Unjustified disallowance under rule 8D(2)(ii) due to lack of application of interest-bearing funds for investments
Fact and issue of the case
This is an appeal preferred by the assessee against the separate but identical orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the ld. CIT(A)”], passed u/s 250 of the Income-tax Act, 1961 (hereinafter the ‘Act’), even dated 19/12/2023 for the Assessment Year 2013-14, 2014-15, 2016-17, 2017-18.
As the issues involved in all these appeals are identical and pertains to same assessee, they were heard together and are being disposed off by way of this common order.
The assessee has raised the following grounds of appeal:-
Assessment Year : 2013-14
That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 16,73,473/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 2 1,92,55,967/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
Assessment Year : 2014-1 5
That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 18,00,595/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 47,07,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 27,126/- for so-called delayed deposit of employees contribution to PF u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act, 1961.
That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
Assessment Year : 2016-17
That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 65,23,307/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 5,15,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 53,507/- for so-called delayed deposit of employees contribution to PF u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act, 1961.
That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who proceeded on erroneous belief and misconception of law in disallowing interest on income tax and service tax of 4,23,358/-.
That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
Observation of the court
Under these given facts and circumstances, and respectfully following the ratio laid down in the decisions and judgments rendered in cases of Bhaumik Colour Pvt. Ltd. (supra), DCIT 1(1)(2), Mumbai Vs Gilbarco Veeder Root India (P) Ltd 96 Taxmann.com 263 as well as CIT Vs. Vatika Township (P) Ltd. reported in 367 ITR 466, since undisputedly the assessee is not a shareholder in Apeejay Tea Ltd., which has given loan/advance to assessee, therefore, the assessee does not fall under any of the limbs provided under section 2(22)(e) of the Act, and the same cannot be invoked in the hands of the assessee. We, thus set-aside the finding of the ld. CIT(A) and delete the addition of Rs.21,92,55,967/- for AY 2013-14, Rs. 47,07,00,000/- for AY 2014-15, Rs. 5,15,00,000/- for AY 2016-17 and Rs.1,15,00,000/- for AY 2017-18 made under section 2(22)(e) of the Act and allow these common grounds of appeal raised by the assessee against the addition made u/s 2(22)(e) of the Act.
The next common issue for our consideration is disallowance u/s 2(24)(x) of the Act at Rs. 27,126/- and at Rs. 53,507/- for Assessment Years 2014-15 & 2016-17 respectively;
It is an admitted fact that the disallowance u/s 2(24)(x) of the Act was made on account of delayed deposit of employees’ contribution to PF/ESI i.e. after the due date as provided under the respective welfare This issue is no more res integra in view of the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) dated 12.10.2022 wherein it has been held that “deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees’ contribution to PF/ESI cannot be claimed even though deposited within the due date of filing of return of income read with Section 43B of the Income-tax Act, 1961. Therefore, the amounts are liable to be added as income in the hands of the assessee, the disallowance so made are confirmed and the grounds raised by the assessee are dismissed.
Now, we are left with the common issue for Assessment Year 2016-17 & 2017-18, regarding disallowance on account of interest on delay deposit of TDS and interest of delay payment of service tax of 4,23,358/- and Rs.91,306/- respectively.
We notice that the issue of interest on delay deposit of TDS has been extensively dealt with by the Co-ordinate Bench of this Tribunal in the case of M/s Premier Irrigation Adritec (P) Ltd. vs. A CIT, Circle-11(1), Kolkata in I.T.A. No.387/Kol/2021; Assessment Year: 2014-15, order 2 0/01/2023, wherein the Tribunal has held that interest payment on delayed deposit of income tax, whether TDS or otherwise is not an allowable expenditure.
Respectfully following the decision of the Tribunal, the disallowance of interest on delayed deposit of TDS stands confirmed. So far as the interest on delayed payment of Service tax is concerned, we notice that the same is allowable in view of the ratio laid down by the Hon’ble Apex Court in the case of Lachmandas Mathuradas v. Commissioner of Income-tax reported in [2002] 254 ITR 799 (SC).
Since the bifurcation of the alleged disallowance is not available on record, we direct the Assessing Officer to carry out the necessary exercise for which the assessee shall provide the related documents and then shall confirm the disallowance for the interest on delay in deposit of TDS and allow the interest paid on delay in deposit of service tax. Accordingly, this issue raised for Assessment Year 2016-17 and 2017-18, is partly allowed for statistical purposes.
In the result, appeals of the assessee for Assessment Year 2013-14 & 2014-15 are partly allowed and appeals for Assessment Year 2016-17 & 2017-18 are partly allowed for statistical purposes.
Order pronounced in the Court on 10th August, 2023 at Kolkata.
Conclusion
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from here
Apeejay-Pvt.-Ltd.-Vs-DCIT-ITAT-Kolkata2
