TMI Blog2021 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai dated 09.06.2017, which in turn arises from the assessment order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short Act ), dated 18.03.2015 for A.Y. 2012-13. We shall first take up the appeal of the assessee. The assessee has assailed the impugned order on the following grounds before us: Ground I: Disallowance u/s 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ( the Rules ) 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in partly upholding le following actions of the AO in making disallowance u/s 14A r.w.r. 8D: a. Rule 8D was validly invoked by the AO; b. Directing the AO to verify the details as regards securities held as stock in trade despite the fact that it is already a matter of records that profit on sale of securities (including securities earning exempt income) and interest on such securities is offered for tax under the head profit and gains from business or profession; c. In holding that disallowance u/s 14A of the Act cannot be less than suo moto disallowance made by the Appellant in the return of income. 2. The Appellant prays that the disallowance u/s 14A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely: - A x B C Where A = amount of expenditure by way of interest other than the amount of interest include in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee on the first day and the last day of the previous year; 14,98,95,79,779 14,35,49,85,152 30,76,31,04,50,407 6,99,45,865 iii. An amount equal to one-half per cent of average of the value of investment income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of Vijaya Bank Limited Vs. Additional CIT (1991) 187 ITR 541 (SC). After inter alia making the aforesaid additions/disallowances the income of the assessee company was assessed by the A.O vide his order passed u/s 143(3), dated 18.03.2015 at an amount of ₹ 8579,82,33,350/-. 4. Aggrieved, the assessee assailed the impugned assessment order before the CIT(A). It was observed by the CIT(A) that a similar issue qua the disallowance made by the A.O u/s 14A r.w Rule 8D had been decided by his predecessor while disposing off the assesse s appeal for the immediately preceding year i.e A.Y. 2011-12 vide order no. CIT(A)-6/IT-08/2013-14, dated 29.07.2016. Observing that there was no shift in the factual or the legal position, the CIT(A) directed the A.O to disallow the higher of the disallowance of ₹ 95,08,984/- or the sum calculated as per the directions that were issued by his predecessor while disposing off the assessee s appeal for A.Y. 2011-12, vide his order dated 29.07.2016. Insofar the disallowance of the assessee s claim for deduction of broken period interest on HTM securities of ₹ 165,60,89,891/- was concerned, the CIT(A) observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A.R that the revenue had accepted the order of the CIT(A) to the extent he had vacated the disallowance made by the A.O under Rule 8D(2)(ii) and no appeal on the said aspect was filed before the Tribunal. In order to drive home his aforesaid claim the ld. A.R had drawn our attention to Para 3.2 of the order passed by the Tribunal in the assessee s own case for the immediately preceding year i.e A.Y. 2011-12, viz. HDFC Bank Limited Vs. ACIT 2(3), ITA No. 6123/Mum/2016, dated 08.07.2020. Further, it was submitted by the ld. A.R that the Tribunal in its aforesaid order had after drawing support from the judgment of the Hon ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT (2018) 402 ITR 640 (SC), had held, that as the assessee was a bank, therefore, investments held by it 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 whether exempt income was derived from such investments or not. It was further submitted by the ld. A.R that the Tribunal in its aforesaid order had observed that only those strategic investments held by the assessee that had yielded exempt income were to be considered f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and HDFC Bank Limited Vs. PCIT-2(3), Mumbai (2016) 383 ITR 529 (Bom). Adverting to the judgment of the Hon ble High Court of Bombay in the case of Reliance Utility and Power Limited (supra), it was submitted by the ld. A.R that there was a clear mention that the availability of the own funds with the assessee company was to be looked into in context of the balance sheet . As such, it was submitted by the ld. A.R that what was the relevant for arriving at the presumption of availability of sufficient own funds and interest free funds with the assessee was the date of the balance sheet and not the date of investment. It was submitted by the ld. A.R that the Hon ble High Court of Bombay in its order passed in the case of CIT-2, Mumbai Vs. HDFC Bank Limited (2014) 366 ITR 505 (Bom) had after drawing support from its earlier order passed in case of Reliance Utility and Power Limited (supra), had concluded, that where the assessee s own funds and other non-interest bearing funds were more than the investments made in tax free securities, then, there was no justification on the part of the A.O to have disallowed any part of the interest payments while working out the disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be as per the methodology contemplated in Rule 8D(2) of the Income Tax Rules, 1962. At the same time, we cannot also remain oblivious of the fact that the aforesaid mechanism for computing the disallowance would stand triggered only where the assessing officer, having regard to the accounts of the assessee of a previous year, is either not satisfied with, viz. (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year. To sum up, as per the mandate of law the A.O shall determine the amount of expenditure in relation to income not includible in total income as per sub-rule (2) of Rule 8D only after satisfaction of either of the aforesaid two conditions contemplated in sub-rule (1) of Rule 8D. In our considered view, as the A.O in the present case had only after duly recording his dissatisfaction as regards the correctness of the claim of expenditure attributed by the assessee for earning of the exempt dividend income determined the amount of disallowance u/s 14A r.w Rule 8D(2), therefore, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Rules, 1962, the A.O reworked out the same at ₹ 14,17,20,791/-. After taking cognizance of the suo motto disallowance of ₹ 95,08,984/- that was offered by the assessee u/s 14A of the Act, the A.O restricted the additional disallowance to an amount of ₹ 13,22,11,807/-. On appeal, the CIT(A) following the view that was taken by his predecessor while disposing off the asessee s appeal for A.Y. 2011-12 had directed the A.O to disallow higher of the suo motto disallowance of ₹ 95,08,984/- or the sum calculated as per directions that were issued by his predecessor vide his order passed while disposing off the assessee s appeal for A.Y. 2011-12. It is the capping of the disallowance at a minimal figure of ₹ 95,08,984/- i.e as offered by the assessee on a suo motto basis in its return of income by the CIT(A) that has been assailed by the assessee before us. As observed by us hereinabove, the Hon ble High Court of Gujarat in PCIT Vs. UTI Bank Ld. (2017) 398 ITR 514 (Guj) had upheld the order passed by the Tribunal that had vacated the entire disallowance under Sec. 14A of the Act, despite the fact that the assessee had on a suo motto basis offered a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in le case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. The Tribunal also referred to a decision of the Division Bench of this court in the case of CIT v. Mitesh Impex [2014] 46 taxmann.com 30/225 taxman 168. 5. Having heard learned counsel for the parties and having perused the documents on record, we do not see any in the view of the Tribunal. The question of disallowance under section 14A of the Act has been examined on the basis of materials on record. The Tribunal found that the assessee's interest-free funds far exceeded its interest free investments. The Tribunal relied on the decisions of this court in the case of this very assessee concerning similar issues in the later assessment years, against which we are informed that the special leave petition has been dismissed. 6. Regarding a claim contrary to the disclosures in the return, the Tribunal relied on the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. (supra) to observe that the purpose of assessment is to tax real income. This court taking note of the decisions of the Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 80-IB and 80HHC of the Act. In the result no question of law arises, All tax appeals are dismissed. Apart from the aforesaid, we find that a similar view had been taken by the Tribunal in the assessee s own case for A.Y 2006-07 and A.Y 2007-08 in ITA Nos. 5480 5481/Mum/2014, dated 24.08.2016. In the aforesaid case, the assessee had out of abundant caution offered a suo motto disallowance of ₹ 34,67,201/- and ₹ 81,28,000/- towards interest expenditure u/s 14A of the Act. On appeal, the Tribunal relying on the order passed in the case of Tata Industries Limited Vs. ITO, ITA No. 4894/Mum/2018 directed the A.O to delete the disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii), despite the fact that a suo motto disallowance for the said respective years was offered by the assessee in its returns of income. Also, we find that a similar view that the disallowance u/s 14A can go below the amount of suo motto disallowance that was offered by an assessee u/s 14A in its return of income had been arrived at by the various coordinate benches of the Tribunal, as under: i. Sajjan India Ltd. Vs. ACIT (89 taxmann.com 21) (Mum ITAT) ii. Nerka Chem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest bearing funds by relying on the decision of CIT vs.HDFC(366 ITR 505)(Bom HC). 3. On the facts and the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the disallowance u/s. 14A r.w.r. 8D can be made only after excluding tax-free investments which are strategic in nature ,without realizing the fact that assessee is also earning exempt income on the strategic investments and expenses incurred on the same should be disallowed U/S.14A r.w.r.80. 4. On the facts and the circumstances of the case and in law ,the Ld.CIT(A) has erred in deleting disallowance u/s. 14A,without considering the fact that the Hon'ble ITAT in the assessee's own case for the A.Y. 2008-09 to 2010-11 vide order dated 31.03.2015 in MA No. 18 to 20/Mum/2015 arising out of ITA No.375, 3465 1795/Mum/2014 has set aside the matter to the A.O. for examination of availability of own funds interest free funds for making investments on the date of making investments. 5. On the facts and the circumstances of the case and in law ,the Ld.CIT(A) has erred in holding that the broken period interest is allowable on matching principles ,without realizing that the same has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny part of interest payments u/s 14A of the Act. Again, the aforesaid view was taken by the Hon ble High Court in the assessee s own case i.e HDFC Bank Limited Vs. PCIT-2(3), Mumbai (2006) 383 ITR 529 (Bom). In its aforesaid order, it was 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. As such, finding no force in the aforesaid grievance of the revenue we herein dismiss the same. The Ground of appeal No. 1 2 raised by the revenue are dismissed. 16. We shall now take up the claim of the revenue that the CIT(A) by adopting an inconsistent approach had erred in out rightly vacating the disallowance of interest expenditure made by the A.O u/s 14A r.w Rule 8D(2)(ii). It is the claim of the revenue, that unlike as in A.Y. 2008-09 to A.Y. 2010-11, wherein the Tribunal vide its order dated 31.03.2015 in M.A. No. 18 to 20/Mum/2015 arising out of ITA No. 375, 3465 1795/Mum/2014 had set-aside the matter to the A.O for examination of availability of own funds and interest free funds with the assessee on the dates on which such investments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far the year under consideration is concerned. Apart from that, nothing has been brought to our notice which would reveal that the assessee did not have sufficient own funds and interest free funds to make investments in the exempt income yielding securities during the year under consideration. On the contrary, we find that the focus of the revenue has through out been on the aspect that in case of availability of mixed funds i.e own funds/interest free funds and interest bearing funds, the presumption that the assessee had made the investment in the tax free securities out of its own funds and interest free funds did not merit acceptance. Nothing is discernible from the orders of the lower authorities nor is it the claim of the revenue either before us or before te lower authorities that the assessee did not have sufficient own funds and interest free funds to make investments in the exempt income yielding securities. As regards the point of time on which the availability of own funds and interest free funds with the assessee for making of investments in exempt income yielding securities was to be looked into, we concur with the claim of the ld. A.R that as observed by the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w Rule 8D(2)(iii). 18. We shall now deal with the grievance of the revenue that the CIT(A) had erred in holding that the broken period interest is allowable on matching principles, without realizing that the same had not been incurred for realizing the interest on security as enunciated by the Hon ble Apex Court in Vijaya Bank Limited (1991) 187 ITR 541 (SC). As observed by us hereinabove, the assessee s claim for deduction of broken period interest on HTM securities of ₹ 165,60,89,890/- was disallowed by the A.O, for the reason, that the same as per him was nothing but part of the price that was paid for acquiring the securities in question. It was, thus, observed by the A.O that as the price paid by the assessee was in the nature of a capital outlay, therefore, no part of the same could have been set-off as an expenditure against interest accruing on these securities. Although the CIT(A) in the assessee s own case for A.Y. 2009-10 had vacated the disallowance of its claim for deduction of broken period interest, however, the A.O was of the view that as the said order of the first appellate authority had been assailed before the Tribunal, therefore, in order to keep t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. We find that assessee has debited an amount of ₹ 1947,35,93,107/- in the profit and loss account as broken period interest. The assessee submitted that this broken period interest paid is nothing but part of the price paid for the securities at the time of its acquisition. The ld. AO observed that the said purchase price is in the nature of capital outlay and hence, the same cannot be allowed as deduction while computing business income of the assessee. The ld. AO observed that similar disallowance was made in assessee s own case for the A.Y.2009-10 and the revenue appeal was pending before this Tribunal at the time of completion of the assessment proceedings. Hence, in order to keep the issue alive, disallowance was made by the ld. AO. We find that the ld. CIT(A) had deleted this addition by following the decision of the Hon ble Jurisdictional High Court in assessee s own case and the decision of this Tribunal in assessee s own case for A.Y.2008-09 and 2009-10 and 2010-11 in ITA Nos.375, 722, 3465, 4367/Mum/2012 and ITA No.1795/Mum/2010 dated 12/11/2014. In all these decisions, it was held that the broken period interest paid by the assessee is allowable as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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