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TMI Blog2024 (12) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... er the ITAT) in cross appeals for assessment year (AY) 2009-10 being ITA No. 2406/Del/2013 (by Assessee) and ITA No. 2966/Del/2013 (by Revenue). 3. The respondent (hereafter the Assessee) filed its return of income for AY 2009-10 declaring an income of Rs. 47,05,64,49,815/-. The same was picked up for scrutiny and the assessment proceedings culminated in an assessment order dated 19.12.2011 passed under Section 143(3) of the Act assessing the Assessee's income at Rs. 49,51,49,52,704/-. 4. A tabular statement setting out the additions made by the Assessing Officer (AO) is set out below: S. No. Particulars Amount (Rs.) 1. Loss on shifting of securities from AFS/HFT category to HTM category 2,00,000/- 2. Additional contribution made to PNB Employees' Pension Fund Trust 111,69,00,000 3. Disallowance under section 14A 133,16,00,000 4. Deduction under section 36(1)(viii) 111,42,00,000 5. Depreciation on goodwill 2,58,34,887 6. Loss on revaluation of investment held under HTM category 338,13,24,273 7. Expenses on Penal Nature 2,25,617 5. The Assessee successfully appealed the said assessment order before the Commissioner of Income Tax (Appeals) [her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income. However, the AO applied Rule 8D of the Rules and quantified the disallowance at Rs. 145.23 crores. After setting out an amount of Rs. 12.07 crores offered by the Assessee, the AO made an addition of Rs. 133.16 crores. 10. The learned CIT(A) allowed the Assessee's appeal, relying on the decision of this court in Maxopp Investments Ltd. v. Commissioner of Income Tax and Other Connected Appeals: (2012) 347 ITR 272. The learned ITAT confirmed the learned CIT(A)'s finding, relying upon decision of the Supreme Court in Maxopp Investment Limited v. CIT, New Delhi: (2018) 402 ITR 640 (SC) as well as PCIT v. State Bank of Patiala: (2017) 78 taxmann.com 3 (SC). The relevant extract of the said order is set out below: "8. We have carefully perused the decision in the case of Maxopp Investment Ltd versus CIT (2018) 91 taxman.com 154 (SC) wherein the Hon'ble Apex Court considered two cases wherein the question of predominant intent of investment in shares was pleaded, though on different facts, on the ground that the objective of investing in shares was not to earn the dividend income, but to either retain controlling interest over the company in which the investment was made or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and assessee alone, and it would be in the common knowledge of the assessee that such shares would generate dividend income as well as and when such dividend income is generated that would be earned by the assessee only. Hon'ble Apex Court in unequivocal terms held that in contrast, where the shares are held as stock in trade, this may not be necessarily a situation and the main purpose was to liquidate those shares whenever the share price goes up in order to earn profits. Hon'ble Apex Court, therefore, while rejecting the theory of dominant purpose in making investment in shares-whether it was to acquire and retain controlling interest in the other company or to make profits out of the trading activity in such shares-clearly made a clear distinction between the dividend earned in respect of the shares which were acquired by the assessee in their exercise to acquire and retain the controlling interest in the investee company, and the shares that were purchased for the purpose of liquidating those shares whenever the share price goes up, in order to earn profits. It is, therefore, clear that though not the dominant purpose of acquiring the shares is a relevant for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value or the redemption value of those securities, it would be apposite to amortize the same during the holding period. The market value of the fixed interest-bearing securities fluctuates on the basis of the market rate of interest. The differential amount between the coupon rate and the market rate is reflected by the premium or discount on which such securities are available. 16. Illustratively, the securities being a coupon rate which is lower than the market rate of interest would be available on discount while securities with a higher coupon rate would be available at a premium. We find no infirmity with the Assessee amortizing the premium paid on such securities over the holding period. 17. The fourth question relates to loss of Rs. 2,00,000/- claimed by the Assessee bank from shifting of securities from AFS (Available for Sale) / HFT (Held for Trading) to HTM (Held Till Maturity) portfolio. The AO disallowed the loss holding that transfer of securities from one portfolio to another is not a financial transaction and the loss was notional. The learned CIT(A) and the learned ITAT have accepted the Assessee's contention relying on decisions in Assessee's case for AY 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) and the Bombay High Court in HDFC Bank Ltd. (supra). The Court accordingly declines to frame a question on this issue." 19. The fifth question relates to Section 45B of the Act qua contributions made by the Assessee to 'PNB Employees' Pension Fund'. The AO rejected the said claim as the same was made on the basis of actuarial valuation while the government notification permitted only annual contribution. Noting that the Banking Companies Undertaking Act, 1970 had enjoined entities such as the Assessee to create pension trusts and following the order passed in the Assessee's case for AY 2008-09, the learned CIT(A) deleted the addition. The learned ITAT confirmed the learned CIT(A)'s decision holding that the contribution had actually been paid by the Assessee and that it was a normal business expense. 20. The learned counsel also drew our attention to order dated 22.03.2024 passed by this Court in ITA No.960/2018 and ITA No.540/2023 and pointed out that no question of law was admitted on the aforesaid issue in those appeals. 21. There is no dispute that the contributions made by the Assessee were in respect of the Employees' Pension Fund (EPF) and wholly and exclusively rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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