2024 (6) TMI 354 - AT - Income Tax

Charging of interest on share application money pending allotment - HELD THAT - Action of Transfer Pricing Officer (TPO) in charging interest on share application money pending allotment by re-characterizing investment as loan is recurring. In assesee s appeal 2024 (1) TMI 1291 - ITAT MUMBAI similar issue was decided by us vide separate order of even date, in favour of assessee by following the earlier order of Tribunal in assessee's own case - Both sides are unanimous in stating that the facts in the impugned assessment year are identical except the amount of interest. For parity of reasons, the interest charged on share application money pending allotment is directed to be deleted. Decided in favour of assessee. Disallowance of employees contribution to Provident Fund(PF) and ESIC u/s. 36(1)(va) - assessee submitted that employee s shares of contribution to PF and ESIC was deposited by the assessee within 5 days grace period as allowed vide Manual of Accounting Procedure (Part-I- General) - HELD THAT - Para 5.1.3 of the manual shows that it refers to dues. It does not in particular specify Employees share or Employers share. Therefore, we are of the considered view that the said 5 days grace period applies both to employers contribution as well as employee s contribution. We deem it appropriate to restore this issues to the file of AO to re-examine assessee s claim. In case employees share of contribution in the impugned assessment year is deposited within the stipulated time including five days grace period, no disallowance of such payment should be made. The Assessing Officer before verifying the date of deposits, shall grant opportunity to the assessee to furnish necessary details. Thus, ground No.3 of appeal is allowed for statistical purpose. Additional disallowance made u/s. 14A of the Act r.w. Rule 8D - adjustment of disallowance u/s. 14A of the Act while computing book profit u/s. 115JB - HELD THAT - It is an undisputed fact that during the period relevant to the Assessment Year under appeal the assessee has not earned any income exempt from tax. It is a settled legal position that where the assessee has not earned any exempt income no disallowance u/s. 14A of the Act is required to be made. The assessee has raised a ground and additional ground of appeal that while computing book profits u/s. 115JB of the Act disallowance (including suo-moto disallowance) u/s. 14A of the Act should not be considered. The Special Bench in the case of Vireet Investment P. Ltd 2017 (6) TMI 1124 - ITAT DELHI has held that disallowance u/s. 14A of the Act could not be added while computing book profits u/s. 115JB of the Act. Short credit of tax deducted at source - We deem it appropriate to restore this issue back to the file of AO to verify the records and allow TDS credit, in accordance with law. AO before deciding the issue shall grant reasonable opportunity to the assessee to make submissions. Levy of interest u/s. 234B and 234C - assessee submitted that there is no shortfall in deposits of advance tax, therefore, no interest u/s. 234C of the Act could be charged - HELD THAT - Charging of interest u/s. 234B and 234C of the Act are consequential and mandatory. In view of the contention raised by ld. Counsel for the assessee, we deem it appropriate to restore the issue to the file of Assessing Officer to verify the claim of assessee. Thus, ground No. 8 and 9 of appeal area allowed for statistical purpose.

Issues Involved:
1. Charging of interest on share application money pending allotment.
2. Disallowance of employees' contribution to Provident Fund (PF) and ESIC.
3. Additional disallowance under Section 14A of the Income Tax Act and recomputation of Book Profits under Section 115JB.
4. Disallowance of business promotion expenditure.
5. Short credit of tax deducted at source (TDS).
6. Levy of interest under Sections 234B and 234C.
7. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Charging of Interest on Share Application Money Pending Allotment:
The assessee challenged the charging of interest on share application money pending allotment. The issue was identical to a previous assessment year, where the Tribunal had ruled in favor of the assessee. The Tribunal found no reason to deviate from its earlier decision, noting that the facts were identical except for the amount of interest. Consequently, the interest charged on share application money pending allotment was directed to be deleted. Thus, ground No.2 of appeal was allowed.

2. Disallowance of Employees' Contribution to Provident Fund (PF) and ESIC:
The assessee contested the disallowance of employees' contribution to PF and ESIC amounting to Rs. 39,61,170/- under Section 36(1)(va). The assessee argued that the contributions were deposited within a five-day grace period allowed by the Manual of Accounting Procedure, which was applicable for the relevant assessment year. The Department contended that the grace period applied only to employers' contributions. The Tribunal found that the grace period applied to both employers' and employees' contributions and restored the issue to the Assessing Officer to verify if the contributions were deposited within the stipulated time, including the grace period. Thus, ground No.3 of appeal was allowed for statistical purposes.

3. Additional Disallowance under Section 14A and Recomputation of Book Profits under Section 115JB:
The assessee argued that no disallowance under Section 14A was warranted as no exempt income was earned during the relevant period. The Tribunal admitted the additional grounds of appeal, noting that they were legal issues requiring no fresh evidence. The Tribunal followed the Special Bench decision in Vireet Investment P. Ltd., which held that disallowance under Section 14A could not be added while computing book profits under Section 115JB. The Tribunal also referred to its decisions in earlier assessment years where similar issues were decided in favor of the assessee. Consequently, ground No.4, 5, and additional grounds of appeal No.1 and 2 were allowed.

4. Disallowance of Business Promotion Expenditure:
The assessee did not press ground No.6 of appeal regarding the disallowance of business promotion expenditure. Therefore, this ground was dismissed as not pressed.

5. Short Credit of Tax Deducted at Source (TDS):
The assessee raised an issue regarding short credit of TDS. The Tribunal restored this issue to the Assessing Officer to verify the records and allow TDS credit in accordance with the law, after granting the assessee an opportunity to make submissions. Thus, ground No.7 of appeal was allowed for statistical purposes.

6. Levy of Interest under Sections 234B and 234C:
The assessee contested the levy of interest under Sections 234B and 234C, arguing that there was no shortfall in the deposit of advance tax. The Tribunal found that charging interest under these sections is consequential and mandatory but restored the issue to the Assessing Officer to verify the assessee's claim. Thus, ground No.8 and 9 of appeal were allowed for statistical purposes.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal found this challenge premature and dismissed it as such. Thus, ground No.10 of appeal was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, with several issues being restored to the Assessing Officer for re-examination and others being decided in favor of the assessee based on precedents and legal principles. The order was pronounced in the open court on January 15, 2024.

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