THE PIMPALGAON MERCHANTS CO.OP. BANK LTD.,,NASHIK vs. ACIT CIRCLE-1, NASHIK
Income Tax Appellate Tribunal, PUNE “B” BENCH : PUNE
Before: DR. MANISH BORAD & SHRI VINAY BHAMORE
PER : MANISH BORAD, AM
This appeal at the instance of the assessee is directed against the order of ADDL/JCIT (Appeals), Panaji [“CIT(A)”]
dated 30/07/2025 passed under section 250 of the Income
Tax Act, 1961 (“Act”) which is arising out of order u/s. 143(3) of the Act dated 27/10/2016 passed by the ACIT, Circle-1,
Nashik for the Assessment Year (AY) 2014-15. 2. The sole grievance of the assessee is against the disallowance u/s. 14A of the Act at ₹ 31,66,380/-.
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ITA.No.2243/PUN./2025
(The Pimpalgaon Merchants Co-op. Bank Ltd.)
At the outset, learned counsel for the assessee submitted that the alleged disallowance mainly comprise of the interest disallowance u/s. 14A of the Act at ₹ 28,78,790/-. Referring to the audited balance sheet of the assessee-bank along with placing reliance on the judgment of Hon'ble Apex Court in the case of CIT (Large Taxpayer Unit) vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC) submitted that since the interest free funds available with the assessee-bank is much more than the investments fetching tax free income, it is to be presumed that investments made in the investments fetching tax free income is out of the interest free funds available with the assessee. 4. On the other hand, Ld. Departmental Representative (DR) vehemently argued supporting the order of Ld. CIT(A). 5. We have heard rival contentions and perused the records placed before us. We observe that assessee is a Co-operative bank and return of income for the A.Y. 2014-15 furnished on 19/11/2014 declaring income of ₹ 1,18,79,695/-. After the case being selected for scrutiny under CASS, valid notices u/s. 143(2) & 142(1) of the Act were served on the assessee. So far as the issue under consideration is concerned, Ld.AO observed that assessee has earned exempt income from investment, however, no disallowance u/s. 14A of the Act has been made. Ld.AO also observed that assessee has borrowed interest bearing funds. Ld.AO applied Rule 8D of Income Tax Rules, 1962 and firstly made interest disallowance of ₹ 28,78,790/-
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ITA.No.2243/PUN./2025
(The Pimpalgaon Merchants Co-op. Bank Ltd.) and also made disallowance @ 0.5% of the average investments of ₹ 9,75,17,991/-, which comes to ₹ 2,87,590/-.
Ld.AO made total disallowance u/s. 14A of the Act of ₹31,33,380/-. We further observe that assessee failed to get any relief from Ld. CIT(A).
6. Before us, the assessee has referred the judgment of Hon'ble Apex Court in the case of Reliance Industries Ltd.
(supra). The Hon'ble Court has held that if the interest free funds available with the assessee are sufficient to meet the investments fetching exempt income, then it is to be presumed that, such investments were out of interest free funds. In the light of the above judgment, we on going through the financial statements of the assessee placed at page Nos. 35-43 of the paper book, observe that as on 31/03/2013 assessee possessed ₹ 20.30 cr. of interest free funds in the form of paid up capital and reserved in other funds which increased to approx ₹ 22.07 cr. as on 31/03/2014. On the other hand, the investments other than the interbank deposits are approx
₹3.33 cr. as on 31/03/2013 and at ₹5.27 cr. as on 31/03/2014. There is no specific observation of the Ld.AO that the interest bearing funds have been applied for making the investments fetching the exempt income. In absence of any such observation of the Ld.AO, it is to be presumed that interest free funds have been applied for making investments fetching exempt income.
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ITA.No.2243/PUN./2025
(The Pimpalgaon Merchants Co-op. Bank Ltd.)
Therefore, respectfully following the judgment of Hon'ble Apex Court in the case of Reliance Industries Ltd. (supra), we find that alleged interest disallowance of ₹ 28,78,790/- u/s. 14A of the Act is uncalled for. To this extent, we set aside the finding of Ld.CIT(A) and delete the disallowance u/s. 14A of the Act at ₹28,78,790/-. Remaining disallowance u/s. 14A of the Act i.e. ₹ 2,87,590/-, remains sustained. Grounds of appeal raised by the assessee are partly allowed. 8. In the result, appeal of the Assessee is partly allowed.
Order pronounced in the open Court on 15.12.2025. [VINAY BHAMORE]
[MANISH BORAD]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated 15th December, 2025
vr/-
Copy to 1. The appellant
2. The respondent
3. The Ld. PCIT concerned.
4. D.R. ITAT, “B” Bench, Pune.
5. Guard File.
By Order
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