2018 (4) TMI 508 - AT - Income Tax

Tribunal rules in favor of assessee, emphasizes compliance with tax laws

The Tribunal dismissed the Revenue's appeal and partially allowed the assessee's appeal, directing the AO to re-examine specific issues in accordance with ... Disallowance u/s.14A - Held that:- We found that in the A.Y.2010-11 and 2009-10, matter was restored back to the file of the AO for deciding afresh after applying the decision of Bombay High Court in case of HDFC Bank Ltd.[2016 (3) TMI 755 - BOMBAY HIGH COURT] and also the decision of the Tribunal in the preceding years. We restore the matter back to the file of the AO for deciding afresh after considering the nature of investment having been made by the assessee in the mutual funds etc., where no much efforts are required to be undertaken. We direct accordingly. Not granting credit for TDS of ₹ 18,57,273/-, which was alleged to be short granted to the extent of ₹ 1,45,416/-. In the interest of justice, we direct the AO to verify the factual figure and for deciding afresh. MAT - Adding disallowance u/s.14A while computing book profit u/s.115JB - Held that:- This issue is squarely covered by the decision of ITAT in the case of M/s. Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] and case of M/s.JSW Energy Ltd.[2015 (5) TMI 823 - BOMBAY HIGH COURT]. Respectfully following the same, we direct the AO that no addition while computing book profit u/s.115JB is to be made with regard to amount in excess of what has been debited in the P & L account with respect to such exempt income. Meaning thereby, any disallowance made by the AO in excess of what has been claimed by the assessee should not be added while working book profit u/s.115JB. We direct accordingly. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Treatment of penalty collected from members as income.3. Credit for Tax Deducted at Source (TDS).4. Addition of disallowance under Section 14A while computing book profit under Section 115JB.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The assessee earned a dividend income of Rs. 8,17,18,038/- and disallowed Rs. 11,70,591/- suo motu under Section 14A, which the AO increased to Rs. 67,69,839/- under Rule 8D. The CIT(A) deleted disallowances under Rule 8D(2)(i) and 8D(2)(ii) but upheld Rs. 55,94,708/- under Rule 8D(2)(iii). The assessee argued that no specific direct cost was incurred for earning the dividend income and that the suo motu disallowance was reasonable. The Tribunal considered past decisions and the nature of investments, directing the AO to re-examine the issue, considering the investments in mutual funds and applying the decision of the Bombay High Court in HDFC Bank Ltd. and earlier Tribunal decisions.2. Treatment of Penalty Collected from Members as Income:The AO treated the penalty amount of Rs. 5.08 crores collected from members as income. The CIT(A) deleted this addition, observing that the penalty amounts were collected as per guidelines issued by the Forward Market Commission and transferred to an 'Investors Protection Fund' for the benefit of investors, thus not constituting income. The Tribunal upheld the CIT(A)'s decision, noting that the penalty amount was diverted at source and acted as a trustee for the collected penalties. However, the Tribunal directed the AO to verify if the income generated from mutual fund investments of the penalty amount was offered to tax.3. Credit for Tax Deducted at Source (TDS):The assessee claimed a shortfall in TDS credit of Rs. 1,45,416/-. The Tribunal directed the AO to verify the factual figure and decide afresh.4. Addition of Disallowance under Section 14A while Computing Book Profit under Section 115JB:The Tribunal referred to the ITAT Special Bench decision in M/s. Vireet Investment Pvt. Ltd. and the Bombay High Court decision in M/s. JSW Energy Ltd., directing that no addition should be made while computing book profit under Section 115JB concerning the disallowance under Section 14A, beyond what was debited in the Profit & Loss account.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal in part, directing the AO to re-examine specific issues and follow judicial precedents. The order emphasized compliance with statutory guidelines and judicial interpretations in determining tax liabilities and disallowances.