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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Assessing Officer being Asst. Commissioner of Income-tax, Circle 1(1), Mumbai [ ld AO ] and ITA no 1094/M/2023
The learned Assessing Officer is aggrieved with the appellate order and has preferred the appeal raising following grounds of appeal:-
“1. Whether on the fact and circumstances of the case and in law the learned CIT (A) was right in holding that if there are funds available both interest free and loans fund then presumption would arise that investment is made out of interest free fund for calculation of disallowance under Section 14A read with Rule 8D2(ii) when the issue of mixed fund as pending before larger Bench of Supreme Court. More so when no nexus is established by the assessee to prove that own i.e. interest free funds were initiated to make the investment?
2. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was correct in holding that the interest portion of the refund issued earlier has to be ignored for the purpose of calculating interest under Section 244A of the Income-tax Act, 1961 (the Act), payable to the
The brief facts of the case shows that assessee is a bank engaged in the banking business, filed its return of income on 29 November, 2011, at a total income of ₹1,683 crores. This return was revised on 18th March, at ₹1187 crores. Assessment under Section under Section 143(3) of the Act was made determining the total income at ₹4,165 crores. The assessment order was challenged before the learned CIT (A), as per appellate order dated 16th March, 2016, he partly allowed the appeal of the assessee. The assessee preferred the appeal before the co-ordinate Bench in to 4491/Mum/2016 dated 25th May, 2018, which restored the matter before the learned Assessing Officer for considering the arguments of the assessee against disallowance under Section 14A of the Act.
The assessee also contended that assessee has not been granted interest under Section 244A of the Act on the refund remaining unpaid, which included the interest element but has not been paid. The learned Assessing Officer computed the refund and interest, however, while computing the refund has first adjusted the refunds already granted against the interest under Section 244A of the Act and thereafter interest under Section 244A of the Act was calculated on the balance sum. Thus, he did not calculate the interest under Section 244A of the Act already due up to the dates of the grant of the refund.
The assessee aggrieved that the same has preferred an appeal before the learned Commissioner of Income-tax (Appeals). The appellate order was passed wherein the learned CIT (A) held that he does not agree with the contentions of the assessee that if the bank is holding
With respect to the granting of the interest he followed the decision of the co-ordinate Bench, wherein it has been held that amount of refund has to be adjusted towards interest payable to the assessee and then it shall be adjusted to tax. He directed the learned Assessing Officer to follow the decision of the co-ordinate Bench.
Against this appellate order, the learned Assessing Officer is aggrieved.
The learned Departmental Representative on disallowance under Section 14A of the Act submitted that the learned CIT (A) is incorrect in holding that if there are funds available with the assessee as a common pool of interest free and interest bearing funds, the assessee cannot be
On the ground no.2, he submitted that the learned CIT (A) is not correct in holding that refund is required to be adjusted first against the interest payment and then on taxes.
The learned Authorized Representative submitted that identical issue arose in case of the assessee for A.Y. 2012- 13 in assessee’s own case which has been contested by the co-ordinate Bench on 28th June, 2013. He submits that provisions of Section 14A of the Act, the co-ordinate Bench has held that if the shares are held as stock-in- trade no disallowance can be made. He submits that the ground no.1 of the appeal is covered.
With respect to the ground no.2, he submits that the learned CIT (A) has relied upon the several decisions of the co-ordinate Bench which are not disputed.
The ld DR in rejoinder to disallowance u/s 14A of the Act submitted that if the view is taken that in case of a bank if investments are held to be stock in trade, then exempt income earned from that stock in trade does not invite disallowance u/s 14A of the Act is fallacious. He submits that law cannot be read in manner, which makes the “33. There is no quarrel in assigning this meaning to section 14A of the Act. In fact, all the High Courts, whether it is the Delhi High Court on the one hand or the Punjab and Haryana High Court on the other hand, have agreed in providing this interpretation to section 14A of the Act. The entire dispute is as to what interpretation is to be given to the words 'in relation to' in the given scenario, viz. where the dividend income on the shares is earned, though the dominant purpose for subscribing in those shares of the investee company was not to earn dividend. We have two scenarios in these sets of appeals. In one group of cases the main purpose for investing in shares was to gain control over the investee company. Other cases are those where the shares of investee company were held by the assessees as stock-in-trade (i.e. as a business activity) and not as investment to earn dividends. In this context, it is to be examined as to whether the expenditure was incurred, in respective scenarios, in relation to the dividend income or not.
We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that on the issue of applicability of Section 14A of the Act, the co-ordinate Bench had decided the issue that when the assessee is holding investment as stock-in-trade, no disallowance under Section 14A of the Act can be made. The co-ordinate Bench decided the issue for A.Y. 2012-13, relying on the decision of PCIT Vs. Punjab National Bank reported in 140 taxmann.com 131, where in it has been held that where the assessee bank is holding investment as stock-in-trade no disallowance under Section 14A of the Act can be made. Honourabel high court held so as under :-
“15. The Appellant in the present appeal has also challenged the deletion of the disallowance under rule 8D(2)(ii) of Rs. 17,48,97,348/-. The said disallowance was deleted by the CIT (Appeals) vide order dated 28th June, 2017. The CIT (Appeals) noted that this issue was also covered by the order of the ITAT in the case of Respondent in Assessment Year 2009-10. It was noted that in the said Assessment Year the Tribunal had observed that no part of the borrowed funds were utilised by the Respondent for making investments yielding tax free income. It was also observed that the
16. The learned counsel for the Appellant has contended that the decision of the Tribunal deleting the addition of Rs. 1,58,00,000/- made by the JAO under section 14A of the Act read with rule 8D(iii) is incorrect since the said amount was offered for disallowance suo moto by the Respondent.
17. In this regard, the Tribunal has observed that the facts of the Respondent in the present appeal are similar to the order passed by another Bench of the Tribunal in the case of Nice Bombay Transport (P.) Ltd. v. Asstt. CIT [2019] 103 taxmann.com 338/175 ITD 684 (Delhi - Trib.) wherein issue relating to Section 14A of the Act read with Rule 8D of the Rules in respect of shares held in stock has been discussed and adjudicated in favour of the Assessee therein.
Learned counsel for Appellant has submitted that the facts of the assessee in the case of Nice
"…40 It is to be kept in mind that in those cases where shares are held as "stock-in- trade", it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee-company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee-company. In that case, whenever dividend is declared by the investee-company
19. The Supreme Court in this judgment upheld the decision of the High Court of Punjab and Haryana arising under section 14A of the Act with respect to an assessee bank. It further held that when the shares were held as stock-in-trade and not as investment particularly by banks, the main purpose was to trade in those shares and earn profits there from and therefore section 14A of the Act was not attracted and the expenditure could not be disallowed. The judgment of Maxopp Investment Ltd. (supra) has been duly noted by the Tribunal in its impugned order and in our opinion the Tribunal
In the present case as well, the Tribunal has considered that the Respondent was holding the shares as a stock-in-trade and has, therefore, disallowed the addition made by the JAO. Learned counsel for the Appellant has not disputed the fact that the shares are held as stock-in-trade by the Respondent.
In the aforesaid view of the matter, the questions of law proposed by the Appellant do not arise for consideration either in fact or in law in view of the judgments of the Supreme Court, which have conclusively decided the questions sought to be canvassed by the Appellant.”
Thus in the above case Honourable High court referred to para no 40 of the order of the Honourable Supreme court where as the ld DR referred to before us Para no 33 onwards of that decision where honourable supreme court has discussed that dominant purpose theory is not important.
However, judicial precedents bind us. Therefore, respectfully following the decision of the co-ordinate Bench in assessee’s own case ground no.1 of the appeal is dismissed and appeal of assessee is allowed.
Accordingly, the appeal of the learned Assessing Officer is dismissed and appeal of assessee is allowed.
Order pronounced in the open court on 21.12. 2023.