2022 (3) TMI 206 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT-A restricted the disallowance to the extent of dividend income earned by the assessee company during the year under consideration - HELD THAT - It is settled principle of law that disallowance u/s 14A read with Rule 8D cannot be more than the dividend income earned and in this view of the matter, we find no illegality or infirmity in the findings returned by ld. CIT (A), hence grounds no.1 2 are determined against the Revenue. TAN defaults - late payment interest made disallowance of the same amount by adding the same back to the total income of the assessee on the ground that no supporting document/evidence has been brought on record by the assessee - HELD THAT - Following the decision rendered in case of Oriental Insurance Co. Ltd. vs. CIT 2008 (10) TMI 230 - KARNATAKA HIGH COURT wherein it is held that, similar deduction towards payment of interest on delayed payment of TDS was allowed . Since this payment made by the assessee cannot be treated as a tax but compensatory in nature, hence allowable expenses u/s 37 of the Act. So, finding no infirmity or perversity in the impugned findings, ground no.3 is determined against the Revenue. Disallowance @ 10% of the total expenses on ad hoc basis towards repair and maintenance expenses - HELD THAT - Since AO has not disputed audited financials of the assessee company rather proceeded to make an ad hoc disallowance merely on the basis of surmises which is not sustainable in the eyes of law. CIT (A) after thrashing the facts proceeded to delete the disallowance of the expenses in question claimed by the assessee by treating the same having been incurred for the purpose of business. So, finding no illegality or perversity in the impugned findings, ground no.4 raised by the Revenue is hereby dismissed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Disallowance of interest on delayed payment of TDS under section 37(1) of the Act
3. Disallowance of repair and maintenance charges under section 37(1) of the Act

Disallowance under section 14A of the Income Tax Act, 1961:
The Assessing Officer (AO) invoked provisions under section 14A read with Rule 8D to compute a disallowance of Rs. 1,85,95,109, as the assessee had earned dividend income of Rs. 9,45,651 without making any suo motu disallowance. The Commissioner of Income-tax (Appeals) restricted the disallowance to the extent of the dividend income earned, citing a decision of the Delhi High Court. The Tribunal upheld this decision, stating that the disallowance cannot exceed the amount of dividend income earned, leading to a reduction in disallowance to Rs. 9,45,651.

Disallowance of interest on delayed payment of TDS under section 37(1) of the Act:
The AO disallowed Rs. 98,430 under section 37(1) of the Act for interest on delayed payment of Tax Deducted at Source (TDS) based on an AIR report. However, the CIT (A) accepted the assessee's argument that this interest was compensatory and not part of the income tax liability, citing a Karnataka High Court decision. The Tribunal agreed with this reasoning, allowing the expense under section 37 of the Act and dismissing the Revenue's appeal on this ground.

Disallowance of repair and maintenance charges under section 37(1) of the Act:
The AO made an ad hoc disallowance of Rs. 3,41,848 at 10% of total expenses claimed by the assessee for repair and maintenance. The CIT (A) overturned this disallowance, noting that the AO had not challenged the audited financials and made the disallowance based on conjecture. The Tribunal upheld the CIT (A)'s decision, stating that the expenses were incurred for business purposes and dismissing the Revenue's appeal on this ground.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s decisions on the disallowances related to sections 14A and 37(1) of the Income Tax Act, 1961. The Tribunal found no legal errors in the CIT (A)'s reasoning and upheld the allowance of expenses claimed by the assessee.