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2022 (8) TMI 1442 - AT - Income TaxDisallowance u/s.14A of the Act r.w.Rule 8D(2) - primary objection of the ld. AR is that the ld. AO directly resorted to proceed with computation provisions of Rule 8D without recording any objective satisfaction having regard to the accounts of the assessee in terms of Section 14A(2) - HELD THAT - We hold that the ld. AO had not recorded any objective satisfaction with cogent reasons having regard to the accounts of the assessee as to why the voluntary disallowance made by the assessee in the return of income is incorrect. In fact, we find that the assessee before the ld. AO had furnished a detailed written submission in this regard as to why the computation mechanism provided in Rule 8D(2) of the Rules would not be applicable by referring to each and every expenses debited in the profit and loss account and had also justified the basis of voluntary disallowance made by it in the return of income. Admittedly, AO had not recorded any objective satisfaction as to why the voluntary disallowance made by the assessee is incorrect before proceeding to apply computation mechanism in Rule 8D(2)(iii) of the Rules in the instant case. This issue is no longer res-integra in view of the decision of this Tribunal in assessee s own case 2022 (6) TMI 1119 - ITAT MUMBAI wherein this Tribunal had elaborately discussed the very same issue of disallowance u/s.14A of the Act made under identical circumstances and deleted the disallowance made by the lower authorities. We further find that this issue is also settled in the case of Maxopp Investments 2018 (3) TMI 805 - SUPREME COURT and Godrej Boyce Manufacturing Co. Ltd 2010 (8) TMI 77 - BOMBAY HIGH COURT It is also pertinent to note that this decision of the Hon ble Bombay High Court has been further affirmed by the Hon ble Supreme Court 2017 (9) TMI 1689 - SUPREME COURT Thus we direct the ld. AO to restrict the disallowance u/s.14A as suo moto under normal provisions of the Act. Disallowance of expenses u/s.14A while computing book profits u/s.115JB - We find that the Special Bench of Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI had categorically held that computation mechanism provided in Rule 8D(2) of the IT Rules cannot be imputed in Clause (f) of Explanation 1 to Section 115 JB (2) - the actual expenses incurred by the assessee for the purpose of earning exempt income had to be disallowed in terms of Clause (f) of Explanation 1 to Section 115JB (2) - The assessee had voluntarily disallowed the same at Rs.5,55,969/- under normal provisions of the Act u/s.14A of the Act. The same sum is to be disallowed while computing book profits u/s.115JB of the Act also. The computation of book profits u/s.115JB made by the assessee is not on record and hence, the ld. AO is directed to verify the fact as to whether has been disallowed by the assessee while computing book profits u/s.115JB of the Act. If it is so done then, no further disallowance is warranted. Benefit of carry forward of long term capital loss - HELD THAT - As gone through the entire income tax return form filed at the time of filing revised return. From the above narration, it could be seen that failure to reflect the long term capital loss figure in the schedule of carry forward of losses in the income tax return is purely not attributable to the assessee as it is an automatic pick of figure from Column B-9 in the IT return which is to be done by online system. So, this is purely a technical glitch in the income tax e-filing system, for which assessee could not be faulted. In fact, this was brought to the knowledge of ld. CIT(A) in the statement of facts itself. But the ld. CIT(A) had conveniently stated that assessee had not claimed this long term capital loss in the revised return which is factually incorrect as is evident from the above narration of facts. Thus direct the ld. AO to allow the benefit of carry forward of long term capital loss to subsequent years. Short TDS credit in respect of income offered by the assessee - HELD THAT - TDS credit should be granted to the assessee for the year in which income is offered. It is not in dispute that the income relatable to the TDS component of Rs.5,05,620/- has been duly offered by the assessee during the year under consideration. Hence, the assessee would be eligible for TDS credit of Rs.5,05,620/- in A.Y.2014-15 i.e. year under consideration. The ld. AO is directed accordingly. The ld. AO is further directed to ensure that assessee had not claimed this TDS credit of Rs.5,05,620/- in the A.Y.2015-16 based on form 26AS. This direction is given in order to protect the interest of the Revenue by not giving double credit of TDS to the assessee. Taxes deducted by four payers but the TDS was not remitted by the payers to the account of the Central Government - As merely because the deductor had not remitted the TDS to the account of the Central Government having deducted the taxes from the amounts due to the assessee, assessee cannot be deprived or denied of its legitimate credit. This is a clear case of default committed by the deductor against whom the department is entitled to take suitable action as per law. The assessee cannot be denied TDS credit for no fault of it. Revised claim made by the assessee during the course of assessment proceedings and the same was not claimed by way of a valid return of income cannot be entertained - Action of the AO in not computing short term or long term capital gain / loss submitted by the assessee during the assessment proceedings - We find that the decision of the Goetze India Ltd. 2006 (3) TMI 75 - SUPREME COURT clearly enables the appellate authorities to consider the claim made by the assessee even if it is not made by way of a valid return of income but claimed during the course of assessment proceedings. What is required to be seen is whether the claim of the assessee is legitimate or not? We further find that in the case of CIT vs. Pruthvi Brokers and Shareholders 2012 (7) TMI 158 - BOMBAY HIGH COURT had clearly considered this issue and had directed the ld. AO to grant deduction accordingly. Since, no finding on facts has been given by the lower authorities in this regard and since the workings of capital gains submitted by the assessee had not been verified by the ld. AO, we deem it fit and appropriate to remand this issue to the file of the ld. AO for denovo verification. If the workings submitted by the assessee is found to be correct, then the contention of the assessee is required to be accepted and total income of the assessee is to be re-computed accordingly as per law. The ground No.2 raised by the assessee is allowed for statistical purposes. Disallowing interest u/s.36(1)(iii) - assessee has given an amount as loan to employee welfare trust created for the welfare of the employees of the assessee admittedly interest free - AO held that the said loan is not meant for the purpose of business of the assessee and accordingly, proceeded to disallow proportionate interest u/s.36(1)(iii) - HELD THAT - We find that this loan was given in earlier year by the assessee. It is not the case of the Revenue that the said lending has been given out of borrowed funds of the assessee. When interest free loan has been given in earlier year and no disallowance of interest has been made in the year in which lending was made, that lending is deemed to have been accepted as meant for business purposes of the assessee. The said finding cannot be disturbed by the Revenue in the subsequent assessment years. Reliance in this regard has been rightly placed by the ld. AR on the decision of the Hon ble Karnataka High Court in the case of Sridev Enterprises 1991 (1) TMI 52 - KARNATAKA HIGH COURT . Hence, we have no hesitation in directing the ld. AO to delete the disallowance of interest made u/s.36(1)(iii) of the Act in the facts and circumstances of the instant case. Accordingly, the ground raised by the assessee is allowed. Disallowing the provision made for expenses on the ground that they represent unascertained liability - disallowance made while computing book profits u/s.115JB of the Act - HELD THAT - The consistent practice followed by the assessee is that the provisions as and when made as on 31st March of each year are being reversed on first April of the subsequent year by offering it to tax and the actual expenses based on the final invoice submitted by the vendor are booked as expenditure of that year. It is not in dispute that the reversal of provision for expenses made by the assessee in subsequent year has been accepted by the Revenue when income is being offered thereon. Similar practice has been followed by the assessee while making reversal of provision of earlier year expenses during the year under consideration by offering it to income, which fact is also accepted by the Revenue. In these circumstances, we have no hesitation to hold that provision for expenses which have been made based on an agreed contract or based on proforma invoice for which services had already been rendered to the assessee by the vendors, becomes a provision made on a realistic and rationale basis and cannot fall within the ambit of unascertained liability As relying on M/S. EDELCAP SECURITIES LIMITED 2021 (10) TMI 445 - ITAT MUMBAI we direct the ld. AO to allow the deduction for the said provision for expenses both under normal provisions as well as in the computation of book profits u/s.115JB of the Act. Accordingly, the ground Nos.3 4 raised by the assessee are allowed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Carry forward of long-term capital loss. 3. TDS credit. 4. Disallowance of interest under Section 36(1)(iii). 5. Provision for expenses and its treatment under normal provisions and Section 115JB. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The assessee challenged the disallowance made under Section 14A read with Rule 8D(2). The assessee, a SEBI-registered Merchant Banker and PMS provider, declared a dividend income of Rs. 46,24,88,738/- as exempt and made a suo-moto disallowance of Rs. 5,55,969/-. The AO disregarded this and made a disallowance of Rs. 13,91,31,681/- using the revised Rule 8D(2) mechanism effective from 02/06/2016. The CIT(A) directed the AO to recompute the disallowance as per the erstwhile provisions. The Tribunal found that the AO did not record any objective satisfaction for the disallowance and directed to restrict the disallowance to Rs. 5,55,969/- under normal provisions. For computing book profits under Section 115JB, the Tribunal referred to the Special Bench decision in Vireet Investments and directed the AO to verify the disallowance made by the assessee. 2. Carry Forward of Long-Term Capital Loss: The assessee claimed a long-term capital loss of Rs. 1,57,45,360/- in the original and revised returns. However, due to a technical glitch in the e-filing system, this was not reflected in the Schedule CFL. The AO concluded that the assessee had withdrawn the claim. The Tribunal found that the failure was not attributable to the assessee and directed the AO to allow the carry forward of the long-term capital loss. 3. TDS Credit: The assessee claimed a TDS credit of Rs. 11,53,97,902/-, but the AO allowed only Rs. 10,93,40,534/-, resulting in a short credit of Rs. 60,57,368/-. The Tribunal directed the AO to grant TDS credit of Rs. 5,05,620/- for the year under consideration, ensuring it was not claimed in the subsequent year. For the remaining TDS credit of Rs. 55,51,748/-, which was not remitted by the payers, the Tribunal restored the issue to the AO for verification and granting the credit if the income was offered during the year. 4. Disallowance of Interest under Section 36(1)(iii): The AO disallowed Rs. 20,04,27,101/- as proportionate interest on an interest-free loan given to an employee welfare trust. The assessee argued that the loan was for employee welfare, improving efficiency and productivity, and was funded from sufficient interest-free funds. The Tribunal, relying on the Jurisdictional High Court and Supreme Court precedents, held that the loan was for business purposes and directed the AO to delete the disallowance. 5. Provision for Expenses: The AO disallowed provision for expenses, treating it as an unascertained liability. The assessee provided detailed explanations and supporting documents, showing the provision was based on proforma invoices or contracts. The Tribunal found that the provision was made on a realistic and rational basis and directed the AO to allow the deduction under normal provisions and Section 115JB. The Tribunal also referred to a similar issue adjudicated in the case of a sister concern, where the provision was allowed. Conclusion: All the appeals of the assessee were partly allowed for statistical purposes, with specific directions to the AO for verification and recomputation as per the Tribunal's findings. The order was pronounced on 25/08/2022.
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