9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (1) TMI 1412 - AT - Income TaxDisallowance of interest under section 14A of the Act Held that - No strong grounds have been advanced by the departmental authorities to discard the method adopted by the assessee in disallowing the interest under section 14A of the Act - There can be no dispute that since the amount of interest debited to the Profit and Loss Account is on net basis, the disallowance of interest should also be made only with reference to the net interest, as was done by the assessee - it is not proper to take into consideration only the value of investments and assets as on 31.03.2001 since interest is paid on funds utilized during the entire period between 31.03.2000 and 31.03.2001 and the more appropriate method is to average the funds position as on these two dates and apply section 14A with reference to the average value - Rule 8D of the Income Tax Rules does recognize the averaging method. Reference may be made to Sub- Rule (2) of the Rule, which speaks of average value of the investment - the disallowance of the interest as made by the assessee is adequate and appropriate and no further disallowance is called for Decided in favour of Assessee. Disallowance of professional fees Held that - There is also no evidence adduced by the assessee to show what exactly were the services rendered by Ms Naina Lal Kidwai so as to justify the professional fees, as found by the CIT(A) - the burden is on the assessee to reveal what information was given to it by Ms Naina Lal Kidwai, which would facilitate its business operations in India Relying upon Lachminarayan Madan Lal vs. CIT 1972 (9) TMI 4 - SUPREME Court - the mere existence of an agreement between the parties is not conclusive or decisive of the question whether the payment of commission or professional fees is allowable or not and it is for the assessee to prove that the commission or fees was paid for services which were connected to the assessee s business and which were actually rendered - the assessee failed to discharge its burden Decided against Assessee. Deduction u/s 80HHE of the Act - The Assessing Officer has not expressed any opinion on this point because according to his calculation the figure of business profits was negative and, therefore, even at the threshold the assessee s claim could not be entertained - the Assessing Officer ought to have taken only the profits of the back office support services for computing the deduction under section 80HHE of the Act - What would be the export turnover and the total turnover is not the subject matter of the present appeal Decided in favour of Assessee. Whether, while applying sub-section (3) and the formula prescribed therein, the expression profits of the business should mean only the profits of the eligible business or the profits of all the businesses carried on by the assessee Held that - Relying upon Datamatics Ltd. vs. ACIT 2007 (2) TMI 237 - ITAT BOMBAY-H - it is only the profits of the export business that have to be so apportioned and the profits of businesses which did not qualify for the deduction, which were also carried on by the assessee, cannot be held eligible for the deduction - The departmental authorities were not correct in taking the profits of the eligible business - They ought to have taken the figure as contended for by the assessee, which figure represents the profits of the back office support services, which in other words are the profits of the eligible business. Disallowance of expenses stock broking activities Held that - It cannot be said to be capital expenditure because the loss arises in the course of the carrying on of the business - The CIT(A) has also held that there was no agreement between the assessee and the clients that the assessee was responsible for such losses - The assessment of such recoveries under the head Business is under a deeming provision the decision in CIT vs. Rampur Timber & Turnery Co. Ltd. 1971 (11) TMI 38 - ALLAHABAD High Court followed - despite the fact that some recovery of brokerage relating to the discontinued stock broking business is brought to tax under section 41(1)(a) of the Act, the assessee is not entitled to claim any expenditure against the said receipt - There is no evidence of any business considerations involved in the act of the assessee - no expenditure can be claimed against receipts assessed as profits of the business under section 41(1)(a) of the Act Decided against Assessee.
Issues Involved:
1. Disallowance of interest under section 14A of the Income Tax Act. 2. Adhoc disallowance of administrative and other expenses under section 14A. 3. Disallowance of professional fees. 4. Deduction allowable under section 80HHE. 5. Reduction of 90% of various receipts from the figure of profits. 6. Disallowance of expenses relating to stock broking activities. 7. Disallowance of depreciation on the purchase of Figutsu scanner. Issue-wise Detailed Analysis: 1. Disallowance of Interest under Section 14A: The first issue pertains to the disallowance of interest under section 14A for the assessment year 2001-02. The assessee had disallowed interest on a net basis, reducing the interest received from the interest paid. The Assessing Officer objected to this method and recalculated the disallowance based on the total assets as on 31.03.2001, resulting in a higher disallowance. The CIT(A) upheld this method. However, the Tribunal found that the assessee's method of net interest calculation was appropriate, as it considered the funds utilized throughout the year. The Tribunal also noted that Rule 8D of the Income Tax Rules recognized the averaging method. Thus, the Tribunal held that the disallowance made by the assessee was adequate and appropriate, allowing the assessee's ground. 2. Adhoc Disallowance of Administrative and Other Expenses under Section 14A: The second issue relates to an adhoc disallowance of administrative and other expenses amounting to Rs. 2,00,000/- under section 14A for the assessment year 2001-02. This ground was dismissed as not pressed by the assessee. 3. Disallowance of Professional Fees: The third issue involves the disallowance of professional fees paid to Ms. Naina Lal Kidwai amounting to Rs. 34,00,000/-. The Assessing Officer disallowed the fees due to the lack of evidence of services rendered. The CIT(A) upheld this disallowance, noting the absence of evidence despite the agreement between the parties. The Tribunal agreed with the CIT(A), emphasizing that the burden of proof was on the assessee to show that the services were rendered and connected to the business. The Tribunal upheld the disallowance and dismissed the ground. 4. Deduction Allowable under Section 80HHE: The fourth issue concerns the deduction allowable under section 80HHE for the assessment year 2001-02. The assessee argued that only the profits from the back office support services should be considered for the deduction. The Assessing Officer and CIT(A) included the profits of all businesses carried on by the assessee, resulting in a negative figure and no deduction. The Tribunal found that the expression "profits of the business" in sub-section (3) of section 80HHE refers only to the profits of the eligible business (back office support services). The Tribunal allowed the ground, directing the Assessing Officer to consider only the profits of the eligible business for the deduction. 5. Reduction of 90% of Various Receipts from the Figure of Profits: The fifth issue involves the reduction of 90% of various receipts such as commission, brokerage, etc., from the figure of profits. The assessee contended that only the net receipts should be reduced. Since the Tribunal upheld the assessee's claim regarding the profits of the back office support services, these grounds were considered academic and were not decided. 6. Disallowance of Expenses Relating to Stock Broking Activities: The sixth issue relates to the disallowance of expenses related to stock broking activities, including bad debts and Provident Fund payments. The Assessing Officer disallowed these expenses as the stock broking business was discontinued. The CIT(A) upheld this view. The Tribunal agreed, noting that expenses related to a discontinued business cannot be allowed against profits of other businesses unless they constitute a single business. The Tribunal found no evidence of interconnection between the businesses and upheld the disallowance. 7. Disallowance of Depreciation on Purchase of Figutsu Scanner: The seventh issue pertains to the disallowance of depreciation on the purchase of a Figutsu scanner. The evidence for purchase was not furnished before the Assessing Officer but was presented before the CIT(A), who did not admit it. The Tribunal upheld the disallowance due to the lack of evidence. Assessment Year 2004-05: 1. Adhoc Disallowance of Administrative and Other Expenses under Section 14A: The first ground for the assessment year 2004-05, which is against the adhoc disallowance of administrative and other expenses amounting to Rs. 2,98,930/- under section 14A, was dismissed as not pressed. 2. Deduction under Section 80HHE: Ground No: 2 for the assessment year 2004-05 is identical to Ground No: 4 for the assessment year 2001-02. The Tribunal allowed the ground in line with its decision for the earlier year. 3. Reduction of 90% of Various Receipts from the Figure of Profits: Ground Nos: 3.1 and 3.2 for the assessment year 2004-05 are identical to Ground Nos: 5.1 and 5.2 for the assessment year 2001-02. These grounds were considered academic and were rejected. Conclusion: Both appeals filed by the assessee were partly allowed with no order as to costs. The Tribunal pronounced the order in the Open Court on 13th April 2011.
|
