Canara Bank Wins on Multiple Tax Issues; Bangalore ITAT Dismisses Revenue’s 18 Grounds of Appeal

ACIT Vs Canara Bank (ITAT Bangalore)

Canara Bank Wins on Multiple Tax Issues; Bangalore ITAT Dismisses Revenue’s 18 Grounds of Appeal

In a significant ruling, the Bangalore ITAT dismissed the Revenue’s appeal against Canara Bank and upheld the CIT(A)’s relief on a host of recurring banking tax issues. The Tribunal followed earlier decisions in the bank’s own cases as well as binding Karnataka High Court precedents, granting relief on matters relating to section 36(1)(viia) deduction, unrealised forex gains, CSR expenditure, ATM depreciation, section 14A disallowance, depreciation on investments, special reserve deduction under section 36(1)(viii), taxation of interest on securities, and applicability of section 115JB (MAT).

The Tribunal held that deduction under section 36(1)(viia) was correctly allowed, unrealised gains on revaluation of forward contracts could not be taxed in view of Karnataka High Court decisions, and CSR expenditure incurred by the bank was allowable following earlier rulings in its own case. It also upheld depreciation at 60% on ATMs by treating them as computers in line with Karnataka High Court precedent.

On the issue of section 14A, the Tribunal accepted that where the bank’s own funds exceeded investments, interest disallowance was not warranted and directed recomputation in accordance with judicial precedents and CBDT Circular No. 18/2015. It further upheld the allowability of depreciation on securities held under HTM, AFS and HFT categories, depreciation on leased assets, and relief relating to deduction under section 36(1)(viii) for special reserves.

The Tribunal also reaffirmed the long-settled principle that interest on securities becomes taxable only on the specified due dates and not merely because it has accrued but is not due. Finally, relying on earlier decisions in Canara Bank’s own cases, it held that the provisions of section 115JB are not applicable to banking companies, thereby rejecting the Revenue’s MAT-related grounds. Consequently, the Revenue’s appeal was dismissed in its entirety.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. This appeal filed by the Asst. Commissioner of Income Tax, Circle–2(2)(1), Bangalore (the learned Assessing Officer/TPO), pertains to assessment year 2016–17 and is directed against the appellate order dated 10 January 2025 passed by the National Faceless Appeal Centre, Delhi [the learned CIT(A)]. By that order, the assessee’s appeal against the assessment order dated 18 December 2018, passed under section 143(3) by the Joint Commissioner of Income Tax, Large Taxpayer Unit, Bangalore (the learned AO), was partly allowed. Aggrieved by the deletion of several disallowances by the learned CIT(A), the learned Assessing Officer has raised 18 grounds of appeal, as discussed and decided hereinafter.

2. Briefly stated, the assessee is a public sector banking company that filed its return of income on 29 November 2016, declaring a total taxable income of ₹ 21,837,848,090. The return was selected for scrutiny through a notice issued under section 143(2) on 3 July 2017, followed by notices under section 142(1). Thereafter, pursuant to the assessment order, the assessee’s total income was assessed at ₹ 97,276,907,662.

3. Aggrieved the assessee preferred an appeal before the learned CIT – A who deleted most of the addition by the appellate order.

4. Shri Shivananda Kalakeri, learned CIT-DR, vehemently referred to the assessment order and submitted that the learned CIT(A) deleted all additions by relying on decisions of the coordinate Benches or the Hon’ble High Court in the assessee’s own case. He further submitted that, since most of these additions are being contested by the learned AO before higher forums, they are also being challenged in the present appeal. He placed strong reliance on the assessment order in support of all grounds of appeal.

5. Shri S. Anantha, Chartered Accountant and learned Authorized Representative, submitted a chart and case-law compilation covering all grounds of appeal. He submitted that each ground is covered in favour of the assessee by decisions of the coordinate Benches or by the Hon’ble Karnataka High Court in the assessee’s own case. He further submitted that the learned CIT(A) relied on those decisions and rightly decided the appeal in favour of the assessee. Accordingly, there is no infirmity in the order of the learned CIT(A), and the appeal filed by the learned AO deserves to be dismissed.

6. Ground No. 1 of the appeal is as follows: –

Whether in the present facts and circumstances of the case, the Ld. CIT(A) has not erred by allowing deduction under section 36(1)(viia) of the Income-tax Act, 1961 r.w.r. 6 ABA of the Income-tax Rules, 1962 on the total outstanding advances including opening balances upon which the assessee bank has already claimed such deduction in earlier years.

7. While computing the deduction under section 36(1) (viia) of the Act, the learned AO did not consider the profits of the London and Shanghai branches for 7.5% of total income. He also held that, for purposes of Rule 6ABA of the Income-tax Rules, only fresh advances were to be considered while arriving at the aggregate average advances. According to the AO, the assessee bank had claimed a deduction of Rs.2356,18,01,708/- under section 36(1)(viia), comprising Rs.2015,29,64,456/- being 10% of the aggregate average advances made by rural branches, and Rs.340,88,37,252/- being 7.5% of the net profit before allowing deduction under that section. In the assessment order, the AO reduced the profits of overseas branches amounting to Rs.31,58,29,778/- from the overall profits before allowing the deduction under section 36(1) (viia). The AO further noted that the first component of the assessee’s claim, amounting to Rs.2015,29,64,456/-, was computed by applying 10% to aggregate average advances of Rs.20152,96,44,560/- made by rural branches. This figure is related to 1838 branches, of which 32 branches were located in areas having a population of less than 10,000 but were classified as urban branches. As recorded in the assessment order, the aggregate average advances of these 32 branches amounted to Rs.1080,69,97,857/-. The AO therefore adopted the qualifying aggregate average advances, as per the assessee’s computation, at Rs.19072,26,46,703/- and recomputed the eligible deduction relating to rural branch advances at Rs.1907,22,64,670/- under section 36(1) (viia) read with Rule 6ABA.

8. Ld CIT A allowed the claim of the assessee based on Bangalore ITAT in assessee’s own case in ITA No 392/Bang/2023 vide order dated 22/12/2023 for AY 2019-20.

9. After hearing the parties, we find that the identical issue has already been decided in the assessee’s own case by the ITAT, “C” Bench, Bangalore, vide order in ITA No. 716/Bang/2024 dated 10 June 2024 for AY 2015–16. The same issue was also adjudicated by the jurisdictional ITAT in the assessee’s own case for AYs 2015–16 and 2019–20, as noted above. Since the parties have shown that the facts are identical, and no contrary decision has been brought to our notice, we find no infirmity in the order of the learned CIT(A). Accordingly, Ground No. 1 of the appeal is dismissed.

10. Ground No 2 is as follows: –

Whether on the facts and in circumstances of the case, the Ld. CIT(A) is right in allowing the unrealized gains on revaluation of forward contracts in foreign exchange?

11. The learned Assessing Officer disallowed unrealized gains on revaluation of forward contracts in foreign exchange amounting to Rs.152,96,75,137/-. The AO also did not grant relief of Rs.65,99,50,796/-, which had been disallowed in AY 2015–16 and offered to tax by the assessee in AY 2016–17. In the assessment order, the AO observed that the assessee had deducted Rs.152,96,75,137/- as unrealized gains on revaluation of forward contracts on the ground that the amount was notional. Relying on the decision of the Special Bench of the ITAT, Mumbai, in Bank of Bahrain and Kuwait [132 TTJ 550], the AO treated the amount as having accrued during the year under consideration and disallowed it, holding that the corresponding gain or loss on unmatured forward contracts had accrued as at the close of the financial year.

12. The learned CIT(A) allowed the assessee’s claim, observing that the issue relating to taxability of unrealized gains had been decided in favour of the assessee by the jurisdictional ITAT, Bangalore Bench, in ITA Nos. 1899 and 1900/Bang/2017, dated 28 September 2018, for AY 2014–15. The Department’s appeal against that order, filed before the Hon’ble Karnataka High Court in ITA Nos. 207 and 208 of 2019 for AY 2014–15, was dismissed, and the ITAT’s decision was upheld by judgment dated 5 December 2022.

13. After hearing the parties, we find that the learned CIT(A) allowed the assessee’s claim by relying on the decision of the Hon’ble Karnataka High Court. The learned CIT(A) also noted that a similar addition made by the AO in AY 2015–16 had been deleted by the CIT(A), NFAC, vide order dated 8 December 2023, following the Hon’ble Karnataka High Court’s decision in the assessee’s own case. In view of the binding precedents referred to above, and since the issue already stands decided in the assessee’s own case, the addition of Rs.152,96,75,137/- made by the AO on account of unrealized gains on revaluation of forward contracts was rightly deleted. No contrary decision or change in fact has been brought to our notice. Accordingly, we find no infirmity in the order of the learned CIT(A), and this ground of appeal is dismissed.

14. Ground nos. 3 & 4 are as under: –

3. Whether in the present facts and circumstances of the case, the Ld. CIT(A) did not err in law by ruling that CSR expenses are allowable as per provisions of the Section 37 of the Income Tax Act, 1961.

4. Whether in the present facts and circumstances of the case, the Ld. CIT(A) did not err by allowing the Trust Expenses and not relying on the decision of the Supreme Court in the case of Sitaldas Tirathdas.

15. On perusal of the assessment order, it is seen that the assessee debited Rs.32,78,19,000/- to the Profit and Loss Account as CSR expenditure, but added back only Rs.10,30,27,120/-. Before the AO, the assessee submitted that the expenditure related to its business activities, including training of unemployed youth through rural development institutes, education, health care, community development, women empowerment, financial literacy, public awareness material, and training of SHGs/NGOs. It claimed that these activities, undertaken in line with Government of India guidelines for public sector undertakings, enhanced its goodwill and brand image and were therefore allowable as revenue expenditure. The AO rejected the claim by relying on section 135 of the Companies Act, 2013 and Explanation 2 to section 37(1) of the Act. He held that the expenditure was incurred to discharge a social obligation and represented application of income, relying also on the decision of the Hon’ble Supreme Court in Sitaldas Tirathdas [1961] 41 ITR 367 (SC). Accordingly, the AO disallowed Rs.22,47,91,880/-as CSR expenditure, holding that such expenditure is not deemed to have been incurred for business purposes under section 37(1).

16. On appeal, the learned CIT(A) deleted the disallowance, holding that the issue concerned the allowability of CSR expenditure under Explanation 2 to section 37(1) of the Act read with section 135 of the Companies Act, 2013. The learned CIT(A) further noted that the same issue had already been adjudicated by the Bengaluru ITAT in the assessee’s own case for AY 2019–20.

17. After hearing the parties we find that the identical issue has been covered in favour of the assessee by the decision of the coordinate bench, no other change in the facts and circumstances or the issue are shown before us and therefore we do not find any infirmity in the order of the learned CIT – A – ground No. 3 and 4 of the appeal is dismissed.

18. Ground no 5 is as follows: –

Whether on the facts and in circumstances of the case, the Ld. CIT(A) is right in law in allowing the depreciation on ATMs @60% by not following the earlier order of the Hon’ble ITAT in the assesee’s own case for the AY 2013-14 and 2014-15?

19. This ground concerns the disallowance of depreciation of Rs.13,26,22,004/-on assets such as ATMs, note-counting machines, and electronic weighing machines. The AO restricted depreciation to 15%, as against 60% claimed by the assessee. In doing so, the AO relied on paragraph 14.1 of the Bangalore ITAT’s order in the assessee’s own case in ITA No. 1881/Bang/2017 dated 28 September 2018 for AYs 2013–14 and 2014–15, wherein ATMs were held to be plant and machinery eligible for depreciation at 15%. Based on that decision, the AO recomputed depreciation and made the disallowance.

20. Before the learned CIT(A), it was noted that a similar issue had been decided against the assessee for AYs 2013–14 and 2014–15 in ITA No. 1881/Bang/2017 dated 28 September 2018, allowing depreciation at 15% on such assets. However, the assessee relied on the decision of the Hon’ble Karnataka High Court in CIT v. NCR Corporation Limited [117 com 252], wherein ATMs were treated as computers eligible for depreciation at 60%. Following this binding jurisdictional precedent, the CIT(A) directed the AO to allow depreciation at 60% on ATMs. However, the CIT(A) held that the same reasoning could not apply to note-counting machines and electronic weighing machines, as their functions could not be equated with computers or ATMs. These assets were therefore treated as plant and machinery eligible for depreciation at 15%, and the AO was directed to recompute depreciation and rework the consequential addition accordingly.

21. After hearing the parties on careful consideration of the fact we find that the learned CIT – A has followed the binding judicial precedents of honourable Karnataka High Court and held that the automatic teller machines are computers and therefore they are entitled to depreciation at the rate of 60% instead of 15% allowed by the learned assessing officer. Therefore ground No. 5 of the appeal stands dismissed.

22. Ground nos. 6 to 9 are as under: –

Ground No.6

Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing relief to the assessee when the disallowance under section 14A was made by the Assessing Officer in respect of expenditure incurred by the assesse which was not related to earning exempt income?

Ground No.7

Whether, on the facts and circumstances of the case, the Ld. CIT(A) ought not to have held that own funds and non-interest-bearing funds having far exceeded the value of investment giving rise to exempt income, Rule 8D(2)(ii) had no application?

Ground No.8

Whether, on the facts and circumstances of the case, the Ld. CIT(A) ought not to have held that no disallowance was warranted under section 14A of the Income Tax Act, 1961?

Ground No.9

Whether, on the facts and circumstances of the case, the Ld. CIT(A) ought not to have held that exempt income will always have notional interest cost attached to it?

23. Ground No. 6 – 9 relates to the disallowance made by the learned assessing officer invoking the provisions of section 14 A of the act which was deleted by the learned CIT – A.

24. The AO observed that the assessee earned exempt income comprising interest on PSU bonds of Rs.44,34,178/- under section 10(15)(iv)(h) and dividend income of Rs.62,54,60,486/- under sections 10(34) and 10(35), aggregating to Rs.106,88,60,664/-. The assessee had suo motu disallowed Rs.2,14,97,106/-, being 2% of the dividend income, on the ground that part of the expenditure debited to the Profit and Loss Account related to such exempt income. The AO rejected this computation, holding that disallowance was required to be made under the amended Rule 8D. Referring to the balance sheet as on 31 March 2016, the AO noted interest-bearing deposits and borrowings of Rs.5066,64,87,85,000/-, advances of Rs.3247,14,82,40,000/-, and investments of Rs.1423,09,30,11,000/-. He held that a substantial portion of interest-bearing funds had been used for investments and that the assessee’s computation failed to include the interest component attributable to tax-free income. The AO also noted that investments of Rs.1.42 lakh crores required administrative and managerial support through a separate Treasury Management Unit at Mumbai. Relying on the decision of the Hon’ble Supreme Court in Maxopp Investment Ltd. [2018] 91 taxmann.com 154, the AO invoked section 14A read with Rule 8D(2)(ii) and (iii), rejected the assessee’s restricted disallowance, and computed the disallowance at Rs.112,57,34,064/- after giving credit for the suo motu disallowance of Rs.2,14,97,106/-.

25. Before the learned CIT(A), it was noted that the AO had computed the disallowance under section 14A by applying Rule 8D(2)(ii) for proportionate interest expenditure and Rule 8D(2)(iii) for administrative expenditure. As regards interest disallowance, the learned CIT(A) observed that the Hon’ble Supreme Court has held that where interest-free funds exceed the investments, no disallowance of interest is warranted. Since the assessee claimed that its interest-free funds were higher than the investments considered for section 14A purposes, the AO was directed to verify the figures and delete the interest disallowance if the claim was found correct. Regarding administrative expenditure, the learned CIT(A) referred to the Hon’ble Supreme Court’s observations, including CBDT Circular No. 18 of 2015 dated 2 November 2015, which states that shares and securities held by a bank, other than those maintained for Statutory Liquidity Ratio purposes, constitute stock-in-trade and the income therefrom is attributable to banking business. As the assessee had not furnished details distinguishing SLR and non-SLR investments, and the AO had not examined this aspect, the AO was directed to recompute the disallowance under section 14A read with Rule 8D(2)(iii) in light of the Hon’ble Supreme Court’s decision in South Indian Bank. The learned CIT(A) also noted that similar directions had been issued by the CIT(A), NFAC, for AY 2020–21. Accordingly, the issue was restored to the AO for recomputation.

26. After hearing the parties and considering the material on record, we find no infirmity in the order of the learned CIT(A). The learned CIT(A) followed the decisions of various courts, the CBDT Circular, and recorded a finding that the assessee’s own funds exceeded the investments made. Accordingly, Grounds Nos. 6 to 9 are dismissed.

27. Ground no. 10 relates to disallowance of depreciation on investment of Rs.92,54,04,660/- i.e. Rs.5,57,92,224/- being depreciation on Investments on HTM category and Rs.86,96,12,236/- being depreciation on HFT & AFS category investments, other than strategic investments as under :-

Whether in the present facts and circumstances of the case, the Ld. CIT(A) has not erred by ruling that depreciation on the value of stocks/securities Held to Maturity (HTM) is an eligible business expenditure, ignoring the fact that the assessee has not carried it at acquisition cost as per the guidelines issued by the RBІ?

28. In paragraph 14 of the assessment order, the AO considered depreciation on securities classified under the HTM, AFS, and HFT categories. He referred to the order of the ITAT in the assessee’s own case in ITA No. 1881/Bang/2017 dated 28 September 2018, wherein the claim for depreciation on securities was accepted. However, since the Department had filed an appeal against that order for earlier years, the AO restricted depreciation on AFS securities to Rs.86,96,12,236/-. He allowed depreciation of Rs.21,96,69,76/- (Rs.305,92,81,981/- minus Rs.86,96,12,236/-) on AFS investments in terms of CBDT Instruction No. 17 dated 26 November 2008 (F. No. 228/3/2008-ITA-III). The AO, however, disallowed depreciation of Rs.5,57,92,424/- on HTM securities, relying on the same instruction, which states that investments classified as HTM need not be marked to market and are to be carried at acquisition cost unless they exceed face value. Accordingly, the AO made an aggregate disallowance of Rs.92,54,04,660/-.

29. Before the learned CIT(A), it was noted that the AO disallowed depreciation on HTM and AFS securities mainly because the Department’s appeal against the ITAT’s earlier order was pending before the Hon’ble High Court. However, a similar disallowance for AY 2015–16 had been decided in favour of the assessee by the Bengaluru ITAT in ITA Nos. 111/Bang/2024 and 716/Bang/2024 dated 10 June 2024. The same view was also taken by the Hon’ble Karnataka High Court in CIT v. Canara Bank [147 taxmann.com 171 (Karn.)].

30. On careful consideration of the decisions of the coordinate benches on the identical issue as well as the decision of the honourable Karnataka High Court in assessee’s own case, in absence of any other change in the facts and circumstances of the case or any other judicial precedents shown by the learned departmental representative, we find no infirmity in the order of the learned CIT – A. Accordingly ground No. 10 of the appeal is dismissed.

31. Ground no. 11 is as under:-

Whether on the facts and in circumstances of the case, the Ld. CIT(A) is right in law in allowing the depreciation on AFS by following the earlier orders which has not reached finality?

32. This ground is related to and connected with ground No. 10 of the appeal which is been dismissed by us in holding that there is no infirmity in the order of the learned CIT – A accordingly ground No. 11 also stands dismissed.

33. Ground no 12 of the appeal is with respect to the depreciation on lease assets as under:-

Whether on the facts and in circumstances of the case, the Ld. CIT(A) is right in law in allowing the depreciation on assets by following the earlier orders which has not reached finality even when the assessee is not entitled for depreciation on assets leased to others under the provisions of the Act?

34. The learned AO made the disallowance by referring to assessment orders for earlier years, in which depreciation on leased assets, treated as finance leases to Rajinder Steels Ltd., Kedia Castle Dellon Ltd., and Kedia Distilleries Ltd., had been disallowed. Since the matter was pending before the Hon’ble High Court, the AO, to maintain consistency, disallowed depreciation of Rs.1,21,018/- on leased assets. During appellate proceedings, the assessee submitted that the same issue had been decided in its favour in earlier as well as subsequent assessment years, and also relied on the order of the Hon’ble Karnataka High Court dated 2 November 2020, wherein a similar issue was decided in its favour.

35. After careful consideration and hearing the parties we find that this issue has been covered in favour of the assessee by the decision of the honourable Karnataka High Court which has been referred to by the learned CIT – A, as the honourable jurisdictional High Court has decided this issue, we find no infirmity in the order of the learned CIT – A in deleting the depreciation disallowance on leased assets. Accordingly ground No. 12 of the appeal is dismissed.

36. Ground no 13 relates to relates to disallowance of Rs.600,00,00,000/-u/s. 36(1)(viii) of the Act on account of special reserve as under: –

Whether in the present facts and circumstances of the case, the Ld. CIT(A) has erred in law in directing the Assessing Officer to recompute the deduction u/s 36(1)(viii) of the Income Tax Act, 1961 only on the basis of the findings of the Hon’ble ITAT in the assessee’s own case without appreciating that the assessee was not eligible for such deduction as per the conditions prescribed under the said provision?

37. The assessee claimed deduction of Rs.600 crores under section 36(1)(viii). On verifying the financial statements, the AO found that no amount was credited to the special reserve during the year, though the assessee claimed that excess transfers in AYs 2009–10 to 2012–13 covered the deduction. The AO noted that the deduction for AY 2015–16 was Rs.633.39 crores, while only Rs.500 crores had been transferred to the special reserve. If the correct figure was considered, the total deduction for AYs 2008–09 to 2016–17 would be Rs.4115,50,71,200/-, against transfers of Rs.4000 crores, resulting in a shortfall of Rs.115,50,71,200/-. The AO also found the eligible deduction, as per the assessee’s arithmetic, to be Rs.484,49,28,800/-, and held that the computation of profits eligible for special reserve was itself incorrect. He further observed that qualifying income from long-term financing must be restricted to income before deduction under section 36(1)(viii). Since the bank’s overall profit was Rs.2189 crores, the claim of Rs.642 crores from long-term financing, constituting only 10% of total business, was considered unreasonable and excessive. The AO therefore rejected the assessee’s computation and recomputed the eligible deduction under section 36(1)(viii).

38. On appeal, the learned CIT(A) identified three issues: (i) the correct quantum of deduction allowed in AY 2015–16; (ii) the method adopted by the assessee for computing the eligible deduction under section 36(1)(viii); and (iii) whether deduction could be allowed for a special reserve created in a subsequent assessment year. On the first issue, the CIT(A) noted that the AO had recorded the AY 2015–16 deduction at Rs.633.39 crores, whereas the assessee claimed that only Rs.500 crores had been allowed. The AO was therefore directed to verify the correct amount allowed after the appellate orders of the CIT(A), NFAC/ITAT, replace the correct figure in the table at paragraph 20.2 of the assessment order, and rework any deficit of Rs.115.50 crores. On the method of computation, the CIT(A) observed that the issue was covered in favour of the assessee by the ITAT in the assessee’s own case reported in [2017] 60 ITR (Trib) 1 (ITAT Bengaluru), and directed the AO to recompute the deduction accordingly. As regards the claim based on a special reserve created in a subsequent year, the CIT(A) noted that such deduction is allowable only where the reserve is created out of the profits of the relevant assessment year. Since the assessee itself stated that it had incurred a loss during the current financial year and therefore could not transfer any amount to the special reserve, the reserve created in a later year could not be treated as arising from current-year profits. The CIT(A) therefore rejected this contention and directed the AO to recompute the deduction under section 36(1)(viii) in light of the ITAT’s decision. The ground was accordingly partly allowed, subject to verification by the AO.

39. The learned Authorised Representative submitted that the learned CIT(A) decided the issue by following an earlier decision of the coordinate Bench and, therefore, the order calls for no interference.

40. The learned departmental representative vehemently submitted that the learned assessing officer has correctly computed the disallowance which should have been upheld by the learned CIT – A.

41. In absence of any further information or changes in the facts and circumstances shown by the learned departmental representative we do not find any infirmity in the order of the learned CIT – A and therefore ground No. 13 of the appeal stands dismissed.

42. Ground no. 14 is as under:-

Whether in the present facts and circumstances of the case, the Ld. CIT(A) was right in law in holding that the interest on securities/ investments is taxable only on specified dates when it became due

43. In the assessment order, the AO observed that the assessee had accounted for interest of Rs.24,55,15,72,986/- on investments, which was due for payment after 31 March 2016, but excluded the same in the computation of total income on the ground that it was not taxable for the year. The assessee submitted that, relying on the decision of the ITAT in its own case, it had offered the income in the subsequent year, as the interest had not accrued during the relevant year. The AO rejected this contention, observing that the expression “interest accrued but not due” itself showed that the income had accrued as on 31 March 2016. Since the securities were held as business assets, the AO brought the corresponding income to tax in AY 2016–17 under section 28 of the Act. He also referred to the ICDS provisions, though applicable from AY 2017–18, to support the principle that interest on securities accrued at year-end should be taxed in that year.

44. On appeal, the learned CIT(A) held that the dispute concerned the taxability of interest accrued but not due, which had been credited to the Profit and Loss Account but not offered to tax. The learned CIT(A) noted that the identical issue had already been decided in favour of the assessee by the ITAT in the assessee bank’s own case reported in 2002 (2) TMI 304 – ITAT Bangalore-B, and accordingly allowed the assessee’s claim.

45. After hearing the parties and considering the issue, we find that it is squarely covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court in the assessee’s own case reported in 61 Taxman 79, wherein the Department’s appeal was dismissed and it was held that interest on securities is taxable only on the specified dates when it becomes due for payment. The Hon’ble Supreme Court subsequently affirmed the Karnataka High Court’s decision on the issue of broken-period interest in SLP No. 2805 of 1993 for AY 1983–84. Accordingly, we find no infirmity in the order of the learned CIT(A), and Ground No. 14 of the Assessing Officer’s appeal is dismissed.

46. Ground Nos. 15 – 18 relates to the applicability of provisions of section 115JB in case of the assessee. The respective grounds are as under:-

Ground No.15

The Ld. CIT (A) has erred in law by ruling that the provisions of the section 115JB are not applicable to the banking companies, relying on the decision of the Hon’ble ITAT, Delhi in the case of CIT Vs Punjab National Bank (successor of Oriental Bank of Commerce) in ITA No.594/2023, ignoring the fact that provisions of section 115JB of the Income Tax Act, 1961, clearly applies to the banking companies.

Ground no. 16

The decision of the Ld. CIT (A) is opposed to the provisions of the Explanation 3′ of the Section 115JB of the Income Tax Act, 1961, which was inserted by Finance Act, 2012.

Ground No. 17

The Ld. CIT (A) has failed to appreciate that provisions of the Section 115JB of the income Tax Act, 1961, cover all the companies to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 is applicable, with liberty to prepare its profit and loss account in accordance with Schedule III of the Companies Act, 2013, or in accordance with its Regulatory Act.

Ground no. 18

The Ld. CIT (A) has failed to take cognizance of the Section 11 of Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 which provides that every corresponding new bank shall be deemed to be an Indian company for the purposes of Income-tax Act, 1961.

47. The issue in the is ground is related to the applicability of provisions of section 115JB of the act in case of the assessee which has been decided by the learned CIT – A holding that assessment order and the submission filed by the assessee. The entire issue with regard to applicability of Provision of Section 115JB to assessee or not adjudicated in favour of assessee by Bengaluru ITAT in ITA Nos. 391, 392 & 663/Bang/2023 dated 22.12.2023 for A.Y. 2019-20 and ITA Nos.111/Bang/2024 & 716/Bang/2024 dated 10.06.2024 for A.Y. 2015-16. It is relevant to refer to finding of ITAT for AY 2015-16 vide order dated 10-06-2024 following the binding decision it is held that the provision of sec.115JB is not applicable to the assessee bank.

48. The learned CIT DR could not show us any judicial precedents which have held that the provisions of section 115JB of the act are applicable to the bank. Further the issue is squarely covered in favour of the assessee by the decisions of the coordinate bench in assessee’s own case, for several years, and therefore in absence of any change in the statute, facts and circumstances of the case, we do not find any infirmity in the order of the learned CIT – A holding that the provisions of section 115JB of the act are not applicable in case of the assessee and it is not supposed to pay tax on the book profit as envisaged under that section. Accordingly ground No. 15 – 18 of the appeal are dismissed.

49. In the result appeal filed by the learned assessing officer is dismissed.

Order pronounced in the open court on 15^th June 2026.