Facts of the Case

The present appeals were filed by the Revenue before the Delhi High Court against the order dated 04.03.2022 passed by the Income Tax Appellate Tribunal concerning Assessment Years 2013-14, 2014-15, and 2015-16.

The Tribunal had allowed the appeals of the assessee (Oriental Bank of Commerce Ltd., now merged with Punjab National Bank Ltd.) and dismissed the cross-appeals filed by the Revenue.

The issues involved pertained to multiple additions made by the Assessing Officer, including disallowance under Section 14A, treatment of HTM securities, depreciation on temporary structures, interest on overdue deposits, and disallowance under Section 36(1)(vii).

Issues Involved

  1. Whether disallowance under Section 14A of the Income Tax Act, 1961 is applicable where shares are held as stock-in-trade by a banking company.
  2. Whether additions relating to HTM (Held to Maturity) securities were justified.
  3. Whether depreciation on temporary wooden structures is allowable at 100%.
  4. Whether interest on overdue deposits is taxable in the manner proposed by the Revenue.
  5. Whether disallowance under Section 36(1)(vii) relating to bad and doubtful debts was justified.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the Tribunal erred in deleting additions made under Section 14A.
  • It was argued that the Assessing Officer had correctly made substantial additions which were only partially reduced by CIT(A), and wrongly deleted by the Tribunal.
  • The Revenue also challenged deletion of additions concerning HTM securities, depreciation on temporary erections, interest on overdue deposits, and bad debts under Section 36(1)(vii).
  • Delay in filing and re-filing the appeals was also sought to be condoned.

Respondent’s Arguments (Assessee)

  • The assessee contended that it is a nationalised bank, and its investments in shares are held as stock-in-trade, hence Section 14A is not applicable.
  • It relied upon judicial precedents including:
    • Maxopp Investment Ltd. v. CIT (2018)
    • South Indian Bank v. CIT (2021)
  • It was further argued that all other issues raised were already covered by binding precedents in favour of the assessee.

Court Findings / Order

The Delhi High Court dismissed all the appeals filed by the Revenue and upheld the Tribunal’s order, observing as follows:

1. Section 14A Disallowance

  • The Court held that since the assessee is a banking company and shares are held as stock-in-trade, Section 14A is not applicable.
  • Reliance was placed on Maxopp Investment Ltd. and South Indian Bank v. CIT.

2. HTM Securities

  • The issue was already covered by a coordinate bench decision in favour of the assessee.
  • No substantial question of law arose.

3. Depreciation on Temporary Structures

  • Depreciation at 100% on temporary wooden structures was allowed.
  • The Court applied the principle of consistency as the issue had been accepted in earlier years.

4. Interest on Overdue Deposits

  • Covered by earlier Delhi High Court judgment in favour of the assessee.
  • No interference required.

5. Section 36(1)(vii) – Bad Debts

  • The issue was covered by the Supreme Court judgment in Vijaya Bank v. CIT (2010).
  • Disallowance rightly deleted.

Final Order

  • The Court held that no substantial question of law arises.
  • All appeals filed by the Revenue were dismissed.

Important Clarification

  • For banking companies, shares held as stock-in-trade fall under business income, and Section 14A disallowance cannot be invoked.
  • CBDT Circular No. 18/2015 reinforces that such securities are part of banking business.
  • Consistency in tax treatment across years plays a crucial role where facts remain unchanged.

Sections Involved

  • Section 14A – Expenditure incurred in relation to exempt income
  • Section 36(1)(vii) – Bad debts
  • Income Tax Act, 1961

 Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS13092023ITA5212023_210944.pdf


Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.