2017 (8) TMI 125 - HC - Income Tax

Court Upholds Disallowance of Exempt Dividend Income & Denial of Deductions

The court upheld the disallowance under section 14A for earning exempt dividend income, citing a logical method and reasonable estimation by the Tribunal. ... Disallowance u/s 14A - earning the dividend income which was exempt under section 10(34) - Held that:- Assessing Officer after considering the totality of facts and circumstances had disallowed ₹ 1,35,270 under section 14A of the Act following the decision of the Tribunal in the case of Nahar Industrial Enterprises Limited for the assessment year 1997-98 on similar grounds. On appeal by the assessee, the disallowance of ₹ 1,35,270 made by the Assessing Officer under section 14A of the Act was upheld. Further appeal carried by the assessee to the Tribunal was rejected and order of the Assessing Officer and the Commissioner of Income-tax (Appeals) was upheld on this count. It has been recorded by the Tribunal that the disallowance had been computed on a reasonable basis and the same did not show any irrational or irrelevant considerations. Thus, the Tribunal correctly did not interfere with the determination of the amount as made by the Assessing Officer and the Commissioner of Income-tax (Appeals). Deduction under section 80G - Donation by way of clothes towards Prime Minister's Relief Fund for Jammu and Kashmir Earthquake Relief - Held that:- Learned counsel for the assessee was unable to show in the light of Explanation 5 to section 80G which was inserted by the Finance Act 1976, effective from April 1, 1976 that the deduction was admissible. The assessee could not claim deduction under section 80G of the Act in respect of donations by way of clothes sent to the Prime Minister's Relief fund for Gujarat Earthquake relief the same being in kind and not in cash, cheque or draft. The Tribunal was right in declining the benefit under section 80G of the Act. In view of the express pro vision contained in Explanation 5 to section 80G of the Act, once it was goods, no deduction was admissible. Assessee appeal dismissed. Issues:1. Disallowance under section 14A of the Income-tax Act for earning exempt dividend income.2. Eligibility of deduction under section 37 for contribution to Prime Minister's Relief Fund.3. Claim under section 80G for donation towards Prime Minister's Relief Fund for Jammu and Kashmir Earthquake Relief.Issue 1: Disallowance under section 14A for earning exempt dividend income:The appellant, an assessee, challenged the disallowance of Rs. 1,35,270 made under section 14A of the Act for earning dividend income exempt under section 10(34) of the Act. The Assessing Officer estimated the disallowance based on administrative expenses. The Commissioner of Income-tax (Appeals) and the Tribunal upheld the disallowance. The Tribunal found the disallowance reasonable and based on a logical method. The Tribunal cited the case of Nahar Industrial Enterprises Limited to support the disallowance. The court held that the estimation was reasonable and did not warrant interference. The appellant failed to show any legal flaws in the Tribunal's findings, leading to the dismissal of the appeal.Issue 2: Eligibility of deduction under section 37 for contribution to Prime Minister's Relief Fund:The appellant claimed a deduction of Rs. 12,20,670 under section 37(1) for contributing woollen garments to the Prime Minister's Relief Fund. The Assessing Officer rejected the claim, which was upheld by the Commissioner of Income-tax (Appeals) and the Tribunal. The Tribunal found that the donation was in kind and not in cash, cheque, or draft, rendering it ineligible for deduction under section 80G of the Act. The court concurred with the Tribunal's decision, citing Explanation 5 to section 80G, which disallows deductions for non-monetary donations. The appellant failed to demonstrate any errors in the Tribunal's findings, leading to the dismissal of the appeal.Issue 3: Claim under section 80G for donation towards Prime Minister's Relief Fund for Jammu and Kashmir Earthquake Relief:The appellant's claim under section 80G for a donation towards the Prime Minister's Relief Fund for Jammu and Kashmir Earthquake Relief was declined by the Tribunal. The court upheld the Tribunal's decision, citing Explanation 5 to section 80G, which specifies that deductions are not allowed for non-monetary donations. The appellant's argument that the donation was in the nature of cash was dismissed, as the donation was in kind. The court referenced a previous judgment to support the decision. The appellant failed to identify any errors in the Tribunal's findings, leading to the dismissal of the appeal.