2014 (11) TMI 999 - AT - Income Tax

Disallowance made u/s 14A - Held that - The tax authorities were not justified in applying Rule 8D(2)(iii) by disregarding the accounts and claims of the assessee. According to the assessee he had made the investments in the earlier years and major portion of exempt income was from Government securities. However the Ld A.R could not conclusively clarify that the different concerns are not operating from different addresses. Accordingly on a conspectus of the matter we are of the view the disallowance u/s 14A may be restricted to 10, 000/- and the same in our view would meet the ends of justice. Accordingly we modify the order of the Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A of the Act to 10, 000/-. - Decided partly in favour of assessee Disallowance made out of motor car expenses travelling & conveyance expenses and telephone expenses - Held that - With regard to the disallowance made out of Motor Car expenses and Traveling & conveyance expenses the assessee did not find material to contradict the findings given by the tax authorities. Accordingly we confirm the order of Ld CIT(A) on these two additions. With regard to the telephone expenses the disallowance suggested by the Ld CIT(A) appears to be on higher side. Accordingly we direct the AO to restrict the disallowance to 50% of residential telephone expenses and 5% of the office telephone expenses. In our view the same would meet the ends of justice. - Decided partly in favour of assessee

Summary

Issues:
1. Disallowance made under section 14A of the Act.
2. Disallowance of Motor Car expenses.
3. Disallowance of Travelling & Conveyance expenses.
4. Disallowance of Telephone expenses.

Issue 1: Disallowance made under section 14A of the Act:
The appeal challenged the disallowance under section 14A of the Act. The assessee argued that the income received was from investments made in earlier years, and no expenditure was incurred during the relevant year. The assessing officer did not verify the explanations adequately and did not provide any satisfaction for the disallowance. The Tribunal found that Rule 8D(2)(iii) was incorrectly applied without considering the assessee's claims and accounts. The disallowance was reduced to Rs. 10,000 to meet the ends of justice.

Issue 2: Disallowance of Motor Car expenses:
The AO disallowed 10% of the claim for Motor Car expenses, considering a personal element. The Ld CIT(A) upheld this disallowance, which the assessee contested. The Tribunal found no material to contradict the tax authorities' findings and confirmed the disallowance.

Issue 3: Disallowance of Travelling & Conveyance expenses:
Similar to the Motor Car expenses, the AO disallowed 10% of the Travelling & Conveyance expenses, alleging a personal element. The Ld CIT(A) sustained this disallowance. The Tribunal, finding no material to challenge these findings, confirmed the disallowance.

Issue 4: Disallowance of Telephone expenses:
The AO disallowed a portion of telephone expenses, and the Ld CIT(A) directed specific percentages for residential and office telephone expenses. The Tribunal considered the disallowance for telephone expenses to be on the higher side and modified it to 50% of residential telephone expenses and 5% of office telephone expenses to meet the ends of justice.

In conclusion, the appeal was partly allowed, with modifications made to the disallowances of expenses. The Tribunal provided detailed reasoning for each issue and adjusted the disallowances based on the facts and circumstances presented during the proceedings.