RANIGANJ CO-OPERATIVE BANK LTD.,ASANSOL vs. ACIT, CIR-2, ASANSOL, ASANSOL

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ITA 637/KOL/2015Status: DisposedITAT Kolkata13 October 2017AY 2010-20114 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Section 14A read with Rule 8D is applicable. However, disallowance of interest expenditure requires verification of mandatory investments. The disallowance under Rule 8D(2)(iii) was upheld, but the disallowance under Rule 8D(2)(ii) was set aside for fresh adjudication.

What were the facts?

The assessee bank earned exempt income but made no disallowance under Section 14A. The AO disallowed expenses under Section 14A read with Rule 8D, which was upheld by the CIT(A). The assessee argued that mandatory investments under the Banking Regulations Act negated the nexus between expenditure and income.

What were the issues?

Applicability of Section 14A for mandatory investments and the method of disallowance under Rule 8D.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH: KOLKATA

Before: Shri J. Sudhakar Reddy & Shri S.S. Viswanethra Ravi

This is an appeal filed by the Assessee directed against the order of the ld. CIT(A), Asansol for the assessment year 2010-11 on the following grounds:-

1.

For that the order of the Ld. CIT (A) is arbitrary, excessive and hence bad in law, because the provisions of sec. 14A of the Act'61, is not applicable to the facts of the instant case.

2. For that on the facts of the case the Ld.CIT{A), Asansol, was not legally justified in sustaining the addition of Rs. 6,21,550/- u/s.14A of the Act'61, and the said addition is without any legal sanction and may please be deleted.

3.

For that on the facts of the case neither the Ld.CIT{A), nor the Ld. A.O. has made out a case, regarding applicability of provisions of sec. 14A of the Act'61, in absence of any exempted income, and addition made merely on presumptions and assumptions may please be deleted.

4.

For that the Ld. CIT(A) failed to give cognizance to the written submissions/arguments, filed by the appellant, In course of hearing, and has passed a very cryptic order, without any application of mind, and without any discussions, to the submissions of the appellant, and the appeal order is legally erroneous on this count.

5. For that the appellant craves leave to add, alter, amend any further grounds of appeal before or at the time of hearing.” 1 ITA No. 637/Kol/2015

2.

Neither any one appeared for the assessee nor any application filed for seeking adjournment. Therefore, we proceed to hear the ld.DR and dispose of the appeal on merits and by perusing the material available on record.

3. After hearing the rival contentions and perusing the material available on record, we find that the assessee has earned exempt income of Rs.2,85,680/-. No disallowance u/s. 14A of the Act was made by the assessee in its computation filed along with the return of income. The AO was of the view that disallowance should be made u/s. 14A r.w.r 8D of the IT Rules. On a show cause notice, the assessee submitted that the investment in question was mandatorily to be made by the bank as per Banking Regulations Act and hence, there is no nexus between expenditure incurred and income generated on these investments and thus section 14A r.w.r 8D of the IT Rules is not attracted. The AO relied on the order of the Hon’ble Special Bench of ITAT, Delhi, in the case of Chem Invest Ltd Vs. ITO and rejected this contention. He also held that such administrative and other expenses should have been incurred by the assessee, which had facilitated in earning the dividend income.

4. Aggrieved, the assessee carried the matter before the ld.CIT(A). The first appellate authority rejected the appeal of the assessee.

5.

Further aggrieved, the assessee is in appeal before us.

6.

In our view section 14A r.w.r 8D is squarely applicable to the facts of this case. While holding so, we observed that no disallowance of interest expenditure can be made, if the investment in question was mandatorily required to be made as per Banking Regulations Act. This claim needs to be verified. The assessee also claims that it has interest free funds which should be presumed to have been utilized for making this investment. The AO disallowed an amount of 2 Rs. 5,67,301/- under Rule 8D(2)(ii) of the IT Rules, 1962. This proposition is covered in favour of the assessee by the judgment of the Jurisdictional High Court, which followed the judgment of the Hon’ble Bombay High Court in the case of HDFC Ltd. We set aside this issue to the file of the AO for fresh adjudication in accordance with law. The AO further disallowed an amount of Rs. 54,249/- under Rule 8D(2)(iii) of the IT Rules 1962.

7.

The total dividend income earned by the assessee is Rs. 2,85,680/-. The disallowance cannot exceed this amount. The AO has not made a disallowance under Rule 8D(2)(i) of the IT Rules 1962. We uphold the disallowance under Rule 8D(2)(iii) of the IT Rules.

8.

Keeping in view of the facts and circumstances of the case, while we uphold the disallowance to Rs. 54,249/- under Rule 8D(2)(iii), the disallowance under Rule 8D(2)(ii) is set aside to the file of the AO for denovo adjudication.

9.

In the result, the appeal of the assessee is allowed in part, Order pronounced in the open court on 13-10-2017

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