2017 (2) TMI 542 - AT - Income Tax

Addition u/s 14A - whether section 14A is applicable when the assessee has not actually received any exempt income during the year from assets capable of yielding exempt income? - Held that - Rule 8D is only a machinery/mechanism to compute the disallowance. It is trite that the Rules are sub servient to the main enactment. Rules can never override the main provisions of the Act. If the facts of the case warrants no disallowance, the computational provision does not come into picture at all. Further, the Circulars of the CBDT prejudicial to Assessee do not exert binding force on the assessee. Accordingly, where no exempt income is received or receivable during the relevant financial year, provisions of section 14A would not operate. In this view of the matter, the disallowance made by the AO is not sustainable having regard to absence of any exempt income during the financial year relevant to the assessment year in question. Therefore, we concur with the action of the CIT(A) in deleting the disallowance made by the AO. - Decided in favour of assessee Disallowance u/s.36(1)(va) by way of employee s contribution towards provident fund - Held that - Assessee has allegedly made belated payments of employees contribution towards PF for the month of March-2012. It was observed by the CIT(A) that no explanation was submitted by the Assessee before the AO nor was any submission made before the him in this regard. The CIT(A) accordingly upheld the disallowance.In the absence of any particulars regarding delayed payment, if any, even before us we are not in a position to comprehend the case of the assessee. Hence, we decline to interfere with the order of CIT(A). - Decided against assessee

Summary

Issues:
- Disallowance under section 14A of the Income Tax Act for AY 2012-13
- Disallowance under section 14A of the Income Tax Act for AY 2013-14
- Disallowance of employee's contribution towards provident fund under section 36(1)(va) for AY 2012-13

Issue 1: Disallowance under section 14A of the Income Tax Act for AY 2012-13:

The Revenue appealed against the CIT(A)'s order deleting the disallowance of ?17,66,181 made under section 14A. The AO had disallowed the amount based on the investment in a subsidiary company capable of yielding dividend income, even though no dividend income was earned during the year. The CIT(A) ruled in favor of the assessee, stating that section 14A does not apply when there is no exempt income and no claim of exemption has been made. The Tribunal concurred with the CIT(A), emphasizing that Rule 8D is a computational provision and does not override the main provisions of the Act. As there was no exempt income received or receivable during the relevant financial year, the disallowance made by the AO was deemed unsustainable, leading to the dismissal of the Revenue's appeal.

Issue 2: Disallowance under section 14A of the Income Tax Act for AY 2013-14:

The Revenue's appeal for AY 2013-14 mirrored the issues raised for AY 2012-13, challenging the deletion of a disallowance of ?13,83,476 under section 14A. The Tribunal dismissed the appeal for AY 2013-14 on the same grounds as AY 2012-13, as the facts and issues were identical, thus upholding the CIT(A)'s decision.

Issue 3: Disallowance of employee's contribution towards provident fund under section 36(1)(va) for AY 2012-13:

The assessee filed a Cross Objection against the disallowance of ?76,500 made by the AO towards employee's contribution to provident fund, which was upheld by the CIT(A). The Tribunal declined to interfere with the CIT(A)'s decision due to the absence of particulars regarding delayed payment, leading to the dismissal of both the Revenue's appeals and the Assessee's Cross Objection.

In conclusion, the Tribunal upheld the CIT(A)'s decisions in all aspects, dismissing the Revenue's appeals and the Assessee's Cross Objection for the relevant assessment years.