Principal Commissioner Of Income Tax, Delhi - 07 v. M/S Punjab National Bank (Erstwhile United Bankof India

$~6*IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 159/2022 & CM APPL. Nos. 23837-38/2022 PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI - 07 ..... AppellantThrough:Mr. Sunil Aggarwal, Sr. StandingCounsel, Mr. Tushar Gupta, JuniorStanding Counsel with Mr. UtkarshTiwari, Advocate. versus M/S PUNJAB NATIONAL BANK (ERSTWHILE UNITED BANKOF INDIA)..... Respondent ..... Respondent Through:None. % Date of Decision: 20[th]May, 2022 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: CM APPL. 23837-38/2022 Exemptions allowed, subject to all just exceptions. Accordingly, applications stand disposed of. ITA 159/2022 1.The present appeal has been filed under Section 260A of the IncomeTax Act, 1961 (hereinafter referred to as ‘Act’) against the impugned finaljudgment and order dated 19[th]February, 2020 passed by the Income TaxAppellate Tribunal (in short “the Tribunal”) in I.T.A. No. 74/Kol/2018. Brief Facts: 2.M/s Punjab National Bank (Erstwhile United Bank of India) i.e.,Respondent/Assessee (hereinafter referred to as ‘Respondent’) filed itsreturn of income under Section 139(1) of the Act on 4[th]October, 2010 forAssessment Year 2010-11.The case was selected for scrutiny underComputer Assisted Scrutiny Selection (CASS) and a notice under Section143 (2) of the Act was served upon the Respondent. Subsequently, noticesunder Section 142 (1) of the Act were also issued to the Respondent and thesame were complied. 3.The Jurisdictional Assessing Officer (JAO) of the Respondent passedan assessment order under Section 143 (3) of the Act dated 28[th]March, 2013for the relevant Assessment Year 2010-11, wherein several additions weremade to the returned income of Respondent by JAO. 4.Two of the additions made by the JAO vide order dated 28[th]March,2013, which have been deleted by the CIT (Appeals) and the Tribunal arethe subject matter of the present appeal. The said two additions are: (a) Disallowance of Rs. 16,85,08,240/- made by JAO u/s. 40(a)(ia) of theAct for non-deposit of TDS. (b) Disallowance of Rs. 19,06,57,848/- made by JAO u/s. 14A of the Actread with Rule 8D of the Income Tax Rules (‘the Rules’). 5.The disallowance made by the JAO under Section 14A of the Act read with Rule 8D of the Rules comprised of two components: i.Rs. 17,48,97,348/- under Rule 8D(2)(ii); and ii.Rs. 1,58,00,000/- under Rule 8D(2)(iii). 6.The Respondent filed an appeal before the CIT (Appeals) challenginginter-alia the aforesaid disallowances, which was partly allowed.Thedisallowance made by the JAO under Section 14A of the Act read with Rule8D(2)(ii) of the Rules was deleted for a sum of Rs. 17,48,97,348/-.However, the deduction made by the JAO under Section 40(a)(ia) of the Actand section 14A read with Rule 8D(2)(iii) of Rs. 1,58,00,000/- wasconfirmed by CIT (Appeals). 7.It is pertinent to mention that the Appellant i.e. Revenue (hereinafterreferred to as ‘Appellant’) did not file any appeal against the order passed byCIT (Appeals) deleting the disallowance made by the JAO under Section14A of the Act read with Rule 8D(2)(ii). 8.Aggrieved by the order of the learned CIT (Appeals) confirming theabove noted disallowances under Section 40(a)(ia) of the Act for non-deposit of TDS and section 14A read with Rule 8D(2)(iii) on account ofexempt income, the Respondent preferred an appeal before the Tribunal. 9.The Tribunal vide its impugned order dated 19[th]February, 2020allowed the appeal of the Respondent with respect to the aforesaiddisallowances. With respect to disallowance made by the JAO under Section40(a)(ia) of the Act the Tribunal held as follows: 7.It is pertinent to mention that the Appellant i.e. Revenue (hereinafterreferred to as ‘Appellant’) did not file any appeal against the order passed byCIT (Appeals) deleting the disallowance made by the JAO under Section14A of the Act read with Rule 8D(2)(ii). 8.Aggrieved by the order of the learned CIT (Appeals) confirming theabove noted disallowances under Section 40(a)(ia) of the Act for non-deposit of TDS and section 14A read with Rule 8D(2)(iii) on account ofexempt income, the Respondent preferred an appeal before the Tribunal. 9.The Tribunal vide its impugned order dated 19[th]February, 2020allowed the appeal of the Respondent with respect to the aforesaiddisallowances. With respect to disallowance made by the JAO under Section40(a)(ia) of the Act the Tribunal held as follows: “…12. We have heard both the parties and carefully gone throughthe submission put forth on behalf of the assessee along with thedocuments furnished and the case laws relied upon, and perusedthe fact of the case including the findings of the ld CIT(A) and otherthe submission put forth on behalf of the assessee along with thedocuments furnished and the case laws relied upon, and perusedthe fact of the case including the findings of the ld CIT(A) and other materials available on record. Before us, ld. Counsel for theassessee has reiterated the submissions made before the ld. CIT(A)and on the other hand the ld. DR has primarily reiterated the standtaken by the Assessing Officer which we have already noted in ourearlier para and the same is not being repeated for the sake ofbrevity. We note that the said TDS was paid before the filing of return ofincome u/s. 139(1) of the I.T. Act, therefore no addition should bemade for that we rely on the judgement of Hon’ble Calcutta HighCourt in the case of CIT vs. Virgin Creations GA 3200/2011whereinitwasheldthatthesaidTDSshouldbeallowed.Respectfully following the decision of jurisdictional HighCourt, we hold that since the assessee has deducted and depositedtax on contractual payments under consideration before the duedate of filing of return of income,disallowance u/s 40(a)(ia) is notwarranted,therefore,wedeletethedisallowanceofRs.16,85,08,240/-…” With respect to disallowance made by the JAO under Section 14Aread with Rule 8D(2)(iii) the Tribunal held as follows: “…14. When this appeal was called out for hearing, learnedcounsel for the assessee invited our attention to the order dated19.11.2018, passed by the Division Bench of Delhi Tribunal in thecaseofNiceBombayTransport(P)Ltd,inITANo.1331/Del/2012for the Assessment Year 2008-09 whereby theissue relating to section 14A read with rule 8D in respect of sharesheld in stockhas been discussed and adjudicated in favour ofassessee. Learned counsel for the assessee submitted that thepresent issue is squarely covered by the aforesaid order of theTribunal, a copy of which was also placed before the Bench. 16. We see no reasons to take any other view of the matter than theview so taken by the Division Bench of ITAT, New Delhi vide orderdated 19.11.2018. ………….. We note that the issue is squarely covered in favour of assessee bythe judgment of Co-ordinate Bench of ITAT New Delhi in the caseof Nice Bombay Transport Pvt. Ltd. (supra) therefore, respectfully following the judgment of Co-ordinate Bench, we delete theaddition of Rs. 1.58 crores….” 10.The Tribunal while deleting disallowance of Rs. 1,58,00,000/- hasalso placed reliance on the judgment of the Supreme Court which hascategorically held that in the case of a bank which holds the shares as stock-in-trade, the provisions of Section 14A are not attracted. 11.Being aggrieved, the Appellant has preferred the present appeal. It isthe contention of the learned counsel for the Appellant that the Tribunal fellin error by deleting the disallowance of Rs. 16,85,08,240/- made by JAOunder Section 40(a)(ia) of the Act. following the judgment of Co-ordinate Bench, we delete theaddition of Rs. 1.58 crores….” 10.The Tribunal while deleting disallowance of Rs. 1,58,00,000/- hasalso placed reliance on the judgment of the Supreme Court which hascategorically held that in the case of a bank which holds the shares as stock-in-trade, the provisions of Section 14A are not attracted. 11.Being aggrieved, the Appellant has preferred the present appeal. It isthe contention of the learned counsel for the Appellant that the Tribunal fellin error by deleting the disallowance of Rs. 16,85,08,240/- made by JAOunder Section 40(a)(ia) of the Act. 12.In this regard, it is noted that the Tribunal has observed that theRespondent had duly deposited the Tax Deducted at Source (TDS) with theGovernment by the due date for filing the return of income. 13.The said finding of the Tribunal returned after perusing the documentsfurnished by the Respondent cannot be disputed in the present appeal.Learned counsel for the Appellant has not brought on record any material todislodge the said finding of fact returned by the Tribunal. Since the depositof TDS was made within the time permitted, the Tribunal is right in holdingthat the said expense incurred by the Respondent cannot be disallowed. Inthis regard, findings of the Tribunal are in conformity with the judgment ofthe Supreme Court in the case of Commissioner of Income Tax v. CalcuttaExport Company reported in 2018 404 ITR 654 (SC) and in this regard paragraph 30 of the said judgment is relevant: “...30) Hence, in the light of the forgoing discussion and thebinding effect of the judgment given in Allied Motors (supra), weare of the view that the amended provision of section 40(a)(ia) ofthe Income-tax Act should be interpreted liberally and equitably andappliesretrospectivelyfromthedatewhen section40(a)(ia) was inserted i.e., with effect from the assessment year2005-06 so that an assessee should not suffer unintended anddeleterious consequences beyond what the object and purpose ofthe provision mandates. As the developments with regard to thesection recorded above shows that the amendment was curative innature, it should be given retrospective operation as if the amendedprovision existed even at the time of its insertion. Since the assesseehas filed its returns on August 1, 2005, i.e., in accordance with thedue date under the provisions of section 139 of the Income-tax Act,hence, is allowed to claim the benefit of the amendment made bythe Finance Act, 2010 to the provisions of Section 40(a)(ia) of theIncome-tax Act...” 14.The finding of the Tribunal is, therefore, correct in law and nosubstantial question of law with respect to Section 40(a)(ia) of the Act,arises. 15.The Appellant in the present appeal has also challenged the deletionof the disallowance under Rule 8D(2)(ii) of Rs. 17,48,97,348/-. The saiddisallowance was deleted by the CIT (Appeals) vide order dated 28[th]June,2017. The CIT (Appeals) noted that this issue was also covered by the orderof the ITAT in the case of Respondent in Assessment Year 2009-10. It wasnoted that in the said Assessment Year the Tribunal had observed that nopart of the borrowed funds were utilised by the Respondent for makinginvestments yielding tax free income.It was also observed that theAssessing Officer had not brought on record any nexus between theborrowed funds and amounts invested by the Respondent.The Tribunal,therefore, held that the disallowance made by the Assessing officer underRule 8D(2)(ii) of the Rules was not permissible. The learned Counsel forthe Appellant has not disputed the aforesaid facts and on this groundadditionally, no challenge can be maintained to the deletion of the disallowance made under this Rule. 16.The learned counsel for the Appellant has contended that the decisionof the Tribunal deleting the addition of Rs. 1,58,00,000/- made by the JAOunder Section 14A of the Act read with Rule 8D(iii) is incorrect since thesaid amount was offered for disallowance suo moto by the Respondent. disallowance made under this Rule. 16.The learned counsel for the Appellant has contended that the decisionof the Tribunal deleting the addition of Rs. 1,58,00,000/- made by the JAOunder Section 14A of the Act read with Rule 8D(iii) is incorrect since thesaid amount was offered for disallowance suo moto by the Respondent. 17.In this regard, the Tribunal has observed that the facts of theRespondent in the present appeal are similar to the order passed by anotherBench of the Tribunal in the case of Nice Bombay Transport Pvt. Ltd. (ITANo. 1331/Del/2012) wherein issue relating to Section 14A of the Act readwith Rule 8D of the Rules in respect of shares held in stock has beendiscussed and adjudicated in favour of the Assessee therein. 18.Learned counsel for Appellant has submitted that the facts of theassessee in the case of Nice Bombay Transport Pvt Ltd. (supra) are distinctfrom the case at hand, however, no submissions have been made withrespect to the said ‘distinguishing facts’. On the contrary, it is noted that theSupreme Court has held in the case of Maxopp Investment Ltd v.Commissioner of Income Tax 2018 402 ITR 640 (SC) that in cases wherethe main purpose for investing in shares was to hold the same as stock-in-trade, the expenditure incurred by the Respondent shall be permissible to bededucted from its gross income. The relevant paragraph of the judgment ofthe Supreme Court reads as under: “…40 It is to be kept in mind that in those cases where shares areheld as “stock-in-trade”, it becomes a business activity of theassessee to deal in those shares as a business proposition. Whetherdividend is earned or not becomes immaterial. In fact, it would bea quirk of fate that when the investee-company declared dividend,those shares are held by the assessee, though the assessee has toultimately trade those shares by selling them to earn profits. Theheld as “stock-in-trade”, it becomes a business activity of theassessee to deal in those shares as a business proposition. Whetherdividend is earned or not becomes immaterial. In fact, it would bea quirk of fate that when the investee-company declared dividend,those shares are held by the assessee, though the assessee has toultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like MaxoppInvestment Ltd. where the assessee would continue to hold thoseshares as it wants to retain control over the investee-company. Inthat case, whenever dividend is declared by the investee-companythat would necessarily be earned by the assessee and the assesseealone. Therefore, even at the time of investing into those shares,the assessee knows that it may generate dividend income as welland as and when such dividend income is generated that would beearned by the assessee. In contrast, where the shares are held asstock-in-trade, this may not be necessarily a situation. The mainpurpose is to liquidate those shares whenever the share price goesup in order to earn profits. In the result, the appeals filed by theRevenue challenging the judgment of the Punjab and Haryana HighCourt in State Bank of Patiala also fail, though law in this respecthas been clarified hereinabove….” 19.The Supreme Court in this judgment upheld the decision of the HighCourt of Punjab and Haryana arising under Section 14A of the Act withrespect to an assessee bank. It further held that when the shares were held asstock-in-trade and not as investment particularly by banks, the main purposewas to trade in those shares and earn profits there from and therefore Section14A of the Act was not attracted and the expenditure could not bedisallowed. The judgment of Maxopp Investment Ltd (supra) has been dulynoted by the Tribunal in its impugned order and in our opinion the Tribunalhas correctly disallowed the disallowance under Rule 8D(2)(iii) of the Rules.20.In the present case as well, the Tribunal has considered that theRespondent was holding the shares as a stock-in-trade and has, therefore,disallowed the addition made by the JAO.Learned counsel for theAppellant has not disputed the fact that the shares are held as stock-in-tradeby the Respondent. 21.In the aforesaid view of the matter, the questions of law proposed bythe Appellant do not arise for consideration either in fact or in law in view of the judgments of the Supreme Court, which have conclusively decided thequestions sought to be canvassed by the Appellant.questions sought to be canvassed by the Appellant. 22.The appeal is accordingly dismissed.23.Pending applications stand disposed of.23.Pending applications stand disposed of. MANMEET PRITAM SINGH ARORA, J MANMOHAN, J MAY 20, 2022/msh