2014 (10) TMI 796 - AT - Income Tax

Interpretation of section 43B Interest on service tax outstanding Held that - The object of section 43B of the Act is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of tax or duty, for a long period but claim deduction from the income on the ground that the liability to pay this amount incurred by them in the relevant previous year, the interest payable to service tax is also a tax and the provisions of section 43B of the Act are very much applicable thereto Relying upon Mewar Motors Versus Commissioner of Income-Tax 2002 (9) TMI 51 - RAJASTHAN High Court - interest payable to the sales tax department is also tax and the provisions of section 43B of the Act are applicable as the payment of due service tax is a statutory liability - interest payable on the delayed payment of due service tax cannot be treated as different from the payment of service tax by the assesee thus, the provisions of section 43B are applicable on non-payment of interest on the delayed payment of due service tax - The authorities have rightly disallowed the amount as interest on service tax outstanding under the provisions of section 43B of the Act Decided against assessee. Addition u/s 40(a)(ia) - Amount outstanding as on the close of the year paid and evidence furnished Held that - While deciding the issue the CIT(A) has not specifically addressed the contention of the assessee that with the document in support that whatever amount of TDS was due on 31.3.2009 was duly paid before the due date of filing the return u/s 139 (i) of the Act thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of assessee. Addition u/s 14A - Applicability of Rule 8D - Expenses on dividend income Proper application of mind or not Held that - Rule 8D of the I.T. Rules 1962 is applicable in the assessment year under consideration relying upon Maxopp Investment Ltd. VS. CIT 2011 (11) TMI 267 - Delhi High Court - during the year the assesse had disposed some investments - The company had also taken loans from bank and other to the extent of ₹ 22,65,18,740 - The assessee however could not demonstrate by way of any evidence that none of the loan funds have been used for making investments - the AO has rightly come to the conclusion that the carrying cost of investments in terms of interest paid on loan funds to the extent of investments cannot be denied - Thus by invoking the provisions of section 14A of the Act the expenditure to disallow in the manner provided under Rule 8 D of the I.T. Act 1962 is rightly computed thus, the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues Involved:
1. Confirmation of additions made by the AO.
2. Misinterpretation of section 43B of the Income Tax Act, 1961, and disallowance of Rs. 36,61,123/- as interest on service tax.
3. Addition of Rs. 5,05,000/- under section 40(a)(ia) of the Income Tax Act, 1961.
4. Addition of Rs. 6,09,577/- under section 14A of the Income Tax Act, 1961 as expenses to earn dividend income.

Issue-wise Detailed Analysis:

Issue 1: Confirmation of Additions Made by the AO
The first ground raised by the assessee was deemed general and did not require independent adjudication.

Issue 2: Misinterpretation of Section 43B and Disallowance of Rs. 36,61,123/- as Interest on Service Tax
The AO disallowed the deduction of Rs. 36,61,123/- on account of interest on service tax under section 43B(a) of the Income Tax Act, 1961, as it was not paid before the due date of filing the return. The assessee argued that interest on service tax is outside the purview of section 43B, citing decisions from the Hon'ble Jurisdictional Delhi High Court and Gujarat High Court. The AO and CIT(A) upheld the disallowance, referencing the decision of the Hon'ble Supreme Court in the case of Mahalaxshmi Sugar Mills Company vs. CIT and other relevant case laws. The Tribunal found that the interest on service tax is indeed a statutory liability and falls under the purview of section 43B, thereby upholding the disallowance.

Issue 3: Addition of Rs. 5,05,000/- under Section 40(a)(ia)
The AO found that TDS on certain payments, though deducted, was not paid to the Central Government by the due date for filing the return. Consequently, Rs. 5,05,000/- was disallowed under section 40(a)(ia). The assessee contended that the TDS was paid before the due date of filing the return, but this was not considered by the CIT(A). The Tribunal set aside the matter to the AO for verification of the assessee's claim that the TDS was paid before the due date of filing the return, thus allowing the ground for statistical purposes.

Issue 4: Addition of Rs. 6,09,577/- under Section 14A
The AO noted that the assessee had investments in equity shares/mutual funds but had not made any disallowance for expenses related to exempt income. The AO disallowed Rs. 6,09,577/- under section 14A read with Rule 8D. The assessee argued that no expenses were incurred for earning the dividend income and that the disallowance was excessive. The Tribunal, referencing the Hon'ble Jurisdictional High Court's decision in Maxopp Investment Ltd. vs. CIT, upheld the AO's application of Rule 8D, finding that the assessee could not demonstrate that loan funds were not used for investments. Thus, the disallowance was upheld.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the disallowance under section 43B and section 14A, while remanding the issue under section 40(a)(ia) for verification. The order was pronounced in the open court on January 29, 2014.