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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
O R D E R Per Shamim Yahya (AM) :-
This appeal by the Revenue is directed against the order of learned CIT(A) dated 29.6.2017 and pertains to A.Y. 2014-15.
Grounds of appeal read as under :-
1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that no disallowance u/s 14A can be made if there is no exempt income earned during the year, when, assessee had incurred expenditure towards investment which would lead to earning of exempt income.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that no disallowance u/s 14A can be made if there is no exempt income earned during the year, when, what is contemplated u/s. 14A is income 'includible' and not 'included' as apparent from heading of section 14A itself.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that no disallowance in respect of late payment of TDS can be made in view of the decision of the Hon'ble
2 M/s. White Pearls Hotels & Investment Pvt. Ltd. Supreme Court of India in the Bharat Commerce & Industries Ltd. Vs. The Commissioner of Income Tax 230 ITR 733 wherein it has been held that Interest levied is not allowable u/s 37 of the Act.
Brief facts are that during the course of assessment proceedings the Assessing Officer observed that the assessee had shown investments of Rs.22,17,88,500/- as on 31.03.2013, the value as on 31.03.2014 was shown at Rs.22,27,38,500/- and the details/break-up was provided in schedule 10 of balance-sheet. These included investments made in equity shares of related companies and in the capital of partnership M/s. GAD Associates. The assessing officer noted that the appellant had made long term investments by way of purchase of equity shares and also investments in partnership firm the income from which by way of dividend/profit does not form part of total income. The assessee was asked to submit the explanation. Therefore, Assessing Officer asked the assessee to furnish the details of expenditure incurred in relation to the investment activity the income of which is exempt from tax. The assessing officer also show caused the appellant as to why the attributable expenses for making such investments should not be computed as per Rule 8D for the disallowance u/s. 14A. In response, the assessee vide letter dated 27/6/2015 submitted that it had no exempt income and hence disallowance r.w. Rule 8D was not warranted. Also the assessee submitted that no interest was paid or provided as most of the investments were made from reserves and interest free deposit received by the company. The assessing officer considered the submission of the assessee but found the same not acceptable. The assessing officer relied on the decision of the Hon'ble Bombay High Court in the case of M/s. Godrej & Boyce Manufacturing Co. Ltd. and invoked the provisions of section 14A(3) of the Income Tax Act, 1961. The assessing officer worked out the expenses attributable for exempt income as per the formula specified in Rule 8D. The Assessing Officer made the disallowance of Rs. 98,40,058/- U/S.14A as per Rule 8D and added it back to the total income of the appellant.
3 M/s. White Pearls Hotels & Investment Pvt. Ltd. 4. Further on going through the details of the appellant, the assessing officer observed that the assessee had claimed expenditure of Rs. 9,61,815/- on account of interest towards late payment of TDS. Since, the expenditure claimed on account of interest paid on delayed payment is not allowable in Assessing Officer’s opinion deduction of the same was disallowed and added back to the total income of the assessee.
Upon assessee’s appeal learned CIT(A) deleted the disallowance u/s. 14A by referring to his own order and ITAT order in assessee’s own case. As regards the issue of interest on late payment of TDS, he referred to Hon'ble Karnataka High Court decision and deleted the addition by holding as under :-
Any expenditure incurred for the purpose of business is allowable as per sec. 37(1). Accordingly, personal income tax is also allowable under the said section. But the intention of legislature is not to allow income tax under the provisions of 37(1). Therefore, one more section i.e. 40(a) has been introduced in the statute so that personal income tax paid by an assessee is not to be allowed even if it is found allowable. Further, in the normal course, when TDS is deducted the assessee is entitled to claiming the same as expenditure. For example, if a professional payment is made to a person who had done services worth Rs. 1,00,000/- then only 90.000/- is paid to that person and the remaining balance of Rs. 10,0007- shall be payable to the government in the form of TDS for which the deductor gets credit. Therefore, a logical conclusion is that TDS, either paid in normal course or paid subsequently when the defect is found, is allowable in the hands of deductor. Since there was no section prescribed for disallowance of the interest on TDS, the same is also allowable as per the provisions of section 37(1) in the hands of deductor. Further, interest paid by deductor cannot be passed on to deductees so that they are entitled to claim it.
In addition to the decisions relied upon by the appellant, I find that the Hon'ble Karnataka High Court has held that levy of interest for delayed payment of TDS is not a penalty. It can be inferred that the expense is allowable. Accordingly, the disallowance of Rs.9,61,815/- on account of interest paid on late payment of IDS is deleted. This ground of appeal is allowed.
Against the above order, the Revenue is in appeal before us.
4 M/s. White Pearls Hotels & Investment Pvt. Ltd. 7. Learned DR as regards the issue of disallowance u/s. 14A relied upon the grounds of appeal. As regards the issue of interest on late payment of TDS he referred to the decision of Hon'ble Supreme Court in the case of Bharat Commerce & Industries Ltd. Vs. CIT (230 ITR 733) referred in grounds of appeal.
8. Per contra learned Counsel of the assessee submitted that the issue of disallowance u/s. 14A is covered in favour of assessee by a series of ITAT decisions in assessee’s own case. As regards the other issue of interest on late payment of TDS he submitted that the aforesaid Hon'ble Apex Court decision has been distinguished by the ITAT Kolkata decision in the case of DCIT Vs. Narayani Ispat Pvt. Ltd. (ITA No. 2127/Kol/2014 dated 30.8.207).
9. Upon careful consideration, we find that the issue of disallowance u/s. 14A is covered in favour of the assessee as the assessee has not earned any exempt income. In assessee’s own case, ITAT for A.Y. 2013-14 vide order dated 8.11.2017 has held as under :- 5. After having gone through the facts of the present case as well as considering orders passed by revenue authorities and hearing the parties at length, we find that Ld. CIT(A) while deciding this ground has taken into consideration the facts of the present case as well as the orders of Hon'ble ITAT in assessee's own case wherein the Hon'ble ITAT in earlier years had deleted the disallowance by following the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. (2015) 378 ITR 33 Delhi. The Ld. CIT(A) has not found any change in the facts and circumstances for the year under consideration except for the amount involved. Therefore, Ld. CIT(A) rightly deleted the disallowance made by AO.
Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
5 M/s. White Pearls Hotels & Investment Pvt. Ltd. 10. Following the above precedent, we uphold the order of learned CIT(A) on the issue of disallowance u/s. 14A of the Act.
As regards the second issue of interest paid on delayed deposit of tax deduction at source, we note that Hon'ble Supreme Court decision referred by the Revenue is in the context of interest paid on default in payment of advance tax. The Hon'ble Apex Court has given the reasoning that this is arising in connection with income tax which is computed as per the computation of profit and loss of business. Since the income tax is not an allowable expenditure as it raises after the determination of income, the interest paid on delayed payment of advance tax was also held to be not allowable.
However, learned CIT(A) has relied upon the decision of Hon'ble Karnataka High Court referred above. This case law categorically provides that interest paid on default in deposit of TDS cannot be held to be a penalty. In this view of the matter as the issue is covered in favour of the assessee by direct decision of the Hon'ble High Court, reliance upon the above Supreme Court decision which is in a different context cannot help the case of the Revenue.
13. Hence, in the background of aforesaid discussion and precedent, we do not find any infirmity in the order of learned CIT(A). Accordingly we uphold the same.
In the result, appeal filed by the Revenue stands dismissed. Order has been pronounced in the Court on 27.3.2019.