THE PIMPALGAON MERCHANTS CO.OP. BANK LTD.,,NASHIK vs. ACIT CIRCLE-1, NASHIK

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ITA 2243/PUN/2025Status: DisposedITAT Pune15 December 2025AY 2014-154 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance of interest under section 14A of the Act amounting to ₹28,78,790 was uncalled for. Following the Supreme Court's decision in CIT (Large Taxpayer Unit) vs. Reliance Industries Ltd., the Tribunal observed that the assessee possessed substantial interest-free funds (approximately ₹20.30 crore as of 31/03/2013, increasing to ₹22.07 crore as of 31/03/2014) which were sufficient to cover its investments (approximately ₹33.33 crore as of 31/03/2013 and ₹5.27 crore as of 31/03/2014). The Tribunal noted the absence of any specific observation by the AO that interest-bearing funds were used for making investments yielding exempt income. Therefore, it was presumed that interest-free funds were utilized for such investments. The Tribunal set aside the CIT(A)'s finding to this extent and deleted the disallowance of ₹28,78,790. The remaining disallowance of ₹2,87,590 was sustained. The grounds of appeal were partly allowed.

What were the facts?

The assessee, The Pimpalgaon Merchants Co-op. Bank Ltd., is in appeal against the order of the ADDL/JCIT (Appeals), Panaji, dated 30/07/2025. This order arose from an assessment under section 143(3) of the Income Tax Act, 1961, passed by the ACIT, Circle-1, Nashik, for Assessment Year 2014-15. The primary issue is a disallowance under section 14A of the Act amounting to ₹31,66,380. The Assessing Officer (AO) disallowed ₹28,78,790 as interest disallowance and ₹2,87,590 as 0.5% of average investments, totaling ₹31,33,380. The assessee failed to obtain relief from the CIT(A). The assessee's return declared an income of ₹1,18,79,695.

What were the issues?

1. Whether the Tribunal had to decide if the disallowance under section 14A of the Income Tax Act, 1961, was justified, particularly concerning the interest component of ₹28,78,790. Assessee's contention: The assessee argued that since its interest-free funds (paid-up capital and reserves) were significantly higher than its investments yielding tax-free income, it should be presumed that these investments were made out of interest-free funds. Reliance was placed on the Supreme Court's judgment in CIT (Large Taxpayer Unit) vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC). Revenue's contention: The learned Departmental Representative (DR) supported the order of the learned CIT(A) without providing specific arguments.

Which sections of the Income-tax Act were involved?

Section 14A,Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE “B” BENCH : PUNE

Before: DR. MANISH BORAD & SHRI VINAY BHAMORE

I.T.A.No.2243/PUN/2025 (Assessment Year 2014-2015) The Pimpalgaon ACIT, Circle-1, Nashik. Merchants Co-op. Bank Ltd., 1, Dhanshree Street, vs. At Post Pimpalgaon Baswant, Tal-Niphad, Nashik-422209 PAN : AAAAT 5305 Q (Appellant) (Respondent) For Assessee : Shri Pramod S Shingte, CA For Revenue : Shri Manoj Tripathi, Addl.CIT (virtual) Date of Hearing : 11.12.2025 Date of Pronouncement : 15.12.2025 ORDER 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/-.

2 ITA.No.2243/PUN./2025 (The Pimpalgaon Merchants Co-op. Bank Ltd.) 3. 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/- 3 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.

4 ITA.No.2243/PUN./2025 (The Pimpalgaon Merchants Co-op. Bank Ltd.) 7. 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.

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