2021 (7) TMI 1411 - HC - Income Tax

Disallowance made under the head investment portfolio - RBI guidelines were applicable to the assessee for the purposes of the I.T.Act or not ? - income recognition - Tribunal held that the assessee-Bank cannot be considered as a Company - Section 115JB applicability to assessee Bank for MAT purposes - HELD THAT - These substantial questions of law involved in this appeal have already been answered in favour of the assessee by this Court vide judgment of COMMISSIONER OF INCOME-TAX, BANGALORE Vs. ING VYSYA BANK LTD 2020 (1) TMI 1116 - KARNATAKA HIGH COURT Disallowance u/s 14A r.w.r. 8D(2) (ii) and (iii) - expenditure incurred on earning exempt income - HELD THAT - As question of law involved in this appeal also has already been answered in favour of the assessee by case of M/S QUEST GLOBAL ENGINEERING SERVICES PVT. LTD . 2021 (3) TMI 434 - KARNATAKA HIGH COURT TDS u/s 194H - disallowance u/s 40(a) (ia) on ATM charges of other Banks - HELD THAT - As substantial question of law is answered by Judgment M/S. CORPORATION BANK 2020 (12) TMI 529 - KARNATAKA HIGH COURT in favour of the assessee and against the revenue.

Issues:
1. Disallowance under the head investment portfolio
2. Disallowance under Section 14A read with Rule 8D(2) (ii) and (iii) of the Act
3. Classification of the assessee-Bank as a Company for MAT purposes
4. Disallowance under Section 40(a) (ia) of the Act on ATM charges of other Banks

Analysis:

1. The first issue pertains to the disallowance made under the head investment portfolio. The Tribunal set aside the disallowance, disagreeing with the assessing authority's decision. The Tribunal emphasized that income should be recognized in a manner reflecting a true and fair picture of the assessee's affairs. The Tribunal considered the representation of the securities as "held to maturity" by the bank as crucial for reflecting the true picture of the accounts. The Tribunal's decision was based on the principles of accountancy and various decisions of the Apex Court.

2. The second issue involves the disallowance under Section 14A read with Rule 8D(2) (ii) and (iii) of the Act on expenditure incurred on earning exempt income. The assessing authority had made disallowances as the conditions for making such disallowances were satisfied, and the assessee failed to show the flow of its own funds to those investments generating exempt income. However, the Tribunal set aside this disallowance, ruling in favor of the assessee.

3. The third issue revolves around whether the assessee-Bank can be considered a Company for MAT purposes. The Tribunal held that the assessee-Bank cannot be considered a Company, citing certain decisions that had not reached finality. It analyzed Section 2(17) of the Act, defining a Company as an Institution, association, or body assessable or assessed as a Company. The Tribunal concluded that Section 115JB is not applicable to the assessee Bank for MAT purposes.

4. The fourth issue concerns the disallowance under Section 40(a) (ia) of the Act on ATM charges of other Banks. The Tribunal set aside this disallowance, even though Section 194H and the Explanation to said section were applicable to the assessee-Bank. The Tribunal ruled in favor of the assessee, stating that the assessee should have deducted TDS on such payments. The Tribunal's decision was supported by a judgment in favor of the assessee and against the revenue.

In conclusion, the High Court dismissed the appeal filed by the revenue, as the substantial questions of law framed in the appeal were answered in favor of the assessee based on previous judgments and legal interpretations.

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