TaxTMI 
TaxTMI 
2014 (10) TMI 796
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....me of dividend income of Rs. 26,620.00 without application of mind and in complete disregard of the books of accounts of the assessee, facts of the case & provisions of law. 2. Ground No. 1 is general in nature. Hence it does not need independent adjudication. Ground No. 2 3. The relevant facts are that the AO noted from the auditors report in form No. 3CD that a sum of Rs. 36,61,123/- on account of interest on service tax had not been paid till the due date of filing return of income. He required the assessee to show cause as to why this amount should not be disallowed u/s 43B(a) of the I.T. Act. The assessee replied that interest on service tax of Rs. 36,61,123/- is outside the purview of section 43B. The AO was not satisfied with the cause shown by the assesee and after discussing the case in detail including several decisions on the issue he came to conclude that the claim of the assessee of deduction of Rs. 36,61,123/- being interest on service tax payable which was not actually paid before filing of return of income is disallowable u/s 43B of the Act. He accordingly added this amount to the total income of the assessee. This action of the AO has been upheld by the Ld. CIT(....
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....l). He submitted further that cited decision of Sanjay Ghai vs. ACIT and others (supra) by the AR is on the issue of the interest in view of the meaning of phrase 'tax due' for the purposes of recovery in certain cases provided u/s 179 of the Act, whereas in the present case the issue involved is related to the provisions laid down u/s 43B of the Act, hence the said decision is not helpful to the assessee. He submitted that the section 179 of the Act provides that where the tax due from a private company cannot be recovered from such company, then the director (who was the director of such company during the previous year to which non-recovery relates) shall be jointly and severally liable for payment of such tax unless he proves that the non-recovery of tax cannot be attributed to any gross neglect mistake or breach of duty on his part. This provision is intended to recover outstanding demand under the Act of a private company from the directors of such company in certain case. However, some courts interpreted the phrase "tax due" used in section 179 to hold that it does not include penalty, interest and others sum payable under the Act. In view of the above amendments on the simi....
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....he Act which are all together different from the main section 43B of the Act which is under consideration. We find that the Hon'ble Rajasthan High Court in the case of Shree Pipes (supra) has been pleased to discuss the case law of Harshad Shantilal Mehta. The relevant extract of the decision of Hon'ble Rajasthan High Court while discussing the decision in the case of Harshad Snatilal Mehta (supra) are being reproduced hereunder :- "The court held that Special Court after examining various authorities in paragraphs 51 to 70 of his judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection. Thus, this decision affirms that expression 'tax' has to be construed in the context of object in which the word has been used." "As the decision of Harshad Shantilal Mehta's case (supra) was rendered in the context of special provisions of the Act of 1992 for fixing priorities of certain liabilities incurred during specified period only, its ratio does not govern the case, where restriction on allowability of a claim to deduction which is otherwi....
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....f the tax and that is not paid within the period specified in the demand or within thirty days if no period is specified in the said demand notice, interest is automatically payable by the dealer. The present case is clearly covered by the said provision. It is clear that once there is a notice of demand for the tax and the same is not paid, as indicated above, the interest becomes automatically payable." 11. In view of above discussion especially the very object of section 43B of the Act, which is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of tax or duty, for a long period but claim deduction from the income on the ground that the liability to pay this amount incurred by them in the relevant previous year, we are of the view that the interest payable to service tax is also a tax and the provisions of section 43B of the Act are very much applicable thereto. The ratio laid down in the cited decisions by the Ld. DR in the cases of Mewar Motors (supra) and Shree Pipes (supra) holding that interest payable to the sales tax department is also "tax" and the provisions of section 43B of the Act are applicable thereto is equally rel....
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.... that the amount were credited on 31st March, 2009 and TDS was paid on 24.1.2011. Had this been the position, the amount of TDS would have been appearing outstanding on 31.3.2009 in the balance sheet and the auditors would have commented on it. The Ld. AR pointed out that before the AO copy of the schedule of unpaid statutory dues on 31.3.2009 was submitted, wherein the TDS due was reflected. The assessee had also enclosed photocopies of the challans for payment of TDS from where it may be confirmed that whatever amount of TDS was due on 31.3.2009 was duly paid before the due date of filing the return of income u/s 139 of the Act. The Ld. AR pointed out that similar contention was made before the Ld. CIT(A) which has been reproduced while dealing with the ground in its order but the same has not been considered by the Ld. CIT(A). He similarly upheld the action of the AO in this regard on the basis that the AO has made the addition on this account after thorough verification of the facts. 15. The Ld. DR on the other hand tried to justify the orders of the authorities below in this regard. He submitted that the AO has mentioned the date of credit and date of payment regarding the am....
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....itted further that only the actual amount incurred the assessee and identified during the assessment proceedings by the AO may be disallowed. He also pointed out that the AO has added back a sum of Rs. 6,09,577/- as expenses attributable to earning dividend income of Rs. 26,620/-. He placed reliance on the decision of Hon'ble Kerala High Court in the case of CIT Vs. Leena Rama Chandran (Kerala), 339 ITR 296 (Kerala). 19. Ld. DR on the other hand placed reliance on the orders of the authorities below and the decisions relied upon by them. 20. Considering the above submission we find that there is no dispute that Rule 8D of the I.T. Rules 1962 is applicable in the assessment year under consideration. Thus we have to examine the issue in view of the provisions laid down u/s 14A read with Rule 8D. The ratio laid down by the Hon'ble Jurisdictional High Court in the case of Maxopp Investment Ltd. VS. CIT 247 ITR (Del) 1 is applicable in the present case. The relevant extract thereof is being reproduced hereunder for a ready reference :- 30. As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incu....
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....r than the amount of interest included in clause (i)] incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, I have considered the submissions and facts on record." 21. The AO has placed reliance on several decisions while dealing with the contention of the assessee that only a small dividend of Rs. 26,620/- was earned for which the AO has proposed disallowance of Rs. 609577/- u/s 14A of the Act. These decisions are Renaissance Asset Management Co. (P) Ltd. vs. Assessing Officer (2010) 2 ITR (Trib.) 765 (Delhi) holding that any expenses which are attributed to investment activity have to be considered as expenses incurred for earning dividend income because the investment is made to earn dividend income. It was held further that it is not relevant as to whether any dividend income was received by the assessee or not and what was the amount of dividend income. Th....