2017 (4) TMI 1407 - AT - Income Tax

Disallowance u/s 14A r/w rule 8D - expenditure incurred for the purpose of earning exempt income - Held that - Tribunal while deciding identical nature of dispute in assessee s own case for assessment year 2009 10, has held that certain expenditure like godown rent, warehousing charges, insurance, foreign travel, trading expenses, business promotion expenses, etc., cannot be considered as expenditure incurred for the purpose of earning exempt income. Under identical facts and circumstances, the Tribunal has found that disallowance of expenditure attributable to earning of exempt income made voluntarily by the assessee under section 14A is reasonable. We have further noted that in the impugned assessment year, the disallowance of expenditure made by the assessee voluntarily under section 14A works out to almost 44% of the total expenditure as compared to 35.10% in assessment year 2009 10. Moreover, the Assessing Officer has not recorded any satisfaction that the disallowance made by the assessee with reference to its books of account is incorrect or unreasonable. Moreover, no distinguishing fact has been brought to our notice by the learned Departmental Representative to deviate from the earlier order. Disallowance under section 14A by the assessee in the computation of income being reasonable should be accepted. Accordingly, the addition is hereby deleted. - Decided in favour of assessee.

Summary

Issues:
Challenging disallowance under section 14A r/w rule 8D for assessment years 2010-11 and 2011-12.

Analysis:
1. For the assessment year 2010-11, the only issue raised by the appellant was the disallowance of ?1,92,00,000 under section 14A r/w rule 8D. The Assessing Officer observed that the appellant had not computed the disallowance properly with reference to section 14A r/w rule 8D. The appellant argued that the disallowance made voluntarily was reasonable and submitted detailed objections. The Tribunal found that the disallowance made by the appellant under section 14A was reasonable, considering various expenditures not attributable to earning exempt income. The addition made by the Assessing Officer was deleted as it was deemed unreasonable.

2. In the appeal for the assessment year 2011-12, grounds were raised against the addition of ?1,92,00,001 on account of disallowance under section 14A r/w rule 8D. The appellant had made a suo-motu disallowance of ?1,42,51,459, which was considered reasonable by the Tribunal. The Tribunal found the disallowance made by the appellant to be actually attributable to earning exempt income and consistent with previous rulings. Therefore, the addition was deleted, and the appeal was allowed. A consequential effect was directed for re-computing the income in line with the Tribunal's findings.

In conclusion, the appeals for both assessment years 2010-11 and 2011-12 were allowed, with the disallowances under section 14A r/w rule 8D being deemed reasonable and deleted.