PUNJAB & SIND BANK,NEW DELHI vs. DCIT, NEW DELHI

PER O.P. KANT, A.M.: These two appeals by the assessee are directed against two separate orders, both dated 22/12/2014, passed by the Ld. Commissioner of Income-tax (Appeals) [in short ‘the Ld. CIT(A)’] for assessment years 2011-12 and 2012-13. In both these appeals identical grounds have been raised in similar set of circumstances, therefore, both these appeals were heard together and disposed of by way of this consolidated order for convenience and brevity.

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ITA No.1248/Del/2015 for AY: 2011-12 2. First, we take up the appeal, bearing, ITA No. 1248/Del/2015 for assessment year 2011-12. The grounds raised in the appeal are reproduced as under: 1. That on the facts and circumstances of the case and provisions of the law, the learned CIT(Appeal) has erred in restricting the disallowance u/s 14A r.w.r. 8D of Rs.58,55,000/-, (i.e. 1/4 % of average investments against exempted income in respect of exempted income of Rs.4,75,92,195/-. 2. That on the facts & circumstances of the case and provisions of the law, the learned CIT(Appeal) has also erred in not granting the TDS credit of Rs.2,18,05,252/-. The ld. CIT(Appeals) has also erred in not fully appreciating and adjudicating this issue in light of our submissions made before her resulting into passing of non-speaking order which is against principle of natural justice. 3. That in light of the ground no.1 above, the learned CIT(Appeal) has erred in restricting the addition of Rs.58,55,000/- to book profit under MAT (section 115JB) in respect of exempted income. 4. That on the facts & circumstances of the case and provisions of the law, the learned 1 Assessing Officer has erred in charging interest u/s 234C of Rs. 1,10,23,074/-. The Id CIT(Appeal) has also erred in not fully appreciating and adjudicating this issue in light of our submissions made before her resulting into passing of non-speaking order which is against principle of natural justice. 5. That on the facts and circumstances of the case, the learned AO has erred in considering the “Assessed Book Profit” in “Income Tax Computation Form” of Rs.1128,29,54,248/- instead of Rs. 1018,69,66,304/-, as computed in the assessment order. The Id CIT(Appeal) has also erred in not adjudicating specifically this ground no.7 of Form No.35 taken before her. 6. That consequential to our aforesaid grounds of appeal, the learned AO has erred in charging interest u/s 234B amounting to Rs.32,40,33,468/-. 7. That the appellants request be allowed to add, modify and delete any other ground (s) of appeal.

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incurred for earning the above exempt income and accordingly, no disallowance under section 14A of the Act was made by the assessee. It was contended by the assessee that the securities (i.e. shares/units ) were held as a stock in trade and the dominant and immediate object behind acquisition of securities was to earn profit on sale of securities at the earliest point of time, which is chargeable to tax under the Act and the dividend and tax-free income has been received incidentally. The assessee also contested that average investment made in earning the exempt income was of Rs.11,709.71 Lacs, and which was much below the average non-interest-bearing funds of Rs.5,90,013.72 lakhs available with the assessee and hence, no cost of fund was involved in earning the exempt income. The Assessing Officer was not satisfied with the submission of the assessee and invoking Rule 8D of the Rules, made disallowance as under: (i) Interest not directly attributable to any particular income/receipt, under Rule 8D(2)(ii) of the Rules amounting to Rs.630.79 lakhs (ii) Amount equal to one-half percent of average value of investment in assets which could yield tax-free income, under Rule 8D (2)(iii) of the Rules amounting to Rs. 58.55 lakhs. 4.2 The Ld. CIT(A) following the finding of the Commissioner of Income Tax (Appeals) for assessment year 2009-10, restricted the disallowance to Rs. 58.55 lakhs under Rule 8D(2)(iii), and deleted the disallowance of Rs.630.79 lakhs made under Rule 8D(2)(ii) of the Rules.

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4.3 Before us, the Ld. counsel submitted that the Assessing Officer in assessment years 1996-97 and 1997-98 has decided the securities held by the assessee bank as a stock-in-trade for the purpose of Income-tax. Accordingly, he submitted that it stands settled that securities are held by the assessee as a stock in trade and dominant and immediate object behind acquisition of securities was to earn profit on sale of securities at the earliest point of time, which is chargeable to tax under the Act and dividend and tax-free income was received incidentally. The Ld. Counsel submitted that during the year under consideration, the assessee earned profit on sale of securities of Rs. 75.16 crore, which is taxable as business income and earned dividend income of Rs.4.75 crore, which is incidental to trading of securities and therefore, provisions of section 14A of the Act are not applicable on dividend/tax-free income earned by the assessee. The Ld. counsel submitted that when section 14A is not applicable to the facts and circumstances of the case, Rule 8D cannot be applied to the assessee bank. The Ld. Counsel in support of his contention relied on the following judicial precedent: 1. Decision of the Hon’ble Karnataka High Court in the case of CCI Ltd. Vs. JCIT (2012) 206 Taxman 563 2. Decision dated 14/09/2012 of Tribunal, Mumbai Bench in the case of DCIT Vs. India Advantage Securities Ltd. in ITA No. 6711/Mum./2011 for assessment year 2008-09. 3. Decision dated 13.05.2016 of ITAT, Mumbai bench in the case of Fiduciary Shares & Stock (P.) Ltd. Vs. ACIT, [2016] 70 taxmann.com 23 (Mumbai –Trib.) 4. Decision dated 30.03.2016 of ITAT, Bangalore in the case of Canara Bank vs. Joint Commissioner of Income Tax (2016) 68 taxman.com 128 (Bang.-Trib.)

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at the rate of 0.5 % of the value of the assets capable of yielding exempted income, and before us the assessee is aggrieved with said addition only, thus the arguments of own funds utilized in investment are not relevant as addition under Rule 8D(2)(ii) are not in challenge before us in present appeal. The main argument which has been raised before us by the Ld. counsel is that shares/units etc. have been held by the assessee during the year under consideration as ‘stock-in-trade’ and main purpose of which was to trade those shares and earn profit thereon. The contention of the Ld. counsel is that while hearing the case of State Bank of Patiala alongwith Maxxop of investment limited, Hon’ble Supreme Court has held that when the shares are held as stock in trade with the object of earning taxable profit, no disallowance under section 14A of the Act is required. We do not agree with the above argument of the Ld. counsel. In our opinion the Hon’ble Supreme Court in para 38 and 39 of the decision in the case of Maxxop Investment Limited (supra) has held that wherever both the taxable and non-taxable income have been earned from the shares/unit etc, then for the purpose of disallowance under section 14A of the Act, the expenditure has to be apportioned between taxable and non-taxable income. The relevant finding of the Hon’ble Supreme Court from paras 38 to 40 is reproduced as under: “ 38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and

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Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as 'stock-in-trade' and not as 'investment? We proceed to discuss this aspect hereinafter. 39. In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade? certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act, which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In

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that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in- trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn pro fits | In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove.” 4.5.1 We not that the Hon’ble Supreme court in para 40 has also specified that law on the issue of disallowance of section 14A in respect of stock-in-trade has been clarified in para 38 and 39 of the decision. 4.5.2 In view of the above finding of the Hon’ble Supreme Court, now there is no doubt that purpose for which shares are held is not relevant and expenditure corresponding to the non-taxable income has to be disallowed proportionately. In view of the above, we feel it appropriate to restore this issue to the file of the Assessing Officer for determining proportionate disallowance of expenditure under section 14A of the Act following the decision of the Hon’ble Supreme Court in the case of Maxxop Investment Limited (supra). It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. Thus, the Ground No. 1 of the appeal is allowed for statistical purposes. 5. In ground No. 3 of the appeal, the assessee has challenged disallowance under section 14A of the Act to the book profit under section 115JB of the Act restricted to the amount of Rs. 58.55 lakhs by the Ld.CIT(A).

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5.1 Facts qua the issue in dispute are that the Assessing Officer while computing book profit under section 115JB of the Act, made addition of Rs.6,89,34,000/- for amount of expenditure relatable to exempt income as provided in clause (f) of Explanation to section 115JB of the Act. The Assessing Officer added this amount, which was computed by him for disallowance under section 14A of the Act. The Ld. CIT(A) restricted this amount to Rs. 58.55 lakhs. The assessee is aggrieved with above amount added to the book profit. 5.2 The Ld. counsel of the assessee submitted that this ground is consequential to ground No.1 and hence, no separate submission was required on this issue. On the contrary, the Ld. DR submitted that issue may be decided in accordance with law. 5.3 We have heard the rival submissions and perused the relevant material on record. The controversy raised in this ground is whether the disallowance, which has been computed for the purpose of section 14A of the Act can be imported to the provisions of section 115JB of the Act, without any clear mention in the said provisions. We find that this controversy has been resolved by the Tribunal Special Bench in the case of Vireet Investment Private Limited, reported in 165 ITD 0027 (Delhi), wherein it is held that that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962. 5.4 In view of the above decision of the Tribunal, we are of the opinion that addition under clause (f) of Explanation 1 to section 115JB of the Act need to be determined without resorting to

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computation provided in section 14A read with Rule 8D of the Rules. Accordingly, we restore the issue in dispute to the file of the Assessing Officer for deciding in accordance with law after providing adequate opportunity of being heard to the assessee. The Ground No. 3 of appeal is also accordingly allowed for statistical purposes. 6. In ground No. 2, the assessee has challenged issue of not granting TDS credit of Rs.2,18,05,252/- by the Assessing Officer. 6.1 Before us, the Ld. counsel submitted that tax deducted at source (TDS) of Rs.3,51,69, 919/- was claimed in the return of income on the basis of the form No.26AS and TDS certificates, however, the Assessing Officer, allowed credit of Rs.3,10,58,204/- , which resulted in short TDS credit of Rs.41,11,715/-. The Ld. counsel submitted that this ground was raised before the Ld. CIT(A), however, it was not adjudicated. 6.2 The Ld. counsel submitted that the TDS claim can be allowed on the basis of TDS certificates issued by the deductor or on the basis of evidence produced for deduction of tax at source alongwith indemnity bond by the deductee. According to him, if any deductor, fails to deposit the TDS deducted from the deductee, the Income Tax Department has all powers to recover the tax from the deductor, but for the default of the deductor, the deductee cannot be penalized and put to any undue hardship by not allowing TDS deducted at source. In support of the contention, the counsel relied on following judicial pronouncement: i) Yashpal Sahwney Vs. DCIT, 293 ITR 539 ii) Court on its Own Motion vs. CIT, 2012-TIOL-384-Del-IT (Del. HC), order dated 31.08.2017

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iii) Citicorp Finance (India) Limited Vs. Addl. CIT in ITA No.8532/Mum/2011, order dated 13.09.2013 (Mum.-Trib.) iv) 3i Infotech Limited Vs. DCIT, ITA No.7786/Mum/2012, dated 01.02.2013 (Trib.-Mum.)

6.3 The Ld. DR, on the other hand, submitted that credit of TDS must have been provided by the Assessing Officer on the basis of form No. 26AS and the assessee will get credit as and when deductor will deposit the tax deducted at source to the government account. 6.4 We have heard the rival submissions and perused the relevant material on record. The assessee claimed that credit of TDS of Rs.41,11,715/- has not been given by the Assessing Officer. The form No. 26AS maintained on the database of the Income Tax Department, provides details of tax paid by any taxpayer or tax deducted by the dedcutor in case of that taxpayer. At the time of deduction of tax at source, the deductor issues TDS certificate to the deductee also. Against the tax determined by the Income Tax Department, credit of tax paid is given on the basis of the form No.26AS. As far as the amount of tax deducted at source is concerned, it reflects in form No.26AS, when the deductor deposit the TDS amount in the government account and file its quarterly TDS returns. So, if TDS return has not been filed by the deductor, said amount will not reflect in the form No. 26AS of the deductee taxpayer. In our opinion, in such cases, not allowing the TDS credit by the Income Tax Department is not justified. If the assessee produce TDS certificate issued to it by the deductors, then the Assessing Officer can verify the fact of genuineness of those TDS certificates and then allow the credit to

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the assessee. We do not find any reason, as why the Assessing Officer will wait till said amount reflects in form No.26AS and then only allow the credit. For any inaction on the part of the deductor in late deposit of TDS or late filing of TDS return, the dedcutee should not be allowed to suffer. In the instant case, the assessee has not presented before us details of each TDS amount, credit of which has not been allowed by the Assessing Officer. In view of circumstances, we restore this issue to the file of the Assessing Officer and direct him/her to verify and allow the claim of the TDS in view of our direction above. We also direct the assessee to produce original copies of TDS certificates for verification along with one photocopy of said certificates before the Assessing Officer within 3 months of receipt of this order. The Assessing Officer may verify genuineness of the TDS certificates and allow the credit of the TDS amount accordingly. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard on this issue. The Ground No. 2 of the appeal is accordingly allowed for statistical purposes. 7. In ground No. 4, the assessee has challenged interest under section 234C of the Act, amounting to Rs.1,10,23,074/-. 7.1 Before us the Ld. counsel submitted as under:

“The ld. AO, while working out the tax liability, has erred in calculating interest u/s 234C. The ld. CIT(A) has not specifically decided this ground no. 5 taken and treated the same as consequential and decided accordingly at para no. 9 of her order. “As per Income Tax Computation Form, the interest charged under 234C is of Rs.1,10,23,074/-. Whereas it works out to Rs.5,27,223/- as detailed below, after considering the revised return filed by the Bank and TDS credit allowed by the ld. AO of Rs.5,67,16,195/- as against the claim of TDS of Rs.7,85,21,447/- in the revised return.

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S. Particulars Rs. Rs. No Returned Income 5279260912 1. Tax liability as per revised return of income 1753638494 2. 3. Less: TDS claimed allowed by Id AO 56716195 4. Advance Tax Liability [2-3] 1696922299 5. Advance Tax installment due Amount due Amt paid Shortfall 5.1 June 15 @ 12% of S.No.4 203630676 379300000 0 5.2 Sept 15 @ 36% of S.No.4 610892028 1137900000 0 5.3 Dec 15 @ 75% of S.No.4 1272691724 1459200000 0 5.4 Mar 15 @ 100% of S.No.4 1696922299 1644200000 52722299 Interest u/s 234C @1% for one month 527223 6. Further after considering claim of TDS of Rs.7,85,21,447/- made in the revised return as against claim of TDS allowed by Id. AO of Rs.5,67,16,195/-, the interest u/s 234C works out to Rs.3,09,170/-. It is therefore prayed that necessary relief may be granted against aforesaid wrong charging of interest u/s 234C.” 7.2 The DR submitted that issue may be restored to the file of the Assessing Officer for verification and computation of interest under 234C of the Act in accordance with law. 7.3 We have heard the rival submission and perused the relevant material on record. The issue in dispute involved is dependent on amount of TDS credit. The issue TDS credit has already been restored by us to the file of the Assessing Officer while adjudicating ground No. 2 of the appeal. Accordingly, we restore this issue also to the file of the Assessing Officer for computing interest under section 234C of the Act after allowing TDS credit, in accordance with law. It is needless to mention that the assessee shall be afforded an opportunity of being heard on the issue in dispute. The Ground No. 4 of the appeal is accordingly allowed for statistical purposes. 8. In ground No. 5, the assessee has raised an error in tax computation form.

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8.1 The Ld. counsel submitted that in assessment order under section 143(3) of the Act, the book profit has been assessed at Rs.1018,69,66,304/-, however, in tax computation form the same amount has been taken at Rs.1128,29,54,248/- instead of Rs.1018,69,66,304/-. The Ld. counsel drawn our attention to the relevant extract of the assessment order and Income-tax computation form. According to him, the Ld. CIT(A) has not adjudicated this issue. 8.3 The Ld. DR, on the other hand, submitted that this is arithmetical error and the assessee could have sought relief on this account by way of a rectification application under section 154 of the Act. 8.4 We have heard the rival submission on the issue in dispute. We have also perused the assessment order and the tax computation form. We are agreed with the Ld. counsel that Assessing Officer has committed mistake in transporting amount of profit under section 115 JB of the Act from assessment order to tax computation form. We, accordingly, direct the Assessing Officer to rectify the mistake and re-compute the tax liability of the assessee accordingly. This ground of the appeal is accordingly allowed for statistical purposes. 9. The ground No. 6 relate to interest under section 234B of the Act amounting to Rs.32,40,33,468/-. 9.1 The Ld. counsel submitted that this ground is consequential to the earlier grounds, accordingly we are not required to adjudicate upon and dismiss the ground as infructuous. 10. In the result, the appeal is allowed for statistical purposes.

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ITA No.1249/Del/2015 for AY: 2012-13 11. The grounds raised in IT No. 1249/Del/2015 for assessment year 2012-13 are reproduced as under:

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234D amounting to Rs.9,09,07,800/-, Rs.4,76,778/- and Rs. 1,33,14,185/- respectively. 8. That the appellants request be allowed to add, modify and delete any other ground (s) of appeal. 12. The ground No. 1 and 2 of the appeal are identical to ground No. 1 and 3 of the appeal for assessment year 2010-11, which have been restored to the file of the Assessing Officer for deciding in view of the directions given therein. The facts and circumstances for the year under consideration, being identical with assessment year 2010-11, the ground No. 1 and 2 of the present appeal are also restored to the file of the Ld. Assessing Officer in view of the directions given in respective grounds in assessment year 2010-11. Thus, both the grounds are allowed for statistical purposes. 13. The ground No. 3 is in respect of granting less credit of TDS. This issue is identical to the ground No. 2 raised in assessment year 2011-12. Accordingly, the issue is restored to the file of the Ld. Assessing Officer to decide, following the directions given on the issue in dispute in assessment year 2011-12. The ground is, accordingly, allowed for statistical purposes. 14. The Grounds No. 4 to 7 of the appeal are related to computation of interest under section 234B, 234C and 234D respectively. We find that in assessment year 2011-12, the issue of computation of interest under section 234C has been restored to the file of the Assessing Officer for deciding after allowing TDS credit as directed. The amount of interest will reduce after allowing TDS credit. In the instant year, the assessee has also raised the issue of period of interest charged, which is a matter of verification by the Assessing Officer. Accordingly, we restore this

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issue to the file of the Assessing Officer with the direction to decide in accordance with law after providing adequate opportunity of being heard to the assessee. Accordingly, the Ground Nos. 4 to 7 of the appeal are allowed for statistical purposes. 15. The ground No. 8, being general in nature, dismissed as infructuous. 16. In a result, the appeal is allowed for statistical purposes. 17. To sum up, both the appeals of the assessee are allowed for statistical purposes.

The decision is pronounced in the open court on 12th June, 2018.

Sd/- Sd/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 12th June, 2018. RK/-(D.T.D.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi