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2019 (5) TMI 948 - AT - Income TaxDisallowance u/s.14A - whether exempt dividend income from mutual funds and shares was received during the year - disallowance under Rule 8D(2)(ii) towards interest paid - HELD THAT:- This issue is no more res integra in view of the recent judgment delivered in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT [2017 (5) TMI 403 - SUPREME COURT] in which it has been held that when interest free funds in the form of share capital and reserves are more than investment, then no disallowance of interest can be made u/s 14A. Disallowance made by the AO has been wrongly sustained in the first appeal, therefore, order to delete the same. Disallowance u/s.14A read with Rule 8D(2)(iii) is 0.5% of the average value of the investments - AO computed 0.5% of the average value of investments and made disallowance for the same which came to be affirmed in the first appeal - AR submitted that the disallowance made in this regard is excessive and submitted that the disallowance may be made on the reasonable basis, may be, at ₹ 1,000/- per entry - HELD THAT:- This type of ad hocism is impermissible in view of the clear mandate of Rule 8D(2)(iii). As the assessment year under consideration is a period after the insertion of Rule 8D, I hold that the disallowance at 0.5%, being the prescription of the rule, as made and sustained in the first appeal is in order. To sum up, disallowance u/s.14A of the Act is sustained at ₹ 4,88,721/- and the assessee gets relief of ₹ 2,73,505/-. Disallowance of foreign tour expenses - allowable business expenses - AO made addition on the ground that the assessee failed to produce any submission on the performance of foreign tour and how it was related to business - HELD THAT:- A copy of the assessee’s Profit and loss account has been placed and it is seen that the assessee made export sales of ₹ 2.81 crore as against domestic sales amounting to ₹ 40.55 lakh. CIT(A) has recorded the assessee’s submission made before him on page 16 of the impugned order, vide which it was stated that foreign tour was undertaken to USA where the assessee has got its customers. Not only that, the assessee also filed copies of bills and vouchers before the AO during the course of assessment proceedings. This shows that the assessee genuinely undertook foreign visit to USA. Since his major sales are to foreign countries including USA, there can be no reason to disallow the foreign travel expenses incurred in this regard - order to delete the addition. - Decided in favour of assessee.
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