2018 (6) TMI 1738 - AT - Income Tax

Addition u/s 14A r.w.r. - Non recording of satisfaction by AO - HELD THAT - A.O while dislodging the claim of the assessee that as no part of the expenses debited in the profit and loss account was relatable to earning of the exempt dividend income, thus no disallowance under Sec. 14A was called for in its hands, had failed to record his satisfaction as regards the correctness of such claim, having regard to the accounts of the assessee. Rather, we find that the A.O had dislodged the claim of the assessee that no disallowance under Sec. 14A was liable to be made in its hands by holding a conviction that it was beyond comprehension that no expense incurred by the assessee could be related to earning of exempt dividend income. We are of the considered view that in the backdrop of the judgment in the case of Godrej Boyce Manufacturing Co. Ltd. 2017 (5) TMI 403 - SUPREME COURT it was obligatory on the part of the A.O to have recorded his satisfaction, having regard to the accounts of the assessee, as to why the latter claim that no expenditure was attributable to earning of the exempt dividend income was not to be accepted. - Decided in favour of assessee. Addition on account of difference in the account of M/s Continental Warehousing Corporation (NS) Ltd. - CIT-A deleted the addition - HELD THAT - The difference had arisen on account of non-posting of a TDS entry by the aforementioned party viz. Continental Warehousing Corporation (NS) Ltd, in the account of the assessee as appearing in its books of accounts. We find ourselves to be in agreement with the contention of the ld. A.R that the failure on the part of the aforesaid party to post the TDS entry leading to the impugned variance to the said extent, as against the balance shown by the assessee to be payable to the said party, will not have any bearing on the income of the assessee for the year under consideration - no addition in respect of the impugned variance was called for in the hands of the assessee. Addition on account of Opening balance - difference in the account of the aforementioned party viz. M/s Continental Warehousing Corporation (NS) Ltd - HELD THAT - We are of the considered view that as the difference in the opening balance had emerged on account of transactions pertaining to the preceding year/years, thus the same shall in no way have any bearing on the income of the assessee for the year under consideration. We thus, not finding ourselves to be in agreement with the view taken by the CIT(A), delete the addition.- Decided in favour of assessee. Addition of the administrative expenses - on verification of the bills and vouchers pertaining to the administrative expenses, some bills/vouchers were found to be undated or unsigned and many vouchers were not supported with relevant bills - HELD THAT - We find that though there is a mention by the lower authorities that some bills/vouchers pertaining to the administrative expenses were found to be undated or unsigned and many vouchers were not supported with relevant bills, but surprisingly there is not a mention of a single such bill/voucher which is found to be suffering from any such alleged infirmity. We are of the considered view that in the case before us, as there is no evidence which could support the claim of the A.O that some of the bills/vouchers were found to be undated or unsigned or not backed by relevant bills, it is difficult for us to subscribe to the disallowance made by him in the thin air. We thus, in the backdrop of our aforesaid observations are unable to uphold the adhoc disallowance - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of Income Tax Rules 1962.
2. Addition on account of difference in reconciliation with balance as per the books of account.
3. Disallowance of administrative expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of Income Tax Rules 1962:
The assessee contested the disallowance of ?2,29,151/- for A.Y 2010-11 and ?4,06,350/- for A.Y 2011-12 under Section 14A read with Rule 8D. The Assessing Officer (A.O) disallowed these amounts on the presumption that some part of the expenses debited in the profit and loss account must be related to earning exempt dividend income. However, the Tribunal found that the A.O failed to record the necessary satisfaction regarding the correctness of the assessee's claim, as required by the Supreme Court’s judgment in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC). The A.O did not demonstrate why he was dissatisfied with the assessee’s accounts, which showed no expenses attributable to earning the exempt income. Consequently, the Tribunal set aside the disallowance made by the A.O and sustained by the CIT(A), thereby deleting the disallowance for both assessment years.

2. Addition on account of difference in reconciliation with balance as per the books of account:
For A.Y 2010-11, the A.O made an addition of ?33,956/- due to a discrepancy between the assessee's books and those of Continental Warehousing Corporation (NS) Ltd. The assessee argued that this variance was due to incorrect entries by the other party and non-posting of a TDS entry. The Tribunal agreed with the assessee, noting that the variance would not affect the taxable income. The Tribunal found that the difference of ?32,346/- was due to the non-posting of a TDS entry by the other party and that the opening balance difference of ?1,610/- pertained to previous years and did not impact the current year’s income. Consequently, the Tribunal deleted the entire addition of ?33,956/-.

3. Disallowance of administrative expenses:
For A.Y 2011-12, the A.O disallowed ?50,000/- out of the total administrative expenses of ?3,27,492/-, citing undated or unsigned bills and unsupported vouchers. The Tribunal found that the lower authorities failed to provide specific evidence of such discrepancies. Without concrete evidence, the Tribunal could not uphold the disallowance made by the A.O. Therefore, the Tribunal deleted the disallowance of ?50,000/-.

Conclusion:
The Tribunal allowed the appeals for both A.Y 2010-11 and A.Y 2011-12, setting aside the disallowances and additions made by the A.O and sustained by the CIT(A). The judgments emphasized the necessity of the A.O recording satisfaction with the assessee's accounts before making disallowances under Section 14A and highlighted the importance of concrete evidence when disallowing expenses.