M/S. APOLLO HOSPITALS ENTERPRISES LTD.,,CHENNAI vs. ACIT,CENTRAL CIRCLE -3(1), , CHENNAI

आदेश / O R D E R

PER MANJUNATHA.G, ACCOUNTANT MEMBER:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals)-18, Chennai, dated 07.07.2022 and

pertains to assessment year 2018-19.

ITA No.690/Chny/2022

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Disallowance made u/s.14A r.w Rule 8D

Addition made u/s.14A r.w Rule 8D in calculating Book Profit

Disallowance made u/s.36(1)(va)

Deduction u/s.80JJAA

PRAYER

For these grounds and such other grounds that may be raised, may be altered, amended or modified, with the leave of the Hon'ble Tribunal before or during the hearing of the appeal, it is most humbly prayed that the Hon'ble Tribunal may be pleased to:

a) Delete the disallowance made u/s.14A r.w Rule 8D and direct the disallowance to be restricted to Rs.1,22,45,858 and / or

b) Delete the disallowance made u/s.36(1)(va) and / or

c) Allow the deduction u/s.80JJAA and /or

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d) Pass such other orders as the Hon'ble Tribunal may deem fit. 3. The brief facts of the case are that the assessee, M/s.Apollo Hospitals

Enterprise Ltd., is engaged in the business of healthcare services, filed its

return of income for assessment year 2018-19 on 31.10.2018 declaring

total income of Rs.NIL under normal provisions and at Rs.332,56,33,091/-

u/s.115JB of the Income Tax Act, 1961 (in short “the Act"). The assessee

had filed its revised return of income on 29.03.2019 declaring NIL income

under normal provisions and book profit of Rs.332,56,33,091/- under MAT

provisions of the Act. The case was selected for scrutiny and the

assessment has been completed u/s.143(3) of the Act, on 14.07.2021 and

determined total income of Rs.NIL under normal provisions and book profit

at Rs.333,20,90,126/- u/s.115JB of the Act, by making additions towards

disallowance u/s.14A r.w.r.8D of the Income Tax Rules, 1962 (in short “the

Rules"), and addition towards belated remittances of employees’

contribution towards PF & ESI u/s.36(1)(va) r.w.s.2(24)(x) of the Act. The

assessee carried the matter in appeal before the First Appellate Authority,

and the Ld.CIT(A) for the reasons stated in their appellate order dated

07.07.2022, partly allowed the appeal filed by the assessee, where the

Ld.CIT(A) deleted the additions made towards disallowance on account of

expenditure on penalty. However, sustained the additions made towards

disallowance u/s.14A r.w.r.8D of the IT Rules, 1962, and belated

remittances of employees’ contribution towards PF & ESI u/s.36(1)(va) of

the Act. The Ld.CIT(A) had also rejected the additional grounds filed by

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the assessee seeking deduction u/s.80JJAA of the Act. Aggrieved by the

order of the Ld.CIT(A), the assessee is in appeal before us.

6 of the assessee’s appeal is disallowance u/s.14A r.w.r.8D of the IT Rules,

1962. The assessee has earned dividend income of Rs.4,36,83,999/- and

has also made suo moto disallowance of expenditure relatable to exempt

income u/s.14A r.w.r.8D of the IT Rules, at Rs.3,80,32,207/- which

includes interest expenditure relating to exempt income at

Rs.3,22,43,384/- and 0.5% on average investment yielding exempt income

at Rs.57,88,823/-. The assessee has computed said disallowance under

pre-amended Rule 8D of the Income Tax Rules, 1962. The AO has

computed disallowances as per amended Rule 8D(2) of the Income Tax

Rules, 1962, which has been amended w.e.f.02.06.2016, where the earlier

method of computation has been substituted with new method, where

disallowance of expenditure comprising of direct expenses relatable to

earning exempt income, and 1% of average investments yielding exempt

income. The AO by following new method determined total disallowance at

Rs.4,44,89,242/-, and after reducing disallowance worked out by the

assessee at Rs.3,80,32,207/- has made further disallowance of

Rs.64,57,035/-.

4.1 The Ld.Counsel for the assessee referring to amended Rule 8D(2)(ii)

of the Income Tax Rules, 1962, which is applicable for the impugned

assessment year submitted that as per new Rule, only two category of

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disallowances are prescribed i.e. (i) direct expenses relatable to exempt

income, which is NIL in the present case, and (ii) 1% on average

investments yielding exempt income, which is worked out at

Rs.1,22,45,858/- and said disallowance is below the amount of suo moto

disallowance made by the AO. Therefore, the disallowance as per new

method should be adopted, and suitable directions may be given to the AO

to work out disallowance.

4.2 Ld.DR, Mr.P.Sajit Kumar, JCIT, submitted that there is no provision

under the Act to reduce the total income computed in an assessment below

the amount of the returned income. Further, in case, the assessee wants

to rectify any mistakes in filing return of income, it can file revised return

in terms of provisions of Sec.139(4) & 139(5) of the Act. Unless, the

assessee rectifies the mistakes by filing revised return, there is no scope

for the AO to reduce the returned income in an assessment. Therefore, the

AO and the Ld.CIT(A) has rightly rejected the arguments of the assessee,

and sustained addition made towards disallowance u/s.14A of the Act.

4.3 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. The provisions of

Rule 8D(2) of the IT Rules, 1962, has been amended by the Income Tax

(Fourteenth Amendment) Rules, 2016 w.e.f. 02.06.2016, notified vide

Notification No.43/2016. As per which, the expenditure in relation to

income which does not form part of the total income shall be aggregate of

the following amounts viz., (i) the amount of expenditure directly relating

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to income which does not form part of the total income and, (ii) an amount

equal to 1% of the annual average of the monthly averages of the opening

and closing balance of the value of investment, income from which does

not or shall not form part of the total income. The assessee has computed

disallowance under pre-amended Rules while filing return of income and

made suo moto disallowance of Rs.3,80,32,207/-, which is comprising of

interest disallowance u/r.8D(2)(ii) and disallowance of other expenses

u/r.8D(2)(iii) of the IT Rules. The AO has computed disallowance u/s.14A

r.w.r.8D of the IT Rules, by following new Rules and determined total

disallowance at Rs.4,44,89,242/-. In the process, the AO considered

interest expenses disallowed by the assessee u/r.8D(2)(ii) of the IT Rules,

as direct expenses, and further computed 1% of monthly average of

investment yielding income. It was the arguments of the assessee that

direct expenses relatable to exempt income is ‘nil’. Further, interest

expenses do not relate to exempt income. Therefore, only 1% of monthly

average of investment yielding exempt income i.e. Rs.1,22,45,858/- needs

to be disallowed. We find that although, the assessee has determined

disallowance u/s.14A of the Act, at Rs.3,80,32,207/-, but such

disallowances computed by the assessee is not in accordance with Rules

applicable for the impugned assessment year. Therefore, the same cannot

be taken into consideration. In so far as disallowances computed by the

AO as per new Rules, there is no dispute with regard to 1% of monthly

average income yielding exempt income, and to that extent, we confirm

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disallowance worked by the AO at Rs.1,22,45,858/-. In so far as interest

expenses are concerned, whether it relates to direct expenses earning

exempt income or not; has to be examined in light of borrowed funds of

the assessee and investments to ascertain whether any direct link between

borrowed funds and investments in shares & securities, which yield exempt

income. In case, interest expenses are relatable to exempt income, then,

same needs to be considered under direct expenses. But, facts need to be

examined. Therefore, the issue of disallowance of interest expenses has

been set aside to the file of the AO for further verification. In so far as

arguments of Ld.DR that assessed income cannot go below the returned

income, we are of the considered view that correct amount of tax payable

by the assessee needs to be determined by the AO even in a case, the

assessee reports higher income by mistaken of law or facts. Therefore,

when the disallowance as per law is lesser than the amount of disallowance

worked by the AO, there is no restriction under the law to reduce such

disallowance as per law while computing such disallowance in the course of

assessment proceedings. Therefore, we reject the arguments of the Ld.DR

and direct the AO to determine correct amount of disallowance u/s.14A of

the Act, by applying Rule 8D(2) of the IT Rules, in light of our discussion

given hereinabove.

of the assessee’s appeal is additions made u/s.14A r.w.r.8D of the IT Rules,

in calculating book profit u/s.115JB of the Act. Having heard both the sides,

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we find that this issue is squarely covered in favour of the assessee by the

decision of the Special Bench, ITAT Delhi in the case of ACIT v. Vireet

Investment (P) Ltd., reported in [2017] 165 ITD 27 (Delhi-Trib.) (SB). We

further noted that the Hon’ble Karnataka High Court in the case of CIT v.

Gokaldas Images (P) Ltd., reported in [2020] 429 ITR 526 (Kar.), had

considered an identical issue and held that disallowance made u/s.14A of

the Act, should not be added to book profit of the assessee computed

u/s.115JB of the Act. Therefore, by following the decisions of Special

Bench, ITAT Delhi and the Hon’ble Karnataka High Court, we direct the AO

to delete the addition made towards disallowance u/s.14A of the Act, to

book profit computed u/s.115JB of the Act.

Nos.8-10 of the assessee’s appeal is disallowance made u/s.36(1)(va) of

the Act, towards belated remittances of employees’ contribution towards

PF & ESI. The Ld.Counsel for the assessee, at the time of hearing, fairly

admitted that this issue is covered against assessee by the decision of the

Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. v. CIT

[2023] 290 Taxman 19 (SC), for which, the Ld.DR also consented.

6.1 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. We find that the

Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd., (supra)

had considered the issue of disallowance of belated remittances of

employees’ contribution towards PF & ESI u/s.36(1)(va) r.w.s.2(24)(x) of

ITA No.690/Chny/2022 :: 9 ::

the Act & s.43B of the Act, and after considering relevant facts held that

belated remittances of employees’ contribution towards PF & ESI, cannot

be allowed as deduction if such contribution is remitted beyond due date

under respective Act. Therefore, by following the decision of the Hon’ble

Supreme Court in the case of Checkmate Services (P) Ltd., (supra), we

confirm the additions made by the AO and reject the ground taken by the

assessee.

Nos.11-13 of the assessee’s appeal is deduction claimed u/s.80JJAA of the

Act. The facts with regard to impugned dispute are that the assessee has

made a fresh claim of deduction u/s.80JJAA of the Act, for Rs.1,51,69,500/-

by rising additional grounds of appeal before the Ld.CIT(A). However, the

claim for deduction u/s.80JJAA of the Act, was not made either in the return

of income filed for the relevant assessment year or before the AO during

the course of assessment proceedings. The Ld.CIT(A) rejected additional

grounds filed by the assessee claiming deduction u/s.80JJAA of the Act, on

the ground that the assessee has not given any valid reason ‘as to why’ the

deduction was not claimed in the return of income and further, the assessee

could not satisfy conditions prescribed u/s.80JJAA of the Act, by filing report

of Accountant along with return of income filed for the relevant assessment

year. Therefore, opined that the assessee is not entitled for deduction

u/s.80JJAA of the Act.

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7.1 The Ld.Counsel for the assessee referring to application in terms of

Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, submitted that

the assessee has filed certain additional evidences which are very crucial

to decide the issue and said documents were neither furnished before the

AO nor before the Ld.CIT(A). The Counsel further submitted that the

reasons for non-furnishing of the said document before the Ld.CIT(A) was

that the First Appellate Authority did not specifically called for relevant

documents, but simply he rejected the claim of the assessee on the ground

that the assessee has not satisfied conditions prescribed under the

provisions of u/s.80JJAA of the Act. He further submitted that the main

reason for the Ld.CIT(A) to reject said claim was non-filing of report of

Accountant as per Clause-(c) of sub-section (2) to sec.80JJAA of the Act,

but fact remains that filing of Audit Report is made mandatory w.e.f. AY

2020-21. Therefore, the reasons given by the Ld.CIT(A) to deny deduction

is incorrect. The Counsel further submitted that the assessee is otherwise

eligible for deduction. Therefore, the matter may be remitted back to the

file of the AO to verify the claim of the assessee and to decide the issue of

deduction claimed u/s.80JJAA of the Act.

7.2 The Ld.DR present for the Revenue opposing application filed by the

assessee in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules,

1963, submitted that the assessee could not explain ‘as to why’ it could not

submit those documents before the AO. Further, the assessee did not make

any claim in the return of income. Therefore, the AO and the Ld.CIT(A)

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has rightly rejected the claim of the assessee and their orders should be

upheld.

7.3 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. If the assessee is

eligible for any deduction, if he satisfies conditions therein, then, there is

no reason for the AO to deny such deduction on technical grounds, including

non-claiming of said deduction in the return of income filed for the relevant

assessment year. It is a well settled principal of law by the decision of the

various courts that correct tax payable by the assessee should be computed

by the AO, even if assessee makes a wrong claim by mistaken of law or

facts. In this case, there is no dispute that the assessee did not make any

claim in the return of income or even in the revised return filed for the

relevant assessment year. However, the assessee has made a claim for

the first time before the Ld.CIT(A) along with report of Accountant as

required u/s.80JJAA(2)(c) of the Act, and reasons given by the Ld.CIT(A)

to deny deduction was that the assessee did not file Audit Report of

Accountant as required under Clause (c) to sub-sec.2 to sec.80JJAA of the

Act. But, fact remains that filing of Audit Report of Accountant was made

mandatory by the Finance Act, 2020, w.e.f. 01.04.2020, and thus, same is

applicable from the AY 2021-22 onwards, and not applicable to impugned

assessment year. Therefore, the reasons given by the Ld.CIT(A) to reject

the claim of the assessee is incorrect. Further, the assessee claims that it

was otherwise eligible for claiming deduction u/s.80JJAA of the Act, and it

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is ready to furnish necessary evidences before the AO to justify its claim.

Therefore, we are of the considered view that the issue needs to go back

to the file of the AO to verify the claim of the assessee in light of provisions

of Sec.80JJAA of the Act, and thus, we set aside the issue to the file of the

AO and direct the AO to re-examine the claim of the assessee and decide

the issue in accordance with law.

statistical purposes.

Order pronounced on the 19th day of May, 2023, in Chennai.

Sd/- Sd/- (महावीर िसंह) (मंजूनाथा.जी) (MANJUNATHA.G) (MAHAVIR SINGH) उपा�� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER

चे�ई/Chennai, �दनांक/Dated: 19th May, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ� / Appellant 3. आयकर आयु� / CIT 5. गाड� फाईल / GF 2. ��यथ� / Respondent 4. िवभागीय �ितिनिध / DR