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TMI Blog2012 (7) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... declared a total income of Rs.4,19,857/- and a book profit of Rs.6.43 crores under section 115JB of the Act. Assessment was completed under section 143(3) of the Act by finally determining the total income at Rs.4,19,857/- under the normal provisions of the Act but having regard to the fact that the working under section 115JB results in book profit of Rs.6.43 crores, the same was taken as income for the year under consideration. There was no change in the income returned and income determined, despite the following disallowances, in view of the fact that the brought forward losses were available for set off against the additional income determined by the AO under the head 'Business Income': - (a) Under section 14A Rs. 1,24,506/- (b) Travelling expenses Rs. 7,89,597/- (c) Penalty levied by SEBI Rs. 2,75,000/- Total Rs. 11,89,103/- 3. The action of the AO having been upheld by the first appellate authority, the assessee is in appeal before the Tribunal on all the three issues. The issues raised by the assessee are taken up in seriatim. 4. Vide ground No. 1 assessee contends that the disallowance of expenditure under section 14A of the Act by applying Rule 8D is not in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfy that it was incurred for the purpose of business. Thus Revenue has to show that the cost of expenditure is not allowable under section 36. It was emphasised that the investments were never made out of borrowings but out of surplus generated from the business. It was also pointed out that the share capital stood at Rs.4.02 crores and reserves and surplus at Rs.23.95 crores apart from profit of Rs.6.43 crores earned for this year. Thus the investments made by the company are more than covered by the share capital, reserves and profit for the year in which event no borrowing is attributable to the said investments. It was also contended that even as per Rule 8D, the AO has to first record his finding that he is not satisfied with the claim made by the assessee; in the instant case the AO has not given any finding to support his dissatisfaction but merely stated that the submission made by the assessee is not tenable. Without prejudice to the above contention it was further contended that even if some expenditure has to be necessarily disallowed, part of the salary paid to one Account Assistant can be considered in that regard. It was submitted that a sum of Rs.3,20,136/- was paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of shares and hence even under Rule 8D the formula laid down therein cannot be invoked to disallow any portion of the interest. With regard to the interest paid from the general pool, the AO sought to disallow a sum of Rs.9,031/- by invoking Rule 8D(2)(ii). 10. With regards to 2nd para of Rule 8D i.e., Rule 8D(2)(iii), one-half percent of the average value of investments should be taken as the basis. In the instant case average value of investments works out to Rs.2,30,95,091/- and ½% of this value works out to 1.15 lakhs, which the AO sought to disallow. The learned counsel submitted that the assessee received a meagre dividend of Rs.12,157/- and hence disallowance of Rs.1,15,475/-, by invoking Rule 8D(2)(iii), is excessive. He then submitted that one Accountant may have to spare sometime to verify as to whether the dividends were properly received or not and if 5% of the salary of one Accountant (5% of Rs.3,20,000/-) is taken as expenditure attributable to earning of dividend income, disallowance can at best work out to Rs.16,007/- and it cannot be beyond the said figure. 11. On the other hand, the learned D.R. submitted that even if the income earned is less, expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the company in the form of booking tickets in advance for travel which was scheduled to take place from 22.04.2008 to 05.05.2008. Therefore this expenditure pertains to the next year. The assessee contended that it was following mercantile system of accounting and hence the expenditure has to be allowed in this year. 14. The AO as well as the CIT(A) rejected the submissions of the assessee. The learned CIT(A) observed that the expenditure pertains to the subsequent year and hence it cannot be claimed as deduction in the year under consideration. With regard to expenditure of Rs.4,69,511/- the case of the assessee's counsel was that the Director's wife had accompanied the Director since he was a heart patient. However, even during the appellate proceedings the assessee could not substantiate its contention. Under the circumstances the learned CIT(A) disallowed the impugned amount of Rs.4,69.511/- on the ground that it was a pleasure trip and not incurred for the purpose of business. 15. Further aggrieved, assessee is in appeal before the Tribunal. The learned counsel reiterated the submissions made before the AO/CIT(A). It was contended that though a sum of Rs.3,20,08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be deduced in this year whereas it may result in disclosure of higher profit in the subsequent year. Thus, bearing in mind the matching principle, I am of the view that the impugned amount of Rs.3,20,086/- deserves to be considered in subsequent year and not in the year under consideration. 18. Similarly, the primary onus is upon the assessee to prove that any expenditure incurred by the company was wholly and exclusively for the purpose of business. With regard to expenditure of Rs.4,69,511/-, though the claim of the assessee company was that the Director is not keeping good health and only to take care of him his wife accompanied the Director, no material, whatsoever, was furnished in support of the plea that the Director was ailing and the travel of Director's wife was to meet social-cum-business obligations of the assessee company. Under these circumstances I am of the view that the decisions cited by the learned counsel are distinguishable on facts. I, therefore, confirm the order passed by the CIT(A) on this issue. 19. With regard to ground No. 3, assessee contends that the tax authorities were not justified in disallowing a sum of Rs.2,75,000/- paid by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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