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M/s. Soyuz Trading Co. Ltd. Versus I.T.O., Ward-8 (4) , Kolkata

2016 (7) TMI 620 - ITAT KOLKATA

Disallowance u/s 14A - apportionment of expenses - Held that- We find that the total expenses debited to profit and loss account is ₹ 2,28,25,154/- and out of this, direct expenses of consultancy and professional charges amounting to ₹ 1,96,48,885/- for earning consultancy income i.e taxable income would be automatically out of the purview of computing disallowance u/s 14A of the Act. The remaining common expenses of ₹ 31,76,269/- have to be apportioned between taxable and non- .....

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the AO not able to make a fair substitution of the disallowance figure as contemplated u/s 14A(2) of the Act. In any case, the provisions of the Act would always prevail over the Rules as admittedly the Rules are only subordinate piece of legislation and are meant only to support the Act. Rules could act only as a guiding force to effectively implement the provisions of the Act. If the manner so contemplated in the Act fails, then as a last resort, the AO should go to Rules for making disallowan .....

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aganesh, AM 1. This appeal of the assessee arises out of the order of the Learned CITA in Appeal No. 96/CIT(A)-VIII/Kol/12013 dated 29.08.2013 against the order of assessment framed for the Asst Year 2010-11 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The only issue to be decided in this appeal is as to whether the disallowance u/s 14A of the Act could be made in the facts and circumstances of the case. 3. The brief facts of this issue is that the assesseee i .....

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s substantial amount of investment in shares from which it had earned considerable dividend income and accordingly sought to invoke the provisions of section 14A of the Act. The Learned AO observed that the assessee had voluntarily made disallowance u/s 14A of the Act to the tune of ₹ 5,92,667/- . He held that the assessee ought to have invoked the provisons of Rule 8D for the purpose of making disallowance u/s 14A of the Act and accordingly arrived at the disallowance u/s 14A figure at &# .....

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0,00,000/-. In this regard, the assessee filed copy of agreement entered into by it with M/s Jindal Polyfilms Ltd along with the written submission. The assessee highlighted Clause I of the said agreement which stated as under:- Consultant will provide the management consultancy and advisory services to the company in the field of finance, corporate planning, marketing (domestic and export) , human resources development, information technology and other business matters as may be mutually discus .....

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ofit and loss account to the tune of ₹ 1,96,48,885/- is meant only for investment activities of the assessee. Accordingly, the Learned CITA differed from the view taken by his predecessor on this issue in Asst Year 2009-10 in favour of the assessee wherein consultancy charges paid were meant only for consultancy business of the assessee and not for investment decision with corresponding impact on disallowance u/s 14A of the Act. The Learned AR argued that the Learned CITA on the mistaken u .....

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4A of the Act. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. For that on the facts and under the circumstances of the case the learned Commissioner of Income-Tax (Appeal) erred in confirming the addition of ₹ 58,77,703/- made by the assessing officer on account of disallowance of expenses u/s. 14A of the Income-Tax Act. 2. For that on the facts and in the circumstances of the case the learned Commissioner of Income-Tax (Appeal) erred in not accepting appellan .....

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d wise income and related expenses incurred for earning such income in a tabular form in the paper book. He filed the details of direct expenses incurred for earning management consultancy income(taxable income) and common expenses incurred for both taxable and nontaxable income. He argued that at the most only the common expenses could be apportioned between taxable and non taxable income for making disallowance u/s 14A of the Act. In response to this, the Learned DR argued that the disallowanc .....

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ed AR stated that the investment in shares have been continuing from earlier years. The dividend cheques were received through post or were directly credited to the assessee s bank account through Electronic Clearing Service (ECS) and as such no major expenses were incurred by the assessee for earning such income and collection of dividend cheques. He also argued that no separate staff was employed for this purpose. We find that the total component of dividend income to the total receipts of the .....

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3,02,565/- was apportioned towards investment activity at 45.5% and disallowance u/s 14A of the Act to the tune of ₹ 5,92,667/- was made. We find that in the immediately preceding asst year 2009-10, the Learned CITA had given a direction to the Learned AO to recalculate the disallowance of expenses made u/s 14A after reducing the direct expenditure of consultancy fees from the total expenses claimed by the assessee in the profit and loss account and thereafter restrict the disallowance of .....

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