9911796707
TMI Blog2024 (9) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... les), in not considering the issue of assessee bank securities held as stock in trade. For this, the assessee has raised following grounds No.1.1 and 1.1.1:- "1.1 On the facts and in circumstances of the case and in law, the learned CIT (A) erred in not accepting the method employed by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He referred to paras 25 to 27 of the judgement of the Hon'ble Supreme Court, wherein the Hon'ble Supreme Court considering the CBDT Circular No. 18 of 2015 dated 02.11.2015 held so. The Hon'ble Supreme Court held as under:- "25. Proceeding now to another aspect, it is seen that the Central Board of Direct Taxes (CBDT) had issued the Circular No. 18 of 2015 dated November 2, 2015¹, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. We have gone through accounts filed by the assessee i.e., the financial statements and noted that this income is declared as income under the head 'Income from Business or Profession' in Schedule 13 interest earned - 'income on investments' in the profit & loss account. We cannot agree with the arguments made by 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt had attributed only Rs. 1.85 Crore as expenses related to exempt income during the year, which is less than 1 percent of the investments yielding exempt income; whereas exempt income was more than 1 percent of the total income of the appellant. AO has also noted that the appellant maintained a diverse portfolio of investments in various 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has made a suo-moto disallowance of Rs. 1.85 Crore, being administrative expense directly attributable to exempt income. However, the AO has disallowed an amount of Rs 51.33 Crore by applying the provisions of section 14A read with rule 8D. The AO has computed the quantum of disallowance by applying the method under Rule 8D(2)(ii). The aggregate 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 expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,42,82,111/- b) Deduction claimed in AY 2017-18 to be allowed in A.Y 2018-19 as per law - Rs. 60,73,302/- The CIT(A) partly allowed the claim of the assessee and restricted disallowance to the extent of Rs. 60,73,202/- which pertain to financial year 2016-17 by observing in para 8.3 to 8.5 as under:- "8.3 I have carefully considered the relevant and material facts 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
