ACIT, CIR-2(1)(1), MUMBAI vs. M/S. BANK OF INDIA, 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:-

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 :-

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.