2014 (6) TMI 733 - AT - Income Tax

Disallowance u/s 14A r.w Rule 8D of the Act Held that - CIT(A) rightly held that Rule 8D is not applicable for the AY Relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT - Rule 8D cannot be applied in the year - a reasonable amount of indirect expenditure can be disallowed for earning such exempt income - the dividend on investments by way of cheques is credited directly to its ECS account the disallowance is restricted thus, there is no reason to interfere in the order of the CIT(A) Decided against Revenue. Addition made u/s 41 (1) of the Act Held that - CIT(A) has deleted the addition by taking into consideration the fact that the assessee itself has offered the amount to tax in the AY 2010-11 the assessee maintains account on mercantile basis and can make a provision for an expense in the accounts on an estimate basis, once it is determined that the liability on an expenditure has accrued, even the actual determination of amount is not possible Assessee filed computation of total income and Balance Sheet & P&L a/c together with the schedules along with ledger account of miscellaneous receipt which the account has been credited with and it is clear that the appellant has itself credited the account u/s 41(1), with this liability for A.Y. 2010-11 - the assessee has offered the total income of Rs. 13,50,00,000/- inclusive of Rs. 21,88,827/- under the head miscellaneous income comprising of the same amount which has been added by the AO for the year - there is no revenue effect in respect of the amount, thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
1. Applicability of Rule 8D for disallowance u/s 14A
2. Addition u/s 41(1) of the Income Tax Act

Analysis:

Issue 1: Applicability of Rule 8D for disallowance u/s 14A:
The appeal by the revenue challenged the CIT(A)'s direction to disallow expenses u/s 14A based on the decision of the Bombay High Court regarding Rule 8D. The CIT(A) restricted the disallowance to Rs. 75,000, considering the High Court's ruling. The revenue contended that the decision was not accepted by them, but since it was not reversed or stayed, the ITAT did not interfere with the CIT(A)'s order on this issue. The ITAT upheld the CIT(A)'s decision, citing the lack of a reason to intervene.

Issue 2: Addition u/s 41(1) of the Income Tax Act:
The Assessing Officer disallowed an amount under section 41(1) concerning unproved liabilities shown in the balance sheet. The CIT(A) deleted this addition, noting that the liability had been offered to tax in the subsequent assessment year. The ITAT concurred with the CIT(A)'s reasoning, emphasizing that the liability had been included in the total income for the following year, ensuring no double taxation. As there was no revenue impact for the current year, the ITAT upheld the CIT(A)'s decision, resulting in the dismissal of the revenue's appeal.

In conclusion, the ITAT Mumbai upheld the CIT(A)'s decisions on both issues, leading to the dismissal of the revenue's appeal.