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2015 (12) TMI 1326 - AT - Income TaxDisallowance u/s 14A - Held that - We find from the facts of the instant case that the Learned AO has not examined the accounts of the assessee and there is no satisfaction recorded by the Learned AO about the correctness of the claim of the assessee and without the same, he invoked Rule 8D of IT Rules. While rejecting the claim of assessee with regard to expenditure in relation to exempt income, the Learned AO has to indicate cogent reasons for the same. We find that the Learned AO had straight away embarked upon computing disallowance under Rule 8D(2) of the Rules. Hence we hold that the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules is not appreciated and hence no disallowance u/s 14A of the Act could be made in the facts of the instant case. We find lot of force in the argument of the Learned AR that computation of disallowance under Rule 8D can be used only for computation of income under normal provisions of the Act and not for book profits u/s 115JB of the Act. Unless an item is debited in the profit and loss account, the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB of the Act. Rural Employment Cess and Primary Education Cess - whether would come under the ambit of provisions of section 43B ? - Held that - In the facts of the instant case, the assessee had commenced its operations from Asst Year 2003-04 and in the very first year, this issue was taken up for disallowance and the same was deleted by the Learned CIT-A and the revenue chose not to file an appeal before this tribunal. The next scrutiny assessment was made for Asst Year 2006-07 wherein no addition on this account was made. This goes to prove that the revenue had already accepted to the contentions of the assessee on the impugned issue and satisfied that the cess collected from customers have been duly remitted in the succeeding year in accordance with the provisions of The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary Education Act, 1973 and was also satisfied with the manner of treatment of the same by the assessee for tax purposes. Having done so, there is no good reason for the revenue to shift its stand in the assessment year under appeal. We hold that the cess collected from customers in the sale invoices shall not be chargeable to tax in the year of collection and accordingly, the grounds raised by the assessee in this regard are allowed. Entitlement to additional depreciation - whether coal mining is production of coal or not? - Held that - This issue is squarely covered by the decision of the Jurisdictional High Court in the case of CIT vs G.S.Atwal & Co 2001 (2) TMI 32 - CALCUTTA High Court if the assessee owns the machinery for which investment allowance is claimed, and such machinery is used for production then the section applies, it does not matter if the use for production is made by the lessee or only in one industrial part of the assessee s business undertaking. Accordingly, the transport business of the assessee does not tilt the question one way or the other - Decided in favour of assessee
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 14A for Book Profits under Section 115JB. 3. Provision for Leave Encashment under Section 43B. 4. Disallowance of Rural Employment Cess and Primary Education Cess under Section 43B. 5. Eligibility for Additional Depreciation on Coal Mining. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The primary issue in the assessee's appeal was whether disallowance under Section 14A could be made. The assessee earned Rs. 33,61,665 as dividend income and voluntarily disallowed Rs. 29,760 under Section 14A. The AO, without recording satisfaction, directly applied Rule 8D(2) and made a disallowance of Rs. 44,91,468. The CIT(A) upheld the AO's action, citing various case laws. The Tribunal observed that the AO did not record satisfaction as required under Section 14A read with Rule 8D(1) and directly applied Rule 8D(2), which is not permissible. The Tribunal cited jurisdictional High Court decisions in favor of the assessee and held that no disallowance under Section 14A could be made without recording satisfaction. It also noted that the assessee had sufficient own funds to make investments and that the investments in subsidiaries were strategic, not for earning income. The Tribunal directed the AO to delete the addition made under Section 14A. 2. Disallowance under Section 14A for Book Profits under Section 115JB: The issue was whether disallowance under Section 14A could be added to book profits under Section 115JB. The Tribunal held that Rule 8D is applicable only for computing income under normal provisions and not for book profits under Section 115JB. It noted that unless an item is debited in the profit and loss account, it cannot be added back to book profits under Explanation 1(f) to Section 115JB. The Tribunal allowed the assessee's ground and directed the AO to delete the addition. 3. Provision for Leave Encashment under Section 43B: The assessee debited Rs. 2,00,576 for leave encashment based on actuarial valuation. The AO disallowed it under Section 43B, which was upheld by the CIT(A). The Tribunal noted the jurisdictional High Court decision in Exide Industries Ltd vs Union of India, which struck down Section 43B(f) as arbitrary. However, the Supreme Court stayed the High Court's judgment and directed compliance with Section 43B(f) while allowing the assessee to claim the deduction. The Tribunal set aside the issue to the AO to pass orders based on the Supreme Court's final decision. 4. Disallowance of Rural Employment Cess and Primary Education Cess under Section 43B: The assessee collected Rs. 30,44,09,948 as Rural Employment Cess and Rs. 7,61,02,510 as Primary Education Cess from customers, payable in the succeeding year. The AO disallowed these amounts under Section 43B, treating them as trading receipts. The CIT(A) upheld the disallowance. The Tribunal noted that the cess collected remains a liability and does not become payable in the assessment year under appeal. It held that the provisions of Section 43B would apply only when the liability to pay the cess arises under the relevant Act. The Tribunal also emphasized the principle of consistency, noting that similar disallowances were not made in earlier years. It directed the AO to delete the disallowance. 5. Eligibility for Additional Depreciation on Coal Mining: The issue in the revenue's appeal was whether the assessee engaged in coal mining is entitled to additional depreciation. The AO denied the claim, but the CIT(A) allowed it, relying on the jurisdictional High Court decision in CIT vs G.S. Atwal & Co, which held that coal mining is production. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee is entitled to additional depreciation. Conclusion: The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The Tribunal directed the AO to delete the disallowances under Section 14A and Section 43B and confirmed the assessee's eligibility for additional depreciation on coal mining.
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