The Income Tax Appellate Tribunal (ITAT), New Delhi Bench owing to the procedural trouble deleted disallowance of Expenses out of Dividend Income.
The assessee, Standard Chartered Grindlays Bank is a non-resident banking company which carries on the business of banking and other related activities through its branches in India in accordance with the provisions of Banking Regulation Act, 1949.
During the year, Indian Permanent Establishment (PE) of the assessee bank in India incurred NRI expenses for soliciting and mobilization of deposits in foreign currency from Non Resident Indian (NRIs) to be placed in India. As these expenses were related wholly and exclusively to the Indian PE of the assessee’s business, it had claimed the expense as deduction in the computation of Business Income of the PE earned in India.
The AO disallowed Rs.81.31 lakhs on account of expenses incurred in earning foreign currency syndicated term loan of Rs.86.50 lakhs which is tax free.
The CIT (A) confirmed the addition to the tune of Rs.15 lakhs on the grounds that estimation of disallowance of expenditure of 17.34% on the exempt income.
The AO, with regard to dividend, disallowed an amount of Rs.16,60,280 out of the dividend income earned of Rs.17,66,255. The CIT(A) confirmed the addition to the extent of Rs.2,50,000 on an estimated basis.
There is no dispute regarding the disallowance of expenditure incurred in relation to exempt income under both the heads, the Act prescribes proper procedure of computing such disallowance under section 14A(2).
The two member bench headed by the Vice President Sushma Chowla found that the revenue did not invoke the procedure as specified under the section 14A(2) wherein the AO has to record his dissatisfaction as to the correctness of the claim with regard to the accounts of the assessee.
Owing to the procedural tumble, the ITAT deleted the disallowance made by the Assessing Officer.
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