2021 (11) TMI 377 - AT - Income Tax

Disallowance u/s 14A - Assessee offered a suo-motto disallowance - Mandation of recording of satisfaction - whether or not the A.O had rightly assumed jurisdiction and dislodged the assessee s claim of disallowance u/s 14A ? - HELD THAT - AO while dislodging the suo-motto disallowance that was offered by the assessee u/s 14A in its return of income, had failed to record his satisfaction that having regard to the accounts of the assessee, as placed before him, it was not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. By merely stating, that as the assessee was maintaining consolidated accounts, therefore, in the absence of separate accounts for exempt income yielding investments and its other business activities he was precluded from establishing a one-to-one nexus between the expenses and such exempt income yielding investments, in our considered view, by no means can be taken as discharge of the statutory obligation that was cast upon the A.O of recording a satisfaction that as to why the disallowance u/s 14A offered by the assessee was not to be accepted. In our considered view, the A.O by referring to the accounts of the assessee, as were there before him, ought to have pointed out the expenditure which were claimed by the assessee as a deduction against its non-exempt income, but the same as per him were attributable to earning of the exempt income As the A.O before taking recourse to the theory of apportionment and computing of the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) had neither recorded his satisfaction that the suo-motto disallowance offered by the assessee under Sec. 14A was not correct, nor referring to the assessee's accounts whispered a word as to how the other expenditure claimed by the assessee with respect to its non-exempt income were related to its exempt income, therefore, had clearly exceeded his jurisdiction for re-computing the said disallowance in the hands of the assessee. We, thus, in the backdrop of the aforesaid invalid assumption of jurisdiction by the A.O, are unable to uphold the disallowance determined by him u/s 14A r.w Rule 8D. Accordingly, we herein set-aside the order of the CIT(A) and direct the A.O to restrict the disallowance to the extent suo-motto offered by the assessee in its return of income. As we have set-aside the order of the CIT(A), which finds its genesis in the determination of the disallowance by the A.O u/s 14A r.w Rule 8D, therefore, the remaining grounds raised by the assessee, wherein it has assailed the said disallowance to the extent sustained by the CIT(A) are rendered as academic in nature - Ground of appeal No. 1 is allowed in terms of our aforesaid observations. Disallowance u/s 36(1)(va) r.w.s 2(24)(x) - assessee had failed to deposit the employees contributions to Provident Fund and Employee State Insurance Corporation within the due dates (including the grace period) - HELD THAT - As the employees contribution towards Provident Fund and Employees State Insurance were deposited by the assessee prior to the due date of filing of its return of income hence, the same was not liable to be disallowed under Sec. 36(1)(va) r.w.s 2(24)(x) of the Act. See GEEKAY SECURITY SERVICES PVT. LTD. 2018 (12) TMI 702 - BOMBAY HIGH COURT - we vacate the disallowance made by the A.O under Sec. 36(1)(va) r.w.s 2(24)(x) - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance of employees' contribution to Provident Fund and Employees State Insurance Corporation under Section 36(1)(va) read with Section 2(24)(x).

Detailed Analysis:

Disallowance under Section 14A:
The primary issue revolves around the disallowance under Section 14A of the Income Tax Act, which pertains to the expenditure incurred in relation to income that does not form part of the total income. The assessee had offered a suo-motto disallowance of ?11,181/- in its return of income, which was later revised to ?1,01,751/- during the assessment proceedings. However, the Assessing Officer (A.O) computed the disallowance under Section 14A read with Rule 8D at ?2,49,43,005/-, leading to an additional disallowance of ?2,49,31,824/-.

The assessee contended that the A.O had invalidly assumed jurisdiction without recording the requisite satisfaction as mandated by the law. The tribunal referred to the judgments of the Hon’ble Supreme Court in the cases of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT & Anr. and Maxopp Investment Ltd. Vs. CIT, which stipulate that the A.O must record satisfaction that having regard to the accounts of the assessee, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee before invoking Rule 8D.

The tribunal found that the A.O had not recorded the necessary satisfaction and had mechanically applied Rule 8D. The A.O's approach of stating that the assessee maintained consolidated accounts without separate accounts for exempt income yielding investments was deemed insufficient to meet the statutory obligation. Consequently, the tribunal set aside the order of the CIT(A) and directed the A.O to restrict the disallowance to the extent suo-motto offered by the assessee in its return of income.

Disallowance of Employees' Contribution to Provident Fund and Employees State Insurance Corporation:
The second issue pertains to the disallowance of ?2,84,472/- under Section 36(1)(va) read with Section 2(24)(x) of the Act, due to delayed payment of employees' contributions to Provident Fund and Employees State Insurance Corporation. The A.O disallowed the amount as it was not deposited within the stipulated time period. The CIT(A) upheld this disallowance.

The assessee argued that the contributions were deposited before the "due date" of filing the return of income, citing the judgments of the Hon’ble High Court of Bombay in the cases of CIT Vs. Ghatge Patil Transports Limited and Geekay Security Services (P) Ltd. Vs. DCIT. The tribunal agreed with the assessee, noting that as the contributions were deposited before the due date of filing the return, no disallowance was warranted under Section 36(1)(va) read with Section 2(24)(x). The tribunal vacated the disallowance of ?2,84,472/-.

Conclusion:
The appeal filed by the assessee was allowed, and the appeal filed by the revenue was dismissed. The tribunal directed the A.O to restrict the disallowance under Section 14A to the amount suo-motto offered by the assessee and vacated the disallowance of employees' contributions under Section 36(1)(va) read with Section 2(24)(x).