2017 (2) TMI 744 - AT - Income Tax

Deduction u/s 10A vis-a-vis Disallowance u/s 14A - Held that - As submitted by the Ld. A.R that now when any part of the expenditure claimed by the assessee was disallowed u/s 14A then as a consequence thereto the profits of the assessee eligible for deduction u/s 10A would witness a corresponding increase leading to a consequent increase in the claim of deduction of the assessee u/s 10A of the Act pursuant whereto the net effect would remain at Rs. Nil. We find substantial force in the contention of the Ld. A.R and are persuaded to be in agreement with him that pursuant to disallowance u/s 14A the business profits eligible for deduction u/s 10A to the said extent would stand enhanced. - Decided in favour of assessee. Income from House Property - computation of ALV - Held that - The benefit of computing the ALV u/s 23(1)(c) could not be extended to a case where the property was not let out at all would however duly encompass and take within its sweep cases where the property had remained let out for two or more years but had remained vacant for the whole of the previous year. Thus we are of the view that now when in the case of the present assessee the property under consideration had remained let out upto 04.12.2008 and thereafter though could not be let out and had remained vacant during whole of the year under consideration but also had never remained under the self occupation of the assessee the computation of the ALV u/s 23(1)(c) of the Act had rightly been carried out.- Decided in favour of assessee. Recasting of the Book profit u/s 115JB - Held that - We find that the A.O while computing the Book profit u/s 115JB of the Act being guided by the clear provision so contemplated in Sec. 115JB(2) Explanation 1(f) had rightly made an addition of Rs. 3, 10, 868/- (supra) being the amount of expenditure relatable to the dividend income of Rs. 11, 36, 128/- (supra) which being exempt u/s 10(34) of the Act had duly been excluded by the assessee while computing the Book profit and accepted as such by the A.O. We thus finding no infirmity in the making of the addition of Rs. 3, 10, 868/- (supra) by the A.O which thereafter had rightly been sustained by the CIT(A) therein uphold the order of the CIT(A) to the said extent. In the case of Bearing of Dividend paid or proposed on computation of Book profit though the working of Book profit as per MAT provisions by the assessee company itself as is found reproduced by the A.O in the body of the assessment order therein prima facie reveals that the assessee company had adopted the same amount of Rs. 2, 95, 37, 024/- as the starting point for computing the Book profit followed by a separate addition of Rs. 41, 69, 100/- towards dividend paid or proposed which if that be so is in self contradiction of the claim raised by the assessee in appeal however as the said working is neither found to be in conformity with the settled position of law nor free from doubts and mistakes the same thus does not inspire much confidence. Thus in all fairness we herein restore the issue to the file of the A.O who is directed to look into the mistake which appears to had crept in as regards the making of a separate addition of Rs. 41, 69, 100/- after adoption of the Net profit of Rs. 2, 95, 37, 024/- (supra) as the starting point for computing the Book profit and therein rework out the Book profit u/s 115JB of the Act as per law. Claim of Long term Capital Loss - Held that - In view that as per the material placed on our record by the assessee vide Page 1-5 of the APB which is stated to have also been filed with the A.O the latter is entitled towards the claim of Long term Capital Loss though subject to verification of the facts and figures furnished by the assessee. We thus in all fairness restore this matter to the file of the A.O who after making necessary verifications shall determine the entitlement of the assessee towards C/forward of the LTCL so claimed by it as per law. Levy of interest for alleged late payment of Dividend distribution tax - Held that - e find that as per Sec.115-O(3) a statutory obligation is cast upon the principal officer of the domestic company to pay the tax on distributed profits to the credit of the Central Government within 14 days from the date of (a) declaration of any dividend; or (b) distribution of any dividend; or (c) payment of any dividend whichever is earliest. That failing such compliance within the stipulated time period the assessee as per Sec. 115P is liable to be saddled with interest @ 1% for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which tax was payable and ending with the date on which the tax is actually paid. We find that to the extent the facts had been brought to our notice by the Ld. A.R and it remains as a matter of fact as claimed by the assessee that the dividend was declared as on 25.09.2009 and the dividend distribution tax on the same was paid within the stipulated time period of 14 days i.e. as on 06.10.2009 then if that be so though subject to the verification of the said averments of the Ld. A.R before us the assessee cannot be held to have defaulted as regards making of the payment within the stipulated time period of 14 days as required u/s 115-O(3) of the Act as a result whereof no interest u/s 115P is liable to be imposed. We thus in light of and subject to our aforesaid observations delete the interest of Rs. 99, 190/- levied on the assessee.

Summary

Issues Involved:
1. Enhancement of deduction under Section 10A due to disallowance under Rule 8D.
2. Assessment of income from a vacant property under Section 23(1)(c).
3. Additions to book profits under Section 115JB including dividend paid/proposed and disallowance under Section 14A.
4. Carry forward of long-term capital loss.
5. Levy of interest for late payment of dividend distribution tax.

Detailed Analysis:

1. Enhancement of Deduction under Section 10A due to Disallowance under Rule 8D:
The assessee contended that the disallowance of Rs. 3,10,868 under Rule 8D should lead to a corresponding increase in the deduction allowable under Section 10A. The Assessing Officer (A.O.) and CIT(A) rejected this argument, stating that disallowances under Section 14A do not fall within the scope of Sections 28 to 44, which govern the computation of business income. The Tribunal, however, found merit in the assessee's argument, referencing the Bombay High Court's decision in Commissioner of Income-tax Vs. Gem Plus Jewellery India Ltd., which held that disallowance of expenses should enhance the business profits eligible for deduction under Section 10A. Consequently, the Tribunal directed the A.O. to enhance the deduction under Section 10A accordingly.

2. Assessment of Income from a Vacant Property under Section 23(1)(c):
The assessee's property in Darshan Apartment, Malabar Hills, Mumbai, remained vacant after being let out until 04.12.2008. The assessee claimed that the Annual Lettable Value (ALV) should be Nil under Section 23(1)(c) since the property was not let out during the year. The A.O. and CIT(A) disagreed, determining the ALV based on market rates. The Tribunal sided with the assessee, citing the ITAT Mumbai's decision in Premsudha Exports Pvt. Ltd. vs. ACIT and the Andhra Pradesh High Court's decision in Vivek Jain vs. ACIT, which supported the assessee's interpretation that properties intended for letting but remained vacant should have their ALV assessed at Nil. The Tribunal vacated the addition of Rs. 8,40,000 made by the A.O.

3. Additions to Book Profits under Section 115JB:
- Disallowance under Section 14A: The A.O. added Rs. 3,10,868, being the disallowance under Section 14A, to the book profits. The Tribunal upheld this addition, referencing Section 115JB(2) – Explanation 1(f), which mandates adding back expenses related to exempt income.

- Dividend Paid or Proposed: The A.O. added Rs. 41,69,100 for dividend paid or proposed to the book profits. The Tribunal found that if the net profit before provision for dividend was taken as the starting point, a separate addition for the provision of dividend was unwarranted. The Tribunal remanded this issue to the A.O. for re-examination and correct computation.

4. Carry Forward of Long-term Capital Loss:
The assessee claimed a long-term capital loss (LTCL) of Rs. 34,39,282 from the sale of units of SBI-Magnum Insta Cash fund. The A.O. did not address this in the assessment order. The CIT(A) directed the A.O. to address the issue under Section 154, but the Tribunal found this approach inadequate. The Tribunal restored the matter to the A.O. for verification and determination of the LTCL, directing the A.O. to afford the assessee an opportunity to present their case.

5. Levy of Interest for Late Payment of Dividend Distribution Tax:
The assessee argued that the dividend distribution tax (DDT) was paid within the stipulated period, and thus, no interest was leviable. The CIT(A) directed the A.O. to address this issue under Section 154. The Tribunal criticized the A.O.'s failure to dispose of the rectification application and directed the deletion of the interest of Rs. 99,190, subject to verification of timely payment of DDT.

Appeal for A.Y. 2011-12:
The issues for A.Y. 2011-12 were similar to those for A.Y. 2010-11, with the addition of Rs. 9,24,000 under the head 'Income from House Property' and the disallowance of Rs. 4,03,483 under Section 14A. The Tribunal followed its reasoning and decisions from A.Y. 2010-11, vacating the addition under 'Income from House Property' and upholding the addition under Section 14A for computing book profits.

Conclusion:
The Tribunal's judgment provided relief to the assessee on several grounds, directing the A.O. to enhance the deduction under Section 10A, vacate the addition for the vacant property, and re-examine the book profits computation. The Tribunal also directed the A.O. to verify and allow the carry forward of LTCL and delete the interest on DDT, subject to verification. The appeals for both assessment years were partly allowed based on these findings.