2017 (12) TMI 307 - AT - Income Tax

Tribunal allows appeal, directs verification of leave encashment, bad debt provisions, and addresses tax credit issue.

The Tribunal partly allowed the assessee's appeal by overturning the disallowance under section 14A of the Income-tax Act, directing verification and ... Disallowance u/s 14A - Held that:- It appears from the orders of the Departmental Authorities that the disallowance under section 14A r/w rule 8D has been made considering the fact that investments made by the assessee in the equity shares of companies would give rise to exempt income. Thus, prima–facie, assessee’s claim / contention that it has not earned any exempt income by way of dividend in the relevant previous year appears to be correct. That being the case, following the decision of the Hon'ble Delhi High Court in Cheminvest Ltd. v/s CIT [2015 (9) TMI 238 - DELHI HIGH COURT] and the consistent view of the different Benches of the Tribunal, we delete the addition made by the Assessing Officer and sustained by the learned Commissioner (Appeals). Disallowance of provision for leave encashment - Held that:- As could be seen, deduction claimed by the assessee was disallowed on the reasoning that the amount was not actually paid by the assessee in the relevant previous year. As per section 43B(f) of the Act, which was introduced to the statute by Finance Act, 2001 w.e.f. 1st April 2002, any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee is allowable in the relevant previous year, wherein, such amount was actually paid. Keeping in view the aforesaid statutory provision, we direct the Assessing Officer to verify assessee’s claim and allow it in the assessment year, wherein, the assessee has actually paid the amount towards leave encashment. This ground is allowed for statistical purposes. Disallowance of deduction claimed for write–off of provisions for bad and doubtful debts - Held that:- Tribunal did not allow assessee’s claim as it was in the nature of provision. He submitted, in the impugned assessment year also, the assessee has not actually written–off the provision. He submitted, the Assessing Officer may be directed to allow assessee’s claim in the assessment year, wherein, the amount is actually written–off. In view of the aforesaid submissions of the assessee, we restore the issue to the file of the Assessing Officer to examine assessee’s claim and allow it in the year of actual write–off subject to fulfillment of other conditions of the Act. This ground is allowed for statistical purposes. Issues Involved:1. Disallowance under section 14A of the Income-tax Act, 1961 r/w rule 8D of the Income-tax Rules, 1962.2. Disallowance of deduction claimed on account of provision for leave encashment.3. Deduction of provision for bad and doubtful debts in computation of book profit under section 115JB.4. Credit of tax paid erroneously not allowed by the Assessing Officer.5. Levy of interest under section 234B and 234C corresponding to the tax paid.Issue-wise Detailed Analysis:1. Disallowance under section 14A of the Income-tax Act, 1961 r/w rule 8D of the Income-tax Rules, 1962:The assessee challenged the disallowance of Rs. 21,96,361 under section 14A r/w rule 8D. The Assessing Officer (AO) made the disallowance on the basis that the assessee had invested in equity shares yielding exempt income. The assessee contended that no expenditure was incurred for making such investments and had sufficient interest-free funds. The Commissioner of Appeals (CIT(A)) upheld the AO’s decision but directed the AO to exclude investments where the dividend income was offered for taxation. The Tribunal found that the assessee did not earn any exempt income by way of dividend in the relevant year. Following the decision in Cheminvest Ltd. v/s CIT and consistent Tribunal views, the Tribunal deleted the addition made by the AO and sustained by the CIT(A).2. Disallowance of deduction claimed on account of provision for leave encashment:The AO disallowed the deduction of Rs. 22,70,225 for leave encashment provision under section 43B(f), as it was not actually paid in the relevant year. The CIT(A) confirmed this disallowance. The Tribunal directed the AO to verify the actual payment and allow the deduction in the year of actual payment, in accordance with section 43B(f).3. Deduction of provision for bad and doubtful debts in computation of book profit under section 115JB:The assessee raised an additional ground for deduction of Rs. 5,95,24,304 for bad and doubtful debts in computing book profit under section 115JB. The Tribunal admitted this ground, noting that it did not require fresh fact investigation. The Tribunal directed the AO to allow the deduction in the year of actual write-off, subject to fulfilling other conditions of the Act.4. Credit of tax paid erroneously not allowed by the Assessing Officer:The assessee paid Rs. 1.60 crore as advance tax for AY 2009-10 but intended it for AY 2010-11. The AO did not credit this amount in either year. The assessee filed a rectification application under section 154, which remained unresolved. The Tribunal restored the matter to the AO to verify the claim and allow credit for the tax paid, noting the undue delay and hardship caused to the assessee.5. Levy of interest under section 234B and 234C corresponding to the tax paid:Due to the AO’s inaction, the assessee faced interest under sections 234B and 234C for shortfall in advance tax payment. The Tribunal restored this issue to the AO for reconsideration, emphasizing the need to consider the delay and its impact on the assessee.Conclusion:The Tribunal partly allowed the assessee’s appeal, providing relief on disallowance under section 14A, directing verification and allowance of leave encashment and bad debt provisions in the appropriate years, and addressing the erroneous tax credit and related interest issues.