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TMI Blog2014 (10) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... ties have rightly disallowed the amount as interest on service tax outstanding under the provisions of section 43B of the Act – Decided against assessee. Addition u/s 40(a)(ia) - Amount outstanding as on the close of the year paid and evidence furnished – Held that:- While deciding the issue the CIT(A) has not specifically addressed the contention of the assessee that with the document in support that whatever amount of TDS was due on 31.3.2009 was duly paid before the due date of filing the return u/s 139 (i) of the Act – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Addition u/s 14A - Applicability of Rule 8D - Expenses on dividend income – Proper application of mind or not – Held that:- Rule 8D of the I.T. Rules 1962 is applicable in the assessment year under consideration – relying upon Maxopp Investment Ltd. VS. CIT [2011 (11) TMI 267 - Delhi High Court] - during the year the assesse had disposed some investments - The company had also taken loans from bank and other to the extent of ₹ 22,65,18,740 - The assessee however could not demonstrate by way of any evidence that none of the loan funds have been use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the assessee of deduction of ₹ 36,61,123/- being interest on service tax payable which was not actually paid before filing of return of income is disallowable u/s 43B of the Act. He accordingly added this amount to the total income of the assessee. This action of the AO has been upheld by the Ld. CIT(A). 4. In support of the grounds the Ld. AR reiterated the submissions made on behalf of the assessee before the authorities below and the decisions relied upon before them. He submitted that the issue raised in the ground is fully covered by the decision of Hon ble Jurisdictional Delhi High Court in the case of Sanjay Ghai (W.P. 5175/2012 C.M Appl. 4936/2012 and of Hon ble Gujarat High Court in the case of Maganbhai Hansrajbhai Patel vs. ACIT and another (2012)211 taxman 386(Gujarat). He submitted further that the decision of Hon ble Supreme Court in the case of Mahalaxshmi Sugar Mills Company vs. CIT (1980) 123 ITR 492 (SC) relied upon by the AO having all together a different context is not helpful to the revenue. In that case the issue was whether the interest on cess is allowable as a business expenditure or not, whereas the provisions u/s 43B are all to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to recover outstanding demand under the Act of a private company from the directors of such company in certain case. However, some courts interpreted the phrase tax due used in section 179 to hold that it does not include penalty, interest and others sum payable under the Act. In view of the above amendments on the similar lines for clarifying the expression tax due is proposed to be made to the provisions of section 167 C w.e.f 1.6.2013. 7. Ld. DR also placed reliance on the following decisions :- Shree Pipes vs. DCIT (2007) 162 Taxman 442 (Rajasthan) Mewar Motors vs. CIT (2004) 135 Taxman 155 (Rajasthan) Mahalakshmi Sugar Mills Co. vs. vs. CIT (1980) 123 ITR 429 (SC) CIT vs. Udaipur Distillery (1986) 24 taxman 282 (RAj.) Harshad Shantilal Mehta (1998) 99 Taxman 216 (SC) Shankar Trading Co. (P) Ltd. vs. CIT (2012) 342 ITR 81 (Delhi) 8. Ld. DR also referred the budget speech of the then Finance Minister while moving for insertion of section 43B through Finance Bill, 1983 which is reproduced hereunder :- Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer s con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the word has been used. As the decision of Harshad Shantilal Mehta s case (supra) was rendered in the context of special provisions of the Act of 1992 for fixing priorities of certain liabilities incurred during specified period only, its ratio does not govern the case, where restriction on allowability of a claim to deduction which is otherwise allowable had been provided which is not confined to liability of tax for specified period, but refer to taxes payable. Hon ble Rajasthan High Court in the case of Shri Pipes has fortified their view by its earlier decision in the case of Mewar Motors (supra) wherein while considering the provisions of section 43B of the Act, the Hon ble Court has opined that the object of section 43B of the I.T. Act 1961 is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of sales tax or excise duty for long period, but claim deduction in that regard from the income on the ground that the liability to pay this amount had been incurred by them in the relevant previous year. It was held that the interest paid is part of sales tax. The interest payable to the sales tax department is also tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also a tax and the provisions of section 43B of the Act are very much applicable thereto. The ratio laid down in the cited decisions by the Ld. DR in the cases of Mewar Motors (supra) and Shree Pipes (supra) holding that interest payable to the sales tax department is also tax and the provisions of section 43B of the Act are applicable thereto is equally relevant under the facts and circumstances of the present case on the issue as it has not been disputed by the assesee that payment of due service tax is a statutory liability hence in our opinion interest payable on the delayed payment of due service tax cannot be treated as different from the payment of service tax by the assesee. We thus respectfully following the ratio laid down by the Hon ble Jurisdictional Delhi High Court in the case of Shankar Trading Company PVt. Ltd. (supra) and of Hon ble Rajasthan High Court in the cases of Shree Pipes (supra) , Mewar Motors (supra) and Udaipur Distillery (supra) hold that the provisions of section 43B are applicable on non payment of interest during the year on the delayed payment of due service tax. The authorities have thus rightly disallowed ₹ 36,61,123/- being interest on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31.3.2009 in the balance sheet and the auditors would have commented on it. The Ld. AR pointed out that before the AO copy of the schedule of unpaid statutory dues on 31.3.2009 was submitted, wherein the TDS due was reflected. The assessee had also enclosed photocopies of the challans for payment of TDS from where it may be confirmed that whatever amount of TDS was due on 31.3.2009 was duly paid before the due date of filing the return of income u/s 139 of the Act. The Ld. AR pointed out that similar contention was made before the Ld. CIT(A) which has been reproduced while dealing with the ground in its order but the same has not been considered by the Ld. CIT(A). He similarly upheld the action of the AO in this regard on the basis that the AO has made the addition on this account after thorough verification of the facts. 15. The Ld. DR on the other hand tried to justify the orders of the authorities below in this regard. He submitted that the AO has mentioned the date of credit and date of payment regarding the amount with the details of the deductees. Hence it cannot be stated that the authorities below have not applied their mind while adjudicating upon the issue. 16. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed. He also pointed out that the AO has added back a sum of ₹ 6,09,577/- as expenses attributable to earning dividend income of ₹ 26,620/-. He placed reliance on the decision of Hon ble Kerala High Court in the case of CIT Vs. Leena Rama Chandran (Kerala), 339 ITR 296 (Kerala). 19. Ld. DR on the other hand placed reliance on the orders of the authorities below and the decisions relied upon by them. 20. Considering the above submission we find that there is no dispute that Rule 8D of the I.T. Rules 1962 is applicable in the assessment year under consideration. Thus we have to examine the issue in view of the provisions laid down u/s 14A read with Rule 8D. The ratio laid down by the Hon ble Jurisdictional High Court in the case of Maxopp Investment Ltd. VS. CIT 247 ITR (Del) 1 is applicable in the present case. The relevant extract thereof is being reproduced hereunder for a ready reference :- 30. As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is such method as may be prescribed . We have already mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure one half percent of the average value of the investment, income from which does not or shall not form part of the total income, I have considered the submissions and facts on record. 21. The AO has placed reliance on several decisions while dealing with the contention of the assessee that only a small dividend of ₹ 26,620/- was earned for which the AO has proposed disallowance of ₹ 609577/- u/s 14A of the Act. These decisions are Renaissance Asset Management Co. (P) Ltd. vs. Assessing Officer (2010) 2 ITR (Trib.) 765 (Delhi) holding that any expenses which are attributed to investment activity have to be considered as expenses incurred for earning dividend income because the investment is made to earn dividend income. It was held further that it is not relevant as to whether any dividend income was received by the assessee or not and what was the amount of dividend income. The AO has also relied upon on the decision of Hon ble Dhanuka Sons vs. CIT (2011) 12 Taxman 227 (Calcutta) ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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