ACIT, CHENNAI vs. SUNDARAM BNP PARIBAS HOME FINANCE, CHENNAI

PER BENCH :

This bunch of 10 cross appeals filed by the assessee as

well as the Revenue are directed against separate, but

identical orders of learned Commissioner of Income

Tax(Appeals)-15, Chennai even dated 28.02.2018, 28.12.2018,

29.04.2019, 30.04.2019 / 27.08.2018, 26.11.2018 and pertain

to assessment years 2011-12 to 2016-17. Since, facts are

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identical and issues are common, for the sake of convenience,

these appeals filed by the assessee as well as the Revenue

are heard together and are being disposed off, by this

consolidated order.

DR for the Revenue submitted that the appeals in ITA

No.1888/Chny/2018 & 3219/Chny/2018 filed by the assessee

and the Revenue respectively, are time barred by 19 / 31days

for which necessary petition for condonation of delay along

with affidavit explaining the reasons for the delay has been

filed. The AR further submitted that the assessee could not

file appeal within the time allowed under the Act, due to the fact

that the Managing Director was out of station which caused

delay of 19 days. The delay in filing appeal is neither

intentional nor willful but for the unavoidable reasons,

therefore, delay may be condoned in the interest of

advancement of substantial justice.

file appeal within the time allowed under the Act, due to the fact

of mixing of appeal papers with other files and thus, there was

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delay in filing of appeal by the Revenue and prayed that the

delay may be condoned.

by the assessee and Revenue for condonation of delay, we

are of the considered view that reasons given by the assessee

and the Revenue for not filing the appeals within the time

allowed under the Act comes under reasonable cause as

provided under the Act for condonation of delay and hence,

delay in filing of these two appeals is condoned and appeals

filed by the assessee & the Revenue are admitted for

adjudication.

of appeal for all assessment years, however, major issues

challenged by the Revenue for all assessment years are

disallowance of deduction u/s.36(1)(viii) of Income Tax Act,

1961, disallowance of expenditure relatable to exempt income

u/s.14A r.w. Rule 8D of the I.T. Rules, 1962 and disallowance

of employees contribution to PF & ESI u/s.36(1)(v) r.w.s 43B of

the Income Tax Act, 1961. Therefore, we deem it not

necessary to reproduce grounds of appeal filed by the

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Revenue. Similarly, the assessee has more or less raised

common grounds of appeal for all assessment years and only

issue that came up for our consideration from appeals filed by

the assessee from all assessment years is disallowance

u/s.14A of the Act and thus, we deem it not necessary to

reproduce grounds of appeal filed by the assessee for all

assessment years.

appeals filed by the Revenue from all assessment years is

disallowance of deduction u/s.36(1)(viii) of the Income Tax Act,

1961. The facts with regard to impugned dispute are that the

assessee is into business of long term finance for eligible

business, has claimed deduction @ 20% of profit derived from

eligible business. i.e., business of providing long term finance

for construction or purchase of house in India for residential

purposes. The assessee while working out deduction

u/s.36(1)(viii) has excluded profit from non-housing portfolio as

well as profit from housing loan given for period less than five

years from profits of business and has arrived at profit from

eligible business. Further, while computing deduction

u/s.36(1)(viii), the assessee has considered certain incomes

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which are in the nature of income from other sources, like

investment income, profit on sale of current investments, other

operating income, interest receipts, profit on sale of fixed

assets and miscellaneous income as part of income derived

from eligible business . The Assessing Officer has recomputed

deduction u/s.36(1)(viii) of the Act by excluding other income

reported by the assessee in the financial statements for the

relevant assessment years on the ground that eligible profit for

the purpose of section 36(1)(viii) means profit derived from

business of providing long term finance, but it does not include

other income like interest income, profit on sale of current

investments etc. On appeal, the learned CIT(A) by following

decision of the ITAT .,Chennai in assessee’s own case for the

assessment year 2005-06 deleted additions made by the

Assessing Officer towards disallowance u/s. 36(1)(viii) of the

Act. Aggrieved by the learned CIT(A) order, the Revenue is in

appeal before us.

the assessee for financial year 2011-12 to 2016-17 submitted

that the assessee has computed deduction u/s.36(1)(viii) by

including other income like interest income from Govt. securities

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(SLR) other investments income, provision on standard

asset, interest on short term deposit, investment income, profit

on sale of current investments, interest receipts, profit on sale

of fixed assets and miscellaneous income etc. As per provisions

of section 36(1)(viii) of the Act, it is very clear that deduction

u/s.36(1)(viii) shall be allowed @ 20% on the profits derived

from eligible business computed under the head ‘profits &

gains of business or profession’. The learned DR further

submitted that although, there is no dispute about nature of

business of the assessee and its entitlement for deduction

u/s.36(1)(viii), but when it comes to computation of deduction

on eligible profit, the assessee has included other income,

which is not derived from main business activity of providing

long term finance for the construction or purchase of house in

India for residential purpose, including interest income and on

profit on sale of fixed assets etc. The Assessing Officer, after

considering relevant facts has rightly excluded other income

reported in financial statements for relevant assessment years

while computing deduction u/s.36(1)(viii) of the Act. However,

the learned CIT(A) without appreciating facts has deleted

additions made by the Assessing Officer by following decision

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of the ITAT., Chennai in assessee’s own case for the

assessment year 2005-06, even though, the Tribunal for the

assessment year 2005-06 has considered only one segment of

income from SLR securities. The learned DR further referring to

decision of the Hon’ble Delhi High Court in the case of National

Co-operative Development Corporation Vs. ACIT (2011) 16

taxmann.com 251, submitted that dividend received in respect

of redeemable preference shares does not amount to profits

derived from providing long term finance within the meaning of

36(1)(viii). Likewise, interest income from securities, profit on

sale of investments, profit on sale of fixed assets cannot be at

any stretch of imagination be considered as profit derived from

eligible business. Therefore, the learned DR submitted that the

learned CIT(A) has deleted additions made by the Assessing

Officer without considering necessary facts and thus, issue may

be set aside to the file of the Assessing Officer to reconsider in

light of findings given by the Tribunal for the assessment year

2005-06. In this regard, the learned DR has filed detailed

written submissions which has been reproduced as under:-

“In all the above Departmental appeals, the main ground was excess claim of deduction u/s 36(1)(viii) of the I.T. Act, that was restricted by the A.O and that was subsequently allowed by the CIT(A). As this issue involves several facts and substantial question of law this written submission is made for appreciating the facts in

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this case. Section 36(1)(viii) of the I.T. Act is placed under Chapter IV — “Computation of Business income”. As per this section, the deductions provided in various clauses of section 36(1) of the I.T. Act shall be allowed in respect of the matters dealt with therein, in computing the income referred in section 28. Section 36(1)(viii) deals with deduction, In respect of any special reserve created and maintained by a specified entity, an amount not exceeding 20% of the pro/Its derived from eligible business computed under the head “profits and gains of business or profession” carried to such reserve account. “Specified entity” means,

(i) A finance corporation specified in sec 4(A) of Company’s Act. (ii)A finance corporation which is a public sector company. (iii)A banking company. (iv)A cooperative bank other than primary agricultural credit society or primary cooperative agricultural and rural development bank. (v)A housing finance company and (vi)Any other financial corporation including a public company.

“Eligible business” means, (i) in respect of the specified entity referred to in sub-clause(i) or sub-clause(ii) or sub-clause(iii) or sub-clause(iv) of clause (a), the business of providing long- term finance for -

(A). Industrial or agricultural development (B) Development of infrastructure facility in India or (C) Development of housing in India

In the present case, there is no dispute on the explanation “specified entity”. The main dispute is computation of profit derived out of the eligible business. The method adopted by the appellant company was questioned by the AO in all the assessment orders. It is once again reiterated that, - the assessee should carry out “eligible business” - and derive the profit from that eligible business - and that profit has to be computed under the head “Profits and gains on business or profession”.

With this back ground, the assessee company’s audited financials have been examined by the A.O and he found that they claimed excess deduction of 36(1)(viii) on some of the profits that was not

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derived out of eligible business. As per the AO some of the income or profit or gain were not assessable under the head “Profits and gains on business or profession”. They were assessable under the head “income from other sources” and “capital gains”. The AY wise deduction claimed, deduction allowed, excess claim disallowed are as under:

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3.1 AY 2012-13 As per the audited financials the net profit was Rs. 130,50,00,921/. It includes profit of both eligible and non- eligible business. On this net profit, the company made various adjustments in computation of income to determine the gross total income of various heads i.e. business or profession, income from other sources, capital gain etc. They determined the gross total income of each head. In the next sheet another calculation was given for net profit for the purpose of section 36(1)(viii) of the IT Act. As per that sheet a sum of Rs. 95,86,50,010/- was calculated as profit derived out of eligible business. This was not in accordance with provisions of IT Act and that was questioned by the AO. AO had reduced some of the ineligible profits out that profit calculated by the appellant company unscientifically without any basis. This critical fact was not examined by the CIT(A) while allowing the appeal of the assessee. 3.2 AY 20 13-1 The net profit as per the P&L A/C (annual report) was Rs. 176,67,78,000. This includes eligible as well as non-eligible profit. The company started computing the business profit (including eligible and ineligible business) starting with Rs. 176,67,78,000/- by making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources etc that were separately declared under the head “Capital Gain” and “Income from other sources”. In this assessment year, the profit from housing finance business of Rs. 100,79,37,210/ was

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determined indirectly without having any separate accounts. Prima facie, this profit computation was questioned.

On this 20% was claimed as deduction. In the computation of income, provision on standard asset- non housing (including commercial) of Rs.4,24,24,306/- was added back which the AO held that it was not related to eligible business. The AO observed that Rs.9,33,35,652/- as investment income related to non- housing. This was excluded.

3.3 AY 2014-15 The net profit as per the P&L A/C (annual report) was Rs. 2 15,12,69,504/. This includes eligible as well as non-eligible profit. The company starts its profit and gain from business or profession with Rs. 215,12,69,504/ and making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources, Interest on NHB tax free bonds etc that were separately declared under the head “Capital Gain” and “Income from other sources”. In this assessment year, the profit from housing finance business of Rs. 130,36,47,790/- was determined indirectly without having any separate accounts. On this 20% was claimed as deduction. The AO observed that investment income, profit on sale of current investment, other operating income, interest receipts, profit on sale of fixed assets, miscellaneous income etc were not pertaining to eligible business as per section 36(1)(viii). This was excluded.

3.4 AY 2015-16. In this assessment year the profit as per the P&L A/C (annual report) was Rs. 2,19,26,14,063. This includes eligible as well as non-eligible profit. The company started computing its profit and gain with Rs. 2,19,26,14,063/ by making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources, Interest on NHB tax free bonds etc that were separately declared under the head “Capital Gain” and “ Income from other sources”. In this assessment year also, the income from housing finance business of Rs. 119,48,21,859/- was determined indirectly without having any separate accounts. On this 20% was claimed as deduction. The AO observed •that investment income, profit on sale of current investment, other operating income, interest receipts, profit on sale of fixed assets, miscellaneous income etc were not pertaining to eligible business as per section 36(1)(viii). This was excluded.

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3.5 AY 2016-17:

In this assessment year the net profit as per the P&L A/C (annual report) was Rs. 233,29,72,616/. This includes eligible as well as non-eligible profit. The company started computing profit and gain from business or profession with Rs.233,29,72,6l6/ and making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources, Interest on NHB tax free bonds etc that were separately declared under the head “Capital Gain” and “Income from other sources”. In this assessment year also, the income from housing finance business of Rs. 13 8,11,30,267/- was determined indirectly without having any separate accounts. On this 20% was claimed as deduction. The AO observed that investment income, profit on sale of current investment, other operating income, interest receipts, profit on sale of fixed assets, miscellaneous income etc were not pertaining to eligible business as per section 36(1)(viii). This was excluded.

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thereof will be allowable under section 36(l)(viii) of the IT Act. Annexure-3.

In the present case the appellant had mixed up every business under one basket and prepared their annual report and published. In the computation of income various adjustments were done for each head of income. The manner in which the profit derived out of eligible business as contemplated in section 36(l)(viii) of the IT Act was questioned by AO in all the assessment orders.

The manner in which the net profit of the eligible business was calculated by the company in computation of income raised serious doubts to the revenue and AO had removed some of the ineligible profits out of those computation. The C1T(A) unilaterally calculated deduction u/s 36(1)(viii) of the IT Act without appreciating all the facts narrated above. Hence his order was treated as erroneous on fact and law by the revenue.

It is for this reason the revenue has moved appeal that many of the income/profit/gain are not falling under the head profits and gains of business or profession and such income/gain/profit is not eligible for deduction u/s 36(1)(viii) of the IT Act. Hence it is prayed that the CIT(A) order may be set aside..”

supporting order of the learned CIT(A) submitted that the issue

is squarely covered in favour of the assessee by the decision

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of ITAT., Chennai in the assessee’s own case for the

assessment year 2005-06, where the Tribunal, after

considering relevant facts and also provisions of section

36(1)(viii) of the Act, held that interest income received on

SLR investments is eligible for deduction u/s.36(1)(viii) of the

Act. The learned A.R further submitted that although, the

assessee has claimed deduction on other income like profit on

sale of current investments, investments income, investment

income on mortgaged back security and interest etc., but the

learned CIT(A) by following decision of the ITAT., Chennai in

the assessee’s own case has directed the Assessing Officer to

consider only net income for the purpose of excluding other

income, while computing deduction u/s.36(1)(viii) of the Act and

the assessee has accepted findings of the learned CIT(A).

Therefore, there is no reason for the Revenue to agitate order

of the learned CIT(A) on the issue of deduction claimed

u/s.36(1)(viii) of the Act. Therefore, the learned AR submitted

that the issue is squarely covered in favour of the assessee and

therefore, there is no need to set aside the issue to the file of

the Assessing Officer for further verification.

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available on record and gone through orders of the authorities

below . The provisions of section 36(1)(viii) deals with deduction

in respect of any special reserve created and maintained by

specified entity, an amount not exceeding 20% of profits

derived from eligible business computed under the head

‘profits & gains of business or profession’ carried to such

reserve account. From plain reading of section 36(1)(viii), it is

abundantly clear that deduction is available in respect of

reserve created and maintained by specified entity, amount not

exceeding 20% of profits derived from eligible business

computed under the head ‘profits & gains of business or

profession’. Therefore, eligible entity is entitled for deduction

u/s. 36(1)(viii) in respect of profit derived from eligible business

computed under the head ‘profits & gains of business or

profession’. In other words, any other income reported under

other heads, other than the head ‘profits & gains of business or

profession’ is not eligible for deduction, even though said

income is incidental to carry out eligible business. In this case,

there is no dispute with regard to business activity carried out

by the assessee and its entitlement for deduction u/s.36(1)(viii)

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of the Income Tax Act, 1961. In fact, the Assessing Officer has

categorically admitted that the assessee is entitled for

deduction u/s. 36(1)(viii) of the Income Tax Act, 1961. The only

dispute is with regard to manner in which such deduction

should be computed. The assessee has included certain other

incomes like interest earned on SLR securities, profit on sale

of current investments, other operating income, interest

receipts, profit on sale of fixed assets and miscellaneous

income etc. It was claim of the assessee before the Assessing

Officer that interest income from Government securities–SLR is

derived from eligible business, because as per statutory

requirements, the assessee is required to maintain SLR ratio

and said investment is required to be deposited in Govt.

securities and thus, interest, if any, earned from SLR securities

is also eligible for deduction u/s.36(1)(viii) of the Income Tax

Act, 1961. Likewise, the assessee has canvassed deduction for

other income like profit on sale of current investments, profit on

sale of fixed assets etc. The Assessing Officer has denied

deduction claimed u/s.36(1)(viii) in respect of other income,

including interest earned from Govt. securities-SLR.

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reasons given by the Assessing Officer in light of various

arguments advanced by the learned A.R for the assessee and

we find that in respect of interest earned on Govt. securities

(SLR), issue has been settled by the Tribunal in assessee’s

own case for earlier assessment year, where the Tribunal held

that interest earned from Govt. securities (SLR) is eligible for

deduction u/s.36(1)(viii) of the Income Tax Act, 1961.

Therefore, to this extent, we find that reasons given by the

Assessing Officer to disallow deduction claimed on interest

earned from SLR securities is not in line with settled position as

per decision of the Tribunal and thus, we reject arguments of

the learned DR for the Revenue.

other investments income, provision on standard asset, interest

on short term deposits, investment income, profit on sale of

current investments, profit on sale of fixed assets and

miscellaneous income, we find that the assessee has reported

all those incomes under ‘other income’ category in the financial

statement prepared for relevant assessment years. However,

claimed that although, those incomes are reported under ‘other

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income’, but all incomes are incidental to main business activity

of lending long term finance for housing sector and further, the

assessee has disclosed all those incomes under the head

‘profits & gains of business or profession’ in the computation of

total income for relevant assessment years and thus, above

incomes are eligible for deduction u/s.36(1)(viii) of the Income

Tax Act, 1961. We find that law is very clear inasmuch as the

assessee is entitled for 20% deduction towards reserve created

and maintained on the profits derived from eligible business

computed under the head ‘profits & gains of business or

profession’ and thus, any other income, including incidental

income reported under ‘other income’ is not entitled for

deduction u/s.36(1)(viii) of the Income Tax Act, 1961. However,

fact remains that the assessee argument was that the

Assessing Officer has considered total income derived under

the head ‘other income’, including income derived from non-

eligible business, while computing deduction u/s.36(1)(viii) of

the Income Tax Act, 1961. The learned CIT(A) has directed the

Assessing Officer to exclude only income pertains to business

segment of providing long term finance to housing sector and

the assessee has accepted findings of the learned

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CIT(A).Although, there is merit in the arguments advanced by

the learned A.R for the assessee that only ‘other income’

relatable to eligible business sector needs to be excluded,

while computing deduction u/s.36(1)(viii) of the Income Tax Act,

1961, but from the records, it is not clear whether the assessee

has apportioned ‘other income’ to eligible business and non-

eligible business or not. Therefore, to ascertain facts with

regard to apportionment of income to eligible business and to

compute deduction u/s.36(1)(viii) of the Income Tax Act, 1961,

the issue needs to go back to file of the Assessing Officer.

Therefore, we set aside the issue to file of the Assessing Officer

for limited purpose of examining claim of the assessee that the

learned CIT(A) has restricted deduction only to other income

which relates to eligible business, we direct the Assessing

Officer to examine claim of the assessee and while computing

deduction u/s.36(1)(viii) of the Income Tax Act, 1961 by

following directions given by the Tribunal in assessee’s own

case for the assessment year 2005-06 and decide the issue in

accordance with law for the impugned assessment years.

consideration from the assessee as well as the Revenue

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appeal is disallowance u/s.14A r.w. Rule 8D of I.T.Rules, 1962.

The assessee has earned exempt income in the form of

dividend from investments and interest from NHB bonds and

claimed exemption u/s.10(34) of the Income Tax Act, 1961,

however, has not made any suo motu disallowances u/s.14A

read with Rule 8D of I.T. Rules, 1962 in respect of expenditure

incurred in relation to exempt income. The Assessing Officer

has computed disallowance u/s.14A by invoking Rule 8D and

determined disallowance of interest and other expenses. The

learned CIT(A) has upheld computation of disallowance u/s.14A

by invoking Rule 8D of I.T. Rules, 1962, but restricted

disallowances computed by the Assessing Officer to the extent

of exempt income earned for the relevant assessment year by

following decision of the Hon’ble Delhi High Court in the case of

Joint Investments Pvt. Ltd. 372 ITR 694. Aggrieved by the

learned CIT(A) order, the assessee and Revenue are in appeal

before us.

learned CIT(A) erred in restricting disallowances u/s.14A to the

extent of exempt income, even though the assessee has

demonstrated with necessary evidences that it does not incur

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any expenditure towards earning exempt income. The learned

A.R for the assessee further submitted that in respect of interest

disallowances under Rule 8D2(ii), the assessee had sufficient

own funds in the form of capital and reserves, which is in

excess of investments made in dividend yielding securities

and thus, question of disallowance of interest expenses does

not arise. The learned AR further submitted that in respect of

other expenses under Rule 8D(2)(iii), it is well settled principle

of law, only those investments which yield exempt income

needs to be considered for the purpose of disallowance. The

learned CIT(A) without appreciating above facts has simply

restricted disallowances to the extent of exempt income .

learned CIT(A) has erred in restricting disallowances u/s.14A to

the extent of exempt income without appreciating fact that

disallowance us/.14A is mandatory and thus, once there is

exempt income, the Assessing Officer is bound to compute

disallowance by applying prescribed procedure provided under

Rule 8D of I.T. Rules, 1962. Therefore, it is incorrect on the part

of the learned CIT(A) to restrict disallowances to the extent of

exempt income.

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available on record and gone through orders of the authorities

below. There is no dispute with regard to fact that the assessee

has earned exempt income in the form of dividend and

interest from NHB bonds which has been claimed as exempt

u/s.10(34) of the Income Tax Act, 1961. It is also an admitted

fact that the assessee has not made any suo motu

disallowance of expenditure relatable to exempt income u/s.14A

of the Income Tax Act, 1961. Although, the assessee claims to

have not incurred any expenditure in respect of exempt income,

but when the assessee has maintained common set of books

of accounts for taxable and exempt income, possibility of

incurring common expenditure for both segments cannot be

ruled out and therefore, we are of the considered view that

there is no error in the reasons given by the Assessing Officer

to invoke Rule 8D of Income Rules, 1962 to compute

disallowance u/s.14A of the Income Tax Act, 1961 and thus, we

reject arguments of the assessee.

assessee with regard to interest disallowance under Rule

8D(2)(ii) of Income Tax Rules, 1962. It was explanation of the

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assessee that it has sufficient own funds in excess of

investments made in exempt income yielding investments and

thus, interest disallowances cannot be made. We find that law

is very settled by the decisions of various High Courts, including

decision of the Hon’ble Bombay High Court in the case of CIT

Vs. HDFC Bank Ltd. 366 ITR 505 and CIT Vs. Reliance Utilities

& Power Ltd., 313 ITR 340 (Bom), where it has been held that

once the assessee proves that investment is made out of

mixed funds, including own funds and borrowed funds, then

presumption goes in favour of the assessee that investments is

made out of own funds. In this case, claim of the assessee is

that it has sufficient own funds in excess of investments made

in shares and securities which yield exempt income. But, facts

are not clear and the assessee has not filed any cash flow

statement to prove availability of own funds when those

investments were made during the relevant assessment years.

Therefore, we are of the considered view that this issue needs

to go back to the file of the Assessing Officer to verify facts

with regard to availability of own funds to explain investments

made in shares & securities which yield exempt income.

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those investments which yielded exempt income needs to be

considered for working out disallowance under Rule 8D(2)(iii)

of the I.T. Rules, 1962, we find that this legal principle is

supported by plethora of judicial precedents, including decision

of the Hon’ble Delhi High Court in the case of Cheminvest Ltd.

Vs. DCIT 378 ITR 33 (Del), where it has been very clearly held

that only those investments which yielded exempt income for

relevant assessment year needs to be considered for

disallowing other expenses under Rule 8D(2)(iii) of the Income

Tax Rules, 1962. In this case, it was claim of the assessee that

Assessing Officer has considered total investments, including

investments which does not yield any exempt income for

relevant assessment years. Further, the assessee had also filed

computation explaining disallowances to be made under section

14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962, which

is part of paper book filed by the assessee. But, fact remains

that these details are not forthcoming from the orders of the

lower authorities and further, the assessee has filed

computation explaining manner and method of computing

disallowance under Rule 8D(2)(iii) for the first time before this

25 ITA Nos.1888/Chny/2018, 929, 2149 & 2150/Chny/2019 3219 & 1513/Chny/2018, 301, 829, 2077 & 2078/Chny/2019

Tribunal. Therefore, we are of the considered view that this

issue also needs to go back to file of the Assessing Officer for

further verification.

circumstances of the case, we are of the considered view that

issue of disallowance u/s.14A needs to go back to file of the

Assessing Officer for fresh consideration. Hence, we set aside

the issue to the file of the Assessing Officer and direct the A.O.

to re-examine claim of the assessee in light of various

averments made by the assessee, including availability of own

funds to explain source of investments to compute disallowance

of interest under Rule 8D(2)(ii) and also to verify details of

investments to ascertain and segregate investments which

yield exempt income for the relevant assessment years to

compute disallowance under Rule 8D(2)(iii) of I.T. Rules, 1962.

The Assessing Officer is directed to examine claim of the

assessee and recompute disallowance in line with our

discussions given hereinabove and restrict disallowances to

the extent of exempt income, in case, disallowance computed

by the Assessing Officer for any assessment year exceeds

exempt income in light of decision of the Hon’ble Delhi High

26 ITA Nos.1888/Chny/2018, 929, 2149 & 2150/Chny/2019 3219 & 1513/Chny/2018, 301, 829, 2077 & 2078/Chny/2019

Court in the case of Joint Investments Vs CIT 372 ITR

694(Del).

Revenue appeal for the assessment year 2013-14 is

disallowance of employees contribution to PF & ESI u/s.

36(1)(va) r.w.s 43B of the Income Tax Act, 1961. The

Assessing Officer has disallowed employees contribution to

ESI and added back as income of the assessee u/s.2(24)(x)

read with section 36(1)(va) of the Income Tax Act, 1961, on the

ground that the assessee has remitted employees contribution

to ESI beyond due date specified under respective Acts. It was

explanation of the assessee before the Assessing Officer that

employees contribution to ESI although, remitted beyond due

date specified under respective Acts, but paid within date for

filing of return of income u/s.139(1) of the Act for the relevant

assessment year and thus, same cannot be disallowed

u/s.36(1)(va) r.w.s. 2(24)(x) of the Act.

materials on record, we find that this issue is squarely covered

in favor of the assessee by the decision of the ITAT., Chennai

27 ITA Nos.1888/Chny/2018, 929, 2149 & 2150/Chny/2019 3219 & 1513/Chny/2018, 301, 829, 2077 & 2078/Chny/2019

in the case of M/s. Adyar Ananda Bhavan Sweets India Ltd., in

ITA Nos.402 & 403/Chny/2021 dated 08.12.2022, where the

Tribunal after considering amendment made to the provisions of

Sec.36(1)(va) of the Act, by the Finance Act, 2020, held that

amendment brought u/s.36(1)(va) of the Act, is applicable from

assessment year 2020-21 and employees contribution to

approved funds including PF & ESI remitted beyond due date

specified under respective Acts, but paid within due date for

filing return of income u/s.139(1) of the Act cannot be

disallowed u/s.36(1)(va) of the Income Tax Act, 1961. In this

case, it was claim of the assessee that all payments have been

made on or before due date for filing return of income for the

relevant assessment years, however, no such details have

been filed before us. Therefore, we are of the considered view

that this issue needs to go back to the file of the Assessing

Officer for verification. Hence, we set aside the issue to file of

the Assessing Officer to verify dates of payment of employees

contribution to ESI and in case, the assessee has remitted the

amount on or before due date for filing return of income

u/s.139(1) of the Act, then additions made u/s.36(1)(va) r.w.s.2(24)(x) should be deleted.

28 ITA Nos.1888/Chny/2018, 929, 2149 & 2150/Chny/2019 3219 & 1513/Chny/2018, 301, 829, 2077 & 2078/Chny/2019

the Revenue are treated as allowed for statistical purposes. Order pronounced in the open court on 15th June, 2022

Sd/- Sd/- (जी. मंजुनाथ) (अ"नकेश बनज%) (Anikesh Banerjee) (G.Manjunatha) %या�यक सद'य /Judicial Member लेखा सद'य / Accountant Member

चे%नई/Chennai, *दनांक/Dated 15th June, 2022 DS आदेश क� ��त,ल-प अ.े-षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु/त (अपील)/CIT(A) 4. आयकर आयु/त/CIT 5. -वभागीय ��त�न3ध/DR 6. गाड� फाईल/GF.