2019 (6) TMI 740 - AT - Income Tax

Disallowance u/s 14A r.w. rule 8D(2)(iii) - AR argued that the assessee has not incurred any expenditure for earning dividend income - HELD THAT - As rightly pointed out by the learned AR that the AO has considered the value of all investments as on 1/4/2008 and as on 31/3/2009 and calculated. In the Special Bench decision of Tribunal rendered in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI it has been held that where for the purpose of calculation of disallowance under rule 8D only those investments which yielded exempt income have to be considered. Considering the above facts and circumstances we restore this disputed issue to the file of the AO to recompute the disallowance where only dividend yielding investment has to be considered for the purpose of calculation of average value of investments under rule 8D(2)(iii). Accordingly the ground of appeal of the assessee are allowed for statistical purposes. Disallowance of long-term retention bonus - AR contention that bonus paid to employees has to be allowed - HELD THAT - AO has considered the provision of long-term retention bonus as an ascertained liability and it was not paid before due date of filing of Return of income u/s 139(1) and disallowed apparently u/s 43B which the learned AR concedes. The claim shall not be allowable for the assessment year 2009- 10. But if the assessee has paid in subsequent year the claim has to be allowed on payment basis and ground of appeal is dismissed. Rent equalization provision - HELD THAT - The assessee-company has claimed rent equalization provision as it was provided in the earlier year. But we find that these facts are not emerging from the order of the AO or from the order of the appellate authority. Therefore we restore this disputed issue to the file of the AO to verify the material and evidence in respect of claim made in the earlier years and allow the deduction and this ground of appeal is allowed for statistical purposes. Deduction u/s 10A - AO has restricted the claim of expenses towards telecommunication expenditure insurance incurred in foreign currency for providing technical services outside India by allowing the deduction only from export turnover - HELD THAT - As in the case of Tata Elxsi 2011 (8) TMI 782 - KARNATAKA HIGH COURT held that for the purpose of computing exemption u/s 10A when the export turnover in the numerator is to be arrived at after excluding communication expenses the same should also be excluded in computing the export turnover as a component of total turnover in the donominator. We relying on the decision above direct the AO to reduce the expenses incurred in foreign exchange from the export turnover as well as total turnover and allow the claim u/s 10A and the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance under Section 14A read with Rule 8D of the Income-tax Act, 1961.
2. Disallowance of provision for long term retention bonus to employees.
3. Disallowance of rent equalization provision.
4. Disallowance of expenses towards telecommunication, insurance, and freight charges incurred in foreign currency.
5. Levy of Interest under Section 234B of the Act.

Issue 1: Disallowance under Section 14A read with Rule 8D:
The assessee challenged the addition made by the AO under Section 14A read with Rule 8D, arguing that no specific expenditure was incurred for earning exempted income. The Tribunal noted that the AO calculated disallowance based on the average value of all investments, contrary to the requirement of considering only investments yielding exempt income. Citing the Special Bench decision in the case of Vireet Investments, the Tribunal directed the AO to recompute the disallowance considering only dividend-yielding investments. The ground of appeal was allowed for statistical purposes.

Issue 2: Disallowance of provision for long term retention bonus:
The AO disallowed the claim for long-term retention bonus as it was not paid before the due date of filing the return. The Tribunal acknowledged the bonus as an ascertained liability but upheld the disallowance under Section 43B of the Act. However, it allowed the claim if paid in subsequent years. The ground of appeal was dismissed.

Issue 3: Disallowance of rent equalization provision:
The Tribunal found insufficient evidence regarding the rent equalization provision claimed by the assessee. Consequently, it directed the AO to verify the material and evidence related to the claim made in earlier years. The ground of appeal was allowed for statistical purposes.

Issue 4: Disallowance of expenses incurred in foreign currency:
The Tribunal, relying on the decision of the jurisdictional High Court in the case of Tata Elxsi, directed the AO to reduce expenses incurred in foreign exchange from both export turnover and total turnover while computing the claim under Section 10A. The ground of appeal of the assessee was allowed.

Issue 5: Levy of Interest under Section 234B:
No specific details were provided in the judgment regarding the challenge to the levy of interest under Section 234B. Hence, the outcome or analysis of this issue is not included in the summary.

In conclusion, the Tribunal's judgment addressed various issues raised by the assessee concerning disallowances and provisions under the Income-tax Act, 1961. The Tribunal allowed certain grounds for statistical purposes, directed the AO to recompute disallowances accurately, and upheld disallowances based on legal provisions. The judgment provided detailed reasoning for each issue, ensuring a fair and comprehensive analysis of the disputed matters.