2022 (6) TMI 969 - AT - Income Tax

Tax Appeals Allowed for Adjudication with Remand for Further Verification and Computation

The appeals filed by both the assessee and the Revenue were allowed for statistical purposes. The Tribunal condoned the delay in filing appeals, admitted ... Disallowance of deduction u/s.36(1)(viii) - Assessee claimed deduction @ 20% of profit derived from eligible business. i.e., business of providing long term finance for construction or purchase of house in India for residential purposes - assessee while working out deduction u/s.36(1)(viii) has excluded profit from non-housing portfolio as well as profit from housing loan given for period less than five years from profits of business and has arrived at profit from eligible business - HELD THAT:- As in respect of interest earned on Govt. securities (SLR), issue has been settled by the Tribunal in assessee’s own case for earlier assessment year,[2016 (12) TMI 1879 - ITAT CHENNAI] where the Tribunal held that interest earned from Govt. securities (SLR) is eligible for deduction u/s.36(1)(viii) of the Income Tax Act, 1961. Therefore, to this extent, we find that reasons given by the Assessing Officer to disallow deduction claimed on interest earned from SLR securities is not in line with settled position as per decision of the Tribunal and thus, we reject arguments of the learned DR for the Revenue. Deduction claimed towards other income like other investments income, provision on standard asset, interest on short term deposits, investment income, profit on sale of current investments, profit on sale of fixed assets and miscellaneous income - .Although, there is merit in the arguments advanced by the learned A.R for the assessee that only ‘other income’ relatable to eligible business sector needs to be excluded, while computing deduction u/s.36(1)(viii) of the Income Tax Act, 1961, but from the records, it is not clear whether the assessee has apportioned ‘other income’ to eligible business and noneligible business or not. Therefore, to ascertain facts with regard to apportionment of income to eligible business and to compute deduction u/s.36(1)(viii) of the Income Tax Act, 1961, the issue needs to go back to file of the Assessing Officer. Therefore, we set aside the issue to file of the Assessing Officer for limited purpose of examining claim of the assessee that the learned CIT(A) has restricted deduction only to other income which relates to eligible business, we direct the Assessing Officer to examine claim of the assessee and while computing deduction u/s.36(1)(viii) of the Income Tax Act, 1961 by following directions given by the Tribunal in assessee’s own case for the assessment year 2005-06 and decide the issue in accordance with law for the impugned assessment years. Disallowance u/s.14A r.w. Rule 8D - HELD THAT:- There is no dispute with regard to fact that the assessee has earned exempt income in the form of dividend and interest from NHB bonds which has been claimed as exempt u/s.10(34) of the Income Tax Act, 1961. It is also an admitted fact that the assessee has not made any suo motu disallowance of expenditure relatable to exempt income u/s.14A - Although, the assessee claims to have not incurred any expenditure in respect of exempt income, but when the assessee has maintained common set of books of accounts for taxable and exempt income, possibility of incurring common expenditure for both segments cannot be ruled out and therefore, we are of the considered view that there is no error in the reasons given by the Assessing Officer to invoke Rule 8D of Income Rules, 1962 to compute disallowance u/s.14A of the Income Tax Act, 1961 and thus, we reject arguments of the assessee. Interest disallowance under Rule 8D(2)(ii) - In this case, claim of the assessee is that it has sufficient own funds in excess of investments made in shares and securities which yield exempt income. But, facts are not clear and the assessee has not filed any cash flow statement to prove availability of own funds when those investments were made during the relevant assessment years. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer to verify facts with regard to availability of own funds to explain investments made in shares & securities which yield exempt income. Only those investments which yielded exempt income needs to be considered for working out disallowance under Rule 8D(2)(iii) - In this case, it was claim of the assessee that Assessing Officer has considered total investments, including investments which does not yield any exempt income for relevant assessment years. Further, the assessee had also filed computation explaining disallowances to be made under section 14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962, which is part of paper book filed by the assessee. But, fact remains that these details are not forthcoming from the orders of the lower authorities and further, the assessee has filed computation explaining manner and method of computing disallowance under Rule 8D(2)(iii) for the first time before this Tribunal. Therefore, we are of the considered view that this issue also needs to go back to file of the Assessing Officer for further verification. AO is directed to examine claim of the assessee and recompute disallowance in line with our discussions given hereinabove and restrict disallowances to the extent of exempt income, in case, disallowance computed by the Assessing Officer for any assessment year exceeds exempt income in light of decision of the Hon’ble Delhi High Court in the case of Joint Investments [2015 (3) TMI 155 - DELHI HIGH COURT] Disallowance of employees contribution to PF & ESI u/s.36(1)(v) r.w.s 43B - HELD THAT:- We find that this issue is squarely covered in favor of the assessee by the decision of the ITAT., Chennai in the case of M/s. Adyar Ananda Bhavan Sweets India Ltd [2021 (12) TMI 558 - ITAT CHENNAI] after considering amendment made to the provisions of Sec.36(1)(va) of the Act, by the Finance Act, 2020, held that amendment brought u/s.36(1)(va) of the Act, is applicable from assessment year 2020-21 and employees contribution to approved funds including PF & ESI remitted beyond due date specified under respective Acts, but paid within due date for filing return of income u/s.139(1) of the Act cannot be disallowed u/s.36(1)(va) of the Income Tax Act, 1961. In this case, it was claim of the assessee that all payments have been made on or before due date for filing return of income for the relevant assessment years, however, no such details have been filed before us. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for verification. Hence, we set aside the issue to file of the Assessing Officer to verify dates of payment of employees contribution to ESI and in case, the assessee has remitted the amount on or before due date for filing return of income u/s.139(1) of the Act, then additions made u/s.36(1)(va) r.w.s.2(24)(x) should be deleted. Issues Involved:1. Condonation of delay in filing appeals.2. Disallowance of deduction under Section 36(1)(viii) of the Income Tax Act, 1961.3. Disallowance of expenditure related to exempt income under Section 14A read with Rule 8D of the Income Tax Rules, 1962.4. Disallowance of employees' contribution to PF & ESI under Section 36(1)(va) read with Section 43B of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing Appeals:At the outset, both the assessee and the Revenue submitted petitions for condonation of delay in filing appeals, citing reasons such as the Managing Director being out of station and mixing of appeal papers with other files. The Tribunal, after considering the reasons provided, found them to be reasonable causes under the Act and condoned the delay, thus admitting the appeals for adjudication.2. Disallowance of Deduction under Section 36(1)(viii) of the Income Tax Act, 1961:The core issue was the disallowance of deduction under Section 36(1)(viii) concerning profits derived from the business of providing long-term finance for housing. The assessee included various incomes such as interest income, profit on sale of investments, and miscellaneous income in the eligible profits, which the Assessing Officer excluded, arguing that only profits directly derived from the eligible business should be considered. The CIT(A) deleted these additions by following the ITAT's decision for the assessment year 2005-06. The Tribunal upheld the CIT(A)'s decision regarding interest earned on SLR securities, citing the settled position by the ITAT in the assessee's own case. However, for other incomes, the Tribunal noted that the assessee's records did not clearly apportion these incomes to eligible and non-eligible businesses. Therefore, the issue was remanded to the Assessing Officer for further verification and computation in line with the Tribunal's directions.3. Disallowance of Expenditure Related to Exempt Income under Section 14A read with Rule 8D of the Income Tax Rules, 1962:The assessee had not made any suo motu disallowance under Section 14A for expenses related to earning exempt income. The Assessing Officer computed disallowance using Rule 8D, which the CIT(A) restricted to the extent of exempt income earned, following the Delhi High Court's decision in Joint Investments Pvt. Ltd. The Tribunal found merit in the assessee's claim regarding sufficient own funds for investments and the need to consider only those investments yielding exempt income. However, due to lack of clear records, the Tribunal remanded the issue back to the Assessing Officer for fresh verification and computation, directing adherence to the principles laid out in relevant judicial precedents.4. Disallowance of Employees' Contribution to PF & ESI under Section 36(1)(va) read with Section 43B of the Income Tax Act, 1961:The issue pertained to the disallowance of employees' contributions to PF & ESI remitted beyond the due date specified under respective Acts but before the due date for filing the return of income under Section 139(1). The Tribunal cited its decision in M/s. Adyar Ananda Bhavan Sweets India Ltd., which held that such contributions, if paid before the due date for filing the return, should not be disallowed. However, as the specific dates of payment were not provided, the Tribunal remanded the issue to the Assessing Officer for verification and appropriate action based on the dates of payment.Conclusion:All the appeals filed by the assessee and the Revenue were allowed for statistical purposes, with specific issues remanded to the Assessing Officer for further verification and computation in accordance with the Tribunal's directions and relevant judicial precedents.