2022 (11) TMI 1403 - AT - Income Tax

Disallowances u/s 14A r.w.r. 8D - Expenditure incurred on earning exempt income - HELD THAT - This is a settled principle of law that where there is no exempt income no disallowance under section 14A of the Act is permissible. This issue has been decided in favour of the assessee by ERA Infrastructure (India) Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT We are of the considered view that disallowance made by the AO and confirmed by the Ld. CIT(A) over and above the suo-moto disallowance made by the assessee is not sustainable in the eyes of law in all the aforesaid appeals and as such ordered to be deleted. MAT computation for disallowance u/s 14A - HELD THAT - AO while computing the book profit under section 115JB of the Act has also considered disallowance of expenses made under section 14A of the Act which is not in consonance with the order passed by Special Bench of Delhi Tribunal in case of Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI AO can only consider the amount of disallowance made by the assessee under section 14A qua the exempt income earned during the years under consideration under section 115JB of the Act. In other words disallowance made under section 14A under the normal provisions of the Act can only be considered for computing book profit under section 115JB of the Act. This issue was also decided in favour of the assessee in its own case in A.Y. 2012-13, 2013-14 2014-15 by the Tribunal. So the AO is to verify the facts if the disallowance made by the assessee under section 14A under the normal provisions of the Act is considered while computing the book profit under section 115JB of the Act. However, the disallowance made by the AO by invoking the provisions contained under section 14A read with rule 8D while computing the book profit under section 115JB of the Act is not sustainable in the eyes of law, hence ordered to be deleted. Short TDS credit - case of the assessee that because of delay in deposit/non deposit of the TDS by the deductor the assessee failed to take the benefit of TDS as the same is not reflected in 26AS AND and relied upon the memo dated 11.03.2016 issued by the CBDT which says that, in case the deductor fails to deposit TDS amount to the government account the deductee shall not be called upon to pay the payment to the extent tax has been deducted from his account. - HELD THAT - The assessee cannot be deprived of taking credit of TDS already deducted. So this issue is remanded back to the AO for the purpose of verification of the TDS amount that has been deducted but not reflected in 26AS statement of the assessee and give the credit to the assessee accordingly.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961 (Act) read with Rule 8D of the Income Tax Rules, 1962 (Rules).
2. Computation of book profit under Section 115JB of the Act.
3. Credit of Tax Deducted at Source (TDS).

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The appellants challenged the disallowance made by the Assessing Officer (AO) under Section 14A of the Act, arguing that the AO did not record valid dissatisfaction with the correctness of the claim made by the appellants regarding their books of accounts. The AO disallowed the entire investment instead of only those investments which earned exempt income. The Tribunal noted that the AO recorded generic observations without verifying the correctness of the claim made by the appellants, which is not permissible under law. The Tribunal referenced the Hon'ble Bombay High Court and Supreme Court rulings that emphasized the necessity of recording dissatisfaction based on the accounts submitted by the assessee before applying Rule 8D. The Tribunal concluded that the disallowance made by the AO and confirmed by the CIT(A) was not sustainable and ordered it to be deleted.

2. Computation of book profit under Section 115JB:
The AO included the disallowance under Section 14A while computing the book profit under Section 115JB of the Act. The Tribunal held that this inclusion was not in consonance with the order passed by the Special Bench of Delhi Tribunal in the case of Vireet Investment. The Tribunal clarified that only the amount of disallowance made by the assessee under Section 14A for the exempt income earned during the years under consideration should be considered while computing book profit under Section 115JB. The Tribunal ordered the deletion of the disallowance made by the AO under Section 14A for computing book profit under Section 115JB.

3. Credit of Tax Deducted at Source (TDS):
The appellants contended that the AO erred in allowing TDS credit only for a part of the amount claimed, resulting in a shortfall. The Tribunal referred to a memo issued by the CBDT which states that if the deductor fails to deposit the TDS amount, the deductee should not be called upon to pay the tax to the extent it has been deducted. The Tribunal remanded the issue back to the AO for verification of the TDS amount deducted but not reflected in the 26AS statement and directed the AO to give credit accordingly.

Conclusion:
The Tribunal allowed all the appeals filed by the assessee, ordering the deletion of the disallowances made under Section 14A and confirming that only the disallowance made by the assessee should be considered while computing book profit under Section 115JB. The issue of TDS credit was remanded back to the AO for verification and appropriate credit.

Order Pronounced:
The order was pronounced in the open court on 30.11.2022.