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TMI Blog2020 (1) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... in India for the year under consideration . So far as claim of the assessee having made strategic investments or investments in subsidiary companies or group /associated companies in India or companies promoted by it and on that short ground seeking exclusion from invocation of Section 14A o the issue is no more res integra as Hon ble Supreme Court has settled this controversy in its judgment in the case of Maxopp Investment Limited v. CIT [ 2018 (3) TMI 805 - SUPREME COURT] wherein this issue is decided in favour of Revenue and such investments are to be considered/included for making disallowance of expenses u/s.14A - AO is directed to include such investments for making disallowance of expensed incurred in relation to earning of an exempt income by invoking provisions of Section 14A - Thirdly, in the case of ACIT v. M/s.Vireet Investment Pvt. Ltd. vs. ACIT, [ 2017 (6) TMI 1124 - ITAT DELHI] has held that investments which yielded dividend income during the year under consideration are only to be considered for the purposes of making disallowance of expenses u/s 14A. We are bound by aforesaid decision of Special Bench of the tribunal. The AO shall verify those investments which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow are hereby confirmed. More over, the assessee is relying on the orders of the authorities for ay(s): 2007-08 and 2008-09, while we are presently concerned with ay: 2012-13 which is a distant ay and onus was on assessee to prove business nexus and expenses being incurred in the year under consideration wholly and exclusively for the purposes of business of the assessee as is mandated u/s 37(1) - Decided against assessee Disallowance of business deduction being provision for profit incentive payable to its employees which was debited to P L A/c but was not paid during the previous year - HELD THAT:- Provisions of Section 36(1)(ii) read with Section 43B(c) cannot be applied , as these payments are not towards bonus but are governed by commercial expediency to have smooth operations and to avert strike. However, Memorandum of Settlement produced before us is dated 04.09.1977 which is in operation only till 31.12.1980 , while we are presently seized of ay: 2012-13. There is no finding of lower authorities as to whether this Memorandum of Settlement is still operative even in impugned ay. There is no finding/evidence on record to come to the said conclusion that the said memora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case and in law. (2) The learned CIT(A) has grossly erred in relying on certain decisions in support of his decision, which are not applicable to the facts of the case of the appellant and therefore, the disallowance of ₹ 63,53,585/- under Rule 8D(2)(iii), clearly unsustainable, in the facts and the circumstances of the case and in law. (3) The learned CIT(A)-I, Coimbatore, has grossly erred in confirming the disallowance of ₹ 15.52 crores, disregarding that the appellant, in terms of the provisions of Section 43(2) - Paid , has incurred the expenditure relating to ₹ 15.52 crores, during the previous year, in question, wholly and exclusively for the purpose of the business and therefore, the claim should be allowed in the Asst. Year 2012-13, in the facts and the circumstances of the case and in law. (4) The learned CIT(A) has grossly erred in holding that the AO was right in disallowing the claim for deduction of ₹ 15.52 crores, as it can only be allowed only in the year of actual payment and not on the basis of the method of accounting upon the basis of which the profits or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that with respect to investments made in foreign companies, the dividend income is taxable in India and hence Section 14A of the 1961 Act cannot be invoked as dividend income received from foreign companies in which assessee made investments is itself taxable and not exempt from income-tax . It was further submitted by ld.Counsel for the assessee that in any case the disallowance u/s.14A be restricted with respect to those investments made in Indian Companies which yielded dividend income being actually received during the year under consideration and it was submitted that the dividend received was to the tune of ₹ 46.63 lakhs during the year under and in any case the disallowance of expenses u/s 14A of the 1961 Act cannot exceed exempt income. The learned counsel for the assessee had relied upon decision of Hon ble Delhi High Court in the case of ACB India Limited v. ACIT reported in (2015) 374 ITR 0108(Delhi) and also decision of Special Bench of Delhi-tribunal in the case of ACIT v. Vireet Investment Private Limited reported in (2017) 188 TTJ 0001(Deltrib.)( SB). The Ld.CIT-DR relied upon the order of the authorities below. 3.4 We have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to include such investments for making disallowance of expensed incurred in relation to earning of an exempt income by invoking provisions of Section 14A of the 1961 Act. Thirdly, the Hon ble Special Bench of the Delhi Tribunal in the case of ACIT v. M/s.Vireet Investment Pvt. Ltd. vs. ACIT, reported in (2017) 82 taxmann.com 415 (Del-Trib.) (SB) , dated 16.06.2017 has held that investments which yielded dividend income during the year under consideration are only to be considered for the purposes of making disallowance of expenses u/s 14A of the 1961 Act. We are bound by aforesaid decision of Special Bench of the tribunal. The AO shall verify those investments which yielded dividend income during the year under consideration and then made disallowance u/s 14A of the 1961 Act by including such investments which yielded dividend during the year under consideration . Further, Hon ble Delhi High Court in the case of Joint Investments Private Limited v. CIT reported in (2015) 372 ITR 694(Del) has held that disallowance of expenses u/s 14A cannot exceed exempt income. The AO is directed to follow the aforesaid decision of Hon ble Delhi High Court. Reference is also drawn to decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee . The claim of the assessee , inter-alia, before learned CIT(A) was that the learned CIT(A) has in earlier years allowed 50% of the expenses and it was claimed that at least 50% of the expenses be allowed as deduction u/s 37(1) of the 1961 Act . The learned CIT(A) rejected this contention of the assessee as in the opinion of learned CIT(A) , these expenses were not incurred by assessee wholly and exclusively for the purposes of business of the assessee and that is how assessment framed by the AO was upheld by learned CIT(A), vide appellate order dated 31.03.2017. 4.3 The assessee still being aggrieved is now before tribunal as it has filed second appeal before tribunal and claim is made by learned counsel for the assessee that in earlier years, the tribunal in ITA No.1414/Mds/2011 and ITA No.585/Mds/2012 for ay: 2007-08 2008-09 vide common order dated 02.01.2015 has allowed 50% of the expenses by upholding appellate order passed by learned CIT(A) and on that basis it was submitted by learned counsel for the assessee to allow at least 50% of the expenses. The Ld.CIT-DR submitted that both the authorities below have confirmed the disallowance and prayed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee as business deduction being provision for profit incentive payable to its employees which was debited to P L A/c but was not paid during the previous year relevant to the ay: 2012-13. The assessee had claimed before AO that this amount was paid in the following 12 months and at the time of making payment, income-tax was also deducted at source as it is required u/s 192 of the 1961 Act and hence the said provisions for expenses are allowable as business deduction from income for previous year relevant to the ay: 2012-13. The assessee had submitted that assessee had to pay profit incentive to the employees on the profit during the FY 2011-12 @7% in terms of agreement entered into by assessee company with Employees Union and it was claimed that expenditure be allowed as Revenue expenses but AO was of the view that only provision for expenses has been made in the previous year relevant to impugned assessment year and expenses will only be allowed in the year in which the said expenditure was incurred by the assessee and that is how said expenses were disallowed by AO while framing assessment u/s 143(3) of the 1961 Act vide assessment order dated 27.03.2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct read with Section 43B of the 1961 Act. It was also submitted that Section 43B(c) is attracted and hence deduction can only be allowed on payment basis. The prayers were made by learned CIT-DR to affirm appellate order passed by learned CIT(A). 5.4 We have considered rival contentions and perused the material on record. We have observed that assessee had made provision of ₹ 15.52 Crores by way of debit to its Profit and Loss Account towards profit incentive payable to its employees. The said amount was not admittedly paid during the year under consideration but was claimed to be paid in subsequent years. It is also claimed that income-tax was deducted at source u/s.192 of the Act in subsequent year before effecting payment to the employees. The assessee has produced before us Memorandum of Settlement reached by it with employees u/s.12(3) of the Industrial Dispute Act, 1947 reached before Dy. Commissioner of Labour, Coimbatore on 04.09.1977. We have observed that said Memorandum of settlement is in operation till 31.12.1980. We are presently seized of ay: 2012-13. The assessee has not produced settlement arrived at with its employees which is relevant and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative even in impugned ay. There is no finding/evidence on record to come to the said conclusion that the said memorandum of settlement still hold the field and these payments were made under the said memorandum of settlement . We are of considered view that the matter need to be restored to the file of the AO for fresh adjudication and the assessee is directed to produce agreement/settlement with the employees which is valid and effective for year under consideration and based on that the AO shall adjudicate the matter afresh keeping in view the provisions of Sec.37(1), 36(1)(ii) and 43B of the 1961 Act and also ratio of decision of the Hon ble Madras High Court in the case of CIT v. Lakshmi Mills Co. Ltd., reported in 154 CTR 0182(Mad.) and Hon ble Madras High Court decision in the case of CIT v. Sivanandha Mills Ltd., [1987] 63 CTR 11(Mad.) The assessee is directed to appear before AO and furnish relevant agreements/settlement which is applicable/relevant for previous year relevant to impugned ay and to justify that the provisions as aforesaid were made by it as per settlement arrived at with its employees as applicable to the impugned ay. The AO is also directed to verify claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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