2012 (8) TMI 333 - AT - Income Tax

ITAT Mumbai: Appellate Tribunal Rules on Disallowances under Section 14A

The Appellate Tribunal ITAT, Mumbai partly allowed the assessee's appeal and dismissed the department's appeal regarding disallowances under Section 14A ... Dis-allowance u/s 14A - interest expenditure and administrative expenses - Held that:- It is observed from balance sheet that share holders’ fund aggregates to more than Rs.73 crores and the in investment in shares were around 57.65 crores. Thus, the assessee had own funds which were available for making the investment in the shares. Therefore, dis-allowance on account of interest expenditure u/s 14A is not sustainable. However, on the disallowance on account of administrative expenses u/s 14A, Tribunal has held that the disallowance should be restricted upto 5% of the dividend earning - Decided partly in favor of assessee. Employees’ contribution to PF and ESIC - dis-allowance - delayed payment - Held that:- If the employee’s share of contribution is paid before the due date of filing of the return u/s 139(1), then no dis-allowance can be made - Decided in favor of assessee. Issues involved:1. Disallowance under Section 14A read with Rule 8D2. Disallowance of administrative expenses under Section 14A3. Disallowance of employees' contribution to provident fund paid beyond the due dateAnalysis:Issue 1: Disallowance under Section 14A read with Rule 8DThe Appellate Tribunal ITAT, Mumbai dealt with cross-appeals by the assessee and the department against the order of the CIT (A) for the assessment year 2007-2008. The primary issue in the department's appeal was the partial relief in disallowance under Section 14A read with Rule 8D. The Assessing Officer had made a disallowance under Section 14A r.w.r.8D and adjusted the computation of book profit u/s. 115JB. The CIT(A) upheld the disallowance based on the formula under Rule 8D, except for specific loan interest and income from stock of shares. The tribunal referred to a previous decision in the assessee's case for the assessment year 2006-2007, where a similar disallowance was deleted. The tribunal concluded that the disallowance on interest expenditure was not sustainable, given the availability of own funds for investments. The disallowance of administrative expenses was restricted to 5% of dividend income, following a previous tribunal decision. The tribunal dismissed the department's appeal and partly allowed the assessee's appeal on this issue.Issue 2: Disallowance of administrative expenses under Section 14AThe tribunal found the disallowance of administrative expenses to be excessive and unreasonable, considering the dividend income earned. Following a precedent, the tribunal sustained the disallowance to the extent of 5% of the total dividend earnings. The tribunal held that the disallowance should be limited to a reasonable percentage of the dividend income. The disallowance on account of administrative expenses was partly allowed in favor of the assessee.Issue 3: Disallowance of employees' contribution to provident fund paid beyond the due dateThe assessee challenged the disallowance of employees' contribution to provident fund paid beyond the due date but within the grace period of 5 days. The tribunal noted that this issue was covered by a decision of the Hon'ble Supreme Court, allowing the contribution under Section 43B as it was paid within the due date of filing the return. Consequently, the disallowance on this ground was allowed in favor of the assessee.In conclusion, the tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, addressing various issues related to disallowances under Section 14A and employees' contribution to provident fund. The judgment provided detailed reasoning and analysis based on legal precedents and factual circumstances.