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2016 (11) TMI 360 - AT - Income TaxReopening of assessment - addition u/s 14A - Held that - From the original assessment order it appears that the assessee had filed all necessary details and material for the purpose of arriving at disallowance u/s 14A of the Act. There is no evidence from the records placed before us that the assessee has failed or omitted to disclose the material / primary facts. These were every much available on record and the Assessing Officer had failed to draw correct legal inference at the time of original assessment from the said primary facts. This cannot be held as error or omission on the part of the assessee and as per the proviso (1) to Section 147 of the Act and reopening of assessment for the year under consideration cannot be sustained. Addition u/s 14A - Held that - It is not possible that no expenditure were incurred towards earning the exempt income and in view of the A.O., on the basis of order of this Tribunal in assessee s own case, for the Assessment Year 2008-09 2015 (2) TMI 481 - ITAT DELHI and 2009-10 2015 (3) TMI 58 - ITAT DELHI placed at pages 33-44 of the paper book, we direct Ld. A.O. to calculate the disallowance on the basis of 0.5% of expenditdure. Disallowance made under the head of foreign travelling expense - Held that - CIT(A) correctly held that out of total foreign travel expenses, assessee had explained an amount of ₹ 8,50,401/- and gave relief to this extent. In respect of balance amount of Rs,3,74,674/-, Ld. CIT(A) held, it to be having source of personal element and restricted the disallowance to 50% of such amount being Rs,1,87,337/-. Disallowance made u/s 40A(2)(b) - Held that - A.O. and Ld. CIT(A) have admitted to the position that the salary paid to Smt. Pushpa Rathi is almost equal to the salary paid to the other staff members. Thus, L. A.O. has failed to establish the main ingredient to initiate Section 40A, which is, expenditure being excessive or unreasonable. We, therefore, are not agreeable to the ad-hoc disallowance sustained by Ld. CIT(A) when consistently in the preceding years, no such disallowance has been made by the Ld. A.O. We, accordingly delete the disallowance restricted by Ld. CIT(A) on this count.
Issues Involved:
1. Validity of reopening of assessment under Section 148. 2. Disallowance under Section 14A read with Rule 8D. 3. Disallowance of foreign travel expenses. 4. Disallowance under Section 40A(2)(b) for excessive payments. Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment under Section 148: The primary issue was whether the reopening of the assessment under Section 148 for the Assessment Year 2005-06 was valid. The assessee argued that the reopening was bad in law as the assessment was already completed under Section 143(3) and there was no failure on their part to disclose fully and truly all material facts. The Tribunal observed that all necessary details for the purpose of disallowance under Section 14A were available on record during the original assessment. Hence, the reopening beyond four years was not justified as per the proviso to Section 147. The Tribunal quashed the reassessment proceedings initiated for the year under consideration. 2. Disallowance under Section 14A read with Rule 8D: For Assessment Year 2005-06, the Tribunal noted that the CIT(A) erred in confirming the addition under Section 14A read with Rule 8D retrospectively. The Tribunal upheld the assessee's ground that no disallowance could be made under Section 14A read with Rule 8D for the Assessment Year 2005-06 as the rule was not applicable retrospectively. For Assessment Year 2007-08, the Tribunal directed the Assessing Officer (A.O.) to calculate the disallowance based on 0.5% of the expenditure, following the Tribunal's decision in the assessee’s own case for the Assessment Years 2008-09 and 2009-10. For Assessment Year 2010-11, the Tribunal directed the A.O. to calculate the disallowance as 0.5% of the average investment, as Rule 8D was applicable for this year. 3. Disallowance of Foreign Travel Expenses: For Assessment Year 2010-11, the A.O. disallowed foreign travel expenses, considering them as personal in nature. The CIT(A) restricted the disallowance to 50% of the unexplained amount. The Tribunal upheld the CIT(A)’s decision, finding no infirmity in the restriction of disallowance to ?1,87,337/-. 4. Disallowance under Section 40A(2)(b) for Excessive Payments: The A.O. disallowed payments made to related persons under Section 40A(2)(b), considering them excessive. The CIT(A) restricted the disallowance to ?96,000/-. The Tribunal observed that the salary paid to Smt. Pushpa Rathi was consistent with the salary paid to other staff members and had not been disputed in previous years. The Tribunal deleted the disallowance sustained by the CIT(A), agreeing that the A.O. failed to establish that the expenditure was excessive or unreasonable. Judgment Summary: The Tribunal quashed the reassessment proceedings for Assessment Year 2005-06 and upheld the assessee's appeal regarding the disallowance under Section 14A. For Assessment Year 2007-08, the Tribunal directed the A.O. to restrict the disallowance to 0.5% of the expenditure. For Assessment Year 2010-11, the Tribunal upheld the CIT(A)'s decision on foreign travel expenses and deleted the disallowance under Section 40A(2)(b). The Tribunal also directed the A.O. to calculate the disallowance under Section 14A as 0.5% of the average investment. The appeals were disposed of accordingly.
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