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State Bank of Hyderabad Versus The Deputy Commissioner of Income Tax Circle-3 (2) , Hyderabad

2015 (8) TMI 41 - ITAT HYDERABAD

Disallowance u/s. 14A - Held that:- As rightly pointed out before the AO, as well as before us interest arrived at by the AO in the consequential order is pertaining to the banking operations which cannot be disallowed u/s. 14A. Infact in the assessment order AO accepted assessee contention. As seen from the amount of investment and sources of funds, assessee has adequate funds for making the investment. Since, no interest is attributable to the investments, no disallowance is called for under R .....

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his amount only can be disallowed under Rule 8D(iii). Therefore, since assessee has already disallowed an amount of ₹ 10,91,678/-, further amount to be disallowed u/s. 14A r.w. Rule 8D is to an extent of ₹ 1,03,35,091/-. AO is directed to modify the order accordingly. - Decided partly in favour of assessee. - ITA No. 449/Hyd/2015 - Dated:- 3-7-2015 - B Ramakotaiah, AM And Saktijit Dey, JM,JJ. For the Appellant : Mrs Lalitha Rameswaran, AR For the Respondent : Shri T Venkata Reddy, DR .....

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ised to ₹ 558,93,59,842/-. In the additions made in the said order, one addition which is under dispute is with reference to the disallowance u/s. 14A. AO noticed that assessee has earned an amount of ₹ 5,11,26,104/- which was claimed as exempt during the year under consideration. Assessee has quantified the expenditure of the treasury department at ₹ 65,50,068/- and as per the orders of CIT(A) / ITAT in earlier years, considered two months of the expenditure of the treasury as .....

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wards expenditure for earning the exempt income. He therefore based on the ratio of operating expenditure and interest expenditure to the total revenue of ₹ 5,080 Crores arrived at a ratio of 80.48% of expenditure. Adopting the same ratio, AO determined the expenditure to be disallowed at ₹ 4,11,46,288/-. 3. Assessee contested the same before Ld.CIT(A). While noticing that the provisions of Section 14A has to be invoked and disallowance has to be made in accordance with rule 8D which .....

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the matter was again carried to the Ld.CIT(A) in appeal. Ld.CIT(A) dismissed the appeal on the reason that the impugned appeal is against the order consequential to the order of the CIT(A). The CIT(A) also further noted that applicability of Section 14A r.w.r. 8D had been categorically upheld by the CIT(A) and therefore, it was felt that the disallowance was in conformity with the directions of the Ld.CIT(A). Assessee is aggrieved, hence, present appeal. 5. Drawing our attention to the assessme .....

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vailable to the bank are to the tune of ₹ 6937.23 Crores. It was submitted that bank had adequate funds for making these investments. Therefore, disallowance of proportionate interest out of the banking operations does not arise. Ld. Counsel relied on the following judgments for the proposition that if the investment is out of the non-interest bearing funds, disallowance u/s. 14A is not sustainable : i. Kerala High Court in the case of State Bank of Travancore [318 ITR 171] ; and ii. Punja .....

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eference to the fact that assessee had earned an amount of ₹ 5,11,26,104/- out of the treasury investments and claimed exemption. There is also no dispute with the working of expenditure incurred by treasury and investment division which amounted to ₹ 65,50,068/-. As per the orders of the appellate authorities in earlier years, assessee considered two month's expenditure as attributable to earning exempt income and accordingly disallowed an amount of ₹ 10,91,681/-. AO while .....

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the disallowance, directed the AO to examine under Rule 8D and the working given by assessee to arrive at the disallowance of ₹ 92,43,413/- which is as under: Calculation of Rule 8D for A Y 2008-09 (Amount in Rs.) (i) The amount of expenditure directly relating to the income which does not form part of total income 65,50,068 (ii) Amount of Expenditure by way of interest - (A) NIL Avg value of investments - (B) 206,70,18,211 Avg value of Assets - 490523272000+616197199000/2 - (c) A*B/C - &# .....

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= ₹ 1,68,85,159/- Amount disallowed in the Assessment Order - 4,11,46,288 Less: Amount to be disallowed - 92,43,413 (As per Rule 8D - {1 ,03,35,091-10,91 ,678}) Amount of relief - 3,19,02,875 8. Instead of examining this working of assessee, the AO in our opinion exceeded the powers granted to him by the CIT(A) in arriving at the disallowance at ₹ 10,98,40,899/-. The order has not been set aside as the CIT(A) has no powers to set aside. The CIT(A) directed the AO to examine the work .....

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e to exempt incomes. Therefore, AO in our view has committed a mistake in considering the extraneous factors in disallowing the amount. Moreover, there is no explanation also with reference to the average value of investments. Assessee itself admits that the average value of investment was at ₹ 206.70 Crores. Without any explanation or working, AO considered the average value of investment at ₹ 170.40 Crores. This figure is much lesser than the amount submitted before the AO in asses .....

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