Sarva Haryana Gramin Bank, Rohtak V. ACIT, Rohtak Circle , Rohtak

ITA 4073/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3068 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 29-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA GAUTAM
• Keywords: Business income; Depreciation; Earning of tax free income; Cost of acquisition; Avoidance of tax; Rule 8D
• Section: 143(3); 14A

Judgement Text

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 ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 SARVA HARYANA GRAMIN BANK, H.O.NEAR BAJRANG BHAWAN, DELHI ROAD, ROHTAK, HARYANA. PAN-AAKAS1464M VS ACIT, ROHTAK CIRCLE, ROHTAK. APPELLANT RESPONDENT APPELLANT BY SH.VIVEK GUPTA, CA RESPONDENT BY MS. ALKA GAUTAM, SR. DR DATE OF HEARING 25.08.2021 DATE OF PRONOUNCEMENT 25 . 1 0.2021 ORDER PER KUL BHARAT, JM : THIS APPEAL FILED BY THE ASSESSEE PERTAINING TO ASS ESSMENT 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 O F 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 WI TH 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 2 | P A GE 3. THAT WITHOUT ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND PROVISIONS OF THE LAW, THE LD. AO AS WELL AS LD. CI T(A) ERRED IN MAKING/CONFIRMING THE DISALLOWANCE OF RS.62,06,818/ - IN RESPECT OF AMORTISATION OF PREMIUM PAID AT THE TIME OF PURCHAS E 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 ASSES SMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS FRAMED VIDE OR DER DATED 27.12.2016. 3. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE MADE ADDITIONS IN RESPECT OF DISALLOWANCE BY INVOKI NG 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), DISALLOWAN CE OF PREMIUM OF RS.62,06,818/- CLAIMED ON ACCOUNT OF THE AMORTIZATI ON 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 T HE APPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS AND MA TERIAL PLACED BEFORE HIM, DELETED THE ADDITION OF RS.4,31,22,000/- I.E. INTER EST 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 AMORTIZATI ON OF PREMIUM RESPECTIVELY WERE SUSTAINED. ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 3 | P A GE 5. AGGRIEVED AGAINST THIS, THE ASSESSEE IS IN APPEA L 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 DISALL OWANCE OF RS.97,84,459/- MADE U/S 14A OF THE ACT. 8. LD. COUNSEL FOR THE ASSESSE REITERATED THE SUBMI SSIONS AS MADE IN THE WRITTEN SUBMISSIONS. LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT BOTH THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FAC T IN RIGHT PERSPECTIVE. HE SUBMITTED THAT NO DISALLOWANCE IN RESPECT OF INTER EST EXPENDITURE U/S 14A OF THE ACT COULD BE MADE WHERE THE ASSESSEE HAD SUFFIC IENT 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 JUDGEMEN T OF HONBLE 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, T HIS JUDGEMENT HELPS THE ASSESSEES CASE. HE FURTHER SUBMITTED TH AT 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 NO T TO HAVE BEEN MADE. 9. ON THE CONTRARY, LD. SR. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. SHE SUBMITTED THAT THE ASSESSING OFFICER CO RRECTLY, INVOKED THE PROVISION OF SECTION 14A OF THE ACT AND COMPUTED TH E DISALLOWANCE AS PER RULE 8D OF THE INCOME TAX RULES, 1962. ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 4 | P A GE 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT INTO THE CONTENTIONS OF TH E LD. COUNSEL FOR THE ASSESSEE THAT LD.CIT(A) HAS MIS-DIRECTED HIMSELF BY WRONGLY APPLYING THE RATIO OF THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CA SE OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA). INFACT, THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) SUPPORTS THE CASE OF THE ASSESSEE. MOREOVE R, THE HONBLE 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 T HAT ALL SHARES AND SECURITIES HELD BY A BANK WHICH ARE NOT BOUGHT TO M AINTAIN STATUTORY LIQUIDITY RATIO (SLR) ARE ITS STOCK-IN-TRADE AND NO T INVESTMENTS AND INCOME ARISING OUT OF THOSE IS ATTRIBUTABLE, TO BUSINESS O F BANKING. THIS CIRCULAR CAME TO BE ISSUED IN THE AFTERMATH OF CIT VS. NAWA NSHAHAR CENTRAL COOPERATIVE BANK LTD. WHEREIN THIS COURT HAD HELD T HAT INVESTMENTS MADE BY A BANKING CONCERN IS PART OF THEIR BANKING BUSIN ESS. HENCE THE INCOME EARNED THROUGH SUCH INVESTMENTS WOULD FALL UNDER TH E HEAD PROFITS & GAINS OF BUSINESS. THE PUNJAB AND HARYANA HIGH COUR T, IN THE CASE OF PR. CIT, VS. STATE BANK OF PATIALA WHILE ADVERTING TO T HE CBDT CIRCULAR, CONCLUDED CORRECTLY THAT SHARES AND SECURITIES HELD BY A BANK ARE STOCK IN TRADE, AND ALL INCOME RECEIVED ON SUCH SHARES AND S ECURITIES MUST BE CONSIDERED TO BE BUSINESS INCOME. THAT IS WHY SECTI ON 14A WOULD NOT BE ATTRACTED TO SUCH INCOME. 26. REVERTING BACK TO THE SITUATION HERE, THE REVE NUE DOES NOT CONTEND THAT THE ASSESSEE BANKS HAD HELD THE SECURITIES FOR MAINTAINING THE STATUTORY LIQUIDITY RATIO (SLR), AS MENTIONED IN TH E CIRCULAR. IN VIEW OF THIS ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 5 | P A GE POSITION, WHEN THERE IS NO FINDING THAT THE INVESTM ENTS 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 JUDGMEN TS 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 DIV IDEND AND INTEREST TO ASSESSEE BANKS IN THOSE SITUATIONS WHERE, INTEREST FREE OWN FUNDS AVAILABLE WITH THE ASSESSEE, EXCEEDED THEIR INVESTM ENTS. WITH THIS CONCLUSION, WE UNHESITATINGLY AGREE WITH THE VIEW T AKEN BY THE LEARNED ITAT FAVOURING THE ASSESSEES. 28. THE ABOVE CONCLUSION IS REACHED BECAUSE NEXUS H AS NOT BEEN ESTABLISHED BETWEEN EXPENDITURE DISALLOWED AND EARN ING OF EXEMPT INCOME. THE RESPONDENTS AS EARLIER NOTED, HAVE FAIL ED TO SUBSTANTIATE THEIR ARGUMENT THAT ASSESSEE WAS REQUIRED TO MAINTAIN SEP ARATE ACCOUNTS. THEIR RELIANCE ON HONDA SIEL (SUPRA) TO PROJECT SUCH AN O BLIGATION ON THE ASSESSEE, IS ALREADY NEGATED. THE LEARNED COUNSEL F OR THE REVENUE HAS FAILED TO REFER TO ANY STATUTORY PROVISION WHICH OB LIGATE THE ASSESSEE TO MAINTAIN SEPARATE ACCOUNTS WHICH MIGHT JUSTIFY PROP ORTIONATE DISALLOWANCE. 29. IN THE ABOVE CONTEXT, THE FOLLOWING SAYING OF A DAM SMITH IN HIS SEMINAL WORK THE WEALTH OF NATIONS MAY APTLY BE Q UOTED: THE TAX WHICH EACH INDIVIDUAL IS BOUND TO PAY OUGH T 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 PLANNI NG FOR A TAX PAYER AND THE GOVERNMENT SHOULD ENDEAVOUR TO KEEP IT CONVENIENT A ND SIMPLE TO ACHIEVE ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 6 | P A GE MAXIMIZATION OF COMPLIANCE. JUST AS THE GOVERNMENT DOES NOT WISH FOR AVOIDANCE OF TAX EQUALLY IT IS THE RESPONSIBILITY O F 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 TH E ASSESSEE. THE APPEALS BY THE ASSESSEES ARE ACCORDINGLY ALLOWED WI TH NO ORDER ON COSTS. RESPECTFULLY FOLLOWING THE ABOVE-REFERRED JUDGEMENT OF HONBLE SUPREME COURT, WE HEREBY DIRECT THE ASSESSING OFFICER TO DE LETE THE ADDITION. 11. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF RS.6 2,06,818/- 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 SUB MISSIONS AS MADE BEFORE THE LD.CIT(A). LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ASSESSEE COMPANY BEING A BANKING COMPANY HAD TO HOLD INVESTM ENT AS PER RBI NORMS IN HTM (HELD TO MATURITY) CATEGORY AND IN THIS IN VESTMENT WHEN THE COST PRICE WAS MORE THAN THE FACE VALUE THAN PREMIUM WAS SPREA D OVER THE PERIOD OF HOLDING. IT WAS CONTENDED THAT THIS PRACTICE IS CON TINUOUSLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE REVENUE IN EARLIER YEA RS ALSO AND THIS PRACTICE HAD BEEN DULY DISCLOSED IN SCHEDULE 17. IT IS FURTH ER CONTENDED THAT THE ASSESSING OFFICER WRONGLY INTERPRETED THE CBDT CIRC ULAR 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 I S WELL SETTLED LAW THAT ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 7 | P A GE AMORTIZATION PREMIUM IS IN THE NATURE OF REVENUE EX PENDITURE 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 SUBMI SSIONS 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 SECURITIE S PREMIUM AMOUNTING TO RS.1,91,690/-, WE NOTICE THAT THE AFORESAID AMOU NT REPRESENTS THE EXCESS OF ACQUISITION COST OVER THE FACE VALUE OF G OVERNMENT SECURITIES TAKEN UNDER HTM CATEGORY. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE HONBLE J URISDICTIONAL 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 HONBLE GUJARAT HIGH COU RT 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 R EQUIRED 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 ACC EPTED. 15. THE FACTS AND ISSUE ARE IDENTICAL AS WERE IN IT A NO.1334/AHD/2014 (SUPRA) THEREFORE, RESPECTFULLY FOLLOWING THE DECIS ION OF THE CO-ORDINATE BENCH IN ITA NO.1334/AHD/2014 (SUPRA), WE HEREBY DIRECT T HE ASSESSING OFFICER TO DELETE THE ADDITION. THIS GROUND OF ASSESSEES APP EAL IS ALLOWED. ITA NO.4073/DEL/2018 ASSESSMENT YEAR : 2014-15 8 | P A GE 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIRT UAL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 25 TH OCTOBER, 2021. SD/- SD/- (DR. B.R.R.KUMAR) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIA L MEMBER *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI