2023 (12) TMI 866 - AT - Income Tax

Assessee's appeal dismissed on section 14A Rule 8D disallowance but succeeds on section 115BBE computation

ITAT Kolkata dismissed the assessee's appeal regarding disallowance under section 14A read with Rule 8D(2)(ii). The tribunal upheld the AO's application ... Disallowance u/s 14A r.w.r 8D(2)(ii) - AO has disallowed the expenditure on account of expenditure incurred for earning tax-free income - HELD THAT:- There is no demonstrable evidence showing as to how expenditure has been worked out for making a disallowance u/s 14A. The assessee has raised only peripheral pleas that management had looked into all other incidental issues for the purpose of disallowing expenditure themselves u/s 14A, but this objective is not discernable either in the accounts or otherwise. The assessee has been earning huge dividend income on short-term funds, which are required to be reinvested. It has not demonstrated that these were reinvested in the same Mutual Funds otherwise they will be converted to long-term investment. Faced with the above difficulties, AO has thought it fit to apply the formula and worked out the disallowances. After going through the finding of AO we do not find any error in it except in the total quantification of disallowance. Onc eAO has worked out the disallowance with the help of Rule 8D(2), then, he was not required to add the amount suo motu disallowed by the assessee. Disallowance worked out by him will look all the considerations and there is no need to make separate addition of Rs. 9,134/- made by the assessee on its own estimate. In the present case, there are expenditures, but the expenditures relatable to exempt income could not be demonstrable. Ld. Assessing Officer has to take help of the formula under Rule 8D and worked out the disallowance. Therefore, the assessee could not buttress its case on the strength of the above decisions. We do not find any merit in these grounds of appeal. They are rejected. Computation of tax u/s 115BBE - as argued when no income was brought to tax under sections 68, 69, 69A, 69B, 69C or 69D, then no computation of tax under section 115BBE was required to be made - HELD THAT:- A specific reference is being made to serial nos. 10 and 25 of the computation sheet. If that be the situation, then ld. Assessing Officer could not compute the tax under section 115BBE out of the disallowance under section 14A of the Income Tax Act. The ld. CIT(A) has no power to relegate any issue to the Assessing Officer. In other words, ld. CIT(A) has no power to remand an issue to the Assessing Officer. It has to decide the issue himself. A reference to this effect is being made to Section 251 of the Income Tax Act. Sub-clause (1)(a) has been amended by Finance Act, 2001 w.e.f. 1st June, 2001 and the power of the ld. CIT(Appeals) to set aside any issue has been omitted. Therefore, he cannot set aside any issue to the file of ld. Assessing Officer for redetermination. A perusal of the assessment order would suggest that there is no addition under these sections mentioned above and there could not be any computation of tax under section 115BBE. This ground of the assessee is allowed. Deduction of Education Cess u/s 37(1) - HELD THAT:-As decided in M/S. KANORIA CHEMICALS & INDUSTRIESITA [2021 (10) TMI 1153 - ITAT KOLKATA] that Education Cess is not an allowable expenditure. The ld. 1st Appellate Authority has mainly reproduced the decision of the Coordinate Bench in the above finding and we find that ITAT, Kolkata has based its finding on the basis of Hon’ble Supreme Court’s decision in the case of CIT –vs.- K. Srinivasan [1971 (11) TMI 2 - SUPREME COURT] After going through the above, we do not find any merit in it. Hence this ground of appeal is rejected. Issues Involved:1. Disallowance under Section 14A read with Rule 8D(2)(ii)2. Computation of tax under Section 115BBE3. Allowability of Education Cess under Section 37(1)Summary:1. Disallowance under Section 14A read with Rule 8D(2)(ii):The assessee challenged the disallowance of Rs. 2,68,216/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D(2)(ii) for expenditure incurred to earn tax-free income. The AO found the assessee's suo motu disallowance of Rs. 9,134/- insufficient given the substantial investments. Despite the assessee's contention that no exempt income was earned, the AO noted dividend income reinvested and applied Rule 8D to calculate disallowance. The Tribunal upheld the AO's method but corrected the disallowance amount by excluding the assessee's self-disallowed amount of Rs. 9,134/-, finding no specific evidence from the assessee to support the lower disallowance.2. Computation of tax under Section 115BBE:The assessee argued against the computation of tax under Section 115BBE, claiming no income was brought to tax under Sections 68, 69, 69A, 69B, 69C, or 69D. The Tribunal agreed, noting the AO did not identify any such income and the CIT(A) lacked the power to remand issues to the AO. The Tribunal allowed this ground, confirming no tax computation under Section 115BBE was warranted.3. Allowability of Education Cess under Section 37(1):The assessee contended that Education Cess should be deductible under Section 37(1). The CIT(A) rejected this, referencing the ITAT Kolkata's decision in Kanoria Chemicals & Industries Ltd., which followed the Supreme Court's ruling in CIT vs. K. Srinivasan, treating Education Cess as part of income tax. The Tribunal upheld this view, dismissing the assessee's ground and confirming Education Cess is not an allowable expenditure under Section 37(1).Conclusion:The appeal was partly allowed, with the Tribunal correcting the disallowance under Section 14A but upholding the decisions regarding Section 115BBE and Education Cess.