TaxTMI 
TaxTMI 
2021 (2) TMI 608
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia Ltd. and was converted into Banking Company. The name was later changed to IDBI Bank Ltd. (the assessee-Bank). In the return of income filed for the impugned assessment year, the assessee declared total income of Rs. 2840,48,33,580/- under normal provision and Rs. 3454,28,25,010/- u/s 115JB of the Act. 3. The 1st ground of appeal The Ld. CIT(A) erred in not granting relief on disallowance under Rule 8D(iii) based on decision of Hon'ble Gujarat High Court in case of Sintex Industries Ltd. (82 taxmann.com 171) by wrongly distinguishing the case even when the facts of the case are squarely applicable to appellant. During the year under consideration, the assessee has received an amount of Rs. 131,15,55,304/- as dividend from shares of financial institutions, companies, subscription to Venture/Mutual Funds and on investment in shares in secondary market. It claimed this income as exempt u/s 10(34) of the Act. Also during the year, the assessee received interest income of Rs. 84,68,39,275/- from investment in tax-free bonds, which it claimed as exempt u/s 10(15) of the Act. During the course of assessment proceedings, the AO noted that the assessee has suo mo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has not been approved. However, it has been held that in the case like Maxopp Investment Ltd., the assessee would continue to hold those shares as it wants to retain control over the investee company and in that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. I find that the appellant, even at the time of investing into those shares, like Maxopp Investment Ltd. knew that it may generate dividend income as well and as and when such dividend income is generated that would be earned by it. Therefore, I am of the considered opinion that while computing the disallowance u/s. 14A read with Rule 8D(2)(iii), investments made as a part of assistance to industrial undertaking, by way of investment in equity shares and preference shares, should be considered and only those investments which are clearly in the nature of stock-in-trade i.e. purchased for trading purpose should be excluded. Further, only those of such investments, exempt income from which have been earned during the year have to be considered, in light of the decision in the case of Cheminvest Ltd. vs. Commissioner of Income-tax-IV [2015] 61 tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ound to be correct. Thus it is stated by him that considering the size of the investments as also the exempt income earned, the related expenditure by way of involvement of manpower and the establishment expenditure has to be considered for disallowance u/s 14A, the AO has rightly recorded the satisfaction before making the said disallowance. 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The assessment u/s 143(3) was passed by the AO on 26.12.2017. The reasons recorded by the AO before making disallowance u/s 14A r.w. Rule 8D is contained in para 3.2 of the said order and the same is produced below : "3.2 On further perusal of the details furnished by the assessee company, it is also seen that the assessee company has suo-motu disallowed an amount of Rs. 2,22,63,226/- as expenses been incurred towards the exempt income and reduced the same in the computation of income. However, the basis of disallowance of Rs. 2,22,63,226/- for earning the exempt income during is not submitted by the assessee company. Hence, I am not satisfied with regard to correctness of the claim of expenditure m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rule 8D is given in Annexure 9B of Tax Audit Report." In this regard, the submission date was made on 07.12.2017 and 11.12.2017. Regarding Rule 8D, Tax auditor confirmed that amount inadmissible in terms of section 14A in respect of the expenditure incurred in relation to income which does not form part of the total income is NIL for F. Y.: 2014-15 in Tax Audit Report. Hence, the computation as per rule 8D is not given in the annexure of Tax Audit Report. Since this is a mistake apparent from record, it is humbly requested to delete the observations as the assessee is suo moto making a disallowance of Rs. 2,22,63,226/-. As also submission by assessee itself computation as per Rule 8D. 9.1 On perusal of the submission of the assessee, it is found that the submission of the assessee is correct. Accordingly, Para no. 3 to 3.11 of the assessment order is rectified and replaced with the following paras:- 3. Disallowance u/s 14A of the Act: 3.1 On perusal of the return of income, it is observed that the assessee company has received an amount of Rs. 131,15,55,304/- as dividend from shares of financial institutions, companies, subscription to Venture/Mutual Fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ares is to be examined by the AO." In Godrej & Boyce Manufacturing Company Ltd. v. DCIT (2017) 81 taxmann.com 111 (SC), it is held that : "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become app....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 1949 and Rs. 94,200/- for non-compliance of guidelines on customer service, guidelines in respect of exchange of points and small de-nomination notes and mutilated notes. The AO considered that the payments were made on account of penalty ; the word 'penalty' is used for violation of law/procedural law under the concerned Act. Therefore, the AO made a disallowance of Rs. 15,94,200/- and added it to the total income of the assessee. 9. In appeal, the Ld. CIT(A) referred to section 47A of the Banking Regulation Act, which reads as under : "Notwithstanding anything contained in section 46, if a contravention or default of the nature referred to in sub-section (3) or sub-section (4) of section 46, as the case may be, is made by a banking company, then, the Reserve Bank may impose on such banking company... Section 46(4)(i) of Banking Regulation Act states that - If any other provision of this Act is contravened or if any default is made in- (i) complying with any requirement of this Act or of any order, rule or direction made or condition imposed thereunder, or... such person shall be punishable with fine which may extend to...." Accordingly, the Ld. CIT(A) he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the National Stock Exchange on the assessee. The Hon'ble High Court held that : "3 As regards the second question is concerned, the finding of fact recorded by the CIT(A) and upheld by the ITAT is that the payments made by the Assessee to the Stock Exchange for violation of their regulation are not on account of an offence or which is prohibited by law. Hence, the invocation of explanation to section 37 of the Income Tax Act, 1961 is not justified. In our opinion, in the facts and circumstances of the present case, no fault can be found with the decision of the ITAT. Accordingly, the second question cannot be entertained." In Bapunagar Mahila Co-operative Bank Ltd. (supra), the Tribunal held that : "20. We come to the assessee's first substantive ground. The RBI imposed a penalty of Rs. 5 lacs (supra) u/s. 47A (1)(b) of the Banking Regulation Act,1947 alleging violation of KYC norms. Both the authorities below hold that a penalty imposed does not give rise to any corresponding revenue expenditure being penal in nature. 21. It has come on record that this penalty arises from the assessee's action in opening 250 FDRs (supra) already dealt in Revenu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the decision in ANZ Grindlays Bank (supra) relied on by the Ld. DR. Therefore, following the decisions mentioned at para 12 above, we delete the disallowance of Rs. 15,94,200/- levied by the AO. Accordingly, the 2nd ground of appeal is allowed. 13. The 3rd ground of appeal The Ld. CIT (A) erred in confirming order of AO in adding the tax on non-monetary perquisite in computing book profits u/s 115JB without appreciating that the amount paid represents employee cost and not tax in the hands of appellant. The assessee has computed book profit u/s 115JB at Rs. 3454,28,24,511/- and tax liability under MAT provisions was shown at Rs. 724,03,48,732/- including surcharge and education cess. During the course of assessment proceedings, the AO noticed that the assessee, while computing income under normal provisions of the Act, has added back Rs. 12,16,10,651/- being taxes on non-monetary perquisites to employees u/s 40(a)(v) of the Act. However, while computing income u/s 115JB, the same has not been added back to book profits. The AO filed a reply dated 22.11.2017 on the above before the AO. However, the AO was not convinced with the said reply on the ground that Exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not 'below the line' items, since the same are expressly disallowed u/s 40(a)(v), the same do not constitute Income Tax for the assessee in terms of Explanation-2 to section 115JB ; therefore, without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s 115JB of the Act. Further, the Tribunal held that : "Computation of book profits under section 115JB has to be made in the manner as provided in Explanation-1 to section 115JB. The Minimum Alternate Tax [MAT] provisions as contained in section 115JB, as per well-settled law, are a complete code in itself and creates a deeming fiction which is to be construed strictly and therefore, whatever computations/adjustments are to be made, they are to be made strictly in accordance with the provisions provided in the code itself. The clause (a) of Explanation-1 envisages add-back of the amount of Income Tax paid or payable and the provision therefor while ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as a part of assistance to industrial undertakings, by way of investment in equity shares and preference shares should be considered and only those investments which are clearly in the nature of stock-in-trade i.e. purchased for trading purpose should be excluded. Also it is held by him that only those of such investments, exempt income from which has been earned during the year is to be considered in the light of the decision in the case of Cheminvest Ltd. v. CIT (2015) 61 taxmann.com 118 (Delhi). Accordingly, the Ld. CIT(A) directed the AO to verify the revised computation made in respect of disallowance under Rule 8D(2)(iii) and allow appropriate relief to the assessee. 21. Before us, the Ld. DR submits that the order passed by the AO. On the other hand, the counsel submits that the appeal filed by the Revenue does not survive as the AO has not recorded any objective satisfaction as to why the computation mechanism provided in Rule 8D(2) of the Rules would come into operation, having regards to the accounts of the assessee. In this regard, reliance is placed by him on the order of the Tribunal in the case of Central Bank of India (supra). 22. As we have set aside the o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of such sum on which TDS is not deducted? Whether, on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in ignoring the decision of Hon'ble ITAT, Bangalore in the case of IBM India Pvt. Ltd. (ITA No. 305/Bang./2015), wherein the Tribunal held that it is clear from the statutory provision that the liability to deduct tax at source exists when the amount is credited to a 'suspense account' or 'any other account' by whatever name called which will also include a 'provision' created in the books of accounts? 26. As per the Tax Audit Report, the assessee has made year end provision of expenses on which tax has not been deducted. In response to a query raised by the AO, the assessee filed a reply dated 29.11.2017 which is extracted by the AO at para 4.1 of the assessment order. However, the AO was not convinced with the said reply of the assessee mainly on the ground that provisions of the Act pertaining to deduction of tax (as enumerated in Chapter XVII-B) requires that the payee should deduct tax at source at the time of payment or credit to the account of payee, whichever is earlier ; further it also provides that if the relevant amount ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at : "since the payee is not identifiable at the time of making of provision and further the entire provision has been written back in the next year and the actual amounts paid/credited were subjected to TDS as and when liability was crystallized or the payment were made." At this moment we discuss here the judgment of the Hon'ble Gujarat High Court in PCIT v. Sanghi Infrastructure Ltd. (R/TAX Appeal no. 404 of 2018). During the Assessment Year (AY) 2009-10, the taxpayer made provision for expenses under the head 'repairs and maintenance' amounting to Rs. 6 million on which tax was not deducted at source. The taxpayer also made provision for 'operation and maintenance charges' amounting to Rs. 7 million on which tax was not deducted at source. The Assessing Officer observed that these expenditures were a contingent liability and the same is not allowed under Section 37(1) of the Act. Further, no tax was deducted at the time of credit of expenses and therefore, the said provisions were disallowed under Section 40(a)(ia) of the Act. The taxpayer claimed that these provisions were part of the block provision related to unascertained liabilities and tax on the same had b....