SAREGAMA INDIA LIMITED,KOLKATA vs. DCIT, CIRCLE-3(1), KOLKATA, KOLKATA

This is an appeal preferred by the assessee against the order of the Commissioner of Income Tax(Appeals)-17, Kolkata [hereinafter referred to as ‘CIT(A)’] dated 20.12.2018 for the assessment year 2012-13.

The issue raised in ground no. 1 is against the order of Ld. CIT(A) confirming the action of AO in disallowing Rs. 21,69,494/- on account of unpaid leave encashment u/s 43B(f) of the Income Tax Act, 1961 (hereinafter referred to as the Act).

Facts in brief are that during the year the assessee has claimed expenditure of Rs. 21,69,494/- on account of provisions for leave encashment which was not paid before the due date of filing the return of income u/s 139(1) of the Act as confirmed in the audit report. Accordingly the AO gave ashow cause notice to the assessee as to why the same should not be disallowed u/s 43B(f) of the Act on the ground the expenditure on account leave encashment is allowable of payment basis.The said show cause was replied by the assessee by submitting that the provisions for leave

The Ld. CIT(A) dismissed the appeal of the assessee by holding that there is no infirmity in the order of AO and the provisions of leave encashment was rightly disallowed and add to the income of the assessee.

We have heard the rival parties and perused the material on records including the details of leave encashment paid during the year which is given at page 6 of the PB. We observe from the details before us that leave encashment has been paid to 16 employees amounting to Rs. 9,41,688/-. Thus we find merit in the contention of the Ld. A.R that the deduction to the extent of payment made of Rs. 9,41,688/- needs to be allowed to the assessee in view of the decision of Hon’ble Apex Court in the case of Union of India vs. Exide Industries Ltd. in [2020] 116 taxmann.com 378 (SC) which has laid down that the leave encashment paid to the employees is allowable in the year of a payment. Accordingly, the AO is directed to allow Rs. 9,41,688/-. The ground no. 1 is partly allowed.

In the ground no. 2, the assessee has assailed the order of Ld. CIT(A) on the ground that the Ld. CIT(A) has erred in directing the AO compute the disallowance u/s 14A read with Rule 8D only in those securities which yielded exempt income by ignoring the facts on record that the assessee has sufficient own funds than the investments in shares and securities and therefore the disallowance ought to have been deleted by the Ld. CIT(A).

Facts in brief are that the assessee has earned divided income of Rs. 61,80,751/- which was claimed as exempt income u/s 10 of the Act. The assessee has suo-moto made a disallowance of Rs. 7,00,000/- in relation to earning of exempt income. Accordingly, the AO called upon the assessee to furnish the basis of such disallowance. The assessee submitted before the AO that the assessee has computed

In the appellate proceedings, the Ld. CIT(A) recorded a finding a fact that the assessee’s own fund were more than the investments in the shares and securities and therefore the interest expenditure cannot be considered for the purpose of disallowance under Rule 8D(2)(ii) however while giving direction to the AO, it was only directed to restrict the disallowance u/s 14A read with Rule 8D in relation to those investments from where the assessee has earned exempt income during the year which was the alternative plea of the assessee before the Ld. CIT(A) whereas the main grievance that no disallowance on account of interest is required to be made u/s 14A read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 (hereinafter referred to as the Rule) in view of the fact that assessee’s own funds were more than the investments in shares and securities.

After hearing the rival parties and perusing the material on record, we find merit in the contention of the assessee’s counsel that since the assessee has sufficient own funds available to the assessee to make investments in the shares and securities, therefore no disallowance is required to be made in respect of interest u/s 14A read with Rule 8D of the Rules. The case of the assessee also find support from the decision of Hon’ble Supreme Court reported in Catholic Syrian Bank Ltd (2021) 438 ITR 1 (SC). Accordingly we modify the order of Ld. CIT(A) by directing the AO delete the disallowance u/s 14A read with Rule 8D(2)(ii) . The ground no. 2 is allowed.

The issue raised in ground no. 3 is against the order of Ld. CIT(A) confirming the order of AO wherein the AO has added disallowance made u/s 14A read with Rule 8D while calculating the book profit u/s 115JB of the Act. The ld. Counsel for the Saregama India Ltd. assessee pointed out that the issue is squarely covered by the decision of Co-ordinate Bench of Kolkata in the case of DCIT vs. CESC Ltd. in for AY 2010-11 dated 13.06.2018 which has been passed by the Co-ordinate Bench wherein the Co-ordinate Bench has considered and followed the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Jayshree Tea & Industries Ltd. vide GA No. 1501 of 2014 and Special bench of ITAT Delhi Bench in ACIT vs. Vireet Investment Pvt. Ltd., (201&0 82 taxmann.com 415 (Delhi-Tribunal) wherein it has been held that the disallowance made u/s 14A read with Rule 8D is not to be considered for the purpose of book profit calculation u/s 115JB of the Act. The Ld. D.R. on the other hand relied on the order of authorities below.

After hearing the rival parties and perusing the material on record including the decision cited by the ld. Counsel for the assessee, we find that the issue is squarely covered in favour of the assessee. Accordingly we direct the AO not to make any addition of the disallowance as may be computed u/s 14A read with Rule 8D in pursuance of our direction in this order. Ground no. 3 is allowed.

The issue raised in ground no. 4 is against the order of Ld. CIT(A) wrongly concluding that ground no. 4 relating to adjustment of brought forward business loss with taxable income is consequential in a nature.

After hearing both the parties and perusing the material on record, we deem it fit to restore the issue back to the file of AO with the direction to decide the same in accordance with the provisions of the Act by give one more opportunity to the assessee. The ground no. 4 is allowed for statistical purpose.

The issue raised in ground no. 5 is against the order of Ld. CIT(A) wrongly concluding that the ground no. 5 relating to quantification of business loss, unabsorbed depreciation to be carried forward is consequential in nature.

After hearing the rival parties and perusing the material on record, we restore the issue back to the file of AO with the direction to examine the issue and quantify

The issue raised in ground no. 6 is against the order of Ld. CIT(A) wrongly holding that the ground no. 6 is relating to granting of full TDS credit to the assessee is consequential in nature.

After hearing both the parties and perusing the material on record, we restore the issue to the file of AO with the direction to examine the issue and allow the full credit of TDS of the assessee. The ground no. 6 is allowed for statistical purpose.

In the ground no. 7 , the assessee has assailed the order of Ld. CIT(A) concluding that the ground relating to granting of full foreign tax credit to the assessee is consequential in nature.

We have heard both the sides and perused the material on record and thus restore the issue back to the file of AO with the direction to examine the issue and grant full foreign tax credit to the assessee in accordance with the provision of Act. The ground no. 7 is allowed for statistical purpose.

The issue raised in ground no. 8 is against the order of Ld. CIT(A) having concluded that the quantification and carry forward of MAT credit is consequential in nature.

After considering the rival contentions and perusing the material on record, we restore the issue back to the file of AO with the direction to examine the issue and allow the carry forward of MAT credit in accordance with the Act. Accordingly Ground nos. 8 is allowed for statistical purposes.