2019 (2) TMI 1069 - AT - Income Tax

Disallowance u/s 14A - Held that - Disallowance against average investments which have actually yielded exempt income during the impugned AY works out to ₹ 0.84 Lacs which is less than suo-moto disallowance as offered by the assessee. It is further noted that the assessee has debited various expenditure aggregating to ₹ 59.53 Lacs in the profit & loss account. The expenditure under the head commission & depreciation aggregate to ₹ 54.24 Lacs whereas the balance expenditure under other heads aggregate to ₹ 5.29 Lacs. The commission and depreciation have no nexus with earning of exempt income whereas out of balance expenditure of ₹ 5.29 Lacs, the assessee has already offered suo-moto expenditure of ₹ 2.34 Lacs. The same, in our opinion, was more than sufficient to cover up the requisite disallowance. Therefore, on the facts and circumstances of the case, the additional disallowance of ₹ 8.95 Lacs as made by Ld. AO could not be sustained. By deleting the same, we allow the appeal.

Summary

Issues:
Appeal against disallowance u/s 14A for AY 2013-14.

Analysis:
1. The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) regarding the confirmation of disallowance u/s 14A for the AY 2013-14.
2. The assessee, a resident individual and Film Actress, was assessed for the impugned AY with the income determined at &8377; 420.20 Lacs after a disallowance u/s 14A for &8377; 8.95 Lacs. The disallowance pertained to exempt dividend income of &8377; 9,08,198/- against investments of &8377; 16.87 Crores, computed as 0.5% of average investments of &8377; 17.90 Crores.
3. The Ld. CIT(A) upheld the disallowance, noting the churning of funds during the AY and that certain loans/deposits were considered as investments by the Ld. AO. The assessee's plea was rejected due to lack of documentary evidence, leading to the conclusion that the provisions of Section 14A were rightly invoked.
4. The assessee offered a suo-moto disallowance of &8377; 2,34,357/- u/s 14A, which covered the disallowance against expenses debited in the Profit & Loss Account. The actual disallowance against investments yielding exempt income during the AY was &8377; 0.85 Lacs, less than the suo-moto disallowance. The AR argued that the additional disallowance made by the Ld. AO was unjustified, supported by the documents in the paper-book.
5. After considering the submissions and relevant material, it was found that the assessee's suo-moto disallowance and the actual disallowance against investments yielding exempt income were sufficient. The additional disallowance of &8377; 8.95 Lacs made by the Ld. AO was deemed unsustainable. Consequently, the appeal was allowed, and the additional disallowance was deleted.

This detailed analysis of the legal judgment highlights the issues involved, the arguments presented by both parties, and the reasoning behind the final decision made by the Appellate Tribunal.