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Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-1, Ahmedabad, dated 29/06/2016 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.28/01/2016 relevant to the Assessment Year 2013-2014.
The assessee has raised the following grounds of appeal.
1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance to the extent of Rs.67,86,490 out of the total disallowance made by the Assessing Officer amounting to Rs. 1,85,75,239 U/S.14A read with Rule 8D.
On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming addition of Rs.67,86,490 while computing the book profit u/s. 115JB of the I.T. Act on the sole ground that disallowance u/s. 14A read with Rule-8D was being sustained as referred to in the foregoing ground of appeal
3. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of Rs.80,870 made by the Assessing Officer on account of late payment of employees contribution to PF and ESI.
4. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
2. The 1st issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of Rs. 67,86,490/- out of the total disallowance made by the AO for Rs. 1,85,75,239/- under the provisions of section 14A read with rule 8D(2)(iii) on account of administrative expenses.
3. The AO during the assessment proceedings found that the assessee has earned dividend income of Rs. 1.64 crore which was claimed as exempted under section 10(34) of the Act. However the assessee has not made any disallowance of expenses corresponding to such exempted income. Accordingly the AO invoked the provisions of section 14A read with rule 8D of Income Tax Rule and made the disallowance of Rs. 1,29,54,678/- only on account of administrative expenses which was added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A).
The learned CIT (A) during the appellate proceedings found that the expenses incurred by the assessee in the year under consideration under the head administrative expenses are only of Rs. 83,01,267/- only. Thus he was of the view that the disallowance of the expenses under rule 8D cannot exceed the actual expenses incurred by the assessee. Accordingly, the learned CIT (A) considered only those expenses which were relatable to such dividend income and accordingly worked out the disallowance of Rs. 67,86,490/- including the employee benefit expenses. Thus the learned CIT (A) was pleased to grant relief to the assessee in part.
Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 142 and submitted that the Hon’ble ITAT in the own case of the assessee in vide order dated 04-07-2019 was pleased to delete the disallowance made under section 14A r.w.r. 8D of Income Tax Rules to the extent of 2/3rd of employee benefit expenses. Accordingly, the learned AR for the assessee prayed before us that the assessee can be given relief for employee benefit expenses to the tune of 2/3rd of such expenses as there was no factual difference in the present case viz a viz of the earlier assessment year.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the learned CIT (A) while upholding the disallowance made by the AO in part has referred to the order of his predecessor in the own case of the assessee pertaining to the assessment year 2012-13. Thus, it is clear that the entire basis of making the disallowance for the year under consideration was taken from the order of the immediate preceding assessment year which was challenged before the Hon’ble ITAT. Accordingly, we hold that the decision taken by this ITAT in the own case of the assessee in for the assessment year 2012-13 is binding on us. The relevant extract of the order is reproduced as under:
As regards the disall owance of administrative expenditure, the AO has computed the disallowance at Rs.1,21,69,984/- under Rule 8D(2)(iii) as noted above. The CIT(A) has analysed the nature of expenditure and restricted the same to Rs.19,49,768/- as per the tabulation reproduced in the CIT(A)’s order. Both Revenue and assessee are aggrieved by the aforesaid acti on of the CIT(A). The Revenue seeks disallowance of the amount as computed under Rule 8D(2)(iii) whereas the assessee has disputed the analysi s of the CIT(A). It is the case of the assessee that itemized expenditure can be demonstrably relatable to various segment of taxable income. For instance, the disallowance of Rs.61,565/- made by the CIT(A) on account of insurance expenses incurred was paid for rented properties and thus has no relation to the exempt income. Likewise, the personnel expenses of Rs.17,00,616/- is also cl aimed by the assessee to be towards timely collection of rent expenses. The assessee has urged for deletion of the aforesaid two items out of the disallowance made by the CIT(A) amounting to Rs.19,49,768/-.
11. We do not find merit in the plea of the Revenue for applicability of Rule 8D(2)(iii) where the specification of the nature of the expenditure is available and such expenditure can be reasonably identified toward revenue from taxable operations and revenue from income which is exempt. On the other hand, we however find substance in the plea of the assessee partially. Rs.61,565/- on account of insurance expenses has not apparent connection with the investment giving rise to tax free income. Thus, such expenses cannot find part of disallowance under s. 14A of the Act. The claim of personnel expenses of Rs.17,00,616/- disputed by the assessee to be attributable to collection of rent only is however without any cogent evidence. The assessee is engaged in the multiple business viz. trading of commodities, deriving rent income and also generating exempt income. Having regard to the various stream of income generated by the assessee, the personnel expenses, to our mind, can be fairly estimated to be 1/3r d of the total costs. The assessee thus gets relief of Rs.11,33,744/- on this score. The total relief thus works out to Rs.11,95,309/- against the disallowance of Rs.19,49,768/- confirmed by the CIT(A). Thus, while Ground No.1 of the Revenue’s appeal is dismissed, the Ground No.1 of the assessee’s cross objection is allowed in part.
7.1 In view of the above and respectfully following the proposition laid down by the ITAT in its own case of the assessee, we hold that the assessee is entitled for the deduction of employee benefit expenses to the tune of 2/3rd such expenses. Accordingly the assessee gets relief in part. Hence the ground of appeal of the assessee is allowed in part.
8. The next issue raised by the assessee is that the learned CIT A erred in confirming the addition of Rs. 67,86,490/- while computing the income under the provisions of section 115 JB of the Act.
9. At the outset we note that, the similar issue was also raised by the assessee in its own case in the assessment year 2012-13 which was decided by this Tribunal in favour of the assessee in part in and CO. No. 136/AHD/2016 vide order dated 04-07-2019. The relevant extract of the order is reproduced as under: 12. Ground No.2 of the Cross Objection i s consequential. The adjustment to the tune of Rs.19,49,768/- made under clause (f) to Section 115JB shall be reduced by the AO in line with the disallowance sustained under the normal provisions. The claim of the assessee that no adjustment is called for while computing book profit is violative of Explanation 1(f) referred to Section 115JB of the Act and thus cannot entertained. No blanket exemption can read in the special bench decision in Vireet’s case i n this regard. Ground No.2 of Cross Objection is thus partly allowed.
9.1 As the facts of the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we allow the relief to the assessee in part. Hence the ground of appeal of the assessee is allowed in part.
10. The last issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO for Rs. 80,870/- on account of late payment of employee’s contribution to PF and ESI.
At the outset the learned AR for the assessee fairly agreed that the issue raised by the assessee is covered against it by the order of the Hon’ble jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation reported in 366 ITR 170 wherein it was held as under: 8. In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee
shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees' account in the relevant fund or funds on or before the "due date" mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.
11.1 Respectfully following the same we do not find any infirmity in the order of the authorities below. Accordingly we dismiss the ground of appeal raised by the assessee.
In the result the appeal of the assessee is allowed in part.
Order pronounced in the Court on 05/02/2020 at Ahmedabad.