2021 (4) TMI 572 - AT - Income Tax

Disallowance of interest u/s 14A - HELD THAT - This issue is no longer res-integra and has already been decided in the earlier years in the assessee s own case by the Tribunal as well as by the Hon ble High Court of Uttarakhand 2013 (12) TMI 1711 - UTTARAKHAND HIGH COURT . We have also perused the impugned order of the CIT(A), wherein the factual aspects of the dispute have been outlined. The submissions of the assessee, noted by the CIT(A) and which have not been controverted before us, clearly establish that the interest free funds available with the assessee bank were in excess of the investments in the tax free securities in question and, therefore, the disallowance out of interest made by the Assessing Officer has been rightly deleted by the CIT(A). In this view of the matter, we hereby affirm the order of CIT(A) and Revenue fails on this aspect. Allowability of claim of deduction u/s 36(1)(viia) and Section 36(1)(viii) - HELD THAT - As it is seen that the controversy regarding the quantum of eligible deduction allowable to a banking company under Section 36(1)(viia) and 36(1)(viii) of the Act has been decided by the Delhi Bench of the Tribunal in Tourism Finance Corporation of India Limited (supra), which has since been applied by the first Appellate Authority. No decision to the contrary has been brought to our notice, rather, the spirit of the judgment of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. 2012 (2) TMI 262 - SUPREME COURT , in our view, clearly supports the conclusion drawn by the learned CIT(A). Moreover, there is also no controversion to the assertions of the learned Representative for the respondent-assessee that in Assessment Years 2012-13 and 2014-15, the Assessing Authority itself has accepted the stand of the assessee and that such assessments have since become final. In this view of the matter, we hereby affirm the order of learned CIT(A) on this issue. Thus, the Revenue fails on this aspect.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act.
2. Computation of deduction under Section 36(1)(viia) and Section 36(1)(viii) of the Act.

Issue 1: Disallowance under Section 14A of the Income Tax Act:
The dispute revolves around the disallowance made by the Assessing Officer under Section 14A of the Act for the assessment year 2006-07. The AO disallowed a sum of ?1,55,24,593/- out of interest expenditure under Rule 8D(2)(ii) of the Income-Tax Rules, 1962, read with Section 14A. The assessee argued that it had sufficient interest-free funds to cover the investments yielding tax-free income. However, the AO disagreed, citing a common pool of funds with a majority being interest-bearing deposits. The CIT(A) sided with the assessee, noting that interest-free funds exceeded investments in tax-free securities, leading to the deletion of the disallowance. The Tribunal upheld the CIT(A)'s decision, citing past rulings in the assessee's favor for prior assessment years.

Issue 2: Computation of deduction under Section 36(1)(viia) and Section 36(1)(viii) of the Act:
The second issue pertains to the AO scaling down the deduction claimed by the assessee under Section 36(1)(viia) and Section 36(1)(viii) of the Act. The assessee contended that there was an error in the computation of deductions by both parties. The CIT(A) referred to a Tribunal order in a similar case, directing the AO to recompute the deductions. The Tribunal affirmed the CIT(A)'s decision, noting that the principle applied was consistent with legal precedents and the spirit of relevant judgments. The Tribunal found no reason to interfere with the CIT(A)'s order, especially considering that the AO had accepted a similar principle in subsequent assessment years. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on both issues, affirming the deletion of the disallowance under Section 14A and the computation of deductions under Section 36(1)(viia) and Section 36(1)(viii) of the Income Tax Act for the relevant assessment year.