2014 (5) TMI 1030 - AT - Income Tax

Disallowance of employees' contribution to provident fund and ESI - assessee could not furnish the approval for deduction u/s 35(2AB) - Held that - If the claim of the assessee u/s 35(2AB) is allowed, then the assessee may not be eligible for further deduction u/s 35(1) of the Act. In this case, the claim of the assessee u/s 35(2AB) was not allowed. Therefore, the provisions contained in section 35(2AB) may not prevent the assessing officer to consider the claim of the assessee u/s 35(1) of the Act. Hence, in exercise of the appellate powers of this Tribunal, the alternative claim of the assessee u/s 35(1) of the Act is remanded back to the file of the assessing officer. The assessing officer shall consider the claim of the assessee u/s 35(1) and decide the same in accordance with law after giving reasonable opportunity of hearing to the assessee. - Decided against Revenue. Disallowance u/s 14A - assessee has not apportioned any expenditure towards this investment and earning of income therefrom - Held that - even though no expenditure was incurred by the assessee, the Income-tax rules provide for computation of expenditure with regard to the investment made for earning exempted income. The earning of income or actual incurring of expenditure is immaterial for application of Rule 8D of the IT Rules. Therefore, this Tribunal cannot appreciate the contention of the assessee that there was no expenditure claimed. Rule 8D would come into operation irrespective of the claim of the assessee for expenditure. Therefore, this Tribunal do not find any infirmity in the order of the lower authorities. - Decided in favour of Revenue.

Summary

Issues:
1. Disallowance of employees' contribution to provident fund and ESI.
2. Claim of weighted deduction on scientific research under section 35(2AB) of the Act.
3. Disallowance under section 14A of the Act.

Issue 1: Disallowance of employees' contribution to provident fund and ESI:
The Appellate Tribunal heard the appeals filed by both the revenue and the assessee against the order of CIT(A)-II for the assessment year 2010-11. The revenue's appeal focused on the disallowance of employees' contribution to provident fund and ESI. The Tribunal upheld the CIT(A)'s decision, citing the Apex Court's judgment in CIT v. Vinay Cements Ltd. The Tribunal noted that all payments made before the due date for filing the return of income under section 139(1) should be allowed as deductions, including employees' and employer's contributions to provident fund and ESI.

Issue 2: Claim of weighted deduction on scientific research under section 35(2AB) of the Act:
The assessee claimed a weighted deduction of 150% on expenditure for scientific research under section 35(2AB) of the Act, with an alternative claim for a normal deduction under section 35(1). The assessing officer disallowed both claims as the assessee failed to provide approval for the deduction under section 35(2AB). The Tribunal observed that the assessing officer's power to consider alternative claims is limited to those made in the return or a revised return. The Tribunal remanded the alternative claim under section 35(1) back to the assessing officer for reconsideration, emphasizing that the disallowance under section 35(2AB) did not preclude the consideration of the claim under section 35(1).

Issue 3: Disallowance under section 14A of the Act:
The assessee raised a ground regarding the disallowance under section 14A of the Act amounting to Rs. 4,11,739. The assessing officer disallowed this amount based on Rule 8D of the Income-tax Rules, 1962, as the assessee did not allocate any expenditure towards investments in shares. The Tribunal upheld the disallowance, stating that Rule 8D mandates the computation of expenditure even if no expenditure was claimed by the assessee. The Tribunal emphasized that Rule 8D applies regardless of actual expenditure incurred, focusing on the investment made for earning exempted income. Thus, the disallowance under section 14A was confirmed.

In conclusion, the Appellate Tribunal dismissed the revenue's appeal while partly allowing the assessee's appeal. The Tribunal confirmed the disallowance under section 14A of the Act but remanded the alternative claim under section 35(1) back to the assessing officer for further consideration.