2011 (3) TMI 89 - AT - Income Tax

Disallowance u/s 14 A - The Assessing Officer held that in the absence of specific details of expenses incurred to earn such income, the total expenses to be disallowed in the same ratio which profit share in the firm bears to the total receipts from the firm i.e. on account of profit share as also remuneration - Held that - Depreciation is admittedly in the nature of allowance and, therefore, it cannot be subject matter of disallowance under section 14A, which must remain confined to expenditure incurred by the assessee Similarly, as far as deduction under section 80D is concerned, it cannot be subject matter of disallowance under section 14A either - The deduction under section 80D is not admissible because it is an expenditure for the purpose of earning an income but because, by virtue of specific provision under section 80D, payment of premium of health insurance, which is inherently personal expenses of the assessee, is admissible as deduction. This deduction cannot, therefore, be subject matter of disallowance under section 14A. As far as question of payment of Rs 9,000 to Rotary Club is concerned, we find that deduction has been claimed under section 37(1) of the Act and, therefore, one has to proceed on the basis that these expenses are in the nature of business expenditure - disallowance under section 14A is restricted to Rs. 36,348 - In the result, appeal is partly allowed

Summary

Issues:
Disallowance under section 14 A of the Income Tax Act, 1961 for the assessment year 2003-04.

Analysis:
The case involved the disallowance of Rs 1,01,265 under section 14 A of the Income Tax Act, 1961, for the assessment year 2003-04. The appellant, an advocate and solicitor, received remuneration and profit share from a partnership firm. The Assessing Officer disallowed deductions claimed by the appellant under section 14 A, as the profit share received was not exempt from tax, resulting in the disallowance. The appellant contended that profit share from a partnership firm should not be taxed as it would lead to double taxation. The appellant also argued against the disallowance of depreciation and certain other expenses under section 14 A. The Departmental Representative supported the disallowance, emphasizing the need to allocate expenses between different income streams. The Tribunal held that depreciation and certain deductions were not subject to disallowance under section 14 A. However, it allowed a partial disallowance of Rs 36,348 based on a proportionate allocation of expenses. The Tribunal clarified that its decision was based on the specific facts of the case and should not be considered a general precedent.

In conclusion, the Tribunal partly allowed the appeal, restricting the disallowance under section 14 A to Rs 36,348. The decision was rendered based on the peculiar facts of the case and should not be seen as establishing general legal principles. The broader legal issues raised in the case were left open for consideration in future cases.