2016 (3) TMI 1333 - AT - Income Tax

Addition made u/s 14A - assessee has made investment of interest bearing funds in the partnership firm, profit of which was exempt - Held that - As decided in assessee s own case it has to be necessarily held that once the appellant has earned substantial taxable income from investment in partnership firm and the Exempt Income earned being merely 3% of the substantial taxable income earned by the appellant at ₹ 52.84 lacs, the disallowance has to be made in the ratio of Exempt/Taxable income which comes to 1 30.85 and accordingly, disallowance made under rule 8D has to be proportionately reduced to 1,81,050/-. Therefore, the disallowance made at ₹ 57,52,608/- is hereby directed to be reduced to ₹ 1,81,050/- and appellant shall get consequential relief. We uphold the action of the CIT(A) in restricting the addition to the ratio of exempt income to taxable income. - Decided against revenue Addition of office and general expenses - Held that - AO has failed to bring out any instances of missing vouchers and the cash payments made by the assessee. The Ld. DR could not bring anything contrary to the finding of the ld. CIT(A). Hence, we uphold the action of the ld. CIT(A) in restricting the addition to ₹ 50,000/-. - Decided against revenue Addition under the head Repairs and Maintenance - Held that - We found that the reason given by the Assessing Officer for this disallowance was the missing vouchers and bills. The AO has not brought out any instances of any missing supporting vouchers. The Ld. DR could bring anything contrary to the finding of the ld. CIT(A). We uphold the action of the ld. CIT(A) in restricting the addition of ₹ 10,000/-.- Decided against revenue

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance of Office & General Expenses.
3. Disallowance of Repairs and Maintenance Expenses.

Issue-Wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The primary issue pertains to the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, which was reduced by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO initially disallowed Rs. 85,96,306/- by applying Rule 8D, on exempted profit received from a partnership firm where the assessee company is a 10% partner. The CIT(A) restricted this disallowance to Rs. 2,70,548/- by applying the ratio of exempt income to taxable income. This approach was based on the precedent set in the assessee's own case for the Assessment Year (A.Y.) 2009-10, which was upheld by the ITAT and the M.P. High Court. The Tribunal upheld the CIT(A)'s decision, emphasizing that the disallowance should be proportionate to the ratio of exempt income to taxable income, thus reducing the disallowance from Rs. 85,96,306/- to Rs. 2,70,548/-.

2. Disallowance of Office & General Expenses:
The AO disallowed Rs. 2,00,000/- out of Rs. 16,42,333/- claimed under Office & General Expenses on the grounds that some bills and vouchers were missing and some expenses were paid in cash. The CIT(A) reduced this disallowance to Rs. 50,000/-, noting that the AO had not specified which vouchers were missing or which payments were questionable. The Tribunal upheld the CIT(A)'s decision, finding no contrary evidence from the Department to justify a higher disallowance.

3. Disallowance of Repairs and Maintenance Expenses:
The AO disallowed Rs. 50,000/- out of Rs. 9,14,817/- claimed under Repairs and Maintenance Expenses, citing missing bills and vouchers. The CIT(A) reduced this disallowance to Rs. 10,000/-, stating that the AO had not provided specific instances of missing vouchers. The Tribunal agreed with the CIT(A), noting that the Department failed to provide evidence contradicting the CIT(A)'s findings.

Separate Judgments Delivered:
The Tribunal delivered a separate judgment for the appeal related to A.Y. 2011-12 (I.T.A.No. 746/Ind/2014), where similar issues were raised. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance under Section 14A from Rs. 31,98,441/- to Rs. 1,00,663/-, applying the same rationale as in the previous year's case. The cross objections filed by the assessee were dismissed as they became infructuous following the dismissal of the Revenue's appeals.

Conclusion:
In conclusion, the Tribunal upheld the CIT(A)'s decisions to restrict disallowances under Section 14A and for Office & General Expenses and Repairs and Maintenance Expenses, emphasizing the need for proportionate and evidence-based disallowances. Both the Revenue's appeals and the assessee's cross objections were dismissed.