ITAT Deletes Rs 12.57 Lakh Section 14A Disallowance as Cooperative Bank Earned No Exempt Income:

The Income Tax Appellate Tribunal (ITAT), Cuttack Bench, has deleted a disallowance of Rs 12.57 lakh made under Section 14A of the Income Tax Act, 1961, in the case of Koraput Central Cooperative Bank Ltd., holding that the disallowance was not justified, as the bank had earned no exempt income during the Assessment Year 2017-18.

The case arose when the Assessing Officer (AO) completed the assessment under Section 143(3) and made two additions to the assessee's income. These included Rs 12.57 lakh under Section 14A read with Rule 8D and Rs 9.36 crore under Section 40(a)(ia) for failure to deduct tax at source (TDS) on interest payments made to depositors.

The CIT(A) deleted the disallowance under Section 40(a)(ia) after considering the details of interest payments and declarations furnished in Forms 15G/15H. However, the Department challenged this relief before the ITAT.

The Department argued that the bank had paid interest exceeding Rs 10,000 to several depositors without deducting TDS or obtaining Forms 15G/15H. It specifically pointed out that 928 depositors without PAN had not furnished these declarations, involving interest payments of Rs 6.07 crore.

It was noted by the tribunal that "in respect of 928 persons/deductees/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 Rs6,07,95,197/-. 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 Rs10,000/- and in respect of whom the Form No.15G/15H has not been submitted, and accordingly recompute the total income."

Accordingly, the Department's appeal was allowed for statistical purposes on this issue. Regarding Section 14A, the Tribunal observed that no exempt income had been earned during the relevant year. It held that the disallowance was based merely on assumptions and directed the AO to delete the entire addition of Rs 12.57 crore. Consequently, the bank's cross-objection was allowed.