TaxTMI 
TaxTMI 
2023 (6) TMI 1346
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....nd the Hon'ble CIT(A) has erred in confirming the said disallowance up to Rs. 6,71,46,150 u/s. 14A read with Rule 8D(iii) without appreciating the fact that securities held in the ordinary course of banking business constitute the Appellant Bank's stock-in-trade in respect of which disallowance u/s.14A is not applicable. The Appellant Bank prays that the learned ACIT be directed not to make disallowance u/s. 14A read with Rule 8D and delete the addition of Rs. 6,71,46,150/- made to the total income and reduce the total income accordingly. 1A. Without prejudice to Ground no. 1 above, assuming your Honors is of the view that the contention of the Appellant Bank is not acceptable, 'on the facts and in circumstances of the case and in law, the learned ACIT be directed to restrict the disallowance u/s. 14A in respect of expenses (other than interest) Treasury Division of the Bank to Rs. 9,58,601/- (being proportionate expenses suo-moto disallowed in the return of income) and reduce the total income accordingly. 2. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing the exclusion of profits of branches in count....
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....on to decide the issue in accordance with the decision of Hon'ble Supreme Court of India in the case of Maxopp Investment Ltd. vs.CIT, 91 taxamann.com 154(SC). The Assessing Officer in compliance to the directions of the Tribunal passed the assessment order dated 31/12/2017. The Assessing Officer made disallowance u/s. 14A r.w.r. 8D of the Act to the tune of Rs. 80,33,90,425/- and thereafter, restricted the disallowance to the extent of exempt income Rs. 33,68,49,017/- earned during the Financial Year 2011-12. The assessee carried the issue in appeal before the CIT(A). The CIT(A) placing reliance on the decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT, 67 taxamann.com 42 deleted the disallowance in respect of interest expenditure u/r.8D(2)(ii), however, in respect of disallowance u/r.8D(2)(iii), the CIT(A) confirmed the addition. 4.1 The ld. Authorized Representative of the assessee submitted that law is now settled and that in the case of Banks where the shares are held as "stockin- trade" no disallowance u/s. 14A of the Act is warranted. In support of his submissions, he placed reliance on the following decisions: (i) Maxopp Investm....
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.... of rival sides and have examined the orders of authorities below. We have also considered the decisions on which both sides have placed reliance in support of their respective submissions. In ground No.1 of appeal the assessee has assailed disallowance made u/s. 14A r.w.r 8D(2)(iii) of the Act. Both sides have placed heavy reliance on the decision rendered in the case of Maxopp Investment Ltd. vs. CIT(supra). The contention of the Revenue is that the purpose of holding the shares is not relevant. The Hon'ble Apex Court in the said case has rejected the theory of "dominant purpose". Here it would be relevant to refer to the following observations of the Hon'ble Apex Court: "38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with ....
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....e 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. 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 goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove." 7. The Hon'ble Delhi High Court in the case of PCIT....
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....f the said case are para materia to the case in hand. In the case of State Bank of Patiala, (supra) the AO restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule 8-D and holding that section 14A of the Act would be applicable. The CIT(A) issued a notice of enhancement under section 251 of the Act and disallowed the entire expenditure claimed by the assessee therein instead of restricting the disallowance to the amount which was claimed as exempt income. The ITAT set aside the order of the AO as well as CIT(A). The High Court upheld the order of the ITAT and dismissed the appeal filed by the Revenue. The Supreme Court after deliberating on the object and purpose of section 14A, conclusively held that in cases where shares are held by assessee as stock-in-trade, the dividend earned on the said shares is incidental and would not attract the provisions of section 14A of the Act. In this regard, the following paragraphs of the judgment are apposite :- "49. We note from the facts in State Bank of Patiala case that the AO, while passing the assessment order, had already restricted the disallowance to the amount which....
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....mann.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." (Emphasis Supplied) 7.1 The law settled by the aforesaid judgments of the Supreme Court is squarely applicable facts of the present case as there is no dispute that the exempt income was earned from stock-in-trade." Thus, in light of various decisions rendered by Hon'ble Delhi High Court after considering the judgment rendered in the case of Maxopp Investment Ltd. vs. CIT(supra) deleting disallowance u/s. 14A where shares are held as stock-in-trade, we are of considered view that disallowance u/s. 14A of the Act is unsustainable in the instant case. Thus, the assessee succeeds on ground No.1 of the appeal. 9. Since, we have accepted primary contention of the assessee raised in ground No.1, the alternative prayer made in ground No.1A of the appeal has become infructuous and the same is dismissed. 10. In ground No.2 of appeal, the assesse....
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....r incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28th August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The notification deals with connotations of the expression "may be taxed", appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor to do we see any justification for inferring the same. Learned counsel does not have any material whatsoever in support of the proposition canvassed by him, nor does this proposition make any sense on the first principles- inasmuch as once the notification is issued without any such specific restriction for application to business income, we cannot infer a restriction in its application. We, ....