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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the ld. CIT (A) - 23, New Delhi dated 23.09.2021 pertaining to assessment year 2012-13. 2. The grounds of appeal taken by the assessee read as under :- “1. On the facts and circumstances of the case the order passed by the ld. Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2. Action of the Ld. CIT (A) in not allowing the claim made by the appellant company on account of disallowance of employee’s contribution to Provident Fund and Employee State Insurance Funds amounting to Rs.1,04,514/- out of which Rs.78,892/- was employees’ contribution to provident fund and Rs.25,622/- was
3. Action of the ld. CIT (A) in confirming the addition of Rs.3,48,419/- made on account of disallowance u/s 14A read with rule 8D is unjust and against the facts and circumstances of the case.”
3. Apropos the issue of disallowance of employees’ provident fund and ESI dues : On this issue, employees’ contribution to ESI and provident fund was disallowed by the AO u/s 36(1)(va) read with section 2(24)(x) of the Income-tax Act, 1961 (for short ‘the Act’) as the same were deposited after the due date mentioned in the specific Act but within the due date of filing the return of income. Ld. CIT (A) also upheld the decision.
Against the above order, assessee is in appeal before us. None appeared on behalf of the assessee. We have heard ld. DR for the Revenue and perused the records.
Upon careful consideration we find that this issue is now covered in favour of the assessee even after the amendment as held by ITAT Delhi Benches. ITAT, Delhi in the case of in M/s. Express Roadway vs. ACIT has followed Hon’ble Delhi High Court decision in the case of CIT vs. AIMIL Ltd. 321 ITR 508 and SPL Industries vs. CIT 9 taxmann.com 195 for the proposition that such additions are not sustainable if the impugned payments are done upto the date of filing of return of income for the concerned assessment year. Following the same, we set aside the orders of the authorities below and delete the addition. engaged in the business of manufacturing and export of garments and made- ups. AO on this issue noted that assessee had made investment in equity shares and earned exempt income of Rs.27,41,664/-. Assessee was asked to explain why disallowance u/s 14A read with Rule 8D should not be made. The assessee responded that borrowed funds on which interest expenses claimed has been fully utilized for its business and no part has been invested for earning dividend income. AO in this regard referred to several ITAT decisions and decision of Hon’ble Calcutta High Court in the case of M/s. Dhanuka & Sons vs. CIT, Central – 1 in ITA No.633 of 2004 and concluded as under :-
“Moreover, on perusal of the details of interest expenditure furnished during the course of hearing, it is found that some of the interest expenditures (i.e. Interest on Packing Credit loan, Interest on Discounting of Bills and Interest on Vehicle Loan) were for specific business purposes of the assessee. As regards the remaining interest expenditure i.e. interest on term loan, the assessee failed to prove the quantum of Interest expenditure in relation to exempt income. Since the accounts of the assessee for taxable and exempt income were not maintained separately and the assessee did not file any specific explanation as regard to expenditure in relation to exempt income, the Interest expenditure of Rs.44.06,538/-, which has been incurred for both taxable and exempt income, are being apportioned as per Rule 8D(2(ii).”
Upon assessee’s appeal, ld. CIT (A) upheld the order of the AO by inter alia holding that assessee should have maintained separate accounts in respect of exempt income.
Against the above order, assessee is in appeal before us. None appeared on behalf of the assessee. We have heard ld. DR for the Revenue and perused the records. ./2021 9. We note that assessee in this case has earned exempt income. All the investments for the same were done in the earlier years. Assessee’s claim was that no borrowed funds were used to make the investment. Authorities below have rejected the same on the ground that assessee should have maintained separate books. However, as held by Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. 313 ITR 340 and in CIT vs. HDFC Bank Ltd. 366 ITR 505 (Bom) when assessee has sufficient interest free funds no disallowance u/s 14A is required to be done for interest. It is well settled that right of attribution lies with the assessee. In the present case, it is not the case of the Revenue that assessee has not own funds to make those investments on which exempt dividend income has been earned. Rather the case of the Revenue is that assessee should have brought in one to one nexus in the funds and investment. This view is not correct in terms of the decision of Hon’ble Bombay High Court cited above, we set aside the orders of the authorities below and delete the addition in this regard.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 19th day of September, 2022.