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2012 (8) TMI 480 - AT - Income TaxDisallowance of an expenditure incurred on interiors and furnishings - Held that - The AO is carried away by the size of the expenditure claimed, and not examined the capital or revenue nature of the each of the item of expenditure. This approach of the Revenue authorities is not correct and cannot be approved - it cannot be adjudicate the ground meaningfully without having facts as to description, use, function of each of the items, which is under dispute - restore the matter to the file of the AO with a direction to examine the nature of the item-wise expenditure claimed by the assessee. Non deduction of tax u/s 194C - Disallowance of expenditure in terms of S.40 (a) (ia) - Held that - The word payable used in section 40 (a) (ia) has to be given its natural meaning & is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at Source - no dispute the payments in question were made by the assessee during the year under consideration - in favour of assessee. Direction to apply Rule 8D - Held that - As the provisions of Rule 8D should be made applicable even to the assessment years prior to the amendment to the said rule no mistake in the direction of the CIT(A) to AO to apply the Rule 8D for determination of disallowable expenditure attributable for earning of exempt income on a reasonable basis mentioning the express reasons - against assessee.
Issues:
1. Disallowance of expenditure on interiors and furnishings treated as capital nature. 2. Disallowance of expenditure under Section 40(a)(ia) for non-deduction of tax. 3. Application of Rule 8D for disallowance of expenditure under Section 14A. Issue 1: Disallowance of expenditure on interiors and furnishings treated as capital nature: The assessee appealed against the disallowance of Rs.10,41,523 incurred on interiors and furnishings, treated as capital expenditure. The CIT(A) upheld the assessing officer's decision. The counsel argued that the expenditure was for business purposes and did not create a capital asset. The Tribunal found that while some items may be capital in nature, others could be revenue. The assessing officer did not analyze each item's nature, leading to an incorrect decision. The Tribunal directed a reexamination of the expenditure to determine the nature of each item, allowing the assessee's grounds for statistical purposes. Issue 2: Disallowance of expenditure under Section 40(a)(ia) for non-deduction of tax: The dispute involved the disallowance of Rs.27,46,319 under Section 40(a)(ia) for not deducting tax under Section 194C. The Special Bench decision favored the assessee, stating that the provision applies only to payable amounts as of March 31 and not to already paid amounts during the year. As the payments were made during the year without dispute, the Tribunal deleted the disallowance, allowing the assessee's grounds on this issue. Issue 3: Application of Rule 8D for disallowance of expenditure under Section 14A: The CIT(A) directed the assessing officer to apply Rule 8D for expenditure related to earning dividends under Section 14A, despite no claim of expenditure on exempted income. The assessee relied on a Special Bench decision opposing this direction. However, the Tribunal noted a Bombay High Court judgment supporting the application of Rule 8D even for prior assessment years. As per the High Court's ruling, the assessing officer should use Rule 8D to determine disallowable expenditure for earning exempt income, providing explicit reasons. The Tribunal dismissed the assessee's grounds on this issue. In conclusion, the Tribunal partially allowed the assessee's appeal for statistical purposes, addressing the issues of expenditure disallowance on interiors, non-deduction of tax, and the application of Rule 8D for expenditure under Section 14A.
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