2018 (3) TMI 35 - AT - Income Tax

Disallowance u/s 14A - Held that - There is no exempt income credited in the P&L a/c during the year under consideration and therefore, no disallowance u/s 14A of the Act was warranted. It is also seen that the assessee company has shareholders funds as on 31.03.2011 to the tune of ₹ 46.81 crores whereas investment in the shares of subsidiary companies is only 15.07 crores. As such the shareholders funds are substantially in excess of amount invested and the logical inference from the same could only be that the impugned investments have been made out of self generated funds and not interest bearing resources. - Decided in favour of assessee. Disallowance of telephone expenses on personal usage - Held that - We are in agreement with the contentions of the assessee on the issue as this is the case of a Private Ltd. company wherein the normal personal usage of expenses and the consequent disallowance is legally not permissible. There has not been any logical basis for the AO to hold the view that 30% of the impugned expenses pertain to personal usage. Therefore, disallowance made was rightly directed to be deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, we uphold the well reasoned order passed by the Ld. CIT(A) - Decided against revenue

Summary

Issues:
1. Disallowance of personal usage expenses.
2. Disallowance under section 14A r.w. Rule 8D.

Issue 1: Disallowance of Personal Usage Expenses:
The Revenue appealed against the deletion of an addition of ?4,91,863 on account of disallowance of personal usage expenses. The AO disallowed 30% of telephone, cell, and internet expenses, suspecting personal usage. The tribunal found that the AO lacked specific evidence of personal usage and failed to provide a logical basis for the disallowance. As it was a Private Ltd. company, disallowance based on general observations without concrete proof was deemed impermissible. The tribunal upheld the CIT(A)'s decision to delete the disallowance, citing lack of interference necessity.

Issue 2: Disallowance under Section 14A r.w. Rule 8D:
The AO disallowed ?63,78,347 under section 14A r.w. Rule 8D without discussing it with the assessee during assessment proceedings. The tribunal noted that the interest expense of ?60 lakhs was unrelated to investments in subsidiary companies but was incurred due to contractual obligations. As no exempt income was credited, disallowance under section 14A was deemed unwarranted. The tribunal also highlighted that investments were made from self-generated funds, not interest-bearing resources. Citing relevant case laws, including CIT vs. Taikisha Engineering India Ltd, the tribunal upheld the CIT(A)'s decision to delete the disallowance, concluding that no interference was required.

In conclusion, the tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s orders on both issues. The judgment provided detailed analysis, emphasizing the lack of concrete evidence for disallowances and the inapplicability of certain provisions based on the specific circumstances of the case.