2021 (7) TMI 281 - AT - Income Tax

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

The ITAT partly allowed the appeal by directing the AO to recalculate the disallowance under Section 14A and verify the deferred employee compensation ... Disallowance of ROC expenses u/s 35D - AO disallowed by holding that payment to ROC for increase in capital is a capital expenditure and added to the total income of the assessee - HELD THAT:- This issue has rightly been decided by the CIT(A) on relying on the judgment of Hon’ble Supreme Court in the case of Brookbond India Limited [1997 (2) TMI 11 - SUPREME COURT] and Punjab State Industrial Development Corporation [1996 (12) TMI 6 - SUPREME COURT] wherein it was held that the ROC expenses as fees for enhancement of capital was not a revenue expenditure. Therefore this ground cannot be allowed. Ground No.2 is dismissed. Disallowance u/s. 14A r.w.r. 8D - No suo moto any expenditure in this regard disallowed by the assessee - HELD THAT:- The assessee is unable to demonstrate that on the date of investments he had sufficient own funds available. While calculating the disallowance u/s. 14A, only those investments should be considered which has yielded exempt income. We are sending back to the file of Assessing Officer for recalculation of the disallowance u/s. 14A of the Act. Needless to say that reasonable opportunity of being given to the assessee and the assessee is also directed not to seek unnecessary adjournments. Accordingly this ground is allowed for statistical purposes. Disallowance of differed employee compensation - CIT(A) has dismissed by holding that for want of details were not provided by the assessee - HELD THAT:- The assessee has filed a paper book and has submitted that benefit received by the employee has been added in their income as a prerequisite and properly TDS has been made and in support he has submitted Form No.16 issued to the employees and computation of income. CIT(A) observed that the assessee did not file any details of perquisites paid to the employees to which the CIT(A) has narrated in para No.9.2 in his order - we remit this issue to the file of Assessing Officer for further verification and the assessee is directed to produce all the documents in support of his claim of the expenditure and the Assessing Officer is directed to provide reasonable opportunity of hearing to the assessee. The assessee is directed not to seek unnecessary adjustments. Therefore this ground of the assessee is allowed for statistical purposes. 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.