2016 (3) TMI 1410 - AT - Income Tax

Tribunal dismisses Revenue's appeal on expenses, upholds 1% disallowance rate

The Revenue's appeal challenging the disallowance of expenses for capital work-in-progress was dismissed by the Tribunal, upholding a 1% disallowance rate ... Estimation of expenses incurred for capital work-in-progress - CIT-A restricting addition made by the AO towards the estimate of 5% instead of 10% of expenses - HELD THAT:- Since there is no change into the facts in the present case and the Revenue has not brought any contrary-material on record, we have no other different view than taken in assessee’s own case for AY 2008-09 [2015 (12) TMI 1550 - ITAT AHMEDABAD] - we direct the AO to adopt the disallowance towards employee cost @ 1% and the administrative and other expenses @ 1% as adopted in AY 2008-09 and compute the disallowance in the light of the above decision of the Coordinate Bench. Disallowance u/s 14A - suo motu disallowance made by the assessee - HELD THAT:- As decided in own case [2015 (12) TMI 1550 - ITAT AHMEDABAD] restricted the disallowance as were made by the assessee. In the present case, facts are identical, as the AO has not recorded as to how the expenditure as claimed by the assessee is not satisfactory, which is a condition precedent before applying the Rule 8D of the Income Tax Rules, 1962. Under these facts, we hereby delete the disallowance as were made by the AO. Thus, this ground of assessee’s appeal is allowed. Issues Involved:1. Disallowance of expenses incurred for capital work-in-progress.2. Disallowance made under section 14A of the Income Tax Act.3. Charging of interest under section 234-B of the Act.Issue 1: Disallowance of expenses incurred for capital work-in-progress:The Revenue's appeal challenged the restriction of the addition made by the Assessing Officer (AO) towards the estimate of expenses incurred for capital work-in-progress. The AO had made an addition of a certain amount on an estimation basis, which was partly allowed by the ld.CIT(A). The Revenue contended that the ld.CIT(A) erred in restricting the addition to 5% instead of 10%. However, the assessee argued that a similar issue was decided in their favor by a Coordinate Bench in a previous case. The Tribunal upheld the decision of the Coordinate Bench, directing the AO to adopt a disallowance rate of 1% for employee cost and administrative expenses, consistent with the previous decision. Consequently, the Revenue's appeal was dismissed.Issue 2: Disallowance made under section 14A of the Income Tax Act:The assessee's appeal contested the confirmation of disallowance of expenditure to the extent of 5% and the disallowance made under section 14A of the Act. The Tribunal referred to a previous decision by a Coordinate Bench for AY 2008-09, where a lump sum disallowance of 1% of employee cost and administrative expenses was sustained. The Tribunal nullified the ld.CIT(A)'s order and directed the AO to restrict the disallowance to 1% of employee cost, administrative expenses, and other expenses. Regarding the disallowance under section 14A, the Tribunal found that the AO had not provided sufficient justification for applying Rule 8D of the Income Tax Rules, 1962. Therefore, the disallowance made by the AO was deleted, and this ground of the assessee's appeal was allowed.Issue 3: Charging of interest under section 234-B of the Act:The Tribunal noted that the issue of charging interest under section 234-B was consequential in nature and required no separate adjudication. As a result, the appeal of the Revenue was dismissed, while the appeal of the assessee was partly allowed. The judgment was pronounced on March 11, 2016, in Ahmedabad.---