2011 (10) TMI 676 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of administrative and other expenses u/s 14A related to exempt dividend income.
2. Restriction of addition related to legal & professional charges and foreign traveling expenses u/s 14A.

Summary:

Issue 1: Disallowance of Administrative and Other Expenses u/s 14A

The Revenue appealed against the CIT(A)'s decision to delete the administrative and other expenses of Rs. 78,52,255/- incurred in relation to earning dividend income exempt u/s 10(23G) and disallowed u/s 14A. The AO noted that the assessee-company, a subsidiary of Power Gen Plc, UK, earned Rs. 137.20 crores as dividend income, which was exempt u/s 10(23G). However, the AO disallowed 1/4th of the common administrative expenses, amounting to Rs. 78,52,255/-, as they were incurred in relation to the exempt income. The CIT(A) held that the main object of the assessee company was the management and generation of electricity, not investment and earning dividend income. The CIT(A) found that the expenses claimed were not related to earning exempt income and restricted the disallowance to Rs. 20,000/-. The Tribunal upheld the CIT(A)'s decision, noting that the dividend was received by a single cheque and the administrative expenses were not incurred during the year under consideration. The Tribunal dismissed the Revenue's ground, stating that the proportionate disallowance as computed by the AO was inappropriate.

Issue 2: Restriction of Addition Related to Legal & Professional Charges and Foreign Traveling Expenses u/s 14A

The Revenue contested the CIT(A)'s decision to restrict the addition to Rs. 20,000/- against Rs. 6,23,000/- made u/s 14A for legal & professional charges and foreign traveling expenses. The Tribunal, considering the smallness of the amount, upheld the CIT(A)'s estimation and dismissed this ground of the Revenue.

Cross Objection by the Assessee:

The assessee filed a cross objection against the CIT(A)'s decision to warrant some disallowance u/s 14A and the quantification of the disallowance at Rs. 20,000/-. Given the smallness of the disallowance, the cross objection was not pressed by the assessee and was dismissed by the Tribunal.

Conclusion:

Both the Revenue's appeal and the assessee's cross objection were dismissed by the Tribunal.