2016 (11) TMI 957 - AT - Income Tax

Addition u/s 14A - Held that - In the present case, we note that the assessee had earned dividend income to the extent of ₹ 2,22,343 and has claimed it as exempt income and informed the Assessing Officer that it has not incurred any expenditure in earning the income which is claimed as exempt income and the hon ble Delhi High Court in the case of CIT v. Taikisha Engineering India Ltd. 2014 (12) TMI 482 - DELHI HIGH COURT wherein it was held that The Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempted income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed, i.e., under rule 8D . This pre-condition is also mandated in sub-rule (1) of rule 8D. We find that the Assessing Officer in the instant case has relied on the order of the Kolkata Bench however, has not given any citation or I. T. A. Number and so it is not clear as to what were the facts or the reason given in that case and on what basis whether any observation has been made cannot be discerned and so the reliance by the Assessing Officer of the said decision of the Kolkata Bench of the Tribunal not to record any satisfaction has no legs to stand and so it falls down and since the pre-requisite condition for invoking rule 8D has not been satisfied as per law by the Assessing Officer so the entire disallowance made under section 14A has to go and the Commissioner of Income-tax (Appeals) has rightly done so and therefore we confirm the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal of the Revenue. - Decided in favour of assessee Addition u/s 36(1)(va) regarding late deposit of the employee s contribution to the PF and ESI - Held that - we find that the dues were paid before filing of return of income which was filed on September 29, 2012 and since the learned Departmental representative could not controvert this fact recorded by the learned Commissioner of Income-tax (Appeals) that PF/ESIC dues were in fact paid before the assessee filed the return of income, so we are of the considered opinion that the expenditure need to be allowed in the hands of the assessee as held by the hon ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT .- Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition under section 14A of the Income-tax Act, 1961.
2. Deletion of addition under section 36(1)(va) regarding late deposit of employee’s contribution to PF and ESI.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 14A:

The Revenue's appeal challenges the deletion of an addition of ?1,93,47,040 under section 14A of the Income-tax Act, 1961, made by the Assessing Officer (AO). The AO noted that the assessee, a textile manufacturing company, claimed dividend income of ?2,22,343 as exempt and had substantial investments amounting to ?30,07,67,119 as of March 31, 2012. The AO, not convinced by the assessee's claim of no incurred expenditure for earning exempt income, applied Rule 8D to compute disallowance.

The Commissioner of Income-tax (Appeals) [CIT(A)] deleted the addition, observing that the AO did not meet the pre-condition of Rule 8D(1), which requires recording dissatisfaction with the assessee's claim. The CIT(A) referenced the Allahabad High Court decision in Addl. CIT v. Dhampur Sugar Mills P. Ltd., which supported the assessee's position.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO must record a clear finding of dissatisfaction with the assessee's claim before invoking Rule 8D. The Tribunal noted that the AO's reliance on the co-ordinate Bench decision in Asst. CIT v. Ratan Housing Development Ltd. was misplaced, as the jurisdictional High Court's ruling in CIT v. Shivam Motors P. Ltd. clarified that disallowance under section 14A is unwarranted in the absence of tax-free income. The Tribunal also dismissed the AO's reliance on an unspecified Kolkata Tribunal decision, reiterating the necessity of recording dissatisfaction before applying Rule 8D.

2. Deletion of Addition under Section 36(1)(va):

The Revenue's appeal also contested the deletion of ?41,94,658 disallowed under section 36(1)(va) for late deposit of employee’s contribution to PF and ESI. The AO disallowed the amount as it was not deposited within the due dates specified in the respective statutes.

The CIT(A) deleted the addition, noting that the amounts were paid before filing the return of income and relied on judicial precedents allowing such deductions if payments are made before the return filing date. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court judgment in CIT v. Alom Extrusions Ltd., which permits deductions for payments made before the return filing date. The Tribunal found no merit in the Revenue's appeal as the Departmental Representative could not demonstrate any dues paid after the return filing date.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletion of additions under sections 14A and 36(1)(va). The Tribunal emphasized the necessity of AO's clear dissatisfaction recording before applying Rule 8D and upheld the allowance of PF and ESI contributions paid before the return filing date. The decision aligns with judicial precedents ensuring fair application of tax laws.