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Before: Shri Abraham P. George & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
Both the appeals are cross appeals filed by the Revenue as well as the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) 6, Chennai dated 16.12.2015 relevant to the assessment year 2012-13. Vide order in M.P. Nos. 170 & 177/Chny/2017 dated 07-09-2018, the Tribunal has recalled both the appeals.
The common ground raised in both the appeals, viz., the Revenue challenged the restriction of disallowance under section 14A of the Income Tax Act, whereas, the assessee challenged disallowance under section 14A of the Act r.w. Rule 8D of ₹.27,22,973/-.
By relying on the CBDT Circular No. 5/2014, the ld. DR has submitted that the disallowance under section 14A r.w. Rule 8D has to be made even if the assessee, in a particular year, has not earned any exempt income. He further submitted that there is no provision in the Act or Rules which provide for disallowance to be restricted to the extent of dividend income earned by the assessee and thereby the order of the ld. CIT(A) is bad in law. Thus, the ld. DR pleaded that the order of the ld. CIT(A) on this issue should be reversed.
On the other hand, the ld. Counsel for the assessee vehemently argued that no disallowance under section 14A r.w. Rule 8D is warranted since the assessee has not incurred any expenditure for earning dividend income. He further argued that the entire investment made by the assessee was out of own funds and prayed for deleting the entire disallowance made under section 14A r.w. Rule 8D.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The Assessing Officer observed that the assessee has earned dividend income of ₹.27,22,973/- during the year under consideration. However, since the assessee has not admitted any expenditure for earning the dividend income, by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer worked out the expenditure at ₹.1,08,15,631/- and brought to tax. On appeal, by following the decision of Mumbai Benches of the Tribunal in the case of Daga Global Chemicals Pvt. Ltd. v. ACIT in dated 01.01.2015, the ld. CIT(A) restricted the disallowance under section 14A of the Act to the extent the exempt income earned by the assessee. In this case, the assessee has not demonstrated that the investments have been made out of only its surplus funds and moreover, the assessee has not established that the borrowed funds have been utilized for the purpose of investments at any stage. Admittedly, in this case, the dividend income earned by the assessee was ₹.27,22,973/- whereas, the disallowance of expenditure worked out by the Assessing Officer goes manifold to the extent of ₹.1,08,15,631/-. The window for disallowance indicated in section 14A of the Act was only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income.
5.1 In a recent judgement in the case of Maxopp Investment Ltd. & Ors. v. CIT in Civil Appeal Nos. 104-109 of 2015 dated12.02.2018, the Hon’ble Supreme Court has confirmed the view taken by the Tribunal and the Hon’ble Punjab & Haryana High Court in the case of PCIT v. State Bank of Patiala [2017] 78 taxmann.com 3 of restricting the disallowance to the quantum of exempt income. Thus, the ld. CIT(A) has rightly restricted the disallowance to the extent of exempt income earned by the assessee. Therefore, the ground raised by the Revenue stands dismissed.
5.2 Further, in the above judgement, the Hon’ble Supreme Court has observed that, as long as an exempt income was earned, the expenditure incurred as attributable to earning such exempt income, had to be disallowed under section 14A of the Act. Thus, the ground raised by the assessee stands dismissed.
The next ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in deleting the addition made on account of employees’ contribution to ESI & PF. The assessee has submitted before the Assessing Officer that those payments were made before the due date for filing of return of income under section 139(1) of the Act. However, the Assessing Officer treated the delayed payments representing employees contribution towards PF/ESI of ₹.90,140/- as income of the assessee and brought to tax under section 2(24)(x) r.w.s. 36(1)(va) of the Act. On appeal, by considering the submissions of the assessee and following the decision of the Hon’ble Madras High Court in the case of CIT v. Industrial Security and Intelligence India Pvt. Ltd. in TCA Nos. 585 & 586 of 2015 & M.P. No. 1 of 2015 dated 24.07.2015, the ld. CIT(A) deleted the addition made by the Assessing Officer.
6.1 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, it is not disputed by the Revenue that the assessee has not paid the employees’ contribution received by it before the due date of filing of the income tax return as specified under section 43B of the Act. Various Courts including the Hon’ble Jurisdictional High Court in the case of CIT v. Industrial Security and Intelligence India Pvt. Ltd. (supra) held that there can be no deemed addition under section 36(1)(va) r.w.s. 2(24)(x) of the Act, if the impugned amount has been paid before the due date of filing of the return. The ld. DR could not controvert the above decision of the Hon’ble Jurisdictional High Court. Just because the Department has not accepted the above decision and preferred Review Petition, we cannot take a different view, other than the view taken by the Hon’ble Madras High Court, which is binding on the Tribunal. In view of the above, we sustain the order of the ld. CIT(A) in deleting the addition and thus, the ground raised by the Revenue is dismissed.
In the result, both the appeals filed by the Revenue as well as assessee are dismissed. Order pronounced on the 20th November, 2018 at Chennai.