Punjab National Bank vs Dy. CIT — Applicability of Set-Off, Bad Debts Deduction & MAT; 14A, TDS Credit & LTCG Los.

Headnote:

The Delhi Bench of the Income Tax Appellate Tribunal disposed of cross appeals filed by Punjab National Bank (PNB) and the Revenue concerning multiple issues, including set-off of carry-forward business losses, allowability of bad-debt deduction under Section 36(1)(vii), applicability of MAT under Section 115JB, disallowance under Section 14A, TDS credit under Section 194A relating to SARFAESI sales, and carry forward of long-term capital losses.

The Tribunal partly allowed PNB’s appeal for statistical purposes by restoring certain issues to the Assessing Officer for fresh examination. The Revenue’s appeal was dismissed in entirety, with the Tribunal affirming the CIT(A)'s findings that disallowance under Section 14A was not applicable to bank stock-in-trade investments and that TDS credit under Rule 37BA could not be denied when the income relating to SARFAESI recoveries was duly offered to tax.

Background:

PNB filed ITA No. 2712/DEL/2024 challenging denial of set-off of carry-forward business losses amounting to ₹47.15 crore for A.Y. 2018–19, along with additional grounds concerning deduction of bad debts under Section 36(1)(vii) without set-off against provisions under Section 36(1)(viia), and non-applicability of MAT u/s 115JB to banking companies.

The Revenue filed ITA No. 3039/DEL/2024 challenging deletion of:

Disallowance of ₹58.56 crore under Section 14A r/w Rule 8D,

Restriction of TDS credit under Section 194A where borrower properties were liquidated under SARFAESI,

Allowance of ₹53.11 crore as carried-forward long-term capital loss.

PNB argued that the NFAC as well as the AO failed to verify whether business losses were already allowed in earlier or later years, and further justified the claim for TDS credit on SARFAESI recoveries as interest income had been duly taxed.

The Revenue argued that Section 14A was mandatory where exempt income existed and that TDS credit could be denied if the related income was not assessed under “Capital Gains.”

Tribunal’s Observations:

Business Loss (₹47.15 crore)

The Tribunal found uncertainty regarding the factual allowance of these losses in A.Y. 2018-19 or later years. The issue was remanded to the AO for verification. If the losses were not granted earlier, the assessee must receive benefit in the present year.

Bad Debts & Section 115JB (Additional Grounds)

Though not raised before lower authorities, the Tribunal noted that both issues arise from the record and deserve adjudication in the interest of natural justice. Both matters were remanded to the AO for proper verification.

Section 14A Disallowance (Revenue’s Ground 1)

The Tribunal affirmed that investments held as stock-in-trade by banking companies are outside the scope of disallowance under Section 14A. The finding relied upon:

Maxopp Investment Ltd. v. CIT (SC),

South Indian Bank Ltd. v. CIT (SC),

Delhi High Court rulings in PNB’s own cases (2024).

Ground dismissed.

TDS Credit under Section 194A (Revenue’s Ground 2)

The Tribunal upheld CIT(A)’s detailed factual finding that PNB had offered relevant interest and charges from SARFAESI recoveries to tax, and therefore credit of ₹4.41 crore could not be denied merely because the income was not assessed under “Capital Gains.”

Revenue’s ground dismissed.

Long-Term Capital Loss (₹53.11 crore) (Revenue’s Ground 3)

The Tribunal held that since the AO had not specifically disallowed these losses in A.Y. 2019-20, and earlier scrutiny assessments had allowed such losses, denial was unjustified.

Ground dismissed.

Legal Provisions Discussed:

Section 36(1)(vii) & 36(1)(viia) – Deduction of bad debts and provisions for rural advances.

Section 115JB – Minimum Alternate Tax; applicability to banking companies.

Section 14A r/w Rule 8D – Disallowance of expenditure relating to exempt income.

Rule 37BA(2) – TDS credit to rightful recipient.

Section 194A – TDS on interest.

Section 143(3) – Scrutiny assessments and treatment of losses.

SARFAESI Act – Recovery mechanism for NPAs.

Case: Punjab National Bank v. Dy. Commissioner of Income Tax

Court: Income Tax Appellate Tribunal, Delhi ‘A’ Bench

Coram: Shri Satbeer Singh Godara (Judicial Member) & Shri Naveen Chandra (Accountant Member)

Date of Decision: 28 August 2025

ITA Nos.: 2712/DEL/2024 & 3039/DEL/2024 (A.Y. 2020–21)