2016 (2) TMI 1305 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D - whether disallowance u/s 14A can exceed exempt income or not? - HELD THAT - Hon ble Delhi High Court in the case of Joint Investment Pvt. Ltd 2015 (3) TMI 155 - DELHI HIGH COURT has held that disallowance u/s 14A rwr Rule 8D cannot exceed the entire tax exempt income. Respectfully following the decision of Hon ble Delhi High Court the disallowance is required to be restricted to ₹ 1,65,492/- only. However, as the assessee on its own has made disallowance in the return of income, we restrict the disallowance as made by the assessee own its own. In view of this ground No.1 of the appeal is allowed reversing the order of the learned Commissioner of Income-tax (Appeals) and disallowance of ₹ 16,24,198/- is directed to be deleted. The appeal of the assessee is partly allowed. Disallowance of Provident Fund - assessee has deposited employer s contribution to the Provident Fund towards where the PF trust has made investments which are not permitted. AO did not considered this trust as recognized Provident Funds under Income Tax Act - HELD THAT - This issue is taken up by the assessee before the learned Commissioner of Income-tax (Appeals) who in turn deleted the addition stating that since the trust is already registered and learned Commissioner of Income-tax has not revoked the registration of the trust , AO is not empowered to treat it as unrecognized fund. Further CIT (A) has also recorded finding that the matter is already decided in favour of the appellant by the orders of coordinate bench for Assessment Year 2003-04 to 2007-08 dealing identical issue in favour of the assessee and the appeal of the revenue is also dismissed by Hon ble Delhi High Court. In para 5.4 of the order of ld CIT(A) he has dealt this disallowance. Ld. DR could not point out any infirmity in the same and therefore we confirm the order of CIT (A) in deleting the disallowance on account of employers fund contribution made by the assessee to the recognized fund. ground No.1 of the appeal of the revenue is dismissed. Disallowance as prior period expenses - assessee while computed the income under normal computation mechanism has added this, However it was not added while calculating the book profit tax u/s 115JB - HELD THAT - Commissioner of Income-tax (Appeals) has dealt with this issue vide para No.5.6 of his order and he followed decision of Hon ble Delhi High Court in the case of Khaitan Chemical and Fertilizers 2008 (9) TMI 89 - DELHI HIGH COURT where in the addition is deleted holding that there is no such adjustment required to be done according to the provision of section 115JB on account of prior period expenditure. We do not find any infirmity in the order of ld CIT(A), none has been pointed out by the ld DR. In view of this we confirm the order of LD CIT (A) in deleting the addition of prior period expenditure while computing book profit tax u/s 115JB of the Act.

Summary

Issues:
1. Disallowance of interest under section 14A of the Income Tax Act and Rule 8D.
2. Disallowance of loss on account of forward cover.
3. Disallowance of interest on late payment of TDS.
4. Disallowance of Provident Fund contribution.
5. Disallowance under section 14A read with Rule 8D.
6. Disallowance of prior period expenses while calculating MAT.

Issue 1 - Disallowance of interest under section 14A of the Income Tax Act and Rule 8D:
The appeal involved the disallowance of interest under section 14A of the Income Tax Act. The assessee contended that the disallowance should not exceed the exempt income. The Hon'ble Delhi High Court's decision in Joint Investment Pvt. Ltd Vs. CIT clarified that disallowance under Rule 8D cannot exceed the entire tax-exempt income. As the assessee had voluntarily disallowed a higher amount, the Tribunal restricted the disallowance to the self-imposed amount, overturning the CIT(A)'s order.

Issue 2 - Disallowance of loss on account of forward cover:
The assessee withdrew the appeal regarding the non-allowance of loss on account of forward cover, leading to the dismissal of this ground.

Issue 3 - Disallowance of interest on late payment of TDS:
The Tribunal did not delve into this issue in detail in the judgment.

Issue 4 - Disallowance of Provident Fund contribution:
The revenue appealed against the deletion of the addition of Provident Fund contribution. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, citing that the PF trust was recognized and not revoked by the CIT, following a precedent where the issue was decided in favor of the assessee.

Issue 5 - Disallowance under section 14A read with Rule 8D:
The revenue appealed against the deletion of disallowance under section 14A. The Tribunal confirmed the CIT(A)'s decision based on the earlier ruling regarding the restriction of disallowance to not exceed the exempt income.

Issue 6 - Disallowance of prior period expenses while calculating MAT:
The revenue contested the deletion of disallowance of prior period expenses. The Tribunal upheld the CIT(A)'s decision, relying on the precedent set by the Hon'ble Delhi High Court in a similar case, where the addition was deemed unnecessary while calculating book profit tax under section 115JB of the Act.

In conclusion, the Tribunal partially allowed the assessee's appeal regarding the disallowance of interest under section 14A, dismissed the appeal on the forward cover loss issue, and upheld the CIT(A)'s decisions on the Provident Fund contribution, disallowance under section 14A, and prior period expenses while calculating MAT. The revenue's appeal was dismissed in its entirety.