2024 (12) TMI 1064 - HC - Income Tax

Disallowance of expenses u/s 14A r.w.r. 8D - AO applied Rule 8D of the Rules and quantified the disallowance - HELD THAT - Though not the dominant purpose of acquiring the shares is a relevant for the purpose of invoking the provisions u/s 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. Further, it is brought to our notice that in assessee s own case in 2018 (12) TMI 50 - ITAT DELHI for the assessment year 2012-13, a coordinate bench of this Tribunal considered the arguments on either side and reached the conclusion that, insofar as the assessee bank is concerned section 14A of the Act has no application in view of the above law laid down by the Hon ble Apex Court in the case of Maxopp investments Ltd, 2018 (3) TMI 805 - SUPREME COURT We, therefore, while respectfully following the above decision, hold that no addition in case of the assessee under section 14-A is sustainable. Also see South Indian Bank Ltd. 2021 (9) TMI 566 - SUPREME COURT Amortization of premium on securities held maturity (HTM) - HELD THAT - The securities under HTM category are those that are held till its redemption /maturity. Clearly, if any premium is paid for acquiring the said securities over and above the face value or the redemption value of those securities, it would be apposite to amortize the same during the holding period. The market value of the fixed interest-bearing securities fluctuates on the basis of the market rate of interest. The differential amount between the coupon rate and the market rate is reflected by the premium or discount on which such securities are available. Illustratively, the securities being a coupon rate which is lower than the market rate of interest would be available on discount while securities with a higher coupon rate would be available at a premium. We find no infirmity with the Assessee amortizing the premium paid on such securities over the holding period. Loss claimed by the Assessee bank from shifting of securities from AFS (Available for Sale) / HFT (Held for Trading) to HTM (Held Till Maturity) portfolio - AO disallowed the loss holding that transfer of securities from one portfolio to another is not a financial transaction and the loss was notional - HELD THAT - Concededly, the said question is covered by the earlier decision of this court in M/s Oriental Bank of Commerce 2016 (5) TMI 1514 - DELHI HIGH COURT disagreed with revenue contention that where the Assessee invested in securities for the purpose of complying with RBI instructions, such investments could not be termed as investment in the form of security ready for sale. Section 43B deduction qua contributions made by the Assessee to PNB Employees Pension Fund - AO rejected the said claim as the same was made on the basis of actuarial valuation while the government notification permitted only annual contribution - HELD THAT - There is no dispute that the contributions made by the Assessee were in respect of the Employees Pension Fund (EPF) and wholly and exclusively related to its business. Additionally, the quantum of contributions, does not in any manner, detract from the nature of the said payments. No substantial question of law arises in this regard as well. Goodwill arising from amalgamation of the erstwhile Nedungadi bank with the Assessee bank and is stated to be a recurring issue from AY 2003-04 onwards - CIT(A) deleted the addition holding that the very same treatment was required to be given in the present year also - HELD THAT - We find that the same question was projected by the Revenue before this court in 2024 (3) TMI 1386 - DELHI HIGH COURT was dismissed and the question as projected was not entertained in 2024 (3) TMI 1386 - DELHI HIGH COURT . The learned counsel for the Assessee points out that the said issue is also covered by the judgment of this court in PCIT v. Eltrek SGS (P) Ltd. 2023 (8) TMI 681 - DELHI HIGH COURT and Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT No substantial question of law arises in the appeal

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Disallowance of expenses under Section 14A of the Income Tax Act.
3. Addition on account of loss on revaluation of investment.
4. Loss on shifting of securities from AFS/HFT to HTM category.
5. Deduction related to contributions to PNB Employees' Pension Fund under Section 43B.
6. Depreciation on goodwill arising from amalgamation.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The court addressed the issue of an inordinate delay in filing the appeal. The counsel for the Assessee argued that the issues raised were in favor of the Assessee, and the Revenue did not object to the condonation of delay. Consequently, the application for condonation of delay was allowed without any serious objection from the Revenue.

2. Disallowance of Expenses under Section 14A:

The Revenue challenged the deletion of an addition made under Section 14A of the Income Tax Act, which pertains to the disallowance of expenses incurred in relation to income not includible in total income. The Assessee had offered a sum equivalent to 0.5% as disallowance, but the AO applied Rule 8D and quantified the disallowance at a higher amount. The CIT(A) and ITAT relied on the Supreme Court's decision in Maxopp Investment Ltd. v. CIT, which clarified that when shares are held as stock-in-trade, the disallowance under Section 14A is not applicable since the primary purpose is trading and not earning exempt income. The court found no merit in the Revenue's challenge, as the issue was covered by the Supreme Court's decision in South Indian Bank Ltd. v. CIT.

3. Addition on Account of Loss on Revaluation of Investment:

The Assessee claimed an amount for amortization of premium on securities held to maturity (HTM), which the Revenue challenged. However, the court noted that similar issues in previous assessment years were not framed as questions of law by the court, and the ITAT's decision was accepted by the Revenue in some years. The court found no infirmity in the Assessee amortizing the premium paid on HTM securities over the holding period, as it aligns with the market value fluctuations based on interest rates.

4. Loss on Shifting of Securities from AFS/HFT to HTM Category:

The AO disallowed the loss claimed by the Assessee for shifting securities between categories, considering it notional. However, the CIT(A) and ITAT accepted the Assessee's contention, supported by previous decisions in the Assessee's favor. The court referenced an earlier decision where it declined to frame a question of law, thus supporting the Assessee's position on this matter.

5. Deduction Related to Contributions to PNB Employees' Pension Fund:

The AO rejected the Assessee's claim for deduction under Section 43B, arguing it was based on actuarial valuation rather than annual contribution. The CIT(A) deleted the addition, and the ITAT confirmed this decision, considering the contribution as a legitimate business expense. The court noted that no substantial question of law arose, as the contributions were related wholly and exclusively to the business.

6. Depreciation on Goodwill Arising from Amalgamation:

The issue of depreciation on goodwill from the amalgamation of Nedungadi Bank with the Assessee was addressed. The CIT(A) and ITAT provided relief based on previous decisions, and the court noted that similar questions in past appeals were not entertained. The court acknowledged that the issue was covered by existing judgments, including those of the Supreme Court, and found no substantial question of law.

Overall, the court dismissed the appeal, finding no substantial question of law in the issues raised by the Revenue.

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