2021 (7) TMI 281 - AT - Income Tax

ITAT decision: Recalculation under Section 14A, upheld disallowance under Section 35D, dismissed income computation issue.

M/s. Moldtek Packaging Ltd., Hyderabad Versus Asst. Commissioner of Income Tax, Circle 16 (2), Hyderabad.

M/s. Moldtek Packaging Ltd., Hyderabad Versus Asst. Commissioner of Income Tax, Circle 16 (2), Hyderabad. - TMI Issues Involved:1. Disallowance of preliminary expenses claimed under Section 35D of the Income Tax Act.2. Disallowance of expenses under Section 14A of the Income Tax Act read with Rule 8D.3. Disallowance of deferred employee compensation.4. Erroneous computation of taxable income due to the addition of corporate dividend tax paid by the assessee.5. Request for interim stay on the demand raised.Summary:1. Disallowance of Preliminary Expenses Claimed under Section 35D:The assessee claimed a deduction of Rs. 58,500 under Section 35D for preliminary expenses, which the Assessing Officer (AO) disallowed, categorizing it as capital expenditure. The CIT(A) upheld this disallowance, relying on the Supreme Court judgments in Brookbond India Limited Vs. CIT and Punjab State Industrial Development Corporation Vs. CIT, which held that ROC expenses for enhancement of capital are not revenue expenditures. The ITAT agreed with the CIT(A) and dismissed this ground of appeal.2. Disallowance of Expenses under Section 14A read with Rule 8D:The AO disallowed Rs. 3,64,000 under Section 14A, applying Rule 8D, as the assessee received exempt dividend income of Rs. 6,35,000 and had significant finance costs. The ITAT referenced a similar case (NSL Renewable Power Pvt. Ltd. Vs. DCIT) and directed the AO to recalculate the disallowance, considering only those investments that generated exempt income. The recalculated disallowance should not exceed the exempt income earned by the assessee, following the precedent set by Joint Investment Pvt. Ltd. Vs. CIT. This ground was allowed for statistical purposes, remanding it back to the AO for proper recalculation.3. Disallowance of Deferred Employee Compensation:The AO disallowed Rs. 20,59,963 claimed as deferred employee compensation due to lack of details. The CIT(A) upheld this disallowance. However, the assessee later provided Form No.16 and other documents showing that the benefit was added to the employees' income as a perquisite with proper TDS deductions. The ITAT remitted this issue back to the AO for further verification, directing the assessee to submit all supporting documents and the AO to provide a reasonable opportunity for hearing. This ground was allowed for statistical purposes.4. Erroneous Computation of Taxable Income:The assessee contended that the taxable income was erroneously computed at Rs. 11,69,28,240 instead of Rs. 11,44,45,780 due to the addition of corporate dividend tax paid. The CIT(A) allowed this appeal pending verification by the AO. This ground was dismissed as not pressed during the hearing.5. Request for Interim Stay on the Demand:The assessee requested an interim stay on the demand of Rs. 24,10,900, arguing it was unjustly raised. This issue was not specifically addressed in the judgment.Conclusion:The ITAT partly allowed the appeal, directing the AO to recalculate the disallowance under Section 14A and to verify the deferred employee compensation claim. The preliminary expenses disallowance was upheld, and the computation of taxable income issue was dismissed as not pressed. The request for an interim stay on the demand was not explicitly decided. The order was pronounced in the open court on 2nd July 2021.