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Facts
The assessee earned exempt income of Rs. 31,600 from dividends. The disallowance under Section 14A read with Rule 8D was Rs. 4,05,636. The assessee also incurred expenses amounting to Rs. 29,306 for entertainment, Rs. 4,65,822 for repairs and maintenance, and Rs. 5,26,795 for travelling.
Held
The Tribunal held that the disallowance under Section 14A cannot exceed the exempt income earned, citing the High Court decision in Biocon Ltd. vs. DCIT. For the other expenses, the Tribunal found that while the incurring of expenditure was not disputed, the assessee had not substantiated them, hence the issue was remitted back to the AO.
Key Issues
Disallowance of expenses under section 14A and section 37(1) of the Income Tax Act.
Sections Cited
14A, 8D, 37(1), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI CHANDRA POOJARI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC for the assessment year 2014-15 dated 10.10.2023 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
The first ground for our consideration is with regard to disallowance u/s 14A read with Rule 8D of the Income Tax Rules, 1962. 2.1 The ld. A.R. submitted that the assessee has earned exempt income to the tune of Rs.31,600/- only by way of dividend. As such, the disallowance made u/s 14A of the Act at Rs.4,05,636/- is unjustifiable and same to be deleted.
Ms. Ambika Ghorpade, Sandur Page 2 of 4 3. We have heard the rival submissions and perused the materials available on record. In this case, the exempt income is only Rs.31,600/- by way of dividend and the disallowance u/s 14A read with Rule 8D of the Rules cannot exceed the exempt income earned by assessee in the assessment year under consideration as held by Hon’ble Karnataka High Court in the case of Biocon Ltd. Vs. DCIT reported in 431 ITR 326 (Karn.) wherein it was held that “when there is no exempted income, there cannot be any disallowance u/s 14A of the Act. In other words, it means that disallowance u/s 14A of the Act should be limited to the exempted income”. Accordingly, we sustain the addition to the tune of Rs.31,600/- only up to the exempt income earned by the assessee. This ground of assessee is partly allowed.
Next ground in this appeal is with regard to disallowance of following expenses incurred by assessee u/s 37(1) of the Act: a) Entertainment expenses - Rs.29,306/- b) Repairs & Maintenance expenses - Rs.4,65,822/- c) Travelling expenses - Rs.5,26,795/- 4.1 In the assessment year under consideration, these expenses were disallowed by AO on the reason that the assessee is engaged in Mining activities, which is not categorized as “C” Category and in the assessment year under consideration assessee was not permitted to carry on Mining operation. According to ld. AO, assessee has not incurred expenditure wholly and exclusively for the purpose of business. However, the NFAC noted that assessee has not substantiated its expenditure and disallowed the same and the same has been confirmed by the NFAC. 4.2 Before us, ld. A.R. submitted that due to non-permission by the Government, assessee has not carried on mining business in the assessment year under consideration. However, the assessee has continued to be in business and required to incur this expenditure. Further, it was submitted that observation of the NFAC that assessee