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Facts
The Revenue appealed against the CIT(A)'s order deleting disallowances made by the AO. The appeal concerned two main issues: disallowance under Section 14A for expenses related to exempt income and disallowance under Section 43B for unpaid interest to a cooperative bank.
Held
For the Section 14A issue, the Tribunal upheld the CIT(A)'s deletion, directing the AO to follow precedents that disallowance under Rule 8D(2) applies only to investments yielding exempt income. Regarding the Section 43B issue, new evidence concerning the cooperative bank's scheduled status was introduced. The Tribunal remitted this matter back to the AO for fresh consideration, requiring an opportunity for the assessee to present its case.
Key Issues
1. Whether Section 14A read with Rule 8D(2) applies when no exempt income has been received. 2. Whether Section 43B disallowance applies to interest payable to a co-operative bank for AY 2015-16, considering its status as a scheduled bank.
Sections Cited
Section 14A, Rule 8D(2), Section 43B, Section 11(5)(iii), Section 139(1), Finance Act, 2017, Reserve Bank of India Act, 1934 (Section 42(6)(b))
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Income Tax Appellate Tribunal, ‘K(SMC
ORDER
PER OMKARESHWAR CHIDARA, AM:
This appeal is filed by the Revenue against the order of the Commissioner of Income Tax(Appeals) [“Ld.CIT(A)”] 53, Mumbai in DIN & Order No.ITBA/APL/S/250/2024-25/1069031172(1) dated 24.09.2024. 2 Awas Developers & Constructions Private Limited
In the above cited Revenue appeal, two grounds were raised, i.e., the first one being deleting the disallowance made by the AO u/s 14A r.w.r.8D(2) of Income Tax Rules and the second one being, deleting the disallowance made by the AO u/s 43B of the Income Tax Act, 1961 (“the Act”). Aggrieved by the deletions made on the above two grounds, the department came in appeal before the ITAT.
As far as first ground is concerned, the department is of the view that section 14A r.w.r.8D(2) should be applied even in a case when exempt income is not accrued or arisen or exempt income has not been received during the previous year. In the year under consideration, there is no dispute that the appellant company has not received any exempt income like dividend or tax free capital gains etc. In this regard, the Special Bench of ITAT has already adjudicated the matter in the case of Vireet Investments Pvt.Ltd. [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB), where it was held that for computing disallowance under Rule 8D(2), only those investments which have yielded exempt income should be considered. The AO is directed to follow the ratio laid down in this Special Bench decision.
The second ground relates to disallowance of expenditure claimed by the assessee u/s 43B of the Act. The assessee has claimed certain interest payable to the bank as expenditure. The AO found that the 3 Awas Developers & Constructions Private Limited interest claimed was not paid to the bank during the financial year and hence, disallowed the same u/s 43B of the Act. The Ld.CIT(A) deleted the addition stating that the provisions of section 43B are not applicable to the assessee. Aggrieved by this deletion of disallowance, the Revenue filed appeal before the ITAT.
During the appeal proceedings before ITAT, the Ld.AR of the appellant has stated that its case is already covered by the decision of coordinate Bench of ITAT in for the A.Y.2016- 17 dated 20.07.2022. In this decision of coordinate bench, the decision was rendered in favour of the assessee company and the operative portion is reproduced below :
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Per contra, the Ld.DR relied on the decision of CIT-2 Vs. Upendra of 2011 dated 30.10.2012 rendered by Hon’ble Bombay High Court, where, it was held that section 43B is applicable only in respect of any amount paid as interest to a scheduled bank and the scheduled bank was defined in Explanation 4 to section 43B of the Act. Therefore, one has to look at the Explanation 2 to section 11(5)(iii) to determine whether cooperative bank is included within the meaning of scheduled bank. In this regard, the Ld.DR filed very detailed written submissions, which is reproduced below:
5 Awas Developers & Constructions Private Limited 6 Awas Developers & Constructions Private Limited 7 Awas Developers & Constructions Private Limited 8 Awas Developers & Constructions Private Limited 9 Awas Developers & Constructions Private Limited 10 Awas Developers & Constructions Private Limited 11 Awas Developers & Constructions Private Limited 12 Awas Developers & Constructions Private Limited 13 Awas Developers & Constructions Private Limited 6.1. From the above written submissions/arguments of Ld.DR, it is observed that the Punjab and Maharashtra Co-operative Bank to which the assessee claimed interest payment was excluded from the second Schedule vide Gazette Notification on its merger with another bank. In view of the decision of jurisdictional High Court and also inclusion of the bank in second schedule of RBI Act, the Ld.DR has argued that the provisions of section 43B are applicable in this case and the Ld.AO has rightly disallowed this claim of expenditure relating to interest. In view of the same, the Ld.DR has submitted that the disallowance made by the Ld.AO should be upheld.
Heard both sides. From the detailed written submissions of the Ld.DR along with a copy of Gazette of India, it is observed that these evidences were filed before ITAT for the first time and hence the Bench decided the issue should be remitted to the file of the Ld.AO to look into this matter. The AO is directed to go through the decision rendered by the Hon’ble Bombay High Court, written submissions filed by the Ld.DR along with copy of Gazette of India filed by the Ld.DR and take appropriate decision after giving an opportunity to the appellant company.
In the result, appeal of the Revenue is allowed for statistical purpose.
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