State Bank of India Vs DCIT (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal, Mumbai ‘I’ Bench, considered cross-appeals filed by State Bank of India and the Revenue for assessment year 2009-10 against the order of the CIT(A)-5, Mumbai, dated 29 March 2016. The appeals, ITA Nos. 3645/Mum/2016 and 4564/Mum/2016, arose from a scrutiny assessment in which the Assessing Officer made several additions and disallowances relating to the bank’s operations, investments, employee obligations and overseas branches. The Tribunal, comprising Accountant Member B.R. Baskaran and Judicial Member Sandeep Singh Karhail, pronounced its consolidated order on 6 June 2023. Both appeals were ultimately partly allowed for statistical purposes.
On the bank’s provision of Rs.1,495.50 crore for pension liability, the Tribunal followed its earlier decision in SBI’s own case for assessment year 2008-09. The liability was based on actuarial valuation of retirement benefits attributable to employee services and was distinguished from a contribution to an approved pension or other employee fund. Applying the reasoning adopted in the earlier order, the Tribunal allowed the bank’s claim. However, it rejected the claim for depreciation of Rs.53,14,55,386 on matured securities that had fallen due for redemption but remained unpaid, following earlier Tribunal findings affirmed by the jurisdictional High Court. It also rejected depreciation of Rs.9,43,69,363 on leased assets, following the earlier treatment of the underlying sale-and-leaseback arrangements.
The Tribunal granted relief on important deductions relating to banking advances and securities. It allowed the claim under Section 36(1)(vii) for Rs.1,334,21,65,835 of bad debts written off in respect of non-rural advances, following the bank’s earlier-year precedent. It also allowed depreciation on securities classified as Available for Sale and Held for Trading, applying the bank’s consistent tax treatment and earlier judicial findings. On Section 36(1)(viia), it accepted the bank’s claim concerning provisions for standard assets, again following decisions in its own case. These findings addressed the bank’s recurring disputes over the treatment of loan portfolios, investment valuation and provisions for doubtful debts.
On interest relating to non-performing assets and investments, the Tribunal followed the bank’s earlier cases and deleted additions relating to interest on NPAs and non-performing investments. The bank had argued that, under applicable RBI norms and its accounting treatment, the overdue interest was not recognised on accrual where recovery was uncertain. The Tribunal also allowed the ground concerning contributions to the Retired Employees Medical Benefit Scheme, relying on the prior decisions addressing the bank’s employee welfare expenditure. Other claims, including the payment for establishing a chair at the London School of Economics and recovery of bad debts written off in earlier years, were addressed through directions for verification or further examination where necessary.
The bank’s claim that income of foreign branches situated in treaty countries should not be taxed in India was not accepted. The Tribunal examined the question in the context of the bank’s status as an Indian resident and the relevant tax treaty provisions, and dismissed the ground seeking exclusion of foreign-branch income. The associated claim for double taxation relief was directed to be examined on the basis of supporting details. The order also considered additional grounds raised by the bank, while maintaining the distinction between exclusion of income and relief from double taxation under the applicable provisions.
In the Revenue’s appeal, the Tribunal considered a series of issues already recurring in SBI’s assessments. It dismissed the Revenue’s challenges concerning broken-period interest on securities, the provision for wage revision and staff-welfare expenditure, including payments for facilities for employees’ children, by following earlier decisions in the bank’s own case. It also upheld relief concerning the amortisation of premium or revaluation loss on Held to Maturity investments, where the bank’s treatment was tied to RBI guidelines and earlier judicial orders. The Revenue’s challenge to the deduction for the discount under the Employee Stock Purchase Scheme was dismissed in light of the Special Bench decision in Biocon Ltd. and its subsequent affirmation by the Karnataka High Court.
The cross-appeals also raised the computation of disallowance under Section 14A read with Rule 8D in respect of exempt dividend and tax-free interest income. The bank had made a suo motu disallowance of Rs.31,23,74,490 towards administrative expenditure, while disputing the inclusion of certain investments and the attribution of interest expenditure. The Tribunal issued directions for computation and further examination, including consideration of the allowability of any amount voluntarily disallowed beyond the disallowance properly determined under the statutory provisions. Accordingly, the bank’s and Revenue’s respective grounds on Section 14A were disposed of with directions rather than by an unqualified acceptance of either party’s computation.
Other Revenue grounds concerned depreciation on foreign assets, set-off of losses relating to the erstwhile State Bank of Saurashtra and the treatment of employee share-scheme expenditure. The Tribunal directed verification and appropriate adjudication of the foreign-assets depreciation claim and instructed the Assessing Officer to allow set-off of the predecessor bank’s eligible loss after necessary verification. It rejected the Revenue’s ground against the Employee Stock Purchase Scheme deduction, following the Biocon precedent. In conclusion, the Tribunal partly allowed both the assessee’s and Revenue’s appeals for statistical purposes, with some substantive claims allowed or rejected and others remitted for verification. The decision was pronounced on 6 June 2023.
Cases Discussed
- State Bank of India v. DCIT — ITA Nos. 3644 and 4563/Mum/2016, order dated 03.02.2020 (ITAT Mumbai)
- Bharat Earth Movers v. CIT — (2000) 245 ITR 428 (Supreme Court)
- CIT v. Ranbaxy Laboratories Ltd. — (2011) 334 ITR 341 (Delhi High Court)
- State Bank of Saurashtra v. DCIT — ITA No. 4502/Mum/2013, order dated 23.12.2016 (ITAT Mumbai)
- CIT v. West Coast Paper Mills Ltd. — (1992) 193 ITR 349 (Bombay High Court)
- State Bank of India v. DCIT — ITA No. 271 of 2014, order dated 23.08.2016 (Bombay High Court)
- Biocon Ltd. v. DCIT — (2013) 25 ITR(T) 602 (ITAT Bangalore, Special Bench)
- CIT v. Biocon Ltd. — 430 ITR 151 (Karnataka High Court)
