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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sanjay Garg & Shri Sanjay Awasthi
order : July 23, 2024 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 30.01.2024 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
The assessee in this appeal has agitated against the confirmation of disallowance of Rs.3,88,57,850/- made by the Assessing Officer on account of disallowance of expenditure incurred for earning of tax exempt income invoking the provisions of section 14A r.w.r 8D of the Income Tax Rules.
The Assessing Officer noted that the assessee during the year had earned tax exempt income of Rs.58,51,96,313/- comprising of long- term capital gains and dividend income. He further observed that the Assessment Year: 2018-19 Shree Capital Services Ltd.
assessee had offered disallowance of an amount of Rs.12,77,616/- u/s 14A of the Act. He observed that the said disallowance was very meagre as compared to the tax exempt income earned by the assessee. He applied Rule 8D(2) of the Income Tax Rules and computed the disallowance under Rule 8D(2) at Rs.4,01,35,466/-. After deducting the amount already offered by the assessee for disallowance/taxation u/s 14A of Rs.12,77,616/-, the Assessing Officer made the addition of Rs.3,88,57,850/-.
The ld. CIT(A) confirmed the addition so made by the Assessing Officer.
We have heard the rival contentions and gone through the record. At the outset, the ld. counsel for the assessee has brought our attention to the profit & loss a/c of the assessee, wherein, the detail of expenditure has been mentioned as under:
Particulars Year ended 31.03.2018 Expenditure Employee Benefit Expense 12,307,196 Depreciation and Amortization 580,504 Expense Finance Costs 3,344 Donation 20,005,000 Other Expenses 10,276,840 Total Expenses 43,172,884 5.1 The ld. counsel has further submitted that the total expenditure booked in the profit & loss a/c for the year under consideration was Rs.43,172,884/-. He has further referred to the chart below:
SN Particulars of Debited to P & Disallowed Remarks expense L in Return 1 Employee 1,23,07,196 23,36,125 Disallowed amount of Rs. Benefit 12,48,564/- u/s 14A. Expenses Further provision for gratuity (Rs. 7,23,418/-) & Provision for Leave Salary
Assessment Year: 2018-19 Shree Capital Services Ltd.
(Rs.3,64,143/-) also disallowed. 2 Depreciation 5,80,504 5,80,504 Depreciation not to be considered u/s 14A as held in Emerald Company Pvt. Ltd. vs. DCIT (ITA No. 252/Kol/2024 dated 03.06.2024) 3 Finance Cost 3,344 - Bank charges not related to Investment division 4 Donation 2,00,05,000 2,00,05,000 Not applicable for 14A. Further disallowed u/s 37(1). 5 Other admin 1,02,76,840 28,40,362 STT of Rs. 10,90,310/-, Expenses Admin expenses of Rs. (Rent charges, 29,052/- & CSR of Rs. Professional 17,21,000/- already offered Fees, Audit to tax. Fees etc.) Further, in M/s Agarwal Galvanising Pvt. Ltd. vs. ITO (ITA No. 1401/Kol/2012 dated 18.12.2014), it has been held that no disallowance u/s 14A r.w.r 8D(iii) shall be made in relation to administrative expenditure such as audit fee, salary and bonus, legal fee, office rent, compliance retainership fees etc. Total 4,31,72,884 2,57,61,991 5.2 Referring to the aforesaid chart, the ld. counsel has demonstrated that out of the total expenditure of Rs.4,31,72,884/-, an amount of Rs.5,80,504/- was claimed on account of depreciation, which has nothing to do with the expenditure incurred by the assessee. Further, the donation expenses of Rs.2,00,05,000/- has nothing to do with the earning of tax exempt income. Moreover, the same have already been disallowed by the assessee u/s 37(1) of the Act. He has further demonstrated that out of the remaining amount of Rs.2,25,87,380/-, the assessee has suo moto disallowed a further sum of Rs.5176487/-.
Assessment Year: 2018-19 Shree Capital Services Ltd. Therefore, out of the total sum of Rs.4,31,72,884/-, only an amount of Rs.1,74,10,893/- was claimed as allowable expenditure. The total expenditure without any disallowance u/s 14A therefore would amount to Rs.18688509/-, out of which the assessee has already suo moto disallowed a sum of Rs.12,77,616/- incurred towards earning of exempt income. It is to be noted that the disallowance u/s 14A of the Act cannot exceed the total expenditure claimed by the assessee. The disallowance u/s 14A is made out of the expenditure incurred by the assessee by way of disallowance of proportionate expenditure, which can be attributed towards earning of tax exempt income. The assessee in this case has shown a total taxable income of Rs.11,80,86,220/- and therefore, the expenses claimed by the assessee of Rs.1,74,10,893/- seems to be reasonable. The assessee has suo moto disallowed a sum of Rs.12,77,616/- and in our view, no further disallowance is attracted in this case.
In view of the above discussion, the addition made by the lower authorities on this issue is not sustainable and the same is ordered to be deleted.
In the result, the appeal of the assessee stands allowed.