2012 (11) TMI 701 - AT - Income Tax

Revenue appeal on disallowed expenses partially upheld by ITAT for A.Y. 2002-03

The Revenue's appeal regarding the disallowance of Administrative & Other Expenses u/s.14A for A.Y. 2002-03 was partially upheld by the ITAT, ... Addition made on account of disallowance of Administrative & Other Expenses u/s.14A – Held that:- In the present appeal as well undisputed fact is that only one dividend warrant of Rs.4,55,829/- was received by the assessee. Indeed it was highly improbable and beyond rational view that in order to earn a dividend of Rs.4,55,829/-, that too by a single dividend warrant, the assessee had incurred a huge administrative expense as assessed by the AO. Newly inserted subsections to section 14A would be applicable from the Asst.Year 2007-08 and Rule 8D shall be effective from A.Y. 2008-09 because of the trite principle of law that the law which could apply to an Assessment Year is the law prevailing on the 1st day of April. Since the Respected Lower Authority has added only a trifle amount of Rs.60,000/- by disallowance u/s.14A, therefore without disturbing the same we hereby dismiss this ground of the Revenue. Issues:1. Disallowance of Administrative & Other Expenses u/s.14A by Revenue2. Cross objection by AssesseeIssue 1: Disallowance of Administrative & Other Expenses u/s.14A by RevenueThe appeal by the Revenue stemmed from an order by the CIT(Appeals)-XI, Ahmedabad concerning the disallowance of Administrative & Other Expenses u/s.14A for A.Y. 2002-03. The original return declared an income of Rs.41,150, but disallowances led to an assessed income of Rs.91,346. Subsequently, a disallowance u/s.14A was proposed due to exempted dividend income. The case was reopened under section 147, and the total income was determined at Rs.93,71,080, with disallowances including Rs.10,88,777 for Administrative & Other Expenses. The CIT(A) restricted this disallowance to Rs.60,000. The ITAT upheld the deletion of Rs.81,90,944 but set aside the disallowance of Administrative Expenses for re-examination by the AO in accordance with section 14A. The AO repeated the disallowance, leading to an appeal before the ITAT. The ITAT referred to previous decisions and confirmed the CIT(A)'s decision to restrict the disallowance to Rs.60,000, considering the singular dividend warrant received by the assessee and the legal provisions applicable from A.Y. 2007-08 onwards.Issue 2: Cross objection by AssesseeThe cross objection by the Assessee challenged the addition of Rs.60,000 on account of disallowance of Administrative & Other Expenses u/s.14A. The ITAT, after considering the facts and legal provisions, dismissed the cross objection, concluding that no interference was required regarding this ground. Therefore, both the Revenue's appeal and the Assessee's cross objection were dismissed by the ITAT, upholding the decision to restrict the disallowance of Administrative & Other Expenses to Rs.60,000 in accordance with the provisions of section 14A and relevant case law interpretations.