2011 (4) TMI 1352 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to disallowance under section 14A, allocation of motor car expenses, and taxing of refund of municipal tax.

Disallowance under section 14A:
The assessee, a senior partner in legal firms, filed a return of income for assessment year 2005-06, including salary and exempt share of profit. The Assessing Officer disallowed a portion of the expenditure claimed, invoking section 14A of the Income Tax Act, 1961. The Commissioner (Appeals) partly upheld the disallowance. However, the Tribunal held that the expenditure incurred by the assessee on the car did not have a nexus with the share income from the firm. As the firm did not separately reimburse car expenses but included it in remuneration, the proportionate disallowance under section 14A was deemed unnecessary and was thus disallowed.

Allocation of motor car expenses:
The assessee had a practice of disallowing 15% of car expenditure on an ad-hoc basis until the assessment year 2003-04. From the assessment year 2004-05, the assessee claimed expenditure on the car after earmarking certain cars for personal use. The Tribunal noted that the expenditure incurred on the car was wholly and exclusively for professional purposes. As the assessee did not claim expenditure on all family cars and had provided evidence of expenditure and depreciation on specific cars, the ad-hoc disallowance of 15% was deemed unjustified and was deleted.

Taxing of refund of municipal tax:
Regarding the taxing of the refund of municipal tax received during the year, the Tribunal noted that there was no charging section in the Act for such taxation. The Commissioner (Appeals) had accepted an alternate plea by the assessee and granted relief. The Tribunal dismissed this issue as "not pressed" since the relief had already been granted.