ASSISTANT COMMISSIONER OF INCOME -TAX , CIRCLE -1,, JAMMU vs. THE JAMMU & KASHMIR BANK LTD.,, SRINAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER

I.T.A. No. 790/Asr/2017 Assessment Year: 2013-14

Vs. M/s The Jammu & Asstt. CIT-Circle-1, Kashmir Bank Ltd, Jammu Corporate Headquarters, M.A. Road, Srinagar. [PAN: - AAACT6167G] (Appellant) (Respondent)

I.T.A. No. 296 & 297/Asr/2014 Assessment Year: 2005-06 & 2006-07

Vs. M/s The Jammu & Dy. CIT-Circle-1, Kashmir Bank Ltd, Jammu Corporate Headquarters, M.A. Road, Srinagar. [PAN: - AAACT6167G] (Appellant) (Respondent)

I.T.A. No. 637/Asr/2017 Assessment Year: 2012-13

Vs. M/s The Jammu & Asstt. CIT-Circle-1, Kashmir Bank Ltd, Jammu Corporate Head quarters, M.A. Road, Srinagar. [PAN: - AAACT6167G] (Appellant) (Respondent)

I.T.A. Nos. 319 to 320/Asr/2018

I.T.A. No. 790/Asr/2017 2 & Others appeals

Assessment Years: 2014-15 & 2015-16

Vs. M/s The Jammu & Asstt. CIT-Circle-1, Kashmir Bank Ltd, Jammu Corporate Head quarters, M.A. Road, Srinagar. [PAN:- AAACT6167G] (Appellant) (Respondent)

I.T.A. Nos. 329& 330/Asr/2018 Assessment Years: 2014-15& 2015-16

Vs. Dy. CIT-Circle-1, M/s The Jammu & Kashmir Jammu Bank Ltd, Corporate Headquarters, M.A. Road, Srinagar. (Respondent) [PAN: - AAACT6167G] (Appellant)

Appellant by Sh. Rohit Sharma, CIT. DR. Respondent by Sh. Joginder Singh, CA

Date of Hearing 11.07.2022 Date of Pronouncement 26.09.2022

ORDER Per: Bench:

The batch of appeals were filed both by the revenue and assessee against the

order of the ld. Commissioner of Income Tax(Appeals), Jammu, [in brevity the CIT(A)], the order passed u/s 250(6) of the IT Act 1961, [in brevity the Act] for

I.T.A. No. 790/Asr/2017 3 & Others appeals

different assessment years. The impugned order was emanated from the order of

the ld. Assistant Commissioner of Income, Circle-1, Jammu, order passed u/s

143(3) of the Act ( in brevity the Act). The ld. Counsel stated at the outset that, the

relevant factual backdrop as well as the issues involved in all the cases are

identical. Out of all appeals, in case of the revenue’s appeal the ITA No.

790/Asr/2017 is being taken as lead case and in case of assessee’s appeal ITA No.

329/Asr/2018 is being taken as lead case.

I.T.A. No. 790/Asr/2017 4 & Others appeals

The appellant craves to amend or add any one or more grounds of appeal.” 3. The grounds in ITA No. 329/Asr/2018 of the assessee is as follows:

“1) That the Ld. CIT(A) Jammu has confirmed the action of the Ld AO with regard to disallowance of deduction claimed by

I.T.A. No. 790/Asr/2017 5 & Others appeals

the appellant Bank u/s 36(i)(viia) of the Act, in respect of Bari Brahmna Branch by respectfully following the decision of Hon’ble High Court of J&K in assessee’s own case vide order dated 15.09.2017 in ITA NO; 7/2007. The decision of the Hon’ble High Court is not acceptable to the assessee Bank and the appellant has filed SLP before Hon’ble Apex Court of India vide No: 2153/2018. 2) That the appellant craves to leave to add, amend, modify, delete any of the ground of appeal before or at the time of hearing and all the above grounds are without prejudice to each other.”

assessment year 2013-14 assessee has declared gross receipt of

Rs.66,20,52,74,000/- and net profit as per Profit and Loss A/c was declared amount

to Rs.10,55,09,82,000/-. The assessing authority had added back in different heads

related u/s 40(a) (ia) for non-deduction TDS, interest paid to JDA (J & K

Development Authority). for non-deduction of TDS disallowance u/s 40(a)(ia)

amount to Rs.5,52,429/-, claim of depreciation on wooden partition deducting @

100%, and disallowance section 14A read with rule 8D of the Income Tax Rule,

1962 for expenses related to exempt income.

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disallowance of section 36(1) (viia) of the Act. Aggrieved assessee filed an appeal

before the ld. CIT(A). The ld. CIT(A) had allowed the appeal partly. But the ld.

CIT(A) upheld the disallowance u/s 36(1) (viia) in respect to addition by the ld.

AO.

7.1. The ld. CIT-DR argued and mentioned that the payment is gross violation of

section 40(a)(ia) of the Act.

7.2. The ld. Counsel only relied on the order of CIT(A) in page-100, point n0-5

which is extracted as below.

“Ground no. 5 is relating to disallowance of Rs.98441850/- made u/s 40(a)(ia) of

the Income Tax Act, 1961 in respect of interest paid to Jammu Development

Authority.

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The A.O. disallowed under sec. 40(a)(ia) of the Act a sum of Rs. 98441850/- for

non- deduction of tax on interest on deposits paid by 5 branches of the appellant

bank to Jammu Development Authority.

The appellant, in his submission made during the appellate proceedings, has stated

that no tax is required to be deducted on interest on FDRs of Jammu Development

Authority which has been incorporated by the Govt, of J&K under the J&K

Development Act (Act no. XIX of 1970). In term of notification no. 3489 of the

CBDT, dated 27.10.1970was issued in pursuance to the provisions of sec.

194A(3)(iii)(f) of the Income Tax Act, 1961, no tax was required to be deducted on

interest on deposit paid to a corporation, incorporated under State Act.

It has been argued before me that the issue is squarely covered by the orders of

Hon'ble ITAT, Amritsar bench passed against the orders of ITO, TDS, Jammu in

respect of Shalamar, Gandhi Nagar&Jammu branches of the appellant bank. The

relevant part of the order of ITAT, Amritsar Bench ITA No-206/Asr/2013 date of

order 28/05/2013 is reproduced as under:

"Thus, respectfully following the aforesaid order of the ITAT, Delhi Bench ‘I’ we dismiss the appeal filed by the Revenue by holding that the Jammu Development Authority is in exempted category where the provisions of section 194(1) are not applicable. We also hold the exception provided in section 194A(3)(iii)(f) of the Act and as per notification, the Jammu Development Authority is a creation of J&K Development Act and satisfies the condition at Entry No. 39 of the said notification and we hold that no tax was deductible on accrued interest on FDRs of Jammu

I.T.A. No. 790/Asr/2017 8 & Others appeals

Development Authority with J&K Bank Ltd. Keeping in view the above discussions, we hold that no interference is called for in the well-reasoned impugned order passed by the Ld. First appellate authority and accordingly we uphold the same. Hence, the appeal of the Revenue in ITA No. 206(ASR)/2011 is dismissed". Since the Hon'ble ITAT, Amritsar Bench, has already held that the Bank was not

required to deduct any tax at source on its interest payments to Jammu

Development Authority, the AO was not justified in applying the provisions of

section 40(a)(ia) on these payments. Similar type of disallowance has been deleted

by my predecessor in the assessment years 2008-09, 2009-10, 2010-11 & 2011-12.

Since, the facts in the appeal under consideration are similar to that of appeal

decided by the Hon'ble ITAT in earlier years, I delete the addition of

Rs.98441850/-.”

7.3. We heard the rival submission and thoughtfully considered the order of

different benches. The ld. CIT(A) had discussed the issue & delivered a speaking

order. The issue is well settled in law. We are not interfering in the issue. Ld. CIT-

DR did not bring any contrary fact against the order of the CIT(A). Accordingly,

the ground of the revenue is dismissed.

7.4. In the result Ground-1 of revenue is dismissed.

8.Ground No. 2 of the revenue

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40(a)(ia) of the Act by relying on the Apex court decision in case of CIT Vs. Bharti Cellular ltd. (2010) 234 CTR (SC) 146 which is different from the present case as technical services are involved. 8.1. Before adjudicating the issue, the observation of CIT(A)in page-81 in point-

5is reproduced as below: -

“5. Determination:

Rs.552429/- in respect of Clearing House charges: “The A.O. has disallowed a sum of Rs. 552429/- u/s 40(a)(ia) of the Income Tax

Act,1961 for non-deduction of tax u/s 194J of the Income Tax Act,1961 on MICR

charges paid in respect of Clearing House expenses by various branches of the

bank.

The appellant, in his submission during the appellate proceedings, has stated as

under;-

"The Ld. A.O. is unjustified in disallowing a sum of Rs. 552429/- u/s 40(a)(ia) of

the Income Tax Act, 1961 for non-deduction of tax u/s 194J of the Income Tax Act,

1961 on MICR charges paid. In fact, no tax is required to be deducted on amount

incurred towards MICR as mere collection of a fee for use of a standard facility

provided to all those who are willing to use it does not amount to the fee having

been received for technical services. In MICR centre there is mechanized

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processing of cheques leading to speedier clearance of cheques and no technical

or professional service is being provided.

The Hon'ble Apex court in the case of CIT vs Bharti Cellular Ltd.

(2010)234CTR(SC) 146 had concluded services to be falling under sec. 194J of the

Income Tax Act,1961 to be technical services where any human intervention was

involved in the activity. The apex court observed that wherever there was human

intervention requiring examination of technical data, the same would fall within

the definition of technical services and in absence thereof; the same would not

partake the character of technical services. Now, since MICR cheque clearing

(MICR stands for Magnetic Ink Character Recognition which means that the

machine recognizes numeric data printed with magnetic charged ink) is being

different from manual clearing, it is done with the help of ultraviolet rays which

scans the cheques genuineness as such stands covered by the decision of apex

court. Accordingly, the Id. A.O. is incorrect to state that these charges are liable

for deduction of tax at source u/s 194J of the Act and therefore the disallowance

made by him is incorrect.

Similar type of disallowance has been deleted by your predecessor in the

assessment years 2006-07, 2007-08, 2008-09, 2009-10,2010-11 & 2011-12 on

I.T.A. No. 790/Asr/2017 11 & Others appeals

merits. The Hon'ble IT AT, Amritsar Bench has upheld this decision that no tax is

required to be deducted on MICR charges payments. The copies of the orders

passed by the Hon'ble ITAT for the assessment years 2007-08 & 2008-09 are

enclosed as an annexure "A"."

I have carefully considered the issue. Similar type of addition has been deleted by

my predecessor in earlier assessment years. While deleting the disallowance for

the assessment year 2011-12 in appeal no.472/13-14 my predecessor has held as

under:-

"The A.O. has not brought on record any basis on which he is of the view that tax is required to be deducted on MICR charges. MICR cheque clearing (MICR stands for Magnetic Ink Charter Recognition which means that the machine recognizes numeric data printed with magnetic charged ink) is being done with the help of ultraviolet rays which scans the genuineness of cheques. It appears that no human intervention is required in MICR clearing of cheques by way of examining technical data, analysing them and making them useful for subsequent use. In fact MICR Clearance of cheque can be possible by a mechanized system only and not through human intervention keeping in view the processing of bulk cheques. Therefore, following the principle laid down by Hon'ble Supreme Court in the case of CIT vs. Bharti Cellular Ltd. (2010)234CTR(SC)146, I am of the considered opinion that no tax is required to be deducted on MICR charges and the A.O. is not justified in holding that in MICR charges, technical services are attracted. Accordingly, the provisions of section 40(a)(ia) are not attracted. Similar type of disallowance has already been deleted by me in the assessment years 2007-08, 2008-09 & 2009- 10. Thus, this ground of appeal of the appellant is allowed."

I.T.A. No. 790/Asr/2017 12 & Others appeals

The Hon'ble ITAT, Amritsar vide its order No.ITA No. 294 (Asr.)/2013 for the A.Y

2007-08 dated 15.12.2015 has upheld the decision of the LD. CIT (A) that no tax is

required to be deducted on MICR charges payments. Thus, I find no reason to

differ with the order of my Ld. Predecessor and the Hon'ble ITAT. Thus, the

addition made on this ground is deleted and the appeal is allowed.”

8.2. We heard the rival submission, thoughtfully considered the order of different

benches& respectfully considered the order of apex court. The ld CIT(A) had discussed the issue & delivered a speaking order. The Hon’able High Court of

Punjab and Haryana,in the case ofCommissioner of Income-taxv.Chief

Manager, State Bank of India, [2012] 21 taxmann.com 506 (Punjab & Haryana)has taken the different view in this factual aspect & also considered the

order of Bharti Cellular Ltd, supra.The observation of High Court is reproduced as

below:- “9. The primary basis whereby the apex Court had concluded services to be falling

under s. 194J of the Act to be technical services that whether any human

intervention was involved in the activity or not. The apex Court observed that

wherever there was human intervention requiring examination of technical data,

the same would fall within the definition of technical services and in the absence

thereof, the same would not partake the character of technical services. The apex

I.T.A. No. 790/Asr/2017 13 & Others appeals

Court in that case had remitted the matter to the AO to examine the technical

expert and after examining him adjudicate the matter afresh. In the present case as

well from the perusal of the orders of the authorities below, it is not discernible

whether there was any intervention of the human element in the services provided

to the assessee.

is remitted to the AO to examine afresh in the light of the observations made by the

apex Court in Bharti Cellular Ltd.'s case (supra) noted above.

The issue is well settled in law. Ld. CIT-DR had only relied on the order of ld. AO.

The Hon’able Apex had observed issue & had set-aside to examine for human

intervention. Accordingly, the ground of the revenue is sending back to ld. CIT(A)

for examine the human intervention in the process of clearing house charges.

8.3. In the result Ground-2 of the revenue is allowed for statistical purpose.

9.Ground No. 3 of the revenue: -

I.T.A. No. 790/Asr/2017 14 & Others appeals

involved. Moreover in the present case the assessee has himself claimed this expenditure as Capital expenditure.

9.1. Before adjudicating the issue, the observation of CIT(A) in page-93 in point-3

of the order of CIT(A) is reproduced as below: -

“Ground no.3 regarding allowability ofdepreciation rate at 10% as

against 100% depreciation rate claimed on wooden partitions.

The A.O. has disallowed a sum of Rs.7431428/-by allowing depreciation at the rate

of 10% instead of 100% as claimed by the assessee on wooden partitions. The

counsel of the assessee argued that the issue is covered by the orders for the

assessment years 2002-03, 2003-04, 2007-08, 2008-09, 2009-10, 2010-11 & 2011-

"The Ld. A.O. is not justified in disallowing Rs. 7431428/- by following the past

history of the case in restricting the depreciation rate from 100% to 10% on the

alleged ground that the wooden partitions installed are permanent partitions and

are not susceptible to dismantling in the immediate near future and are not purely

temporary erections. This action of the Ld. A.O. is purely imaginary and not

supported by any relevant material. He has assumed on his own that this

expenditure is of enduring nature whereas the appellant Bank has correctly

I.T.A. No. 790/Asr/2017 15 & Others appeals

charged depreciation @ 100% on wooden partition as these are purely temporary

erections carried out in leasehold (tenanted) premises. The expenditure consisted

of dividing the big hall by wooden partition to make 'it more suitable for the

purpose of business. Appendix-I to the Income Tax Rules allows depreciation @

100% on such purely temporary wooden structures. These are not permanent

wooden partition as observed by ld. A.O and no advantage of enduring nature has

been acquired.

The partitions are temporary and have been redesigned time and again to suit the

business needs. The wooden partitions are transient and do not become the

property of the assessee at the end of the lease. In any case these do not create any

tangible asset for which a value can be attributed. In view thereof, the law has

provided 100% depreciation on such wooden partitions and the assessee has

claimed the same correctly.

Without prejudice to the above submissions, expenses booked under this head are

also otherwise allowable as these are revenue in nature and no tangible asset has

come into existence. In this connection your attention is invited to direct case law

on the point. The Hon'ble Delhi High Court in 149 ITR 52 has held that converting

of hall in leasehold premises into cabins by putting partitions is an allowable

expenditure as it facilitates business. Hon'ble Supreme Court in the case of CIT Vs.

Madras Auto Service Pvt. Ltd. (1998) 233 ITR 468 (SC) has held that expenditure

I.T.A. No. 790/Asr/2017 16 & Others appeals

on construction on leasehold land is to be treated as revenue expenditure.

Therefore, viewed from any angle the expenditure on wooden partition on

leasehold premises is to be treated as revenue expenditure.

The Ld. A.O. without bringing any material on record to controvert the

facts/details has restricted the depreciation rate from 100% to 10% which is

incorrect and needs to be corrected by your good self.

Similar type of addition stands deleted by your predecessors in the earlier

assessment years & this decision has been upheld by Hon'ble ITAT Amritsar

Bench."

I have carefully considered the issue. This issue has been decided in favour of

assessee in the earlier assessment years. In appeal no. 456/2005-06 dated

28.03.2006 pertaining to assessment year 2002-03 the issue was decided in favour

of the appellant by holding as under:

Without prejudice to the above submission, it is pleaded that expenses booked

under this head are also otherwise allowable as these are revenue in nature as no

tangible asset has come into existence. In this connection reliance is placed on the

judgment of Hon'ble Delhi High Court in 149-ITR-52 wherein it has been held that

converting of hall of leased premises into cabins by putting partitions is an

allowable expenditure as it facilitates business. The Hon'ble Supreme Court in the

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case of CIT Vs. Madras Auto Services Pvt. Ltd. (233 ITR 468(SC)) has also held

that the expenditure on construction of lease hold land is to be treated as revenue

expenditure. Therefore, viewed from any angle the expenditure on wooden portion

on lease hold premises is to be treated as revenue expenditure. It is also submitted

that the Ld. A.O. without controverting the said case laws and without bringing

any material on record to controvert the facts/details has restricted the

depreciation rate from 100% to 10% which is incorrect and need to be corrected.

During the appellate proceedings, the A.O. was directed to verify whether the

wooden portion made by the appellant was on its own land or on lease/rented

accommodation. The A.O. after verification has confirmed that the wooden

partitions were on lease/rented accommodation. Keeping in view these facts and

legal position emerging from the judgments (supra), in my considered opinion, the

appellant is entitled to 100% deduction in respect of expenditure incurred.

I have gone through the material on record and find myself in agreement and hold

that assessee is entitled to 100% deduction on this count."

Since, similar type of disallowance has been deleted by my predecessor in the

assessment years 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 & 2011-

12 and his decision has been upheld by Hon'ble ITAT, Amritsar Bench, Amritsar

and since the facts are identical in the appeal under consideration, as such, I hold

I.T.A. No. 790/Asr/2017 18 & Others appeals

that appellant is entitled to 100% depreciation on wooden partition and the

addition of Rs. 7431428/- is hereby deleted.”

9.2. We heard the rival submission and thoughtfully considered the order of ITAT

benches. The ld. CIT(A) had discussed the issue & delivered a speaking order. The

issue is well settled. We are not interfering in the issue. Ld. CIT-DR did not bring

any contrary fact against the order of the CIT(A). Accordingly, the ground of the

revenue is dismissed.

9.3. In the result Ground-3 of the revenue is dismissed.

10.1. The observation of CIT(A) in page-97 in point-4of the order of CIT(A) is

reproduced as below: -

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“4. Ground no.4 is regarding proportionate disallowance of expenditure u/s

40(a)(ia) for short deduction of tax. The A.O. has made proportionate disallowance of Rs.9933098/- u/s 40(a)(ia) of the

Income Tax Act,1961 for short deduction of tax as reported in annexure "J' of the

Tax Audit Report of the Bank.

The appellant, in his submission, has stated as under: -

"The proportionate disallowance of expenditure amounting to Rs. 9933098/- u/s

40(a)(ia) of the Income Tax Act, 1961 for short deduction of tax has been made

after ignoring the fact that the provisions of sec.40(a)(ia) of the Act can be invoked

only in the event of non deduction of tax and not for lesser deduction of tax. As per

the provision of sec.40 (a) (ia), it is provided that in respect of any sum, as referred

to in this section, tax has either been not deducted or after deduction has not been

paid on or before the due date specified in sub-section (1) of sec. 139 of the Act,

such sum shall be disallowed as deduction while computing the income of the

assessee for the previous year relevant to the assessment year under consideration.

The Hon'ble ITAT Kolkata "B" bench in the case of Deputy CIT, Circle-33 vs. M/s

S.K.Teriwal (ITA no. 1135/Kol/2010 has held that:

"We are of the view that the conditions laid down in sec.40(a)(ia) for making

addition is that tax is deductible at source and such tax has not been deducted. If

both the conditions are satisfied then such payment can be disallowed under

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sec.40(a)(ia) of the Act but where tax is deducted by the assessee, even under bona

fide wrong impression, under wrong provisions of TDS, the provisions of

sec.40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the

assessee has deducted tax under sec. 194C(2) of the Act and not u/s 1941 of the Act

and there is no allegation that this TDS is not deposited with the Government

account. We are of the view that the provisions of sec.40(a)(ia) has two limbs, one

is where, inter alia, the assessee has to deduct tax and the second where after

deducting tax, inter alia, the assessee has to pay into Government account. There

is nothing in this section to treat, inter alia, the assessee as defaulter where there is

a shortfall in deduction. With regard to the shortfall, it cannot be assumed that

there is default as the deduction is not as required by or under the Act; but the fact

is that this expression, 'on which tax is deductible at source under chapter XVII-B

and such tax has not been deducted or after deduction has not been paid on or

before the due date specified in sub-section (1) of sec.139. This sec.40(a)(ia) of the

Act refers only to the duty to deduct tax and pay to the Govt, account. If there is

any shortfall due to any difference of opinion as to the taxability of any item or the

nature of payments falling under the various TDS provisions, the assessee can be

declared to be an assessee in default u/s 201 of the Act and no disallowance can be

made by invoking the provisions of sec.40(a)(ia) of the Act be made by invoking the

provisions of sec.40(a)(ia) of the Act.”

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The Hon'ble High Court of Kolkata refused to admit the appeal of the Revenue

against this order.

Similar type of disallowance has been deleted by your predecessor in the

assessment years 2009-10,2010-11 & 2011-12. This decision have been upheld by

the Hon'ble ITAT, Amritsar Bench(Circuit Bench, Jalandhar) vide order dated

28.02.2017 in ITA Nos. 74(Asr)/2015 & 137(ASR)/2015 pertaining to assessment

years 2010-11 & 2011-12 respectively. The copy of the order passed by Hon'ble

ITAT is enclosed as an annexure "B". The copy of the order passed by worthy

CIT(A) for the assessment year 2011-12 is also enclosed."

A/R. Similar type of disallowance has been deleted by my predecessor in the

assessment years 2009-10, 2010-11 & 2011-12. The decision stands upheld by the

Hon'ble ITAT, Amritsar vide order dated 28.02.2017 in ITA nos.74 &

137(SR)/2015 pertaining to the assessment years 2010-11 & 2011-12.

consideration are similar, the disallowance of Rs. 9933098/- is hereby deleted.”

10.2. We heard the rival submission and thoughtfully considered the order of ITAT

benches. The ld. CIT(A) had discussed the issue & delivered a speaking order. The

issue is well settled. Further, we have opinion that in case of short deduction of

TDS, disallowance under section 40(a)(ia) of the Act cannot be made and the

correct course of action would have been to invoke Section 201 of the Act. On

similar facts, the Hon’able Calcutta High Court in CIT vs S.K.Tekriwal [2012

I.T.A. No. 790/Asr/2017 22 & Others appeals

SCC Online CAL 12147]. We are not interfering on the ld CIT(A). Ld. CIT-DR

did not bring any contrary fact against the order of the CIT(A). Accordingly, the

ground of the revenue is dismissed.

9.3. In the result Ground-4 of the revenue is dismissed.

11.1. The observation of CIT(A) in page-75 of the order of CIT(A) is reproduced

as below: -

“The additions made by respective Id. A. Os in the assessment years 2009-

10,2010-11 & 2012-13 stand deleted by your predecessor. The findings of worthy

CIT(A) while deleting this disallowance in the assessment year 2009-10 are

reproduced as under:- "I have considered the argument of the appellant. It has been held in appellant's

own case in earlier years that no disallowance u/s 14A is required to be made in

respect of interest or management cost. There is no doubt that the facts and figures

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for the year under consideration has not undergone any change from the earlier

years. However if any disallowance is to be made the AO has to disprove the

method of accounting that he is not satisfied with the claim of the assessee.

For this 14A(3) empowers the AO to work out the disallowance as per prescribed

method even if the assessee states that there is no expenditure to earn the exempt

income. But for all this the AO is duty bound to disprove the contention of the

assessee. Now, here the appellant has offered whole of its income to tax and it has

been held in earlier years that there is no related cost which can be stated to be

incurred for earning such income then it is the duty of the AO to record his

satisfaction before invoking Rule 8D and make additional disallowance of

Rs.3,71,92,908/- as to why he is not satisfied with the correctness of the claim of

the assessee. Sub-section (2) of Sec. 14 states that "The Assessing Officer shall

determine the amount of expenditure incurred in relation to such income which

does not form part of the total income under this Act in accordance with the

method as may be prescribed, if the Assessing Officer, having regard to the

Accounts of the assessee, is not satisfied with the correctness of claim of the

assessee in respect of such expenditure in relation to income which do not form

part of the total income under this Act".

In the year under consideration, the appellant bank has shown that the investments

from which this income has been earned are being treated as stock in trade and not

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as an investment. Thus, in view of this fact although income from dividend of

Rs.1,18,21,078/- being exempt u/s 10(34) yet the appellant bank treating these

investments as stock in trade has offered whole of the amount to tax and not

claimed exemption on this income under respective section. Now, sec.l4A is

applicable to income which does not form part of total income whereas the facts in

this case are entirely different. The appellant has offered this income to tax and

has not considered this income as not form of total income. Thus, in my considered

opinion it was not required from AO to invoke the provisions of sec. 14A. Rather,

this aspect of the appellant bank is in the interest of Revenue. Had the appellant

claimed this income exempt even then the facts and figures do reveal that these are

exactly the same as in the previous years wherein those years the appellate

authorities including myself have given a finding that in view of own funds there

cannot be any disallowance for interest cost and in view of the fact that

management cost is fixed whether or not this exempt income is earned there cannot

be any management cost related to earn this exempt income.

Under such facts and circumstances, I am not in agreement with the AO to make

disallowance u/s 14A by applying Rule 8D."

Further, the orders passed by the worthy CIT(A) for the assessment years 2010-11

& 2011-12 have been upheld by the Hon'ble ITATAmritsar Bench(Circuit Bench,

Jalandhar) vide order dated 28.02.2017 in ITA Nos. 74(Asr)/2015 &

I.T.A. No. 790/Asr/2017 25 & Others appeals

137(ASR)/2015 respectively.The Hon'ble ITAT in ITA N0.74/Asr/2015 has held as

under

years, disallowance u/s. 14A can be made only if the AO disapproves the method of

accounting of the assessee, being not satisfied with the assessee's claim; that

section 14A(3) empowers the AO to work out the disallowance as per the

prescribed method, even if it is stated that no expenditure was incurred to earn the

exempt income; that in this case, the assessee has offered the whole of its income

to tax and in the earlier years, it has been held that there is no related cost which

can be said to have-been incurred for earning such income; that in these facts,

before invoking Rule 8D of the IT Rules and making additional disallowance, the

AO was required to record his satisfaction as to the incorrectness of the claim of

the assessee; that in the year under consideration; the bank had shown that the

investments, from which income had been earned, stood treated as stock in trade

rather than investment; that not claimed exemption on this income; that as such,

the assessee offered its income and had not considered the income to be part of its

total income; - at therefore, section 14A of the Act was not applicable and it could

not have been invoked; that had the assessee claimed this income exempt, it was

exactly the same as in the earlier years, in which years, it was held that in view of

the assessee's own funds, no disallowance of interest cost could have been made

I.T.A. No. 790/Asr/2017 26 & Others appeals

and that in view of the fact that management cost is fixed, whether or not this is

exempt income as earned, there cannot be any management cost relating to this

exempt income earned; and that a similar disallowance has been deleted by him

[the Id. CIT(A)] in the assessee's case for AY 2009-10.

to 42) dated 31.12.2012, in IT A No.l36/Asr/2010 and CO No. 09/ Asr/2010 and for

A.Ys. 2003-04 & 2004-05, vide order (APB43 to 66), dated 23.01.2013, in IT A

Nos. 43,53,85, 86 and 418/Asr/2012 and CO Nos. 4 to 6 & 33/Asr/2012, the

CIT(A)'s orders, which are on similar lines as those in the year under

consideration, were upheld. As contended, the assessee's own funds being used, no

interest cost is incurred which can be said to be related to earn income. The

management cost shall also remain fixed even if such income is earned. Further,

for AYs 2005-06 and 2006-07, again, the CIT(A), vide order (APB67 to 115) dated

12.02.2014, deleted the similar additions. It has been stated on behalf of the

assessee, and not denied by the department; that the department has not filed any

appeal against the said CIT(A)'s orders for A.Y. 2005-and 2006-07. Then,

obviously; as held by the Mumbai Bench of the Tribunal, vide order (APB 116-

120) dated 01.01.2005, in ITA No. 5592/Mum/2012 in the case of "Daga Global

Chemicals Ltd. vs. ACIT", disallowance u/s 14A read with Rule 8D of the IT Rules

cannot exceed the exempt income. Moreover, no interest expenditure disallowance

I.T.A. No. 790/Asr/2017 27 & Others appeals

made in relation to dividend received from trading in shares is sustainable in law,

as held by the Mumbai Bench of the Tribunal in the case of "DCIT vs. India

Advantage Securities Ltd.", in ITA No. 6711/Mum/2011, vide order (APB121-127),

dated 14.09.2012".

In view of aforesaid, the action of Id. AO for making disallowance of

Rs.l2,74,25,900/-is unjustified and unlawful and needs to be deleted.”

11.2. We heard the rival submission and thoughtfully considered the order of ITAT

benches. The ld. CIT(A) had discussed the issue & delivered a speaking order. The

issue is well settled. The coordinate bench has taken view in favour of assessee

under same factual matrix. We are not interfering in the order of the ld. CIT(A).

Ld. CIT-DR did not bring any contrary fact against the order of the CIT(A).

Accordingly, the ground of the revenue is dismissed.

11.3. In the result Ground-5 of the revenue is dismissed.

“1) That the Ld. CIT(A) Jammu has confirmed the action of the Ld AO with regard to disallowance of deduction claimed by the appellant Bank u/s 36(i)(viia) of the Act, in respect of Bari Brahmna Branch by respectfully following the decision of Hon’ble High Court of J&K in assessee’s own case vide order dated 15.09.2017 in ITA NO; 7/2007. The decision of the

I.T.A. No. 790/Asr/2017 28 & Others appeals

Hon’ble High Court is not acceptable to the assessee Bank and the appellant has filed SLP before Hon’ble Apex Court of India vide No: 2153/2018.

12.1. The observation of CIT(A) in page-21 of the order of CIT(A) is reproduced

as below: -

“So, respectfully following the order of the Honourable High Court of Jammu and

Kashmir in the case of the appellant bank itself, the addition of Rs.41,33,61,283/-

made by the Assessing Officer in this case on account of disallowance of deduction

claimed by the appellant bank under section 36(l)(viia) of the Act in respect of its

Bari Brahmana Brach is, therefore, upheld for statistical purposes as the Assessing

Officer has not made any separate addition on this issue to the returned income of

the appellant bank since the appellant bank has claimed deduction of

Rs.236,69,30,664/ under section 36(l)(viia) of the Act as against allowable

deduction at Rs 757,83,01,533/-. Even after disallowing the claim of

Rs.41,33,61,283/ in respect of I/C Bari Brahamna, the eligible claim of deduction

will be at Rs 716,49,40,250/- as against which the appellant bank has claimed

deduction amounting to Rs 236,69,30,664/- only. In the result, the ground No. 2 of

appeal taken by the appellant bank is dismissed for statistical purposes as the

Assessing Officer has not made any separate addition on this account.“

I.T.A. No. 790/Asr/2017 29 & Others appeals

12.2. We heard the rival submission and respectfully considered the order of

Jurisdictional High Court at Jammu. The ld. CIT(A) had discussed the issue & delivered a speaking order. The bench of ITAT, Amritsar in the case of The

Hoshiarpur Central Cooperative Bank Ltd, ITA No-625/Asr/2019, Date of order 25/08/2022 has taken view not favour of assessee & the matter is remanded

back. We respectfully follow the order of Hon’able Jammu & Kashmir High Court

at Jammu as it is well settled in factual matrix. We are not interfering in the order

of the ld. CIT(A). Ld. CIT-DR relied on the order of the ld. CIT(A). Accordingly,

the ground of the assessee is dismissed.

13.3. In the result Ground-1 of the assessee is dismissed.

Order pronounced in the open court on 26.09.2022

Sd/- Sd/-

(Dr. M. L. Meena) (ANIKESH BANERJEE) Accountant Member Judicial Member

AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order