The Income Tax Appellate Tribunal (ITAT) has provided relief to the Bank of Nova Scotia by permitting the expenditure incurred towards earning interest income exempt under Section 10(15) of the Income Tax Act, 1961
The fact in brief is that the return of income declaring a total loss of Rs. 944, 90,280/- was filed on 31.10.2005. The case was subject to scrutiny assessment and notice under Section 143(2) of the Income Tax Act, was issued on 01.08.2006. The assessee is a banking company incorporated in Canada. It had obtained a license from the RBI to carry out banking activities in India. The assessee (Bank of Nova Scotia ‘BNS’) has been operating in India through branches in Mumbai, Delhi, Bangalore, Coimbatore and Hyderabad.
During the course of assessment the assessing officer noticed that assessee has earned interest income of Rs.2,77,57,534/- from 1997- 1998 series of NABARD Bonds which has been claimed as exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act
After referring to the tax free funds the assessee submitted that no disallowance under Section 14A should have been made. However, the Assessing Officer has not agreed with the submission of the assessee and disallowed an amount of Rs.9, 56,892/- under Section 14A r.w. Rule 8D towards expenditure incurred for earning the exempt income
The assessee filed the appeal before the Commissioner of Income Tax (Appeals). However, the CIT(A) further made enhancement to the disallowance by Rs.3,21,184/- and sustained the total amount of disallowance of Rs.12,78,076/- as an expenditure incurred towards earning the exempt income.
The two member bench of the tribunal comprising Vikas Aswathy (Judicial member) and Amarjith Singh (Accountant member) directed the assessing officer to delete the disallowance made under Section 14A r.w.Rule 8D in the case of the assessee. Accordingly, this ground of appeal of the assessee was allowed.
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