2012 (8) TMI 303 - AT - Income Tax

Tribunal rules in favor of assessee on penalty, travel expenses, and Rule 8D issues.

The Tribunal dismissed the Revenue's appeals and allowed the cross-appeals by the assessee, addressing issues related to penalty deletion, foreign travel ... Disallowance of penalty for violation of the bye-laws of the Stock exchange u/s 37 - Business expenditure - assessee is a stock broker - Held that:- As decided in CIT Vs The Stock and Bond Trading Co.[2011 (10) TMI 172 - BOMBAY HIGH COURT ] the payments made by the assessee to the Stock Exchange for violation of their regulation are not on account of an offence or which is prohibited by law and the invocation of explanation to Sec. 37 of the I.T. Act 1961 is not justified - as addition cannot be sustained, therefore provisions of Sec. 194C is clearly not attracted and no disallowance of such amount could be made by invoking of Sec. 194C r.w.sec. 40a(ia) as pleaded by AO - in favour of assessee. Disallowance towards foreign travel expenses - Held that:- As for assessment year 2002-03 , the CIT(A) has allowed entire travelling expenditure for trips to Dubai and 50% of such expenditure for trips to other places considering the submission that assessee is also engaged in the business of financial activities including leasing financial and advisory services and that the Directors had visited Dubai to study real estate market - as the issue in the year under question is same the same order is to be followed - in favour of assessee. Disallowance of expenses u/s. 14A r.w.r. 8D - Held that:- As the available funds with the assessee are far more than the borrowed funds & that the borrowings of the company in the immediately preceding year were to the tune of ₹ 5,24,19,372/- which has substantially come down to ₹ 22,13,822/- which means that the investments have been made out of interest free funds i.e. assessee’s own funds. Therefore no disallowance can be made u/s. 14A - in favour of assessee. Issues involved:1. Deletion of penalty for violation of stock exchange bye-laws.2. Disallowance of foreign travel expenses.3. Disallowance of expenses under section 14A r.w. Rule 8D of the Act.Deletion of penalty for violation of stock exchange bye-laws:The Revenue appealed against the deletion of a penalty of Rs. 3,55,579 imposed on the assessee for violating stock exchange bye-laws. The Assessing Officer disallowed this amount, considering it as a penalty nature under Sec. 37(1) of the Act. However, the assessee argued that such penalties were for delays or technical non-compliances and not prohibited by law. The CIT(A) deleted the addition, citing a previous year's order. The Revenue challenged this decision, but the Tribunal upheld the CIT(A)'s decision, referring to a Bombay High Court ruling. The alternative reason for disallowance under Sec. 194C was also dismissed as the primary addition was not sustained.Disallowance of foreign travel expenses:The second issue concerned the disallowance of Rs. 6,48,519 for foreign travel expenses. The AO rejected the claim, citing past disallowances upheld by the CIT(A). The assessee argued that similar expenses were allowed in a previous year. The Tribunal dismissed the Revenue's appeal, citing a previous Tribunal decision in the assessee's favor, emphasizing consistency in treatment over the years.Disallowance of expenses under section 14A r.w. Rule 8D of the Act:The third issue involved the disallowance of Rs. 14,34,051 under Sec. 14A r.w. Rule 8D for tax-free income. The AO disallowed the amount, but the CIT(A) rejected the application of Rule 8D, instead directing a reasonable determination of expenses. The Tribunal, following a Bombay High Court ruling, held that no disallowance could be made as the investments were from interest-free funds, not borrowed funds. Consequently, the Revenue's appeal was dismissed.In summary, the Tribunal dismissed the Revenue's appeals and allowed the cross-appeals by the assessee, addressing issues related to penalty deletion, foreign travel expenses disallowance, and expenses under section 14A r.w. Rule 8D of the Act. The decisions were based on legal interpretations, past rulings, and the specific circumstances of each case.