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2022 (4) TMI 38 - AT - Income TaxDisallowance of interest expenditure u/s 14A read with Rule 8D - sufficiency of own funds - HELD THAT:- As the present assessee before us undeniably has sufficient self-owned funds available with it to explain the investments made in exempt income yielding assets, therefore, in the backdrop of our aforesaid deliberations the disallowance of interest expenditure made by the A.O. under section 14A r.w Rule 8D(2)(ii) cannot be sustained and is accordingly vacated. Before parting, we may herein observe, that as the assessee has in his grounds of appeal assailed the disallowance u/s 14A only qua the disallowance of interest expenses, therefore, we are confining our adjudication only to the said extent. Ground of appeal No.1 is partly allowed in terms of aforesaid observations. Disallowance out of management and development expenses for investments - attributing the same towards investments made in exempt income yielding assets - HELD THAT:- On the one hand the A.O. had worked out the disallowance of the “administrative expenses” to the extent the same were relatable to earning of the exempt income i.e, by triggering the provisions of Section 14A r.w Rule 8D, while for on the other hand he had separately, on a pro-rata basis, disallowed an amount out of the management and development expenses, for the reason, that the same to the said extent could be related to the investments made in exempt income yielding assets. We are unable to comprehend as to on what basis the A.O. had taken recourse to this double edged sword, on the basis of which, he had on the one hand worked out the disallowance under Sec. 14A as per the mechanism contemplated in Rule 8D, and thereafter, on a pro-rata basis made a separate disallowance of the amount debited in the P&L A/c. We are unable to concur with the aforesaid novel disallowance made by the A.O. and set-aside the order of the CIT(A) to the extent he had upheld the same. Adhoc disallowance out of telephone and travelling expenses - HELD THAT:- We find that the disallowance made by the A.O was prompted by the fact that assessee had not maintained any log book. Admittedly, non-maintenance of a log book would raise serious doubts as regards the claim of the assessee of having incurred the entire amount of expenditure in question wholly and exclusively for its business purpose. Considering the fact that personal telephone expenses of the partners of the assessee firm were separately debited in their respective capital accounts, therefore, A.O should have considered the same while working-out the disallowance on account of personal usage/element of the said expenditure. Although, the involvement of the personal element of the aforesaid expenditure cannot be ruled out, however, in all fairness the same can safely be estimated at ₹ 50,000/- Appeal of the assessee is partly allowed.
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