2016 (12) TMI 401 - AT - Income Tax

Tribunal ruling: Disallowance upheld on share capital increase, but TDS reconciliation amount deleted. Section 14A disallowance overturned.

The tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal. The disallowance of expenses to increase authorized share capital ... Disallowance of sum incurred in order to increase assessee’s authorized share capital - Held that:- This sum comprises of franking charges of ₹ 1,77,500/- for filing Form V followed by the letter head of filing fees amounting to ₹ 25000/-. Both the lower authorities quote hon’ble apex court’s decision in Brooke Bond India vs. CIT (1997 (2) TMI 11 - SUPREME Court ) as followed in case of M/s. Vareli Textiles Industries vs. CIT (2006 (2) TMI 102 - GUJARAT High Court ). Learned counsel for the assessee vehemently argues in favour of assessee’s grievance pleaded in the instant ground. He however fails to rebut application of the above case law squarely covering the issue. This first substantive ground is accordingly rejected. Addition on account of reconciliation of receipts with TDS certificate - Held that:- We are in assessment year 2008-09. Both the lower authorities quote Rule 37BA(3) to conclude that the impugned income not declared in the impugned assessment year deserves to be added so as to ensure compliance of this rule. We observe in these facts that this action on part of both the lower authorities goes contrary to the above stated Rule. It mainly talks about credit for TDS deduction at source and paid to the Central Government for the assessment year for which such income is assessable and not vice versa since the authorities below rather added the income in the impugned assessment year. We further notice that clause (ii) of sub-Rule 3 of Rule 37BA envisages that credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. We repeat once again that this clause no where prescribes addition of income component since dealing with TDS credit issue only. We rather observe that these expressions make it clear that main endeavor in the Rule in question deals with an issue wherein an income is split over in more than one assessment year as against facts of the case wherein there is no such circumstance. We thus conclude that the impugned addition is not sustainable. The same stands deleted. Section 14A disallowance comprising of proportionate interest and administrative expense - Held that:- Jurisdictional high court’s decision in CIT vs. Torrent Power Ltd. (2014 (6) TMI 185 - GUJARAT HIGH COURT ) and CIT vs. Suzlon Energy Ltd.[2013 (7) TMI 697 - GUJARAT HIGH COURT] deleting identical disallowances in case of surplus interest free funds. Ld. Departmental Representative fails to rebut this factual position. We accordingly hold that the impugned proportionate interest disallowance of ₹ 1,93,297/- is not sustainable. The same stands deleted. For Administrative expenses component there is no dispute that the Assessing Officer has not rebutted assessee’s main contention to have not incurred any administrative expenditure in earning the dividend income in question. Neither of the lower authority rebuts this contention by referring to facts of the case. We notice in this backdrop that hon’ble jurisdictional high court in PCIT vs. India Gelatine & Chemicals Ltd. (2015 (11) TMI 392 - GUJARAT HIGH COURT ) upholds tribunal’s order deleting administrative expenditure disallowance in similar circumstances. We draw support therefrom to delete this component of the impugned Section 14 disallowance as well. Allowability of enhanced deduction u/s.35B over and above the original claim made in the return of income - Held that:- The instant Revenue’s appeal does not satisfy the threshold tax effect limit of ₹ 10 lacs as provided in Board’s circular no. 21/2015 dated 10.12.2015. We further notice that Revenue’s arguments on merits quote hon’ble apex court’s decision in Goetze India Ltd. vs. CIT (2006 (3) TMI 75 - SUPREME Court) that assessee’s above claim is not admissible for want of revised return. A perusal of the said case law makes it clear that their lordships conclude that the above pre-condition of revised return does not impinge upon jurisdiction of appellate authorities including this tribunal under the provisions of Income Tax Act. We thus reject this Revenue’s appeal on merits as well. Issues:1. Disallowance of expenses incurred to increase authorized share capital.2. Disallowance of TDS reconciliation amount.3. Disallowance under Section 14A for interest and administrative expenses.4. Enhanced deduction claim under Section 35B.Issue 1 - Disallowance of expenses to increase authorized share capital:The assessee challenged the disallowance of expenses amounting to Rs. 2,02,500 incurred to increase the authorized share capital. The lower authorities disallowed the sum citing legal precedents. The assessee's argument was rejected as it failed to counter the application of the case law. The first substantive ground was accordingly rejected.Issue 2 - Disallowance of TDS reconciliation amount:The second substantive ground involved the addition of Rs. 1,14,457 due to TDS reconciliation. The Assessing Officer sought to reconcile TDS deductions with the income declared. The CIT(A) directed the assessing authority to verify the plea of declaring income in the succeeding assessment year to avoid double taxation. The tribunal found that the amended statutory provision required TDS credit to be given in the year of deduction, and the impugned addition was not sustainable. Hence, the addition was deleted.Issue 3 - Disallowance under Section 14A for interest and administrative expenses:The third substantive ground challenged the disallowance of Rs. 10,51,614 under Section 14A for interest and administrative expenses related to dividend income. The tribunal found that the interest disallowance was not sustainable due to sufficient interest-free funds. The administrative expenses disallowance was also deleted as the Assessing Officer did not rebut the claim of no administrative expenditure incurred. The assessee succeeded in this ground.Issue 4 - Enhanced deduction claim under Section 35B:The Revenue's cross-appeal challenged the CIT(A)'s order directing the Assessing Officer to allow an enhanced deduction under Section 35B. The tribunal noted that the Revenue's claim did not meet the threshold tax effect limit. Additionally, the Revenue's arguments were rejected on merits based on legal precedents, and the appeal was dismissed.In conclusion, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed by the tribunal in the judgment pronounced on November 30, 2016.