2017 (3) TMI 805 - AT - Income Tax

Allowable business expenditure - temporary lull in the business - Held that - Since the assessee was harping on the point of temporary lull in the business and claiming the said expenses as business expenses even before the Ld. CIT(A), there was no occasion for him to make out his case on this point. He has urged that one more opportunity may, therefore, be given to the assessee to put forth his case by sending the matter back to the Assessing Officer. I find merit in this argument of the Ld. Counsel for the assessee and since the Ld. DR, has not raised any objection in this regard, I set aside this issue to the file of the AO for the limited purpose of giving the assessee an opportunity to support and substantiate its case for deduction of the impugned expenses u/s 57 (iii). FBT expenses assessed - allowance of expenses - Held that - Expenses cannot be allowed as deduction merely on the basis that FBT has been paid by the assessee on the said expenses especially when there is no income earned by the assessee under the head income from business . The entire income having been offered by the assessee company itself, under the head income from other sources , only those expenses which are laid out or expended wholly or exclusively, for the purpose of making or earning of such income are liable to be allowed u/s 57(iii) and not otherwise merely on the basis of payment of FBT Addition u/s 14A r.w. Rule 8D - as per assessee disallowance as worked under Rule 8D, is after taking into consideration the entire investment made by the assessee in shares instead of only that investment which has given rise to the exempt dividend income - Held that - Since this contention of the Ld. Counsel for the assessee is duly supported by the decision of the co-ordinate bench of this Tribunal in REI Agro Ltd. Vs. DCIT Central Circle-XXVII (2013 (9) TMI 156 - ITAT KOLKATA ), restore this issued to the file of the Assessing Officer, for the limited purpose of re-computing the disallowance u/s 14A by applying Rule 8D by excluding the investment on which no exempt income was actually received by the assessee during the year under consideration.

Summary

Issues Involved:
Appeals against orders passed by Ld. CIT(A)-18, Kolkata for AY 2006-07 and Ld. CIT(A)-3, Kolkata for AY 2010-11. Disallowance of expenses claimed by the assessee under Section 57(iii) of the Income Tax Act, 1961. Disallowance of business expenses due to temporary suspension of business activity. Disallowance of expenses claimed as Fringe Benefit Tax (F.B.T.). Disallowance under Section 14A r.w. Rule 8D for AY 2010-11.

Analysis:

Issue 1: Disallowance of Expenses under Section 57(iii) for AY 2006-07
The Assessing Officer disallowed expenses claimed by the assessee under Section 57(iii) as they were not established to be laid out exclusively for earning income under the head "income from other sources." The Ld. CIT(A) upheld the disallowance, noting the absence of business activity in subsequent years. The Tribunal partially allowed the appeal, remanding the issue to the AO for the assessee to substantiate the expenses' deduction under Section 57(iii).

Issue 2: Disallowance of F.B.T. Expenses for AY 2006-07
The Ld. CIT(A) rejected the claim that F.B.T. expenses should be allowed based on F.B.T. payment, stating that payment alone does not legitimize expenses. The Tribunal dismissed the appeal, emphasizing that only expenses wholly and exclusively laid out for earning income are allowable under Section 57(iii).

Issue 3: Disallowance of Expenses for AY 2010-11
Similar to AY 2006-07, the Tribunal remanded the issue of disallowance of expenses to the AO for fresh consideration based on the directions given for AY 2006-07.

Issue 4: Disallowance under Section 14A r.w. Rule 8D for AY 2010-11
The Tribunal directed the AO to re-compute the disallowance under Section 14A by excluding investments not generating exempt income, following a precedent decision. This issue was partly allowed by the Tribunal.

In conclusion, the Tribunal partially allowed the appeals, remanding certain issues back to the Assessing Officer for fresh consideration. The judgments emphasized the requirement for expenses to be wholly and exclusively laid out for earning income to be allowable under the Income Tax Act.