TaxTMI 
TaxTMI 
2010 (12) TMI 582
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....al raised by the assessee reads as under:- "1. The learned Assessing Officer has erred in disallowing a sum of Rs.78,084/- u/s.14A as pertaining to exempt income as there was no expense incurred, either directly or indirectly in earning the dividend income of Rs.4,500/-." The brief facts apropos this issue are that there was investment worth Rs.18,84,000/- in assessee's balance-sheet. The AO noticed that a sum of Rs.6,03,064/- was charged to P and L a/c. towards bank interest and Rs.2,65,785/- on account of other interest. He noted the assessee had earned dividend of Rs.4,500/-. Applying the provisions of sec. 14A read with Rule 8D, he computed the disallowance at Rs.78,084/-, being interest attributable to earning of dividend income. The ld. CIT(A) confirmed the disallowance following the decision of Special Bench of ITAT in the case of Daga Capital Management P. Ltd. 4. At the time of hearing, both the parties agreed that in view of the decision of the jurisdictional High Court in the case of Godrej and Boyce Mfg. Ltd. vs. DCIT (2010) 328 ITR 81 (Bom.), Rule 8D, being held to be prospective, could not be invoked in the relevant assessment year and, t....
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....e:- (ia) any interest, commission or brokerage, rent, royalty, fees for services for fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid." A bare perusal of this section reveals that tax was required to be deducted, inter alia, on amounts payable to a contractor or sub-contractor, being resident, for carrying out any work at source under Chapter XVII-B. The contention of the assessee is that if it had clamed this amount in the P and L a/c., then only disallowance was called for, but since the amount has been capitalized, therefore, no disallowance is called for. We are not inclined to accept this contention because the term used is "amounts payable", and if TDS was required to be made from this amount, then the assessee should have deducted the tax for allowability of this amount. It is true that since the assessee had not claimed the entire amount, therefore, only to the extent the a....
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.... of the Act will not be applicable in respect of the respondent assessee for asstt. year 2000-01. The Tribunal, therefore, held that the amount paid by the assessee for acquisition of computers was not chargeable to tax in India . Since the Tribunal held that the provisions of sec. 40(a)(i) were not applicable, therefore, it deleted the disallowance made by the AO on account of depreciation. From he above, it is evident that the facts in the said decision were entirely different inasmuch as the applicability of sec. 40(a)(i) was ruled out. However, in the present case, the applicability of sec. 40(a)(ia) has not been ruled out and, therefore, to the extent the assessee had made claim of depreciation in the P and L a/c., the same is to be disallowed. We direct accordingly. In the result, this ground is dismissed. 8. The third ground of appeal is regarding disallowance of Rs.1,10,010/- on account of chit funds. The facts apropos this issue are that in the P and L a/c. under finance expenses, the assessee had claimed a sum of Rs.1,10,010/- towards loss on chit funds. In reply to AO's query, the assessee pointed out that the chit subscription was like a deposit and the divide....
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....ned at page 13 of paper book and pointed out that the profits of Rs.22,000/- in asstt. year 2005-06 and Rs.10,276/- in asstt. year 2006-07 have been accepted. He referred to schedule 9 to P and L a/c. contained at page 9 of paper book to submit that in other chits the assessee declared profit. Therefore, the expenditure was claimed as business expenditure. 9.1 The ld. D.R. submitted that the assessee had not furnished any evidence to demonstrate that chit amount received from chit funds had been utilized for business purposes. 10. We have considered the submissions and perused the record. In the decision of ITAT in the case of Rajees vs. ITO [63 ITD 330 (Coch)], the Tribunal has considered similar issue and has observed in paragraphs 11 and 12 as under:- "11. The Central Board of Direct Taxes also issued instructions in this connection. However, in all the above mentioned judgments, Instruction No.1175 issued by the CBDT under order F.No.169/21/78-IT(80) dated May 16, 1978 was not taken into account. The gist of the instructions is reproduced below:- (a) If any person organizes Chit Funds and for this purposes brings the members together, adm....
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....he chit fund to raise funds to use them in his business or for the business purpose, such a loss is an allowable deduction In this view of the matter, the appellant succeeds and the appeal is allowed." From the above, it is evident that if the funds raised through chit funds have been utilized for business purposes, then loss on chit funds is an allowable deduction. Keeping in view the arguments of ld. counsel for the assessee, we are of the opinion that this issue needs to be examined afresh and, therefore, we restore this issue to the file of AO to decide it de novo, and if he finds that the funds raised through chit funds were utilized for business purposes, then no disallowance is called for. This ground is allowed for statistical purposes. 11. The 4th ground of appeal is in regard to disallowance of legal and professional charges amounting to Rs.1,98,660/-. The AO noticed that the assessee had claimed legal and professional charges amounting to Rs.1,98,660/- (Rs.6000/- being legal expenses and Rs.1,92,660/- being professional expenses). He noted that TDS had not been deducted on professional expenses towards RTO consultant of Rs.1,66,360/-. He further observed tha....