2023 (7) TMI 376 - AT - Income Tax

Disallowance of other expenses u/s 14A r.w.r. 8D - whether assessee has not incurred any expenditure for earning exempt income? - appellant submits that the assessee has offered during assessment proceedings Rs. 45,000 for disallowance but AO has added Rs. 30,63,380 instead of Rs. 45,000 offered meaning by even if such expenses are disallowable than such expenses should not exceed Rs. 45,000. It is 0.5% of the average investment as per Rule 8D is not disallowable. HELD THAT - Tribunal observed that involvement of top executives and use of other business office equipment like compute etc. and office premises in respect of investment activities cannot be ruled out. Therefore, the Tribunal in A.Y. 2013-14 restricted the disallowance under administrative expenditure to the amount of Rs. 4,00,000/-. At the time of hearing it appears that the assessee has made investment of Rs. 102.72 crore and profit for the year was Rs. 28.38 crore. The interest expenditure was Rs. 44.38 lakhs and therefore, in the present case also the calculation of Rs. 4,37,612/- is justifiable under administrative expenditure. Therefore, the appeal of the assessee is partly allowed.

Summary

Issues involved:
The appeal challenges the order of the Ld. Commissioner of Income Tax (Appeals) regarding the disallowance of expenses under Section 14A read with Rule 8D for A.Y. 2014-15.

Details of the Judgment:

1. Background and Assessment:
The assessee, engaged in trading and manufacturing of cosmetic goods, declared a total loss of Rs. 44,92,207. The Assessing Officer disallowed Rs. 30,63,680 under Section 14A r.w.s. 8D and added Rs. 16,252 under Section 2(24)(x) r.w.s. 36(1)(va) of the Act after scrutiny.

2. Appeal before CIT(A):
The assessee appealed the assessment order before the CIT(A), who partly allowed the appeal.

3. Arguments of the Parties:
The Ld. A.R. contended that the disallowance of expenses under Section 14A r.w.r. 8D was unjustified as the assessee had not incurred any expenditure for earning exempt income. The Ld. D.R. argued that the disallowance made by the Assessing Officer was appropriate considering the strategic investment decisions involving substantial amounts.

4. Judgment and Reasoning:
The Tribunal noted that the assessee had earned exempt income of Rs. 88,58,283 but had not made any corresponding disallowance under Section 14A. The Tribunal considered the substantial investments in Mutual Funds and the interest expenditure incurred by the assessee. It observed that the involvement of top executives and use of office resources in investment activities justified a higher disallowance. Referring to a previous case, the Tribunal restricted the disallowance under administrative expenditure to Rs. 4,37,612, partly allowing the appeal.

5. Outcome:
The appeal of the assessee was partly allowed based on the Tribunal's analysis of the investment activities and administrative expenses related to earning exempt income.

This Order was pronounced in Open Court on 05/07/2023.