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2013 (5) TMI 580 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Held that - No disallowance under section 14A is called for when the assessee has not incurred and claimed any expenditure for earning the exempt income. It is all the more necessary that AO has to examine the accounts of assessee first and then if he is not satisfied with the correctness of the claim, only he can invoke Rule 8D. No such examination was made or satisfaction was recorded by AO in this case. It was noticed that AO has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under Rule 8D on the presumption that port folio management involves atleast 2% of charges. Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. Assessee itself disallowed the interest which is directly applicable, Dmat charges and administrative exp on estimation. AO has not examined any expenditure claimed in P& L account so as to relate to exempt income, nor gave afinding that assessee claim is not correct for any reason. Rule 8D can not be invoked directly without satisfying about the claims or otherwise. Consequently, the disallowance was not permissible. In favour of assessee. Disallowance u/s 40(a)(ia) - non deduction of TDS on payment in lieu of profession fee - Held that - It is a case of reimbursement of amount paid to Raymond Ltd. who made payment to Mr. Dinesh Kumar, which has no income element in so far as the recipient, i.e. Raymond Ltd. is concerned. TDS provisions can only be invoked if a receipt by the recipient from the payer has an element of generation of income. If the element of income cannot be established, provisions of section 40(a)(ia) cannot be invoked. In favour of assessee. Professional fee paid to Mahajan & Aibara disallowed - Held that - Before the revenue authorities, the assessee did not make any effort to establish the seriousness and genuineness of the project and expense incurred thereon. Merely making a statement that a feasibility report was got prepared for a proposed line of business, which finally was aborted, cannot qualify for the allowance of an expense, because, the first onus is on the assessee to establish the correctness and genuineness of the expense claimed, which the assessee has failed. Against assessee. Charge of interest under section 234C - Held that - Interest though mandatory, can be charged if only there is a shortfall on the installments of payment of advance tax calculated on the basis of tax due on returned income and does not involve the tax due on assessed income. Therefore, set aside the direction of the CIT(A) and modify the same by directing the AO to charge interest under section 234C if at all, on any shortfall in the installments in each of the quarter calculated on the basis of tax due on returned income in accordance with law. In favour of assessee for statistical purpose. Compensation received on amenities - income from other sources v/s income from house property - Held that - Decided in favour of assessee relying on own case & decision of Bhaktawar Constructions Pvt. Ltd. 1985 (10) TMI 55 - BOMBAY High Court directing AO to assess the compensation received as Income from house property . Against revvenue.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Disallowance under Section 40(a)(ia). 3. Professional fee disallowance. 4. Interest charge under Section 234C. 5. Classification of compensation as income from other sources or income from house property. Issue-Wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee received dividend income and interest on mutual funds, claiming them as exempt under sections 10(38) and 10(35). The AO invoked Section 14A and Rule 8D to disallow Rs. 83,58,230, arguing that the administrative expense of Rs. 10,000 was understated. The CIT(A) upheld this disallowance based on the Bombay High Court's decision in Godrej & Boycee Mfg. Co. Ltd vs. DCIT. The Tribunal emphasized that the AO must be satisfied with the correctness of the assessee's claim before applying Rule 8D. The Tribunal noted that the AO did not properly examine the accounts or record dissatisfaction with the claim, thus the disallowance under Rule 8D was not permissible. The appeal on this ground was allowed. 2. Disallowance under Section 40(a)(ia): The AO disallowed Rs. 18,92,784 under Section 40(a)(ia) for non-deduction of TDS on professional fees reimbursed to Raymond Ltd. The Tribunal found that the payments were reimbursements without an income element, and TDS provisions were not applicable. The disallowance was deleted, and the appeal on this ground was allowed. 3. Professional Fee Disallowance: The AO disallowed Rs. 10,71,468 paid to Mahajan & Aibara for a feasibility report on an aborted project, arguing it was not wholly and exclusively for business purposes. The Tribunal upheld the disallowance, stating the assessee failed to establish the genuineness and business connection of the expense. The appeal on this ground was rejected. 4. Interest Charge under Section 234C: The AO charged interest under Section 234C on assessed income, which the CIT(A) upheld. The Tribunal clarified that interest should be charged on returned income, not assessed income, and directed the AO to rework the interest calculation based on returned income. The appeal on this ground was allowed for statistical purposes. 5. Classification of Compensation as Income from Other Sources or Income from House Property: The AO classified compensation for amenities provided as income from other sources, reducing the deduction under Section 24. The CIT(A) and Tribunal found the compensation to be part of the rent, taxable as income from house property, following previous Tribunal decisions in the assessee's favor. The appeal on this ground was dismissed. Conclusion: The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal's order emphasized the necessity of proper examination and recording of satisfaction by the AO before invoking disallowance provisions under Section 14A and Rule 8D.
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