2016 (3) TMI 1333 - AT - Income Tax

Tribunal affirms income tax appeal decisions for disallowances, reduces Section 14A disallowance significantly

Assistant Commissioner of Income-tax, 5 (1), Indore Versus M/s. Swastik Coal Corpoation Pvt. Ltd., Indore.

Assistant Commissioner of Income-tax, 5 (1), Indore Versus M/s. Swastik Coal Corpoation Pvt. Ltd., Indore. - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Disallowance of Office & General Expenses.3. Disallowance of Repairs and Maintenance Expenses.Issue-Wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The primary issue pertains to the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, which was reduced by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO initially disallowed Rs. 85,96,306/- by applying Rule 8D, on exempted profit received from a partnership firm where the assessee company is a 10% partner. The CIT(A) restricted this disallowance to Rs. 2,70,548/- by applying the ratio of exempt income to taxable income. This approach was based on the precedent set in the assessee's own case for the Assessment Year (A.Y.) 2009-10, which was upheld by the ITAT and the M.P. High Court. The Tribunal upheld the CIT(A)'s decision, emphasizing that the disallowance should be proportionate to the ratio of exempt income to taxable income, thus reducing the disallowance from Rs. 85,96,306/- to Rs. 2,70,548/-.2. Disallowance of Office & General Expenses:The AO disallowed Rs. 2,00,000/- out of Rs. 16,42,333/- claimed under Office & General Expenses on the grounds that some bills and vouchers were missing and some expenses were paid in cash. The CIT(A) reduced this disallowance to Rs. 50,000/-, noting that the AO had not specified which vouchers were missing or which payments were questionable. The Tribunal upheld the CIT(A)'s decision, finding no contrary evidence from the Department to justify a higher disallowance.3. Disallowance of Repairs and Maintenance Expenses:The AO disallowed Rs. 50,000/- out of Rs. 9,14,817/- claimed under Repairs and Maintenance Expenses, citing missing bills and vouchers. The CIT(A) reduced this disallowance to Rs. 10,000/-, stating that the AO had not provided specific instances of missing vouchers. The Tribunal agreed with the CIT(A), noting that the Department failed to provide evidence contradicting the CIT(A)'s findings.Separate Judgments Delivered:The Tribunal delivered a separate judgment for the appeal related to A.Y. 2011-12 (I.T.A.No. 746/Ind/2014), where similar issues were raised. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance under Section 14A from Rs. 31,98,441/- to Rs. 1,00,663/-, applying the same rationale as in the previous year's case. The cross objections filed by the assessee were dismissed as they became infructuous following the dismissal of the Revenue's appeals.Conclusion:In conclusion, the Tribunal upheld the CIT(A)'s decisions to restrict disallowances under Section 14A and for Office & General Expenses and Repairs and Maintenance Expenses, emphasizing the need for proportionate and evidence-based disallowances. Both the Revenue's appeals and the assessee's cross objections were dismissed.