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2020 (4) TMI 51 - AT - Income TaxDisallowance u/s 14A read with rule 8D - HELD THAT - The issue of disallowance of expenses u/s 14A relating to income not includable in the total income of the assessee has been dealt in various cases by the Tribunal and the High Courts wherein it was held that no disallowance is warranted in cases where no exempt income has been earned by the assessee. The Hon ble Courts has also ruled that, at the most the disallowance should be restricted to the tune of the dividend earned. As relying on the case of Cheminvest Ltd. Vs CIT 2009 (8) TMI 126 - ITAT DELHI-B we hereby direct that the disallowance be restricted to ₹ 1,320/-. Addition of sum paid to an associate concerns M/s Hero Global Design Ltd - AO held that since M/s Hero Global Design Ltd. is deriving income only from the assessee and does not have business expertise in providing engineering services, the expenditure claimed is disallowed - HELD THAT - The copies of the invoices submitted by the HGD Ltd. have been examined. It is an undeniable fact that HGD Ltd. has provided services to the assessee, the design engineers of HGD Ltd. are regularly available within in the shop floor of the assessee company, they have been working for the last ten years with the assessee and getting paid regularly against their services. In view of this, we decline to interfere with the order of the ld. CIT (A) in deleting the addition. - Decided against revenue.
Issues:
1. Disallowance of investment amount for computation of disallowance u/s 14A. 2. Deletion of addition made by AO on the ground of expenses not incurred in ordinary course of business. 3. Disallowance of payment to an associate concern, M/s Hero Global Design Ltd. Issue 1: Disallowance of investment amount for computation of disallowance u/s 14A: The appeal was filed by the revenue against the CIT(A)'s orders directing to exclude the investment amount of ?2,74,86,627 for working out the disallowance u/s 14A. The assessee had invested ?79.19 crores and received dividend income of ?1,320. The CIT(A) directed the AO to rework the disallowance by excluding investments in group concerns and debt-oriented mutual funds. Following judicial precedents, the Tribunal restricted the disallowance to ?1,320 based on the principle that no disallowance is warranted when no exempt income has been earned by the assessee. Issue 2: Deletion of addition on expenses not incurred in ordinary course of business: The AO had made an addition of ?28,27,564 on expenses paid to M/s Hero Global Design Ltd., stating that the expenses were not incurred in the ordinary course of business. The assessee argued that M/s Hero Global Design Ltd. provided professional services like Engineering Consultancy, CAD/CAM designing, and Re-Engineering Services. The CIT(A) observed that the services provided were basic in nature and could have been done within the assessee's premises. However, considering the turnover and nature of services, the CIT(A) allowed the expenditure u/s 37(1). Issue 3: Disallowance of payment to an associate concern, M/s Hero Global Design Ltd.: The revenue's appeal also included disallowance of payment made to M/s Hero Global Design Ltd. The Tribunal noted that the design engineers of M/s Hero Global Design Ltd. had been working with the assessee for ten years, providing services regularly. Based on this, the Tribunal upheld the CIT(A)'s decision to delete the addition. In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s orders regarding the disallowance of investment amount u/s 14A and the deletion of the addition on expenses paid to M/s Hero Global Design Ltd.
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