2023 (12) TMI 1119 - AT - Income Tax

Disallowance u/s 14A - if there are funds available with the assessee as a common pool of interest free and interest bearing funds, the assessee cannot be granted the benefit of the presumption - HELD THAT - We find that on the issue of applicability of Section 14A of the Act, the co-ordinate Bench had decided the issue that when the assessee is holding investment as stock-in-trade, no disallowance under Section 14A of the Act can be made. The co-ordinate Bench decided the issue for A.Y. 2012-13, relying on the decision of PCIT Vs. Punjab National Bank 2022 (6) TMI 85 - DELHI HIGH COURT where in it has been held that where the assessee bank is holding investment as stock-in-trade no disallowance under Section 14A of the Act can be made. Decided in favour of assessee. Refund adjusted first against the interest payment and then on taxes - HELD THAT - This issue has been decided by the learned CIT (A) in favour of the assessee by relying upon several judicial precedents of the co-ordinate Benches. No contrary decision was produced before us. Therefore, we uphold the order of the CIT (A).when the refund is due to the assessee, the amount refunded has to be adjusted towards interest payment to assessee first and the balance any shall be adjusted towards tax - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income-tax Act, 1961.
2. Calculation of interest under Section 244A of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance under Section 14A read with Rule 8D

The learned Assessing Officer (AO) disallowed Rs. 18,07,69,806 under Section 14A read with Rule 8D, arguing that the assessee, a bank, held securities as stock-in-trade, thus disallowance under Section 14A was warranted. The CIT (A) partly agreed with the AO but restricted the disallowance to Rs. 5,92,74,298, citing that the bank had sufficient interest-free funds. The Tribunal upheld the CIT (A)'s decision, referencing the co-ordinate Bench's decision in the assessee's own case for A.Y. 2012-13 and the Supreme Court's ruling in Maxopp Investment Ltd. v. CIT, which clarified that shares held as stock-in-trade by banks do not attract disallowance under Section 14A. Therefore, the Tribunal dismissed the AO's appeal and allowed the assessee's appeal.

Issue 2: Calculation of Interest under Section 244A

The assessee contended that interest under Section 244A was not correctly calculated on the refund. The CIT (A) agreed, directing that the refund should first be adjusted towards interest payable to the assessee and then towards tax. The Tribunal upheld the CIT (A)'s order, noting that the CIT (A) relied on several judicial precedents and no contrary decisions were presented by the Revenue. Consequently, the Tribunal dismissed the AO's appeal on this ground as well.

Conclusion:

The Tribunal dismissed the appeal of the learned Assessing Officer and allowed the appeal of the assessee, confirming that no disallowance under Section 14A is warranted for shares held as stock-in-trade and that the refund should be adjusted first towards interest payable to the assessee.

Order pronounced in the open court on 21.12.2023.