Case Number: ITA 1062/DEL/2021
Appellant: Canara Bank (Erstwhile “Syndicate Bank”), NOIDA
Respondent: Additional Commissioner of Income Tax (TDS), Ghaziabad
Assessment Year: 2008-09
Case Filed On: 2021-09-07
Order Type: Final Tribunal Order
Date of Order: 2022-10-31
Pronounced On: 2022-10-31
This case involves the disallowance of expenses under Section 14A of the Income Tax Act for the assessment year 2008-09. Canara Bank (formerly Syndicate Bank) appealed against the decision of the Additional Commissioner of Income Tax (TDS), Ghaziabad.
The core issue in this appeal revolves around the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, which pertains to the expenditure incurred in relation to income that does not form part of total income under the Act.
The appellant, Canara Bank, received exempt dividend income amounting to Rs. 53,50,483/-. The AO questioned why the expenditure related to earning this exempt income should not be disallowed under Section 14A read with Rule 8D of the Income Tax Rules. Although Canara Bank had disallowed Rs. 61,738/- suo moto, the AO computed a disallowance of Rs. 24,02,617/- under Rule 8D(2)(iii).
Canara Bank appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s disallowance. Dissatisfied with this decision, Canara Bank filed an appeal with the Income Tax Appellate Tribunal (ITAT).
The tribunal, comprising Shri Aby T. Varkey (Judicial Member) and Shri S. Rifaur Rahman (Accountant Member), reviewed the evidence and arguments presented by both sides.
The primary contention of Canara Bank was based on the decision of the ITAT in the case of DCIT vs. Anand Rathi Capital Advisor Pvt. Ltd., which held that only investments yielding exempt income during the year should be considered for disallowance under Rule 8D(2)(iii). However, the CIT(A) dismissed this argument, noting that the decision in Anand Rathi Capital Advisor Pvt. Ltd. predated the Supreme Court’s ruling in Maxopp Investment Ltd. vs. CIT.
During the proceedings, Canara Bank provided detailed information about the investments from which it earned exempt income. The tribunal reviewed these details and found that the investments yielding exempt income were only from two sources: M/s. Ring Plus Aqua Ltd. and M/s. Birla Sunlife Income Fund.
The tribunal concluded that the CIT(A) had erred in dismissing the appellant’s claim based on the Supreme Court’s ruling in Maxopp Investment Ltd. vs. CIT without proper examination. The tribunal directed the AO to verify the details of the investments yielding exempt income and to recompute the disallowance accordingly.
The tribunal’s decision was as follows:
The tribunal’s decision highlights the importance of accurately determining the disallowance of expenses related to exempt income. The case was remanded to the AO for verification and recomputation, ensuring that only relevant investments were considered for disallowance under Section 14A.
This case underscores the complexities involved in the disallowance of expenses under the Income Tax Act and the need for thorough examination and accurate application of the rules.
Order Pronounced: October 31, 2022
By: Shri Aby T. Varkey (Judicial Member) and Shri S. Rifaur Rahman (Accountant Member)
Source: Income Tax Appellate Tribunal, “D” Bench, Mumbai
Disallowance of Expenses: Canara Bank vs Additional Commissioner of Income Tax (TDS)
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