2015 (10) TMI 2511 - AT - Income Tax

Expenditure on account of consultancy fee disallowable u/s. 14A - as observed that the assessee had considerable business income from management consultancy during the relevant year and majority of expenses were incurred by the company for earning such business income - CIT(A) deleting the expenditure on account of consultancy fee as not disallowable u/s. 14A oHeld that - While applying Rule 8D(2)(ii) the AO should have excluded those expenses which were directly attributable to consultancy business income earned by the assessee. We find from records that the assessee filed the details of consultancy income and expenses incurred for the same before AO during the course of assessment proceeding but he has not considered the same. We further find that the dividend income amounting to 1, 66, 06, 788/- was received by the assessee only from eight companies and dividend cheques were received though post or were directly credited to the assessee bank account through ECS. As such no major expenses were incurred by the assessee for earning such income and collection of dividend cheque. Similarly in respect of long term capital loss of 3, 97, 694/- there were only two transactions for purchase and sale of shares and two for investment and redemption of units of mutual fund which too were transacted over telephone through the broker/bank. No separate staff was employed for this purpose and extra expenses were incurred for such transactions. - Decided against revenue

Summary

Issues:
- Disallowance of consultancy fee under section 14A of the Income-tax Act, 1961.

Detailed Analysis:

1. Background and Assessment Order:
The appeal by revenue challenges the CIT(A)'s order deleting the expenditure on consultancy fee as not disallowable under section 14A of the Act. The assessment was framed by JCIT(OSD) for AY 2009-10. The AO observed that the assessee had not attributed any expenditure towards dividend income and long term capital loss, leading to a disallowance of &8377; 49,85,653 under section 14A read with Rule 8D(2)(iii).

2. CIT(A)'s Decision:
The CIT(A) deleted the disallowance, noting that direct expenses for earning taxable income cannot be disallowed under section 14A. However, he directed the AO to recalculate the disallowance after deducting the consultancy fee from total expenses claimed by the appellant. He emphasized that disallowable expenses cannot exceed total expenses claimed during the year, citing judicial precedents.

3. Appellate Tribunal's Analysis:
The ITAT Kolkata upheld the CIT(A)'s decision, emphasizing that the appellant had already disallowed &8377; 2,60,221 under section 14A based on total expenses incurred during the year. The tribunal noted that the consultancy fee of &8377; 46,10,000 was directly attributable to business income from management consultancy. It highlighted that no major expenses were incurred for earning dividend income and long term capital loss, as evident from the transactions conducted.

4. Conclusion:
The ITAT confirmed the CIT(A)'s order, dismissing the revenue's appeal. The tribunal's decision was based on the understanding that the disallowance under section 14A should be calculated after excluding expenses directly related to income-generating activities. The judgment provided a detailed analysis of the facts and circumstances, emphasizing the need to consider specific expenses in determining disallowances under section 14A.