9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (1) TMI 964 - AT - Income TaxDisallowance u/s. 14A read with Rule 8D - CIT(A) deleted the disallowance in part - whether addition of ₹ 50,000/- sustained by CIT(A) is very excessive? - Held that - Considering Audited Balance Sheet and P&L A/c for the year ended 31.3.2009 it is seen that no fresh investments during the year under consideration were made and source of such earlier year s investment are out of interest free funds in the form of share capital and interest free loans as taken; no dividend income / tax free income was earned; entire expenditure as incurred under various heads was relatable to income from training services, which stands taxed. CIT(A) was right to some extent in deleting the disallowance of ₹ 17,27,733/-, but on the other hand we find no basis on which he has sustain the adhoc disallowance of ₹ 50,000/- as there was no basis for the Ld. CIT(A) to sustain ad-hoc disallowance of ₹ 50,000/- by holding that the only expenses which can be attributed to exempt income likely to be earned in future are the auditor s remuneration and legal & professional charges . The auditor s remuneration and legal & professional charges incurred for maintenance of statutory books and its audit etc. were required to be incurred irrespective of whether the Company had any income or not and hence, there was absolutely no basis for considering a part of such expenditure towards earning of exempt income. Decided in fvaour of assessee.
Issues Involved:
1. Deletion of disallowance under Section 14A of the I.T. Act, 1961 read with Rule 8D of the I.T. Rules, 1962. 2. Justification for sustaining an ad-hoc disallowance under Section 14A. Detailed Analysis: Issue 1: Deletion of Disallowance under Section 14A of the I.T. Act, 1961 read with Rule 8D of the I.T. Rules, 1962 The Revenue contested the deletion of a disallowance amounting to Rs. 17,27,733/- made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The AO had disallowed this amount based on the presumption that the assessee had incurred expenses on management and board meetings attributable to exempt income. The assessee argued that no fresh investments were made during the year, and no dividend income or tax-free income was earned. The entire expenditure was related to taxable income from training services. The AO's disallowance was based on 0.5% of the investments in subsidiary companies, which the assessee claimed were made out of interest-free funds. The CIT(A) reduced the disallowance to Rs. 50,000/-, stating that only auditor's remuneration and legal & professional charges could be attributed to potential future exempt income. The assessee provided several case laws to support their argument, including: - Maxopp Investment Ltd. vs. CIT (347 ITR 272) where it was held that no disallowance under Section 14A is permissible if no expenditure is incurred to earn dividend income. - CIT vs. Hero Cycles (323 ITR 518) which emphasized that disallowance under Section 14A requires a clear finding of incurring expenditure. - CIT vs. Winsome Textile Industries Ltd. (319 ITR 204) which held that in the absence of any claim for exemption, Section 14A could not be applied. The Tribunal found that the CIT(A) was justified in deleting the disallowance of Rs. 17,27,733/- as the assessee had not incurred any expenditure to earn exempt income. The Tribunal also noted that the CIT(A)'s decision was consistent with several judicial precedents, including the jurisdictional Delhi High Court judgment in Commissioner of Income Tax-IV vs. Holcim India P. Ltd. (ITA No. 486/2014 & ITA No. 299/2014), which held that Section 14A cannot be invoked when no exempt income is earned. Issue 2: Justification for Sustaining an Ad-hoc Disallowance under Section 14A The assessee also contested the CIT(A)'s decision to sustain an ad-hoc disallowance of Rs. 50,000/-. The CIT(A) had reasoned that auditor's remuneration and legal & professional charges could be attributed to potential future exempt income. However, the assessee argued that these expenses were necessary for maintaining statutory books and audits, irrespective of whether the company earned any income. The Tribunal found merit in the assessee's argument and cited the Gujarat High Court judgment in CIT vs. Suzion Energy Ltd. (354 ITR 630), which confirmed the deletion of disallowance under Section 14A for administrative expenses like staff salary, audit fees, and building rent. The Tribunal concluded that there was no basis for the CIT(A) to sustain the ad-hoc disallowance of Rs. 50,000/-. It emphasized that the auditor's remuneration and legal & professional charges were required for statutory compliance and could not be attributed to earning exempt income. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection. It held that the CIT(A) was correct in deleting the disallowance of Rs. 17,27,733/- and found no justification for the ad-hoc disallowance of Rs. 50,000/-. The decision was based on consistent judicial precedents and the factual matrix presented by the assessee. The order was pronounced on 19-1-2015.
|
