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2018 (5) TMI 2081 - AT - Income TaxDisallowance u/s.40(a)(ia) - payment of Bank Guarantee Charges on the ground that tax at source has not been deducted by making such payment to the schedule bank - Retrospectivity of the second proviso to Section 40(a) (ia) - to remove the rigours of deduction of TDS on the various kinds of payment to Scheduled banks, CBDT had issued a notification no. 56/2012 dated 31.12.2012 - HELD THAT - Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT in the context of second proviso to Section 40(a)(ia) has held that if the newly inserted provision has been introduced to remove the hardship, then it is in the nature of declaratory and curative, hence same has to be given retrospective effect. The CBDT circulars clarifying the statutory provisions acts as Contemporanea Expositio while interpreting the said provision in the statute and such an exposition to remove the hardships and rigours has to be reckoned retrospectively. Thus, we hold that such a notification issued by the CBDT is not only curative and declaratory but also shows the intention of the Government that payment of bank guarantee commission etc. to the schedule bank, no TDS provisions should be applicable, and therefore, such notification would apply even prior to 1st day of January, 2013 - assessee has already filed certificates from all the Schedule Banks that the bank guarantee commission received has been offered as income on which due taxes has been paid, therefore, in view of second proviso to Section 40(a)(ia) which has been held to be applicable retrospectively by the Hon ble Jurisdictional High Court in Ansal Land Mark Township (supra), no disallowance u/s.40(a)(ia) can be made. Addition of expenditure paid to various organisation towards sales promotion and advertisement, holding it to be expenses in the nature of Corporate Social Responsibility - HELD THAT - The assessee being a public sector undertaking and is governed by Ministry of Urban and Development and is also guided by the Office Memorandum issued by the Department of Public Enterprises. The expenditure incurred in pursuance of any guidelines or office memorandum, however has to be seen from the perspective of, whether there was any commercial expediency in making such payment or not; and if the payment is to be made to any other department or organization for advertisement or sales promotion, then whether assessee s name and publicity in such advertisement is appearing or not needs to be verified. Accordingly, we restore this matter to the file of the Assessing Officer to see whether for incurring such an expenditure given to various departments or organization for advertisement and sales promotion purpose or publicity, the name of Assessee Corporation is appearing in such advertisement and publicity/ or is for commercial expediency. With these directions, we restore this issue to the file of the Assessing Officer for fresh adjudication. Thus, the grounds raised by the assessee are partly allowed for statistical purposes. Disallowance u/s 14A r.w.r.8D - HELD THAT - We find that AO has made disallowance under Rule 8D (2)(ii) of interest which ostensibly could not have been made for the reason that assessee has not taken any secured or unsecured loan for making any investment and; secondly, the interest expenditure debited is on account of delayed payment made to the contractors. Thus, there could not have been any question of disallowance of interest under Rule 8D (2)(ii). Indirect expenditure - To invoke Rule 8D, it is sine qua non that Assessing Officer must record his satisfaction having regard to the nature of expenditure debited in accounts maintained so as to see whether any expenditure has been incurred which could be said to be attributable for earning of exempt expenditure. AO here has not applied his mind which is evident from the fact that he has even proceeded to disallow interest expenditure when there is no secured or unsecured loan or borrowed funds in the balance sheet. Further, how the joint venture investment made in the JVs is capable of earning exempt income has not been examined AO - Recording of such satisfaction upon the claim made by the assessee is mandatory as held by Jurisdictional High Court in the case of H.T. Media Ltd. vs. Pr. CIT. 2017 (8) TMI 962 - DELHI HIGH COURT and failure on part of the AO to comply with section 14(2) read with Rule 8D(1)(a), disallowance cannot be made. Thus, we hold that in absence of mandatory requirement of Section 14A (2), AO could not have applied Rule 8D, and therefore, disallowance made by the Assessing Officer cannot be sustained. Hence, ground no.1 raised by the Revenue is dismissed. Addition u/s 80IA - HELD THAT - We find that ld. CIT (A) has mainly directed the Assessing Officer to verify the condition specified in Section 80IA and allow the same to the assessee. Even if such a claim has been made by the assessee at the appellate stage, then ld. CIT (A) is well within his jurisdiction and power to entertain such a plea and decide in accordance with law. Hon'ble Supreme Court in the case of Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT as referred in the grounds of appeal by the Revenue itself lays down that such a power to entertainment the claim does not impinge upon the ld. CIT(A). Thus, we do not find any infirmity in such a direction by the ld. CIT (A) and same is affirmed. Accordingly, the ground raised by the Revenue is dismissed.
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on bank guarantee charges. 2. Disallowance of community development and welfare expenses. 3. Disallowance under Section 14A for earning exempt income. 4. Direction to verify conditions for Section 80IA deduction. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on bank guarantee charges: The assessee, a Public Sector undertaking, claimed ?88,88,542/- as deductible expenditure under 'Bank Charges and Guarantee Commission'. The Assessing Officer disallowed this amount, arguing that no TDS was deducted and the CBDT notification exempting such deductions was only effective from January 1, 2013. The CIT (A) confirmed this disallowance. However, the Tribunal found that similar payments had been allowed in previous years without TDS and cited various Tribunal decisions supporting the non-requirement of TDS on bank guarantee commissions. The Tribunal held that the CBDT notification, being clarificatory, should apply retrospectively, and since the banks had declared the commissions as income and paid taxes, no disallowance under Section 40(a)(ia) should be made. Consequently, the ground raised by the assessee was allowed. 2. Disallowance of community development and welfare expenses: The assessee incurred ?1,72,23,000/- for sales promotion and advertisement, which the Assessing Officer disallowed, considering it as Corporate Social Responsibility (CSR) expenses. The CIT (A) upheld this disallowance, citing a lack of commercial expediency and Explanation 2 to Section 37(1), which disallows CSR expenses from April 1, 2015. The Tribunal noted that the Explanation 2 could not be applied retrospectively to the Assessment Year 2011-12. It directed the Assessing Officer to verify if the expenses were for advertisement and sales promotion, ensuring the assessee’s name appeared in such promotions, indicating commercial expediency. The issue was restored to the Assessing Officer for fresh adjudication, thus partly allowing the assessee's grounds for statistical purposes. 3. Disallowance under Section 14A for earning exempt income: The Assessing Officer made a disallowance of ?1,33,72,000/- under Section 14A read with Rule 8D, reducing it by the assessee's self-disallowed amount, resulting in an additional disallowance of ?59,96,572/-. The CIT (A) deleted this disallowance, noting the absence of interest-bearing borrowed funds and the lack of exempt income from joint ventures. The Tribunal upheld the CIT (A)'s decision, emphasizing that the Assessing Officer failed to record satisfaction regarding the nature of accounts and expenditure, a mandatory requirement under Section 14A(2). Therefore, the Tribunal dismissed the Revenue's ground on this issue. 4. Direction to verify conditions for Section 80IA deduction: The CIT (A) directed the Assessing Officer to verify the conditions specified in Section 80IA and allow the deduction if met. The Revenue contended this direction, referencing the Supreme Court's decision in Goetze (India) Ltd. However, the Tribunal affirmed that the CIT (A) has the jurisdiction to entertain such claims and direct verification. Therefore, the Tribunal dismissed the Revenue's ground on this issue. Conclusion: The Tribunal allowed the assessee's appeal partly, specifically on the disallowance under Section 40(a)(ia) and remanded the community development expenses issue for fresh adjudication. The Tribunal dismissed the Revenue's appeal on the disallowance under Section 14A and the direction for Section 80IA verification. The order was pronounced on May 14, 2018.
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