2016 (7) TMI 570 - AT - Income Tax

Appeal partially granted, disallowance remitted for fresh review. Late ESIC deposit disallowed, contributions made on time.

The Tribunal partly allowed the appeal, remitting the disallowance under section 14A back to the Assessing Officer for fresh consideration due to ... 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 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 assessee’s claim of suo moto disallowance of ₹ 12,50,000/- having regard to the assessee’s accounts and explanations in this regard and to proceed further to consider Rule 8D(2)(iii) of the Rules only if speaking reasons for non satisfaction are recorded. - Decided in favour of assessee for statistical purposes Disallowance under section 43B - employees 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 the Act for A.Y. 2008-09 which fact has not been disputed or controverted by Revenue. - Decided in favour of assessee Issues Involved:1. Disallowance under section 14A of the Income Tax Act, 1961.2. Disallowance under section 43B of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Disallowance under Section 14AThe assessee challenged the partial upholding of disallowance by the CIT(A) under section 14A read with Rule 8D(2)(iii) concerning exempt dividend income. The assessee had initially disallowed Rs. 12,50,000 suo moto, attributing it to the expenditure related to earning exempt income. However, the Assessing Officer (AO) computed a higher disallowance of Rs. 1,06,44,550, applying Rule 8D(2)(iii). The CIT(A) reduced this to Rs. 66,42,000 by excluding certain investments.The assessee argued that the AO failed to record reasons for not being satisfied with the suo moto disallowance, a mandatory requirement under section 14A(2) before invoking Rule 8D. The Tribunal noted that the AO did not provide reasons or examine the accounts to justify the additional disallowance, violating the preconditions of section 14A(2) and Rule 8D(1). The Tribunal cited several judicial precedents, including Godrej & Boyce Mfg. Co. Ltd., Maxopp Investment Ltd., and Taikisha Engineering India Ltd., supporting the necessity of recording dissatisfaction explicitly.Consequently, the Tribunal set aside the orders of the lower authorities and remitted the matter back to the AO for fresh consideration, ensuring compliance with section 14A(2) and Rule 8D(1). The AO must provide adequate opportunity to the assessee to present their case and record reasons for any dissatisfaction before invoking Rule 8D(2)(iii).Issue 2: Disallowance under Section 43BThe assessee contested the disallowance of Rs. 46,519 under section 43B for late deposit of employees' contribution to ESIC. The assessee argued that the contribution was deposited within the permissible grace period and before the due date for filing the return of income. The Tribunal referred to the Hon'ble Supreme Court's decision in CIT vs. Alom Extrusions Ltd. and the Bombay High Court's rulings in CIT vs. Hindustan Organics Chemicals Ltd. and CIT vs. Ghatge Patil Transports Ltd., which held that contributions paid before the due date for filing the return are allowable deductions.The Tribunal found that the assessee had indeed deposited the contributions before the due date for filing the return, aligning with the judicial precedents. Therefore, the disallowance of Rs. 46,519 under section 43B was directed to be deleted.ConclusionThe appeal was partly allowed. The Tribunal remitted the disallowance under section 14A back to the AO for fresh consideration, ensuring compliance with the procedural requirements. The disallowance under section 43B was deleted, following the judicial precedents that contributions paid before the due date for filing the return are allowable.Order pronounced in the open court on 8th July, 2016.