ITAT Reaffirms MAT Provisions Inapplicable to Banking Companies

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the provisions of Section 115JB of the Income Tax Act, 1961, relating to the Minimum Alternate Tax (MAT) are not applicable to public sector banking companies governed by the Banking Regulation Act, 1949. The Tribunal also ruled that amounts paid to the Reserve Bank of India (RBI) for non-compliance with internal Know Your Customer (KYC) guidelines are allowable business expenditures under Section 37(1).

A Bench comprising Vice President Shri Saktijit Dey and Accountant Member Shri Girish Agrawal dismissed the Revenue’s appeals filed across multiple assessment years and upheld the relief granted to the assessee bank by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC).

The dispute arose from assessment and reassessment proceedings for Assessment Years 2009-10 to 2020-21, wherein the Revenue sought to levy MAT under Section 115JB, revive disallowances under Section 14A, and deny deduction of amounts paid to the RBI towards regulatory non-compliance.

Before the Tribunal, the assessee contended that as a banking company preparing its accounts under the Banking Regulation Act, it fell outside the ambit of Section 115JB. It was further submitted that the amount paid to the RBI was not for any offence prohibited by law but related to procedural lapses in complying with internal KYC norms.

The Tribunal reiterated that banking companies governed by the Banking Regulation Act do not fall within the legislative framework contemplated under Section 115JB and, therefore, MAT provisions cannot be invoked against such entities.

While adjudicating the issue, the Tribunal followed its Special Bench decision in Union Bank of India v. DCIT and held that the amendments introduced by the Finance Act, 2012, do not extend MAT applicability to corresponding new banks constituted under banking laws.

On the issue of RBI levies, the Bench observed that the payment arose from procedural deficiencies and operational lapses in implementing customer identification requirements and could not be equated with expenditure incurred for an offence or an act prohibited by law.

The Tribunal held that payments made to the RBI for non-adherence to internal regulatory guidelines are incurred in the ordinary course of banking business and remain eligible for deduction under Section 37(1).

Thus, the ITAT dismissed the Revenue’s appeals and affirmed the relief granted to the assessee bank on the MAT and regulatory expenditure issues.

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