2014 (6) TMI 366 - AT - Income Tax

Deletion disallowance u/s 14A of the Act Held that - The AO had made disallowance u/s. 14A of the Act r. w. Rule 8D(2)(iii) - But, he did not consider the fact that out of the investments made by the assessee most of the investments were of the category that would result in earning income where assessee will have to pay taxes - FAA has given a categorical finding of fact that income arising from the investments was taxable or would be taxable - the provisions of section 14A can be invoked only if an assessee claims expenditure with regard to exempt income - If any assessee pays taxes on particular item of income and claims corresponding expenditure, it cannot be disallowed the order of the FAA is upheld Decided against Revenue. Deletion of disallowance of Group advertisement expenses Held that - In the AY 2006-07, FAA had deleted the addition made by the AO on identical facts and the department had not agitated the matter before the Tribunal - the issue has attained finality as the AO had accepted the decision of the FAA - Till new and distinguishing facts are brought on record, order of the FAA has to be treated as final and conclusive Decided against Revenue. Deletion of disallowance of Mutual Fund expenses Held that - Following ING Investment Management (India) Private Limited Versus The ACIT, Ward 10(1), Mumbai 2014 (6) TMI 353 - ITAT MUMBAI - there is also no dispute on the genuineness of expenditure before the lower authorities the enabling provision for debiting the expenses above 6% limitation provided under SEBI Rules is being considered - the relief granted by CIT(A) does not call for any interference Decided against Revenue. Deletion of disallowance of foreign travel expenses Held that - Following ING Investment Management (India) Private Limited Versus The ACIT, Ward 10(1), Mumbai 2014 (6) TMI 353 - ITAT MUMBAI - the CIT(A) observed that the disallowance made by the AO on account of foreign traveling expenses and expenses incidental to foreign travel are deleted in the facts and circumstances where no specific adverse material is not in possession of the AO Decided against Revenue. Deletion of disallowance of information technologies expenses Held that - Following ING Investment Management (India) Private Limited Versus The ACIT, Ward 10(1), Mumbai 2014 (6) TMI 353 - ITAT MUMBAI - the addition deserves deletion of such expenses in the year also considering the homology of the facts - Regarding other expenses, both the parties agreed that these expenses have to be examined by the AO and after examining the nature of the expenses and the business connectivity - there is no specific discussion appearing in the orders of the lower authorities - the orders of the lower authorities cannot be described as speaking order on each of grounds thus, the AO is directed to allow the claim of assessee after due verification of the genuineness and business nexus and also in accordance with the provisions of section 37 of the Act Decided in favour of Revenue. Expenses incurred of payment of office license fee TDS not deducted Held that - The AO was of the view that the assessee had not been able to prove with any documentary evidences of the working that it was merely reimbursement and that it had paid only the cost incurred by the holding company, that the payment made to OTPL was in the nature of expenses covered by sec. 194C/ 194J of the Act, that the assessee should have deducted tax on sum paid to OTPL towards the license fee - the additional evidence submitted by the assessee has been already admitted - TDS certificate produced by the assessee needs fresh adjudication thus the matter is required to be remitted back to the AO for adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Deletion of addition made by AO under section 14A.
2. Deletion of addition made by AO regarding Group advertisement expenses.
3. Deletion of addition made by AO concerning Mutual Fund expenses.
4. Deletion of addition made by AO regarding foreign travel expenses.
5. Deletion of addition made by AO concerning information technology expenses.
6. Disallowance of reimbursement of office license fees under section 40(a)(i).

Detailed Analysis:

1. Deletion of Addition under Section 14A:
The AO disallowed Rs. 10,17,315 under section 14A, applying Rule 8D, considering investments yielding taxable income. The CIT(A) found that only investments yielding exempt income should be considered, reducing the disallowance to Rs. 235. The Tribunal upheld the CIT(A)'s decision, emphasizing that section 14A applies only to exempt income.

2. Deletion of Addition regarding Group Advertisement Expenses:
The AO disallowed Rs. 3,48,939 for business development expenses claimed by the assessee. The CIT(A) allowed the expenses, noting they were incurred for publicizing the group and deducted TDS. The Tribunal upheld the CIT(A)'s decision, noting the department did not challenge similar past decisions.

3. Deletion of Addition concerning Mutual Fund Expenses:
The AO disallowed Rs. 3,72,75,643 for exceeding SEBI's 6% expense limit. The CIT(A) allowed the expenses, referencing similar past decisions. The Tribunal upheld this, citing its earlier decision that SEBI regulations allow asset management companies to bear such expenses.

4. Deletion of Addition regarding Foreign Travel Expenses:
The AO disallowed Rs. 19,39,698, questioning the business necessity of foreign travel. The CIT(A) allowed the expenses, referencing past decisions. The Tribunal upheld this, noting the department's past acceptance of similar expenses.

5. Deletion of Addition concerning Information Technology Expenses:
The AO disallowed Rs. 1,13,51,364, treating them as capital expenditure. The CIT(A) allowed the expenses, referencing past decisions and noting their revenue nature. The Tribunal remanded the issue to the AO for fresh adjudication, following its earlier decision requiring detailed verification.

6. Disallowance of Reimbursement of Office License Fees under Section 40(a)(i):
The AO disallowed Rs. 26,63,899 for non-deduction of TDS. The CIT(A) partly allowed the appeal, directing verification of TDS deduction. The Tribunal remanded the issue to the AO for fresh adjudication, considering additional evidence.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on most issues, emphasizing adherence to past rulings and SEBI regulations. The information technology expenses and office license fees issues were remanded for fresh adjudication, ensuring detailed verification and consideration of additional evidence. The appeals were allowed for statistical purposes.