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2021 (9) TMI 7 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - investments held as stock-in-trade - assessee had on a suo motto basis offered a voluntary disallowance - Validity of invoking of Rule 8D - HELD THAT:- As relying on judgment of the Hon’ble Supreme Court in the case of Maxopp Investments Limited [2018 (3) TMI 805 - SUPREME COURT] had observed that as the assessee was a bank, therefore, investments held as stock-in-trade were not to be considered for the purpose of working of disallowance u/s 14A of the Act, irrespective of the fact that any exempt income was derived from such investments or not - We direct that the investments that were held by the assessee bank as stock-in-trade shall not be considered by the A.O for the purpose of working of disallowance u/s 14A of the Act, irrespective of the fact whether exempt income was derived from such investments or not. Whether disallowance u/s 14A cannot be less than the suo motto disallowance that was offered by the assessee in its return of income? - We set-aside the order of the CIT(A) to the extent he had directed the A.O to cap the disallowance u/s 14A at a minimal amount i.e the amount that was suo motto offered for disallowance by the assessee in its return of income of income - we direct the A.O to work out the disallowance u/s 14A r.w Rule 8D without being influenced in any way by the amount of disallowance that was offered by the assessee under Sec. 14A in its return of income. Accordingly, the Ground of appeal No. I raised by the assessee is partly allowed in terms of our aforesaid observations. Computing the disallowance of the interest expenditure u/s 14A r.w Rule 8D(2)(ii) - Sufficiency of own funds - Whether CIT(A) has erred in deleting disallowance u/s 14A r.w.r. 8D(2)(ii) following the case law in CIT vs. Reliance Utilities and Power Ltd.[2009 (1) TMI 4 - BOMBAY HIGH COURT] without realizing that this case law is different from the assessee's case as the same was dealt with expenses u/s.36(1)(iii) of the Act - AY 2012-13 - HELD THAT:- Hon’ble High Court of Bombay in the assessee’s own case i.e CIT Vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] by drawing support from its aforesaid order passed in the case of Reliance Utility and Power Limited (supra), had observed, that where the assessee’s own funds and other non-interest bearing funds were more than the investments in tax free securities, then, there was no justification for the A.O to have disallowed any part of interest payments u/s 14A of the Act. Again, the aforesaid view was taken in the assessee’s own case i.e HDFC Bank Limited Vs. PCIT-2(3), Mumbai [2016 (3) TMI 755 - BOMBAY HIGH COURT]as observed by the Hon’ble High Court that when there were sufficient own funds with the assessee, then, there was a presumption that investment in tax free securities was made out of own funds - no force in the aforesaid grievance of the revenue. Whether disallowance u/s 14A r.w.rule 8D can be made only after excluding the tax free investments which are strategic in nature? - We set-aside the order of the CIT(A) to the extent he had held that the tax free investments which are strategic in nature are to be excluded for the purpose of computing the disallowance u/s 14A r.w Rule 8D. At the same time, we may herein observe that only those strategic investments held by the assessee that had yielded exempt income are to be considered for the purpose of working out the disallowance u/s 14A r.w Rule 8D(2)(iii). In fact, a similar view had been taken by the Tribunal while disposing off the assessee’s appeal for A.Y. 2011-12) [2020 (7) TMI 502 - ITAT MUMBAI]. Accordingly, in terms of our aforesaid deliberations we herein direct the A.O to include the strategic investments which had yielded exempt income during the year for the purpose of computing the disallowance u/s 14A r.w Rule 8D(2)(iii). Broken period interest is allowable on matching principles - HELD THAT:- As decided in assessee’s appeal for A.Y. 2011-12) [2020 (7) TMI 502 - ITAT MUMBAI] the broken period interest paid by the assessee was allowable as a deduction while computing its total income - no infirmity in the view taken by the CIT(A) who had rightly vacated the disallowance of the broken period interest on HTM securities
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