Case Law Details
State Bank of India Vs ACIT (ITAT Chandigarh)
ITAT Chandigarh held that disallowance of expenses u/s 14A read with Rule 8D is unwarranted on the premise that the investment in shares were stock-in-trade.
Facts- The assessee has challenged the action of the Ld.CIT(A) in upholding disallowance of deduction claimed by the assessee u/s 36(1)(viii) of the Income Tax Act, 1961 amounting to Rs. 120 crores. The assessee bank had claimed deduction of Rs. 120 crores on account of a special reserve created for the impugned assessment year, under the provisions of section 36(1)(viii) of the Act. The same was denied by the AO since he found that the special reserve was not created before finalization of the books of the assessee for the impugned year. AO found that the assessee had created the special reserve only in financial year 20 12-13 relevant to assessment year 2013-14. He, therefore, held that the assessee was not entitled to claim deduction u/s 36(1)(viii) of the Act.
AO, during the assessment proceedings found that assessee had shown dividend income exempt u/s 10(34) & 10(35) and net interest income exempt u/s 10(15)(iv)(h). AO, therefore, disallowed expenses as per the provisions of section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 computing the same at Rs. 17 crores, and after reducing the expenses suo moto disallowed by the assessee amounting to Rs.4,57,918/-, made disallowance of the balance amounting to Rs. 16.95 crores.
Conclusion- Held that that for claiming deduction u/s 36(1)(viii) of the Act on account of creation of special reserve, what is essential is that the same should be created out of the profits of the year only though not necessarily in the books for the impugned year and that the same can be created in the books of the subsequent year also. Accordingly, we hold that the assessee is entitled to claim deduction on account of creation of special reserve of Rs. 120 crores u/s 36(1)(viii) of the Act since the said reserve has been created out of the profits of the impugned year before the claim was considered for the purpose of deduction.
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