Neutral Citation No: 2022/Dhc/003682 v. J U D G M E N T

$~38 IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 308/2022 versus CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (ORAL):CM APPL.38912/2022 (for condonation of delay) Keeping in view the averments made in the present application, thedelay of 18 days in re-filing the present appeal is condoned. Accordingly, this application stands disposed of. ITA 308/2022 1.Present income tax appeal has been filed challenging the order dated04[th]December, 2019 passed by the Income Tax Appellate Tribunal (‘ITAT’)in ITA No. 2124/Del/2015 and ITA No. 2810/Del/2015 for the AssessmentYear (‘AY’) 2010-11. ITA 308/2022 2.The assessee is a subsidiary of the Punjab National Bank and isengaged in the business of retail lending as well as long term finance forconstruction of homes. 3.Learned counsel for the appellant states that the ITAT has erred indeleting the disallowance made under Section 36(1)(viii) of the Income TaxAct, 1961 (‘the Act’) by not considering the total receipt of business for thepurpose of working out the proportion to be used in calculating the ratio fordeduction under the said provision. He further states that the ITAT has failedto appreciate that total business receipts and not any sector specific receiptsare the relevant factor for arriving at the quantum of disallowance underSection 36(1)(viii) of the Act. 4.He further states that ITAT has erred in setting aside the disallowancemade under Section 14A of the Act holding that since the assessee earnedthe exempt income from investments held as stock-in-trade, the provision ofSection 14A of the Act will apply. He states that the ITAT failed to considerthat the provisions of Section 14A of the Act will apply even if the assesseehas shown the investment generating the exempt income as stock-in-trade.He states that the provision of Section 14A of the Act does not make anydifferentiation between expenses incurred on exempt income earned frominvestments held as stock-in-trade or other forms of exempt income. 5.We have heard the counsel for the parties. As regards, the contentionof the appellant with respect to the deletion of disallowance made underSection 36(1)(viii) of the Act, a perusal of the paper book reveals that theITAT has observed that the said methodology has been adopted by theassessee consistently for last eight years and the same was accepted byRevenue without any objection. In fact, the record reveals that the ITA 308/2022 Commissioner of Income Tax (Appeals) [‘CIT(A)’] in assessee’s own casefor the AYs 1998-99 to 2009-10 has upheld the said deduction made by theassessee. The learned counsel for the appellant admits that no appeal hasbeen filed challenging the said order in assessee’s own case for the saidAYs, except the order impugned in the present proceedings. The SupremeCourt in Principal Commissioner of Income Tax, New Delhi vs. MarutiSuzuki India Ltd., [2019] 107 taxmann.com 375 (SC) has held that Courtsmust promote the interest of certainty in tax litigation. According to theApex Court, there is a significant value which one must attach to observingthe requirement of consistency and certainty. It further held that individualaffairs are conducted and business decisions are made in the expectation ofconsistency, uniformity and certainty and to detract from those principles isneither expedient nor desirable. In view thereof, a challenge to the deletionof the disallowance made under Section 36(1)(viii) of the Act is not madeout. 6.With respect to the challenge of the deletion of the disallowance madeunder Section 14A of the Act, this issue is no longer res integra.It is anadmitted fact that the exempt income was earned by the assessee from theinvestment held by it as stock-in-trade. This issue has been conclusivelydetermined by the Supreme Court in Maxopp Investment Ltd. v. CIT,[2018] 15 SCC 523. In this matter, the Supreme Court was concerned with abatch of appeals which also included a challenge to the judgment of thePunjab and Haryana High Court reported in CIT v. State Bank of Patiala[2017] 391 ITR 218 (P&H)and the facts of the said case are para materia tothe case in hand. In the case of State Bank of Patiala, the AO restricted thedisallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8-D and holding that Section 14A ofthe Act would be applicable. The CIT(A) issued a notice of enhancementunder Section 251 of the Act and disallowed the entire expenditure claimedby the assessee therein instead of restricting the disallowance to the amountwhich was claimed as exempt income. The ITAT set aside the order of theAO as well as CIT(A). The High Court upheld the order of the ITAT anddismissed the appeal filed by the Revenue. The Supreme Court afterdeliberating on the objectand purpose of Section 14A, conclusively held thatin cases where shares are held by assessee as stock-in-trade, the dividendearned on the said shares is incidental and would not attract the provisions ofSection 14A of the Act. In this regard, the following paragraphs of thejudgment are apposite:- “ 49. We note from the facts in State Bank of Patiala case thatthe AO, while passing the assessment order, had alreadyrestricted the disallowance to the amount which was claimed asexempt income by applying the formula contained in Rule 8-D ofthe Rules and holding that Section 14-A of the Act would beapplicable. In spite of this exercise of apportionment ofexpenditure carried out by the AO, CIT(A) disallowed the entirededuction of expenditure. That view of the CIT(A) was clearlyuntenable and rightly set aside by ITAT. Therefore, on facts, thePunjab and Haryana High Court has arrived at a correctconclusion by affirming the view of ITAT, though we are notsubscribing to the theory of dominant intention applied by theHigh Court. 50.It is to be kept in mind that in those cases where sharesare held as "stock-in-trade", it becomes a business activity of theassessee to deal in those shares as a business proposition.Whether dividend is earned or not becomes immaterial. In fact,it would be a quirk of fate that when the investee companydeclared dividend, those shares are held by the assessee, thoughthe assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different fromthe case like Maxopp Investment Ltd. where the assessee wouldcontinue to hold those shares as it wants to retain control overthe investee company. In that case, whenever dividend isdeclared by the investee company that would necessarily beearned by the assessee and the assessee alone. Therefore, evenat the time of investing into those shares, the assessee knowsthat it may generate dividend income as well and as and whensuch dividend income is generated that would be earned by theassessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purposeis to liquidate those shares whenever the share price goes up inorder to earn profits. In the result, the appeals filed by theRevenue challenging the judgment of the Punjab and HaryanaHigh Court in State Bank of Patiala also fail, though law in thisrespect has been clarified hereinabove.” 7.The judgment of the Punjab and Haryana Court in the case of StateBank of Patiala was also cited with approval by the Supreme Court in asubsequent judgment reported as South Indian Bank Ltd. v. Commissionerof Income-taxreported in [2021] 438 ITR 1 (SC) and held as under:- 7.The judgment of the Punjab and Haryana Court in the case of StateBank of Patiala was also cited with approval by the Supreme Court in asubsequent judgment reported as South Indian Bank Ltd. v. Commissionerof Income-taxreported in [2021] 438 ITR 1 (SC) and held as under:- “25. …The Punjab and Haryana High Court, in the case of PrCIT v. State Bank of Patiala [2017] 88 taxmann.com 667/393ITR 476 (Punj. & Har.), while adverting to the CBDT Circular,concluded correctly that shares and securities held by a bankare stock-in-trade, and all income received on such shares andsecurities must be considered to be business income. That is why”Section 14A would not be attracted to such income. (Emphasis Supplied) 7.The law settled by the aforesaid judgments of the Supreme Court issquarely applicable facts of the present case as there is no dispute that theexempt income was earned from stock-in-trade. ITA 308/2022 8.Keeping in view the aforesaid facts and enunciation of law, this Courtis of the view that no substantial question of law arises for consideration inthe present appeal and accordingly, the same is dismissed. MANMEET PRITAM SINGH ARORA, J SEPTEMBER 07, 2022/msh MANMOHAN, J ITA 308/2022