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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ravish Sood(JM)
The revenue has filed this appeal challenging the order dated 26-07- 2016 passed by Ld CIT(A)-2, Mumbai and it relates to the assessment year 2012-13. The grounds urged by the revenue relate to the following two issues:- (a) Disallowance made u/s 14A of the Act. (b) Disallowance made u/s 36(1)(viii) of the Act.
The assessee company is engaged in the business of banking. The first issue relates to the disallowance made u/s 14A of the Act. During the year under consideration, the assessee earned tax free dividend income of Rs.470.84 lakhs. The AO computed disallowance u/s 14A in accordance with Rule 8D and accordingly disallowed a sum of Rs.187.17 lakhs out of interest expenses and Rs.16.22 lakhs out of expenses. Thus the aggregate disallowance worked out by the AO was Rs.203.39 lakhs. The assessee had 2 M/s. The Saraswat Cooperative Bank Ltd.
voluntarily disallowed a sum of Rs.78.06 lakhs. Hence the AO added the difference amount of R.125.32 lakhs to the total income of the assessee.
In the appellate proceedings, the Ld CIT(A) directed the AO to exclude strategic investments for the purpose of computing disallowance u/s 14A of the Act.
At the time of hearing, the Ld A.R fairly admitted that the strategic investments should not be excluded for the purpose of computing disallowance u/s 14A of the Act, in view of the decision rendered by Hon’ble Supreme Court in the case of Maxopp Investments recently. The Ld A.R submitted that the own funds/interest free funds available with the assessee is more than the value of investments and hence the decision rendered by Hon’ble Bombay High Court in the case of Reliance utilities and powers Ltd (313 ITR 340) HDFC Bank Ltd (383 ITR 529) would be applicable to the facts of the assessee. He submitted that the co-ordinate bench has restored an identical issue in the assessee’s own case in AY 2008-09 (ITA No.1140/Mum/2012 & others dated 11-08-2016) to the file of the AO.
We heard Ld D.R on this issue and perused the record. Since the assessee is claiming that the own funds/interest free funds available with the assessee is more than the value of investments and since this fact requires examination, we restore this issue to the file of the AO for applying the ratio of the decision rendered by Hon’ble Bombay High Court in the case of HDFC Bank Ltd (supra). Accordingly the order passed by Ld CIT(A) on this issue is set aside.
The next issue relates to the disallowance of claim made u/s 36(1)(viii) of the Act. The assessee created a reserve of Rs.15.00 crores and claimed deduction u/s 36(1)(viii) of the Act. The AO disallowed the same on the reasoning that the assessee has not debited the Profit and Loss account with the above said amount. However, it was demonstrated before the Ld CIT(A) that the above said amount was debited in Profit and Loss Appropriation Account. Hence the Ld CIT(A) deleted the disallowance made by the AO.
3 M/s. The Saraswat Cooperative Bank Ltd.
We heard the parties on this issue. The assessee furnished a part of Annual report containing Schedule 1 to Schedule 6. The Schedule 6 is titled as “Profit and Loss Account” and there is appropriation of Rs.15.00 crores out of the same. Schedule 2 contains details of “Reserve Fund & other reserves”. Item (xiii) is titled as “Special Reserve u/s 36(1)(viii) of I.Tax Act, 1961”. The balance outstanding in this account has increased by Rs.15.00 crores during the year under consideration.
Thus we notice that the assessee did not debit the Profit and Loss account with the amount of Rs.15.00 crores, but appropriated the same out of Profit and Loss account through the Schedule 6. Otherwise, the profit of the assessee for the year under consideration was Rs.235.56 crores. Thus we notice that the assessee has, otherwise, transferred the amount of Rs.15.00 crores to the Special Reserve Account. The Ld CIT(A) has also noticed that the eligible amount of 20% of profit works out to Rs.15.49 crores, where as the assessee has claimed only Rs.15.00 crores. Under these set of facts, we do not find any infirmity in the decision taken by Ld CIT(A) on this issue.
In the result, the appeal of the revenue is treated as partly allowed.
Order has been pronounced in the Court on 24.9.2018.