2014 (7) TMI 756 - AT - Income Tax

Tribunal Decision on Tax Appeals: Directions on Disallowance, Credit, Interest, and More

The Tribunal partly allowed the appeals filed by the Revenue and the assessee. Specific directions were given for various issues, including disallowance ... Expenses on tax free dividend income u/s 14A – Held that:- The AO has not brought anything on record which could suggest that certain expenditures have been incurred for earning the exempt income, directly or indirectly – following GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COUR] - disallowance of 2% of the dividend income would meet the ends of justice - the AO is directed to restrict the disallowance to 2% of the dividend income – Decided partly in favour of Revenue. Deletion of the estimated addition – Held that:- The assessee’s accounts are audited - The requisite details were filed before the AO - The AO has not pointed out any specific expenditure which according to him was not properly supported by bills/ vouchers nor there is any specific finding that any expenditure have been incurred not for the purpose of business - the addition has been made on ad hoc basis - there was no reason to interfere with the findings of the CIT(A) – Decided against Revenue. Credit for TDS u/s 199 – Held that:- Assessee has duly furnished before the AO a statement of reconciliation of gross amounts in the books of account alongwith the gross amounts as per TDS certificates which has been completely ignored by the AO - assessee has disclosed income in respect of TDS certificate as receipt during the year itself - similar claim of TDS was allowed in the earlier year - CIT(A) has examined the reconciliation statement and on his examination the CIT(A) has given a categorical finding that the assessee is entitled for the credit of the TDS – the order of the CIT(A) is confirmed – Decided against Revenue. Issues Involved:1. Disallowance under Section 14A for expenses related to tax-free dividend income.2. Deletion of addition on account of lease rentals.3. Deletion of estimated addition of Rs. 10 lakhs for lack of evidence on expenses.4. Direction to grant credit for TDS amounting to Rs. 2,00,87,433/-.5. Adhoc disallowance of Rs. 5 lakhs out of entertainment expenditure.6. Levy of interest under Sections 234B and 234D.7. Claim of interest under Section 244A.Issue-wise Detailed Analysis:1. Disallowance under Section 14A:The Revenue challenged the deletion of Rs. 1,27,941/- made by the AO under Section 14A for expenses incurred in earning tax-free dividend income. The AO estimated a 10% expenditure of the exempted income, while the CIT(A) deleted this disallowance, following the precedent set for A.Y. 2002-03. The Tribunal referenced the Supreme Court's decision in CIT Vs Walfort Share & Stock Brokers (P) Ltd and the Bombay High Court's decision in Reliance Industries Ltd, concluding that disallowance under Section 14A requires a proximate cause. Since the AO did not provide evidence of incurred expenses, the Tribunal directed a reasonable disallowance of 2% of the dividend income.2. Deletion of Addition on Account of Lease Rentals:The Revenue contested the deletion of Rs. 30,89,952/- for lease rentals paid by the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the Third Member decision in Kaira Can Company Ltd. Vs JCIT, which favored the assessee.3. Deletion of Estimated Addition of Rs. 10 Lakhs:The AO disallowed Rs. 10 lakhs on an ad hoc basis due to incomplete details of expenses. The CIT(A) deleted this disallowance, noting that the assessee provided extensive details and the AO did not specify any unsupported expenses. The Tribunal agreed that the AO's disallowance was based on suspicion without cogent material, thus upholding the CIT(A)'s deletion.4. Direction to Grant Credit for TDS:The AO denied TDS credit of Rs. 2,00,87,433/- due to lack of reconciliation details. The CIT(A) found that the assessee had provided a reconciliation statement, showing entitlement to the TDS credit, and directed the AO to grant the credit. The Tribunal upheld this decision, finding no distinguishing facts to counter the CIT(A)'s findings.5. Adhoc Disallowance of Rs. 5 Lakhs Out of Entertainment Expenditure:The AO disallowed Rs. 5 lakhs based on findings from A.Y. 2003-04. The Tribunal noted that a similar disallowance for A.Y. 2003-04 was deleted by the Tribunal, following the Bombay High Court's decision in CIT Vs Shah Nangi Nagsi. Consequently, the Tribunal directed the AO to delete the Rs. 5 lakhs disallowance.6. Levy of Interest under Sections 234B and 234D:The Tribunal noted that the charging of interest under Sections 234B and 234D is mandatory but consequential. The AO was directed to levy interest as per the law after giving effect to the Tribunal's order.7. Claim of Interest under Section 244A:The Tribunal directed the AO to decide the issue of interest under Section 244A afresh, based on the provisions of law and after giving effect to the Tribunal's order.Conclusion:The appeals filed by the Revenue and the assessee were partly allowed. The Tribunal made specific directions for each issue, ensuring adherence to legal precedents and proper application of the Income Tax Act provisions. The order was pronounced in the open court on 21st May 2014.