TMI Blog2019 (12) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. . [ 2014 (11) TMI 1169 - CALCUTTA HIGH COURT] Disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently - HELD THAT:- ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. The 1st issue raised by the assessee is that the Ld. CIT (A) erred in confirming the addition made by the AO for ₹ 8,33,606/- only under section 14A read with rule 8D of the Income Tax Rules while computing the income under normal computation as well as MAT computation under section 115JB of the Act. 2. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of construction and developments of housing as well as commercial projects. The assessee is a partner in various partnership firms. The assessee in respect to some of the partnership firms has shown investments (positive) as well as in respect to some partnership firms, it has shown investment in negative. The details of such partnership firms numbering 16 where it has shown positive as well as negative investments are available on page-3 of the assessment order. The net positive investment in the partnership firms as on 31st March 2013 is of ₹ 188,86,62,515.00 only. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Goyal Hariyana construction 1,00,00,000 -34,50,000 Sahibaug Orchid Developers 4,76,908,537 4,75,68,537 Investment in equity shares SGV Shares 4,13,26,400 4,13,26,400 Total Investments 9,90,24,937 8,54,44,937 Average Investments 9,22,34,937 Particulars 31.03.2013 31.03.2012 Total assets 3,10,84,82,769 3,63,44,24,240 Average Total assets 337,14,53,505 2.7 The assessee acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct expenses Nil 2. Interest expenses ₹ 21,33,662/- 3. Administrative expenses ₹ 5,47,423/- Total ₹ 26,81,085/- Less: - The amount already disallowed by the assessee: ₹ 18,47,479/- Net disallowance ₹ 8,33,606/- 2.10 Thus the AO made the disallowance of ₹ 8,33,606/- and added to the total income of the assessee. 2.11 The AO also added the amount disallowed under section 14A read with rule 8D of Income Tax Rule of ₹ 8,33,606/- while computing the book profit under the head MAT computation in section 115JB of the Act. Aggrieved assessee preferred an appeal to the Ld. CIT (A). 3. The assessee before the Ld. CIT (A), among other s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of the disallowance. 5. On the other hand, the Ld. DR vehemently supported the order of the authorities below. 6. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to the disallowances made by the AO under section 14A read with rule 8D of Income Tax Rules. The assessee has made investment in various partnership firms besides the investment in the shares in private limited company. The assessee in the year under consideration has also shown the amount of exempted income amounting to ₹ 15,02,40,401/- only. But the assessee claimed that it has not incurred any expenditure against such income either in the form of interest or administrative expenses. However the assessee, to avoid the litigation with the Department has suo-moto made the disallowance of ₹ 18,47,497/- comprising of interest of ₹ 17,47,497/- and administrative expenses of ₹ 50,000/- only. (Note we find a calculation error in the amount disallowed by the assessee for ₹ 50,000.00 which the AO will take care in the giving effect order.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the average value investments for the disallowance. The Hon ble ITAT Ahmedabad in the case of Gateway Technolabs (P) Ltd. v/s DCIT reported in 100 taxmann.com 147 has held that for the purpose of making the disallowance under section 14A read with rule 8D of Income Tax Rule, the investments which have yielded the exempted income should only be considered. The relevant headnotes of the order is reproduced as under: Expenditure incurred in relation to exempt income not includible in total income (General) - Whether for purpose of computing administrative expenses to be disallowed under section 14A, read with rule 8D, only such investments are to be taken into account which yield tax exempt income At this juncture, we are also inclined to refer the provisions of section 14A of the Act which reads as under: 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] (2) The Assessing Officer shall determine the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per cent of the total income. Had the Revenue been successful in establishing that the assessee had incurred the expenses to earn the dividend income from the borrowed funds, the entire discussion of application of section 14A could be understood. However, when both the Commissioner (Appeals)and the Tribunal have noted that the assessee had sufficient funds available with it, which was more than the amount it invested for earning the dividend income, both these authorities correctly approached the issue by setting aside the order of disallowance under section 14A in respect of interest expenditure. When the very basis for employing section 14A on factual matrix is lacking, the disallowance to the extent of 10 per cent of dividend income was not permissible. When it transpires from record that the assessee's own funds were at higher than the investment made by it, with nothing to indicate that the borrowed funds were utilised for the purpose of investment in shares and for earning dividends, the Tribunal committed no error. 6.6 Accordingly, we further hold that the disallowances on account of interest expenses in the case on hand cannot be made in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the Ld. Tribunal. We accept the submission of Mr. Khaitan, Ld. Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the learned CIT-A, the assessee is in appeal before us. The ld. AR before us submitted that the amount of employees PF contribution was deposited before the due date of filing Income Tax Return as specified under section 139 of the Act. 10. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 11. We have heard the rival contentions of both the parties and perused the materials available on record. The delay in deposit made to the employees Provident fund and ESIC is not eligible for deduction by virtue of the decision of Hon ble Gujarat High Court in the case of CIT versus GSRTC reported in 366 ITR 170 wherein it was held as under: In view of the above and considering section 36(1)(va), read with sub-clause (x) of clause (24) of section 2, it is to be held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entical to the issue raised in ITA No. 1757/AHD/2017 which has been decided by us in favour of the assessee vide paragraph number 6 to 6.5 of this order. For the detailed discussion, please refer the relevant paragraph. Respectfully following the same we allow the ground of appeal of the assessee in part. 13. The 2nd issue raised by the assessee is that the ld. CIT-A erred in confirming the addition for the disallowance made under section 14A r.w.r. 8D of Income Tax Rules while determining the income under the MAT provisions. 14. At the outset, we note that the issue raised by the assessee as discussed above is identical to the issue raised in ITA No. 1757/AHD/2017 which has been decided by us against the assessee in part vide paragraph number 6.6 to 6.9 of this order. For the detailed discussion, please refer the relevant paragraph. Respectfully following the same we dismiss the ground of appeal of the assessee in part. 15. The 3rd issue raised by the assessee is that the ld. CIT-A erred in confirming the addition for the disallowance made for ₹ 26,880.00 on account of late deposit of employees PF and ESI. 16. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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