2024 (6) TMI 571 - AT - Income Tax

Revenue's appeal dismissed on Section 14A disallowance and foreign travel expenses deduction under Section 37(1)

ITAT Mumbai dismissed revenue's appeal regarding disallowance u/s 14A r.w. Rule 8D and foreign travel expenses. The tribunal held that no disallowance u/s ... Disallowance u/s 14A r.w.rule 8D - expenses incurred on exempt income - HELD THAT:- Ballarpur Industries Ltd. [2016 (10) TMI 1039 - BOMBAY HIGH COURT] has been relied upon by the Ld. CIT(A) in which has been held that no disallowance u/s 14A is warranted in respect of investments not yielding tax free income for the appellant. Similar view has been taken in the case of ACIT v/s Vireet Investments Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] Similarly, in the case of S. Krishnamurthy [2016 (1) TMI 1401 - ITAT MUMBAI] has also held that the disallowance has to be worked out on the basis of investment which yielded dividend during the year and not by factoring in the total amount of investment. The appellant’s contention is that it has not earned any exempt income during the year from investments in equity and debenture instruments and hence no disallowance of expenditure is permitted. In view of the various judicial pronouncement on this regard reliance was placed on the Hon’ble Supreme Court’s decision PCIT v/s Oil Industry Development Board [2019 (3) TMI 1571 - SC ORDER] wherein as dismissed the SLP filed against the Hon’ble Delhi High Court’s order upholding the ITAT’s decision to delete the disallowance u/s 14A in the absence of any exempt income. Disallowance of foreign travel expenses - HELD THAT:- It has been explained that the assessee had undertaken Project ‘Athashri’ in Pune for Senior Housing, and that foreign travel was undertaken by the Director of the company in order to replicate the project in USA for Senior Citizens of Indian community. The other visit to Israel was undertaken to attend 19th Annual International Convention NETCON 2019 held in Tel Aviv, Israel in August 2019. The event was wholly and exclusively for the purpose of business. It is seen that submissions filed in this regard vide reply dated 07.09.2022 have not been taken into account by the AO, as such the Ld. CIT(A) has rightly allowed the claim of foreign travel expenses u/s 37(1). Appeal filed by the revenue is dismissed. Issues:1. Disallowance under section 14A r.w.rule 8D2. Disallowance of foreign travel expensesIssue 1: Disallowance under section 14A r.w.rule 8DThe appeal was filed by the revenue against the order of the Learned Commissioner of Income-tax (Appeals) for the Assessment Year 2020-21. The revenue raised grounds of appeal regarding the disallowance under section 14A of the Income-tax Act, 1961. The AO proposed a disallowance of Rs. 4,08,32,574/-, but the assessee had made a suo-moto disallowance of Rs. 53,79,526/-. The AO calculated the disallowance u/s 14A r.w.rule 8D @ 1% at Rs. 3,06,04,372/-. The Ld. CIT(A) held that the disallowance made by the AO over and above the suo-moto disallowance is not justified based on various judicial pronouncements. The Ld. CIT(A) observed that the AO had recorded satisfaction, but the disallowance was not warranted as the investments did not yield tax-free income. The Ld. CIT(A) relied on decisions of the Bombay High Court and ITAT Mumbai to support the appellant's contention that no disallowance was permitted in the absence of exempt income. The appellate tribunal upheld the decision of the Ld. CIT(A) on this issue.Issue 2: Disallowance of foreign travel expensesThe assessee claimed foreign travel expenses of Rs. 20,38,038/-, which were disallowed by the AO on the ground that they were not incurred for business purposes. The Ld. CIT(A) noted that the AO did not consider the reply filed by the assessee and sought comments, but no response was received. The Ld. CIT(A) deleted the addition made by the AO, stating that the foreign travel expenses were incurred for business purposes. The appellate tribunal heard arguments from both parties and found that the foreign travel was undertaken for business purposes related to a Senior Housing project in Pune and attending an international convention in Israel. The Ld. CIT(A) rightly allowed the claim of foreign travel expenses under section 37(1) of the Act. Consequently, the appeal filed by the revenue was dismissed, and the order was pronounced in open court on 31.05.2024.