M/s. Shiva Pharmachem Ltd., Vadodara V. The DCIT, Circle-2(1)(1), Vadodara

ITA 213/AHD/2021

AI Insights

The case involves Shiva Pharmachem Ltd. appealing against the order of the Commissioner of Income-Tax (Appeals), which confirmed disallowances made by the Assessing Officer. The primary issues were the disallowance of Rs.12,61,456 under section 14A read with rule 8D for alleged expenses incurred in earning exempt income, and the disallowance of Rs.13,26,362 for delayed deposit of employees' contribution to Provident Fund. The Tribunal found that the disallowance under section 14A was not applicable as no exempt income was earned, referencing the jurisdictional High Court's ruling. However, it upheld the disallowance related to delayed PF contributions, citing the Supreme Court's precedent.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133599 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 29-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 13-09-2021
• Other Referred Cases: CIT Vs. Corrtech Energy P.Ltd., Pr.CIT Vs. M/s.Era Infrastructure India Ltd., Checkmate Services P.Ltd. Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; TDS
• Section: 14A

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘C’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER, JUDICIAL MEMBER ITA No.213/Ahd/2021 Assessment Year : 2017-18 Shiva Pharmachem Ltd. 9 th Floor ABS Tower Old Padra Road Vadodara. PAN : AAJCS 3940 B Vs. DCIT, Cir.2(1)(1) Vadodara. 0 अपीलाथ / (Appellant) यथ /(Respondent) Assessee by : Shri Sunil Talati, AR Revenue by : Shri Atul Pandey, Sr.DR स ु नवाई क तार ख/Date of Hearing : 30/05/2023 घोषणा क तार ख /Date of Pronouncement: 26/07/2023 आदेश/ O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Commissioner of Income-Tax(A), National Faceless Appeal Centre (NFAC), Delhi[hereinafter referred to as “ld.CIT(A)”] dated 26.7.2021 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short)pertaining to Asst.Year2017-18. 2. Ground no.1 raised by the assessee reads as under: “1. The Hon'ble CIT(A) has erred in confirming the disallowance of Rs.12,61,456/- made by Learned AO by invoking provisions of section 14A of the Act r.w.r 8D of the Act. Since the appellant has not earned any exempt income during the year under consideration, the provisions of section 14A r.w.r 8D of the Income Tax rules are not applicable. It is therefore submitted that the addition confirmed by the CIT(A) is unjust and uncalled for. It be held so now and addition made by the AO be deleted.” ITA No.213/Ahd/2021 2 3. The issue raised in the above ground relates to disallowance of expenditure incurred for the purpose of earning exempt income in terms of provisions of section 14A of the Act. The quantum of disallowance in dispute before us, confirmed by the ld.CIT(A) is Rs.12,61,456/-. 4. We have noted from the order of the authorities below that the assessee had repeatedly contended that it had not earned exempt income during the year, and therefore, no disallowance needs to be made. This fact, we find, has not been controverted either by the AO or by the ld.CIT(A). On the contrary, the ld.CI(A) has confirmed the addition relying upon the CBDT Circular No.5/2014 dated 11.2.2014 wherein it was clarified that disallowance of expenditure under section 14A is to be made even in the absence of any exempt income earned in a particular year. We are unable to agree with the ld.CIT(A) on this count. The Hon’ble jurisdictional High Court in the case of CIT Vs. Corrtech Energy P.Ltd., (2014) 45 taxmann.com 116 (Guj) has held that in theabsence of any exempt income earned, there is no case for making any disallowance of expenses under section 14A of the Act. There is no dispute vis-à-vis the fact that the law as interpreted by the jurisdictional High Court would have binding force on all authorities below as opposed to Circular issued by the CBDT which are contrary to the law as interpreted by the judicial authorities. 5. We may further point out that Finance Act, 2022 had amended section 14A by inserting a non-obstinate clause and an Explanation after the proviso providing for disallowance of expenses even in the absence of any exempt income earned. This amendment to the section was held to be prospective in operation by the Hon’ble Apex ITA No.213/Ahd/2021 3 Court in the case of Pr.CIT Vs. M/s.Era Infrastructure India Ltd., 141 taxmann.com 289 (Del). Therefore, for the impugned assessment year, the decision rendered by the Hon’ble jurisdictional High Court in the case of Corrtech Energy P.Ltd. (supra) would apply, following which, we hold that in the absence of any exempt income there is no case for making disallowance under section 14A of the Act. Ground no.1 raised by the assessee is allowed. 6. Ground No. 2 raised by the assesse reads as under: “The Hon'ble CIT(A) has erred in confirming the disallowance of Rs.13,26;362/- being payment of employees' contribution to Provident Fund made on 17/03/2017. Relying on various decisions of Hon'ble High Courts/ITAT your appellant has rightly claimed the same since the payment in question was made during the same financial year. Accordingly your appellant had rightly claimed the deduction which be directed to be allowed now.” 7. Vis-a-vis the grievance raised by the assessee of disallowance of employees contribution to ESI/PF deposited late in terms of section 36(1)(va) of the Act, the issue has come to rest by the recent verdict of Hon’ble Supreme Court in the case of Checkmate Services P.Ltd. Vs. CIT, 143 taxmann.com178 (SC) holding that deduction under section 36(1)(va) in respect of delayed deposit of amount collected from employee’s contribution to PF cannot be allowed as deduction. 8. The Ld.Counsel for the assessee has not controverted the fact noted by the Revenue authorities of the employees contribution being deposited delayed to the tune of Rs.13,26,362/-. In view of the same we see no reason to interfere in the order of the Ld.CIT(A) confirming the disallowance u/s 36(1)(va) of the Act amounting to Rs.13,26,362/-. ITA No.213/Ahd/2021 4 Ground No.2 raised by the assessee is accordingly dismissed 9. Ground No.3 raised by the assessee reads as under “The Hon'ble CIT(A) has erred in confirming the disallowance of the interest paid on late payment of TDS. Your appellant submits that there is no provision in the Act to disallow such interest payment, since the TDS amount did not represent the tax of assessee. Further the same is also not penal in nature and therefore it is submitted that the disallowance is not justified. The AO be directed to delete the same.” 10. The issue relates to disallowance of interest on TDS made by the AO and confirmed by the Ld.CIT(A) holding at para 5(c) of his order as under: Ld. Counsel for the assessee was unable to controvert the findings of the Ld.CIT(A) on the proposition of law laid down by various higher judicial authorities that interest paid under section 201(1A) of the Act in late deposit of TDS is not deductible as business expenditure. ITA No.213/Ahd/2021 5 11. In view of the above admitted legal position, the ground nos. 3 is dismissed. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 26 th July, 2023 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 26/07/2023