Tax Appeal: Partially allowed, certain grounds set aside. Disallowances upheld, carry forward of loss for verification.

The appeal was partly allowed with grounds 3 and 6 set aside for further verification. The disallowances under Section 14A, depreciation claim, fee paid for arbitration, and expenses towards personal use were upheld. The disallowance of carry forward of loss as Long Term Capital Gain was set aside for verification. The court pronounced the order on 03.08.2017.

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Issues Involved:

1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Disallowance of depreciation claim.
3. Disallowance of amount payable to sundry creditor.
4. Disallowance of fee paid for arbitration due to non-deduction of TDS.
5. Disallowance of expenses towards personal use.
6. Disallowance of carry forward of loss and treatment as Long Term Capital Gain.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961:
The assessee challenged the disallowance of Rs. 8,31,908/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D for earning exempt income. The AO had expressed satisfaction that the assessee incurred indirect costs in the form of administrative expenditure and interest for earning dividend income, which is exempt under Section 10(34). The CIT(A) upheld the AO's decision, stating that any income, exempt or not, requires some expenditure, which cannot be segregated in the assessee's accounts. The Tribunal found no infirmity in the CIT(A)'s order, emphasizing that the provisions of Section 14A control the computation of income and have an overriding effect, thus confirming the disallowance.

2. Disallowance of depreciation claim:
The AO disallowed Rs. 1,185/- out of the depreciation claim, observing that the bills were in the name of the director, not the company, and the assets purchased were capable of personal use. The CIT(A) confirmed this disallowance. The Tribunal upheld the CIT(A)'s order, noting the absence of any plausible explanation from the assessee and affirming that the assets were indeed capable of personal use.

3. Disallowance of amount payable to sundry creditor:
The AO disallowed Rs. 62,403/- on account of unconfirmed creditors, which the CIT(A) upheld. The assessee presented a demand letter from the creditor, which the CIT(A) did not consider. The Tribunal set aside this issue to the CIT(A) for proper enquiry to verify the outstanding nature and genuineness of the demand letter, allowing the ground for statistical purposes.

4. Disallowance of fee paid for arbitration due to non-deduction of TDS:
The AO disallowed Rs. 22,000/- paid as arbitration fee due to non-deduction of TDS, which the CIT(A) confirmed. The assessee argued that arbitration fees do not fall under "professional services" as defined in Section 194J. The Tribunal disagreed, stating that TDS is required on services rendered, including legal and technical services, thus upholding the CIT(A)'s order and dismissing the ground.

5. Disallowance of expenses towards personal use:
The AO disallowed Rs. 2,20,924/- for personal use out of travelling, telephone, and business promotion expenses, which the CIT(A) confirmed. The Tribunal noted the absence of records for vehicle and telephone use and the lack of accounts for business promotion, affirming the CIT(A)'s order and dismissing the ground.

6. Disallowance of carry forward of loss and treatment as Long Term Capital Gain:
The AO disallowed the carry forward of loss claimed by the assessee and treated it as Long Term Capital Gain, which the CIT(A) upheld. The Tribunal noted that the assessee had filed a revised computation during assessment proceedings, which should have been allowed if legally permissible. The matter was set aside to the AO for verification and allowance of the claim, thus allowing the ground for statistical purposes.

Conclusion:
The appeal was partly allowed, with grounds 3 and 6 set aside for further enquiry and verification, while the other grounds were dismissed. The order was pronounced in the open court on 03.08.2017.

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