2014 (12) TMI 1383 - AT - Income Tax

Denial of TDS credit - HELD THAT - We find that the credit has been allowed by the authorities below, it terms of Section 199 of the Income Tax Act, 1961 (herein after the Act ) and Rule 37BA(3) of the Income Tax Rules, 1962 (herein after the Rules). The assessee declared interest income of ₹ 23,170/- and accordingly corresponding credit of TDS of ₹ 2,327/- has been allowed and excess credit claimed of ₹ 1,909/- has been disallowed, which is also in terms of the reply dated 14.12.2012, furnished by the assessee - Having regard to the above, the claim is bereft of merit and thus rejected. Disallowance of electricity expenses - Addition as personal expenditure - HELD THAT - We find that the disallowance sustained is excessive. The assessee is a bachelor and has claimed as rendering services as an advocate from residence. The ld CIT(A) has accepted said factual aspect. Therefore we restrict the disallowance to 50% of the expenditure incurred and claimed pertaining to electricity expenses of the residence. So, this ground is partly allowed. Addition of client development expenses - HELD THAT - We find no reason to interfere with the disallowance made. No evidence could be led to deny the factual finding, that the expenditure included expenditure on shoes, apparels, purses, toys etc. Thus such expenditure disallowed as personal expenditure is reasonable and is upheld. Disallowance u/s 14A r.w.r.8D - CIT(A) noted that the assessee has earned exempt income as dividend and as long term capital gain, but no expenses has been shown to have been incurred for earning the exempt income - HELD THAT - we find that the assessee had made investments in Mutual Funds, shares of ₹ 85 lakhs approximately, and in respect of which an exempt income in the shape of dividend and long term capital gain has been claimed. No explanation has been furnished to satisfy that no expenditure was incurred to manage the above investment yielding tax free income. The books of account have been examined by the AO, who has held that disallowance under Rule 8D, is warranted - we decline to interfere with the conclusion of the authorities below. Ground raised is rejected.

Summary

Issues:
1. Denial of credits of TDS
2. Disallowance of electricity expenses
3. Disallowance of client development expenses
4. Disallowance under section 14A read with Rule 8D

Issue 1: Denial of credits of TDS
The appellant contested the denial of TDS credits amounting to Rs. 1,909 by the Assessing Officer (AO), which was upheld by the ld CIT(A). The dispute centered on the TDS credit allocation concerning interest income. The authorities relied on Section 199 of the Income Tax Act, 1961, and Rule 37BA(3) of the Income Tax Rules, 1962, to justify the denial. The appellant argued for the allowance of the entire TDS credit, even if the income related to it was not reflected in the relevant assessment year. The Tribunal upheld the lower authorities' decision, emphasizing compliance with the Income Tax Act provisions and dismissed the appeal.

Issue 2: Disallowance of electricity expenses
The appellant's claim of Rs. 52,170 as electricity expenses for the residence was partially disallowed by the ld CIT(A) as personal expenditure. The appellant, an advocate, asserted the residence's professional use for studies and work. The Tribunal acknowledged the factual aspect accepted by the ld CIT(A) and reduced the disallowance to 50% of the claimed electricity expenses, considering the appellant's professional activities conducted from the residence.

Issue 3: Disallowance of client development expenses
The AO and ld CIT(A) disallowed Rs. 1,15,230 out of Rs. 11,52,302 client development expenses, deeming them as personal expenditure. The Tribunal upheld the disallowance, noting the nature of expenses, including purchases like shoes, apparels, and toys, which suggested personal elements. The appellant's failure to segregate personal expenses led to the disallowance, which was deemed reasonable and upheld.

Issue 4: Disallowance under section 14A read with Rule 8D
The ld CIT(A) upheld the disallowance of Rs. 27,703 under section 14A read with Rule 8D, concerning the appellant's exempt income from dividends and long-term capital gains. The appellant's inability to demonstrate expenses related to managing investments yielding tax-free income led to the disallowance. The Tribunal concurred with the lower authorities, emphasizing the necessity of incurring expenses for earning exempt income and upheld the disallowance under Rule 8D.

In conclusion, the Tribunal partially allowed the appeal while upholding the decisions on TDS credits, electricity expenses, client development expenses, and disallowance under section 14A read with Rule 8D. The judgment emphasized adherence to tax laws and the need for proper documentation and justification for expenses claimed.