2020 (6) TMI 470 - AT - Income Tax

Disallowance u/s. 14A r.w.r 8D - Whether disallowance cannot be made in the absence of exempt income earned during a year? - disallowance on first appeal filed by assessee with learned CIT(A) stood deleted by learned CIT(A) on the ground that the assessee has not received any exempt income during the year under consideration - HELD THAT - Hon ble Delhi High Court in the case of M/s.Cheminvest Ltd., v. C.I.T 2015 (9) TMI 238 - DELHI HIGH COURT had held that no disallowance of expenditure is warranted by invoking provisions of section 14A of the Act when no exempt income is received by the taxpayer during the year under consideration. Thus, on this short reasoning alone that no disallowance of expenditure incurred can be made by invoking provisions of Section 14A of the 1961 Act whence the tax-payer has not received any exempt income during the year under consideration, we dismiss the grounds raised by Revenue w.r.t. disallowances made u/s 14A of the 1961 Act and uphold decision of learned CIT(A) in deleting disallowance of expenditure. The Revenue fails on this issue. Deduction u/s. 36(1)(viii) disallowed - AO observed that the assessee has claimed deduction to the tune of 20% of total business income instead of profits derived from providing long term finance for construction or purchase of houses in India for residential purposes - HELD THAT - Some of the incomes such as notice period salary, other income, interest on car/personal loan, interest on conveyance loans, PEMI on personal loans, penal interest on personal loans have no direct and immediate nexus with profits derived from loans granted for construction or purchase of house in India for residential purposes, while for other components of income, we are remitting the matter back to AO to decide the above in light of Hon ble Supreme Court decisions in the case of Pandian Chemicals 2003 (4) TMI 3 - SUPREME COURT , Sterling Foods 1999 (4) TMI 1 - SUPREME COURT , Cambay Electricity 1978 (4) TMI 1 - SUPREME COURT and Bacha F Guzdar 1954 (10) TMI 2 - SUPREME COURT and if it is found that there is direct and immediate nexus of the said income with grant of loans for construction or purchase of houses in India for residential purposes, the same shall be included for computing deduction u/s 36(1)(viii) of the 1961 Act. The onus is on the assessee to prove that it is eligible for deduction u/s 36(1)(viii) of the 1961 Act and claim of the assessee for grant of deduction u/s 36(1)(viii) is to be strictly construed. etc. Delay in employee contribution to P.F. - Disallowance u/s 36(1)(va) read with section 2(24)(x) - HELD THAT - Hon ble Madras High Court in the case of Industrial Security and Intelligence India Private Limited 2015 (7) TMI 1063 - MADRAS HIGH COURT after considering and interpreting the decision of Hon ble Supreme Court in the case of Alom Extrusion 2009 (11) TMI 27 - SUPREME COURT andAimil Limited 2009 (12) TMI 38 - DELHI HIGH COURT held that deduction is to be allowed for belated payment of employee contribution to PF/ESI which is deposited beyond the due date stipulated under the relevant statutes governing PF/ESI, but the same stood deposited before the due date for filing of return of income as is prescribed u/s 139(1) of the 1961 Act - we allow the claim of the assessee for deduction towards employees contribution to PF which was deposited late beyond due date as prescribed under relevant statute governing PF, but the same stood deposited to the credit of employees with relevant fund before the due date for filing of return of income as prescribed u/s 139(1) - Decided against revenue.

Summary

Issues Involved:

1. Disallowance of expenditure under Section 14A read with Rule 8D.
2. Disallowance under Section 36(1)(viii) regarding long-term finance for housing.
3. Disallowance under Section 36(1)(va) read with Section 2(24)(x) on employee’s contribution towards PF due to delayed remittance.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure under Section 14A read with Rule 8D:

The Revenue challenged the deletion of disallowance of ?4,02,500/- made by the AO under Section 14A read with Rule 8D(2)(iii) on the grounds that the assessee had investments capable of earning exempt income. However, it was admitted that no exempt income was earned during the year. The Tribunal upheld the CIT(A)’s decision, referencing the jurisdictional High Court’s ruling in Redington (India) Ltd. v. Addl. CIT and the Delhi High Court’s decision in M/s. Cheminvest Ltd. v. CIT, which stated that no disallowance under Section 14A is warranted if no exempt income is earned during the year. Thus, the Revenue’s appeal on this issue was dismissed.

2. Disallowance under Section 36(1)(viii) Regarding Long-term Finance for Housing:

The AO disallowed ?8,78,08,404/- out of the total deduction claimed under Section 36(1)(viii), arguing that not all loans were for long-term housing finance. The CIT(A) partly allowed the assessee’s appeal, directing the AO to include certain short-term loans classified under Schedule VI of the Companies Act as long-term loans for housing finance. The Tribunal upheld the CIT(A)’s decision but clarified that only current maturities of housing loans should be included for deduction under Section 36(1)(viii), excluding mortgage and commercial loans. The Tribunal remanded the matter back to the AO to verify the nature of plot loans and loans for repairs and renovations to ensure they qualify for deduction under Section 36(1)(viii).

3. Disallowance under Section 36(1)(va) Read with Section 2(24)(x) on Employee’s Contribution towards PF:

The AO disallowed ?6,31,788/- on the grounds of delayed remittance of employees’ PF contributions. The CIT(A) allowed the deduction, relying on the Supreme Court’s decision in CIT v. Alom Extrusions Ltd. and other High Court rulings, which permitted deductions if contributions were deposited before the due date for filing the return under Section 139(1). The Tribunal upheld the CIT(A)’s decision, referencing the jurisdictional High Court’s ruling in CIT v. Industrial Security and Intelligence India Pvt. Ltd., which allowed such deductions despite delays in remittance, provided the contributions were deposited before the due date for filing the return.

Conclusion:

The Tribunal dismissed the Revenue’s appeal on the disallowance under Section 14A read with Rule 8D and upheld the CIT(A)’s partial relief on the deduction under Section 36(1)(viii). It remanded the matter to the AO for verification of specific loan details. The Tribunal also upheld the CIT(A)’s decision on the deduction under Section 36(1)(va) read with Section 2(24)(x), allowing the deduction for delayed remittance of employees' PF contributions. The Revenue’s appeal was partly allowed for statistical purposes.