The ACIT, Trivandrum V. M/s.State Bank of Travancore, Trivandrum

ITA 181/COCH/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 8931 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-09-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 08-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTHAM BOSE
• Keywords: Earning of tax free income; Tax effect
• Section: 244A; 14A; 115JB; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM ITA NO S . 07 TO 11 /COCH/ 201 7 ASSESSMENT YEARS : 1991 - 92 TO 2000 - 01 THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), RANGE-1, TRIVANDRUM. VS. M/S. STATE BANK OF TRAVANCORE, HEAD OFFICE (TAX CELL), POOJAPURA, TRIVANDRUM-695 012. [PAN:AAGCS 9120G] (REVENUE - APPELLA NT) ( ASSESSEE - RESPONDENT) ITA NOS. 180 & 181//COCH/2017 ASSESSMENT YEARS : 2006 - 07 & 2013 - 14 THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), RANGE-1, TRIVANDRUM. VS. M/S. STATE BANK OF TRAVANCORE, HEAD OFFICE (TAX CELL), POOJAPURA, TRIVANDRUM-695 012. [PAN:AAGCS 9120G] (REVENUE - APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY S HRI SHANTHAM BOSE, CIT( DR ) ASSESSEE BY SHRI C. NARESH, CA D ATE OF HEARING 18 / 09 /2018 DATE OF PRONOUNCEMENT 10 / 10 /2018 O R D E R PER CHANDRA POOJARI, AM: THESE APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF THE CIT(A), TRIVANDRUM FOR DIFFERENT ASSESSMENT YEARS. I.T.A. NO.07-11 ETC. /COCH/2017 2 2. THE FIRST COMMON GROUND IN ITA NO.07 TO 11/COCH/2017 IS WITH REGARD TO GRANTING OF INTEREST U/S. 244A OF THE I.T. ACT. 2.1 THE FACTS OF THE ISSUE ARE THAT THE CIT(A) ON AN EARLIER OCCASION IN THE ORDER DATED 04/02/2009 HAD DIRECTED THE ASSESSING OFFICER TO GRANT INTEREST FOR THE PERIOD OF TIME TAKEN FOR CURING THE DEFECTS IN TDS CERTIFICATES. THE ASSESSING OFFICER WHILE GIVING EFFECT TO THE SAID ORDER HAD NOT GRANTED THE CORRECT INTEREST AS DIRECTED. THE ASSESSING OFFICER HAD ONLY GRANTED THE SAID INTEREST FROM 1 ST APRIL OF THE ASSESSMENT YEAR TO THE DATE OF CURING THE DEFECTS IN TDS CERTIFICATES. THE ASSESSING OFFICER HAD ALSO NOT GRANTED INTEREST FOR THE MONTH IN WHICH THE REFUND WAS GIVEN. 2.2. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER WHILE GIVING EFFECT TO THE ABOVE MENTIONED ORDER OUGHT TO HAVE FOLLOWED THE DIRECTION GIVEN IN THE SAID ORDER AND CANNOT BRING IN AN ISSUE WHICH WAS NEVER A SUBJECT MATTER OF APPEAL BEFORE THE APPELLATE AUTHORITY. THE CIT(A) WAS OF THE OPINION THAT THE INTEREST CANNOT BE DENIED FOR THE TIME THE ASSESSEE HAD TAKEN TO CURE THE DEFECTS IN TDS CERTIFICATES FOR THE REASON THAT THE AMOUNT WAS ALREADY LYING WITH THE GOVERNMENT. IN VIEW OF THE ABOVE, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO WORK OUT THE INTEREST U/S. 244A AFRESH FOR THE PERIOD OF TIME TAKEN BY THE ASSESSEE TO CURE THE DEFECTS IN THE TDS CERTIFICATES AND ALSO TO ISSUE THE SAME TO THE DATE TILL THE REFUND IS GIVEN. I.T.A. NO.07-11 ETC. /COCH/2017 3 2.3 AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF GUJARAT FURO CHEMICALS VS. CIT (358 ITR 291) WHEREIN IT WAS HELD THAT ONLY THAT INTEREST PROVIDED FOR UNDER STATUTE MAY BE CLAIMED BY THE ASSESSEE FROM REVENUE AND NO OTHER INTEREST ON SUCH STATUTORY INTEREST. 2.4 THE LD. AR SUBMITTED THAT THE ASSESSEE IS NOT SEEKING INTEREST ON INTEREST AND THE CIT(A) ALLOWED ONLY INTEREST U/S. 244A OF THE ACT. HENCE, IT CANNOT BE DENIED. 2.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE CIT(A) . THE CIT(A) GRANTED INTEREST TO THE ASSESSEE U/S. 244A OF THE ACT FROM 1 ST APRIL OF THE ASSESSMENT YEAR TO THE DATE OF CURING OF THE DEFECTS IN THE TDS CERTIFICATE AND ALSO INTEREST TILL THE DATE OF REFUND WAS GIVEN. THE CIT(A) HAS NOT GRANTED ANY INTEREST ON INTEREST. BEING SO, THE FINDING OF THE CIT(A) IS IN CONFORMITY WITH THE PROVISIONS OF SECTION 244A OF THE ACT AND THE SAME IS CONFIRMED. HENCE, THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. 3 THE NEXT COMMON GROUND IN ITA NOS. 7, 8, 11/ COCH/2017 IS WITH REGARD TO LEVY OF INTEREST U/S. 220(2) OF THE ACT. I.T.A. NO.07-11 ETC. /COCH/2017 4 3.1 THE FACTS OF THE ISSUE ARE THAT THE INTEREST U/S. 220(2) OF THE ACT WAS LEVIED BY THE ASSESSING OFFICER. THE ASSESSEE SUBMITTED THAT EVEN AFTER CHARGING THE SAID INTEREST THERE WAS ONLY A REFUND DUE OF RS.43,90,760/- AND HENCE NO INTEREST SHOULD HAVE BEEN CHARGED. THE ASSESSEE RELIED ON THE CBDTS CIRCULAR NO. 334 DATED 03/04/1982 AS PER WHICH THE INTEREST PAYABLE U/S. 220(2) IS TO BE COMPUTED WITH REFERENCE TO THE DUE DATE RECKONED FROM THE ORIGINAL DEMAND NOTICE AND WITH REFERENCE TO THE TAX FINALLY DETERMINED. THEREFORE, BEING ONLY A REFUND, THERE CANNOT BE LEVY OF INTEREST U/S. 220(2) OF THE ACT. 3.2 ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN VIEW OF THE CBDTS CIRCULAR IN THIS REGARD. THE CIT(A) OBSERVED THAT AS THERE IS NO TAX FINALLY PAYABLE AND THE ORDER ACTUALLY HAD RESULTED IN A REFUND OF RS.43,90,760/-, NO INTEREST U/S. 220(2) OF THE ACT IS LEVIABLE. THEREFORE, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE INTEREST LEVIED U/S. 220(2) OF THE ACT. 3.3 AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR SUBMITTED THAT THE ASSESSEE HAD FAILED TO PAY THE FINAL TAX LIABILITY WITHIN THE DUE DATE OF ORIGINAL DEMAND NOTICE. HENCE THE ASSESSEE WAS LIABLE TO PAY INTEREST U/S. 220(2) OF THE ACT. 3.4 THE LD. AR RELIED ON THE ORDER OF THE CIT(A). I.T.A. NO.07-11 ETC. /COCH/2017 5 3.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE LEVY OF INTEREST U/S. 220(2) OF THE I.T. ACT IS CONSEQUENTIAL AND MANDATORY IN NATURE WHICH HAS TO BE COMPUTED ON OUTSTANDING PAYMENT OF TAX PAYABLE BY THE ASSESSEE . IF THE AMOUNT SPECIFIED IN THE NOTICE OF DEMAND U/S. 156 IS NOT PAID WITHIN THE PERIOD PRESCRIBED U/S. 156(C) OF THE ACT. THE LD. AR SUBMITTED BEFORE US THAT THERE IS NO NOTICE OF DEMAND U/S. 156(C) OF THE ACT. BEING SO, THERE CANNOT BE LEVY OF INTEREST U/S. 220(2) OF THE ACT. IN OUR OPINION, IF THERE IS ACTUAL DEMAND U/S. 156 OF THE ACT, THEN ONLY INTEREST U/S. 220(2) ON THE SAME SHALL BE CHARGED. WITH THIS OBSERVATION, WE DIRECT THE ASSESSING OFFICER TO RE-CONSIDER THE ISSUE AND DECIDE ACCORDINGLY. HENCE, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 3.6 IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NO.7, 8 & 11/COCH/2017 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEALS OF THE REVENUE IN ITA NOS. 9 & 10/COCH/17 ARE DISMISSED. 4. THE FIRST GROUND IN THE REVENUES APPEAL IN ITA NOS. 180/COCH/2017 IS WITH REGARD TO LEVY OF INTEREST U/S. 220(2) OF THE I.T. ACT. THE FACTS ARE SIMILAR TO THE FACTS CONSIDERED BY US IN ITA NOS. 7,8 & 11/COCH/2017. AS DISCUSSED IN PARA 3.5 OF THIS ORDER, THE ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO.07-11 ETC. /COCH/2017 6 5. THE NEXT GROUND IN REVENUES APPEAL IN ITA NO. 180/COCH/2017 IS WITH REGARD TO APPLICABILITY OF SECTION 115JB OF THE I.T. ACT. 5.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFICER HELD THAT THE PROVISIONS OF SECTION 115JB ARE APPLICABLE TO ALL COMPANIES AND ALSO SECTION 115JB(2) OF THE ACT REFERS TO COMPANIES ACT ONLY FOR THE LIMITED PURPOSE OF COMPUTATION OF BOOK PROFITS. HENCE, IT WAS HELD THAT THE ASSESSEE NEED NOT BE A COMPANY UNDER THE COMPANIES ACT FOR THE PURPOSE OF CHARGING PROVISION AND ACCORDINGLY, BANKING COMPANIES WOULD AUTOMATICALLY FALL UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. 5.2 ON APPEAL, THE CIT(A) OBSERVED THAT SECTION 115JB IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E., 2006- 07 BUT FROM AY 2013-14 AS CONTEMPLATED UNDER CLAUSE 46 OF THE EXPLANATORY MEMORANDUM TO FINANCE BILL, 2012. AS PER THE ABOVE MENTIONED CLARIFICATORY MEMORANDUM, SECTION 115JB WAS AMENDED TO PROVIDE THAT THE COMPANIES WHICH ARE NOT REQUIRED U/S. 211 OF THE COMPANIES ACT TO PREPARE THEIR PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE SCHEDULE VI OF THE COMPANIES ACT, 1956, PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THEIR REGULATORY ACTS SHALL BE TAKEN AS A BASIS FOR COMPUTING THE BOOK PROFIT U/S. 115JB. THEREFORE, THE CIT(A) OBSERVED THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO THE ASSESSEE FOR THE AY 2006-07. FURTHER, THE CIT(A) RELIED ON THE I.T.A. NO.07-11 ETC. /COCH/2017 7 ORDERS OF THE ITAT, MUMBAI BENCH IN THE CASE OF BANK OF INDIA VS. ACIT IN ITA NO. 3422/MUM/2013 DATED 23/08/2015, ICICI LOMBARD GENERAL INSURANCE IN ITA NO. 2398/MUM/2009 AND THE ORDER OF THE ITAT, MUMBAI BENCH IN THE CASE OF KURUNG THAI BANK VS. JCIT (133 TTJ 435), THE CIT(A) HELD THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07. 5.3 AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR SUBMITTED THAT THE VIEW TAKEN BY THE CIT(A) THAT MAT IS NOT APPLICABLE TO THE ASSESSEE BANK SIMPLY BECAUSE THE BANK IS SPARED U/S. 211 OF THE COMPANIES ACT, 1956 FROM PREPARING ITS P&L ACCOUNT IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT IS NOT CONFORMING TO THE PROVISIONS OF SECTION 115JB OF THE ACT. ACCORDING TO THE LD. DR, MAT IS WORKED OUT ON THE BOOK PROFIT COMPUTED IN LINE WITH EXPLANATION 1 AND EXPLANATION 2 GIVEN U/S. 115JB(2) AND THE OPTION ALLOWED VIDE EXPLANATION 3 (INSERTED BY FINANCE BILL 2012) TO A BANKING COMPANY TO PREPARE P&L ACCOUNT EITHER IN ACCORDANCE WITH COMPANIES ACT OR IN ACCORDANCE WITH THE REGULATORY ACT GOVERNING SUCH COMPANY WILL NOT DO AWAY WITH THE LIABILITY OF MAT FOR PRECEDING YEARS. FURTHER, IT WAS SUBMITTED THAT THE TAX EFFECT INVOLVED IS ABOVE THE PRESCRIBED LIMIT. 5.4 THE LD. AR RELIED ON THE ORDER OF THE CIT(A). I.T.A. NO.07-11 ETC. /COCH/2017 8 5.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE CAME UP FOR CONSIDERATION OF ITAT, CHENNAI BENCH IN THE CASE OF INDIAN OVERSEAS BANK VS. DCIT IN ITA NOS. 77/MDS/2014 DATED 03/04/2017 WHEREIN IT WAS HELD AS UNDER: 30.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE SAME ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ITA NO.2031/MDS./20L3 FOR ASSESSMENT YEAR 2010-11 (SUPRA) WHEREIN IT WAS HELD THAT - '95. THE LAST ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO THE ASSESSEE. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEE'S OWN CASE IN ITS FAVOUR IN ITA NO.1757/MDS/2011 DATED 2.4.2013 FOR THE ASSESSMENT YEAR 2006-07. COPY OF THE ORDER IS PLACED ON RECORD. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 96. WE HAVE PERUSED THE ORDERS OF LOWER AUTHORITIES AND FIND THAT THE ASSESSING OFFICER COMPUTED BOOK PROFITS UNDER SECTION 115JB OF THE ACT AND ALSO INCOME UNDER NORMAL PROVISIONS OF THE ACT AS THE INCOME UNDER NORMAL PROVISIONS OF THE ACT IS MORE HE ADOPTED THE SAID INCOME. THE ASSESSEE ALSO CHALLENGED AGAINST THE ACTION OF THE ASSESSING OFFICER IN COMPUTING BOOK PROFITS UNDER SECTION 115JB CONTENDING THAT PROVISIONS HAVE NO APPLICATION TO ITS BANK- HAVING GONE THROUGH THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEE'S OWN CASE IN ITA NO.1757/MDS/2011 DATED 2.4.2013, WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID DECISION, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE.' RESPECTFULLY FOLLOWING THE SAID DECISION, WE REJECT THE GROUND OF APPEAL OF THE REVENUE ON THIS ISSUE. 5.6 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. I.T.A. NO.07-11 ETC. /COCH/2017 9 5.7 IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.180/COCH/2017 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. THE ONLY GROUND IN REVENUES APPEAL IN ITA NO. 181/COCH/2017 IS WITH REGARD TO RESTRICTION OF DISALLOWANCE MADE U/S. 14A TO THE EXTENT OF EXEMPT INCOME EARNED. 6.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAD MADE INVESTMENTS AMOUNTING TO RS. 29.64 CR. AGAINST WHICH IT EARNED INTEREST ON TAX FREE BONDS AND DIVIDEND INCOME OF RS.12.06 CR. WITHOUT INCURRING ANY AMOUNT OF EXPENDITURE FOR THE SAME. THE AO INVOKED THE PROVISIONS OF RULE 8D(2)(II) AND (III) OF THE IT RULES AND THEREBY DISALLOWED A SUM OF RS.13,90,21,416/- U/S. 14A OF THE ACT. FURTHER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD HUGE INVESTMENTS FOR WHICH THEY COULD HAVE EMPLOYED TOP MANAGEMENT FOR WHICH SOME EXPENSES COULD HAVE BEEN INCURRED BY WAY OF INTEREST PAYMENTS AND THE ASSESSEE HAD ALSO EARNED TAX FREE INCOME BUT HAD NOT DISALLOWED ANY EXPENDITURE U/S. 14A OF THE ACT. IT WAS HELD THAT SINCE IT IS A MIXED FUNDS AND ALLOCATION WAS NOT POSSIBLE, RULE 8D HAD TO BE INVOKED IN THE ASSESSEE S CASE. 6.2 ON APPEAL, THE CIT(A) OBSERVED THAT NO INCOME, BOTH EXEMPT OR NON- EXEMPT COULD BE EARNED WITHOUT INCURRING CERTAIN ADMINISTRATIVE EXPENDITURE. ACCORDING TO THE CIT(A), IT CANNOT BE SAID THAT NO EXPENDITURE WAS INCURRED IN I.T.A. NO.07-11 ETC. /COCH/2017 10 MAKING THE INVESTMENT. FURTHER, IN THE ABSENCE OF REQUISITE DETAILS TO DEMONSTRATE THAT NOTHING OUT OF INTEREST DEBITED IN THE PROFIT AND LOSS ACCOUNT HAD INCURRED TOWARDS THE AMOUNT INVESTED ON WHICH INTEREST ON TAX FREE BOND BEEN RECEIVED, THE APPLICATION OF RULE 8D CANNOT BE IGNORED AND IN THE CIRCUMSTANCES, INVOKING OF RULE 8D(2)(II) AND (III) WAS RIGHTLY JUSTIFIED. 6.3 THE CIT(A) RELIED ON THE DECISION OF THE CHENNAI BENCH OF ITAT IN THE CASE OF SOUTHERN PETRO-CHEMICALS INDUSTRIES (93 TTJ (CHENNAI) 161). THE CIT(A) ALSO RELIED ON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMI BANK (344 ITR 259) AND CIT VS. CATHOLIC SYRIAN BANK (237 CTR 164). THE CIT(A) ALSO RELIED ON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF SOUTH INDIAN BANK LTD. (363 ITR 111) WHEREIN IT WAS HELD THAT THE SECTION 14A ENABLES THE ASSESSING OFFICER TO DISALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUB-SECTION 2 WAS INTRODUCED WITH EFFECT FROM APRIL,2007 AND IT PROVIDES HOW THE DISALLOWANCE HAS TO BE WORKED OUT. THIS PROCEDURE HAS BEEN DESCRIBED UNDER RULE 8D OF THE IT RULES AS WELL, WHEREIN SUB-RULES (2) (3) ARE ONLY OF A CLARIFICATORY NATURE AND DO NOT AMOUNT TO THE CHARGING PROVISION. THEREFORE, THE AUTHORITIES WERE CORRECT IN MAKING A DISALLOWANCE UNDER SECTION 14A. IN VIEW OF THE ABOVE DECISIONS OF THE HIGH COURT AND TRIBUNAL, THE CIT(A) SUSTAINED THE DISALLOWANCE U/S. 14A OF THE ACT. HOWEVER, THE CIT(A) HELD THAT DISALLOWANCE U/S. 14A CANNOT EXCEED EXEMPT INCOME AND AT BEST, IF ANY I.T.A. NO.07-11 ETC. /COCH/2017 11 DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO INTEREST ON TAX FREE BONDS AND DIVIDEND INCOME EARNED OF RS.12,06,99,729/-. THUS, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.12,06,99,729/- TO THE EXTENT OF EXEMPT INCOME EARNED. CONSIDERING THE FACT THAT THE ASSESSEE HAD ALREADY DISALLOWED A SUM OF RS.6,78,584/-, THE CIT(A) CONFIRMED THE ADDITION OF BALANCE AMOUNT OF RS.12,00,21,145/-. 6.4 AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR SUBMITTED THAT DISALLOWANCE U/S. 14A WAS CALCULATED AS PER RULE 8D. THERE IS NO PROVISION IN THE ACT THAT THE DISALLOWANCE SHOULD NOT EXCEED THE EXEMPT INCOME. AS PER CIRCULAR NO. 5/2014 DATED 11/02/2014, CBDT CLARIFIED THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAX PAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. 6.5 THE LD. AR SUBMITTED THAT THE ASSESSEE HOLD ALL ITS INVESTMENTS AS STOCK IN TRADE. THE SECURITIES FROM WHICH TAX FREE INCOME WAS EARNED OR STOCK IN TRADE, IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE TAX FREE INCOME AND THAT THE EXPENDITURE WAS INCURRED ONLY FOR THE PURPOSE OF BUYING AND SELLING THE SECURITIES. THE LD. AR SUBMITTED THAT THE EARNING OF INCOME WAS ONLY INCIDENTAL TO WHICH THE PROVISIONS OF SECTION 14A WILL NOT APPLY. THE LD. AR PLACED RELIANCE ON THE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (391 ITR 218) AND UPHELD BY THE SUPREME I.T.A. NO.07-11 ETC. /COCH/2017 12 COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (402 ITR 640). THE LD. AR RELIED ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (383 ITR 529) AND SUBMITTED THAT NO DISALLOWANCE OF INTEREST EXPENDITURE WAS WARRANTED. THE LD. AR ALSO RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. SINTEX INDUSTRIES LTD. (82 TAXMAN.COM 171) AND THE REJECTION OF THE SLP BY SUPREME COURT (93 TAXMAN.COM 24). THE LD. AR ALSO SUBMITTED THAT SINCE THERE ARE NO INVESTMENTS HELD, THE FORMULA PRESCRIBED IN RULE 8D, I.E., THE INVESTMENTS THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME IS NIL AND HENCE NO DISALLOWANCE AS PER RULE 8D IS WARRANTED IN THE ASSESSEES CASE AND FOR THIS, RELIANCE WAS PLACED ON THE DECISION OF ITAT, KOLKATA IN THE CASE OF GULSHAN INVESTMENT CO. LTD. (ITA 666/KOL/2012). 6.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE MAIN CONTENTION OF THE LD. AR IS THAT THE ASSESSEE IS HAVING OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES TO MAKE INVESTMENT WHICH YIELDED EXEMPTED INCOME. FURTHER, IT WAS SUBMITTED THAT INTEREST WAS INCURRED ON BORROWINGS WHICH WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS AND IT CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A OF THE I.T. ACT. HOWEVER, THESE FACTS WERE NOT DEMONSTRATED BY THE ASSESSEE NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE CIT(A). IN VIEW OF THIS, IN OUR OPINION, INTEREST ON BORROWINGS USED FOR THE BUSINESS PURPOSE CANNOT BE CONSIDERED FOR COMPUTING I.T.A. NO.07-11 ETC. /COCH/2017 13 DISALLOWANCE U/S. 14A OF THE ACT R.W. RULE 8D(II). HOWEVER, IT IS THE DUTY OF THE ASSESSEE TO PROVE THAT INTEREST WAS INCURRED ON BORROWINGS WHICH WAS USED FOR THE SPECIFIC PURPOSE OF BUSINESS. SIMILARLY, THE ASSESSEE HAS TO PROVE THAT THE ASSESSEE IS HAVING OWN FUNDS TO MAKE INVESTMENT WHICH YIELDED EXEMPTED INCOME BY FURNISHING CASH/FUND FLOW STATEMENT. THIS WAS NOT DONE BY THE ASSESSEE. HENCE, IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. FURTHER, WE NOTICE THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CATHOLIC SYRIAN BANK LTD. & OTHERS (344 ITR 259) HAS HELD THAT DISALLOWANCE U/S. 14A IS TO BE MADE DESPITE THE FACT THAT THE ASSESSEE BANKS HAVE NOT MAINTAINED SEPARATE ACCOUNTS FOR THE EXPENDITURE INCURRED TOWARDS INTEREST PAID ON FUNDS BORROWED FOR INVESTMENT IN SUCH SECURITIES AND SHARES AS WELL AS OVERHEADS AND ADMINISTRATIVE EXPENSES. HOWEVER, WE MAKE IT CLEAR THAT RULE 8D(III) IS APPLICABLE THOUGH, THE ASSESSEE USED ITS OWN FUNDS IN INVESTMENT WHICH YIELDED EXEMPTED INCOME. THIS IS SO, BECAUSE THERE WAS COMMON ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE. WE ALSO MAKE IT CLEAR THAT THE DISALLOWANCE U/S. 14A SHALL BE LIMITED TO THE EXEMPTED INCOME ONLY. THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO.07-11 ETC. /COCH/2017 14 7. IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NO.7, 8 & 11/COCH/2017, ITA NO. 180/COCH/2017 & 181/COCH/2017 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEALS OF THE REVENUE IN ITA NOS. 9 & 10/COCH/17 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH OCTOBER, 2018. SD/- SD/- (GEORGE GEORGE K. ) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 10 TH OCTOBER, 2018 GJ COPY TO: 1. M/S. STATE BANK OF TRAVANCORE, HEAD OFFICE (TAX CELL), POOJAPURA, TRIVANDRUM-695 012. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVANDRUM. 4. THE PR. COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN