2010 (11) TMI 617 - AT - Income Tax

Tribunal dismisses revenue's appeal, allows part of assessee's claim. Assessing Officer directed to delete interest disallowance.

The tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, directing the Assessing Officer to delete the disallowance of ... Disallowance - Administrative expenses - The Assessing Officer noted that the assessee has claimed an amount of Rs.5.78 lakhs towards the administrative expenses, therefore, some portion of the same must have been incurred for the purpose of earning dividend income - He accordingly disallowed an amount of 1 lakh on adhoc basis out of the administrative expenses - Further find the Tribunal in assessee's own case for Assessment Year 2000-01 has also upheld the similar disallowance to which one of us (Accountant Member) is a party - Therefore decided against of assessee.Interest on borrowing - Find the assessee company has started borrowings from 27.12.1997 onwards whereas the scrips on which tax free dividend income earned were purchased much prior to the same - find similar issue had come up before the Tribunal in assessee's own case for Assessment Year 2001-01 and the Tribunal decided in favour of assessee. Issues:Cross appeals filed by revenue and assessee against order dated 10.4.2003 of CIT(A)-III, Mumbai for assessment year 1999-00.Analysis:1. The assessee, engaged in shares and securities trading, received dividend income and claimed a portion as exempt. The Assessing Officer disallowed a portion of administrative expenses and interest on borrowings, suspecting it was related to earning exempt income. The CIT(A) upheld the disallowance of administrative expenses but reduced the disallowance of interest income.2. The revenue appealed the CIT(A) order, challenging the reduction in interest disallowance. The assessee also appealed, arguing the order was illegal and contrary to law. The assessee's counsel presented financial details to support their case, referencing previous tribunal decisions.3. The tribunal noted the Assessing Officer's disallowance of administrative expenses was reasonable, upholding the same. Regarding interest disallowance, the tribunal considered the timing of borrowings in relation to share purchases. Citing a previous tribunal decision, the tribunal ruled that as shares were purchased before borrowings, no interest disallowance was warranted under section 14A of the IT Act.4. Consequently, the tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, directing the Assessing Officer to delete the disallowance of interest expenditure under section 14A of the IT Act. The decision was based on the timing of share purchases and borrowings, as established in the presented financial details and previous tribunal rulings.