AI Structured Summary
Not yet generated for this judgment
Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 28.01.2026 passed by Ld. Commissioner of Income Tax (A)/ADDL/JCIT(A)-2, Chennai [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-4/10658/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 19.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that assessee company is engaged in manufacturing of tyre retreading material and return of income for the year under appeal was filed on 31.10.2017, declaring total income of INR 26,80,82,790/-. The assessment was taken up for scrutiny and the order was passed u/s 143(3) of the Act dated 19.12.2019 wherein an addition u/s 14A of the Act r.w.s. 8D of the Income Tax Rules, 1962 (“Rules”) was made of INR 57,66,000/- and disallowance of INR 1,58,077/- was made u/s 36(1)(va) of the Act for delayed payment of employees contribution of PF & ESI.
Aggrieved by the said order, the assessee is in appeal before ld. CIT(A) who vide impugned order dated 28.01.2016, partly allowed the appeal of the assessee wherein both the issues were sent to the AO for limited purpose of verification of computation of disallowance u/s 14A and further to verify whether the delay in payment of employees contribution towards PF is due to the circumstances beyond the control of the assessee.
Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
Ground of appeal Nos. 1 to 3 of the assessee are with respect to the additions made u/s 14A of the Act.
During the year under appeal, the assessee has earned dividend income of INR 1.70 crores and made suo-motto disallowance u/s 14A out of the expenditure claimed to the tune of INR 11,45,517/- only. The AO has observed that the assessee has shown investment of INR 87.32 crores in Mutual Funds and equity shares and thus, as per Rule 8D of the Rules r.w.s. 14A of the Act, 1% of the average value of investment should have been disallowed and accordingly, the AO has made the disallowance of INR 57,66,000/-. Ld. CIT(A) in terms of the impugned order observed that the AO has not recorded the satisfaction nor has considered the disallowance made by the assessee itself. Ld. CIT(A) has directed the AO to re-compute the disallowance by considering those investments which has yielded exempt income and further reduced the amount of disallowance suo-motto made by the assessee.
Before us, ld. AR for the assessee submits that AO has not recorded the satisfaction as provided u/s 14A of the Act before making the disallowance. He further submits that the assessee has already made the disallowance of INR 11,45,517/- and therefore, no further disallowance was required to be made. Ld. AR submits that suo-motto disallowance was made with respect to the expenses directly attributable to earn exempt income. Ld. AR submits that AO can take the recourse of sub-Rule (2) of Rule 8D of the Rules, only if he was not satisfied with the claim made by the assessee and therefore, requested that the addition made be deleted. For the same, reliance is placed on the judgements of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT reported on [2018] 402 ITR 640 (SC) and in the case of Godrej & Boyce Mfg. Co. Ltd. vs DCIT reported in [2017] 394 ITR 449 (SC) and judgment of Hon’ble Delhi High Court in the case of PCIT vs Vedanta Ltd. in ITA No.1467/2018 and Eicher Motors Ltd. in ITA No.136/2017 order dated 15.09.2017. Ld.AR submits that disallowance made be deleted.
On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and requested for the confirmation of the same.
Heard the contentions of both the parties at length and perused the material available on record. From the order of AO, it is observed that AO has recorded the satisfaction that assessee has not made the disallowance u/s 14A in accordance with law and had not compute the amount of disallowance in accordance with Rule 8D of the Rules which has been changed w.e.f. 02.06.2016. It is further observed that ld. CIT(A) has observed that the provisions of Rule 8D are applicable wherever satisfaction was recorded that assessee has earned exempt income and disallowance u/s 14A was not made or was not in accordance with Rules. It is observed that as per Rule 8D, the amount of expenditure directly related is provided in sub-rule (a), and the Assessee itself has computed the expenditure at INR 11,45,517/- however, as per sub-Rule (2) of Rule 8D, 1% of the monthly average value of the investment is further required to be added which has not been done by the Assessee in the instant case.
Ld. CIT(A) has directed to re-compute the disallowance u/s 14A by taking average value of those investments which have yielded exempt income. In the instant case, the assessee had earned dividend income and also paid interest and had suo-motto computed the disallowance to the extent of expenditure directly relatable to earn such income. Further, the AO has recoded the satisfaction before invoking the provisions of section 14A of the Act r.w.s. 8D of the Rules, therefore, the judgments relied upon by the assessee are not applicable to the facts of the present case. The ld. CIT(A) has directed to re-compute the disallowance by taking average value of those investments which has yielded exempt income for the purpose of sub-Rule 2 of Rule 8D, therefore, we find no error in such direction of ld. CIT(A) which is hereby, upheld. Accordingly, Ground of appeal Nos. 1 to 3 raised by the assessee are dismissed.
Ground of appeal Nos. 4 & 5 are with respect to the disallowance of INR 1,58,077/- being employees’ contribution towards PF which was paid after the due date.
Heard the contentions of both the parties at length and perused the material available on record. It was the claim of the assessee that the amount has been paid to the recognised approved trust vide cheque No.550321 dated 09.06.2016 given on 10.06.2016 however, the trust has misplaced the cheque and therefore, a request was made to the assessee for issue of another cheque. The assessee then requested the bank to stop payment of earlier cheque and re-issue another cheque. Due to these facts the delay in payment of employees contribution of INR 1,58,077/- had occurred. It is observed that ld. CIT(A) while disposing the appeal of the assessee has appreciated these facts and directed the AO to verify whether the delay is on account of loss of cheque issued on 10.06.2016 with the copy of the acknowledgement and the request for stop payment of cheque so issued. If the said contention is found correct, disallowance made should be deleted. We find no error in such direction given by ld. CIT(A) which are given to verify the facts only. Considering the facts and circumstances of the case, we find no reason to interfere in the directions given by ld. CIT(A). Accordingly, Ground of appeal Nos. 4 & 5 raised by the assessee are dismissed.
In the result, appeal of the assessee is dismissed.