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 (ITAT) concerning Assessment Years 2013-14, 2014-15, and 2015-16.

The ITAT 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 case involved multiple additions made by the Assessing Officer (AO), including disallowances under Section 14A, depreciation on temporary structures, treatment of HTM securities, interest on overdue deposits, and bad debts under Section 36(1)(vii).

Issues Involved

  1. Whether disallowance under Section 14A is applicable when shares are held as stock-in-trade by a banking company.
  2. Whether additions relating to HTM (Held to Maturity) securities are sustainable.
  3. Whether 100% depreciation on temporary structures is allowable.
  4. Whether interest on overdue deposits is taxable as income.
  5. Whether disallowance under Section 36(1)(vii) for bad and doubtful debts is justified.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in deleting substantial additions made by the AO across various heads.
  • It was argued that disallowance under Section 14A should apply irrespective of the nature of holding of shares.
  • The Revenue further challenged deletion of additions relating to HTM securities, depreciation claims, and provisions for bad debts.

Respondent’s Arguments (Assessee)

  • The assessee argued that as a banking institution, shares and securities are held as stock-in-trade, and therefore Section 14A is not applicable.
  • It relied on judicial precedents and CBDT Circulars clarifying that income from such securities forms part of banking business income.
  • The assessee further submitted that all other issues were already covered in its favour by binding judicial precedents.

Court’s Findings / Order

1. Section 14A Disallowance

  • The Court held that where shares are held as stock-in-trade, Section 14A is not applicable.
  • Reliance was placed on:
    • Maxopp Investment Ltd. v. CIT (2018)
    • South Indian Bank v. CIT (2021)

2. HTM Securities

  • The issue was already covered by earlier judgments of the Court in favour of the assessee.
  • No substantial question of law arose.

3. Depreciation on Temporary Structures

  • The Court upheld allowance of 100% depreciation on temporary wooden structures.
  • Applied the principle of consistency, noting no contrary stand in earlier years.

4. Interest on Overdue Deposits

  • The issue was covered by prior Delhi High Court judgment.
  • No interference required.

5. Section 36(1)(vii) – Bad Debts

  • The Court relied on Vijaya Bank v. CIT (2010).
  • Held that provision for bad and doubtful debts was allowable.

Final Order

  • No substantial question of law arose.
  • Appeals of the Revenue were dismissed.

Important Clarifications

  • Banking companies holding shares as stock-in-trade are not subject to Section 14A disallowance.
  • CBDT Circular No. 18/2015 supports classification of securities as stock-in-trade for banks.
  • Judicial consistency plays a crucial role where identical issues have been decided in earlier years.
  • Provision for bad debts is allowable when written off in accordance with law.

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


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