2022 (1) TMI 233 - AT - Income Tax

Tribunal partially allows appeal, rules for assessee on disallowances. Section 14A, 35(2AB) overturned, Education Cess deduction permitted.

The appeal was partly allowed by the Tribunal, ruling in favor of the assessee on various grounds. The disallowances under section 14A and section 35(2AB) ... Disallowance u/s 14A r.w.r. 8D - mandation of recording satisfaction before proceeding to make disallowance u/s. 14A - Suo moto disallowance made by assessee - HELD THAT:- As decided in own case [2019 (10) TMI 776 - ITAT PUNE] considering the manner of computation of disallowance u/s. 14A, the Tribunal held that the AO failed to record the mandatory satisfaction before proceeding to make disallowance u/s. 14A of the Act. That is how, the addition was deleted. The facts of the instant year are mutatis mutandis similar to those of the preceding years. The ld. DR candidly accepted the fact. Respectfully following the precedent, we order to delete the addition. Disallowance u/s. 14A in the computation of book profit u/s. 115JB - HELD THAT:- As in case M/s. Bhushan Steel Limited and others [2015 (9) TMI 1424 - DELHI HIGH COURT] holding that no disallowance can be made u/s. 14A in the computation of income u/s. 115JB. We respectfully follow the same and allow the ground of appeal. Disallowance of weighted deduction u/s. 35(2AB) - amount not allowed by the DSIR and held to be ineligible for the weighted deduction u/s. 35(2AB) - HELD THAT:- As decided in own case [2019 (10) TMI 776 - ITAT PUNE] observing that the amendment in the relevant rules came into force only from 01-07-2016 which would not apply to mar the claim of the assessee for the weighted deduction. After considering the facts, the Tribunal granted weighted deduction on the amount not allowed by the DSIR. Since the facts and circumstances of the instant ground are similar, respectfully following the precedent, we allow this ground of appeal. Claim of deduction of Education Cess paid for the year - HELD THAT:- This issue is no more res integra in view of the judgment of Hon'ble jurisdictional High Court in Sesa Goa Lt. [2020 (3) TMI 347 - BOMBAY HIGH COURT] in which it has been held that Education Cess is not disallowable expenditure u/s. 40(a)(ii) of the Act. Similar view has earlier been taken by the Hon'ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. and Another [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] - We, ergo, direct to allow deduction for such an amount after verification. Issues:1. Disallowance under section 14A of the Income-tax Act, 1961.2. Disallowance under section 14A in the computation of book profit under section 115JB.3. Disallowance of weighted deduction under section 35(2AB).4. Claim of deduction of Education Cess paid for the year.Issue 1: Disallowance under section 14A of the Income-tax Act, 1961:The appeal challenges the disallowance of Rs. 38,29,184 made by the Assessing Officer under section 14A. The assessee earned exempt income of Rs. 5.42 crore, and a disallowance of Rs. 20.00 lakh was offered suo motu under section 14A. However, the AO computed a higher disallowance under Rule 8D(2) leading to the addition of Rs. 38,29,184. The Tribunal, considering past precedents, held that the AO failed to record mandatory satisfaction before making the disallowance. Following the precedent, the addition was deleted.Issue 2: Disallowance under section 14A in the computation of book profit under section 115JB:The next ground of appeal concerns the increase of disallowance under section 14A in the computation of book profit under section 115JB. The Tribunal referred to relevant judgments and held that no disallowance can be made under section 14A in the computation of income under section 115JB. Following the precedent, the ground of appeal was allowed.Issue 3: Disallowance of weighted deduction under section 35(2AB):The third ground challenges the disallowance of weighted deduction of Rs. 29.00 lakh under section 35(2AB). The assessee claimed a deduction of Rs. 11.57 crore, which was reduced by the DSIR to Rs. 11.28 crore. The amount not allowed by the DSIR was held to be ineligible for weighted deduction under section 35(2AB). The Tribunal, following past decisions, granted the weighted deduction on the amount not allowed by the DSIR, as the relevant rules amendment did not apply to mar the claim.Issue 4: Claim of deduction of Education Cess paid for the year:The assessee raised an additional ground seeking a deduction of Education Cess paid amounting to Rs. 1,09,37,976. Citing relevant case law, the Tribunal admitted the additional ground for disposal on merits. Referring to judgments by the jurisdictional High Courts, the Tribunal directed to allow the deduction for Education Cess after verification, as it is not considered disallowable expenditure under the Act.In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on various grounds, including the disallowances under section 14A and section 35(2AB), and allowing the deduction for Education Cess paid.