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TMI Blog2014 (2) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... handle tax free investment. There are some handling and processing charges regarding management of investment portfolio. He also observed that once the funds were put in the business, they got intermingled and it was not possible to keep the funds segregated for each and every purpose. He also noted that no doubt the assessee is having sufficient funds from internal accruals and accumulated profits but it was not established that only such funds and no other funds have been used for deriving tax free investment income. He also observed that the assessee cannot not produce day-to-day movement of funds so that segregation of nature of spending can be ascertained with a degree of certainty. He observed that it hardly makes any difference whether investments are made during the current year or earlier years. The important issue is that assessable funds are locked in tax free investments. In light of above, it is concluded that the assessee is not right in holding that there was no expenditure attributable to earning of tax free income or a meagre disallowance of Rs. 1,00,000/- be made u/s 14A. He, therefore, by invoking provisions of section 14A alongwith rule 8D, made disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rite principle of law that the law which would apply to an assessment year is the law prevailing on the first day of April. Consequently, Rule 8D which has been notified on 24 March 2008 would apply with effect from Assessment Year 2008-09. The rule consequently cannot have application in respect of Assessment Year 2002-03 which is the year under consideration in this case... Considering the decision of Hon'ble Bombay High court, rule 8D r.w.s 14A cannot be applied in respect of A.Y. 2007-2008. However, the Hon'ble Bombay High court has held that even for earlier year, disallowance u/s 14A(1) will be made by applying reasonable basis considering all the fact and circumstances. In such a scenario, as similar disallowance in appellant's case, was made in A.Y. 2005-2006, wherein Hon'ble ITAT referred supra has considered the facts and held that as appellant has sufficient interest free funds, disallowance of interest is not justified and administrative expenses should be restricted @ 2% of tax free dividend income. Considering the decision of Hon'ble ITAT in appellant's own case for preceding assessment year, disallowance of interest expenditure for Rs. 57,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is incurring loss hence payment made by appellant is excessive. The appellant both at the time of assessment proceedings and appellant proceedings submitted MOU / entered between both the parties and submitted that as production of current assessment year has been increased as well as it required more person for legal & secretarial work , some of the employees referred herein above have worked for appellant company for which it has made payment of Rs. 2 lacs per month. In the present case, assessing officer has never denied that appellant has not used the services of employees and considering it, AO has allowed 50% of payment made by appellant. Even DCPL is making payment of round about Rs. 1.75 lacs to 1.80 lacs to persons used by appellant for DCPL has charged Rs. 2 lacs per month which cannot be termed as excessive more particularly when AO has not disputed the work carried out by such persons. Considering this, the disallowance made by Assessing officer on presumption is not justified and it is deleted and related ground of appeal is allowed." 12. The Ld. DR objected against the above deletion by Ld. CIT(A) and supported the order of the Assessing Officer. The Ld. DR co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, dismissing the appeals, the contributions made by the appellant to provident fund and the employees State Insurance were allowable deductions even though they were made beyond the stipulated period as contemplated under the mandatory provisions of section 36(1)(va) read with section 2(24)(x) and section 43B as the amounts were paid by the appellant on or before the due date for furnishing the return under section 139(1). The amendment to section 4B, inserted by the Finance Act, 2003, with effect from April 01, 2004 should be read retrospectively and should be understood as if section 43 would not be applicable to the appellant." (b) Decision of CIT v/s P. M. Electronics Ltd. 133 ITR 161 wherein Delhi High Court has held as under: "Section 43B, read with section 36(1)(va), of the Income-tax Act, 1961 -Business disallowance - Certain deductions to be allowed only on actual payment - Assessment year 1998-99 - Whether deletion of second proviso to section 43B by way of amendment by Finance Act, 2003 is retrospective in nature - Held, yes - Whether amounts paid by employer towards provident fund contributions after due date prescribed under Employees' Provident Fund Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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