ITAT Mumbai Reduces Bank of India’s Tax Liability by Deleting ₹57.84 Crore 14A Disallowance

Background

The Mumbai Bench of the Income Tax Appellate Tribunal has granted substantial relief to Bank of India by deleting a major disallowance made under Section 14A of the Income-tax Act, 1961, for Assessment Years 2016–17 and 2018–19. The Tribunal was hearing cross-appeals filed by the bank and the Revenue against the order of the Commissioner of Income Tax (Appeals). The dispute arose after the Assessing Officer made a disallowance of ₹57.84 crore under Section 14A read with Rule 8D, on the ground that expenditure was incurred in relation to exempt income. The bank argued that the securities generating exempt income were held as stock in trade and not as investments, and therefore Section 14A had no application. The CIT(A) partly accepted the bank’s case but still sustained a disallowance of about ₹12.94 crore under Rule 8D(iii), which the bank challenged before the Tribunal.

Stock-in-Trade Not Hit by Section 14A

Allowing the bank’s appeal on this issue, the Tribunal relied on its earlier coordinate bench decision in Bank of India v. ACIT, where it was held that when shares and securities are held as stock in trade, any exempt income arising therefrom is incidental to the banking business. In such cases, Section 14A cannot be invoked to disallow expenditure. Applying the same reasoning, the Bench deleted the entire disallowance under Section 14A.

On other issues, including amortisation of lease premium and taxation of profits of foreign branches under Double Taxation Avoidance Agreements, the Tribunal followed earlier precedents or remanded matters to the Assessing Officer for fresh consideration. Overall, the ruling significantly reduces Bank of India’s tax liability and reinforces the settled position that Section 14A does not apply where exempt income arises from stock in trade.