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2021 (10) TMI 1200 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - mandation of recording satisfaction - Addition being 0.5% of the average of opening and closing investment in mutual funds pertaining to financial year 2012-13 - whether AO failed record his dissatisfaction with the working given by the assessee that they have not incurred any expenditure to earn the dividend income? - HELD THAT - When assessee has come up with a categoric defence that no expenditure has been incurred to earn the dividend income during the years under assessment and that all the investment during the years under assessment are dividend reinvested (Debt Oriented Funds) and that no direct investment has been made rather dividend has been reinvested by the company during the years under assessment and has brought on record complete fund statement issued by the ICICI Prudential Fund wherein the entire investment shown in the year under consideration is dividend reinvested (Debt Oriented Funds), AO was required to record his categoric dissatisfaction as to working of the assessee that such and such expenses have been incurred to earn dividend income, but not shown. When ld. CIT (A) himself recorded that, it may not be possible to find out the actual expenditure incurred in relation to the earning of exempt income , it is difficult to reject the working brought on record by the assessee too that no expenditure has been incurred to earn dividend income by the assessee. Moreover, the entire investment made by the assessee during the years under assessment is dividend reinvested and in these circumstances, the provisions contained u/s 14A read with Rule 8D cannot be invoked mechanically. In AY 2014-15 also, AO has mechanically applied section 14A read with Rule 8D without recording any dissatisfaction as to the working given by the assessee as to not incurring any expenses to earn the dividend income rather based his findings on the basis of generic observations that such a huge investment cannot be made without incurring expenditure. For AY 2014-15 also, assessee has brought on record fund statement also showing entire investment for the year under assessment as dividend reinvested which ratifies the working given by assessee. By following the law laid down in Godrej Boyce Manufacturing Company Ltd. 2017 (5) TMI 403 - SUPREME COURT and Maxopp Investment Ltd . 2011 (11) TMI 267 - DELHI HIGH COURT we are of the considered view that disallowance for Assessment Years 2013-14 2014-15 respectively by mechanically applying the provisions contained u/s 14A read with Rule 8D(2) are not sustainable in the eyes of law because sub-section (2) (3) of section 14A with Rule 8D of the Rules has only prescribed a formula for determination of an expenditure to earn the income which does not form part of the total income under the Act, which can only be invoked if the AO is not satisfied with the claim of the assessee. It is a matter of fact that the entire investment during the year under consideration is on account of dividend reinvested (Debt Oriented Funds) not creating any occasion for the assessee company to put in their administrative and managerial manpower for making investment. So, AO is directed to delete the disallowance for Assessment Years 2013-14 2014-15 respectively after due verification that apart from dividend reinvested no other investment has been made by the assessee company. - Decided in favour of assessee. Education Cess (EC) and Secondary Higher Education Cess (SHEC) on income-tax being an allowable expenditure for computing the total income - HELD THAT - As it is settled principle of law that Education Cess and Secondary Higher Education Cess paid on income-tax is an allowable deduction for computing the total income being not hit by the provisions contained u/s 40A(ii) of the Act, as has been held by Hon ble Bombay High Court in case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT . Hon ble High Court in Sesa Goa Ltd. case (supra) held that education cess or any other cess is not included in clause (ii) of section 40(a) of the Act so there is no prohibition in claiming deduction of such amounts while computing the income of the assessee under the head profits gains of business or profession . Coordinate Bench of the Tribunal in case of Sicpa India Private Ltd. 2020 (4) TMI 425 - ITAT DELHI also decided the identical issue by holding that education cess on income-tax, dividend distribution tax and fringe benefit tax is not a disallowable expenditure under section 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) - education cess and secondary higher education cess is an allowable deduction being not hit by the provisions of section 40(a)(ii) of the Act. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962. 2. Credit of Minimum Alternate Tax (MAT). 3. Allowability of Education Cess and Secondary & Higher Education Cess as deductible expenditure. 4. Penalty proceedings under Section 271(1)(c) of the Act. 5. Charging of interest under Sections 234B and 234C of the Act. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The primary issue was the disallowance of ?2,251,065 for AY 2013-14 and ?3,575,677 for AY 2014-15 under Section 14A read with Rule 8D. The assessee argued that no expenditure was incurred to earn the exempt dividend income, which was merely a reinvestment of units issued as dividends on mutual funds. The AO disallowed the amounts based on the premise that the assessee did not maintain a separate investment division and used the company's infrastructure for investment purposes. The Tribunal found that the AO had not recorded any dissatisfaction with the assessee's claim that no expenditure was incurred. The Tribunal referred to the decisions in Maxopp Investment Ltd. and Godrej & Boyce Manufacturing Company Ltd., emphasizing that the AO must first reject the assessee's claim with cogent reasons before determining the disallowance. The Tribunal concluded that the disallowances were made mechanically without proper satisfaction and directed the AO to delete the disallowances after verification. 2. Credit of Minimum Alternate Tax (MAT): For AY 2014-15, the assessee challenged the AO's decision not to allow credit of MAT amounting to ?20,967,078. The Tribunal noted that the assessee had already filed an application under Section 154 of the Act, which was pending adjudication. The Tribunal directed the AO to decide the application within two months and allowed the ground for statistical purposes. 3. Allowability of Education Cess and Secondary & Higher Education Cess: The assessee raised an additional ground seeking to allow education cess and secondary & higher education cess as deductible expenditure. The Tribunal referred to the decision of the Bombay High Court in Sesa Goa Ltd., which held that education cess is not included in Section 40(a)(ii) of the Act and is therefore deductible. The Tribunal followed this decision and directed the AO to allow the deduction of education cess and secondary & higher education cess for both AYs 2013-14 and 2014-15. 4. Penalty Proceedings under Section 271(1)(c): The assessee contended that the AO initiated penalty proceedings under Section 271(1)(c) mechanically and without recording any satisfaction. However, the Tribunal did not provide a specific finding on this issue, focusing instead on the main disallowance under Section 14A. 5. Charging of Interest under Sections 234B and 234C: The assessee argued against the charging of interest under Sections 234B and 234C for AY 2014-15. The Tribunal noted that this ground was consequential in nature and did not require a specific finding. Conclusion: The Tribunal allowed the appeal for AY 2013-14 and the appeal for AY 2014-15 for statistical purposes. The disallowances under Section 14A were deleted, and the AO was directed to decide the MAT credit issue and allow the deduction of education cess and secondary & higher education cess. The penalty proceedings and interest charges were noted but not specifically addressed.
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