RAJDHANI NAGAR SAHKARI BANK LTD,LUCKNOW vs. DY. CIT, LUCKNOW

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"clean_text": "IN THE INCOME TAX APPELLATE TRIBUNAL\nLUCKNOW BENCH “A”, LUCKNOW\nBEFORE SHRI KUL BHARAT, VICE PRESIDENT AND\nSHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER\n\nITA Nos. 112 to 114/LKW/2024\nA.Ys. 2015-16 to 2017-18\n\nvs.\n\nRajdhani Nagar Sahkari\nBank Ltd\n555GA/86, Sardari Khera,\nAlambagh, Lucknow-226006\nPAN:AAAAR1269D\n(Appellant)\n\nDCIT\nP.K. Complex, Raja Ram Mohan\nRai Marg, Lucknow-226001.\n(Respondent)\n\nITA No.141/LKW/2024\nΑ.Υ.2016-17\n\nvs.\n\nACIT Circle-3\n57 Ram Tirath Marg Pratyaksh\nKar Bhawan, Lucknow-226001\nPAN: AAAAR1269D\n(Appellant)\n\nRajdhani Nagar Sahkari Bank\nLtd\n555GA/86, Sardari Khera,\nAlambagh, Lucknow-226006\n(Respondent)\n\nAssessee by:\nSh. K.R. Rastogi, C.A.\nSh. Shubham Rastogi, C.A.\nRevenue by:\nSh. Sanjeev Krishna Sharma, Addl. CIT-\nDR\nDate of hearing: 28.04.2025\nDate of pronouncement: 22.05.2025\n\nORDER\n\nPER BENCH.:\nThese four appeals have been filed for the assessment years 2015-16, 2016-\n17 and 2017-18 by the Assessee and Revenue against the respective orders of the\nLd. CIT(A)/NFAC, Delhi dated 02.02.2024, 05.02.2024 & 05.02.2024. While the\nassessee is in appeal in assessment years 2015-16, 2016-17 & 2017-18, the Revenue\nhas filed an appeal in assessment year 2016-17. As all these cases were taken up for\nhearing together, they are being disposed off by way of a common order. The\nappeals are being taken up assessment year wise. In the assessment year 2015-16\n(ITA. No.112/LKW/2024), the grounds of appeal are as under:-\n\nITA No.112/LKW/2024\n““(1)The Ld. C.I.T. (A), NFAC, erred on facts and in law in upholding the addition of\nRs. 30,00,000/- being \"Provision for Income Tax for F. Y.-2014 15\"solely on the basis\nof Non furnishing of Revised Return, without appreciating that this provision has not\nbeen claimed as Deduction in the Income Tax Return in Schedule- Part-A - P& L and\nSchedule-BP. Thus, the Income as per Schedule-BP is Rs. 1,47,07,819/- before\ndeducting Income Tax. Thus, this amounts to be double addition.\n(2) The Ld. C.I.T. (A), NFAC erred on facts and in law in upholding the addition being\ndisallowance of Rs. 41,00,431/- Employees Share of P. F. inspite of the fact the\npayment has been made to the Provident Fund Commissioner on 29.11.2016 after\ngetting registration with Commissioner, Provident Fund.\n(3) That the addition of Rs. 41,00,431/- as Employees Contribution u/s 36(1)(v)(a)\nalso includes Employer Contribution which had already been deposited with LIC of\nIndia and no disallowance has been made in this regard. The correct amount of\nEmployees Contribution as debited in the P & L Account is only Rs.35,30,209/- which\nis verifiable from record hence disallowance to the extent of Rs. 5,70,222/- is\nwrongly upheld.\n(4) The Ld. C.I.T. (A) erred on facts and in law in upholding the finding of Ld. A. O. for\nnot allowing deduction of Leave Encashment of Rs. 2,05,225/- being paid during the\nyear.\n(5) The Ld. C.I.T. (A), NFAC w. r. t. Grounds of Appeal No. 2 and3 failed to appreciate\nthat due to expiry of timing for filing of Revised Return, the corrected computation\nchart was filed before Ld. A. O. Further, the CVT (A) has power to decide the same as\nthe case law of Hon'ble Supreme Court in Goetz (India) Limited Vs. C.I.T. reported in\n284 ITR 323 is not applicable on the Power of the Ld. C.I.T. (A).\n(6) The Ld. C.L.T. (A), NFAC failed to appreciate that CBDT Circular No. 14(XL) 35\ndated 11.04.1955 where it hs been held that allowable claim of deduction should be\nallowed and Revenue should not take the benefit of the ignorance of Assessee, if\nclaim is verifiable from the record available. The above Circular has been followed\nby Juri ictional High Court in the case of CIT Vs. Lucknow Public Educational\nSociety reported in 318 ITR223.\n(7) That Additions upheld by Ld. C.I.T. (A), NFAC are highly excessive, contrary to the\nfacts, law and principle of natural justice and without providing sufficient time and\nopportunity to have its say on the reasons relied upon by him.”\n\n2.\nThe facts of the case are, that the Ld. AO observed that the assessee had\nclaimed, \"Provisions and Contingencies” at Rs.30,90,318/- in the P & L account.\nAccordingly, a show cause notice was issued by the Assessing Officer. The assessee\nin its reply, filed a revised computation of income in which it added back the various\nprovisions debited in P&L account and made a disallowance u/s 43B of the Income\nTax Act, 1961 (“the Act”, for short). The Ld. AO held that the assessee could not\nrevise its income by filing a revised computation of income and it had not filed\nrevised return of income. Therefore, the various provisions debited in the P&L\naccount and the various disallowances would not be allowable as per the Income\nTax Act and therefore, was fit to be added back to the income of the assessee.\nAccordingly, a sum of Rs.30,35,071/- was added back on account of provision for\nNPA, a sum of Rs.30,00,000/- was added back as provision for tax F.Y. 2014-15 and\na sum of Rs.41,00,431/- was added back on account of Employee's Share of\nProvident Fund, which was not deposited by the assessee before the due date under\nthe relevant Act. The Assessing Officer also made disallowance of Rs.20,00,000/- on\naccount of leave encashment u/s 43B of the Act. Aggrieved with the said additions,\nthe assessee went in appeal before the Ld. CIT(A). It was submitted that in the\ncomputation of income of Rs.1,47,07,819/- net profit was Rs.1,18,49,650/- and the\nprovision for income tax of Rs.30,00,000/- had been added back to the same.\nHowever, the AO had again added of Rs.30,00,000/- in the assessment order at para\nno. 3. It was submitted that when this amount has already been included in the\nbusiness profit considered for assessment purposes, this amounted to a double\naddition. With regard to addition of Rs.41,00,431/- on account of late deposit of\nemployees share of provident fund, it was submitted that the assessee had applied\nfor registration with Provident Fund Commissioner on 05.08.2015 and after the\nregistration with the Commissioner of Provident Fund, the entire amount of\nemployees contribution had been transferred to the Provident Fund Commissioner\non 29.11.2016. It was submitted that in view of the above, the deduction should be\nallowed and it was pointed out that ITAT ‘A' Bench, Lucknow in ITA.\n3\n\nNo.696/LKW/2015 in the A.Y. 2010-11, had allowed the deduction to the assessee.\nOn the issue of not allowing of payment towards leave encashment, it was submitted\nthat actual payment of Rs.2,05,225/- had been made to Mr M.K. Srivastava and Mr\nP.C. Joshi and the same should be allowed u/s 43B of the Act out of the total\ndisallowance of Rs.20,00,000/-. In support of the same, copy of general ledger\naccount was submitted. The Ld. CIT(A), after considering the issues, held that since\nthe assessee had not furnished any revised return, there was no infirmity in the\norder of the AO in making addition of Rs.30,00,000/- on account of provision for\nincome tax. Furthermore, regarding the addition made on account of failure to\ndeposit employees contribution towards provident fund on time, the Ld. CIT(A)\nrelying upon judgment of the Hon'ble Supreme Court in the case of Checkmate\nServices P. Ltd vs CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022), rejected the\nappeal of the assessee. With regard to addition of Rs.2,05,225/- on account of\naddition of leave encashment already paid, the Ld. CIT(A) held that since the return\nhad not been revised, therefore, there was no infirmity in the order of the AO.\n3.\nThe assessee is aggrieved with this order of the Ld. CIT(A) and has\naccordingly come before us. Shri K. R. Rastogi, C.A and Shri Shubham Rastogi, C.A.,\nrepresented on behalf of the assessee before the Bench. It was submitted that the\nAssessing Officer had considered the income as per the return i.e. at\nRs.1,47,07,819/- for the purposes of computation. The said profit was before\ndeducting provision for advance tax at Rs.30,00,000/-. It is true that they had made\na provision for income tax at Rs.30,00,000/- in the audited profit and loss account as\non 31.03.2015, but it was submitted that the business profit that had been\nconsidered in the assessment order, was Rs.1,47,07,819/- and not net profit for\nassessment year, of Rs.1,18,49,615/-, that had been shown in the P&L account. A\ncomputation was submitted before us in which it was shown that the depreciation\nand provision for income tax had been added back and depreciation as per Income\nTax Rules had been claimed, to arrive at the final business profit which had been\noffered in the return. Thus, the taxable income of the bank was Rs.1,47,07,819/- and\n4\nthis included the provision for advance tax of Rs.30,00,000/-. Without appreciating\nthe same, the Ld. AO had added this back and this amounted to a double addition\nand may be, therefore, deleted. With regard to addition of Rs.41,00,431/- on account\nof employees share of provident fund, it was submitted that the actual figure of\nemployees contribution which had not been deposited was Rs.35,30,209/- and the\nassessee had committed a mistake while submitting the revised computation chart.\nIt was, therefore, prayed that only actual amount pertaining to the employees\ncontribution (of Rs.35,30,209/-) should be disallowed instead of disallowance that\nwas confirmed by the Ld. CIT(A). Without prejudice to this argument, it was\nsubmitted that the entire amount of employees contribution had been transferred to\nthe Provident Fund Commissioner on 29.11.2016 after registering the EPF with the\nProvident Fund Commissioner on 05.08.2015. Accordingly, it was prayed that\ndeduction may kindly be allowed. With regard to the denial of deduction on account\nof leave encashment actually paid, it was submitted that the action of the Ld. CIT(A)\nwas incorrect because the authorities below had considered the amount given in the\nrevised computation of income as the starting point for making of additions and\ntherefore the correct deduction, as per law, was to be allowed to the assessee. It was\nfurther submitted that it is held by the Juri ictional Allahabad High Court in the\ncase of Smt Rajrani Gulati vs CIT reported in 346 ITR 543 that the judgment of the\nHon'ble Supreme Court in the case of Goetz (India) Limited vs CIT reported in 284\nITR 323, only limited the power of the AO and did not affect Appellate Authorities.\nThe assessee also placed reliance on the decision of the Hon'ble Bombay High Court\nin the case of Sesa Goa Ltd vs JCIT, Range-1, Panaji, Goa, reported in 117\ntaxmann.com 96 (Bom). Furthermore, it was submitted that the CBDT had issued\nCircular No. 14(XL-35) of 1955, dated 11.04.1955 for directing tax authorities to\nassist assessees in allowing correct deduction in computation of taxable income and\nnot take benefit of assessee. It was, therefore, prayed by the deduction may kindly\nbe allowed.\n5\n\n4.\nOn the other hand, Shri Sanjeev Krishna Sharma, Addl. CIT-DR, appearing on\nbehalf of the Revenue submitted, that the disallowances had been correctly made by\nthe AO and sustained by the Ld. CIT(A) and did not call for any interference by us\nbecause there was no revised return and these since these were not allowable\ndeduction that had been claimed by the assessee in its P & L account.\n\n5.\nWe have duly considered the facts and circumstances of the case. It is\nobserved that while the profit and loss account of income from business and\nprofession as reflected in the profit and loss account was Rs.1,18,49,615.30, the total\namount of profit gain of business and profession, as disclosed in the return of\nincome of the assessee for the assessment year 2015-16 as per column A-36 of\nSchedule -BP was Rs.1,41,71,819/-. The Assessing Officer has taken this figure as the\nstarting point for computation of the assessee's income. This figure is inclusive of\nthe provision for income tax of Rs.30,00,000/-. Accordingly, any further adding of\nthe amount, would amount to a double addition and consequently double taxation of\nthe same amount. Therefore, since the Assessing Officer had already adopted the\nhigher figure as disclosed in the return for the purposes of computation and not the\nprofit as reflected in the profit and loss account, there was no occasion for making\nany addition on this account. The addition is therefore, deleted and ground no. 1 is\nallowed. With regard to ground no. 2, we note that the payment on account of\nemployees share of provident fund has admittedly not been made within the time\nlines specified under the relevant act. Accordingly, we are in agreement with the\ndecision of the Ld. CIT(A) to confirm the disallowance by following the order of the\nHon'ble Supreme Court in the case of Checkmate Services P. Ltd vs CIT (supra).\nHowever, the assessee has pointed out, that by mistake it submitted a wrong figure\nduring the course of assessment, as a result of which total disallowance that has\nbeen made, was more than the actual amount of employees contribution debited in\nP&L account. Accordingly, we restore this matter back to the file of the Assessing\nOfficer to determine the actual\namount of\ndisallowance with regard to\nexpenditure claimed. Ground no. 2 is accordingly disallowed while ground no. 3 is\n6\npartly allowed as above. With regard to ground no. 4, we observe that if assessee\nsubmitted that it had paid a sum of Rs.2,05,225/- on account of leave encashment\nduring the year, then the same would be allowable to it as per law. The Ld. CIT(A)\nwas not correct in refusing the entertain the plea on the grounds that the revised\nreturn had not been filed, since there was no restriction on the powers of the\nappellate authority to entertain a fresh claim in terms of decision of the Hon'ble\nSupreme Court in the case of Goetze (India) Limited vs CIT reported in 284 ITR 323.\nAs pointed out by the assessee, the Juri ictional High Court in the case of Smt\nRajrani Gulati vs CIT (supra) has pointed out that the aforesaid case does not place\nany restriction on the powers of the appellate authority, and therefore the ground\nshould have been entertained for decision on merits. Accordingly, we restore the\nmatter back to the file of the Assessing Officer to consider the evidence placed\nbefore him and take a decision on the merits. Ground no. 4, 5 & 6 are allowed for\nstatistical purposes. Ground no. 7 is general in nature and does not require any\nadjudication.\nIn the result, this appeal is partly allowed.\n\nITA. NO. 113/LKW/2024 & ITA. NO. 141/LKW/2024, pertains to A.Y. 2016-17.\n\n6.\nThe grounds of appeal preferred by the assessee in ITA. No.113/LKW/2024\nare as under: -\n\n““(1) The Ld. C.I.T. (A), NFAC, erred on facts and in law in upholding the\ndisallowance of Rs.58,09,459/- u/s 14A of 1. T. Act r. w. Rule 8D of 1. T. Rules without\nappreciating that assessee has not shown any exempt income in the return.\nTherefore, no addition should be made in this regard.\n(2) The Ld. C.I.T. (A), NFAC failed to appreciate that CBDT Circular No. 5 of 2014\ndated 11.02.2014 has been examined by Hon'ble Delhi High Court in the case law\nreported in 452 ITR 206 and 399 ITR 483 and held that in the absence of exempt\nincome, CBDT Circular cannot override express provisions of Section 14A of I. T. Act\nr. w. r. 8D of 1. T. Rules. Thus, the disallowance upheld Rs.58,09,459/-solely on the\nbasis of CBDT Circular is not valid as per Law.\nWITHOUT PREJUDICE TO ABOVE\n\n7\n\n(3) That the deduction of Rs. 16,43,987/- w. r. t. fall in Value of Securities is an D\nallowable expenditure as per RBI Rules and as per CBDT Instruction No. 17 dated\n26.11.2008, the same may be allowed as it is shown in P & L A/c under Schedule-14\n\"Provision for Depreciation on Investments\" and same is verifiable from the Records.\nHowever, it is not claimed in the Return, though submissions were filed before Ld.\nC.I.T. (A), NFAC vide e-filing acknowledgement no. 20012113861664 dated\n20.01.2021.\n(4)That the case law of Hon'ble Supreme Court in Goetz (India) Limited Vs. C.I.T.\nreported in 284 ITR 323 is not applicable on the Power of the Hon'ble L.T.A.T. in\nallowing the deduction which is not claimed in the Return and verifiable from\nrecords.\n(5)That Additions upheld by Ld. C.I.T. (A), NFAC are highly excessive, contrary to the\nfacts, law and principle of natural justice and without providing sufficient time and\nopportunity to have its say on the reasons relied upon by him.\n\nThe grounds of appeal preferred by the Revenue in ITA. No. 141/LKW/2024\nare as under: -\n\n“(1) The Ld. CIT(A), NFAC has erred in law and on facts in deleting the addition of Rs.\n2,23,54,660/- claimed by the assessee as exempt income u/s 10(15) of the IT Act on\nthe basis of audited profit and loss account, balance sheet and income tax return.”\n\n8.\nThe facts of the case are that the Assessing Officer noted that the assessee\nhad claimed the following exempt income (i) Dividend on investment (exempt u/s\n10(35) of Rs.30,09.485) (ii) Dividend on investment (exempt u/s 10(34)\nRs.15,300/-) and (iii) Profit on sale of GOI bonds (exempt u/s 10(38) Rs.3,55,000/-).\nHe accordingly issued a show cause notice to the assessee asking why disallowances\nshould not be made on account of Section 14A of the Act. In response, the assessee\nsubmitted that the investment in shares was made out of its own fund. The assessee\nhad sufficient reserves and surplus of Rs.15,99,55,165/-. The dividend income of\nRs.96,370/- was received on account of old shares and no expenses had been\nincurred in the collection of dividend income. The Ld. AO considered the reply of the\nassessee but did not find the same to be tenable. On perusing the balance-sheet and\nthe profit and loss account, he noted that the assessee had earned income of\nRs.33,79,785/- which did not form part of the total income in the relevant\nassessment year and assessee had invested a sum of Rs.13,75,00,000/- in non SLR\n8\ninvestment during the course of year, which was not a part of total income for\ntaxable income purposes. The assessee had not apportioned his indirect expenses\nbetween taxable and non taxable income of his business. The Assessing Officer\nobserved that even if the assessee had not incurred any direct expenses in relation\nto the income which did not form a part of total income for taxable purposes, yet the\nassessee was liable to fall under the ambit of provisions of Section 14A of the Act as\nit had not apportioned its indirect expenses between taxable and non-taxable\nincome. He therefore recorded his satisfaction that the provisions of Section 14A of\nthe Act shall apply. The Ld. AO further pointed out that the provision of Section\n14A(3) of the Act make it clear that the provision of Section 14A(2) of the Act shall\napply even in cases where an assessee claims that no expenditure, has been\nincurred by him in relation to income which does not form part of the total income\nunder this Act and Rule 8D(2) provided the methodology to determine the amount\nof expenditure in relation to income not includable in total income. Therefore, he\ndetermined the disallowable expenditure as per the provisions of Rule 8D(2)(ii) at\nRs.58,09,459/-. Thereafter, relying upon the circular of the CBDT and the decision of\nthe Hon'ble ITAT Amritsar Bench in the case of M/s. Lally Motors Pvt Ltd in ITA.\nNo.218/Asr/2017, the Ld. AO made an addition of Rs.58,09,459/- on this account.\nGoing further into the computation of income and profit and loss account, the AO\nfound the assessee had claimed amount of Rs.2,23,54,660/- as exempt on account of\ninterest on GOI Bonds u/s 10(15). He, therefore, asked the assessee to submit\nnecessary evidences in support of claim. In response, the assessee revised its\ncomputation of income by reversing the exemption claimed and therefore the\nAssessing Officer disallowed this claim and added back a sum of Rs.2,23,54,660/-.\n\n9.\nAggrieved by these additions, the assessee went in appeal before the Ld.\nCIT(A). It was submitted that due to some confusion and wrong understanding, the\nLd. AO had stated in the body of the assessment order that the bank had claimed\nexempt income to the extent of Rs.33,79,785/-. However, it was submitted that they\nhad not claimed any exempt income u/s 10(35), u/s 10(34) or u/s 10(38) of the Act\n9\nin the income tax return. In support of this contention, it submitted the audited\nbalance-sheet and the profit and loss account and copy of income tax return filed\nthrough e-filing. It is also submitted the details of non SLR investment amounting to\nRs.31,01,75,690.00 & copy of general ledger of the investment. It was submitted that\nas per this ledger account, the interest received was Rs.58,09,459/- and the same\nhad been considered as taxable income under the head, \"other income” in schedule\n14\". It was further submitted that the assessee had not received any dividend or\nexempt income on non SLR investment during A.Y. 2016-17 as all the Investment in\nMutual Funds were interest Oriented and not Dividend Oriented and interest on\nthese investments, which were shown at pages 41 to 44 of the P.B., were not\ncovered in under provisions of section 14A of the Act. It was further submitted that\nthe assessee had total interest fee fund of Rs.25,20,31,732/- and therefore, the\ninvestment made in non-SLR Investment of Rs.13,75,00,000/-, was entirely out of its\nown resources and therefore there was no reason for making disallowance in\naccordance with provisions of Section 14A read with Rule 8D(2)(i) or Rule 8D(2)(ii)\nof the Rules. Furthermore, it was submitted that it was settled principle that where\nthe assessee bank had mixed funds and investments were made in mutual funds on\nwhich dividend exempted and assessee has much more interest free fund, then no\ndisallowance could be made as per Rule 8D(ii) of the Rules relying upon the decision\nof the Hon'ble Supreme Court in the case of PCIT vs Sintex Industries Ltd (2018) 93\ntaxmann.com 24 (SC) for this preposition. Reliance was also placed upon the\ndecisions of the Hon'ble Delhi High Court in the case of CIT vs Taikisha Engineering\nIndia Ltd (2015) 54 taxmann.com 109 (Delhi), the Hon'ble Bombay High Court in\nthe case of HDFC Bank Ltd vs DCIT 67 taxmann.com 42 the decision of ITAT Delhi\nBench in the case of ACIT vs NHPC Ltd (2015) 53 taxmann.com 301, M/s. Hero Fin\nCorp Ltd vs DCIT, Circle-12(1) (Delhi Trib) and M/s. Ceat Limited vs ACIT, Range-\n6(2) in support of this preposition. The Ld. CIT(A) considered the submissions of the\nassessee but did not find the same to be acceptable. He said that sub-clause (2) of\nSection 14A clearly stated that if the Assessing Officer was not satisfied with\n10\ncorrectness of the claim of the assessee, he could determine the expenditure with\nregard to earning of exempt income as per method prescribed by the notification\ndated 24.02.2018 by the CBDT and that the assessee had not be able to offer any\ncogent reason for non disallowance of the expenditure u/s 14A of the Act. Therefore,\nhe held that the decision of the Ld. AO was in accordance with law and he confirmed\nthe addition made by him. With regard to addition of Rs.2,23,54,660/-, the assessee\nsubmitted that in the audited profit and loss account and in the return of income, it\nhad not claimed exemption u/s 2(15) of the Act in respect of GOI Bonds of\nRs.2,23,54,660/-. The Ld. AO had incorrectly held that the said deduction had been\nclaimed in the return as well as the balance-sheet. However the assessee submitted\nthe return and the balance-sheet to the Ld. CIT(A) to demonstrate that it had not\nclaimed the deductions. The Ld. CIT(A) observed that there was merits in the\ncontention of the assessee as he could neither find any claims of expenditure of\nRs.2,23,54,660/- under the head exemption on account of interest income on\nGovernment of India Bond nor could he find it deducted from income declared from\nprofit and gain of the business and profession, which was computed at a loss of\nRs.1,24,81,747/-. Accordingly, he granted relief to the assessee in this regard.\n\n10.\nBoth the assessee and Revenue are aggrieved with this order of the Ld.\nCIT(A). The assessee submitted that the Ld. CIT(A) had erred in fact in upholding the\ndisallowance of Rs.58,09,459/- u/s 14A of the Act without appreciating that the\nassessee had not shown any exempt income in the return and without appreciating\nthat the investments made in non SLR investment had been made out of the\nassessee's own funds. It was further submitted that it had been judicially held, that\nin the absence of exempt income, the CBDT circular cannot override the express\nprovisions of Section 14A of the Act and therefore the disallowance upheld solely on\nthe basis of the said circular, was not valid as per law. It was submitted that\nauthorities below had failed to appreciate, that the assessee had not claimed any\nexempt income in the income tax return. It was also submitted that the assessee had\nnot made investments on which dividend income was earned. Thus, in the absence\n11\nof investment on which dividend was earned, the provisions of Section 14A of the\nAct were not applicable. It was submitted that the total investment as on 31.03.2016\nas per the balance-sheet were Rs.46,79,70,619/-. This included GOI Bonds of\nRs.33,175,690/-, on which interest was received, Uttar Bharat Nagariya Sahkari\nBank of Rs.2,55,000/-, on which interest was received and investment in non SLR on\nwhich also interest was received. In support of its contentions, it had submitted\ncopy of ledger account of interest on non SLR Investment. Since the assessee did not\nhave any dividend income and all the interest income had been offered to tax in\naudited profit and loss account under the head \"interest earned” and under the\nheading "other income", as business income there was no question of any\ndisallowance u/s 14A of the Act. The assessee relied upon a number of decisions\nmade by various Courts as under: -\n\n1\n(2019) 112 taxmann.com 322 PCIT-2 vs Caraf Builders\n& Contructions (P.) Ltd\n\n2\n(2019) 106 taxmann.com 181 (SC) PCIT vs GVK Project\nand Technical Services Ltd\n\n3\n(2018) 95 taxmann.com 250 (SC) CIT (Central) 1 vs\nChettinad Logistics (P.) Ltd\n\n11.\nIt was further submitted that the Ld. CIT(A) had erred in confirming the\naddition without appreciating that the CBDT Circular No. 5 of 2014 had been\nexamined by Hon'ble Delhi High Court and Hon'ble High Court held that in the\nabsence of exempted income, CBDT Circular cannot override the express provisions\nof Section 14A of the Act r.w.r. 8D of the Rules. Reliance was placed on the decision\nin the case of PCIT vs Amadeus India (P.) Ltd (2022) 145 taxmann.com 311 and\nPCIT vs IL & FS Energy Development Company Ltd (2017) 84 taxmann.com 186\n(Delhi). With regard to ground no. 3, it was submitted that the said deduction of\nRs.16,43,987/- being fall in value of securities computed as per RBI Rule and\nallowable as per CBDT instruction No. 17 dated 26.11.2008, had not been claimed\nbefore the AO but was claimed for the first time before the Ld. CIT(A). It was\nsubmitted that the failure to claim the said deduction was a mistake and was\nunintentional. Reliance was placed on Circular No. 14 (XL-35) of 1955, dated\n12\n11.04.1955 wherein tax authorities were enjoined to help the assessee's claiming\nand securing reliefs which were allowable. It was submitted that the Hon'ble\nAllahabad High Court in the case of Smt Rajrani Gulati vs CIT reported in 346 ITR\n543 (All) had held that restriction imposed by the Hon'ble Supreme Court in the\ncase of Goetze (India) Ltd (supra) did not apply to the appellate authorities. Reliance\nwas also placed on the judgment of the High Court of Bombay in the case of Sesa Goa\nLtd vs JCIT (2020) 117 taxmann.com 96 (Bom) and it was prayed that the deduction\nmay kindly be allowed to it. It was submitted that the provision for fall in value of\nsecurities was actually the amortization of premium paid on the investment, as they\nwere purchased at a price more than its face value. Therefore, the premium paid,\nhad to be amortized over the period held to maturity of the investment. The\nassessee quoted from the CBDT Instruction No. 17, dated 26.11.2008 para no. (vii)\nand placed reliance on the decision of Hon'ble Karnataka High Court in the case of\nCIT & anr vs ING VYSYA Bank Limited 186 DTR 193. Other cases, on which reliance\nwere placed were the decisions of the Bangalore Tribunal in the case of Canara Bank\nvs CIT (2016) 68 Taxmann.com 128 (Bang Trib) and Capital Local Area Bank Ltd vs\nACIT (2017) 82 taxmann.com 387 (Amritsar Trib). On the deletion of\nRs.2,23,54,660/- by the Ld. CIT(A), which had been raised by the Revenue in ITA.\nNo.141/LKW/2024, it was submitted that the assessee bank had never claimed\nexemption u/s 2(15) of the Act and the only adjustment made to the profit and loss\naccount, while preparing the return of income, was on account depreciation. The net\ntaxable income was Rs. 76,15,298/-. Since no such claim of expenditure had been\nmade, it could not be disallowed by the AO. Hence, the Ld. CIT(A) was justified in\ndeleting the same.\n\n12.\nOn the other hand, Shri Sanjeev Krishna Sharma, Ld. Departmental\nRepresentative on behalf of the Revenue submitted that the AO had passed a\nreasoned and speaking order and relying upon the CBDT Circular and the decision\nof the Hon'ble Amritsar Bench in the case of M/s. Lally Motors Pvt Ltd in ITA.\nNo.218/Asr/2017 to hold that the disallowance u/s 14A of the Act was required to\n13\nbe made. Since the assessee clearly had exempt income and had been making\ninvestments in bonds that would be exempt income, the provision of the Circular\napplied and the disallowance should be confirmed. With regard to the claim of\ndeduction on account of fall in value securities it was submitted that the same was\nonly a provision and therefore should not be allowed. Furthermore, it had not been\nclaimed by the assessee, by way of a revised return. On the issue of disallowance of\nRs.2,23,54,660/-, it was submitted that the Assessing Officer had recorded that\nassessee had claimed the same amount as exempt interest on GOI Bonds u/s 10(15)\nand the assessee had revised its computation of income by reversing of exemption\nclaimed. Hence, since the claim of the assessee was not in accordance with law, it\nhad been disallowed. The Ld. Sr. DR prayed that the Ld. CIT(A) should not have\ndeleted the said addition.\n\n13.\nWe have heard duly considered the facts of the case. With regard to the\ndisallowance u/s 14A of the Act, we observe that the assessee has submitted that it\ndid not have any exempt income or had not made any investment that had the\npotential to yield exempt income. All the income that was being generated out of the\ninvestments made by the assessee were on interest account and were being offered\nto tax as income either under \"interest income\" or under \"other income\". The\nAssessing Officer had made the addition on a mistaken assumption of exempt\nincome being earned by the assessee. We observe that this point had been brought\nto the knowledge of the Ld. CIT(A) and the Ld. CIT(A) has not considered this matter\nat all. He has simply confirmed the disallowance on account of the powers vested in\nthe AO as per Section 14A(2) of the Act. However, the Ld. CIT(A) had never\nexamined as to whether the satisfaction of the AO for invoking Section 14A and\naccordingly Rule 8D, was based upon the correct appreciation of the facts or not.\nAccordingly, the order of the Ld. CIT(A) is clearly bad in law and the fact of whether\nexempt income was earned or not in the form of dividend, is required to be verified\nby the Assessing Officer in the light of the assessee's submissions that only interest\nincome had been earned and offered for taxation. Accordingly, we restore this\n14\nmatter back to the file of the Assessing Officer with a direction to re-examine the\nmatter in the light of the submissions made by the assessee and accordingly ground\nnos. 1 & 2 are allowed for statistical purposes. Ground no. 3 of ITA.\nNo. 113/LKW/2024, relates to deduction of Rs.16,43,987/- with regard to fall in value\nof securities. It is an allowable expenditure as per RBI Rules and as per CBDT\nInstruction No.17 dated 26.11.2008. A similar issue had already been decided by us\nin ITA. No.142/LKW/2024 vide our order dated 30.04.2025, wherein in paragraph\nno. 6 of the said order we have allowed this deduction. However, we observe that\nthis deduction had claimed for the first time before the Ld. CIT(A) and the Ld. CIT(A)\nin the said order does not appear to have discussed or decided the issue at all. In the\ncircumstances, we deem it appropriate to restore this matter back to the file of the\nAssessing Officer, with a direction to the Ld. AO to consider the claim in the light of\nthe CBDT Instruction No. 17 dated 26.11.2008 and the case laws cited by the\nassessee before us and thereafter pass a fresh assessment order in accordance with\nlaw. Ground No. 3 is accordingly allowed for statistical purposes. Ground No. 4\nrelates to the applicability of the judgment of the Hon'ble Supreme Court in the case\nof Goetze (India) Limited (supra). As this is a matter already decided by various\ncourts, a decision is not required in the same at our end. Similarly, ground no. 5 is\ngeneral in nature and therefore does not require a decision.\nIn the result, the appeal of the assessee is allowed for statistical purposes.\n\n14.\nWith regard to the Departmental Appeal, the Ld. Sr. DR has not pointed out\nhow the deduction of Rs.2,23,54,660/- was claimed by the assessee. The Ld. CIT(A)\nhas reproduced a copy of the return filed by the assessee in his order and pointed\nout his inability to see that any exemption had been claimed on this account. The Ld.\nDR has conceded that no exemption has been claimed on this amount u/s 2(15) of\nthe Act. The Ld. Sr. DR has also not been able to point out how the amount has been\nclaimed as a deduction. Accordingly, we confirm the order of the Ld. CIT(A) in this\nregard and dismiss the appeal of the Department.\nIn the result, the appeal of the Revenue is dismissed.\n\n15\n\nITA. No.114/LKW/2024 relates to the A.Y. 2017-18. The grounds of appeal\nare as under: -\n\n“1. The Ld. C.I.T. (A), NFAC, erred on facts and in law in upholding the disallowance of\nRs.61,78,920/ u/s 14A of 1. T. Act r. w. Rule 8D of 1. T. Rules without appreciating that assessee\nhas not shown any exempted income in the return. Therefore, no addition should be made in\nthis regard.\n2. The Ld. C.I.T. (A), NFAC failed to appreciate that CBDT Circular No. 5 of 2014 dated\n11.02.2014 has been examined by Hon'ble Delhi High Court in the case law reported in 452 ITR\n206 and 399 ITR 483 and held that in the absence of exempt income, CBDT Circular cannot\noverride express provisions of Section 14A of 1. T. Act r. w. r. 8D of 1. T. Rules. Thus, the\ndisallowance upheld Rs.61,78,920/-solely on the basis of CBDT Circular is not valid as per Law.\n3. The Ld. C.I.T. (A), NFAC erred on facts and in law in upholding the addition of Rs 12,61,009/-\nbeing depreciation on investments (valuation on mark to mark basis) computed as per R.B.I\ndirection which are binding on bank and allowable expenditure as per CBDT Instruction No. 17\ndt.26.11.2008 and as per settled case law in this regard.\n5. The Ld. C.I.T. (A), NFAC erred on fact and in law in upholding \"NACH Expenses\" (National\nAutomatic Clearing House) Rs, 81,581 without appreciating that expenses incurred solely and\nexclusively as Clearing House Expenses of Bank as per Banking Business for which relevant\ndetails furnished and explained and same is an allowable expenses.\n8. The Ld. C.I.T. (A), NFAC erred on fact in law in upholding the disallowance w. r. t.\ndepreciation Rs 2,16,565/-inspite of the fact the same was rightly claimed as per I.T. Rules and\ndetailed in Tax Audit Report. Further, Relevant Vouchers for addition during the year were also\nsubmitted.\n9. That Additions upheld by Ld. C.I.T. (A), NFAC are highly excessive, contrary to the facts, law\nand principle of natural justice and without providing sufficient time and opportunity to have\nits say on the reasons relied upon by him.\"\n\nThe facts of this case are that the Assessing Officer made additions of\nRs.61,78,920/- u/s 14A of the Act read with Rule 8D of the Rules; an addition of\nRs.12,61,009/- being depreciation on investment (valuation on mark to mark basis)\nand Rs.81,581/- on, “NACH Expenses”. He also made a disallowance of Rs.2,16,565/-\nin respect of depreciation. While making the addition on account of Section 14A, the\nAssessing Officer pointed out that the assessee had shown investments of\nRs.76,78,53,288/- as on 31.03.2019 and held that the income from the same did not\nform part of the total income for taxation purposes. It had accrued finance cost of\nRs.6,36,30,202/- and had not apportioned its indirect expenses incurred to earn\ntaxable and non taxable income. Therefore, the relying upon the CBDT Circular\nNo.05/2014 dated 11.02.2014 and the decision of the Hon'ble Supreme Court in the\ncase of Maxopp Investment Ltd vs CIT, New Delhi 402 ITR 640, the Ld. AO held that\n16\nas per Rule 8D, the amount of expenditure to be disallowed came to Rs.61,78,920/-\nwhich was less than the total finance cost. Hence, he disallowed the same. While\nmaking the disallowance of “NACH Expenses”, the Ld. AO pointed out that the\nassessee had been asked to justify the expense vis-à-vis ledger account and\nvouchers and while the assessee had submitted the ledger account, it had not given\nthe details as to how expenses was related to the business operations of the\nassessee. The Assessing Officer also made a disallowance on account of\ndepreciation because the assessee did not submit evidences of addition to fixed\nassets.\n\n17.\nThe matter travelled in appeal to the Ld. CIT(A) in which the assessee\nsubmitted that it had not claimed any exempt income in the return income and that\nit had not received any dividend on SLR Investment, because all the investments in\nmutual fund were interest oriented and not dividend oriented. Hence, the\ninterest/profit on sale of mutual funds were included in its profit and loss account\nunder the head, \"interest earned” or “other income” and therefore they were not\ncovered u/s 14A of the Act. Furthermore, it had made investment in bond of\nGovernment of India & Uttar Bharat Navkari Sahkari Bank, on which it interest and\nthe same interest was offered to tax. The assessee placed reliance on the decision of\nthe Hon'ble Supreme Court in the following case laws: -\n\n1\n(2019) 112 taxmann.com 322 PCIT-2 vs Caraf Builders\n& Contructions (P.) Ltd\n\n2\n(2019) 106 taxmann.com 181 (SC) PCIT vs GVK Project\nand Technical Services Ltd\n\n3\n(2018) 95 taxmann.com 250 (SC) CIT (Central) 1 vs\nChettinad Logistics (P.) Ltd\n\n18.\nIt was further submitted that the total investment made in Non SLR\nInvestments of Rs.11,50,00,000/- as on 31.03.2017 were out of “Interest free funds”\nand that the Hon'ble Supreme Court of India had held that in the case of PCIT vs\nSintex Industries Ltd (supra) that where assessee had surplus funds against which\ninvestment were made, question of making of any disallowance of expenditure in\n17\nrespect of interest and administrative expenses u/s 14A of the Act did not arise. The\nLd. CIT(A) once again without considering the issue on merits, simply held that the\nAssessing Officer had given an opportunity to the assessee to make necessary\ncompliance but the assessee was unable to give any cogent reason for non\ndisallowance of expenditure u/s 14A of the Act, barring the submission mentioned\nearlier in his order. He, therefore, confirmed the order of the Ld. AO, in view of the\nCircular No.5/2014 dated 11.02.2014. With regard to the deduction of\nRs.12,61,009/- being fall in value of securities, the Ld. CIT(A) did not consider the\nclaim of the appellant on the ground that the assessee was unable to substantiate its\nclaim by furnishing supporting evidence in the assessment stage before the AO.\nTherefore, he confirmed the said addition. With regard to “NACH Expenses", the Ld.\nCIT(A) upheld the disallowance, holding that the assessee was unable to justify its\nclaim as how the same expenditure was incidental to business and with regard to\nclaim of depreciation of Rs.2,16,596/-, the Ld. CIT(A) observed that since the\nassessee had failed to substantiate its claim with regard to addition to assets with\nnecessary documentary evidence, the same could not be allowed. Accordingly, he\ndismissed the appeal of the assessee on this ground and after allowing certain other\nadditions, which are not the subject matter of this appeal, he held that the appeal to\nbe partly allowed.\n\n19.\nThe assessee is aggrieved with these additions and has accordingly come\nbefore us. Shri K. R. Rastogi, C.A and Shri Shubham Rastogi, C.A., represented on\nbehalf of the assessee. The submission that was made before us were on the same\nlines as the submission made in ITA. No.113/LKW/2024. Similarly, the Ld. Counsels\nmade submission with regard to ground no. 3, relating to the deduction of\nRs.12,61,009/- with relation to value of securities on the same lines as made by\nthem in ITA. No.113/LKW/2024. With regard to addition of Rs.81,581/- on account\nof \"NACH Expenses”, it was submitted that the lower authority had failed to\nappreciate that (NACH) was fund clearing platform set up by the National Payment\nCorporation of India similar to the existing to ECS of RBI and the expenses in this\n18\nregard had been incurred wholly and solely for banking business. Accordingly, the\nbank had paid to NIIT Technology Ltd through RTGS for availing “NACH Expenses”.\nSince the same is allowable expenditure, no disallowance was called for in this\nregard. A copy of the invoice was submitted and it was also stated that TDS has been\ndeducted on the same. The said payment has been made as per RBI guidelines and\nall the details had been submitted before the Ld. CIT(A) but the Ld. CIT(A) failed to\nappreciate the same. On account of addition for depreciation, the Ld. AR submitted\nthat bank was subjected to audit by the statutory auditors and the addition to fixed\nassets giving the total of addition and amount has been duly shown in the tax audit\nreport in Form 3CD and Item no. 18. This was available before the Ld. AO during the\nassessment proceedings and copies of the vouchers were submitted in the paper\nbook. Accordingly, it was prayed this addition may kindly be deleted.\n\n20.\nOn the other hand, Shri Sanjeev Krishna Sharma, Ld. CIT-DR supported the\norders passed by the Assessing Officer and confirmed by the Ld. CIT(A). It was\nsubmitted that the assessee had substantial investments reflected in the balance-\nsheet on which income had not been offered and therefore the disallowance u/s 14A\nof the Act was justified. It was further submitted that the assessee had not furnished\njustification or details with regard to incurred expenses or addition to fixed assets.\nWith regard to the claim for depreciation on investment, it was submitted that the\nsame was only provision and therefore, should not be allowed.\n\n21.\nWe have heard duly considered the facts and circumstances of the case. As\nin ITA. No.113/LKW/2024, we observe that the Ld. CIT(A) was presented with all\nthe facts by assessee, that the assessee did not earn any exempt income and that all\nthe investments that were made by assessee were of nature that yielded taxable\nincome. The Ld. CIT(A) has decided the matter by pointing out that the AO had\nexpressed his satisfaction of the need to invoke Rule 14A but has not considered\nwhether this satisfaction of the AO was based upon the correct appreciation of the\nfacts. Accordingly, we restore the matter of addition of Rs.61,78,920/- u/s 14A of\n19\nthe Act, back to the file of the Ld. AO, so that the fact of whether the investments\nmade by the assessee yielded taxable income or exempt income may be re-examined\nwith reference to the submissions made by the assessee and the case laws cited by it\nbefore us. Accordingly, the ground no. 1 & 2 are allowed for statistical purposes.\nSimilarly, it has already been pointed out in ITA. No.142/LKW/2024 that\namortization of expenses for the period remaining to maturity in respect of\ninvestments that were held to maturity are allowable as deduction as per RBI\nguidelines dated 16.10.2011 and CBDT Instruction No. 17 dated 26.11.2008 para\n(vii). We are observe that the Ld. AR has cited several case laws in support of its\nclaim of deduction. However, the deduction has been claimed for the first time\nbefore the Ld. CIT(A), who has not examined the matter on the ground that the\nsupporting evidence has not been furnished. It has been already observed by us in\nITA. No.142/LKW/2024 that the said expenditure, is in principle allowable to the\nassessee in terms of CBDT instruction and the case laws cited by the assessee.\nHowever, since the AO has not had occasion to examine the quantum of deduction\nclaimed, we restore the matter back to the file of Ld. AO with a direction to the\nassessee to present necessary details before the AO, so that he may consider the\nsame and pass a fresh order in accordance with law. Accordingly, ground no. 3 is\nalso allowed for statistical purposes. With regard to ground no. 5, it is observed that\nthe Ld. CIT(A) and the Ld. AO have failed to appreciate that the expenses paid to the\nclearing house by a bank for clearing are deductable expenses related to the\nbusiness of banking. Accordingly, on consideration of the arguments furnished by\nthe assessee, the disallowance of Rs.81,581/- is quashed. Ground no. 5 is\naccordingly allowed. We also observe that the depreciation of Rs.2,16,565/- have\nbeen denied to the assessee because it has not presented the necessary details\nbefore the Assessing Officer, even though, the additions stood reflected in its audit\nreport. Those vouchers have now been presented before us in the paper book. As\nthe Ld. AO has not had occasion to see them, we restore the matter back to the file of\nthe Ld. AO for consideration and to thereafter allow the depreciation as per law.\n20\n\nGround no. 8 is also accordingly allowed for statistical purposes. Ground nos. 4, 6 &\n7 do not exist, apparently due to mistake in numbering by the assessee, and\ntherefore, are not decided. Ground no. 9 is in general in nature and does not require\nany decision. In the result, the appeal of the assessee in ITA. No.114/LKW/2024 is\npartly allowed.\n\n22.\nIn the result, appeal of the assessee i.e. in ITA No.112/LKW/2024 is partly\nallowed; the appeal of the assessee in ITA. No. 113/LKW/2024 is allowed for\nstatistical purposes; the appeal of the Revenue i.e in ITA No.141/LKW/2024 is\ndismissed and the appeal of the assessee i.e. in ITA. No.114/LKW/2024 is partly\nallowed.\n\nOrder pronounced in the open Court on 22/05/2025\n\n \n[KUL BHARAT]\nVICE PRESIDENT\nDATED: 22/05/2025\nSh\n