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2019 (1) TMI 689 - AT - Income TaxDisallowance u/s 14A(1) - exempt income was earned from shares held as trading assets or stock in trade - argument on behalf of the assessee that the investments in securities made by the banking concern are part of the business of banking and therefore the expenses incurred for the purpose of such investment is the business investment - Held that - Though not the dominant purpose of acquiring the shares is a relevant for the purpose of invoking the provisions under section 14 A of the Act, the shares held as stock in trade stand on a different pedestal in relation to the shares that were acquired with an intention to acquire and retain the controlling interest in the investee company. As decided in assessee s own case 2018 (12) TMI 50 - ITAT DELHI Present assessee before us is also a Bank, where shares were held as stock-in-trade and therefore it becomes business activity of assessee. In our opinion specific observation Hon ble Supreme Court in the case of Maxopp Investment vs CIT (2018 (3) TMI 805 - SUPREME COURT OF INDIA are squarely applicable to facts of present case. We allow this ground raised by assessee and hold that these were not investments made by assessee in order to fall within the ambit of Rule 8D (iii) - Decided against revenue. Transfer from inter branch block accounts to reserve through profit and loss account - Held that - As in assessee s own case 2012 (5) TMI 437 - ITAT, NEW DELHI Transaction between the head office of the assessee and its branch in India was a transaction between the principal and principal. In law, there cannot be a valid transaction of sale between the branch and its head office. As it is ultimately based on a proposition that no person can enter into contract with one self. Debiting or crediting one s account cannot alter the legal position. When that primary requirement is absent, the question of bringing the sums in question to tax under Section 41(1) may not be legally permissible to the Revenue. - Decided in favor of assessee. Loss on revaluation of investment held in HTM category - Held that - As in assessee s own case 2012 (5) TMI 437 - ITAT, NEW DELHI wherein after considering the case law on this aspect including the decision of the Hon ble Apex Court in the case of UCO Bank vs. CIT 1999 (9) TMI 4 - SUPREME COURT and the Master Circular of the RBI on the aspect of valuation of investments applicable to all banks prescribed in case of acquisition cost of securities classified under HTM category. Depreciation on investment held in AFS and HFT categories - Held that - It is a verifiable fact with reference to the sales of securities, if any, that took place during the year or earlier or subsequent years. Such an exercise has not been undertaken by the learned assessing officer but merely basing on the figures reflected in the balance sheet which was prepared in accordance with the RBI guidelines, AO reached a conclusion that there was an escapement of income due to the preparation of the balance sheet in a particular way, as prescribed by the RBI. If we appreciate the facts of this case in the light of the decision of UCO Bank vs. CIT 1999 (9) TMI 4 - SUPREME COURT it is clear that since the assessee has been maintaining its accounts on mercantile system, they are entitled to show his real income by taking into account market value of such investments in arriving at real taxable income. All the aspects argued by the Ld. DR were considered by the Hon ble Apex Court in the case of UCO Bank vs. CIT 1999 (9) TMI 4 - SUPREME COURT and were held in favour of the assessee Loss on shifting of securities from AFS/HFT categories to HTM category - Held that - It is not the case of the revenue that the facts of this case are not similar to the facts of the case for any earlier years. It shall be kept in mind that the bank will never hold the assets merely for dividends or further appreciation of the value of the asset and all the three types of assets namely, held to maturity, available for sale and held for trading of the investments to maintain the statutory liquidity requirement. No difference of facts on this score and hold that the decision of the Bangalore Tribunal in the case of State Bank of Mysore 2009 (5) TMI 610 - ITAT BANGALORE is very much applicable to the facts of this case also. While respectfully following the directions referred to above, we are of the considered opinion that the loss arising on shifting of securities from AFS/HFT categories to HTM category is allowable. Disallowance of contribution made to PNB Employees Pension Fund Trust - legitimate business expenditure - Held that - Similar issue in the assessment year 2005-06, the issue was decided in favour of the assessee wherein it was held that similar expenses were allowed in earlier years in the assessments made under section 143 (3) of the Act and the decision of DCIT verses Ranbaxy laboratories Ltd (2009 (6) TMI 126 - ITAT DELHI-I ) wherein the allowability of expenses towards provision for Pension Fund were held to be allowable expenses and section 43B has no application, is applicable. The fact that the assessee had actually contributed/paid the amount to pension fund makes the case of the assessee even stronger. Disallowance of deduction u/s 36(1)(viii) - assessee bank did not make any claim u/s 36(1)(viii) in the original return of income filed on 26/9/2008, but this claim was made only in the revised return filed subsequently - Held that - CIT(A) held that inasmuch as the AO was not satisfied with the method followed by the assessee bank that they had not correctly calculated the deduction under section 36(1)(viii) and the AO was of the view that the assessee bank had claimed profit attributable to eligible business and computed the same on proportionate basis, based on the total fund deployed method, CIT(A) directed the assessee to furnish the correct computation of eligible deduction under section 36(1)(viii) before the Ld. AO within 30 days and the AO shall verify the same to grant deduction. No illegality or irregularity in this direction given by the Ld. CIT(A). As a matter of fact CIT(A) treated this claim of the assessee as allowable and remanded matter for the limited purpose of submission of the current computation under section 36(1)(viii) of the Act. We, therefore, uphold the directions of the Ld. CIT(A) and dismiss this ground of appeal. Profit on sale of NPAs - Held that - We are convinced with the alternative submission on behalf of the assessee that whether the assessee was left with any tax paid versus against the NPAs or not, needs verification at the end of the AO after affording an opportunity to the assessee to put forth their case and to submit the details if any, on this aspect. For this purpose we set aside the issue and remand it to the file of the Ld. AO. This ground is, therefore, allowed for statistical purpose.
Issues Involved:
1. Disallowance of expenditure under Section 14A. 2. Transfer from inter-branch block accounts to reserve through profit and loss account. 3. Loss on revaluation of investment held in HTM category. 4. Depreciation on investment held in AFS and HFT categories. 5. Loss on shifting of securities from AFS/HFT categories to HTM category. 6. Contribution to PNB Employees Pension Fund Trust. 7. Depreciation on goodwill. 8. Disallowance under section 40A(3). 9. Set off of loss from venture capital fund. 10. Profit on sale of NPAs. 11. Deduction under section 36(1)(viii). Detailed Analysis: 1. Disallowance of Expenditure under Section 14A: The Tribunal dealt with the disallowance of expenditure under Section 14A in multiple assessment years. The assessee argued that investments in securities are part of the banking business, and expenses incurred for such investments are business expenses. The Tribunal referenced the Supreme Court's decision in Maxopp Investment Ltd. vs. CIT, highlighting that disallowance under Section 14A applies irrespective of whether exempt income is earned during the year. However, it was concluded that no addition under Section 14A is sustainable for the assessee bank. 2. Transfer from Inter-Branch Block Accounts to Reserve through Profit and Loss Account: The Tribunal considered the treatment of amounts transferred from old block accounts to reserves. The Tribunal referenced its previous decision, which held that such amounts, being part of inter-branch transactions, do not constitute income. The Tribunal upheld the deletion of the addition made by the AO. 3. Loss on Revaluation of Investment held in HTM Category: The Tribunal upheld the CIT(A)'s decision allowing the amortization of premium on HTM securities, referencing the Supreme Court's decision in UCO Bank vs. CIT and the RBI guidelines. The Tribunal found no reason to deviate from its earlier decisions in the assessee's favor. 4. Depreciation on Investment held in AFS and HFT Categories: The Tribunal upheld the CIT(A)'s decision allowing the depreciation on securities held in AFS and HFT categories, referencing the Supreme Court's decision in UCO Bank vs. CIT. The Tribunal noted that the assessee's consistent accounting treatment and the RBI guidelines supported the claim. 5. Loss on Shifting of Securities from AFS/HFT Categories to HTM Category: The Tribunal upheld the CIT(A)'s decision allowing the loss claimed on shifting securities from AFS/HFT to HTM categories. The Tribunal referenced its earlier decisions and the RBI guidelines, concluding that the loss was real and allowable. 6. Contribution to PNB Employees Pension Fund Trust: The Tribunal upheld the CIT(A)'s decision allowing the deduction for contributions to the PNB Employees Pension Fund Trust. The Tribunal referenced its earlier decisions and found that the contributions were legitimate business expenses. 7. Depreciation on Goodwill: The Tribunal upheld the CIT(A)'s decision allowing depreciation on goodwill, referencing its earlier decisions in the assessee's favor. The Tribunal found no reason to deviate from the established precedent. 8. Disallowance under Section 40A(3): The Tribunal upheld the CIT(A)'s decision deleting the disallowance made under Section 40A(3) for payments made to a carpenter, finding no violation of the section. 9. Set off of Loss from Venture Capital Fund: The Tribunal upheld the CIT(A)'s decision allowing the set-off of loss from venture capital funds, finding that the loss was determined as per Form 64 and in accordance with the law. 10. Profit on Sale of NPAs: The Tribunal remanded the issue of profit on the sale of NPAs to the AO for verification, directing the AO to verify whether the assessee was left with any tax-paid versus against the NPAs. 11. Deduction under Section 36(1)(viii): The Tribunal upheld the CIT(A)'s direction to allow the deduction under Section 36(1)(viii) upon submission of the correct computation by the assessee. The Tribunal found no illegality in the CIT(A)'s direction. Conclusion: The Tribunal's order addressed multiple issues across various assessment years, largely upholding the CIT(A)'s decisions in favor of the assessee, with specific directions for verification and remand in certain cases. The Tribunal's decisions were consistent with established precedents and the Supreme Court's rulings.
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