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2021 (9) TMI 7 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - investments held as stock-in-trade - assessee had on a suo motto basis offered a voluntary disallowance - Validity of invoking of Rule 8D - HELD THAT - As relying on judgment of the Hon ble Supreme Court in the case of Maxopp Investments Limited 2018 (3) TMI 805 - SUPREME COURT had observed that as the assessee was a bank, therefore, investments held as stock-in-trade were not to be considered for the purpose of working of disallowance u/s 14A of the Act, irrespective of the fact that any exempt income was derived from such investments or not - We direct that the investments that were held by the assessee bank as stock-in-trade shall not be considered by the A.O for the purpose of working of disallowance u/s 14A of the Act, irrespective of the fact whether exempt income was derived from such investments or not. Whether disallowance u/s 14A cannot be less than the suo motto disallowance that was offered by the assessee in its return of income? - We set-aside the order of the CIT(A) to the extent he had directed the A.O to cap the disallowance u/s 14A at a minimal amount i.e the amount that was suo motto offered for disallowance by the assessee in its return of income of income - we direct the A.O to work out the disallowance u/s 14A r.w Rule 8D without being influenced in any way by the amount of disallowance that was offered by the assessee under Sec. 14A in its return of income. Accordingly, the Ground of appeal No. I raised by the assessee is partly allowed in terms of our aforesaid observations. Computing the disallowance of the interest expenditure u/s 14A r.w Rule 8D(2)(ii) - Sufficiency of own funds - Whether CIT(A) has erred in deleting disallowance u/s 14A r.w.r. 8D(2)(ii) following the case law in CIT vs. Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT without realizing that this case law is different from the assessee's case as the same was dealt with expenses u/s.36(1)(iii) of the Act - AY 2012-13 - HELD THAT - Hon ble High Court of Bombay in the assessee s own case i.e CIT Vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT by drawing support from its aforesaid order passed in the case of Reliance Utility and Power Limited (supra), had observed, that where the assessee s own funds and other non-interest bearing funds were more than the investments in tax free securities, then, there was no justification for the A.O to have disallowed any part of interest payments u/s 14A of the Act. Again, the aforesaid view was taken in the assessee s own case i.e HDFC Bank Limited Vs. PCIT-2(3), Mumbai 2016 (3) TMI 755 - BOMBAY HIGH COURT as observed by the Hon ble High Court that when there were sufficient own funds with the assessee, then, there was a presumption that investment in tax free securities was made out of own funds - no force in the aforesaid grievance of the revenue. Whether disallowance u/s 14A r.w.rule 8D can be made only after excluding the tax free investments which are strategic in nature? - We set-aside the order of the CIT(A) to the extent he had held that the tax free investments which are strategic in nature are to be excluded for the purpose of computing the disallowance u/s 14A r.w Rule 8D. At the same time, we may herein observe that only those strategic investments held by the assessee that had yielded exempt income are to be considered for the purpose of working out the disallowance u/s 14A r.w Rule 8D(2)(iii). In fact, a similar view had been taken by the Tribunal while disposing off the assessee s appeal for A.Y. 2011-12) 2020 (7) TMI 502 - ITAT MUMBAI . Accordingly, in terms of our aforesaid deliberations we herein direct the A.O to include the strategic investments which had yielded exempt income during the year for the purpose of computing the disallowance u/s 14A r.w Rule 8D(2)(iii). Broken period interest is allowable on matching principles - HELD THAT - As decided in assessee s appeal for A.Y. 2011-12) 2020 (7) TMI 502 - ITAT MUMBAI the broken period interest paid by the assessee was allowable as a deduction while computing its total income - no infirmity in the view taken by the CIT(A) who had rightly vacated the disallowance of the broken period interest on HTM securities
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income-tax Rules, 1962. 2. Allowance of provision for bad and doubtful debts under Section 36(1)(viia) of the Income Tax Act. 3. General grounds of appeal. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income-tax Rules, 1962: The assessee challenged the partial upholding of the AO's disallowance under Section 14A read with Rule 8D by the CIT(A). The AO had observed that the assessee had claimed an exempt income of ?303,77,70,727/- and had suo motto disallowed ?95,08,984/-. The AO reworked the disallowance to ?14,17,20,791/- as per Rule 8D and made an additional disallowance of ?13,22,11,807/-. The CIT(A) directed the AO to disallow the higher of the suo motto disallowance or the amount calculated as per the directions issued for A.Y. 2011-12. The Tribunal held that Rule 8D was validly invoked by the AO and that investments held as stock-in-trade by a bank should not be considered for disallowance under Section 14A, following the Supreme Court's judgment in Maxopp Investments Ltd. vs. CIT. The Tribunal directed the AO to exclude such investments and to work out the disallowance without being influenced by the suo motto disallowance offered by the assessee. 2. Allowance of provision for bad and doubtful debts under Section 36(1)(viia) of the Income Tax Act: The assessee contended that the CIT(A) erred in requiring further verification by the AO for the deduction under Section 36(1)(viia), despite all necessary details being verified in the original assessment proceedings. However, the assessee did not press this ground of appeal during the Tribunal proceedings, leading to its dismissal as not pressed. 3. General Grounds of Appeal: The general grounds of appeal were also dismissed as not pressed. Revenue's Appeal: The revenue challenged the CIT(A)'s deletion of the disallowance under Section 14A and the broken period interest. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds and interest-free funds to make the investments. The Tribunal also directed the AO to include only those strategic investments that yielded exempt income for disallowance under Section 14A. The Tribunal further upheld the CIT(A)'s decision on the broken period interest, following the jurisdictional High Court and Tribunal's decisions in the assessee's own case for preceding years. Conclusion: Both the appeals filed by the assessee and the revenue were partly allowed. The Tribunal directed the AO to rework the disallowance under Section 14A excluding investments held as stock-in-trade and to include only strategic investments that yielded exempt income. The Tribunal upheld the CIT(A)'s decision on broken period interest and dismissed the general grounds of appeal.
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