2020 (12) TMI 208 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - As per assessee before making disallowance AO has not recorded any satisfaction - HELD THAT - No merit in the contentions of the assessee. It is evident the assessee suo-motu has not computed any disallowance under section 14A r.w.r 8D though she had earned exempt income during the year. Therefore in absence of any suo-motu disallowance made by the assessee in the return of income the Assessing Officer has rightly proceeded for making disallowance under section 14A. Disallowance made under section 14A r.w.r 8D cannot exceed the exempt income earned during the year - We find substantial force in the contention of the assessee. Undisputedly during the year under consideration the assessee had earned an amount of Rs. 1, 302/- as exempt income whereas the Assessing Officer has disallowed an amount of Rs. 2, 03, 746/-. Now it is fairly well-settled by virtue of ratio laid down in a plethora of judicial precedents that disallowance under section 14A r.w.r 8D cannot exceed the quantum of exempt income earned during the year. We direct the Assessing Officer to restrict the disallowance under section 14A r.w.r 8D to Rs. 1, 302/-. Disallowance being expenses incurred towards salary paid to Peons Sweepers Cleaners etc .- HELD THAT - The payment made to the sweeper and the person supplying water is reasonable hence needs to be allowed. However payment made to the florist at Rs. 3000/-p.m. appears to be on the higher side. In my view payment to the florist can reasonably be estimated at Rs. 2000/- p.m. working out to Rs. 24, 000/- p.a. Therefore the balance amount of Rs. 12, 000/- out of the payment made to the Florist has to be disallowed. Disallowance of conveyance Expenses - As assessee was unable to establish that the entire expenditure was wholly and exclusively incurred for the purpose of business. Alleging involvement of personal factor the Assessing Officer disallowed 25% out of the expenditure claimed - HELD THAT - As could be seen from the submissions made by the assessee before the Departmental Authorities the conveyance expenditure was incurred for travelling in Taxi Auto Bus etc. by the assessee as well as the staff members for official work. It is also evident the disallowance made by the Assessing Officer is only for the reason that a part of the expenditure might have been for personal purpose of the assessee. Though involvement of personal element cannot be completely ruled out however disallowance of 25% for that purpose is certainly on the higher side. Accordingly direct the Assessing Officer to restrict the disallowance to 10% of the expenditure claimed. Hence this ground is partly allowed. Part disallowance of expenditure incurred on entertainment - disputed expenditure was incurred mostly for hotel/restaurant bills - HELD THAT - We agree that some amount of personal element may be involved considering the nature of expenditure however the disallowance at 20% is on the higher side. Accordingly direct the Assessing Officer to restrict the disallowance to 10% of the expenditure claimed. Hence this ground is partly allowed.

Summary

Issues:
1. Disallowance under section 14A r.w.r 8D of the Act.
2. Disallowance of expenses incurred towards salary paid to Peons, Sweepers, Cleaners, etc.
3. Disallowance of conveyance expenses.
4. Part disallowance of expenditure incurred on entertainment.
5. General ground.

Issue 1: Disallowance under section 14A r.w.r 8D of the Act:
The assessee challenged the disallowance of Rs. 2,03,746 made under section 14A r.w.r 8D. The Assessing Officer disallowed the amount towards administrative expenditure under Rule 8D(2)(iii). The ITAT held that the disallowance under section 14A r.w.r 8D cannot exceed the exempt income earned during the year. As the assessee had earned Rs. 1,302 as exempt income, the disallowance was restricted to that amount, directing the Assessing Officer accordingly.

Issue 2: Disallowance of expenses incurred towards salary paid to Peons, Sweepers, Cleaners, etc.:
The Assessing Officer disallowed Rs. 4,20,000 towards salary paid to Peons, Sweepers, and Cleaners due to undated and unsigned vouchers. The ITAT found that the salary paid to office Peons should be allowed as the assessee operated a placement agency and required office staff. It allowed the payments made to the sweeper and the person supplying water but disallowed a portion of the payment made to the florist as excessive.

Issue 3: Disallowance of conveyance expenses:
The Assessing Officer disallowed Rs. 49,057 out of Rs. 1,96,229 claimed as conveyance expenses, suspecting personal elements in the expenditure. The ITAT held that while personal factors might be involved, a 25% disallowance was excessive. It directed the disallowance to be restricted to 10% of the expenditure claimed.

Issue 4: Part disallowance of expenditure incurred on entertainment:
The Assessing Officer disallowed Rs. 15,674 out of Rs. 78,370 claimed as entertainment expenses, suspecting personal use. The ITAT found the 20% disallowance excessive and directed it to be restricted to 10% of the expenditure claimed, considering the nature of the expenditure.

Issue 5: General ground:
The general ground was dismissed, and the appeal was partly allowed based on the decisions on the specific issues raised by the assessee. The ITAT pronounced the order on 13th October 2020 under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.

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