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2024 (11) TMI 633 - AT - Income TaxRevision u/s 263 - directing the AO to verify the claim of assessee to MAT credit and if found credit not available, disallow the same - HELD THAT -As ld.counsel explained before us that if the AO give appeal effect to the order of ITAT, then the MAT credit will be available to the assessee and in term of ITAT, a consequential order giving effect to the same has to be passed. Since in the present case, there is no error in the assessment order as per the returned income, MAT credit is available. Any adjustment arising out of assessment and appeal proceedings could be rectified while giving effect to the Appellate Order passed by ITAT or rectification order u/s. 154 of the Act can be passed. The ld.counsel for the assessee filed complete details before us but going through the fact that these needs verification, after going through the consequential order passed by AO and hence, although it cannot be a subject matter of revision u/s. 263 of the Act, there is no error in the assessment order or no prejudice is caused to the Revenue, the MAT credit can be verified by the AO and that can be done while giving appeal effect order of AO for the assessment year 2015-16 and consequent rectification can be done by the AO for assessment year 2018-19 also. Hence to that extent, we agree with the directions of PCIT but this cannot be a subject matter of revision u/s. 263 of the Act. Accordingly, this issue of assessee s appeal is allowed subject to above observation. PCIT directing the AO to verify the claim of deduction u/s. 36(1)(viia) of the Act on the loan advance by 11 branches, which are not classified as rural branches for the purpose of claiming deduction u/s. 36(1)(viia) - The assessee has filed complete details of 11 branches which are situated in various cities and also submitted addresses of branches in Annexure-2, which is made part of the revision order at pages 10-12. From the above, 11 branches located at various places, it is noticed that 10 branches are covered by 2011 census wherein population is less than 10,000 except one branch of Pongalur which can be excluded from rural branches since the population is more than 10,000 as per 2011 census. The claim of deduction in respect of Pongalur banch having aggregate average advanc can be excluded. We have gone through the factual details and noted that, error in the assessment order which has caused prejudice to the Revenue is only in respect of this amount of Rs. 1,25,13,362/- claimed as deduction u/s. 36(1)(viia) in regard to Pongalur branch. Hence, we direct the AO to amend the assessment order to that extent and to that extent, the assessment order is erroneous and prejudicial to the interest of Revenue. But in any case, we have adjudicated this issue on merits and directed the AO accordingly. Disallowance of expenses relatable to exempt income u/s. 14A r.w.rule 8D(2) - We noted from the facts of the case that the assessee has earned exempt income to the extent of Rs. 136 crores and the assessee suo-moto made disallowance of Rs. 2,56,403/-, the expenses incurred to earning exempt income by going through the provisions of section 14A of the Act. Now the PCIT want to invoke the prescribed formula as prescribed under Rule 8D(2)(ii) of the Rules and disallowance according to PCIT has to be worked out at 1% of the average value of investment on income earned or capable of earning exempt income which works out to Rs. 1.36 crore. We noted that the AO as well as PCIT during revision proceedings u/s. 263 of the Act noted that investments are treated by assessee bank as stock-in-trade and this issue is squarely covered by the decision of Hon ble Supreme Court in the case of South Indian Bank Ltd 2021 (9) TMI 566 - SUPREME COURT and hence, no disallowance can be resorted by invoking the provisions of section 14A of the Act r.w.rule 8D(2) of the Rules, wherever the investments are treated by bank as stock-in-trade. We find no error in the order of AO which is causing prejudice to the Revenue rather the AO has rightly not disallowed any expenses relatable to exempt income in respect of investments held by assessee bank as stock-in-trade. Hence, we find no error in the assessment order and hence on this issue, on merits, the order of PCIT is reversed.
Issues Involved:
1. Verification and disallowance of MAT credit. 2. Verification and recomputation of deduction under Section 36(1)(viia) of the Income Tax Act. 3. Disallowance of expenses related to exempt income under Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules. Issue-wise Detailed Analysis: 1. Verification and Disallowance of MAT Credit: The Principal Commissioner of Income Tax (PCIT) invoked Section 263 of the Income Tax Act to direct the Assessing Officer (AO) to verify the MAT credit claimed by the assessee for the assessment year 2018-19. The assessee had availed MAT credit from the assessment year 2015-16, which was adjusted against the tax liability for 2018-19. The PCIT commenced revision proceedings due to an audit objection that no MAT credit was available for 2015-16. However, the ITAT had already allowed the assessee's appeal for 2015-16, which would potentially alter the MAT credit availability. The Tribunal concluded that the MAT credit issue could be resolved during the appeal effect process for 2015-16, and thus, it should not be a subject of revision under Section 263. The Tribunal allowed the assessee's appeal on this issue, agreeing with the PCIT's direction for verification but not as a matter of revision. 2. Verification and Recomputation of Deduction under Section 36(1)(viia): The PCIT directed the AO to verify the classification of branches as rural or non-rural for computing deductions under Section 36(1)(viia) related to bad and doubtful debts. The assessee had claimed a deduction of Rs. 227,08,23,702, which the AO partially disallowed by excluding 11 branches. The PCIT alleged further exclusion of branches, but the Tribunal found that only the Pongalur branch was misclassified, as its population exceeded 10,000 per the 2011 census. The Tribunal directed the AO to amend the assessment order concerning the Pongalur branch, thereby acknowledging an error in the assessment order that was prejudicial to the Revenue. The Tribunal adjudicated this issue on merits, directing the AO accordingly. 3. Disallowance of Expenses Related to Exempt Income under Section 14A: The PCIT's revision order questioned the disallowance of expenses under Section 14A related to exempt income, suggesting that the AO should apply Rule 8D(2) to compute disallowance. The assessee had treated investments as stock-in-trade, a position supported by the Supreme Court's decision in South Indian Bank Ltd. v. CIT, which held that Section 14A does not apply to banks treating investments as stock-in-trade. The Tribunal noted that this issue was covered by previous Tribunal decisions in the assessee's favor. Consequently, the Tribunal found no error in the AO's original assessment order and reversed the PCIT's order on this issue. Jurisdictional Issue: The assessee raised a jurisdictional challenge, arguing that the PCIT's revision order was unwarranted as there was no error causing prejudice to the Revenue. Since the Tribunal adjudicated the issues on merits, the jurisdictional challenge was deemed academic and dismissed. Conclusion: The appeal by the assessee was partly allowed, with the Tribunal agreeing with the PCIT's direction for verification of MAT credit but not as a subject of revision. The Tribunal directed the AO to correct the classification error regarding the Pongalur branch under Section 36(1)(viia) and reversed the PCIT's order concerning disallowance under Section 14A, affirming no error in the original assessment.
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