2016 (6) TMI 1428 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - disallowance towards expenditure for earning exempt income - HELD THAT - In view of the decision of Joint Investments Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT we held that the Assessing Officer cannot make excessive disallowance under section 14A of the Act over and above the exempt income earned by the assessee and directed the Assessing Officer to restrict the disallowance to the extent of exempt income earned by the assessee. Thus, the ground raised by the Revenue is liable to be dismissed and dismissed accordingly. Application of second proviso to section 40(a)(ia) - Retrospective or prospective effect - Scope of legislative amendments - Diversified views - HELD THAT - As per Ansal Landmark Township Pvt. Ltd. v. Addl. CIT 2014 (9) TMI 194 - ITAT DELHI as subsequently confirmed by the Hon ble Delhi High Court in 2015 (9) TMI 79 - DELHI HIGH COURT second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005. During the course of hearing, the ld. DR has relied on the decision in the case of Prudential Logistics and Transports 2015 (2) TMI 847 - KERALA HIGH COURT wherein the Hon ble Kerala High Court has taken a view that the application of second proviso to section 40(a)(ia) of the Act is only prospective. Since there exists two contradictory decisions, we are of the considered opinion that the Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT has held that the decision favourable to the assessee have to be acted upon. Thus, respectfully following the decision of the Agra Benches of the Tribunal in the case of Rajeev Kumar Agarwal 2014 (6) TMI 79 - ITAT AGRA which was duly affirmed by the Delhi Benches of the Tribunal in the case of Ansal Landmark Township Pvt. Ltd. v. Addl.CIT(supra) and subsequently confirmed by the Hon ble Delhi High Court, we find no infirmity in the order passed by the ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed.

Issues Involved:
1. Confirmation of disallowance under section 14A of the Income Tax Act.
2. Condonation of delay in filing the appeal by the Revenue.
3. Allowance of expenses as a deduction under section 40(a)(ia) of the Income Tax Act for the assessment year 2010-11.
4. Confirmation of disallowance under section 40(a)(ia) of the Income Tax Act for the assessment year 2011-12.

Issue-wise Detailed Analysis:

1. Confirmation of disallowance under section 14A of the Income Tax Act:
The assessee, engaged in trading shares and financing, did not file its return of income for the assessment year 2010-11 within the due dates. A survey operation was conducted, and a notice under section 148 was issued. The assessee filed its return declaring a total income of ?17,41,68,463/-. The Assessing Officer (AO) observed that the assessee earned exempt dividend income of ?18,960/- but did not admit any expenses incurred towards earning this income. Invoking section 14A r.w. Rule 8D, the AO disallowed ?16,08,075/-. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] reworked the disallowance to ?54,824/-. The Tribunal referred to the Delhi High Court decision in Joint Investments Pvt. Ltd. v. CIT, which held that disallowance under section 14A cannot exceed the exempt income earned. Consequently, the Tribunal restricted the disallowance to the extent of the exempt income earned by the assessee.

2. Condonation of delay in filing the appeal by the Revenue:
The Revenue's appeal for the assessment year 2010-11 was filed late by two days. The Department did not initially file a petition for condonation of delay. During the hearing, the Department requested condonation, and the assessee did not object. Consequently, the Tribunal admitted the appeal for hearing.

3. Allowance of expenses as a deduction under section 40(a)(ia) of the Income Tax Act for the assessment year 2010-11:
The assessee claimed a deduction of ?31 crores as interest payable to UB Ltd., which was disallowed by the AO for non-deduction of TDS. The CIT(A) directed the AO to allow the deduction, considering the second proviso to section 40(a)(ia), which deems TDS as deducted and paid if the deductee has filed a return of income. The Tribunal upheld this decision, citing the Agra Bench's ruling in Rajeev Kumar Agarwal v. Addl. CIT, which established that the second proviso to section 40(a)(ia) is curative and retrospective. The Tribunal dismissed the Revenue's appeal, affirming that the assessee should not be penalized when the deductee has paid the tax.

4. Confirmation of disallowance under section 40(a)(ia) of the Income Tax Act for the assessment year 2011-12:
For the assessment year 2011-12, the assessee's appeal involved a similar issue of disallowance under section 40(a)(ia) for ?31 crores. The dispute was that the deductee, M/s. United Breweries Ltd., filed its return two months late. The Tribunal held that since there was no revenue loss to the Government and the tax was paid by the deductee, the assessee should not be penalized for the delay. The Tribunal directed the AO to allow the claim of the assessee, reversing the findings of the lower authorities.

Conclusion:
The Tribunal partly allowed the assessee's appeal for the assessment year 2010-11, dismissed the Revenue's appeal for the same year, and allowed the assessee's appeal for the assessment year 2011-12. The order was pronounced on June 21, 2016, in Chennai.

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