Tribunal allows appeal on various disallowances while computing book profits.

The Tribunal allowed the assessee's appeal on disallowances under Section 14A read with Rule 8D while computing book profits under Section 115JB, disallowance of interest on a proportionate basis under Section 36(1)(iii), disallowance of employee's contribution to provident fund, and disallowance of prior period expenses. The Tribunal upheld the assessee's contentions on these issues and directed the AO to delete the disallowances, allowing grounds 5 to 8 of the appeal. The order was pronounced on 10/04/2019.

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Issues Involved:
1. Disallowance under Section 14A read with Rule 8D while computing book profits under Section 115JB.
2. Disallowance of interest on proportionate basis under Section 36(1)(iii) for interest-free advances to subsidiaries and sister concerns.
3. Disallowance of employee’s contribution to provident fund paid beyond the due dates under the PF Act but before the due date of filing the return under Section 139(1).
4. Disallowance of prior period expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D while computing book profits under Section 115JB:
The assessee derived dividend income and claimed it as exempt under Section 10(34). The assessee made a suo moto disallowance under Section 14A in its return of income. However, the AO invoked Rule 8D and made a disallowance of Rs. 10,88,24,112 while computing book profits under Section 115JB, which was upheld by the DRP. The Tribunal, referencing the Special Bench of Delhi Tribunal in Vireet Investments, held that disallowance under Section 14A cannot be made by applying Rule 8D while computing book profits under Section 115JB. The Tribunal accepted the assessee’s suo moto disallowance of Rs. 24,42,759 and allowed ground No. 5.

2. Disallowance of interest on proportionate basis under Section 36(1)(iii):
The AO observed that the assessee had given interest-free advances to subsidiaries and sister concerns while having taken substantial loans and incurred interest expenses. The AO disallowed proportionate interest of Rs. 8,37,01,584, which was upheld by the DRP. The Tribunal found that the assessee had sufficient own funds to cover the interest-free advances. Citing the decision of the Hon’ble Bombay High Court in Reliance Utilities and Power Ltd., the Tribunal directed the AO to delete the disallowance, thus allowing ground No. 6.

3. Disallowance of employee’s contribution to provident fund:
The AO disallowed Rs. 74,37,578, which were paid beyond the due dates prescribed under the PF Act but before the due date of filing the return under Section 139(1). The Tribunal, referencing the decision of the Hon’ble Jurisdictional High Court in CIT vs. Ghatge Patil Transports Ltd., held that such payments are allowable if made before the due date of filing the return. Consequently, the Tribunal deleted the disallowance, allowing ground No. 7.

4. Disallowance of prior period expenses:
The AO disallowed Rs. 31,44,360 as prior period expenses, citing that they pertained to the previous financial year. The assessee argued that these expenses crystallized in the current year due to late receipt of bills and were thus accounted for in the current year. The Tribunal found the expenses to be genuine and necessary for the business, and noted that they were not claimed in the previous year. The Tribunal directed the AO to delete the disallowance, allowing ground No. 8.

Conclusion:
The Tribunal allowed the appeal of the assessee on the limited aspects of ground Nos. 5 to 8 as recalled in the miscellaneous application. The order was pronounced in the open court on 10/04/2019.

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