9911796707
TMI Blog2024 (9) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(34) and consequent disallowance is to be made, while computing expenses under Rule 8D(2)(ii) r.w.s 14A of the Act. This aspect has clearly explained in the case of South Indian Bank Ltd. [ 2021 (9) TMI 566 - SUPREME COURT] that the shares and securities held by a bank are stock in trade and all income received on such shares and securities must be considered to be as business income and consequently, provisions of section 14A of the Act would not be attracted to such income. This has been answered clearly by the Hon'ble Supreme Court and the Hon'ble Supreme Court has also approved the decision of State Bank of Patiala [ 2017 (5) TMI 843 - PUNJAB AND HARYANA HIGH COURT] The decision of the Hon'ble Supreme Court is law of the land and binding for us and hence, by following the same, we direct the Assessing Officer to recompute the disallowance of expenses relatable to exempt income in term of Rule 8D(2)(ii) r.w.s 14A of the Act by excluding shares and securities held by the assessee bank as stock in trade. Thus, the first ground raised by the assessee is allowed. Disallowance of expenses relatable to exempt income by invoking provisions of section 14A r.w.s 8D(2)(ii) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant for the purpose of computing disallowance under Section 14A of the Act. 1.1.1. On the facts and in circumstances of the case and in law, the CIT(A) ought to have held that section 14A read with Rule 8D does not apply to securities held by the Appellant bank as stock-in-trade. 3. Brief facts relating to the issue are that the assessee company IDFC First Bank Limited is engaged in the business of banking. The Assessing Officer during the course of assessment proceedings noticed that the assessee has claimed exempt income u/s. 10(34) of the Act i.e. tax free income of Rs. 2,05,56,27,398/-. The Assessing Officer also noticed that the assessee has disallowed expenses directly relatable to earn this income to the tune of Rs. 1,85,00,994/-. According to the Assessing Officer, the assessee has not computed expenses relatable to exempt income as per Rule 8D(2) read with section 14A of the Act in regard to administrative expenses i.e., under Rule 8D(2)(ii). Therefore, the Assessing Officer required the assessee to explain as to why disallowance, by invoking Rule 8D(2)(ii) r.w.s 14A of the Act, be not made. Therefore, the Assessing Officer recomputed the disallowance at Rs. 51.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of Direct Taxes (CBDT) had issued the Circular No. 18 of 2015 dated November 2, 2015 , which had analyzed and then explained that all shares and securities held by a bank which are not bought to maintain statutory liquidity ratio (SLR) are its stock-in-trade and not investments and income arising out of those is attributable, to business of banking. This circular came to be issued in the aftermath of CIT v. Nawanshahar Central Co- operative Bank Ltd. wherein this court had held that investments made by a banking concern is part of their banking business. Hence the income earned through such investments would fall under the head Profits and gains of business . The Punjab and Haryana High Court, in the case of Pr. CIT v. State Bank of Patiala while adverting to the Central Board of Direct Taxes Circular, concluded correctly that shares and securities held by a bank are stock-in-trade, and all income received on such shares and securities must be considered to be business income. That is why section 14A would not be attracted to such income. 26. Reverting back to the situation here, the Revenue does not contend that the assessee-banks had held the securities for maintaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld.CIT DR that dividend income earned from securities held as stock in trade by the assessee bank is not eligible for exemption u/s. 10(34) and consequent disallowance is to be made, while computing expenses under Rule 8D(2)(ii) r.w.s 14A of the Act. This aspect has clearly explained by the Hon'ble Supreme Court in the case of South Indian Bank Ltd. Vs.CIT (supra) that the shares and securities held by a bank are stock in trade and all income received on such shares and securities must be considered to be as business income and consequently, provisions of section 14A of the Act would not be attracted to such income. This has been answered clearly by the Hon'ble Supreme Court and the Hon'ble Supreme Court has also approved the decision of the Hon ble Punjab Haryana High Court in the case of CIT Vs. State Bank of Patiala (2017) 393 ITR 476 (P H). The decision of the Hon'ble Supreme Court is law of the land and binding for us and hence, by following the same, we direct the Assessing Officer to recompute the disallowance of expenses relatable to exempt income in term of Rule 8D(2)(ii) r.w.s 14A of the Act by excluding shares and securities held by the assessee ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious instruments viz. Government Securities, Tax Free Bonds, Debentures etc., aggregating to Rs. 6,090.44 Crore, which would certainly require huge resources. The assessee would avail expert advice and maintain a dedicated workforce for managing its investment portfolio, thereby incurring substantial expenditure for earning exempt income. Investment activity is one of the key functions of the bank. AO has recorded that he was not satisfied with the claim of the appellant that expenditure of Rs. 1.85 Crore only was incurred in relation to exempt income, on the ground that such allocation was ad-hoc and arbitrary. Thereafter, AO has recomputed the amount of expenditure liable to be disallowed under section 14A, by applying the method prescribed under Rule 8D. AO has accordingly worked out the indirect administrative expenditure incurred in relation to exempt income at Rs 51.33 Crore, being one percent of the average value of investments yielding exempt income, after applying the method given in Rule 8D(2)(ii). Since the appellant had already made a suo-moto disallowance of Rs 1.85 Crore in return of income, AO has restricted the further disallowance to the remaining amount of Rs. 49. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate amount of disallowance comprises of the indirect administrative expenditure at Rs. 51.33 Crore, being one percent of the annual average value of investments, which has been worked out by the AO at Rs. 5133.11 Crore, ( as per Rule 8D(2)(ii)). 5.5 The appellant has taken a plea that the AO has not expressly recorded that he was not satisfied with the claim of the appellant. This contention of the appellant, however, is not borne out from facts of the case. I find that the AO has discussed facts of the case in detail, including the facts that the appellant company had earned huge exempt income during the year. AO has expressly recorded that he was not satisfied with the working of the appellant in determining expenses relatable to exempt income, on account of various reasons, viz. (i) the appellant had attributed direct administrative expenses of Rs. 1.85 Crore only, which was less than even one percent of the investments yielding exempt income; whereas exempt income was higher than one percent of total income of the appellant; (ii) the appellant was maintaining a diverse portfolio of investments in various instruments viz. Government Securities, Tax Free Bonds, Debentures etc. ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, in respect of this ground of appeal, as brought out in the assessment order and submissions made during appeal proceedings. Section 80JJAA (as substituted by the Finance Act 2016, with effect from 1st April 2017) provides for deduction of an amount of thirty percent of additional employee cost incurred during the previous year in the course of business. The provisions of section 80JJAA were subsequently amended vide Finance Act 2018, with effect from 1st April 2019, by inserting Second proviso below the clause (ii) of Explanation, which defines the term addition employee for the purposes of the section. This Second proviso lays down that, an employee who is employed during the previous year, in certain specified circumstances, shall be deemed to have been employed in the succeeding year. 8.4 In the present case, AO has reverted a factual finding that cost of Rs. 60.73 lakh was actually incurred during the Financial Year 2016-17. During the appellate proceedings, the appellant has not disputed this fact. The appellant has taken a legal plea that though this amount relates to the earlier year, the same is allowable in Assessment Year 2018-19, as per the amended provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
