ITAT Orders Re-evaluation of S. 14A Disallowances and Foreign Tax Credits for Bank of India, Dismisses Revenue’s Appeal [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that no disallowance under Section 14A of the Income Tax Act, 1961 could be made in respect of exempt income earned from shares and securities held as stock-in-trade. The Tribunal thereby dismissed the Revenue’s appeal and upheld the relief granted by the Commissioner of Income Tax (Appeals).

The dispute arose in the case of Bank of India from an assessment under Section 143(3) read with Section 254 of the Act, wherein the Assessing Officer invoked Rule 8D and made a disallowance. This was on the ground that expenditure had been incurred in relation to exempt income. The assessee challenged the very applicability of Section 14A.

The Tribunal, comprising Suchitra Raghunath Kamble (Judicial Member) and Girish Agrawal (Accountant Member), noted that the issue was covered by binding judicial precedents, including the decision of the Supreme Court in South Indian Bank Ltd. v. CIT. The Supreme Court held that shares and securities held by banks constitute stock-in-trade and income arising therefrom is business income.

Relying on this settled legal position, the Bench observed that Section 14A has no application where exempt income is earned from stock-in-trade in the course of banking business.

Accepting the assessee’s contention, the Tribunal held that the disallowance under Section 14A was unsustainable. As a result, the alternative grounds challenging the quantum of disallowance were rendered infructuous.

On other issues, including exclusion of income of foreign branches, deduction under Section 36(1)(viia), applicability of Section 115JB, and grant of foreign tax credit, the Tribunal followed its earlier decisions in the assessee’s own case and other binding precedents. While certain grounds raised by the assessee were dismissed, the Tribunal found no infirmity in the relief granted by the CIT(A) on issues challenged by the Revenue.

In conclusion, the Tribunal dismissed the Revenue’s appeal and partly allowed the assessee’s appeal.