2018 (5) TMI 1021 - AT - Income Tax

Entitlement to deduction u/s 43B - Held that - Ground raised by revenue stands squarely covered by various orders of this Tribunal in assessee s own case for A.Y. 2004-05, 2005-06, 2006-07 and 2008-09 wherein it has been held that assessee was entitled to deduction u/s 43B of the Income Tax Act, 1961 (the Act) irrespective of payments. Payments have been audited by the Tax Auditors and the assessee has filed the details of payments, hence the assessee is entitled for deduction u/s. 43B of the Act. - Decided in favour of assessee. Addition u/s 14A - non-utilisation of interest bearing funds for the purpose of investments that could yield dividend income - Held that - Revenue has not been able to establish by way of documentary evidences that the interest bearing funds were utilised for the purposes of investments. The Certificate issued by the auditors which was verified by Ld.CIT(A) has not been found fault with by Revenue. Even though assessee has kept all the funds in one common pool, the presumption that the investment has been made from interest bearing funds cannot be appreciated, since for the year under consideration assessee has substantially demonstrated before Ld.CIT(A) regarding sufficient funds being available for investment purposes other than the interest bearing funds which has not been refuted by Ld.CIT,D.R. Ld.CIT(A) has observed that the funds are to be strictly utilised by assessee as per guidelines issued by RBI - No infirmity in Ld.CIT(A) deleting disallowance computed by Ld.AO under Rule 8D (iii). - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of prior period expenses.
2. Disallowance under Section 14A read with Rule 8D.
3. Deduction under Section 43B of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Prior Period Expenses:
The Revenue contended that the CIT(A) erred in restricting the addition made by the AO on account of prior period expenses to ?1,70,02,048 out of the total disallowance of ?3,23,02,360. The argument was based on the provision that expenditure of the relevant previous year is eligible for deduction in the immediately following assessment year. However, the Tribunal noted that the CIT(A) had decided the issue in favor of the assessee based on precedents in the assessee's own cases for earlier assessment years (2004-05, 2005-06, 2006-07, and 2008-09), where it was held that the assessee was entitled to deduction under Section 43B irrespective of payments. The Delhi High Court had also upheld this stance for AY 2006-07. The Tribunal found no reason to interfere with the CIT(A)'s decision, thus dismissing Revenue's ground on this issue.

2. Disallowance under Section 14A read with Rule 8D:
The Revenue challenged the deletion of disallowance made under Section 14A read with Rule 8D(2)(ii) & (iii) amounting to ?19,35,95,000. The CIT(A) had observed that the interest-bearing funds borrowed by the assessee were not used for making investments that would yield exempt income. The CIT(A) excluded investments in OMIFCO, Oman, and other Cooperative Societies from the disallowance calculation, as income from these investments was either chargeable to tax under the DTAA or deductible under Section 80P(2)(d). The Tribunal upheld the CIT(A)'s finding that the interest-bearing funds were not utilized for exempt income investments, supported by the auditor's certificate and compliance with RBI guidelines. The Tribunal also noted that Revenue failed to provide evidence to refute the CIT(A)'s findings. Consequently, the Tribunal upheld the CIT(A)'s deletion of the disallowance under Rule 8D(iii).

3. Deduction under Section 43B:
The CIT(A) had deleted the disallowance of ?2,09,93,450 under Section 43B, which was made by the AO on account of statutory dues outstanding as on 01.04.2008 but paid during the FY 2008-09. The CIT(A) relied on the Tribunal's decisions in the assessee's own cases for AYs 2005-06 and 2006-07, where it was held that the assessee was entitled to deduction under Section 43B as the payments were audited and details filed. The Delhi High Court had also dismissed Revenue's appeal on this issue for AY 2006-07. The Tribunal found no reason to interfere with the CIT(A)'s decision, as Revenue could not demolish the factual findings or bring evidence of any differences between preceding years and the year under consideration. Thus, the Tribunal dismissed Revenue's ground on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The Tribunal upheld the CIT(A)'s decisions regarding the disallowance of prior period expenses and deletion of disallowance under Section 14A read with Rule 8D. The Tribunal also upheld the CIT(A)'s deletion of disallowance under Section 43B. The order was pronounced in the Open Court on 15th May, 2018.