2012 (3) TMI 585 - AT - Income Tax

Provision made for leave encashment in the current assessment year on the basis of actuarial valuation - Held that - Restore the matter back to the file of Assessing Officer for adjudication as per the decision of Hon ble Apex Court in the case of M/s. Exide Industries Ltd. (2009 (5) TMI 894 - SUPREME COURT). This ground of appeal of assessee is allowed for statistical purposes. Disallowance u/s. 14A - Held that - We restrict the disallowance u/s. 14A of the Act to 1% of total exempt income and direct the Assessing Officer to work out the quantum of disallowance accordingly. This ground of appeal of assessee is allowed.

Summary

Issues:
1. Disallowance of provision made for leave encashment.
2. Disallowance under section 14A of the Income Tax Act.

Issue 1: Disallowance of provision made for leave encashment:
The appeal concerned the disallowance of a provision made for leave encashment by the assessee. The assessee argued that the issue was covered in their favor by a previous order of a co-ordinate Bench of the Tribunal in their own case for the Assessment Year 2006-07 and 2007-08. The Tribunal cited similar cases and directed that the matter be restored to the file of the Assessing Officer to decide in accordance with the decision of the Hon'ble Apex Court in a specific case. Following the precedent, the Tribunal set aside the orders of the authorities below and restored the matter back to the Assessing Officer for adjudication as per the decision of the Hon'ble Apex Court. Consequently, the ground of appeal of the assessee was allowed for statistical purposes.

Issue 2: Disallowance under section 14A of the Income Tax Act:
The second issue revolved around the disallowance under section 14A of the Income Tax Act. The assessee had earned tax-free dividend income and added back a sum as estimated expenditure incurred on earning such income. However, the Assessing Officer did not accept this estimation and computed the expenditure differently, leading to a dispute. The Tribunal referred to a judgment by the Hon'ble Bombay High Court regarding the applicability of Rule 8D of the Rules as prospective from a specific assessment year. Citing previous Tribunal decisions on similar matters, the Tribunal directed that the disallowance under section 14A should be restricted to 1% of the dividend income. Consequently, the disallowance was limited to 1% of the total exempt income, and the Assessing Officer was instructed to calculate the disallowance accordingly. The ground of appeal of the assessee was allowed in this regard.

In conclusion, the Appellate Tribunal ITAT Kolkata addressed two main issues in the judgment. The first issue involved the disallowance of a provision for leave encashment, which was resolved by following precedent cases and directing the matter back to the Assessing Officer for further adjudication. The second issue pertained to the disallowance under section 14A of the Income Tax Act, where the Tribunal restricted the disallowance to 1% of the total exempt income based on relevant legal principles and previous Tribunal decisions. The appeal of the assessee was partly allowed in both instances for statistical purposes.