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2020 (5) TMI 577 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - HELD THAT:- In this case, the assessment year involved is 2006-07. Rule 8D was introduced with effect from 24/03/2008 which was prospective in operation and cannot be applied retrospectively as held by the Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT [2011 (11) TMI 267 - DELHI HIGH COURT]. Accordingly, we direct the AO to disallow only 2% of expenses incurred towards exempted income. Thus, this ground of appeal of the assessee is partly allowed. Addition of sale proceeds of Rubber Trees and of timber under Rule 7A of the Income Tax Rules.1962 - as contended that Rule 7A cannot be applied as the income from sale of rubber trees is not agricultural income - HELD THAT:- High Court observed in the case of Harrisons Malayalam Ltd [2019 (1) TMI 1359 - KERALA HIGH COURT] that sale of old and unyielding trees would not give rise to the exempt income. If there is no exempt income, then there is no question of application of Rule 7A. In such circumstances, the claim of the assessee is to be allowed. Jurisdictional High Court considered its own judgment in the case of CIT vs. Thiruvambadi Rubber Co. Ltd. [2011 (6) TMI 452 - KERALA HIGH COURT] Being so, the reliance placed by the CIT(A) on the judgment of the Jurisdictional High Court in the case of CIT vs. Thiruvambadi Rubber Co. Ltd. [2011 (6) TMI 452 - KERALA HIGH COURT] is totally misplaced. Accordingly, we hold that the sale proceeds on sale of rubber trees and timber cannot be brought to tax under Rule 7A of the I.T. Rules. Thus, this ground of appeal of the assessee is allowed. MAT computation - Diminution in the value of investment, provision for lease rent and provision for bad debts - arriving at the book profit u/s. 115JB, treating the same as a provision for an unascertained liability - HELD THAT:- We are of the opinion that the amount set aside as provision for diminution in the value of investment is to be added back to the book profit as shown in the profit and loss account in view of the retrospective amendment introduced by Finance Act No. 2, 2009 by introducing clause (i) (c) . By virtue of the said amendment the amount set aside as provision for diminution in the value of any asset is to be added back in view of the specific clause (i) in the said Explanation. Being so, we do not find any infirmity in the order of the lower authorities in adding back the said amount to the book profits shown in the profit and loss account . Similar provision was made for lease rent as unascertained liability which is hit by the provisions of clause (c) in Explanation (2) of section 115JB of the Act. The contention of the Ld. AR is that the assessee is following mercantile system of accounting and therefore, the provision is to be allowed, though it was crystallized in the year in which the order of the Government of Kerala in G.O. (Ms) No.162/13/RD dated 26-04-2013 was passed. We are not in agreement with this contention of the Ld. AR. Being so, we are not in agreement with the Ld. AR’s contention that this ascertained liability is to be allowed in view of mercantile system of accounting followed by the assessee - Provision for lease rent is unascertained liability in the assessment year under consideration and it is to be allowed in the year of crystallization of the expenditure. This ground of appeal of the assessee is dismissed. The appeal of the assessee is partly allowed. Payment of interest for delay in payment of agricultural income tax as a deduction while computing the income of assessee under Income Tax Act - HELD THAT:- Interest incurred for delay in payment of Agricultural income tax also cannot be allowed u/s 36(1)(iii) as the condition laid down u/s 36(1)(iii) has not been fulfilled. In other words, interest paid is not for the purpose of the business of the assessee on which income assessee is paying income tax. In our opinion, the interest paid is having direct nexus with agricultural income which is exempt from tax u/s 10(1). Therefore, such payment of interest cannot be allowed u/s 36(1)(iii) also. We have also carefully gone through all the case law cited by the Ld. AR, which have no relevance to the facts of the case. In view of this discussion, we are inclined to dismiss all the grounds of appeal of the assessee. The assessee appeal is dismissed.
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