2023 (12) TMI 1375 - AT - Income Tax

Disallowance u/s 14A - Suo-motu disallowance - HELD THAT - We find that the assessee is a Bank. As relying on SOUTH INDIAN BANK LTD. 2021 (9) TMI 566 - SUPREME COURT we direct Ld. AO to examine this aspect of the matter and apply the ratio of the decision to the case of the assessee. If the disallowance as computed by Ld. AO falls below the suo-motu disallowance as offered by the assessee, no further disallowance would be called for. Adjustment of this item u/s 115JB - As we find that this issue is covered in assessee s favor by the decision of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI - Respectfully following the same, we direct Ld. AO not to make any such adjustment u/s 115JB.

Summary

Issues: Disallowance u/s 14A; Disallowance of provision on security receipts; Adjustment u/s 115JB

In the present case, the primary issue revolves around the disallowance under section 14A of the Income Tax Act. The appellant contested the disallowance of certain expenses under this section, specifically related to tax-free bonds treated as stock-in-trade. The appellant argued that as per the decision in the case of South Indian Bank Ltd. vs. CIT, these bonds should be excluded from the computation, potentially reducing the disallowance amount significantly. The appellant had offered a suo-motu disallowance, which was much lower than the amount computed by the Assessing Officer using Rule 8D.

Regarding the disallowance u/s 14A, the Appellate Tribunal directed the Assessing Officer to reevaluate the inclusion of tax-free bonds as stock-in-trade based on the decision in the South Indian Bank Ltd. case. If the recalculated disallowance falls below the appellant's suo-motu disallowance, no further disallowance is warranted. This decision was influenced by the nature of the appellant being a bank and the specific treatment of shares and securities held by banks as stock-in-trade for business income purposes.

Another issue raised by the appellant was the disallowance of provision on security receipts while computing Book Profits. However, the appellant chose not to press this issue as it was deemed tax-neutral. The Appellate Tribunal acknowledged this decision and proceeded to address the primary issue of disallowance u/s 14A.

Furthermore, the Appellate Tribunal examined the adjustment of the disallowance under section 115JB. Citing the precedent set by the Special Bench of the Tribunal in Vireet Investments Pvt. Ltd., the Tribunal ruled in favor of the appellant, directing the Assessing Officer not to make any adjustment under section 115JB. Consequently, the appeal was partly allowed based on the above decisions and orders.

In conclusion, the judgment provided clarity on the treatment of tax-free bonds as stock-in-trade for banks, impacting the disallowance under section 14A. Additionally, it emphasized the applicability of specific precedents in determining adjustments under section 115JB, ultimately resulting in a partial allowance of the appeal.