2018 (2) TMI 1818 - AT - Income Tax

Disallowance u/s 14A - no satisfaction was recorded by the AO as to the applicability of the said provisions and even the share capital and reserves of the assessee were more than the investments made - Held that - Where the assessee makes a claim that only a particular amount is to be disallowed u/s 14A or where the assessee does not make a disallowance under section 14A if the AO proposes to invoke the section 14A he is to record a satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It is to be done with regard to accounts of the assessee. In the present case there is no satisfaction by the AO and consequently in view of the decision of the Coordinate Bench of this Tribunal in the case of Balrampur Chini Mills Ltd referred to supra no disallowance under section 14A can be made. Thus the addition made u/s 14A of the Act is deleted. - Decided in favour of assessee. Disallowance being foreign travelling expenses as incurred for business purposes and was allowable deduction - Held that - In the present case Mr. Yash Kajriwal served the assessee company after completing studies abroad as per Agreement with the assessee company. Since the disallowance being expenses for sponsoring higher education of Shri Yash Kajriwal was disallowed only on the basis that he was not an employee the disallowance is directed to be deleted. As far as the remaining sum of 5, 15, 759/- assessee submitted that no details whatsoever were called for and prayed that the issue may be set aside to the AO to enable the assessee to give the required details. Since the assessee was not called upon to explain the details of these expenses by the AO it would be just and proper to set side the order of the CIT(A) as far as the remaining sum 5, 15, 759/- is concerned. We set aside the order of the CIT(A) and remand to the AO for fresh consideration after due opportunity to the assessee the disallowance of foreign travel expenses - Appeal by the assessee is partly allowed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act without satisfaction recorded by the Assessing Officer.
2. Disallowance of foreign traveling expenses incurred for business purposes.

Issue 1: Disallowance under section 14A of the Income Tax Act without satisfaction recorded by the Assessing Officer:

The Assessee appealed against the disallowance of ?62,734 under section 14A without the Assessing Officer (AO) recording satisfaction on the applicability of the provisions. The AO invoked Rule 8D and made a total disallowance of ?72,734, adding ?62,734 to the Assessee's income. The Assessee argued that the AO should reject the quantum of disallowance objectively before applying Rule 8D. The CIT(A) upheld the AO's decision without addressing the Assessee's contentions. However, the Tribunal ruled in favor of the Assessee, emphasizing that the AO must be satisfied with the correctness of the claim before invoking section 14A. As no satisfaction was recorded by the AO, the Tribunal deleted the addition under section 14A, allowing the Assessee's appeal.

Issue 2: Disallowance of foreign traveling expenses incurred for business purposes:

The Assessee claimed a deduction of ?22,01,093 as foreign traveling expenses, including sponsoring a student's management course abroad. The AO disallowed the entire amount, stating the lack of business connection. The CIT(A) upheld the AO's decision based on the absence of service by the student to the company during the relevant year. The Tribunal, however, referred to a Calcutta High Court decision, emphasizing that expenses for education abroad could be considered business expenditure if the individual contributes to the company post-study. Consequently, the disallowance related to sponsoring the student's education was deleted. Regarding the remaining expenses, the Tribunal remanded the issue to the AO for fresh consideration, as the Assessee was not given an opportunity to explain the nature of these expenses. Thus, the Tribunal partly allowed the appeal, directing a reevaluation of the remaining foreign traveling expenses.

In conclusion, the Tribunal ruled in favor of the Assessee on both issues, deleting the disallowance under section 14A and partially allowing the appeal concerning foreign traveling expenses.