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TMI Blog2023 (4) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A - Suo moto disallowance - HELD THAT:- Hon ble Delhi High Court in the case of Cargo Motors (P.) Ltd [ 2022 (10) TMI 571 - DELHI HIGH COURT] has held that for purpose of making disallowance of expenses under section 14A as per Rule 8D, only those investments were to be considered for computing average value of investments which yielded exempt income during relevant year. AO was not justified in working out the disallowance on account of administrative expenses u/s 14A r.w. Rule 8D(2)(iii) by computing the average value of investments on the basis of entire investment. We therefore direct the AO and direct him to work out the disallowance u/s 14A r.w. Rule 8D(2)(iii) on considering the investments which have yielded tax free income. We accordingly restore the issue back to the file of AO to rework the disallowance u/s 14A r.w. Rule 8D in accordance with law. This ground of the assessee is partly allowed for statistical purposes. - ITA Nos. 4533, 4534 & 6295/Del/2019 - - - Dated:- 31-3-2023 - SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. NARENDER KUMAR CHOUDHARY, JUDICIAL MEMBER For the Assessee : Shri Madhur Aggarwal, Adv. Shri Uma Shankar, Adv. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in sustaining a disallowance of a sum of Rs.42,44,760/- on account of leave encashment in light of provisions of section 43B (1) of the Act and the said disallowance has been sustained on misappreciation of the statutory provisions and thus, should be deleted, as such. 1.1 That the learned CIT (Appeals) has erred in sustaining the said disallowance by failing to appreciate the replies/ evidences furnished by the assessee-appellant and the disallowance so sustained is based on irrelevant and extraneous considerations and purely on surmises and conjectures, as such, disallowance so sustained is wholly untenable on facts and in law 2. That the learned CIT (Appeals) has further erred in law and on facts in sustaining a disallowance of a sum of Rs.13,78,802/- under section 14A of the Act, whereas, as per the revised working furnished by the assessee- appellant relying on latest judicial pronouncements of jurisdictional high court, the disallowance should have been Rs.13,03,209/- and thus, the disallowance so sustained is unjustified and untenable in law and thus, should be deleted, as such. 2.1 That in doing so, the learned CIT (Appeals) has failed to appreciate the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and made its addition. 8. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now before Tribunal. 9. Before us, Learned AR reiterated the submissions made before AO and CIT(A) and submitted that the payment of leave encashment have been made in subsequent years and in support of his aforesaid contentions, he pointed to the chart containing the details of provision and payment of leave encashment which is placed at page 134 of the paper book. He further submitted that identical issue arose before the Tribunal in the group concern of the assessee and the Co-ordinate Bench of Tribunal in those cases had restored the issue back to the file of AO and directed the AO to allow the deduction u/s 43B of the Act on payment basis. In support of his aforesaid contention, he pointed to the order of Tribunal in the case of TV Today Network Ltd vs. ACIT in ITA No.3356/Del/2017 for A.Y. 2012-13 order dated 05.10.2021 and TV Today Network Ltd. in ITA Nos. 7277 7287/Del/2018 for A.Y. 2013-14 order dated 03.12.2021 and pointed to the relevant findings at pages 60 to 75 of the paper book. He theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly allowed. 12. Since the issue raised in the present appeal is identical to the issue raised in group concern, and in view of the contentions of the assessee that the payments of leave encashment has been made in subsequent years, we direct the AO to verify and allow the deduction u/s 43B of the Act being the provision made for leave encashment on actual payment basis in the year of its payment as held by Hon ble Apex Court in the case of Exide Industries Ltd. (supra). Needless to state that AO shall grant adequate opportunity of hearing to the assessee and assessee shall also promptly furnish the required details called for by the AO. Thus the ground of assessee is allowed for statistical purposes. 13. Ground No.2 to 2.1 : In view of the submissions made by Learned AR that assessee does not wish to press these grounds, the grounds are dismissed as not pressed. 14. In the result, the appeal of assessee is partly allowed. 15. As far as ITA Nos. 4534 6295/Del/2019 for A.Ys. 2015- 16 2016-17 are concerned, before us, Learned AR has submitted that the issue raised in the appeals for A.Ys. 2015-16 2016-17 are identical to that of A.Y. 2014-15. We have hereinabove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that though the assessee has raised various grounds but the sole controversy is with respect to the disallowance u/s 14A of the Act. 20. During the course of assessment proceedings, AO noticed that the assessee had investments in equity shares amounting to Rs.104,31,09,952/-, income from which does not and shall not form part of total income. AO was of the view that provision under Section 14A r.w. Rule 8D would be applicable. He thereafter, by following the methodology prescribed under Rule 8D of the Income Tax Rules worked out the disallowance u/s 14A of Rs.10,75,13,213/- and made its addition. 21. Aggrieved by the order of AO, assessee carried the matter before CIT(A). Before CIT(A), it was inter alia submitted that while working out the disallowance u/s 14A, AO had not given effect from the suo moto disallowance of Rs.55,87,881/- made by the assessee. It was further submitted that AO had considered the full value of investment as appearing in the Balance Sheet which included various investments on which the company had not received any dividend during the year under consideration. It was also submitted that while working out the disallowance, AO had considered the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- that was suo moto disallowed by assessee. He also placed reliance on the decision of Delhi High Court in the case of ACB India Ltd. vs. ACIT 374 ITR 108. 23. Learned DR on the other hand supported the order of AO. 24. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the disallowance made u/s 14A r.w. Rule 8D of the Income Tax Rules. It is an undisputed fact that in the computation of income filed by the assessee, it had worked out the suo moto disallowance u/s 14A r.w.r 8D at Rs.55,87,882/- which comprised the disallowance under Rule 8D(2)(ii) on account of interest at Rs.4,19,575/- and under Rule 8D(2)(iii) on account of administrative expenses at 0.5% of the average value of investments at Rs.49,18,306/- thus aggregating the disallowance at Rs.55,87,882/-. Before us, with respect to the disallowance under Rule 8D(2)(ii), it is the contention of the Ld AR that where availability of profit, Share Capital and Reserves and Surplus was much more than investments made by assessee which could yield tax-free income, no disallowance of interest expenditure under section 14A could be made and for this propos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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