2005 (1) TMI 587 - AT - Income Tax

Expenditure incurred in relation to income not includible in total income - disallowance of administrative expenditure u/s 14A - HELD THAT - In the assessment order, Assessing Officer disallowed administrative expenses and depreciation expenses on proportionate basis. It is the duty of the assessee to allocate the expenditure but in case the assessee fails to allocate the same, the Assessing Officer has no option but to disallow the same on proportionate basis. From the perusal of administrative and other expenses I find that assessee has incurred expenses on Demat for Rs. 63,324, Share Stamp charges of Rs. 18,936, the total of these two expenses works out to Rs. 82,260. In the assessment order the Assessing Officer has disallowed Rs. 73,608 only as expenses attributable to earning of dividend which is claimed exempt u/s 10(33) of the Income-tax Act, 1961. From the perusal of administrative and other expenses it can be seen that assessee has claimed computer expenses of Rs. 49,500, conveyance expenses of Rs. 28,577.50 and salary expense of Rs. 2,60,933. In the income side total income shown is Rs. 4,42,577.75 which comprises of Rs. 3,40,170.75, being dividend exempt u/s 10(33), Commission received Rs. 15,000 and Warehousing Charges of Rs. 87,407.00. Thus, disallowance made by Assessing Officer u/s 14A is neither excessive not unreasonable. I, therefore, incline to uphold the order of the ld. CIT(A) on this issue. In the result, the appeal of the assessee is dismissed.

Summary

Issues involved:
Disallowance of administrative expenditure under section 14A of the Income-tax Act, 1961 for the assessment year 2001-02.

Summary:

Issue 1: Disallowance of administrative expenditure under section 14A

The Assessing Officer disallowed administrative expenditure of Rs. 73,608 under section 14A as the assessee received exempt dividend income under section 10(33). The assessee contended that no specific expenditure was incurred for earning dividend income. The Ld. CIT(A) upheld the disallowance citing precedents. The assessee appealed on grounds of unjustified allocation of expenses.

Issue 2: Allocation of expenses for earning dividend income

The assessee argued that no direct expenses were incurred for earning dividend income and the Assessing Officer failed to prove otherwise. The contention was that pro rata expenses allocation to dividend income was unjustified.

Issue 3: Treatment of depreciation as expenditure

The assessee further submitted that depreciation should not be treated as expenditure under section 14A and requested its deletion. The argument was supported by a decision from ITAT Mumbai Bench "E" regarding the nature of depreciation.

The ITAT upheld the disallowance of administrative expenses and depreciation on a proportionate basis as per section 14A. The Kolkata Bench clarified the phrase "in relation to" in section 14A, stating that apportionment of expenses is necessary for businesses with common accounts. The ITAT found the disallowance made by the Assessing Officer reasonable and not excessive based on the total expenses and income presented.

In conclusion, the appeal of the assessee was dismissed, and the disallowance of administrative expenditure under section 14A was upheld.