2015 (6) TMI 993 - AT - Income Tax

Disallowance u/s. 14A - CIT(A) deleted the addition - Held that - The undisputed fact is that the investments have been made out of own funds and no borrowed fund was utilized. It is also undisputed fact that in both the years under consideration, the assessee has disallowed suo motu fees paid to the portfolio manager. It is also an admitted fact that the Assessing Officer has nowhere recorded his dissatisfaction on the claim of expenditure attributable to the disallowance u/s. 14A made by the assessee. We, therefore, decline to interfere with the findings of the Ld. CIT(A). Allowable expenditure u/s 37 - Held that - Religious expenditure cannot be considered at par with expenditure on social cause. The undisputed fact is that in guise of advertisement expenditure, the assessee has incurred expenditure towards renovation of Bandeshwar temple. This expenditure cannot be considered having been incurred towards corporate social responsibility. In our considered opinion, only expenditure incurred towards discharge of corporate social responsibility can be considered as allowable u/s. 37(1) of the Act.

Summary

Issues:
1. Deletion of addition made u/s. 14A read with Rule 8D for A.Y. 2008-09 & 2009-10.
2. Partial disallowance of expenditure incurred on advertisement.

Deletion of addition made u/s. 14A read with Rule 8D for A.Y. 2008-09 & 2009-10:
The Assessing Officer made additions under sec. 14A read with Rule 8D for A.Y. 2008-09 and 2009-10 due to the assessee claiming exempt income from share of profit from a partnership firm and dividend income. The Assessing Officer believed that sec. 14A requires disallowance to be calculated based on expenditure related to exempt income. However, the assessee argued that no borrowed funds were used for investments, and they had already disallowed certain expenses. The Ld. CIT(A) noted that the assessee had sufficient own funds for investments, and the Assessing Officer did not challenge this fact. Relying on precedent, the Ld. CIT(A) held that the Assessing Officer erred in invoking sec. 14A without proper assessment. The Ld. CIT(A) deleted the disallowance, which the Revenue appealed against.

Partial disallowance of expenditure incurred on advertisement:
The Assessing Officer disallowed a portion of the expenditure on advertisement, considering it unrelated to business activities. The assessee explained that the expenditure was for social causes and business promotion. The Ld. CIT(A) found that a significant amount was spent on religious activities, not directly related to business. Only a small portion was allowed as corporate social responsibility expenses. The assessee challenged this decision, citing a similar Tribunal case. However, the ITAT disagreed, stating that religious expenditure cannot be equated with corporate social responsibility. They referred the issue to a Special Bench to determine if temple renovation expenses could be considered as corporate social responsibility. As a result, the Revenue's appeals were dismissed, and the assessee's cross objection was kept pending for the Special Bench's decision.