2010 (12) TMI 1234 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest under section 14A.
2. Disallowance of administrative expenses under section 14A.
3. Disallowance of balance written off.
4. Disallowance of staff welfare expenses.
5. Determination of book profits under section 115JB.

Issue-wise Detailed Analysis:

1. Disallowance of Interest under Section 14A:
The assessee appealed against the disallowance of interest amounting to Rs. 8,72,320 under section 14A by the Assessing Officer (AO). The AO observed that the assessee had sufficient own funds, but it could not be presumed that these funds were used for investments. The AO calculated that 53% of the borrowed funds were used for investment, leading to the disallowance of interest. The first appellate authority upheld the AO's decision. The assessee argued that the investments were made from its own funds and cited several case laws to support its claim. The Tribunal referred to the Bombay High Court's decision in the case of Godrej & Boyce Mfg. Co. Ltd. and remanded the matter back to the AO for fresh determination, following the guidelines provided by the High Court.

2. Disallowance of Administrative Expenses under Section 14A:
The AO estimated that Rs. 43,000 of administrative expenses were incurred to earn exempted dividend income and disallowed this amount. The first appellate authority reduced the disallowance to Rs. 21,500. The Tribunal, following the Bombay High Court's decision, remanded the matter back to the AO to decide de-novo as per the guidelines discussed, allowing the ground for statistical purposes.

3. Disallowance of Balance Written Off:
The assessee claimed a deduction of Rs. 71,250 for advances written off, which were related to earlier years. The AO disallowed the claim due to a lack of evidence proving the nature of the advance and efforts for recovery. The first appellate authority upheld this decision. The Tribunal also affirmed the disallowance, noting the absence of convincing material and documentary evidence to support the claim.

4. Disallowance of Staff Welfare Expenses:
The assessee claimed Rs. 35,000 as staff welfare expenses paid to a trade union agency. The AO disallowed the claim due to the absence of documentary evidence. The first appellate authority upheld the disallowance. The Tribunal affirmed the decision, noting that the voucher provided lacked authenticity and supporting evidence, such as a settlement agreement with the workers.

5. Determination of Book Profits under Section 115JB:
The assessee did not reduce the provision for doubtful debts of Rs. 63,63,013 while computing book profits under section 115JB. The AO added this amount back, considering it an unascertained liability. The first appellate authority upheld the AO's decision. The Tribunal noted that the issue was settled in favor of the Revenue due to an amendment in Section 115JB, Explanation-1, which requires adding back provisions for unascertained liabilities. The Tribunal affirmed the view taken by the authorities below, dismissing the ground.

Conclusion:
The appeal of the assessee was partly allowed, with certain matters remanded back to the AO for fresh determination, while other disallowances were affirmed due to lack of evidence or settled law. The order was signed, dated, and pronounced in the Court on 31/12/2010.