2019 (8) TMI 149 - AT - Income Tax

Disallowance u/s 14A - recording of satisfaction by the AO before making disallowance u/s 14A - CIT(A) confirmed the disallowance to the extent after excluding investment in the nature of mutual fund etc. - A.Y. 2013-14 - HELD THAT - AO has also cited instances of administrative expenditure such as the review of investment,monitoring of the activities of the company in which the assessee company has made substantial investment by the director of the assessee company and the employees of the assessee company etc.Therefore, the salary paid by the assessee company to those employee and the director who have devoted their time towards investment activities have not been utilised exclusively for the purpose of the business of the company. In the light of the above facts and circumstances we do not find any merit in the ground of appeal of the assessee that no satisfaction has been recorded by the AO before making disallowance u/s 14A - after perusal of the information on record filed by the assessee we observe that assessee has made investment in equity share of listed company s debentures, bond units of mutual fund etc. and all these have been made through portfolio management consultant who has provided full fledge services in that respect. The assessee had suo-motu disallowed an amount of ₹ 73,034/- u/s 14A. However, looking to the quantum of exempt income and investment made by the assessee it will be appropriate to restrict the disallowance out of administrative expenditure to the amount of ₹ 3,00,000/-. Therefore, appeal of the assessee is partly allowed. Disallowance u/s 14A for calculating book profit u/s 115JB - HELD THAT - In view of the decision of Special Bench of ITAT Delhi CIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it is held that disallowance u/s 14A cannot be added to book profit u/s 115JB, the decision of the Ld. CIT(A) s is not justified. Accordingly, appeal of the assessee is allowed. Disallowance of expenses in computation of short term capital gain u/s 48 - HELD THAT - We allow the claim of the assessee for deduction under Sec. 48 to the extent of expenses incurred toward portfolio manual fees. See JOY BEAUTY CARE (P) LTD. VERSUS DCIT CIRCLE -10, KOLKATA 2018 (9) TMI 422 - ITAT KOLKATA Charging of interest u/s 234 A/B/C - HELD THAT - Since charging of interest under the aforesaid provisions of the Act are mandatory.Therefore, this ground of appeal of the assessee is dismissed. Disallowance u/s 36(1)(va) r.w.s. 2(24)(x) - late payment of employees contribution towards Provident Fund and ESI - HELD THAT - As decided in GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT held that the deduction towards employees contribution to Provident Fund and ESI is available if such sum is credited by the assessee to the employees account in the relevant fund on or before the due date as per respective Acts. Therefore, considering the decision of Hon ble Gujarat High Court we do not find any error in the decision of the Ld. CIT(A). Accordingly, this ground of appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Invoking provisions of Rule 8D without recording dissatisfaction.
2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D.
3. Disallowance under Section 14A in the calculation of book profit under Section 115JB.
4. Disallowance of expenses in the computation of short-term capital gain under Section 48.
5. Levying interest under Section 234A/B/C.
6. Initiating penalty under Section 271(1)(c).
7. Disallowance under Section 36(1)(va) for late payment of employees' contributions.

Detailed Analysis:

Ground No. 1: Invoking provisions of Rule 8D without recording dissatisfaction
The assessee argued that the Assessing Officer (AO) invoked Rule 8D without recording dissatisfaction with the assessee's claim. The AO noted that the assessee did not maintain records to show no administrative expenditure for earning exempt income. The AO cited instances of administrative actions by directors and employees related to investments. The Income Tax Appellate Tribunal (ITAT) found no merit in the assessee's claim, as the AO had recorded reasons for dissatisfaction. The ITAT, however, reduced the disallowance of administrative expenses to ?3,00,000, considering the quantum of exempt income and investments.

Ground No. 3: Disallowance under Section 14A in the calculation of book profit under Section 115JB
The AO included disallowance under Section 14A in the book profit calculation under Section 115JB. The ITAT referenced the Special Bench decision in CIT vs. Vireet Investment Pvt. Ltd., which held that disallowance under Section 14A cannot be added to book profit under Section 115JB. The ITAT allowed the assessee's appeal on this ground.

Ground No. 4: Disallowance of expenses in the computation of short-term capital gain under Section 48
The AO disallowed expenses related to short-term capital gains on share transfers. The CIT(A) reduced the disallowance to ?2,79,788. The ITAT referenced the decision in Joy Beauty Care Pvt. Ltd. vs. DCIT, which allowed portfolio management fees as a deduction under Section 48. Following this precedent, the ITAT allowed the assessee's claim for deduction of portfolio management fees of ?1,83,686.

Ground No. 6: Levying interest under Section 234A/B/C
The ITAT noted that charging interest under Sections 234A/B/C is mandatory and dismissed the assessee's appeal on this ground.

Ground No. 7: Initiating penalty under Section 271(1)(c)
The ITAT found the issue of initiating penalty under Section 271(1)(c) premature and dismissed the appeal on this ground.

Ground No. 1 (A.Y. 2014-15): Disallowance under Section 36(1)(va) for late payment of employees' contributions
The AO disallowed ?14,076 for late payment of employees' contributions to Provident Fund and ESI. The CIT(A) upheld this disallowance. The ITAT referenced the Gujarat High Court decision in CIT vs. GSRTC, which held that deductions are allowed only if contributions are credited on or before the due date. The ITAT dismissed the assessee's appeal on this ground.

Ground No. 2 (A.Y. 2014-15): Disallowance under Section 14A read with Rule 8D
The AO disallowed ?12,62,770 under Section 14A read with Rule 8D. The CIT(A) reduced this to ?10,28,141 after excluding investments in mutual funds. The ITAT found no merit in the assessee's claim that the AO did not record dissatisfaction. The ITAT reduced the disallowance to ?3,00,000, considering the quantum of exempt income and investments.

Ground No. 3 (A.Y. 2014-15): Disallowance under Section 14A in the calculation of book profit under Section 115JB
The AO included disallowance under Section 14A in the book profit calculation under Section 115JB. The ITAT referenced the Special Bench decision in CIT vs. Vireet Investment Pvt. Ltd. and allowed the assessee's appeal on this ground.

Conclusion:
The ITAT partly allowed the assessee's appeals for both assessment years, reducing disallowances and upholding certain decisions based on legal precedents and the specifics of the case.