AI Drafter 
TaxTMI 
TaxTMI 
2022 (2) TMI 776
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....rning of those exempt incomes? (ii)Whether the Tribunal was justified in law in directing to apply section 14A and Rule 8D for working out the proportionate disallowance when the accounts are maintained in accordance with the Banking Regulation Act and the correctness of those accounts are also not disputed? 3.To appreciate the issues involved herein, it is but necessary to look into the findings of the Tribunal rendered in the order impugned herein, as regards the issues relating to "disallowance of proportionate expenses" and "disallowance of depreciation on tax free securities applying section 14A of the I.T. Act", which read as under: "10.We have heard the rival submissions and considered the facts and material on record. The learned D.R. relied on the decision of Special Bench of the ITAT, Mumbai Bench in the case of Income Tax Officer v. Daga Capital Management Pvt Ltd (2009) 312 ITR (AT) 1 (Mumbai) (SB) whereby the Tribunal held that Rule 8 is to be followed in disallowing such expenses and the said Rule is retrospective. Hence, he submitted that the matter may be restored to the file of the Assessing officer to follow the ratio laid down by the Special ....
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....to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd [IT Appeal No.1225 of 2015 dated 28-11-2017] where the answer was in favour of the assessee on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. 18. In the above context, it would be apposite to refer to a similar decision in CIT v. Reliance Industries Ltd [(2019) 102 taxmann.com 52/261 Taxman 165/410 ITR 466 (SC)] where a Division Bench of this Court expressly held that where there is finding of fact that interest ....
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....earned ASG could not provide a satisfactory answer and instead relied upon Honda Siel Power Products Ltd. v. DCIT [(2012) 20 taxmann.com 5/ 206 Taxman 33 (Mag.) / 340 ITR 64 (SC)] to argue that it is the responsibility of the assessee to fully disclose all material facts. The cited judgment, as can be seen, mainly dealt with reopening of assessment in view of escapement of income. The contention of department for re-opening was that the assessee had earned tax-free dividend and had claimed various administrative expenses for earning such dividend income and those (though not allowable) was allowed as expenditure and therefore the income had escaped assessment. On this, suffice would be to observe that the action in Honda Siel Power Products Ltd (supra) related to re-opening of assessment where full disclosure was not made. An assessee definitely has the obligation to provide full material disclosures at the time of filing of Income Tax Return but there is no corresponding legal obligation upon the assessee to maintain separate accounts for different types of funds held by it. In absence of any statutory provision which compels the assessee to maintain separate accounts for differen....
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.... held as "stock-in-trade", it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. [Maxopp Investment Ltd. v. CIT, [2011 SCC OnLine Del 4855 : (2012) 347 ITR 272] where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, 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 goe....
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....k Ltd. [(2007) 160 Taxman 48 / 289 ITR 6 (SC)] 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 & Gains of business. The Punjab and Haryana High Court, in the case of Pr. CIT v. State Bank of Patiala [(2017) 88 taxmann. com 667 / 393 ITR 476 (Punj & Har)] while adverting to the CBDT 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 Statutory Liquidity Ratio (SLR), as mentioned in the circular. In view of this position, when there is no finding that the investments of the Assessee are of the related category, tax implication would not arise against the appellants, from the said circular. 27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate di....