2021 (5) TMI 817 - AT - Income Tax

Disallowance u/s 40(a)(ia) - payment of operation and management charges AND reimbursement of expenses - HELD THAT - As decided in own case 2015 (7) TMI 1374 - ITAT AHMEDABAD wherein held that provision of section 40(a)(ia) of the Act are not applicable in the case of the assessee and on the base of the consistency matter was decided in favour of the assessee. Disallowance u/s. 14A r.w.r. 8D - HELD THAT - In this case the assessee is having huge interest free funds for making investments and there being no nexus of the borrowed funds and investments made the disallowance was interest expenses cannot be made. However, assessee had taken alternate plea that the total exempt income earned during the year is only ₹ 3,40,000/- hence disallowance u/s. 14A cannot exceeds this sum. CIT(A) considering the judgment of Jurisdictional High Court in the matter of CIT vs. Corrtech Energy P. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein it is held that disallowance cannot be more then exempt income. Thus, in our considered opinion order of the Ld. CIT(A) does not required any kind of interference at our end. He has passed the detailed and reasoned order therefore this ground of revenue is dismissed. Disallowance of Management Charges u/s 40A(2)(b) - HELD THAT - As decided in own case similar grounds has been raised in assessee's own case in appeal filed by the revenue wherein we have dismissed this ground of appeal. Thus, in parity with the above said order we dismissed this ground of appeal of revenue.

Summary

Issues:
- Disallowance of management charges under section 40A(2)(b) of the IT Act, 1961.
- Disallowance under section 14A r.w.r. 8D of the IT Act, 1961.

Analysis:
1. Issue 1 - Disallowance of Management Charges under Section 40A(2)(b):
- The Revenue challenged the deletion of the addition made on account of disallowance of Management Charges in three appeals pertaining to different assessment years.
- The AO disallowed the payment of ?1,62,00,000 to a Charitable Organization under section 40A(2)(b) as a business expenditure incurred by the assessee.
- The CIT(A) allowed the appeal based on consistency in previous ITAT orders, stating that section 40(a)(ia) was not applicable to the assessee.
- The Tribunal dismissed the Revenue's ground of appeal, following the precedent set by previous ITAT orders, thereby upholding the CIT(A)'s decision.

2. Issue 2 - Disallowance under Section 14A r.w.r. 8D:
- The AO made an addition of ?16,66,022 under section 14A as the assessee earned exempt income but did not disallow any expenditure.
- The CIT(A) referred to a High Court judgment stating that the disallowance cannot exceed the exempt income earned.
- The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground of appeal based on the principle that the disallowance cannot surpass the exempt income earned.

3. Overall Decision:
- The Tribunal dismissed all the appeals filed by the Revenue related to the disallowance of management charges and disallowance under section 14A r.w.r. 8D for various assessment years.
- The Tribunal's decision was based on consistency with previous ITAT orders and legal principles regarding the disallowance of expenses and the relationship between exempt income and disallowance under section 14A.

This detailed analysis of the judgment provides insights into the reasoning behind the decisions made by the Tribunal regarding the disallowance of management charges and disallowance under section 14A r.w.r. 8D of the IT Act, 1961 across multiple assessment years.