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2021 (7) TMI 1201 - AT - Income TaxDisallowance of provision for payment of ex-gratia - liability and ascertainment of the quantum of liability with reasonable certainty - HELD THAT - The payment is in reference to the Financial Year 2008- 09 relevant to Assessment Year 2009-10. The order of Managing Director approving payment is stated to be dated 31.03.2010. Prima facie it appears that the quantification of the liability at ₹ 18,90,000/- by the assessee to be true to the extent of ₹ 18,66,328/- which is the actual payment made towards ex-gratia and approved by the Government. We are, however, of the view that the assessee has to furnish the evidence on the basis of which he quantified the liability at ₹ 18.90 lakhs and what is the Rules / Policy under which ex-gratia payments are made and how the quantification made by the assessee is in accordance with the Rules / Policy of the Government in this regard. We therefore deem it fit and appropriate to remit the issue to the AO for fresh consideration with the direction to the assessee to establish conditions necessary for considering the liability in question as ascertained liability on the basis of the principles laid down by the Hon ble Supreme Court in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT The AO will afford opportunity of being heard to the assessee before deciding the issue. Thus the relevant grounds of appeal of the assessee are treated as allowed for statistical purposes. Disallowance u/s 14A - HELD THAT - The explanation given by the assessee before us is not sufficient to avoid the disallowance in terms of Rule 8D(2)(ii) of the Rules. The assessee has to establish by necessary fund flow statements that burrowed funds on which interest paid was not utilized for the purpose of making investments with yielded tax free income. In these circumstances, we are of the view that the disallowance made by the Revenue authorities by invoking the provisions of section 14A of the Act read with Rule 8D(2)(ii) and 8D(2)(iii) of the Rules deserves to be upheld and the same is upheld. The grounds of appeal are accordingly dismissed. Computation of tax liability under section 115JB - HELD THAT - We are of the view that the computation of income under section 115JB of the Act is automatic and the conditions laid down in section 115JB of the Act are satisfied. It is not the case of the assessee that in computing the income under section 115JB of the Act, there has been violation of the provisions of those sections. Validity of proceedings under section 148 - It is the plea of the assessee that having initiated proceedings under section 154 of the Act, the AO cannot issue notice under section 148 of the Act on the ground of belief regarding escapement of income - HELD THAT - We are of the view that the provisions under section 154 and 148 of the Act are for different purposes and so long as conditions for initiating proceedings under section 148 of the Act are satisfied, the initiation of proceedings cannot be held to be invalid. We therefore concur with the view of the CIT(A) on this issue.
Issues Involved:
1. Disallowance of provision for ex-gratia payment. 2. Disallowance under section 14A of the Income Tax Act. 3. Computation of tax liability under section 115JB. 4. Validity of proceedings under section 148 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Provision for Ex-Gratia Payment: The assessee challenged the disallowance of ?18,90,000 towards ex-gratia payment for the Assessment Year (AY) 2009-10. The AO disallowed this amount, considering it an unascertained liability. The CIT(A) concurred, stating that the liability was contingent as it required government approval. The Tribunal referred to the Supreme Court's decision in Bharat Earth Movers Vs. CIT, which states that a business liability should be allowed as a deduction if it is definite, even if it needs to be quantified later. The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to provide evidence that the liability was ascertained based on government rules/policy. For AY 2010-11, the assessee contested a similar disallowance of ?38,90,000. The Tribunal observed that this issue was not part of the order passed under section 143(3) r.w.s. 147 and thus dismissed the grounds. However, it noted that the issue would be adjudicated in ITA No.1925/Bang/2017, where it remanded the issue back to the AO for fresh consideration, consistent with the directions for AY 2009-10. 2. Disallowance under Section 14A of the Income Tax Act: For AY 2009-10, the AO disallowed ?41,28,225 under section 14A read with Rule 8D, as the assessee earned exempt dividend income of ?7,70,76,402 and incurred interest expenditure of ?2,50,93,000. The AO applied Rule 8D(2)(ii) and (iii), concluding that investments were made from a common pool of funds, and the assessee did not maintain separate records. The CIT(A) upheld this disallowance, noting that the assessee failed to provide a fund-flow breakup to counter the AO's findings. The Tribunal upheld the disallowance, stating that the assessee did not sufficiently demonstrate that borrowed funds were not used for tax-free investments. For AY 2010-11, the facts and reasons for disallowance were identical to AY 2009-10. The AO disallowed ?36,52,797 under section 14A read with Rule 8D. The CIT(A) confirmed this disallowance, and the Tribunal upheld it, applying the same rationale as for AY 2009-10. 3. Computation of Tax Liability under Section 115JB: The assessee contested the computation of tax under section 115JB, arguing that it was done without a show-cause notice, violating principles of natural justice. The Tribunal dismissed these grounds, stating that the computation under section 115JB is automatic if conditions are satisfied, and there was no claim of violation of the section's provisions. 4. Validity of Proceedings under Section 148: For AY 2010-11, the assessee challenged the validity of proceedings under section 148, arguing that the AO issued a notice under section 154 and then under section 148 without continuing the former. The Tribunal upheld the proceedings, stating that sections 154 and 148 serve different purposes, and as long as conditions for section 148 are met, the initiation is valid. Conclusion: - ITA Nos.971/Bang/2018 and 1925/Bang/2017 were partly allowed for statistical purposes, remanding certain issues back to the AO for fresh consideration. - ITA No.972/Bang/2018 was dismissed.
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