JCIT OSD CIRCLE 2(3)(1), MUMBAI, MUMBAI vs. HDFC BANK LIMITED, MUMBAI

ITA 2260/MUM/2025Status: DisposedITAT Mumbai06 October 2025AY 2021-2234 pages
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What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A of the Act should be decided in favour of the assessee. The Tribunal noted that for AY 2019-20 and 2020-21, the assessee offered a suo-motu disallowance. The AO made a disallowance as per Rule 8D, considering investments held as stock-in-trade. The CIT(A) partially deleted the disallowance. The Tribunal, referring to the assessee's own case and other precedents, held that when securities are held as stock-in-trade, no disallowance under Section 14A is warranted. The Tribunal also noted that the issue of ESOP expenses had been decided in favour of the assessee in preceding years by the Tribunal, following decisions of the Karnataka High Court in CIT vs. Biocon Ltd. and other High Courts and Tribunals. The Tribunal found the law on ESOP expenses to be unanimous in favour of the assessee, allowing them as deductible expenditure under Section 37(1) of the Act. The Tribunal dismissed the Revenue's appeals on this ground. The Tribunal also dismissed the Revenue's grounds related to Section 14A disallowance and CSR donations, stating they were adjudicated in previous appeals.

What were the facts?

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench heard appeals filed by HDFC Bank Limited (assessee) and the Revenue for Assessment Years (AY) 2019-20, 2020-21, and 2021-22. The appeals challenged orders passed by the Commissioner of Income-tax (Appeals) [CIT(A)] concerning assessment orders passed under Section 143(3) of the Income-tax Act, 1961. The primary issues revolved around disallowance under Section 14A of the Act and the allowability of Employee Stock Option Plan (ESOP) expenses. The appeals were consolidated for a common adjudication due to identical issues and common facts, with only minor variations in figures.

What were the issues?

1. Whether, on the facts and in circumstances of the case and in law, the CIT(A) erred in not directing the Assessing Officer (AO) to accept the assessee's suo-motu disallowance under Section 14A of the Act, and in directing the AO to consider investments held as stock-in-trade for computing disallowance under Section 14A read with Rule 8D, disregarding prior Tribunal orders in the assessee's own case? (Assessee's contention: Suo-motu disallowance should be accepted; investments as stock-in-trade should not be considered for disallowance. Revenue's contention: Section 14A read with Rule 8D mandates disallowance of expenditure in earning exempt income, even if not disallowed by the assessee, and apportionment of expenses is required for mixed portfolios.) 2. Whether, on the facts and circumstances of the case and in law, the CIT(A) erred in holding that ESOP discount is an allowable business expense, ignoring that it creates a capital benefit for employees and is not an expenditure laid out wholly and exclusively for business purposes under Section 37(1) of the Act? (Assessee's contention: ESOP expenses are allowable as per Section 37(1), relying on Tribunal and High Court decisions. Revenue's contention: ESOP issuance creates a capital benefit, not a business expenditure.) 3. Whether, on the facts and circumstances of the case and in law, the CIT(A) erred in restricting the disallowance under Section 14A to the exempt income, ignoring the provisions contained in the Act and Rules? (Assessee's contention: Not recorded. Revenue's contention: CIT(A) erred in restricting disallowance.) 4. Whether, on the facts and circumstances of the case and in law, the CIT(A) erred in allowing CSR donation without appreciating that it is a voluntary payment? (Assessee's contention: Not recorded. Revenue's contention: CSR donation is not an allowable expense as it's voluntary.)

Which sections of the Income-tax Act were involved?

Section 14A,Section 37(1),Section 143(3)

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Cases cited in this judgment(17)Show list

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Heard together (5 matters)

ITA No. 1555/MUM/2025
ITA No. 1573/MUM/2025
ITA No. 2259/MUM/2025
ITA No. 2258/MUM/2025
ITA No. 2260/MUM/2025

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME-TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No. 1573/MUM/2025 (A.Y. 2020-21) HDFC Bank Limited v/s.

Deputy Commissioner of HDFC Bank House, Senapati बनाम Income Tax - 2(3)(1), Room Bapat Marg, Delisle Road S.O., Lower Parel, Mumbai-400013, Maharashtra No. 552, Aaykar Bhavan, New Marine Lines, Mumbai 400020, Maharashtra Appellant/अपीलार्थी ..

Respondent/प्रतिवादी स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACH2702H ITA No. 2258/MUM/2025 (A.Y. 2020-21)

Joint Commissioner of Income v/s. HDFC Bank Limited Tax (O ), Circle 2(3)(1), बनाम HDFC Bank House, Senapati Room No. 552, Aaykar Bhavan, New Marine Lines, Mumbai- 400020, Maharashtra Bapat Marg, Delisle Road S.O., Lower Parel, Mumbai- 400013, Maharashtra Appellant/अपीलार्थी ..

Respondent/प्रतिवादी स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACH2702H For Assessee : Shri Yogesh Thar, AR For Revenue : Shri Ritesh Misra, (CIT-DR)

Date of Hearing 30.07.2025 Date of Pronouncement 06.10.2025 आयकर अपीलीय अधिकरण INCOME TAX APPELL

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