2020 (7) TMI 370 - AT - Income Tax

Addition u/s 40(a)(ia) - Selection of AY - HELD THAT - This ground raised by the Revenue does not relate to assessment year 2008-09. Ld. Counsel for the assessee informs the Bench that this ground relates to assessment year 2007-08. We have examined the assessment order and order of ld. CIT(A) and noted that there is no any discussion about addition u/s 40(a)(ia) therefore, this ground does not relate to A.Y. 2008-09, hence we dismiss ground No. 1 raised by the Revenue. Addition claimed under the head rebate and claim - Since the customers have deducted the amount while releasing the payment, hence all such deductions have been provided in the books of account of the company as expenses under the head rebate and claim. - HELD THAT - the Ld. A.O. has erred in disallowing the ascertained sales liability of ₹ 78,00,190/-supported by proper vouchers and details of such liability. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the ground of appeal raised by the revenue is dismissed. Contribution to club, Other staff welfare Exp. and Other workers welfare expenses - HELD THAT - AO has not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than going for adhoc disallowance of percentage basis of the expenses claimed by the assessee which action of the AO is arbitrary in nature and cannot be sustained. Therefore, we delete the following adhoc expenses sustained by the ld CIT(A) on Contribution to club, Other staff welfare and other workers welfare expenses . Addition on account books and periodicals - HELD THAT - ld CIT(A) has sustained the addition @10% of subscription expenses on adhoc basis of ₹ 1,34,909/-. We nota that in assessee s case under consideration the assessment is made by AO under section 143(3) of the Act and books of accounts of the assessee were not rejected by the assessing officer. We have already taken a view in para No.18 of this order that ad hoc disallowance should not be done by AO therefore we delete the adhoc addition sustained by CIT(A).Hence, we dismiss the appeals of Revenue and allow the cross objections filed by the assessee. Addition on account of Gardening Expenses - HELD THAT - The company is also an ISO 9000/OHSAS 18001 certified company which requires neat and green environmental around the factory premises and therefore, the company maintains garden, do plantation etc in the company premises for smooth and healthy environment at the work place. Regarding expenses under the head gift to others , the ld Counsel has argued before the Bench that the gift given on account of marriages of contract workmen sons and daughter. The Entertainment expenses has incurred on customers, supplier and other business associates who visits to factory premises and take snacks, food etc. in the guest house. Regarding contribution to education and health and occupational health care expenses the ld counsel has argued that factory place is naxal affected place and no provision of medical health care and schooling of children of the employees and for this purpose the company incurs expenses under this head.Regarding guest house expensesthe assessee has argued that company is located in very remote area and fooding and lodging facilities are not available within 30 kms. of its facory, therefore, company operates a guest house for its business associates who may stay and take food. We delete the following adhoc disallowances sustained by the ld CIT(A) Gift to others, Entertainment Expenses, Contribution for education and health care expenses,Guest House expenses AND Community welfare expenses. Deduction u/s 80-IA for its unit for a captive power plant - addition made on allocation of expenses to Power plant unit - HELD THAT - As argued that the company maintains separate books of accounts for 80-IA plant and other plants and all the expenses related to concerned plant are booked appropriately in the books of the same plant and these books of accounts are audited by the Statutory Auditors and certified by the management of company. It has also been argued that the apportionments of certain expenses made by the learned A.O. between 80-IA and other plants is totally baseless and assumptive therefore another opportunity should be given to the assessee to explain the allocation of expenses to Power plant unit before the assessing officer. We have gone through the order of ld CIT(A) and note that there is no any infirmity in the order passed by him. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the ground of appeal raised by the Revenue is dismissed. Disallowance of various expenses on ad hoc basis - HELD THAT - AO has not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than going for adhoc disallowance of percentage basis of the expenses claimed by the assessee which action of the AO is arbitrary in nature and cannot be sustained. Eligible profits u/s. 80IA - HELD THAT - As relying on M/S GODAWARI POWER ISPAT LTD . 2013 (10) TMI 5 - CHHATTISGARH HIGH COURT CIT(A) was right in granting part relief to the assessee but was not correct in confirming part addition considering the factum of 2 paise per unit for working out eligible profits u/s. 80IA of the Act. Consequently, the findings of the CIT(A) granting relief to the assessee are confirmed and the addition partly confirmed pertaining to the electricity duty being devoid of merits is directed to be deleted. Allowable revenue expenses - HELD THAT - If expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. But if it is made for running the business or working it with a view to produce the profits, it is a revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. In the assessee case the following expenditure are Revenue in nature because these expenses are for running the business or working it with a view to produce the profits Installation of Isolator breakers of improved rating, Installation of two lighting transformers.Therefore, we direct the assessing officer to treat the above mentioned expenses as revenue expenditure.

Issues Involved:
1. Addition u/s 40(a)(ia) on account of consultancy charges.
2. Addition under Rebate and claim.
3. Addition on account of community welfare expenses.
4. Addition on account of books and periodicals.
5. Addition on account of gardening expenses.
6. Addition on account of excess sale value of power plant unit.
7. Addition on allocation of expenses to Power plant unit.
8. Disallowance of various expenses on ad hoc basis.
9. Disallowance of claim of deduction u/s 80IA on account of adjustment to the market price by reducing the electricity duty.
10. Reallocating the expenses on account of directors remuneration.
11. Reallocating the expenses on account of directors sitting fees.
12. Reallocating the expenses on account of business head office expenses.
13. Disallowance of expenses on account of installation of isolator breakers and lighting transformers treating them as capital expenditure.
14. Disallowance of donation paid to Shri Dehati Sthapana Trust.

Detailed Analysis:

1. Addition u/s 40(a)(ia) on account of consultancy charges:
The Tribunal noted that this ground raised by the Revenue does not relate to the assessment year 2008-09 but to 2007-08. Therefore, it dismissed the ground.

2. Addition under Rebate and claim:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?78,00,190/- made by the AO on the grounds that the liability was ascertained and supported by proper vouchers. The Tribunal found that the liability was crystallized during the year and not a provision.

3. Addition on account of community welfare expenses:
The Tribunal upheld the CIT(A)'s decision to partly delete the addition made by the AO. The Tribunal noted that expenses such as festival celebration, scholarship/reimbursement of school fees, and gift to employees were related to business activities and necessary for maintaining cordial industrial relations. However, it deleted the ad hoc disallowances sustained by the CIT(A) as the AO had not rejected the books of accounts.

4. Addition on account of books and periodicals:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, noting that expenses on books and periodicals were necessary for the business and not capital in nature. It also deleted the ad hoc disallowance sustained by the CIT(A).

5. Addition on account of gardening expenses:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, noting that gardening and horticulture expenses were necessary for maintaining a pollution-free environment around the plant. It also deleted the ad hoc disallowances sustained by the CIT(A).

6. Addition on account of excess sale value of power plant unit:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO. The Tribunal noted that the power generated was for in-house use and not marketed or sold to third parties, and therefore, the AO's allocation of sales promotion and sales overhead expenses to the power plant was not justified.

7. Addition on allocation of expenses to Power plant unit:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, noting that the expenses allocated by the AO were not related to the power plant unit. The Tribunal found that the expenses were already proportionately debited in the profit and loss account of the captive power plant.

8. Disallowance of various expenses on ad hoc basis:
The Tribunal noted that the AO had not rejected the books of accounts and therefore, ad hoc disallowances were not justified. The Tribunal deleted the ad hoc disallowances made by the AO.

9. Disallowance of claim of deduction u/s 80IA on account of adjustment to the market price by reducing the electricity duty:
The Tribunal followed its earlier decision in the assessee's own case and allowed the claim of deduction u/s 80IA, noting that the market value of electricity should be computed considering the rate charged by the State Electricity Board, inclusive of electricity duty.

10. Reallocating the expenses on account of directors remuneration:
The Tribunal followed the decision of the Hon'ble Bombay High Court in the assessee's own case and allowed the claim, noting that the head office expenses should not be allocated to the profits derived from units claiming deduction under Section 80IA and 80IB.

11. Reallocating the expenses on account of directors sitting fees:
The Tribunal followed the decision of the Hon'ble Bombay High Court in the assessee's own case and allowed the claim, noting that the head office expenses should not be allocated to the profits derived from units claiming deduction under Section 80IA and 80IB.

12. Reallocating the expenses on account of business head office expenses:
The Tribunal followed the decision of the Hon'ble Bombay High Court in the assessee's own case and allowed the claim, noting that the head office expenses should not be allocated to the profits derived from units claiming deduction under Section 80IA and 80IB.

13. Disallowance of expenses on account of installation of isolator breakers and lighting transformers treating them as capital expenditure:
The Tribunal allowed the claim of the assessee, noting that the expenses were for the general upkeep of the plant and should be treated as revenue expenditure.

14. Disallowance of donation paid to Shri Dehati Sthapana Trust:
The Tribunal dismissed this ground as not pressed by the assessee.

Conclusion:
The Tribunal allowed the appeals of the assessee and dismissed the appeals of the Revenue. The cross objections filed by the assessee were allowed to the extent indicated above.

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