NEELA SAMIR BHATIA,MUMBAI vs. ACIT CIRCLE 21(2), MUMBAI

Briefly the facts are, the assessee is an individual. As stated by the Assessing Officer, the assessee is engaged in running a placement agency in the name and style of ‘Search & Inspire’. For the Assessment Year under dispute, the assessee filed her return of income on 08.09.2012 declaring total income of Rs. 34,72,769/-. During the assessment proceeding, the Assessing Officer noticed that in the year under consideration, the assessee has earned exempt income by way of dividend amounting to Rs. 1,302/-. Noticing the above, the Assessing Officer called upon the assessee to explain as to why disallowance under section 14A r.w.r 8D being expenditure attributable to earning of exempt income should not be made. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer rejected the submissions of the assessee and proceeded to disallow Rs. 2,03,746/- towards administrative expenditure under Rule 8D(2)(iii). Though, the assessee challenged the aforesaid disallowance before ld. CIT(A), however, she was unsuccessful.

I have heard the submissions of ld. Departmental Representative and perused the material available on record. As could be seen from the grounds raised

, assessee’s grievances are twofold. Firstly, before making disallowance, the Assessing Officer has not recorded any satisfaction and Secondly, the disallowance made under section 14A r.w.r 8D cannot exceed the exempt income earned during the year. As far as the first issue Mum 2019-Neela Samir Bhatia is concerned, I do not find any merit in the contentions of the assessee. It is evident, the assessee suo-motu has not computed any disallowance under section 14A r.w.r 8D, though she had earned exempt income during the year. Therefore, in absence of any suo-motu disallowance made by the assessee in the return of income, the Assessing Officer has rightly proceeded for making disallowance under section 14A. However, in so far as the second issue is concerned, I find substantial force in the contention of the assessee. Undisputedly, during the year under consideration the assessee had earned an amount of Rs. 1,302/- as exempt income, whereas, the Assessing Officer has disallowed an amount of Rs. 2,03,746/-. Now, it is fairly well-settled, by virtue of ratio laid down in a plethora of judicial precedents that disallowance under section 14A r.w.r 8D cannot exceed the quantum of exempt income earned during the year. In conformity with the settled legal position, I direct the Assessing Officer to restrict the disallowance under section 14A r.w.r 8D to Rs. 1,302/-. Consequently, Ground No. 1 & 1.1 are dismissed. Whereas, ground No.1.2 is allowed.

The Assessing Officer disallowed the aforesaid expenditure on the reasoning that the vouchers submitted are undated and unsigned. The aforesaid disallowance made by Assessing Officer was also sustained by ld. CIT(A).

I have considered the submissions of ld. Departmental Representative and perused the materials on record. As could be seen from the submissions made by the assessee before the Assessing Officer, Shri Prakash Bhonsale and Shri Shivaji Naik were working with the assessee as office peons. It is also seen that though the assessee submitted salary vouchers of these two persons, however, they were not accepted by the Assessing Officer since they were undated. However, fact remains that the assessee is engaged in the business of placement agency. It is also a fact on record that the assessee has offered income under the head “Business & Profession”.

After considering the nature and purpose of such payment, I am of the view that the payment made to the sweeper and the person supplying water is reasonable, hence, needs to be allowed. However, payment made to the florist at Rs. 3000/-p.m. appears to be on the higher side. In my view, payment to the florist can reasonably be estimated at Rs. 2000/- p.m. working out to Rs. 24,000/- p.a. Therefore, the balance amount of Rs. 12,000/- out of the payment made to the Florist has to be disallowed.

In Ground No. 2, the assessee has challenged the disallowance of Rs. 49,057/- out of conveyance expenses.

Briefly the facts are, during the assessment proceeding, the Assessing Officer found that the assessee has debited an amount of Rs. 1,96,229/- towards conveyance expenses. After calling upon the assessee to justify such claim, the Assessing Officer ultimately held that the assessee was unable to establish that the entire expenditure was wholly and exclusively incurred for the purpose of business. Alleging involvement of personal factor, the Assessing Officer disallowed 25% out of the expenditure claimed, which worked out to Rs. 49,057/-. The aforesaid disallowance was also sustained by ld. CIT(A). 13. I have heard the ld. Departmental Representative and perused the material available on record. As could be seen from the submissions made by the assessee before the Departmental Authorities, the conveyance expenditure was incurred for travelling in Taxi, Auto, Bus etc. by the assessee as well as the staff members for official work. It is also evident, the disallowance made by the Assessing Officer is only for the reason that a part of the expenditure might have been for personal purpose of the assessee.

In Ground No. 2.1, the assessee has challenged the part disallowance of expenditure incurred on entertainment.

Briefly, the facts are, during the assessment proceeding, the Assessing Officer noted that the assessee has debited an amount of Rs. 78,370/- towards entertainment expenses. On verifying the bills/invoices furnished by the assessee, he was of the view that entertainment expenses may not have been incurred wholly and exclusively for the purpose of business.

In view of my decision in Ground No. 2 & 2.1, there is no need for separate adjudication of ground no.2.2.

Ground No.3 being a general ground is dismissed. Mum 2019-Neela Samir Bhatia

In the result, appeal is partly allowed.