2019 (5) TMI 25 - AT - Income Tax

Disallowance u/s 14A by applying Rule 8D - assessee has suo moto disallowance u/s 14A - AO made an additional disallowance under normal provisions of the Act - assessee did not maintain separate books of account for accounting for expenses incurred in relation to income not includable in the total income - HELD THAT - This Bench in assessee s own case 2018 (6) TMI 360 - ITAT KOLKATA held that comment of AO that the assessee did not to maintain separate books of accounts, for the expenses incurred in relation to earning of income not includible in the total income would tantamount to AO being of the opinion that the assessee should maintain separate books for this purpose is not required as per law. AO has committed an error in assuming so. Hence this ground on which the AO has not accepted the suo motu disallowance made by the assessee u/s 14A is wrong. Thus, as the Assessing Officer has not recorded his satisfaction before rejecting the suo-moto disallowance made by the assessee u/s 14A of the Act, we delete this disallowance - Decided in favour of assessee. Disallowance of the provision made for leave encashment - HELD THAT - This Bench of the Tribunal on identical facts for the Assessment Year 2011-12 in assessee s own case 2018 (6) TMI 360 - ITAT KOLKATA we set aside this issue to the file of the A.O to fresh adjudication in accordance with law. The Assessing Officer may either wait for the judgment of Hon ble Supreme Court in the case of Exide Industries Ltd. 2007 (6) TMI 175 - CALCUTTA HIGH COURT or may consider the alternative plea of the assessee that the claim be allowed on actual payment basis and if it is so done, the assessee would withdraw all the pending litigation, for all the years, wherein he sought deduction of the provision made for the leave encashment. Hence, this ground is allowed for statistical purposes. MAT - computation of book profits u/s 115JB - assessee s case is that the provision has been made for leave encashment and gratuity on actuarial valuation and hence, the liability is an ascertaining liability and hence the liability has to be allowed - As regards bonus, it is argued that the assessee had paid bonus and hence it is an ascertained liability - HELD THAT - This issue is to be set aside to the file of the Assessing Officer, to examine whether the provision, in question, has been computed on scientific basis by using actuarial valuation as claimed. If so, the proposition of law laid down by the Hon ble Supreme Court in the case of Bharat Earth Movers vs. CIT 2000 (8) TMI 4 - SUPREME COURT is to be applied by the Assessing Officer. As this aspect as to whether the provisions, in question, have been made by actuarial valuation has to be verified, we set aside Ground to the file of the Assessing Officer for fresh adjudication in accordance with law.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Disallowance of provision for leave encashment.
3. Disallowance of provision for leave encashment while computing book profit under section 115JB.
4. Disallowance of provision for bonus, gratuity, and continuity bonus while computing book profits under section 115JB.

Analysis:

1. Disallowance under Section 14A:
The appellant, a company engaged in online market/auction and financial services, contested the disallowance made under section 14A of the Act. The Assessing Officer disallowed an additional amount under normal provisions despite the appellant's suo moto disallowance. The Tribunal found that the Assessing Officer's reasoning lacked justification for not accepting the appellant's suo moto disallowance. Citing a previous judgment, the Tribunal held that maintaining separate books of account for expenses related to non-taxable income was not mandatory. Consequently, the Tribunal allowed the appellant's appeal and deleted the disallowance.

2. Disallowance of Provision for Leave Encashment:
The Tribunal referred to a previous case for the assessment year 2011-12 where the issue of disallowance of provision for leave encashment was remanded to the Assessing Officer for fresh adjudication. Following the same reasoning, the Tribunal remanded the issue to the Assessing Officer for further examination in accordance with the law.

3. Disallowance of Provision for Leave Encashment in Book Profit Calculation:
The appellant argued that provisions for leave encashment, gratuity, and bonus were based on actuarial valuation, making them ascertained liabilities. The Tribunal directed the Assessing Officer to verify whether the provisions were indeed made through actuarial valuation. If so, the Tribunal instructed the application of the legal precedent set by the Supreme Court in a specific case. As this aspect required verification, the Tribunal set aside the issue for fresh adjudication by the Assessing Officer.

4. Disallowance of Provision for Bonus, Gratuity, and Continuity Bonus in Book Profit Calculation:
Similar to the issue of leave encashment, the Tribunal remanded the matter to the Assessing Officer for a detailed examination to determine if the provisions were computed using actuarial valuation. The Tribunal instructed the Assessing Officer to apply the legal precedent if the provisions were indeed based on actuarial valuation.

In conclusion, the Tribunal partially allowed the appeal of the assessee, directing further examination by the Assessing Officer on various issues related to disallowances and provisions made by the appellant.