2016 (2) TMI 422 - AT - Income Tax

Disallowance u/s. 14A read with Rule 8D - Held that - It is undisputed fact that the assessee has reserved and surplus share capital to the extent of ₹ 5888.76 lacs. The assessee has mixed fund, the presumption for interest free fund is also applicable in the case of assessee but following the various decisions on this issue, Section 14A read with Rule 8D becomes redundant. It is also a fact that the management as well as staff and other office facilities available with the assessee are used for making investment in shares, therefore, it cannot be ruled out that no income can be generated without any expenditure. The quantum may be variance and depend on investment made by the assessee. Therefore, we , in the interest of justice, uphold the disallowance U/s 14A at ₹ 5 lacs against the disallowance confirmed by the ld CIT(A) at ₹ 23,84,269/- - Decided partly in favour of assessee

Issues Involved:
1. Disallowance of miscellaneous expenses.
2. Disallowance of repair and maintenance expenses.
3. Disallowance of traveling expenses.
4. Disallowance of interest under Rule 8D of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Disallowance of Miscellaneous Expenses:
The Assessing Officer (AO) disallowed Rs. 4,63,587 out of the total miscellaneous expenses of Rs. 36,34,872, citing that these expenses were unreasonable and booked through self-made vouchers. The CIT(A) reduced the disallowance to Rs. 2,00,000, considering the decline in the turnover and the increase in expenses. The Tribunal noted that the assessee admitted to claiming Rs. 3,59,202 through self-made vouchers, which cannot be verified. Therefore, the Tribunal confirmed the disallowance at Rs. 1,00,000, partly allowing the assessee's appeal on this ground.

2. Disallowance of Repair and Maintenance Expenses:
The AO disallowed Rs. 2,96,122 out of the total repair and maintenance expenses of Rs. 29,61,229, noting that some expenses were booked through self-made vouchers without supporting bills. The CIT(A) upheld the disallowance, observing a significant increase in expenses despite a decline in turnover. The Tribunal acknowledged the assessee's admission of Rs. 4,50,698 claimed through self-made vouchers and upheld a disallowance of Rs. 1,00,000, partly allowing the assessee's appeal on this ground.

3. Disallowance of Traveling Expenses:
The AO disallowed Rs. 50,000 out of the total traveling expenses of Rs. 40,23,684, citing unsupported vouchers and lack of proper bills. The CIT(A) reduced the disallowance to Rs. 20,000, noting the lack of evidence and purpose for the expenses. The Tribunal found the disallowance nominal and dismissed the assessee's appeal on this ground.

4. Disallowance of Interest under Rule 8D:
The AO disallowed Rs. 23,84,269 under Rule 8D, noting the assessee's failure to establish the nexus between interest-free funds and investments in shares. The CIT(A) confirmed the disallowance, citing the principle of apportionment of expenses as per Section 14A and Rule 8D. The Tribunal observed that the assessee had sufficient reserves and surplus but acknowledged the use of management and staff for investment decisions. Therefore, the Tribunal reduced the disallowance to Rs. 5,00,000, partly allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal partly allowed the assessee's appeal, reducing the disallowances for miscellaneous expenses, repair and maintenance expenses, and interest under Rule 8D, while dismissing the appeal for traveling expenses. The order was pronounced on 11/01/2016.

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