Ashish Dham, C-1/2, Safdarjung Development Area, New Delhi Vs. Pr. Commissioner of Income Tax Room No.315, B Block, Civic Centre, Shyama Prasad Mukherjee Marg, New Delhi
October, 25th 2021
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “B” BENCH: NEW DELHI
(THROUGH VIDEO CONFERENCING)
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & DR.B.R.R.KUMAR, ACCOUNTANT MEMBER
Assessment Year : 2014-15
Sarva Haryana Gramin Bank, vs ACIT,
H.O.Near Bajrang Bhawan, Rohtak Circle,
Delhi Road, Rohtak, Haryana. Rohtak.
Appellant by Sh.Vivek Gupta, CA
Respondent by Ms. Alka Gautam, Sr. DR
Date of Hearing 25.08.2021
Date of Pronouncement 25.10.2021
PER KUL BHARAT, JM :
This appeal filed by the assessee pertaining to assessment year 2014-15 is directed against the order of Ld. CIT(A), Rohtak dated 02.04.2018. The assessee has raised following grounds of appeal:-
1). “That the order u/s 143(3) dated 27/12/2016 of the Ld AO and confirmed by the Ld. CIT(A), is against the facts of the case and provisions of the law.
2. That on the facts and circumstances of the case and provisions of the law, the Ld. AO as well as Ld. CIT(A) erred in making/confirming the disallowance of Rs. 97,84,459/- u/s 14A read with Rule 8D of IT Act against the exempted income of dividend and tax free income of Rs. 1,28,58,978/-. ITA No.4073/Del/2018 Assessment Year : 2014-15
3. That without on the facts and circumstances of the case and provisions of the law, the Ld. AO as well as Ld. CIT(A) erred in making/confirming the disallowance of Rs.62,06,818/- in respect of amortisation of premium paid at the time of purchase of securities over the remaining period of securities.
4. That the appellants request be allowed to add, modify and delete any other ground (s) of appeal.
2. Facts giving rise to the present appeal are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income tax Act, 1961 (“the Act”) was framed vide order dated 27.12.2016.
3. The Assessing Officer after considering the submissions of the assessee made additions in respect of disallowance by invoking the provision of section 14A of the Act of Rs.97,84,459/-, of Rs.4,31,22,000/- on account of interest accrued on Non Performing Asset (“NPA”), disallowance of premium of Rs.62,06,818/- claimed on account of the amortization in respect of the securities held under the head “Held to Maturity” and disallowance of Rs.12,13,000/- debited in P&L A/c as provision for fraud.
4. Aggrieved against this, the assessee preferred the appeal before Ld. CIT(A) who after considering the submissions and material placed before him, deleted the addition of Rs.4,31,22,000/- i.e. interest accrued on NPA and Rs.12,13,000/- in respect of the provision made for fraud/embezzlement and rest of the two additions of Rs.97,84,459/- and Rs.62,06,818/- related to disallowance made u/s 14A of the Act and amortization of premium respectively were sustained.
2|Page ITA No.4073/Del/2018 Assessment Year : 2014-15
5. Aggrieved against this, the assessee is in appeal before this Tribunal.
6. Ground No.1 raised by the assessee is general in nature, needs no adjudication.
7. Ground No.2 is against the sustaining the disallowance of Rs.97,84,459/- made u/s 14A of the Act.
8. Ld. Counsel for the assesse reiterated the submissions as made in the written submissions. Ld. Counsel for the assessee submitted that both the authorities below have failed to appreciate the fact in right perspective. He submitted that no disallowance in respect of interest expenditure u/s 14A of the Act could be made where the assessee had sufficient funds to make the investment out of own surplus interest free funds. He submitted that the reliance as placed by the Ld.CIT(A) on the judgement of Hon’ble Supreme Court rendered in the case of Maxopp Investment Ltd. vs CIT in Civil Appeal Nos.104- 109 of 2015 is misplaced. He submitted that on the contrary, this judgement helps the assessee’s case. He further submitted that the assessee is a banking company and investment in share and securities is a regular business activity of the assessee. Moreover, the investment was made out of own surplus fund, hence disallowance of interest expenditure ought not to have been made.
9. On the contrary, Ld. Sr. DR supported the orders of the authorities below. She submitted that the Assessing Officer correctly, invoked the provision of section 14A of the Act and computed the disallowance as per Rule 8D of the Income Tax Rules, 1962.
3|Page ITA No.4073/Del/2018 Assessment Year : 2014-15
10. We have heard the rival contentions and perused the material available
on record. We find merit into the contentions of the Ld. Counsel for the
assessee that Ld.CIT(A) has mis-directed himself by wrongly applying the ratio
of the judgement of Hon’ble Supreme Court in the case of Maxopp Investment
Ltd. vs CIT (supra). Infact, the judgement of Hon’ble Supreme Court in the case
of Maxopp Investment Ltd. (supra) supports the case of the assessee. Moreover,
the Hon’ble Apex Court in later judgement rendered in Civil Appeal No.9606 of
2011 in the case of South Indian Bank Ltd. vs CIT after considering the
judgement rendered in the Maxopp Investment Ltd. (supra) clarified as under:-
25. “Proceeding now to another aspect, it is seen that the Central Board of Direct Taxes (CBDT) had issued the Circular no. 18 of 2015 dated 02.11.2015, which had analyzed and then explained that all shares and securities held by a bank which are not bought to maintain Statutory Liquidity Ratio (SLR) are its stock-in-trade and not investments and income arising out of those is attributable, to business of banking. This Circular came to be issued in the aftermath of CIT Vs. Nawanshahar Central Cooperative Bank Ltd. wherein this Court had held that investments made by a banking concern is part of their banking business. Hence the income earned through such investments would fall under the head Profits & Gains of business. The Punjab and Haryana High Court, in the case of Pr. CIT, vs. State Bank of Patiala while adverting to the CBDT Circular, concluded correctly that shares and securities held by a bank are stock in trade, and all income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income. 26. Reverting back to the situation here, the Revenue does not contend that the Assessee Banks had held the securities for maintaining the Statutory Liquidity Ratio (SLR), as mentioned in the circular. In view of this
4|Page ITA No.4073/Del/2018 Assessment Year : 2014-15
position, when there is no finding that the investments of the Assessee are of the related category, tax implication would not arise against the appellants, from the said circular.
27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees.
28. The above conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income. The respondents as earlier noted, have failed to substantiate their argument that assessee was required to maintain separate accounts. Their reliance on Honda Siel (Supra) to project such an obligation on the assessee, is already negated. The learned counsel for the revenue has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance.
29. In the above context, the following saying of Adam Smith in his seminal work – The Wealth of Nations may aptly be quoted:
“The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor and to every other person.”
Echoing what was said by the 18th century economist, it needs to be observed here that in taxation regime, there is no room for presumption and nothing can be taken to be implied. The tax an individual or a corporate is required to pay, is a matter of planning for a tax payer and the Government should endeavour to keep it convenient and simple to achieve
5|Page ITA No.4073/Del/2018 Assessment Year : 2014-15
maximization of compliance. Just as the Government does not wish for avoidance of tax equally it is the responsibility of the regime to design a tax system for which a subject can budget and plan. If proper balance is achieved between these, unnecessary litigation can be avoided without compromising on generation of revenue. 30. In view of the forgoing discussion, the issue framed in these appeals is answered against the Revenue and in favour of the assessee. The appeals by the Assessees are accordingly allowed with no order on costs.”
Respectfully following the above-referred judgement of Hon’ble Supreme Court, we hereby direct the Assessing Officer to delete the addition.
11. Ground No.3 is against the disallowance of Rs.62,06,818/- confirmed in respect of amortization of premium paid at the time of purchase of securities over the remaining period of securities.
12. Ld. Counsel for the assessee reiterated the submissions as made before the Ld.CIT(A). Ld. Counsel for the assessee submitted that the assessee company being a banking company had to hold investment as per RBI norms in HTM (“held to maturity”) category and in this investment when the cost price was more than the face value than premium was spread over the period of holding. It was contended that this practice is continuously followed by the assessee and accepted by the Revenue in earlier years also and this practice had been duly disclosed in Schedule 17. It is further contended that the Assessing Officer wrongly interpreted the CBDT Circular No.17 dated 26.11.2008. However, Ld.CIT(A) did not accept the contention of the assessee and sustained the addition. He contended that law is well settled law that
6|Page ITA No.4073/Del/2018 Assessment Year : 2014-15
amortization premium is in the nature of revenue expenditure and hence, allowable. In support of this, Ld. Counsel for the assessee placed reliance on various judicial pronouncements.
13. On the contrary, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below.
14. We have heard the rival contentions and perused the material available on record. The Co-ordinate Bench of this Tribunal in ITA No.1334/Ahd/2014 & Others in the case of The Chanasma Nagrik Sahakari Bank Ltd. vs ACIT decided the identical issue by observing as under:-
15. “As regards claim of amortization of securities premium amounting to Rs.1,91,690/-, we notice that the aforesaid amount represents the excess of acquisition cost over the face value of Government securities taken under HTM category. We find that the issue is squarely covered in favour of assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Rajkot Dist. Co-op Bank Ltd. in Tax Appeal No.56 of 2013 dated 10/02/2014. The Hon’ble Gujarat High Court placed reliance upon the CBDT Circular No.17 of 2008 and held that loss on account of premium paid on the face value of the security is required to be amortized for the remaining period of maturity. 16. In view of the binding judicial fiat, the claim of the assessee towards amortization of security premium requires to be accepted.”
15. The facts and issue are identical as were in ITA No.1334/Ahd/2014 (supra) therefore, respectfully following the decision of the Co-ordinate Bench in ITA No.1334/Ahd/2014 (supra), we hereby direct the Assessing Officer to delete the addition. This ground of assessee’s appeal is allowed.
7|Page ITA No.4073/Del/2018 Assessment Year : 2014-15
16. In the result, the appeal of the assessee is allowed.
Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 25th October, 2021.
(DR. B.R.R.KUMAR) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER
*Amit Kumar* ASSISTANT REGISTRAR Copy forwarded to: ITAT, NEW DELHI