2022 (1) TMI 1100 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - Assessee claimed that it has got huge internal accruals and interest free funds for making the investment and therefore, no disallowance should be made u/s. 14A - HELD THAT - As decided in assessee's own case 2021 (5) TMI 667 - ITAT PUNE both own funds and interest bearing funds are intermixed. Therefore, it becomes necessary to factually verify whether the entire investments were made only from interest free funds. We are of the considered view, therefore, in the interest of justice, this issue should be remanded back to the file of the AO for verification of investments made vis-a-vis interest free funds available with the assessee during the year under consideration. In view, thereof, we set aside the order of the Ld. CIT (Appeals) on this issue and remand the same back to the file of the Assessing Officer for adjudication after complying with the principles of natural justice as indicated hereinabove. Thus in the same parity of reasoning under the same set of facts and circumstances as also admitted by the parties herein, we set-aside the order of the ld. CIT(A) on this issue and remand the same back to the file of the AO for adjudication after complying with the principles of natural justice. Thus, the issue raised in the regular grounds of appeal related to the disallowance u/s. 14 is allowed for statistical purposes. Deduction paid towards Education Cess under Finance act while computing the taxable income under normal Provision of the IT Act - HELD THAT - The Hon'ble High Court of Bombay in the case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act. Thus the issue of 'education cess' is an allowable expenditure as per provisions of Section 40(a)(ii) of the Act and placing reliance on the decision of the Hon'ble Bombay High Court (supra.), we direct the Assessing Officer to allow deduction in respect of Education Cess paid by the assessee. Accordingly, the additional ground of appeal No. 1 raised by the assessee is allowed.

Summary

Issues:
1. Disallowance under section 14A of the Income-tax Act, 1961.
2. Deduction of Education Cess under Finance Act.

Issue 1: Disallowance under section 14A of the Income-tax Act, 1961:
The appeal pertains to the disallowance under section 14A of the Income-tax Act, 1961. The Assessing Officer had worked out a disallowance under section 14A amounting to ?16,15,218 and made a disallowance of ?14,24,055 after considering the amount disallowed by the assessee in the computation of income. The assessee contended that the investments were made from interest-free funds, but failed to provide sufficient evidence to support this claim. The Tribunal, after analyzing the facts and circumstances, found that the assessee did not establish through evidence that the investments were made from its own reserves and interest-free funds. Consequently, the Tribunal remanded the issue back to the Assessing Officer for verification, emphasizing the need to examine whether the investments were made solely from interest-free funds.

Issue 2: Deduction of Education Cess under Finance Act:
The additional ground of appeal raised by the assessee was regarding the deduction of ?3,60,000 paid towards Education Cess under the Finance Act while computing taxable income under the normal provisions of the Income Tax Act. The Tribunal, considering the legal perspective and relying on the decision of the Honorable Bombay High Court, held that Education Cess is an allowable expenditure as per the provisions of Section 40(a)(ii) of the Act. The Tribunal directed the Assessing Officer to allow deduction in respect of Education Cess paid by the assessee. The additional ground of appeal concerning Education Cess was allowed based on legal reasoning and the precedent set by the Bombay High Court.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, remanding the issue of disallowance under section 14A back to the Assessing Officer for further verification and allowing the deduction of Education Cess paid by the assessee under the Finance Act. The decision was pronounced on January 19, 2022.