2020 (4) TMI 625 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - As brought to our notice that no expenses were incurred by the assessee for earning the exempt income. AO was of the opinion since the assessee had taken certain loans, he made disallowance under Rule 8D of the Rules - loan expenses were for car loan, business etc and not for purchasing the shares or earning of the exempt income - disallowance at the most has to be restricted at 0.5% of the cost of investment. This ground of assessee is partly allowed to that extent. Profit on tea made out of purchased tea leaf - assessee has been consistently computing the respective income of Tea Estates in the state of West Bengal and Assam separately and computed the income of tea estates together practice/methodology of accounting has been consistently followed by the assessee for decades - HELD THAT - AO while giving appeal effect of the ld. CIT(A) s order for AY 2009-10 has accepted the computation of assessee (refer pages-57 of the P/B). Since we note that the assessee has been consistently following the computation of income separately for tea estates in West Bengal and Assam and computing the total income of tea estates together as per the doctrine of consistency the same ought to have been followed without disturbing the same. For that proposition we refer to the Hon ble Supreme Court s decision in RadhasoamiSatsang Vs. CIT 1991 (11) TMI 2 - SUPREME COURT . Therefore, we direct the AO to adopt the pattern of computation as accepted by the department/consistently which was followed by the assessee and allow this ground of appeal.

Summary

Issues:
1. Disallowance under section 14A of the Income-tax Act, 1961
2. Disallowance of foreign travel expenses
3. Computation of profit on tea made out of purchased tea

Analysis:

1. The first issue pertains to the disallowance under section 14A of the Income-tax Act, 1961. The assessee appealed against the addition of ?18,527 disallowed under Rule 8D of the Income-tax Rules. The appellant had exempt income from dividends but had not incurred any expenses for earning this income. The Assessing Officer made disallowance under Rule 8D due to certain loans taken by the assessee, which were not related to the shares or earning of exempt income. The Tribunal held that the disallowance should be restricted to 0.5% of the cost of investment, resulting in a partial allowance of the ground of appeal.

2. The second issue concerns the disallowance of ?2,22,417 on foreign travel expenses. The appellant did not press this ground at the hearing, leading to its dismissal.

3. The third issue involves the computation of profit on tea made out of purchased tea. The appellant contested the AO's computation of profits, arguing that the AO ignored the industry norm followed by the assessee. The appellant had consistently computed profits garden-wise, but the AO computed it based on the total quantity of tea manufactured, leading to discrepancies. The Tribunal noted that the appellant had followed a specific methodology for decades, which was accepted by the department. Referring to the principle of consistency and a Supreme Court decision, the Tribunal directed the AO to adopt the pattern of computation consistently followed by the assessee, thereby allowing this ground of appeal partially.

In conclusion, the Tribunal partially allowed the appeal of the assessee, emphasizing the importance of following consistent practices in income computation and disallowances.