2018 (11) TMI 1785 - AT - Income Tax

Disallowance u/s 14A - assessee challenged disallowance under section 14A of the Act r.w. Rule 8D - HELD THAT - 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. In a recent judgement in the case of Maxopp Investment Ltd. Ors 2018 (3) TMI 805 - SUPREME COURT 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. 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. Additon made on account of employees contribution to ESI PF - AO treated the delayed payments representing employees contribution towards PF/ESI as income of the assessee and brought to tax under section 2(24)(x) r.w.s. 36(1)(va) - HELD THAT - 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. 2015 (7) TMI 1063 - MADRAS HIGH COURT 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. We sustain the order of the ld. CIT(A) in deleting the addition - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Employees' contribution to ESI & PF.

Issue 1: Disallowance under section 14A of the Income Tax Act
The appeals were cross appeals by the Revenue and the assessee against the order of the Commissioner of Income Tax (Appeals) relevant to the assessment year 2012-13. The Revenue challenged the restriction of disallowance under section 14A, while the assessee challenged disallowance under section 14A r.w. Rule 8D. The Revenue argued for disallowance even if no exempt income was earned, citing a CBDT Circular. The assessee contended that no disallowance was warranted as no expenditure was incurred for earning dividend income. The Assessing Officer disallowed expenditure under section 14A r.w. Rule 8D, but the Commissioner restricted the disallowance to the extent of exempt income earned by the assessee. The Tribunal upheld the Commissioner's decision, citing a recent Supreme Court judgment confirming the view of restricting disallowance to the quantum of exempt income. The Revenue's ground was dismissed, and the assessee's ground was also dismissed based on the Supreme Court's observation.

Issue 2: Employees' contribution to ESI & PF
The Revenue raised a ground regarding the addition made on account of employees' contribution to ESI & PF. The Assessing Officer treated delayed payments as income of the assessee, but the Commissioner deleted the addition based on the assessee's submissions and a decision of the Madras High Court. The Tribunal noted that the impugned amount was paid before the due date for filing the income tax return, as required by law. Courts held that no deemed addition can be made if the amount is paid before the due date. The Tribunal upheld the Commissioner's decision to delete the addition, dismissing the Revenue's ground. Consequently, both appeals by the Revenue and the assessee were dismissed.

In conclusion, the Tribunal's decision in the judgment addressed the issues of disallowance under section 14A of the Income Tax Act and employees' contribution to ESI & PF, providing detailed analysis and citing relevant legal precedents to support the dismissal of the appeals filed by both parties.