2008 (6) TMI 604 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 50,000 on account of personal expenses.
2. Reduction of Rs. 1,57,28,127 from the block of assets received from the insurance company.
3. Addition of Rs. 1,31,437 u/s 14A as proportionate expenses incurred to earn exempt dividend income.

Summary:

Issue 1: Disallowance of Rs. 50,000 on Account of Personal Expenses

During the assessment proceedings, the Assessing Officer disallowed Rs. 50,000 on an estimate basis out of business promotion, travelling, vehicle maintenance, and miscellaneous expenses, citing unverifiable nature and potential personal element. The CIT(A) upheld this disallowance due to practical difficulties in verifying the genuineness of these cash expenses. The Tribunal found the disallowance justified given the unverifiable nature of the expenses and dismissed the ground.

Issue 2: Reduction of Rs. 1,57,28,127 from Block of Assets

The assessee received Rs. 1,57,28,127 from an insurance claim for damaged tanks and terminals due to an earthquake. The Assessing Officer reduced this amount from the WDV of the block of assets and restricted the depreciation claim. The CIT(A) confirmed this decision. The Tribunal, however, found that the provisions of sections 43(6)(c)(i)(B), 45(1A), and 50 of the Income-tax Act did not support the reduction of WDV by insurance receipts for damaged assets. The Tribunal held that the insurance receipts should not be adjusted against the WDV and set aside the additions made by the Assessing Officer and confirmed by the CIT(A).

Issue 3: Addition of Rs. 1,31,437 u/s 14A for Proportionate Expenses

The Assessing Officer disallowed Rs. 1,31,437, estimating 5% of the exempt dividend income as expenses incurred to earn it. The CIT(A) upheld this disallowance. The Tribunal noted that while no direct expenditure was identified, some employee time and resources were likely used for handling dividend warrants. The Tribunal deemed a round sum disallowance of Rs. 50,000 appropriate, partly allowing the ground.

Conclusion:

The appeal of the assessee was partly allowed, with the Tribunal upholding the disallowance of Rs. 50,000 for personal expenses, setting aside the reduction of Rs. 1,57,28,127 from the block of assets, and reducing the disallowance u/s 14A to Rs. 50,000.