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TMI Blog2019 (12) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 even when no such addition is called for. 2. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in confirming disallowance u/s.14A of the Act to the Book Profit u/s. 115JB of the Act even when no such addition is called for. 3. On the facts and in the circumstances of the case, the CIT (Appeals) has erred in confirming disallowance at Rs. 9,26,942/- u/s. 36(1)(va) of the Act on account of late payment of Employee's contribution to PF without appreciating the facts that the same were deposited before the due date of filing the Return of Income, hence not subject to disallowance. 4. The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. The 1st issue raised by the assessee is that the Ld. CIT (A) erred in confirming the addition made by the AO for Rs. 8,33,606/- only under section 14A read with rule 8D of the Income Tax Rules while computing the income under normal computation as well as MAT computation under section 115JB of the Act. 2. The facts in brief are that the assessee in the present case is a private limited company and engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules with respect to 2 partnership firms and the investment in shares. The details of such partnership firms and investment in the company stand as under: Working for average Investment is as under: Particulars 31.03.2013 31.03.2012 Investment in firms from where no interest income/no profit has been derived 17,47,497 Goyal Hariyana construction 1,00,00,000 -34,50,000 Sahibaug Orchid Developers 4,76,908,537 4,75,68,537 Investment in equity shares SGV Shares 4,13,26,400 4,13,26,400 Total Investments 9,90,24,937 8,54,44,937 Average Investments 9,22,34,937 Particulars 31.03.2013 31.03.2012 Total assets 3,10,84,82,769 3,63,44,24,240 Average Total assets 337,14,53,505 2.7 The assessee accordingly made the disallowance of the expenses against the exempted income earned from the partnership firms on account of exempted income by way of share of profit in the manner as detailed below: Particulars Amount (Rs) Proportionate disallowance of interest [Interest on Loans * Average Investments/Average Assets = 6,57,03,694* 9,22,34,937/337,1453,505] 17,47,497 Administrative Expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the share of profit received by it from the partnership firms has already suffered the tax in the hands of such firms. Therefore there cannot be made the disallowance of any expense under the provisions of section 14A read with rule 8D of Income Tax Rule against such share of profit. 3.3 However, the Ld. CIT (A) disregarded the contention of the assessee by observing the fact that similar disallowance was made in the case of the assessee for the immediate preceding assessment year by his predecessor. Accordingly, the Ld. CIT (A) confirmed the order of the AO while computing the income under normal computation and under MAT computation under section 115JB of the Act. Being aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us. 4. The Ld. AR before us filed a paper book running from pages 1 to 44 and submitted that the assessee has made the suo-moto disallowance of the interest and administrative expenses amounting to Rs. 18,47,479/- but the AO, without pointing out any defect in such disallowance has rejected the same and made the disallowance as per the provisions of section 14A read with rule 8D of Income Tax Rule. 4.1 The Ld. AR also submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out any defect in the disallowance made by the assessee. Thus in our considered view such act of the AO is in violation of the provisions of section 14A read with rule 8D of Income Tax Rule. As such, the AO was under the obligation to record the dissatisfaction about the correctness of the claim of the assessee. 6.3 In this regard, we also find support and guidance from the order of Hon'ble Mumbai Tribunal in the case of DCIT v/s Pidilite Industries Ltd. reported in 107 Taxmann.com 91 wherein it was held that the AO is to form an opinion as to why the disallowance offered by the assessee, having regards to its accounts, was not satisfactory or correct. The aforesaid satisfaction of the AO is sine-qua-non, before acquiring jurisdiction under section 14A r.w. rule 8D of Income Tax Rules. The relevant headnotes of the order is reproduced hereunder; "Where assessee declared tax exempt income and offered suo-moto disallowance of certain expenditure under section 14A, since Assessing Officer did not specify any cause of dissatisfaction with assessee's working of disallowance under section 14A, Assessing Officer was not justified in recomputing disallowance." 6.4 We fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dividend income for making the disallowance on account of interest expenses. Admittedly, the own fund of the assessee stands at Rs. 115,45,31,645/- as on 31st March, 2013 whereas the investment in the alleged partnership firms stands at Rs. 9,90,24,937/-. Thus it is clear that the own fund of the assessee exceeds the investment. Therefore in our considered view there cannot be any disallowance of interest expenses. In this regard we place our reliance on the judgment of Hon'ble High Court of Gujarat in the case of CIT v/s Gujarat State Fertilizers and Chemicals Limited reported in 36 taxmann.com 230 wherein it was held as under; "Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In absence of section 14A, the expenditure incurred in respect of exempt income was also being claimed against taxable income and such practice, since was to be curbed, section 14A was inserted. It is clarified that sub-section (1) of section 14A clearly stipulates that for the purpose of computing total income under Chapter IV, no deduction is permissible in respect of the expenditure incurred in relation to the income which does not form part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.9 However, we note that in the recent judgment of Special Bench of Hon'ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: "In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962." 6.10 The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. 6.11 However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act subject to the condition that the disallowance shall not exceed the amount of disallowance determined by the authorities below. Hence the ground of appeal of the assessee is partly allowed. The 2nd issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of Rs. 9,26,942/- on account of late payment of employees contribution to Provident fund. 7. The assessee in the year under consideration has deposited the employees Provident fund and ESIC after the due date as specified under the relevant Act amounting to Rs. 9,26,942.00 only. The AO accordingly found that the impugned expenses is not eligible for deduction under section 36(1)(va) read with section 2(24)(x) of the Act. Accordingly the AO disallowed the same and added to the total income of the assessee. 8. Aggrieved assessee preferred an appeal to the learned CIT (A) who has confirmed the order of the AO. 9. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us. The ld. AR before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Ld CIT(A) has erred in confirming disallowance u/s.14A of the Act to the Book Profit u/s. 115JB of the Act even when no such addition is called for. 3. On the facts and in the circumstances of the case, the CIT (Appeals) has erred in confirming disallowance at Rs. 26,880/- u/s. 36(1)(va) of the Act on account of late payment of Employee's contribution to PF without appreciating the facts that the same were deposited before the due date of filing the Return of Income, hence not subject to disallowance. 4. The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. The 1st issue raised by the assessee is that the ld. CIT-A erred in confirming the disallowance made by the AO for Rs. 79,28,690.00 only. 12. At the outset, we note that the issue raised by the assessee as discussed above is identical to the issue raised in ITA No. 1757/AHD/2017 which has been decided by us in favour of the assessee vide paragraph number 6 to 6.5 of this order. For the detailed discussion, please refer the relevant paragraph. Respectfully following the same we allow the ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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