2018 (6) TMI 501 - AT - Income Tax

Disallowance u/s 14A - Held that - There is no dispute with regard to the proposition that if assessee demonstrated that it has more interest free funds than the investment then interest expenditure not to be considered for disallowance. There was incremental decline in the borrowed funds right from 31st March, 2005 up to 31st March, 2011. Thus, figures indicate that the assessee has not used interest bearing funds. Inclusion of disallowance u/s.14A while computing book profit - MAT computation - Held that - Respectfully following the order of the Tribunal in assessment year 2008-09, we allow this ground of appeal and direct the Assessing Officer not to make any disallowance u/s.14A while computing book profit u/s.115JB. Disallowance of foreign travel expenditure to the extent of 75% - Held that - There is no material whatsoever to come to the conclusion that 75% time on this trip was used for personal purposes of the director. . Once the CIT(A) came to the conclusion that the trip was for some business purposes, it was not open to him to deny any part of deduction for these expenses- particularly when there is no material to hold that the visit was for personal purposes. - Assessee appeals allowed.

Summary

Issues Involved:

1. Disallowance under Section 14A of the Income Tax Act, 1962 read with Rule 8D of the Income Tax Rules.
2. Inclusion of disallowance under Section 14A while computing book profit under Section 115JB.
3. Disallowance of foreign travel expenditure.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1962 read with Rule 8D of the Income Tax Rules:

The assessee filed a return declaring nil income and claimed a sum as exempt under Section 10(34) of the Income Tax Act. The assessee disallowed a sum towards administrative expenses under Section 14A. The Assessing Officer (AO) found it difficult to determine the exact expenditure incurred for earning exempt income and used Rule 8D to calculate the disallowance, resulting in an addition.

The CIT(A) did not record any independent findings and confirmed the disallowance partially, directing the AO to exclude certain interest expenditures. The assessee argued that it had more interest-free funds than interest-bearing funds, and thus, no disallowance should be made. The assessee demonstrated that the investments were made out of its own funds, supported by jurisdictional High Court decisions.

The Tribunal noted that the assessee had more interest-free funds than the investment and had demonstrated an incremental decline in borrowed funds. Following previous ITAT and High Court orders, the Tribunal allowed the appeal and deleted the disallowance.

2. Inclusion of disallowance under Section 14A while computing book profit under Section 115JB:

The assessee contended that the disallowance under Section 14A should not be included while computing book profit under Section 115JB. The Tribunal referred to a previous decision where it was held that the provisions of Section 14A read with Rule 8D could not be applied while computing book profit under Section 115JB. The Tribunal upheld the grievance of the assessee and directed the AO not to make any disallowance under Section 14A while computing book profit under Section 115JB.

3. Disallowance of foreign travel expenditure:

The assessee incurred foreign travel expenditure, which the AO disallowed, stating that no tangible evidence was provided to prove the business purpose of the visit. The CIT(A) partially allowed the deduction but disallowed 75% of the expenses, stating that the visit was not fully supported by documentary evidence.

The Tribunal noted that the visit was for some business purposes and that personal benefit to a director does not justify disallowance. The Tribunal found no material to conclude that 75% of the trip was for personal purposes and directed the AO to delete the disallowance.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the disallowances under Section 14A, excluding the disallowance while computing book profit under Section 115JB, and deleting the disallowance of foreign travel expenditure. The order was pronounced in open court on 06/06/2018.