2015 (10) TMI 2237 - AT - Income Tax

Disallowance of General Expenses - CIT(A) restricted disallowance to 10% - Held that - The revenue has accepted the restriction of disallowance at 10% and no further appeal was preferred for both the years i.e. AY 2002-03 and 2003-04 against the order of CIT(A) of the assessment order. In view of the above, we are of the view that the AO has not given any reasoning for making specific disallowance of expenses and even genuineness of expenditure is not in doubt. Accordingly, we confirm the order of CIT(A) restricting the disallowance at 10%. Disallowance of club expenses - CIT(A) deleted the addition - Held that - The club expenses are to be allowed because it is not admission fee of club but these expenses are in the nature of business and not personal in nature. Accordingly, we confirm the order of CIT(A) and this issue of revenue s appeals are dismissed. Disallowance of interest on fixed deposit - CIT(A) deleted the addition - Held that - AO has not made addition of notional interest but this interest has accrued to the assessee on fixed deposit of ₹ 30 lakhs made with SBI. The assessee neither credited any interest income to the P&L Account nor disclosed in the return of income. This fact when confronted to Ld. Counsel for the assessee, he fairly conceded that this addition can be confirmed. Accordingly, we are of the view that the addition on account of interest income accrued on fixed deposit of ₹ 30 lacs is to be sustained. Accordingly, we confirm the addition and reverse the order of CIT(A) on this count. - Decided against revenue. Addition on interest from loan - CIT(A) deleted the addition - Held that - No notional interest can be added unless and until there is positive proof that the assessee has actually charged interest or credited interest. We find that this is purely a notional interest and assessee specifically contended that this is interest free loan. The assessee since FY 2002-03 no interest has been charged and revenue has not made any addition qua this earlier years also. In view of the above facts, we confirm the order of CIT(A) in deleting the addition and this issue of revenue s appeal is dismissed. - Decided against revenue. Addition made under the head loss on account of share trading - CIT(A) deleted the addition - Held that - Purchase and sale bills of shares wherein complete details are enclosed in the paper book. In view of the above details available in the assessment record and the fact that the assessee has entered into transactions by virtue of which incurred loss in share trading business is proved. Moreover, the AO has not carried out any verification despite the fact that he was having complete information before him. The addition made by AO is totally on the basis of conjecture and surmises. The assessee has filed complete details which was considered by CIT(A). In view of the above, we are of the view that the CIT(A) has rightly allowed the claim of loss and we confirm the same - Decided against revenue. Addition made under the head speculation loss - CIT(A) deleted the addition - Held that - both the representatives of revenue and assessee conceded that the issue is identical and the facts are common to the ground of appeal for AY 2005-06. Since we confirmed the action of CIT(A) and dismissed the ground of appeal of revenue for AY 2005-06, and since the issue is identical and facts are common to the ground of appeal of revenue for AY 2006-07, following the same, we also dismiss this ground of appeal of revenue.- Decided against revenue. Addition under the head legal expenses - CIT(A) deleted the addition - Held that - We find that these legal expenses comprised of audit fee paid to M/s. G. L. Jhunjhunwala & Co., Chartered Accountants and arbitration fee paid to one Shri Chittatosh Mukherjee. These expenses like audit fee and arbitration fee are allowable as business expenditure. The revenue in earlier years had not made any disallowance on this aspect and accepted the claim of legal expenses. Even for the sake of consistency also, these expenses should have been allowed - Decided against revenue. Disallowance u/s. 14A of the Act read with Rule 8D - Held that - We find that the dividend income earned by the assessee is to the extent of ₹ 17,40,745/-. The AO is unable to prove any nexus with the disallowance of expenditure and that of the earning of exempt income. However, the relevant assessment year involved is 2005-06 and Rule 8D of the I. T. Rules will not apply to this assessment year as held by Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT ), the provision being prospective and not retrospective. In term of the above, we are of the view that the Tribunal is taking a consistent view and restricted the disallowance at 1% of the exempt income. Hence, we also direct the AO to make disallowance to the extent of 1% of the dividend income. The AO is directed accordingly. Both the ground of appeal of revenue and that of the assessee are partly allowed as indicated above. Addition under the head repair charges - CIT(A) deleted the addition - Held that - We find that the assessee before the AO has filed complete details in respect to repair expenses and this is verified by the CIT(A) as observed by him in his order. Even otherwise, the assessee now before us contended that in AY 2006-07 the repair expenses were allowed by the AO in full while framing assessment u/s. 143(3) of the Act dated 24.12.2008. We find no infirmity in the order of CIT(A) and hence, this issue of revenue s appeal is dismissed. - Decided against revenue. Addition in the head of Corporation Tax - CIT(A) deleted the addition - Held that - All the letters regarding payment of corporation tax was filed before AO vide letter dated 19.02.2007. The same letter was filed before Tribunal also wherein complete details of Corporation Tax paid is enclosed at annexure-7. The relevant details are given at page 35 of assessee s paper book, which clearly proves that the assessee has paid the Corporation tax and it is the responsibility of the owner only to pay the Corporation tax and not the tenant. Accordingly, we confirm the order of CIT(A) - Decided against revenue. Disallowance of motor car expenses - CIT(A) deleted the addition - Held that - The assessee in its paper book has filed complete details of motor car expenses as annexure-8 of the same and also depreciation chart on which depreciation is claimed to have been made. The assessee has disclosed receipt of motor car hire charges on which depreciation is claimed. In view of these facts, we confirm the order of CIT(A) and this issue of revenue s appeal is dismissed. - Decided against revenue. Disallowance of telephone expenses - CIT(A) restricted disallowance to 10% - Held that - We find that the AO made the disallowance on account of personal use of telephones. The assessee contended that the expenses are genuine and incurred for business purposes. The CIT(A) restricted the disallowance to 10% instead of 25% as made by AO by observing that personal use of telephone cannot be ruled out and the disallowance as made by AO is on higher side. We find no infirmity in the order of CIT(A) in restricting the disallowance to 10% as the disallowance made by AO is on higher side and hence, the same is hereby upheld. - Decided against assessee. Addition of bad debts written off - CIT(A) deleted the addition - Held that - As the issue is settled by Hon ble Supreme Court in the case of TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT -) and going through the facts and circumstances of the present case as narrated above, we are of the view that there is no reason for us to interfere in the order of CIT(A). We dismiss this ground of appeal of revenue. - Decided against revenue.

Issues Involved:
1. Disallowance of General Expenses
2. Disallowance of Club Expenses
3. Addition of Interest on Fixed Deposits
4. Addition of Interest from Loan
5. Disallowance of Loss on Account of Share Trading
6. Disallowance of Speculation Loss
7. Disallowance of Legal Expenses
8. Disallowance under Section 14A
9. Disallowance of Repair Charges
10. Disallowance of Corporation Tax
11. Disallowance of Motor Car Expenses and Depreciation
12. Disallowance of Telephone Expenses
13. Disallowance of Bad Debts Written Off

Detailed Analysis:

1. Disallowance of General Expenses:
The revenue challenged the CIT(A)'s decision to restrict the disallowance of general expenses to 10% instead of the full amount disallowed by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide specific reasoning for the disallowance and the genuineness of the expenses was not in doubt. Both the revenue's appeal and the assessee's cross-objection were dismissed.

2. Disallowance of Club Expenses:
The AO disallowed club expenses considering them personal in nature. The CIT(A) deleted this disallowance, noting that the expenses were for business entertainment and not personal. The Tribunal confirmed the CIT(A)'s decision, citing the Delhi High Court's ruling in CIT Vs. Nestle India Ltd. that such expenses are allowable if incurred for business purposes.

3. Addition of Interest on Fixed Deposits:
The AO added notional interest on a fixed deposit, which the CIT(A) deleted, stating the deposit was made as a lien and no interest was received. The Tribunal reversed the CIT(A)'s decision, as the interest had accrued and should be added to the income. The revenue's appeal on this issue was allowed.

4. Addition of Interest from Loan:
The AO added notional interest on a loan given by the assessee, which the CIT(A) deleted, noting that it was an interest-free loan and no interest had been received. The Tribunal upheld the CIT(A)'s decision, emphasizing that notional interest cannot be added without proof of actual interest charged or received.

5. Disallowance of Loss on Account of Share Trading:
The AO disallowed the share trading loss due to lack of verification of transactions. The CIT(A) deleted the disallowance, noting that the assessee provided all necessary details. The Tribunal confirmed the CIT(A)'s decision, stating that the AO's disallowance was based on conjecture without proper verification.

6. Disallowance of Speculation Loss:
For AY 2006-07, the issue was identical to the share trading loss for AY 2005-06. The Tribunal dismissed the revenue's appeal, following its earlier decision to uphold the CIT(A)'s deletion of the disallowance.

7. Disallowance of Legal Expenses:
The AO disallowed legal expenses, considering them capital in nature. The CIT(A) allowed the expenses, noting they were for business purposes. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenses were for audit fees and arbitration, which are business-related.

8. Disallowance under Section 14A:
The AO made disallowances under Section 14A related to exempt dividend income. The CIT(A) directed the AO to apply Rule 8D, which the Tribunal modified, stating Rule 8D was not applicable for AYs 2005-06 and 2006-07. The Tribunal restricted the disallowance to 1% of the exempt income for both years.

9. Disallowance of Repair Charges:
The AO disallowed repair charges, questioning their necessity. The CIT(A) allowed the expenses, noting they were for general repairs of business premises. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the expenses.

10. Disallowance of Corporation Tax:
The AO disallowed corporation tax payments due to lack of evidence. The CIT(A) allowed the expenses, noting that the assessee provided necessary details. The Tribunal confirmed the CIT(A)'s decision, as the payments were substantiated.

11. Disallowance of Motor Car Expenses and Depreciation:
The AO disallowed motor car expenses and depreciation due to lack of details. The CIT(A) allowed the expenses, verifying the details provided. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were genuine and related to business.

12. Disallowance of Telephone Expenses:
The AO disallowed a portion of telephone expenses for personal use. The CIT(A) reduced the disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, finding the original disallowance excessive.

13. Disallowance of Bad Debts Written Off:
The AO disallowed bad debts due to lack of evidence of income in earlier years or recovery efforts. The CIT(A) allowed the deduction, noting the debts were written off in the books. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in TRF Ltd. Vs. CIT that actual write-off is sufficient for deduction.

Conclusion:
The Tribunal's decisions were a mix of upholding the CIT(A)'s deletions of disallowances and modifying the AO's disallowances based on the evidence and legal precedents. Both revenue and assessee's appeals were partly allowed, with specific directions for disallowances and additions.

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