TMI Blog2016 (7) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, this ground raised by the assessee is partly allowed for both the assessment years as indicated herein above. Addition u/s 14A - Held that:- We hereby direct the learned assessing officer to ensure whether the assessee had made investments in its sister/associate company for strategic purpose and out of its interest free funds as clarified by the Chennai bench of the Tribunal in the case of Rane Holdings Ltd. Vs. ACIT [2016 (1) TMI 1100 - ITAT CHENNAI] and if found so delete the disallowance made by invoking the provisions of section 14A of the Act or if otherwise pass appropriate order as per merits and law. Therefore this issue is remitted back to the file of the learned assessing officer for the limited purpose as indicated herein above. With respect to the computation of book profit under section 115JB we hereby direct the learned Assessing Officer to compute the book profit of the assessee without making addition on account of section 14A r.w.r.8D in the case of the assessee as while computing the “Book Profit” of the company under the provisions of section 115JB of the Act; any disallowance made under the normal provisions of the Act also cannot be given effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed several identical grounds and they are concised herein below for adjudication:- i) The learned Commissioner of Income Tax (Appeals) has erred by holding that provisions of section 40(a)(ia) of the Act will not be applicable on credit card commission payments. ii) The learned Commissioner of Income Tax (Appeals) has erred in holding that investments made in wholly owned subsidiary companies has to be excluded while computing disallowance by invoking section 14A r.w.r 8D of the Act. 4. Brief facts of the case are that the assessee is a company engaged in hotel business filed its return of income on 17.9.2009 28.09.2010 for the assessment years 2009- 10 2010-11 respectively. Subsequently the case was taken up for scrutiny and assessments were completed under section 143 (3) of the Act 30.12.2011 26.03.2013 for the assessment years 2009-10 2010-11 respectively, wherein the learned Assessing Officer made additions by disallowing the provision made for leave encashment, credit card commission, under section 40(a)(ia) 14A of the Act. Subsequently, the learned Commissioner of Income Tax (Appeals) granted certain relief to the assessee and also sustained certain additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are allowable as deduction only on actual payment basis. The decision of the Supreme Court in the case of Bharat Earth Movers Ltd v. CIT, 245 ITR 428 (sq, was rendered prior to 2001, where the leave encashment was not part of the provisions of section 43B of the Act. Only subsequent to the decision of the Supreme Court (in Bharat Earth Movers Ltd) , the legislature amended the statutes, w.e.f. 01.04.2002, by incorporating and bring the leave encashment within the ambit of section 43B of the Act. Hence the decision of the Supreme Court in the case of Bharat Earth Movers Ltd v. CIT (245 ITR 428)(Sq, is no more applicable for A.Y.2002-03 onwards. 4.1.4 In the post 01.04.2002 era, the Kolkata High Court in the case of Exide Industries Ltd v. Union of India (292 ITR 470)(Cal), held that the provision for leave encashment cannot be subjected to the provisions of section 43B by holding that the amendment was contrary, unconscionable and de hors the Supreme Court decision, However, the Apex Court (2009-TIOL-IIO- SC-IT) stayed the operation of the decision of Ko1kata High Court in Exide Industries Ltd v: Union of India (292 ITR 470)(Cal), Further, the constitutional validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent it remains unpaid. Accordingly, this ground raised by the assessee is partly allowed for both the assessment years as indicated herein above. Ground No.2: Addition u/s.14A of the Act: 6.1 During the course of assessment proceedings, the learned Assessing Officer invoked the provisions of section 14A r.w.r 8D of the Rules and made addition in the hands of the assessee. 6.2 On appeal, the learned Commissioner of Income Tax (Appeals) upheld the computation made by the learned Assessing Officer, however directed the learned Assessing Officer to exclude the investment made in subsidiary companies by following the decision of the Chennai Bench of the Tribunal by observing as under:- 4.4.2 I have considered the assessee's submissions carefully. The issue of disallowance of expenses u/s.14A read with rule 8D, both under the regular provisions of the Act as well as u/s. 115JB of the Act, is a recurring issue. Similar disallowance was also made in A.Y.2008-09, where the CIT(A), vide his order in ITA No.753/l0-11/ A-III dated 11.05.2012, as well as the ITAT (in ITA No. 1503 1624/ Mds/2012 dated 17.07.2013) have partly confirmed the disallowance of expenses made by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue because he has only followed the order of the Chennai Bench of the Tribunal, however we hereby direct the learned assessing officer to ensure whether the assessee had made investments in its sister/associate company for strategic purpose and out of its interest free funds as clarified by the Chennai bench of the Tribunal in the case of Rane Holdings Ltd. Vs. ACIT in ITA No.115/Mds/2015 vide order dated 06.01.2016 and if found so delete the disallowance made by invoking the provisions of section 14A of the Act or if otherwise pass appropriate order as per merits and law. Therefore this issue is remitted back to the file of the learned assessing officer for the limited purpose as indicated herein above. 6.4 With respect to the computation of book profit under section 115JB of the Act, the Chennai Bench of the Tribunal in the case of M/s. Beach Minerals Company P.Ltd. Vs. ACIT reported in 64 Taxmann.com 218has categorically held that while computing the book profit under section 115JB of the Act, disallowance made by invoking the deeming fiction under section 14A r.w.r 8D cannot be made. The relevant portion of the order is extracted herein below for reference. 8.1. Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------- (f) the amount or amounts of expenditure relatable to any income to which [Section-10 (other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply; (g) To (j) ----------------------------------------------------- From the above it is apparent that the aforesaid provision of the Act does not refer to any disallowance made U/s.14A of the Act while arriving at the Book Profit for the purpose of Section- 115JB(2) of the Act. Further Section 14A of the Act is a provision with fiction disallowing the deemed expenditure attributable to exempt income viz., dividend income U/s. 10 of the Act and Section 115JB of the Act is also a provision with fiction for payment of tax in respect of deemed income. Therefore while computing the profit for the purpose of Section 115JB of the Act another provision with fiction cannot be superimposed. Hence the question of increasing the Book Profit due to the disallowance U/s.14A of the Act will not arise. However, in the instant case of the assessee, since we have already deleted the addition made U/s.14A, increasing the book profit will not arise. Further the decision of Hon ble Apex Court ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook profit of the assessee without making addition on account of section 14A r.w.r.8D in the case of the assessee. Accordingly, this issue allowed in favour of the assessee for both these assessment years. ITA Nos.1919 1920/Mds/2015: (Revenue s Appeal) Ground No.1: Applicability of Section 40(a)(ia) of the Act on credit card commission withheld: 7.1 During the course of assessment proceedings, the learned Assessing Officer observed that the assessee had paid credit card commission towards various banks without deducting TDS . It was explained by the assessee that the retail customer swipes his credit card while purchasing from the retail merchant and the bill of the assessee is honored by the acquiring Bank after deducting the commission due to the acquiring Bank, thus payments are received by the assessee. Hence, the assessee has not made any payment against which TDS has to be deducted but only received the amount from the acquiring Bank after the deduction of commission by the bank. However, the learned Assessing Officer opined that the assessee is liable to deduct tax under section 194H of the Act and therefore invoked the provisions of section 40(a)(ia) of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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