2016 (1) TMI 172 - AT - Income Tax

Disallowance u/s 14A - Held that - Section 14A will not apply if no income is received or receivable during the relevant previous year. We, therefore, do not find any justification in the action of the ld. Authorities below while disallowing expenditure u/s. 14A of the Act, as none of the authorities below have pointed out receipt of any such income by the assessee which does not form part of the total income. - Decided in favour of assessee. Disallowance of interest - CIT(A) deleted the addition - Held that - Ultimately, the appellant suffered a loss of ₹ 4,66,43,500/- which was borne by the other joint venture partner as per the terms agreed between the two parties. Accordingly, the assessee suffered a loss to the extent of interest on capital employed for three to six months for stock market operations, but the other joint venture partner had to bear the burden of the aforesaid loss of ₹ 4,66,43,500/-. In view of these facts, this advance cannot be said to be an interest free non-business transaction. Moreover, the advance was given to the broking company for the purpose of investment in the share market. In view of these facts, we do not find any infirmity in the conclusion of the ld. CIT(A) in this regard. - Decided in favour of assessee. Disallowance on account of delayed payments of employees contribution to ESIC/EPF - CIT(A) deleted the addition - Held that - Where payments of EPF contribution if made after the due date prescribed under the relevant Act and Rules, but before the due date of furnishing the return of income under section 139(1), would be eligible for deduction under section 36(1)(va) read with section 2(24)(x) and sec. 43B. In the instant case, it is not in dispute that the assessee had made the payments before the due date of filing the return of income. No contrary law is placed by the ld. DR. Therefore, we do not find any infirmity in the conclusion of the ld. CIT(A) for deleting the disallowance made by the AO on this count.- Decided in favour of assessee.

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Proportionate disallowance of interest on interest-free loans.
3. Disallowance of employees' contribution towards PF and ESI due to late payment.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The primary issue pertains to the disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules. The Revenue challenged the CIT(A)'s direction to the Assessing Officer (AO) to recompute the disallowance considering only the interest amount of Rs. 6,86,69,493 instead of Rs. 11,69,94,410. The CIT(A) observed that bank charges, discounting charges, and hire charges do not form part of the interest as per the definition in Section 2(28A). The assessee contended that no disallowance under Section 14A is warranted as the AO incorrectly included non-interest financial expenses. The Tribunal noted that Section 14A applies only where there is actual receipt of income not includible in the total income. Since the assessee did not receive any exempt income during the relevant year, the Tribunal found no justification for disallowance under Section 14A. The Tribunal relied on the decision in Cheminvest Limited vs. CIT, which held that Section 14A envisages actual receipt of income not includible in the total income for disallowance of related expenditure. Consequently, the Tribunal allowed the assessee's appeal on this issue and dismissed the Revenue's appeal.

2. Proportionate Disallowance of Interest on Interest-free Loans:
The AO disallowed Rs. 52,44,823 as proportionate interest on interest-free loans advanced to three parties, arguing that the assessee had taken loans from banks at an average interest rate of 12%. The CIT(A) found that the AO did not establish that the advances were for non-business purposes or that interest-bearing funds were utilized. The CIT(A) noted that the advances were either for business transactions or doubtful recovery cases where no interest provision was required. The Tribunal upheld the CIT(A)'s findings, noting that the advances were for business purposes and the AO failed to justify the disallowance. Therefore, the Tribunal dismissed the Revenue's appeal on this issue.

3. Disallowance of Employees' Contribution towards PF and ESI due to Late Payment:
The AO disallowed Rs. 2,69,551 for late payment of employees' contribution towards PF and ESI. The CIT(A) deleted the disallowance, relying on various judicial pronouncements that contributions paid before the due date of filing the return are eligible for deduction under Section 36(1)(va) read with Section 2(24)(x) and Section 43B. The Tribunal found no infirmity in the CIT(A)'s conclusion and upheld the deletion of the disallowance, dismissing the Revenue's appeal on this issue.

Appeal for A.Y. 2009-10:
For the assessment year 2009-10, the only issue was the sustenance of addition of Rs. 1,31,52,337 under Section 14A read with Rule 8D. The Tribunal noted that the facts and circumstances were identical to those in the cross appeals for A.Y. 2008-09. Applying the same findings, the Tribunal allowed the assessee's appeal for A.Y. 2009-10, directing that the addition be deleted.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed both appeals of the assessee, concluding that no disallowance under Section 14A was warranted in the absence of exempt income, the proportionate disallowance of interest was unjustified, and the deletion of disallowance for late payment of employees' contributions was correct.

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