2021 (7) TMI 622 - AT - Income Tax

Appeal success for assessee in tax case with Section 14A disallowances deleted

The Tribunal allowed the assessee's appeal, directing the deletion of disallowances under Section 14A and granting TDS credit. The revenue's appeal was ... Disallowance u/s 14A r.w.r. 8D - Theory of dominant purpose in making investment in shares - Difference between shares held as stock in trade stand on a different pedestal in relation to the shares that were acquired with an intention to acquire and retain the controlling interest in the investee company - HELD THAT:- As decided in own case [2019 (1) TMI 1654 - ITAT DELHI] also confirmed by HC [2019 (11) TMI 342 - DELHI HIGH COURT] relying on Maxopp Investment Ltd vs. CIT [2018 (3) TMI 805 - SUPREME COURT] whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. Issue held in favour of the respondent assessee that it had earned the revenue on the shares held as stock in trade only by a quirk of fate. Therefore, clear that though not the dominant purpose of acquiring the shares is a relevant for the purpose of invoking the provisions under section 14 A of the Act, the shares held as stock in trade stand on a different pedestal in relation to the shares that were acquired with an intention to acquire and retain the controlling interest in the investee company. We, therefore, while respectfully following the above decision do not find any illegality or irregularity deleting the addition made by the Ld. AO under rule 8D (2) (ii) of the Rules. - Appeals of the revenue are dismissed. Disallowance made by the AO out of contribution to Punjab and Sind Bank Employees Pension Fund Trust - HELD THAT:- As decided in own case [2019 (1) TMI 1654 - ITAT DELHI] issue was decided in of the assessee wherein it was held that similar expenses were allowed in the earlier assessments made under section 143(3) of the Act and the decision of Delhi ITAT in the case of DCIT vs Ranbaxy Laboratories Ltd [2009 (6) TMI 126 - ITAT DE LHI-I]wherein the expenses towards provision for pension fund were held to be allowable expenses and section 43B has no application, is applicable. The fact that the assessee had actually contributed/paid the amount to pension fund makes the case of the assessee even stronger. Following the above orders, Ld. CIT(A)held that the addition his score has to be deleted. - Decided in favour of assessee. Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Addition to book profit under MAT (Section 115JB).3. Non-granting of TDS credit.4. Addition in respect of depreciation on securities.5. Disallowance out of contribution to P & S Bank Employees Pension Fund Trust.6. Disallowance under Section 14A while computing book profit under Section 115JB.Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The assessee contested the disallowance of Rs. 85,98,000/- under Section 14A read with Rule 8D. The Tribunal referenced a prior decision in the assessee's case (ITA Nos. 1441 and 1442/Del/2015 for A.Y. 2011-12 and 2012-13), where it was held that disallowance under Section 14A could not be invoked for shares held as 'trading assets' or 'stock in trade.' The Supreme Court in Maxopp Investment Ltd vs. CIT clarified that for shares held as stock-in-trade, the main purpose is to trade in those shares and earn profits, and any incidental dividend income should trigger the applicability of Section 14A. The Tribunal, following this principle, directed the AO to delete the disallowance made under Section 14A read with Rule 8D.2. Addition to Book Profit under MAT (Section 115JB):The Tribunal found that since the disallowance under Section 14A was deleted, the corresponding addition to book profit under MAT (Section 115JB) should also be deleted. This was consistent with the earlier findings and the decision of the Delhi High Court, which upheld the Tribunal’s view.3. Non-granting of TDS Credit:The assessee raised an issue regarding the non-granting of TDS credit amounting to Rs. 2,06,817/-. The Tribunal directed the AO to allow the credit as per provisions of the law after necessary verification, as the CIT(A) had already issued appropriate directions.4. Addition in respect of Depreciation on Securities:The revenue's appeal included an issue regarding the deletion of an addition of Rs. 17,63,07,641/- made by the AO in respect of depreciation on securities. The Tribunal referenced its earlier decision in the assessee's case for A.Y. 2011-12 and 2012-13, where it was held that the assessee, being a nationalized bank, was entitled to value its stock-in-trade (investments) at cost or market value, whichever is lower, for income tax purposes. The Tribunal found no irregularity in the CIT(A)’s deletion of the addition and dismissed this ground of the revenue's appeal.5. Disallowance out of Contribution to P & S Bank Employees Pension Fund Trust:The revenue contested the deletion of a disallowance of Rs. 1,87,35,15,770/- made by the AO out of contributions to the P & S Bank Employees Pension Fund Trust. The Tribunal noted that similar expenses were allowed in earlier assessments and referenced the decision in DCIT vs. Ranbaxy Laboratories Ltd, which held that expenses towards provision for pension fund were allowable and Section 43B had no application. The Tribunal upheld the CIT(A)'s decision to delete the disallowance.6. Disallowance under Section 14A while Computing Book Profit under Section 115JB:The revenue also contested the deletion of disallowances made under Section 14A while computing book profit under Section 115JB. Since the Tribunal had already directed the deletion of disallowances under Section 14A, the corresponding adjustments to book profit under Section 115JB were rendered moot. The Tribunal dismissed these grounds as well.Conclusion:The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal, directing the AO to delete the disallowances under Section 14A and to grant the TDS credit after verification. The decisions were consistent with prior rulings and upheld by the Delhi High Court.