TaxTMI 
TaxTMI 
2026 (5) TMI 1339
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....ppeal of the assessee for the assessment year 2020- 21, and our decision rendered therein on identical issues raised in the Asst.Year 2021-22 will apply pari-passu. 3. ITA No.611/Ahd/2025 : Asstt.Year 2020-21 Ground no.1 raised by the assessee reads as under: 1. Disallowance in relation to administrative expenses u/s 14A read with Rule 8D of the Income-tax Act, 1961 (Tax effect - Rs. 5,06,30,986) 1.1 The learned AO and the Hon'ble CIT(A) erred in disallowing the expenses u/s 14A r.w. Rule 8D over and above the suo-moto disallowance of administrative expenses of Rs. 1.8 crores. 1.2 The learned AO and the Hon'ble CIT(A) erred in rejecting the arithmetic quantification of suo moto disallowance made by the Appellant and by upholding the automatic enforceability of Rule 8D from AY 2008-09 onwards without appreciating that the formula under Rule 8D can only be resorted to if the AO is not satisfied about the claim of expenditure in relation to exempt income as made by the Appellant and only if there is a direct and proximate nexus of the expenditure proposed to be disallowed and the exempt income. 1.3 The learned AO and the Hon'ble CI....
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.... taxable income for the purpose of disallowance u/s 14A. 1.9 The Hon'ble CIT(A) erred in not considering the issue on merits and merely relying on the order of the Hon'ble CIT(A) in respect of the issue for earlier years in confirming the disallowance made by the learned AO u/s 14A." 4. Sole issue raised in the above grounds relates to disallowance of expenses incurred for the purpose of earning exempt income in terms of provisions of section 14A of the Act. 4.1 As per the facts of the facts of the case, the AO computed the disallowance under section 14A of the Act at Rs. 21,30,22,033/- and after giving set off of suo moto disallowance made by the assessee of Rs. 1,18,49,966/- he disallowed the balance amounting to Rs. 20,11,72,067/-. 4.2 The primary contention of the ld.counsel for the assessee before us was that this was a legacy issue arising year to year in the case of the assessee right from assessment year 2003-04 onwards, and the issue has consistently been decided in favour of the assessee by higher authorities, in some assessment years by the Apex Court. It was pointed out that right from the assessment year 2010-11 to 2018-19, the ITAT had consis....
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....enses u/s 14A for A.Y. 2003- 04. Further, the Hon'ble Supreme Court has also decided the matter relating to disallowance of administrative expenses u/s 14A for A.Y. 2003-04, against the Revenue vide order dated 1 Sept ember 2022. 6.2. Hon. Gujarat HC has also rejected revenue's Tax Appeal for disallowance u/s 14 A for A.Y. 2002-03 and from A.Y. 2004-05 to A.Y. 2007-08 and deleted the entire disallowance (including suo- moto disallowance) u/s 14A for the said years. 6.3. The Hon. ITAT, Ahmedabad "A" Bench in the case of the Bank itself for A.Y. 2008-09 has deleted entire additions of interest expenses and of operating expenses. The Hon. ITAT has sustained only suo moto disallowance out of operating expenses. The Hon'ble Gujarat High Court vide its order dated 12.12.2017 has dismissed the Revenue's appeal against order of Hon. ITAT for A.Y.2008-09 on disallowance of expenses for taxable income under section 14A r.w Rule 8D of the Act. Further, the Hon. ITAT, Ahmedabad "A" Bench in case of the Bank for A.Y. 2009-10 has followed the order of co-ordinate bench for A.Y. 2008- 09 and has allowed the miscellaneous application filed by the Bank and deleted the disallowance....
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.... clear formula for calculating disallowance of expenses u /s 14A of the Act is provided in the Rules, there is no scope for the assessee to adopt any method of proportional allocation of expenses. That if the assessee has any issues with regard to the formula so pre scribed in law he can take up the matter at the appropriate judicial forum. These findings of the AO, no doubt are contrary to the provision of law as interpreted by the jurisdictional High court itself in CIMS(supra) that the formula provided in Rule 8D of the Rules is to be applied only in the circumstance that the assesses calculation of disallowance appears to the AO to be incorrect having regard to its books of accounts." 6.6. In view of the above favourable decisions in the Appellant's own case, the disallowance made by the ld.AO ought to be deleted. 5.1 The ld.CIT(A), however, we have noted has taken no cognizance of the same while adjudicating the issue. His finding at 7.3 to 7.33 of the order reveal that he has considered appellate order passed in the case of the assessee for Asst.Year 2012-13, 2013-14, 2014-15 and 2015-16, noting that in the said years, the assessee had agreed to the disallowance b....
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....e 8D of the Rules for computing the disallowance of expenditure under section 14A of the Act, the AO has to first record his satisfaction as to why the claim of the assessee to the disallowance is incorrect having regard to its books of accounts. The ld. Counsel for the assessee has relied on the decision of the Hon'ble jurisdictional High Court in the case of CIMS Hospital P. Ltd. (supra) wherein the Hon'ble Court has held in very clear terms that before invoking Rule 8D, the AO is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. The Hon'ble Court interpreted the provisions of section 14A(2) of the Act while holding so. 14. Having said so, we find that in the facts of the present case, the AO has failed to fulfil this necessary prerequisite for invoking Rule 8D of the Rules. We have noted from the documents filed before us that the assessee had demonstrated to the AO that the suo moto disallowance made by it had been calculated on a scientific basis. The entire basi....
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....ure for allocation to the earning of tax free income. The assessee had also explained, why the interest expenditure were not being considered for the purpose of disallowance. Therefore, it is abundantly clear that the AO had proceeded to apply Rule 8D for computing the expenses disallowable under section 14A of the Act without fulfilling the mandatory prerequisite of first recording dissatisfaction with the assessee's computation of the same, having regard to its books of accounts. 16. Moreover para 21 of the AO's order reveals the AO to be stating that when a clear formula for calculating disallowance of expenses u/s 14A of the Act is provided in the Rules, there is no scope for the assessee to adopt any method of proportional allocation of expenses. That if the assessee has any issues with regard to the formula so prescribed in law he can take up the matter at the appropriate judicial forum. These findings of the AO, no doubt are contrary to the provision of law as interpreted by the jurisdictional High court itself in CIMS(supra) that the formula provided in Rule 8D of the Rules is to be applied only in the circumstance that the assesses calculation of disallowance appe....
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....de by the assessee under section 14A of the Act, the issue, we hold, stands clearly covered by the decision of the ITAT in the case of the assessee itself for Asst.Year 2018-19, following which, we uphold the order of the ld.CIT(A) directing the AO to delete the disallowance of expenses amounting to Rs. 2,01,172,067/- u/s. 14A of the Act. 5.6 Ground no.1 raised by the assessee is allowed. 6. Ground No.2 raised by the assessee reads as under: Disallowance of interest in respect of capital work in progress under proviso to section 36(1)(iii) of the Income-tax Act, 1961 (Tax effect - Rs. 2,59,04,919) 2.1 The learned AO and the Hon'ble CIT(A) erred in invoking proviso to section 36(1)(iii) in respect of amounts capitalized to capital work in progress (CWIP), representing advance payments for purchase of fixed assets but not put to use by previous year end and other payments to contractors etc., particularly for opening of new branches, and making addition of proportionate interest expense of Rs. 10.29 crores under proviso to section 36(1) (iii). 2.2 The learned AO and the Hon'ble CIT(A) erred in not appreciating that the Appellant has not availed any sp....
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....hed the decision of the ITAT in the preceding year, and held the same to be not applicable on account of an amendment made to the provision of section 36(1)(iii) of the Act by Finance Act, 2015, though, the ld.counsel for the assessee contended that it was categorically brought to the notice of the ld.CIT(A) that the said amendment in no way had any effect on the ratio/proposition relied on by the ITAT in the preceding years. 8.1 Taking us to the facts of the case, it was pointed out that the assessee, during assessment proceedings was asked to provide the details of nature of the "CWIP", as also preoperative expenses and/or cost of borrowing added to the "CWIP". The assessee was show caused as to why the interest in relation to "CWIP" be not disallowed in view of provisions of section 36(1)(iii) as done in earlier years. The assessee responded by stating that the issue had been decided in its favour in earlier years by the ITAT, and that even the DRP had deleted the disallowance proposed by the AO for Asst.Year 2018-19. The AO, however did not accept the contentions of the assessee, contending that in the earlier years, the amended proviso of section 36(1)(iii) of the Act were ....
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....ara 44 to 50 and the ITAT following the decision in Asst.Year 2012-13 upheld the order of the ld.CIT(A) deleting the disallowance of interest in respect of "CWIP" made under section 36(1)(iii) of the Act. 8.4 It is abundantly clear from the above that finding of the ld.CIT(A) that the assessee was unable to substantiate its claim of this issue having been decided in its favour in earlier years, is completely incorrect. 8.5 Be that so, it is clearly established on record that the identical issue of disallowance of interest expenses incurred in respect of "CWIP" has consistently been decided in favour of the assessee by the first and second appellate authorities i.e. CIT(A) and the ITAT, in the case of the assessee itself right from Asst.Year 2010-11 to Asst.Year 2018-19. 8.6 Having noted so, we shall now consider the contentions of the AO that the said decisions are not applicable to the facts of the present case, since, there was an amendment to the provisions of section 36(1)(iii) of the Act, which was not applicable in the preceding years, but applied for the impugned year. The amendment to section 36(1)(iii) has been reproduced in page no.66 of the order as under: ....
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....ement with the ld.CIT(A) that the amendment to provisions of section 36(1)(iii) of the Act would apply to the facts of the present case, and the decision of the ITAT in the preceding years would not apply. On facts, it has been consistently pointed out to the authorities below that the assessee had interest free funds amounting to Rs. 1,01,603.01 crores while its investment in "CWIP" was only Rs. 109.07 crores. On facts, therefore, the assessee has sufficiently demonstrated existence of own interest free funds for making investment in "CWIP" and the proposition, therefore relied upon by the ITAT in the preceding years that the presumption in such cases would be that interest free funds have been used for investment in "CWIP", would apply. We, therefore, agree with the ld.counsel for the assessee that in the facts of the issue before us, the decision of the ITAT in the case of the assessee in preceding years would squarely apply, and following the same, we direct the deletion of disallowance of interest amounting to Rs. 10,29,28,000/-. 8.9 Ground no.2 is, therefore, allowed. 9. Ground No.3 raised by the assessee reads as under: 3. Reclassification of long-term capital....
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....t) and investment in venture capital funds and returned capital gains earned thereon under the head income from "Capital Gains", after indexing amounting to Rs. 234,82,66,462/-.The assessee paid taxes thereon at special rate of 20%. The AO, however, held the income arising from the sale of such investments, as being attributable to the business of banking, and therefore, taxable under the head "Profits and Gains of Business and Profession". He referred to the decision of Hon'ble Apex Court in the case of CIT Vs. Nawanshahar Central Cooperative Bank Ltd., (2007) 160 TAXMAN 48 (SC) for the proposition that the investments made by the banking concerns were part of the business of the banking, and therefore, and drawing the ratio therefrom, he held that income earned from the sale of such investments would be of in the nature of "Profits and Gains of Business and Profession". 9.2 The assessee carried the matter before the ld.CIT(A) contending that the impugned investments made by the assessee were not made in the ordinary course of business or for the purpose of trading. The assessee contended that the investment made in "MAX" was a strategic investment and the assessee, by virtue o....
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....essee reiterated the contentions made before the ld.CIT(A) to the effect that the decision relied upon by the authorities below was not applicable to the facts of the present case, because it was rendered in the background of facts that the investments were made for fulfilling statutory requirement, and in the back ground of such facts, the Hon'ble Apex Court had held the income from such investments to be in the nature of business income. 9.5 He contended that Courts have recognized the fact that investment made to bank are not necessarily during the course of conducting its business of banking but can also be long term investments and that therefore, there can be two portfolios with banks, as capital asset or as stock-in-trade. Our attention was drawn to the decision of the Hon'ble Apex Court in the case of Bank of Rajasthan vs. CIT (2024) 469 ITR 280 (SC), wherein it was pointed out that the Hon'ble Apex Court recognized that investments made in securities by banks could either in the nature of stock-in-trade or long term investments depending upon the facts of each case. He drew our attention to Para 19-21 of the order of the Hon'ble Apex Court pointing out therein that the ....
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.... or face value." 9.6 He contended that it is settled law that the intention of the purchaser at the time of purchase is important for deciding the nature of income. He referred to the decision of the Hon'ble Apex Court in the case of PCIT vs. Bhanuprasad D. Trivedi (HUF) (2018) 94 taxmann.com 114 (SC) in this regard. He further contended that in the preceding years in the case of the assessee in regular assessment LTCG and loss returned by the assessee on sale of investments made in Venture Capital Funds and others was accepted as Income from capital gains. The details of such assessment was filed in tabular form before us as under: A.Y. Particulars Amount (Rs.) Department's stand Pg. Nos. of Addl. Compilation 13-14 Long term capital gain on sale of shares of Axis AMC Ltd. and Axis MF Trustee Ltd. 1,48,72,64,049 Accepted as capital gain 1-14 Long term capital gain on sale of units of UTI Venture Fund and Axis Infrastructure Fund 1 2,56,12,312 Accepted as capital gain 14-15 Long term capital gain on sale of shares of Prizrn Payment Services Pvt. Ltd. 1,24,44,79,717 Accepted as capital gain 15-26 Long term capital gain o....
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....rative bank from investments was treated to be in the nature of business income eligible for deduction under Section 80P(2)(a)(i) of the Act which, in turn, was confirmed by the Hon'ble Apex Court. In the facts of the present case it was pointed out that the investments were not in the nature of statutory investments but were strategic investment or investments made for the purposes of capital appreciation and therefore, the facts of the present case being different from that in the case of Nawanshahar Central Cooperative Bank Ltd. the decision of the Hon'ble apex court had been wrongly applied in the case of the assessee for treating the income earned from sale of shares amounting to Rs. 234.82 crs to be in the nature of business income. 9.8 Ld.DR however supported the order of the Ld.CIT(A) stating that he had rightly applied the decision of the Hon'ble apex court in the case of Nawanshahr (supra) for treating the income earned from sale of investments to be in the nature of business income. 9.9 We have heard the rival contentions. The issue which falls for our consideration is the nature of the income earned from sale of shares of Max Life Insurance Co. Ltd. and units of v....
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....e us as above. He was unable to point out as to how the decision of the Hon'ble Apex Court in the case Nawanshahar Central Cooperative Bank Ltd. could be said to lay down a blanket proposition that all investments made by banks were to be treated as in the course of doing banking business. He was also unable to controvert the observations of the Hon'ble Apex Court in the case Bank of Rajasthan Ltd. (supra) that banks can be said to be having two types of investments (i) stock-in-trade and other is (ii) long term investment. 9.12 In light of the above alone, we are in agreement with the Ld. Counsel for the assessee that the Ld. CIT(A) has erred in holding the income earned by the assessee from sale of investments to be in the nature of capital gains relying solely on the decision of the Hon'ble Apex Court in the case of Nawanshahar Central Cooperative Bank Ltd. (supra). 9.13 We also agree with the Ld. Counsel for the assessee that since the assessee has fairly demonstrated the investments to have been made not for the purpose of carrying its business but for long term purposes/ strategic purposes., therefore, the income arising from the sale of such shares has been rightly ret....
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....case of the assessee in earlier years was deleted by the ITAT. The AO, however, rejected the contentions of the assessee, noting that identical disallowance was made in the case of the assessee for Asst.Year 2018-19 and also in earlier assessment years, though, the addition was deleted by the ITAT, yet for the purpose of maintaining consistency, the addition/disallowance was being made. His finding in this regard are reproduced at page no.74 of the order of the ld.CIT(A) as under: "9.5.3. The contention of the assessee is not accepted for the reasons mentioned in the earlier years' assessment orders particularly para 7.3.10 of the assessment order passed for the A.Y.2018-19. Without prejudice to the above, even if the ESOP cost is to be treated as expenditure, the same is directly relatable to Capital account and is required to be treated as capital nature expenditure and cannot be allowed as revenue expenditure u/s 37(1) of the Act. Though the issue has been decided in its favour by deleting the addition made on this ground for the earlier years by the Hon'ble ITAT, Ahmedabad Bench, maintaining consistency with the decision taken for the earlier assessment years and the r....
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....per the said guidelines. He further pointed out that identical issue had arisen in the case of the assessee in the preceding years and the ITAT had deleted the addition made on this amount vide its order passed dated 28.10.2021. The AO persisted with the addition, noting that, since the issue has not attained acceptable level of finality, and therefore, to maintain consistency and keep the issue alive, he made an addition of the interest on NPA for the period, since the debts became overdue from three months to six months, resulting the addition to the income of the assessee of Rs. 105,18,67,642/-. The finding of the AO in this regard are reproduced at page no.36 of the CIT(A)'s order as under: 9.3.2 The assessee has responded to this query and has stated that Section 43D of the Act provides for taxation of interest on bad and doubtful debts as per the guidelines issued by RBI. The RBI Guidelines provide for 90 days' overdue norm for classification of a debt as bad and doubtful debt. Accordingly, as per the RBI Guidelines, debts overdue for more than 90 days are classified as bad and doubtful debts and interest thereon is not recognized in the P/L account until received. F....
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....rejudice to the position of the Appellant that the expenses debited to the profit and loss account do not have any direct or proximate nexus with the exempt income. 1.4 The learned AO and the Hon'ble CIT(A) erred in not appreciating the fact that the all the exempt income yielding investments made by the Appellant are in the nature of stock in trade (i.e. tax free bonds and debentures) and accordingly, the provisions of section 14A shall not be applicable to such investments in line with judicial precedents. 1.5 The learned AO and the Hon'ble CIT(A) erred in not relying upon favourable judgements of Hon'ble Tribunal and Gujarat HC up to AY 2009-10 and Supreme Court judgement for AY 2003-04 in the Appellant's own case. Further, the learned AO and the Hon'ble CIT(A) erred in not relying upon favourable latest judgement of the Hon'ble Tribunal in Appellant's own case for AY 2018-19, wherein the Tribunal had deleted entire addition u/s 14A in the same facts as involved in the year under consideration. 1.6 The learned AO and the Hon'ble CIT(A) erred in not appreciating that the Appellant has sufficient own funds which are far more than the amount of invest....
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....ther payments to contractors etc., particularly for opening of new branches, and making addition of proportionate interest expense of Rs. 14.39 crores under proviso to section 36(1) (iii). 2.2 The learned AO and the Hon'ble CIT(A) erred in not appreciating that the Appellant has not availed any specific borrowing in respect of CWIP and where own funds of the Appellant were in excess of amount capitalized as CWIP, the presumption would be that the Appellant has used its own funds, and no disallowance of interest expenses was warranted in such case. 2.3 The learned AO and the Hon'ble CIT(A) erred in incorrectly taking resort to the amendment in proviso to section 36(1)(iii) by the Finance Act, 2015, which deleted the phrase "for extension of existing business or profession", when the said amendment has no bearing in the case of the Appellant since the Appellant has sufficient interest free funds out of which CWIP may be said be funded and consequently, there would not be any interest attributable to CWIP. 2.4 The learned AO and Hon'ble CIT(A) erred in not considering explanatory notes to the provisions of The Finance Act, 2015 wherein it is clarified that t....
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.... are made for fulfilling statutory requirements of RBI and are made in the approved securities without appreciating that the investment made by the Appellant in Max New York Life insurance Co. Ltd. and Yes Bank Limited was not pursuant to any statutory requirements. 3.4 The learned AO and the Hon'ble CIT(A) erred in not following CBDT Instruction F No. 225/12/2016/ITA.II dated 2.5.2016 for classification of gains on sale of unlisted shares of Max New York Life Insurance Co. Ltd. as capital gains even though CBDT Instructions are binding on the tax department. 3.5 The learned AO and the Hon'ble CIT(A) erred in not appreciating that investment in Max New York Life Insurance Co. Ltd. was for strategic purposes and the Appellant had significant influence through voting power and representation on the Board of Directors of Max New York Life Insurance Co. Ltd., is categorized as a co-promoter thereof and Max qualifies as an associate of the Appellant and thus, such shares constituted capital asset for the Appellant. 3.6 The learned AO and the Hon'ble CIT(A) erred in not appreciating that the investment in Yes Bank Limited was also made pursuant to a scheme of r....
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.... for claiming of foreign tax credit and could not impose conditions subject to which foreign tax credit would be allowed. 4.6 The Ld. AO and the Hon'ble CIT(A) erred in not appreciating that the claim of foreign tax credit is available pursuant to Article 25 of India - Singapore DTAA without any limitation with respect to timeline and where the provisions of the DTAA are more beneficial than the Act and corresponding Rules, the same should prevail. 4.7 The Ld. AO and the Hon'ble CIT(A) erred in not appreciating that judicial precedents have upheld claim of foreign tax credit made during the course of assessment proceedings even if the same was not claimed in the return / revised return of income. 4.8 The Appellant is consequently also aggrieved by the levy of interest u/s 234C of the Act without considering the effect of additional Foreign Tax Credit in accordance with Ground No. 4 above. 17.1 The issues involved in the above ground relates to disallowance of claim of foreign tax credit of Rs. 72,70,934/- on account of requisite form no.67 not having been filed by the assessee. 17.2 The facts relating to the issue are that the assessee had claimed f....
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....f Rs. 10,15,79,090/- was not justified in law. 18. The ld.DR, however, relied on the order of the authorities below and contended that the assessee had failed to make the claim in its revised return, and had also delayed in filing of Form no.67 and that the authorities below justified in not allowing the claim of foreign credit tax to the assessee. 19.1 Having heard both the parties, we are not in agreement with the ld.CIT(A) on this issue of claim of foreign tax credit. Undoubtedly, the courts repeatedly and consistently have held the requirement of filing of form no.67 for the purpose of claiming foreign tax credit to be a directory requirement and not a mandatory requirement. The ld.counsel for the assessee has referred to number of cases, as noted above by us, of the ITAT in this regard. The ld.DR has not brought to our notice any contrary decision of any higher judicial authorities on this count. Therefore, denial of claim of foreign tax credit on account of delay of filing of the Form NO.67 is not justified. Other reason given by the Revenue authorities for denying this claim is, because, the assessee failed to make the claim by filing revised return. As rightly pointed....