2014 (9) TMI 1133 - AT - Income Tax

Reduction in FBT - Held that - Neither the AOs action of 50% ad hoc disallowance nor CIT(A) s direction to reduce the disallowance to the extent of 20% and allow corresponding reduction from FBT tax are sustainable. Thus the entire disallowance should be deleted consequently the direction to give reduction in FBT will become non est. Allowing 43B claim - Held that - No infirmity in the order of ld CIT(A) in allowing the 43B claim to the assesseE since it has not been disputed that amount in question was paid before due date of filing return of income and necessary evidence is brought on the record. Hence this ground of the revenue is dismissed. Allowability of expenditure - Held that - No infirmity in the order of ld. CIT(A) in respect of expenditure of ₹ 4,75,121/- as it has not been disputed that same pertained to AY 2008-09 and was booked in subsequent year before filing of the audit report. It is trite law that assessee can claim such expenditure relating to a year which is though accounted for in subsequent year but before filing of the audit report. In any case it will amount to postponement of liability and in such eventuality Hon ble Supreme Court judgment in the case of Excel Industries 2013 (10) TMI 324 - SUPREME COURT is also applicable. Therefore, this ground of the revenue is dismissed. Ad hoc disallowance in respect of items of expenditure on Gifts to dealer/mason on dealers/mason meet, Sweets etc. on occasion of festivals/visits of guest/Govt. Officials and Gifts to Govt. Officials/Guests on festival/visi tcannot be made. Assessees books are not rejected and the same are duly audited. We find no force in AOs vague and sweeping observations that expenditure is unverifiable. The expenditure being wholly and exclusively for assessee s business is allowable. In view thereof, there is no justification in retaining the ad hoc 20% by ld. CIT(A). Consequently the CIT(A) s direction about FBT becomes infructuous. Revenue ground in this behalf is dismissed and assessee s grounds are allowed.

Summary

Issues Involved:

1. Disallowance of expenses on gifts to dealers and others, staff welfare, sales promotion, general charges, and social welfare.
2. Recalculation of Fringe Benefit Tax (FBT) on the disallowed expenses.
3. Deletion of disallowance under Section 43B.
4. Deletion of disallowance of additional expenditure.
5. Reduction of disallowance on staff welfare expenses from 50% to 20%.

Detailed Analysis:

1. Disallowance of Expenses:

The assessee contested the disallowance of various expenses by the CIT(A), which included gifts to dealers and others, staff welfare, sales promotion, general charges, and social welfare. The CIT(A) had confirmed disallowances at varying percentages due to unverifiable nature and lack of supporting details. For instance, 50% disallowance was made on gifts to dealers and others amounting to Rs. 12,00,917/- out of Rs. 24,01,834/- due to incomplete details. Similarly, 20% disallowance was applied to other categories like staff welfare, sales promotion, general charges, and social welfare.

2. Recalculation of FBT:

The CIT(A) directed the AO to recompute the FBT payable by the assessee on the disallowed expenses. The CIT(A) held that FBT should be levied only on the balance amount after reducing the disallowed portion. This was based on the CBDT Circular No. 8/2005, which clarifies that disallowed expenses under Section 37 do not automatically attract FBT.

3. Deletion of Disallowance under Section 43B:

The Revenue's appeal contested the deletion of disallowance of Rs. 33,47,732/- made under Section 43B. The assessee had taken a term loan and provided for interest liability as per the mercantile system of accounting. The interest became due on 31-03-2008 and was paid before the due date for filing the return. The CIT(A) deleted the disallowance, stating that the interest payment was made as per the agreement and before the due date, hence allowable as an expenditure.

4. Deletion of Disallowance of Additional Expenditure:

The Revenue also appealed against the deletion of disallowance of Rs. 4,75,121/-. This amount included a sum attributable to income booked during the year but reversed in the next year. The CIT(A) deleted the disallowance, citing the Supreme Court rulings in Kedarnath Jute Mfg. Co. Ltd. vs. CIT and Sutlej Cotton Mills Ltd. vs. CIT, which state that failure to make book entries is no bar to allow deduction if the expenditure relates to the year under consideration.

5. Reduction of Disallowance on Staff Welfare Expenses:

The AO had made a 50% adhoc disallowance on staff welfare expenses, which the CIT(A) reduced to 20%. The CIT(A) noted that many expenses were not supported by external documents and included personal items like gifts on marriage. However, the assessee argued that the expenses were for business purposes and had paid FBT on them. The ITAT, in a previous ruling for AY 2009-10, had held that adhoc disallowances were unjustified if the expenses were supported by evidence and FBT was paid.

Conclusion:

The ITAT dismissed the Revenue's appeal and allowed the assessee's appeal. The ITAT found no infirmity in the CIT(A)'s order regarding the Section 43B claim and the additional expenditure. The ITAT also held that adhoc disallowances on staff welfare expenses were unjustified, following its earlier ruling. Consequently, the direction to reduce FBT became infructuous. The order was pronounced in the open court on 30-09-2014.