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Facts
The Revenue challenged the CIT(A)'s order deleting the disallowance made by the Assessing Officer under Section 14A read with Rule 8D for Assessment Years 2010-11 and 2013-14. The AO had disallowed expenses related to exempt income, including those for investments treated as stock-in-trade, despite the assessee having sufficient interest-free funds.
Held
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision. It reaffirmed that Section 14A is not applicable to investments held as stock-in-trade and that no disallowance is warranted when sufficient interest-free funds are available to cover investments yielding exempt income. The Tribunal emphasized judicial discipline in following precedents.
Key Issues
1. Whether disallowance under Section 14A is applicable to investments held as stock-in-trade. 2. Whether the availability of sufficient interest-free funds negates disallowance under Section 14A.
Sections Cited
Section 14A, Rule 8D, Section 143(3), Section 254, Section 10(15)(iv)(c), Section 10(15)(f)
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI RAJ KUMAR CHAUHAN,
आदेश / O R D E R Per Amarjit Singh (AM): All these 2 appeals filed by the Revenue are directed against the different order of ld. CIT(A) NFAC of the Income Tax Act, 1961 for Assessment Year 2010-11 & 2013-14. Since the similar issue based on identical facts involved in these cases, therefore for the sake of convenience both these appeals are adjudicated together by this common order by taking ITA No. 3409/Mum/2023 as a lead case and its finding will be applied mutatis mutandis to the other appeal wherever it is applicable.
ITA No.3409/Mum/2023 “1. On the facts and circumstances of the case and in law, The Ld. CIT(A) erred in holding that the disallowance under section 14A in the impugned order dated 30.12.2019 as not tenable ignoring the finding in Para 6.5 of the order under section 143(3) dated 19.03.2013 and in Para 3.5 of the order under section 143(3) r.w.s 254 dated 30.12.2019 that the
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expenses disallowed by the Assessee as relatable to exempt income is not found satisfactory. 2. The appellant craves to amend, alter and delete any of the aforesaid grounds and add any additional grounds either before or at the time of hearing.” 2. The return of income declaring total income of Rs.2418,83,96,398/- was filed on 08.10.2010. The assessee filed revised return of income on 27.01.2012 disclosing income of Rs.2091,18,37,570/-. The assessment u/s 143(3) of the Act was completed on 21.03.2012 determining the total income at Rs.4383,53,80,990/-. The solitary issue in the appeal of the revenue is pertained to the disallowance made u/s 14A. In the assessment order passed u/s 143(3) of the Act the assessing officer disallowed a sum of Rs.100,47,63,751/- after invoking the provisions of Sec. 14A of the Act as against the tax free income earned of Rs.56.71 crores. The assessee preferred appeal before the ld. CIT(A) was confirmed the disallowance. The ITAT vide order no ITA 5082 & 5020/Mum dated 20.04.2018 has set aside the issue on disallowance u/s 14A in the appeal of the assessee to the file of the assessing officer. The ITAT has directed the assessing officer to decide the disallowance made u/s 14A r.w.Rule 8D afresh after taking into consideration the judicial pronouncements of the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Vs. DCIT, CIT Vs. Reliance Utilities & Power Ltd., CIT Vs. HDFC Bank Ltd. in ITA No. 330 of 2019 and the Tribunal’s decision in the case of DCIT vs India Advantage Securities Ltd. in ITA No. 671/Mum/2011 including Hon’ble Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT, New Delhi (402 ITR 640) in accordance with the decisions after providing an opportunity to the assessee. However, the assessing officer while giving effect to the order of the ITAT again conformed the disallowance made u/s 14A r.w.Rule 8D.
In the appeal before the ld. CIT(A), the ld. CIT(A) has allowed the appeal of the assessee after following the decision of Mumbai ITAT in
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the case of the assessee itself vide ITA no.5619/Mum/2019 for assessment year 2009 dated 08.03.2021. The relevant extract of the decision of CIT(A) is produced as under:
“5. I have considered the findings of the AO, submissions of the appellant and the facts of the case as placed before me. It is pertinent to note that the honourable Mumbai ITAT in the appellants own case vide ITA No. 5619/Mum/2019 for AY 2009-10 dated 08/03/2021 had dismissed the grounds of Revenue on the same ground. The operative part of the order is reproduced as under:
“2. The ground No 1 raised by the Revenue is challenging the action of the Id. CIT(A) in deleting the Interest disallowance made u/s 144 of the Act row. Rule 8D(2)(d) of the Rules on the ground that the assessee bank is having sufficient interest free funds to make investments. 3 We have heard rival submissions and perused the materials available on record. We find that assessee had earned exempt income of Rs.58,43,00,883 by way of interest on tax free bands, dividends on shares and interest which is exempt u/s 10(15)(iv)(c) & (f) of the Act. The assessée also holds certain securities as stock in trade. The assessee pleaded that its own funds available by way of share capital was Rs.365.52 Crores, reserves and surplus of Rs.12514.19 Crores and demand deposits of Rs.14451.22 Crores on which no interest was paid The assessee pleaded that these interest free funds were sufficient enough to explain the investments made by the assessee which had yielded exempt income. Accordingly, the assessée placed reliance on the decisions of the Hon'ble Jurisdictional High Court in the case of HDFC Bank Limited 366 1TR 505 and 383 ITR 629 to drive home the point that interest free funds available with the assessee were sufficient enough to cover the investments that had yielded exempt income.
3.1. We find that the Id. AO disregarded the aforesaid contentions of the assessee and proceeded to disallow Rs.85,90,80,262/- u/s 144A of the Act row Rule 8D(2) of the Rules. We find that assessee had voluntarily disallowed the sum of Rs.7,94,39,436/ under Rule 8D(2) (ii) of the Rules considering the investments which had yielded exempt income. We find that the Id CIT(A) on appreciating the fact that assessee has flooded with sufficient own and interest free funds in its kitty which would sufficiently explain the investments made by it which had actually yielded exempt income and hence, it could be safely inferred that no borrowed funds could have been utilised for the same. Accordingly, by placing reliance on the decision of Jurisdictional High Court in assessee's own case and various Tribunal decisions of Hon'ble Jurisdictional High Court which has been followed by the Id. CIT(A) while granting relief to the assessee, we find no infirmity in the said order of the Id. CIT(A). Accordingly, the ground No. 1 raised by the Revenue is dismissed.
The ground No.2 raised by the Revenue is challenging the action of the id CIT(A) wherein he had directed the Id. AO to exclude the investments that were held as 'stock in trade' while computing disallowance u/s 14A of the Act r.w Rule 8D(2) of the Rules We find that the Id. CIT(A) had directed the id AO to ignore the investment in shares and securities that were held as 'stock in trade' for the purpose of computing disallowance
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u/s 14A of the Act r w Rule 8D(2) of the Rules, by placing reliance on the decision of this Tribunal in case of DCIT vs. India Advantage Securities Ltd., in ITA No. 6711/Mum/2011 dated 14/09/2012, the decision of Hon'ble Kerala High Court in the case of CIT vs. Smt. Leena Ramachandran reported in 339 1TR 296 and also on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs India Advantage Securities Ltd, in ITA No.1131 of 2013 dated 17/03/2015 We find that this issue was the subject matter of adjudication by this Tribunal in the case of Central Bank of India vs. DCIT in ITA No.3739/Mum/2018 & 3763/Mum/2018 for AY 2012-13 dated 29/01/2020, which is authored by the undersigned, wherein it was held that the Hon'ble Apex Court in the case of Maxopp Investment Ltd., reported in 402 ITR 640 had categorically upheld the findings recorded by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala reported in 78 Taxmann.com 3 (P & H) with regard to non-applicability of provisions of Section 14A of the Act in respect of investments held as stock in trade in respect of banks. It was also held by this Tribunal that the Hon'ble Punjab and Haryana High Court in above mentioned case had further placed reliance on the CBDT Circular No 18/2015 dated 02/11/2015. Hence, by respectfully following the said decision, we hold that there was absolutely no error in the action of the Id. CIT(A) in holding that provisions of Section 14A of the Act could not be made applicable in respect of investments in shares held as stock in trade in the case of assessee bank Accordingly, the ground No.2 raised by the Revenue is dismissed.
At this juncture, I could not resist from observing that the judgment delivered by the Tribunal was very much binding on the Assessing Officer. The Assessing Officer was bound to follow the judgments in its true letter and spirit. It was necessary for the judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgment of the Tribunal. The Assessing Officer being inferior officer vis- a-vis the Tribunal, was bound by the judgment of the Tribunal and the Assessing Officer should not have tried to distinguish the same 14A issue on untenable grounds. The observation of the AO in the assessment order at para 3 4 that the submissions of the assessee have been considered but not found tenable because of the facts already discussed in the original assessment order indicates that the AO has approached the issue in a already pre-determined mind set and not willing to follow the jurisdictional ITAT direction.
In this behalf, it will not be out of place to mention that in the hierarchical system of Courts which exists in our country. It is necessary for each lower tier' including the High Court, to accept loyally the decisions of the higher tiers. 'It is inevitable in hierarchical system of Courts that there are decisions of the supreme Appellate Tribunals which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted The better wisdom of the Court below must yield to the higher wisdom of the Court above as held by the Supreme Court in the matter of CCE v. Dunlop India Ltd AIR 1985 SC 330. 17. In the aforesaid backdrop, for the reasons stated hereinabove, and humbly following the jurisdictional ITAT decision in the appellants own
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case, the disallowance u/s 14A in the impugned "giving effect order of the Assessing Officer dated 30.12 2019 is not held as not tenable and hence the appellants ground is hereby allowed.” 4. Heard both the sides and perused the material on record. We find that issue raised before the Tribunal in this year are similar to preceding year and it would not be appropriate for us to deviate from the view taken in earlier years without pointing out any material change in the fact and circumstances in the subsequent years. Therefore, there is nothing before us on hand to differ from the issue raised in the case cited supra as elaborated in the finding of ld. CIT(A) so as to take a different view on this issue. Therefore, since the issue on hand being squarely covered from the following principal of consistency we find merit in the submission of the assessee and allow the ground of appeal of the assessee. 5. In the appeal of the revenue is dismissed.
ITA No. 3412/Mum/2023 6. Since we have adjudicated the similar issue on identical facts vide ITA No.3409/Mum/2023 while adjudicating the appeal of the assessee for A.Y. 2010-11 as supra in this order therefore applying the same finding as mutatis mutandis this ground of appeal of the revenue is also dismissed.
In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 10.07.2024
Sd/- Sd/- (Raj Kumar Chauhan) (Amarjit Singh) Judicial Member Accountant Member
Place: Mumbai Date 10.07.2024 Rohit: PS
P a g e | 6 ITA Nos. 3409 & 3412/Mum/2023 ACIT, Circle 2(1)(1) Vs. M/s Bank of Baroda आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. आयकर आयु� / CIT 3. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT, 4. Mumbai गाड� फाईल / Guard file. 5. स�ािपत �ित //True Copy// आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण/ ITAT, Bench, Mumbai.