TaxTMI 
TaxTMI 
2026 (8) TMI 1269
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..... The effective grounds raised by the assessee in this appeal in respect of AY 2018-19 are against (i) the disallowance of Rs. 7,05,594/- made u/s. 36(1)(va) of the Act, wherein the AO merely adopted the adjustment made in the intimation issued u/s. 143(1) of the Act in the assessment order passed u/s. 143(3) of the Act dated 13.02.2021; and (ii) the disallowance of Rs. 26,42,435/- made u/s. 14A read with Rule 8D of the Income-tax Rules, 1962,(in short "the Rules") without appreciating the suo motu disallowance made by the assessee. 3. The brief facts of the case emanating from the records are that the assessee is a company filed its return of income for AY 2018-19 on 31.10.2018 declaring gross total income of Rs. 26,44,57,580/-. The return filed by the assessee was processed by the Central Processing Centre, Bengaluru (the CPC) and an intimation u/s. 143(1) of the Act was issued on 12.11.2019, wherein an amount of Rs. 7,05,594/- was disallowed u/s. 36(1)(va) of the Act in respect of employees' contribution towards PF/ESI and the gross total income was determined at Rs. 26,51,63,170/-. 4. Subsequently, the return of income was also selected for compulsory scrutiny under the E....
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....te Insurance Act, 1948 (for short "ESI Act 1948") but before the due date of filing income tax return was allowable, was highly debatable and contentious. 8. He further contended that, at the relevant point of time when the intimation u/s. 143(1)(a) of the Act was issued, the aforesaid issue was pending consideration before the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) and there were divergent judicial views on the allowability of employees' contribution deposited beyond the due dates prescribed under the respective welfare legislations but before the due date prescribed u/s. 139(1) of the Act. In particular, the jurisdictional High Court, in CIT v. Industrial Security & Intelligence India Pvt. Ltd., TCA Nos. 585 & 586 of 2015, dated 24.07.2015, had taken a view favourable to the Assessee. Accordingly, the claim could not, at the relevant point of time, have been regarded as an incorrect claim apparent from the information contained in the return so as to warrant an adjustment u/s. 143(1)(a) of the Act. 9. The Ld.AR submitted that it was only subsequently, on 12.10.2022, that the Hon'ble Supreme Court, in Checkmate Services Pvt. Ltd. (supra), settled the i....
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....mperial Auto Industries Ltd. v. DCIT, ITA No.3927/Del/2023. 13. The Ld. AR also relied upon the judgments of the Hon'ble Gujarat High Court in Patel & Co. v. CIT [1986] 24 Taxman 203 (Guj.) and the Hon'ble Bombay High Court in Hansa Agencies v. CIT [1980] 121 ITR 147 (Bom.), to contend that the right of appeal should be construed liberally and that a technical objection regarding the filing of a separate appeal ought not to defeat the substantive right of the assessee to challenge the resultant tax liability. The Ld.AR also argued that since the ld.CIT(A) has adjudicated the issue, this Tribunal may also adjudicate the said issue. 14. The Ld. Departmental Representative (ld.DR), on the other hand, relied on the orders of the lower authorities and submitted that the issue relating to allowability of employees' contribution u/s. 36(1)(va) of the Act now stands settled by the judgment of the Hon'ble Supreme Court in Checkmate Services (P.) Ltd. (supra). It was therefore submitted that the disallowance was correctly sustained by the Ld.CIT(A). 15. We have heard the rival contentions and perused the material on record. The undisputed facts are that the assessee filed its return....
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.... of the Act, and even if the assessee had not filed appeal against the intimation issued under section 143(1) of the Act; it was still open for the assessee to appeal against the adjustment made in intimation under section 143(1) of the Act if such adjustment is retained in the assessment order." 19. Reliance was also placed on the decision of the Delhi Bench of the Tribunal in Imperial Auto Industries Ltd. v. DCIT, ITA No.3927/Del/2023. The Hon'ble Tribunal has observed as below: "However, having regard to the principle of fair play we would like to grant liberty to the assessee to agitate the issues arising out of the said intimation order under Section 143(1) of the Act before the Learned CIT(A), culminated in the final order of assessment under Section 143(3) of the Act which has been appealed against before the Learned CIT(A), if so advised." 20. We also find support from the principles laid down by the Hon'ble Gujarat High Court in Patel & Co. (supra). The relevant extract is under: "Assuming that the appeal against the order refusing to renew registration could only lie under section 246(1)(j) while the appeal against the order of assessment made unde....
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....ave been classified in the said section with an eye on the question as to whether one or more appeals is/are required to be filed, but they have been merely enumerated in the section to indicate whether these are appealable or not. Section 246 in our view really deals with the question of the right of the aggrieved assessee to prefer an appeal and has no relevance on the question of the procedure to be followed by such assessee. Whether one appeal or more will have to be filed is entirely a procedural matter, whereas whether the order is appealable or not is substantially a question of substantive right of the assessee. Unless the order is specifically designated undersection 246, the assessee would not have the right of appeal but if such a right is provided, it would not follow that such right is to be exercised by filing a separate appeal...... .......11.The question which we are required to consider in this reference has to be determined, then, in the following background, namely,(1) both the orders were made by the ITO on the same date; (2) one of the two orders is an order declining to grant renewal/continuation of registration of the assessee-firm and the other is t....
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.... of making such addition in an intimation in respect of an issue which is debatable. Furthermore, in our above discussions, on the basis of judicial precedents cited supra, we have concluded that though separate appeal is not filed against intimation u/s. 143(1) of the Act, the same could be challenged in an appeal against order u/s. 143(3) of the Act, which impliedly means that in case an appeal has been against intimation u/s. 143(1) of the Act, the Assessee would be in a position to challenge the jurisdictional aspect as well the merits of the addition made in such intimation. Therefore, even in the present appeal, the Assessee would be able to challenge the validity of such intimation as well as the addition made thereunder. We make it clear that what is dispensed with is only filing of separate appeal and relaxation is given to challenge the intimation in an appeal against main assessment order. Accordingly, we hold that merely because the addition is challenged in an appeal against the main assessment order, it does not whittle down the right of the Assessee to challenge validity of the intimation from all legal aspects including jurisdictional aspects. 25. Having decided ....
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.... not alter the character of the issue as a debatable issue on the date on which the intimation u/s. 143(1) was issued. 29. We find that the aforesaid proposition has been authoritatively considered by the Hon'ble Chhattisgarh High Court in Raj Kumar Bothra (supra). The relevant observation of the Hon'ble High court is reproduced as below: "............Coming back to the facts of the present case, while following the principles of law laid down in above stated judgments of the Supreme Court for exercise of power and jurisdiction under Section 143 (1) (a) of the Act of 1961, it is quite vivid that on the date of issuance of intimation order by the Assessing Officer i.e. on 16.12.2021 under Section 143(1)(a) of the Act of 1961, the issue as to whether the delayed deposit of employees' share of contribution towards Employees State Insurance and Employees Provident Fund, though deposited by the assessee beyond the due date prescribed under the relevant Acts, but before the due date of filing of the return of income under Section 139 (1) of the Act of 1961, could be held as the income of the appellant/assessee under Section 36(1)(va) read with Section 2(24)(x) of the Act ....
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....ating the claim as an incorrect claim apparent from the information contained in the return. We also find merit in the contention of the assessee that the subsequent order passed u/s. 143(3) does not cure the defect in the original adjustment, as the assessment order dated 13.02.2021 does not contain any independent examination, discussion or finding with regard to the applicability of section 36(1)(va) or the allowability of the sum of Rs. 7,05,594/-. The AO has merely adopted the income determined in the intimation issued u/s. 143(1). 32. In other words, the assessment order u/s. 143(3) of the Act has not independently determined the disallowance u/s. 36(1)(va) of the Act. The disallowance continued to have its origin in the adjustment made u/s. 143(1) of the Act and was merely incorporated into the computation forming part of the assessment order. Further, the ld.CIT(A) has also adjudicated this issue on merits by relying on the Supreme Court decision in the case of Checkmate Services (supra). 33. Accordingly, considering the totality of the facts and circumstances of the case and respectfully following the ratio laid down by the Hon'ble Supreme Court in Kvaverner John Bro....
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....ar while computing the disallowance under Rule 8D(2)(iii). In the present case, the exempt income primarily comprises dividend income earned from investments made in India Nippon Electricals Ltd. and Delphi TVS Technologies Ltd., whereas the investments in preference shares and other investments which did not yield any dividend income during the relevant previous year have also been considered by the AO for the purposes of computing the disallowance. 39. He further submits that a revised computation, restricting the investments considered for the purposes of Rule 8D to those investments which had actually yielded exempt income during the relevant previous year, has been furnished before the Tribunal. On such revised computation, the total disallowance for AY 2018-19 that could be computed u/s. 14A read with Rule 8D works out to Rs. 11,37,552/-. 40. The Ld. AR would finally submit that the amount of Rs. 11,37,552/- so computed, even on the basis of the revised computation furnished before the Tribunal, is lower than the sum of Rs. 14,22,000/- which had already been suo motu disallowed by the assessee in its return of income. Therefore, according to him, even assuming that the ....
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....td. On considering only such investments which have yielded exempt income, the disallowance u/s. 14A of the Act read with Rule 8D of the Rules has been worked out at Rs. 11,37,552/- for the A.Y. 2018-19. 44. We note that the aforesaid amount of Rs. 11,37,552/- is lower than the suo motu disallowance of Rs. 14,22,000/- which has already been made by the assessee in its return of income. Therefore, even if the computation under Rule 8D is undertaken by considering only the investments which have yielded exempt income during the relevant previous year, the amount so computed does not result in any further disallowance over and above the amount already disallowed by the assessee. 45. In these circumstances, we are of the considered view that the disallowance made by the AO cannot be sustained. We also note that this disallowance is also made while computing the book profits u/s. 115JB of the Act. In principle we hold that this disallowance cannot be made while computing the book profits as it does not form part of the inclusion/exclusion as per explanation contained u/s. 115JB of the Act. Irrespective of the same, since we have already held that the disallowance is unwarranted un....
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....ssee exceeds the amount otherwise computable under Rule 8D. He accordingly submits that the disallowance of Rs. 19,21,870/- made by the AO u/s. 14A of the Act deserves to be deleted. 51. We have heard the contentions and perused the materials available on record. We find that the issue relating to disallowance u/s. 14A of the Act is factually and principally similar to the issue considered by us in Assessee's own case for AY 2018-19 as above. Hence, as held by us in paragraph 44 and 45 of this order, only those investments which have yielded exempt income during the previous year are to be considered while determining the disallowance u/s. 14A of the Act read with Rule 8D of the Rules. The same principles, therefore, squarely applies to the facts of the present appeal under consideration. 52. Based on the revised computation shared with us for AY 2020-21, the disallowance computed by the assessee by considering only those investments which have yielded exempt income during the relevant previous year amounts to Rs. 18,20,602/- which is lower than the suo-moto disallowance of Rs. 28,55,000/- made by the assessee in its return of income. Accordingly, no further disallowance over....