2017 (2) TMI 1469 - AT - Income Tax

Disallowance of data processing cost u/s.40(a)(i) - CIT(A) deciding the issue in favour of the assessee - HELD THAT - Findings of CIT(A) and relying on the decision of the Tribunal in assessee s own case, we do not find any reason to interfere in the order of CIT(A) for deleting disallowance of data processing cost. Taxability of interest paid to Head Office - HELD THAT - CIT(A) while deciding the issue in favour of the assessee for the year under consideration has relied on the Order passed by the Tribunal in the assessee s own case for the Assessment Year 2003-04. Disallowance u/s.14A for earning exempt income - Contention of assessee that no expenditure has been incurred or claimed by the Indian Branch in respect of interest earned by the Head Office (which is not taxable)HELD THAT - The issue has been decided in assessee s favour by the Mumbai ITAT, in assessee s own case for Assessment Years 2004-05, 2005-06, 2007-08 and 2009-10. The Indian Branch has not received / earned any interest income from its Head Office or other foreign branches and hence there can be no question of the interest expense in question being incurred to earn any exempt income and hence the same cannot be disallowed u/s.14A. The proposition that no disallowance can be made u/s.14A of the Income-tax Act,1961 in case there is no exempt income is now well settled and one can refer to the following cases wherein the said proposition has been upheld in CIT v/s. Delite Enterprises 2009 (2) TMI 498 - BOMBAY HIGH COURT . We restore the matter back to the file of the AO to find out if assessee was in receipt of any exempt income vis- -vis interest paid to head office. If the AO found that assessee was not in receipt of any exempt income, no disallowance is to be made. Accordingly AO is directed to decide afresh after verification.

Summary

Issues involved:
1. Disallowance of data processing cost u/s.40(a)(i)
2. Taxability of interest paid to Head Office
3. Disallowance u/s.14A for earning exempt income

Analysis:

1. Disallowance of data processing cost u/s.40(a)(i):
The Tribunal reviewed the order of the CIT(A) for the A.Y. 2010-11 and 2011-12 regarding the disallowance of data processing cost u/s.40(a)(i). The CIT(A) had deleted the disallowance after considering previous orders in the assessee's favor for earlier years. The Tribunal, in line with the CIT(A) and previous decisions, upheld the deletion of the disallowance of data processing cost.

2. Taxability of interest paid to Head Office:
The issue of taxability of interest paid to the Head Office was examined by the Tribunal. The CIT(A) had decided in favor of the assessee based on previous Tribunal orders for various assessment years. The Tribunal found no fault with the CIT(A)'s decision and upheld it, citing consistency with previous rulings.

3. Disallowance u/s.14A for earning exempt income:
Regarding the disallowance u/s.14A for earning exempt income, the Tribunal considered the arguments presented. It was noted that the issue had been decided in favor of the assessee by the Mumbai ITAT for several assessment years. The Tribunal agreed with the contention that no disallowance can be made u/s.14A if there is no exempt income. However, to ensure justice, the matter was remanded back to the AO to verify if the assessee had received any exempt income related to interest paid to the Head Office. The AO was directed to decide afresh after verification.

In conclusion, the Tribunal dismissed the appeals filed by the Revenue for both A.Y. 2010-11 and 2011-12 based on the findings and decisions discussed above, pronouncing the order on 28/02/2017.