2015 (6) TMI 1 - AT - Income Tax

Disallowance of expenditure u/s 14A - Held that - For the limited purpose of verifying assessee s claim that it has not earned/claimed any exempt income in the concerned assessment years and deciding the issue in terms with the ratio laid down by CIT Vs. Corrtech Engergy Pvt. Ltd., 2014 (3) TMI 856 - GUJARAT HIGH COURT , Quality Engineering and Software Technologies Pvt Ltd. Vs. DCIT, 2015 (1) TMI 869 - ITAT BANGALORE and CIT Vs. Shivam Motors (P) Ltd. 2014 (5) TMI 592 - ALLAHABAD HIGH COURT , we remit the matters back to the file of AO. Assessee must be given reasonable opportunity of being heard in the matter. In view of our aforesaid direction, the grounds raised by the department challenging the relief granted by ld. CIT(A) in restricting the disallowance u/s 14A have become infructuous, hence, they are dismissed. - Decided in favour of assesse for statistical purposes. Non remittance of employees contribution to PF and ESI within the due date - Held that - Keeping in view the proposition of law and following the decision of CIT Vs. Nipso Polyfabriks Ltd. (2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT) we hold that employees contribution to PF & ESI remitted before the due date of filing of return u/s 139(1), will be allowable as deduction - Decided in favour of assesse.

Summary

Issues:
1. Disallowance of expenditure u/s 14A of the Act.
2. Disallowance made for non-remittance of employees' contribution to PF and ESI within the due date.

Issue 1: Disallowance of expenditure u/s 14A of the Act:
The appeals by the assessee and the department were against orders of the ld. CIT(A)-IV, Hyderabad for AYs 2008-09, 2009-10, and 2010-11. The main issue raised was the disallowance of expenditure u/s 14A of the Act. The AO disallowed the expenditure for earning exempt income based on investments made by the assessee in shares. The ld. CIT(A) restricted the disallowance to specific amounts diverted from interest-bearing funds for investments in shares. The department objected to this relief, while the assessee argued that no disallowance u/s 14A should be made as no exempt income was earned. The ITAT held that if no exempt income was earned, no disallowance u/s 14A could be made, following precedents and remitted the matter back to the AO for verification.

Issue 2: Disallowance for non-remittance of employees' contribution to PF and ESI:
The AO disallowed the expenditure claimed by the assessee due to delayed remittance of employees' contribution to PF and ESI. The ld. CIT(A) allowed the expenditure as deductible u/s 43B since the remittance was made before the due date of filing the return u/s 139(1). The department contended that employee's contribution should not be covered under section 43B, citing a specific High Court decision. However, the ITAT upheld the ld. CIT(A)'s decision, considering conflicting High Court decisions and following the principle favoring the assessee. The ITAT allowed the appeals of the assessee for statistical purposes and dismissed the appeals of the revenue.

In conclusion, the ITAT decision in the case addressed the issues of disallowance of expenditure u/s 14A of the Act and disallowance for non-remittance of employees' contribution to PF and ESI. The judgment provided detailed analysis, considered precedents, and remitted the matter back to the AO for one issue while upholding the ld. CIT(A)'s decision for the other issue.