TMI Blog2022 (6) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to disallow deduction claimed on interest earned from SLR securities is not in line with settled position as per decision of the Tribunal and thus, we reject arguments of the learned DR for the Revenue. Deduction claimed towards other income like other investments income, provision on standard asset, interest on short term deposits, investment income, profit on sale of current investments, profit on sale of fixed assets and miscellaneous income - .Although, there is merit in the arguments advanced by the learned A.R for the assessee that only other income relatable to eligible business sector needs to be excluded, while computing deduction u/s.36(1)(viii) of the Income Tax Act, 1961, but from the records, it is not clear whether the assessee has apportioned other income to eligible business and noneligible business or not. Therefore, to ascertain facts with regard to apportionment of income to eligible business and to compute deduction u/s.36(1)(viii) of the Income Tax Act, 1961, the issue needs to go back to file of the Assessing Officer. Therefore, we set aside the issue to file of the Assessing Officer for limited purpose of examining claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wances to be made under section 14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962, which is part of paper book filed by the assessee. But, fact remains that these details are not forthcoming from the orders of the lower authorities and further, the assessee has filed computation explaining manner and method of computing disallowance under Rule 8D(2)(iii) for the first time before this Tribunal. Therefore, we are of the considered view that this issue also needs to go back to file of the Assessing Officer for further verification. AO is directed to examine claim of the assessee and recompute disallowance in line with our discussions given hereinabove and restrict disallowances to the extent of exempt income, in case, disallowance computed by the Assessing Officer for any assessment year exceeds exempt income in light of decision of the Hon ble Delhi High Court in the case of Joint Investments [ 2015 (3) TMI 155 - DELHI HIGH COURT] Disallowance of employees contribution to PF ESI u/s.36(1)(v) r.w.s 43B - HELD THAT:- We find that this issue is squarely covered in favor of the assessee by the decision of the ITAT., Chennai in the case of M/s. Adyar Ananda Bhavan Sweets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons for the delay has been filed. The AR further submitted that the assessee could not file appeal within the time allowed under the Act, due to the fact that the Managing Director was out of station which caused delay of 19 days. The delay in filing appeal is neither intentional nor willful but for the unavoidable reasons, therefore, delay may be condoned in the interest of advancement of substantial justice. 3. The learned DR submitted that the Department could not file appeal within the time allowed under the Act, due to the fact of mixing of appeal papers with other files and thus, there was delay in filing of appeal by the Revenue and prayed that the delay may be condoned. 4. Having heard both sides and considered the petition filed by the assessee and Revenue for condonation of delay, we are of the considered view that reasons given by the assessee and the Revenue for not filing the appeals within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of these two appeals is condoned and appeals filed by the assessee the Revenue are admitted for adjudication. 5. The Revenue has rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments etc. On appeal, the learned CIT(A) by following decision of the ITAT .,Chennai in assessee s own case for the assessment year 2005-06 deleted additions made by the Assessing Officer towards disallowance u/s. 36(1)(viii) of the Act. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us. 7. The learned DR referring to financial statements filed by the assessee for financial year 2011-12 to 2016-17 submitted that the assessee has computed deduction u/s.36(1)(viii) by including other income like interest income from Govt. securities (SLR) other investments income, provision on standard asset, interest on short term deposit, investment income, profit on sale of current investments, interest receipts, profit on sale of fixed assets and miscellaneous income etc. As per provisions of section 36(1)(viii) of the Act, it is very clear that deduction u/s.36(1)(viii) shall be allowed @ 20% on the profits derived from eligible business computed under the head profits gains of business or profession . The learned DR further submitted that although, there is no dispute about nature of business of the assessee and its entitlement for deduction u/s.36(1)(viii), b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the matters dealt with therein, in computing the income referred in section 28. Section 36(1)(viii) deals with deduction, In respect of any special reserve created and maintained by a specified entity, an amount not exceeding 20% of the pro/Its derived from eligible business computed under the head profits and gains of business or profession carried to such reserve account. Specified entity means, (i) A finance corporation specified in sec 4(A) of Company s Act. (ii)A finance corporation which is a public sector company. (iii)A banking company. (iv)A cooperative bank other than primary agricultural credit society or primary cooperative agricultural and rural development bank. (v)A housing finance company and (vi)Any other financial corporation including a public company. Eligible business means, (i) in respect of the specified entity referred to in sub-clause(i) or sub-clause(ii) or sub-clause(iii) or sub-clause(iv) of clause (a), the business of providing long- term finance for - (A). Industrial or agricultural development (B) Development of infrastructure facility in India or (C) Development of housing in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross total income of each head. In the next sheet another calculation was given for net profit for the purpose of section 36(1)(viii) of the IT Act. As per that sheet a sum of Rs. 95,86,50,010/- was calculated as profit derived out of eligible business. This was not in accordance with provisions of IT Act and that was questioned by the AO. AO had reduced some of the ineligible profits out that profit calculated by the appellant company unscientifically without any basis. This critical fact was not examined by the CIT(A) while allowing the appeal of the assessee. 3.2 AY 20 13-1 The net profit as per the P L A/C (annual report) was Rs. 176,67,78,000. This includes eligible as well as non-eligible profit. The company started computing the business profit (including eligible and ineligible business) starting with Rs. 176,67,78,000/- by making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources etc that were separately declared under the head Capital Gain and Income from other sources . In this assessment year, the profit from housing finance business of Rs. 100,79,37,210/ was determined indirectly withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year the net profit as per the P L A/C (annual report) was Rs. 233,29,72,616/. This includes eligible as well as non-eligible profit. The company started computing profit and gain from business or profession with Rs.233,29,72,6l6/ and making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources, Interest on NHB tax free bonds etc that were separately declared under the head Capital Gain and Income from other sources . In this assessment year also, the income from housing finance business of Rs. 13 8,11,30,267/- was determined indirectly without having any separate accounts. On this 20% was claimed as deduction. The AO observed that investment income, profit on sale of current investment, other operating income, interest receipts, profit on sale of fixed assets, miscellaneous income etc were not pertaining to eligible business as per section 36(1)(viii). This was excluded. 4. Judicial pronouncements on this issue: 1. In the case of South Indian Bank Limited Vs ACIT, [2019] 104 taxmann.com 452 Hon ble ITAT Cochin Tribunal held that section allows deduction only to specified entity providing long ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was treated as erroneous on fact and law by the revenue. It is for this reason the revenue has moved appeal that many of the income/profit/gain are not falling under the head profits and gains of business or profession and such income/gain/profit is not eligible for deduction u/s 36(1)(viii) of the IT Act. Hence it is prayed that the CIT(A) order may be set aside.. 8. The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in the assessee s own case for the assessment year 2005-06, where the Tribunal, after considering relevant facts and also provisions of section 36(1)(viii) of the Act, held that interest income received on SLR investments is eligible for deduction u/s.36(1)(viii) of the Act. The learned A.R further submitted that although, the assessee has claimed deduction on other income like profit on sale of current investments, investments income, investment income on mortgaged back security and interest etc., but the learned CIT(A) by following decision of the ITAT., Chennai in the assessee s own case has directed the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer that interest income from Government securities SLR is derived from eligible business, because as per statutory requirements, the assessee is required to maintain SLR ratio and said investment is required to be deposited in Govt. securities and thus, interest, if any, earned from SLR securities is also eligible for deduction u/s.36(1)(viii) of the Income Tax Act, 1961. Likewise, the assessee has canvassed deduction for other income like profit on sale of current investments, profit on sale of fixed assets etc. The Assessing Officer has denied deduction claimed u/s.36(1)(viii) in respect of other income, including interest earned from Govt. securities-SLR. 10. We have given our thoughtful consideration to the reasons given by the Assessing Officer in light of various arguments advanced by the learned A.R for the assessee and we find that in respect of interest earned on Govt. securities (SLR), issue has been settled by the Tribunal in assessee s own case for earlier assessment year, where the Tribunal held that interest earned from Govt. securities (SLR) is eligible for deduction u/s.36(1)(viii) of the Income Tax Act, 1961. Therefore, to this extent, we find that reasons giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ascertain facts with regard to apportionment of income to eligible business and to compute deduction u/s.36(1)(viii) of the Income Tax Act, 1961, the issue needs to go back to file of the Assessing Officer. Therefore, we set aside the issue to file of the Assessing Officer for limited purpose of examining claim of the assessee that the learned CIT(A) has restricted deduction only to other income which relates to eligible business, we direct the Assessing Officer to examine claim of the assessee and while computing deduction u/s.36(1)(viii) of the Income Tax Act, 1961 by following directions given by the Tribunal in assessee s own case for the assessment year 2005-06 and decide the issue in accordance with law for the impugned assessment years. 12. The next common issue that came up for our consideration from the assessee as well as the Revenue appeal is disallowance u/s.14A r.w. Rule 8D of I.T.Rules, 1962. The assessee has earned exempt income in the form of dividend from investments and interest from NHB bonds and claimed exemption u/s.10(34) of the Income Tax Act, 1961, however, has not made any suo motu disallowances u/s.14A read with Rule 8D of I.T. Rules, 1962 in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt u/s.10(34) of the Income Tax Act, 1961. It is also an admitted fact that the assessee has not made any suo motu disallowance of expenditure relatable to exempt income u/s.14A of the Income Tax Act, 1961. Although, the assessee claims to have not incurred any expenditure in respect of exempt income, but when the assessee has maintained common set of books of accounts for taxable and exempt income, possibility of incurring common expenditure for both segments cannot be ruled out and therefore, we are of the considered view that there is no error in the reasons given by the Assessing Officer to invoke Rule 8D of Income Rules, 1962 to compute disallowance u/s.14A of the Income Tax Act, 1961 and thus, we reject arguments of the assessee. 16. Having said so, let us examine second contention of the assessee with regard to interest disallowance under Rule 8D(2)(ii) of Income Tax Rules, 1962. It was explanation of the assessee that it has sufficient own funds in excess of investments made in exempt income yielding investments and thus, interest disallowances cannot be made. We find that law is very settled by the decisions of various High Courts, including decision of the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter and considering facts and circumstances of the case, we are of the considered view that issue of disallowance u/s.14A needs to go back to file of the Assessing Officer for fresh consideration. Hence, we set aside the issue to the file of the Assessing Officer and direct the A.O. to re-examine claim of the assessee in light of various averments made by the assessee, including availability of own funds to explain source of investments to compute disallowance of interest under Rule 8D(2)(ii) and also to verify details of investments to ascertain and segregate investments which yield exempt income for the relevant assessment years to compute disallowance under Rule 8D(2)(iii) of I.T. Rules, 1962. The Assessing Officer is directed to examine claim of the assessee and recompute disallowance in line with our discussions given hereinabove and restrict disallowances to the extent of exempt income, in case, disallowance computed by the Assessing Officer for any assessment year exceeds exempt income in light of decision of the Hon ble Delhi High Court in the case of Joint Investments Vs CIT 372 ITR 694(Del). 19. The next issue that came up for our consideration from Revenue appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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