ITAT Decision: Partial Disallowance Reduced, Specific Issues Upheld

The ITAT restricted the disallowance under section 14A r.w.r 8D to the amount of exempt income earned by the assessee, disallowing only Rs. 1,302 instead of the initial Rs. 2,03,746. It allowed the salary paid to office Peons but disallowed a portion of excessive payment to the florist. The conveyance expenses disallowance was reduced from 25% to 10% of the claimed amount, and the entertainment expenses disallowance was reduced from 20% to 10%. The appeal was partly allowed based on specific issues, with the general ground being dismissed.

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Issues:
1. Disallowance under section 14A r.w.r 8D of the Act.
2. Disallowance of expenses incurred towards salary paid to Peons, Sweepers, Cleaners, etc.
3. Disallowance of conveyance expenses.
4. Part disallowance of expenditure incurred on entertainment.
5. General ground.

Issue 1: Disallowance under section 14A r.w.r 8D of the Act:
The assessee challenged the disallowance of Rs. 2,03,746 made under section 14A r.w.r 8D. The Assessing Officer disallowed the amount towards administrative expenditure under Rule 8D(2)(iii). The ITAT held that the disallowance under section 14A r.w.r 8D cannot exceed the exempt income earned during the year. As the assessee had earned Rs. 1,302 as exempt income, the disallowance was restricted to that amount, directing the Assessing Officer accordingly.

Issue 2: Disallowance of expenses incurred towards salary paid to Peons, Sweepers, Cleaners, etc.:
The Assessing Officer disallowed Rs. 4,20,000 towards salary paid to Peons, Sweepers, and Cleaners due to undated and unsigned vouchers. The ITAT found that the salary paid to office Peons should be allowed as the assessee operated a placement agency and required office staff. It allowed the payments made to the sweeper and the person supplying water but disallowed a portion of the payment made to the florist as excessive.

Issue 3: Disallowance of conveyance expenses:
The Assessing Officer disallowed Rs. 49,057 out of Rs. 1,96,229 claimed as conveyance expenses, suspecting personal elements in the expenditure. The ITAT held that while personal factors might be involved, a 25% disallowance was excessive. It directed the disallowance to be restricted to 10% of the expenditure claimed.

Issue 4: Part disallowance of expenditure incurred on entertainment:
The Assessing Officer disallowed Rs. 15,674 out of Rs. 78,370 claimed as entertainment expenses, suspecting personal use. The ITAT found the 20% disallowance excessive and directed it to be restricted to 10% of the expenditure claimed, considering the nature of the expenditure.

Issue 5: General ground:
The general ground was dismissed, and the appeal was partly allowed based on the decisions on the specific issues raised by the assessee. The ITAT pronounced the order on 13th October 2020 under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.

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