TaxTMI 
TaxTMI 
2025 (7) TMI 957
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....cordingly, the JCIT(A) should have restricted the disallowance under section 14A to Rs. 10,26,245 (as against Rs. 25,86,319 computed by the Ld. AO). 3. Without prejudice, on the facts and the circumstances of the case and in law, the JCIT(A) erred in not holding that the disallowance under Rule 8D(2)(ii) is to be computed only on investments which has earned dividends. 4. In the facts and circumstances of the case and in law, the Ld. JCIT(A) has erred in upholding the disallowance of Rs. 10,06,858 towards employee costs payable to workmen, by treating it as contingent liability. 5. On the circumstances of the case and in law, the Ld. JCIT(A) has erred in considering the 'book profits' computed at Rs. 17,41,07,134 in the computation sheet of the Assessment order, as against Rs. 17,30,91,244 computed by the Ld. AO in the Assessment order. 6. On the circumstances of the case and in law, the Ld. JCIT(A) has erred in upholding the initiation of penalty proceedings under section 270A for alleged under-reporting of income." 2. The brief facts of the case are that assessee is a company engaged in manufacturing of fertilizers and chemicals, fil....
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.... workers did not accepted the revised wage and raised dispute/litigation which is pending before Labour Court. As per revised wage agreement, the assessee company is required to make provision of wage and accordingly same has been accrued of Rs. 10,06,858/- in the books of account for the year under consideration. Submission of assessee was not accepted by AO. The AO held that matter is pending before labour court, which itself shows that liability of the assessee company has not been fixed. The liability is unascertained liability which is contingent in nature and not allowable u/s. 37. Thereby disallowed such liability. The AO in para 6 recorded book profit u/s. 115JB as per computation of income at Rs. 17,15,54,938/-. However, while issuing computation it stated such figure at Rs. 17,41,07,134/-. Aggrieved by the action of AO the assessee filed appeal before CIT(A). 4. Before CIT(A) the assessee filed its detailed return submission. On the disallowance of section 14A, the assessee reiterated that additional disallowance made by AO is unwarranted. The assessee made suo-moto disallowance of Rs. 20,56,871/- which is more than adequate and is consistent with prior years methodolo....
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....nce u/s. 14A. The Ld. AR of the assessee submit that AO has not recorded any satisfaction against suo-moto disallowance made by the assessee and recomputed disallowance as per Rule 8D. The contention of assessee has not been rebutted by AO. The AO first required to record his satisfaction that disallowance made by assessee is not correct and then to adopt the method employed in Rule 8D. The assessee in consistently following the method in making reasonable disallowance @3.00% of exempt income which has been accepted from A.Y. 2010-2011 to 2013-14. The contention of assessee before AO as well as CIT(A) was that the investment which does not yield dividend income is to be excluded while considering the average value of investment. In case, such investment is considered which does not yield exempt income, disallowance u/s. 14A will be restricted to Rs. 10,26,245/-, whereas the assessee has made much more suo moto disallowances. The AO further added the disallowance of 14A to book profit under section 115JB. To support he submissions, the Ld. AR to support his various submission relied upon the various decision in ❖ ACB India Ltd. v. CIT 374 ITR 108 (Delhi HC), ....
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....for the purpose of calculating average value of investment as per decision of special bench in ACIT V. Vireet Investment (Supra). Hence, we direct the AO is workout the figure of average value of investment as per the decision of Delhi High Court in ACB India Limited (supra) and Vireet Investment (P) Ltd (supra). The AO is further directed to follow the decision Vireet Investment (P) Ltd (supra) while computing book profit under section 115JB. Needless to direct that before passing the order, the AO shall allow reasonable opportunity to the assessee. In the result, this ground of appeal is allowed for statistical purposes. 9. Ground no. 2 relates to disallowance of employee cost payable to workers in treating it as a contingent liability. The Ld. AR of the assessee submits that assessee is a company and required to follow accounting principle while accounting income and expenditure. Section 145 of the Income Tax Act required that assessee company to follow Mercantile System of accounting which mandates accrual of all ascertained liability. During the financial year under consideration, provision was created for lowest amount as proposed in the settlement agreement with the worke....