THE COSMOS CO-OP BANK LTD SUCCESSOR IN THE INTEREST OF THE NATIONAL CO-OP BANKLTD, PUNE,PUNE, MAHARASHTRA vs. DC/ACIT CIRCLE-5(1)(1), BLR, BENGALURU, KARNATAKA

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA Nos. 1741/Bang/2025 Assessment Year : 2020-21

M/s. Cosmos Co-operative Bank Limited (Maharastra), Successor in the interest for the National Co-operative Bank Ltd., The DC/ACIT, Plot No. 6, S. No. 132/B, Cosmos Tower, Circle – 5(1)(1), Ganeshkhind, University Road, Vs. Bengaluru ICS Colony, Pune, Maharashtra – 411 007. PAN: AAABT0126C APPELLANT RESPONDENT

: Shri S. Annamalai, Advocate Assessee by : Shri Balusamy N – JCIT Revenue by

Date of Hearing : 12-03-2026 Date of Pronouncement : 22-05-2026

ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT

ITA Nos. 1741/Bang/2025 Page 2 of 6 2. The assessee is a primary co-operative society registered under the Karnataka Co-operative Societies Act, 1959, and carries on banking business under a license issued by the Reserve Bank of India in accordance with the Banking Regulation Act, 1949. It filed its return of income on 29.01.2021, declaring income of Rs. 13,27,03,230, and the case was selected for complete scrutiny through CASS. 3. During the relevant year, the assessee earned Rs. 88,39,687 from mutual funds and tax-free bonds. The assessee was asked to explain why no disallowance under section 14A read with Rule 8D(2) of the Income-tax Rules, 1962, as applicable from AY 2016-17, had been offered in respect of dividend income not forming part of total income, in light of the decision of the jurisdictional Calcutta High Court in REI Agro Ltd. v. Deputy Commissioner of Income-tax. 4. The assessee, vide letter dated 14.12.2021, submitted that no direct expenses were incurred, Hence, there is no question of disallowance of expenses u/s 14A. 5. As the assessee did not furnish any calculation, Ld. AO computed average annual investment and determined expenses under Rule 8D(2)(i) to the tune of Rs. 1,81,606 is disallowed u/s 14A of the I.T.Act and added to the total income by passing assessment order. 6. On appeal, notices were issued to the appellant on various dates. The appellant has not filed its submission till date. The assessee has only sought three adjournments on 16.09.2023, 25.01.2024 and 20.02.2024. Hence, the order of the Assessing Officer is confirmed and the appeal is dismissed. 7. Assessee raised following main Ground: -

ITA Nos. 1741/Bang/2025 Page 3 of 6 adding Rs. 1,81,606 to the returned income by wrongly invoking section 14A read with Rule 8D of the Income-tax Act, 1961. It was contended that section 14A was not attracted in the appellant’s case because the investments in mutual funds and tax-free bonds of PSUs were made from the appellant’s own funds, without incurring any direct or indirect expenditure. Accordingly, the disallowance under section 14A read with Rule 8D was stated to be unjustified and liable to be deleted. Without prejudice, it was further submitted that Rule 8D could be applied only after the AO recorded satisfaction, in accordance with law and the CBDT guidance, regarding the incorrectness of the appellant’s claim. The learned AR further submitted that the AO failed to consider that the appellant had made the investments out of its own funds and had incurred no expenditure, direct or indirect, to earn the exempt income. It was also argued that, before invoking section 14A, the AO ought to have considered that the appellant is engaged in banking business under an RBI license and is governed by RBI regulations, including those relating to SLR and non-SLR investments. It was further submitted that where both interest-free funds and borrowed funds are available, a presumption arises that the investments were made from interest-free funds, provided such funds were sufficient to cover the investments. Reliance was placed on the judgments of the Hon’ble Bombay High Court in CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 and the Hon’ble Gujarat High Court in CIT v. UTI Bank Ltd., wherein it was held that if sufficient interest-free funds are available to cover tax-free investments, the investments are presumed to have been made from such funds and not from borrowed funds, and no disallowance can be made under section 14A. The learned AR also submitted that, since the AO had not recorded any reasons regarding the correctness of the Assessee’s claim of expenditure relating to exempt income, the mandatory precondition for invoking section 14A was not satisfied, and the disallowance was therefore liable to be set aside.

ITA Nos. 1741/Bang/2025 Page 4 of 6 9. The Ld. DR relied up on the orders of the ld. Lower authorities. 10. We have carefully considered the rival contentions, perused the orders of the learned Revenue authorities, and examined the judicial precedents cited before us. The assessee, vide letter dated 14.12.2021, submitted that no direct expenditure had been incurred and, therefore, no disallowance under section 14A was called for. However, without recording satisfaction, on verification of the accounts, that the Assessee’s claim was incorrect, the learned Assessing Officer proceeded to compute the disallowance as follows:

“Conclusion: The apex court in the case of Maxopp Investment Ltd v. Commissioner of Income Tax, New Delhi pronounce guideline of calculation of expenses on average monthly basis irrespective of interest expenditure and incurring of expenses or not with effect from A.Y 2016-17. It means interest on loan is irrelevant and even if investment has been from own fund of the assessee. The assessee incurred expenses indirectly for the purpose of exempt income using establishment and fund was also utilized for the purposes. Therefore, the objection of the assessee is rejected,and the apportionment of expenditure is calculated as under as the assessee did not furnish any calculation, average monthly investment could not be calculated as per new format of calculation of expenses u/s 14A r.w.r. 8D of the I.T.Rule. So average annual investment is being considered.” 11. Under section 14A (2), if the learned Assessing Officer is not satisfied with the Assessee’s claim that no direct or indirect expenditure was incurred for earning exempt income, he must first examine the accounts and record satisfaction that the claim is incorrect. Only thereafter, he is empowered to compute the disallowance under section 14A in accordance with Rule 8D of the

ITA Nos. 1741/Bang/2025 Page 5 of 6 Income-tax Rules, 1962. These are the provisions of the law interpreted by Honourable Supreme Court as well as several high courts. In the present case, the learned Assessing Officer computed the disallowance without recording the mandatory satisfaction. 12. In the absence of any satisfaction recorded by the learned Assessing Officer regarding the correctness of Assessee’s claim that no expenditure was incurred for earning exempt income, ld. AO could not have made any disallowance, so, the disallowance made under section 14A of the Act cannot be sustained. The learned CIT(A) failed to consider this legal requirement, which did not call for any further discussion even if the assessee had not appeared or filed submissions before him. Thus, we direct the learned assessing officer to delete the disallowance under section 14 A of the act of Rs. 1816060/-. 13. Thus, ground No. 12 of the appeal of the assessee is allowed. In view of our decision deleting the addition/disallowance made by the learned assessing officer, all other grounds of appeal become infructuous and hence dismissed. 14. In the result appeal of the assessee is allowed partly.

Order pronounced in the open court on 22nd May, 2026.

Sd/- Sd/- (SOUNDARARAJAN K.) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 22nd May, 2026. *TNTS*

ITA Nos. 1741/Bang/2025 Page 6 of 6 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order

Assistant Registrar, ITAT, Bangalore