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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. Captioned cross appeals are preferred by the parties against the 1. order of the learned Commissioner of Income-tax (Appeals)-XV, New Delhi dated 28.02.2014 for the Assessment Year 2010-11. The assessee has preferred an appeal on following grounds:-
2. “ 1(a) That the learned CIT(A) erred , both on facts and in law in sustaining a disallowance of Rs, 16,24,1987- towards interest u/s 14A of Income Tax Act read with Rule 8D of the Income Tax Rules, Page 2 of 8 1(b) That on the facts and circumstances of the case, the Id CIT(A) has erred in applying Rule 8D in appellant's case . 1(c) The Id CIT(A) failed to appreciate that the assessee had made investments of Rs 10.75 Crores in earlier years from the redemption proceeds of earlier investments / Realisation from Debtors and /or interest free funds available with the assessee and as such disallowance u/s 14A with respect to interest of Rs 10,11,698/- deserves to be deleted. 1(d) That the Id CIT(A) further erred in considering that the investments of Rs 10.75 Crores were capable of earning exempt income and had been made out of borrowed funds in total disregard of the facts and evidences on record. 1(e) That the Id CIT(A) has erred in computing the total average investments capable of earning exempt income at Rs.17,63,85,6237- as against Rs.5,38,85,623/- considered by the appellant and thereby erred in computing disallowance u/s 14A read with Rule 8D. 2(a) That the Id CIT(A ) has erred both on facts and in law in not allowing loss on account of forward cover of Rs.1,60,32,500/- 2(b) Without prejudice, the Id CIT(A) further erred in disallowing the said business loss on account of cancellation of forward cover of Rs.1,60,32,500/- by holding the same as speculative loss. 2(c) Without prejudice, the Id CIT(A) grossly erred in not allowing opportunity of being heard before treating Rs.1,60,32,500/- as speculative loss as against business loss treated by the appellant.
3. That the Id CIT(A) has erred in sustaining disallowance of Rs.2554/- towards interest on late payment of TDS without appreciating that it an allowable expenditure.
3. We first take up the appeal of the assessee.
4. Ground No.2 of the appeal of the assessee is regarding non- allowing loss on account of forward cover of Rs.1,60,32,500/-. The assessee during the course of hearing submitted that it does not want to press this ground, therefore same is dismissed.
5. This leaves us only ground No.1 of the appeal of the assessee against the confirmation of disallowance of Rs. 16,24,1987 By CIT (A) u/s 14A of the act.
6. Brief fact of the case is that the assessee is a company which is engaged in the business of export and import of sugar and its products. It filed its return of income on 26.09.2010 declaring total Page 3 of 8 income of Rs. 5,25,522/- and the assessment was made u/s 143(3) on 04.02.2013. During the course of assessment it was noted by AO that the assessee has shown income of Rs.1,65,492/- by way of dividend on mutual funds which was exempt u/s 10 of the Income Tax Act and has disallowed Rs 2,69,428/- u/s 14A of the act. Therefore the AO not satisfied with the disallowance was of the view that there has to be some more disallowance u/s 14A of the Act rwr 8D of the Income Tax Rules 1962. The assessee submitted before the AO that the assessee has huge surplus and interest free funds available at disposal of assessee are more than investment made by the assessee and therefore there cannot be any disallowance on account of interest expenditure u/s 14A of the Act. The AO rejected the contention and computed the disallowance of Rs. 2,45,34,198/- u/r 8D rws 14A of the Act. Against this the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals), who in turn computed the disallowance of Rs.16,24,198/-. Against this disallowance the assessee is in appeal.
7. Before us the assessee submitted that interest disallowance of Rs.10,11,698/- confirmed by CIT (A) is not proper as assessee has interest free funds available with it more than the amount of investment. The ld AR took us to the balance-sheet where general funds of Rs.182,52,72,626/- is available with the assessee as on 31.03.2010 and investment made by the assessee is Rs. 33,31,98,467/-. It was further submitted that the assessee has already made disallowance of Rs. 269428/-, therefore there cannot be in disallowance u/s 14A on account of interest. It was further submitted that disallowance u/s 14A cannot exceed the Page 4 of 8 exempt income. It was submitted that exempt income of the assessee is only Rs.1,65,792/- and the assessee himself has disallowed Rs. 2,69,428/- therefore no further disallowance can be imputed.
8. The ld DR submitted that disallowance is required to be computed u/s 14A of the Act and therefore the order of the ld CIT(A) may be upheld on this count. It was further submitted that revenue is also in appeal against this grounds and therefore disallowance computed by AO may be upheld.
9. We have carefully heard the rival contention. We first address the argument of the assessee that whether disallowance u/s 14A can exceed exempt income or not. Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd Vs. CIT in dated 25.02.2015 has held that disallowance u/s 14A rwr Rule 8D cannot exceed the entire tax exempt income. Therefore respectfully following the decision of Hon’ble Delhi High Court the disallowance is required to be restricted to Rs.1,65,492/- only. However, as the assessee on its own has made disallowance of Rs. 2,69,428/- in the return of income, we restrict the disallowance as made by the assessee own its own. In view of this ground No.1 of the appeal is allowed reversing the order of the learned Commissioner of Income-tax (Appeals) and disallowance of Rs. 16,24,198/- is directed to be deleted.
In view of the above the appeal of the assessee is partly allowed.
Now we come to the appeal of the revenue where following grounds of appeal are taken:-
1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Page 5 of 8 Rs. 28,87,804/- made by the AO on account of contribution towards Provident Fund. "
2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 2,29,10,000/- made by the AO u/s 14A read with Rule 8D of the Income Tax Rules, 1962"
3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 33,03,000/- made by the AO on account of Prior Period Expenses while calculating MAT. "
The first grounds of appeal
is against disallowance of Provident Fund of Rs. 28,87,804/-.
13. The brief facts of this grounds is that the assessee has deposited employer’s contribution to the Provident Fund towards to the extent of Rs.2887804/- where the PF trust has made investments which are not permitted. Therefore ld AO did not considered this trust as recognized Provident Funds under Income Tax Act though it was recognized and such recognition was not cancelled by CIT. This issue is taken up by the assessee before the learned Commissioner of Income-tax (Appeals) who in turn deleted the addition stating that since the trust is already registered and learned Commissioner of Income-tax has not revoked the registration of the trust , AO is not empowered to treat it as unrecognized fund. Further CIT (A) has also recorded finding that the matter is already decided in favour of the appellant by the orders of coordinate bench for Assessment Year 2003-04 to 2007-08 dealing identical issue in favour of the assessee and the appeal of the revenue is also dismissed by Hon’ble Delhi High Court. In para 5.4 of the order of ld CIT(A) he has dealt this disallowance. Ld. DR could not point out any infirmity in the same and therefore we confirm the order of CIT (A) in deleting the disallowance of Rs 28,87,804/- on account of employers’ fund Page 6 of 8 contribution made by the assessee to the recognized fund. ground No.1 of the appeal of the revenue is dismissed.
14. Ground No.2 of the appeal is regarding deletion of disallowance u/s 14A of the Act of Rs. 2,29,10,000/- by learned Commissioner of Income-tax (Appeals). This issue has already been dealt with by us while deciding ground no 1 of the appeal of assessee. Rival parties confirmed that the on partial disallowance confirmed by the order of CIT (A) assessee is in appeal and on deletion of the balance disallowance revenue is in appeal. As we have already held in while deciding appeal of the assessee relying on the decision of Honourable Jurisdictional High court in case of Joint Investments Private Limited V CIT [372 ITR 694] that disallowance u/s 14A cannot exceed the exempt income. Accordingly we confirm the order of CIT (A) accordingly and held that disallowance u/s 14A cannot exceed the exempt income as per finding given in Ground No.1 of the appeal of the assessee. Hence ground no 2 of the appeal is dismissed.
15. Ground No.3 of the revenue is regarding deletion of disallowance 33,03,000/- by CIT (A) which has been shown as prior period expenses and the assessee while computed the income under normal computation mechanism has added this, However it was not added while calculating the book profit tax u/s 115JB of the Act and therefore the AO adjusted the books profit accordingly by adding this sum. Aggrieved by this the assessee carried the matter before learned Commissioner of Income-tax (Appeals) who in turn deleted the addition and therefore revenue is in appeal before us.