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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S.SUNDER SINGH
आदेश / O R D E R
PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue against the Order dated 15.11.2016 of Commissioner of Income Tax (Appeals)-2, Chennai, in for the AY 2012-13 and raised the following grounds:
ITA No.275/Mds/2017 :- 2 -:
The order of the learned CIT(A) is contrary to law, facts and circumstances of the case.
The learned CIT(A) erred in deleting the disallowance made u/s.14A r.w. Rule 8D of Rs.60,000/-
2.1 The learned CIT(A) has erred in holding that disallowance u/s.14A will not apply if no exempt income is received or receivable during the year.
2.2 The learned CIT(A) failed to appreciate that disallowance u/s.14A r.w. Rule 8D was applicable in the instant case as the assessee had earned dividend income of Rs.5,76,163/- during the year and that the resources of the assessee have been utilized in earning the exempt income.
2.3 The learned CIT(A) erred in deleting the disallowance effected u/s.14A without appreciating the fact that the assessee had held investments in shares and mutual funds, capable of earning exempt income, thereby attracting the provisions of Sec.14A read with rule 8D.
2.4 The learned CIT(A) failed to appreciate the fact that even in the absence of exempt income, if exempt income bearing investments are available in a particular year, the provisions of Sec.14A read with Rule 8D shall have applicability and the Assessing Officer is bound to disallow the expenditure thus worked out.
2.5 The CIT(A) failed to appreciate that the Hon’ble Bombay High Court in the case of Godrej & Boyce has held that the provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid and that the provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution;
The learned CIT(A) has erred in deleting the addition made in respect of employees contribution towards PF of Rs.35,35,037/- which was remitted beyond the prescribed due dates.
3.1 The learned CIT(A) erred in deleting the addition made in respect of delayed remittance of its employees contribution of Provident Fund despite the fact that Circular No.22/2015 dated 17.12.2015 clearly applies to claim of deduction relating employers’ contribution and not for employees contribution to welfare funds.
4. The learned CIT(A) failed to appreciate that any received sum received on account of employees’ contribution to Provident Fund not remitted within the due date is to be treated as the income of the assessee and taxed in his hands as per provisions of Sec.2(24)(x) of the I.T. Act, 1961.
4.1 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the A.O. restored.
2.0 Ground Nos.1 to 2.5 are related to the disallowance of Sec.14A r.w.r. 8D (2)(iii) of Income Tax Act. During the assessment proceedings, the AO found that the assessee has derived income of Rs.5,76,163/- from dividend and did not make any expenditure towards the earning of ITA No.275/Mds/2017 :- 3 -: dividend income. The assessee has not borrowed any funds for the purpose of investment in shares. Therefore, the AO disallowed the expenditure of Rs.60,000/- by applying Rule 8D(2)(iii) of IT Rules.
2.1 Aggrieved by the Order of the AO, the assessee went on appeal before the CIT(A) and Ld.CIT(A) deleted the addition as under:
5.2. Disallowance u/s 14A:
The Assessing Officer observed that although the assessee has derived income of Rs.5,76,163/- from dividend, the assessee did not make any disallowance towards expenditure relatable to the exempt income as per the provisions of Section 14A.
The Assessing Officer also noticed that the assessee had no investments either at the beginning of the year or at the end of the year. The assessee, however, had invested an amount of Rs.1.20 crores in HDFC Mutual Fund and redeemed it in the same year in which he received the dividend. Although the investments as per the Balance Sheet at the end of the previous year i.e. as on 31.3.2011 and the end of the current year i.e. 31.3.2012 are both NIL, the Assessing Officer took the average investments as Rs.1.20 crores and computed the expenditure relatable to exempt income in accordance with provisions of Section 14A r.w.r. 8D, which is equivalent to 0.5% of Rs.1.20 crores. Thus, an amount of Rs.60,000/- was disallowed and added back to the Business Income.
The appellant has contended that there is no direct interest payment for making the investment in Mutual Funds as the interest expenditure is NIL. Further, since the Opening Balance as well as Closing Balance of investment in Mutual Funds was NIL, the third limb computation i.e. 0.5% of average investment is not applicable, since according to the appellant, Rule 8D reckons computation based on the average amount of opening investment and closing investment.
The wordings of the limb(iii) of Rule 8D(2) are very clear, and read as follows:
“8D(2)(iii): An amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year.”
In view of the above, the contention of the appellant that the third limb of Rule 8D(2) is not applicable, is accepted. The addition of Rs.60,000/- u/s.14A is hence, deleted. This ground is allowed.
2.3 We heard the rival submissions and perused the material placed on record.
The assessee has invested an amount of Rs.1.20 Cr. in HDFC Mutual Funds and redeemed it in the same year and the investments as per the ITA No.275/Mds/2017 :- 4 -: balance sheet dated 31.03.2011 and 31.03.2012 both were ‘Nil”.
Therefore, the Ld.CIT(A) observed that the investment appearing in the balance sheet of the assessee on the first day and the last day of the previous years was NIL hence Rule 8D(2)(iii) is not applicable in assessee’s case. The disallowance required to be computed taking the average balances as on the first day and the last day of the Financial year and if there is no balance outstanding on the relevant dates the resultant balance would be nil and no disallowance is called for. The department cannot go beyond the rule and import its own dates for making the disallowance. In the instant case, average value of investment works out to NIL and no disallowance is called for u/r.8D(2)(iii). Therefore, we do not have any hesitation to uphold the order of the Ld.CIT(A) and accordingly dismiss the Revenue’s appeal.
3.0 Ground Nos.3 to 4 are related to the addition in respect of contribution towards PF amounting to Rs.35,35,037/- which was remitted beyond the due date specified under the relevant Acts. The AO made addition as per the facts discussed in Page No.3 Para No.4 of the Assessment Order as under:
From schedules to Form 3CD Report, it is noticed that the assessee has remitted the employee and employers contribution of PF beyond the due dates for the month of August, ‘December and March. As against due date 20th of succeeding month the assessee has remitted the taxes beyond the due date but before filing of the return of income. As per the provisions Sec.36(1)(va) any sum received by the assessee from any of his employees to which the provisions of cub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date under any Act, rule, order or notification issued there-under. When this was brought to the notice of the assessee, the assessee firm vide its letter dated 28.3.2015 stated that the payments were made within the due date, of filing of ITA No.275/Mds/2017 :- 5 -:
the return of income and hence allowable under section 43B. The assessee’s contention is not acceptable in respect of the employees’ contribution. Therefore, the following amounts contributed by the employees towards Provident Fund but not remitted within the due date is disallowed under section 36(1)(va) of the Act and added to business income.
Month Date of Amount remittance August, 2011 21-9-2011 Rs.10,19,402 December, 21-1-2012 Rs.13,17,267 2011 March, 2012 23-4-2012 Rs.11,98,368 Total Rs.35,35,037 3.1 The Ld.CIT(A) deleted the addition stating that the assessee remitted the PF to the acount before the due date of filing the return of income and no disallowance is called for. The Ld CIT (A) placed the reliance on the following judicial pronouncements. i) ITAT, “C” Bench, Chennai in the case of Express Publications (Madurai) Ltd. Vs. DCIT in ITA No.1885/Mds/2012. ii) ITAT, “A” Bench, Chennai in the case of ACIT Vs. M/s.Forward Shoes (India) Pvt. Ltd. in ITA No.183/Mds/2016. iii) Decision of the jurisdictional High Court in the case of Industrial Security & Intelligence India Pvt. Ltd. Tax Case (Appeal) Nos.585 & 586 of 2015 & M.P.No.1 of 2015.
3.2 The Ld.CIT(A) deleted the addition placing reliance on the Hon’ble jurisdictional High Court in the case of Industrial securities and investments reported in (2015) 7 TML 1063 (Madras).
ITA No.275/Mds/2017 :- 6 -:
Respectfully following the decision of the Hon’ble jurisdictional High Court, we uphold the order of the Ld.CIT(A) and the Revenue appeal on this ground is dismissed.
4.0 In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on June 08, 2017, at Chennai.