2014 (11) TMI 1068 - AT - Income Tax

ITAT Upholds Disallowance of Expenditure under Section 14A

Assistant Commissioner of Income Tax, Circle 3 (3), Mumbai Versus M/s. Smart Chip Ltd,

The ITAT dismissed both the revenue's and the assessee's appeals for the assessment years 2008-09 and 2009-10 regarding the disallowance of expenditure ... Disallowance u/s 14A - Held that:- After relying on the decision of the jurisdictional High Court in the case of Godrej and Boyce Mfg Co.Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT ), the ld. CIT(A) have given due justification and restricted the disallowance made u/s 14A with respect to administrative expenses. The ld. CIT(A) observed that the assessee company was to incur administrative expenses to ensure investment which is generating the exempt income, accordingly, he confirmed the disallowance of ₹ 4,25,000/- on account of administrative expenses under rule 8D(2)(iii) of the Rules. We do not find any infirmity in the order of ld. CIT(A) in confirming the disallowance of administrative expenses which was incurred and attributable to earning of exempt income. - Decided against assessee Issues:1. Disallowance of expenditure under section 14A of the Income Tax Act for the assessment years 2008-09 and 2009-10.Analysis:1. In the assessment year 2008-09, the Revenue appealed against the deletion of an addition of Rs. 33,90,461 made under section 14A of the Income Tax Act. The dispute revolved around whether the expenditure was related to earning dividend income. The CIT(A) deleted the disallowance after considering the appellant's submissions, which demonstrated that the investments were made from the appellant's own funds for strategic business purposes. The ITAT upheld the CIT(A)'s decision, emphasizing that the investment was made from the appellant's own funds and not borrowed funds, in line with relevant judicial precedents.2. In the assessment year 2009-10, a similar disallowance was made under section 14A. The CIT(A) deleted a portion of the disallowance but confirmed a disallowance of Rs. 4,25,000 for administrative expenses incurred to ensure the investment generating exempt income. The ITAT upheld the CIT(A)'s decision, stating that the administrative expenses directly attributable to earning exempt income were rightly disallowed. The ITAT found no fault in the CIT(A)'s order, which was based on the principles established in relevant legal cases.3. The ITAT dismissed both the revenue's and the assessee's appeals for both years, affirming the CIT(A)'s decisions. The ITAT's judgment was based on a thorough examination of the facts, submissions, lower authorities' orders, and relevant legal precedents. The ITAT concurred with the CIT(A)'s findings that the disallowances were justified or unjustified based on the nature of the expenses and their relation to exempt income. The ITAT's decision was pronounced on 28th November 2014.