M/S. BALAKRISHNA FLOUR MILLS,BANGALORE vs. INCOME-TAX OFFICER, BANGALORE

The present appeal is filed by the assessee against the order of the CIT (A)-5, Bengaluru, dt.22.06.2016, for the assessment year 2012-13, on the ground pertaining to disallowance u/s.14A r.w.r 8D, of an amount of Rs.20.88 lakhs.

Brief facts are, the assessee is a partnership firm carrying on the business of flour mill and later on started doing the business in finance and commodity trading and utilising the capital available. It offered income from business to taxation. The assessee was subjected to scrutiny assessment wherein the AO had disallowed the expenditure to the tune of Rs.4,30,473/- on account of telephone, electricity and rent, on the premise that these are not directly relatable to the business carried out by the assessee. Aggrieved, assessee filed an appeal before the CIT (A).

The CIT (A) confirmed the disallowance made by the AO. Being aggrieved the assessee is in appeal before this Tribunal.

Before us the Ld. AR submitted that the authorities below had allowed the depreciation on assets and administrative expenses but have not allowed the direct expenses stating that they have no direct nexus with the business of the assessee. It was submitted that the authorities below had not disputed that the income was received from rent and interest have been offered to tax and they have allowed the expenses which are in the nature of administrative expenses and depreciation.

The Ld. DR submitted that bad debts, security charges, conveyance, power charges, telephone charges cannot be allowed being not related to the business of the assessee.

We have heard the rival contentions and perused the material on record. In our view, the bad debts of Rs.20,379/-, security charges of Rs.2,14,752/-, and power charges of Rs.25,808/- telephone charges of Rs.9,367/- are required to be allowed as the assessee was using the premises for the purpose of carrying out the business activities for which the assessee has offered the income generated from the activities carried out by it.

The next ground is with respect to disallowance u/s.14A. It was the case of the assessee before the lower authorities that the assessee has earned dividend income of Rs.6,46,947/- during the assessment year under consideration and the AO while invoking the provisions of 14A r.w.r 8D has wrongly calculated the average amount of total investment at Rs.1,30,99,563/- which should have been Rs.13,09,95,630/-. On the basis of this amount, wrong calculation of disallowance to the tune of Rs.24,69,235/- was computed by lower authorities. It was submitted by the assessee before us that if the ITA.1324/Bang/2016 Page - 4 correct average amount of assets was taken then the disallowance under Rule 8D would come to Rs.2,46,923/-.

The Ld. DR relies upon the order of the lower authorities.

We have heard the rival contentions and perused the material on record. The AO in para 6 has given a table depicting the disallowance u/s.14A r.w.r 8D, which is as under :

further in view of the above said finding , the adjudication of the other argument raised before us that the disallowance cannot exceed the dividend income earned by the assessee becomes academic as the disallowance in present case is less than the dividend income earned by the assessee. Therefore this issue is kept open and not adjudicated.

In the result, appeal of the assessee is partly allowed.