Tribunal dismisses revenue's appeal on disallowance under section 14A, upholds deletion of expenses to M/s Hero Global Design Ltd.

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s orders to exclude the investment amount for disallowance u/s 14A based on no exempt income earned by the assessee. Additionally, the Tribunal upheld the deletion of the addition on expenses paid to M/s Hero Global Design Ltd., considering the nature of services provided and the regularity of the services.

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Issues:
1. Disallowance of investment amount for computation of disallowance u/s 14A.
2. Deletion of addition made by AO on the ground of expenses not incurred in ordinary course of business.
3. Disallowance of payment to an associate concern, M/s Hero Global Design Ltd.

Issue 1: Disallowance of investment amount for computation of disallowance u/s 14A:
The appeal was filed by the revenue against the CIT(A)'s orders directing to exclude the investment amount of Rs. 2,74,86,627 for working out the disallowance u/s 14A. The assessee had invested Rs. 79.19 crores and received dividend income of Rs. 1,320. The CIT(A) directed the AO to rework the disallowance by excluding investments in group concerns and debt-oriented mutual funds. Following judicial precedents, the Tribunal restricted the disallowance to Rs. 1,320 based on the principle that no disallowance is warranted when no exempt income has been earned by the assessee.

Issue 2: Deletion of addition on expenses not incurred in ordinary course of business:
The AO had made an addition of Rs. 28,27,564 on expenses paid to M/s Hero Global Design Ltd., stating that the expenses were not incurred in the ordinary course of business. The assessee argued that M/s Hero Global Design Ltd. provided professional services like Engineering Consultancy, CAD/CAM designing, and Re-Engineering Services. The CIT(A) observed that the services provided were basic in nature and could have been done within the assessee's premises. However, considering the turnover and nature of services, the CIT(A) allowed the expenditure u/s 37(1).

Issue 3: Disallowance of payment to an associate concern, M/s Hero Global Design Ltd.:
The revenue's appeal also included disallowance of payment made to M/s Hero Global Design Ltd. The Tribunal noted that the design engineers of M/s Hero Global Design Ltd. had been working with the assessee for ten years, providing services regularly. Based on this, the Tribunal upheld the CIT(A)'s decision to delete the addition.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s orders regarding the disallowance of investment amount u/s 14A and the deletion of the addition on expenses paid to M/s Hero Global Design Ltd.

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