Facts of the Case

The Respondent/Assessee, Punjab National Bank (erstwhile United Bank of India), filed its return of income for AY 2010–11 under Section 139(1) of the Income Tax Act, 1961. The case was selected for scrutiny, and assessment was completed under Section 143(3), wherein the Assessing Officer made multiple additions.

Two major disallowances were made:

  • Disallowance under Section 40(a)(ia) for non-deposit of TDS amounting to ₹16.85 crore
  • Disallowance under Section 14A read with Rule 8D amounting to ₹19.06 crore

The CIT(A) partly allowed relief, and subsequently, the ITAT deleted the remaining disallowances. The Revenue filed an appeal before the Delhi High Court under Section 260A.

Issues Involved

  1. Whether disallowance under Section 40(a)(ia) is justified when TDS is deposited before the due date of filing return under Section 139(1).
  2. Whether disallowance under Section 14A read with Rule 8D applies when shares are held as stock-in-trade by a banking company.
  3. Whether deletion of disallowances by ITAT raises any substantial question of law under Section 260A. 

Petitioner’s Arguments (Revenue)

  • The ITAT erred in deleting disallowance under Section 40(a)(ia), despite alleged delay in TDS deposit.
  • The deletion of disallowance under Section 14A r/w Rule 8D(iii) was incorrect, especially when the assessee had suo moto offered disallowance.
  • The facts of the case were distinguishable from precedents relied upon by the Tribunal.

Respondent’s Arguments (Assessee)

  • TDS had been duly deposited before the due date of filing return under Section 139(1), hence no disallowance under Section 40(a)(ia) is warranted.
  • Shares were held as stock-in-trade, and therefore Section 14A is not applicable.
  • The issue is covered by binding precedents including decisions of the Supreme Court and ITAT.

Court’s Findings / Order

  • The Court upheld the ITAT’s finding that TDS was deposited within the permissible time, and therefore disallowance under Section 40(a)(ia) cannot be sustained.
  • It relied on the Supreme Court ruling in CIT v. Calcutta Export Company (2018), holding that the provision is curative and should be applied retrospectively.
  • Regarding Section 14A:
    • The Court held that when shares are held as stock-in-trade, Section 14A is not applicable.
    • Reliance was placed on Maxopp Investment Ltd. v. CIT (2018).
  • No substantial question of law arose in the appeal.

Final Order: Appeal dismissed.

Important Clarifications

  • Deposit of TDS before the due date of filing return cures default under Section 40(a)(ia).
  • Section 14A does not apply where shares are held as stock-in-trade, particularly in the case of banks.
  • Findings of fact by ITAT cannot be interfered with unless perversity is shown.

Sections Involved

  • Section 260A – Appeal to High Court
  • Section 40(a)(ia) – Disallowance for non-deduction/non-payment of TDS
  • Section 14A – Expenditure relating to exempt income
  • Rule 8D of Income Tax Rules
  • Section 139(1) – Filing of return
  • Section 143(3) – Assessment

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2141-DB/MMH20052022ITA1592022_112316.pdf

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