2021 (5) TMI 964 - AT - Income Tax

Tribunal rules on Revenue and assessee appeals, upholds CIT(A)'s decisions on disallowances.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, confirming the CIT(A)'s decisions on disallowances under Section ... Disallowance u/s 14A of interest expenditure - assessee has disallowed suo motto u/s 14A - As argued AO failed to record any satisfaction as to the correctness of the claim of the assessee - HELD THAT:- The details reasons given of the ld AO at page 7 and 8 of the assessment order clearly shows that AO has recorded proper satisfaction as provided u/s 14A(2) of the act - when the assessee was questioned about the suo motto disallowance of ₹ 2 lacks, its basis and its working the assessee failed to provide the same to the AO. AO also held that this itself shows that the assessee is contradicting its own stand that it has not incurred any expenditure for earning of the exempt income. In view of this, we do not find any infirmity so far as the recording of the satisfaction u/s 14A(2) of the AO is concerned for invoking provision of Rule 8D of the Income tax Rules. The details reasons given of the ld AO of the assessment order clearly shows that AO has recorded proper satisfaction as provided u/s 14A(2) of the act. However, when the assessee was questioned about the suo motto disallowance its basis and its working the assessee failed to provide the same to the ld AO. The ld AO also held that this itself shows that the assessee is contradicting its own stand that it has not incurred any expenditure for earning of the exempt income - we do not find any infirmity so far as the recording of the satisfaction u/s 14A(2) of the AO is concerned for invoking provision of Rule 8D of the Income tax Rules. Administrative and managerial expenditure attributable to the exempt income @0.5% of the average of investment - We do not find any infirmity in the confirming the disallowance of ₹ 13.20 lakhs because the assessee itself has disallowed a sum of ₹ 2 lakhs for which no bifurcation is available. Therefore, only alternative is left is to apply the percentage prescribed under that Rule. The stand of the assessee that it has not incurred any expenditure is devoid of any merit as assessee itself has disallowed a sum of ₹ 2 Lakhs. In view of this, solitary ground of appeal of ld AO and ground No. 2 of the appeal of the assessee are dismissed. Disallowance towards corporate social responsibility expenditure - HELD THAT:- On examination of the above expenditure, we find that for allowable of expenditure u/s 37(1) of the Act the expenditure should have incurred by the assessee wholly and exclusively for the purpose of the business. In the present case no evidence are adduced before us to show that these expenditure are wholly and exclusively incurred for the purpose of the business of the assessee. However, it was merely an statement of the assessee it will increase the goodwill of the assessee, however, no evidence were produced that why such expenditure not related to the business of the assessee could have fallen into allowability domain of section 37(1) of the Act. In view of this we do not find any infirmity in the order of the lower authorities in deleting the above sum u/s 80G (5) of the Act as well as also not allowing the same as an expenditure u/s 37(1) of the Act. Disallowance u/s 35AC - assessee failed to furnish the certificate required under that section and therefore, deduction were denied - HELD THAT:- Naturally when the assessee does not have a requisite certificate u/s 35AC2(b) in the prescribed format, deduction u/s 35AC is correctly disallowed. Alternative claim of relief u/s 80G - This contention was also negated in view of the fact necessary details could not be produced before the lower authorities. However, before us the assessee has submitted that all the receipt of donation of Himalaya School Society wherein, donation of ₹ 6 lakhs is given and it was acknowledged vide receipt No. 142 dated 22.09.2008. The assessee has also submitted certificate issued to the above society u/s 80G(5) dated 12.09.2008 which is applicable for the period of 01.04.2008 to 31.03.2010. In view of this, we direct the ld AO to allow the deduction u/s 80G of the Act on the donation of ₹ 6 lakhs which has been correctly disallowed by him u/s 35AC of the Act. Accordingly, ground No. 4 of the appeal is partly allowed. Credit of tax deduction at source as claimed by the assessee in its revised return of income - grievance of the assessee is that credit towards TDS is reflected in Form No. 26AS was not allowed - HELD THAT:- CIT (A) directed the ld AO to verify the claim of the TDS made on account of the assessee and allowed TDS credit admissible as per 26AS. According to us the ld CIT (A) has categorically directed to the ld AO to grant credit of TDS as per Form No. 26AS. We do not find that such direction would have caused any grievance to the assessee to that extent. The assessee may have certain TDS certificates validly issued by the deductor not appearing in form no 26AS, there is no reason why assessee should not get credit for the same. Even otherwise, we direct the ld AO to verify the credit claimed by the assessee in return of income and TDS certificates available with it and give credit for the same as pre paid tax in accordance with the law. He may carry out necessary verification , if ld AO deems fit. In the result, ground No. 5 of the appeal is allowed. Issues Involved:1. Disallowance under Section 14A read with Rule 8D of the Income Tax Act.2. Disallowance of Corporate Social Responsibility (CSR) expenditure.3. Disallowance under Section 35AC of the Income Tax Act.4. Credit for Tax Deducted at Source (TDS).Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The Revenue challenged the restriction of disallowance under Section 14A to Rs. 13,20,000 by the CIT(A), arguing that the assessee had not utilized borrowed funds for making investments in securities. The assessee had earned exempt income of Rs. 59,40,911 and suo moto disallowed Rs. 2 lakhs under Section 14A. The AO worked out the disallowance at Rs. 1747 lakhs but CIT(A) restricted it to Rs. 13.20 lakhs, stating that the assessee had sufficient interest-free funds. The Tribunal upheld the CIT(A)'s decision, agreeing that no interest expenditure was incurred due to sufficient interest-free funds but confirmed the disallowance of Rs. 13.20 lakhs for administrative expenses as per Rule 8D(2)(iii).2. Disallowance of Corporate Social Responsibility (CSR) expenditure:The assessee claimed a deduction of Rs. 9,99,158 towards CSR activities, which was disallowed by the AO and upheld by CIT(A). The Tribunal agreed with the lower authorities, stating that the donations did not qualify for deduction under Section 80G as the recipient trusts were not recognized under Section 80G(5). Moreover, the expenditure did not meet the criteria for business expenditure under Section 37(1) as there was no evidence to show it was incurred wholly and exclusively for business purposes.3. Disallowance under Section 35AC:The assessee claimed a deduction of Rs. 6 lakhs donated to the Himalaya School Society under Section 35AC, which was disallowed due to the absence of a requisite certificate. The Tribunal upheld this disallowance but directed the AO to allow the deduction under Section 80G, as the society had the necessary 80G(5) certificate.4. Credit for Tax Deducted at Source (TDS):The assessee claimed TDS credit of Rs. 3,65,51,193, but the AO allowed only Rs. 1,76,64,053. The CIT(A) directed the AO to verify the TDS claim as per Form 26AS. The Tribunal upheld this direction, emphasizing that the AO should verify and allow the TDS credit based on the TDS certificates available with the assessee, even if not reflected in Form 26AS.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, confirming the CIT(A)'s decisions on disallowances and directing verification for TDS credit. The order was pronounced on 27/05/2021.