2015 (11) TMI 640 - AT - Income Tax

Disallowance of NSE penalty expenses - CIT(A) deleted the addition - Held that - Payment is towards compensation for delayed submission of compliance report to NSE and that too which is not an offence or towards infraction of law. It view of aforesaid facts, ratio of aforesaid decision relied upon by AO is not applicable to the facts of case of appellant. The case of appellant is squarely covered by decision of Crest Capital Market vs. ITO 2009 (1) TMI 553 - ITAT, MUMBAI and respectfully following said order, addition made by the Assessing Officer is deleted. - Decided in favour of assessee. Disallowance of interest - CIT(A) deleted the addition - Held that - similar disallowance was made in the earlier years. In the AY 2004-05, the matter travelled upto the stage of Tribunal and the Tribunal had deleted the disallowance and the disallowance made in AY 2005-06 was deleted by the predecessor of the ld.CIT(A). - Decided in favour of assessee. Disallowance u/s 14A - CIT(A) restricted part addition - Held that - Since the Rule-8D of I.T.Rules, 1962 is not applicable, therefore in our considered view the AO was not justified in applying the Rule 8D for making disallowance. The ld.CIT(A) has given a finding that the assessee was having substantial funds and lesser borrowed funds. This finding of the ld.CIT(A) is not controverted by the Revenue by placing any contrary material on record, therefore, we do not see any reason to interfere with the finding of the ld.CIT(A), same is hereby upheld. - Decided in favour of assessee. The assessee has made investment and earned exempt income of ₹ 3 lacs. Therefore, we do not see any reason to interfere with the finding of the ld.CIT(A) on this issue because it cannot be assumed that the exempt income has been earned without incurring any administrative expenditure. Thus, ground raised in assessee s cross-objection is partly allowed.

Summary

Issues Involved:
1. Deletion of addition on account of disallowance of NSE penalty expenses.
2. Deletion of addition on account of disallowance of interest.
3. Restriction of addition made under Section 14A of the Income Tax Act.
4. Confirmation of disallowance of excess depreciation on VSAT.
5. Confirmation of disallowance under Section 14A.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of NSE Penalty Expenses:
The Revenue challenged the deletion of the addition of Rs. 2,38,675/- for NSE penalty expenses. The CIT(A) had deleted this addition, reasoning that the penalty paid to NSE for delayed submission of compliance reports does not constitute a violation of law. The Tribunal upheld the CIT(A)'s decision, referencing the case of Goldcrest Capital Markets Ltd. vs. ITO, where similar expenses were allowed. The Tribunal found no reason to interfere with the CIT(A)'s order, thus rejecting the Revenue's appeal on this ground.

2. Deletion of Addition on Account of Disallowance of Interest:
The Revenue contested the deletion of the addition of Rs. 1,82,398/- for disallowed interest. The CIT(A) had deleted this addition, noting that similar disallowances in previous years had been overturned by the Tribunal and CIT(A). The Tribunal upheld the CIT(A)'s decision, finding no new facts or evidence presented by the Revenue to warrant a different conclusion. The appeal on this ground was therefore rejected.

3. Restriction of Addition Made Under Section 14A of the Income Tax Act:
The Revenue argued against the CIT(A)'s decision to restrict the addition under Section 14A from Rs. 44,42,330/- to Rs. 6,00,000/-. The Tribunal noted that Rule 8D, which was applied by the AO, was not applicable for the assessment year 2006-07. The CIT(A) had considered the assessee's substantial own funds and net interest income, ultimately deeming Rs. 4,00,000/- as interest cost and Rs. 2,00,000/- for administrative expenses reasonable. The Tribunal found no reason to interfere with this finding, thus rejecting the Revenue's appeal on this ground.

4. Confirmation of Disallowance of Excess Depreciation on VSAT:
The assessee's cross-objection included a challenge to the CIT(A)'s confirmation of disallowance of excess depreciation on VSAT, which was not pressed by the assessee during the hearing. Consequently, this ground was dismissed as not pressed.

5. Confirmation of Disallowance Under Section 14A:
The assessee also contested the CIT(A)'s decision to uphold a disallowance of Rs. 6,00,000/- under Section 14A. The Tribunal found that the CIT(A)'s apportionment of interest expenses was contrary to judicial pronouncements, and thus directed the AO to delete the disallowance of Rs. 4,00,000/- pertaining to interest cost. However, the Tribunal upheld the disallowance of Rs. 2,00,000/- for administrative expenses, acknowledging that some expenditure is necessary to earn exempt income. This ground of the cross-objection was partly allowed.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, directing the deletion of the interest disallowance while upholding the administrative expense disallowance. The order was pronounced on October 9, 2015, at Ahmedabad.