TaxTMI 
TaxTMI 
2022 (6) TMI 969
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....venue are heard together and are being disposed off, by this consolidated order. 2. At the outset, learned AR for the assessee and learned DR for the Revenue submitted that the appeals in ITA No.1888/Chny/2018 & 3219/Chny/2018 filed by the assessee and the Revenue respectively, are time barred by 19 / 31days for which necessary petition for condonation of delay along with affidavit explaining the reasons for the delay has been filed. The AR further submitted that the assessee could not file appeal within the time allowed under the Act, due to the fact that the Managing Director was out of station which caused delay of 19 days. The delay in filing appeal is neither intentional nor willful but for the unavoidable reasons, therefore, delay may be condoned in the interest of advancement of substantial justice. 3. The learned DR submitted that the Department could not file appeal within the time allowed under the Act, due to the fact of mixing of appeal papers with other files and thus, there was delay in filing of appeal by the Revenue and prayed that the delay may be condoned. 4. Having heard both sides and considered the petition filed by the assessee and Revenue for condona....
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....ssing Officer has recomputed deduction u/s.36(1)(viii) of the Act by excluding other income reported by the assessee in the financial statements for the relevant assessment years on the ground that eligible profit for the purpose of section 36(1)(viii) means profit derived from business of providing long term finance, but it does not include other income like interest income, profit on sale of current investments etc. On appeal, the learned CIT(A) by following decision of the ITAT .,Chennai in assessee's own case for the assessment year 2005-06 deleted additions made by the Assessing Officer towards disallowance u/s. 36(1)(viii) of the Act. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us. 7. The learned DR referring to financial statements filed by the assessee for financial year 2011-12 to 2016-17 submitted that the assessee has computed deduction u/s.36(1)(viii) by including other income like interest income from Govt. securities (SLR) other investments income, provision on standard asset, interest on short term deposit, investment income, profit on sale of current investments, interest receipts, profit on sale of fixed assets and miscellaneous income....
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....nd that was subsequently allowed by the CIT(A). As this issue involves several facts and substantial question of law this written submission is made for appreciating the facts in this case. Section 36(1)(viii) of the I.T. Act is placed under Chapter IV - "Computation of Business income". As per this section, the deductions provided in various clauses of section 36(1) of the I.T. Act shall be allowed in respect of the matters dealt with therein, in computing the income referred in section 28. Section 36(1)(viii) deals with deduction, In respect of any special reserve created and maintained by a specified entity, an amount not exceeding 20% of the pro/Its derived from eligible business computed under the head "profits and gains of business or profession" carried to such reserve account. "Specified entity" means, (i) A finance corporation specified in sec 4(A) of Company's Act. (ii)A finance corporation which is a public sector company. (iii)A banking company. (iv)A cooperative bank other than primary agricultural credit society or primary cooperative agricultural and rural development bank. (v)A housing finance company and ....
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.... was arrived could not be explained. 3. Analysis of the financials and Computation of income: 3.1 AY 2012-13 As per the audited financials the net profit was Rs. 130,50,00,921/. It includes profit of both eligible and non- eligible business. On this net profit, the company made various adjustments in computation of income to determine the gross total income of various heads i.e. business or profession, income from other sources, capital gain etc. They determined the gross total income of each head. In the next sheet another calculation was given for net profit for the purpose of section 36(1)(viii) of the IT Act. As per that sheet a sum of Rs. 95,86,50,010/- was calculated as profit derived out of eligible business. This was not in accordance with provisions of IT Act and that was questioned by the AO. AO had reduced some of the ineligible profits out that profit calculated by the appellant company unscientifically without any basis. This critical fact was not examined by the CIT(A) while allowing the appeal of the assessee. 3.2 AY 20 13-1 The net profit as per the P&L A/C (annual report) was Rs. 176,67,78,000. This includes eligible as ....
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....me from other sources". In this assessment year also, the income from housing finance business of Rs. 119,48,21,859/- was determined indirectly without having any separate accounts. On this 20% was claimed as deduction. The AO observed *that investment income, profit on sale of current investment, other operating income, interest receipts, profit on sale of fixed assets, miscellaneous income etc were not pertaining to eligible business as per section 36(1)(viii). This was excluded. 3.5 AY 2016-17: In this assessment year the net profit as per the P&L A/C (annual report) was Rs. 233,29,72,616/. This includes eligible as well as non-eligible profit. The company started computing profit and gain from business or profession with Rs.233,29,72,6l6/ and making various adjustments. It includes profit on sale on fixed assets, profit on sale on investment, income from other sources, Interest on NHB tax free bonds etc that were separately declared under the head "Capital Gain" and "Income from other sources". In this assessment year also, the income from housing finance business of Rs. 13 8,11,30,267/- was determined indirectly without having any separate accounts. On this 2....
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....s apart from providing long term finance for housing. Many of the ineligible income/profit/gain were also clubbed together and net profit of the company was published in the annual report. The manner in which the net profit of the eligible business was calculated by the company in computation of income raised serious doubts to the revenue and AO had removed some of the ineligible profits out of those computation. The C1T(A) unilaterally calculated deduction u/s 36(1)(viii) of the IT Act without appreciating all the facts narrated above. Hence his order was treated as erroneous on fact and law by the revenue. It is for this reason the revenue has moved appeal that many of the income/profit/gain are not falling under the head profits and gains of business or profession and such income/gain/profit is not eligible for deduction u/s 36(1)(viii) of the IT Act. Hence it is prayed that the CIT(A) order may be set aside.." 8. The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in the assessee's own case for the assessment year ....
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....ction u/s.36(1)(viii) of the Income Tax Act, 1961. In fact, the Assessing Officer has categorically admitted that the assessee is entitled for deduction u/s. 36(1)(viii) of the Income Tax Act, 1961. The only dispute is with regard to manner in which such deduction should be computed. The assessee has included certain other incomes like interest earned on SLR securities, profit on sale of current investments, other operating income, interest receipts, profit on sale of fixed assets and miscellaneous income etc. It was claim of the assessee before the Assessing Officer that interest income from Government securities-SLR is derived from eligible business, because as per statutory requirements, the assessee is required to maintain SLR ratio and said investment is required to be deposited in Govt. securities and thus, interest, if any, earned from SLR securities is also eligible for deduction u/s.36(1)(viii) of the Income Tax Act, 1961. Likewise, the assessee has canvassed deduction for other income like profit on sale of current investments, profit on sale of fixed assets etc. The Assessing Officer has denied deduction claimed u/s.36(1)(viii) in respect of other income, including inter....
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.... Officer to exclude only income pertains to business segment of providing long term finance to housing sector and the assessee has accepted findings of the learned CIT(A).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 asses....
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....nce there is exempt income, the Assessing Officer is bound to compute disallowance by applying prescribed procedure provided under Rule 8D of I.T. Rules, 1962. Therefore, it is incorrect on the part of the learned CIT(A) to restrict disallowances to the extent of exempt income. 15. We have heard both the parties, perused material available on record and gone through orders of the authorities below. 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 of the Income Tax Act, 1961. 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 Rul....
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....nces 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. 18. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that issue of disallowance u/s.14A needs to go back to file of the Assessing Officer for fresh consideration. Hence, we set aside the issue to the file of the Assessing Officer and direct the A.O. to re-examine claim of the assessee in light of various averments made by the assessee, including availability of own funds to explain source of investments to compute disallowance of interest under Rule 8D(2)(ii) and also to verify details of investments to ascertain and segregate investments which yield exempt income for the relevant assessmen....