2020 (11) TMI 1076 - AT - Income Tax

Tax Appeals: Assessments 2011-2015 Decided in Favor of Assessee

The appeals by the assessee for assessment years 2011-12 to 2014-15 were allowed, while the appeals by the Revenue for assessment years 2011-12 to 2013-14 ... Disallowance u/s.14A r.w.r 8D - assessee has earned tax free income from Bonds and dividend income on shares held as ‘stock-in-trade’ - HELD THAT:- Whether dividend is earned or not is immaterial. It is quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the intention of the assessee is to trade in shares to earn profits. Hon’ble Supreme Court approved the order in the case of PCIT vs. State Bank of Patiala,[2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT] albiet for a different reason that provisions of section 14A would not get attracted where the shares are held in ‘stock-in-trade’, Following the judgment rendered in the case of Maxopp Investment P. Ltd. (supra), the Tribunal in the case of Asstt.CIT vs. UCO Bank [2018 (3) TMI 805 - SUPREME COURT], Punjab National Bank [2019 (1) TMI 1625 - ITAT DELHI] and IDBI Bank Ltd. [2020 (1) TMI 213 - ITAT MUMBAI] has held that disallowance under section 14A r.w.r. 8D of the Act in case of assessee engaged in Banking business and holding shares as ‘stock-in-trade’ is not warranted. CIT(A) has restored the issue of disallowance under section 14A r.w.r. 8D of the Act to Assessing Officer to decide the issue in line with the order of Tribunal in assessee’s own case for assessment year 2010-11. We observe that the Co-ordinate Bench while adjudicating the issue of disallowance under section 14A r.w.r. 8D of the Act for assessment year 2010-11 in appeal by the assessee [2016 (1) TMI 1427 - ITAT MUMBAI] has in turn followed the order of Tribunal in assessee’s own case for assessment year 2008-09, wherein the issue was restored to Assessing Officer with a direction to examine the same afresh. The Tribunal while deciding the appeal of assessee for assessment year 2010-11 was not having the benefit of judgment rendered in the case of Maxopp Investment P. Ltd. (supra). The Tribunal passed the order on 08/01/2016 and the judgment in the case of Maxopp was delivered in February 2018. Even the judgment in the case of Pr.CIT vs. State Bank of Patiala[2018 (3) TMI 805 - SUPREME COURT] and Pr.CIT vs. Punjab and Sind Bank[2019 (11) TMI 342 - DELHI HIGH COURT] are subsequent to the order of Tribunal. Thus, in the light of the decisions discussed above, we hold that no disallowance under section 14A r.w.r. 8D of the Act is warranted where the assessee has earned exempt income on shares/stocks held as ‘stock-in-trade’. Consequently, the sole ground raised in appeal by the assessee is allowed and corresponding ground No.1 raised in the appeal by the Revenue is dismissed. Bad Debt Written off - assessee has claimed bad debts written off with regard to non-rural branches - AO after examining assessee’s claim concluded that as per provisions of section 36(1)(viia), the deduction is available only to the extent of 10% of aggregate average advances made by rural branches and an amount not exceeding 7.5% of the gross total income - HELD THAT:- The Tribunal in turn following the order in assessee’s own case for assessment year 2007-08 [2015 (11) TMI 1058 - ITAT MUMBAI] decided the issue in favour of assessee. Deduction u/s.36(1)(viii) - HELD THAT:- Tribunal vide order [2016 (1) TMI 1427 - ITAT MUMBAI] has remitted the issue back to the file of AO to allow the deduction based on actual interest earned from eligible advances after deducting cost and expenses on reasonable basis. CIT(A) has restored the issue to AO to follow the directions of Tribunal. DR has not brought before the Bench any material to controvert the findings of Tribunal in immediately preceding assessment year . We see no infirmity in the findings of CIT(A), hence, the same are upheld. The ground No.3 of appeal by the revenue is dismissed. Deduction u/s.36(1)(viia) - HELD THAT:- We find that the CIT(A) after examining the findings of Assessing Officer and the submissions of the assessee held that the issue is covered by the decision of Tribunal in the case of State Bank of Mysore [2009 (5) TMI 610 - ITAT BANGALORE] Applicability of provisions of section 115JB - HELD THAT:- We hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No.2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the AO becomes unimportant. Question No.1 is therefore not answered. All the appeals are dismissed. MAT applicability - HELD THAT:- As provisions of section 115JB of the Act does not get attracted in the case, of Nationalised Banks, assessee being the one. Issues Involved:1. Disallowance under section 14A.2. Deduction of bad debts written off.3. Deduction under section 36(1)(viii).4. Deduction under section 36(1)(viia).5. Applicability of section 115JB.Detailed Analysis:1. Disallowance under section 14A:The assessee, a nationalized bank, earned exempt income from tax-free bonds and dividends held as 'stock-in-trade'. The assessee made a suo-motu disallowance of Rs.9,20,164/- under section 14A, but the Assessing Officer (AO) increased the disallowance to Rs.31,88,11,319/-. The CIT(A) restored the issue to the AO. The Tribunal held that no disallowance under section 14A is warranted for shares/bonds held as 'stock-in-trade' based on the Supreme Court's decision in Maxopp Investment Pvt. Ltd. Consequently, the assessee's appeal was allowed, and the Revenue's corresponding ground was dismissed.2. Deduction of bad debts written off:The AO disallowed the bad debts written off, citing section 36(1)(viia). The CIT(A) allowed the deduction, following the Tribunal's decision in the assessee's own case for previous years. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide contrary evidence. Thus, the Revenue's ground was dismissed.3. Deduction under section 36(1)(viii):The assessee claimed Rs.282 crores for creating a special reserve under section 36(1)(viii), but the AO allowed only Rs.147.52 crores. The CIT(A) restored the issue to the AO, following the Tribunal's previous order. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.4. Deduction under section 36(1)(viia):The AO added Rs.1,45,08,289/- for recovery of amounts written off for rural branches. The CIT(A) restored the issue to the AO with specific directions to verify certain points. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.5. Applicability of section 115JB:The CIT(A) held that section 115JB does not apply to the assessee, a banking company. The Tribunal upheld this decision, citing the Bombay High Court's ruling in the assessee's case for previous years, which stated that section 115JB does not apply to banking companies. The Revenue's ground was dismissed.Separate Judgments for Different Assessment Years:For assessment years 2011-12 to 2013-14, the Tribunal's decisions were consistent with the above analysis. For assessment year 2014-15, the Tribunal noted the insertion of Explanation-2 to section 36(1)(vii) and remitted the issue of bad debts written off to the AO for fresh adjudication. The other grounds were decided in line with previous years.Conclusion:- Appeals by the assessee for assessment years 2011-12 to 2014-15 were allowed.- Appeals by the Revenue for assessment years 2011-12 to 2013-14 were dismissed.- Appeal by the Revenue for assessment year 2014-15 was partly allowed for statistical purposes.