Facts of the Case

The present appeals were filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) dated 04.03.2022 concerning Assessment Years 2013-14, 2014-15, and 2015-16.

The Tribunal had allowed the appeals of the assessee (Oriental Bank of Commerce), deleting various additions made by the Assessing Officer (AO), including:

  • Disallowance under Section 14A
  • Additions relating to HTM (Held to Maturity) securities
  • Depreciation on temporary structures
  • Interest on overdue deposits
  • Disallowance of bad debts under Section 36(1)(vii)

Issues Involved

  1. Whether disallowance under Section 14A applies when shares are held as stock-in-trade by a bank
  2. Whether additions relating to HTM securities were justified
  3. Whether depreciation on temporary wooden structures is allowable
  4. Whether interest on overdue deposits is taxable in the manner assessed
  5. Whether deduction of bad debts under Section 36(1)(vii) was rightly allowed

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in deleting substantial additions made by the AO.
  • It argued that Section 14A disallowance should apply despite shares being held by the bank.
  • It challenged deletion of additions related to HTM securities, depreciation, interest income, and bad debts.
  • The Revenue sought framing of substantial questions of law on all issues.

Respondent’s Arguments (Assessee)

  • The assessee, being a nationalised bank, argued that shares held are part of banking business (stock-in-trade).
  • It relied on judicial precedents stating that Section 14A does not apply in such cases.
  • It submitted that all issues are covered by binding precedents of the Supreme Court and jurisdictional High Court.
  • It emphasized consistency in earlier years where similar claims were accepted.

Court’s Findings / Order

1. Section 14A Disallowance

  • The Court held that shares held by a bank are stock-in-trade, not investments.
  • Relied on:
    • Maxopp Investment Ltd. v. CIT (2018)
    • South Indian Bank v. CIT (2021)
  • Held: Section 14A not applicable in such cases.

 

2. HTM Securities

  • Issue already covered by earlier coordinate bench decision.
  • Held: No substantial question of law arises

 

3. Depreciation on Temporary Structures

  • Tribunal allowed depreciation on temporary wooden structures (cabins, wiring, etc.).
  • Court applied principle of consistency based on earlier years.
  • Held: Depreciation allowable

 

4. Interest on Overdue Deposits

  • Issue covered by earlier Delhi High Court judgment.
  • Held: No fresh adjudication required

 

5. Section 36(1)(vii) – Bad Debts

  • Covered by Supreme Court ruling in:
    • Vijaya Bank v. CIT (2010)
  • Held: Deduction rightly allowed

 

Final Order

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

Important Clarifications

  • Shares held by banks are treated as stock-in-trade, not investments
  • Section 14A disallowance cannot be applied mechanically in banking cases
  • CBDT Circular No. 18/2015 supports treatment of securities as business assets
  • Principle of consistency is crucial in tax matters across assessment years
  • Bad debt deduction under Section 36(1)(vii) is governed by settled Supreme Court law 

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

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