This appeal by the assessee against the order of CIT dated 26-7-2004 confirming the disallowance of administrative expenditure of Rs. 73,608 under section 14A of the Income Tax Act, 1961 for the assessment year 2001-02. - (1.)
(2.) The assessee is a company engaged in the business of export and investment. During the course of assessment proceedings of the assessment year in appeal, on perusal of P&L Account, assessing officer found that assessee's income consists of interest received, other income, profit on sale of investment, profit on sale of share and profit on sale of fixed assets. The assessee has also received dividend of Rs. 3,40,170 which is claimed as exempt under section 10(33). Assessing officer accordingly asked the assessee to explain as to why the provision of section 14(A) should not be invoked because dividend is claimed exempt under section 10(33) of the Income Tax Act, 1961. In reply to this assessee explained that they have not borrowed any money in investment in shares and no interest has been paid nor debits to P&L account it was also claimed that expenditure cannot be allocated because they have not incurred any specific or identifiable expenditure for earning dividend therefore, it cannot be said that any expenditure can be attributed to dividend income. In support of this contention before the assessing officer assessee relied on the decision of CIT v. General Insurance Corpn. of India (No. 2) (2002) 254 ITR 204 (Bom.). The assessing officer rejected the explanation of the assessee, observed as under : "The Explanation offered by the assessee is not acceptable as the dividend is exempt under section 10(33) and is not forming part of total income. In view of this expenditure on earning dividend income proportionately is disallowed. The total expenditure debited to profit and loss account works out to Rs. 23,49,910 (i.e., administrative expenses and depreciation), the proportionate expenditure on dividend therefore, works out to Rs. 72,608 i.e., Rs. 23,49,910 divided by Rs. 1,08,59,722 X Rs. 3,40,170." The assessee carried the matter in appeal and before the learned CIT(A). The assessee reiterated the submissions made before the assessing officer. In the impugned order the learned CIT(A) upheld the action of the assessing officer on the ground that in the case of CIT v. General Insurance Corpn. of India (No. 2) (2002) 254 ITR 204 (Bom) it was held that the expenses on account of salary paid are not directly relatable to earning of dividend so also payment stamp ditty, transfer fee and safe custody are not related to earning of dividend and are not to be deducted for the purpose of section 80M of the Act. The learned CIT(A) found that the decision is distinguishable because Hon'ble Supreme Court in the case of CIT v. United General Trust Ltd. (1993) 200 ITR 488 (SC) held that proportionate management expenses are also required to be deducted for arriving at amount of dividend qualifying for deduction under section 80M of the Act. The learned CIT(A) further relied on the decision of Hon'ble Apex Court in the case of Consolidated Coffee v. State of Karnataka (2002) 176 CTR (SC) 98 wherein it is held that the apportionment of expenses on the basis of gross receipts from the agricultural and non-agricultural activities was justified in the absence of relevant details. Aggrieved by this order of the learned CIT(A) assessee is in appeal on the following grounds : "1. The learned CIT(A) has erred in confirming the disallowance of administrative expenditure of Rs. 73,608 under section 14A of Income Tax Act. On the facts and circumstances of the case the appellant submit that allocation of expenditure and depreciation amounting to Rs. 73,608 is not justified and be deleted. 2. The appellant submit that no expenditure has been incurred for earning dividend income and the assessing officer has also not proved that the appellant has incurred direct expenses for earning dividend income. On the facts and circumstances of the case the appellant submits that allocation of pro rata expenses to dividend income is not justified. 3. Without prejudice to ground Nos. 1 and 2 the appellant further submits that depreciation cannot be treated as expenditure and is not covered by provisions of section 14A. The disallowance of depreciation may be deleted."
(3.) AT the time of hearing on behalf of the assessee Shri Dilip v. Lakhani appeared and reiterated the submissions made before the authorities below. The learned counsel for the assessee submitted that no expenditure has been incurred for earning dividend income and assessing officer has not proved that assessee has incurred direct expenses for earning dividend income therefore, disallowance of Rs. 73,608 be deleted. Alternatively, the learned counsel for the assessee submitted that in case of apportionment of expenses is required to be made in that event the depreciation of Rs. 11,36,970 cannot be apportioned because depreciation also pertains to in respect of building of godown. Further, depreciation is not an expenditure but an allowance. In support of this contention reliance is placed on ITAT Mumbai Bench "E" (Third Member) decision in the case of Navin Bharat Industries Ltd. v. Dy, CIT (2004) 90 ITD 1.;