2011 (5) TMI 1118 - AT - Income Tax

Summary

Issues involved: Disallowance of various expenses including telephone, miscellaneous, conveyance, motor car, depreciation on motor car, and traveling expenses for assessment years 2004-05, 2005-06, and 2006-07; Disallowance of interest on bank overdrafts u/s 14A of the Act.

Disallowed Expenses (Telephone, Miscellaneous, Conveyance, Motor Car, Depreciation, Traveling Expenses)

The appeals were against the CIT(A)'s orders disallowing various expenses for the assessee firm, an authorized dealer of Telco Vehicles/Spare Parts/Lubricants/Repairs & Services. The AO disallowed expenses like telephone, miscellaneous, conveyance, motor car, depreciation on motor car, and traveling expenses during scrutiny proceedings. The CIT(A) partially allowed some expenses but confirmed disallowances on others. The ITAT referred to a previous year's decision where similar disallowances were deleted due to lack of concrete evidence and upheld the assessee's appeal, deleting the disallowances for the current years as well.

Interest Disallowance on Bank Overdrafts u/s 14A

The AO disallowed interest expenses claimed by the assessee, as the investments were treated as capital assets generating exempt income. The CIT(A) upheld the disallowance but directed the AO to calculate the disallowance u/s 14A r.w. rule 8D. The ITAT referred to a High Court judgment stating that the AO must determine expenses related to income not forming part of total income. The matter was remitted back to the AO for fresh consideration in line with the High Court's ruling. Consequently, the appeals for AY 2004-05 and 2005-06 were allowed, and the appeal for AY 2006-07 was treated as allowed for statistical purposes.