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TMI Blog2021 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in its return of income? - We set-aside the order of the CIT(A) to the extent he had directed the A.O to cap the disallowance u/s 14A at a minimal amount i.e the amount that was suo motto offered for disallowance by the assessee in its return of income of income - we direct the A.O to work out the disallowance u/s 14A r.w Rule 8D without being influenced in any way by the amount of disallowance that was offered by the assessee under Sec. 14A in its return of income. Accordingly, the Ground of appeal No. I raised by the assessee is partly allowed in terms of our aforesaid observations. Computing the disallowance of the interest expenditure u/s 14A r.w Rule 8D(2)(ii) - Sufficiency of own funds - Whether CIT(A) has erred in deleting disallowance u/s 14A r.w.r. 8D(2)(ii) following the case law in CIT vs. Reliance Utilities and Power Ltd.[ 2009 (1) TMI 4 - BOMBAY HIGH COURT] without realizing that this case law is different from the assessee s case as the same was dealt with expenses u/s.36(1)(iii) of the Act - AY 2012-13 - HELD THAT:- Hon ble High Court of Bombay in the assessee s own case i.e CIT Vs. HDFC Bank Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] by drawing support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2017, which in turn arises from the assessment order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short 'Act'), dated 18.03.2015 for A.Y. 2012-13. We shall first take up the appeal of the assessee. The assessee has assailed the impugned order on the following grounds before us: "Ground I: Disallowance u/s 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ("the Rules") 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in partly upholding le following actions of the AO in making disallowance u/s 14A r.w.r. 8D: a. Rule 8D was validly invoked by the AO; b. Directing the AO to verify the details as regards securities held as stock in trade despite the fact that it is already a matter of records that profit on sale of securities (including securities earning exempt income) and interest on such securities is offered for tax under the head profit and gains from business or profession; c. In holding that disallowance u/s 14A of the Act cannot be less than suo moto disallowance made by the Appellant in the return of income. 2. The Appellant prays that the disallowance u/s 14A of the Act be deleted, without prejudice, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee on the first day and the last day of the previous year; 14,98,95,79,779 14,35,49,85,152 30,76,31,04,50,407 6,99,45,865 iii. An amount equal to one-half per cent of average of the value of investment income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. 7,17,74,926 7,17,74,926 Total Disallowance under Sec. 14A 14,17,20,791 As the assessee had voluntarily disallowed an amount of ₹ 95,08,984/- u/s 14A, therefore, the A.O made a further addition/disallowance of ₹ 13,22,11,807/- [₹ 14,17,20,795/- (-) ₹ 95,08,984/-]. Apart from that, it was observed by the A.O that the assessee had debited an amount of ₹ 1811,68,18,261/- as broken period interest in its profit and loss account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r no. CIT(A)-6/IT-08/2013-14, dated 29.07.2016. Observing that there was no shift in the factual or the legal position, the CIT(A) directed the A.O to disallow the higher of the disallowance of ₹ 95,08,984/- or the sum calculated as per the directions that were issued by his predecessor while disposing off the assessee's appeal for A.Y. 2011-12, vide his order dated 29.07.2016. Insofar the disallowance of the assessee's claim for deduction of broken period interest on HTM securities of ₹ 165,60,89,891/- was concerned, the CIT(A) observed that the said issue was also decided by his predecessor while disposing off the assessee's appeal for A.Y. 2011-12 vide his order no. CIT(A)-6/IT-08/2013-14, dated 29.07.2016. Accordingly, following the view taken by his predecessor for A.Y. 2011-12 the CIT(A) directed the A.O to delete the addition of ₹ 165,60,89,890/-. 5. Both the assessee and revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee at the very outset submitted that the CIT(A) had wrongly directed the A.O to work out the disallowance u/s 14A at higher of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Maxopp Investments Ltd. vs. CIT (2018) 402 ITR 640 (SC), had held, that as the assessee was a bank, therefore, investments held by it as stock-in-trade were not to be considered for the purpose of working of disallowance u/s 14A of the Act, irrespective of the fact whether exempt income was derived from such investments or not. It was further submitted by the ld. A.R that the Tribunal in its aforesaid order had observed that only those strategic investments held by the assessee that had yielded exempt income were to be considered for the purpose of working out the disallowance u/s 14A r.w. Rule 8D(2)(iii). 6. Per contra, the ld. Departmental Representative (for short 'D.R') submitted that for the purpose of working out the disallowance u/s 14A r.w Rule 8D(2)(ii) the availability of own funds and interest free funds with the assessee was to be looked into with reference to the date on which the said respective investments in the exempt income yielding securities were made. In support of his aforesaid contention the ld. D.R had relied on the judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Limited (supra). It was submitted by the ld. D.R that no ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Hon'ble High Court of Bombay in its order passed in the case of CIT-2, Mumbai Vs. HDFC Bank Limited (2014) 366 ITR 505 (Bom) had after drawing support from its earlier order passed in case of Reliance Utility and Power Limited (supra), had concluded, that where the assessee's own funds and other non-interest bearing funds were more than the investments made in tax free securities, then, there was no justification on the part of the A.O to have disallowed any part of the interest payments while working out the disallowance u/s 14A of the Act. On the issue of deletion of the disallowance of broken period interest by the CIT(A), it was submitted by the ld. A.R that the Hon'ble High Court of Bombay in its order passed in the case of CIT-2, Mumbai Vs. HDFC Bank Limited (2014) 366 ITR 505 (Bom) had after considering the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Vijaya Bank (1991) 187 ITR 541 (SC) observed, that as the said issue was covered in the assessee's favour by the judgment of the court in the case of American Express International Banking Corporation Vs. CIT (2002) 268 ITR 601 (Bom), therefore, no infirmity did arise from the view taken by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall determine the amount of expenditure in relation to income not includible in total income as per sub-rule (2) of Rule 8D only after satisfaction of either of the aforesaid two conditions contemplated in sub-rule (1) of Rule 8D. In our considered view, as the A.O in the present case had only after duly recording his dissatisfaction as regards the correctness of the claim of expenditure attributed by the assessee for earning of the exempt dividend income determined the amount of disallowance u/s 14A r.w Rule 8D(2), therefore, no infirmity does emerge therefrom. At the same time, we find substantial force in the claim of the ld. A.R that as the assessee is a bank, therefore, investments that are held as stock-in-trade cannot be subjected to disallowance u/s 14A of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (2018) 402 ITR 640 (SC). In its said order, it was observed by the Hon'ble Apex Court that in case of a bank the investments that are held as stock-in-trade cannot be a subject matter of disallowance u/s 14A of the Act. As pointed out by the ld. A.R, and rightly so, the Tribunal in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. It is the capping of the disallowance at a minimal figure of ₹ 95,08,984/- i.e as offered by the assessee on a suo motto basis in its return of income by the CIT(A) that has been assailed by the assessee before us. As observed by us hereinabove, the Hon'ble High Court of Gujarat in PCIT Vs. UTI Bank Ld. (2017) 398 ITR 514 (Guj) had upheld the order passed by the Tribunal that had vacated the entire disallowance under Sec. 14A of the Act, despite the fact that the assessee had on a suo motto basis offered a disallowance of ₹ 6.23 crores in its return of income. On a perusal of the aforesaid order, we find, that the revenue by way of a specific question of law had assailed before the Hon'ble High Court the order of the Tribunal, for the reason, that it had directed the A.O to delete the suo motto disallowance that was offered by the assessee u/s 14A in its return of income. The question of law that was formulated before the Hon'ble High Court read as under : "(B) Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to delete the suo motu disallowance of ₹ 6.23 crores made by the assessee company in the return of income? An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning similar issues in the later assessment years, against which we are informed that the special leave petition has been dismissed. 6. Regarding a claim contrary to the disclosures in the return, the Tribunal relied on the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. (supra) to observe that the purpose of assessment is to tax real income. This court taking note of the decisions of the Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 and National Thermal Power Co. Ltd. (supra) in the case of Mitesh Impex (supra) had observed as under (page 103 of 367 ITR): "It thus becomes clear that the decision of the Supreme Court hi the case of Goetze (India) Ltd. v. CIT (supra) is confined to the powers of the Assessing Officer and accepting a claim without revised return. This is what the Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd. v. CIT (supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd. v. CIT (supra). When it comes to the power of the Appellate Commissioner or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A r.w Rule 8D(2)(ii), despite the fact that a suo motto disallowance for the said respective years was offered by the assessee in its returns of income. Also, we find that a similar view that the disallowance u/s 14A can go below the amount of suo motto disallowance that was offered by an assessee u/s 14A in its return of income had been arrived at by the various coordinate benches of the Tribunal, as under: i. Sajjan India Ltd. Vs. ACIT (89 taxmann.com 21) (Mum ITAT) ii. Nerka Chemicals Pvt. Ltd. Vs. DCIT (ITA No.3923/Mum/2017) (Mum ITAT) iii. DCIT vs. Ardor In - fin Pvt. Ltd. (ITA No. 2739/Ahd/2017) (Ahmd ITAT) iv. DCIT Vs. Greenland Infracon P. Ltd. (ITA No. 2039 & 2040/Ahd/2016 (Ahmd ITAT) v. Tata Industries Ltd. Vs. ITO (ITA No. 4894/Mum/2008) (Mum ITAT) vi. M/s Finquest Securities Pvt. Ltd. Vs. ACIT (ITA No. 2540/M/2017)(Mum ITAT) vii. Rupee Finance & Management Pvt. Ltd. Vs. DCIT (81 taxmann.com 249)(Mum ITAT) viii. K. Raheja Pvt. Ltd. V. DCIT (ITA No. 5350/M/2019, order dated 22.04.2021)(Mum) In the backdrop of the aforesaid position of law, we herein set-aside the order of the CIT(A) to the extent he had directed the A.O to cap the disallowance u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 20/Mum/2015 arising out of ITA No.375, 3465 &1795/Mum/2014 has set aside the matter to the A.O. for examination of availability of own funds &interest free funds for making investments on the date of making investments. 5. On the facts and the circumstances of the case and in law ,the Ld.CIT(A) has erred in holding that the broken period interest is allowable on matching principles ,without realizing that the same has not been incurred for realizing the interest on securities as enunciated by the Apex Court in Vijaya Bank Ltd.(57 Taxman 152(SC)." 14. It is the claim of the revenue that the CIT(A) has erred in deleting the disallowance of the interest expenditure made by the A.O u/s 14A r.w Rule 8D(2)(ii) of ₹ 6,99,45,865/- by following the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Reliance Utility & Power Limited (2009) 313 ITR 340 (Bom). It is the claim of the revenue that the aforesaid judgment was rendered in context of the disallowance of interest expenditure u/s 36(1)(iii) of the Act and not qua the disallowance under Sec. 14A of the Act. Also, the revenue is aggrieved with the order of the CIT(A), for the reason, that he had erred in vacat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the A.O u/s 14A r.w Rule 8D(2)(ii). It is the claim of the revenue, that unlike as in A.Y. 2008-09 to A.Y. 2010-11, wherein the Tribunal vide its order dated 31.03.2015 in M.A. No. 18 to 20/Mum/2015 arising out of ITA No. 375, 3465 & 1795/Mum/2014 had set-aside the matter to the A.O for examination of availability of own funds and interest free funds with the assessee on the dates on which such investments were made, the CIT(A) in the present case had outrightly without making any verification as regards availability of such own funds and interest free funds had summarily vacated the disallowance of interest expenditure that was made by the A.O u/s 14A r.w Rule 8D(2)(ii). Further, it is the claim of the revenue that the CIT(A) had erred in not appreciating that availability of own funds and interest free funds was to be looked into on the date of making of investments in exempt income yielding securities and not on the date of the 'balance sheet'. As observed by us hereinabove, the disallowance of interest expenditure made by the A.O u/s 14A r.w Rule 8D(2)(ii) by discarding the assessee's claim as regards drawing of a presumption qua the utilization of own funds and interest fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities that the assessee did not have sufficient own funds and interest free funds to make investments in the exempt income yielding securities. As regards the point of time on which the availability of own funds and interest free funds with the assessee for making of investments in exempt income yielding securities was to be looked into, we concur with the claim of the ld. A.R that as observed by the Hon'ble High Court of Bombay in the case of CIT Vs. Reliance Utility & Power Ltd. (2009) 313 ITR 340 (Bom), the same has to be considered in context of the date of the 'balance sheet', and not otherwise. We, thus, finding no infirmity in the view taken by the CIT(A) who had after dislodging the claim of the revenue qua the drawing of presumption as regards utilization of the own funds and interest free funds out of the mixed funds available with the assessee for making of investments in exempt income yielding securities had rightly vacated the disallowance of the interest expenditure made by the A.O u/s 14A r.w Rule 8D(2)(ii), uphold the same. The Ground of appeal No. 4 raised by the revenue is dismissed. 17. We shall now deal with the grievance of the revenue that the CIT(A) had err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same could have been set-off as an expenditure against interest accruing on these securities. Although the CIT(A) in the assessee's own case for A.Y. 2009-10 had vacated the disallowance of its claim for deduction of broken period interest, however, the A.O was of the view that as the said order of the first appellate authority had been assailed before the Tribunal, therefore, in order to keep the matter alive during the year in question a similar approach was to be adopted and the aforesaid claim of the assessee was to be disallowed. On appeal, the CIT(A) observed that a similar claim of the assessee for deduction of broken period interest was allowed by his predecessor while disposing off the assessee's appeal for A.Y. 2011-12, vide his order no. CIT(A)-6/IT-08/2013-14, dated 29.07.2016. It was further observed by the CIT(A) that the aforesaid recurring issue had been decided in favour of the asseseee both by the Hon'ble High Court of Bombay and the Tribunal in the assessee's own case for A.Y 2008-09 to A.Y 2009-10 and A.Y. 2010-11. Accordingly, the CIT(A) observed that as there was neither any factual nor any legal change qua the issue under consideration, therefore, respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition by following the decision of the Hon'ble Jurisdictional High Court in assessee's own case and the decision of this Tribunal in assessee's own case for A.Y.2008-09 and 2009-10 and 2010-11 in ITA Nos.375, 722, 3465, 4367/Mum/2012 and ITA No.1795/Mum/2010 dated 12/11/2014. In all these decisions, it was held that the broken period interest paid by the assessee is allowable as deduction while computing total income of the assessee. Since, this issue is already covered in assessee's own case by various decisions of this Tribunal and Hon'ble Jurisdictional High Court, which has been rightly followed by the ld. CIT(A), we do not find any infirmity in the order of the ld. CIT(A). Accordingly, the grounds raised by the revenue are dismissed. 8. In the result, appeal of the revenue is dismissed." As the facts and the issue involved in the present appeal remains the same as were there before the Tribunal in the assessee's own case for the immediately preceding year i.e A.Y. 2011-12 in ITA No. 6187/Mum/2016, as well as in the preceding years, therefore, we respectfully follow the same. We, thus, finding no infirmity in the view taken by the CIT(A) who had rightly vacated the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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