Loading judgment…
Facts
The assessee, a Central Govt. PSU, printing currency and minting coins, filed its return of income. The Assessing Officer (AO) made certain additions, which were upheld by the CIT(A)/NFAC, leading to the present appeal.
Held
The Tribunal held that the disallowance of indirect expenses under Section 14A was not justified as there was no nexus established and past history was in favour of the assessee. The issues regarding actuarial valuation of pension contribution and PRMB were set aside for fresh adjudication. Disallowances regarding late deposit of PF/ESIC were upheld, while issues related to club expenses and advertisement expenses were partly allowed. Ground (vi) was remanded for fresh adjudication, and ground (vii) was remanded for verification. Ground (viii) was consequential.
Key Issues
Whether disallowance of indirect expenses under Section 14A is justified without nexus and past history favouring assessee. Whether certain business expenses like club membership, advertisement, and pension contributions are allowable.
Sections Cited
14A, 8D(2)(ii), 43B, 143(1), 143(3), 40A(9), 36(1)(va), 139(1), 37(1), 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI ‘G’ BENCH,
Before: MS. MADHUMITA ROY, & SHRI NAVEEN CHANDRA
This appeal by the assessee is preferred against the order of NFAC, Delhi dated 30.03.2023 for A.Y 2018-19.
2. The assessee has raised the following grounds of appeal:
“i. The order passed by Ld. CIT (A)/NFAC on the facts and in the circumstances of the case is bad in law. ii. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in law by upholding the disallowance of indirect expenses worked out at Rs. 6,74,20,240/- by Ld. AO under section 14A read with rule 8D(2)(ii) of IT Act against the total exempt dividend income of Rs 454.88 lakhs from UTI treasury units daily dividend reinvestment plan. • Without prejudice to ground no. (ii) above, on the facts and in the circumstances -the Ld. CIT (A)/NFAC has erred in law by upholding the Ld. AO's inclusion in the average value of investment under rule 8D (2) (ii) the investment value of joint venture co. from which no exempt income accrued / received during the previous year 17-18 to work out disallowance of expenses. iii. On the facts and in the circumstances of the case the Ld. CIT (A) erred in law by not adjudicating the claim of deduction of below mentioned allowable business expenses aggregating to Rs 45,301.83 lakhs* made in revised taxable income statement filed during assessment proceedings declaring revised income at Rs.203,58.75 Lakhs instead ld.CIT(A) issued directions to ld. AO to verify & decide the claim of appellant.
*Break-up of Rs. 45,301.83 lakhs mentioned below:
Sl. Particulars Amount in No Rs. Lakhs 1. Employees Pensionary charges provision under CCS 20736.23 rules based on actuarial valuation
Employees Pensionary charges provision created in 22768.25 previous year for preceding years based on actuarial valuation (under CCS Rules Govt, of India)
3. Provision of post-retirement medical benefits to 1769.46 employees based on actuarial valuation Corporate club membership fees
4. Corporate club membership 21.16
5. Advertisement exps for tender & business etc 6.71
Total 45,301.81 iv. On the facts and in the circumstances of the case the Ld. CIT (A)/NFAC erred in law by not adjudicating the issue of differential mismatch addition in 143(1) for Rs 11,787.46 lakhs (refer reconciliation annexure-2) determined by CPC -the difference between Rs.29,928.74 lakhs in Tax Audit Report and Rs.41,699.98 lakhs claimed in ITR u/s 43B and also carried in 143(3). iv.a) Without prejudice to ground no (iv) above, the Ld. CIT (A) on facts has erred in law by not allowing deduction of actual payment of a sum of Rs. 10,066/- lakhs made u/s 43B towards taxed employees' pension provision for Rs. 207,68/- lakhs. v. On the facts and in the circumstances of the case the Ld. CIT (A) - NFAC has erred in law by not adjudicating the ground of dispute of disallowance of expenses of Rs.1203.41 lacs in 143(1) order being employees subscription to EPF deposited late but within the previous year and before the due date u/s 139(1) of filing ITR.
The Ld. CIT (A) issued directions to Ld. AO to verify facts and decide as per provisions of section 143(1). a) Without prejudice to ground no (v) above, the Ld. CIT (A) has erred in law on the facts and in the circumstances of the case by not adjudicating the disallowance of employees subscription late deposited when CPC has no mandate to disallow this expenses on the basis of merely information in Tax Audit Report. vi. The Ld. CIT (A) has erred in law on the facts of the case by not adjudicating the disallowance of a sum of Rs 2.26 lakhs covered u/s 40A (9) as allowable being grant / subsidy to worker's association under Maharashtra state labours laws. vii. On the facts and in the circumstances of the case the Ld. CIT (A) -NFAC has erred in law by not deciding the issue of balance differential sum of Rs. 199.18 lakhs i.e. Rs. (721,87,45,798- 719,88,27,798) for which no detail is given in 143(1) order by CPC. viii. On the facts and in the circumstances of the case the Ld. CIT (A) -NFAC has erred in law by dismissing the issue of interest charged u/s 234 A, 234B and 234C treating as mandatory without examining the applicable provisions with facts in this case, though issue is consequential in nature.
The appellant craves leave to add/alter/or substitute or withdraw any ground (s) during or before completion of appellate proceedings.”
Briefly stated, the facts of the case are that the assessee is a Central Govt. PSU under the Ministry of Finance. Its main activities are to print legal currency for Central Bank i.e., RBI and minting of coins etc. for Govt. of India. It has its operating units in various states with corporate office in New Delhi. The assessee is also engaged in printing passport and travel documents with labelling high security inks.
4. The assessee filed its Return of Income declaring an income of Rs. 538,33,68,240/-. Return was selected for scrutiny assessment through CASS and accordingly, statutory notices were issued and served upon the assessee. Subsequently, the Assessing Officer assessed the income of the assessee at Rs. 13,83,30,61,039/- including adjustments of Rs. 7,21,87,45,798/-.
Ground No. (i) is general in nature. Ground Nos. (iv) and (iva) have not been pressed. The same are dismissed as such.
6. Facts pertaining to Ground No. (ii) are that the ld. CIT(A) upheld the disallowance of indirect expenses worked out at Rs. 6,74,20,240/- by Assessing Officer under section 14A read with rule 8D(2)(ii) of IT Act against the total exempt dividend income of Rs 454.88 lakhs from UTI treasury units daily dividend reinvestment plan.
7. Before us, the ld. counsel for the assessee vehemently stated that no examination of books of accounts in relation to expenses of exempt
Page 5 of 19 dividend income was carried out by Assessing Officer, no satisfaction was recorded by Assessing Officer for his findings in the order. No expenses in nexus to exempt dividend income was placed in order in reference to Profit & Loss account except assumptions and reliance on CBDT circular 14/2014 dated 11.04.2014.
The Assessing Officer was informed that no direct or indirect expenditure was incurred, as daily dividend earned was automatically credited to fund A/c under the scheme. No separate staff was employed for this mutual fund placement/maturity. Accordingly, no special efforts were put in by the assessee in earning dividend income. The fact that no expense of any kind was debited to Profit & Loss account in relation to earning of dividend income has also been accepted Assessing Officer.
5. The ld. counsel for the assessee contended that in A.Y 2013-14, the ld. CIT(A), in assessee's own case on identical facts, has deleted addition u/s 14A of the Act on the ground that Assessing Officer has not recorded his dissatisfaction prior to applying Rule 8D(iii) of the Rules which was confirmed by the ITAT in ITA 3685 & 3686/Del/2017. The ld AR further pointed out that the coordinate bench of ITAT in assessee's own case in AY 2011-12 to AY 2014-15 on identical facts and circumstances of deleted the disallowance of expenses u/s 14A r.w.r 8D(2). The ld AR submitted that the Hon'ble Delhi High Court has Page 6 of 19 dismissed the revenue appeal filed against ITAT order giving relief to SPMCIL on the same issue for AY 2014-15 vide dt. 26- 09-2023.
Per contra, the ld. DR relied on the orders of the authorities below. It is the say of the ld. DR that the Assessing Officer has correctly made the disallowance as includable income is also covered u/s 14A of the Act.
We have heard the rival submissions and have perused the relevant material on record. It is true that the assessee has earned dividend income which has been claimed as exempt. It is equally true that certain expenses need to be disallowed u/s 14A of the Act r.w.r. 8D of the Rules.
There is no dispute that the assessee has received dividend income accrued from SBI Mutual Fund. We also find that there is no satisfaction recorded by the Assessing Officer which is against the legal principles.
No working was made by the Assessing Officer as to which expenses appearing in the P & L A/c are co-related to dividend income when there is clear assertion by the assessee that no expenses have been incurred in relation to earning exempt income of dividend.
We further find that the Assessing Officer at Para 5 of his order has observed as under: "However the assesse company did not debit any expenses to profit and loss account relating to exempt income." It is thus,
Page 7 of 19 evident from the above that the Assessing Officer has himself mentioned that there is no expenditure which is directly attributable to the exempt income and disallowances have been made only considering the past history of the assessee. The past history, i.e, A.Y 2011-12 to AY 2014-15 shows that this issue has been decided in favour of the assessee and against the Revenue by the ITAT and confirmed by the hon’ble Delhi High Court. As no nexus has been established between the exempt income and disallowance and no distinguishing decision has been brought to our notice, respectfully following the findings of the co- ordinate bench and Delhi High Court, we direct the Assessing Officer to delete the impugned disallowance of Rs 6.74 crore. Ground No. (ii) is allowed.
Facts relating to Ground No. (iii) are that the assessee filed a original return declaring income of Rs 538,33.68 lakh. The assessee filed a revised statement of taxable income on 20.02.2021 during the course of assessment proceedings declaring an income of Rs. 203,58.75 lakh.
While filing revised statement of income, the assessee also filed justification for various items considered deductible from income offered originally in ITR. In the revised statement, an aggregate deduction of Rs. 45,301.81 lakhs which was inadvertently omitted to be claimed in the original return was claimed. Further, addition of Page 8 of 19 Rs.11,827.30 lakh which was omitted to be made in the original returned income was made in revised taxable income as under:
Particulars Amount Amount (Lakh) (Lakh) Gross Total Income as per RoI 53,833.27 Less: Club expenses 21.16 Advertisement expenses 6.71 Provision for PRMB (as per bal/sheet) 1,769.46 Pension for Pension Trust Liability 20,736.23 Pension Trust Liability (created during previous 22,768.25 45,301.81 year deducted from retained earning following IND AS) Add: Leave encashment 8,238.65 Provision written back 3,588.65 11,827.30 Revised total Income 20,358.75
The Assessing Officer while passing assessment order u/s 143(3), made additions of Rs. 11,827.30 lakh on account of (a) Provisions for leave encashment of Rs. 8,046.62 lakh and (b) Reversal of liability of Rs.3,588.64 lakh. However, the Assessing Officer did not allow deductions of Rs.45,301.81 lakh claimed in the revised taxable statement of income. Further, the Assessing Officer has not discussed in the Assessment order why the above deductions were not considered and not allowed.
11. Aggrieved, the assessee went in appeal before the ld. CIT(A) who directed the AO to verify the claim of the appellant and decide the issue accordingly as the AO had neither given any reasons for addition nor gave the assessee any opportunity to explain.
12. Aggrieved further, the assessee is in appeal before us and contended that five items collectively represent the sum of Rs. 45,301 lakh which were claimed as deduction by filing revised taxable income statement. The assessee has also offered suo-moto an addition of Rs 11,827.30 lakh in revised taxable income.
The ld. counsel for the assessee further contended that the assessee has created an Employee's Pension Fund trust, therein crediting the contribution determined with actuarial valuation and debited to the Profit & Loss A/c in the previous year 2017-18. On being agreed with this condition of employees & approved by Board of Directors of the Appellant company, a pension contribution by employer not exceeding to 8.33 % of salary and under Rules 87 & 88 of Income Tax Rules was debited to P&L a/c based on actuarial valuation during FY 2017-18.
The ld. counsel for the assessee continued by saying that this pension is payable for a fixed amount on the retirement/death /resignation of employee as per pension rules and not during
Page 10 of 19 employment and is worked out as per AS-15. For allowability of pension expenses, the ld. counsel for the assessee placed reliance on the jurisdictional Delhi High Court decision in the case of Commissioner of Income Tax vs Ranbaxy Laboratories Ltd [2012] 20 taxman.com 608(Delhi). In this case it was held that clause (b) of section 43B deals with certain funds available for the benefit of the employees and, therefore, unless the payments are actually made to those employees, the same would not be entitled for deduction.
The ld. counsel for the assessee concluded by saying that where the liability on this account accrued from year to year, the same was payable on retirement/resignation of the eligible employees and, therefore, the disallowance was not justified. The ld. counsel for the assessee relied on CBDT Circular No 14XL-35 dt.11-04-1955 for this proposition.
Per contra, the ld. DR relied upon the orders of the authorities below.
We have heard the rival submissions and have perused the relevant material on record. We find that the issue of allowability of contributory pension determined with actuarial valuation; and the allowability of issue of PRMB has not been critically examined and verified by the AO.
Page 11 of 19 We are therefore of the considered view that the issue of actuarial valuation of Pension contribution and its allowability under the Income Tax Act as per the Indian Accounting Standard and provisions for PRMB be set aside to the file of the AO for a fresh adjudication. Needless to add that the AO shall keep in mind the applicability of the decision of the Hon’ble Delhi Court in the case of Ranbaxy Laboratories Ltd(supra). The ground (iii) is allowed for statistical purposes.
As far as Club expense is concerned, it comprises of (a) Corporate membership Gymkhana Club: Rs 17.70 lakhs, (b) Life time membership of Delhi Management Association: Rs 2.36 lakhs and (c) Expenses on refreshments: Rs 1.1 lakhs. The assessee claimed the above expenses allowable as business expenses u/s 37 of the Income Tax Act and relies on the case of Commissioner of Income Tax v/s United Glass Mfg. Co.
Ltd. (2012) 28 taxmann.com 429 (SC). Similarly, the Advertisement expenses for Tender & Business Rs 6.73 lakhs was incurred for bringing out Tender & other business advertisement in other local News Paper. It was submitted that it was wrongly reported as advertisement expenditure in Tax Audit Report.
We are of the considered view that the expenditure towards club membership is allowable in the light of the hon’ble Supreme Court in Page 12 of 19 the case of Commissioner of Income Tax v/s United Glass Mfg. Co.
Ltd (supra) and the advertisement expense towards bringing out Tender & other business advertisement are allowable expense u/s 37(1). The ground (iii) is partly allowed for statistical purposes.
Ground No. (v), additional ground in place of Ground (v), is with regard to disallowance u/s 36(1)(va) of the Act. The issue of disallowance made by the Assessing Officer on account of employees’ contribution to the Provident Fund deposited beyond the due date as prescribed in the respective PF/ESIC Act is no more res integra as the quarrel is now settled by the decision of the Hon'ble Supreme Court in favour of the Revenue and against the assessee by the decision in the case of Checkmate Services [Pvt] Ltd 448 ITR 518.
The assessee another grievance is that the CPC is not empowered to disallow the same u/s 143(1) of the Act. This issue is also decided against the assessee in the case of Savleen Kaur vs. Income-tax officer [2023] 147 taxmann.com 402 (Delhi - Trib.)/[2023] 199 ITD 437 (Delhi - Trib.) [09-01-2023] where the coordinate bench of Delhi ITAT has held that disallowance u/s 143(1) of delayed payment of PF/ESIC is valid, as under: 10. In our understanding, the aforementioned binding observations of the Hon'ble Supreme Court cannot be brushed aside simply because the decision was rendered in the context where the assessment was framed u/s 143(3) and not u/s 143(1)(a) of the Page 13 of 19 Act. In our considered opinion, the decision of the Hon'ble Supreme Court is in the context of allowability of deposit of PF/ESI after due date specified in the relevant Act.
The Hon'ble Supreme Court has categorically held that the employees' contribution deposited after respective due date cannot be allowed as deduction, and, therefore, it would be incorrect to say that the decision of the Hon'ble Supreme Court is applicable only in the case of an assessment farmed u/s 143(3) of the Act. In our considered view, the ratio decidendi is equally applicable for the intimation framed u/s 143(1) of the Act.
Now coming to the challenge that the impugned adjustment is beyond the powers of the CPC Bengaluru u/s 143(1) of the Act is also not correct. In light of the aforementioned decision of the Hon'ble Supreme Court [supra], as mentioned elsewhere, it cannot be stated that the impugned adjustment u/s 143(1) of the Act is beyond the powers of the CPC, Bengaluru.
The aforesaid decision distinguished the case of P.R. Packaging Service v. Asstt. CIT [2023] 148 taxmann.com 153 (Mum.-Trib.) where the Mumbai Tribunal deleted the disallowance u/s. 36(1)(va) of the Act made in the intimation u/s. 143(1) of the Act on a finding that such disallowance is beyond the scope of section 143(1)(a) of the Act, albeit the Tribunal noted that it is conscious of the fact that the issue on merits is decided against the assessee in Checkmate Services(supra). It was further held that the decision of Supreme Court was rendered in the context of section 143(3) of the Act and not section 143(1) of the Act.
The Delhi Tribunal in Savleen Kaur vs. Income-tax officer, (supra) however, distinguished the above judgment on a finding that Mumbai Tribunal has simply relied on another coordinate bench decision which was decided in the absence of the binding decision of Supreme Court in Checkmate Services (supra) i.e., the coordinate bench decision is prior to the decision of Supreme Court. It was further held that if any narrow
Page 14 of 19 interpretation is given to the decision of Supreme Court stating that it was rendered in context of only 143(3), such interpretation will defeat the very purpose of the intention of legislature and the Supreme Court decision. It was therefore held that the ratio lead down in the SC decision is equally applicable to intimation u/s. 143(1) and assessment order u/s. 143(3) of the Act.
Similarly, the ld ITAT Pune Bench in the case of Surendra Devid Thokal Vs ITO (ITAT Pune) has confirmed the CPC adjustment of Employee contributions for PF/ESI delayed payments as not deductible following the Supreme Court in Checkmate Services. The Ahmedabad Tax Tribunal in the case of M/s. Checkmate Services Pvt. Ltd. (I.T.A.
No. 69/Ahd/2023) have held that the decision of the Hon’ble Supreme Court in the case of Checkmate Services Private Limited is declaration of law which is applicable to all proceedings whether it is scrutiny assessment under Section 143(3) of the IT Act or the proceeding of processing tax return under Section 143(1) of the IT Act. Following the above decision, we hold that the adjustment u/s 143(1) made on account of delayed payment of PF/ESIC is legally justified and sustainable. In that view of the matter, we dismiss ground No. (v) and (va) and additional ground.
Vide Ground No. (vi), the ld. counsel for the assessee has argued that the Ld. CIT (A) has erred in law on the facts of the case by not adjudicating the disallowance of a sum of Rs 2.26 lakhs covered u/s 40A (9) as allowable being grant/subsidy to worker's association under Maharashtra state labours laws.
At the very outset, the ld. counsel for the assessee submitted that this sum is the grant in aid/contribution given to employee association /union for welfare activities by a/c payee cheque and is a genuine business expense allowable u/s 40A(9) of the Income-tax Act. The said amount of Rs. 2,26,566/- was paid as contribution to Maharashtra Welfare Fund. In the TAR the said amount has been wrongly reported in clause 21(f) as amount not allowable u/s 40A(9) of the Act. It is the say of the ld AR that this has been allowed by the Ld. AO in appeal effect as
per the direction of the coordinate bench in A.Y. 2019-20 vide order dated 20.09.2023 and prayed for restoration of the issue for verification and adjudication. The ld DR did not raise any objection.
We have heard the rival submissions and perused the materials on record. We are of the considered view that the issue of grant in aid/contribution given to employee association/union for welfare under Maharastra Labour Law and its allowability u/s 40A(9) of the I T Act be Page 16 of 19 remanded back to the Ld. AO for verification of facts and fresh adjudication, and follow the ITAT order (supra) of AY 2019-20. The ground (vi) is allowed for statistical purposes.
The ground no (vii) is with respect to the differential of Rs. 199.18 lakh in the discrepancy sheet issued by CPC item wise placed at page no.09 of paper book. No detail was provided in the discrepancy sheet received by the assessee for differential amount of Rs 199.18 lakhs. The Ld AR prayed for restoration of the issue to the AO and the ld DR did not contest the restoration.
We have heard the rival submissions and perused the materials on record. We are of the considered view that in view of the facts mentioned above, the issue of differential of Rs 199.18 lakh, be remanded back to Ld. AO to verify the correct factual position and allow the claim if found fit. The ground (vii) is allowed for statistical purposes.
Ground (viii) regarding computation of interest u/s 234A,234B and 234C is consequential in nature.
In the result, the appeal of the assessee in is partially allowed.
The order is pronounced in the open court on 27.10.2025.