all registration charges, licence fees, rent, rates, taxes including in particular Sales Tax and other outgoings payable in respect of the Equipment under this Agreement or for storage, installation, or use thereof, or in respect of any premises in which the Equipment form time to time may be placed or kept and produce to the Lessor, on demand, the latest receipts for all such payments and in the event of the Lessee making default under this sub-clause the Lessor shall be at liberty to make all or any of such payments and to recover the amount thereof from the Lessee forthwith.

8.8 not claim any relief by way of any deduction, allowance or grant available to the Lessor as the owner of the Equipment, under the Income Tax Act, 1961 or under any other Statute, rule, regulation or guideline issued or that may be issued by the Government of India or any Statutory Authority and not do or omit to do or be done any act, deed or thing whereby the Lessor is deprived, whether wholly or partly of such relief by way of deduction, allowance or grant. The Lessee shall at the end of each financial year of the Lessor provide to the Lessor such information as it may require to claim relief by way of any deduction allowance or grant as the owner of the Equipment under the Income Tax Act, 1961 and the Lessee undertakes to comply with and observe at all times all the terms and conditions to be complied with or observed in respect of the use and operation of the Equipment so as to entitle the Lessor to obtain such relief.

8.9 The Lessee irrevocably agrees that if due to incremental taxes whether on account of the impact of the sales tax legislation in the various States as applicable or on account of customs duty or excise duties or any other related and consequential taxes or charges levied or leviable on this transaction now or hereafter as also due to any increase in the purchase price of the Equipment covered by this Agreement on account of purchase tax and/or any other tax or imposition or due to tax on the right to use goods as may be applicable to the Equipment the Acquisition Cost of the Equipment stands increased, then the Lessor reserves the right to increase the Lease rentals proportionate thereto and on such notification by the Lessor to the Lessee, the Lease Rentals shall correspondingly stand increased from the date specified by the Lessor in such notification.

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12. Events of Default: An event of default shall occur hereunder, if the Lessee

12.4 without the Lessor"s consent, sells, transfers, or attempts to sell or pledge, parts with possession or sub-lets or charges or encumbers or creates any lien on the Equipment or any item of the Equipment is endangered in the opinion of the Lessor or the interest of the Lessor is jeopardised:

13. Termination in the even of default:

13.2 On the termination of this Agreement the Lessor shall without any notice be entitled to remove and repossess the Equipment and for that purpose by itself its servants or agents enter upon any land buildings or premises where the Equipment is situated or is reasonably believed by the Lessor to be situated for the time being and detach and dismantle the same and the Lessor shall not be responsible for any damage which may be caused by any such detachment or removal of the Equipment.

13.3 Without prejudice to and in addition to the Lessor"s rights provided in Clause 13.2 hereinabove the Lessor shall also be entitled to recover from the Lessee and the Lessee shall be bound to pay to the Lessor the following amounts viz:

13.3.1 The entire amount of the lease rentals for the fixed period of the lease computed in the manner set out in Part II of the First Schedule hereto on the footing and as if the Agreement had not been terminated to the end and intent that the Lessee shall pay to the Lessor not only arrears of instalments of lease rentals upto the date of termination of this Agreement but also such further instalments for the then unexpired residue of the term which the Lessee would have been bound to pay to the Lessor had this Agreement continued.

14. Redelivery/Repossession of Equipment:

14.1 Upon the expiration of this Agreement if the Lessee does not propose to renew the lease for further fixed period or secondary period the Lessee shall if required by the Lessor deliver the Equipment to the Lessor at the address of the Lessor stated in this Agreement or at such other addresses as the Lessor may specify or if not so required shall hold the Equipment in trust for the lessor so as to make it available to the Lessor for collection by itself or by its employees or agents; the Lessor or its employees or agents shall

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be entitled to retake possession of the Equipment and may for that purpose enter upon any land or building Lessor or its employees or agents to be situated and if the Equipment or any part thereof is affixed to such land or buildings, the Lessor or its employees or agents shall be entitled to server the same therefrom and to remove the Equipment or part thereof so severed and the Lessee hereby agrees that it shall not hold the lessor for any damage done responsible for and to make good at its expense all damage caused to the land or buildings by such removal.

15. Sale of Equipment on termination of the AgreementUpon the termination of this Agreement unless the Lessee has elected to renew the lease for a further fixed period or secondary period the Lessor shall as the absolute owner of the Equipment be at liberty to sell any or all of the Equipment at a public or private sale or otherwise dispose of, hold, use, operates, lease to others or keep idle such Equipment, all free and clear of any rights of the lessee and without any duty to account to the Lessee for such action or inaction or with respect to any proceeds thereto and if such Equipment is sold the price obtained upon such sale shall not be questioned or challenged by the Lessee more shall the Lessee question or dispute the exercise or non-exercise by the Lessor of any one or more of the rights and remedies as set out in Clause 13 hereinabove. 16. Assignment:

16.1 The Lessor may hypothecate the Equipment owned by it and leased out hereunder in favour of any bank, Financial Institution or any other Institution whatsoever as and by way of security for the financial assistance arranged therefore by the Lessor for the acquisition of such Equipment. The Lessor may assign to any person any of its rights under this Agreement and in particular may assign such rights by way of a charge and any person to whom such rights are assigned shall be entitled to the full benefit of all such rights of the lessor.

21. It is manifest from the terms and conditions of the lease agreement that the lease is for a fixed period of 84 months and as per clause 1.6 it is non-concealable by the lessee and/or by the lessor except on the default on the part of the lessee. Even in case of default and consequential termination of lease it, is provided that the lessee shall pay the entire arrears of the lease as well the future installment for the unexpired period of the lease term, therefore the lease agreement has been framed and constructed in such a way that the assessee recovers its entire cost along with the

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interest in equated monthly installments. Even in the schedule to the lease agreement the period of 84 months is a fixed non- concealable period. As per clause 5 of the agreement the lessee is required to take out the insurance on the asset in question and also bear all the damages, loss and risk attached to the leased asset, therefore, it is agreement between the parties that all the risk and reward attach to the lease asset shall be born and enjoyed by the lessee. The so-called restrictions on the sale, creating charge, lien by the lessee are necessary being a security against the funds provided by the assessee to the lessee. Even otherwise in case of simple finance, the asset which is being financed is always kept as asecurity/mortgage with the bank to protect the interest of the bank till the repayment of the finance. Therefore, the restrictions provided in the lease agreement are only to secure the interest of the bank till the recovery of the full amount along with the interest. Some of the terms of the agreement appear to be only for sake of the conditions as to protect to the interest of the bank but the same could not be given effect in practical. For instance, in case of default if the assessee terminates the lease agreement in question then it is not possible for the assessee either to take the possession of the asset in question because of the nature of asset which could not be separated from the railway network or remove the asset from the place of its existence being part of the railway network. Further apart from the lessee the asset cannot be transferred or assigned to anybody else as it is not possible to use only a particular stretch of railway track without connecting or being a part of the entire network. Thus, the terms and conditions as heavily relied upon Ld. AR would not help the case of the assessee to establish that the asset in question could actually be taken in possession by the assessee. Therefore, the assessee cannot exercise the real and actual ownership over the asset keeping in view the facts and circumstances and nature of the asset in question. The Special Bench of this Tribunal in case of IndusInd Bank Ltd. (supra) by following the decision of Hon"ble Supreme Court in case of Asea Brown Boveri Ltd. Vs Industrial Finance Corporation of India (IFCI) 154 Taxman 512 as well decision in case of Association of Lease and Financing Service Company Vs Union of India (supra) has enumerated various features which make distinction between operating lease and finance lease in para 5.20 as under:

"5.20 In view of the fact that the Id. AR has lodged a strong claim to consider the present agreement as that of operating and not a

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finance lease, it is imperative to understand the distinction between the two as under :- a. In the case of an operating lease, the lessor provides the asset for use for a certain period of time to the lessee for rent. On the expiry of such lease period, the lessor has to inevitably repossess the asset. On the other hand, a case of finance lease is in essence an arrangement for borrowing. The role of lessor is limited to that of financier only. b. In operating lease, it is the lessor who bears the loss and obsolescence of the asset leased, whereas in &se of finance lease it is the lessee who always bears such loss. In the case of an operating lease, the lessor remains the owner of the asset throughout the lease period and thereafter also, whereas in a finance lease it is the lessee who becomes the real owner. The lessor"s title over the asset is only symbolic to serve as security for the rentals, which are nothing but the return of his investment with interest. d. Operating lease is cancellable, whereas tinance lease is always noncancellable. In a case of finance lease, the lessor is interested in lease rentals and not the asset. e. In the case of an operating lease, substantial risks and rewards of ownership of the asset remain with the lessor, whereas in the case of finance lease these ab initio vest with the lessee. f. In the case of an operating lease, the fixation of lease rental bear no symmetry with the economic life of the asset and the possibility of the asset reverting back to the lessor can never be ruled out. However in the case of a finance lease, the lease period is ordinarily equal to the economic life of the asset and lease rentals are fixed in such a way so as to recover the investment with interest during the lease peiod itself. The possibility of the asset reverting back to the lessor is never there. g. In the case of an operating lease, the asset is ordinarily common use utility whereas in case of finance lease the asset is normally selected by the lessee himself so as to suit his particular requirements h. Normally an operating lease is non payout whereas a finance lease is full payout. Full payout lease means that the lessor recovers the full value of the leased asset plus the finance cost over the period of first lease. Full payout lease is peculiar to finance lease. On the other hand, a non payout lease is one where the lessor is not interested in recovering his principal investment plus interest from one lessee only because he may lease out the same asset over and over again. Though no single lease recovers the principal amount plus interest component of the lessor but all the leases taken together make it a full payout. That is why the non payout lease is peculiar to operating lease."

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22. The Special Bench then analysed the various factors of distinction between operating lease and finance lease in para 5.21-

5.23 as under

"5.21 From the above points of distinction between operating lease and finance lease, the salient features of operating lease have become glaring. Now let us ascertain as to whether the above clauses, claimed by the id. AR as amply proving it to be a case of operating lease agreement, do in fact prove it so. IA an earlier para we have observed that this lease agreement fully satisfies all the characteristics of finance lease. The position which, therefore, emerges is that some clauses of the agreement tend to give impression of this being an operating lease whereas the others largely indicate it to be a finance lease. How to resolve the conflict? In order to decide as to whether the instant lease agreement be characterized as operating or finance lease, we need to take shelter of the doctrine of pith and substance. This rule stipulates that if there is some overlapping in the contents of the clauses of an agreement, then it becomes necessary to examine the pith and substance of the agreement. It can be done by seeing as to whether it predominantly satisfies the conditions of operating lease or finance lease. The crux is that we should find out the substance of the agreement.

5.22 We have highlighted the broad features of operating lease such as, the lease is cancellable; the lessor provides services, maintenance and insurance; total of all the lease payments by the lessee does not provide for the recovery of the investment with interest. Further the operating lease generally covers the asset which can be needed by different users so that the lessor may make available to one lessee after another.

5.23 Now let us try to find out the substance of the extant lease agreement as to whether it predominantly satisfies the conditions of an operating lease. On reading the lease agreement as a whole, we find that except for naming the lessor as owner at some places in the agreement and inserting certain cosmetic clauses to give the colour of operating lease, there is nothing in substance which satisfies the inherent requisites of operating lease. It can be observed that the lease is not cancellable prior to the expiry period of seven years. The cost of repairs and insurance is to be borne by the lessee. Sum total of the lease rentals by the lessee recoups the amount invested by the lessor plus interest. There is a clause that after the expiry of seven years period, the boiler will be sold to the

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lessee at predetermined value. It is the lessee who has to bear the loss due to obsolescence. All the risks and rewards vest with the lessee. When we consider the cumulative effect of all the factors for and against the operating lease, it can be easily found out that if one has to choose between the finance lease and operating lease, there can be no difficulty in reaching the irresistible conclusion that it is a case of finance lease agreement. In pith and substance this agreement is nothing but a finance lease." 23. In the case in hand the lease is for fix period of 84 months during which the assessee would recover the full value of lease asset with finance cost being interest as agreed between the parties. All the costs regarding loss and obsolences, repairs, maintenance, insurance etc. are to be born by the lessee. Thus the risk and reward of ownership of the asset vested with the lessee and therefore for all practical purposes the ownership of the asset was vested with the lessee and not with the assessee. The terms of the agreement are designed in a manner so that in any eventuality the assessee would recover the investment (cost of asset) with interest and not the asset in question. As discussed in the foregoing paras the title over the asset as per the lease agreement is only for securing the financial interest of the assessee and not intended to really take the asset in its possession on the expiry of lease term or on the termination of the lease agreement. Therefore all the features and attributes of finance lease as discussed by the Special Bench in case of IndusInd Bank do exist in the case of the assessee. 24. Apart from the terms and conditions as stipulated in the lease agreement one more important aspect which is very relevant in deciding the issue is that as per the Banking Regulation Act, 1949, a Banking company is not permitted to engage in the activity of leasing of asset. Section 6 of the Banking Regulation Act specifies various business in which a banking company may engage as under: "6. Forms of business in which banking companies may engage. — (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:— (a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller"s cheques and circular notes; the buying, selling and dealing in bullion and

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specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; (b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a 1[managing agent or secretary and treasurer] of a company; (c) contracting for public and private loans and negotiating and issuing the same; (d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, of State, municipal or other loans or of shares, stock, debentures, or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue; (e) carrying on and transacting every kind of guarantee and indemnity business; (f) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims; (g) acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security; (h) undertaking and executing trusts (i) undertaking the administration of estates as executor, trustee or otherwise; (j) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex- employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object; (k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company; (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise

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dealing with all or any part of the property and rights of the company; (m) acquiring and undertaking the whole or an part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section; (n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; (o) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No banking company shall engage in any form of business other than those referred to in sub-section (1)." 25. As it is clear from the sub-section 2 that no banking company shall engaged in any form of business other than those referred in subsection 1 of section 6. However, as per circular dated 19.2.1994 the Reserve Bank of India has allowed the banking companies to undertake the activities of equipment leasing but the same should be treated on par with the loan and advances. Therefore, the activity of equipment leasing permitted by the RBI vide said circular is only in the nature of finance lease. The said circular has also been considered and discussed by the Special Bench in para 5.24-5.27 as under: "5.24 Our view is fortified by the RBI Circular No. FSCBC 18/24- 01-001/93-94 dated 14.02.1994 which inter alia deals with equipment leasing. It is needless to say that this circular is binding on the assessee bank. Para 1(i) of it provides that the activities like equipment leasing, hire purchase and factoring services should be undertaken only by certain selected branches of the Bank. Para 1 (ii) which is relevant for our purpose reads as under: "(ii) These activities should be treated on par with loans and advances and should accordingly be given risk weight of 100 per cent for calculation of capital to risk asset ratio. Further, the extant guidelines on income recognition, asset classification, asset classification and provisioning would also be applicable to them." Paras 1(v) and (vi) which are also relevant read as under:- "(v) Banks undertaking equipment leasing departmentally should follow prudential accounting standards. The entire lease rental should not be taken to the bank"s income account. it would be recognized that lease rentals comprise two elements a finance charge (i.e. interest charge) and a charge towards recovery of the cost of the asset. The interest component alone should be taken to the income account. The component representing the replacement cost of the asset should be carried to the balance sheet in the form of a provision for depreciation. (vi) As a prudent measure, full depreciation should be provided for during the primary lease period of the asset. The period of lease

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should not normally exceed five years. In exceptional cases, lease period not exceeding 7 years may be fixed in respect of lease transactions covering assets of Rs. 1 crore and above, as the recovery of cost may not be possible in a period of 5 years."

5.25 On perusal of the above paras of the above circular it becomes patent that the equipment leasing activity should be treated by banks "on par with loans and advances". The further contents of para 1 (ii) which provides that the guidelines on income recognition, asset classification and provisioning would also be applicable to them, make it clear that the activity of equipment leasing should be considered as an act of advancing loans and advances. It is so for the reason that the guidelines on income recognition and asset classification etc. as referred to herein, are applicable to loans and advances. Further para 1 (v) provides that the entire lease rental should not be taken to the bank"s income account. Only the interest component being the finance charge should be taken to the income account and the second component being charge towards recovery of the cost representing the replacement cost of the asset should be carried to the balance sheet in the form of a provision for depreciation. Para 1 (vi) states that as a prudent measure full depreciation should be provided for during the preliminary lease period of the asset. It is .impermissible to read para 1 (vi) of the Circular in isolation to support the contention that the RBI permits claiming depreciation on the leased assets. It is in fact not so because the Circular as a whole treats the activity of equipment leasing as that of loans and advances and the reference to full depreciation in para 1 (vi) should be read in juxtaposition to para 1(v) which talks of the second component of the lease rental being the replacement cost of the asset. When we read this Circular in entirety, there remains no doubt that the activity of equipment leasing has to be considered by a bank on par with the loans and advances. 5.26 In view of the above circular we do not find any scope for argument that the instant lease agreement be treated as that of operating lease. Since the loans and advances encompass finance lease, naturally such type of equipment leasing cannot be given any name other than the finance lease. Here it is relevant to note that the assessee claimed depreciation on leased asset and also showed full amount of lease rental as income in contravention of para 1(v) of the afore noted RBI Circular. When the Assessing Officer concluded that the instant lease cannot be characterized as finance lease, the assessee requested the A.O. that in case the depreciation on the leased asset

28

to assessee is not to be granted by treating it as a loan transaction, then the capital recovery embedded in the lease rental should not be charged to tax. This issue has been discussed in para 2.30 of the assessment order. Acceding to the assessee"s request, the Assessing Officer excluded the portion of capital recoveries from the rental income. Thus it can be observed that the action of the A.O. is fully in consonance with the RBI Circular which states that in case of equipment leasing the entire lease rental should not be treated as bank"s income but only that component of such lease rental which represents finance charges i.e. interest should be recognized as income alone.

5.27 We, therefore, approve the view taken by the authorities below in coming to the conclusion that the lease agreement under consideration is that of finance lease and not operating lease."

26. As it is clear from the circular that the banks undertaking equipment leasing departmentally should follow prudential accounting system and only the interest charge component should be recognised as income and the recovery of cost of asset should be carried to balance sheet on the form of provision of depreciation. Therefore under the circular the transaction of equipment lease is treated at par with the loan transaction and accordingly only the interest component of the receipt is recognised as income. Since it is not permitted to recognise the entire receipt being lease rentals as income the assessee has also recognised only interest component of the receipt of the lease rental as income in the profit and loss account and the balance which represents the capital component is taken to the balance sheet. Thus, in the books of account, the assessee has treated the transaction in question as finance lease and not as an operating lease because the banks are permitted only to carry out the transaction of finance lease of equipments. 27. It is pertinent to note that in case of ICDS Ltd. (supra) it was not a lease by a bank but the assessee in the said case is a non-banking financial institution and one of the business of the assessee was leasing out the vehicles as the facts recorded by the Hon"ble Supreme Court in para 2 of the said decision as under:

"2. The assessee is a public limited company, classified by the Reserve Bank of India (RBI) as a non-banking finance company. It is engaged in the business of hire purchase, leasing and real estate etc. The vehicles, on which depreciation was claimed, are stated to have been purchased by the assessee against direct payment to the

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manufacturers. The assessee, as a part of its business, leased out these vehicles to its customers and thereafter, had no physical affiliation with the vehicles. In fact, lessees were registered as the owners of the vehicles, in the certificate of registration issued under the Motor Vehicles Act, 1988 (hereinafter referred to as

"the MV Act")." 28. Therefore the Hon"ble Supreme Court has decided the issue in the case of nonbanking financial company which is engage in the business of leasing whereas in the case of bank it is not permitted under the Banking Regulation Act to engage in the business of leasing of equipments. Following the decision of Special Bench of this Tribunal in case of IndusInd Bank Ltd., we hold that the transaction in question is finance lease and not operating lease. Accordingly, we uphold the orders of the authorities below qua this issue." Respectfully, following the above order of the Tribunal Ground No.6 is decided against the assessee.

18. Thus, respectfully following the order of co-ordinate bench on similar ground in earlier years in assessee"s own case this ground of appeal is dismissed."

14. On appraisal of the above mentioned finding, we observed that the Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 has decided the issue against the assessee on the basis of the decision in the assessee"s own case for the A.Y. 1996-97, 1997-98, 1998-99 & 1999-2000. Nothing came into noticed that the finding has been changed and varied. The Ld. Representative of the assessee has argued that the appeal in this regard for the A.Y. 1996-97 has been admitted before the Hon"ble Bombay High Court. Nothing came into the notice till the date. Accordingly, we are of the view that there is no change in the decision, hence, by following the earlier orders of the Hon"ble ITAT mentioned above, this issue is decided against the assessee.

ISSUE NO.6

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15. Under this issue the assessee has challenged the disallowance of Rs.125,96,48,926/- being paid to SBI Mutual Fund in respect of shortfall arising on redemption of Magnum Triple Scheme 1991. The Ld. Representative of the assessee has argued that this issue has been covered by the decision of Hon"ble ITAT in the assessee"s own case and by the decision of the Hon"ble High Court of Karnataka in the case of Canara Bank Vs. ACIT (2014) 228 Taxman 212 (Kar).

However, on the other hand, the Ld. Representative of the Department has refuted the said contention. Before going further, we deem it necessary to advert the finding of the Hon"ble ITAT 3823/M/2017 dated 12.06.2019 on record. The relevant finding has been given in para no. 6 to 8 which are hereby reproduced as under.:-

"6. We have heard the rival contentions and gone through the facts and circumstances of the case. We noticed that the facts narrated by CIT(A) in its order regarding the claim of expenditure being contribution of deficiencies of the mutual fund scheme managed by the assessee at Rs.112 79,19,922/- are not disputed. It is also a fact the loss is supposed to be booked in the books of the assessee as a matter of commercial expediency and to maintain the net asset value of the scheme and not to effect the source of income etc. This fact is not doubted by the AO in his assessment order but admitted this. But the AO disallowed the claim of expenses / loss only on the basis that the assessee has treated it as to have goodwill among the investors and therefore, he treated this expense as capital in nature. We noted that this issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT (124 ITR i), L. H. Sugar Factor & Oil Mills Pvt. Ltd. Vs. CIT (125 ITR 293), CIT vs. Malayalam Plantations Ltd. (53 ITR 140), Sassoon J. David & Co. Pvt. Ltd. Vs. CIT (118 ITR 261). From the above judgments of Hon'ble Supreme Court, we will reproduce the findings of one of the judgments of Hon'ble Supreme Court in the case of Malayalam Plantations Ltd. (supra), wherein Hon'ble Court was concerned whether, Estate Duty paid by the company on the death of shareholders can be said to be, "laid out or expended wholly or

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exclusively for the purpose of business.' Hon'ble Supreme Court while disallowing the claim, laid down certain principles as under:-

The aforesaid discussion leads to the following result: The expression

"for the purpose of scope than the expression 'for the purpose of earning profits". Its range is wide it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or pre-condition or for carrying on of a business it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business : it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say. the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business.

7. Further. Hon'ble Supreme Court in the case of Sassoon J. David & Co. Pvt. Ltd. (supra) has laid down the following tests for treating an expenditure as wholly and exclusively for the business purposes:

"it has to be observed here that the expression "wholly and exclusively" used in section 10(2)(xv) of the Act does not mean "necessarily". Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of section 37 of the Income- tax Act, 1961 which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the

"necessity" of the expenditure as a condition for claiming deduction under section 37. Section 37(1) in the Bill read "any expenditure laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed" The introduction of the word

"necessarily" in the above section resulted in public protest. Consequently, when section 37 was finally enacted into law, the word

"necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being by way of deduction tinder section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law."

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8. We also noted from the arguments of the learned Counsel relied on by him of Hon'ble Karnataka High court in the case of Commissioner Of Income-Tax v. Canara Bank. in [TA No. 1397/Mum/2006, wherein identical set of facts were considered. The facts were that the bank had set up in Mutual fund which had floated a scheme under which an assured return of income @ 12.5% was grante16the investors. But, at the time of redemption, the scheme did not have adequate assets nor funds to honor its commitment and consequently, in order to maintain the banks goodwill and reputation, the bank decided to repurchase of units of the scheme at a price at which mutual fund had committed to the investors. The bank claimed the said amount paid towards repurchase of the units as an expenditure. The AO disallowed and finally, Hon'ble Karnataka High Court allowed the claim of the assessee. Hence, we are of the view that the CIT(A) has rightly allowed the claim of the assessee after discussion in detail as reproduced above. We, accordingly, affirmed the order of the CIT(A) on this issue."

16. On appraisal of the above mentioned finding, we noticed that the Hon"ble ITAT has followed the decision of the Hon"ble High Court of Karnataka in the case of Canara Bank Vs. ACIT (2014)

228 Taxman 212 dated 12.11.2013. The facts are not distinguishable at this stage. By relying upon the decision of the Hon"ble ITAT order dated 12.06.2019, we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.

ISSUE NO.7

17. Under this issue the assessee has challenged the disallowance of unearned income on non-performing assets as envisaged by Section 43D. This issue has already been remanded before the AO by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018. The relevant finding is hereby reproduced as under.:-

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"19. Ground No.6 relates to unearned interest on doubtful advances as per section 43D not allowed as a deduction. The ld. AR of the assessee argued that similar ground of appeal was restored back by the Tribunal to the file of AO assessee"s own case for AY 1997-98 in its order dated 29.04.2016. The ld. DR for the Revenue expressed his no objection, if, this ground of appeal is also restored back to the file of AO to decide the same in accordance with the direction of Tribunal in order dated 29.04.2016 in appeal for AY1997-98. 20. We have considered the submission of the parties and perused the orders of authorities below. We have noted that similar ground of appeal was restored back to the file of AO by the Tribunal with the following direction:

7. Ground No.7 deals with un-earned interest on doubtful advances as per sec.43D of the Act. During the assessment proceedings the AO did not allow deduction of Rs.35.03 crores u/s. 43 of the Act. Before the FAA the assessee contended that it had informed the AO that the un-reaslised interest on nonperforming asset was not taxable as per the sec.43D of the Act, that and as per the RBI Guidelines unrealized interest of earlier years relating to NPAs could not be considered as income, that it had debited P&L account with Rs.35,03,36,189/- being the unrealized interest of the earlier years of NPAs. After considering the submission of the assessee the FAA held that the contention of the assessee was contrary to the provisions of the Act, that there was no provision in Sec.43D for reversal of entries of interest credited or for claiming deduction in subsequent years, that it was entitled for any relief.

7.1. Before us, the AR stated that the amount in question had already been disallowed in the past, that there cannot be disallowance of the same amount in two years. He relied upon the case of American Express Bank Ltd.(55SOT136). The DR stated that section 43D was a charging section, that the order of the FAA was in accordance with the provisions of the Act. 7.2. We have heard the rival submissions and perused the material before us. We find that the claim made by the assessee of double disallowance of the same amount has not been considered. Therefore, in the interest of justice we are reverting back the issue to the file of the AO to decide the issue afresh after affording reasonable opportunity of hearing to the aa.Gr.No.7 stands partly allowed in favour of the assessee.

21. Thus, considering the decision of co-ordinate bench, this ground of appeal is restored to the file of AO with similar direction

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as per order dated 29.04.2016 in ITA No. 3823/Mum/2005. In the result, this ground of appeal is allowed for statistical purpose."

18. On appraisal of the above mentioned finding, we find that this issue has already been remanded by Hon"ble ITAT on the basis of the earlier decision in the assessee"s own case for the A.Y. 1997-98. Since the matter is already before the AO to decide afresh, therefore, we set aside the finding CIT(A) on this issue and restored the issue before the AO with direction to decide the matter and controversy afresh on similar guidelines which has been given by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000. Accordingly, this issue is decided in favour of the assessee against the revenue.

ISSUE NO.8 & Additional Ground No. 1

19. Under this issue the assessee has challenged the non-granting of deduction u/s 36(1)(vii) in respect of non-rural advances written-off as bad debts. This issue has been adjudicated by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018. The relevant finding has been given in para no. 34 which is hereby reproduced as under.:-

"34. Additional Ground No.1 relates to write- off of bad debts u/s. 36(1)(vii), Additional Ground No.2 relates to recovered of bad- debts written off should not be liable to tax u/s 41(4) and Additional Ground No. 3 relates to income earned from foreign branches should not be liable to tax in India. The ld. AR of the assessee argued that all additional grounds of appeal are purely legal in nature, the failure to raise these additional ground initially were neither intentional nor deliberate and prayed for consideration of all additional grounds of appeal. It was further argued that additional ground no.1 is covered by the decision of

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Hon"ble Supreme Court in Vijaya Bank vs. CIT(323 ITR 166), Ground No.2 is covered by the decision of Bangalore Tribunal in State Bank of Mysore vs. DCIT (33 SOT 7) (Bang.) and Ground No.3 is covered by the decision of Mumbai Tribunal in Bank of India vs. DCIT in ITA No. 2781/Mum/2011 and similar grounds of appeal was remanded back to the file of AO for fresh examination and adjudication by the Tribunal for AY 1996-97 vide order dated 03.01.2014 in M.A No. 371/M/2014. On the other hand, the ld. DR for the Revenue submits that he has no objection for admission of additional grounds of appeal, provided all three additional grounds of appeal are restored back to the file of AO for examining the issues afresh."

20. On appraisal of the above said finding, we find that the CIT(A) has decided the issue on the basis of the decision of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1996-97 in which the issue has been restored before the AO by giving certain directions mentioned therein. Accordingly, we set aside the finding of the CIT(A) on this issue and restored the issue before the AO to decide the matter of controversy afresh by giving an opportunity of being heard to the assessee. It is necessary to follow the direction as given by Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018. Accordingly, this issue is decided in favour of the assessee against the revenue.

ISSUE NO.9

21. Under this issue the assessee has challenged the disallowance of contribution of Rs.10,00,00,000/- to SBI Retired Employees Medical Benefit Fund. This issue has also been adjudicated by Hon"ble ITAT bearing ITA. No. 4736/M/2010 & 4598/M/2010 dated 31.01.2018. The relevant finding is hereby reproduced as under.:-

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"25. Ground No.8 relates to disallowance of contribution to SBI Retired Employees Medical Benefit Fund of Rs. 10,00,00,000/-. The ld. AR of the assessee submitted that this ground of appeal is covered in favour of the assessee as similar ground of appeal was allowed by the Tribunal in assessee"s own case for AY 1997-98 & 1998-99. The ld. DR conceded that similar ground of appeal was allowed by Tribunal in assessee"s own case in earlier years, but relied on the order of the authorities below.

26. We have considered the submission of the parties and perused the orders of authorities below. We have seen the order of tribunal for AY 1997-98 & 1998-99 in ITA No. 3823 & 3824/Mum/2005 dated 29.04.2016 wherein similar ground of appeal was allowed by the Tribunal holding as under:

9. Last Ground deals with disallowance of contribution to SBI Retired Employees Medical Fund. During the year under consideration the assessee had contributed Rs.20 crores towards the fund. The AO found that the assessee had in the return of income mentioned that it was a welfare measure and should be allowed as a deduction from the computation of total income even though the assessee itself had added back the sum to its income for the year under consideration. The AO did not allow the claim made by the assessee.

9.1. Before the FAA, it was stated that the bank had been contribution every year certain amt out of its tax profits, towards contribution to SBI Employees medical Fund. The FAA held that as per the provisions of Section 40A(9) of the Act no deduction was allowable in respect of any sum paid by the assessee as an employer towards setting up or formation of or as contribution to any fund trust except where such sum was paid for the purposes and to the extent provide by sec.36(1)(iv) and (v) and as required under any other law for the time being enforced, that the payment in question did not satisfy any of the requirements. The assessee was not entitled for deduction.

9.2. Before us, the AR relied upon the case of State Bank of Travancore (306ITR-AT128) and stated that it was a welfare measure. The DR supported the order of the FAA. We have heard the rival submissions and perused the materials before us, We find that in the case of State Bank of Travancore (supra), the AO had disallowed the claim of the Bank in respect of the contribution to medical benefit scheme, amounting to Rs.50.00 lakhs. The AO was

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of the opinion that the provision of section 40A(9) of the Act were applicable and the assessee was not entitled to claim the expenditure as an allowable item. Matter travelled upto the Tribunal and it deliberated upon the provisions of Section 40A(9)of the Act at length. The Tribunal held that the basic intention of the legislature for insertion of sub section 9 of section 40A was to discourage the practice of creation of camouflage Trust funds, ostensibly for the welfare of the employees and transferring huge funds to such Trusts by way of contribution, that in those cases the investment of the trust corpus was also left to the complete discretion of the Trustees, that to avoid hardship in the case where Trust/Funds had been set up wholly and exclusively for the welfare of the employees prior to 1.4.1984 sub section (10) was also inserted to section 40A.The Tribunal was of the opinion that provisions of section 40A(9) should not make any harm to the expenditure incurred bonafide, that the contribution by the assessee bank was not disputed by the AO, stating that the same was not bonafide, that the funds were not controlled by the assessee banks, that the bonafide contribution made by the assessee as an employer was not hit by section 9 of section 40A of the Act. In the case under consideration, there is no doubt about genuineness of payment nor it is the case of the AO or FAA that Trust was not bonafide or the expenditure was not incurred wholly and exclusively for the employees. Considering these facts of the case and following the judgment of State Bank of Travancore (supra), Ground No.9 is decided in favour of the assessee."

22. On appraisal of the above mentioned finding, we noticed that the CIT(A) has decided the issue on the basis of the finding of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000 in which the claim of the assessee has been allowed. This issue is decided in favour of the assessee on the basis of the earlier decision of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1997-98 & 1998-99. Nothing came into noticed that the finding has been changed and varied. No distinguishable material has been placed on record. Accordingly and by relying upon the decision of the Hon"ble ITAT in

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the assessee"s own case for the A.Y. 1999-2000, we decide this issue in favour of the assessee against the revenue.

ISSUE NO.10

23. Under this issue the assessee has challenged the disallowance of provisions for bad debts and doubtful debts u/s 36(1)(viia). This issue has already been adjudicated by Hon"ble ITAT in the assessee"s own case for the A.Y.1999-2000. The relevant finding is hereby reproduced as under.:-

"28. Ground No.9 relates to entire provision for bad and doubtful debts to be allowed u/s. 36(1)(viia) of Rs. 1441,42,98,921/-. The ld. AR of the assessee argued that this ground of appeal is also covered in assessee"s own case as the similar ground of appeal was dismissed by the Tribunal in assessee"s own case in AY 1996- 97 vide ITA No.5470/Mum/2002 dated 26.07.2013 and again in AY 1997-98 & 1998-99 in ITA No. 3823 & 3824/Mum/2005 dated 29.04.2016. It was further submitted that in the appeal before Hon"ble Bombay High Court, the order of Tribunal for AY 1996- 97 has been confirmed in ITA No. 2721 of 2014 dated 23.08.2016. The ld. DR submits that this ground of appeal is liable to be dismissed as the High Court has already dismissed the appeal of assessee for AY 1996- 97.

29. We have considered the submission of the parties and gone through the orders of authorities below. We find that similar ground of appeal was dismissed by the Tribunal in assessee"s own case for AY 1996-97 vide ITA No. 5470/M/2002 dated 26.07.2013. Further, the similar ground of appeal was dismissed by Tribunal in appeal for AY 1997-98 & 1998-99 in ITA No. 3823 & 3824/Mum/2005 dated 29.04.2016 holding as under:

8. Next Ground is about not allowing deduction for provision for bad and doubtful debts at Rs.706.29 crores u/s. 36(1)(viia) as against Rs.833.30crores.

8.1. In the appellate proceedings, before the FAA, the assessee argued that it had made provision for bad and doubtful debts on

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the basis of RBI Guidelines, that the entire amt of provision had to be allowed as a deduction. The FAA after considering the assessment order and the assessee"s order held that section 36(1)(viia) prescribed upper limit for deduction in respect of provision for bad and doubtful debts, that the assessee could not allow deduction for any amt exceeding the limit even if the provision had been created as per the directions of the RBI. During the course of hearing before us, representatives of both the sided agreed that issue stand decided against the assessee by the Tribunal order dt.26.7.2013 (supra).We find that the Tribunal had decided the issue as under .

"32. Ground No. 11 is regarding provision for doubtful debts. The assessee has claimed deduction for provision for bad and doubtful debts u/s 36(1)(viia) amounting to 5,63,32,54,326/-. The said provision was stated to be made on the basis of RBI guidelines. The AO allowed a sum of Rs. 5,36,21,32,507/- u/s 36(1)(viia) of the Income Tax Act. On appeal, the CIT(A) has confirmed the action of the AO and held that the entire amount cannot be allowed as deduction merely on the basis of RBI guidelines. Before us the Ld. AR of the assessee has relied upon the decision of Chennai Bench of this Tribunal in case of Overseas Sanmar Financial Ltd. Vs JCIT 86 ITD 602. On the other hand, the Ld. DR has relied upon the order of the authorities below and submitted that the provisions of statute will prevail over the RBI guidelines for the purpose of deduction u/s 36(1)(viia).

33. We have considered the rival submissions as well as relevant material on record. There is no dispute regarding the claim allowed by the AO is proper as per the provisions of section 36(1)(viia). When the allowable claim has been accepted by the AO under the provision of section 36(1)(viia) then merely the provision made on the basis of RBI guidelines does not become allowable for deduction in contravention of the provision of section 36(1)(viia). It is pertinent to note that when the claim of deduction specifically provided u/s 36(1)(viia) then the same cannot be allowed by applying any other provision. Accordingly, we do not find any merit or substance in the claim of the assessee. Hence dismissed." Respectfully following the above order of the tribunal, we decide Ground No.8 against the assessee . ITA No. 4736 & 4598/M/2010- State Bank of India 42

30. Thus, considering the decision of Tribunal in assessee"s own case wherein similar ground of appeal has been dismissed and the

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order of Tribunal for AY 1996-97 has been affirmed by the jurisdictional High Court, hence, we do not find any merit in the ground of appeal raised by assessee and the same is dismissed."

24. On appraisal of the above mentioned finding, we find that the issue has been decided by the Hon"ble ITAT in the earlier years of the assessee i.e. 1996-97, 1997-98 & 1998-99. The assessee preferred the appeal for the A.Y. 1996-97 before the Hon"ble High Court of Bombay which was dismissed. Nothing came into noticed that the finding has been changed and varied. Accordingly and by relying upon the finding of the Hon"ble ITAT in the assessee"s own case for the A.Y. 1998-99 (supra), we decide this issue in favour of the revenue against the assessee.

ISSUE NO.11

25. Under this issue the assessee has challenged the disallowance of provision in respect of foreign offices. This issue has already been adjudicated by Hon"ble ITAT in the assessee"s own case for the A.Y.1999-2000. The relevant finding is hereby reproduced as under.:-

"31. Ground No.10 relates to disallowance of provision in respect of foreign offices. The ld. AR of the assessee argued that similar ground of appeal was restored back by the Tribunal to the file of AO in assessee"s own case for AY 1998-99 in its order dated 29.04.2016. The ld. DR for the Revenue expressed his no objection, if, this ground of appeal is also restored back to the file of AO to decide the same in accordance with the direction of Tribunal in order dated 29.04.2016 in appeal for AY1997-98.

32. We have considered the submission of the parties and perused the orders of authorities below. We have noted that similar ground of appeal was restored back to the file of AO by the Tribunal with the following direction: 20. Last Ground of appeal pertains to

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disallowance of provision in respect of foreign offices. Before us, the AR referred to note No.19, of the return of income and the letter submitted on 05.09.2000 along with the annexure which form part of the Paper book. We are of the opinion that the issue needs further verification. Therefore, matter is restored back to the file of AO for fresh adjudication, who would decide the case after hearing the assessee. Ground No.8 stands decided in favour of the assessee in part.

33. Thus, considering the decision of Tribunal in assessee"s own case for AY 1998-99, wherein similar ground of appeal has been restored to the file of AO, hence, this ground of appeal is also restored to file of AO to decide afresh in accordance with law and considering the direction in order dated 29.04.2016 in appeal for AY 1997-98. Hence, this ground of appeal is allowed for statistical purpose."

26. On appraisal of the above mentioned finding, we noticed that this issue has been decided on the basis of the decision in the assessee"s own case for the A.Y.1997-98 & 1998-99. The issue has restored before the AO to decide the matter of controversy afresh by following the certain directions. In view of the decision of Hon"ble ITAT in the assessee"s own case for the A.Y. 1999-2000, we set aside the finding of the CIT(A) on this issue and restored the issue before the AO to decide the matter of controversy afresh by following the direction given in the order dated 31.01.2018 for the A.Y. 1999-2000. Accordingly, this issue is decided in favour of the assessee against the revenue.

ADDITIONAL GROUND NO.2

27. Under this issue the assessee has challenged the disallowance of recovery of bad debts written off should not be liable to tax u/s 41(4)

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of the I. T. Act, 1961. This issue has already been decided by Hon"ble ITAT in the assessee"s own case for the A.Y 1996-97 bearing M.A. No.371/M/2014. The relevant finding has been given in para no. 5 to 10 which are hereby reproduced as under.:-

"2. We have heard the Ld. Counsel for the assessee as well as the Ld. DR and have carefully perused the impugned order and relevant material. The grievance of the assessee as pointed out in the miscellaneous application is regarding the additional grounds no. 1 to 3 raised by the assessee which was disposed off by the Tribunal by remitting the same to the record of the assessing officer. The Ld. Counsel for the assessee has pointed out that though these grounds were raised for the first time before the Tribunal and the Tribunal after considering the fact that these are purely legal issues have admitted these grounds for adjudication on merit. The Ld. Counsel has further submitted that in support of these additional grounds the assessee has relied upon the various decisions whereby these issues were covered in favour of the assessee. However in para 37 of the impugned order the decision relied upon by the assessee do not find mention. Thus the Ld. Counsel has submitted that instead of remitting the issue to the AO for fresh adjudication the Tribunal should also consider the decisions relied upon by the assessee. Hence it is urged that the suitable clarification/modification in the impugned order of the Tribunal in para 37 may be made. 3. On the other hand Ld. DR has submitted that there is no apparent error in the impugned order of the Tribunal regarding the additional grounds raised by the assessee which were remitted to the record of the AO for examination and adjudication as per law. 4. Having considered the rival submissions and careful perusal of the records, we note that the assessee has advanced arguments in respect of additional grounds no. 1- 3 which reads as under:- Sl. No. Additional Grounds of Appeal Remarks 1. Write-off of bad debts u/s 36 (1) (vii) Covered by the decision of the Supreme Court in the case of Vijaya Bank Vs. CIT (2010) 323 ITR 166

2. Recovery of bad-debts written off should not be liable to tax u/s 41(4) Covered by the decision of the Bangalore Tribunal in the case of State Bank of India Mysore Vs. DCIT (2009) 33 SOT 7 (BANG.) 3. Income earned from foreign branches should not be liable to tax in India Covered in favour of the appellant by the decision of the Mumbai bench of Tribunal in the case of Bank of India Vs. DCIT (ITA No. 2781/Mum/2011)

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4. The Tribunal has disposed of the issue in para 37 of the order which reads as under:- "In additional Ground no. 1-3 are raised first time by the assessee and involves legal issue, therefore as prayer by the assessee the same are remitted to the record of the Assessing Officer for examination and adjudication as per law after giving a opportunity of hearing to the assessee".

5. It is apparent from the finding of the Tribunal in para 37 (Supra) that the decisions relied upon by the Ld. AR have escaped consideration, accordingly we are of the view that to that extent there is an apparent error in the impugn order of the Tribunal which requires to be rectified u/s 254(2) of the Income Tax Act. Since these issues were raised for the first time and remitted to the record of the AO for examination and adjudication, therefore, we modify our finding on the additional grounds no. 1-3 in para 37 which reads as under:-

37. "Additional ground no. 1-3 are raised first time by the assessee and involves legal issue. Though the assessee has relied upon the following decision in support of its claim ;- 1. Covered by the decision of the Supreme Court in the case of Vijaya Bank Vs. CIT (2010) 323 ITR 166 2. Covered by the decision of the Bangalore Tribunal in the case of State Bank of India Mysore Vs. DCIT (2009) 33 SOT 7 (BANG.) 3. Covered in favour of the appellant by the decision of the Mumbai bench of Tribunal in the case of Bank of India Vs. DCIT (ITA No. 2781/Mum/2011) However since the issue has not been examined by the AO, therefore, in the interest of justice we remit these grounds to the record of the Assessing Officer for fresh examination and adjudication after considering the decisions relied upon by the assessee as well as after giving opportunity of hearing to the assessee."

28. On appraisal of the above mentioned finding, we noticed that this issue has been decided in the assessee"s own case for the A.Y 1996-97 bearing M.A. No.371/M/2014. Accordingly, we restored this issue before the AO to decide the matter of controversy afresh by giving an opportunity of being heard to the assessee in accordance with law by following the similar guidelines as given by the Hon"ble

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ITAT in MA. No. 371/M/2014 for the A.Y. 1996-97. Accordingly, this issue is decided in favour of the assessee against the revenue.

ADDITIONAL GROUND NO.3

29. Additional issue no. 3 is in connection with the income disallowance earned from foreign branches not taxable in India. This issue has already been decided by Hon"ble ITAT in the assessee"s own case for the A.Y.1996-97 bearing MA. No. 371/M/2013. The relevant finding is hereby reproduced as under.:-

""2. We have heard the Ld. Counsel for the assessee as well as the Ld. DR and have carefully perused the impugned order and relevant material. The grievance of the assessee as pointed out in the miscellaneous application is regarding the additional grounds no. 1 to 3 raised by the assessee which was disposed off by the Tribunal by remitting the same to the record of the assessing officer. The Ld. Counsel for the assessee has pointed out that though these grounds were raised for the first time before the Tribunal and the Tribunal after considering the fact that these are purely legal issues have admitted these grounds for adjudication on merit. The Ld. Counsel has further submitted that in support of these additional grounds the assessee has relied upon the various decisions whereby these issues were covered in favour of the assessee. However in para 37 of the impugned order the decision relied upon by the assessee do not find mention. Thus the Ld. Counsel has submitted that instead of remitting the issue to the AO for fresh adjudication the Tribunal should also consider the decisions relied upon by the assessee. Hence it is urged that the suitable clarification/modification in the impugned order of the Tribunal in para 37 may be made. 3. On the other hand Ld. DR has submitted that there is no apparent error in the impugned order of the Tribunal regarding the additional grounds raised by the assessee which were remitted to the record of the AO for examination and adjudication as per law. 4. Having considered the rival submissions and careful perusal of the records, we note that the assessee has advanced arguments in respect of additional grounds no. 1- 3 which reads as under:- Sl. No. Additional Grounds of Appeal Remarks 1. Write-off of bad debts u/s 36 (1) (vii) Covered by the decision of the

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Supreme Court in the case of Vijaya Bank Vs. CIT (2010) 323 ITR 166

2. Recovery of bad-debts written off should not be liable to tax u/s 41(4) Covered by the decision of the Bangalore Tribunal in the case of State Bank of India Mysore Vs. DCIT (2009) 33 SOT 7 (BANG.) 3. Income earned from foreign branches should not be liable to tax in India Covered in favour of the appellant by the decision of the Mumbai bench of Tribunal in the case of Bank of India Vs. DCIT (ITA No. 2781/Mum/2011)

4. The Tribunal has disposed of the issue in para 37 of the order which reads as under:- "In additional Ground no. 1-3 are raised first time by the assessee and involves legal issue, therefore as prayer by the assessee the same are remitted to the record of the Assessing Officer for examination and adjudication as per law after giving a opportunity of hearing to the assessee".

5. It is apparent from the finding of the Tribunal in para 37 (Supra) that the decisions relied upon by the Ld. AR have escaped consideration, accordingly we are of the view that to that extent there is an apparent error in the impugn order of the Tribunal which requires to be rectified u/s 254(2) of the Income Tax Act. Since these issues were raised for the first time and remitted to the record of the AO for examination and adjudication, therefore, we modify our finding on the additional grounds no. 1-3 in para 37 which reads as under:-

37. "Additional ground no. 1-3 are raised first time by the assessee and involves legal issue. Though the assessee has relied upon the following decision in support of its claim ;- 1. Covered by the decision of the Supreme Court in the case of Vijaya Bank Vs. CIT (2010) 323 ITR 166 2. Covered by the decision of the Bangalore Tribunal in the case of State Bank of India Mysore Vs. DCIT (2009) 33 SOT 7 (BANG.) 3. Covered in favour of the appellant by the decision of the Mumbai bench of Tribunal in the case of Bank of India Vs. DCIT (ITA No. 2781/Mum/2011) However since the issue has not been examined by the AO, therefore, in the interest of justice we remit these grounds to the record of the Assessing Officer for fresh examination and adjudication after considering the decisions relied upon by the assessee as well as after giving opportunity of hearing to the assessee."

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30. On appraisal of the above mentioned finding, we noticed that this issue has been decided on the basis of the decision in the assessee"s own case for the A.Y 1996-97 bearing M.A. No.371/M/2014. Accordingly, we decide this and restore this issue before the AO to decide the matter of controversy afresh by giving an opportunity of being heard to the assessee in accordance with law on similar lines.

ITA. NO.6822/M/2010

31. The facts of the present case are quite similar to the fact of the case as narrated above while deciding the ITA. No.6482/M/2010, therefore, there is no need to repeat the same.

32. The revenue has raised the following grounds.:-

I. The order of the CIT(A) is opposed to law and facts of the case.

2(a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowances of Rs.82.71 lakhs incurred by the assessee on reservation of seats in the schools for the children of the bank officers without appreciating that the amount was not incurred wholly and exclusively for the purpose of its business. 2(b) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not appreciating that the amount of Rs.82.71 lakhs incurred by the assessee was not for the welfare of the employees of the bank and cannot he allowed as expenditure u/s. 37(1) of the I.T. Act.

3(a) On the facts and in the circumstances of the case and in law, the Id. 01(A) erred in deleting the addition made by the A.O. on account of interest on securities on accrual basis as the assessee followed mercantile system of accounting.

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3(b) On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate that interest on securities is changeable to tax-on acfl1basis as the assessee followed mercantile system of accounting in accordance with the Banking Regulation Act.

I. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored."

ISSUE NO. 1

33. Issue no. 1 is general in nature which nowhere required any adjudication.

ISSUE NO. 2(A) & 2(B)

34. Under this issue the revenue has challenged the deletion of disallowance of Rs.82.714 lakhs incurred by the assessee on reservation of seats in the school for children of the bank officers. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. On the other hand, the Ld. Representative of the assessee has refuted the said contention. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-

"13. I have duly considered the submission of the appellant. The Hon'ble jurisdictional High court in the case of Mahindra & Mahindra Ltd. vs. CIT 261 ITR 501 has held that the contribution made by the assessee to an Educational society which runs the school in which children of the employees of the company study, is an allowable business expenditure because it was incurred predominantly for staff welfare. The issue has been decided by the CIT(A) in favour of the appellant in its own case for assessment years 1997-98 and 1998-99 which was followed by the undersigned in appeal order for AY 1999-00.

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The Hon"ble ITAT has also decided the above issue in favour of the appellant for the assessment years 1992-93 to 1995-96. Considering the facts of the case and respectfully following the decision of jurisdictional HC and decision of my learned predecessor, the addition made is deleted."

35. On appraisal of the above mentioned finding, we noticed that the CIT(A) has decided the issue on the basis of the decision of the CIT(A) in favour of the appellant in its own case for the A.Ys. 1997- 98 & 1998-99. The said order was followed by the CIT(A) for the A.Y. 1999-2000. Subsequently, the Hon"ble ITAT has also decided the issue for the A.Y. 1992-93 to 1995-96. Since the matter of controversy has already adjudicated by the Hon"ble ITAT in the assessee"s own case for the A.Y. 1992-93 & 1995-96 in the assessee"s favour and there is no change of the decision, therefore, we are of the view that the CIT(A) has rightly and correctly decided the issue in favour of the assessee against the revenue. Accordingly, these issues are decided in favour of the assessee against the revenue.

ISSUE NO. 3(A) & 3(B)

36. Under these issues the revenue has challenged the deletion of addition made by the AO on account of interest on securities on accrual basis as the assessee followed mercantile system of accounting. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly deleted the said addition, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going

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further, we deem it necessary to advert the finding of the CIT(A) on record.:-

"46. I have considered the submissions of the appellant. In my view, evenas per the mercantile system of accounting interest can be said to have accrued only when there was a right to receive the same. In case of interest on securities the right to receive interest crystallizes only on the coupon date and not before that. The interest on securities does not accrue on day to day basis and the assessee does not have any right to claim interest till it becomes due. The case of the appellant is squarely covered by the decision of Hon"ble ITAT, JaipurBench in the case of State Bank of Bikaner & Jaipur vs. DCIT 74 ITD 203 wherein it has been held that interest on securities is assessable to tax on due basis; that the omission of section 18 to 21 does not come in the way of the claim of the assessee as these sections are not charging sections; that charging section is section 5; that the income has to be computed as per the provisions of section 5 and sections 21 to 43D. The Hon"ble ITAT Mumbai 'C' Bench in the case of Union Bank of India for AY. 1989-90 (ITA No 8817/Bom/92) vide order dated 23^rdDecember 2003 para 22, have also held that interest on government securities accrues on coupon dates only and not on day to day basis Similar issue had arisen in the case of the appellant in the 1997-98 also wherein my learned predecessor decided the issue in favour of the appellant. "I he undersigned followed the said order in appeal for AY 1999-00. Following theorders of Hon"ble ITAT and order of my predecessor, the AO is directed to tax the income from interest on securities, on due basis. This ground is allowed."

37. On appraisal of the above mentioned finding, we find that the CIT(A) has decided the issue in favour of the assessee on the basis of the decision of the Hon"ble ITAT Jaipur Bench in the case of State Bank of Bikaner & Jaipur Vs. DCIT 74 ITD 203 and the decision of the Hon"ble ITAT Mumbai Bench in the case of Union Bank of India for A.Y. 1989-90 Bearing ITA. No.8817/Bom/1992 vide order dated

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23.12.2003. The issue has already been decided in favour of the assessee against the revenue in the earlier A.Y. 1997-98 by the predecessor of the CIT(A) who pass the present order. In view of the above said decision the CIT(A) has decided the issue in favour of the assessee. No distinguishable material has been produced before us. Nothing came into noticed that the said finding has been changed and varied. Taking into account of all these facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage.

ISSUE NO.4

38. Issue no. 4 is general in nature which nowhere required any adjudication.

39. In the result, the appeal filed by the assessee is partly allowed and appeal filed by the revenue is dismissed.

Order pronounced in the open court on 06/03/2020 Sd/ Sd/-

(RAJESH KUMAR) (AMARJIT SINGH)

लेखा सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER

मंुबई Mumbai ददनांक Dated : 06 /03/2020 Vijay Pal Singh (Sr. PS)

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आदेश की प्रनिनिनि अगे्रनर्ि/Copy of the Order forwarded to :

1. अपीलाथी / The Appellant

2. प्रत्यथी / The Respondent.

3. आयकर आयुक्त(अपील) / The CIT(A)-

4. आयकर आयुक्त / CIT

5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मंुबई / DR, ITAT, Mumbai

6. गार्ड फाईल / Guard file.

आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy//

उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar)

आिकर अिीिीि अनर्करण, मंुबई / ITAT, Mumbai

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