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2016 (12) TMI 750 - AT - Income TaxDisallowance u/s.14Aread with Rule 8D - Held that - We come to the finding that assessee on one hand is having sufficient interest free funds to meet the investments and secondly the major portion of exempt income at ₹ 18 lacs out of total exempt income at ₹ 1820.83 lacs is only out of dividend of Sayaji Sethness Ltd. and these investments were made way back in 1995-96 and 1996-97. In these facts we find that the judgment of Hon. Jurisdictional High Court in the case of Principal CIT vs. India Gelatine and Chemicals Ltd. (2015 (11) TMI 392 - GUJARAT HIGH COURT ) is squarely applicable to the assessee s case wherein Hon. Jurisdictional High Court has upheld the order of the Tribunal deleting the entire disallowance made by Assessing Officer on the ground that assessee had sufficient interest free funds out of which investment was made. Thus No disallowance out of the interest expenditure is to be made in the case of assessee u/s.14A. However, suo motu disallowance made by assessee at ₹ 20,000/- and 0.5% of average investment as recalculated at ₹ 64215/- by Assessing Officer ₹ 64215/- is sustained as disallowance u/s.14Aof the IT Act. Accordingly this ground of assessee is partly allowed. Disallowance u/s.14A made by the AO while, computing book profit u/s.115JB - Held that - As decided in assessee s own case for Asst. Year 2007-08 isallowance u/s.14Aof the Act has to be considered for calculating book profit u/s.115JBof the Act. Therefore, disallowance sustained by us in ground No. 2 above at ₹ 84215/- is to be added to arrive at the book profit u/s.115JBof the Act. Interest charged u/s.234C - Held that - Assessee is liable to pay interest u/s.234C only on the returned income where income is assessed as book profit u/s.115JB of the Act as the normal income is loss then not on the assessed income. Disallowance u/s 2(24)(x)r.w.s.36(1)(va) - delay in deposit of PF contribution - Held that - We observe from the facts placed before us that for Asst. Year 2009-10 assessee has deposited the PF contribution before the lapse of grace period i.e. 20th of the next month. Grace period is the time for 5 days which is given by PF Department to the employer for making the payment after the completion of due date of 15th. This fact is duly supported by annexure 5 to Tax Audit Report. Hon. Jurisdictional High Court in assessee s own case for Asst. Year 2005-06 and 2006-07 has held in favour of assessee by upholding the order of the Tribunal by observing that Tribunal was justified in deleting the disallowance made under the provisions of sec.36(1)(x)of the Act with regard to delayed employers contribution to P.F. - Decided in favour of assessee Disallowance on account of depreciation on flat - Held that - We find that the issue is squarely decided against the assessee for Asst. Year 2007-08 and even for the year under appeal assessee has been unable to place any record to demonstrate that the flat has been used for commercial purposes and not for residential use and also failed to provide any evidence that the building was exclusively used for business and not for the use of stay of directors and other employees. In the facts and circumstances of the case, we are of the view that assessee should be allowed depreciation @ 5% as against 10% claimed in the return of income. Accordingly, this ground of Revenue is allowed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Consideration of disallowance under Section 14A while computing book profit under Section 115JB. 3. Interest charged under Section 234C. 4. Disallowance of employees' contribution to PF under Section 2(24)(x) read with Section 36(1)(va). 5. Depreciation on flat. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The assessee challenged the disallowance sustained by the CIT(A) under Section 14A read with Rule 8D. The AR argued that the investments generating exempt income were made out of interest-free funds and cited various case laws, including CIT vs. UTI Bank Ltd. and CIT vs. Reliance Utilities and Power Ltd., to support the claim. The Tribunal noted that the investments were made in earlier years out of interest-free funds and cited the judgment of Principal CIT vs. India Gelatine and Chemicals Ltd., concluding that no disallowance of interest expenditure under Section 14A was warranted. However, the suo motu disallowance of ?20,000 and 0.5% of average investment recalculated at ?64,215 was sustained. 2. Consideration of Disallowance under Section 14A while Computing Book Profit under Section 115JB: The issue was whether the disallowance under Section 14A should be added to the book profit for MAT computation under Section 115JB. The AR conceded that the issue had been decided against the assessee in the previous year. The Tribunal, following the decision in the assessee's own case for A.Y. 2007-08, ruled that the disallowance under Section 14A must be considered for calculating book profit under Section 115JB. Therefore, the disallowance sustained at ?84,215 was to be added to the book profit. 3. Interest Charged under Section 234C: The assessee contended that interest under Section 234C should be computed on the returned income, not the assessed income, especially when assessed under Section 115JB. The Tribunal agreed that interest under Section 234C should be charged on the returned income when the normal income is a loss and the assessment is under Section 115JB. 4. Disallowance of Employees' Contribution to PF under Section 2(24)(x) read with Section 36(1)(va): The AO disallowed ?51,45,493 for employees' contribution to PF, claiming it was not paid within the due date. The CIT(A) deleted the disallowance, noting that payments were made within the grace period allowed under the PF Act. The Tribunal upheld the CIT(A)'s decision, citing consistent rulings in the assessee's favor, including judgments from the jurisdictional High Court. 5. Depreciation on Flat: The AO allowed depreciation at 5% instead of 10%, arguing that the flat was not used exclusively for business purposes. The CIT(A) deleted the disallowance, but the Tribunal reversed this decision, following the precedent set in the assessee's case for A.Y. 2007-08. The Tribunal noted the lack of evidence to prove the flat's exclusive business use and upheld the AO's decision to allow depreciation at 5%. Conclusion: The assessee's appeals were partly allowed for statistical purposes, and the Revenue's appeal was partly allowed. The Tribunal's decisions were based on precedents and the specific facts of each issue, ensuring a thorough and detailed analysis while adhering to legal standards and terminology.
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