Tribunal dismisses Revenue's appeal, allows assessee's Cross Objection. Section 40(a)(ia) & 14A disallowances deleted.

The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was allowed. The Tribunal upheld the deletion of disallowance under Section 40(a)(ia) and disallowance under Section 14A read with Rule 8D. The Tribunal directed the AO to re-compute and allow unabsorbed losses and depreciation. It was held that Section 115JB is not applicable to the assessee bank. As a result, no adjudication was required on additions/disallowances while assessing book profit under Section 115JB.

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Issues Involved:
1. Delay in filing Cross Objection by the assessee.
2. Deletion of disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.
3. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
4. Re-computation and allowance of unabsorbed losses and depreciation.
5. Applicability of Section 115JB to the assessee bank.
6. Additions/disallowances while assessing book profit under Section 115JB.

Detailed Analysis:

1. Delay in Filing Cross Objection by the Assessee:
The Cross Objection filed by the assessee was delayed by 555 days. The delay was attributed to the advice given by the assessee's Authorized Representative (AR) that filing an intimation under Rule 27 of the ITAT Rules would suffice. However, as a precaution, the assessee filed the Cross Objection on the same grounds. The Tribunal deemed it fit to condone the delay and admitted the Cross Objection, considering the reasons provided.

2. Deletion of Disallowance under Section 40(a)(ia):
The department appealed against the deletion of the disallowance of Rs. 66,80,772 under Section 40(a)(ia) without giving the Assessing Officer (AO) an opportunity to be heard as per Rule 46A. The assessee argued that the TDS on the amount was deposited before the due date of filing the return of income. The Ld. CIT(A) had restored the issue to the AO for verification. The Tribunal noted that the Ld. CIT(A) had not deleted the disallowance but directed the AO to verify the supporting evidence. The Tribunal set aside the order of the Ld. CIT(A) and restored the issue to the AO for fresh consideration after examining the relevant evidence.

3. Disallowance under Section 14A read with Rule 8D:
The assessee, a Public Sector Bank, derived exempt income from shares and securities. The AO computed the disallowance under Section 14A at Rs. 39,14,48,612. The Ld. CIT(A) deleted the disallowance of Rs. 36,24,11,122 under Rule 8D(2)(ii) but upheld the disallowance of Rs. 2,90,37,490 under Rule 8D(2)(iii). The Tribunal found that the issue was covered in favor of the assessee by the judgment of the Hon’ble Bombay High Court in CIT Vs HDFC Bank Ltd and the Gujarat High Court in Pr. CIT Vs Nirma Credit & Capital Pvt Ltd. The Tribunal upheld the deletion of the interest disallowance as the assessee’s own funds were more than the investments yielding tax-free income. Regarding the disallowance under Rule 8D(2)(iii), the Tribunal followed the judgment of the Hon’ble Supreme Court in the case of State Bank of Patiala, which held that no disallowance under Section 14A is permissible for assessees engaged in banking business. The Tribunal directed the AO to delete the disallowance of Rs. 2,90,37,490.

4. Re-computation and Allowance of Unabsorbed Losses and Depreciation:
The Ld. CIT(A) directed the AO to re-compute and allow the benefit of unabsorbed losses and depreciation brought forward from earlier years. The Tribunal found no infirmity in the order of the Ld. CIT(A) as the directions were consequential and in accordance with the provisions of law.

5. Applicability of Section 115JB to the Assessee Bank:
The Ld. CIT(A) followed the decision of the Tribunal in the assessee’s own case for AY 2002-03, which held that the provisions of Section 115JB are not applicable to the assessee bank as it is not a company within the meaning of the Companies Act, 1956. The Tribunal upheld the decision of the Ld. CIT(A).

6. Additions/Disallowances while Assessing Book Profit under Section 115JB:
Since the Tribunal held that the provisions of Section 115JB do not apply to the assessee, the issue of additions/disallowances while assessing book profit under Section 115JB was rendered academic and did not require adjudication.

Conclusion:
The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was allowed.

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