2019 (12) TMI 1194 - AT - Income Tax

Disallowance of deduction u/s 43B - sum represented deposit of electricity duty in a designated non-lien bank account - HELD THAT - considering the declaration filed by the assessee in Form No.8 this issue is restored to the file of the AO for a fresh consideration as per the final outcome of assessee s appeal Addition u/s 14A - HELD THAT - In absence of separate investment account, it is presumed that investment was taken place from common accounts which consist of borrowed fund, over draft account and other trading account utilised for business purpose meaning thereby the AO categorically held that the assessee has used interest bearing borrowed funds, over draft and other trading funds for the purpose of investment which earned exempt dividend income of the assessee. Also observed by the authorities below that investment activities and business activities has its separate nature in principle and no expenditure is allowable on investment activities, which brings exempt dividend income of the assessee. The AO went up to the extent to observe that if the interest bearing fund would have not utilised for investment purpose, the interest payment expense would have been reduced in accordance with the taxable income of the assessee. AO was right in invoking the provisions of section 14A r.w. rule 8D of I.T.Rules. However, the ld CIT(A) after accepting the alternate plea of the assessee and the computation made thereto by the AO, restricted the disallowance to the amount of ₹ 48,17,000/- under Rule 8D. After carefully considering the orders of lower authorities we are of the view that the CIT(A) was right in restricting and confirming the addition. We, accordingly uphold the findings of the CIT(A) and dismiss the ground of appeal of the assessee. Addition u/s.2(24)(x) - Delayed contribution to EPF was deposited by the assessee - HELD THAT - In the instant case, it is not in dispute that the contribution to EPF was deposited by the assessee before due date of filing the return of income u/s.139(1) - In view of above findings of Hon ble Delhi High Court in the case of CIT vs. Bharat Hotels Ltd. 2018 (9) TMI 798 - DELHI HIGH COURT the issue is restored to the file of the Assessing Officer to examine the contributions made with reference to the dates when they were actually made and grant relief to such of claim which qualified for such relief in terms of prevailing provisions of the Act. We clearly obverse that the assessee would be entitled to deductions in terms of section 36(1)(va)

Summary

Issues Involved:
1. Disallowance of deduction under Section 43B of the Income Tax Act.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
3. Deletion of disallowance under Section 2(24)(x) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Deduction under Section 43B:
- The assessee challenged the CIT(A)’s decision to confirm the AO’s disallowance of ?5,78,30,880 by invoking Section 43B, arguing that the amount represented deposit of electricity duty in a designated non-lien bank account as per the Orissa High Court's directions.
- The assessee’s counsel referenced a prior ITAT Cuttack Bench order which dismissed similar grounds for the assessment year 2009-2010, noting an appeal was admitted by the Orissa High Court on substantial questions of law.
- The ITAT, following the precedent and considering the declaration filed by the assessee under Form No.8, restored the issue to the AO for reconsideration based on the final outcome of the pending High Court appeal.
- Consequently, Ground Nos. 1 to 1.2 were allowed for statistical purposes.

2. Disallowance under Section 14A read with Rule 8D:
- The assessee contested the CIT(A)’s confirmation of the AO’s disallowance of ?48,17,000 under Section 14A read with Rule 8D, arguing no expenses were incurred for earning exempt dividend income.
- The AO’s detailed enquiry concluded that the assessee had utilized interest-bearing funds for investment purposes, leading to the disallowance.
- The CIT(A) found merit in the assessee’s alternative computation under Rule 8D and restricted the disallowance to ?48,17,000, considering only investments that earned exempt income and correcting the AO’s computation errors.
- The ITAT upheld the CIT(A)'s findings, confirming the restricted disallowance and dismissing the assessee’s grounds of appeal.

3. Deletion of Disallowance under Section 2(24)(x):
- The revenue appealed against the CIT(A)’s deletion of ?36,347 disallowed under Section 2(24)(x), which was based on the Tribunal’s decision in a similar case where the payment was made before the due date of filing the return.
- The ITAT noted that the contribution to EPF was deposited before the due date of filing the return, referencing the Delhi High Court’s decision in CIT vs. Bharat Hotels Ltd., which allowed such deductions if payments were made within the stipulated period.
- The ITAT restored the issue to the AO to examine the actual dates of contributions and grant relief accordingly, allowing the ground for statistical purposes.

Conclusion:
- The appeals of the assessee and revenue were partly allowed, with specific issues restored to the AO for fresh consideration based on the final outcomes and compliance with the prevailing legal provisions. The ITAT’s order was pronounced on 16/12/2019.