Gujarat Apollo Industries Limited, Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-2(1)(1), Ahmedabad

ITA 681/AHD/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6034 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 18-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Non-deduction of tax; TDS; Rule 8D; Set aside; FORM 26AS
• Section: 143(3); 14A; 115JB; 40(a)(ia)

Judgement Text

आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ‘B’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD (Conducted through Virtual Court) BEFORE MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.681/Ahd/2018 Asstt.Year : 2014-15 Gujarat Apollo Industries Ltd. ‘Apollo House’ Rashmi Society Nr.Mithakhali Six Roads Navrangpura Ahmedabad 380 009. PAN : AAACG 7248 P The DCIT, Cir.2(1)(1) Ahmedabad. (Appellant) (Responent) Assessee by : Shri M.K. Patel, Adv. Revenue by : Shri Rameshkumar L. Sadhu, Sr.DR स ु नवाई क तार ख/Date of Hearing: 09/02/2022 घोषणा क तार ख /Date of Pronouncement: 25/03/2022 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the assessee against the order dated 12.01.2018 passed by the Ld.Commissioner of Income-tax (Appeals)-2 ["Ld.CIT(A)" for short) arising from the assessment order passed under section 143(3) of the Income Tax Act, 1961 ("the Act" for short) relating to the assessment year 2014-15. 2. The assessee has raised five grounds in its appeal, which read as under: ITA No.681/Ahd/2018 2 “1. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance of commission paid to non-resident of Rs.18,84,793/- made by AO on account of non-deduction of tax at source u/s 40 (a) (ia) of the Act, by giving totally different reasons vide paras 2.4 and 2.5 of the order under appeal, without even giving any opportunity to the appellant. 2. That on facts, and in law, the learned CIT (A) has grievously erred in confirming the disallowance of Rs. 25,72,254/- on account of interest on loan given to 100% Foreign Subsidiary. 3. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance to the extent of Rs.38,02,347/-made u/s 14A rw Rule 8D of the Act while computing the income under the normal provisions of the Act. 4. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance to the extent of Rs.3,98,520/-made u/s 14A rw Rule 8D of the Act while computing the income under section 115JB of the Act. 5. That on facts and in law, the learned CIT (A) has grievously erred in confirming the addition of Rs.3,18,140/- on account of mismatch of TDS as per form 26AS.” 3. Brief facts of the case as emerging from the record is that assessee-company is engaged in the business of manufacturing and dealing in road construction and maintenance machinery and crushing and screening equipment. Assessee has filed its return on 29.11.2014 declaring total income at Rs.1,56,98,44,760/- under normal provision of the Act and Rs.66,87,64,960/- under section 115JB of the Act. The return was processed under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment. During the assessment proceedings, it was noticed by the AO that the assessee has paid payment of commission of Rs.18,84,793/- on export sales on which TDS was not deducted by the assessee. The ld.AO proposed disallowance ITA No.681/Ahd/2018 3 under section 40(a)(ia) of the Act, and sought explanation from the assessee, since similar disallowance has been made in the previous year i.e. 2013-14. Assessee explained that commission on export was paid to an agent through whom the assessee could get business abroad. The said agent is a foreign entity/resident, and did not have any business connection/establishment in India, and therefore for such payment TDS was not required to be made. Assessee was following this practice since more than eight to nine years, and though such payments made for the last three- to four years were disallowed by the AO, however, the same were allowed by the first appellate authority as business expenditure. The ld.AO did not accept the explanation of the assessee, and held that the assessee has failed to comply with the provisions of section 195(2) of the Act, which casts upon the assessee a duty to seek opinion or direction from the AO to determine the appropriate rate of TDS by the deductor. The assessee having failed to discharge his obligation, the ld.AO disallowed the impugned commission expenses of Rs.18,84,793/- and added the same to the total income of the assessee. 4. Aggrieved against the order of the AO, assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) also, the assessee maintained similar explanations that the agents are non- residents; they have no permanent establishment in India; not having any chargeable income tax in India; and that similar claim was allowed by the ld.CIT(A) in the assessment year 2013-14. However, the ld.CIT(A) also not satisfied with the explanation of the assessee, mainly on the ground that the assessee has not proved each sales commission paid with documentary evidences, more so when the list of the persons to whom commission was paid included the names of Indians, and whether their income was ITA No.681/Ahd/2018 4 taxable in India or not. The ld.CIT(A) has noticed names of the agents in his impugned at page no.8, which for the sake of brevity, we reproduce below: SI. No. Name Amount (Rs.) 1 Sepco Sikaneta, NDOLA Rs. 1,08,860/- 2 Micheal Nyirendra Rs.2,96,644/- 3 Romeo Zoppe Rs.6,82,988/- 4 Binod Shah Rs. 72,100/- 5 Binod Shah Rs.2,41,966/- 6 Binod'Shah Rs.3,18,825/- 7 Sola Tech Ltd. Rs.3,18,825/- 8 Demir Yilmaz Rs.54,750/- 9 Anup Kumar Sinha Oman Rs. 1,08, 660/- Total . Rs.18,84,793/- The ld.CIT(A) accordingly upheld the order of the AO on this issue. Aggrieved against the same, the assessee is now before the Tribunal. 5. Before us also submissions of the ld.counsel for the assessee are more or less on the similar line as were made before the lower authorities. However, he further submitted that similar issue came up before the Tribunal in assessee’s own case for the Asstt.Year 2013-14, and the Tribunal in ITA No.3046/Ahd/2016 vide order dated 19.1.2021 allowed claim of the assessee. While allowing the claim assessee, the Tribunal also followed decision of the Co-ordinate Bench of the Tribunal in the appeal filed by the ITA No.681/Ahd/2018 5 Revenue in ITANo.154/Ahd/2015 order dated 19.9.2018 for Asst.Years 2010-11 and 2011-12, by which the Co-ordinate Bench of Tribunal dismissed the appeal of the Revenue, and upheld order of the ld.CIT(A) in allowing the claim of the assessee in respect of foreign commission expenses. The ld.counsel for the assessee accordingly submitted since facts and circumstances are identical in this year also, the claim of the assessee be allowed and impugned disallowance be deleted. On the other hand, the ld.DR supported the orders of the Revenue authorities below. 6. We have given our thoughtfull consideration to the facts of the case. We also gone through the material available on record and also orders cited by the ld.counsel for the assessee. The ld.AR filed paper book no.2 which contained page nos.121 to 169 wherein a chart showing details of commission on sale paid to various foreign nationals and domestic persons. The assessee has also placed before us Form No.15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties. One among this is Mr.Binod Shah, Form No.15CB clearly mentioned that he belongs to Nepal and he was paid commission 72,1000/- on 5.6.2013 and also Rs.2,41,966/- on the very same day. However, these copies of the chart, Form no.15CB and form no.CA were not produced before the lower authorities due to shortage of time, and therefore, the ld.counsel for the assessee submitted that these documents may be entertained by the Tribunal invoking Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and further pleaded that the similar is being allowed in favour of the assessee by Co-ordinate Bench in the Asst.Year 2013-14. The ld.DR for the Revenue has no serious objection for entertaining the above new documents on records and to be verified by the AO. ITA No.681/Ahd/2018 6 7. In light of the above facts fact that these new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose. 8. Assessee has not pressed ground no.2 for adjudication, therefore, this ground is dismissed for want of prosecution. 9. So far as ground no.3 and 4 in respect of disallowance under section 14A read with Rule 8D of the Act are concerned, a brief facts of the case is that during the assessment proceedings, the ld.AO noticed that the assessee has received dividend of Rs.1,57,78,392/- from mutual funds, and claimed as exempt income. The assessee itself has not disallowed any expenditure for earning such exempt income. In the absence of the details thereof, the ld.AO sought details of the working under section 14A for computation of total income. It was explained by the assessee that investment was made from the sale proceeds of one of the business concerns of the assessee. Assessee had sufficient interest free funds available with it at the relevant time such as equity capital, reserves and surplus etc. and no borrowed funds were utilized for the purpose of investment. Further, it was submitted that assessee has not incurred any interest cost and book profits were declared consistently year after year. It was submitted that no separate manpower or administrative expenses ITA No.681/Ahd/2018 7 were required to be incurred by the assessee, but, only one employee of the assessee was partly looking after the work of investment. It was further submitted that investment was made in the group concerns not for earning dividend income, rather it was a strategic business decision. Even though, according to the assessee provision of section 14A rwr 8D of the Act is not applicable, the assessee made a disallowance amount of Rs.3.60 lakhs towards salary and Rs.38,520/- towards administrative expenses. However, the ld.AO disbelieved the contentions and invoked provision of section 14A of the Act read with Rule 8D of the IT Rules, and computed disallowance at Rs.1,38,22,165/-, and accordingly added Rs.1,34,23,645/- [Rs.1,38,22,165/- minus Rs.3,98,520/- (disallowed by the assessee)], and determined total income at Rs.158,80,43,590/- under normal provision. This disallowance of Rs.1,34,23,645/- was further added to the book profit declared at Rs.166,87,64,960/- under section 115JB for MAT purpose. 10. Aggrieved against these disallowances the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions made before the AO. It is further submitted that assessee has received an amount of Rs.225.08 crores from sale one of its business, and out of that an amount of Rs.201 crores has been transferred to portfolio management and investment through Kotak Bank Securities. Further, the assessee has earned interest income of Rs.10.23 crores, and against which only Rs.3.75 crores incurred as interest expenses and the net interest income was offered to tax. Assessee has also contended that no addition should be made under section 14A to book profit computed under section 115JB of the Act, and relied upon the decisions in the cases of ACIT Vs. Vireet Investment, ITA ITA No.681/Ahd/2018 8 No.502/Del/2012 (Del)(SB) and CIT Vs. JSW Energy Ltd., 60 taxmann.com 303 (Bom HC). The ld.CIT(A) after examining the issue, accepted the claim of the assessee to delete disallowance of interest calculated by the AO under Rule 8D(2)(ii) of the Rule of Rs.96,21,298/-, but confirmed administrative expenses by adopting method given under Rule 8D(2)(iii) being 0.5% of the average investment. Thus, the ld.CIT(A) partly allowed disallowance to the extent of Rs.38,02,347/- i.e. Rs.42,00,867/- minus Rs.3,98,520/-. Regarding addition to the book profit made under section 115JB for the MAT purpose, he restricted disallowance to extent of Rs.3,98,520/- which was disallowed by the assessee itself. Still aggrieved, assessee is now before the Tribunal. 11. The ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that so far as disallowance under section 14A of the Act is concerned, from the books of accounts for the year under consideration it is very clear that the assessee has sufficient interest free funds in the form of share capital, reserves and surplus and other cash reserves for making such investment. The assessee has not utilized any borrowed capital for the purpose of the impugned investment. It is settled proposition of the law that when interest free funds available with the assessee were more than the investment and/or borrowed funds, then no disallowance is to be made under section 14A of the Act. As submitted before the lower authorities, the impugned investment was made out of sale proceeds received from the sale of business of the assessee which was reflected in the books of accounts, and such investments are strategic investment for the purpose of the business. Though the ld.CIT(A) in principle agreed with the assessee that investment has ITA No.681/Ahd/2018 9 been made by the assessee from the own funds, and disallowance of interest under Rule 8D(2)(ii) of IT Rules held to be uncalled for, but disallowance under Rule 8D(2)(iii) to the extent of Rs.42,00,867/- being 0.5% of the average investment was made, which was not correct appreciation of the facts, because, the assessee has not incurred any expenditure for administrative expenses for maintenance of portfolio management in respect of the investment made out of the sale proceedings and by utilization of its surplus fund. Further, the ld.CIT(A) was not right in adding suo moto disallowance by the assessee of Rs.3,98,520/- for calculating book profits under section 115JB for MAT purpose. The Special Bench of the ITAT in the case of Vireet Investment P.Ltd., (supra) has held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Therefore, the order of the ld.CIT(A) to that extent is to be set aside. On the other hand, the ld.DR supported the orders of the Revenue authorities. He further submitted that plea of the assessee that the investments were strategic investment, and therefore, no disallowance was to be computed is to be disregarded in view of Hon’ble Supreme Court judgment in the case of Maxopp Investment Ltd. Vs. CIT, 402 ITR 640 (SC). 12. We have given our thoughtful consideration to the facts of the case, and gone through the orders of the Revenue authorities. We find that issue before us has two folds, viz. (i) whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses Rs.38,02,347/- to the extent of 0.5% of average investment was correct or not, and (ii) whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A read with Rule 8D ITA No.681/Ahd/2018 10 could be taken into consideration while computing book profits under MAT provisions? 13. So far as first fold of dispute is concerned, it is undisputed fact that the assessee has received an amount of Rs.225 crores from sale of business out of which Rs.201 has been transferred to Kotak Securities for investment. Further, it is also not in dispute that annual report of the assessee showed that assessee also got enough reserves and surplus of Rs.276.83 cores. Therefore, assessee’s capital, profit reserves, surplus and bank deposits were higher than the investment in tax free securities, therefore, it could be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under section 14A of the Act. As noted by the Revenue authorities during the assessment proceedings, the assessee has received dividend income of Rs.157,78,392/- from mutual funds, and offered suo moto disallowance of Rs.3,98,520/- after considering a portion of accountant salary in maintaining of the investment. However, the ld.AO disbelieved the claim of the assessee and he proceeded to compute the disallowance by invoking the provisions of section 14A read with Rule 8D(2) of IT Rules and accordingly Rs.1,34,23,645/- added to the total income of the assessee. However, the ld.CIT(A) though in principle concurred with the claim of the assessee in respect of utilization of interest free and surplus funds for the impugned investment, and accordingly deleted the disallowance in respect of interest expenses made under Rule 8D(2)(ii), but he retained administrative expenses to the extent of Rs.42,00,867/- being 0.5% of the average investment and the ld.AO was directed to restrict the disallowance to the extent of differential i.e. Rs.38,02,437/-. However, it is not ITA No.681/Ahd/2018 11 discernible from the order of the ld.CIT(A) how he arrived at the figure of Rs.42,00,867/- being the average investment. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, we are of the considered view that the computation of the disallowances under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is to be restored in the file of the AO for re- computation for identifying average investments which actually yielded dividend income to the assessee and on that basis re- compute disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rule. We order so. 14. So far as second issue i.e. whether amount of disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose or not, is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P.Ltd., 165 ITD 27 wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance of Rs.3,98,520/- for the purpose of calculation of book profits u/s.115JB of the Act. 15. Now we take ground no.5 in respect of confirmation of addition of Rs.3,18,140/- on account of mismatch of TDS as per Form 26AS. 16. On verification of Form 26AS, it was noticed by the AO that the assessee had claimed TDS of Rs.93,69,723/- against ITA No.681/Ahd/2018 12 Rs.94,015,537/- shown by Form 26AS. Thus, there was different in the TDS amounting to Rs.31,814/-. It was explained by the assessee that this amount related to a party viz. TESCO Project P.Ltd., to whom the assessee has given loan. It was submitted assessee has not received any interest income from that party, because the party has defaulted and cheques issued to the assessee for repayment was returned by the bank as unpaid, and recovery suit was filed before the Court, and therefore, for prudent accounting policies, no provision has been made. However, the ld.AO did not satisfy with the explanation of the assessee on the ground that since the assessee was following mercantile system of account, the same was to be accounted for as income in which year the same was due. In appeal, the ld.CIT(A) confirmed action of the AO, hence, assessee is before the Tribunal. 18. After hearing both the sides, and having gone through the orders of the lower authorities, we find that impugned mismatch of TDS has happened due to difference in TDS claimed by the assessee of Rs.93,69,723/- and the amount of TDS shown in the Form No.26AS of Rs.94,01,537/-. The fact that the assessee has given advances to TESCO Projects P.Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank. ITA No.681/Ahd/2018 13 17. Considering the above facts of the case, we are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. The AO shall verify the claim of the assessee on the issue by examining relevant ledger accounts of the assessee and thereafter verify corresponding contra account from TESCO Projects showing whether or not interest payment has been made to the assessee. If the AO finds that no interest payment has been made to the assessee, then no addition is to be made, otherwise, the ld.AO may pass appropriate order in accordance with law after providing reasonable opportunity to the assessee. Needless to say, the assessee shall furnish all the details to support its case as and when called for by the AO. 18. In the result, appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the Court on 25 th March, 2022 at Ahmedabad. Sd/- Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER (T.R. SENTHIL KUMAR) JUDICIAL MEMBER Ahmedabad, dated 25/03/2022 आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ‘B’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD (Conducted through Virtual Court) BEFORE MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.681/Ahd/2018 Asstt.Year : 2014-15 Gujarat Apollo Industries Ltd. ‘Apollo House’ Rashmi Society Nr.Mithakhali Six Roads Navrangpura Ahmedabad 380 009. PAN : AAACG 7248 P The DCIT, Cir.2(1)(1) Ahmedabad. (Appellant) (Responent) Assessee by : Shri M.K. Patel, Adv. Revenue by : Shri Rameshkumar L. Sadhu, Sr.DR स ु नवाई क तार ख/Date of Hearing: 09/02/2022 घोषणा क तार ख /Date of Pronouncement: 25/03/2022 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the assessee against the order dated 12.01.2018 passed by the Ld.Commissioner of Income-tax (Appeals)-2 ["Ld.CIT(A)" for short) arising from the assessment order passed under section 143(3) of the Income Tax Act, 1961 ("the Act" for short) relating to the assessment year 2014-15. 2. The assessee has raised five grounds in its appeal, which read as under: ITA No.681/Ahd/2018 2 “1. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance of commission paid to non-resident of Rs.18,84,793/- made by AO on account of non-deduction of tax at source u/s 40 (a) (ia) of the Act, by giving totally different reasons vide paras 2.4 and 2.5 of the order under appeal, without even giving any opportunity to the appellant. 2. That on facts, and in law, the learned CIT (A) has grievously erred in confirming the disallowance of Rs. 25,72,254/- on account of interest on loan given to 100% Foreign Subsidiary. 3. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance to the extent of Rs.38,02,347/-made u/s 14A rw Rule 8D of the Act while computing the income under the normal provisions of the Act. 4. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance to the extent of Rs.3,98,520/-made u/s 14A rw Rule 8D of the Act while computing the income under section 115JB of the Act. 5. That on facts and in law, the learned CIT (A) has grievously erred in confirming the addition of Rs.3,18,140/- on account of mismatch of TDS as per form 26AS.” 3. Brief facts of the case as emerging from the record is that assessee-company is engaged in the business of manufacturing and dealing in road construction and maintenance machinery and crushing and screening equipment. Assessee has filed its return on 29.11.2014 declaring total income at Rs.1,56,98,44,760/- under normal provision of the Act and Rs.66,87,64,960/- under section 115JB of the Act. The return was processed under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment. During the assessment proceedings, it was noticed by the AO that the assessee has paid payment of commission of Rs.18,84,793/- on export sales on which TDS was not deducted by the assessee. The ld.AO proposed disallowance ITA No.681/Ahd/2018 3 under section 40(a)(ia) of the Act, and sought explanation from the assessee, since similar disallowance has been made in the previous year i.e. 2013-14. Assessee explained that commission on export was paid to an agent through whom the assessee could get business abroad. The said agent is a foreign entity/resident, and did not have any business connection/establishment in India, and therefore for such payment TDS was not required to be made. Assessee was following this practice since more than eight to nine years, and though such payments made for the last three- to four years were disallowed by the AO, however, the same were allowed by the first appellate authority as business expenditure. The ld.AO did not accept the explanation of the assessee, and held that the assessee has failed to comply with the provisions of section 195(2) of the Act, which casts upon the assessee a duty to seek opinion or direction from the AO to determine the appropriate rate of TDS by the deductor. The assessee having failed to discharge his obligation, the ld.AO disallowed the impugned commission expenses of Rs.18,84,793/- and added the same to the total income of the assessee. 4. Aggrieved against the order of the AO, assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) also, the assessee maintained similar explanations that the agents are non- residents; they have no permanent establishment in India; not having any chargeable income tax in India; and that similar claim was allowed by the ld.CIT(A) in the assessment year 2013-14. However, the ld.CIT(A) also not satisfied with the explanation of the assessee, mainly on the ground that the assessee has not proved each sales commission paid with documentary evidences, more so when the list of the persons to whom commission was paid included the names of Indians, and whether their income was ITA No.681/Ahd/2018 4 taxable in India or not. The ld.CIT(A) has noticed names of the agents in his impugned at page no.8, which for the sake of brevity, we reproduce below: SI. No. Name Amount (Rs.) 1 Sepco Sikaneta, NDOLA Rs. 1,08,860/- 2 Micheal Nyirendra Rs.2,96,644/- 3 Romeo Zoppe Rs.6,82,988/- 4 Binod Shah Rs. 72,100/- 5 Binod Shah Rs.2,41,966/- 6 Binod'Shah Rs.3,18,825/- 7 Sola Tech Ltd. Rs.3,18,825/- 8 Demir Yilmaz Rs.54,750/- 9 Anup Kumar Sinha Oman Rs. 1,08, 660/- Total . Rs.18,84,793/- The ld.CIT(A) accordingly upheld the order of the AO on this issue. Aggrieved against the same, the assessee is now before the Tribunal. 5. Before us also submissions of the ld.counsel for the assessee are more or less on the similar line as were made before the lower authorities. However, he further submitted that similar issue came up before the Tribunal in assessee’s own case for the Asstt.Year 2013-14, and the Tribunal in ITA No.3046/Ahd/2016 vide order dated 19.1.2021 allowed claim of the assessee. While allowing the claim assessee, the Tribunal also followed decision of the Co-ordinate Bench of the Tribunal in the appeal filed by the ITA No.681/Ahd/2018 5 Revenue in ITANo.154/Ahd/2015 order dated 19.9.2018 for Asst.Years 2010-11 and 2011-12, by which the Co-ordinate Bench of Tribunal dismissed the appeal of the Revenue, and upheld order of the ld.CIT(A) in allowing the claim of the assessee in respect of foreign commission expenses. The ld.counsel for the assessee accordingly submitted since facts and circumstances are identical in this year also, the claim of the assessee be allowed and impugned disallowance be deleted. On the other hand, the ld.DR supported the orders of the Revenue authorities below. 6. We have given our thoughtfull consideration to the facts of the case. We also gone through the material available on record and also orders cited by the ld.counsel for the assessee. The ld.AR filed paper book no.2 which contained page nos.121 to 169 wherein a chart showing details of commission on sale paid to various foreign nationals and domestic persons. The assessee has also placed before us Form No.15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties. One among this is Mr.Binod Shah, Form No.15CB clearly mentioned that he belongs to Nepal and he was paid commission 72,1000/- on 5.6.2013 and also Rs.2,41,966/- on the very same day. However, these copies of the chart, Form no.15CB and form no.CA were not produced before the lower authorities due to shortage of time, and therefore, the ld.counsel for the assessee submitted that these documents may be entertained by the Tribunal invoking Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and further pleaded that the similar is being allowed in favour of the assessee by Co-ordinate Bench in the Asst.Year 2013-14. The ld.DR for the Revenue has no serious objection for entertaining the above new documents on records and to be verified by the AO. ITA No.681/Ahd/2018 6 7. In light of the above facts fact that these new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose. 8. Assessee has not pressed ground no.2 for adjudication, therefore, this ground is dismissed for want of prosecution. 9. So far as ground no.3 and 4 in respect of disallowance under section 14A read with Rule 8D of the Act are concerned, a brief facts of the case is that during the assessment proceedings, the ld.AO noticed that the assessee has received dividend of Rs.1,57,78,392/- from mutual funds, and claimed as exempt income. The assessee itself has not disallowed any expenditure for earning such exempt income. In the absence of the details thereof, the ld.AO sought details of the working under section 14A for computation of total income. It was explained by the assessee that investment was made from the sale proceeds of one of the business concerns of the assessee. Assessee had sufficient interest free funds available with it at the relevant time such as equity capital, reserves and surplus etc. and no borrowed funds were utilized for the purpose of investment. Further, it was submitted that assessee has not incurred any interest cost and book profits were declared consistently year after year. It was submitted that no separate manpower or administrative expenses ITA No.681/Ahd/2018 7 were required to be incurred by the assessee, but, only one employee of the assessee was partly looking after the work of investment. It was further submitted that investment was made in the group concerns not for earning dividend income, rather it was a strategic business decision. Even though, according to the assessee provision of section 14A rwr 8D of the Act is not applicable, the assessee made a disallowance amount of Rs.3.60 lakhs towards salary and Rs.38,520/- towards administrative expenses. However, the ld.AO disbelieved the contentions and invoked provision of section 14A of the Act read with Rule 8D of the IT Rules, and computed disallowance at Rs.1,38,22,165/-, and accordingly added Rs.1,34,23,645/- [Rs.1,38,22,165/- minus Rs.3,98,520/- (disallowed by the assessee)], and determined total income at Rs.158,80,43,590/- under normal provision. This disallowance of Rs.1,34,23,645/- was further added to the book profit declared at Rs.166,87,64,960/- under section 115JB for MAT purpose. 10. Aggrieved against these disallowances the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions made before the AO. It is further submitted that assessee has received an amount of Rs.225.08 crores from sale one of its business, and out of that an amount of Rs.201 crores has been transferred to portfolio management and investment through Kotak Bank Securities. Further, the assessee has earned interest income of Rs.10.23 crores, and against which only Rs.3.75 crores incurred as interest expenses and the net interest income was offered to tax. Assessee has also contended that no addition should be made under section 14A to book profit computed under section 115JB of the Act, and relied upon the decisions in the cases of ACIT Vs. Vireet Investment, ITA ITA No.681/Ahd/2018 8 No.502/Del/2012 (Del)(SB) and CIT Vs. JSW Energy Ltd., 60 taxmann.com 303 (Bom HC). The ld.CIT(A) after examining the issue, accepted the claim of the assessee to delete disallowance of interest calculated by the AO under Rule 8D(2)(ii) of the Rule of Rs.96,21,298/-, but confirmed administrative expenses by adopting method given under Rule 8D(2)(iii) being 0.5% of the average investment. Thus, the ld.CIT(A) partly allowed disallowance to the extent of Rs.38,02,347/- i.e. Rs.42,00,867/- minus Rs.3,98,520/-. Regarding addition to the book profit made under section 115JB for the MAT purpose, he restricted disallowance to extent of Rs.3,98,520/- which was disallowed by the assessee itself. Still aggrieved, assessee is now before the Tribunal. 11. The ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that so far as disallowance under section 14A of the Act is concerned, from the books of accounts for the year under consideration it is very clear that the assessee has sufficient interest free funds in the form of share capital, reserves and surplus and other cash reserves for making such investment. The assessee has not utilized any borrowed capital for the purpose of the impugned investment. It is settled proposition of the law that when interest free funds available with the assessee were more than the investment and/or borrowed funds, then no disallowance is to be made under section 14A of the Act. As submitted before the lower authorities, the impugned investment was made out of sale proceeds received from the sale of business of the assessee which was reflected in the books of accounts, and such investments are strategic investment for the purpose of the business. Though the ld.CIT(A) in principle agreed with the assessee that investment has ITA No.681/Ahd/2018 9 been made by the assessee from the own funds, and disallowance of interest under Rule 8D(2)(ii) of IT Rules held to be uncalled for, but disallowance under Rule 8D(2)(iii) to the extent of Rs.42,00,867/- being 0.5% of the average investment was made, which was not correct appreciation of the facts, because, the assessee has not incurred any expenditure for administrative expenses for maintenance of portfolio management in respect of the investment made out of the sale proceedings and by utilization of its surplus fund. Further, the ld.CIT(A) was not right in adding suo moto disallowance by the assessee of Rs.3,98,520/- for calculating book profits under section 115JB for MAT purpose. The Special Bench of the ITAT in the case of Vireet Investment P.Ltd., (supra) has held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Therefore, the order of the ld.CIT(A) to that extent is to be set aside. On the other hand, the ld.DR supported the orders of the Revenue authorities. He further submitted that plea of the assessee that the investments were strategic investment, and therefore, no disallowance was to be computed is to be disregarded in view of Hon’ble Supreme Court judgment in the case of Maxopp Investment Ltd. Vs. CIT, 402 ITR 640 (SC). 12. We have given our thoughtful consideration to the facts of the case, and gone through the orders of the Revenue authorities. We find that issue before us has two folds, viz. (i) whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses Rs.38,02,347/- to the extent of 0.5% of average investment was correct or not, and (ii) whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A read with Rule 8D ITA No.681/Ahd/2018 10 could be taken into consideration while computing book profits under MAT provisions? 13. So far as first fold of dispute is concerned, it is undisputed fact that the assessee has received an amount of Rs.225 crores from sale of business out of which Rs.201 has been transferred to Kotak Securities for investment. Further, it is also not in dispute that annual report of the assessee showed that assessee also got enough reserves and surplus of Rs.276.83 cores. Therefore, assessee’s capital, profit reserves, surplus and bank deposits were higher than the investment in tax free securities, therefore, it could be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under section 14A of the Act. As noted by the Revenue authorities during the assessment proceedings, the assessee has received dividend income of Rs.157,78,392/- from mutual funds, and offered suo moto disallowance of Rs.3,98,520/- after considering a portion of accountant salary in maintaining of the investment. However, the ld.AO disbelieved the claim of the assessee and he proceeded to compute the disallowance by invoking the provisions of section 14A read with Rule 8D(2) of IT Rules and accordingly Rs.1,34,23,645/- added to the total income of the assessee. However, the ld.CIT(A) though in principle concurred with the claim of the assessee in respect of utilization of interest free and surplus funds for the impugned investment, and accordingly deleted the disallowance in respect of interest expenses made under Rule 8D(2)(ii), but he retained administrative expenses to the extent of Rs.42,00,867/- being 0.5% of the average investment and the ld.AO was directed to restrict the disallowance to the extent of differential i.e. Rs.38,02,437/-. However, it is not ITA No.681/Ahd/2018 11 discernible from the order of the ld.CIT(A) how he arrived at the figure of Rs.42,00,867/- being the average investment. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, we are of the considered view that the computation of the disallowances under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is to be restored in the file of the AO for re- computation for identifying average investments which actually yielded dividend income to the assessee and on that basis re- compute disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rule. We order so. 14. So far as second issue i.e. whether amount of disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose or not, is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P.Ltd., 165 ITD 27 wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance of Rs.3,98,520/- for the purpose of calculation of book profits u/s.115JB of the Act. 15. Now we take ground no.5 in respect of confirmation of addition of Rs.3,18,140/- on account of mismatch of TDS as per Form 26AS. 16. On verification of Form 26AS, it was noticed by the AO that the assessee had claimed TDS of Rs.93,69,723/- against ITA No.681/Ahd/2018 12 Rs.94,015,537/- shown by Form 26AS. Thus, there was different in the TDS amounting to Rs.31,814/-. It was explained by the assessee that this amount related to a party viz. TESCO Project P.Ltd., to whom the assessee has given loan. It was submitted assessee has not received any interest income from that party, because the party has defaulted and cheques issued to the assessee for repayment was returned by the bank as unpaid, and recovery suit was filed before the Court, and therefore, for prudent accounting policies, no provision has been made. However, the ld.AO did not satisfy with the explanation of the assessee on the ground that since the assessee was following mercantile system of account, the same was to be accounted for as income in which year the same was due. In appeal, the ld.CIT(A) confirmed action of the AO, hence, assessee is before the Tribunal. 18. After hearing both the sides, and having gone through the orders of the lower authorities, we find that impugned mismatch of TDS has happened due to difference in TDS claimed by the assessee of Rs.93,69,723/- and the amount of TDS shown in the Form No.26AS of Rs.94,01,537/-. The fact that the assessee has given advances to TESCO Projects P.Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank. ITA No.681/Ahd/2018 13 17. Considering the above facts of the case, we are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. The AO shall verify the claim of the assessee on the issue by examining relevant ledger accounts of the assessee and thereafter verify corresponding contra account from TESCO Projects showing whether or not interest payment has been made to the assessee. If the AO finds that no interest payment has been made to the assessee, then no addition is to be made, otherwise, the ld.AO may pass appropriate order in accordance with law after providing reasonable opportunity to the assessee. Needless to say, the assessee shall furnish all the details to support its case as and when called for by the AO. 18. In the result, appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the Court on 25 th March, 2022 at Ahmedabad. Sd/- Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER (T.R. SENTHIL KUMAR) JUDICIAL MEMBER Ahmedabad, dated 25/03/2022 आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ‘B’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD (Conducted through Virtual Court) BEFORE MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.681/Ahd/2018 Asstt.Year : 2014-15 Gujarat Apollo Industries Ltd. ‘Apollo House’ Rashmi Society Nr.Mithakhali Six Roads Navrangpura Ahmedabad 380 009. PAN : AAACG 7248 P The DCIT, Cir.2(1)(1) Ahmedabad. (Appellant) (Responent) Assessee by : Shri M.K. Patel, Adv. Revenue by : Shri Rameshkumar L. Sadhu, Sr.DR स ु नवाई क तार ख/Date of Hearing: 09/02/2022 घोषणा क तार ख /Date of Pronouncement: 25/03/2022 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the assessee against the order dated 12.01.2018 passed by the Ld.Commissioner of Income-tax (Appeals)-2 ["Ld.CIT(A)" for short) arising from the assessment order passed under section 143(3) of the Income Tax Act, 1961 ("the Act" for short) relating to the assessment year 2014-15. 2. The assessee has raised five grounds in its appeal, which read as under: ITA No.681/Ahd/2018 2 “1. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance of commission paid to non-resident of Rs.18,84,793/- made by AO on account of non-deduction of tax at source u/s 40 (a) (ia) of the Act, by giving totally different reasons vide paras 2.4 and 2.5 of the order under appeal, without even giving any opportunity to the appellant. 2. That on facts, and in law, the learned CIT (A) has grievously erred in confirming the disallowance of Rs. 25,72,254/- on account of interest on loan given to 100% Foreign Subsidiary. 3. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance to the extent of Rs.38,02,347/-made u/s 14A rw Rule 8D of the Act while computing the income under the normal provisions of the Act. 4. That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance to the extent of Rs.3,98,520/-made u/s 14A rw Rule 8D of the Act while computing the income under section 115JB of the Act. 5. That on facts and in law, the learned CIT (A) has grievously erred in confirming the addition of Rs.3,18,140/- on account of mismatch of TDS as per form 26AS.” 3. Brief facts of the case as emerging from the record is that assessee-company is engaged in the business of manufacturing and dealing in road construction and maintenance machinery and crushing and screening equipment. Assessee has filed its return on 29.11.2014 declaring total income at Rs.1,56,98,44,760/- under normal provision of the Act and Rs.66,87,64,960/- under section 115JB of the Act. The return was processed under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment. During the assessment proceedings, it was noticed by the AO that the assessee has paid payment of commission of Rs.18,84,793/- on export sales on which TDS was not deducted by the assessee. The ld.AO proposed disallowance ITA No.681/Ahd/2018 3 under section 40(a)(ia) of the Act, and sought explanation from the assessee, since similar disallowance has been made in the previous year i.e. 2013-14. Assessee explained that commission on export was paid to an agent through whom the assessee could get business abroad. The said agent is a foreign entity/resident, and did not have any business connection/establishment in India, and therefore for such payment TDS was not required to be made. Assessee was following this practice since more than eight to nine years, and though such payments made for the last three- to four years were disallowed by the AO, however, the same were allowed by the first appellate authority as business expenditure. The ld.AO did not accept the explanation of the assessee, and held that the assessee has failed to comply with the provisions of section 195(2) of the Act, which casts upon the assessee a duty to seek opinion or direction from the AO to determine the appropriate rate of TDS by the deductor. The assessee having failed to discharge his obligation, the ld.AO disallowed the impugned commission expenses of Rs.18,84,793/- and added the same to the total income of the assessee. 4. Aggrieved against the order of the AO, assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) also, the assessee maintained similar explanations that the agents are non- residents; they have no permanent establishment in India; not having any chargeable income tax in India; and that similar claim was allowed by the ld.CIT(A) in the assessment year 2013-14. However, the ld.CIT(A) also not satisfied with the explanation of the assessee, mainly on the ground that the assessee has not proved each sales commission paid with documentary evidences, more so when the list of the persons to whom commission was paid included the names of Indians, and whether their income was ITA No.681/Ahd/2018 4 taxable in India or not. The ld.CIT(A) has noticed names of the agents in his impugned at page no.8, which for the sake of brevity, we reproduce below: SI. No. Name Amount (Rs.) 1 Sepco Sikaneta, NDOLA Rs. 1,08,860/- 2 Micheal Nyirendra Rs.2,96,644/- 3 Romeo Zoppe Rs.6,82,988/- 4 Binod Shah Rs. 72,100/- 5 Binod Shah Rs.2,41,966/- 6 Binod'Shah Rs.3,18,825/- 7 Sola Tech Ltd. Rs.3,18,825/- 8 Demir Yilmaz Rs.54,750/- 9 Anup Kumar Sinha Oman Rs. 1,08, 660/- Total . Rs.18,84,793/- The ld.CIT(A) accordingly upheld the order of the AO on this issue. Aggrieved against the same, the assessee is now before the Tribunal. 5. Before us also submissions of the ld.counsel for the assessee are more or less on the similar line as were made before the lower authorities. However, he further submitted that similar issue came up before the Tribunal in assessee’s own case for the Asstt.Year 2013-14, and the Tribunal in ITA No.3046/Ahd/2016 vide order dated 19.1.2021 allowed claim of the assessee. While allowing the claim assessee, the Tribunal also followed decision of the Co-ordinate Bench of the Tribunal in the appeal filed by the ITA No.681/Ahd/2018 5 Revenue in ITANo.154/Ahd/2015 order dated 19.9.2018 for Asst.Years 2010-11 and 2011-12, by which the Co-ordinate Bench of Tribunal dismissed the appeal of the Revenue, and upheld order of the ld.CIT(A) in allowing the claim of the assessee in respect of foreign commission expenses. The ld.counsel for the assessee accordingly submitted since facts and circumstances are identical in this year also, the claim of the assessee be allowed and impugned disallowance be deleted. On the other hand, the ld.DR supported the orders of the Revenue authorities below. 6. We have given our thoughtfull consideration to the facts of the case. We also gone through the material available on record and also orders cited by the ld.counsel for the assessee. The ld.AR filed paper book no.2 which contained page nos.121 to 169 wherein a chart showing details of commission on sale paid to various foreign nationals and domestic persons. The assessee has also placed before us Form No.15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties. One among this is Mr.Binod Shah, Form No.15CB clearly mentioned that he belongs to Nepal and he was paid commission 72,1000/- on 5.6.2013 and also Rs.2,41,966/- on the very same day. However, these copies of the chart, Form no.15CB and form no.CA were not produced before the lower authorities due to shortage of time, and therefore, the ld.counsel for the assessee submitted that these documents may be entertained by the Tribunal invoking Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and further pleaded that the similar is being allowed in favour of the assessee by Co-ordinate Bench in the Asst.Year 2013-14. The ld.DR for the Revenue has no serious objection for entertaining the above new documents on records and to be verified by the AO. ITA No.681/Ahd/2018 6 7. In light of the above facts fact that these new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose. 8. Assessee has not pressed ground no.2 for adjudication, therefore, this ground is dismissed for want of prosecution. 9. So far as ground no.3 and 4 in respect of disallowance under section 14A read with Rule 8D of the Act are concerned, a brief facts of the case is that during the assessment proceedings, the ld.AO noticed that the assessee has received dividend of Rs.1,57,78,392/- from mutual funds, and claimed as exempt income. The assessee itself has not disallowed any expenditure for earning such exempt income. In the absence of the details thereof, the ld.AO sought details of the working under section 14A for computation of total income. It was explained by the assessee that investment was made from the sale proceeds of one of the business concerns of the assessee. Assessee had sufficient interest free funds available with it at the relevant time such as equity capital, reserves and surplus etc. and no borrowed funds were utilized for the purpose of investment. Further, it was submitted that assessee has not incurred any interest cost and book profits were declared consistently year after year. It was submitted that no separate manpower or administrative expenses ITA No.681/Ahd/2018 7 were required to be incurred by the assessee, but, only one employee of the assessee was partly looking after the work of investment. It was further submitted that investment was made in the group concerns not for earning dividend income, rather it was a strategic business decision. Even though, according to the assessee provision of section 14A rwr 8D of the Act is not applicable, the assessee made a disallowance amount of Rs.3.60 lakhs towards salary and Rs.38,520/- towards administrative expenses. However, the ld.AO disbelieved the contentions and invoked provision of section 14A of the Act read with Rule 8D of the IT Rules, and computed disallowance at Rs.1,38,22,165/-, and accordingly added Rs.1,34,23,645/- [Rs.1,38,22,165/- minus Rs.3,98,520/- (disallowed by the assessee)], and determined total income at Rs.158,80,43,590/- under normal provision. This disallowance of Rs.1,34,23,645/- was further added to the book profit declared at Rs.166,87,64,960/- under section 115JB for MAT purpose. 10. Aggrieved against these disallowances the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions made before the AO. It is further submitted that assessee has received an amount of Rs.225.08 crores from sale one of its business, and out of that an amount of Rs.201 crores has been transferred to portfolio management and investment through Kotak Bank Securities. Further, the assessee has earned interest income of Rs.10.23 crores, and against which only Rs.3.75 crores incurred as interest expenses and the net interest income was offered to tax. Assessee has also contended that no addition should be made under section 14A to book profit computed under section 115JB of the Act, and relied upon the decisions in the cases of ACIT Vs. Vireet Investment, ITA ITA No.681/Ahd/2018 8 No.502/Del/2012 (Del)(SB) and CIT Vs. JSW Energy Ltd., 60 taxmann.com 303 (Bom HC). The ld.CIT(A) after examining the issue, accepted the claim of the assessee to delete disallowance of interest calculated by the AO under Rule 8D(2)(ii) of the Rule of Rs.96,21,298/-, but confirmed administrative expenses by adopting method given under Rule 8D(2)(iii) being 0.5% of the average investment. Thus, the ld.CIT(A) partly allowed disallowance to the extent of Rs.38,02,347/- i.e. Rs.42,00,867/- minus Rs.3,98,520/-. Regarding addition to the book profit made under section 115JB for the MAT purpose, he restricted disallowance to extent of Rs.3,98,520/- which was disallowed by the assessee itself. Still aggrieved, assessee is now before the Tribunal. 11. The ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that so far as disallowance under section 14A of the Act is concerned, from the books of accounts for the year under consideration it is very clear that the assessee has sufficient interest free funds in the form of share capital, reserves and surplus and other cash reserves for making such investment. The assessee has not utilized any borrowed capital for the purpose of the impugned investment. It is settled proposition of the law that when interest free funds available with the assessee were more than the investment and/or borrowed funds, then no disallowance is to be made under section 14A of the Act. As submitted before the lower authorities, the impugned investment was made out of sale proceeds received from the sale of business of the assessee which was reflected in the books of accounts, and such investments are strategic investment for the purpose of the business. Though the ld.CIT(A) in principle agreed with the assessee that investment has ITA No.681/Ahd/2018 9 been made by the assessee from the own funds, and disallowance of interest under Rule 8D(2)(ii) of IT Rules held to be uncalled for, but disallowance under Rule 8D(2)(iii) to the extent of Rs.42,00,867/- being 0.5% of the average investment was made, which was not correct appreciation of the facts, because, the assessee has not incurred any expenditure for administrative expenses for maintenance of portfolio management in respect of the investment made out of the sale proceedings and by utilization of its surplus fund. Further, the ld.CIT(A) was not right in adding suo moto disallowance by the assessee of Rs.3,98,520/- for calculating book profits under section 115JB for MAT purpose. The Special Bench of the ITAT in the case of Vireet Investment P.Ltd., (supra) has held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Therefore, the order of the ld.CIT(A) to that extent is to be set aside. On the other hand, the ld.DR supported the orders of the Revenue authorities. He further submitted that plea of the assessee that the investments were strategic investment, and therefore, no disallowance was to be computed is to be disregarded in view of Hon’ble Supreme Court judgment in the case of Maxopp Investment Ltd. Vs. CIT, 402 ITR 640 (SC). 12. We have given our thoughtful consideration to the facts of the case, and gone through the orders of the Revenue authorities. We find that issue before us has two folds, viz. (i) whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses Rs.38,02,347/- to the extent of 0.5% of average investment was correct or not, and (ii) whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A read with Rule 8D ITA No.681/Ahd/2018 10 could be taken into consideration while computing book profits under MAT provisions? 13. So far as first fold of dispute is concerned, it is undisputed fact that the assessee has received an amount of Rs.225 crores from sale of business out of which Rs.201 has been transferred to Kotak Securities for investment. Further, it is also not in dispute that annual report of the assessee showed that assessee also got enough reserves and surplus of Rs.276.83 cores. Therefore, assessee’s capital, profit reserves, surplus and bank deposits were higher than the investment in tax free securities, therefore, it could be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under section 14A of the Act. As noted by the Revenue authorities during the assessment proceedings, the assessee has received dividend income of Rs.157,78,392/- from mutual funds, and offered suo moto disallowance of Rs.3,98,520/- after considering a portion of accountant salary in maintaining of the investment. However, the ld.AO disbelieved the claim of the assessee and he proceeded to compute the disallowance by invoking the provisions of section 14A read with Rule 8D(2) of IT Rules and accordingly Rs.1,34,23,645/- added to the total income of the assessee. However, the ld.CIT(A) though in principle concurred with the claim of the assessee in respect of utilization of interest free and surplus funds for the impugned investment, and accordingly deleted the disallowance in respect of interest expenses made under Rule 8D(2)(ii), but he retained administrative expenses to the extent of Rs.42,00,867/- being 0.5% of the average investment and the ld.AO was directed to restrict the disallowance to the extent of differential i.e. Rs.38,02,437/-. However, it is not ITA No.681/Ahd/2018 11 discernible from the order of the ld.CIT(A) how he arrived at the figure of Rs.42,00,867/- being the average investment. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, we are of the considered view that the computation of the disallowances under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is to be restored in the file of the AO for re- computation for identifying average investments which actually yielded dividend income to the assessee and on that basis re- compute disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rule. We order so. 14. So far as second issue i.e. whether amount of disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose or not, is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P.Ltd., 165 ITD 27 wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance of Rs.3,98,520/- for the purpose of calculation of book profits u/s.115JB of the Act. 15. Now we take ground no.5 in respect of confirmation of addition of Rs.3,18,140/- on account of mismatch of TDS as per Form 26AS. 16. On verification of Form 26AS, it was noticed by the AO that the assessee had claimed TDS of Rs.93,69,723/- against ITA No.681/Ahd/2018 12 Rs.94,015,537/- shown by Form 26AS. Thus, there was different in the TDS amounting to Rs.31,814/-. It was explained by the assessee that this amount related to a party viz. TESCO Project P.Ltd., to whom the assessee has given loan. It was submitted assessee has not received any interest income from that party, because the party has defaulted and cheques issued to the assessee for repayment was returned by the bank as unpaid, and recovery suit was filed before the Court, and therefore, for prudent accounting policies, no provision has been made. However, the ld.AO did not satisfy with the explanation of the assessee on the ground that since the assessee was following mercantile system of account, the same was to be accounted for as income in which year the same was due. In appeal, the ld.CIT(A) confirmed action of the AO, hence, assessee is before the Tribunal. 18. After hearing both the sides, and having gone through the orders of the lower authorities, we find that impugned mismatch of TDS has happened due to difference in TDS claimed by the assessee of Rs.93,69,723/- and the amount of TDS shown in the Form No.26AS of Rs.94,01,537/-. The fact that the assessee has given advances to TESCO Projects P.Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank. ITA No.681/Ahd/2018 13 17. Considering the above facts of the case, we are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. The AO shall verify the claim of the assessee on the issue by examining relevant ledger accounts of the assessee and thereafter verify corresponding contra account from TESCO Projects showing whether or not interest payment has been made to the assessee. If the AO finds that no interest payment has been made to the assessee, then no addition is to be made, otherwise, the ld.AO may pass appropriate order in accordance with law after providing reasonable opportunity to the assessee. Needless to say, the assessee shall furnish all the details to support its case as and when called for by the AO. 18. In the result, appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the Court on 25 th March, 2022 at Ahmedabad. Sd/- Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER (T.R. SENTHIL KUMAR) JUDICIAL MEMBER Ahmedabad, dated 25/03/2022