2010 (8) TMI 975 - AT - Income Tax

Disallowance u/s 14A - AO observed that the assessee had earned dividend income and claimed it as exempt u/s. 10(34) thus management expenses attributable to this income are disallowable u/s. 14A - HELD THAT - We find that the assessee earned dividend income of 18, 00, 000/-. The assessee did not file any evidence in respect of any expenditure incurred by him to earn the said dividend income before the lower authorities and also before the Tribunal. In view of the above and the consistent view taken by the Tribunal in many other cases @ 1% of the dividend income is treated as expenses related to dividend income. Therefore the disallowance comes to 18, 000/-. This ground of the assessee is therefore partly allowed. Disallowance of credit for TDS - AO had not given credit for this TDS as in the TDS certificate filed by the assessee it is clearly mentioned that the tax has been deducted by the Sikkim Government as a state govt. tax and has been paid to the credit of the state Govt. and not the Central Govt - CIT(A) held that this amount has not been paid to the Central Govt. account on behalf of the assessee at all thus upheld the decision of the AO for not giving credit for this amount - HELD THAT - We find that before the AO the assessee claimed TDS amount deducted by the Sikkim Govt. from their bills and issued Form No. 16A as prescribed in Rule 31(1)(b). But before the Ld. CIT(A) on careful consideration it stated that the deducted amount was not paid to the Central Govt. Account but paid to the account of the Sikkim Govt. and also stated that this mistake was detected at the time of appeal before the Ld. CIT(A). Since the assessee took different stand before the lower authorities we are of the considered view that the matter should be restored back to the file of the AO for verification. It is needless to say that the assessee should be given sufficient opportunity of being heard We order accordingly This ground of appeal of the assessee is therefore allowed for statistical purposes.

Summary

Issues:
1. Disallowance of management expenses against dividend income under section 14A of the Income Tax Act, 1961.
2. Disallowance of credit for TDS deducted by the Sikkim Government.

Issue 1: Disallowance of Management Expenses:
The AO disallowed &8377; 2,46,937/- as management expenses against dividend income of &8377; 18,00,000/- under section 14A of the IT Act. The CIT(A) upheld the disallowance. The assessee contended that no amount was spent to earn the dividend income, as the investment was from earlier years. The Tribunal noted that no evidence of expenditure was provided. Following precedents, 1% of the dividend income, i.e., &8377; 18,000/-, was treated as expenses. The appeal was partly allowed, reducing the disallowance to &8377; 18,000/-.

Issue 2: Disallowance of TDS Credit:
The AO disallowed credit for &8377; 16,13,333/- TDS deducted by the Sikkim Government, as it was not paid to the Central Government. The CIT(A) upheld this decision. The assessee argued that the amount was mistakenly paid to the Sikkim Government and requested it to be treated as a genuine expense. The Tribunal found discrepancies in the assessee's submissions before different authorities and ordered the matter to be sent back to the AO for verification. The appeal was allowed for statistical purposes.

In conclusion, the Tribunal partly allowed the appeal regarding the disallowance of management expenses and allowed the appeal for statistical purposes regarding the disallowance of TDS credit.