2020 (3) TMI 1429 - AT - Income Tax

Disallowance u/s 14A read with rule 8D - As submitted by assessee disallowance u/s 14A applying Rule 8D was made by the AO by taking into consideration the entire investment made by the assessee in shares instead of taking only that investment in shares which had actually earned dividend income during the year under consideration - HELD THAT - Since this contention raised by the learned counsel for the assessee is duly supported by the decision of Hon ble Kolkata High Court in the case of REI Agro Ltd. 2013 (12) TMI 1517 - CALCUTTA HIGH COURT we direct the AO to re-compute the disallowance to be made by applying Rule 8D by taking into consideration only the investment made by the assessee in shares which actually fetched the exempt dividend income during the year under consideration. Ground No. 1 of the assessee s appeal is accordingly is thus partly allowed. Interest paid by the assessee on TDS - allowable deduction u/s 37(1) - HELD THAT - Thus issue is squarely covered in favour of the assessee by the decision of Mukand Ltd. vs ITO 2019 (1) TMI 1348 - ITAT MUMBAI wherein it was held that interest paid on delayed payment of TDS is allowable as deduction u/s 37(1) of the Act. Respectfully following the said decision of the coordinate bench of this Tribunal, we delete the disallowance made by the AO and confirmed by the Ld. CIT(A) on account of interest paid by the assessee on TDS and allow Ground No. 2 of assessee s appeal. Disallowance on account of entry tax liability - entry tax payable was not paid by the assessee before the date of filing of the return of income for the year under consideration. The same therefore was disallowed by him as per section 43B - HELD THAT - The limited relief that is sought by the learned counsel for the assessee on this issue is that the AO may be directed to allow the deduction on account of the amount of entry tax in question in the subsequent years on payment basis. We are unable to give such direction for the subsequent years which are not in appeal before us. However the assessee is at liberty to claim such deduction on payment basis in the relevant years and the AO shall consider the same in accordance with law. Ground No. 3 is accordingly dismissed.

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income Tax Act, 1961.
2. Deduction of interest paid on TDS under section 37(1) of the Act.
3. Disallowance of entry tax liability under section 43B of the Act.

Issue 1 - Disallowance of expenses under section 14A of the Income Tax Act, 1961:
The appellant, a company engaged in the dealership of passenger cars, filed an appeal against the disallowance of Rs. 1,56,289/- under section 14A of the Income Tax Act, 1961. The Assessing Officer applied Rule 8D to calculate the disallowance as the appellant had claimed exempt dividend income without proper supporting documentation. However, the appellant contended that the disallowance should only consider investments that earned dividend income, citing a decision of the Kolkata High Court. The tribunal allowed the appeal partly, directing the AO to re-compute the disallowance considering only investments that generated exempt dividend income during the relevant year.

Issue 2 - Deduction of interest paid on TDS under section 37(1) of the Act:
The second issue involved the addition of Rs. 14,405/- by the AO for interest paid by the appellant on TDS, which was confirmed by the CIT(A). The tribunal referred to a decision of the Mumbai Bench where it was held that interest paid on delayed TDS payment is deductible under section 37(1) of the Act. Following this precedent, the tribunal deleted the disallowance made by the AO and allowed the appellant's appeal on this ground.

Issue 3 - Disallowance of entry tax liability under section 43B of the Act:
Regarding the disallowance of Rs. 68,46,336/- on account of entry tax liability, the AO noted that the tax was unpaid before the filing of the return, leading to disallowance under section 43B. The CIT(A) upheld this disallowance as the appellant did not press the issue during the appeal. The tribunal dismissed the appellant's claim for allowing the deduction in subsequent years but granted liberty to claim the deduction on a payment basis in relevant years. Consequently, the tribunal partly allowed the appeal of the appellant.

In conclusion, the tribunal's judgment addressed the issues of disallowance of expenses under section 14A, deduction of interest paid on TDS under section 37(1), and disallowance of entry tax liability under section 43B of the Income Tax Act, 1961. The tribunal provided detailed reasoning for each issue, citing relevant legal provisions and precedents to arrive at its decision, ultimately partially allowing the appellant's appeal.