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2023 (9) TMI 598 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - income exempted under section 10 of the Act - Assessee submitted that since the exempt income earning securities are held by it as stock in trade, therefore, disallowance of expenditure u/s 14A cannot be made - HELD THAT - As per the assessee, the securities are held by it in the ordinary course of its business and the profits and gains on sale/transfer of such securities are offered to tax while computing the income under the head profits and gains from business or profession , therefore such securities constitute stock in trade of assessee s business. No dispute has been raised by the Revenue as regards the aforesaid submission. We find that while deciding a similar issue in PCIT v/s Punjab National Bank 2022 (6) TMI 85 - DELHI HIGH COURT wherein dismissed the appeal filed by the Revenue and upheld the findings of the Tribunal in deleting the disallowance made under section 14A read with Rule 8D direct the AO to delete the disallowance made under section 14A read with Rule 8D. Decided in favour of assessee.
Issues Involved:
1. Disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962. 2. Initiation of penalty proceedings under section 270A of the Income Tax Act, 1961. Summary: Issue 1: Disallowance under Section 14A read with Rule 8D The primary issue in the appeal is the disallowance of Rs. 1911,07,68,683 under section 14A read with Rule 8D towards expenditure incurred in relation to income claimed exempt under section 10 of the Income Tax Act, 1961. The assessee, a banking company, argued that the securities yielding exempt income were held as stock-in-trade in the ordinary course of its banking business, and thus, disallowance under section 14A was not warranted. The assessee cited the Supreme Court decision in Maxopp Investment Ltd v/s CIT, which supports that no disallowance under section 14A can be made if securities are held as stock-in-trade. The Assessing Officer (AO) disagreed, stating that it is difficult to appreciate that no expense is attributable to the exempt income earned by the assessee, and proceeded to compute the disallowance as per Rule 8D. The learned CIT(A) upheld the AO's decision, noting that the AO recorded satisfaction of not accepting the assessee's claim that no expenditure was incurred in relation to earning exempt income. During the hearing, the assessee reiterated its position, emphasizing that the securities were held as stock-in-trade and thus no disallowance under section 14A should apply. The Tribunal found merit in the assessee's argument, referencing the Delhi High Court's decision in PCIT v/s Punjab National Bank, which upheld that when shares are held as stock-in-trade, section 14A is not attracted. Consequently, the Tribunal directed the AO to delete the disallowance made under section 14A read with Rule 8D. Other aspects raised by the assessee in ground no.1 were rendered academic and left open. Issue 2: Initiation of Penalty Proceedings under Section 270A The second issue pertains to the initiation of penalty proceedings under section 270A for under-reporting of income. The Tribunal found this ground to be premature and therefore dismissed it. Conclusion: The appeal by the assessee is partly allowed. The Tribunal directed the deletion of the disallowance under section 14A read with Rule 8D and dismissed the ground related to the initiation of penalty proceedings as premature.
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