2015 (11) TMI 189 - HC - Income Tax

Disallowance on account of expenses towards salary and other perquisites of staff - ITAT deleted addition - Held that - This court is prima facie of the opinion that if any staff is deployed at the residence of the Chairman for the purpose of looking after the basic requirements such as, cleaning of the house, attending to official guests, receiving telephones and such other sundry expenses, the same would fall within the description expended wholly for the purpose of business. However, the amount involved being not very significant, such question is left to be examined in proper appeal proceedings. Disallowance made under section 14A on account of interest expenses - ITAT deleted addition - Held that - It is an admitted position between the parties that against the order passed by the Tribunal in relation to assessment year 2003-04, revenue had preferred appeal wherein by an order of even date this court has dismissed the ground of appeal. Under the circumstances, for the reasons stated in the above tax appeal, this appeal is also not entertained qua the said question.

Summary

Issues:
1. Disallowance of expenses towards salary and perquisites of staff at the Chairman's residence
2. Disallowance of interest expenses under section 14A of the Income Tax Act

Issue 1: Disallowance of expenses towards salary and perquisites of staff at the Chairman's residence
The appellant-revenue challenged the ITAT's order regarding the disallowance of expenses of Rs. 4,080 for staff at the Chairman's residence. The CIT (A) had upheld the disallowance, but the Tribunal, based on a previous decision, deleted it. The High Court noted that if staff at the Chairman's residence catered to basic business needs, the expenses could be considered business-related. However, due to the insignificance of the amount, the court deferred a detailed examination to proper appeal proceedings.

Issue 2: Disallowance of interest expenses under section 14A of the Income Tax Act
The assessee earned dividend income and interest on tax-free bonds, leading to a total income of Rs. 1,23,03,310. The Assessing Officer disallowed Rs. 4,42,276 of interest under section 14A using rule 8D(ii) and Rs. 19,01,476 of administrative expenses using rule 8D(iii). The Commissioner (Appeals) upheld the interest disallowance but deleted the administrative expenses disallowance due to their minimal impact on tax-free income realization. The Tribunal, following a previous decision, dismissed the revenue's appeal against the administrative expenses disallowance and the assessee's appeal against the interest disallowance.

The High Court highlighted that a previous appeal on similar grounds had been dismissed, leading to the current appeal's rejection. Ultimately, the court found no substantial legal question in the Tribunal's order, leading to the dismissal of the appeal.