2014 (4) TMI 1188 - AT - Income Tax

Disallowance u/s 14A - Held That - The disallowance of expenditure is always in relation to the claim of expenditure and it cannot be more than the claim itself. Considering the order of Delhi Benches of the Tribunal in case of Gillette Group India Pvt. Ltd. Vs ACIT, we are of the opinion that the matter should be remanded to the files of the AO to examine the expenses debited to the P&L Account and exclude the unconnected expenses for the purpose of quantifying the disallowance u/s 14A of the Act. AO shall adjudicate the issue afresh in accordance with the set principle of the law after affording a reasonable opportunity of being heard to the assessee. - Decided in favor of assessee.

Summary

Issues Involved:
- Disallowance of Expenses under section 14A of the Income Tax Act

Analysis:
1. The judgment addresses two appeals filed by the assessee against separate orders of the CIT (A)-9, Mumbai for the assessment years 2008-2009 and 2009-2010. The issues raised in both appeals are identical, leading to their clubbing for convenience and combined disposal.

2. The first appeal's ground regarding reopening under section 147 of the Act was dismissed as not pressed. The second ground in the same appeal, similar to the sole ground for the assessment year 2009-2010, pertains to the disallowance of expenses under section 14A of the Act.

3. The primary contention revolves around the disallowance under section 14A. The Tribunal referred to a previous case and a working filed by the counsel, suggesting that the maximum possible disallowance should not exceed specified amounts for the respective assessment years.

4. The Revenue Authorities' orders were considered, along with a detailed discussion on the application of section 14A in light of direct and indirect expenses incurred by the assessee. The Tribunal emphasized the necessity of a direct nexus between expenditure and exempt income to justify disallowance under section 14A.

5. The Tribunal analyzed the details of expenses incurred by the assessee and concluded that the disallowance of indirect expenses under Rule 8D was not justified due to the lack of a direct nexus with exempt income. It highlighted that the disallowance should not exceed the claimed expenditure itself.

6. Considering the principles laid down in a previous case, the Tribunal remanded the matter to the Assessing Officer for a fresh examination of expenses debited to the Profit and Loss Account. The AO was directed to exclude unconnected expenses while quantifying the disallowance under section 14A, ensuring compliance with legal principles and providing a fair opportunity for the assessee to present their case.

7. Ultimately, both appeals of the assessee were allowed for statistical purposes, and the matter was remitted to the AO for fresh adjudication in accordance with the legal principles discussed in the judgment.