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2016 (7) TMI 570 - ITAT MUMBAI

2016 (7) TMI 570 - ITAT MUMBAI - TMI - Disallowance under section 14A - Held that:- Respectfully following the ratio of the decisions in the cases of Joint Investments Pvt. Ltd. (2015 (3) TMI 155 - DELHI HIGH COURT ), we set aside the orders of the authorities below in respect of the disallowance made and sustained by them under section 14A r.w. Rule 8D(2)(iii). We, consequently, restore the matter to the file of the AO for fresh consideration in accordance with the pre-conditions set out in the .....

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yees contribution to ESIC not deposited before the due date - Held that:- Respectfully following the decision of the Hon'ble Bombay High Court in the case of Ghatge Patil Transports Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT), we hold and direct that the disallowance of ₹ 46,519/- under section 43B of the Act is to be deleted since the assessee in the case on hand has admittedly paid the employees contribution to ESIC before the due date for furnishing its return under section 139(1) of t .....

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are as under: - 2.1 The assessee is a company engaged in the business of engineering, manufacturing air conditioning and refrigeration equipment, air conditioners for specialised applications, material handling equipment, construction and mining equipment, execution of electro mechanical projects, undertaking of turnkey projects for supply and installation of airconditioning plants, project export and civil construction. For A.Y. 2008- 09, the assessee filed its return of income on 30.09.2008 d .....

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wherein the assessee s income was determined at ₹ 2,59,79,88,020/- in view of the following disallowances: - i) Disallowance under section 14A of the Act ₹ 93,94,550/- ii) Disallowance under section 43B ₹ 46,519/- 2.2 Aggrieved by the order of assessment for A.Y. 2008-09 dated 22.12.2010, the assessee preferred an appeal before the CIT(A)-13, Mumbai. The learned CIT(A) disposed the assessee s appeal vide the impugned order dated 16.11.2011, allowing the assessee partial relief .....

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nce as per Rule 8D was not applicable as the Appellant Company had on its own, offered as a disallowance u/s.14A, an amount of ₹ 12.50 lakhs, being a reasonable and fair apportionment of the overall Operating & Administrative Expenses and Establishment/General Expenses of the MIS (Treasury) Department of the Appellant Company, which could he considered as attributable towards earning exempt dividend income. The CIT(A) has disallowed 0.5% of average investments (excluding foreign invest .....

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on to ESIC aggregating ₹ 46,519/- u/s 43B as the same were deposited after the due date. The Appellant Company submits that the Employees Contribution to ES1C were deposited within the permissible grace period and much before the due date of filing of Return of Income. On similar ground in the Appellant Company's own case, the CIT(A) has for A.Y.2007-08, relying on the decision of Apex Court in case of CIT vs. Alom Extrusions Limited (Civil Appeal No.7771 of 2009 and in the case of C1T .....

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in respect of exempt dividend income amounting to ₹ 10,41,37,067/-. According to the learned A.R. for the assessee, the assessee itself had suo moto disallowed an amount of ₹ 12,50,000/- as being the expenditure attributable to the earning of exempt income, on account a percentage of staff cost, operating and administrative, establishment and general expenses pertaining to the MIS Department, which was reasonable and no further disallowance ought to have been made. However, after co .....

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e assessee in foreign companies, FMPs and other investments, the income of which is exigible to tax. 4.1.1 According to the learned A.R. for the assessee, as per the provisions of section 14A(2) of the Act, the AO is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim/disallowance made by the assessee after making reference to the assessee s accounts, that he is entitled to adopt the method as prescribed in Rule 8D of the I.T. Rule .....

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s claim that its suo moto disallowance of administrative expenses under section 14A r.w. Rule 8D as required under section 14A(2) of the Act r.w. Rule 8D(1) of the Rules before invoking Rule 8D(2), the disallowance made and sustained by the AO/CIT(A) ought to be deleted. In support of the proposition, the learned A.R. for the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of Godraj & Boyce Mfg. Co. Ltd. (328 ITR 81), Maxopp Investment Ltd. (2012) 34 .....

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of ₹ 12,50,000/- under section 14A r.w. Rule 8D in respect of exempt dividend income earned to the tune of ₹ 10,41,37,067/-. The aforesaid disallowance made on account of administrative expenses were from out of MIS department expenditure of ₹ 66.75 lakhs incurred in respect of staff costs, operational, administrative, establishment and general expenses and working thereof was given. 4.3.2 Section 14A of the Act provides that no deduction shall be allowed in respect of expendit .....

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f Rule 8D of the Rules stipulates that the AO having regard to the accounts of the assessee on not being satisfied with the correctness of the claim of the expenditure made by the assessee, can go on to determine the disallowance under Rule 8D(2) of the Rules. Therefore, Rule 8D(2) will not come into operation until and unless the specific precondition in Rule 8D(1) is satisfied. Hence, as per the provisions of section 14A(2) of the Act and Rule 8D(1) both affirmatively record that the disallowa .....

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and Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del.) 4.3.3 In the case on hand, taking into account the observations and findings of the aforesaid decisions of the Hon'ble High Courts, we are of the view that, since the conditions mentioned in section 14A(2) of the Act r.w. Rule 8D(1) of the Rules have not been satisfied, in as much as, the AO erroneously invoked the provisions of Rule 8D(2) of the Rules without explaining or reasoning why the suo moto disallowance of ₹ 12,50, .....

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resaid disallowance under section 14A r.w. Rule 8D(2)(iii) of the Rules. In almost similar factual and legal circumstances, the Hon'ble Delhi High Court in the case of Joint Investments P. Ltd. (ITA No. 117/2015) dated 25.02.2015, following its own decision in the case of Taikisha Engineering India Ltd. (supra) has held as under at paras 9 and 10 thereof: - 9. In the present case, the AO has not firstly disclosed why the appellant/assessee s claim for attributing ₹ 2,97,440/- as a disa .....

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ntire tax exempt income is ₹ 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., ₹ 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the ta .....

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ble Delhi High Court in the cases of Joint Investments Pvt. Ltd. (supra), we set aside the orders of the authorities below in respect of the disallowance made and sustained by them under section 14A r.w. Rule 8D(2)(iii). We, consequently, restore the matter to the file of the AO for fresh consideration in accordance with the pre-conditions set out in the provisions of section 14A(1) of the Act and Rule 8D(1) of the Rules; in respect of examination of the sufficiency or correctness of the assesse .....

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as allowed for statistical purposes. 5. Ground No. 2 - Disallowance under section 43B of ₹ 46,519/- 5.1 In this ground, the assessee contends that the learned CIT(A) erred in upholding the action of the AO in disallowing employees contribution to ESIC amounting to ₹ 46,519/- under section 43B of the Act as the same were deposited after the due date. It is contended by the learned A.R. for the assessee that the assessee had deposited the said amount within the permissible grace/perio .....

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rayed that in view of the above, the disallowance of ₹ 46,519/- under section 43B of the Act be deleted. 5.2 Per contra, the learned D.R. supported the decision of the learned CIT(A) on this issue. 5.3.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. The issue before us is the disallowance of ₹ 46,519/- made and confirmed by the authorities below in respect of employees contribution to ESIC under section 43B of the .....

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on of the Hon'ble Apex Court in Alom Extrusions Ltd. (supra) held as under: - 14. From a reading of above, it is clear that the employer-assessee would be entitled to deduction only if the contribution to the employee's welfare fund stood credited on or before the due date and not otherwise. It transpires that Industry once again made representations to the Ministry of Finance to remove this anomaly. The result was that an amendment was inserted which came into force with effect from 1st .....

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