Addl. CIT Vs PNB Gilts Ltd. (ITAT Delhi)
The Income Tax Appellate Tribunal, Delhi Bench, dismissed the Revenue’s appeals concerning PNB Gilts Ltd. for Assessment Years 2012-13 and 2013-14 and upheld the relief granted by the CIT(A). For AY 2012-13, the Assessing Officer had made disallowances of ₹4.26 crore under Section 14A read with Rule 8D, ₹30.61 lakh under Section 36(1)(iii) and ₹6.56 crore towards diminution in the market value of securities held as stock-in-trade. The Tribunal noted that the assessee, an RBI-registered NBFC and Primary Dealer, held the relevant securities as stock-in-trade in its ordinary securities-trading business. It had interest-free funds of ₹577.64 crore, substantially exceeding the securities yielding exempt income, and also earned net positive interest income. The Tribunal further observed that a valid and reasoned satisfaction was necessary before invoking Rule 8D and that the availability of sufficient interest-free funds supported the presumption that the securities were acquired from such funds. The separate disallowance under Section 36(1)(iii) was also unsustainable because the borrowings were used for business purposes and the same interest expenditure could not effectively be disallowed twice. Regarding diminution in value, the Tribunal accepted that the securities were consistently valued at cost or market value, whichever was lower, following RBI guidelines and recognised accounting principles. The resulting ₹6.56 crore diminution represented a permissible valuation loss rather than an unascertained provision. As the facts and grounds for AY 2013-14 were identical, the findings for AY 2012-13 were applied mutatis mutandis, and both Revenue appeals were dismissed.
