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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Per Shri A.T.Varkey, JM
This appeal preferred by the revenue and the Cross Objection preferred by the assessee are against the order of Ld. CIT(A)-23, Kolkata dated 31.05.20116 for AY 2012- 13. The assessee also filed intimation under Rule 27 of the ITAT Rules to support the order of the Ld. CIT(A) on the grounds which were decided against it.
The Cross objection filed by the assessee is delayed by 555 days and the reasons for delay in filing the above Cross Objection which has explained to be due to the advice rendered by the Ld. AR of the assessee that disallowance confirmed by the Ld. CIT(A) could be opposed at the time of hearing of appeal by filing intimation under Rule 27 of the ITAT Rules and, therefore, filing of Cross Objection was not required. However, out of abundant precaution, the assessee bank filed the Cross Objection on the same grounds on which the intimation under Rule 27 of the ITAT Rules was given. Considering the reasons
CO No. 51 of 2018 Uco Bank, AY 2012-13 put-forth fact that contentions raised in the Cross Objection are only legal in nature, we deem it fit to condone the delay and admit the assessee’s Cross Objection.
Ground no. 1 of the department’s appeal is against the action of the Ld. CIT(A) in deleting the disallowance of Rs.66,80,772/- made u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) without giving the AO proper opportunity of being heard in terms of Rule 46A of the Income Tax Rules, 1962 (hereinafter referred to as the “Rules”).
Briefly stated facts of the case are that in the tax audit report issued on 08.03.2012, the auditor had reported that a sum of Rs.73,32,304/- u/s. 40(a)(ia) of the Act on account of non-deduction of TDS. In the return of income filed u/s. 139 of the Act, the assessee had, however, disallowed expenditure of only Rs.6,50,532/- u/s. 40(a)(ia) of the Act. When confronted by the AO to explain the reason for not disallowing the differential figure of Rs.66,80,772/-, the assessee submitted that the bank had deposited the TDS on the balance sum of Rs.66,80,772/- before the due date of filing the return of income i.e. on 30.09.2012 and, therefore, in view of the proviso to sec. 40(a)(ia) of the Act, therefore, aforesaid sum was not disallowable in the computation of total income. The AO, however, noted that the assessee had not furnished the supporting evidence to substantiate its claim that the TDS on the amount of Rs.66,80,772/- had been deposited before the return filing date and, therefore, he was pleased to disallow the same. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to restore the issue back to the AO with a direction to conduct verification of the relevant supporting evidence furnished by the assessee in the course of appeal in support of its claim on deductibility of Rs.60,80,772/-. The relevant observation of the Ld. CIT(A) are as follows:
"4 . I have carefully considered the submission made by Ld. ARs for the assessee and the facts involved in the present case. The Ld. ARs have relied upon the judgment of Hon’ble Calcutta High Court in the case of Virgin Creations (supra) and Issue before Hon'ble High Court that amendment u/s 40(a)(ia) whether the amendment made in Section 40(a)(ia)vide Finance Act 2010 will have retrospective operation or not. The Hon'ble court has ruled that the amendment made in the provisions will have retrospective operation. It was brought to notice by the Ld A.Rs for the appellant-company that the matter has also been decided in favour of the assessee(s) in various other cases, as under:
CO No. 51 of 2018 Uco Bank, AY 2012-13 Authority Reference Date of order Case ITAT-"B" Bench 21.06.2013 ACIT Vs Manish Tiwari ITAT-"A" Bench ITA No. 1532/Kol/2010 20.04.2012 Designer Exports Vs DCIT ITAT-"B" Bench ITA No.1153/Kol/2011 15.05.2012 Mofizul Ali VS ACIT 5. As far as the issue of deposit of TDS once made after due date of payment and before filing of the income-tax return as envisaged u/s 139(1) of the Act is concerned, the same has been decided by the Hon'ble Calcutta High Court in the case of Virgin Creations (supra) and followed the jurisdictional ITAT Benches. However, it is noted that the appellant has only provided the branch- wise break-up of the taxes which were deducted and deposited before the return filing due date. The supporting evidences in form of challan/Forms have not been provided in this matter. In this view of the matter and to meet the ends of justice, I am of the considered opinion that the Ld. AO may verify the issue at hand, and seek the relevant supporting evidences in respect of the assessee's claim of Rs.66,80,772/-, and if the AO finds that the impugned taxes thereon is deposited before the due date of filing of income tax return or that the payees have furnished form 15G/15H to the assessee, then such amounts shall be deleted from the additional and remaining amounts, if any, for which relevant supporting are not furnished may be decided afresh as per law. Needless to say, the Ld. AO shall allow sufficient opportunity of being heard to assessee in this regard. This ground of assessee's appeal is accordingly allowed for statistical purposes as indicated above.”
Aggrieved by the order of the Ld. CIT(A) the revenue is now in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Ld. CIT(A) has not deleted the disallowance made by the AO, therefore, the grounds of appeal raised by the revenue itself is erroneous for the simple reason that the Ld. CIT(A) has only directed to AO to verify and find whether the taxes have been deposited before the due date of filing of income tax return or that the payees have furnished Form 15G/15H to the assessee. In case, if the assessee has been able to satisfy the AO that the tax has been deposited before the due date of filing of income tax return or that the payee has filed From 15G/15H to the assessee then only such amount shall be deleted from the addition/disallowance made by the AO. The Ld. DR fairly conceded that the Ld. CIT(A) had only directed the AO to examine the relevant supporting evidence and only thereafter, decide the allowability of the claim of Rs.66,80,772/-. So, we note that it is not the case whether the disallowance was deleted by the Ld. CIT(A) without giving opportunity to the AO in violation of Rule 46A of the Rules. However, for the interest of justice for both parties, we set aside the order of the Ld. CIT(A) and restore the issue back to the file of AO to decide the allowability of the claim of the assessee after examining the CO No. 51 of 2018 Uco Bank, AY 2012-13 relevant supporting evidence and if AO finds that the impugned taxes thereon is deposited before the due date of filing of income tax return or that the payees have furnished form 15G/15H to the assessee, then such amounts shall be deleted from the additional and remaining amounts, if any, for which relevant supporting are not furnished may be decided afresh as per law afresh after giving opportunity to the assessee. Therefore, this ground of appeal of revenue is allowed for statistical purposes.
6. Ground no.2 of revenue’s appeal and the Cross Objection raised by the assessee related to the disallowance of Rs.39,14,48,612/- made u/s. 14A read with Rule 8D of the Rules.
7. Briefly stated facts of the case are that the assessee is a Public Sector Bank. During the relevant year, the assessee derived exempt income of Rs.57,10,00,241/- from the shares and securities. In the return of income, no disallowance u/s. 14A of the Act was offered by the assessee. The AO sought clarification from the assessee for not offering any disallowance u/s. 14A of the Act. In compliance thereto it was submitted that the assessee bank is dealing in shares and the income earned thereon was assessed as “Business Income” under the provisions of the Act. Accordingly, the dividend income derived by it which is exempt from tax was incidental to the principal banking business of the assessee. The AO, however, disregarded the contention put-forth and computed the disallowance u/s. 14A in terms of Rule 8D(2)(ii) and (iii) of the Rules at Rs.36,24,11,122/- and Rs.2,90,37,490/- respectively. Aggrieved by the AO’s order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the disallowance made on account of proportionate interest of Rs.36,24,18,122/- under Rule 8D(2)(ii) but confirmed the disallowance of Rs.2,90,37,490/- made by the under Rule 8D(2)(iii). Aggrieved by the said order, the revenue is in appeal before us and the assessee has filed the Cross Objection before us.
We have heard the rival submissions and perused the material placed on record. The Ld. DR submitted that merely because the assessee was a dealer in shares, it could not take a stand that expenditure incurred in connection with earning of tax free income was not disallowable u/s 14A of the Act. He submitted that the Hon’ble Supreme Court in its recent 4
CO No. 51 of 2018 Uco Bank, AY 2012-13 judgment in the case of Maxopp Investment LtdVs CIT (402 ITR 640) had considered the issue of disallowability of the expenditure incurred in the assessment of an assessee who derived exempt dividend income from shares held as stock-in-trade. Referring to the said judgment, the Ld. DR submitted that the Hon’ble Supreme Court in principle upheld the Revenue’s contention that since even the dealer in shares enjoys exemption granted u/s 10(33) of the Act in respect of dividend derived from shares held as ‘stock-in-trade’, part of the expenses incurred in relation to earning such dividend income were liable for disallowance u/s 14A of the Act. He further submitted that despite giving opportunity of furnishing the details of expenses incurred in relation to earning tax free income, the assessee had not come forward with his own working of expenses disallowable u/s 14A and therefore the AO was left with no other alternative but to make the disallowance in conformity with Rule 8D. He further submitted that even before the Ld. CIT(A) or before this Tribunal, the assessee did not furnish its own working of expenses incurred in relation to such exempted dividend income and therefore the disallowance u/s 14A read with Rule 8D as made in the assessment order should be restored by the Tribunal.
Per contra, the Ld. AR for the assessee submitted that the Ld. CIT(A) did not grant the relief to the assessee on the footing that the assessee was a dealer in shares and for that reason Rule 8D was not applicable. Drawing attention to the Ld. CIT(A)’s order, he submitted that the Ld. CIT(A) had taken note of the fact that during the year under consideration the assessee Bank had earned interest as well as paid interest and “net interest gain” for the year was Rs.3902.10 crores. The Ld. CIT(A) also took note of the fact that the assessee’s own capital and other non-interest bearing funds available with the assessee were far in excess of the investments made in shares & securities which had yielded tax free income. The Ld. AR therefore submitted that that the Ld. CIT(A) rightly deleted the interest disallowance of Rs.36,24,11,122/- since there was no net interest expenditure. In support of such finding of the Ld. CIT(A), the Ld. AR relied on the following judicial decisions:
- Pr. CIT VsNirma Credit & Capital Pvt Ltd (300 CTR 286) (Guj HC) - DCIT VsMachino Finance Pvt Ltd (ITA No. 312/Kol/2014) (ITAT Kol) - DCIT Vs Trade Apartment Ltd (ITA No. 1277/Kol/2011) (ITAT Kol) - BiswanathPasariVs Asst. CIT (ITA No. 1682/Kol/2011) (ITAT Kol) 5
CO No. 51 of 2018 Uco Bank, AY 2012-13 10. In so far as disallowance made by the AO under the third limb of Rule 8D(2) which was upheld by the Ld. CIT(A) and objected by the assessee through CO, the Ld. AR submitted that the assessee had made investment in shares in the course of carrying on its principal business of banking. He submitted that in order to conform with RBI regulations concerning maintaining CRR & SLR, the assessee is required to hold certain securities and also in the course of carrying on banking business the shares of bodies corporate are required to be held. Drawing attention to the judgment of the Hon’ble Supreme Court in the assessee’s own case reported in 240 ITR 355, the Ld. AR submitted that although in the assessee’s Balance Sheet, the shares & securities were declared under the head “Investments” yet the true character of such holding was considered by the Supreme Court to be on “trading” account. Accordingly the Ld. AR submitted that any gain or loss which the assessee earned from purchase and sale of shares & securities was always assessed by the tax authorities under the head “Profits & Gains of Business”. In the course of carrying on such banking business, the assessee earned profits from the activity of purchase & sale of shares and securities and dividend on such shares was only incidental. The Ld. AR submitted that since none of the expenses were incurred by the assessee in relation to earning any tax free income but the expenses were always incurred in relation to carrying on its banking business, no part of expenses were disallowable u/s 14A of the Act. The Ld. AR brought to our attention that the Hon’ble Supreme Court in its decision dated 12.02.2018 had decided a large number of appeals which inter alia included Maxopp Investment Ltd (supra) as well as Revenue’s appeal in the case of State Bank of Patiala, decided by the Hon’ble Punjab & Haryana High Court and reported in 391 ITR 218. He submitted that the Revenue’s appeal in the case of State Bank of Patiala was dismissed by the Hon’ble Supreme Court, and consequent to dismissal of the Revenue’s appeal, the reasoning incorporated in the judgment of the Hon’ble Punjab & Haryana High Court stood upheld. The Ld. AR therefore submitted that in the case of assessee Bank, the judgment of the Hon’ble Punjab & Haryana High Court since upheld by the Hon’ble Supreme Court was required to be applied and accordingly he prayed for deletion of the disallowance of Rs.2,90,37,490/- made under Rule 8D(2)(iii).
CO No. 51 of 2018 Uco Bank, AY 2012-13 11. Having considered the submissions of the parties, we find that the issue involved in the Revenue’s appeal is squarely covered in assessee’s favour by the judgment of the Hon’ble Bombay High Court in the case of CIT VsHDFC Bank Ltd (383 ITR 529). In that case also the issue before the Hon’ble Bombay High Court was whether any part of the interest paid by the Bank could be disallowed u/s 14A read with Rule 8D(2)(ii). On appeal this Tribunal and thereafter the Hon’ble Bombay High Court held that since the Bank’s own funds were substantially more than the cost of investments yielding tax free income, no part of the interest paid was liable for disallowance. The view of the Hon’ble Bombay High Court was followed with approval by the jurisdictional Calcutta High Court in the case of CIT VsRasoi Ltd (ITA No. 109 of 2016).
We also find merit in the assessee’s alternate contention that no disallowance out of interest paid was warranted because after netting off interest paid against interest received, the assessee had made net interest gain of Rs.3902.10 crores. The Hon’ble Gujarat High Court in its recent judgment in the case of Pr. CIT VsNirma Credit & Capital Pvt Ltd (supra) has held that the expression used in Rule 8D(2)(ii) is “interest expenditure” and not “interest paid” and accordingly the expenditure in this context must mean interest paid minus taxable interest earned. Applying the ratio laid down in this judgment to the facts of the present case, we find no infirmity in the order of the Ld. CIT(Appeals) deleting the interest disallowance made under Rule 8D(2)(ii).
In so far as disallowance of Rs.2,90,37,490/- under Rule 8D(2)(iii) is concerned, we find that before the lower authorities the assessee had raised the plea that no disallowance u/s 14A was warranted since the assessee was a dealer in shares although in its Balance Sheet, shares were disclosed under the head “Investments”. We find that the Hon’ble Supreme Court in its recent judgment dated 12.02.2018 in the case of Maxopp Investment Ltd Vs CIT (supra) did not uphold this line of argument and held that even in the case of a dealer in shares, earning dividend income from its stock-in-trade, may expose his to the rigors of Section 14A of the Act. We however find merit in the Ld. AR’s submissions that in the said judgment, the Hon’ble Supreme Court also extensively dealt with the Revenue’s appeal in the case of State Bank of Patiala arising from the decision of the Hon’ble Punjab 7
CO No. 51 of 2018 Uco Bank, AY 2012-13 & Haryana High Court reported in 391 ITR 218. In the said judgment the Hon’ble Punjab & Haryana High Court had taken note of the fact that the banking companies in the course of carrying on their banking business were required to hold shares & securities and the expenses were incurred in connection with such banking business and the income therefrom was assessable under the head “Profits & Gains of Business”. The Hon’ble High Court had taken note of the Board’s Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head “Profits & Gains of Business” and not under the head “Other Sources”. The High Court had also taken note of the judgment of the Hon’ble Supreme Court in the case of CIT VsNawanshahar Central Co-operative Bank Ltd (289 ITR 6).Applying the ratio in the said decision the Hon’blePunjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon’ble Punjab & Haryana High Court therefore held that in assessing the income of the assessees engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its banking business and not in relation to earning any tax free income. The Revenue’s appeal against the judgment of Hon’ble Punjab & Haryana High Court was dismissed by the Hon’ble Supreme Court. We therefore find that qua the assessees engaged in the banking business, the Hon’ble Supreme Court upheld the judgment of the Hon’ble Punjab & Haryana High Court in the case of Pr. CIT VsState Bank of Patiala (supra) as per which no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO to delete the disallowance of Rs.2,90,37,490/- made under Rule 8D(2)(iii). Ground No. 2 of the Revenue’s appeal is therefore dismissed and the grounds of assessee’s CO are allowed.
Ground No. 3 of the appeal of the Revenue is against the action of the Ld. CIT(A) in directing the AO to re-compute and allow the benefit of unabsorbed losses and depreciation brought forward from earlier years. At the onset the Ld. DR appearing on behalf of the CO No. 51 of 2018 Uco Bank, AY 2012-13 Revenue fairly stated that the directions given by the Ld. CIT(A) were only consequential in nature and in accordance with the provisions of law. We also do not find any infirmity in the order of the Ld. CIT(A) in this regard. Accordingly Ground No. 3 is dismissed.
Ground Nos. 4 & 5 of the appeal are against the action of the Ld. CIT(A) holding 15. that the provisions of Section 115JB are not applicable to the assessee Bank. After hearing the rival submissions, we find that the Ld. CIT(A) has followed the decision of this Tribunal which decided this identical question in favour of assessee in its own case for AY 2002-03 in dated 27.1.2015, wherein the Tribunal held as follows :
7.5. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee's contention in fact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956, section 211(2) and proviso thereon is not applicable and therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable.
Following the decision rendered by the coordinate Bench in theassessee’s own case, we do not see any reason to interfere with the order of the Ld. CIT(A). Accordingly Ground Nos. 4 & 5are dismissed.
Next issue raised by the Revenue in Ground No. 6 of the appeal is that Ld. CIT(A) erred in law and on facts in deleting the various additions/ disallowances made by the AO while assessing book profit u/s 115JB of the Act.
Since we have already held that the provision of Section 115JB do not apply to the assessee, therefore, the dispute raised through Ground No. 6 is only of academic interest and therefore does not require any adjudication.