2017 (12) TMI 186

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....ounsel for the assessee submitted that by virtue of judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. M/s. Industrial Security & Intelligence India Pvt. Ltd, Tax Case (Appeal) Nos.585 and 586 of 2015, dated 24.07.2015, employees contribution to ESI & PF remitted prior to due date of filing of the return, had to be allowed. 5. Per contra, ld. Departmental Representative placed reliance on Circular No.22/2015, dated 17.12.2015 of Central Board of Direct Taxes. 6. We have considered the rival contentions and perused the orders of the authorities below. It is not been disputed by the ld. Departmental Representative that assessee had effected payment of Rs. 2,43,182/- being employees contribution of PF dues before due date of filing of return. Their lordships in the case of M/s. Industrial Security & Intelligence India Pvt. Ltd (supra) had held as under at paras 5 & 6 of its judgment. "5. We find that the Tribunal has rightly relied on the decision of the Supreme Court in the case of CIT V. Alom Extrusions Ltd. reported in 319 ITR 306, whereby, the Supreme Court held that omission of second proviso to Section 43B and amendment to first proviso by Finance Act, 2003....

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....ial questions 1 and 2 have been pursued at the time of hearing and consequently, answered by us. 2. The assessment year involved is 2007-2008. The assessee had investments in Indian Companies to the tune of Rs. 177.56 crores that had not yielded any returns in the previous year relevant to the present assessment year. An order of draft assessment in terms of s.143(3) r.w.s.144C of the Income Tax Act 1960 (hereinafter referred to as 'Act') was issued by the assessing officer, interalia proposing a disallowance in terms of s. 14A of the Act read with Rule 8D of the Income Tax Rules of an amount of Rs. 1,88,245/-. The proposal was confirmed despite objections that the provisions of s.14A and Rule 8D would not be attracted in a case where no exempt income had, in fact, been earned. The matter was carried before the Dispute Resolution Panel, which confirmed the disallowance. In appeal before the Income tax Appellate tribunal, (in short 'Tribunal') the directions of the DRP were confirmed relying on a decision of the Special Bench of the Tribunal in the case of Cheminvest Limited vs Commissioner of Income Tax. The order of the Tribunal dated 26.6.2015 is assailed in appeal before us. ....

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....o the effect that s. 14A was intended to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the Learned Standing Counsel, the provisions of s.14A are made applicable, in terms of sub section (1) thereof to income under the act and not of the year' and a disallowance under s.14A r.w.Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year. 9. We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income Tax Vs. Maharashtra Sugar Mills Limited (1971) (82 ITR 452) and Rajasthan State Ware Housing Corporation Vs. Commissioner of Income Tax ((2002) 242 ITR 450) in terms of which, expenditure incurred by an assesee carrying on a composite business giving rise to both taxable as well as nontaxable income, was allowable in entirety without apportionment. It was thus that s. 14A was ....

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.... dated 2.12.2013. In that case, payments of interest by the assessee were sought to be disallowed invoking the provisions of s.14A on the premise that the same related to borrowings that had been invested and would yield exempt returns. The assessee contested the disallowance u/s 14A on multiple grounds. It was contended that there were sufficient reserves and surpluses available for the purpose of investments, and borrowed funds, for which the payment of interest had been incurred, had not been invested. The assessee sought to draw a nexus between the borrowed funds and the interest payments, highlighting the position that the quantum of available free funds was far in excess of the investments made. The Bench, in the light of the above submissions, remanded the issue to the file of the assessing officer to be considered de novo and after conducting a proper enquiry. Inter alia a direction was issued to the assessee to tender a proper explanation for the interest payments. The open remand was made in the facts and circumstances of that case and no conclusion was drawn by the Bench on the position of law involved. In fact, the substantial question of law raised in that case for the....