ACIT, Nainital V. M/s. The Nainital Bank Ltd., Uttrakhand

ITA 6018/DEL/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2312 (ITAT-DEHRADUN)
• Duration Of Justice: 4 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 25-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N C UPADHYAY SENIOR
• Assessee Lawyers: K R RASTOGI
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 22; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH, DEHRADUN BEFORE HONBLE MR. JUSTICE P.P. BHAT T, PRESIDENT AND SHRI G.S. PANNU, HONBLE VICE PRESIDENT ITA NO.6018/DEL/2016 ASSESSMENT YEAR : 2013-14 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, INCOME TAX OFFICE, PILGRIM LODGE, NAINITAL-MALLITAL, PIN 263 001. VS. M/S THE NAINITAL BANK LTD., SEVEN OAKS, MALLITAL, NAINITAL 263 001. PAN : AAACT5714D. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.C. UPADHYAY, SENIOR DR. RESPONDENT BY : SHRI K.R. RASTOGI, FCA. DATE OF HEARING : 05.03.2021 DATE OF PRONOUNCEMENT : 05.03.2021 ORDER PER JUSTICE P.P. BHATT, PRESIDENT : THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2 006-07 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), HALDWANI DATED 22 ND AUGUST, 2016. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPE AL :- 1. THE LD.CIT(A) HAS ERRED IN LAW AND FACTS IN RESTR ICTING THE DISALLOWANCE U/S 14A OF I.T. ACT BEING EXPENSES RELATAB LE TO INCOME NOT INCLUDIBLE IN TOTAL INCOME AND ON THE ISSUE OF ALLOWAB ILITY OF CLAIM OF DEDUCTION U/S 36(1)(VIIA) OF THE ACT. 2 ITA NO.6018/DEL/2016 2. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS IN RES TRICTING THE DISALLOWANCE U/S 14A MADE BY THE ASSESSEE ITSELF, WHE REAS THE DISALLOWANCE U/S 14A R.W. RULE 8D(2)(II) MADE BY THE A.O. WAS UNDER THE OBSERVATION THAT THE INVESTMENT IN TAX FRE E SECURITIES/FUNDS, WERE MADE OUT OF COMMON POOL OF FUNDS C OMPRISING MORE THAN 90% INTEREST BEARING FUNDS. BESIDES, THE A SSESSEE FAILED TO ESTABLISH NEXUS BETWEEN INVESTMENT IN EXEMPT SEC URITIES AND INTEREST FREE FUNDS. 3. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS IN ON THE ISSUE CALCULATION OF ALLOWABILITY THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT, AS THE METHODS OF COMPUTATION ADOPTED BY THE A.O. IN THE ABOVE MENTIONED CASE FOR CALCULATION OF DEDUCTION U/S 36(1)(V IIA) IS CORRECT AS THE PROVISIONS OF SECTION ALSO NOWHERE PROVIDED T HAT BASE AMOUNT FOR THE DEDUCTION U/S 36(1)(VIIA) HAS TO BE ARRIVED AT THE PROFIT FROM ELIGIBLE BUSINESS BEFORE ALLOWING DEDUCTION U/S 36(1)(VII ) OF THE I.T. ACT, 1961. 3. INSOFAR AS FIRST GROUND IS CONCERNED, THE DISPUTE REVO LVES AROUND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14 A OF THE ACT. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT THE AO DISALLOWED A SUM OF RS.1,55,24,593/- OUT OF INTEREST EXPENDITURE BY INVOKING RULE 8D(2)(II) OF THE IN COME-TAX RULES, 1962 (IN SHORT THE RULE), READ WITH SECTION 14A OF THE AC T. BEFORE THE AO AS WELL AS BEFORE THE CIT(A), ONE OF THE PRINCIPAL ARGUMENTS OF THE ASSESSEE WAS THAT IT HAD SUFFICIENT INTEREST FREE FUNDS NECESSARY TO COVER THE INVES TMENTS WHICH HAVE YIELDED INTEREST FREE INCOME, THAT WAS LIABLE FOR EXCLUSION UNDER SE CTION 10 OF THE ACT. THE AO, HOWEVER, DISAGREED WITH THE SUBMISSION OF THE ASSESSEE AND NOTED THAT SINCE THE ASSESSEE WAS HAVING A COMMON POOL OF FUNDS AND A MA JOR PART INCLUDED INTEREST BEARING DEPOSITS, THEREFORE, THE FORMULA PRESCRIBED IN RULE 8D(2)(II) OF THE RULES REQUIRES TO BE APPLIED IN ORDER TO MAKE A PARTIAL DIS ALLOWANCE OUT OF INTEREST EXPENDITURE IN RESPECT TO EXEMPT INCOME, IN TERMS OF SECT ION 14A OF THE ACT. THE CIT(A), HOWEVER, CONCURRED WITH THE POSITION CANVASSED BY THE ASSESSEE AND FOUND NO REASONS TO SUSTAIN THE DISALLOWANCE OF RS.1,55,24,593/- MADE BY THE AO OUT OF INTEREST EXPENDITURE OVER AND ABOVE AN AMOUNT OF RS.13,0 5,497/- SUO-MOTU MADE BY THE ASSESSEE. IN COMING TO HIS CONCLUSION, THE CIT(A) N OTED THAT A SIMILAR VIEW WAS UPHELD IN THE APPELLATE PROCEEDINGS IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2003-04, 2004-05 AND 2005-06. 3 ITA NO.6018/DEL/2016 4. IN THIS BACKGROUND, THE LEARNED REPRESENTATIVE OF TH E RESPONDENT-ASSESSEE POINTED OUT BEFORE US THAT SO FAR AS THE ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2003-04, 2004-05 AND 2005-06 ARE CONCERNED, THE Y CONTINUE TO HOLD THE FIELD INASMUCH AS THE HONBLE HIGH COURT OF UTTARAKHAND, IN ITA NO.40 OF 2009 AND ITA NO.51 OF 2009 VIDE ORDERS DATED 26 TH DECEMBER, 2013, HAVE APPROVED THE SAME. IT IS ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2011-12 AND 20 12-13, SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL AND, THEREFORE, CONSI DERING ALL THE AFORESAID PRECEDENTS, THE CIT(A) MADE NO MISTAKE IN DELETING THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. 5. FROM THE SIDE OF THE APPELLANT-REVENUE, THE LEARNED DR HAS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE RESPONDENT-ASSE SSEE BUT HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER IN SUPPORT OF THE CASE OF THE REVEN UE. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIND THAT THE IMPUGNED DISPUTE WITH REGARD TO THE DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE ACT IS NO LONGER RES-INTEGRA AND HAS ALREADY BEEN DECIDED IN THE E ARLIER YEARS IN THE ASSESSEES OWN CASE BY THE TRIBUNAL AS WELL AS BY THE H ONBLE HIGH COURT OF UTTARAKHAND. WE HAVE ALSO PERUSED THE IMPUGNED ORDER OF THE CIT(A), WHEREIN THE FACTUAL ASPECTS OF THE DISPUTE HAVE BEEN OUTLINED. THE SU BMISSIONS OF THE ASSESSEE, NOTED BY THE CIT(A) AND WHICH HAVE NOT BEEN C ONTROVERTED BEFORE US, CLEARLY ESTABLISH THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE BANK WERE IN EXCESS OF THE INVESTMENTS IN THE TAX FREE SECURITIES IN QUESTION AND, THEREFORE, THE DISALLOWANCE OUT OF INTEREST MADE BY THE ASSESSING OFFIC ER HAS BEEN RIGHTLY DELETED BY THE CIT(A). IN THIS VIEW OF THE MATTER, WE HER EBY AFFIRM THE ORDER OF CIT(A) AND REVENUE FAILS ON THIS ASPECT. 7. INSOFAR AS THE SECOND ISSUE IN THIS APPEAL IS CONCERNE D, THE SAME EMANATES FROM THE ACTION OF THE AO IN SCALING DOWN THE DEDUCTION CL AIMED BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) AND SECTION 36(1)(VIII) OF THE ACT OF RS.1 6,76,198/- AND RS.63,98,257/- RESPECTIVELY. ON THIS ASPECT, THE ASSESSEE CANVASSED BEFORE THE CIT(A) THAT THERE WAS A MISTAKE IN THE COMPUTATION OF THE RESPECTIVE DEDUCTIONS 4 ITA NO.6018/DEL/2016 BOTH AT THE END OF THE ASSESSEE AS WELL AS THAT OF THE AO. THE CIT(A), IN PARAGRAPH 4.2 OF HIS ORDER, HAS NOTED THE SUBMISSIONS OF THE ASSESS EE IN THIS REGARD. THE ASSESSEE FURTHER SUBMITTED THAT THE MANNER OF COMPUTAT ION OF THE DEDUCTION UNDER SECTION 36(1)(VIIA) AND 36(1)(VIII) OF THE ACT BE DECIDED IN THE LIGH T OF THE ORDER OF DELHI BENCH OF THE TRIBUNAL IN TOURISM FINANCE CORPORATION O F INDIA LIMITED VS. JCIT ITA NO.3155/DEL/2002, DATED 6 TH JANUARY, 2010. THE CIT(A) CONSIDERED THE SUBMISSIONS PUT FORTH BY THE ASSESSEE AND NOTED THE FOLLO WING OPERATIVE PART OF THE ORDER OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOURISM FINANCE CORPORATION OF INDIA LIMITED (SUPRA) :- 15. FROM THE ABOVE, IT CAN BE SEEN THAT DEDUCTION ALLO WABLE UNDER THIS SECTION HAS TO BE COMPUTED AT THE RATE O F 5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION UNDER C LAUSE (VIIA) OF CHAPTER-VIA. FROM THE WORDING OF THE PROVISIONS OF THIS SECTION, IT IS APPARENT THAT TOTAL INCOME TO BE CONSIDERED FOR THIS PURPOSE IS TO BE COMPUTED BEFORE MAKING ANY DEDUCTION UNDER TH IS CLAUSE I.E. CLAUSE (VIIA) OF SECTION 36(1) OF THE ACT AND DEDUCTION S ALLOWABLE UNDER CHAPTER-VIA AND HENCE, ALL OTHER DEDUCTIONS ARE TO BE CONSIDERED AND HENCE WE FIND NO MERIT IN THIS CLAIM OF THE ASSESSEE THAT DEDUCTION ALLOWABLE TO THE ASSESSEE UNDE R SECTION 36(1)(VIII) SHOULD NOT BE REDUCED FROM TOTAL INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE UNDER SECTION 36(I)(VIIA). 8. FOLLOWING THE AFORESAID, THE CIT(A) DIRECTED THE AO TO R ECOMPUTE THE DEDUCTIONS ALLOWABLE TO THE ASSESSEE UNDER SECTION 36(1)( VIIA) AND 36(1)(VIII) IN TERMS OF THE PRINCIPLES LAID DOWN IN THE CASE OF TOURISM FINA NCE CORPORATION OF INDIA LIMITED (SUPRA). IN THIS BACKGROUND, THE REVENUE IS IN APPEAL BEFORE US. 9. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE RESPONDENT- ASSESSEE POINTED OUT THAT THE PRINCIPLE ADOPTED BY THE CIT(A) IS THE CORRECT LEGAL POSITION WHICH CONTINUES TO HOLD THE FIELD. IT WAS POINTED OUT THAT EVEN THE AO HAS FOLLOWED THE SAME PRINCIPLE WHILE COMPLETING THE ASSESSMENTS FOR ASSESSMENT YEAR 2012-13 AND 2014-15, AND COPIES OF SUCH ASSESSMENT ORD ERS HAVE ALSO BEEN ANNEXED IN THE PAPER BOOK FILED BEFORE US. IT WAS, THEREFO RE, CONTENDED THAT THE ORDER OF LEARNED CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. 5 ITA NO.6018/DEL/2016 10. ON THE OTHER HAND, LEARNED DR REITERATED THE STAN D OF THE AO BUT FAIRLY DID NOT CONTROVERT THE FACTUAL MATRIX BROUGHT OUT BY RESPONDENT-A SSESSEE. 11. AFTER HEARING BOTH THE SIDES, IT IS SEEN THAT THE CON TROVERSY REGARDING THE QUANTUM OF ELIGIBLE DEDUCTION ALLOWABLE TO A BANKING COMPANY UNDER SECTION 36(1)(VIIA) AND 36(1)(VIII) OF THE ACT HAS BEEN DECIDED BY THE DELH I BENCH OF THE TRIBUNAL IN TOURISM FINANCE CORPORATION OF INDIA LIMITED (SUPR A), WHICH HAS SINCE BEEN APPLIED BY THE FIRST APPELLATE AUTHORITY. NO DECISION TO THE CONTRARY HAS BEEN BROUGHT TO OUR NOTICE, RATHER, THE SPIRIT OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT CIVIL APPE AL NO.1147 OF 2011 AND OTHERS, DATED 17 TH FEBRUARY, 2012, IN OUR VIEW, CLEARLY SUPPORTS THE CONCLUSION DRAWN BY THE LEARNED CIT(A). MOREOVER, THERE IS ALSO NO CONTROVERSION TO THE ASSERTIONS OF THE LEARNED REPRESENTATIVE FOR THE RESPONDENT-ASSESSEE THAT IN ASSESSMENT YEARS 2012-13 AND 2014-15, THE ASSESSING A UTHORITY ITSELF HAS ACCEPTED THE STAND OF THE ASSESSEE AND THAT SUCH ASS ESSMENTS HAVE SINCE BECOME FINAL. IN THIS VIEW OF THE MATTER, WE HEREBY AFFIRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. THUS, THE REVENUE FAILS ON THIS ASPECT. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT IN THE PRESENCE O F BOTH THE PARTIES ON CONCLUSION OF HEARING ON 5 TH MARCH, 2021. SD/- SD/- (G.S. PANNU) (JUSTICE P.P. BHATT) VICE PRESIDENT PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR