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2017 (7) TMI 1255 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - Held that - To workout the disallowance under Rule 8D the Assessing Officer has to first examine the accounts of the assessee and the correctness of the claim and then if having regard to such accounts and the claim he is not satisfied with either the correctness of the claim made by the assessee or made a claim that no expenditure at all has been incurred for the purpose of earning the exempt income then only he can resort to Rule 8D. In the present case AO has straightaway proceeded to apply Rule 8D for the purpose of disallowance under section 14A without satisfying or complying with the mandatory requirement of section 14A(2) or Rule 8D(1). Once the Assessing Officer has failed to comply the statutory requirement then he cannot proceed to make the disallowance under section 14A(1) of the Act and accordingly the disallowance made by the Assessing Officer is reduced to the extent of .2, 64, 14, 439/- as was voluntarily offered by the assessee. Hence the ground raised by the assessee is partly allowed. Addition u/s 14A - investments with regard to administrative and managerial activities - Held that - In the present assessment year it was stated to have made fresh investment of .20 crores which are also capable of earning dividend income as per the details under Note on issues and not admitted any expenses towards administrative and managerial. The Assessing Officer has not called for any specific explanation on the above facts. Under the above facts and circumstances we direct the assessee to work out the expenditure component towards administrative and managerial aspect and so that the same shall be disallowed in the computation of income of the assessee. Accordingly the ground raised by the assessee is partly allowed. Disallowance u/s 43B - employers contribution to other funds for which a provision is made but not completely paid and thus attracts disallowance - Held that - As assessee has submitted that the assessee itself has disallowed the expenditure in the computation of income and therefore he has pleaded that the Assessing Officer cannot make double disallowance which was already disallowed by the assessee we direct the Assessing Officer to verify as to whether the assessee has disallowed the employer s contribution to other fund/leave salary paid etc. in its account and if is found that the assessee has disallowed in its account the same cannot be again disallowed by the Assessing Officer. Disallowance of provision for enhanced compensation - Held that - As per trading account of the assessee filed before us vide cheque No. 139189 dated 29.03.2012 the assessee has made payment of .12, 500/- for the land acquired for PCP in Kattupalli Village. Similarly vide cheque No. 139189 dated 30.03.2012 and the assessee is stated to have made payment of .1, 4074, 027/- for the land acquired for PCP in Kattupalli Village. Since there is no possibility to issue one cheque on two different dates with different amounts the same need to be verified. Further no payment details are available with regard to the amount stated to have paid to Petrochem Park Project of .2, 11, 74, 945/- which required to be furnished by the assessee before the Assessing Officer for verification. If the above payments have been made by the assessee against the provisions for enhanced compensation the Assessing Officer is directed to allow the expenditure after verification of records which is subjected to the decision of the Tribunal on the issue of allowance of provision for enhanced compensation of .25.66 crores as was not allowed in the assessment year 2009-10 by the Assessing Officer and the same is under adjudication by the Coordinate Benches of the Tribunal. Hence the ground raised by the assessee is allowed for statistical purposes.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D. 2. Disallowance under Section 43B of the Income Tax Act. 3. Disallowance of provision for enhanced compensation. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D: Assessment Year 2011-12: The assessee, a State Government Corporation, filed its return declaring an income of ?19,78,00,330/-. The Assessing Officer (AO) disallowed ?14,82,23,866/- under Section 14A r.w. Rule 8D. The assessee argued that the investments were strategic and made in the course of promoting industries, thus not attracting Section 14A. The Tribunal noted that the AO failed to verify the voluntary expenditure declared by the assessee and directly applied Rule 8D without satisfying the mandatory requirement of Section 14A(2). The Tribunal found that the assessee had sufficient funds for investments and had not utilized borrowed funds. Hence, the disallowance was reduced to ?2,64,14,439/- as voluntarily offered by the assessee. Assessment Year 2012-13: The assessee earned a dividend income of ?38,76,11,013/- and had an investment portfolio valued at ?375,57,17,383/-. The AO disallowed ?14,34,85,389/- under Section 14A r.w. Rule 8D. The assessee contended that the investments were strategic and for promoting industries, not attracting Section 14A. The Tribunal observed that the assessee did not admit any expenditure for earning the exempt income in this year, despite making fresh investments of ?20 crores. The Tribunal directed the assessee to work out the expenditure component towards administrative and managerial aspects for disallowance. 2. Disallowance under Section 43B of the Income Tax Act: The AO disallowed ?20,91,312/- under Section 43B for unpaid employer’s contribution to other funds and leave salary. The assessee argued that these expenses were already disallowed in the computation of income, thus preventing double disallowance. The Tribunal directed the AO to verify and ensure that no double disallowance occurs, remitting the matter back to the AO for fresh consideration. 3. Disallowance of provision for enhanced compensation: The AO disallowed ?16,77,14,178/- as a provision for enhanced compensation, treating it as a non-actual expenditure. The assessee argued that this provision was made in earlier years and not claimed as a deduction for the current year. The Tribunal noted that the assessee made payments amounting to ?3,52,61,472/- during the year and directed the AO to verify these payments against the provision for enhanced compensation. The Tribunal allowed the ground for statistical purposes, subject to verification and the outcome of related appeals pending adjudication. Conclusion: The appeals were partly allowed, with specific directions for the AO to verify claims and ensure compliance with legal provisions. The Tribunal emphasized the need for proper verification and adherence to statutory requirements before making disallowances.
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