2020 (6) TMI 267 - AT - Income Tax

Tribunal Upholds CIT(A) on Deductions & Disallowances

Deputy Commissioner of Income-tax, Circle-8 (1), Kolkata Versus M/s. Asian Hotels East Limited

The Tribunal upheld the Ld. CIT(A)'s decision to allow the deduction under Section 35DD for amortization of demerger expenses, dismissing the revenue's ... Disallowance being amortization of de-merger expenses claimed by the assessee u/s. 35DD - scheme of demerger approved by the Hon’ble Delhi High Court - HELD THAT:- the AO had considered the de-merger to be complete and effective, then he could not adopt a contrary stand in respect of corresponding expenses and deny the deduction claimed u/s 35DD of the Act alleging the demerger to be incomplete. It is further noted that the initial year of claim of deduction u/s 35DD of the Act was AY 2010-11. In the matter of, [2016 (9) TMI 1199 - SUPREME COURT] it was held that once the claim u/s 35D of the Act was accepted in the initial year i.e. AY 1995-96, then the clock had started running in favour of the assessee which was to continue for the entire period of ten years and the benefit once granted in the initial year could not be denied in the subsequent year. Disallowance u/s. 14A read with Rule 8D - suo moto disallowance - HELD THAT:- ClT(A) directed the AO to restrict the disallowance under Rule 8D(2)(iii) by considering only those investments which have yielded tax free income during the year. We find that this direction of the Ld. ClT(A) is in accordance with the decision rendered by this Tribunal in the case of REI Agro Ltd. Vs. DClT [2013 (9) TMI 156 - ITAT KOLKATA]which has since been upheld by the Hon'ble Calcutta High Court. Since the Ld. CIT(A) adjudicated the issue, as stated above, by following the decision the Tribunal, Kolkata Benches following the dictum of law laid in REI Agro Ltd. (supra), we do not see any reason to interfere with the order of the Ld. CIT(A) on this issue. Therefore, this ground of the Revenue is dismissed. Deduction u/s 43B - employees' contribution deposited by employer beyond the prescribed due date - HELD THAT:- We note that this issue is no longer res integra. We note that the Hon’ble Calcutta High court [2011 (9) TMI 30 - CALCUTTA HIGH COURT] has held that employees’ contribution to PF and ESI paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. Issues Involved:1. Disallowance of amortization of demerger expenses claimed under Section 35DD.2. Disallowance under Section 14A read with Rule 8D.3. Deductibility of employees' contributions to PF deposited beyond the prescribed due date under Section 43B.Issue-wise Detailed Analysis:1. Disallowance of Amortization of Demerger Expenses Claimed Under Section 35DD:The primary issue pertains to the disallowance of Rs. 2,26,32,327/- claimed by the assessee under Section 35DD of the Income-tax Act, 1961, for amortization of demerger expenses. The demerger involved the transfer of a hotel undertaking from M/s Asian Hotels Limited to the assessee company, effective from 31.10.2009, as per a scheme approved by the Hon’ble Delhi High Court. The AO disallowed the claim on the grounds that the registration of the leasehold property had not been completed in the name of the assessee, which he deemed a precondition for the demerger. However, the Tribunal found that the scheme did not stipulate registration as a condition for demerger, only the approval from the Government of West Bengal, which was obtained. The Tribunal also noted that the AO had allowed similar claims in earlier assessment years (AY 2010-11 and AY 2011-12) and that the demerger was considered complete for assessing income. Therefore, the Tribunal upheld the Ld. CIT(A)'s decision to allow the deduction under Section 35DD, dismissing the revenue's appeal on this issue.2. Disallowance Under Section 14A Read with Rule 8D:The second issue involves the disallowance of Rs. 1,60,98,204/- under Section 14A read with Rule 8D, relating to the expenditure incurred to earn exempt dividend income. The AO computed the disallowance with reference to all investments, while the assessee had suo moto disallowed Rs. 63,47,905/-, considering only those investments which yielded dividend income. The Ld. CIT(A) directed the AO to restrict the disallowance to the investments that actually yielded tax-free income, in line with the Tribunal's decision in REI Agro Ltd. vs. DCIT, which was upheld by the Hon'ble Calcutta High Court. The Tribunal found no reason to interfere with the Ld. CIT(A)'s order and dismissed the revenue's appeal on this issue.3. Deductibility of Employees' Contributions to PF Deposited Beyond the Prescribed Due Date Under Section 43B:The third issue concerns the disallowance of Rs. 13,57,305/- on account of delayed payment of employees' PF contributions. The AO disallowed the deduction as the payments were made beyond the statutory due date under the PF Act but within the due date for filing the income tax return under Section 139(1). The Ld. CIT(A) allowed the deduction, relying on the Hon'ble Calcutta High Court's decision in CIT vs. M/s. Vijay Shree Ltd., which held that such payments are allowable if made before the due date for filing the return. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the issue was settled by the Hon'ble Calcutta High Court, and dismissed the revenue's appeal.Subsequent Appeals for AYs 2013-14 and 2014-15:The issues in the appeals for AYs 2013-14 and 2014-15 were similar to those in AY 2012-13. Following the conclusions drawn for AY 2012-13, the Tribunal dismissed the revenue's appeals for these years as well.Conclusion:All the appeals of the revenue were dismissed, and the Tribunal upheld the Ld. CIT(A)'s orders on all issues. The order was pronounced on 10th June 2020, considering the extraordinary situation due to the COVID-19 pandemic and lockdown.