Tribunal partially allows appeal, overturning disallowance under Section 14A. Salary expenses disallowed based on CIT(A) reasoning.

The Tribunal partly allowed the appeal, deleting the disallowance under Section 14A read with Rule 8D(2)(iii) due to the Assessing Officer's lack of objective satisfaction. However, the disallowance of salary and wages expenses was upheld based on the reasoning provided by the CIT(A) and supported by judicial precedent. The Tribunal's decision was pronounced in open court on 04/08/2022.

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Issues Involved:
1. Addition/Disallowance under Section 14A read with Rule 8D(2)(iii).
2. Disallowance out of Salary and Wages.

Issue-wise Detailed Analysis:

1. Addition/Disallowance under Section 14A read with Rule 8D(2)(iii):
The assessee contested the disallowance of Rs. 95,000/- under Section 14A read with Rule 8D(2)(iii), arguing that no fresh investments were made during the year and no expenditure was incurred towards the administration of equities. The Assessing Officer (AO) had disallowed Rs. 4,21,463/- initially, but the CIT(A) reduced this to Rs. 95,000/- after finding surplus funds available with the assessee. The Tribunal noted that the AO did not record an objective satisfaction regarding the disallowance, which is a prerequisite as per Section 14A(2). The Tribunal emphasized that the AO must provide reasons for not accepting the assessee's claim, which was missing in this case. Citing various judicial precedents, including the case of U.P. Electronics Corporation Ltd. vs. DCIT, the Tribunal concluded that the AO's disallowance was not sustainable due to the lack of objective satisfaction. Consequently, the Tribunal deleted the disallowance of Rs. 95,000/- sustained by the CIT(A).

2. Disallowance out of Salary and Wages:
The AO made an ad-hoc disallowance of 5% of the total salary and wages expenses, amounting to Rs. 30,05,333/-, due to insufficient vouchers and self-made cash vouchers. The CIT(A) reduced this disallowance to 50% of the amount disallowed by the AO. The assessee argued that the expenses were incurred for business purposes and were supported by complete books of accounts and vouchers. However, the Tribunal found the CIT(A)'s restriction of the disallowance to 50% reasonable, especially considering the precedent set by the Hon'ble Allahabad High Court in the case of 'PCIT vs. Rimjhim Ispat Ltd.', which justified a 5% disallowance where expenses were not supported by bills/vouchers. Therefore, the Tribunal upheld the CIT(A)'s decision on this issue and dismissed the assessee's ground.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal deleted the disallowance under Section 14A read with Rule 8D(2)(iii) due to the AO's failure to record objective satisfaction but upheld the CIT(A)'s decision on the disallowance of salary and wages expenses. The order was pronounced in the open court on 04/08/2022.

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