2017 (6) TMI 281 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - computation of claim - Held that - Perusal of the profit and loss account would show that the assessee has incurred expenditure towards salaries to the tune of ₹ 84,000/- only. Administrative expenses incurred by the assessee consisted of, inter alia, freight forwarding expenses of ₹ 1.60 lakhs and loss on investment of ₹ 1.90 lakhs. If we exclude both these items, total expenses incurred by the assessee on account of salaries and administrative expenses worked out to around ₹ 96,000/- only. Sales turnover reported by the assessee was ₹ 2.57 crores and hence the above said expenditure of ₹ 96,000/- might relate entirely to business activities. Under these set of facts, we are of the view that there is no requirement for making any disallowance u/s. 14A of the Act and hence we agree with the view taken by the learned CIT(A) on this issue. Accordingly, we uphold his order. - Decided against revenue

Summary

Issues:
Appeal against deletion of addition made under section 14A of the Act for Assessment Year 2011-12.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 14A
The Revenue filed an appeal against the decision of the CIT(A) to delete the addition made under section 14A of the Act. The assessee held long-term investments of significant amounts and did not make any disallowance under section 14A. The Assessing Officer computed the disallowance under rule 8D(2)(iii) at 0.5% of the average value of investments. The assessee contended that it did not incur any expenditure for the investment activity. The CIT(A) accepted the assessee's explanation, considering the strategic nature of investments in a group company and directed the deletion of the disallowance. The Revenue challenged this decision.

Issue 2: Arguments Before ITAT
The Departmental Representative supported the Assessing Officer's order, while the assessee's representative cited a decision by the Delhi High Court to argue that since no dividend income was earned, there was no requirement for any disallowance under section 14A. The ITAT examined the nature of the investments, distinguishing between quoted and unquoted investments, with a significant portion in a group company. The assessee's expenditure on salaries and administrative expenses was minimal, and the turnover indicated that these expenses were related to business activities. Consequently, the ITAT concurred with the CIT(A) and upheld the decision to delete the addition under section 14A.

Conclusion:
The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the addition made under section 14A of the Act for the Assessment Year 2011-12. The decision was based on the strategic nature of investments, lack of dividend income, and minimal business-related expenses incurred by the assessee. The judgment was pronounced on 10.4.2017.