2014 (4) TMI 311 - AT - Income Tax

Disallowance of weight shortage expenses Evidences and debit notes not considered Held that - The AO as well as the CIT(A) has disallowed the expenditure on the basis that in earlier year the assessee has not claimed such kind of expenditure - since the assessee has placed on record the debit notes raised by various parties to whom the material was supplied, therefore the authorities were not justified in disallowing the expenses claimed by the assessee thus, the AO is directed to delete the addition Decided in favour of Assessee. Disallowance of expenses on adhoc basis Invocation of section 14A of the Act Held that - The decision in Godrej & Boyce Mfg.Co.Ltd. vs. Dy.CIT 2010 (8) TMI 77 - BOMBAY HIGH COURT followed - proportionate disallowance u/s. 14A should be limited to only interest liability and not overhead or administrative expenditure, which should be considered for disallowance under Rule 8D of the I.T. Rule, 1962 from 2007-08 the AO is directed to delete the addition Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of weight shortage expenses
2. Disallowance of expenses under section 14A
3. Levy of interest under various sections
4. Initiation of penalty proceedings under section 271(1)(c)

Analysis:

Issue 1: Disallowance of Weight Shortage Expenses
The appellant challenged the disallowance of Rs.5,38,121 as weight shortage expenses. The appellant argued that the expenses were genuine and supported by evidence such as correspondences and debit notes. The authorities contended that the appellant had not claimed such expenses in previous years and lacked evidence of weight loss. The Tribunal found in favor of the appellant, noting the evidence provided, directing the AO to delete the disallowance.

Issue 2: Disallowance of Expenses under Section 14A
The appellant contested the disallowance of Rs.48,748 under section 14A, arguing that Rule 8D was not applicable for the year in question. Citing relevant case law, the appellant asserted that the investment was not made from interest-bearing funds. The Tribunal referred to a previous decision and the Bombay High Court judgment, directing the AO to delete the addition, thereby allowing the appellant's appeal on this ground.

Issue 3: Levy of Interest
The issue of interest under sections 234A, 234B, 234C, and 234D was raised as unjustified. However, the Tribunal deemed it consequential and did not find merit in the appellant's argument against the levy of interest.

Issue 4: Initiation of Penalty Proceedings
The appellant challenged the initiation of penalty proceedings under section 271(1)(c) as premature. The Tribunal rejected this ground, stating that the penalty proceedings were not premature.

In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the deletion of certain disallowances and rejecting the challenge against the levy of interest and initiation of penalty proceedings.