2020 (1) TMI 1143 - HC - Income Tax

High Court clarifies Income Tax Act Section 14A expenses treatment, upholds professional fees as revenue.

The Gujarat High Court addressed the disallowance of expenses under Section 14A of the Income Tax Act, 1961, and the disallowance of Capital Expenditure. ... Addition u/s 14A - disallowance vis-à-vis the administrative expenses - HELD THAT:- Although the Revenue wants this Court to go into the question of disallowance of the interest amount, yet we are not inclined to go into such question. Disallowance being Capital Expenditure - expenditure been incurred for legal assistance taken by the assessee - HELD THAT:- There is a concurrent finding recorded by both CIT(Appeals) and as affirmed by the Tribunal that the expenditure has been incurred for the legal assistance taken by the assessee on day-to-day basis for the purpose of business. Such expenditure has been treated as revenue expenditure. We are not inclined to admit this appeal on the question No.2[B], as proposed by the Revenue. Issues:1. Disallowance of expenses under Section 14A of the Income Tax Act, 1961.2. Disallowance of Capital Expenditure.Issue 1: Disallowance of expenses under Section 14A of the Income Tax Act, 1961:The Tax Appeal raised the question of whether the Appellate Tribunal erred in deleting the disallowance of a specific amount made under Section 14A r.w. Rule 8D of the Act. The Court reframed the question to focus on whether the Tribunal erred in holding that the disallowance of administrative expenses under Section 14A cannot exceed the expenditure claimed by the assessee. The Court decided not to address the issue of disallowance of interest amount, as requested by the Revenue. The judgment indicates that the Court was inclined to consider the issue of disallowance of expenses under Section 14A but reframed the question for clarity and relevance.Issue 2: Disallowance of Capital Expenditure:The Revenue proposed a question regarding the disallowance of a specific amount as Capital Expenditure. The Court referred to the findings of the Tribunal, which stated that the disputed professional fees amount had been incurred for legal assistance related to the assessee's business on a day-to-day basis. The Tribunal considered this expenditure as revenue expenditure, affirming the decision of the CIT(A). The Court noted the concurrent findings of both the CIT(A) and the Tribunal regarding the nature of the expenditure and its treatment as revenue expenditure. Consequently, the Court dismissed the appeal concerning the disallowance of Capital Expenditure as proposed by the Revenue. The judgment highlights the detailed analysis of the nature of the expenditure and the reasoning behind treating it as revenue expenditure, emphasizing the importance of legal assistance for the business purposes of the assessee.This comprehensive summary provides a detailed analysis of the judgment delivered by the Gujarat High Court regarding the issues of disallowance of expenses under Section 14A of the Income Tax Act, 1961, and the disallowance of Capital Expenditure. The judgment outlines the specific questions raised by the Revenue, the reframing of one question for clarity, and the Court's decision based on the findings of the Tribunal and the CIT(A) regarding the nature and treatment of the expenditures in question.