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TMI Blog2023 (9) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as stock-in-trade and dividend/interest income is incidental to holding such securities for the purpose of trading. The Appellant Bank also has sufficient owned fund to make investment in Tax- free securities and hence 14A disallowance is not warranted. The NFAC be directed to delete disallowance u/s. 14A read with Rule 8D of Rs. 1911,07,68,683 towards expenditure incurred in relation to income claimed exempt u/s. 10 of the Act and reduce the total income accordingly. 1B Without prejudice to Ground no. 1A above, assuming without accepting that the disallowance u/s. 14A is applicable, the Appellant Bank prays that the disallowance u/s. 14A read with Rule 8D of Rs. 1911,07,68,683 towards expenditure incurred in relation to income claimed exempt u/s. 10 of the Act made by the learned NFAC is excessive and unreasonable. The Hon'ble CIT(A) has erred in dismissing the ground. The learned NFAC be directed to make a reasonable disallowance u/s. 14A and reduce the total income accordingly. 1C Without prejudice to Ground no. 1A and 18 above, the Appellant Bank prays that the disallowance u/s 14A read with Rule 8D towards expenditure incurred in relation to income claimed exempt u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and gains from business or profession. It was submitted that the dividend/interest income accruing on such securities is only a by-product thereof or an incidental benefit arising on account of holding such securities in the normal course of banking business. The assessee also placed reliance upon the decision of the coordinate bench of the Tribunal in its own case for the assessment year 2012-13, wherein the disallowance under section 14A read with Rule 8D was deleted following the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd v/s CIT, 402 ITR 640 (SC). The Assessing Officer ("AO") vide order dated 30/09/2021, passed under section 143(3) read with section 144B of the Act did not agree with the submissions of the assessee and held that it is difficult to appreciate that no expense is attributable to the exempt income earned by the assessee. The AO held that zero disallowance made by the assessee is not satisfactory and accordingly proceeded to compute the disallowance as per the provisions of Rule 8D of the Rules. Accordingly, the AO computed the disallowance of Rs. 1911.07 crore under section 14A read with Rule 8D(2)(iii) as expenses incurred for earning the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The assessee further submitted that since the exempt income earning securities are held by it as stock in trade, therefore, disallowance of expenditure under section 14A of the Act cannot be made. 9. We find that while deciding a similar issue in PCIT v/s Punjab National Bank, [2022] 449 ITR 468 (Del.), the Hon'ble Delhi High Court dismissed the appeal filed by the Revenue and upheld the findings of the Tribunal in deleting the disallowance made under section 14A read with Rule 8D, by observing as under:- "15. The Appellant in the present appeal has also challenged the deletion of the disallowance under rule 8D(2)(ii) of Rs. 17,48,97,348/-. The said disallowance was deleted by the CIT (Appeals) vide order dated 28th June, 2017. The CIT (Appeals) noted that this issue was also covered by the order of the ITAT in the case of Respondent in Assessment Year 2009-10. It was noted that in the said Assessment Year the Tribunal had observed that no part of the borrowed funds were utilised by the Respondent for making investments yielding tax free income. It was also observed that the Assessing Officer had not brought on record any nexus between the borrowed funds and amounts invested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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...." 19. The Supreme Court in this judgment upheld the decision of the High Court of Punjab and Haryana arising under section 14A of the Act with respect to an assessee bank. It further held that when the shares were held as stock-in-trade and not as investment particularly by banks, the main purpose was to trade in those shares and earn profits t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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