2021 (8) TMI 26 - AT - Income Tax

Disallowance u/s 14A - Assessee has made suo motu disallowance - CIT (A) deleted the addition on the ground that the AO has failed to record his satisfaction before invoking the provisions contained u/s 14A - HELD THAT - AO except for making general observation that, it cannot be ruled out that some expenditure would definitely be incurred towards such investments and keeping in view the huge investments of ₹ 45.67 crores out of total assets of assessee at ₹ 448.94 crores, it can be safely concluded that buying and selling of securities as well as maintaining a portfolio of large number of scrips leading to or capable of generating the dividend income is one of the main activities of the assessee , has not recorded his satisfaction as to how and under what circumstances disallowance has been made by the assessee company is incorrect u/s 14A of the Act. AO has also not disputed books of account on the basis of which assessee has come up with the plea that he has incurred the expenditure only to the tune of ₹ 29,04,491/- of which it has made suo motu disallowance. So, in the absence of satisfaction recorded by the AO, mechanical invoking of provisions contained u/s 14A read with Rule 8D is not permissible as has been held by Hon ble Delhi High Court in case of Maxopp Investment Ltd. 2011 (11) TMI 267 - DELHI HIGH COURT CIT (A) has rightly deleted the addition made by the AO u/s 14A of the Act. So, ground no.1 is determined against the Revenue. Disallowance of consumption incentive - Addition on the ground that these expenses are in the nature or provision, liability for which may or may not accrue in the time to come - CIT (A) deleted this addition - HELD THAT - Keeping in view the facts and circumstances of the case and following the order passed by the coordinate Bench of the Tribunal in the assessee s own case for AYs 2008-09 2009-10, we are of the considered view that when the assessee has been consistently following mercantile system of accounting, the liability brought on record is an ascertained liability and the party-wise detail has been brought on record by the assessee and perused by the AO as well as ld. CIT (A) qua the discount given. So, we find no illegality or perversity in the findings returned by the ld. CIT (A), hence ground no.2 is determined against the Revenue. Disallowance under Explanation 2 of section 36(1)(va) - employees contribution beyond due date - CIT (A) deleted the addition in the light of the conjoint reading of section 36(1)(va) and section 43B - HELD THAT - When the assessee has deposited the employees contribution of PF on 25.04.2012 as against the due date of 20.04.2012 but well before filing the return of income, we find no illegality or perversity in the deletion made by the ld. CIT (A), hence ground no.3 is determined against the Revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Deletion of addition on account of consumption incentives.
3. Disallowance on account of late deposition of employees' contribution to Provident Fund (PF).

Issue-Wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The Revenue challenged the deletion of disallowance made by the Assessing Officer (AO) under Section 14A of the Income-tax Act, 1961, read with Rule 8D of the Income-tax Rules, 1962. The AO computed a disallowance of ?38,94,755/- against the assessee's suo motu disallowance of ?29,04,491/-. The CIT (A) deleted the addition on the grounds that the AO failed to record satisfaction before invoking Section 14A and relied on several judicial precedents, including the Hon’ble Delhi High Court decisions in Maxopp Investment Ltd. vs. CIT and Joint Investments Pvt. Ltd. vs. CIT. The Tribunal upheld the CIT (A)'s order, emphasizing that disallowance under Section 14A cannot exceed the exempt income and that the AO did not record specific reasons for rejecting the assessee's disallowance.

2. Deletion of Addition on Account of Consumption Incentives:
The AO disallowed ?3,34,81,847/- claimed by the assessee as consumption incentives, considering it a contingent liability. The CIT (A) deleted the addition, referencing his own orders for previous assessment years (2008-09, 2009-10, and 2010-11), which were confirmed by the Tribunal. The CIT (A) concluded that the liability was ascertained and allowable under the mercantile system of accounting. The Tribunal upheld the CIT (A)'s decision, noting that the assessee consistently followed the mercantile system and provided detailed party-wise records of the discounts given.

3. Disallowance on Account of Late Deposition of Employees' Contribution to PF:
The AO disallowed ?43,14,198/- for late deposition of employees' contribution to PF, as the payment was made after the due date but before the filing of the return of income. The CIT (A) deleted the disallowance, interpreting Section 36(1)(va) in conjunction with Section 43B, and relying on judicial precedents, including the Hon’ble Delhi High Court's decision in CIT vs. Aimil Ltd. The Tribunal confirmed the CIT (A)'s order, stating that the deletion of the second proviso to Section 43B by the Finance Act, 2003, should be treated as retrospective, and the assessee's contribution made before filing the return should be allowed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on all three grounds. The CIT (A) was found to have correctly applied the law and judicial precedents in deleting the disallowances and additions made by the AO. The Tribunal emphasized the importance of recording satisfaction under Section 14A, recognizing ascertained liabilities under the mercantile system, and allowing PF contributions paid before the return filing date.