2022 (11) TMI 890 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D(2)(iii) - Expenditure incurred exempt income earned by the assessee - HELD THAT - As settled on the basis of various decision of different courts that disallowance under section 8D(2)(iii) cannot exceed exempt income. Accordingly, we direct the AO to restrict the disallowance to the extent of exempt income earned by the assessee after examination of the relevant detail to be filed by the assessee. Therefore, grounds of appeal of the assessee is partly allowed. Disallowance of depreciation claimed on 3 vehicles registered in the name of three individual employees of associate company - HELD THAT - As submitted that payments for purchase of all the three vehicles were made by the assessee company and these cars were used for the business purpose of the assessee company. However, on perusal of material on record, it is found that assessee has not placed on record relevant supporting evidences to demonstrate that vehicles were used for the purpose of business and copy of Board Resolution, etc. to substantiate that assessee company was authorized to purchase these vehicles in the name of the employees of the group concern, etc. Therefore, we restore this issue to the file of the Assessing Officer to decide afresh after verification and examination of the relevant supporting details to be furnished by the assessee. Accordingly, ground 3 4 of the assessee are allowed for statistical purpose. Disallowance of Yacht Expenses - AO stated, during the course of assessment, assessee failed to furnish cogent evidence and credible explanation in order to prove that the aforesaid yacht expenses were incurred in connection with the business of the assessee company - HELD THAT - Assessee filed appeal before the Ld.CIT(A). CIT(A) stated that actually yacht expenses were incurred in connection with the business of the group concern of the assessee company, viz. Vijaydurg Ports Private Limited s Greenfield Port Project at Sindhudurg District in Southern Maharashtra (VDPPL) which had used the high speed vessel for carrying out on-site investigation, surveys and status for the purpose of submitting the detailed project report to the Maharashtra Maritime Board. The assessee has submitted that the said expenses were incurred on yacht which was used in connection with the group concern VDPPL. Assessee has not substantiated with any relevant supporting evidence that these expenses were used for the business purpose of the assessee company, therefore, we do not find any reason to interfere in the decision of the CIT(A). Accordingly, this ground of the assessee stands dismissed.

Summary

Issues:
1. Disallowance under section 14A r.w.r. 8D(2)(iii) of the Income Tax Act, 1961.
2. Disallowance of depreciation claimed on vehicles.
3. Reduction in the block of vehicles allowed to be carried forward.
4. Disallowance of Yacht Expenses.

Analysis:

Issue 1: Disallowance under section 14A r.w.r. 8D(2)(iii) of the Income Tax Act, 1961:
The Assessing Officer disallowed expenses incurred towards earning exempt income under section 14A r.w.r. 8D(2)(iii) leading to an addition of Rs. 1,19,82,373 to the total income. The Ld.CIT(A) directed the Assessing Officer to recompute the disallowance considering only investments generating exempt income. The ITAT observed that disallowance under section 8D(2)(iii) cannot exceed exempt income and directed the Assessing Officer to restrict the disallowance to the extent of exempt income earned by the assessee. Citing relevant case laws, the ITAT partly allowed the grounds of appeal.

Issue 2: Disallowance of depreciation claimed on vehicles:
The Assessing Officer disallowed depreciation of Rs. 10,83,326 claimed on vehicles registered in the name of individual employees of an associate company. The Ld.CIT(A) upheld the disallowance stating the vehicles were not in the name of the assessee company. The ITAT found lack of supporting evidence to demonstrate business use of vehicles and authorized purchase by the company. The issue was restored to the Assessing Officer for fresh decision after verifying relevant details, allowing the grounds for statistical purposes.

Issue 3: Reduction in the block of vehicles allowed to be carried forward:
The Assessing Officer reduced the block of vehicles to be carried forward based on disallowed depreciation. The ITAT's decision to restore the issue for fresh examination implies a potential impact on the calculation of the block of vehicles allowed to be carried forward.

Issue 4: Disallowance of Yacht Expenses:
The Assessing Officer disallowed yacht expenses of Rs. 1,74,52,582, stating lack of credible evidence linking the expenses to the business. The Ld.CIT(A) noted the expenses were for a group concern's project but lacked evidence of business use by the assessee company. The ITAT upheld the decision, dismissing the ground of appeal. The appeal was partly allowed overall.

This detailed analysis of the judgment highlights the key issues addressed by the ITAT Mumbai regarding the disallowances and adjustments made by the Assessing Officer and the subsequent decisions by the Ld.CIT(A) and ITAT.