2014 (1) TMI 287 - AT - Income Tax

Disallowance in respect of Training expenses Held that - For the preceding years also, the matter is restored to the AO Thus, for this year also the same is remitted to the AO for fresh adjudication - This will ensure consistency of approach by the Department, as well as enable the assessee to plead its case along the same lines for this year as well. Disallowance u/s 14A of the Act r.w. Rule 8D of Income Tax Rules Held that - The initial onus is on the assessee to exhibit, with reference to its accounts, that it has not incurred any expenditure, as being claimed by it - the volume of borrowed funds is a mere fraction of the assessee s capital - Rule 8D, only seeks estimation of the disallowance in respect of the expenditure incurred, separately qua its various parts, by prescribing a uniform method for the same - until and unless the assessee is able to factually establish that no part of the borrowed funds has been utilized for investment in tax-free securities, disallowance qua the interest expenditure incurred would follow, given the mandate of r. 8D(2)(ii). The services of a portfolio manager would have been availed, while in others the investment may be managed by the assessee s own staff, which may include finance professionals, who would advise it in the matter - The assessee having failed to exhibit its stand of no such expenditure having been incurred, there was no infirmity in the estimation of following the dictate of rule 8D Relying upon CIT vs. Hero Cycles Ltd. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT and CIT v. Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME Court the expenditure incurred may not have any one to one correspondence with the income, so that basing the disallowance of the expenditure with reference to the tax-exempt income is essentially flawed. - The disallowance u/s 14A is qua expenditure, the purpose of incurring which is for earning income, which does no form part of total income, and may not lead to the same (income), or even in a fixed ratio Thus, the order of disallowance u/s 14A upheld the matter restored to the AO for limited purpose of quantifying the correct amount of disallowance under Rule 8D Decided partly in favour of Assessee.

Summary

Issues:
1. Disallowance of training expenses for pursuing a study course.
2. Disallowance under section 14A read with rule 8D.

Issue 1 - Disallowance of Training Expenses:
The appellant contested the disallowance of training expenses amounting to Rs. 10,00,550/- for the director pursuing a study course. The issue was previously unsettled for the preceding year. The Tribunal decided to restore the matter to the Assessing Officer for proper determination of facts, ensuring consistency and allowing the appellant to present its case.

Issue 2 - Disallowance under Section 14A read with Rule 8D:
The second issue involved a disallowance of Rs. 3,16,056/- under section 14A read with rule 8D. The appellant argued against the disallowance, citing the mandatory nature of rule 8D for the current year. The Tribunal emphasized the requirement for the appellant to demonstrate non-incurrence of expenditure under section 14A(2) to avoid disallowance. The Tribunal upheld the disallowance as the appellant failed to prove that borrowed funds were not utilized for tax-free securities investments. The Tribunal clarified the application of rule 8D in estimating disallowances and confirmed the disallowance of indirect expenditure. The Tribunal directed the Assessing Officer to determine the correct disallowance amount under rule 8D.

In conclusion, the Tribunal partly allowed the appellant's appeal for statistical purposes, addressing both issues raised in the appeal.