2015 (7) TMI 1364 - AT - Income Tax

Appeal partially allowed, disallowance under section 14A reduced to Rs. 25,000.

Associated Container Line Pvt. Ltd. Versus Asstt. Commissioner of Income Tax -5 (1), Mumbai

Associated Container Line Pvt. Ltd. Versus Asstt. Commissioner of Income Tax -5 (1), Mumbai - TMI Issues:Challenge to disallowance under section 14A of the Income Tax Act, 1961 for assessment year 2005-06.Detailed Analysis:Issue 1: Disallowance under section 14A of the Act- The appellant challenged the disallowance of Rs. 50,000 made by the AO under section 14A of the Income Tax Act, 1961.- The AO disallowed the amount as the assessee earned dividend income of Rs. 15.29 lakhs claimed to be exempt from taxation without making any disallowance for expenses incurred.- The Tribunal had earlier directed the AO to make a reasonable disallowance based on the decision in the case of Godrej & Boyce Mfg Co. Ltd.- The AO, in the set-aside proceedings, noted a 5% disallowance of exempt income in another case but maintained the original disallowance of Rs. 50,000.- The appellant argued that most of the dividend income was from mutual funds directly credited to the bank account, thus incurring no expenses for earning the income.- The Tribunal observed the significant number of transactions and expenses incurred by the assessee, leading to a decision that a reasonable disallowance was necessary under section 14A.- The Tribunal found the original disallowance of Rs. 50,000 to be on the higher side and directed the AO to restrict the disallowance to Rs. 25,000.Conclusion:The appeal was partly allowed, and the disallowance under section 14A was reduced to Rs. 25,000, as directed by the Tribunal on 2nd July 2015.