NAVBHARAT SEEDS PVT. LTD.,,AHMEDABAD vs. THE DY.CIT, CIRCLE-3(1)(1),, AHMEDABAD

The assessee has raised following grounds of appeal:- “1. The Learned CIT(A) has erred in law and on facts in confirming the disallowance for Rs. 21,012/- on account of late deposit of EPF and ESIC. 2. The Learned CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 2,12,128/- under Section 14A rw Rule 8D. 3. The Learned CIT(A) has erred in not considering all the arguments which were advanced during the course of hearing as well as in written submission. Further, the learned CIT(A) has erred in dismissing the appeal on the ground that appellant's contention as to no expenditure has been incurred for earning exempt income, when in fact it was never contended by the appellant during the assessment proceedings nor before the learned CIT(A).”

In this case, return of income declaring income of Rs. 4,47,95,640/- was filed on 29th September, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 7th August, 2013. The assessee company is engaged in the business of processing and trading of agricultural product.

Regarding the disallowance of Rs. 21012/- towards employee’s provident fund, the assessing officer has disallowed the same on the ground that it was not paid by due date as provided in the respective act and added to the total income of the assessee. The Ld. CIT(A) has dismissed the appeal of the assesssee on this issue by stating that assessing officer has correctly concluded it as employees’s income as per section 2(24)(x) and it is deductible only if paid within the due date as per the respective act as specified u/s. 36(1)(va) of the act after placing reliance on the decision of hon’ble jurisdictional high court in the case of CIT vs. GSRTC. During the course of appellate proceedings the Ld. Counsel has not pressed this ground of appeal. After considering the above facts and the decision of the ld. CIT(A) the appeal of the assessee on this issue is dismissed.

Regarding disallowance out of exempt income during the course of assessment proceedings, the assessing officer noticed that assessee has claimed exempt income, therefore, the assessee was asked to explain why not the disallowance of interest expenses according to provision of section 14A of the act r.w. Rule 8D of the I.T. Rule should not be made. The assessee explained that no disallowance be made as it has already disallowed Rs. 6,538/- in its computation of total income u/s. 14A and in interest account the assessee has net income of Rs. 91,50,941/- The assessing officer has not accepted the explanation of the assessee that no expanses has been incurred in relation to the investment made on which assessee has earned dividend as exempt income. The assessing officer has considered that fund of the assesse is mixed fund containing interest bearing and non-interest bearing funds, therefore, the assessing officer has worked out the disallowance of expenses u/s. 14A r.w. rule 8D to the amount of Rs 2,12,128 and added to the total income of the asessee.

Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the disallowance made by the assessing officer.

During the course of appellate proceedings before us, ld. counsel has made written submission stating that disallowance of expenses u/s. 14A r.w. Rule 8D is not correct and he has pointed out that assessee has earned interest income of Rs. 1,00,46,535/- as against the interest expanses of Rs. 8,95,594/- resulting in net

We have heard both the sides and perused the material on record carefully. We have noticed from the computation of total income filed by the Ld. Counsel that the assessee has claimed total exempt income of Rs. 56,313 as dividend income. The assessing officer has disallowed an expenditure of Rs. 2,12,128/- u/s. 14A r.w. Rule 8D as incurred towards earning exempt income.

After hearing both sides, we observed that the disallowance u/s. 14A is to be restricted to the exempt income earned during the year under consideration by the assessee. In this connection, we have gone through the decision of the Co-ordinate Bench of ITAT, Ahmedabad wherein the disallowance was restricted to the exempt income. In this connection, we reproduce the relevant part of the decision of Co-ordinate Bench as under:- 7. Iin the case of Jivraj Tea Ltd. vs. DCIT, Circle-1, Surat in ITA No.866/Ahd/2012 and others, the co-ordinate Bench held that disallowance under section 14A cannot be more than the exempt income. The relevant portion of the decision is reproduced below- “20. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee received exempt dividend income of Rs.900/-. The Assessing Officer was of the opinion that expenditure incurred for earning the exempt dividend income was not allowable to the assessee and the assessee has not disallowed any expenditure towards the earning of the exempted dividend income, he by invoking the provisions of Section 14A

In the result, the appeal of the assessee is partly allowed.