DCIT Vs Koraput Central Cooperative Bank Ltd. (ITAT Cuttack)
No Exempt Income, No Section 14A Disallowance: ITAT Restricts TDS Disallowance to Verified Defaults
Background of the dispute
The Cuttack Bench of the Income Tax Appellate Tribunal examined two distinct issues concerning a cooperative bank: disallowance of deposit interest under Section 40(a)(ia) for failure to deduct tax, and disallowance under Section 14A when the bank had earned no exempt income.
The bank filed its return declaring total income of ₹1,78,42,870. In scrutiny assessment, the Assessing Officer disallowed ₹9,36,33,272 under Section 40(a)(ia) and ₹12,57,777 under Section 14A read with Rule 8D.
The CIT(A) deleted the former addition but sustained the latter. Consequently, the Revenue challenged the relief concerning deposit interest, while the bank filed a cross-objection against the Section 14A disallowance.
Deposit interest: A blanket disallowance questioned
The bank had debited ₹36,67,40,805 towards interest on deposits. The Assessing Officer identified ₹31,21,10,908 as interest paid to individuals and called for supporting particulars concerning tax deduction.
According to the assessment findings recorded in the order, the bank failed to furnish an explanation. The Assessing Officer therefore disallowed 30% of ₹31,21,10,908, resulting in the addition of ₹9,36,33,272.
Before the CIT(A), the bank furnished details of interest exceeding ₹10,000, together with particulars of Forms 15G/15H and acknowledgments. On that basis, the CIT(A) deleted the disallowance.
However, the Revenue contended before the Tribunal that the declarations did not cover all depositors whose interest crossed the applicable threshold.
Missing declarations required depositor-wise verification
The Revenue submitted that interest exceeding ₹10,000 aggregated to ₹12,56,27,077, covering 2,374 depositors. Forms 15G/15H were furnished for 1,446 depositors, leaving 928 depositors without such declarations.
The interest attributable to these 928 depositors was stated to be ₹6,07,95,197. The Revenue also pointed out that these depositors did not have PAN.
The Tribunal observed that PAN was mandatory for furnishing Forms 15G/15H and that the declarations had not been furnished for these persons. Accordingly, complete deletion of the disallowance could not stand without further examination.
It directed the Assessing Officer to verify the position and restrict the Section 40(a)(ia) disallowance to interest payments exceeding ₹10,000 to individuals for whom Forms 15G/15H had not been submitted.
Thus, the Tribunal neither restored the entire original addition nor finally quantified the surviving disallowance. The Revenue’s appeal was allowed for statistical purposes, with a direction to recompute income after verification.
Section 14A: No exempt income identified
On the second issue, the bank contended that no part of its income had been claimed as exempt, including income arising from investments. Therefore, there was no basis for invoking Section 14A or applying Rule 8D.
The Tribunal found that neither the assessment order nor the CIT(A)’s order identified any exempt income. Further, the bank’s claim that its investment income formed part of taxable total income had not been disproved.
In these circumstances, the Tribunal held that the disallowance rested merely on an assumption. It directed deletion of ₹12,57,777, allowing the bank’s cross-objection.
The decision therefore provides clear relief for the assessment year under consideration: where no exempt income existed on the undisputed facts, the impugned Section 14A disallowance was unjustified.
Decisions cited by the bank
The bank relied upon Indus Valley Property v. ITO, ITA No.81/Bang/2025, dated 9 June 2025, concerning restriction of disallowance to exempt income.
It also cited NDTV Network v. DCIT, ITA No.6647/Del/2018, dated 4 April 2025, Linguanext Technicalities Private Limited v. ITO, ITA No.2535/Pun/2024, dated 20 March 2025, and Rajdeep Automation Private Limited v. DCIT, ITA No.1670/Pun/2025, dated 12 September 2025.
These authorities were recorded as part of the bank’s submissions. The Tribunal’s own decisive finding was that no exempt income had been established.
Author’s comments
The ruling demonstrates the importance of identifying the precise statutory default before quantifying a disallowance. Production of declarations for some depositors cannot justify relief for every depositor. Equally, missing declarations for some depositors cannot support disallowance across the entire interest expenditure.
The Section 14A conclusion must also be read in its AY 2017–18 context. The Finance Act, 2022 subsequently amended the provision, including an Explanation addressing expenditure relating to exempt income even where such income does not arise during the year. The CBDT explanatory circular specifies 1 April 2022 as the effective date. The present order does not discuss that amendment and should not be presented as deciding its application.
A further distinction concerns CBDT Circular No.18/2015, cited by the bank. That circular addresses the treatment of banks’ investment income as business income, following CIT v. Nawanshahar Central Cooperative Bank Ltd., [2007] 160 Taxman 48 (SC). It does not grant banks a blanket exemption from Section 14A. Here, the substantive foundation for relief was the absence of exempt income on the facts, rather than the bank’s status alone
Cases Discussed
- Indus Valley Property Vs ITO (ITAT Bangalore); ITA No. 81/Bang/2025; 09/06/2025; AY: Not verified. Relied upon by the assessee for the proposition that disallowance under Section 14A of the Income-tax Act, 1961, should not exceed the exempt income earned during the relevant assessment year. The Cuttack Tribunal recorded this submission but granted relief on its independent finding that no exempt income existed during AY 2017–18.
- NDTV Network Vs DCIT (ITAT Delhi); ITA No. 6647/Del/2018; 04/04/2025; AY: Not verified. Cited by the assessee in support of the contention that no disallowance under Section 14A is warranted where the taxpayer has not earned exempt income. The Cuttack Tribunal accepted the factual position that no exempt income had been established and directed deletion of the disallowance.
- Linguanext Technicalities Private Limited Vs ITO (ITAT Pune); ITA No. 2535/Pun/2024; 20/03/2025; AY: Not verified. Relied upon by the assessee in challenging the disallowance under Section 14A read with Rule 8D. The Cuttack Tribunal recorded the citation in its order but did not separately analyse the decision or expressly adopt its reasoning.
- Rajdeep Automation Private Limited Vs DCIT (ITAT Pune); ITA No. 1670/Pun/2025; 12/09/2025; AY: Not verified. Cited by the assessee in support of its challenge to the Section 14A disallowance. The Cuttack Tribunal noted the reliance but did not independently discuss the precedent. Relief was granted because the assessment and appellate orders did not establish the existence of exempt income.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
The captioned Appeals of Revenue and Cross-Objection of the Assessee are directed against the order of the NFAC, Delhi [(hereinafter referred to as the “Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (“the Act”, for short) dated 15.07.2025 for the Assessment Year 2017-18.
2. Brief facts of the case are that, Assessee is a cooperative banking company and filed its return of income for the Assessment Year 2017-18, declaring total income of Rs.1,78,42,870/-. The Assessing Officer completed the assessment u/s 143(3) of the Act vide Order dated 14.12.2019 wherein the addition of Rs.12,57,777/- was added by way of disallowance u/s 14A of the Act and an amount of Rs.9,36,33,272/- was added by way of disallowance u/s 40(a)(ia) of the Act. On further Appeal, the Ld. CIT(A) vide his Order dated 15.07.2025 has upheld the disallowance made u/s 14A of the Act and allowed the relief in regard to the addition made of Rs.9,36,33,272/-. The Department has preferred Appeal against the deletion of the amount of Rs.9,36,33,272/-, whereas the Assessee has preferred Cross-Objection against the addition sustained by the Ld. CIT(A) of Rs.12,57,777/- u/s 14A of the Act read with Rule-8D of the Income Tax Rules, 1962 [hereinafter referred to as the ‘Rules’].
2.1. The Assessing Officer noted that the Assessee has claimed an amount of Rs.36,67,40,805/- towards interest paid on deposits in the Profit & loss account for the year ended 31.03.2017. Out of the said amount, it was noted that amount of Rs.31,21,10,908/- has been paid to the individual towards interest paid on deposits (FD, RD & reinvestment of deposits etc), in respect of which the Assessee is under obligation to deduct TDS as per the provisions of Section 194A of the Act. The Assessing Officer called upon the Assessee to furnish details of the TDS deposits with supporting documents. As the Assessee failed to furnish any explanation. The Assessing Officer proceeded to make disallowance u/s 40(a)(ia) of the Act of amount of Rs.9,36,33,272/- (30% of Rs.31,21,10,908/-).
3. The Ld. CIT(A) has deleted the said addition stating that the Assessee has furnished details of interest paid above Rs.10,000/- along with list of Form No. 15G/15H and the acknowledgment thereof. Therefore, the Ld. CIT(A) took the view that the addition is not warranted and deleted the same.
4. The Department has preferred Appeal on this issue. It was the argument of the Department that out of the total aggregate amount of Rs.36,67,40,805/- debited as interest paid in its Profit and loss account, the amount of Rs.15,59,99,625/- has been paid as interest on FD/RD etc. to individuals. The Assessee under the obligation to deduct TDS on the interest paid to individuals where the interest income exceeds Rs.10,000/-. Out of the said amount of Rs.15,59,99,625/-, the interest amount of Rs.12,56,27,077/- pertains to interest amount exceeding to Rs.10,000/- and amount of Rs.3,03,72,548/- pertain to the interest paid less than Rs.10,000/-. Further, it was submitted that out of the interest paid of Rs.12,56,27,077/- paid to 2374 number of depositors, Form No.15G/15H has been furnished in respect of 1446 depositors. It is evident that out of Rs.2,374 deductee that 928 deductee/ beneficiaries have no PAN and have not furnished non-deduction certificate in Form No.15G/15H, the amount of interest paid to such depositors aggregate to Rs.6,07,95,197/-. Thus, it was argued that the Assessee has failed to deduct TDS on the interest amount of Rs.6,07,95,197/-. It was argued that in respect of this amount disallowance u/s 40(a)(ia) of the Act. It was further submitted that the Assessee’s bank has furnished Form-26Q on 18.03.2020, it should have been filed on 15.06.2017. The Form No.15G and 15H submitted on the e-filing portal on 27.04.2000. The Assessee was required to furnish the statement of deduction of tax referred to in Rule 31A containing the particulars of declaration received by him during each quarter of the financial year along with the unique identification number allotted by him under sub-rule (3) in accordance with the provisions of clause (vii) of the sub-rule (4) of rule 31A irrespective of the fact that no tax has been deducted in the said quarter. Further under sub rule 6, an income-tax authority may, before the end of seven years from the end of the financial year in which the declaration referred to in sub-rule (1) has been received, require the person referred in sub-rule (3) to furnish or make available the declaration for the purposes of verification or any proceeding under the Act in accordance with the procedures, formats and standards specified by Principal Director General of Income-tax (Systems) specified under sub-rule (7). In view of the above, the assessee was obligated to furnish copies of form 15G/15H to the Assessing Officer on being called for so. In view of the above, it is believed that the Assessee has not made TDS on payment of interest of Rs.31,21,10,908/- paid to individuals and the Assessing Officer has rightly disallowed the expense u/s 40(a)(ia) of the Act.
5. On the other hand, the Ld. AR filed Paper Book and contended that in the case of payment of interest exceeding Rs.10,000/-, the Assessee has submitted Form No.15G/15H and therefore, disallowance is not attracted. It was also submitted that where the interest payment is less than Rs.10,000/- to individual, TDS provisions are not attracted. Thus, it was argued that there was no violation by the Assessee in regard to deduction of TDS on the interest paid to the depositors, therefore, the order of the Ld. CIT(A) may be upheld.
6. We have considered the rival submissions. It is seen that in respect of 928 persons/deductee/depositors, the Assessee has not furnished Form No.15G/15H, as they did not have the PAN. PAN is mandatory for filing Form No.15G/15H. Thus, these persons could not have filed Form No.15G/15H. As per the Department, this amounts to Rs.6,07,95,197/-. Therefore, we consider it appropriate to direct the Assessing Officer to examine this aspect and to restrict the disallowance made u/s 40(a)(ia) of the Act in respect of cases wherein the interest payment to individuals exceeds Rs.10,000/- and in respect of whom the Form No.15G/15H has not been submitted, and accordingly recompute the total income. As a result, Appeal of the Department is allowed for statistical purposes on this issue.
7. In regard to the disallowance made u/s 14A, the Ld. AR submitted that the Assessing Officer has made the disallowance in an arbitrary manner, it was submitted that no part of income of the bank has been claimed as exempt and no part of interest received on investment has been claimed exempt. Therefore, it was contended that the disallowance u/s 14A of the Act read with Rule-8D of the Rules is not correct. The Ld. AR also contended that the disallowance cannot exceed the exempt income. In this regard, the Ld. AR relied on the decision of the ITAT, Bangalore Bench in the case of Indus Valley Pr9operty vs. ITO in ITA No.81/BANG/2025, Order dated 09.06.2025 and argued that disallowance should not exceed the exempt income earned during the year.
8. The Ld. AR also relied on the decision of the ITAT, Delhi Bench in the case of NDTV Network vs. DCIT in ITA No.6647/DEL/2018, order dated 04.04.2025. and argued that no disallowance u/s 14A of the Act is warranted in the absence of exempt income. The Ld. AR also relied on the decision of the ITAT Pune, Bench in the case of Linguanext Technicalities Private Limited vs. ITO in ITA No.2535/PUN/2024, order dated 20.03.2025 and in the case of Rajdeep Automation Private Limited vs. DCIT in ITA No.1670/Pun/2025, order dated 12.09.2025.
9. The Ld. AR also relied on the CBDT Circular No.18/2015 dated 02.11.2015, wherein it was clarified that interest income arising from non-SLR securities held by banks as stock-in-trade is taxable as business income, accordingly, the provisions of Section 14A of the Act are not attracted.
10. On the other hand, the Ld. DR relied on the orders of the Assessing Officer and the Ld. CIT(A) and argued that the disallowance made u/s 14A of the Rules has been rightly made.
11. We have considered the rival submissions. It is not in dispute that there is no exempt income in the year under consideration. There is no finding as to any exempt income in the impugned assessment order or in the order of the Ld. CIT(A). The Assessee’s claim that the entire income credited in the Profit and loss account amounting to Rs.31,39,11,158/- are from investment forming part of the total income have not been disproved. In such scenario, the invoking of Section 14A for disallowance is not justified. We note that the impugned disallowance is based merely on assumption and hence, we direct the Assessing Officer to delete the impugned disallowance of Rs.12,57,777/-. As a result, the Cross-Objection of the Assessee is allowed.
12. As a result, the Department’s Appeal is allowed for statistical purposes and the Cross-Objection filed by the Assessee is allowed.
Order pronounced on 12.11.2026.
